-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HjmbwEobTCu3ejcrqACAoY8y2QcmxD5CcZqKzqAY1wTRLfrBpuhlQVS5i4Rwb/38 yk8IMUvW8J1F6XbcUUcCJg== 0000950134-99-002454.txt : 19990409 0000950134-99-002454.hdr.sgml : 19990409 ACCESSION NUMBER: 0000950134-99-002454 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 DATE AS OF CHANGE: 19990408 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP INC CENTRAL INDEX KEY: 0001050025 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 760553110 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-23889 FILM NUMBER: 99584257 BUSINESS ADDRESS: STREET 1: 10375 RICHMOND AVE STREET 2: STE 1620 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7133612500 MAIL ADDRESS: STREET 1: 10375 RICHMOND AVE STREET 2: STE 1620 CITY: HOUSTON STATE: TX ZIP: 77042 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K Mark one [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission file number 0-6920 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 76-0553110 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 4900 Hopyard Road, Suite 200 Pleasanton, California 94588 (925) 251-0000 (Address, including zip code, area code with phone number of the registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock,$0.001 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant at March 26, 1999, based on the $5.75 per share closing price for the registrant's common stock on the NASDAQ National Market was approximately $42,621,150. For purposes of this computation, all officers, directors and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors or 10% beneficial owners are, in fact, affiliates of the registrant. The number of shares of the registrant's common stock outstanding as of March 26, 1999 was 8,442,034. DOCUMENTS INCORPORATED BY REFERENCE The Company's definitive proxy statement in connection with the Annual Meeting of Stockholders to be held on or about June 17, 1999, to be filed with the Commission pursuant to Regulation 14A, is incorporated by reference into Part III of this Report. ================================================================================ 2 PART I =============================================================================== ITEM 1: BUSINESS The Company BrightStar Information Technology Group, Inc. ("BrightStar" or the "Company") provides information technology ("IT") services that improve its customers' productivity and competitive position. The Company offers its customers a single source for a comprehensive range of services required to successfully design, develop and implement integrated solutions on an enterprise-wide basis. The Company provides these services through five operating divisions: Enterprise Applications, Web Applications, Custom Applications, Hosted Applications, and Applications Support. Among the services offered are implementations services for enterprise resource planning ("ERP") packages from SAP, PeopleSoft, J.D.Edwards, and Platinum Software; implementation services for Web-based e-commerce, extranet, and intranet systems; network and security consulting; operational applications support and training on the internal networks required to run and maintain these advanced systems. Information About Operating Segment BrightStar operates in a single business segment: IT Services. An independent research organization that reports specifically on the IT industry estimates that the market for IT consulting, design, implementation, management, and outsourcing was $124.0 billion in 1996 and will increase to $303.1 billion by 2002, representing an approximate compounded annual growth rate of 16%. Among the leading factors driving the growth in the IT services market is the transition to packaged software solutions and the emergence of new technologies like the Internet and the Web. These new technologies enable the creation and utilization of more functional and flexible applications that can increase productivity, reduce costs and improve customer service. Managing the transition to a new generation of business applications is placing a severe burden on many corporate IT departments. Many organizations do not have the expertise to implement the new technologies and they are reluctant or unable to expand their IT departments and re-deploy their in-house personnel. Consequently, many organizations are outsourcing the design and implementation of their new applications to acquire the necessary expertise and accelerate deployment. Services BrightStar provides a wide range of services through its five operating divisions. Enterprise Applications provides implementation services for ERP packages from the leading ERP software vendors. Web Applications designs and develops e-commerce systems, extranet systems for supply chain communications and intranet systems to automate internal business processes. Hosted Applications hosts ERP and Web applications from BrightStar's secure, high-performance hosting facility in Dallas. Application Support helps customers develop the necessary infrastructure to support mission-critical ERP and Web systems. BrightStar helps its customers use software technology as a tool to improve their business. To provide this service, the Company recruits and employs project managers, skilled senior-level consultants, engineers, and other technical personnel with both business as well as technical expertise. The Company believes this combination of business and technical expertise is a source of differentiation for the Company in the IT services market and a critical factor in the successful delivery of its services. 2 3 Throughout the various phases of its projects, the Company collaborates closely with a wide range of personnel within the customer's organization including executives, lines of business and functional managers, expert users, and IT staff. Many of the Company's projects involve project teams that are comprised of personnel from both the Company and the customer's organization. The Company typically provides training to various personnel within the customer's organization during the project to ensure high levels of self-sufficiency among its customer's end-users and internal IT personnel. Customers and Markets BrightStar's marketing efforts focus on the middle- and upper-market companies ranging from $50 million and up in annual revenues, and divisions and departments of Fortune 1000 companies and other large organizations. The Company serves customers in a broad range of industries, including communications, consumer products, energy, financial services, healthcare, industrial, insurance, media, professional services, retail and technology. Many of these relationships have existed over several years and involved numerous projects. The Company employs consultants with business experience in these areas to enhance its ability to provide services in an industry-specific manner. Sales and Marketing BrightStar sells and delivers its services through a direct sales force in the U.S. and Australia. As of December 31, 1998, the Company sales force consisted of 80 employees worldwide of which 70 were employed in the U.S. and 10 were employed in Australia. The Company maintains a network of U.S. sales offices located in the seventeen (17) cities of Atlanta, Georgia, Austin, Texas, Baton Rouge, Louisiana, Boston, Massachusetts, Chicago, Illinois, Dallas, Texas, Denver, Colorado, Foster City, California, Houston, Texas, Irvine, California, Lafayette, Louisiana, Lake Charles, Louisiana, Little Rock, Arkansas, New Orleans, Louisiana, Overland Park, Kansas, Philadelphia, Pennsylvania, and Scottsdale, Arizona. The Company has significant foreign operations in Australia through its five (5) branch offices in Adelaide, Canberra, Melbourne, Perth, and Sydney. Revenues from foreign operations accounted for $18.0 million, representing approximately 22% of the consolidated total of $80.9 million for the year ended December 31, 1998. Consulting As of December 31, 1998, BrightStar employed more than 700 consultants, supported by a staff of approximately 140 sales, marketing and administrative personnel. The Company's success depends in large part upon its ability to attract, train, motivate and retain highly skilled technical employees. Qualified technical employees are in great demand and are likely to remain a limited resource for the foreseeable future. The Company dedicates significant resources to recruiting professionals with both IT consulting and industry experience, and maintains a staff of 10 full-time recruiters to aid in this effort. None of the Company's employees are subject to a collective bargaining arrangement. The Company considers its relationships with its employees to be good. 3 4 Competition Market share in the IT industry was initially concentrated among large computer manufacturers but the industry has become increasingly competitive and fragmented. IT services are provided by numerous firms including multinational accounting firms, systems consulting and implementation firms, software application vendors, general management consulting firms and data processing outsourcing companies. Other Information BrightStar began operations as a global provider of strategic information technology business solutions through seven subsidiary companies. The Company's management has reorganized the Company by integrating the operations of its subsidiaries into a single operating entity. This new structure has been in place since January 1, 1999. This is the latest step in the Company's evolution to streamline operations, increase leverage of sales staff, and improve focus on targeted market opportunities. The new organization provides for a consolidated finance group, a consolidated sales organization, and five operating divisions: Enterprise Applications, Web Applications, Custom Applications, Hosted Applications and Applications Support. The restructuring will result in a one-time charge of $7.6 million in the fourth quarter of 1998. See the Management Discussion and Analysis for further details. Executive Officers of BrightStar The following table and notes thereto identify and set forth information about the Company's four executive officers:
NAME OF INDIVIDUAL CAPACITIES IN WHICH SERVED ------------------ -------------------------- George M. Siegel (1)....... Chairman of the Board of Directors Michael A. Ober (2)........President and Chief Executive Officer Donald W. Rowley (3)...... Chief Financial Officer and Secretary Brian R. Blackmarr(4)....... Executive Vice President of Sales and Marketing
1) Mr. Siegel, age 60, has served as Chairman of the Board of Directors of BrightStar since its inception. Mr. Siegel co-founded MindWorks, a Founding Company, and has served as its chairman since 1995. In 1990, he founded Dynamex Inc. (formerly Parcelway Courier Systems, Inc.), a messenger and delivery service company, and served as its President and Chief Executive Officer until 1995. Mr. Siegel co-founded Pentegra Dental Group, Inc., a public company engaged in the consolidation and management of dental practices, and he is currently a director and member of the Executive Committee and Compensation Committee of its board of directors. 2) Mr. Ober, age 42, has served as the Company's President since September 1998 and was named Chief Executive Officer in February 1999. In 1995, Mr. Ober founded SCS America, a Founding Company, and served as President and Chief Executive Officer through September, 1998. Mr. Ober has worked in the software and computing industries for over 20 years. Prior to founding SCS America, Mr. Ober was a Director of Marketing for Novell, Inc. 3) Mr. Rowley, age 47, joined the Company in February 1999, when he was elected its Chief Financial Officer and Secretary. Prior to that appointment, Mr. Rowley was interim Chief Financial Officer and a director of PetroChemNet, Inc., an Internet based electronic distributor and communications network serving the petrochemical and petroleum segments of the energy industry, from 1998 to 1999. From 1995 to 1998, he was an independent management consultant and worked with several companies, which included serving as interim Chief 4) Mr. Blackmarr, age 56, was elected Executive Vice President of Sales and Marketing in December 1998. He has served as President of Brian R. Blackmarr & Associates since its inception in 1979. 4 5 Financial Officer of Norand Corporation, a public company engaged in the design and development of mobile computing systems and wireless data networks. From 1994 to 1995, Mr. Rowley was President and a director of VTX Electronics Corporation, a public company engaged in the distribution of electronic components and cable, and manufacturer of electronic cable assemblies. 5 6 ITEM 2: PROPERTIES BrightStar's principal executive offices are located at 4900 Hopyard Road, Suite 200, Pleasanton, California 94588. The Company's lease on these premises covers approximately 5,600 square feet and expires December 31, 2003. The Company also operates through leased facilities in: U.S. Leased Facilities o ATLANTA o DALLAS o PHILADELPHIA o NEW ORLEANS o AUSTIN o DENVER o IRVINE o OVERLAND PARK o BATON ROUGE o FOSTER CITY o LAFAYETTE o BOSTON o SCOTTSDALE o LAKE CHARLES o CHICAGO o HOUSTON o LITTLE ROCK International Leased Facilities o ADELAIDE, o CANBERRA, o MELBOURNE, o PERTH, AUSTRALIA AUSTRALIA AUSTRALIA AUSTRALIA o SYDNEY, AUSTRALIA Substantially all of the Company's services are performed on-site at customer locations. BrightStar anticipates that additional space will be required as its business expands, and believes that it will be able to obtain suitable space as needed. ITEM 3: LEGAL PROCEEDINGS The Company is not involved in any legal proceedings that the Company believes could have a material adverse effect on the Company. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS IN FOURTH FISCAL QUARTER OF 1998 None. 6 7 PART II ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the NASDAQ National Market under the symbol "BTSR". The following table sets forth for the quarterly periods indicated the range of high and low sales prices for the Company's Common Stock since its initial public offering ("IPO") effective as of April 17, 1998.
================================================================================ Fiscal 1998: HIGH LOW Second Quarter $20.75 $10.00 Third Quarter $14.25 $ 5.625 Fourth Quarter $10.50 $ 5.00 1999: First Quarter (through March 26, 1999) $10.50 $ 5.375 ================================================================================
The Company has never declared nor paid cash dividends on its Common Stock. The Company's credit facility contains restrictions on the Company's ability to pay cash dividends. The Company currently intends to retain future earnings, if any, to fund the development and growth of its business and does not anticipate paying any cash dividends in the foreseeable future. As of March 26, 1999, there were approximately 133 shareholders of record of the Company's Common Stock. The Company has entered into standstill agreements with the principals of the Founding Companies that received Restricted Stock at the time of the initial public offering. These standstill agreements expire on April 16, 1999. No prediction can be made as to the effect, if any, that future sales of Common Stock, or availability of shares for future sales, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices for the Common Stock. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is certain information concerning all sales of securities by Brightstar that were not registered under the Securities Act. Effective October 17, 1997, BrightStar issued and sold 1,000 shares of Common Stock to BIT Group Services, Inc. ("BITG") for $1,000. Concurrently with the closing of its initial public offering ("IPO") and pursuant to the Agreement and Plan of Exchange (the "Share Exchange") dated as of December 15, 1997 among BrightStar, BITG, BIT Investors, LLC ("BITI"), and the holders of the outstanding capital stock of BITG, (i) the Company issued to BITI an aggregate of 739,007 shares of Common Stock in exchange for all the shares of common stock of BITG held by BITI and (ii) the Company issued an aggregate of 346,800 shares of Common Stock in exchange for all the shares of common stock of BITG held by members of BrightStar's management, as follows: 42,900 shares to George M. Siegel; 70,000 shares to Marshall G. Webb; 60,000 shares to Thomas A. Hudgins; 60,000 shares to Daniel M. Cofall; 60,000 shares to Michael A. Sooley, 33,900 shares to Tarrant Hancock; and 20,000 shares to Mark D. Diggs. In connection with the Share Exchange, BrightStar assumed all obligations of the issuer pursuant to an option issued by BrightStar to Brewer-Gruenert Capital Advisors, LLC, which provides for the purchase of up to 14,285 shares of Common Stock at an exercise price of $6.00 per share. Effective April 20, 1998, BrightStar issued 33,008 shares of Common Stock upon the exercise of a warrant held by McFarland, Grossman & Company. Pursuant to the Share Exchange, on January 11, 1999, the Company issued 11,575 shares of Common Stock to the holders of the Series A-1 Class A units of BITI. Concurrently with the closing of the IPO, the Company issued to Software Consulting Services America, LLC ("SCS America") and the Stockholders of the other companies acquired concurrently with the closing of the IPO (the "Founding Companies") an aggregate of 1,982,645 shares of Common Stock in connection with the acquisition of the Founding Companies in consideration of substantially all the assets of SCS America and all of the outstanding capital stock of the other Founding Companies, other than SCS Unit Trust. On January 11, 1999, the Company issued to the beneficiaries of the SCS Unit Trust an aggregate of 441,400 shares of Common Stock in consideration of substantially all of the assets of the SCS Unit Trust. The sales and issuances of the securities by BrightStar, by BITG to BITI and to BrightStar's management and by BITI to its members, referenced above were exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) thereof as transactions not involving any public offerings, with the recipients representing their intentions to acquire the securities for their own accounts and not with a view to the distribution thereof. ITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for BrightStar is derived from the Company's Financial Statements and related notes thereto. The following selected consolidated financial data should be read in connection with and is qualified in its entirety by BrightStar's Financial Statements and related notes thereto and other financial information included elsewhere in this Form 10-K report. BrightStar was organized in July 1997 and completed its initial public offering (IPO) April 16, 1998. Concurrent with the IPO, Brightstar acquired (a) the outstanding capital stock of Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), Integrated Controls, Inc. ("ICON"), Mindworks Professionals Education Group, Inc. ("Mindworks"), Software Innovators, Inc. ("SII"), Zelo Group, Inc. ("ZELO") and (b) substantially all the net assets of Software Consulting Services America, LLC ("SCS America") and SCS Unit Trust ("SCS Australia") and together with Blackmarr, ICON, Mindworks, SII, Zelo, SCS America and SCS Australia , the "Founding Companies" and (b) executed a share exchange with BIT Investors, LLC ("BITI") and senior management of BrightStar for all outstanding common stock of BIT Group Services, Inc. ("BITG"). BrightStar and the Founding Companies are hereinafter collectively referred to as the "Company." The acquisitions were accounted for using the purchase method of accounting, with Blackmarr being reflected as the "accounting acquirer." The following tables present selected historical data for Blackmarr, the accounting acquirer, for the years 1994 through 1997. The 1998 data presented in the following table for the Company is comprised of (i) the results of operation of Blackmarr for the year ending Decemeber 31, 1998, 1998, (ii) the results of operation of the Founding Companies for the periods and (iii) the results of the operation of companies acquired by BrightStar after the initial public offering subsequent to their acquisitions. The Blackmarr results have been derived from (i) the audited financial statements of Blackmarr for the years ended and as of September 30, 1995, 1996 and 1997 and the year ended December 31, 1998, and (ii) from the unaudited financial statements of Blackmarr for the year ended and as of September 30, 1994, which have been prepared on the same basis as the audited statements and, in the opinion of Blackmarr and BrightStar management, reflect all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of that information. 7 8
Year Ended Year Ended Historical Operations Data: September 30 December 31 -------------------------------------------- ------------- (In thousands) 1994 1995 1996 1997 1998 -------- -------- -------- -------- ------------- Revenue $ 7,451 $ 7,043 $ 9,227 $ 12,190 $ 80,928 Cost of revenue 5,917 5,592 7,659 10,063 62,072 Selling, general and administrative expenses 1,325 1,413 1,555 1,668 15,445 Stock compensation expense -- -- -- 305 6,766 In process research & development 3,000 Restructure charge 7,614 Depreciation and amortization 87 78 101 135 1,863 -------- -------- -------- -------- ------------- Income (loss) from operations 122 (40) (88) 19 (15,832) Interest expense (45) (66) (67) (96) (70) Other income, net 186 124 33 155 Income tax provision 19 40 -- 6 797 -------- -------- -------- -------- ------------- Net income(loss) $ 58 $ 40 $ (31) $ (50) $ (16,544) ======== ======== ======== ======== ============= Average common shares: Basic and diluted -- -- -- -- 6,275,031
Historical Balance Sheet Data: September 30 December 31, (In thousands) ----------------------------------------- ------------- 1994 1995 1996 1997 1998 -------- -------- -------- -------- ------------- Working capital $ 134 $ 284 $ 233 $ 337 $ 4,981 Total assets 1,923 1,609 1,926 3,501 93,564 Long-term debt, net of current maturities 497 42 42 17 181 Stockholders' equity 342 396 423 682 70,073
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in connection with BrightStar's Consolidated Financial Statements and related notes thereto and other financial information included elsewhere in the Form 10-K report. ACQUISITIONS Concurrent with and as a condition to the closing of the Company's initial public offering, BrightStar acquired all of the outstanding capital stock or substantially all the net assets of Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), Integrated Controls, Inc. ("ICON"), Mindworks Professionals Education Group, Inc. ("Mindworks"), Software Innovators, Inc. ("SII"), Zelo Group, Inc. ("Zelo"), Software Consulting Services America, LLC ("SCS America") and SCS Unit Trust ("SCS Australia") representing the "Founding Companies". The acquisitions have been accounted for using the purchase method of accounting with Blackmarr being treated as the accounting acquirer, in accordance with Staff Accounting Bulletin No. 97 ("SAB 97"). On June 30, 1998, the Company completed the acquisition of Cogent Technologies, LLC, a provider of PeopleSoft and Platinum consulting and implementation services. On August 31, 1998, the Company completed the acquisition of Total Business Quality Associates, Inc. (TBQ), a provider of SAP consulting and implementing services. Effective September 30, 1998, the Company completed the acquisition of PROSAP Australia Pty. LTD (PROSAP), a SAP certified National Implementation Partner located in Sydney, Australia. 9 9 RESULTS OF OPERATIONS The Company reported a loss of $2.64 per basic and diluted share for the year ended December 31, 1998. Goodwill Amortization In July of 1996, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 97 ("SAB 97") relating to business combinations immediately prior to an initial public offering. SAB 97 requires that these combinations be accounted for using the purchase method of accounting and requires that one of the companies be designated as the accounting acquirer. Accordingly, for financial statement purposes, Blackmarr has been designated as the acquiring company because its current shareholders, in the aggregate, acquired more common stock than the former shareholders of any of the other Founding Companies in conjunction with the acquisitions. The excess of the aggregate purchase price paid for the Founding Companies other than Blackmarr over the fair value of the net assets to be acquired by BrightStar was recorded as goodwill. In addition, goodwill of $4.6 million was recorded attributable to the issuance of 437,681 shares of Common Stock to BITI unit holders. Together the Goodwill listed above, and the goodwill associated with the acquisition of COGENT, TBQ and PROSAP, are being amortized over a 40-year period. Restructuring Charge During the fourth quarter of 1998, the Company completed a review of each of its businesses and the services it provides. At the completion of this review the Company developed and the Board aproved a reorganization plan (the "Plan") with strategic actions to: 10 10 o Consolidate the sales, finance, and administrative functions at a the BrightStar level forming a single, combined sales force and finance group o Realign the operations of each of the individual wholly owned subsidiaries into the following operating divisions: Enterprise Applications Custom Applications Web Applications Hosted Applications Applications Support The Plan includes relocating the Company's corporate offices from Houston, Texas to Pleasanton, California; eliminating certain positions and personnel, closing certain businesses and writing-off assets; and terminating and consolidating leased facilities. These actions began in the fourth quarter of 1998 and will continue through the fourth quarter of 2000. In the fourth quarter of 1998, the Company recorded a $7.6 million charge for these restructuring actions. The categories of the 1998 Charges and their subsequent utilization are summarized below:
Amounts Amounts to Charged to be Utilized Earnings in Beyond 1998 1998 Workforce severance 4,960,015 2,900,057 Asset impairment 1,171,151 1,266,512 Lease and other contract obligations 1,482,691 1,482,691
Stock Compensation Expense In connection with the offering and acquisition of the Founding Companies, certain directors and members of management received 648,126 shares of common stock. These shares, valued at $11.70, were recorded as deferred compensation and are being charged to stock compensation expense over a one-year period based upon the terms of a stock repurchase agreement between the Company and related shareholders. Total stock compensation expense recorded during 1998 in connection with the above was $ 6,765,811. At December 31, 1998, certain members of management were terminated in connection with the Plan. As a result, the remaining deferred compensation totaling $2,059,958, attributable to the shares held by these terminated employees was charged to expense and is included in the restructure charge. Local Currency Results The following discussion of Revenue, Cost of Revenue, and Operating Expenses includes reference to revenue, margins, and expenses in "local currencies". For comparability of financial results, the foreign currency balances, in all periods presented, are translated at actual rates of exchange. Revenue The Company provides services to its customers for fees that are based on time and materials or fixed fees. Accordingly, revenue is recognized as consulting services are performed. Unbilled revenue is recorded for contract services provided for which a billing has not been rendered. Deferred revenue represents the excess of amounts billed over contract costs and expenses incurred. The timing of revenue is difficult to forecast because the Company's sales cycle for certain of its services can be relatively long and is subject to a number of uncertainties, including customers' budgetary constraints, the timing of customers' budget cycles, customers' internal approval processes and general economic conditions. In addition, as is customary in the industry, the Company's engagements, generally, are terminable without a customer penalty. The Company's revenue and results of operations may fluctuate significantly from quarter to quarter or year to year because of a number of factors, including, but not limited to, the rate of hiring and the productivity of revenue generating personnel; the availability of qualified IT professionals; the significance of customer engagements commenced and completed during a quarter; the number of business days in the quarter; changes in the relative mix of the Company's services; changes in the pricing of the Company's services; the timing and the rate of entrance into new geographic or IT specialty markets; departures or temporary absences of key revenue-generating personnel; the structure and timing of acquisitions; changes in the demand for IT services; and general economic factors. Revenue increased, for the twelve months ended December 31, 1998 compared to the prior periods primarily resulted from (i) the acquisition of the Founding Companies on April 16, 1998 at the time of the initial public offering, (ii) the acquisition of three additional companies subsequent to the initial public offering and (iii) new customer contracts for implementation of ERP systems and development of custom applications. Revenue increased $2.9 million, or 32.1%, for the year ended September 30, 1997 compared to the year ended September 30, 1996. The increase primarily resulted from the addition of new customer contracts representing revenue of approximately $2.0 million in the consulting division and an increase of approximately $900,000 from the education division, which expanded its course offerings from the previous year. Cost of Revenue Cost of revenue primarily consists of salaries (including non-billable and training time) and benefits for consultants. The Company generally strives to maintain its gross profit margins by offsetting increases in salaries and benefits with increases in billing rates. Cost of revenue increased, for the twelve months ended December 31, 1998 compared to the prior periods primarily resulted from an increase in variable costs associated with the increased revenue described above. Cost of revenue increased $2.4 million, or 31.4%, for the year ended September 30, 1997 compared to the year ended September 30, 1996. The increase was directly proportional to the increase in revenue and was comprised of additional operational personnel added to support increased client contracts. Operating Expenses Selling, general and administrative expenses primarily consist of costs associated with (i) corporate overhead, (ii) sales and account management, (iii) telecommunications, (iv) human resources, (v) recruiting and training, and (vi) other administrative expenses. Selling, general and administrative expenses increase, for the twelve months ended December 31, 1998 compared to the prior periods resulted primarily from additional support personnel added through the Company's acquisitions. Selling, general and administrative expenses increased approximately $100,000, or 7.3%, for the year ended September 30, 1997 compared to the year ended September 30, 1996. As a percentage of revenue, selling, general and administrative expenses decreased from 16.9% to 13.7% for the year ended September 30, 1997 compared to the year ended September 30, 1996. The percentage decrease was attributable to the Company increasing revenue without substantial additions in the number of support personnel. 11 11 MARKET RISK Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company due to adverse changes in market prices and rates. The Company is exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar and currencies of the Company's subsidiaries and operations in Australia. Revenues from these operations are typically denominated in Australian Dollars thereby potentially affecting the Company's financial position, results of operations, and cash flows due to fluctuations in exchange rates. The Company does not anticipate that near-term changes in exchange rates will have a material impact on future earnings, fair values or cash flows of the Company as of December 31, 1998. However there can be no assurance that a sudden and significant decline in the value of the Australian Dollar would not have a material adverse effect on the Company's financial condition and results of operations. The Company's long-term debt bears interest at variable rates; therefore, the Company's results of operations would only be affected by interest rate changes to the long-term debt outstanding. Due to the short-term nature and insignificant amount of the Company's notes payable, an immediate 10 percent change in interest rates would not have a material effect on the Company's results of operations over the next fiscal year. LIQUIDITY AND CAPITAL RESOURCES Subsequent to December 31, 1998, the Company changed lenders and established a $15 million credit facility ("Credit Facility") with Comerica Bank. Under terms of the agreement, the Revolving Credit Facility will be used for working capital needs, including issuance of letters of credit, and for general corporate purposes. The Company expects that borrowings under the Revolving Credit Facility will bear an interest rate of prime plus .25%. The Credit Facility will be secured by liens on substantially all the Company's assets (including accounts receivables) and a pledge of the Company to comply with various loan covenants, including (i) maintenance of certain financial ratios, (ii) restrictions on additional indebtedness and (iii) restrictions on liens, guarantees and payments of dividends. The Company anticipates that the Revolving Credit Facility will be available for advances and repayments through April 2001 and that, unless such facility is extended or renewed, all outstanding principal and accrued and unpaid interest under the Revolving Credit Facility will be due on such date. The Credit Facility will contain provisions requiring mandatory prepayment of outstanding borrowings from the issuance of debt or equity securities for cash, excluding certain equity issued in connection with future acquisitions, and cash realized in connection with permitted asset sales outside of the ordinary course of business. The Company's principal sources of liquidity are the cash flows of its subsidiaries and the cash available from the Credit Facility. As of December 31, 1998, and as a result of the successful completion of a public offering on April 16, 1998, BrightStar had $3.6 million in cash and cash equivalents and no borrowings outstanding from commercial lenders other than $300,000 of capital lease obligations. Subsequent to December 31, 1998 the Company was obligated to pay $4.784 million in cash payable in three installments on January 1, 1999 and April 1, 1999 and June 1999, in connection with the acquisition of PROSAP. The Company expects to install or upgrade its accounting and management information systems and to install an internal network and communications system to facilitate exchange of information among the Founding Companies. Management presently anticipates that expenditures for these items will total approximately $500,000 over the next year; however, no assurance can be made with respect to the actual timing and amount of such expenditures. 12 12 The Company intends to continue to pursue acquisition opportunities. The timing, size or success of any acquisition effort and the associated potential capital commitments are unpredictable. The Company expects to fund future acquisitions through the issuance of additional equity, as well as through a combination of working capital, cash flow from operations and borrowings under the Credit Facility. The Company believes that cash flow from operations, borrowings under the Credit Facility and the unallocated net proceeds of the offering will be Sufficient to fund its requirements for the foreseeable future. INFLATION Due to the relatively low levels of inflation experienced in the last three years, inflation did not have a significant effect on the results of operations of any of the Founding Companies in those periods. YEAR 2000 COMPLIANCE The inability of computers, software and other equipment utilizing microprocessors to recognize and properly process data fields containing a two-digit year is commonly referred to as the Year 2000 problem. The Year 2000 problem arises from the way dates are recorded and computed in most applications, operating systems, hardware and embedded chips. If the problem is not corrected, systems that use a date in its prescribed function may fail or produce erroneous results before, on and after the year 2000. The Company is completing an extensive review of its businesses to determine whether or not purchased and internally developed computer programs are Year 2000 compliant, as well as determine the extent of any remedial action and associated costs. Management believes it has substantially completed the review of the Company's internal computer systems and either substantially made modifications or purchased new hardware and software to make the Company's internal computer systems Year 2000 compliant. The Company is now involved in the testing phase of its computer modifications and new system purchases to determine its ability to handle Year 2000 related date calculations. The Company plans to complete all remediation efforts for its critical systems prior to year 2000. The financial impact of the Year 2000 reviews, modifications, testing, replacements or related purchases are not expected to have a material adverse effect on the Company's business or its consolidated financial position, results of operations or cash flows. The Company is also contacting its key suppliers and customers to determine their Year 2000 readiness in order to ensure a steady flow of goods and services to the Company and continuity with respect to customer service. The costs of the readiness program for products are primarily costs of existing internal resources largely absorbed within existing spending levels. These costs were incurred primarily in 1998. No future material product readiness costs are anticipated. The costs of the readiness program for internal information and other systems are a combination of incremental external spending and use of existing internal resources and expertise. EURO CURRENCY CONVERSION Companies conducting business in or having transactions denominated in certain European currencies are facing the European Union's conversion to a new common currency, the "Euro". This conversion is expected to be implemented over a three-year period. On January 1, 1999, the Euro became the official currency for accounting and tax purposes of several countries of the European Union and the exchange rate between the Euro and local currencies was fixed. In 2002, the Euro will replace the individual nation's currencies. The Company is currently considering the specific nature of the impact of the conversion on its operations, but management currently believes that there will be no material adverse impact of the conversion on its operations or financial performance. Uncertainties Nature of Projects Many of the Company's projects are billed on a fixed-fee basis. The Company's failure to estimate accurately the resources and related expenses required for a fixed-fee project or failure to complete contractual obligations in a manner consistent with the project plan upon which the fixed-fee contract is based could have a material adverse effect on the Company. Many of the Company's engagements involve projects that are critical to the operations of its clients' businesses and provide benefits that may be difficult to quantify. The Company's failure or inability to meet a client's expectations in the performance of its services could result in a material adverse change to the client's operations and therefore could give rise to claims against the Company or damage the Company's reputation. In addition, the Company is exposed to various risks and liabilities associated with placing its employees and consultants in the workplaces of others, including possible claims of errors and omissions, misuse of client proprietary information, misappropriation of funds, discrimination and harassment, theft of client property, other criminal activity or torts and other claims. Although BrightStar has not experienced any material claims of these types, there can be no assurance that the Company will not experience such claims in the future. If claims are successfully brought against the Company as a result of the Company's performance on a project, or if the Company's reputation is damaged, there could be a material adverse effect on the Company. Reorganization The Company is undergoing significant managerial and operational change in connection with its corporate reorganization. Although the Company believes the reorganization will provide long-term benefits, there can be no assurance that these efforts will be successful. In addition, although the Company believes it has recognized substantially all of the costs of the reorganization, additional costs may be incurred as the reorganization proceeds. Reorganization's Effect on Sales The Company began to execute its Plan for reorganizing BrightStar on January 1, 1999. As part of the Plan, the individual sales groups from the BrightStar subsidiaries were combined into a consolidated BrightStar sales group. Prior to January 1, 1999 most of these salespeople sold only a subset of BrightStar's service offerings and in many cases only a single service. The Company has undertaken a training program to train these salespeople to sell all of the BrightStar service offerings. However, there can be no assurance that these salespeople have the expertise and ability to successfully sell the entire portfolio of BrightStar services. Any disruption to the BrightStar sales group caused by the reorganization could disrupt the Company's ability to generate revenues and could have a material adverse effect on the Company. Potential Decrease in the Market for ERP Services During the last six months of 1998, most providers of ERP software experienced slowing software license sales. This slowing rate of growth for ERP software providers may result in lowered demand for ERP services in 1999. The Company derives a significant percentage of its revenues from ERP implementation services and a significant slowdown in the market for these services would have a material adverse effect on the Company. Potential Decrease in the Market for Services Due to the Year 2000 The purchasing patterns of clients may be affected by Year 2000 issues as companies expand significant resources to correct their current systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase services offered by the Company, which could have a material adverse effect on the Company. 13 13 FORWARD-LOOKING INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this MD&A regarding the Company's financial position, business strategy and plans and objectives of management of the Company for future operations are forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside of the Company's control, that could cause actual results to materially differ from such statements. While the Company believes that the assumptions concerning future events are reasonable, it cautions that there are inherent difficulties in predicting certain important factors, especially the timing and magnitude of technological advances; the performance of recently acquired businesses; the prospects for future acquisitions; the possibility that a current customer could be acquired or otherwise be affected by a future event that would diminish their information technology requirements; the competition in the information technology industry and the impact of such competition on pricing, revenues and margins; the degree to which business entities continue to outsource information technology and business processes; uncertainties surrounding budget reductions or changes in funding priorities or existing government programs and the cost of attracting and retaining highly skilled personnel. UNAUDITED QUARTERLY DATA
1998 1997 --------------------------------------------------------- ----------------------------------------------------- Fourth (a) Third Second (b) First Fourth Third Second First ------------ ------------ ------------ ------------ ------------ ------------ ------------ ---------- Revenue $ 30,524,537 $ 26,737,895 $ 18,556,833 $ 5,108,881 $ 6,622,811 $ 3,635,179 $ 3,452,623 $ 3,003,438 Gross profit $ 4,827,942 $ 7,233,115 $ 5,690,890 $ 1,103,725 $ 812,863 $ 572,942 $ 881,325 $ 603,189 Income (loss) from operations $(12,686,339)$ (643,179) $ (2,908,751) $ 406,374 $ (34,635) $ 145,827 $ 421,953 $ (88,642) Net income $(12,303,391)$ (1,118,760) $ (3,401,195) $ 279,327 $ (36,822) $ (3,929) $ 353,384 $ (100,788) Per share basis: Basic $ (1.46)$ (0.13) $ (0.47) $ .28 $ (.04) $ (0.01) $ 0.35 $ (.13) Diluted $ (1.46)$ (0.13) $ (0.47) $ .28 $ (.04) $ (0.01) $ 0.35 $ (.13)
(a) Included in the fourth quarter 1998 is a restructuring charge of $7,613,857. (b) Included in the second quarter 1998 is the initial public offering concurrent with the acquisitions of the Founding Companies. 14 14 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows of the Company due to adverse changes in market prices and rates. The Company is exposed to market risk because of changes in foreign currency exchange rates as measured against the U.S. dollar and currencies of the Company's subsidiaries and operations in Australia and the United Kingdom. FOREIGN CURRENCY EXCHANGE RATE RISK Foreign Currency Exchange Rate Risk. The Company has a wholly owned subsidiary in Australia and conducts operations in the United Kingdom through an U.S. incorporated subsidiary. Revenues from these operations are typically denominated in Australian Dollars or British Pounds, respectively, thereby potentially affecting the Company's financial position, results of operations and cash flows due to fluctuations in exchange rates. The Company does not anticipate that near-term changes in exchange rates will have a material impact on future earnings, fair values or cash flows of the Company as of December 31, 1998. There can be no assurance that a sudden and significant decline in the value of the Australian Dollar or British Pound will not have a material adverse effect on the Company" financial condition and results of operations. The Company's long-term debt bears interest at variable rates; therefore, the Company's results of operations would only be affected by interest rate changes to the long-term debt outstanding. Due to the short-term nature and insignificant amount of the Company's notes payable, an immediate 10 percent change in interest rates would not have a material effect on the Company's results of operations over the next fiscal year. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements are included as an exhibit as described in Item 14. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, portions of the information required by Part III of Form 10-K are incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the 1999 Annual Meeting of Stockholders ("the Proxy Statement"). ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a) Information concerning directors of the Company appears in the Company's Proxy Statement, under Item 1 - "Election of Directors." This portion of the Proxy Statement is incorporated herein by reference. b) For information with respect to Executive Officers, see Part I of this Annual Report on Form 10-K. 15 15 ITEM 11: EXECUTIVE COMPENSATION Incorporated by reference in the proxy statement for the June 17, 1999 Annual Meeting of Stockholders. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference in the proxy statement for the June 17, 1999 Annual Meeting of Stockholders. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference in the proxy statement for the June 17, 1999 Annual Meeting of Stockholders. PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) CONSOLIDATED FINANCIAL STATEMENTS The following financial statements and notes thereto, and related Independent Auditors Report, are filed as part of this Form 10-K as follows: Independent Auditors' Report Consolidated Balance Sheets at December 31, 1997 and 1998. Consolidated Statements of Operations for the years ended September 30, 1996 and 1997 and the three months and the year ended December 31, 1998. Consolidated Statements of Stockholders' Equity for the years ended September 30, 1996 and 1997 and the three months and the year ended December 31, 1998. Consolidated Statements of Cash Flows for the years ended September 30, 1996 and 1997 and the three months and the year ended December 31, 1998. Notes to Consolidated Financial Statements. FINANCIAL STATEMENT SCHEDULE The following financial statement schedule of the Company and the related Independent Auditors Report are filed as part of this Form 10-K on pages ____ and ____: [X] Schedule II - Validation And Qualifying Accounts All other financial statement schedules have been omitted because such schedules are not required or the information required has been presented in the aforementioned financial statements. EXHIBITS The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K The Company filed a Report on Form 8-K on November 25, 1998, disclosing the Company's purchase on November 10, 1998, of all of the outstanding capital stock of PROSAP AG, a Swiss holding company that owns all of the outstanding capital stock of PROSAP Australia Pty. Ltd. An amendment to that Report was filed on January 22, 1999., 16 16 INDEX TO EXHIBITS These Exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K: (a) The following documents are filed as part of this report:
EXHIBIT NO. DESCRIPTION - - ----------- ----------- 3.1 -- Certificate of Incorporation, as amended (Incorporated by reference from Exhibit 3.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 3.2 -- Bylaws, as amended (Incorporated by reference from Exhibit 3.2 to Amendment No. 3.2 to BrightStar's Registration Statement on Form S-1 filed April 14, 1998 (File No. 333-43209)). 4.1 -- Specimen Common Stock Certificates (Incorporated by reference from Exhibit 4.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 4.2 -- Agreement and Plan of Exchange dated December 15, 1997 among BrightStar, BITG, BITI and the holders of the outstanding capital stock of BITG (Incorporated by reference from Exhibit 4.2 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 4.3 -- Option Agreement dated as of December 16, 1997 between BrightStar and Brewer-Gruenert Capital Advisors, LLC (Incorporated by reference from Exhibit 4.4 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.1 -- BrightStar 1997 Long-Term Incentive Plan (Incorporated by reference from Exhibit 10.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.2 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Brian R. Blackmarr and Associates, Inc. (Incorporated by reference from Exhibit 10.2 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.3 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Integrated Controls, Inc. (Incorporated by reference from Exhibit 10.3 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.4 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Mindworks Professional Education Group, Inc. (Incorporated by reference from Exhibit 10.4 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.5 -- Agreement and Plan of Exchange by and among BrightStar, Software Consulting Services America, LLC and the holders of the outstanding ownership interests of Software Consulting Services America, LLC. (Incorporated by reference from Exhibit 10.5 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.6 -- Agreement and Plan of Exchange by and among BrightStar and Software Consulting Services Pty. Ltd. in its capacity as Trustee of the Software Consulting Services Unit Trust and the holders of all of the
17 17 outstanding ownership interests in the Software Consultants Unit Trust (Incorporated by reference from Exhibit 10.6 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.7 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Software Innovators, Inc. (Incorporated by reference from Exhibit 10.7 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.8 -- Agreement and Plan of Exchange by and among BrightStar and the holder of the outstanding capital stock of Zelo Group, Inc. and Joel Rayden (Incorporated by reference from Exhibit 10.8 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.9 -- Form of Employment Agreement between BrightStar and Marshall G. Webb, Thomas A. Hudgins and Daniel M. Cofall (Incorporated by reference from Exhibit 10.9 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)).* 10.10 -- Employment Agreement between Software Consulting Services America, Inc. and Michael A. Ober.* 10.11 -- Office Lease dated November 11, 1998, between Principal Life Insurance Company and BrightStar. 10.12 -- Employment Agreement dated Jan. 31, 1999 between BrightStar and Donald Rowley.* 10.13 -- Employment Agreement between Brian R. Blackmarr and Associates, Inc. and Brian R. Blackmarr (Incorporated by reference from Exhibit 10.10 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)).* 10.14 -- Letter Agreement dated August 14, 1997 between BITG and McFarland, Grossman and Company, Inc., and amended as of March 17, 1998 (Incorporated by reference from Exhibit 10.11 to Amendment No. 2 to BrightStar's Registration Statement on Form S-1 filed March 24, 1998 (File No. 333-43209)). 10.15 -- Letter Agreement dated September 26, 1997 between BITG and Brewer-Gruenert Capital Advisors, LLC, and amended as of December 15, 1997 (Incorporated by reference from Exhibit 10.12 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.16 -- Loan Agreement dated October 16, 1997 between BITI and BITG (Incorporated by reference from Exhibit 10.13 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.17 -- Stock Repurchase Agreement between BrightStar and Marshall G. Webb, Daniel M. Cofall, and Thomas A. Hudgins.* 10.18 -- Agreement Regarding Repurchase of Stock by and among BrightStar, George M. Siegel, Marshall G. Webb, Thomas A. Hudgins, Daniel M. Cofall, Mark D. Diggs, Michael A. Sooley, Michael B. Miller, and Tarrant Hancock.*
18 18 10.19 -- Amendment to Agreement and Plan of Exchange dated as of June 5, 1998 by and BrightStar and the holder of the outstanding capital stock of Zelo Group, Inc. and Joel Rayden. 10.20 -- Deed of Variation dated as of April 17, 1998 by and among BrightStar and Software Consulting Services Pty. Ltd. and Kentcom Pty. Ltd., Salvatore Fazio, Pepper Tree Pty. Ltd., Christopher Richard Banks, Cedarman Pty. Ltd, Stephen Donald Caswell, Quicktrend Pty. Ltd., Desmond John Lock, Kullamurra Pty. Ltd., Robert Stephen Langford, and KPMG Information Solutions Pty. Ltd. and Data Collection Systems Integration Pty. Ltd. 10.21 -- Asset Purchase Agreement dated as of June 30, 1998 among BrightStar, Cogent Acquisition Corp., Cogent Technologies, LLC and the holders of all of all the outstanding membership interest of Cogent Technologies, LLC. 10.22 -- Asset Purchase Agreement dated as of August 31, 1998 among BrightStar, Software Consulting Services America, Inc., TBQ Associates, Inc. and the holders of all the outstanding capital stock of TBQ Associates, Inc. 10.23 -- Stock Purchase Agreement dated effective as of September 30, 1998 among BrightStar, BrightStar Group International, Inc. and the holders of the outstanding capital stock of PROSAP AG (Incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K of BrightStar dated November 10, 1998. 10.24 -- Factoring Agreement and Security Agreement dated January 22, 1999 among Metro Factors, Inc. dba Metro Financial Services, Inc., Brian R. Blackmarr and Associates, Inc., Software Consulting Services America, Inc., Software Innovators, Inc., and Integrated Controls, Inc. 10.25 -- Guaranty dated January 22, 1999 by BrightStar for the benefit of Metro Factors, Inc. dba Metro Financial Services, Inc. 10.26 -- Severance Agreement and Release effective November 20, 1998 between BrightStar and Thomas A. Hudgins. 10.27 -- Severance Agreement and Release effective January 31, 1999 between BrightStar and Daniel M. Cofall. 10.28 -- Severance Agreement and Release effective January 31, 1999 between Marshall G. Webb. 10.29 -- Revolving Credit Agreement dated March 29,1999 between BrightStar and Comerica Bank 10.30 -- Form of subsidiaries guaranty dated March 29,1999 between BrightStar subsidiaries and Comerica Bank 10.31 -- Security Agreement (Negotiable collateral) dated March 29,1999 between BrightStar and Comerica Bank 10.32 -- Security Agreement (All assets) dated March 29, 1999 between BrightStar and Comerica Bank 10.33 -- $15,000,000 Revolving Note dated March 29, 1999 from BrightStar to Comerica Bank 21.1 -- List of Subsidiaries of the Company. 24.1 -- Power of Attorney 27.1 -- Financial Data Schedule
* Management Contract or Compensatory Plan required to be filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K. Reports on Item 10-K. 19 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By /s/ MICHAEL A. OBER ------------------------------------------ Michael A. Ober President and Chief Executive Officer Dated: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ MICHAEL A. OBER Chief Executive Officer March 31, 1999 - - --------------------------------------- Michael A. Ober /s/ DONALD W. ROWLEY Chief Financial Officer and March 31, 1999 - - --------------------------------------- Secretary Donald W. Rowley (Principal Financial Officer) /s/ PATRICK R. QUINN Controller an Assistant Secretary March 31, 1999 - - --------------------------------------- (Principal Accounting Officer) Patrick R. Quinn Directors: George M. Siegel* Chairman of the Board and Director Jennifer T. Barrett* Director Brian R. Blackmarr* Director Michael A. Ober* Director David A. Reamer* Director Donald W. Rowley* Director William A. Sitter* Director * By /s/ MICHAEL A. OBER ------------------------------------ Michael A. Ober, Attorney-in-Fact **
** By authority of the power of attorney filed herewith. 20 20 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of BrightStar Information Technology Group, Inc: We have audited the accompanying consolidated balance sheets of BrightStar Information Technology Group, Inc. (the "Company") as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years ended September 30, 1996 and 1997, the three months ended December 31, 1997 and the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of BrightStar Information Technology Group, Inc. at December 31, 1997 and 1998, and the results of their operations and their cash flows for the years ended September 30, 1996 and 1997, the three months ended December 31, 1997 and the year ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Dallas, Texas March 30, 1999 21 21 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. CONSOLIDATED BALANCE SHEETS
December 31 ----------- ----------- 1997 1998 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,994 $ 3,672,103 Trade accounts receivables, net of allowance for doubtful accounts of $451,534 and $1,316,106 4,205,535 20,296,989 at December 31, 1997 and 1998, respectively Income tax receivable 37,515 -- Unbilled revenue 652,711 2,238,429 Deferred tax asset 161,564 784,986 Prepaid and other current assets -- 1,297,490 ----------- ----------- Total current assets 5,060,319 28,289,997 PROPERTY AND EQUIPMENT, NET 276,753 3,546,005 DEFERRED TAX ASSET 31,541 -- GOODWILL, NET OF ACCUMULATED AMORTIZATION -- 61,230,088 OTHER ASSETS 56,759 497,638 ----------- ----------- Total assets $ 5,425,372 $93,563,728 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 423,143 $ 3,920,502 Acquisition payable -- 4,784,000 Line of credit 847,764 -- Notes payable 213,185 -- Current maturities of capital lease obligations 64,322 167,201 Accrued restructure charge 4,382,748 Accrued salaries and other accrued expenses 2,610,929 6,327,709 Income tax payable -- 1,790,979 Deferred revenue 621,329 1,935,770 ----------- ----------- Total current liabilities 4,780,672 23,308,909 LONG-TERM LIABILITIES: Capital lease obligations, net of current portion -- 129,057 Other non-current liabilities -- 52,244 ----------- ----------- Total long-term liabilities -- 181,301 COMMITMENTS AND CONTINGENCIES (NOTE 10) STOCKHOLDERS' EQUITY: Common stock, no par value - 13,068 no par value shares issued and outstanding at December 31, 1997; 7,989,059, .001 par value shares issued and outstanding at December 31, 1998 318,068 7,989 Additional paid in capital -- 82,818,042 Common stock payable -- 6,874,819 Common stock warrants -- 100,000 Deferred stock compensation -- (467,734) Accumulated other comprehensive income -- 247,813 Retained earnings (deficit) 326,632 (19,507,411) ----------- ----------- Total stockholders' equity 644,700 70,073,518 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,425,372 $93,563,728 =========== ===========
See notes to consolidated financial statements. 22 22 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1997 1997 1998 ------------ ------------ ------------ ------------ REVENUE $ 9,226,955 $ 12,189,942 $ 6,622,811 $ 80,928,146 COST OF REVENUE 7,659,342 10,063,300 5,809,948 62,072,474 ------------ ------------ ------------ ------------ GROSS PROFIT 1,567,613 2,126,642 812,863 18,855,672 OPERATING EXPENSES: Selling, general and administrative 1,554,926 1,667,897 816,942 15,445,080 Stock compensation expense -- 305,000 -- 6,765,811 In process research & development -- -- -- 3,000,000 Restructuring charge -- -- -- 7,613,857 Goodwill amortization -- -- -- 1,030,616 Depreciation and amortization 100,661 134,689 30,556 832,206 ------------ ------------ ------------ ------------ Total operating expenses 1,655,587 2,107,586 847,498 34,687,570 INCOME (LOSS) FROM OPERATIONS (87,974) 19,056 (34,635) (15,831,898) OTHER INCOME 124,412 33,414 6,956 154,471 INTEREST EXPENSE (67,178) (96,020) (30,741) (69,504) ------------ ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (30,740) (43,550) (58,420) (15,746,931) INCOME TAX EXPENSE (BENEFIT) 106 6,466 (21,598) 797,090 ------------ ------------ ------------ ------------ NET LOSS $ (30,846) $ (50,016) $ (36,822) $(16,544,021) ============ ============ ============ ============ Shares outstanding (Note 1) Basic and Diluted 774,645 893,475 1,012,306 6,275,031 ============ ============ ============ ============ Loss per share Basic and Diluted $ (0.04) $ (0.06) $ (0.04) $ (2.64) ============ ============ ============ ============
See notes to consolidated financial statements 23 23 BRIGHTSTAR INFORMATION TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock ----------------------------- Additional Common Common Shares Amount Paid-In-Capital Stock Payable Stock Warrant ----------- ------------ --------------- ------------- ------------- BALANCE, OCTOBER 1, 1995 10,000 $ 10,000 $ $ $ Net loss ----------- ------------ ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1996 10,000 10,000 -- -- -- Issuance of common stock 3,068 308,068 Net loss and comprehensive loss ----------- ------------ ------------ ------------ ------------ BALANCE, SEPTEMBER 30, 1997 13,068 318,068 -- -- -- Net loss and comprehensive loss ----------- ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1997 13,068 318,068 -- -- -- Issuance of common stock in public offering 4,887,500 4,888 58,634,987 450,000 Stock used for acquisition of Founding Companies 1,408,120 1,408 15,933,606 5,299,819 Common stock issued to management and promoters 648,126 648 7,582,426 Stock split (to conform Blackmarr (Note 2) 999,238 (317,056) 317,056 Exercise of stock warrants 33,007 33 349,967 (350,000) Common stock granted to employees (Note 11) 1,575,000 Amortization of deferred compensation Write-off of deferred compensation of terminated employees Net loss and comprehensive loss Other comprehensive income (loss) - cumulative translation ----------- ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 7,989,059 $ 7,989 $ 82,818,042 $ 6,874,819 $ 100,000 =========== ============ ============ ============ ============ Accumulated Other Retained Total Unearned Comprehensive Earnings Stockholders' Comprehensive Compensation Income (Deficit) Equity Loss ------------ ------------- ------------ ------------ ------------- BALANCE, OCTOBER 1, 1995 $ $ $ 444,316 $ 454,316 Net loss and comprehensive loss (30,846) (30,846) $ (30,846) ------------ ------------ ------------ ------------ ============ BALANCE, SEPTEMBER 30, 1996 -- -- 413,470 423,470 Issuance of common stock 308,068 Net loss and comprehensive loss (50,016) (50,016) $ (50,016) ------------ ------------ ------------ ------------ ============ BALANCE, SEPTEMBER 30, 1997 -- -- 363,454 681,522 Net loss and comprehensive loss (36,822) (36,822) $ (36,822) ------------ ------------ ------------ ------------ ============ BALANCE, DECEMBER 31, 1997 -- -- 326,632 644,700 Issuance of common stock in public offering 59,089,875 Stock used for acquisition of Founding Companies (3,290,022) 17,944,811 Common stock issued to management and promoters (7,583,074) -- Stock split (to conform Blackmarr Note 2) -- Exercise of stock warrants Common stock granted to employees 1,575,000 Amortization of deferred compensation 5,055,382 5,055,382 Write-off of deferred compensation of terminated employees 2,059,958 2,059,958 Net loss (16,544,021) (16,544,021) $(16,544,021) Other comprehensive income (loss) - cumulative translation 247,813 247,813 247,813 ------------ Comprehensive loss $(16,296,203) ------------ ------------ ------------ ------------ ============ BALANCE, DECEMBER 31, 1998 $ (467,734) $ 247,813 $(19,507,411) $ 70,073,518 ============ ============ ============ ============
See notes to consolidated financial statements 24 24 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS YEAR ENDED ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1997 1997 1998 ------------- ----------- ------------- ------------ OPERATING ACTIVITIES: Net loss $ (30,846) $ (50,016) $ (36,822) $(16,544,021) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Restructure charge 6,442,706 Write down of certain intangible and other assets 841,496 In process research and development expense 3,000,000 Depreciation and amortization 100,661 134,689 30,556 1,905,105 Other 247,813 Additions to allowance for doubtful accounts 464,510 (5,425) 14,521 864,572 Deferred income taxes (32,503) 8,113 (21,598) (1,311,138) Compensation expense on issuance of common stock 305,000 6,765,811 Changes in operating working capital: Trade accounts receivable (352,655) (1,632,114) (1,451,265) (4,757,221) Income tax refund receivable -- -- -- 37,515 Unbilled revenue (158,693) 133,342 501,007 (672,147) Prepaid and other assets 12,740 (24,143) 2,086 5,769 Accounts payable (300,708) (2,584) 1,850 (441,342) Accrued salaries other accrued expenses 226,170 447,536 1,928,223 (2,921,026) Income taxes payable (83,417) (32,609) 57,342 1,509,322 Deferred revenue 76,043 462,018 -- 1,210,049 ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities (78,698) (256,193) 23,886 (3,816,737) INVESTING ACTIVITIES: Cash paid to acquire founding companies (32,026,000) Cash paid to retire debt of Founding Companies (9,864,581) Cash paid for acquisitions (6,106,405) Redemption of (investment in) certificate of deposit (60,000) 60,000 -- -- Capital Expenditures (150,576) (111,612) (14,826) (1,162,373) ----------- ----------- ----------- ----------- Net cash used in investing activities (210,576) (51,612) (14,826) (49,159,359) FINANCING ACTIVITIES: Borrowings under (payments on) line of credit 599,764 223,000 25,000 -- Proceeds from (payments on) term loan (357,900) 141,679 (32,694) -- Payments on note payable and capital lease obligations (5,068) (57,070) (18,149) (2,444,669) Net proceeds from issuance of common stock -- 3,068 -- 59,089,875 ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities 236,796 310,677 (25,843) 56,645,206 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (52,478) 2,872 (16,783) 3,669,110 CASH AND CASH EQUIVALENTS: Beginning of period 69,383 16,905 19,777 2,994 ----------- ----------- ----------- ----------- End of period $ 16,905 $ 19,777 $ 2,994 $ 3,672,104 =========== =========== =========== =========== SUPPLEMENTAL INFORMATION: Interest paid $ 67,178 $ 96,020 $ 30,741 $ 73,052 =========== =========== =========== =========== Income taxes paid $ -- $ 50,000 $ -- $ -- =========== =========== =========== =========== Equipment financed through capital leases $ 34,548 $ 47,923 $ -- $ -- =========== =========== =========== ===========
See notes to consolidated financial statements 25 25 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation - BrightStar Information Technology Group, Inc., (the "Company" or "BrightStar") is an international provider of information technology ("IT") consulting services. BrightStar conducted no operations prior to April 16, 1998 when it completed its initial public offering ("IPO"). The accompanying historical consolidated financial statements include only the historical financial information for Blackmarr the "accounting acquirer", which elected to change its fiscal year-end from September 30 to December 31 prior to the IPO, and the "Founding Companies" from May 1, 1998 through December 31, 1998. See note 2 for further discussion of the IPO, the definition of the "Founding Companies" and the "accounting acquirer". The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Investments in nonconsolidated companies that are at least 20 percent owned are stated at cost plus equity in undistributed net income (loss). All significant intercompany account balances and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from these estimates. Revenue recognition - The Company provides its services to customers for fees that are based on time and materials or fixed fees. Accordingly, revenue is recognized as consulting services are performed. Unbilled revenue is recorded for contract services provided for which a billing has not been rendered. Revenue from the sale of training kits and tuition received from training seminars is recognized as product is shipped or services are performed. Deferred revenue primarily represents the excess of amounts billed over contract costs and expenses incurred. The Company performs ongoing credit evaluations of its major customers and reserves for potential credit losses. Cash equivalents - Cash equivalents represent all liquid investments purchased with original maturities of three months or less. 26 26 Property and equipment - Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of 3 years for computer equipment and software and 5 years for furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the assets useful life. Expenditures for repairs and maintenance that do not improve or extend the life of assets are expensed as incurred. Goodwill - Goodwill, is the cost in excess of tangible assets acquired and is being amortized over 40 years on a straight-line basis. The realizability and period of benefit of goodwill is evaluated periodically to assess recoverability, and, if warranted, impairment or adjustment of the period benefited would be recognized. Accumulated amortization of goodwill at December 31, 1998 was $1.03 million. Cumulative translation adjustment - Cumulative translation adjustment in stockholders' equity reflects the unrealized adjustments resulting from translating the financial statements of foreign subsidiaries. The functional currency of the Company's foreign subsidiaries is the local currency of the country. Accordingly, assets and liabilities of the foreign subsidiaries are translated to U.S. dollars at year-end exchange rates. Income and expense items are translated at the average rates prevailing during the year. Changes in exchange rates that affect cash flows and the related receivables or payables are recognized as transaction gains and losses in the determination of net income. Deferred income taxes - Deferred income taxes are provided under the asset and liability method for temporary differences in recognition of income and expense and financial reporting purposes. A valuation allowance is established for any portion of the deferred tax asset for which realization is more likely than not. Fair values of financial investments are estimated to approximate the related book values, unless otherwise indicated, based on market information available to the Company. Earnings per share (EPS) - EPS is based on Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." Accordingly, Basic EPS is calculated using income available to common shareholders divided by the weighted average number of common shares outstanding during the year. Diluted EPS is similar to Basic EPS except that it is based on the weighted average number of common and potentially dilutive shares, from dilutive stock options, outstanding during each year. The weighted average shares used to calculate earnings per share on the historical statement of operations has been determined by converting the number of outstanding shares of Blackmarr during the periods presented, based upon the ratio of approximately 77 to 1, which was the ratio received by Blackmarr as a result of the offering. Common shares issuable upon exercise of common stock options are anti-dilutive (decreases net loss per share) for the periods presented. Stock based compensation - Stock based compensation arising from stock option grants and awards are accounted for by the intrinsic value method under Accounting Principals Board (APB) Opinion No. 25. "Accounting for Stock Issued to Employees." See Note 9. Accounting standards changes - In 1998, the Company adopted the following Statements of Financial Accounting Standards ("SFAS"): o SFAS 130, "Reporting Comprehensive Income", which requires the components of comprehensive income to be disclosed in the consolidated financial statements. 27 27 o SFAS 131, "Disclosure about Segments of an Enterprise and Related Information", which require disclosures of certain information about the Company's operating segments on a basis consistent with the way in which the Company is managed and operated. Adoption of these new standards required that the Company reclassify prior year's information and make certain new disclosures in the notes to the consolidated financial statements. New pronouncements - In 1998, SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", was issued. This standard, which establishes new accounting and reporting standards for derivative financial instruments, must be adopted no later than 2000. The Company is currently analyzing the effect of this standard and does not expect it to have a material effect on the Company's consolidated financial position, results of operations or cash flows. Reclassifications - Certain reclassifications have been made to conform the prior years financial statement amounts to the current year classifications. 2) ACQUISITIONS Concurrent with and as a condition to the closing of the IPO, BrightStar acquired all of the outstanding capital stock or substantially all the net assets of Brian R. Blackmarr and Associates, Inc. ("Blackmarr"), Integrated Controls, Inc. ("ICON"), Mindworks Professionals Education Group, Inc. ("Mindworks"), Software Innovators, Inc. ("SII"), Zelo Group, Inc. ("Zelo"), Software Consulting Services America, LLC ("SCS America") and SCS Unit Trust ("SCS Australia")(the "Founding Companies"). The acquisitions have been accounted for using the purchase method of accounting with Blackmarr being treated as the accounting acquirer, in accordance with Staff Accounting Bulletin No. 97. The purchase method of accounting requires that the results of operations of the acquired companies only be included in the consolidated financial statements subsequent to their respective acquisition dates. At the acquisition date, the purchase price was allocated to assets acquired, including identifiable tangibles, and liabilities assumed based on their fair market values. The excess of the total purchase prices over the fair value of the net assets acquired represents goodwill. The following table sets forth the consideration paid in cash and shares of common stock. For purposes of computing the estimated purchase price for accounting purposes, the value of the shares was determined using an estimated fair value of $11.70 per share, which represents a discount of 10% from the initial public offering price of $13.00 per share due to restrictions on the resale and transferability of the shares issued in the Acquisitions. The estimated purchase price for each acquisition is subject to certain purchase price adjustments.
Amount In Common Common Stock Cash Stock Shares ---------- ---------- ---------- Founding Companies: (Dollars in thousands) ICON $ 6,224 $ 4,149 319,197 Mindworks 445 1,052 80,894 SCS America 11,000 5,000 384,615 SCS Australia(1) 9,815 5,889 452,976 SII 450 2,413 185,633 Zelo 375 1 100 ---------- ---------- ---------- Subtotal 28,309 18,504 1,423,415 Blackmarr 3,290 13,160 1,012,306 ---------- ---------- ---------- Total $ 31,599 $ 31,664 2,435,721 ========== ========== ==========
(1) Common stock shares have not yet been issued and are included in common stock payable at December 31, 1998. 28 28 The following is the calculation of goodwill arising from the acquisitions of the Founding Companies and BITG in thousands: Cash paid to Founding Companies $ 31,599 Stock issued to Founding Companies (valued at $11.70 per share) 28,498 Cash paid to Blackmarr, charged to retained earnings (3,290) Discounted value of stock issued to Blackmarr included in amount of stock issued to Founding Companies above (11,844) -------- Total consideration (purchase price) attributable to acquisition of the Founding Companies and BITI by Blackmarr, the accounting acquirer $ 44,963 Pro forma combined net assets of all Founding Companies and BITI (1,216) Net assets of Blackmarr 1,107 Deferred offering costs at BITI 4,907 Other acquisition costs 1,366 Goodwill at ICON 94 In-process research and development (3,000) -------- Total $ 48,221 ========
Additionally, 437,681 shares of common stock were issued as consideration for class A units at BITI. These shares were valued at a discount of 10% to the initial public offering price of $13.00. These shares, less 46, 153 shares issued to affiliated parties charged to paid-in capital, have been included in goodwill in the amount of $4,580,878, as a cost of the acquisition of the Founding Companies. Since the IPO Brightstar has completed three acquisitions which were accounted for as purchase business combinations as follows: o On June 30, 1998, the Company completed the acquisition of Cogent Technologies, LLC, for $250,000 and certain costs, resulting in total goodwill of approximately $254,000. o On August 31,1998, the Company completed the acquisition of Total Business Quality Associates, Inc. (TBQ), a provider of SAP consulting and implementing services for $1,450,000 and certain costs, resulting in total goodwill of approximately $1,478,000. o Effective September 30, 1998, the Company completed the acquisition of PROSAP Australia Pty. LTD (PROSAP), a SAP certified National Implementation Partner located in Sydney, Australia for $8,884,000 and certain acquisition costs resulting in total goodwill of approximately $8,525,000; $4,100,000 was paid at closing and the remaining purchase price is to be paid over approximately nine months. See Note 6. The following table presents unaudited pro forma results of operations of the Company as if the above described acquisitions had occurred at January 1, 1997 for the years ended December 31(in thousands, except per share data):
1997 1998 --------- --------- Revenues $ 65,678 $ 110,973 ========= ========= Loss before income taxes $ (7,682) $ (8,589) ========= ========= Net loss $ (8,250) $ (9,386) ========= ========= Basic and diluted Loss per share: $ (.98) $ (1.11) ========= =========
The unaudited pro forma results of operations are not necessarily indicative of what the actual results of operations of the Company would have been had the acquisitions occurred at the beginning of 1997, nor do they purport to be indicative of the future results of operations of the company. 29 29 3) BUSINESS RESTRUCTURING During the fourth quarter of 1998, the Company announced a plan to restructure its operations. The Company recorded a charge totaling $7,613,857 during 1998. The plan includes the following: o Reorganize the operations of its wholly owned subsidiaries into one operation that will result in an integrated sales force, focused operating divisions and consolidated finance and administrative functions o Realignment into five separate operating divisions/consulting service lines o Relocation of its corporate office o Reduction of workforce of approximately 11 employees o The write-down of certain property and equipment and other assets as a result of business closures and termination of service lines. o Contract terminations and other obligations. The major categories of the 1998 charges are summarized below: Workforce severance obligations $4,960,015 Asset impairment 1,171,151 Lease and other contract obligations 1,482,691 ---------- Total $7,613,857 ==========
The following is a summary of the types and amounts of accrued charges at December 31, 1998; Workforce severance obligations $2,900,057 Lease and other contract obligations 1,482,691 ---------- Total $4,382,748 ==========
4) PROPERTY AND EQUIPMENT Property and equipment consists of the following:
December 31, 1997 1998 ---------- ---------- Computer equipment and software $ 737,189 $3,499,675 Furniture, fixtures and office equipment 244,638 1,306,515 Leasehold improvements 244,515 ---------- ---------- Total 981,827 5,056,705 Accumulated depreciation and amortization 705,074 1,504,701 ---------- ---------- Property and equipment, net $ 276,753 $3,546,004 ========== ==========
5) OTHER ASSETS Other assets consist of the following:
December 31, 1997 1998 ---------- ---------- Deposits $ 50,083 $ 197,715 Notes receivable and other 6,676 299,923 ---------- ---------- Total $ 56,759 $ 497,638 ========== ==========
6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses consist of the following:
December 31, 1997 1998 ---------- ---------- Accrued payroll and payroll taxes $ 675,669 $5,286,189 Other accrued expenses 1,935,260 1,041,520 ---------- ---------- Total accrued expenses $2,610,929 $6,327,709 ========== ==========
7) ACQUISITION PAYABLE In connection with the acquisition of PROSAP (see Note 2), the Company is required to pay the remaining purchase price of $4,784,000 as follows: $1,534,000 payable on January 1, 1999; $1,250,000 payable on April 1, 1999; and $2,000,000 payable on June 30, 1999. The amounts due on January 1, 1999 and April 1, 1999 are secured by an irrevocable bank letter of credit. 8) LINE OF CREDIT AND NOTES PAYABLE 30 30 Line of credit and notes payable consist of the following:
1997 Line of Credit, interest accruing prime plus 1% $ 847,764 ========== Note payable, monthly principal payments of $10,898 Plus accrued interest at prime plus 0.5% $ 108,985 Note payable, payable on demand, interest at 10% per annum 104,200 ---------- $ 213,185 ==========
The outstanding balances related to the above items were paid off during 1998 with proceeds from the IPO. 9) REVOLVING CREDIT FACILITY In April 1998, The Company received a commitment from a lender to provide its revolving credit facility, however, the Company did not enter into this credit facility. Effective March 29, 1999 the Company entered into a Revolving Credit Agreement with another lender that provides a line of credit of up to $15 million. This facility expires March 30, 2001. Amounts outstanding under the revolving credit agreement will bear interest at a rate per annum equal to one of the following rates, at the Company's option: (i) Eurodollar rate plus 2.5% or (ii) prime rate plus 1/4%. The Company will pay a commitment on unused amounts of the revolving credit facility of 3/8% per annum based on the average daily amount by which the commitment amount exceeds the principal amount outstanding during the preceding month. Interest is payable monthly on prime rate borrowings and quarterly or at the end of the applicable interest period for the Eurodollar rate borrowings. The revolving credit facility is secured by liens on substantially all of the Company's assets (as defined in the agreement) and contains various financial and other restrictive covenants and requirements including (i) maintenance of certain financial ratios, (ii) restrictions on additional indebtedness and (iii) restrictions on liens, guarantee and payments of dividends. 10) STOCKHOLDERS' EQUITY AND OTHER STOCK RELATED INFORMATION Capital Stock Authorized capital shares of the company include 3,000,000 shares of preferred stock, 2,000,000 shares of restricted stock and 35,000,000 shares of common stock. Rights, preferences and other terms of the preferred stock will be determined by the board of directors at the time of issuance; no preferred stock was issued at December 31, 1998. Common Stock Payable Common stock payable represents additional stock issuable under the terms based upon of the purchase agreement between the Company and SCS Australia, achieving certain 1998 revenue targets. Upon the final settlement of the purchase price, the unit holders of SCS Unit Trust received 441,400 common shares during the first quarter of 1999, with the difference of 11,575 shares to be issued to certain directors and members of management under the terms of the original exchange agreement. As a result, a charge to stock compensation expense in the amount of $135,429 was recorded. Common stock warrant and option In 1997, the Company entered into an advisory agreement with an investment banking firm, and issued a warrant to that firm for $100. The warrant provides for the purchase of 50,000 shares of common stock at an exercise price of $6, and is exercisable at any time prior to August 14, 2004. Also in 1997, the Company entered into an agreement for corporate development services and issued a common stock option to the consulting firm. The option grants the holder the option to purchase 14,285 shares. The estimated combined fair value of the warrant and the option of $450,000 were recorded as offering costs, and charged against paid-in capital. The common stock warrant was exercised during 1998, with the holder surrendering approximately 17,000 common shares in lieu of payment for 33,008 common shares. 31 31 The following table reconciles the numerators and denominators used in the computation of both basic and diluted EPS:
1996 1997 1998 -------- -------- -------- Basic EPS and diluted computation: Numerator: Net income (loss) $ (50) $ (37) $(16,544) Denominator: Weighted average shares outstanding (000's) 893 1,012 6,275 ---------- -------- -------- Basic and diluted EPS $ (0.06) $ (0.04) $ (2.64)
STOCK OPTIONS - During 1998 a stock option plan (The 1997 Plan) was established, which provides for the issuance of incentive and non-qualified stock options, restricted stock awards, stock appreciation rights or performance stock awards. The total number of shares that may be issued the Plan is 1,000,000 shares, of which only 930,000 shares may be granted for incentive stock options. Options, which constitute the only issuance under the incentive plans, have been generally granted at fair value of the company's common stock on the date of grant. The following table summarizes the plan's stock option activity:
Shares Exercise ---------- Price ------------- Options outstanding at December 31, 1997 -- $ Granted in 1998 603,402 13.00 Exercised -- Expired -- ---------- Options outstanding at December 31, 1998 603,402 $ 13.00 ========== Exercisable at December 31, 1998 98,950 ==========
32 32 STOCK-BASED COMPENSATION - The Company applies Accounting Principles Board Option No. 25 and related interpretations in accounting for its stock option plans. No compensation cost (generally measured as the excess, if any, of the quoted market price of the common stock at the date of the grant over the amount an employee must pay to acquire the common stock) has been recognized for the Company's stock option plans. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", issued by the Financial Accounting Standards Board in 1995, prescribed a method to record compensation cost for stock-based employee compensation plans at fair value, but allowed disclosure as an alternative. Pro forma disclosures as if the Company had adopted the cost recognition requirements under SFAS No. 123 in 1998 are presented below. The pro forma compensation cost may not be representative of that expected in future years.
1998 ----------- Net loss (in thousands) As reported $(16,544) Pro Forma $(17,622) Earnings per share - diluted As reported $(2.64) Pro Forma $(2.81) Stock options issued 333,402 Weighted average value of options $ 9.71 Average compensation value of options granted per option $ 3.29
Compensation cost (for the current-year grants) was calculated in accordance with the binomial model, using the following assumptions: (i) expected volatility computed using the monthly average of the Company's common stock market price as listed on the NASDAQ National Market for the period April 16, date of the Company's initial public offering, through December 31, 1998, and the nolatility of comparable companies, which market price volatility averaged 60%; (ii) expected dividend yield of 0%; (iii) expected option term of 10 years; and (iv) risk-free rate of return as of the date of the grant, of 5.60%, based on extrapolated yield of 10 year U.S. Treasury securities. 11) STOCK COMPENSATION EXPENSE In connection with the offering and acquisition of the Founding Companies, certain directors and members of management received 648,126 shares of common stock. These shares, valued at $11.70, were recorded as deferred compensation and are being charged to stock compensation expense over a one year period based upon the terms of a stock repurchase agreement between the Company and related shareholders. Total stock compensation expense recorded during 1998 in connection with the above was $ 5,055,382 . At December 31, 1998, certain members of management that had received substantially all of these shares were terminated in connection with the Restructure. As a result, the remaining deferred compensation totaling $2,059,958, attributable to the shares held by these terminated employees was charged to expense and is included in the Restructure Charge. In connection with the terms of the acquisition of SCS Unit Trust, certain key employees were granted 200,000 shares of common stocks under an incentive stock bonus plan. Based on the share price of $7.88 per share on the date of the grant, the Company recorded stock compensation expense of $1,575,000. At December 31, 1998 these common shares had not been formally issued, and accordingly, are recorded in common stock payable. 33 33 During March 1997, the Company issued 3,068 shares of common stock with an estimated fair value of approximately $100 per share to certain employees for $1 per share. Compensation expense totaling $305,000 was recognized during the year ended September 30, 1997. 12) INCOME TAXES The components of income before income taxes and the related income taxes for the years ended December 31, 1996, 1997 and 1998, as presented below:
1998 ---------- Income (loss) before income taxes: (17,453,175) Domestic 1,706,244 ----------- Foreign (15,746,931) ===========
The Company had no Foreign income in the years ended December 31, 1996 and 1997.
1996 1997 1998 ---------- ---------- ----------- Provision for income taxes: Current: Federal $ 32,609 $ (1,647) 784,986 State 108,144 Foreign 527,382 Deferred: Federal (32,503) 8,113 (623,422) Foreign -- ---------- ---------- ----------- Total $ 106 6,466 $ 797,090 ========== ========== ===========
The Company's deferred tax assets are reflected below as of December 31, 1997 and 1998, respectively:
1997 1998 ---------- ---------- Bad debt reserves $ 161,564 $ 387,317 Restructure reserve 1,665,444 Fixed asset depreciation 9,943 30,923 Other -- 87,960 ---------- ----------- Net deferred tax asset $ 171,507 2,171,644 ========== Valuation allowance (1,386,658) ------------ $ 784,986 ============
The table below reconciles the expected U.S. federal statutory tax to the recorded income tax rate: 1996 1997 1998 ---------- ---------- ---------- Provision (benefit) at statutory tax rate $ (10,759) $ (14,807) $(6,108,611) State income taxes, net of federal benefit 6 (1,293) (88,397) Goodwill amortization 360,716 Foreign Tax -- -- 527,382 Deferred Compensation -- -- 3,041,619 Goodwill Writeoff -- -- 1,505,833 Valuation Allowance -- -- 1,386,658 Other, net 10,859 22,566 171,890 ---------- ---------- ----------- Total $ 106 $ 6,466 $ 797,090 ========== ========== ===========
13) EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan that covers substantially all employees. Employees vest in Company contributions evenly over five years. The Company may provide matching contributions of up to 6% of the employees base salary. Employer matching and profit sharing contributions are discretionary, and, to date, no matching nor profit sharing contributions have been made. 34 34 14) COMMITMENTS AND CONTINGENCIES The Company leases office space, computer and office equipment under various capital and operating lease agreements that expire at various dates through December 31, 2003. Minimum future commitments under these agreements at December 31, 1998 are as follows (in thousands):
Capital Operating 1999 $198,890 $2,950,119 2000 140,275 2,421,793 2001 5,251 1,865,797 2002 1,153,907 2003 336,115 -------- ---------- Total minimum lease payments 344,416 $8,727,731 ========== Less amounts representing interest 48,158 -------- Present value of capital lease obligation 296,258 Less current portion of capital lease obligations. 167,201 -------- Long-term portion of capital lease obligations. $129,057 ========
Rent expense was $372,271, $394,123, $113,111, and $1,636,387 during the periods ended September 30, 1996 and 1997, December 31, 1997 and December 31, 1998, respectively, and is included in selling, general and administrative expense. EMPLOYMENT AGREEMENTS - As of December 31, 1998, the Company had entered into employment agreements with certain key management personnel which provided for minimum compensation levels and incentive bonuses, along with provisions for termination of benefits in certain circumstances and for certain severance payments in the event of a change in control. 15) SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION The Company did not have any customer, individually or considered as a group under common ownership that accounted for 10% of revenues or accounts receivable for the periods presented. 35 35 The Company operates in a single industry, as a provider of information technology services. Since April 16, 1998, the Company has primarily operated in two geographic regions. Prior to April 16, 1998, the Company primarily operated in the United States. Specific information related to the Company's geographic areas are found in the following table:
For Year Ended December 31, 1998 ================================ (dollars in thousands) Revenues Income (Loss) From Long Lived Assets Operations Assets -------- -------------------------------- ------- United States $ 62,951 $ (17,768) 64,438 $83,052 ------- ------------------------------- ------- Australia $ 17,977 $ 1,936 835 $10,512 ------- ------------------------------- ------ Other $ -- $ -- $ -- ------- ------------------------------- ------- Consolidated $ 80,928 $ (15,832) 65,273 $93,564 ------- ------------------------------- -------
36 36 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - - ----------- ----------- 3.1 -- Certificate of Incorporation, as amended (Incorporated by reference from Exhibit 3.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 3.2 -- Bylaws, as amended (Incorporated by reference from Exhibit 3.2 to Amendment No. 3.2 to BrightStar's Registration Statement on Form S-1 filed April 14, 1998 (File No. 333-43209)). 4.1 -- Specimen Common Stock Certificates (Incorporated by reference from Exhibit 4.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 4.2 -- Agreement and Plan of Exchange dated December 15, 1997 among BrightStar, BITG, BITI and the holders of the outstanding capital stock of BITG (Incorporated by reference from Exhibit 4.2 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 4.3 -- Option Agreement dated as of December 16, 1997 between BrightStar and Brewer-Gruenert Capital Advisors, LLC (Incorporated by reference from Exhibit 4.4 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.1 -- BrightStar 1997 Long-Term Incentive Plan (Incorporated by reference from Exhibit 10.1 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.2 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Brian R. Blackmarr and Associates, Inc. (Incorporated by reference from Exhibit 10.2 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.3 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Integrated Controls, Inc. (Incorporated by reference from Exhibit 10.3 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.4 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Mindworks Professional Education Group, Inc. (Incorporated by reference from Exhibit 10.4 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.5 -- Agreement and Plan of Exchange by and among BrightStar, Software Consulting Services America, LLC and the holders of the outstanding ownership interests of Software Consulting Services America, LLC. (Incorporated by reference from Exhibit 10.5 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.6 -- Agreement and Plan of Exchange by and among BrightStar and Software Consulting Services Pty. Ltd. in its capacity as Trustee of the Software Consulting Services Unit Trust and the holders of all of the
37 outstanding ownership interests in the Software Consultants Unit Trust (Incorporated by reference from Exhibit 10.6 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.7 -- Agreement and Plan of Exchange by and among BrightStar and the holders of the outstanding capital stock of Software Innovators, Inc. (Incorporated by reference from Exhibit 10.7 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.8 -- Agreement and Plan of Exchange by and among BrightStar and the holder of the outstanding capital stock of Zelo Group, Inc. and Joel Rayden (Incorporated by reference from Exhibit 10.8 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.9 -- Form of Employment Agreement between BrightStar and Marshall G. Webb, Thomas A. Hudgins and Daniel M. Cofall (Incorporated by reference from Exhibit 10.9 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)).* 10.10 -- Employment Agreement between Software Consulting Services America, Inc. and Michael A. Ober.* 10.11 -- Office Lease dated November 11, 1998, between Principal life insurance company and BrightStar. 10.12 -- Employment Agreement dated Jan. 31, 1999 between BrightStar and Donald Rowley.* 10.13 -- Employment Agreement between Brian R. Blackmarr and Associates, Inc. and Brian R. Blackmarr (Incorporated by reference from Exhibit 10.10 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)).* 10.14 -- Letter Agreement dated August 14, 1997 between BITG and McFarland, Grossman and Company, Inc., and amended as of March 17, 1998 (Incorporated by reference from Exhibit 10.11 to Amendment No. 2 to BrightStar's Registration Statement on Form S-1 filed March 24, 1998 (File No. 333-43209)). 10.15 -- Letter Agreement dated September 26, 1997 between BITG and Brewer-Gruenert Capital Advisors, LLC, and amended as of December 15, 1997 (Incorporated by reference from Exhibit 10.12 to BrightStar's Registration Statement on Form S-1 filed December 24, 1997 (File No. 333-43209)). 10.16 -- Loan Agreement dated October 16, 1997 between BITI and BITG (Incorporated by reference from Exhibit 10.13 to Amendment No. 1 to BrightStar's Registration Statement on Form S-1 filed February 27, 1998 (File No. 333-43209)). 10.17 -- Stock Repurchase Agreement between BrightStar and Marshall G. Webb, Daniel M. Cofall, and Thomas A. Hudgins.* 10.18 -- Agreement Regarding Repurchase of Stock by and among BrightStar, George M. Siegel, Marshall G. Webb, Thomas A. Hudgins, Daniel M. Cofall, Mark D. Diggs, Michael A. Sooley, Michael B. Miller, and Tarrant Hancock.*
38 10.19 -- Amendment to Agreement and Plan of Exchange dated as of June 5, 1998 by and BrightStar and the holder of the outstanding capital stock of Zelo Group, Inc. and Joel Rayden. 10.20 -- Deed of Variation dated as of April 17, 1998 by and among BrightStar and Software Consulting Services Pty. Ltd. and Kentcom Pty. Ltd., Salvatore Fazio, Pepper Tree Pty. Ltd., Christopher Richard Banks, Cedarman Pty. Ltd, Stephen Donald Caswell, Quicktrend Pty. Ltd., Desmond John Lock, Kullamurra Pty. Ltd., Robert Stephen Langford, and KPMG Information Solutions Pty. Ltd. and Data Collection Systems Integration Pty. Ltd. 10.21 -- Asset Purchase Agreement dated as of June 30, 1998 among BrightStar, Cogent Acquisition Corp., Cogent Technologies, LLC and the holders of all of all the outstanding membership interest of Cogent Technologies, LLC. 10.22 -- Asset Purchase Agreement dated as of August 31, 1998 among BrightStar, Software Consulting Services America, Inc., TBQ Associates, Inc. and the holders of all the outstanding capital stock of TBQ Associates, Inc. 10.23 -- Stock Purchase Agreement dated effective as of September 30, 1998 among BrightStar, BrightStar Group International, Inc. and the holders of the outstanding capital stock of PROSAP AG (Incorporated by reference from Exhibit 2.1 to the Current Report on Form 8-K of BrightStar dated November 10, 1998. 10.24 -- Factoring Agreement and Security Agreement dated January 22, 1999 among Metro Factors, Inc. dba Metro Financial Services, Inc., Brian R. Blackmarr and Associates, Inc., Software Consulting Services America, Inc., Software Innovators, Inc., and Integrated Controls, Inc. 10.25 -- Guaranty dated January 22, 1999 by BrightStar for the benefit of Metro Factors, Inc. dba Metro Financial Services, Inc. 10.26 -- Severance Agreement and Release effective November 20, 1998 between BrightStar and Thomas A. Hudgins. 10.27 -- Severance Agreement and Release effective January 31, 1999 between BrightStar and Daniel M. Cofall. 10.28 -- Severance Agreement and Release effective January 31, 1999 between Marshall G. Webb. 10.29 -- Revolving Credit Agreement dated March 29,1999 between BrightStar and Comerica Bank 10.30 -- Form of subsidiaries guaranty dated March 29,1999 between BrightStar subsidiaries and Comerica Bank 10.31 -- Security Agreement (Negotiable collateral) dated March 29,1999 between BrightStar and Comerica Bank 10.32 -- Security Agreement (All assets) dated March 29, 1999 between BrightStar and Comerica Bank 10.33 -- $15,000,000 Revolving Note dated March 29, 1999 from BrightStar to Comerica Bank 21.1 -- List of Subsidiaries of the Company. 24.1 -- Power of Attorney 27.1 -- Financial Data Schedule
* Management Contract or Compensatory Plan required to be filed as an exhibit to this form pursuant to Item 14(c) of Form 10-K. EX-10.10 2 EMPLOYMENT - MICHAEL A. OBER 1 EXHIBIT 10.10 EMPLOYMENT AGREEMENT (Alternate 1 - 3 years) This Employment Agreement ("Agreement") is made as of April 16, 1998, by and between SOFTWARE CONSULTING SERVICES AMERICA, INC., a Delaware corporation, located at 950 Tower Lane, Suite 1850, Foster City, California 94404 (the "Company"), and MICHAEL A. OBER, an individual with an address of 950 Tower Lane, Suite 1850, Foster City, California 94404 (the "Employee"). 1. Employment. The Company hereby agrees to employ the Employee and the Employee hereby agrees to work for the Company under the terms and conditions set forth herein. This Agreement supersedes and replaces any prior employment agreement or other agreement between the parties dealing with the subject matter hereof and such prior agreements, if any, are hereby terminated. 2. Term of Employment. The term of employment pursuant to this Agreement shall begin on the date set forth above (the "Effective Date") and shall continue in effect for an initial term of three (3) years from the date set forth above unless terminated in accordance with Section 7, and shall be extended from year to year thereafter, unless terminated effective as of the end of the initial term or any one-year extension thereafter by written notice from the Company to Employee, or by written notice of Employee to the Company, delivered not less than sixty (60) days prior to the end of the initial term, or the end of such one-year extension, as applicable. 3. Scope of Duties; Covenants. (a) The Employee shall be employed by the Company in the position set forth on Schedule A hereto and shall perform the duties as set forth on Schedule A hereto. At all times, Employee shall serve under the direction of the Board of Directors and the Chief Executive Officer of the Company and shall perform such services and exercise such authority as is customary for such position. (b) So long as he is employed by the Company, Employee shall devote his skill, energy and best efforts to the faithful discharge of his duties as an employee of the Company. The Employee agrees that in the provision of all services to the Company, he will comply with and follow the provisions of this Agreement and all directives, policies, standards and regulations from time to time established by the Board of Directors of the Company. 1 2 (c) Employee represents and warrants that Employee is under no contractual or other restrictions or obligations which will significantly limit the performance of Employee's obligations under this Agreement or which will prohibit or limit the use by the Employee of any information which relates to the business of the Company or the services to be rendered by the Employee under this Agreement (including, without limitation, any agreement relating to any proprietary information, knowledge or data acquired by Employee in confidence, trust or under other obligation prior to Employee's employment by the Company). Employee covenants and agrees that Employee shall not disclose to the Company, or induce the Company to use, any such proprietary information, knowledge or data belonging to any previous employer or others. Employee further covenants and agrees not to enter into any agreement or understanding, either written or oral, in conflict with the provisions of this Agreement during the term of this Agreement. (d) To the extent they relate to, or result from, directly or indirectly, the actual or anticipated operations of the Company, the Employee hereby agrees that all Intellectual Property (defined below) developed, purchased or acquired by the Company, shall be the exclusive property of the Company, and unless otherwise agreed by the Company, all right, title and interest therein shall remain in the Company. (e) The Employee will hold all Intellectual Property and Confidential Information (defined below) in trust for the Company and will deliver all Intellectual Property and Confidential Information in his possession or control to the Company upon request and, in any event, at the end of his employment with the Company. During the term of his employment with the Company, the Employee will promptly disclose to the Company all Confidential Information that comes to Employee's attention which has not previously been disclosed to the Company, as well as any business opportunity reasonably related to the scope of business of the Company or an Assisted Affiliate as described in Section 8, which comes to his attention. The Employee will not take advantage of or divert from the Company any such business opportunity for the benefit of himself or any other party without the prior written consent of the Company. 4. Compensation. (a) During the first year of the term of employment hereunder, the Company shall pay the Employee a base salary, payable in equal periodic installments in accordance with the Company's customary payroll practices, not less frequently than semi-monthly, at an annual rate or rates set forth on Schedule A attached hereto and incorporated by reference herein. Schedule A may also set forth certain other compensation payable to Employee. In each subsequent year of the term of employment, the Company shall pay to the Employee a salary and any such other compensation determined by the Board of Directors following its annual salary and performance review; provided, however, that such salary and compensation shall not be less than the amount determined in accordance with Schedule A. 2 3 (b) Employee shall receive an annual cash performance bonus for each calendar year during the term of this Agreement to be determined according to the following procedure except as may be otherwise mutually agreed to between the Employee and the Company. The Board of Directors of the Company, or the Compensation Committee of the Board of Directors, if so authorized, shall establish specific annual performance goals for the Company and for Employee with respect to each calendar year (or portion thereof) during the term of this Agreement commencing on January 1, 1998. Such goals for 1998 shall be in accordance with Schedule A. For subsequent years, such goals shall be communicated to Employee not later than the end of the first quarter of the applicable calendar year. At the end of each calendar year during the term of this Agreement, or within a reasonable time thereafter, the Board of Directors of the Company, or the Compensation Committee of the Board of Directors, if so authorized, shall review the actual performance of the Company and Employee, giving due consideration to market and other developments outside of the control or influence of Employee and the Company, and based upon the extent to which the applicable annual performance goals have been achieved, shall determine in its sole and absolute discretion, the amount of performance bonus payable to Employee with respect to such year. (c) The Company shall also pay Employee a monthly automobile allowance in the amount set forth on Schedule A attached hereto. (d) All payments of salary and other compensation to the Employee shall be made after deduction of any taxes which are required to be withheld with respect thereto under applicable federal and state laws. 5. Vacation/Personal Time. Employee shall be entitled to leave for vacation and personal time off as provided on Schedule A attached hereto and incorporated by reference herein. Unused holidays and days for personal time off and vacation may not be carried over from one fiscal year to another. The aggregate number of days specified on Schedule A for vacation and personal time off need not be taken by Employee in succession, but in any increments and at any time during the year as approved by the Company. For purposes of this Agreement, "personal time off" shall include time taken off by Employee on account of illness, family emergency or death in the immediate family. 6. Fringe Benefits; Expenses. So long as the Employee is employed by the Company, the Employee shall participate in any employee benefit plans sponsored by the Company generally for its employees serving in similar employment capacities as the Employee as determined from time to time by the board of directors of the Company or any compensation committee of the board of directors, if any, and on terms at least as favorable to Employee as are generally offered to other employees of the Company serving in a similar capacity. The Company shall also reimburse 3 4 Employee for his reasonable travel and other out-of-pocket business expenses incurred in connection with his employment under this Agreement pursuant to expense reports filed in accordance with the Company's policies in effect from time to time, provided that if Employee receives an automobile allowance pursuant hereto, then Employee shall not otherwise be reimbursed for automobile expenses under this provision, except for out-of-town rental automobiles. 7. Termination. (a) General. Employer and Employee agree that Employee's employment hereunder may be terminated by the Employee resigning or by the Company's declaration of termination with or without "Cause" at any time, subject to the terms of this Section 7. Such termination shall be effective upon delivery of written notice from the acting party to the other of its election to terminate employment pursuant to this Section 7. "Cause" when used in connection with the termination of employment with the Company, shall mean the termination of the Employee's employment by the Company by reason of (i) Employee's material breach of any of Sections 3, 7, 8, 9, 10, 11 and 12 of this Agreement which breach, if curable, is not cured within thirty (30) days of written notice to Employee of such breach; (ii) the conviction of, or the entering of a guilty plea or no contest plea by, the Employee for a crime involving moral turpitude by a court of competent jurisdiction; (iii) the commission by the Employee of an act of fraud upon the Company or any of its affiliates; (iv) the misappropriation of any funds or property of the Company or any of its affiliates by the Employee; (v) the failure by the Employee to perform material duties assigned to him pursuant to Schedule A or otherwise assigned to and accepted by Employee, or to comply with any written Company policy after reasonable written notice and opportunity to cure such performance; (vi) the engagement by the Employee in any direct, material conflict of interest with the Company or any of its Assisted Affiliates without compliance with the Company's conflict of interest policy, if any, then in effect; or (vii) the engagement in any activity which would constitute a material violation of the provisions of the BrightStar Information Technology Group, Inc. ("BrightStar") insider trading policy, if any, then in effect. (b) Termination for Cause or Resignation. If the Company terminates the Employee's employment for Cause or the Employee voluntarily resigns, the Company shall pay the Employee's base salary earned through the date of termination (and any other earned but unpaid compensation and accrued vacation time prior to termination), but all rights to any other compensation or benefits arising hereunder, shall be canceled and terminated in all respects concurrently with such termination of employment; provided that the Employee may elect to continue to participate, at Employee's own expense, in such health insurance and other benefits as to which the opportunity for continuing participation is mandated by applicable laws. (c) Termination Without Cause. In the event that the Employee's employment is terminated by the Company without Cause other than at the end of the initial term or one of the one year renewal terms of this Agreement, the Company shall, subject to the terms of subsections 7.(e) and 7.(f) below, and only if and as long as Employee is not in breach of his obligations under this Agreement, pay compensation to Employee in the manner set forth below. Employee may not be terminated without Cause unless such termination has been approved in writing by BrightStar. If the Employee is terminated without Cause during the initial three-year term of this Agreement, then the 4 5 Company shall continue to pay to Employee his current base salary provided for under this Agreement, plus any other earned and unpaid compensation and accrued vacation time prior to termination, plus a per annum amount of additional compensation based on prior earned bonuses and/or commissions, if any, equal to the amount of earned bonuses or commissions of Employee during the twelve complete calendar months immediately preceding the date of termination ("Severance Payments"), in periodic payments in accordance with its customary payroll practices for the period ending the later of (i) the end of the initial three-year term of the Agreement or (ii) twelve months after termination of employment. If the Employee is terminated without Cause during any one-year extension of the initial term of the Agreement, then the Company shall continue to pay to Employee Severance Payments in accordance with its customary payroll practices for a period of twelve months after termination of such employment. If the Employee is terminated by the Company without Cause, the Company shall also continue to provide benefits in the kind and amounts provided to its employees generally for up to twelve months following the date of termination, including continuation of any Company-paid benefits provided pursuant hereto, for the Employee and Employee's spouse and minor children, provided such benefits will be subject to immediate termination to the extent Employee receives benefits under another similar benefit plan. If the Company fails to make any of the payments required under this Section 7.(c) when reasonably due, then any restrictions imposed by Section 8 hereof against Employee competing with the Company shall immediately lapse, but this shall not release the Company's obligation for Severance Payments. Employee agrees that the above payments shall be a full settlement of the Company's obligations to Employee hereunder in the event of a termination without Cause. (d) Termination Following Change of Control. In the event of (i) the sale of all or substantially all of the assets of the Company, or (ii) a merger, consolidation, liquidation or reorganization of the Company, in which the Company or an affiliate of the Company is not the surviving entity, or which results, in any event, in a change of control of the Company (each, a "Change in Control Transaction"), the Company or the surviving entity, as the case may be, may either (A) terminate Employee's employment hereunder and pay to the Employee an amount equal to thirty-six months (36) compensation at Employee's then current annual salary, payable not less frequently than monthly, and continue to provide benefits in the kind and amounts provided to its employees generally for such thirty-six (36) month period (collectively, "Change of Control Compensation") or (B) adopt this Agreement; provided, however, that if the Company or the surviving entity elects to adopt this Agreement following a Change in Control Transaction and it shall subsequently terminate Employee's term of employment without Cause, then it shall pay and provide to Employee salary and benefits equal to the greater of (x) the salary and benefits to be provided under Section 7.(c), and (y) the difference between the salary and benefits provided to Employee pursuant to clause (A) above and the aggregate amount of salary and benefits actually paid to Employee following the Change in Control Transaction. (e) Disability; Death. If at any time during the term of this Agreement, Employee is unable, due to physical or mental disability, to perform effectively his duties hereunder, the Company shall continue payment of compensation as provided in Section 4 during the first six months of such disability to the extent not covered by the Company's disability insurance policies. Upon the expiration of such six month period, the Company, at its sole option, may continue payment of Employee's salary for such additional periods as the Company elects, or may terminate 5 6 this Agreement without any further obligations hereunder. If Employee should die during the term of this Agreement, Employee's employment and the Company's obligations hereunder shall terminate as of the end of the month in which Employee's death occurs and there will be no salary and benefit continuation period. Employee shall be deemed to have incurred a disability if Employee suffers a physical or mental condition which (i) satisfies the definition of "total disability" in the Company's disability insurance policies, or (ii) if no such policy or plan is then covering Employee, in the reasonable judgment of the Board of Directors, prevents Employee from engaging in any substantial gainful employment with the Company for a period of more than six (6) months. (f) Standstill Agreement; Lock-up Letters. So long as Employee is employed by the Company or receives severance compensation as provided above, Employee agrees that he will sign any reasonable securities lock-up letters, standstill agreements, or other similar documentation required by an underwriter in connection with a public offering of securities by BrightStar or take other actions reasonably related thereto as requested by the Board of Directors of the Company under similar terms and conditions as for other management employees of the Company or BrightStar generally. Failure to take any such action shall be a "Cause" for termination and shall cause Employee to forfeit any further rights to compensation or other payments hereunder. In addition, Employee agrees that in such event the Company can seek and obtain specific performance of such covenant, including any injunction requiring execution thereof, and the Employee hereby appoints the then current president of the Company to sign any such documents on his behalf so long as such documents are prepared on the same basis as for other management shareholders generally. (g) Relocation or Material Change in Duties. If Employee's employment is terminated because of Employee's refusal to relocate to another office of the Company or to accept a material change in duties, such termination shall not be deemed a termination for Cause or a termination without Cause. In the event of such a termination, the Company shall continue to pay to Employee his current base salary plus any other earned and unpaid compensation and accrued vacation time prior to termination, plus a per annum amount of additional compensation based on prior earned bonuses and/or commissions, if any, equal to the amount of earned bonuses or commission of Employee during the twelve complete calendar months immediately preceding the date of termination, in customary periodic payments for twelve (12) months after such termination; and the Company shall continue to provide benefits to Employee the same as are available to its employees generally for up to twelve (12) months after termination, provided that such benefits will be terminated to the extent Employee receives benefits under another similar benefit plan. 8. Covenant Not to Compete. (a) During Term of Employment. During Employee's term of employment pursuant to this Agreement, Employee will not compete with the Company or its affiliates, directly or indirectly, either for himself or as a member of a partnership or a limited liability company or as a stockholder (except as a stockholder of less than one percent (1 %) of the issued and outstanding stock of a publicly-held company whose gross revenues exceed $100 million), investor, owner, officer or director of a company or other entity, or as an employee, agent, trustee, manager, associate or consultant of any person, partnership, corporation or other entity, in any business in competition with that carried on by the Company or any of its affiliates. As of the date hereof, the Company anticipates 6 7 that it will engage principally in the business of providing information technology services to a variety of industries, but the provisions of this Section 8.(a) shall apply to any business in which the Company or its affiliates are engaged during the term of Employee's employment. (b) Restricted Periods. Section 8.(c) below restricts Employee's ability to compete against the Company or it affiliates following Employee's term of employment. For purposes of this Section 8, and in particular Section 8.(c), if Employee voluntarily resigns his employment with the Company, or is terminated by the Company for Cause, then the period for which Employee cannot compete with the Company shall be the longer of (i) four (4) years from the date hereof, or (ii) one (1) year after the termination of employment ("Restricted Period For Cause"). If Employee is terminated by Employer without Cause or pursuant to Section 7(d) above, then the period for which Employee cannot compete with the Company or its affiliates (the "Restricted Period Without Cause"), shall be based upon whether Employee was terminated during the initial three-year term or during any extension thereof. If Employee was terminated without Cause during the initial three-year term, the Restricted Period Without Cause shall be the greater of (i) the remaining months left of the initial three-year term, or (ii) until one (1) year after the termination of employment without Cause. If Employee was terminated during any one (1) year extension of the initial three-year term, the Restricted Period Without Cause shall be equal to one (1) year after the termination of employment without Cause. If Employee is terminated under the circumstances in Section 7(g) above, then the period for which the Employee may not compete pursuant hereto shall be for one year after the date of termination. If Employee is also a party to that certain Agreement and Plan of Exchange dated December 19, 1997 among BrightStar Information Technology Group, Inc. and the Shareholders of the Company (or its predecessor) at that time and bound by certain non-competition provisions contained therein, then any restricted non-compete periods under such agreement are hereby modified so as to conform with the restricted periods contained in this Section 8.(b). (c) Following Term of Employment. Employee further agrees that, during the Restricted Period For Cause or the Restricted Period Without Cause or the restricted period if termination occurs under the circumstances in Section 7(g), as applicable, Employee will not represent, engage in or carry on, directly or indirectly, any business with any customer or client of the Company (or any customer or client of an affiliate of the Company for which the Employee has materially assisted such affiliate in serving such customer or client ("Assisted Affiliate")) at the time of termination of employment, or any business within 100 miles of the city or county limits of any city or county in the United States or foreign countries where the Company or any Assisted Affiliate has an office or in which the Company provides services which produce Company revenues of an amount equal to 2% or more of the Company's revenues for the twelve complete calendar months preceding the time of termination, which business competes with any business, services or products produced, sold, conducted, developed, or in the process of development by the Company or jointly by the Company and an Assisted Affiliate during the term of Employee's employment, including any business that involves the furnishing of information technology services that are the type of services furnished by the Company, either for himself, as a member or equity owner of a partnership or a limited liability company, or as a shareholder (other than as a shareholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held company whose gross revenues exceed $100 million), investor, owner, officer or director of a company or other entity, or as an employee, agent, trustee, manager, associate or consultant of any person, partnership, corporation or other entity. As of the 7 8 date hereof, the Company anticipates that it will engage principally in the business of providing information technology services to a variety of industries, but the provisions of this Section 8.(c) shall apply to any business in which the Company is engaged at the termination of Employee's employment. (d) Employee Agrees to Limitations. Employee agrees that the limitations set forth herein on his rights to compete with the Company and its affiliates are reasonable and necessary for the protection of the Company and its affiliates. In this regard, Employee specifically agrees that the limitations as to period of time and geographic area, as well as all other restrictions on his activities specified herein, are reasonable and necessary for the protection of the Company and its affiliates. In particular, Employee acknowledges that the parties anticipate that the Employee will be actively seeking markets for the Company's products throughout the United States and in other countries of the world during Employee's employment with the Company. In the event that the provisions of this Agreement should ever be legally held to exceed the scope of business, time or geographic limitations permitted by applicable law, such provisions shall be and are hereby reformed to the maximum scope of business, time or geographic limitations permitted by applicable law. (e) Affiliates. For purposes of this Agreement, an "affiliate" of the Company is any person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. (f) Specific Performance. Employee agrees that the remedy at law for any breach by him of this Section 8 will be inadequate and that the Company shall also be entitled to injunctive relief. 9. Confidential Information and Results of Services. (a) Treatment of Confidential Information. Employee agrees that during the term of this Agreement, and for five (5) years after his termination of employment, he will not use or disclose, without the prior consent of the Company, the Confidential Information (as hereinafter defined) owned by or subject contractually to be safeguarded by the Company, or any of its affiliates, and further agrees, that he will return to the Company all written, printed, or other physical presentation or holding of materials in his possession embodying such Confidential Information. Employee acknowledges that any information and materials received by the Company from third parties in confidence (or subject to non-disclosure or similar covenants) shall be deemed to be and shall be Confidential Information within the meaning of this Section 9. As a material inducement to the Company to employ (or to continue to employ) Employee and to pay to Employee compensation for such services to be rendered to the Company by Employee (it being understood and agreed by the parties hereto that such compensation shall also be paid and received in consideration hereof), Employee covenants and agrees that Employee shall not, except with the prior written consent of the Company, or unless Employee is acting as an employee of the Company solely for the benefit of the Company in connection with the Company's business and in accordance with the Company's business practices and employee policies, at any time during or following the term of Employee's employment by the Company, directly or indirectly, disclose, divulge, reveal, report, publish, transfer or use, for any purpose whatsoever, any of such information which has been obtained by or disclosed to Employee as a result of Employee's employment by the Company. 8 9 (b) Definition of Confidential Information. For purposes of this Agreement, "Confidential Information" includes information conveyed or assigned to the Company by Employee or conceived, compiled, created, developed, discovered or obtained by Employee from and during his employment relationship with the Company, whether solely by the Employee or jointly with others, which concerns the affairs of the Company or its affiliates and which the Company could reasonably be expected to desire be held in confidence, or the disclosure of which would likely be materially embarrassing, detrimental or disadvantageous to the Company or its affiliates and without limiting the generality of the foregoing includes information relating to inventions, and the trade secrets, technologies, algorithms, products, services, systems, programs (including, without limitation, the Company's computer software programs), procedures, manuals, confidential reports and communications, finances, business plans, marketing plans, legal affairs, supplier lists, client lists, potential clients, business prospects, business opportunities, personnel assignments, contracts and assets of the Company and information made available to the Company by other parties under a confidential relationship. Confidential Information, however, shall not include information (i) which is, at the time in question, in the public domain through no wrongful act of Employee, (ii) which is later disclosed to Employee by one not under obligations of confidentiality to the Company or Employee, (iii) which the Company has expressly given Employee the right to disclose pursuant to written agreement, or (iv) which is required by court or governmental order, law or regulation to be disclosed; provided, that Employee shall first have given prompt notice to the Company of any such possible or prospective order (or proceeding pursuant to which any such order may result) such that the Company shall have been afforded a reasonable opportunity to prevent or limit any such disclosure. Employee agrees that the remedy at law for any breach by him of this Section 9 will be inadequate and that the Company shall also be entitled to injunctive relief. 10. Definition of Intellectual Property. (a) For purposes of this Agreement, the term "Intellectual Property" shall mean all of the information referred to in Section 9 hereof and all of the following materials and information (whether or not reduced to writing and whether or not patentable or protectible by copyright) which Employee receives, receives access to, conceives or develops or has received, received access to, conceived or developed, in whole or in part, directly or indirectly, in connection with Employee's employment with the Company and any assistance to affiliates of the Company and related to the Company's and its affiliates scope of business (in any capacity, whether executive, managerial, planning, technical, sales, research, development, manufacturing, engineering or otherwise) or through the use of any of the Company's facilities or resources: (b) Discoveries, concepts, and ideas including, without limitation, the nature and results of research and development activities, processes, formulas, inventions, computer-related equipment or technology, techniques, "know-how," designs, drawings and specifications; (c) Production processes, marketing techniques and arrangements, mailing lists, purchasing information, pricing policies, quoting procedures, financial information, customer and prospect names and requirements, employee, customer, supplier and distributor data and other materials or information relating to the Company's business and activities and the manner in which the Company does business; 9 10 (d) Applications, operating systems, data bases, communications and other computer software, whether now or hereafter existing and developed for use on any operating system, and all modifications, enhancements and versions and all options available with respect thereto, and all future products developed or derived therefrom; (e) Source and object codes, flowcharts, algorithms, coding sheets, routines, sub-routines, compilers, assemblers, design concepts and related documentation and manuals; (f) Any other materials or information related to the business or activities of the Company which are not generally known to others engaged in similar businesses or activities; and (g) Patents, trademarks, copyrights, trade secrets, all inventions, whether or not patentable, and any product, drawing, design, recording, computer software program, writing, literary work or other author's work, in any other tangible form developed in whole or in part by Employee during the term of this Agreement; (h) All ideas, inventions, techniques, modifications, processes, or improvements which are derived from or relate to Employee's access to or knowledge of any of the above enumerated materials and information, or which are created, conceived, developed, purchased or acquired by Employee, either solely or in conjunction with others, during the term of Employee's employment with the Company which relate to, or are useful in, the business being conducted or proposed to be conducted by the Company or its affiliates, and any such item created by the Employee, either solely or in conjunction with others, following termination of the Employee's employment with the Company, that is based upon or uses Intellectual Property. (i) Failure to mark any of the Intellectual Property as confidential, proprietary or Intellectual Property shall not affect its status as part of the Intellectual Property under the terms of this Agreement. (j) For purposes of this Agreement, the term "Intellectual Property" shall not apply to any ideas, inventions, techniques, modifications, processes, or improvements for which no equipment, supplies, facility or Intellectual Property of the Company was used, which was developed entirely on Employee's own time, and which does not (i) relate to the business of the Company, (ii) relate to the Company's actual or demonstrably anticipated research or development or (iii) result from any work performed by Employee for the Company. 11. Ownership of Information. (a) Employee covenants and agrees that all right, title and interest in any Intellectual Property shall be and shall remain the exclusive property of the Company. Employee agrees immediately to disclose to the Company all Intellectual Property developed in whole or in part by Employee during the term of Employee's employment with the Company and to assign to the Company any right, title or interest Employee may have in such Intellectual Property. Employee 10 11 agrees to execute any instruments and to do all other things reasonably requested by the Company (both during and after Employee's employment with the Company) in order to vest more fully in the Company all ownership rights in those items transferred by Employee to the Company; (b) Employee will not contest the validity of any invention, any copyright, any trademark or any mask work registration owned by or vesting in the Company under this Agreement; (c) Employee will execute, acknowledge, and deliver to the Company such applications, assignments (including patent applications and assignments), and other documents as the Company may request in order to apply for and obtain patents or other registrations with respect to any Intellectual Property in the United States and any foreign jurisdictions; (d) Employee will sign all other papers necessary to carry out the above obligations; and (e) Employee will give testimony and render any other assistance but without expense to the Employee in support of the Company's rights to any Intellectual Property. (f) If any one or more of the foregoing items are protectible by copyright and are deemed in any way to fall within the definition of "work made for hire," as such term is defined in 17 U.S.C. Section 101, such work shall be considered a "work made for hire," the copyright of which shall be owned solely, completely and exclusively by the Company. If any one or more of the aforementioned items are protectible by copyright and are not considered to be included in the categories of works covered by the "work made for hire" definition contained in 17 U.S.C. Section 101, such items shall be deemed to be assigned and transferred completely and exclusively to the Company by virtue of the execution of this Agreement. 12. Covenants Not to Hire Employees. It is recognized and understood by the parties hereto that the employees of the Company are an integral part of the Company's business and that it is extremely important for the Company to use its maximum efforts to prevent the Company from losing employees. It is therefore understood and agreed by the parties hereto that, because of the nature of the business of the Company, it is necessary to afford fair protection to the Company from the loss of any such employees. Consequently, as a material inducement to the Company to employ (or continue to employ) Employee, Employee covenants and agrees that, for the period commencing on the date of Employee's termination of employment for any reason whatsoever and ending two (2) years after Employee's termination of employment with the Company, Employee shall not, directly or indirectly, hire or engage or attempt to hire or engage any individual who shall have been an employee of the Company at any time during the one (1) year period prior to the date of Employee's termination of employment with the Company, whether for or on behalf of Employee or for any entity in which Employee shall have a direct or indirect interest (or any subsidiary or affiliate of any such entity), whether as a proprietor, partner, co-venturer, financier, investor or stockholder, director, officer, employer, employee, servant, agent, representative or otherwise. If Employee violates this Section 12, Employee agrees that, as part of the damages recoverable by the Company, Employee shall pay to the Company a liquidated damages amount equal to the compensation of the employee 11 12 of the Company solicited away from employment with the Company by Employee for the twelve months preceding the date of said employee's termination from the Company. 13. Injunctive Relief. Employee understands and agrees that the Company shall suffer irreparable harm in the event that Employee breaches any of Employee's obligations under this Agreement and that monetary damages shall be inadequate to compensate the Company for such breach. Accordingly, Employee agrees that, in the event of a breach or threatened breach by Employee of any of the provisions of this Agreement, the Company, in addition to and not in limitation of any other rights, remedies or damages available to the Company at law or in equity, shall be entitled to a temporary restraining order, preliminary injunction and permanent injunction in order to prevent or to restrain any such breach by Employee, or by any or all of Employee's partners, co-venturers, employers, employees, servants, agents, representatives and any and all persons directly or indirectly acting for, on behalf of or with Employee. 14. Materials. All notes, data, tapes, reference items, sketches, drawings, memoranda, records and other materials in any way relating to any of the Confidential Information or Intellectual Property or to the Company's business shall belong exclusively to the Company and Employee agrees to turn over to the Company all copies of such materials in Employee's possession or under Employee's control at the request of the Company or, in the absence of such a request, upon the termination of Employee's employment with the Company. 15. Remedies. Employee covenants and agrees that, if Employee shall violate any of Employee's covenants or agreements under this Agreement, the Company shall be entitled to an accounting and repayment from Employee of all profits, compensation, royalties, commissions, remunerations or other payments (collectively "Payments") which Employee realizes as a result of the violative actions. Employee shall also reimburse the Company for all reasonable costs and expenses (including reasonable attorneys fees) incurred in pursuing its rights hereunder if Employee has violated this Agreement. Such remedy shall be in addition to and not in limitation of any injunctive relief or other rights or remedies to which the Company is or may be entitled at law or in equity or otherwise under this Agreement, provided that recovery of any Payments shall be reduced by the amount of any compensatory damages otherwise recovered. 16. Employee's Status. Except as expressly provided by terms of this Agreement, nothing in this Agreement shall be construed as constituting a commitment, guarantee, agreement or understanding of any kind or nature that the Company shall continue to employ Employee, nor shall this Agreement affect in any way the right of the Company to terminate the employment of Employee at any time and for any reason whatsoever. No change of Employee's duties as an employee of the Company shall result in, or be deemed to be, a modification of the terms of this Agreement. 17. Notice. All notices, requests, demands and other communications required by or permitted under this Agreement shall be in writing and shall be sufficiently delivered if delivered by hand, by courier service, or sent by registered or certified mail, postage prepaid, to the parties at their respective addresses listed below: 12 13 (a) If to the Employee, to the address set out in the beginning of this Agreement; (b) If to the Company: Software Consulting Services America, Inc. Attn.: President 950 Tower Lane, Suite 1850 Foster City, California 94404 (c) With a copy to: BrightStar Information Technology Group, Inc. Attn.: President 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042 Either party may change such party's address by such notice to the other parties. 18. Assignment. This Agreement is personal to the Employee, and he shall not assign any of his rights or delegate any of his duties hereunder without the prior written consent of the Company. Neither the employee nor his spouse will have the right to commute, encumber, or otherwise dispose of any prospective payments under this Agreement. The Company shall have the right to assign this Agreement to a successor in interest in connection with a merger, sale of substantially all assets, or the like; provided however, that an assignment of this Agreement to an entity with operations, products or services outside of the industries in which the Company is then active shall not be deemed to expand the scope of Employee's covenant not to compete with such operations, products or services without Employee's written consent. 19. Survival. The provisions of Sections 7 through 15 of this Agreement shall survive the termination of the Employee's employment hereunder in accordance with their terms, provided that all provisions of this Agreement shall terminate five years after termination of employment (if not already expired in accordance with their specific time of applicability) except with respect to the resolution of any claims asserted prior to such termination. 20. Applicable Law. The substantive laws of the State of California, excluding any law, rule or principle which might refer to the substantive law of another jurisdiction, will govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. 21. Binding Upon Successors. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. 13 14 22. Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Employee with respect to the terms of employment of the Employee by the Company and supersedes all prior agreements and understandings, whether written or oral, between them concerning such terms of employment. 23. Waiver and Amendments; Cumulative Rights and Remedies. (a) This Agreement may be amended, modified or supplemented, and any obligation hereunder may be waived, only by a written instrument executed by the parties hereto. The waiver by either party of a breach of any provision of this Agreement shall not operate as a waiver of any subsequent breach. (b) No failure on the part of any party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver hereof, nor shall any single or partial exercise of any such right or remedy by such party preclude any other or further exercise thereof or the exercise of any other right or remedy. All rights and remedies hereunder are cumulative and are in addition to all other rights and remedies provided by law, agreement or otherwise. (c) The obligations of the parties hereto and such parties' rights and remedies hereunder are in addition to all other obligations of such parties, and all rights and remedies of such parties, created pursuant to any other agreement. 24. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 25. Severability. In the event that any provision or provisions of this Agreement is held to be invalid, illegal or unenforceable by any court of law or otherwise, the remaining provisions of this Agreement shall nevertheless continue to be valid, legal and enforceable as though the invalid or unenforceable parts had not been included therein. In addition, in such event the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible with respect to those provisions which were held to be invalid, illegal or unenforceable. 14 15 IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement under seal on the date first above written, to be effective as of April ___, 1998. COMPANY: SOFTWARE CONSULTING SERVICES AMERICA, INC. By: /S/THOMAS F. O'GORMAN --------------------------------------- Thomas F. O'Gorman, Vice President EMPLOYEE: /S/MICHAEL A. OBER ------------------------------------------- Michael A. Ober 16 SCHEDULE A TO EMPLOYMENT AGREEMENT Michael A. Ober 1. Duties: President 2. Compensation Provisions: Annual Salary: $170,000 Bonus for 1998 in accordance with the bonus arrangements currently in effect with the Company consistent and customary with prior Company practice. 3. Monthly automobile allowance: $1,000 4. Annual Number of Vacation Days: 15 days 5. Annual Number of Days for Personal Time Off: 5 days EX-10.11 3 OFFICE LEASE DATED 11/11/98 1 EXHIBIT 10.11 SIGNATURE CENTER OFFICE LEASE BETWEEN PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation ("LANDLORD") AND BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, A DELAWARE CORPORATION ("TENANT") November 11, 1998 2 TABLE OF CONTENTS
ARTICLE PAGE - - ------- ---- 1 TERM...................................................................................................1 2 POSSESSION.............................................................................................2 3 BASIC RENT.............................................................................................2 4 RENTAL ADJUSTMENT......................................................................................3 5 SECURITY DEPOSIT.......................................................................................5 6 USE....................................................................................................5 7 NOTICES................................................................................................6 8 BROKERS................................................................................................7 9 HOLDING OVER...........................................................................................7 10 TAXES ON TENANT'S PROPERTY............................................................................7 11 CONDITION OF PREMISES.................................................................................8 12 ALTERATIONS...........................................................................................8 13 REPAIRS...............................................................................................9 14 LIENS................................................................................................10 15 ENTRY BY LANDLORD....................................................................................10 16 UTILITIES AND SERVICES...............................................................................11 17 BANKRUPTCY...........................................................................................11 18 INDEMNIFICATION......................................................................................12 19 DAMAGE TO TENANT'S PROPERTY..........................................................................12 20 TENANT'S INSURANCE...................................................................................13 21 DAMAGE OR DESTRUCTION................................................................................14 22 EMINENT DOMAIN.......................................................................................15
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ARTICLE PAGE - - ------- ---- 23 DEFAULTS AND REMEDIES................................................................................16 24 ASSIGNMENT AND SUBLETTING............................................................................18 25 SUBORDINATION........................................................................................20 26 ESTOPPEL CERTIFICATE.................................................................................20 27 SIGNAGE..............................................................................................21 28 RULES AND REGULATIONS................................................................................22 29 CONFLICT OF LAWS.....................................................................................22 30 SUCCESSORS AND ASSIGNS...............................................................................22 31 SURRENDER OF PREMISES................................................................................22 32 ATTORNEYS' FEES......................................................................................22 33 PERFORMANCE BY TENANT................................................................................23 34 MORTGAGEE PROTECTION.................................................................................23 35 DEFINITION OF LANDLORD...............................................................................23 36 WAIVER...............................................................................................24 37 IDENTIFICATION OF TENANT.............................................................................24 38 PARKING..............................................................................................24 39 TERMS AND HEADINGS...................................................................................25 40 EXAMINATION OF LEASE.................................................................................25 41 TIME.................................................................................................25 42 PRIOR AGREEMENT AMENDMENTS...........................................................................25 43 SEPARABILITY.........................................................................................25 44 RECORDING............................................................................................26
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ARTICLE PAGE - - ------- ---- 45 CONSENTS.............................................................................................26 46 LIMITATION ON LIABILITY..............................................................................26 47 RIDERS...............................................................................................27 48 EXHIBITS.............................................................................................27 49 MODIFICATION FOR LENDER..............................................................................27 50 PROJECT PLANNING.....................................................................................27 51 OPTION TO RENEW.......................................................................................28
5 LIST OF EXHIBITS EXHIBIT A The Premises EXHIBIT A-1 The Building EXHIBIT B Tenant Improvements EXHIBIT C Standards for Utilities and Services EXHIBIT D Rules and Regulations EXHIBIT E Parking Rules and Regulations 6 SIGNATURE CENTER THIS LEASE is made as of the 11TH DAY OF NOVEMBER, 1998, by and between PRINCIPAL LIFE INSURANCE COMPANY, an Iowa corporation ("Landlord"), and BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, A DELAWARE CORPORATION ("Tenant"). Landlord hereby leases to Tenant and Tenant hereby leases from Landlord SUITE NUMBER 200 (the "Premises") outlined on the floor plan attached hereto and marked EXHIBIT A, the Premises being agreed, for the purposes of this Lease, to have an area of approximately 5,611 RENTABLE SQUARE FEET and being situated on the SECOND floor that certain office building located at 4900 HOPYARD ROAD, PLEASANTON, CALIFORNIA (the "Building"), and part of a two building complex (the "Project") more particularly described in EXHIBIT A-1 attached hereto. The building contains approximately NINETY SIX THOUSAND, TWO HUNDRED SIXTY FOUR (96,264) rentable square feet of space. Tenant acknowledges that Landlord may elect to sell one or more of the buildings within the Project and that upon any such sale Tenant's pro-rata share of those Direct Expenses allocated to the outside areas of the Project may be adjusted accordingly. The parties hereto agree that said letting and hiring is upon and subject to the terms, covenants and conditions herein set forth. Tenant covenants, as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions for which Tenant is liable and that this Lease is made upon the condition of such performance. Prior to the commencing of the term of this Lease the Premises shall be improved by the Tenant Improvements described in the Work Letter marked EXHIBIT B attached hereto. ARTICLE 1 TERM The term of this Lease shall be for FIVE YEARS, unless sooner terminated as hereinafter provided, commencing upon the earlier of: (i) Substantial completion of the Tenant Improvements described in the Work Letter (subject to the provisions of Paragraph 7 of the Work Letter) and the tender of possession of the Premises to Tenant or (ii) The date that Tenant opened for business in the Premises, and ending on the last day of the last month in the term of this Lease, unless such term shall be sooner terminated as hereinafter provided. As soon as the commencement date is determined, the parties shall enter into an amendment of this Lease setting forth the precise commencement and termination dates of this Lease. Failure to enter into such an amendment, however, shall not affect Tenant's liability hereunder. Reference in this Lease to a "Lease Year" shall mean each successive twelve month period commencing with the commencement date. Landlord and Tenant estimate that the commencement date shall be APPROXIMATELY JANUARY 1, 1999. 7 ARTICLE 2 POSSESSION Tenant agrees that, if Landlord is unable to deliver possession of the Premises to Tenant on the scheduled commencement of the term of this Lease, this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant for any loss or damage resulting therefrom, but in such event the Term of this Lease shall not commence until Landlord tenders possession of the Premises to Tenant with the Tenant Improvements substantially completed. If Landlord completes construction of the Tenant Improvements prior to the date scheduled in the Work Letter, Landlord shall deliver possession of the Premises to Tenant upon such completion and the term of this Lease shall thereupon commence. ARTICLE 3 BASIC RENT (a) Tenant agrees to pay Landlord Basic Rent for the Premises (subject to adjustment as hereinafter provided) as follows:
Months of Term Basic Rent/Per Month -------------- -------------------- 01 - 12 $13,185.85 13 - 24 $13,466.40 25 - 36 $13,746.95 37 - 48 $14,027.50 49 - 60 $14,308.05
The Basic Rent shall be paid monthly, in advance on the first (1st) day of each calendar month during the term, commencing on the first (1st) month of the Lease term and continuing on the first day of each month thereafter, except that the first (1st) month's rent shall be paid on execution hereof. If Tenant's obligation to pay rent commences or ends on a day other than the first day of a calendar month, then the rental for such period shall be prorated in the proportion that the number of days this Lease is in effect during such period bears to thirty. In addition to the Basic Rent, Tenant agrees to pay as additional rental the amount of rental adjustments and other charges required by this Lease. All rental shall be paid to Landlord, without prior demand and without any deduction or offset, in lawful money of the United States of America, at the address of Landlord designated on the signature page of this Lease or to such other person or at such other place as Landlord may from time to time designate in writing. Tenant agrees that if Tenant's right to possession is terminated by Landlord because of Tenant's breach of the Lease, Landlord may, at its option, (2) recover from Tenant, in addition to any damages due Landlord under the terms and conditions of this Lease, rent for the term of this Lease at the rental rate provided above. 2 8 (b) Late Charges. In the event Tenant fails to pay any installment of rent WITHIN 10 DAYS OF when due or in the event Tenant fails to make any other payment for which Tenant is obligated under this Lease when due, then Tenant shall pay to Landlord a late charge equal to 5% of the amount due to compensate Landlord for the extra costs incurred as a result of such late payment. ARTICLE 4 RENTAL ADJUSTMENT (a) For the purpose of this Article 4, the following terms are defined as follows: (i) Tenant's Percentage. That portion of the Building occupied by Tenant divided by the total rentable square footage of the Building, which result is the following: 5.83%. (ii) Direct Expenses Base. TENANT'S DIRECT EXPENSES BASE SHALL BE The amount of the annual Direct Expenses which Landlord has included in Annual Basic Rent, which amount is TENANT'S PERCENTAGE of the ACTUAL Direct Expenses for 1999. IF THE PROJECT IS LESS THAN NINETY FIVE PERCENT (95%) OCCUPIED DURING ANY CALENDAR YEAR OF THE TERM, AN ADJUSTMENT SHALL BE MADE IN COMPUTING THE DIRECT EXPENSES FOR SUCH YEAR SO THAT DIRECT EXPENSES SHALL BE COMPUTED AS THOUGH THE PROJECT WERE NINETY FIVE PERCENT (95%) OCCUPIED. (iii) Direct Expenses. The term "Direct Expenses" shall include: (A) All real and personal property taxes and assessments imposed by any governmental authority or agency on the Building and the land on which the Building is located (including a pro-rata portion of any taxes levied on any common areas); any assessments levied in lieu of taxes; any non-progressive tax on or measured by gross rentals received from the rental of space in the Building; and any other costs levied or assessed by, or at the direction of, any federal, state, or local government authority in connection with the use or occupancy of the Premises or the parking facilities serving the Premises; any tax on this transaction or any document to which Tenant is a party creating or transferring an interest in the Premises, and any expenses, including cost of attorneys or experts, reasonably incurred by Landlord in seeking reduction by the taxing authority of the above-referenced taxes, less tax refunds obtained as a result of an application for review thereof; but shall not include any net income, franchise, capital stock, estate or inheritance taxes. (B) Operating costs consisting of costs incurred by Landlord in maintaining and operating the Building, exclusive of costs required to be capitalized for federal income tax purposes, and including (without limiting the generality of the foregoing) the following: costs of utilities, supplies and insurance, cost of services of independent contractors, managers and other suppliers, the fair rental value of the management office, cost of compensation (including employment taxes and fringe benefits) of all persons who perform regular and recurring duties connected with the management, operation, maintenance, and repair of the Building, its equipment, parking facilities and the common areas, including, without limitation, engineers, janitors, foremen, floor waxers, window washers, watchmen and 3 9 gardeners, but excluding persons performing services not uniformly available to or performed for substantially all Building tenants; cost of maintaining, repairing and replacing landscaping, sprinkler systems, concrete walkways, paved parking areas, signs, and site lighting. (C) Amortization of such capital improvements as Landlord may have installed: (a) for the purpose of reducing operating costs, (b) to comply with governmental rules and regulations promulgated after completion of the Building, (c) for the purpose of replacing existing capital items and improvements, and (d) any costs required by the CC&R's, as defined in Article 6, affecting the Premises or by any corporation, committee or association formed in connection therewith, provided that such cost together with interest at the maximum rate allowed by law shall be amortized over such reasonable period as Landlord shall determine, and only the monthly amortized cost shall be included in Direct Expenses. (D) DIRECT EXPENSE EXCLUSIONS: TENANT SHALL NOT BE LIABLE FOR (I) ANY LATENT DEFECTS, OR (II) INTEREST OR PENALTIES DUE TO THE FAULT OF LANDLORD. (E) TENANT MAY AUDIT LANDLORD'S BOOKS AND RECEIPTS AND IF DIRECT EXPENSES HAVE BEEN OVERCHARGED TENANT SHALL RECEIVE A CREDIT FOR SUCH OVERCHARGE AND FOR THE COST OF THE AUDIT IF SUCH OVERCHARGE EXCEEDS 5% OF THE ACTUAL AMOUNT OF TENANT'S PERCENTAGE OF DIRECT EXPENSES. (b) Payment of Direct Expenses. (i) If Tenant's Percentage of the Direct Expenses paid or incurred by Landlord for any calendar year exceeds the Direct Expenses Base included in Tenant's rent, then Tenant shall pay such excess as additional rent. (ii) In addition, for each year after the first calendar year, or portion thereof, Tenant shall pay Tenant's Percentage of Landlord's estimate of the amount by which Direct Expenses for that year shall exceed the Direct Expenses Base ("Landlord's Estimate"). This estimated amount shall be divided into twelve equal monthly installments. Tenant shall pay to Landlord, concurrently with the regular monthly rent payment next due following the receipt of such statement, an amount equal to one monthly installment multiplied by the number of months from January in the calendar year in which said statement is submitted to the month of such payment, both months inclusive. Subsequent installments shall be payable concurrently with the regular monthly rent payments for the balance of that calendar year and shall continue until the next calendar year's statement is rendered. (iii) As soon as possible after the end of each calendar year, Landlord shall provide Tenant with a statement showing the amount of Tenant's Percentage of Direct Expenses, the amount of Landlord's Estimate actually paid by Tenant and the amount of the Direct Expenses Base. Thereafter, Landlord shall reconcile the above amounts and shall either bill Tenant for the balance due 4 10 (payable on Idemand by Landlord) or credit any overpayment by Tenant towards the next monthly installment of Landlord's Estimate falling due, as the case may be. For purposes of making these calculations, in no event shall Tenant's Percentage of the Direct Expenses be deemed to be less than the Direct Expenses Base. (c) Even though the term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's Percentage of Direct Expenses for the year in which this Lease terminates, Tenant shall immediately pay any increase due over the estimated expenses paid and, conversely, any overpayment made in the event said expenses decrease shall be rebated by Landlord to Tenant. ARTICLE 5 SECURITY DEPOSIT Tenant shall deposit with Landlord the sum of FOURTEEN THOUSAND, THREE HUNDRED, EIGHT AND 05/100THS DOLLARS ($14,308.05), equal to one months rent. Said sum shall be held by Landlord as security for the faithful performance by Tenant of all of Tenant's obligations hereunder. If Tenant defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of rent, Landlord may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of the deposit is so used or applied, Tenant shall, upon demand, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount. Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this security deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform all of its obligations under this Lease, the security deposit or any balance thereof shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interests hereunder) at the expiration of the Lease term, provided that Landlord may retain the security deposit until such time as any amount due from Tenant in accordance with Article 4 hereof has been determined and paid in full. ARTICLE 6 USE Tenant shall use the Premises for GENERAL OFFICE and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord. Nothing contained herein shall be deemed to give Tenant any exclusive right to such use in the Building. Tenant shall not use or occupy the Premises in violation of law or of the certificate of occupancy issued for the Building or Project, and shall, upon written notice from Landlord, discontinue any use of the Premises which is declared by any governmental authority having jurisdiction to be a violation of law or of said certificate of occupancy. Tenant shall comply with any direction of any governmental authority having jurisdiction which shall, by reason of the nature of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or Landlord with respect to the Premises or with respect to the use or occupation thereof. Tenant's shall not 5 11 do or permit to be done anything which will invalidate or increase the cost of any fire, extended coverage or any other insurance policy covering the Building and/or Project and/or property located therein and shall comply with all rules, orders, regulations and requirements of the Insurance Service Offices, formerly known as the Pacific Fire Rating Bureau or any other organization performing a similar function. Tenant shall promptly, upon demand, reimburse Landlord for any additional premium charged for such policy by reason of Tenant's failure to comply with the provisions of this Article. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant acknowledges that Landlord has recorded covenants, conditions and restrictions against the Premises on June 30, 1983 as Instrument Number 83/115477 in the Official Records of Alameda County (the "CC&Rs"), and further amended via Certification of Amendment dated April 18, 1985 Instrument Number 85/07539 and Second Certification of Amendment dated October 11, 1989 Instrument Number 89/277713. Tenant's use of the Premises shall be subject to and Tenant shall comply with the CC&R's, as the same may be amended from time to time. Tenant acknowledges that there have been and may be from time to time recorded easements and/or declarations granting or declaring easements for parking, utilities, fire or emergency access, and other matters. Tenant's use of the Premises shall be subject to and Tenant shall comply with any and all such easements and declarations. Tenant's use of the Premises shall be subject to such guidelines as may from time to time be prepared by Landlord or the Meyer Center- Pleasanton Owner's Association in their sole discretion. Tenant acknowledges that governmental entities with jurisdiction over the Premises may, from time to time promulgate laws, rules, plans and regulations affecting the use of the Premises, including, but not limited to, traffic management plans and energy conservation plans. Tenant's use of the Premises shall be subject to and Tenant shall comply with any and all such laws, rules, plans, and regulations. Tenant, at its sole cost, shall comply with all laws relating to the storage, use and disposal of hazardous, toxic or radioactive matter, including those materials identified in Sections 66680 through 66685 of Title 33 of the California Administrative Code, Division 4, Chapter 30 ("Title 22") as they may be amended from time to time (collectively "Toxic Materials"). If Tenant does store, use or dispose of any Toxic Materials, Tenant shall notify Landlord in writing at least ten (10) days prior to their first appearance on the Premises. Any notice required or permitted to be given hereunder must be in writing and may be given by personal delivery or by mail, and if given by mail shall be deemed sufficiently given if sent by registered or certified mail addressed to Tenant at the Building, or to Landlord at its address set forth at the end of this Lease. Either party may specify a different address for notice purposes by written notice to the other except that the Landlord may in any event use the Premises as Tenant's address for notice purposes. 6 12 ARTICLE 8 BROKERS Tenant warrants that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except GABE ARECHAEDERRA OF COLLIERS INTERNATIONAL, whose commission shall be payable by Landlord, and that it knows of no other real estate broker or agent who is or might be entitled to a commission in connection with the Lease. If Tenant has dealt with any other person or real estate broker with respect to leasing or renting space in the Building, Tenant shall be solely responsible for the payment of any fee due said person or firm and Tenant shall hold Landlord free and harmless against any liability in respect thereto, including attorneys' fees and costs. ARTICLE 9 HOLDING OVER If Tenant holds over after the expiration or earlier termination of the term hereof without the express written consent of Landlord, Tenant shall become a Tenant at sufferance only, at a rental rate equal to one hundred fifty percent (150%) of the rent in effect upon the date of such expiration (subject to adjustment as provided in Paragraph 4 hereof and prorated on a daily basis), and otherwise subject to the terms, covenants and conditions herein specified, so far as applicable. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. The foregoing provisions of this Article 9 are in addition to and do not affect Landlord's right of re-entry or any rights of Landlord hereunder or as otherwise provided by law. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender and any attorneys' fees and costs. ARTICLE 10 TAXES ON TENANT'S PROPERTY (a) Tenant shall be liable for and shall pay, at least ten days before delinquency, all taxes levied against any personal property or trade fixtures placed by Tenant in or about the Premises. If any such taxes on Tenant's personal property or trade fixtures are levied against Landlord or Landlord's property of if the assessed value of the Premises is increased by the inclusion therein of a value placed upon such personal property or trade fixtures of Tenant and if Landlord, after written notice to Tenant, pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof, but only under proper protest if requested by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied against Landlord, or the portion of such taxes resulting from such increase in the assessment. (b) If the Tenant Improvements in the Premises, whether installed, and/or paid for by Landlord or Tenant and whether or not affixed to the real property so as to become a part thereof, are 7 13 assessed for real property tax purposes at a valuation higher than the valuation at which Tenant Improvements conforming to Landlord's "Building Standard," in other space in the Building are assessed, then the real property taxes and assessment levied against the Building by reason of such excess assessed valuation shall be deemed to be taxes levied against personal property of Tenant and shall be governed by the provisions of Paragraph 10(a), above. If the records of the County Assessor are available and sufficiently detailed to serve as a basis for determining whether said Tenant Improvements are assessed at a higher valuation than Landlord's Building Standard, such records shall be binding on both the Landlord and the Tenant. If the records of the County Assessor are not available or sufficiently detailed to serve as a basis for making said determination, the actual cost of construction shall be used. ARTICLE 11 CONDITION OF PREMISES Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty with respect to the Premises or the Building or with respect to the suitability of either for the conduct of Tenant's business. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were in satisfactory condition at such time. ARTICLE 12 ALTERATIONS (a) Tenant shall make no alterations, additions or improvements in or to the Premises without Landlord's prior written consent, WHICH SHALL NOT BE UNREASONABLY WITHHELD PROVIDED HOWEVER THAT LANDLORD'S CONSENT SHALL NOT BE REQUIRED FOR ANY ALTERATIONS, ADDITIONS OR IMPROVEMENTS IN OR TO THE PREMISES THAT (I) DO NOT COST MORE THAN $2,500 PER WORK OF IMPROVEMENT AND (II) DO NOT EFFECT ANY STRUCTURAL OR EXTERIOR PORTION OF THE BUILDING OR THE BUILDING'S ELECTRICAL, PLUMBING OR HVAC SYSTEMS, EXCEPT THAT LANDLORD'S CONSENT SHALL IN ANY EVENT BE REQUIRED FOR ANY DEMOLITION OF ANY ALTERATION, ADDITION OR IMPROVEMENT IN OR TO THE PREMISES. ALL WORK SHALL BE PERFORMED BY CONTRACTORS OR MECHANICS APPROVED BY LANDLORD AND SHALL BE DONE IN A GOOD AND WORKMAN LIKE MANNER. Tenant agrees that there shall be no construction or partitions or other obstructions which might interfere with Landlord's free access to mechanical installations or service facilities of the Building or interfere with the moving of Landlord's equipment to or from the enclosures containing said installations or facilities. All such work shall be done at such times and in such manner as Landlord may from time to time designate. Tenant covenants and agrees that all work done by Tenant shall be performed in full compliance with all laws, rules, orders, ordinances, regulations and requirements of all governmental agencies, offices, and boards having jurisdiction, and in full compliance with the rules, regulations and requirements of the Insurance Service Offices formerly known as the Pacific Fire Rating Bureau, and of any similar body. Before commencing any work, Tenant shall give Landlord at least ten days written notice of the proposed commencement of such work and shall, if required by Landlord, secure at Tenant's own cost and expense, a completion and lien indemnity bond, satisfactory to Landlord, for said work. Tenant further covenants and agrees that any mechanic's lien filed against the Premises or against the Building for work claimed to have been done for, or 8 14 materials claimed to have been furnished to, Tenant will be discharged by Tenant, by bond or otherwise, within ten days after the filing thereof, at the cost and expense of Tenant. All alterations, additions or improvements upon the Premises made by either party, including (without limiting the generality of the foregoing) all wallcovering, built-in cabinet work, paneling and the like, shall, unless Landlord elects otherwise, become the property of Landlord, and shall remain upon, and be surrendered with the Premises, as a part thereof, at the end of the term hereof, except that Landlord may, by written notice to Tenant, GIVEN TO TENANT AT THE TIME THAT LANDLORD GRANTS ITS CONSENT TO ANY ALTERATIONS, ADDITIONS OR IMPROVEMENTS, SPECIFY THAT TENANT SHALL BE REQUIRED TO REMOVE SUCH ALTERATIONS, ADDITIONS OR IMPROVEMENTS AT THE EXPIRATION OR SOONER TERMINATION OF THIS LEASE, AND IN SUCH EVENT Tenant shall repair all damage resulting from such removal or, at Landlord's option, shall pay to Landlord all costs arising from such removal. (b) All articles of personal property and all business and trade fixtures, machinery and equipment, furniture and movable partitions owned by Tenant or installed by Tenant at its expense in the Premises shall be and remain the property of Tenant and may be removed by Tenant at any time during the lease term when Tenant is not in default hereunder. If Tenant shall fail to remove all of its effects from the Premises upon termination of this Lease for any cause whatsoever, Landlord may, at its option, remove the same in any manner that Landlord shall choose, and store said effects without liability to Tenant for loss thereof. In such event, Tenant agrees to pay Landlord upon demand any and all expenses incurred in such removal, including court costs and attorneys' fees and storage charges on such effects for any length of time that the same shall be in Landlord's possession. Landlord may, at its option, without notice, sell said effects, or any of the same, at private sale and without legal process, for such price as Landlord may obtain and apply the proceeds of such sale upon any amounts due under this Lease from Tenant to Landlord and upon the expense incident to the removal and sale of said effects. ARTICLE 13 REPAIRS (a) By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair. Tenant shall keep, maintain and preserve the Premises in first class condition and repair, and shall, when and if needed, at Tenant's sole cost and expense, make all repairs to the Premises and every part thereof. Tenant shall, upon the expiration or sooner termination of the term hereof, surrender the Premises to Landlord in the same condition as when received, usual and ordinary wear and tear excepted. Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof. The parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises or the Building except as specifically herein set forth. (b) Anything contained in Paragraph 13(a) above to the contrary notwithstanding, Landlord shall repair and maintain the structural portions of the Building, including the foundations, building shell, and roof structure, all at Landlord's expense. At Tenant's expense to be prorated through operating costs, Landlord shall repair and maintain the basic plumbing, elevators, life safety systems and other building 9 15 systems, heating, ventilating, air conditioning and electrical systems installed or furnished by Landlord, and perform roof repair and maintenance to the Premises. Landlord shall not be liable for any failure to make any such repairs or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to Landlord by Tenant. Except as provided in Article 21 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. ARTICLE 14 LIENS Tenant shall not permit any mechanic's, materialmen's or other liens to be filed against the Building or Project, nor against Tenant's leasehold interest in the Premises. Landlord shall have the right at all reasonable times to post and keep posted on the Premises any notices which it deems necessary for protection from such liens. If any such liens are filed, Landlord may, without waiving its rights and remedies based on such breach of Tenant and without releasing Tenant from any of its obligations, cause such liens to be released by any means it shall deem proper, including payments in satisfaction of the claim giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by Landlord, any sum paid by Landlord to remove such liens, together with interest at the maximum rate per annum permitted by law from the date of such payment by Landlord. ARTICLE 15 ENTRY BY LANDLORD Landlord reserves and shall at any and all times have the right to enter the Premises to inspect the same, to supply janitorial service and any service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers or tenants, to post notices of nonresponsibility, to alter, improve or repair the Premises or any other portion of the Building or Project, all without being deemed guilty of any eviction of Tenant and without abatement of rent. Landlord may, in order to carry out such purposes, erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, provided that the business of Tenant shall be interfered with as little as is reasonably practicable. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss in, upon and about the Premises. Landlord shall at all times have and retain a key with which to unlock all doors in the Premises, excluding Tenant's vaults and safes. Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not be construed or deemed to be a forcible or unlawful entry into the Premises, or any eviction of 10 16 Tenant from the Premises or any portion thereof, and any damages caused on account thereof shall be paid by Tenant. It is understood and agreed that no provision of this Lease shall be construed as obligating Landlord to perform any repairs, alterations or decorations except as otherwise expressly agreed herein by Landlord. ARTICLE 16 UTILITIES AND SERVICES Provided that Tenant is not in default under this Lease, Landlord agrees to furnish or cause to be furnished to the Premises the utilities and services described in the Standards for Utilities and Services, attached hereto as EXHIBIT C, subject to the conditions and in accordance with the standards set forth therein. Landlord's failure to furnish any of the foregoing items when such failure is caused by: (i) Accident, breakage, or repairs, (ii) Strikes, lockouts or other labor disturbance or labor dispute of any character, (iii) Governmental regulation, moratorium or other governmental action, (iv) Inability despite the exercise of reasonable diligence to obtain electricity, water or fuel, or by (v) Any other cause beyond Landlord's reasonable control, shall not result in any liability to Landlord. In addition, Tenant shall not be entitled to any abatement or reduction of rent by reason of such failure, no eviction of Tenant shall result from such failure and Tenant shall not be relieved from the performance of any covenant or agreement in this Lease because of such failure. In the event of any failure, stoppage or interruption thereof, Landlord shall diligently attempt to resume service promptly. ARTICLE 17 BANKRUPTCY If Tenant shall file a petition in bankruptcy under any provision of the Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt in involuntary bankruptcy proceedings and such adjudication shall not have been vacated within thirty days from the date thereof, or if a receiver or trustee shall be appointed of Tenant's property and the order appointing such receiver or trustee shall not be set aside or vacated within thirty days after the entry thereof, or if Tenant shall assign Tenant's estate or effects for the benefit of creditors, or if this Lease shall, by operation of law or otherwise, pass to any person or persons other than Tenant, then in any such event Landlord may terminate this Lease, if Landlord so elects, with or without notice of such election and with or without entry or action by Landlord. In such case, notwithstanding any other provisions of this Lease, Landlord, in addition to any and all rights and remedies allowed by law or equity, shall, upon such termination, be entitled to recover damages in the amount provided in Paragraph 23(b) hereof. Neither Tenant nor any person claiming through or under Tenant or by 11 17 virtue of any statute or order of any court shall be entitled to possession of the Premises but shall surrender the Premises to landlord. Nothing contained herein shall limit or prejudice the right of Landlord to recover damages by reason of any such termination equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, such damages are to be proved; whether or not such amount is greater, equal to, or less than the amount of damages recoverable under the provisions of this Article 17. ARTICLE 18 INDEMNIFICATION Tenant shall indemnify, defend and hold Landlord harmless from all claims arising from Tenant's use of the Premises or the conduct of its business or from any activity, work, or thing done, permitted or suffered by Tenant in or about the Premises. Tenant shall further indemnify, defend and hold Landlord harmless from all claims arising from any breach or default in the performance of any obligation to be performed by Tenant under the terms of this Lease, or arising from any act, neglect, fault or omission of Tenant or of its agents or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in or about such claim or any action or proceeding brought thereon. In case any action or proceeding shall be brought against Landlord by reason of any such claim, Tenant upon notice from Landlord shall defend the same at Tenant's expense by counsel approved in writing by Landlord. Tenant, as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to person in, upon or about the Premises from any cause whatsoever except that which is caused by THE NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LANDLORD, ITS AGENTS OR EMPLOYEES OR BY the failure of Landlord to observe any of the terms and conditions of this Lease where such failure has persisted for an unreasonable period of time after written notice of such failure. Tenant hereby waives all its claims in respect thereof against Landlord. ARTICLE 19 DAMAGE TO TENANT'S PROPERTY Notwithstanding the provisions of Article 18 to the contrary, Landlord or its agents shall not be liable for (i) any damage to any property entrusted to employees of the Building, (ii) loss or damage to any property by theft or otherwise, (iii) any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing work therein or from the roof, street or sub-surface or from any other place or resulting from dampness or (iv) any other cause whatsoever. Landlord or its agents shall not be liable for interference with light or other incorporeal hereditaments, nor shall Landlord be liable for any latent defect in the Premises or in the Building. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment. 12 18 ARTICLE 20 TENANT'S INSURANCE (a) Tenant shall, during the term hereof and any other period of occupancy, at its sole cost and expense, keep in full force and effect the following insurance: (i) Standard form property insurance insuring against the perils of fire, extended coverage, vandalism, malicious mischief, special extended coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be upon all property owned by Tenant, for which Tenant is legally liable or that was installed at Tenant's expense, and which is located in the Project including, without limitation, furniture, fittings, installations, fixtures (other than Tenant improvements installed by Landlord), and any other personal property in an amount not less than ninety percent of the full replacement cost thereof. In the event that there shall be a dispute as to the amount which comprises full replacement cost, the decision of Landlord or any mortgagees of Landlord shall be conclusive. This insurance policy shall also be upon direct or indirect loss of Tenant's earnings attributable to Tenant's inability to use fully or obtain access to the Premises or Building in an amount as will properly reimburse Tenant. Such policy shall name Landlord and any mortgagees of Landlord as insured parties, as their respective interests may appear. (ii) Comprehensive General Liability Insurance insuring Tenant against any liability arising out of the lease, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in the amount of $2,000,000 Combined Single Limit for injury to, or death of one or more persons in an occurrence, and for damage to tangible property (including loss of use) in an occurrence, with such liability amount to be adjusted from year to year to reflect increases in the Consumer Price Index. The policy shall insure the hazards of premises and operation, independent contractors, contractual liability (covering the Indemnity contained in Paragraph 18 hereof) and shall (1) name Landlord as an additional insured, and (2) contain a cross liability provision, and (3) contain a provision that "the insurance provided the Landlord hereunder shall be primary and non-contributing with any other insurance available to the Landlord." (iii) Workers' Compensation and Employer's Liability insurance (as required by state law). (iv) Any other form or forms of insurance as Tenant or Landlord or any mortgagees of Landlord may reasonably require from time to time in form, in amounts and for insurance risks against which a prudent tenant would protect itself. (b) All policies shall be written in a form satisfactory to Landlord and shall be taken out with insurance companies holding a General Policyholders Rating of "A" and a Financial Rating of "X" or better, as set forth in the most current issue of Bests Insurance Guide. Within ten days after the execution of this Lease, Tenant shall deliver to Landlord copies of policies or certificates evidencing the 13 19 existence of the amounts and forms of coverage satisfactory to Landlord. No such policy shall be cancelable or reducible in coverage except after thirty days prior written notice to Landlord. Tenant shall, within ten days prior to the expiration of such policies, furnish Landlord with renewals or "binders" thereof, or Landlord may order such insurance and charge the cost thereof to Tenant as additional rent. If Landlord obtains any insurance that is the responsibility of Tenant under this section, Landlord shall deliver to Tenant a written statement setting forth the cost of any such insurance and showing in reasonable detail the manner in which it has been computed. ARTICLE 21 DAMAGE OR DESTRUCTION (a) In the event the Building and/or the Premises is damaged by fire or other perils covered by Landlord's insurance, Landlord shall have the following rights and obligations: (i) In the event of total destruction, at Landlord's option, as soon as reasonably possible thereafter, commence repair, reconstruction and restoration of the Building and/or the Premises and prosecute the same diligently to completion, in which event this Lease shall remain in full force and effect; or within ninety days after such damage, elect not to so repair, reconstruct or restore the Building and/or the Premises, in which event this Lease shall terminate. In either event, Landlord shall give Tenant written notice of its intention within said ninety day period. In the event Landlord elects not to restore the Building and/or the Premises, this Lease shall be deemed to have terminated as of the date of such total destruction. (ii) In the event of a partial destruction of the Building and/or the Premises, to an extent not exceeding twenty-five percent of the full insurable value thereof, and if the damage thereto is such that the Building and/or the Premises may be repaired, reconstructed or restored within a period of ninety days from the date of the happening of such casualty and if Landlord will receive insurance proceeds sufficient to cover the cost of such repairs, then Landlord shall commence and proceed diligently with the work of repair, reconstruction and restoration and this Lease shall continue in full force and effect. If such work of repair, reconstruction and restoration shall require a period longer than ninety days or exceeds twenty-five percent of the full insurable value thereof, or if said insurance proceeds will not be sufficient to cover the cost of such repairs, then Landlord either may elect to so repair, reconstruct or restore and the Lease shall continue in full force and effect or Landlord may elect not to repair, reconstruct or restore and the Lease shall then terminate. Under any of the conditions of this Subparagraph 21(a)(ii), Landlord shall give written notice to Tenant of its intention within said ninety day period. In the event Landlord elects not to restore the Building and/or the Premises, this Lease shall be deemed to have terminated as of the date of such partial destruction. (b) Upon any termination of this Lease under any of the provisions of this Article 21, the parties shall be released without further obligation to the other from the date possession of the Premises is surrendered to Landlord except for items which have therefore accrued and are then unpaid. 14 20 (c) In the event of repair, reconstruction and restoration by Landlord as herein provided, the rental payable under this Lease shall be abated proportionately with the degree to which Tenant's use of the Premises is impaired during the period of such repair, reconstruction or restoration. Tenant shall not be entitled to any compensation or damages for loss in the use of the whole or any part of the Premises and/or any inconvenience or annoyance occasioned by such damage, repair, reconstruction or restoration. (d) Tenant shall not be released from any of its obligations under this Lease except to the extent and upon the conditions expressly stated in this Article 21. Notwithstanding anything to the contrary contained in this Article 21, if Landlord is delayed or prevented from repairing or restoring the damaged Premises within one year after the occurrence of such damage or destruction by reason of acts of God, war, governmental restrictions, inability to procure the necessary labor or materials, or other cause beyond the control of Landlord, Landlord shall be relieved of its obligation to make such repairs or restoration and Tenant shall be released from its obligation under this Lease as of the end of said one year period. (e) If damage is due to any cause other than fire or other peril covered by extended coverage insurance, Landlord may elect to terminate this Lease. (f) If Landlord is obligated to or elects to repair or restore as herein provided, Landlord shall be obligated to make repair or restoration only of those portions of the Building and the Premises which were originally provided at Landlord's expense, and the repair and restoration of items not provided at Landlord's expense shall be the obligation of Tenant. (g) Notwithstanding anything to the contrary contained in this Article 21, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises when the damage resulting from any casualty covered under this Article 21 occurs during the last twelve months of the term of this Lease or any extension hereof. (h) The provisions of California Civil Code 1932, Subsection 2, and 1933, Subsection 4, which permit termination of a lease upon destruction of the Leased Premises, are hereby waived by Tenant; and the provisions of this Article shall govern in case of such destruction. ARTICLE 22 EMINENT DOMAIN In case all of the Premises, or such part thereof as shall substantially interfere with Tenant's use and occupancy thereof, shall be taken for any public or quasi-public purpose by any lawful power or authority by exercise of the right of appropriation, condemnation or eminent domain, or sold to prevent such taking, either party shall have the right to terminate this Lease effective as of the date possession is required to be surrendered to said authority. Tenant shall not assert any claim against Landlord or the taking authority for any compensation because of such taking, and Landlord shall be entitled to receive the 15 21 entire amount of any award without deduction for any estate or interest of Tenant. In the event the amount of property or the type of estate taken shall not substantially interfere with the conduct of Tenant's business, Landlord shall be entitled to the entire amount of the award without deduction for any estate or interest of Tenant, Landlord shall restore the Premises to substantially their same condition prior to such partial taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant shall be so deprived on account of such taking and restoration. Nothing contained in this Paragraph shall be deemed to give Landlord any interest in any award made to Tenant for the taking of personal property and fixtures belonging to Tenant OR MOVING COSTS INCURRED BY TENANT. ARTICLE 23 DEFAULTS AND REMEDIES (a) The occurrence of any one or more of the following events shall constitute a default hereunder by Tenant: (i) The vacation or abandonment of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for five business days or longer AND THE NON-PAYMENT OF RENT, ADDITIONAL RENT OR ANY OTHER PAYMENT REQUIRED while in default of any provision of this Lease. (ii) The failure by Tenant to make any payment of rent or additional rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three days after written notice thereof from Landlord to Tenant; provided however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 regarding unlawful detainer actions. (iii) The failure by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in Subparagraph 23(a)(i) or (ii) above, where such failure shall continue for a period of ten days after written notice thereof from Landlord to Tenant. Any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 regarding unlawful detainer actions. If the nature of Tenant's default is such that more than ten days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant shall commence such cure within said ten-day period and thereafter diligently prosecute such cure to completion, which completion shall occur not later than sixty days from the date of such notice from Landlord. (iv) (1) The making by Tenant of any general assignment for the benefit of creditors; (2) the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, the same is dismissed within thirty days); (3) the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's 16 22 interest in this Lease, where possession is not restored to Tenant within thirty days; or (4) the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease where such seizure is not discharged within thirty days. (b) In the event of any such default by Tenant, in addition to any other remedies available to Landlord at law or in equity, Landlord shall have the immediate option to terminate this Lease and all rights of Tenant hereunder. In the event that Landlord shall elect to so terminate this Lease then Landlord may recover from Tenant: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. As used in Subparagraph 23(b)(i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the maximum rate permitted by law. As used in Subparagraph 23(b)(iii) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent. (c) In the event of any such default by Tenant, Landlord shall also have the right, with or without terminating this Lease, to re-enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No re-entry or taking possession of the Premises by Landlord pursuant to this Paragraph 23(c) shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant or unless the termination thereof is decreed by a court of competent jurisdiction. (d) All rights, options and remedies of Landlord contained in this Lease shall be constructed and held to be cumulative, and no one of them shall be exclusive of the other, and Landlord shall have the right to pursue any one or all of such remedies or any other remedy or relief which may be provided by law, whether or not stated in this Lease. No waiver of any default of Tenant hereunder shall be implied from any acceptance by Landlord of any rent or other payments due hereunder or any omission by Landlord to take any action on account of such default if such default persists or is repeated, and no express waiver shall affect defaults other than as specified in said waiver. The consent or approval of Landlord to or 17 23 of any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent or approval to or of any subsequent similar acts by Tenant. (e) The chronic delinquency by Tenant in the payment of Basic Rent or any other payments required to be paid by Tenant under this Lease shall constitute a default hereunder by Tenant. "Chronic delinquency" shall mean failure by Tenant to pay Basic Rent, or any other payments required to be paid by Tenant under this Lease within three (3) days after written notice thereof for any three (3) occasions (consecutive or non-consecutive) during any twelve (12) month period. In the event of a chronic delinquency, Landlord shall have the right, at Landlord's option, to require that Basic Rent be paid by Tenant quarterly, in advance. ARTICLE 24 ASSIGNMENT AND SUBLETTING (a) Tenant shall not voluntarily assign or encumber its interest in this Lease or in the Premises, or sublease all or any part of the Premises, or allow any other person or entity to occupy or use all or any part of the Premises, without first obtaining Landlord's prior written consent. Any assignment, encumbrance or sublease without Landlord's prior written consent shall be voidable, at Landlord's election, and shall constitute a default and at the option of the Landlord shall result in a termination of this Lease. No consent to assignment, encumbrance, or sublease shall constitute a further waiver of the provisions of this paragraph. Tenant shall notify Landlord in writing of Tenant's intent to sublease, encumber or assign this Lease and Landlord shall, within FIFTEEN thirty days of receipt of such written notice, elect one of the following: (i) Consent to such proposed assignment, encumbrance or sublease; (ii) Refuse such consent, which refusal shall be on reasonable grounds; or (iii) Elect to terminate this Lease. (b) As a condition for granting its consent to any assignment, encumbrance or sublease, THIRTY days prior to any anticipated assignment or sublease Tenant shall give Landlord written notice (the "Assignment Notice"), which shall set forth the name, address and business of the proposed assignee or sublessee, information (including references) concerning the character, ownership, and financial condition of the proposed assignee or sublessee, and the Assignment Date, any ownership or commercial relationship between Tenant and the proposed assignee or sublessee, and the consideration of all other material terms and conditions of the proposed assignment or sublease, all in such detail as Landlord shall reasonably require. If Landlord requests additional detail, the Assignment Notice shall not be deemed to have been received until Landlord receives such additional detail, and Landlord may withhold consent to any assignment or sublease until such additional detail is provided to it. Further, Landlord may require that the sublessee or assignee remit directly to Landlord on a monthly basis, all monies due to Tenant by said assignee or sublessee. 18 24 (c) The consent by Landlord to any assignment or subletting shall not be construed as relieving Tenant or any assignee of this Lease or sublessee of the Premises from obtaining the express written consent of Landlord to any further assignment or subletting or as releasing Tenant or any assignee or sublessee of Tenant from any liability or obligation hereunder whether or not then accrued. In the event Landlord shall consent to an assignment or sublease, Tenant shall pay Landlord as Additional Rent a reasonable attorneys' and administrative fee not to exceed $500 for costs incurred in connection with evaluating the Assignment Notice. This section shall be fully applicable to all further sales, hypothecations, transfers, assignments and subleases of any portion of the Premises by any successor or assignee of Tenant, or any sublessee of the Premises. (d) As used in this section, the subletting of substantially all of the Premises for substantially all of the remaining term of this Lease shall be deemed an assignment rather than a sublease. Notwithstanding the foregoing, Landlord shall consent to the assignment, sale or transfer if the Assignment Notice states that Tenant desires to assign the Lease to any entity into which Tenant is merged, with which Tenant is consolidated or which acquires all or substantially all of the assets of Tenant, provided that the assignee first executes, acknowledges and delivers to Landlord an agreement whereby the assignee agrees to be bound by all of the covenants and agreements in this Lease which Tenant has agreed to keep, observe or perform, that the assignee agrees that the provisions of this section shall be binding upon it as if it were the original Tenant hereunder and that the assignee shall have a net worth (determined in accordance with generally accepted accounting principles consistently applied) immediately after such assignment which is at least equal to the net worth (as so determined) of Tenant at the commencement of this Lease. (e) Except as provided above, Landlord's consent to any sublease shall not be unreasonably withheld. A condition to such consent shall be delivery by Tenant to Landlord of a true copy of any such sublease. If for any proposed assignment or sublease Tenant receives rent or other consideration, either initially or over the term of the assignment or sublease, in excess of the rent called for hereunder, or, in case of the sublease of a portion of the Premises, in excess of such rent fairly allocable to such portion, after appropriate adjustments to assure that all other payments called for hereunder are taken into account, Tenant shall pay to Landlord as additional rent hereunder ONE-HALF (1/2) of the excess of each such payment of rent or other consideration received by Tenant AFTER FIRST DEDUCTING ANY REASONABLE AND CUSTOMARY BROKERAGE COMMISSION AND TENANT IMPROVEMENT EXPENSES PAID BY TENANT IN CONNECTION WITH THE ASSIGNMENT OR SUBLEASE. SUCH EXCESS SHALL BE PAID TO LANDLORD promptly after its receipt BY TENANT. Landlord's waiver or consent to any assignment or subletting shall not relieve Tenant from any obligation under this lease. The parties intend that the preceding sentence shall not apply to any sublease rentals respecting a portion of the Premises that during the entire term of this Lease was not occupied by Tenant for its own use, but was always subleased by Tenant and/or kept vacant. For the purpose of this section, the rent for each square foot of floor space in the Premises shall be deemed equal. 19 25 ARTICLE 25 SUBORDINATION Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, and at the election of Landlord or any mortgagee with a lien on the Building or any ground lessor with respect to the Building, this Lease shall be subject and subordinate at all times to: (i) All ground leases or underlying leases which may now exist or hereafter be executed affecting the Building or the land upon which the Building is situated or both, (ii) The lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Building, land, ground leases or underlying leases, or Landlord's interest or estate in any of said items is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated any such ground leases or underlying leases or any such liens to the Lease. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any subordination, attorn to and become the Tenant of the successor in interest to Landlord, at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases or underlying leases or the lien of any such mortgage or deed of trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of Tenant to execute, deliver and record any such document in the name and on behalf of Tenant, and (iii) The CC&R's as described in Article 6. ARTICLE 26 ESTOPPEL CERTIFICATE (a) Within ten days following any written request which Landlord may make from time to time, Tenant shall execute and deliver to Landlord a statement ON A FORM PROVIDED BY LANDLORD certifying: (i) The date of commencement of this Lease; (ii) The fact that this Lease is unmodified and in full force and effect (or, if there have been modifications hereto, that this Lease is in full force and effect, and stating the date and nature of such modifications); (iii) The date to which the rental and other sums payable under this Lease have been paid; 20 26 (iv) That there are no current defaults under this Lease by either Landlord or Tenant except as specified in Tenant's statement; and (v) Such other matters requested by Landlord. Landlord and Tenant intend that any statement delivered pursuant to this Article 26 may be relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of the Building or any interest therein. (b) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant: (i) That this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) That there are no uncured defaults in Landlord's performance, and (iii) That not more than one month's rental has been paid in advance. ARTICLE 27 SIGNAGE Landlord shall provide for Tenant the opportunity to have Tenant's name placed upon the Building lobby directory sign, and at Tenant's entrance to the Premises. Tenant shall have no other right to maintain a Tenant identification sign in any other location in, on or about the Premises, the Building, or Signature Center and shall not display or erect any Tenant identification sign, display or other advertising material that is visible from the exterior of the Building. The size, design, color and other physical aspects of the Tenant identification sign shall be subject to Landlord's written reasonable approval prior to installation. The cost of the installation of the sign, and its maintenance and removal expense, shall be at Tenant's sole expense. If Tenant fails to maintain its sign or if Tenant fails to remove its sign upon termination of this Lease, Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord for such amounts shall be deemed additional rent. All signs shall comply with rules and regulations set for by Landlord as may be modified from time to time. TENANT SHALL HAVE THE RIGHT TO INSTALL THEIR COMPANY NAME ON THE EXISTING MONUMENT SIGN ON HOPYARD ROAD, OR THE RIGHT TO INSTALL AN EXCLUSIVE MONUMENT SIGN ADJACENT TO THE BUILDING'S WEST ENTRANCE, OPPOSITE THE EXISTING SIGN (A.G. EDWARDS). THE SIGN SIZE AND DESIGN SHALL BE IDENTICAL TO THE EXISTING SIGN. TENANT SHALL BE RESPONSIBLE FOR THE ENTIRE COST OF INSTALLING, REPOSITIONING EXISTING NAMES, MAINTAINING, RELOCATING, AND REMOVING THEIR NAME. IN ADDITION, TENANT SHALL BE RESPONSIBLE FOR OBTAINING NECESSARY APPROVALS FROM THE CITY OF PLEASANTON AS NEEDED. THE SIZE, LOCATION, MATERIALS, AND DESIGN OF SUCH SIGN SHALL BE SUBJECT TO THE LANDLORD'S PRIOR WRITTEN CONSENT. 21 27 ARTICLE 28 RULES AND REGULATIONS Tenant shall faithfully observe and comply with the "Rules and Regulations," a copy of which is attached hereto and marked EXHIBIT D, and all reasonable and nondiscriminatory modifications thereof and additions thereto from time to time put into effect by Landlord. Landlord shall not be responsible to Tenant for the violation or non-performance by any other tenant or occupant of the Building of any of said Rules and Regulations. ARTICLE 29 CONFLICT OF LAWS This Lease shall be governed by and construed pursuant to the laws of the State of California. ARTICLE 30 SUCCESSORS AND ASSIGNS Except as otherwise provided in this Lease, all of the covenants, conditions and provisions of this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. ARTICLE 31 SURRENDER OF PREMISES The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, operate as an assignment to it of any or all subleases and subtenancies. ARTICLE 32 ATTORNEYS' FEES (a) If Landlord should bring suit for possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provisions of this Lease, or for any other relief against Tenant hereunder, or in the event of any other litigation between the parties with respect to this Lease, then all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment. 22 28 (b) If Landlord is named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant shall pay to Landlord its costs and expenses incurred in such suit, including reasonable attorneys' fees. ARTICLE 33 PERFORMANCE BY TENANT All covenants and agreements to be performed by Tenant under any of the terms of this Lease shall be performed by Tenant at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money owed to any party other than Landlord, for which it is liable hereunder or if Tenant shall fail to perform any other act on its part to be performed hereunder and such failure shall continue for ten days after notice thereof by Landlord, Landlord may, without waiving or releasing Tenant from obligations of Tenant, but shall not be obligated to, make any such payment or perform any such other act to be made or performed by Tenant. All sums so paid by Landlord and all necessary incidental costs together with interest thereon at the maximum rate permissible by law, from the date of such payment by Landlord, shall be payable to Landlord on demand. Tenant covenants to pay any such sums and Landlord shall have (in addition to any other right or remedy of Landlord) all rights and remedies in the event of the non-payment thereof by Tenant as are set forth in Article 23 hereof. ARTICLE 34 MORTGAGEE PROTECTION In the event of any default on the part of Landlord, Tenant will give notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises whose address shall have been furnished to Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. ARTICLE 35 DEFINITION OF LANDLORD The term "Landlord", as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners, at the time in question, of the fee title of the Premises or the lessees under any ground lease, if any. In the event of any transfer, assignment or other conveyance or transfers of any such title, Landlord herein named (and in case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved from and after the date of such transfer, assignment or conveyance of all liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed. Without further agreement, the transferee of such title shall be deemed to have assumed and agreed to observe and perform any and all obligations of Landlord hereunder, during its ownership of the Premises. Landlord may transfer its interest in the Premises without the consent of Tenant and such transfer or 23 29 subsequent transfer shall not be deemed a violation on Landlord's part of any of the terms and conditions of this Lease. ARTICLE 36 WAIVER The waiver by EITHER PARTY of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition herein contained, nor shall any custom or practice which may grow up between the parties in the administration of the terms hereof be deemed a waiver of or in any way affect the right of EITHER PARTY to insist upon the performance by THE OTHER PARTY in strict accordance with said terms. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant or any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rent so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. ARTICLE 37 IDENTIFICATION OF TENANT If more than one person executes this Lease as Tenant: (i) Each of them is jointly and severally liable for the keeping, observing and performing of all of the terms, covenants, conditions, provisions and agreements of this Lease to be kept, observed and performed by Tenant, and (ii) The term "Tenant" as used in this Lease shall mean and include each of them jointly and severally. The act of or notice from, or notice to refund to, or the signature of any one or more of them, with respect to the tenancy of this Lease, including, but not limited to any renewal, extension, expiration, termination or modification of this Lease, shall be binding upon each and all of the persons executing this Lease as Tenant with the same force and effect as if each and all of them had so acted or so given or received such notice or refund or so signed. ARTICLE 38 PARKING The use by Tenant, its employees and invitees, of the parking facilities of the Building shall be on the terms and conditions set forth in EXHIBIT E attached hereto and by this reference incorporated herein and shall be subject to such other agreement between Landlord and Tenant as may hereinafter be established. Tenant, its employees and invitees shall use no more than four (4) non-exclusive parking spaces per one thousand (1,000) square feet of leased space. Tenant's use of the parking spaces shall be confined to the Building. If, in Landlord's reasonable business judgment, it becomes necessary, Landlord shall exercise due diligence to cause the creation of cross-parking easements and such other agreements as are 24 30 necessary to permit Tenant, its employees and invitees to use parking spaces on the properties and buildings of Signature Center, which are separate legal parcels from the Building. Tenant acknowledges that other tenants of the Building and the tenants of the other buildings, their employees and invitees, may be given the right to park at the Building. ARTICLE 39 TERMS AND HEADINGS The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. Words used in any gender include other genders. The paragraph headings of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. ARTICLE 40 EXAMINATION OF LEASE Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution by and delivery to both Landlord and Tenant. ARTICLE 41 TIME Time is of the essence with respect to the performance of every provision of this Lease in which time or performance is a factor. ARTICLE 42 PRIOR AGREEMENT: AMENDMENTS This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provisions of this Lease may be amended or added to except by an agreement in writing signed by the parties hereto or their respective successors in interest. ARTICLE 43 SEPARABILITY Any provision of this Lease which shall prove to be invalid, void or illegal in no way affects, impairs or invalidates any other provision hereof, any such other provisions shall remain in full force and effect. 25 31 ARTICLE 44 RECORDING Neither Landlord nor Tenant shall record this Lease nor a short form memorandum thereof without the consent of the other. ARTICLE 45 CONSENTS Whenever the consent of either party is required hereunder such consent shall not be unreasonably withheld. ARTICLE 46 LIMITATION ON LIABILITY In consideration of the benefits accruing hereunder, Tenant and all successors and assigns covenant and agree that, in the event of any actual or alleged failure, breach or default hereunder by Landlord: (a) The sole and exclusive remedy shall be against the Landlord's interest in the Building; (b) No partner, officer, agent or employee of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of Landlord); (c) No service or process shall be made against any partner, officer, agent or employee of Landlord (except as may be necessary to secure jurisdiction of Landlord); (d) No partner, officer, agent or employee of Landlord shall be required to answer or otherwise plead to any service of process; (e) No judgment will be taken against any partner, officer, agent or employee of Landlord; (f) Any judgment taken against any partner, officer, agent or employee of Landlord may be vacated and set aside at any time nunc pro tunc; (g) No writ of execution will ever be levied against the assets of any partner, officer, agent or employee of Landlord (h) These covenants and agreements are enforceable both by Landlord and also by any partner, officer, agent or employee of Landlord. 26 32 ARTICLE 47 RIDERS Clauses, plats and riders, if any, signed by Landlord and Tenant and affixed to this Lease are a part hereof. ARTICLE 48 EXHIBITS All Exhibits attached hereto are incorporated into this Lease. ARTICLE 49 MODIFICATION FOR LENDER If, in connection with obtaining construction, interim or permanent financing for the Building the lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's rights hereunder. ARTICLE 50 PROJECT PLANNING If Landlord requires the Premises for use in conjunction with another suite or for other reasons connected with the Project planning program, upon notifying Tenant in writing, Landlord shall have the right to relocate Tenant to other space in the Project, at Landlord's sole cost and expense, and the terms and conditions of the original Lease shall remain in full force and effect, except that a revised EXHIBIT A reflecting the location of the new space shall be attached to and become a part of this Lease. However, if the new space does not meet with Tenant's approval, Tenant shall have the right to terminate this Lease effective thirty (30) days after written notice to Landlord, which notice shall be given within ten (10) days after receipt of Landlord's notification. 27 33 ARTICLE 51 OPTION TO RENEW PROVIDED THAT TENANT IS NOT IN DEFAULT, (OR BEYOND ANY TIME PERIOD DURING WHICH TENANT MAY CURE SUCH DEFAULT) HEREUNDER EITHER AT THE TIME OF EXERCISE OR AT THE TIME THE EXTENDED TERM COMMENCES, TENANT SHALL HAVE THE OPTION TO EXTEND THE INITIAL FIVE (5) YEAR TERM OF THIS LEASE FOR AN EXTENDED FIVE (5) YEARS, AT FAIR MARKET VALUE. TENANT SHALL EXERCISE ITS OPTION BY GIVING LANDLORD WRITTEN NOTICE ("OPTION NOTICE") AT LEAST ONE HUNDRED EIGHTY (180) DAYS PRIOR TO THE EXPIRATION OF THE INITIAL TERM OF THIS LEASE. THIS OPTION IS PERSONAL TO BRIGHTSTAR INFORMATION TECHNOLOGY GROUP AND MAY NOT BE ASSIGNED OR TRANSFERRED TO ANY THIRD PARTY. 28 34 IN WITNESS WHEREOF, the parties have executed this Lease as of the date first above written. LANDLORD: ADDRESS: PRINCIPAL LIFE c/o PARKWAY PROPERTIES, INC. INSURANCE COMPANY, 4900 Hopyard Road an Iowa Corporation Suite 270 Pleasanton, CA 94588 BY ____________________________________________________ ITS ____________________________________________________ BY ____________________________________________________ ITS ____________________________________________________ TENANT: ADDRESS: BRIGHTSTAR INFORMATION 4900 HOPYARD ROAD TECHNOLOGY GROUP, SUITE 200 A DELAWARE CORPORATION PLEASANTON, CA 94588 By: ___________________________________________________ Its: ___________________________________________________ By: ___________________________________________________ Its: ___________________________________________________ 35 EXHIBIT A OUTLINE OF TENANT'S FLOOR PLAN EXHIBIT A PAGE 1 OF 1 36 EXHIBIT A-1 THE BUILDING REAL PROPERTY in the City of Pleasanton, County of Alameda, State of California, described as follows: PARCEL ONE: Parcel B, Parcel Map 3971, filed June 27, 1983, in Book 138 of Parcel Maps, Page 63, Alameda County Records. Excepting from the above - described parcel of land all oil, gas, minerals and other hydrocarbon substances in and under or that may be produced from a depth below 500 feet from the surface of said land, without right of entry upon the surface of said land for the purpose of mining, drilling, exploring or extracting such oil, gas, minerals and other hydrocarbon substances or other use of or rights in or to any portion of the surface of said land to a depth of 500 feet below the surface thereof, as reserved in the Deed from Volk-McLain Communities, Inc., to Qualified Investments, Inc., dated June 25, 1967, recorded June 27, 1967, Series No. AZ/60836, Alameda County Records. A.P. No. 941-1301-057 PARCEL TWO: Parcel C, Parcel Map 3971, filed June 27, 1983, in Map Book 138, at Page 63, Alameda County Records. Excepting from the above - described parcel of land all oil, gas, minerals and other hydrocarbon substances in and under or that may be produced from a depth below 500 feet from the surface of said land, without right of entry upon the surface of said land for the purposes of mining, drilling, exploring or extracting such oil, gas, minerals and other hydrocarbon substances or other use of or rights in or to any portion of the surface of said land to a depth of 500 feet below the surface thereof, as reserved in the Deed from Volk-McLain Communities, Inc., to Qualified Investments, Inc., dated June 25, 1967, recorded June 27, 1967, Series No. AZ/60836, Alameda County Records. A.P. No. 941-1301-058 EXHIBIT A-1 PAGE 1 OF 1 37 EXHIBIT B TENANT IMPROVEMENTS THE LANDLORD SHALL CONSTRUCT TENANT IMPROVEMENTS PER A MUTUALLY AGREEABLE SPACE PLAN. TENANT SHALL REIMBURSE LANDLORD FOR ANY COSTS IN EXCESS OF $39,277.00 (INCLUDING ARCHITECTURAL FEES, PERMITS, AND A 4% CONSTRUCTION MANAGEMENT FEE). THE TENANT MAY ADD ONE CONTRACTOR, SUBJECT TO LANDLORD'S REASONABLE APPROVAL, TO LANDLORD'S GENERAL CONTRACTORS BID LIST. IN WITNESS WHEREOF, this Tenant Improvement Agreement is executed as of the date first above written. LANDLORD: ADDRESS: PRINCIPAL LIFE c/o PARKWAY PROPERTIES, INC. INSURANCE COMPANY, 4900 Hopyard Road an Iowa Corporation Suite 270 Pleasanton, CA 94588 BY ____________________________________________________ ITS ____________________________________________________ BY ____________________________________________________ ITS ____________________________________________________ TENANT: ADDRESS: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, 4900 HOPYARD ROAD A DELAWARE CORPORATION SUITE 200 PLEASANTON, CA 94588 By: _____________________________________________________ Its: _____________________________________________________ By: _____________________________________________________ Its: _____________________________________________________ EXHIBIT B PAGE 1 OF 1 38 EXHIBIT C STANDARDS FOR UTILITIES AND SERVICES The following Standards for Utilities and Services are in effect. Landlord reserves the right to adopt nondiscriminatory modifications and additions hereto: As long as Tenant is not in default under any of the terms, covenants, conditions, provisions, or agreements of this Lease, Landlord shall: (a) On Monday through Friday, except holidays, from 7 A.M. to 6 P.M. (and other times for a reasonable additional charge to be fixed by Landlord), ventilate the Premises and furnish air conditioning or heating on such days and hours, when in the judgment of Landlord it may be required for the comfortable occupancy of the Premises. The air conditioning system achieves maximum cooling when the window coverings are closed. Landlord shall not be responsible for room temperatures if Tenant does not keep all window coverings in the Premises closed whenever the system is in operation. Tenant agrees to co-operate fully at all times with Landlord, and to abide by all regulations and requirements which Landlord may prescribe for the proper function and protection of said air conditioning system. Tenant agrees not to connect any apparatus, device, conduit or pipe to the Building chilled and hot water air conditioning supply lines. Tenant further agrees that neither Tenant nor its servants, employees, agents, visitors, licensees or contractors shall at any time enter mechanical installations or facilities of the Building or adjust, tamper with, touch or otherwise in any manner affect said installations or facilities. The cost of maintenance and service calls to adjust and regulate the air conditioning system shall be charged to Tenant if the need for maintenance work results from either Tenant's adjustment of room thermostats or Tenant's failure to comply with its obligations under this section, including keeping window coverings closed as needed. Such work shall be charged at hourly rates equal to then current journeymen's wages for air conditioning mechanics. (b) Landlord shall furnish to Tenant after-hours heating and air conditioning at the rate of $25.00 per hour (two-hour minimum charge) for such after-hours use. If the actual cost to Landlord of providing such after-hours heating and air-conditioning increases at any time during the term of this Lease, Landlord shall have the right to increase the hourly rate charged by Landlord for such after-hours usage upon at least 10 days prior notice to Tenant. Landlord shall bill Tenant monthly for such after-hours usage and Tenant shall pay such charges to Landlord, as additional rent, within 20 days after receipt of Landlord's statement of such charges. (c) Landlord shall furnish to the Premises, during the usual business hours on business days, electric current sufficient for normal office use. Tenant agrees, should its electrical installation or electrical consumption be in excess of the aforesaid quantity or extend beyond normal business hours, to reimburse Landlord monthly for the measured consumption at the average cost per kilowatt hour charged to the Building during the period. If a separate meter is not EXHIBIT C PAGE 1 OF 3 39 installed at Tenant's cost, such excess cost will be established by an estimate agreed upon by Landlord and Tenant, and if the parties fail to agree, as established by an independent licensed engineer. Said estimates to be reviewed and adjusted quarterly. Tenant agrees not to use any apparatus or device in, or upon, or about the premises which may in any way increase the amount of such services usually furnished or supplied to said Premises, and Tenant further agrees not to connect any apparatus or device with wires, conduits or pipes, or other means by which such services are supplied, for the purpose of using additional or unusual amounts of such services without written consent of Landlord. Should Tenant use the same to excess, the refusal on the part of Tenant to pay upon demand of Landlord the amount established by Landlord for such excess charge shall constitute a breach of the obligation to pay rent under this Lease and shall entitle Landlord to the rights therein granted for such breach. At all times Tenant's use of electric current shall never exceed the capacity of the feeders to the Building or the risers or wiring installation and Tenants shall not install or use or permit the installation or use of any computer, larger than personal computer, or electronic data processing equipment in the Premises, without the prior written consent of Landlord. (d) Water will be available in public areas for drinking and lavatory purposes only, but if Tenant requires, uses or consumes water for any purposes in addition to ordinary drinking and lavatory purposes of which fact Tenant constitutes Landlord to be the sole judge, Landlord may install a water meter and thereby measure Tenant's water consumption for all purposes. Tenant shall pay Landlord for the cost of the meter and the cost of the installation thereof and throughout the duration of Tenant's occupancy, Tenant shall keep said meter and installation equipment in good working order and repair at Tenant's own cost and expense, in default of which Landlord may cause such meter and equipment to be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees to pay for water consumed, as shown on said meter, as and when bills are rendered, and on default in making such payment, Landlord may pay such charges and collect the same from Tenant. Any such costs or expenses incurred, or payments made by Landlord for any of the reasons or purposes hereinabove stated shall be deemed to be additional rent payable by Tenant and collectible by Landlord as such. (e) Provide janitor service to the Premises, provided the same are kept reasonably in order by Tenant, and if to be kept clean by Tenant, no one other than persons approved by Landlord shall be permitted to enter the Premises for such purposes. If the Premises are not used exclusively as offices, they shall be kept clean and in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord, and by persons approved by Landlord. Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and rubbish, to the extent that the same exceeds the refuse and rubbish usually attendant upon the use of the Premises as offices. (f) Landlord reserves the right to stop service of the elevator, plumbing, ventilation, air conditioning and electric systems, when necessary, by reason of accident or emergency or for repairs, alterations or improvements, in the judgment of Landlord desirable or necessary to be made, until said repairs, alterations or improvements shall have been completed, and shall further have no responsibility or liability for failure to supply elevator facilities, plumbing, EXHIBIT C PAGE 2 OF 3 40 ventilating, air conditioning or electric service, when prevented from so doing by strike or accident or by any cause beyond Landlord's reasonable control, or by laws, rules, orders, ordinances, directions, regulations or requirements of any federal, state, county or municipal authority or failure of gas, oil or other suitable fuel supply or inability by exercise of reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly understood and agreed that any covenants on Landlord's part to furnish any service pursuant to any of the terms, covenants, conditions, provisions or agreements of this Lease, or to perform any act or thing for the benefit of Tenant, shall not be deemed breached if Landlord is unable to furnish or perform the same by virtue of a strike or labor trouble or any other cause whatsoever beyond Landlord's control. (g) Landlord shall maintain and repair the riser closet on the ground floor of the Building and shall maintain or cause the appropriate telecommunications service company to maintain the telecommunications cabling and wiring to the Building. The cost of such maintenance and repair shall be included in Direct Expenses. Tenant shall be responsible for the installation, maintenance and repair at its expense of the telecommunications cabling and wiring from the riser closet to the Premises and shall use only Pacific Bell for such purposes. Tenant shall also be responsible for the installation, maintenance and repair of any telecommunications cabling and wiring within the Premises but may use any telecommunications service company to perform such work. EXHIBIT C PAGE 3 OF 3 41 EXHIBIT D RULES AND REGULATIONS Signature Center 1. Except as specifically provided in the Lease to which these Rules and Regulations are attached, no sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of Landlord. Landlord shall have the right to remove, at Tenant's expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved by Landlord. 2. If Landlord objects in writing to any curtains, blinds, shades, screens or hanging plants or other similar objects attached to or used in connection with any window or door of the Premises, or placed on any windowsill, which is visible from the exterior of the Premises, Tenant shall immediately discontinue such use. Tenant shall not place anything against or near glass partitions or doors or windows which may appear unsightly from outside the Premises. 3. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, elevators, and stairways are not open to the general public, but are open, subject to reasonable regulation, to Tenant's business invitees. Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interest of the Building and its tenants; provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal or unlawful activities. No tenant and no employee or invitee of any tenant shall go upon the roof of any building of the Project. 4. The directory of the building will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom. 5. All cleaning and janitorial services for the Building and the Premises shall be provided exclusively through Landlord, and except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be employed by Tenant or permitted to enter the Building for the purpose of cleaning the same. Tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of the Premises. EXHIBIT D PAGE 1 OF 5 42 6. Landlord will furnish Tenant, free of charge, with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional keys. Tenant shall not make or have made additional keys, and Tenant shall not alter any lock or install a new additional lock or bolt on any door of its Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord the keys of all doors which have been furnished to Tenant, and in the event of loss of any keys so furnished, shall pay Landlord therefor. 7. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 8. Tenant shall not place a load upon any floor of the Premises which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position of all equipment, materials, furniture or other property brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on such platforms as determined by Landlord to be necessary to properly distribute the weight, which platforms shall be provided at Tenant's expense. Business machines and mechanical equipment belonging to Tenant, which cause noise or vibration that may be transmitted to the structure of the Premises or to any space therein to such a degree to be objectionable to Landlord or to any tenants in the Building, shall be placed and maintained by Tenant, at Tenant's expense, on vibration eliminators or other devices sufficient to eliminate noise or vibration. The persons employed to move such equipment in or out of the Premises must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the Premises, by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. 9. Tenant shall not use or keep in the Premises any kerosene, gasoline or inflammable or combustible fluid or material other than those limited quantities necessary for the operation or maintenance of office equipment. Tenant shall not use or permit to be used in the Premises any foul or noxious gas or substance, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or about the Premises any birds or animals. 10. Tenant shall not use any method of heating or air-conditioning other than that supplied by Landlord. 11. Tenant shall not waste electricity, water or air-conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Premises' heating and air-conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. EXHIBIT D PAGE 2 OF 5 43 12. Landlord reserves the right, exercisable without notice and without liability to Tenant, to change the name and street address of the Premises. 13. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be established from time to time by Landlord, and on Sundays and legal holidays, any person unless that person is known to the person or employee in charge of the Building and has a pass or is properly identified. Tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Landlord shall not be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. Landlord reserves the right to prevent access to the Building in case of invasion, mob, riot, public excitement or other commotion by closing the doors or by other appropriate action. 14. Tenant shall close and lock the doors of its Premises and entirely shut off all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule. 15. Tenant shall not obtain for use on the Premises ice, drinking water, food beverages, towel or other similar services upon the Premises, except at such hours and under such regulations as may be fixed by Landlord. 16. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage of damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 17. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to-room solicitation of business from other tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. 18. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of the Premises. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. EXHIBIT D PAGE 3 OF 5 44 19. Tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof, except in accordance with the provisions of the Lease pertaining to alterations. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 20. Tenant shall not install, maintain or operate upon the Premises any vending machines without the written consent of Landlord. 21. Canvassing, soliciting and distributing of handbills or any other written material, and peddling in the Building are prohibited, and Tenant shall cooperate to prevent such activities. 22. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the Rules and Regulations of the Building. 23. Tenant shall store all its trash and garbage within its Premises or in other facilities provided by Landlord. Tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 24. The Premises shall not be used for the storage of merchandise held for sale to the general public, or for lodging or for manufacturing of any kind, nor shall the Premises be used for any improper, immoral or objectionable purpose. No cooking shall be done or permitted on the Premises without Landlord's consent, except that use by Tenant of Underwriter's Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of microwave ovens for employee use shall be permitted, provided that such equipment and use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 25. Tenant shall not use in the Premises any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the Premises. EXHIBIT D PAGE 4 OF 5 45 26. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 27. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 28. Tenant and its employees, guests and invitees shall not enter into the waterways located in the Building. No object of any kind may be floated or submerged in the waterways, and no foreign substance of any kind may be thrown in the waterways. The expense of any breakage or damage to any mechanical equipment related to the waterways resulting from violation of this rule or any expense incurred restoring the waterways to their normal condition shall be borne by the tenant who, or whose employees or invitees, shall have caused such damage. 29. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 30. Tenant's requirements will be attended to only upon appropriate application to the Building management office by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord, and no employee of Landlord will admit any person (Tenant or otherwise) to any office without specific instructions from Landlord. 31. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 32. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of Tenant's lease of its Premises in the Building. 33. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted. 34. Tenant shall be responsible for the observance of all of the foregoing rules by Tenant's employees, agents, clients, customers, invitees and guests. EXHIBIT D PAGE 5 OF 5 46 EXHIBIT E PARKING RULES AND REGULATIONS The following rules and regulations shall govern use of the parking facilities which are appurtenant to the Building. 1. All claimed damage or loss must be reported and itemized in writing delivered to the Landlord within ten business days after any claimed damage or loss occurs. Any claim not so made is waived. Landlord has the option to make repairs at its expense of any claimed damage within two business days after filing of any claim. In all court actions the burden of proof to establish a claim remains with Tenant. Court actions by Tenant for any claim must be filed in the court of jurisdiction where a claimed loss occurred within ninety days after date of damage or loss. Landlord is not responsible for damage by water, fire, or defective brakes, or parts, or for the act of omissions of others, or for articles left in the car. The total liability of Landlord is limited to $250.00 for all damages or loss to any car. Landlord is not responsible for loss of use. 2. Tenant shall not park or permit the parking of any vehicle under its control in any parking areas designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks. 3. Parking stickers or any other device or form of identification supplied by Landlord as a condition of use of the Parking Facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. 4. No overnight or extended term storage of vehicles shall be permitted. 5. Vehicles must be parked entirely within the painted stall lines of a single parking stall. 6. All directional signs and arrows must be observed. 7. The speed limit within all parking areas shall be 5 miles per hour. EXHIBIT E PAGE 1 OF 2 47 8. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles; (c) where "no parking" signs are posed; (d) on ramps; (e) in cross hatched areas; and (f) in such other areas as may be designated by Landlord or Landlord's Parking Operator. 9. Every parker is required to park and lock his own vehicle. All responsibility for damage to vehicles is assumed by the parker. 10. Loss of theft of parking identification devices from automobiles must be reported immediately, and a lost or stole report must be filed by the customer at that time. Landlord has the right to exclude any car from the parking facilities that does not have an identification. 11. Any parking identification devices reported lost or stolen found on any unauthorized car will be confiscated and the illegal holder will be subject to prosecution. 12. Lost or stolen devices found by the purchaser must be reported immediately to avoid confusion. 13. Washing, waxing, cleaning or servicing of any vehicle in any area not specifically reserved for such purpose is prohibited. 14. Landlord reserves the right to refuse the sale of monthly stickers or other parking identification devices to any tenant or person and/or his agents or representatives who willfully refuse to comply with these Rules and Regulations and all unposted City, State or Federal ordinances, laws or agreements. 15. Landlord reserves the right to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as it deems necessary for the operation of the parking facilities. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the car to removal. EXHIBIT E PAGE 2 OF 2 EX-10.12 4 EMPLOYMENT AGREEMENT - DONALD ROWLEY 1 EXHIBIT 10.12 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of January ___, 1999, by and between BrightStar Information Technology Group, Inc., a Delaware corporation (the "Company"), and Don Rowley (the "Employee"). In consideration of the mutual covenants contained herein, the parties hereby agree as follows: SECTION 1. EMPLOYMENT Subject to the terms and conditions hereof, the Company hereby employs the Employee, and the Employee hereby accepts such employment, to continue until terminated as provided herein (the "Employment"). SECTION 2. POSITION AND DUTIES 2.1 Position. The Employee will serve the Company in the position of Chief Financial Officer, or such other position(s) as the Board of Directors of the Company (the "Board") may determine with the agreement of the Employee from time to time, consistent with the duties and responsibilities of a company's chief financial officer. The Employee will report to the Company's President and Chief Executive Officer. 2.2 Duties. The Employee will, to the best of the Employee's ability, perform (i) the customary duties of the Employee's position, which shall include primary responsibility for company-wide financial reporting and treasury operations, and (ii) such other duties as are reasonably assigned to the Employee from time to time. The Employee will at all times perform such duties loyally and conscientiously. 2.3 Full Time and Best Efforts. During the Employment, the Employee will devote the Employee's full time and best efforts to the performance of the duties hereunder and to the business and affairs of the Company. The Employee agrees that in the provision of all services to the Company, he will comply with and follow the provisions of this Agreement and all directives, policies, standards and regulations from time to time established by the Board. The Employee represents and warrants that he is under no contractual or other restrictions or obligations which will materially limit the performance of his obligations hereunder or limit the use by the Employee of any information which relates to the business of the Company. 2 Don Rowley Employment Agreement Page 2 2.4 Principal Office. The Employee will perform his duties primarily at the Company's principal office in the San Francisco Bay Area. However, the Employee may be required on reasonable notice to travel from time to time in the performance of his duties. SECTION 3. COMPENSATION. The compensation for the services to be rendered by the Employee shall be as follows: 3.1 Salary. The Company will pay the Employee an annual salary of $250,000, payable in semi-monthly installments consistent with the Company's established payroll policies. 3.2 Bonus. The Company will pay the Employee a bonus of up to $150,000, payable as follows: if the Company achieves net revenues for calendar 1999 of $150,000,000, and net earnings of at least $0.80 per fully diluted share, the Company shall pay the Employee $150,000. If the Company fails to achieve net earnings of at least $0.80 per fully diluted share during 1999, no bonus shall be payable. If the Company achieves such earnings, but fails to achieve net revenues of $150,000,000, the bonus shall be $100,000. Any bonus payable pursuant to this Section 3.2 shall be paid on or before March 31, 2000. Net revenues and earnings shall be determined by the Company's independent accountants in accordance with generally accepted accounting principles. 3.3 Benefits. During the Employment, the Employee will be entitled to medical insurance and other benefits consistent with the Company's policies for employees generally. Additionally, the Employee shall be eligible to participate in such executive incentive bonus and/or benefit plans made available from time to time, at the discretion of the Board, to all employees generally and to those individuals designated as "key employees" at a level of participation designated by the Board. 3.4 Vacation. The Employee shall be given three weeks of vacation time per year or the benefit of the Company's personal time off policy, whichever is greater. Unused vacation time shall accrue to the following year, provided that the maximum accrued vacation shall not exceed four weeks. Accrued vacation shall be payable upon the Employee's termination. 3.5 Travel. During the Employment, the Company shall reimburse Employee for one round-trip coach ticket from the San Francisco Bay Area to New York City each week for weekend visits to his principal residence. 3.6 Local Residence. During the Employment, the Company shall reimburse the Employee for the rental of a personal residence in the San Francisco Bay Area. Such reimbursement shall not exceed $1,700 per month. 3 Don Rowley Employment Agreement Page 3 3.7 Stock Options. At the first meeting of the Board following the execution of this Agreement, the Company shall grant to the Employee an incentive stock option to purchase up to 40,000 shares of the Company's Common Stock. Such option shall vest quarterly over a three-year period. 3.8 Tax Withholding. The Company will have the right to deduct or withhold from the compensation due to the Employee all amounts required to be withheld by law for Social Security, federal, state and local taxes as applicable from time to time. 3.9 Relocation Expenses. The Company will reimburse the Employee for his reasonable relocation expenses in moving to the San Francisco Bay Area. SECTION 4. BUSINESS EXPENSES 4.1 Reimbursement. Subject to the conditions hereof, the Company will reimburse the Employee for reasonable business expenses incurred by the Employee in the course of the Employment, in accordance with the policies of the Company in effect from time to time. 4.2 Adequate Records. No such expenditure will be reimbursable unless the Employee furnishes to the Company adequate records and other documentary evidence required under the tax laws for substantiation of such expenditure. SECTION 5. CONFIDENTIALITY AND OTHER AGREEMENTS 5.1 Confidentiality. The Employee shall be subject to the terms and conditions of the Company's standard confidentiality agreement in effect from time to time. 5.2 Indemnity and Insurance. The Employee shall be indemnified by the Company, to the maximum extent permitted under applicable law, for his activities as an officer of the Company hereunder, and the Employee will be covered by any and all liability insurance purchased by the Company for its directors and officers. SECTION 6. TERMINATION OF EMPLOYMENT. 6.1 Employment at Will. The Employment shall be terminable by the Company at will, with or without Cause. "Cause" shall mean (i) the commission by the Employee of any felony or any other crime involving moral turpitude, (ii) a material breach of this Agreement which, if curable, is not cured within thirty (30) days after written notice to the Employee of such breach; (iii) the commission by the Employee of an act of fraud upon the Company or any of its 4 Don Rowley Employment Agreement Page 4 affiliates; (iv) the misappropriation of any funds or property of the Company or any of its affiliates; (v) the failure by the Employee to perform material duties assigned to him pursuant to this Agreement or otherwise assigned to and accepted by the Employee, or to comply with any Company policy, after reasonable written notice and opportunity to cure such performance; or (vi) the engagement in any activity which would constitute a material violation of the provisions of the Company's insider trading policy, if any, then in effect. 6.2 Severance. If the Company terminates the Employment without Cause, the Company shall continue to pay the Employee the compensation due under Section 3.1 for a period of one year following the date of such termination. 6.3 Cause; Resignation. If the Employment is terminated for Cause or by the Employee's voluntary resignation, the Company will continue to pay the Employee the compensation and benefits set forth in Section 3 above through the effective date of such termination. 6.4 Termination Following Change of Control. In the event of (i) the sale of all or substantially all of the assets of the Company, or (ii) a merger, consolidation, liquidation or reorganization of the Company in which the Company or an affiliate of the Company is not the surviving entity, or which results, in any event, in a change of control of the Company (each, a "Change in Control Transaction"), the Company or the surviving entity, as the case may be, may either (A) terminate the Employment hereunder and pay to the Employee an amount equal to two years compensation and benefits (as set forth in Sections 3.1 and 3.2), payable not less than monthly, or (B) adopt this Agreement; provided, however, that if the Company or the surviving entity elects to adopt this Agreement following a Change in Control Transaction and it shall subsequently terminate the Employment without Cause, then it shall pay and provide to the Employee the greater of (a) the salary and benefits otherwise payable under Sections 3.1 and 3.3 for a period ending two years after the date of the Change in Control Transaction, or (b) the amount payable under Section 6.2. SECTION 7. GENERAL PROVISIONS. 7.1 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 7.2 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective heirs, affiliates, successors and assigns of the parties; provided, however, that neither party shall be permitted to assign this Agreement without the prior written consent of the other party. 7.3 Construction. In the event that any of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5 Don Rowley Employment Agreement Page 5 7.4 Notices. Any notice which either party is required or permitted to give to the other party hereunder shall be given by personal delivery or by registered or certified mail, return receipt requested, postage prepaid, addressed to the other party at the address set forth below: If to the Company: Attn: President If to the Employee: Don Rowley or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. at the beginning of this Agreement, or at such other address as the other party may from time to time designate pursuant to this Section 7.4. The date of personal delivery or three (3) days after the date of mailing of any such notice, as the case may be, shall be the date such notice is deemed given. 7.5 Waivers. No failure or delay on the part of either party in the exercise of any right hereunder will operate as a waiver thereof. Any waiver of any right hereunder will be effective only if in writing. Any single or partial waiver of any right hereunder shall not operate as a waiver of any preceding or succeeding such right or any other right. 7.6 Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the Employment and supersedes all prior agreements, understandings and communications between the parties with respect thereto. 7.7 Amendment. Any amendment to this Agreement shall be effective only if in writing signed by both parties with specific reference hereto. 7.8 Legal Fees. The prevailing party in any legal action between the parties arising out of this Agreement will be entitled, in addition to any other rights and remedies such party may have, to reimbursement for such party's legal expenses, including court costs and reasonable attorneys' fees. 7.9 Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. 6 Don Rowley Employment Agreement Page 6 Executed effective as of the date first set forth above. THE COMPANY: By: ------------------------------------------ Michael A. Ober President & CEO BrightStar Information Technology Group, Inc. THE EMPLOYEE: --------------------------------------------- Don Rowley EX-10.17 5 STOCK REPURCHASE AGREEMENT 1 EXHIBIT 10.17c STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement (this "Agreement") dated as of April ___, 1998 is entered into by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and DANIEL M. COFALL (the "Grantor") . W I T N E S S E T H: WHEREAS, Grantor owns certain shares of common stock of the Company (the "Common Stock") and certain shares of restricted common stock of the Company ("Restricted Common Stock"); WHEREAS, in order to facilitate certain additional funding of the Company, Grantor, the Company desires that Grantor grant to the Company an option to purchase certain shares of Common Stock on the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 42,000 shares of Restricted Common Stock and 78,265 shares of Common Stock (collectively, the "Shares") which shall initially be subject to the terms, provisions and conditions of the Purchase Option (as hereafter defined). The term "IPO" means the first underwritten public offering of the Company's common stock other than any offering pursuant to any registration statement (i) relating to any capital stock of the Company or options, warrants or other rights to acquire any such capital stock issued or to be issued primarily to directors, officers or employees of the Company, or any of its subsidiaries (ii) relating to any employee benefit plan or interest therein, (iii) relating principally to any preferred stock or debt securities of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended, or any successor or similar provisions. 2. PURCHASE OPTION. a. The Shares shall be subject to the option (the "Purchase Option") set forth in this Section 2. In the event that Grantor shall cease to be engaged, either as a consultant or as an employee, by the Company (including a parent or subsidiary of the Company) under the circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall have the right, at any time within 90 days after the date Grantor ceases to be so engaged (the "Option Period"), to exercise the Purchase Option, which consists of the right to purchase from Grantor at a purchase price of $.10 per share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but not exceeding the number of Shares specified in Section 2(b) below, upon the terms hereinafter set forth. b. If any of the following items (i) or (ii) occurs: 2 i. Grantor repudiates or renounces that certain Employment Agreement between the Company and Grantor (the "Employment Agreement") or voluntarily ceases his engagement with the Company (other than by reason of death or disability) prior to the date which is 12 months following the date of the successful completion of the IPO without the prior written consent of the Company; or ii. Grantor's engagement by the Company under the Employment Agreement is terminated by the Company at any time prior to the date which is 12 months following the date of the successful completion of the IPO, with "Cause," (as defined below); prior to the occurrence of any Termination Event (as defined in Section 9), then the Company may exercise the Purchase Option at the Option Price as to the number of Shares determined as follows: (A) Prior to the IPO, the Company may exercise the Purchase Option as to all of the Shares; (B) Following the IPO, the Company may exercise the Purchase Option as to a number of Shares equal to the total number of Shares less an aggregate number of Shares equal to the product (rounded down to the nearest whole Share) of (i) 1/12 times (ii) the aggregate number of full calendar months following the IPO that Grantor has been engaged as an employee to the Company, times (iii) the total number of Shares (120,265). For the purposes of this Agreement, "Cause" means the conviction of Grantor of a crime involving fraud against the Company or any of its affiliates or the theft or embezzlement of assets of the Company or any of its affiliates. The Company shall not have the right to exercise the Purchase Option in the event Grantor's employment by the Company under the Employment Agreement is terminated for death, disability, without "Cause" or for any other reason except as provided in Section 2(b) above. c. The Purchase Option may be exercised by the Company by giving notice to the Grantor in accordance with Section 13.1 hereof stating that the Company has elected to acquire the Shares subject to the Purchase Option. Each sale and purchase in accordance with the rights so exercised shall be thereafter completed without avoidable delay by the transfer and assignment of such Shares to the Company and payment of the Option Price. The Option Price shall be payable, at the option of the Company, by cancellation of all or a portion of any outstanding indebtedness of the Grantor to the Company or by payment in cash (by check), or both. d. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Grantor's engagement with the Company, for any reason, with or without cause as provided in the applicable Employment Agreement. 3. ASSIGNMENT. Neither the Company nor Grantor may assign this Agreement or any of its respective rights and obligations hereunder. 2 3 4. ADJUSTMENTS. If, from time to time during the term of the Purchase Option (i) there is any dividend of stock or other securities or liquidating dividend of cash or property, stock split, reverse stock split, subdivision, combination, recapitalization, reorganization, reclassification or other change in the character or amount of any of the outstanding securities of the Company, or (ii) there is any transaction involving the consolidation or merger of the Company in which the Company is the surviving entity (collectively, (i) and (ii) shall be referred to as a "Reorganization"), then, in such event, any and all new, substituted or additional securities or other property to which Grantor is entitled by reason of Grantor's ownership of the Shares shall be immediately subject to the Purchase Option and be included in the term "Shares" for all purposes of the Purchase Option with the same force and effect as the Shares subject to the Purchase Option under the terms of Section 2 hereof. In the event that the outstanding Common Stock is at any time increased or decreased solely by reason of a Reorganization, appropriate adjustments to the Option Price shall be made effective as of the date of such occurrence so that the total Option Price upon exercise of the Purchase Option will be the same as it would have been had the Company exercised the Purchase Option immediately prior to the occurrence of such event. 5. LEGENDS. All certificates representing any of the Shares subject to the provisions of this Agreement shall have endorsed thereon a legend substantially as follows: "ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR." Upon presentation to the Company or any authorized transfer agent of certificates representing the Shares, the number of Shares represented thereby which are no longer subject to the Purchase Option shall be exchanged for certificates not bearing such legend, and all Shares, if any, which remain subject to the Purchase Option, shall be represented by certificates endorsed with the legend set forth above. 6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or otherwise transfer (otherwise than by operation of law) any of the Shares which are subject to the Purchase Option or any interest therein, or grant or otherwise allow to exist any lien, claim or other encumbrance on or with respect to any of the Shares then subject to the Purchase Option. 7. NO TRANSFER. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in 3 4 this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7 above, Grantor shall, during the term of this Agreement, exercise all rights and privileges of a shareholder of the Company with respect to the Shares. 9. TERMINATION. This Agreement and the Purchase Option granted hereunder shall terminate on the earlier to occur of any of the following events (each a "Termination Event"): a. the 91st calendar day immediately succeeding the date which is 12 months following the date of the successful completion of the IPO; b. upon expiration of the Option Period; c. the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making of an assignment for the benefit of creditors, or the admission in writing of inability to pay debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or d. the sale of all or substantially all of the assets of the Company. 10. FURTHER ASSURANCES. The parties agree to execute such further instruments and to take such further actions as may reasonably be necessary to carry out the purposes and intent of this Agreement. 11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to the Grantor the purchase price for such Shares as is herein specified. Thereupon, the Company upon written notice to the Grantor, (a) shall cancel on its books the certificate or certificates representing the Shares to be sold and (b) shall issue, in lieu thereof, in the name of the Company a new certificate or certificates representing such Shares, and thereupon all of the Grantor's rights in and to such Shares shall terminate. 4 5 12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company will be irreparably damaged if this Agreement is not specifically enforced. Upon a breach of the terms, covenants and/or conditions of this Agreement by Grantor, the Company shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. 13. MISCELLANEOUS. a. Notice. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: BrightStar Information Technology Group, Inc. 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042 If to Grantor, at the address identified on the signature page hereof, or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. b. Applicable Law. The substantive laws of the State of Texas, excluding any law, rule or principle which might refer to the substantive law of another jurisdiction, will govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. This Agreement is to be negotiated, executed and performed in Harris County, Texas, and, as such, the Company and Grantor agree that personal jurisdiction and venue shall be proper with the state or federal courts situated in Harris County, Texas, to hear such disputes arising under this Agreement. c. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. d. Severability. If a court of competent jurisdiction determines that any provision of this Agreement, including any appendices attached hereto, is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Further, such provisions shall be reformed and construed to the extent permitted by law so that it may be valid, legal and enforceable to the maximum extent possible. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 5 6 f. Headings. The section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. g. Successors. This Agreement shall inure to the benefit of the permitted successors and assigns of the Company and be binding upon Grantor and his or her heirs, executors, administrators and successors. h. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. i. Entire Agreement. This Agreement and the agreements referred to herein constitute the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the subject matter hereof. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, with regard to the subject matter hereof, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement or promise relating to the subject matter hereof which is not contained in this Agreement or in such other agreements shall be valid or binding. j. Amendments. No amendment or modification to this Agreement will be effective unless it is in writing and signed by the Company and Grantor. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. COMPANY: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By:/S/ THOMAS A. HUDGINS ---------------------------------------- Name: Thomas A. Hudgins -------------------------------------- Title: Executive Vice President ------------------------------------ SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR: /S/DANIEL M. COFALL ------------------------------------------- Name: DANIEL M. COFALL ------------------------------------- Address: 2001 Holcombe ------------------------------- Suite 3402 ------------------------------- Houston, TX 77030 ------------------------------- 7 STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement (this "Agreement") dated as of April ___, 1998 is entered into by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and THOMAS A. HUDGINS (the "Grantor") . W I T N E S S E T H: WHEREAS, Grantor owns certain shares of common stock of the Company (the "Common Stock") and certain shares of restricted common stock of the Company ("Restricted Common Stock"); WHEREAS, in order to facilitate certain additional funding of the Company, Grantor, the Company desires that Grantor grant to the Company an option to purchase certain shares of Common Stock on the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 42,000 shares of Restricted Common Stock and 78,265 shares of Common Stock (collectively, the "Shares") which shall initially be subject to the terms, provisions and conditions of the Purchase Option (as hereafter defined). The term "IPO" means the first underwritten public offering of the Company's common stock other than any offering pursuant to any registration statement (i) relating to any capital stock of the Company or options, warrants or other rights to acquire any such capital stock issued or to be issued primarily to directors, officers or employees of the Company, or any of its subsidiaries (ii) relating to any employee benefit plan or interest therein, (iii) relating principally to any preferred stock or debt securities of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended, or any successor or similar provisions. 2. PURCHASE OPTION. a. The Shares shall be subject to the option (the "Purchase Option") set forth in this Section 2. In the event that Grantor shall cease to be engaged, either as a consultant or as an employee, by the Company (including a parent or subsidiary of the Company) under the circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall have the right, at any time within 90 days after the date Grantor ceases to be so engaged (the "Option Period"), to exercise the Purchase Option, which consists of the right to purchase from Grantor at a purchase price of $.10 per share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but not exceeding the number of Shares specified in Section 2(b) below, upon the terms hereinafter set forth. b. If any of the following items (i) or (ii) occurs: 8 i. Grantor repudiates or renounces that certain Employment Agreement between the Company and Grantor (the "Employment Agreement") or voluntarily ceases his engagement with the Company (other than by reason of death or disability) prior to the date which is 12 months following the date of the successful completion of the IPO without the prior written consent of the Company; or ii. Grantor's engagement by the Company under the Employment Agreement is terminated by the Company at any time prior to the date which is 12 months following the date of the successful completion of the IPO, with "Cause," (as defined below); prior to the occurrence of any Termination Event (as defined in Section 9), then the Company may exercise the Purchase Option at the Option Price as to the number of Shares determined as follows: (A) Prior to the IPO, the Company may exercise the Purchase Option as to all of the Shares; (B) Following the IPO, the Company may exercise the Purchase Option as to a number of Shares equal to the total number of Shares less an aggregate number of Shares equal to the product (rounded down to the nearest whole Share) of (i) 1/12 times (ii) the aggregate number of full calendar months following the IPO that Grantor has been engaged as an employee to the Company, times (iii) the total number of Shares (120,265). For the purposes of this Agreement, "Cause" means the conviction of Grantor of a crime involving fraud against the Company or any of its affiliates or the theft or embezzlement of assets of the Company or any of its affiliates. The Company shall not have the right to exercise the Purchase Option in the event Grantor's employment by the Company under the Employment Agreement is terminated for death, disability, without "Cause" or for any other reason except as provided in Section 2(b) above. c. The Purchase Option may be exercised by the Company by giving notice to the Grantor in accordance with Section 13.1 hereof stating that the Company has elected to acquire the Shares subject to the Purchase Option. Each sale and purchase in accordance with the rights so exercised shall be thereafter completed without avoidable delay by the transfer and assignment of such Shares to the Company and payment of the Option Price. The Option Price shall be payable, at the option of the Company, by cancellation of all or a portion of any outstanding indebtedness of the Grantor to the Company or by payment in cash (by check), or both. d. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Grantor's engagement with the Company, for any reason, with or without cause as provided in the applicable Employment Agreement. 3. ASSIGNMENT. Neither the Company nor Grantor may assign this Agreement or any of its respective rights and obligations hereunder. 2 9 4. ADJUSTMENTS. If, from time to time during the term of the Purchase Option (i) there is any dividend of stock or other securities or liquidating dividend of cash or property, stock split, reverse stock split, subdivision, combination, recapitalization, reorganization, reclassification or other change in the character or amount of any of the outstanding securities of the Company, or (ii) there is any transaction involving the consolidation or merger of the Company in which the Company is the surviving entity (collectively, (i) and (ii) shall be referred to as a "Reorganization"), then, in such event, any and all new, substituted or additional securities or other property to which Grantor is entitled by reason of Grantor's ownership of the Shares shall be immediately subject to the Purchase Option and be included in the term "Shares" for all purposes of the Purchase Option with the same force and effect as the Shares subject to the Purchase Option under the terms of Section 2 hereof. In the event that the outstanding Common Stock is at any time increased or decreased solely by reason of a Reorganization, appropriate adjustments to the Option Price shall be made effective as of the date of such occurrence so that the total Option Price upon exercise of the Purchase Option will be the same as it would have been had the Company exercised the Purchase Option immediately prior to the occurrence of such event. 5. LEGENDS. All certificates representing any of the Shares subject to the provisions of this Agreement shall have endorsed thereon a legend substantially as follows: "ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR." Upon presentation to the Company or any authorized transfer agent of certificates representing the Shares, the number of Shares represented thereby which are no longer subject to the Purchase Option shall be exchanged for certificates not bearing such legend, and all Shares, if any, which remain subject to the Purchase Option, shall be represented by certificates endorsed with the legend set forth above. 6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or otherwise transfer (otherwise than by operation of law) any of the Shares which are subject to the Purchase Option or any interest therein, or grant or otherwise allow to exist any lien, claim or other encumbrance on or with respect to any of the Shares then subject to the Purchase Option. 7. NO TRANSFER. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in 3 10 this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7 above, Grantor shall, during the term of this Agreement, exercise all rights and privileges of a shareholder of the Company with respect to the Shares. 9. TERMINATION. This Agreement and the Purchase Option granted hereunder shall terminate on the earlier to occur of any of the following events (each a "Termination Event"): a. the 91st calendar day immediately succeeding the date which is 12 months following the date of the successful completion of the IPO; b. upon expiration of the Option Period; c. the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making of an assignment for the benefit of creditors, or the admission in writing of inability to pay debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or d. the sale of all or substantially all of the assets of the Company. 10. FURTHER ASSURANCES. The parties agree to execute such further instruments and to take such further actions as may reasonably be necessary to carry out the purposes and intent of this Agreement. 11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to the Grantor the purchase price for such Shares as is herein specified. Thereupon, the Company upon written notice to the Grantor, (a) shall cancel on its books the certificate or certificates representing the Shares to be sold and (b) shall issue, in lieu thereof, in the name of the Company a new certificate or certificates representing such Shares, and thereupon all of the Grantor's rights in and to such Shares shall terminate. 4 11 12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company will be irreparably damaged if this Agreement is not specifically enforced. Upon a breach of the terms, covenants and/or conditions of this Agreement by Grantor, the Company shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. 13. MISCELLANEOUS. a. Notice. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: BrightStar Information Technology Group, Inc. 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042 If to Grantor, at the address identified on the signature page hereof, or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. b. Applicable Law. The substantive laws of the State of Texas, excluding any law, rule or principle which might refer to the substantive law of another jurisdiction, will govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. This Agreement is to be negotiated, executed and performed in Harris County, Texas, and, as such, the Company and Grantor agree that personal jurisdiction and venue shall be proper with the state or federal courts situated in Harris County, Texas, to hear such disputes arising under this Agreement. c. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. d. Severability. If a court of competent jurisdiction determines that any provision of this Agreement, including any appendices attached hereto, is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Further, such provisions shall be reformed and construed to the extent permitted by law so that it may be valid, legal and enforceable to the maximum extent possible. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 5 12 f. Headings. The section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. g. Successors. This Agreement shall inure to the benefit of the permitted successors and assigns of the Company and be binding upon Grantor and his or her heirs, executors, administrators and successors. h. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. i. Entire Agreement. This Agreement and the agreements referred to herein constitute the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the subject matter hereof. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, with regard to the subject matter hereof, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement or promise relating to the subject matter hereof which is not contained in this Agreement or in such other agreements shall be valid or binding. j. Amendments. No amendment or modification to this Agreement will be effective unless it is in writing and signed by the Company and Grantor. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. COMPANY: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By:/s/THOMAS A. HUDGINS ----------------------------------- Name: Thomas A. Hudgins --------------------------------- Title: Executive Vice President -------------------------------- SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR: /s/THOMS A. HUDGINS -------------------------------------- Name: THOMAS A. HUDGINS --------------------------------- Address: 3027 Bayou Dr. -------------------------------------- La Porte, TX 77571 -------------------------------------- 6 13 EXHIBIT 10.179(w) STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement (this "Agreement") dated as of April ___, 1998 is entered into by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and MARSHALL G. WEBB (the "Grantor") . W I T N E S S E T H: WHEREAS, Grantor owns certain shares of common stock of the Company (the "Common Stock") and certain shares of restricted common stock of the Company ("Restricted Common Stock"); WHEREAS, in order to facilitate certain additional funding of the Company, Grantor, the Company desires that Grantor grant to the Company an option to purchase certain shares of Common Stock on the terms and conditions hereinafter set forth; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns 49,000 shares of Restricted Common Stock and 81,265 shares of Common Stock (collectively, the "Shares") which shall initially be subject to the terms, provisions and conditions of the Purchase Option (as hereafter defined). The term "IPO" means the first underwritten public offering of the Company's common stock other than any offering pursuant to any registration statement (i) relating to any capital stock of the Company or options, warrants or other rights to acquire any such capital stock issued or to be issued primarily to directors, officers or employees of the Company, or any of its subsidiaries (ii) relating to any employee benefit plan or interest therein, (iii) relating principally to any preferred stock or debt securities of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended, or any successor or similar provisions. 2. PURCHASE OPTION. a. The Shares shall be subject to the option (the "Purchase Option") set forth in this Section 2. In the event that Grantor shall cease to be engaged, either as a consultant or as an employee, by the Company (including a parent or subsidiary of the Company) under the circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall have the right, at any time within 90 days after the date Grantor ceases to be so engaged (the "Option Period"), to exercise the Purchase Option, which consists of the right to purchase from Grantor at a purchase price of $.10 per share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but not exceeding the number of Shares specified in Section 2(b) below, upon the terms hereinafter set forth. 14 b. If any of the following items (i) or (ii) occurs: i. Grantor repudiates or renounces that certain Employment Agreement between the Company and Grantor (the "Employment Agreement") or voluntarily ceases his engagement with the Company (other than by reason of death or disability) prior to the date which is 12 months following the date of the successful completion of the IPO without the prior written consent of the Company; or ii. Grantor's engagement by the Company under the Employment Agreement is terminated by the Company at any time prior to the date which is 12 months following the date of the successful completion of the IPO, with "Cause," (as defined below); prior to the occurrence of any Termination Event (as defined in Section 9), then the Company may exercise the Purchase Option at the Option Price as to the number of Shares determined as follows: (A) Prior to the IPO, the Company may exercise the Purchase Option as to all of the Shares; (B) Following the IPO, the Company may exercise the Purchase Option as to a number of Shares equal to the total number of Shares less an aggregate number of Shares equal to the product (rounded down to the nearest whole Share) of (i) 1/12 times (ii) the aggregate number of full calendar months following the IPO that Grantor has been engaged as an employee to the Company, times (iii) the total number of Shares (130,265). For the purposes of this Agreement, "Cause" means the conviction of Grantor of a crime involving fraud against the Company or any of its affiliates or the theft or embezzlement of assets of the Company or any of its affiliates. The Company shall not have the right to exercise the Purchase Option in the event Grantor's employment by the Company under the Employment Agreement is terminated for death, disability, without "Cause" or for any other reason except as provided in Section 2(b) above. c. The Purchase Option may be exercised by the Company by giving notice to the Grantor in accordance with Section 13.1 hereof stating that the Company has elected to acquire the Shares subject to the Purchase Option. Each sale and purchase in accordance with the rights so exercised shall be thereafter completed without avoidable delay by the transfer and assignment of such Shares to the Company and payment of the Option Price. The Option Price shall be payable, at the option of the Company, by cancellation of all or a portion of any outstanding indebtedness of the Grantor to the Company or by payment in cash (by check), or both. d. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Grantor's engagement with the Company, for any reason, with or without cause as provided in the applicable Employment Agreement. 3. ASSIGNMENT. Neither the Company nor Grantor may assign this Agreement or any of its respective rights and obligations hereunder. 2 15 4. ADJUSTMENTS. If, from time to time during the term of the Purchase Option (i) there is any dividend of stock or other securities or liquidating dividend of cash or property, stock split, reverse stock split, subdivision, combination, recapitalization, reorganization, reclassification or other change in the character or amount of any of the outstanding securities of the Company, or (ii) there is any transaction involving the consolidation or merger of the Company in which the Company is the surviving entity (collectively, (i) and (ii) shall be referred to as a "Reorganization"), then, in such event, any and all new, substituted or additional securities or other property to which Grantor is entitled by reason of Grantor's ownership of the Shares shall be immediately subject to the Purchase Option and be included in the term "Shares" for all purposes of the Purchase Option with the same force and effect as the Shares subject to the Purchase Option under the terms of Section 2 hereof. In the event that the outstanding Common Stock is at any time increased or decreased solely by reason of a Reorganization, appropriate adjustments to the Option Price shall be made effective as of the date of such occurrence so that the total Option Price upon exercise of the Purchase Option will be the same as it would have been had the Company exercised the Purchase Option immediately prior to the occurrence of such event. 5. LEGENDS. All certificates representing any of the Shares subject to the provisions of this Agreement shall have endorsed thereon a legend substantially as follows: "ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR." Upon presentation to the Company or any authorized transfer agent of certificates representing the Shares, the number of Shares represented thereby which are no longer subject to the Purchase Option shall be exchanged for certificates not bearing such legend, and all Shares, if any, which remain subject to the Purchase Option, shall be represented by certificates endorsed with the legend set forth above. 6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or otherwise transfer (otherwise than by operation of law) any of the Shares which are subject to the Purchase Option or any interest therein, or grant or otherwise allow to exist any lien, claim or other encumbrance on or with respect to any of the Shares then subject to the Purchase Option. 7. NO TRANSFER. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth 3 16 in this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7 above, Grantor shall, during the term of this Agreement, exercise all rights and privileges of a shareholder of the Company with respect to the Shares. 9. TERMINATION. This Agreement and the Purchase Option granted hereunder shall terminate on the earlier to occur of any of the following events (each a "Termination Event"): a. the 91st calendar day immediately succeeding the date which is 12 months following the date of the successful completion of the IPO; b. upon expiration of the Option Period; c. the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making of an assignment for the benefit of creditors, or the admission in writing of inability to pay debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or d. the sale of all or substantially all of the assets of the Company. 10. FURTHER ASSURANCES. The parties agree to execute such further instruments and to take such further actions as may reasonably be necessary to carry out the purposes and intent of this Agreement. 11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to the Grantor the purchase price for such Shares as is herein specified. Thereupon, the Company upon written notice to the Grantor, (a) shall cancel on its books the certificate or certificates representing the Shares to be sold and (b) shall issue, in lieu thereof, in the name of the Company a new certificate or certificates representing such Shares, and thereupon all of the Grantor's rights in and to such Shares shall terminate. 4 17 12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company will be irreparably damaged if this Agreement is not specifically enforced. Upon a breach of the terms, covenants and/or conditions of this Agreement by Grantor, the Company shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. 13. MISCELLANEOUS. a. Notice. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: BrightStar Information Technology Group, Inc. 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042
If to Grantor, at the address identified on the signature page hereof, or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. b. Applicable Law. The substantive laws of the State of Texas, excluding any law, rule or principle which might refer to the substantive law of another jurisdiction, will govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. This Agreement is to be negotiated, executed and performed in Harris County, Texas, and, as such, the Company and Grantor agree that personal jurisdiction and venue shall be proper with the state or federal courts situated in Harris County, Texas, to hear such disputes arising under this Agreement. c. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. d. Severability. If a court of competent jurisdiction determines that any provision of this Agreement, including any appendices attached hereto, is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Further, such provisions shall be reformed and construed to the extent permitted by law so that it may be valid, legal and enforceable to the maximum extent possible. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 5 18 f. Headings. The section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. g. Successors. This Agreement shall inure to the benefit of the permitted successors and assigns of the Company and be binding upon Grantor and his or her heirs, executors, administrators and successors. h. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. i. Entire Agreement. This Agreement and the agreements referred to herein constitute the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the subject matter hereof. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, with regard to the subject matter hereof, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement or promise relating to the subject matter hereof which is not contained in this Agreement or in such other agreements shall be valid or binding. j. Amendments. No amendment or modification to this Agreement will be effective unless it is in writing and signed by the Company and Grantor. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. COMPANY: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: /S/MARSHALL G. WEBB ------------------------------- Name: Marshall G. Webb ----------------------------- Title: President/CEO ---------------------------- SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR: /S/MARSHALL G. WEBB ---------------------------------- Name: MARSHALL G. WEBB -------------------------- Address: 12011 Surry Lane ------------------------ Houston, TX 77024 ------------------------ 6 EX-10.18 6 AGREEMENT RE REPURCHASE OF STOCK 1 EXHIBIT 10.18 AGREEMENT REGARDING REPURCHASE OF STOCK This Agreement is made effective as of February 25, 1998, by and among BrightStar Information Technology Group, Inc., a Delaware corporation ("BrightStar"), George M. Siegel, Marshall G. Webb, Thomas A. Hudgins, Daniel M. Cofall, Mark D. Diggs, Michael A. Sooley, Michael B. Miller, and Tarrant Hancock (the "Shareholders"); WHEREAS, pursuant to that certain Agreement and Plan of Exchange, dated as of December 15, 1997 (the "Exchange Agreement"), entered into by and among BrightStar, BIT Group Services, Inc., a Delaware corporation ("BITG"), BIT Investors, LLC, a Texas limited liability company ("BITI"), and the holders of the outstanding capital stock of BITG, all of the Shareholders except Michael B. Miller will acquire shares (the "Management Shares") of common stock of BrightStar, par value $.001 per share (the "BrightStar Common Stock"); and WHEREAS, pursuant to Section 3.1 of the Exchange Agreement, Marshall G. Webb, Thomas A. Hudgins, Daniel M. Cofall and Michael A. Sooley have previously agreed to execute and deliver a stock repurchase agreement granting BrightStar the option to repurchase their respective Management Shares; WHEREAS, pursuant to Section 1.2 of the Exchange Agreement, George M. Siegel, Mark D. Diggs and Tarrant Hancock are entitled to receive the Exchange Consideration, which is an amount of shares of BrightStar Common Stock which may be up to the following number of shares: George M. Siegel--42,900 shares, Mark D. Diggs--20,000 shares, Tarrant Hancock--33,900 shares; WHEREAS, upon the successful completion of BrightStar's initial public offering of BrightStar Common Stock (the "IPO") and the dissolution of BITI, it is anticipated that the following Shareholders (the "Class B Holders") will receive the indicated number of shares of BrightStar Common Stock upon the liquidation of the Class B Units of BITI, based on the current estimated IPO price of the BrightStar Common Stock, although the actual number of such shares (the "Class B Shares") may vary substantially:
NAME NO. OF SHARES ---- ------------- George M. Siegel 15,909 Marshall G. Webb 15,909 Thomas A. Hudgins 15,909 Daniel M. Cofall 15,909 Mark D. Diggs 12,727 Michael B. Miller 3,182
2 NOW THEREFORE, in consideration of the mutual promises, covenants and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Share Repurchase Agreements. The Shareholders hereby agree to execute and deliver a stock repurchase agreement on or before the Closing Date (defined below) in the form attached hereto as Exhibit A (the "Stock Repurchase Agreements") granting BrightStar the option to repurchase, under certain terms and conditions provided in the Stock Repurchase Agreements, the number of shares of BrightStar Common Stock set forth in Section 2 hereof, and shares of Restricted Common Stock, if any received by the Shareholders pursuant to the Restricted Stock Exchange as set forth in Section 2.1 of the Exchange Agreement. 2. Shares Subject to Repurchase. 2.1 Management Shares. All shares of BrightStar Common Stock included in the Exchange Consideration received by George M. Siegel, Mark D. Diggs and Tarrant Hancock shall be subject to repurchase by BrightStar pursuant to the terms of the Stock Repurchase Agreement. 2.2 Class B Shares. All of the Class B Shares, if any, received by the Class B Holders shall be subject to repurchase by BrightStar pursuant to the terms of the Stock Repurchase Agreements. 3. Closing Date. For purposes hereof, the Closing Date shall mean the date that BrightStar receives funds in consideration for the sale of its securities in its initial public offering. [SIGNATURES ON FOLLOWING PAGE] 3 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on the date first hereinabove written. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: /S/MARSHALL G. WEBB -------------------------------- /S/GEOGE M. SIEGEL ----------------------------------- George M. Siegel /S/MARSHALL G. WEBB ----------------------------------- Marshall G. Webb /S/THOMAS A. HUDGINS ----------------------------------- Thomas A. Hudgins /S/DANIEL M. COFALL ----------------------------------- Daniel M. Cofall /S/MARK D. DIGGS ----------------------------------- Mark D. Diggs /S/MICHAEL A. SOOLEY ----------------------------------- Michael A. Sooley /S/MICHAEL B. MILLER ----------------------------------- Michael B. Miller /S/TARRANT HANCOCK ----------------------------------- Tarrant Hancock 4 EXHIBIT A STOCK REPURCHASE AGREEMENT This Stock Repurchase Agreement (this "Agreement") dated as of ____________________, 1997 is entered into by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation (the "Company") and _________________________ (the "Grantor"). W I T N E S S E T H: WHEREAS, Grantor owns certain shares of common stock of the Company (the "Common Stock"); WHEREAS, the Company desires that Grantor grant to the Company an option to purchase certain shares of Common Stock on the terms and conditions hereinafter set forth: NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. SHARES SUBJECT TO PURCHASE OPTION. Grantor currently owns _________ shares of Common Stock (the "Shares"), all of which shall initially be subject to the terms, provisions and conditions of the Purchase Option (as hereafter defined). The term "IPO" means the first underwritten public offering of the Company's common stock other than any offering pursuant to any registration statement (i) relating to any capital stock of the Company or options, warrants or other rights to acquire any such capital stock issued or to be issued primarily to directors, officers or employees of the Company, or any of its subsidiaries (ii) relating to any employee benefit plan or interest therein, (iii) relating principally to any preferred stock or debt securities of the Company, or (iv) filed pursuant to Rule 145 under the Securities Act of 1933, as amended, or any successor or similar provisions. 2. PURCHASE OPTION. a. The Shares shall be subject to the option (the "Purchase Option") set forth in this Section 2. In the event that Grantor shall cease to [serve as a director of the Company] [be engaged, either as a consultant or as an employee, by the Company (including a parent or subsidiary of the Company)] under the circumstances set forth in Section 2(b) of this Agreement (the "Section 2(b) Event"), the Company shall have the right, at any time within 90 days after the date Grantor ceases to be so engaged (the "Option Period"), to exercise the Purchase Option, which consists of the right to purchase from Grantor at a purchase price of $.10 per share (as adjusted pursuant to Section 4 below) (the "Option Price"), up to but not exceeding the number of Shares specified in Section 2(b) below, upon the terms hereinafter set forth. 5 b. If any of the following items (i) or (ii) occurs: i. Grantor [voluntarily ceases to serve as a director of the Company] [repudiates or renounces that certain Employment Agreement between the Company and Grantor (the "Employment Agreement") or voluntarily ceases his engagement with the Company] (other than by reason of death or disability) prior to the date which is 12 months following the date of the successful completion of the IPO without the prior written consent of the Company; or ii. Grantor's [service as a director of the Company] [engagement by the Company under the Employment Agreement] is terminated by the Company at any time prior to the date which is 12 months following the date of the successful completion of the IPO, with "Cause," (as defined below); prior to the occurrence of any Termination Event (as defined in Section 9), then the Company may exercise the Purchase Option at the Option Price as to the number of Shares determined as follows: (A) Prior to the IPO, the Company may exercise the Purchase Option as to all of the Shares; (B) Following the IPO, the Company may exercise the Purchase Option as to a number of Shares equal to the total number of Shares less an aggregate number of Shares equal to the product (rounded down to the nearest whole Share) of (i) 1/12 times (ii) the aggregate number of full calendar months following the IPO that Grantor has [served as a director of the Company] [been engaged as an employee to the Company], times (iii) the total number of Shares (_____________). For the purposes of this Agreement, "Cause" means the conviction of Grantor of a crime involving fraud against the Company or any of its affiliates or the theft or embezzlement of assets of the Company or any of its affiliates. The Company shall not have the right to exercise the Purchase Option in the event Grantor's [service as a director of the Company] [employment by the Company under the Employment Agreement] is terminated for death, disability, without "Cause" or for any other reason except as provided in Section 2(b) above. c. The Purchase Option may be exercised by the Company by giving notice to the Grantor in accordance with Section 13.1 hereof stating that the Company has elected to acquire the Shares subject to the Purchase Option. Each sale and purchase in accordance with the rights so exercised shall be thereafter completed without avoidable delay by the transfer and assignment of such Shares to the Company and payment of the Option Price. The Option Price shall be payable, at the option of the Company, by cancellation of all or a portion of any outstanding indebtedness of the Grantor to the Company or by payment in cash (by check), or both. d. Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Grantors' [service as a director of the Company] [engagement with the Company], for any reason, with or without cause as provided in the [Bylaws of the Company] [applicable Employment Agreement]. 5 6 3. ASSIGNMENT. Neither the Company nor Grantor may assign this Agreement or any of its respective rights and obligations hereunder. 4. ADJUSTMENTS. If, from time to time during the term of the Purchase Option (i) there is any dividend of stock or other securities or liquidating dividend of cash or property, stock split, reverse stock split, subdivision, combination, recapitalization, reorganization, reclassification or other change in the character or amount of any of the outstanding securities of the Company, or (ii) there is any transaction involving the consolidation or merger of the Company in which the Company is the surviving entity (collectively, (i) and (ii) shall be referred to as a "Reorganization"), then, in such event, any and all new, substituted or additional securities or other property to which Grantor is entitled by reason of Grantor's ownership of the Shares shall be immediately subject to the Purchase Option and be included in the term "Shares" for all purposes of the Purchase Option with the same force and effect as the Shares subject to the Purchase Option under the terms of Section 2 hereof. In the event that the outstanding Common Stock is at any time increased or decreased solely by reason of a Reorganization, appropriate adjustments to the Option Price shall be made effective as of the date of such occurrence so that the total Option Price upon exercise of the Purchase Option will be the same as it would have been had the Company exercised the Purchase Option immediately prior to the occurrence of such event. 5. LEGENDS. All certificates representing any of the Shares subject to the provisions of this Agreement shall have endorsed thereon a legend substantially as follows: "ANY DISPOSITION, GRANT OR OTHER TRANSFER OF ANY INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO RESTRICTIONS, AND THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION, CONTAINED IN A CERTAIN AGREEMENT EXECUTED BY THE RECORD HOLDER HEREOF, THE CORPORATION AND CERTAIN OTHER PARTIES, A COPY OF WHICH WILL BE MAILED TO ANY HOLDER OF THIS CERTIFICATE WITHOUT CHARGE AFTER RECEIPT BY THE CORPORATION OF A WRITTEN REQUEST THEREFOR." Upon presentation to the Company or any authorized transfer agent of certificates representing the Shares, the number of Shares represented thereby which are no longer subject to the Purchase Option shall be exchanged for certificates not bearing such legend, and all Shares, if any, which remain subject to the Purchase Option, shall be represented by certificates endorsed with the legend set forth above. 6. NO RESALE OR TRANSFER. Grantor shall not sell, assign or otherwise transfer (otherwise than by operation of law) any of the Shares which are subject to the Purchase Option or any interest therein, or grant or otherwise allow to exist any lien, claim or other encumbrance on or with respect to any of the Shares then subject to the Purchase Option. 6 7 7. NO TRANSFER. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such Shares shall have been so transferred. 8. RIGHTS AS A SHAREHOLDER. Subject to the provisions of Section 7 above, Grantor shall, during the term of this Agreement, exercise all rights and privileges of a shareholder of the Company with respect to the Shares. 9. TERMINATION. This Agreement and the Purchase Option granted hereunder shall terminate on the earlier to occur of any of the following events (each a "Termination Event"): a. the 91st calendar day immediately succeeding the date which is 12 months following the date of the successful completion of the IPO; b. upon expiration of the Option Period; c. the commencement by the Company of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making of an assignment for the benefit of creditors, or the admission in writing of inability to pay debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or d. the sale of all or substantially all of the assets of the Company. 10. FURTHER ASSURANCES. The parties agree to execute such further instruments and to take such further actions as may reasonably be necessary to carry out the purposes and intent of this Agreement. 11. FAILURE TO DELIVER SHARES. If Grantor becomes obligated to sell any Shares to the Company under this Agreement and fails to deliver such Shares in accordance with the terms of this Agreement, the Company may, at its option, in addition to all other remedies it may have, send to the Grantor the purchase price for such Shares as is herein specified. Thereupon, the Company upon written notice to the Grantor, (a) shall cancel on its books the certificate or certificates representing the Shares to be sold and (b) shall issue, in lieu thereof, in the name of the Company a new certificate or certificates representing such Shares, and thereupon all of the Grantor's rights in and to such Shares shall terminate. 7 8 12. SPECIFIC ENFORCEMENT. Grantor expressly agrees that the Company will be irreparably damaged if this Agreement is not specifically enforced. Upon a breach of the terms, covenants and/or conditions of this Agreement by Grantor, the Company shall, in addition to all other remedies, be entitled to a temporary or permanent injunction, without showing any actual damage, and/or a decree for specific performance, in accordance with the provisions hereof. 13. MISCELLANEOUS. a. Notice. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: BrightStar Information Technology Group, Inc. 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042 If to Grantor, at the address identified on the signature page hereof, or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. b. Applicable Law. The substantive laws of the State of Texas, excluding any law, rule or principle which might refer to the substantive law of another jurisdiction, will govern the interpretation, validity and effect of this Agreement without regard to the place of execution or the place for performance thereof. This Agreement is to be negotiated, executed and performed in Harris County, Texas, and, as such, the Company and Grantor agree that personal jurisdiction and venue shall be proper with the state or federal courts situated in Harris County, Texas, to hear such disputes arising under this Agreement. c. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. d. Severability. If a court of competent jurisdiction determines that any provision of this Agreement, including any appendices attached hereto, is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. Further, such provisions shall be reformed and construed to the extent permitted by law so that it may be valid, legal and enforceable to the maximum extent possible. e. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 8 9 f. Headings. The section headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. g. Successors. This Agreement shall inure to the benefit of the permitted successors and assigns of the Company and be binding upon Grantor and his or her heirs, executors, administrators and successors. h. Construction. Each party to this Agreement has had the opportunity to review this Agreement with legal counsel. This Agreement shall not be construed or interpreted against any party on the basis that such party drafted or authored a particular provision, parts of or the entirety of this Agreement. i. Entire Agreement. This Agreement and the agreements referred to herein constitute the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to the subject matter hereof. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, oral or written, with regard to the subject matter hereof, has been made by either party, or by anyone acting on behalf of either party, which is not embodied herein, and that no agreement, statement or promise relating to the subject matter hereof which is not contained in this Agreement or in such other agreements shall be valid or binding. j. Amendments. No amendment or modification to this Agreement will be effective unless it is in writing and signed by the Company and Grantor. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the day and year first above written. COMPANY: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- SPOUSE OF GRANTOR (IF APPLICABLE) GRANTOR: Name: ---------------------- Address: -------------------------- -------------------------- 9 EX-10.19 7 AMENDMENT TO AGREEMENT AND PLAN OF EXCHANGE 1 EXHIBIT 10.19 AMENDMENT TO AGREEMENT AND PLAN OF EXCHANGE This Amendment to Agreement and Plan of Exchange ("Amendment") is made effective as of June 5, 1998 by and among BrightStar Information Technology Group, Inc. ("Parent"), Sharon Coughran ("Shareholder") and Joel Rayden ("Rayden") in order to amend that certain Agreement and Plan of Exchange among the parties made effective as of December 18, 1997 ("Exchange Agreement") and a related Closing Agreement. Capitalized terms used herein and not defined herein have the meanings ascribed to them in the Exchange Agreement. In consideration of the premises and the mutual undertakings set forth herein, the parties hereto agree as follows: 1. RECITALS. The parties hereto entered into the Exchange Agreement to provide for the terms and conditions of the sale of all of the outstanding capital stock of Zelo Group, Inc. ("Zelo") by the Shareholder to the Parent. They also entered into a Closing Agreement effective April 16, 1998 in connection with Closing the Exchange Agreement. The parties desire to amend the Exchange Agreement and Closing Agreement as provided herein. 2. EXCHANGE CONSIDERATION. The provisions for the Exchange Consideration set forth in the Exchange Agreement and Closing Agreement are hereby revised to be in accordance with the following regardless of any other provision contained in such prior agreements. The only Exchange Consideration due to the Shareholder is $375,000 cash, which was previously delivered to the Shareholder. The parties acknowledge and agree that such payment has been properly delivered. The parties acknowledge and agree that the other provisions of the Exchange Agreement and the provisions of the Closing Agreement dealing with the amount, type and payment of the Exchange Consideration shall have no applicability or effect. 3. PAYMENTS TO DR. KENNETH R. SAUNDERS. The parties agree to the following provisions regarding certain payments to Dr. Kenneth R. Saunders, also referred to in Zelo's records as "Madison Management"("Saunders"): (a) Immediately after the effectiveness of this Amendment, Shareholder and Rayden and Zelo (and BrightStar hereby agrees to cause Zelo to do the things required of it by this agreement) shall execute a Release Agreement with Saunders substantially similar in form and substance to the draft Release Agreement attached hereto as Annex A. Pursuant thereto, Rayden and Zelo shall make certain payments to Saunders in order to retire amounts owed to Saunders by them and to acquire a release of all appropriate parties by Saunders from any further obligations to Saunders and to obtain an agreement from Saunders to dismiss the lawsuit filed by Saunders on May 11, 1998 against Zelo, Rayden and others, Case No. SC052418, Los Angeles County Superior Court. (b) Under the Release Agreement, Rayden shall immediately pay to Saunders $50,000, plus the unpaid interest accrued on such $50,000 under the indebtedness arrangements between Saunders and Zelo, plus one-half of the legal fees of Saunders, as such interest and fees are specifically set forth in the Release Agreement. 2 (c) Under the Release Agreement, at the same time that Rayden makes the payment provided for in subparagraph (b) above, BrightStar shall cause Zelo to pay to Saunders $130,000 plus the unpaid interest accrued on such $130,000 under the indebtedness arrangements between Saunders and Zelo, plus one-half of the legal fees of Saunders, as such interest and fees are specifically set forth in the Release Agreement. (d) The parties shall diligently cooperate to enter into the Release Agreement with Saunders and effect the payments provided for above to Saunders immediately upon the effectiveness of this Amendment. 4. CERTAIN OBLIGATIONS OF ZELO. BrightStar shall take such steps as are necessary and appropriate to enable and cause Zelo to fulfill the obligations of Zelo under a note payable to the American Commercial Bank, I.D. No. 51351, which is guaranteed by Shareholder and Rayden, and certain other obligations of Zelo guaranteed by Shareholder or Rayden as set forth in Exhibit 6.8 of the Exchange Agreement, except for any amounts owed to Saunders (which obligations are being fulfilled pursuant to other arrangements set forth in this Amendment) such that Shareholder and Rayden shall have no liability under such guarantees. Also, BrightStar will fulfill its indemnity obligations under Section 6.8 and Exhibit 6.8 of the Exchange Agreement and such indemnity obligations are hereby extended to apply to the guarantees of Shareholder and Rayden for the above American Commercial Bank indebtedness. Attached as Annex B hereto is a copy of Exhibit 6.8 to the Exchange Agreement which lists the original guarantees subject to such indemnity. 5. CERTAIN CREDIT CARD ACCOUNTS. The parties hereto acknowledge that Shareholder and Rayden have certain personal credit card accounts under which certain business expenses of Zelo have been charged. The parties agree that upon delivery to Zelo by Shareholder and Rayden of written statements of the business expenses charged under such credit accounts, and the amounts thereof, in a form reasonable and customary for requesting reimbursement of business expenses charged on personal credit accounts, Zelo will promptly review such reimbursement requests and remit payments to Shareholder and Rayden within five business days after receipt of such information to reimburse them for proper business expenses paid by them on behalf of Zelo based on fair and reasonable standards. 6. CERTAIN COMPUTER EQUIPMENT. The parties agree that the following computer equipment owned by Zelo shall promptly after the date hereof, but in no event less than seven days after the date hereof, be assigned by Zelo to Shareholder and made available for pick-up by Shareholder: a SuperMac computer with monitor made by Macintosh, a Syquest external drive, a Burnulli external drive, an Apple laser printer and a related drafting table. 7. TERMINATION OF EMPLOYMENT AGREEMENT. The parties agree that an agreement entitled Agreement for Termination of Employment Agreement between Zelo and Rayden in the form attached hereto as Annex C shall be executed simultaneously with the execution of this Amendment. 2 3 8. RELEASE OF SHAREHOLDER AND RAYDEN FROM LISTED LIABILITIES. The parties hereto agree that they have reasonably cooperated and prepared a list of the liabilities of Zelo as of April 22, 1998 and attached it hereto as Annex D, which are agreed to by the parties to be the liabilities of Zelo accepted by BrightStar as Zelo's liabilities as of such date. BrightStar shall not hold Shareholder or Rayden responsible for any such liabilities. However, Shareholder and Rayden shall indemnify Zelo from any loss, damage or costs to Zelo from any other liabilities of Zelo based on matters occurring prior to April 22, 1998 that are not identified on said Annex D. 9. RELEASE OF SHAREHOLDER AND RAYDEN FROM OTHER CERTAIN OBLIGATIONS. Except to the extent otherwise provided in this Amendment, BrightStar hereby releases Shareholder and Rayden from any further responsibility or liability under Sections 3.10, 3.11(ix), 3.14, 3.18, 3.20 clauses (b), (f), (i), (q), (r) and (s), 5.1, 5.4, 5.6, 5.7, 5.8.1, and 5.9 of the Exchange Agreement, or for any other breaches of the representations and warranties and covenants under the Exchange Agreement presently known to BrightStar. Except for the obligations of Shareholder and Rayden under Section 8 above, BrightStar also releases Shareholder and Rayden from any further responsibility or liability arising out of financial statements of Zelo covering any period after December 31, 1997. The parties further acknowledge and agree that except to the extent modified by this Amendment, the provisions of the Exchange Agreement shall remain in effect in accordance with their terms. 10. BRIGHTSTAR COMMON STOCK. BrightStar shall issue to Shareholder 100 shares of BrightStar common stock after the expiration of thirty days from the effective date hereof provided that there has not been (a) a material breach by Shareholder or Rayden of this Amendment, (b) a new material breach by either of them of the Exchange Agreement, (c) a material breach by either of them of the Release Agreement mentioned in Section 3 hereof, or (d) an unfulfilled indemnity obligation of Shareholder and Rayden under the last sentence of Section 8 hereof in excess of $1,000. 11. CONFIDENTIALITY/NON-DISPARAGEMENT. The parties agree that they will keep the facts, terms and amounts under this Agreement completely confidential and that they will not disclose any information concerning this Agreement to anyone, provided that any party may make such disclosures as are required by law and as are necessary for legitimate law enforcement or tax reporting or securities law reporting compliance purposes. All parties agree that they shall not, directly or indirectly, engage in any conduct that involves the making or publishing of written or oral statements or remarks or negative reports or comments which are disparaging or deleterious or damaging to the integrity, reputation or goodwill of any other party hereto in connection with such parties' relationships through the date of this Agreement or the subject matter of this Agreement. 12. NO STOCK OPTIONS. The parties hereto acknowledge and agree that no stock options to acquire BrightStar common stock shall be granted to Rayden, and even though the Board of Directors of BrightStar had previously authorized the granting of options to Rayden, such options shall not be granted and issued. 3 4 13. GENERAL. This Amendment is subject to and hereby incorporates the provisions of Section 10 of the Exchange Agreement and such provisions shall apply to this Amendment as if they were set forth herein; provided however, the address for notice for Shareholder and Rayden shall be changed to be 1049 Via Cielito, Ventura, California 93003, and their telecopy number shall be 805-644-0677. Executed to be effective as of the date set forth above. PARENT: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By:/S/MICHAEL A. SOOLEY ----------------------------------------- Michael A. Sooley, Vice President SHAREHOLDER: /S/SHARON COUGHRAN -------------------------------------------- Sharon Coughran RAYDEN: /S/JOEL RAYDEN -------------------------------------------- Joel Rayden 4 EX-10.20 8 DEED OF VARIATION 1 EXHIBIT 10.20 DEED OF VARIATION THIS DEED is made on 17 April 1998 between: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation of 10375 Richmond Avenue, Suite 1620, Houston, Texas, USA, 77042 (the "Purchaser"); SOFTWARE CONSULTING SERVICES PTY. LTD., (ACN 005 931 886) of c/- Cugley Ciravolo Bordin Pty Ltd, 8-10 Flintoff Street, Greensborough, Victoria, 3088 in its capacity as trustee of the Trust (the "Company"); KENTCOM PTY LTD (ACN 065 369 440) in its own right and in its capacity as trustee of the Fazio Family Trust and SALVATORE FAZIO both of 7 Henricks Court, Mill Park, Victoria, 3082 and PEPPER TREE PTY LTD (ACN 007 342 538) in its own right and in its capacity as trustee of the Banks Trust and CHRISTOPHER RICHARD BANKS both of 61 Seaward Loop, Sorrento, WA, 6020 and CEDARMAN PTY LTD (ACN 067 279 850) in its own right and in its capacity as trustee of the Caswell Trust and STEPHEN DONALD CASWELL both of 50 Green Street, Ivanhoe, Victoria, 3079 and QUICKTREND PTY LTD (ACN 067 596 801) in its own right and in its capacity as trustee of the Lock Trust and DESMOND JOHN LOCK both of 24 Bradleys Lane, Warrandyte, Victoria, 3133, and KULLAMURRA PTY LTD (ACN 066 512 534) in its own right and in its capacity as trustee of the Kullamurra Trust and ROBERT STEPHEN LANGFORD both of 7 Rosehill Road, Lower Plenty, Victoria, 3113 and KPMG INFORMATION SOLUTIONS PTY LTD (ACN 065 410 746) in its own right of Level 5, 161 Collins Street, Melbourne, Victoria, 3000 (together, the "Owners"); and DATA COLLECTION SYSTEMS INTEGRATION PTY LTD (ACN 080 412 166) of 8-10 Flintoff Street, Greensborough, Victoria ("DCSI"). RECITALS: 1. On 20 December 1997 the parties executed a Agreement and Plan of Exchange ("Agreement") for the acquisition of certain assets and liabilities of the software consulting business of the Company. 2. It was contemplated by section 1.6.1 of the Agreement that the Purchaser would immediately after the IPO Closing Date assign all Acquired Assets and all Assumed Obligations and all of its right, title and interest in and to the Agreement, amongst other things, to SCSI. 3. Pursuant to section 11.4 of the Agreement, the Purchaser is only able to assign its rights under the Agreement, amongst other things: 1. to SCSI at any time; 2. after thirteen months from the IPO Closing Date, to any entity; or 3. within the thirteen month period from the IPO Closing Date, to any entity which forms part of a bona fide reconstruction or re-organisation of the affairs of the Purchaser or SCSI or the group of companies of which they are a part with the consent of the Owners and the Company, such consent not to be unreasonably withheld. 2 4. Brightstar wants to assign all Acquired Assets and all Assumed Obligations and all of its right, title and interest in and to the Agreement, amongst other things, to SCSI and shall procure that SCSI assigns the same to Software Consulting Services Australia Pty Ltd ("SCS Australia"). 5. To enable the assignments set out in clause D to occur, and to protect the interests of the Company and the Owners, the parties have agreed to vary the Agreement on the terms set out in this Deed. THIS DEED WITNESSES: 1. DEFINITIONS Defined terms in this Deed (including the Recitals to this Deed) shall have the same meaning given to them in the Agreement unless the context otherwise requires. 2. INTERPRETATION Any provisions of the Agreement dealing with the interpretation of the Agreement shall apply to the provisions of this Deed. 3. VARIATIONS The parties agree that the Agreement is varied as follows: (1) Section 1.5 of the Agreement (Purchase Price) In section 1.5(b) the words "and Software Consulting Services Australia Pty Ltd ("SCS Australia")" shall be inserted after the words "SCSI" where they appear on the third line. (2) Section 1.6.1 of the Agreement (Successor Operating Company) Section 1.6.1 shall be deleted and replaced with the following: "Subject to payment of the Closing Cash Consideration, the parties hereto acknowledge and agree that the Purchaser shall immediately after the IPO Closing Date (as defined above) assign all Acquired Assets and all Assumed Obligations and all of its right, title and interest in and to this Agreement, the related agreements and documents, and its rights and obligations thereunder and the products thereof, first to a new wholly owned subsidiary corporation of the Purchaser named Software Consulting Services International, Inc., a Delaware, U.S.A. corporation ("SCSI") and that Purchaser shall procure that SCSI shall immediately thereafter assign the same to SCS Australia. Neither SCSI nor SCS Australia shall have any material assets or liabilities prior to acquiring the 3 Acquired Assets. The Purchaser shall cause SCSI and SCS Australia to receive and assume ownership of such assets and rights and responsibility for the performance of such obligations and seek to employ the employees previously employed by the Company so that SCSI and SCS Australia may after the IPO Closing Date conduct the business previously conducted by the Company and seek to further develop such business." (3) Section 1.6.2 (Successor Operating Company) In section 1.6.2 of the Agreement, each time the word "SCSI" appears, it shall be deleted and replaced with the words "SCS Australia". (4) Section 3.27.3 (SAP) In section 3.27.3 of the Agreement after the word "SCSI", the words "or SCS Australia" shall be inserted. (5) Section 6.1.7 (Insolvency) In section 6.1.7, after the word "SCSI", the words "or SCS Australia" shall be inserted. (6) Section 6.2 (Audit) Section 6.2 shall be deleted and replaced with the following: "Prior to Closing, Deloitte Touche Tohmatsu, shall complete such additional review work as may be requested by the Purchaser through and including the Closing Date (or other period subsequent to June 30, 1997) and provide its report to the Purchaser and the Owners." (7) Section 6.6 (Incentive Stock Bonus Plan) Section 6.6 shall be deleted and replaced with the following: "In order to provide incentive to the key employees of SCS Australia, Purchaser agrees to cause SCS Australia, as a subsidiary of SCSI, to enter into an Incentive Stock Bonus Plan ("Bonus Plan") with the key employees of SCS Australia (who were formerly the key employees of the Company), which will provide for a bonus pool of shares of Purchaser's Common Stock to be issued to key employee participants in the Bonus Plan, being the persons specified in section 6.11 ("Participants") contingent on the combined recognised revenues for the 1998 calendar year of the Company to the IPO Closing Date and SCSI and SCS Australia (and its permitted assignee) between the IPO Closing Date and the end of the 1998 calendar year. The Participants shall determine the amount of participation of each Participant. The shares will be issued at a value per share equal to the IPO Price. The Bonus Plan will provide that if, for the 1998 calendar year, the Company from 1 January 1998 to the 4 IPO Closing Date and SCSI and SCS Australia (and its permitted assignee) from the IPO Closing Date to the end of the 1998 calendar year ("1998 Year") have combined recognized revenue (less allowances for doubtful accounts and sales returns) as determined in accordance with GAAP ("Recognized Revenue"), of AUD $38,400,000 or more, then there shall be a bonus pool payable to the key employee participants in the Bonus Plan of AUD $4,000,000 in value of Purchaser's Common Stock to be issued at a value per share in United States dollars equal to the IPO Price. If the Company from 1 January 1998 to the IPO Closing Date and SCSI and SCS Australia (and its permitted assignee) from the IPO Closing Date to the end of the 1998 Year have combined Recognized Revenue of AUD$31,200,000 or less for the 1998 Year, then there will be no bonus pool payable. If the Company from 1 January 1998 to the IPO Closing Date and SCSI and SCS Australia (and its permitted assignee) from the IPO Closing Date to the end of the 1998 Year have Recognized Revenue of more than AUD $31,200,000, but less than AUD $38,400,000, for the 1998 Year, then the amount of the bonus pool shall be the result of the following computation: Recognized Revenue for 1998 Year minus AUD$31,200,000 times AUD$4,000,000 AUD$7,200,000 (8) Section 7.1.13 (ASAP Restraint) In section 7.1.13, after the word "SCSI", the words "or SCS Australia" shall be inserted. (9) Section 7.9 (Provision of Working Capital) In section 7.9, after the word "SCSI", the words "or SCS Australia, as appropriate" shall be inserted. (10) Section 11.4 (Assignability) On the fourth line of section 11.4, after the words "to SCSI at any time," the words "and SCSI shall be entitled to assign the same to SCS Australia at any time" shall be inserted. (11) Section 11.9 (Public Announcements) In section 11.9(b), after the word "SCSI", the words ",SCS Australia" shall be inserted. 4. GENERAL Subject to the variations contained in section 3 of this Deed, the provisions of the Agreement shall in all respects remain in full force and effect and the provisions of the Agreement shall be deemed always to have read as they do after being varied by the provisions of this Deed. 5 EXECUTED by the parties as a Deed: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. SIGNED SEALED AND DELIVERED by: - - ------------------------ Thomas A. Hudgins, Vice President THE COMMON SEAL OF SOFTWARE CONSULTING SERVICES PTY. LTD. (ACN 005 931 886) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ THE COMMON SEAL of KPMG INFORMATION SOLUTIONS PTY. LTD. (ACN 065 410 746) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ 6 THE COMMON SEAL of KENTCOM PTY LTD (ACN 065 369 440) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ SIGNED SEALED AND DELIVERED by SALVATORE FAZIO in the presence of: Salvatore Fazio - - ------------------------ Witness - - ------------------------ Name (please print) - - ------------------------ THE COMMON SEAL of PEPPER TREE PTY LTD (ACN 007 342 538) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ SIGNED SEALED AND DELIVERED by CHRISTOPHER RICHARD BANKS in the presence of: Christopher Banks - - ------------------------ Witness - - ------------------------ Name (please print) - - ------------------------ 7 THE COMMON SEAL of CEDARMAN PTY LTD (ACN 067 279 850) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ SIGNED SEALED AND DELIVERED by STEPHEN DONALD CASWELL in the presence of: Stephen Caswell - - ------------------------ Witness - - ------------------------ Name (please print) - - ------------------------ THE COMMON SEAL of QUICKTREND PTY LTD (ACN 067 596 801) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ SIGNED SEALED AND DELIVERED by DESMOND JOHN LOCK in the presence of: Desmond Lock - - ------------------------ Witness - - ------------------------ Name (please print) - - ------------------------ 8 THE COMMON SEAL of KULLAMURRA PTY LTD (ACN 066 512 534) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ SIGNED SEALED AND DELIVERED by ROBERT LANGFORD in the presence of: Robert Langford - - ------------------------ Witness - - ------------------------ Name (please print) - - ------------------------ THE COMMON SEAL of DATA COLLECTION SYSTEMS INTEGRATION PTY LTD (ACN 080 412 166) was hereunto affixed in accordance with its Articles of Association in the presence of: Director - - ------------------------ Name (please print) - - ------------------------ Secretary - - ------------------------ Name (please print) - - ------------------------ 9 BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. and SOFTWARE CONSULTING SERVICES PTY LTD and KENTCOM PTY LTD, SALVATORE FAZIO, PEPPER TREE PTY LTD, CHRISTOPHER RICHARD BANKS, CEDARMAN PTY LTD, STEPHEN DONALD CASWELL, QUICKTREND PTY LTD, DESMOND JOHN LOCK, KULLAMURRA PTY LTD, ROBERT STEPHEN LANGFORD, AND KPMG INFORMATION SOLUTIONS PTY LTD and DATA COLLECTION SYSTEMS INTEGRATION PTY LTD - - ----------------------------------------------------------------------------- DEED OF VARIATION - - ----------------------------------------------------------------------------- MADGWICKS Lawyers Level 19 535 Bourke Street Melbourne Vic 3000 Tel: 9242 4744 Fax: 9242 4777 Ref: HDW:ab CHA026-1 EX-10.21 9 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.21 ASSET PURCHASE AGREEMENT DATED AS OF JUNE 30, 1998 AMONG BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. COGENT, INC., COGENT TECHNOLOGIES, LLC AND THE HOLDERS OF ALL THE OUTSTANDING MEMBERSHIP INTEREST OF COGENT TECHNOLOGIES, LLC 2 TABLE OF CONTENTS
Page No. --------- ARTICLE 1 PURCHASE AND SALE.......................................................................................1 1.1 Purchase and Sale of Assets.....................................................................1 1.2 Excluded Assets.................................................................................3 1.3 Obligations Assumed.............................................................................3 1.4 Closing.........................................................................................3 1.5 Purchase Price..................................................................................3 1.6 Payment of Purchase Price.......................................................................3 1.7 Allocation of Purchase Price....................................................................4 ARTICLE 2 CLOSING DELIVERIES......................................................................................4 2.1 Deliveries by Seller............................................................................4 2.2 Deliveries by Buyer.............................................................................4 2.3 Post-Closing Deliveries.........................................................................4 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS...........................................5 3.1 Organization....................................................................................5 3.2 Authority Relative to this Agreement............................................................5 3.3 Consents and Approvals..........................................................................5 3.4 No Violation....................................................................................5 3.5 Litigation......................................................................................6 3.6 Compliance with Laws............................................................................6 3.7 Financial Statements............................................................................6 3.8 Purchased Assets................................................................................6 3.9 Intellectual Property...........................................................................6 3.10 Inventories.....................................................................................7 3.11 Environmental Compliance........................................................................7 3.12 Contracts.......................................................................................7 3.13 Material Changes................................................................................7 3.14 Operation of Business...........................................................................8 3.15 Knowledge.......................................................................................9 3.16 Representations and Warranties..................................................................9 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT......................................................9 4.1 Organization....................................................................................9 4.2 Capitalization of the Parent...................................................................10 4.3 Authority Relative to this Agreement...........................................................10 4.4 Consents and Approvals.........................................................................10 4.5 No Violation...................................................................................10 4.6 Not an Investment Company......................................................................10 4.7 Financial Statements...........................................................................10 4.8 Parent Common Stock............................................................................11 4.9 PPM............................................................................................11 ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS....................................................................11 5.1 Taxes..........................................................................................11 5.2 Public Announcements...........................................................................12
3 5.3 Further Assurances.............................................................................12 5.4 Preservation of Business Records...............................................................12 5.5 Confidentiality................................................................................13 5.6 Covenant Not to Compete........................................................................13 5.7 Corporate Name.................................................................................14 5.8 Limitation on Assignments......................................................................14 5.9 Post-Closing Operational Status................................................................14 5.10 ...............................................................................................14 ARTICLE 6 INDEMNIFICATION AND LIMITATIONS ON LIABILITY...........................................................17 6.1 Survival.......................................................................................17 6.2 Indemnity by Seller and the Members............................................................17 6.3 Set-off Rights of Buyer........................................................................18 6.4 Indemnity by Buyer.............................................................................18 6.5 Procedures for Indemnification.................................................................19 6.6 Subrogation....................................................................................20 ARTICLE 7 MISCELLANEOUS..........................................................................................20 7.1 Expenses.......................................................................................20 7.2 Notices........................................................................................20 7.3 Entire Agreement...............................................................................20 7.4 GOVERNING LAW..................................................................................21 7.5 Headings.......................................................................................21 7.6 Assignability..................................................................................21 7.7 No Third Party Beneficiaries...................................................................21 7.8 Severability...................................................................................21 7.9 Equitable Relief...............................................................................21 7.10 Counterparts...................................................................................21
4 EXHIBITS DISCLOSURE SCHEDULE
Section Description Page - - ------- ----------- ---- No. --- 3.03 Consents and Approvals 4 3.05 Litigation 5 3.06 Compliance with Laws 5 3.08 Purchased Assets 6 3.11 Environmental Compliance 6 3.12 Assumed Contracts 7 3.13 Conduct of Business 7
5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of June 30, 1998, by and among BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation ("Parent"), COGENT, INC., an Arizona corporation and a wholly owned subsidiary of Parent ("Buyer"), COGENT TECHNOLOGIES, LLC, an Arizona limited liability company ("Seller"), and ALL THE UNDERSIGNED HOLDERS OF ALL OF THE OUTSTANDING MEMBERSHIP INTERESTS (the "Members"). R E C I T A L S WHEREAS, Seller is engaged in the business of providing information technology consulting services to commercial customers (the "Business"); and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, certain assets used or held for use by Seller in the Business; NOW, THEREFORE, for and in consideration of the premises and the covenants herein contained and the benefits to be derived herefrom, the parties hereby agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale of Assets. Subject to the terms and conditions contained herein and simultaneously with the execution of this Agreement, Buyer is purchasing from Seller, and Seller is selling to Buyer, all of the right, title and interest of Seller in and to the following assets (the "Purchased Assets"): (a) Tangible Personal Property. All tangible personal property (including equipment, machinery, tools, appliances, implements, spare parts, instruments, furniture and supplies) owned by the Seller ("Tangible Personal Property"), including, without limitation, the Tangible Personal Property described Exhibit 1.1(a); (b) Personal Property Leases. Seller's rights in, to and under all leases of equipment, machinery, tools, appliances, implements, spare parts, instruments, furniture, supplies, and other items of tangible personal property ("Personal Property Leases") which are set forth on Exhibit 1.1(b); (c) Assumed Contracts. Seller's rights in, to and under all contracts, agreements, insurance policies, purchase orders and commitments which are set forth on Exhibit 1.1(c), together with all instruments and all documents of title representing any of the foregoing, all rights in any merchandise or goods which any of the same represent, and all rights, title, security and guaranties in favor of the Seller with respect to any of the foregoing (the "Assumed Contracts"); (d) Real Property Leases. The leasehold estates created by, and all rights conferred on the Seller under or by virtue of, all real property lease agreements (such real property lease agreements are hereinafter referred to as "Real Property Leases" and the parcels of real property in which the Seller has a leasehold interest and that are subject to the Real Property Leases are hereinafter referred to as "Leased Property"), which are set forth on Exhibit 1.1(d), and any and all estates, rights, titles and interests in, to and under all warehouses, storage facilities, buildings, works, structures, fixtures, landings, constructions in progress, improvements, betterments, installations and additions constructed or located on or attached or affixed to the Leased Property; 1 6 (e) Business Records. All books and records of the Seller wherever located, including without limitation, all credit records, payroll records, computer records, computer programs, contracts, agreements, operating manuals, schedules of assets, accounting and financial records, sales and property tax records and returns, sales records, customer and supplier data, blueprints, specifications, plats, maps, surveys, building and machinery diagrams, maintenance records, personnel and labor relation records, real estate records, construction records, environmental records and returns, files, papers, books and all other public and confidential business records (together the "Business Records"), whether such Business Records are in hard copy form or are electronically or magnetically stored, excluding only the Seller's income tax records and returns, its corporate minute book and stock records; (f) Licenses. To the extent assignable, all franchises, licenses, permits, certificates, approvals and other authorizations from governmental authorities, software developers, manufacturers or other persons which have been received by Seller relating to any of the Purchased Assets (the "Licenses"), a complete and correct list of which is set forth on Exhibit 1.1(f); (g) Proprietary Rights. All (i) United States and foreign patents, patent applications, trademarks, trademark applications and registrations, trade dress, brand names, logos, service marks, service mark applications and registrations, copyrights, copyright applications and registrations and trade names, fictitious names and assumed names of the Seller including, without limitation, all such rights described on Exhibit 1.1(g); (ii) proprietary data and technical, manufacturing know-how and information (and all materials embodying such information) of the Seller; (iii) developments, discoveries, inventions, ideas and trade secrets of the Seller; (iv) client lists, marketing plans, business plans, and client information; and (v) covenants by others not to compete, rights and privileges of the Seller used in the conduct of its Business, rights to exclusive use and rights to sue for past infringement with respect to any item described in this Section 1.1(g) (all of the foregoing, collectively, "Proprietary Rights"); (h) Computers and Related Rights. All right, title and interest of the Seller in computer equipment and hardware, including, without limitation, all central processing units, terminals, disk drives, tape drives, electronic memory units, printers, keyboards, screens, peripherals (and other input/output devices), modems and other communication controllers, and any and all parts and appurtenances thereto, together with all intellectual property used by the Seller in the operation of such computer equipment and hardware, including, without limitation, all software, all of the Seller's rights under any licenses related to the Seller's use, at any time, of such computer equipment, hardware or software, and all leases pursuant to which Seller leases any computer equipment; (i) Inventory. All of the inventory owned by the Seller ("Inventory"); (j) Telephone Numbers. All of the Seller's right, title and interest in, to and under all telephone numbers used by the Seller and its employees, including all extensions thereto; (k) Certain Rights of the Seller. All rights in, to and under all representations, warranties, covenants, guaranties made or provided by third parties to or for the benefit of the Seller with respect to any of the other Purchased Assets and all rights, privileges, claims, causes of action and options of the Seller relating to the Purchased Assets; (l) Prepaid Items. All of the Seller's prepaid expenses, prepaid insurance, deposits and other similar items ("Prepaid Items"), a correct and complete list of which items is attached as Exhibit 1.1(l); 2 7 (m) Goodwill. All goodwill with respect to the Business and operations of the Seller; (n) Cash. All cash and cash equivalents; and (o) Accounts Receivable. All accounts receivable or other rights to receive payment owing to Seller. 1.2 Excluded Assets. Notwithstanding Section 1.1 hereof, the Purchase Price and the assets listed on Exhibit 1.2 (the "Excluded Assets") are not included in the Purchased Assets even though they might be deemed to be used, or held for use, in connection with the Business. 1.3 Obligations Assumed. As part of the consideration for the Purchased Assets, Buyer hereby assumes and agrees to pay and perform when required all of the obligations and liabilities of Seller relating to the business of Seller, arising under any contract or otherwise, (i) which are not paid or discharged on or prior to the Closing Date (defined below) and/or (ii) which accrue after the Closing Date with respect to the Purchased Assets including, but not limited to, the obligations and liabilities under the Personal Property Leases, the Assumed Contracts, the Real Property Leases and the Licenses; provided, however, Seller and Members represent and warrant that (x) the Debt of Seller on July 8, 1998 (not giving effect to the transactions contemplated by this Agreement) does not exceed the Debt of Seller as shown on Seller's balance sheet dated as of May 31, 1998 (the "Reference Balance Sheet") and (y) Seller's Net Working Capital on July 8, 1998 (not giving effect to the transactions contemplated by this Agreement) is not less than Seller's Net Working Capital as shown on the Reference Balance Sheet. For purposes of this Agreement, "Debt" means current and non-current portions of long-term debt of Seller, current and non-current portions of capital leases and pre-payment penalties, and "Net Working Capital" means the current assets of Seller minus the current liabilities of Seller, all as determined under generally accepted accounting principals ("GAAP"), consistently applied. 1.4 Closing. The Closing (the "Closing") shall occur on the date hereof (the "Closing Date") immediately following the execution of this Agreement, at the offices of Chamberlain, Hrdlicka, White, Williams & Martin in Houston, Texas. Closing documents will be delivered through the use of the mail or other delivery services. No parties are required to be in attendance at the Closing. The parties may agree in writing on another date, time or place for the Closing. At the Closing, the parties will deliver or cause to be delivered the items described in Article 2 below. 1.5 Purchase Price. In consideration of the delivery of the Purchased Assets, Parent and Buyer jointly and severally agree to pay and deliver to Seller an amount (the "Purchase Price") equal to 35% of the product obtained by multiplying Parent's P/E Ratio times Buyer's net income after taxes for the period from October 1, 1998 through September 30, 1999 (the "Valuation Period"). For purposes of determining the Purchase Price, (i) Buyer's net income after taxes shall be determined in accordance with generally accepted accounting principals consistently applied, and (ii) Parent's P/E Ratio shall be equal to the Market Price (defined below) divided by earnings as reported in Parent's third-quarter 1999 Form 10-Q; provided that such quarterly earnings shall be "annualized" for purposes of determining Parent's P/E Ratio through multiplication by four. 1.6 Payment of Purchase Price. (a) At the Closing, Parent and Buyer shall pay and deliver to the Escrow Agent (defined below) in accordance with Section 2.1 hereof $250,000 in cash (the "Closing Consideration") for delivery to Seller in accordance with this Agreement and the terms of the Escrow Agreement; and (b) Within 60 days following the end of the Valuation Period, Parent and Buyer shall pay and deliver to Seller the remainder of the Purchase Price (the "Post-Closing Consideration"), payable 3 8 in cash and validly issued fully paid and nonassessable shares of Parent common stock, par value $.001 per share ("Parent Common Stock"), such that the aggregate Purchase Price is comprised of 80% Parent Common Stock and 20% cash (including the amount of the Closing Consideration). The Parent Common Stock shall be valued at the average of the closing prices of the Parent Common Stock as reported by NASDAQ during the ninety trading day period ending on and including the day that is five trading days prior to delivery and payment of the Post-Closing Consideration (the "Market Price"). 1.7 Allocation of Purchase Price. Buyer and Seller shall report the allocation of the Purchase Price among the Purchased Assets as provided on Exhibit 1.7. ARTICLE 2 CLOSING DELIVERIES 2.1 Escrow. At the Closing, Parent, Buyer, Seller, the Members and William G. Small (the "Escrow Agent") will execute an escrow agreement (the "Escrow Agreement") and the parties will deliver or cause to be delivered into escrow the items described in Sections 2.2 and 2.3 below to be held in escrow until the earlier of (i) release from escrow and consummation of the acquisition of the Purchased Assets upon delivery of additional items to the Escrow Agent pursuant to Section 2.4 below, (ii) release in accordance with joint written instructions from Parent and Seller to the Escrow Agent, or (iii) return of each item from escrow to the party who delivered such item into escrow 20 days following July 7, 1998. In the event of the release or return of escrowed items pursuant to clause (iii) above, this Agreement shall be deemed terminated in all respects. 2.2 Deliveries by Seller. Simultaneously with the execution of this Agreement, Seller is delivering to the Escrow Agent the following: (a) A bill of sale, assignment and assumption agreement executed by Seller conveying all of the Purchased Assets to Buyer; (b) Employment agreements between Buyer and each of the Members; and (c) Any other documents, certificates, instruments, agreements and writings required to be delivered by Seller at the Closing pursuant to this Agreement and such conveyances and instruments as may be necessary or appropriate to convey the Purchased Assets to Buyer. 2.3 Deliveries by Buyer. Simultaneously with the execution of this Agreement, Buyer is delivering the Escrow Agent the following: (a) The Closing Consideration in the manner set forth in Section 1.5; (b) A bill of sale, assignment and assumption agreement executed by Buyer under which Buyer will assume and agree to pay and perform when required all of the obligations and liabilities of Seller relating to the business of Seller, arising under any contract or otherwise and/or (i) which are not paid or discharged on or prior to the Closing Date, (ii) which accrue after the Closing Date with respect to the Purchased Assets including, but not limited to, the obligations and liabilities under the Personal Property Leases, the Assumed Contracts, the Real Property Leases and the Licenses; (c) A legal opinion of Chamberlain, Hrdlicka, White, Williams & Martin, counsel to Buyer; (d) Employment agreements between Buyer and each of the Members; and 4 9 (e) The other documents, instruments and writings required to be delivered by Buyer at the Closing pursuant to this Agreement or otherwise required in connection herewith. 2.4 Release From Escrow. Upon the delivery to Escrow Agent by Buyer of the following items, all conditions for purchase of the Purchased Assets as contemplated by this Agreement shall be deemed satisfied and Escrow Agent shall deliver the Closing Consideration to Seller and release all documents to Buyer and Seller in accordance with the Escrow Agreement: (a) a legal opinion of Snell & Wilmer, counsel to Seller, in substantially the form attached hereto as Exhibit 2.4(a); (b) each of the Required Consents (as defined in Section 3.3 below); and (c) a certificate in substantially the form attached hereto as Exhibit 2.4(c) executed by an officer of Seller representing and warranting that all Required Consents have been delivered, ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS Seller and the Members represent and warrant to Buyer and Parent as set forth below: 3.1 Organization. Seller (i) is a limited liability company duly organized and validly existing under the laws of the State of Arizona, (ii) has the requisite corporate power to own, lease and operate its properties and conduct its business as it is presently being conducted, and (iii) is duly qualified to conduct business in Arizona and in each state where the ownership of its assets or the conduct of its business requires qualification. 3.2 Authority Relative to this Agreement. Seller has the requisite limited liability company power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly authorized by all necessary limited liability company action on the part of Seller and no other limited liability company proceedings on the part of Seller are necessary. This Agreement has been duly and validly executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 3.3 Consents and Approvals. The execution and delivery of this Agreement by Seller, and performance by Seller of its obligations hereunder, do not require Seller to obtain any consent, waiver, approval, exemption, authorization or other action of, or make any filing with or give any notice to, any third party or any court, administrative agency or other governmental or regulatory authority or any other Person, except (i) as disclosed in Section 3.3 of the Disclosure Schedule previously provided to the Parent and Buyer by the Seller (the "Disclosure Schedule"). Such consents, waivers, approvals, exemptions, authorizations or other actions required but not delivered to Parent and Buyer on the Closing Date shall be the "Required Consents." "Person" shall mean an individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint 5 10 venture, unincorporated organization, or governmental entity (or any department, agency or political subdivision thereof). 3.4 No Violation. Assuming all consents, approvals, waivers, exemptions, authorizations and other actions described in Section 3.3 of the Disclosure Schedule have been obtained or taken, the execution and delivery of this Agreement by Seller, and the performance by Seller of its obligations hereunder, do not (i) conflict with or result in a breach of the articles of organization, operating agreement, regulations or other corporate governance document relating to Seller, if any; (ii) result in the imposition of any mortgage, pledge, lien, charge, security interest or other encumbrance (a "Lien") on the Purchased Assets; (iii) result in, or constitute an event which with the passage of time or giving of notice would be, a breach, violation or default (or give rise to any right of termination, cancellation or acceleration) under any material contract or agreement to which Seller is a party or is bound; or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, in each such case ((i), (ii), (iii) and (iv) above) where such breach, violation, conflict, default or Lien could reasonably be expected to have a Material Adverse Effect on the business comprising the Purchased Assets (the "Purchased Business"). The term "Material Adverse Effect" or "Material Adverse Change" shall mean an adverse effect on or change of the properties, assets, financial position, results of operations, long-term debt, other indebtedness, cash flows or contingent liabilities of the Seller in an amount of $35,000.00 or more. 3.5 Litigation. Except as set forth in Section 3.5 of the Disclosure Schedule, (i) there are no actions, suits, claims, arbitration proceedings or governmental investigations or inquiries pending or threatened to the knowledge of Seller or the Members, (A) against Seller or any of its affiliates seeking to prevent or delay the consummation of the transactions contemplated hereby, or (B) against Seller or its managers, officers, directors or employees which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Purchased Business, and (ii) there are no judgments, decrees, injunctions, orders or consent orders of any court, governmental authority or arbitrator issued in any proceeding to which Seller or any of the Members is or was a party which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Purchased Business. 3.6 Compliance with Laws. Except as set forth in Section 3.6 of the Disclosure Schedule, (i) Seller is in compliance with all laws, ordinances, regulations, orders, judgments and decrees applicable to the operation of the Purchased Assets as currently operated, where the failure to be in such compliance, singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Business; and (ii) neither Seller nor any of the Members has received any notice of, or citation for, any violation of any law, regulation or order which has not been resolved, which notice or citation relates to the ownership or operation of the Purchased Assets and the violation of which law, regulation or order could reasonably be expected to have a Material Adverse Effect on the Purchased Business. 3.7 Financial Statements. Seller has delivered to Buyer copies of the following financial statements of Seller: (i) a balance sheet as of December 31, 1997 and for the twelve month period ended December 31, 1997; (ii) a balance sheet as of May 31, 1998 ("Balance Sheet Date"); and (iii) an income statement for the five month period ended May 31, 1998. (Such financial statements are collectively referred to herein as the "Financial Statements".) Except as set forth in the notes to such financial statements, such financial statements have been prepared from Seller's records in accordance with GAAP consistently applied throughout the periods involved. The Financial Statements fairly present, in all material respects, the financial condition of Seller as of the dates indicated therein and the results of its operations for the periods indicated therein except as reflected in the notes thereto. Seller does not have any liabilities or obligations of a type that should be included in or reflected in such financial statements if prepared in accordance with GAAP, whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated, or otherwise, except as and to the extent disclosed or reflected in such financial statements. 6 11 3.8 Purchased Assets. The Purchased Assets and the Excluded Assets constitute all of the assets used or held for use by Seller in the conduct of the Business. Seller has marketable title to all Purchased Assets, and all such property is owned free and clear of any Lien, except as set forth on Section 3.8 of the Disclosure Schedules. Except as set forth on Section 3.8 of the Disclosure Schedule, to the best knowledge of Seller and the Members each item of tangible personal property included in the Purchased Assets is in good operating condition and repair, normal wear and tear excepted. 3.9 Intellectual Property. Neither Seller nor the Members has received or is aware of any notice from any Person pertaining to or challenging the right of Seller to use any of the patents, trademarks, service marks, trade names, copyrights, other proprietary intellectual property rights and applications for registration and registrations thereof that are used or held for use in the Purchased Business (the "Intellectual Property"). Seller owns the Intellectual Property free and clear of Liens. To the knowledge of Seller and Members, (i) the Intellectual Property does not infringe upon and is free of conflict with the rights of any other Person, trade name or trademark of another and (ii) the conduct of the Purchased Business does not conflict with, infringe on, or otherwise violate any copyright, trade secret, or patent rights of others. 3.10 Inventories. All items of inventory included in the Purchased Assets are merchantable, or suitable and usable for the production or completion of merchantable products, for sale in the ordinary course of business as first quality goods, and none of such items is obsolete or below standard quality. 3.11 Environmental Compliance. To the knowledge of Seller and the Members except as set forth in Section 3.11 of the Disclosure Schedule, (a) the operation of the tangible personal property included in the Purchased Assets does not involve the use of any material, pollutant, or waste regulated as of the date hereof under any applicable federal, state, local or foreign law, statute, ordinance, regulation, rule, order, requirement or agreement with any governmental authority in effect in any and all jurisdictions in which the Purchased Assets are located relating to the protection, preservation or restoration of the environment or conserving or protecting the environment, wildlife, or natural resources ("Hazardous Materials"); and (b) there is no proceeding pending against Seller or Members or any of their affiliates by any federal, state, foreign or local court, tribunal, administrative agency, department, commission, board, or other authority or instrumentality with respect to the presence or release of any Hazardous Materials from real property currently or previously owned, leased or used, and which relate to the Purchased Assets. 3.12 Contracts. Section 3.12 of the Disclosure Schedule lists all contracts or other arrangements relating to the Business or the Purchased Assets to which the Seller is a party or to which its assets are bound. Except as set forth in Section 3.12 of the Disclosure Schedule, each of the above-described contracts is in full force and effect and there is no breach or default (or any event which, with the giving of notice or lapse of time or both, would be a breach or default) by Seller, or to the knowledge of Seller or Members, any other party under any such contract and, to the knowledge of Seller or Members, there are no facts or circumstances which make such a breach or default likely to occur subsequent to the date hereof. 3.13 Material Changes. Except as specifically set forth on Schedule 3.13 of the Disclosure Schedule, since the Balance Sheet Date, there has not been: (a) any change in the Seller's Articles of Organization; 7 12 (b) any Material Adverse Change of any nature whatsoever in the financial condition, assets, liabilities (contingent or otherwise), income, Business or prospects of the Seller; (c) any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or Business of the Seller; (d) any change in the authorized capital of the Seller or in its securities outstanding or any change in its ownership interests; (e) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Seller; (f) any contract or commitment entered into by the Seller or any incurrence by the Seller or agreement by the Seller or Members to incur any liability or make any capital expenditures in excess of $5,000, except in the normal course of business; (g) any work interruptions, labor grievances or claims filed, proposed law or regulation (the existence of which is known to the Members) or any event or condition of any character effecting a Material Adverse Change in the Purchased Business or future prospects of the Seller; (h) any cancellation, or agreement to cancel, any indebtedness or other obligation owing to the Seller, including, without limitation, any indebtedness or obligation of the Members or any of their affiliates; (i) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the assets, properties or rights of the Seller or requiring consent of any party to the transfer and assignment of any such assets, properties or rights; (j) any purchase or acquisition, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets of the Seller; (k) any negotiation for the acquisition of any business or start-up of any new business; (l) any merger or consolidation or agreement to merge or consolidate with or into any other corporation (except the transactions contemplated by this Agreement); (m) any waiver of any material rights or claims of the Seller; (n) any breach, amendment or termination of any material contract, agreement, license, permit, permit application or other right to which the Seller is a party; (o) any discharge, satisfaction, compromise or settlement of any claim, lien, charge or encumbrance or payment of any obligation or liability, contingent or otherwise, other than current liabilities as of the Balance Sheet Date, current liabilities incurred since the Balance Sheet Date in the ordinary course of business and prepayments of obligations in accordance with normal and customary past practices; or (p) any transaction by the Seller outside the ordinary course of its business or prohibited hereunder. 8 13 3.14 Operation of Business. Except as set forth in Schedule 3.14 of the Disclosure Schedule: (a) From the Balance Sheet Date until the date hereof, Seller and each of the Members has: (i) used all reasonable efforts to maintain its assets in their present state of repair, ordinary wear and tear excepted, to preserve the Business and relationships with its customers, suppliers, employees and other Persons having business relationships with the Business; and (ii) operated the Business in the ordinary course consistent with prior practice except as otherwise provided by this Agreement. (b) From the Balance Sheet Date to the date hereof, neither Seller nor any of the Members has taken any of the following actions in respect of the operation of the Business: (i) disposed of or encumbered, or entered into any agreement to sell or transfer, directly or indirectly, any assets except sales and consumption of inventory in the ordinary course of business; (ii) increased in any manner compensation or benefits of any employees, officers or directors, stockholders, consultants or agents of the Seller, except any increase made in the ordinary course of business under existing employment contracts or policies; (iii) increased, terminated, amended or otherwise modified any plan for the benefit of any employee of Seller; (iv) paid or agreed to pay any pension, retirement allowance, severance or other employee benefit not required under any existing plan to any employee of Seller; (v) entered into, extended, renewed, modified or canceled any agreements, leases, commitments or contracts, except as required in the ordinary course of business; (vi) implemented any price discount or extended payment terms or other incentives except routine transactions in the ordinary course of business; (vii) mortgaged, pledged or subjected to any Lien any of the Purchased Assets; (viii) waived any material rights or privileges it may have under, or amended in any respect, any contract included in the Purchased Assets; (ix) maintained its books of account other than in the usual, regular and ordinary manner in accordance with generally accepted accounting principles and on a basis consistent with prior periods or made any change in any of its accounting methods or practices; or (x) acquired any assets that would be included in the Purchased Assets except in the ordinary course of business. 3.15 Knowledge. Knowledge, when used in this Agreement in connection with the Members and/or Seller means that actual knowledge of each of the Members. 9 14 3.16 Representations and Warranties. The representations and warranties of Seller and the Members set forth in this Agreement and the Disclosure Schedule do not contain a misstatement of material fact nor omit to state a potential fact required to make statements contained therein not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT Buyer represents and warrants to Seller and the Members as set forth below: 4.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Arizona. Parent is a corporation duly organized, validly existing and in good standing under the laws of Delaware. 4.2 Capitalization of the Parent. The total authorized capital stock of Parent is as set forth and described in Parent's Confidential Private Placement Memorandum ("PPM") delivered to Members in connection with the transactions contemplated by this Agreement. The outstanding shares of Parent Common Stock have been duly and validly issued and are fully paid and non-assessable. 4.3 Authority Relative to this Agreement. Buyer and Parent each have all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Buyer, and no other corporate proceedings on the part of Buyer are necessary. The execution and delivery of this Agreement by Parent has been duly authorized by all necessary corporate action on the part of Parent. The consummation of the transactions contemplated hereby has been duly authorized by corporate action on the part of Parent and no other corporate proceedings on the part of Parent are necessary other than the mere authorization of the Board of Directors of Parent with respect to the specific number of shares of Parent Common Stock to be issued upon determination of the amount of the Post Closing Consideration pursuant to Section 1.6. This Agreement has been duly executed and delivered by each of Buyer and Parent and constitutes a legal, valid and binding obligation of both Buyer and Parent enforceable against each of Buyer and Parent in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.4 Consents and Approvals. Except as set forth in Section 4.4 of the Disclosure Schedule, the execution and delivery by Buyer and Parent of this Agreement, and performance by Buyer and Parent of their obligations hereunder, do not require Buyer or Parent to obtain any consent, waiver, approval, exemption, authorization or other action of, or make any filing with or give any notice to, any third party or any court, administrative agency or other governmental or regulatory authority or any other Person, except where failure to obtain such consents, waivers, approvals, exemptions, authorizations or actions, make such filings or give such notices could not reasonably be expected to effect a Material Adverse Change in the ability of Buyer or Parent to perform any of their material obligations hereunder. 4.5 No Violation. Assuming all consents, approvals, waivers, exemptions, authorizations and other actions described in Section 4.4 of the Disclosure Schedule have been obtained or taken, the execution and delivery of this Agreement by Buyer and Parent, and the performance by Buyer or Parent of their obligations hereunder, do not (i) conflict with or result in a breach of the charter or bylaws of Buyer or Parent, respectively, or (ii) violate, or conflict with, or constitute a default under, or result in the creation or imposition of any Lien upon the properties or assets of Buyer or Parent under any mortgage, indenture, agreement, judgment, decree or 10 15 court order to which either of them is a party or by which any of the assets of Buyer or Parent are bound, which violation, conflict, default or Lien could reasonably be expected to adversely affect the ability of Buyer or Parent to perform their obligations under this Agreement. 4.6 Not an Investment Company. The Parent is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.7 Financial Statements. The Parent has provided certain financial statements to the Members in the PPM ("Parent Financial Statements") and such Parent Financial Statements have been prepared in accordance with GAAP and fairly present the consolidated financial position, results of operations and cash flows of the Parent and its then existing consolidated subsidiaries as of the dates and for the periods indicated, subject to normal year-end adjustments and any other adjustments described therein or in the notes or schedules thereto. The books and records of the Parent have been kept in reasonable detail and accurately and fairly reflect the transactions of the Parent. 4.8 Parent Common Stock. The Parent Common Stock will be, upon issuance pursuant to this Agreement, validly issued, fully paid, and non-assessable and free and clear of any Liens and will be issued in compliance with federal and state securities laws. 4.9 PPM. The PPM does not contain any untrue statement of material fact or omit any material fact required to make the statements therein not misleading. ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS 5.1 Taxes. (a) Seller shall be liable for and shall pay, and pursuant to Section 6.2 Seller and the Shareholders shall indemnify Buyer against, all taxes (whether assessed or unassessed) applicable to the Business or the Purchased Assets, in each case attributable to taxable years or periods ending at the time of or prior to the Closing and, with respect to any tax period that begins before and ends after the Closing Date (a "Straddle Period"), the portion of such Straddle Period ending at the time of the Closing. Buyer shall pay, and pursuant to Section 6.3 shall indemnify Seller against, all taxes (whether assessed or unassessed) applicable to the Business or the Purchased Assets, in each case attributable to taxable years or period beginning after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning immediately after the Closing. For purposes of this Section 5.1, any Straddle Period shall be treated on a "closing of the books" basis as two partial periods, one ending at the time of the Closing, provided, however, that taxes imposed on a periodic basis shall be allocated on a daily basis. (b) Notwithstanding paragraph (a), any sales tax, motor vehicle tax, excise tax, use tax, real property transfer or gains tax, documentary stamp tax or similar tax attributable to the sale or transfer of the Business or the Purchased Assets shall be paid 0% by Seller and 100% by Buyer. Buyer and Seller each agrees to timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file tax returns with respect to, such taxes including a resale certificate as provided for under any applicable sales tax law. 11 16 (c) Buyer or Seller, as the case may be, shall provide reimbursement for any tax paid by one party all or a portion of which is the responsibility of the other party in accordance with the terms of this Section 5.1. Not later than 30 days prior to the payment of any said tax, the party paying such tax shall give notice to the other party of the tax payable and the portion that is the liability of each party, although failure to do so will not relieve the other party from its liability hereunder. Each party shall have the right at all reasonable times to examine the books and records of the other party to the extent necessary to verify the accuracy of any request. (d) After the Closing, each of Buyer and Seller shall (and cause their respective employees, agents and affiliates to): (i) assist the other party in preparing any tax returns that such other party is responsible for preparing and filing; (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any tax returns relating to the Business or the Purchased Assets; (iii) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to taxes relating to the Business or the Purchased Assets; (iv) provide timely notice to the other in writing of any pending or threatened tax audits or assessments relating to the Business or the Purchased Assets for taxable periods for which the other may have a liability under this Section 5.1; (v) furnish the other with copies of all correspondence received from any taxing authority in connection with any tax audit or information request with respect to any such taxable period. 5.2 Public Announcements. Neither Parent nor Buyer will disclose or deliver any information about the Seller to any third Person without the prior written consent of the Seller except as permitted by this Section 5.2. The Parent and Buyer may disclose pertinent information regarding this Agreement to its existing and prospective investors, lenders, or investment bankers or financial advisors for the purpose of obtaining financing, including, without limitation, descriptions of this Agreement and the transactions contemplated hereby may be included in the PPM or any private placement memorandum prepared by the Parent or any registration statement filed by the Parent under the Securities Act and in reports filed by the Parent under the Securities Exchange Act of 1934, and this Agreement may be filed as an exhibit to any thereof. The Parent may also make appropriate disclosures of the general nature of this Agreement and the identity, nature and scope of the Seller's operations to prospective acquisition candidates in connection with the Parent's efforts to effect additional acquisitions. Each party will have mutual approval rights with respect to written employee presentations concerning this Agreement. The Members shall be provided the opportunity for prior review and comment with respect to any description of the Purchased Business contained in any press release regarding the execution of this Agreement, and Stockholders shall be provided the opportunity for prior review and comment with respect to any description of the Seller contained in any press release regarding the execution of this Agreement. 5.3 Further Assurances. Seller and Buyer shall use reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable to carry out all of their respective obligations under this Agreement and to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement. Seller, Buyer and Parent shall, and shall cause their affiliates, 12 17 employees and agents, employees and agents to, execute, acknowledge and deliver all such further conveyances, notices, assumptions, releases and acquittances and such other instruments, and shall take such further actions, as may be necessary or appropriate more fully to assure to Seller, and its successors or assigns, all of the Excluded Assets intended to be retained by Seller pursuant to this Agreement. 5.4 Preservation of Business Records. Buyer shall preserve and keep (or cause to be preserved and kept) the Business Records, and Seller shall preserve and keep (or cause to be preserved and kept) its books and records not included in the Purchased Assets, for a period of seven years after the date hereof, and Buyer and Seller shall each grant to the other reasonable access to such Business Records retained by them during such period. In the event Buyer or Seller wishes to destroy Business Records after that time, it shall first give written notice to the other party, and the other party shall have the right at its option, upon prior written notice given to the party providing the initial notice, to take possession of said Business Records as promptly as practicable, but in any event within 90 days after the date of its notice requesting the same. 5.5 Confidentiality. Except as permitted by Section 5.2, Seller and each of the Members, and its and their affiliates, shall keep confidential all information regarding the Purchased Assets and the Purchased Business, including without limitation, information included in books and records retained by Seller, and will not, without the prior written consent of Buyer and Parent, disclose such information except as required by law or in connection with tax matters or as becomes generally available to and known by the public other than as a result of disclosure by Seller. 5.6 Covenant Not to Compete. (a) For the considerations specified in this Agreement and in recognition that the covenants by the Members and the Seller in this Section are a material inducement to Parent and Buyer to enter into and perform this Agreement, each Member agrees that for the period (the "Noncompetition Period") from the date hereof to the later to occur of (a) the date which is five (5) years after the Closing Date or (b) the date which is two years following any termination of such Member's employment by Buyer, such Member will not represent, engage in, carry on, or have a financial interest in, directly or indirectly, in any business that directly competes with any of the services or products produced, sold, conducted, developed, or in the process of development by Buyer, Parent or any of their respective affiliates on the date of termination of Employee's employment (including any aspect of the information technology consulting services industry) within a 100 mile radius of the city or county limits of any city or county in the United States or foreign countries where the Buyer, Parent or any of its affiliates maintains an office. For purposes of this Section 5.6, a "financial interest" means any interest, individually, as a member of a partnership or limited liability company, equity owner, shareholder (other than as a shareholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held company whose gross assets exceed one hundred million dollars), investor, officer, director, trustee, manager, employee, agent, associate or consultant. (b) Members agree that the limitations set forth herein on Members' rights to compete with Buyer or its affiliates as set forth in clause (a) are reasonable and necessary for the protection of Buyer and its affiliates. In this regard, Members specifically agree that the limitations as to period of time and geographic area, as well as all other restrictions on Members' activities specified herein, are reasonable and necessary for the protection of Buyer and its affiliates. Members agree that, in the event that the provisions of this Section should ever be deemed to exceed the scope of business, time or geographic limitations permitted by applicable law, such provision shall be and are hereby reformed to the maximum scope of business, time or geographic limitations permitted by applicable law. 13 18 (c) If there shall be any violation of the covenant not to compete set forth in Section 5.6(a) above, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such violation continues; and in the event Buyer is required to seek relief from such violation in any court, board of arbitration or tribunal, then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. (d) Members agree that the remedy at law for any breach by Members of this Section 5.6 will be inadequate and that Buyer shall be entitled to injunctive relief. (e) Parent and Buyer agree that if there shall be any material violation of this Agreement or of such Member's respective Employment Agreement with Buyer and/or Parent, or Buyer shall terminate employment under the Employment Agreement without Cause or the Member shall terminate employment under the Employment Agreement for Good Reason, prior to payment in full of the Post-Closing Consideration, Parent and Buyer shall, in addition to all other available remedies, pay immediately upon demand as liquidated damages and not as a penalty, an amount equal to the amount calculated, pursuant to Sections 1.5 and 1.6, as an estimate of the Post Closing Consideration based upon the Buyer's net income per share over the period from October 1, 1998 up to the earlier of the date of the material breach of this Agreement or termination of employment under the Employment Agreement (annualized by multiplying by 365 and dividing by the number of days in such period), except that P/E Ratio shall be divided by annualized earnings reported in the Parent's most recently filed Report on Form 10-Q or 10-K. 5.7 Corporate Name. Within 60 days after the date hereof, Seller and the Members shall take such action as is necessary to change the name of Seller to remove therefrom the words "Cogent Technologies, LLC" or any word or expression similar thereto. 5.8 Limitation on Assignments. Notwithstanding anything herein contained to the contrary, this Agreement shall not constitute nor require an assignment to Buyer of any Contract, License or other right if an attempted assignment of the same without the consent of any party would constitute a breach thereof unless and until such consent shall have been obtained. In the case of any such Contract, License or other right which cannot effectively be transferred to Buyer without such consent, the Members and Seller will each use all reasonable efforts to obtain such consent promptly and if such consent is not obtained, Seller and Buyer agree to enter into such reasonable arrangements as may be appropriate to provide Buyer with benefits purported to be vested in Buyer pursuant to the terms of this Agreement had such consent been obtained. 5.9 Post-Closing Operational Status. Parent and Buyer agree that, prior to payment in full of the Post-Closing Consideration, to the extent consistent with sound business practices and the duty of care owed by Parent's management to its stockholders, Parent and Buyer shall (i) provide Members with authority to operate and manage Buyer in a manner consistent with the prior operations of Seller; (ii) provide such management, accounting, operations, technical, purchasing, human resources, billing and collections, and marketing support resources and personnel as the Members shall reasonably request; (iii) provide such financial support, as reasonably required to support the prudent expansion and growth of the business and geographic coverage of Buyer at an interest rate not to exceed 15% and (iv) not allocate to Buyer any charges for overhead, interest, or other purposes except with respect to services described in this Section and other expenses incurred at the request of the Members. In addition, Parent and Buyer agree that, prior to payment in full of the Post-Closing Consideration, neither any ownership of Buyer nor any assets of Buyer shall be sold and Parent and Buyer shall not, without the written consent of the Members, require Buyer to (i) effect any consolidation, merger, or acquisition of or with any entity or acquire any assets or other business; (ii) relocate to any other state or county; or (iii) file any petition in bankruptcy or under any similar law. 14 19 5.10 Requested Registration. In case the Company shall receive from the Seller or the Members a written request that the Company effect the registration, qualification or compliance with applicable registration provisions of the Securities Act of up to fifty percent (50%) of the shares included in the Post Closing Consideration (the "Registrable Securities") then held by Seller or the Members, the Company will, as soon as practicable, use its commercially reasonable efforts to effect such registration, qualification or compliance (including, without limitation, appropriate qualification under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements or regulations) as may be so requested and as may be reasonably required to permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request: (a) The Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 5.10: (i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) Prior to November 1, 1999; (iii) If the Company has effected one such registration pursuant to this Section 5.10 and such registration has been declared or ordered effective; (iv) If the Company shall furnish to Seller or the Members, as applicable, a certificate signed by the President or Chief Executive Officer of the Company stating that in the good faith judgment of the Company it would be seriously detrimental to the Company or its shareholders for a registration statement to be filed in the near future, or that delay in the filing of any registration statement is necessary in light of a pending corporate development, and that the Company is maintaining a similar policy for any and all registration rights then outstanding, then the Company's obligation to use its commercially reasonable efforts to register, qualify or comply under this Section 5.10 shall be deferred (with respect to any demand for registration hereunder) for a period not to exceed forty-five (45) days from the date of receipt of written request from the Seller or the Members, provided that the Company cannot, pursuant to this Section 5.10(a), delay implementation of a demand for registration more than twice in any 12 month period; or (v) At any time after the Registrable Securities have all become available for resale pursuant to Rule 144 under the Securities Act. Subject to the foregoing clauses (i) through (v), the Company shall file a registration statement covering the Registrable Securities so requested to be registered and shall use its commercially reasonable efforts to cause such Registrable Securities to be registered as soon as practicable after receipt of the request of the Seller or the Members. (b) Underwriters. In the event that a registration pursuant to Section 5.10 is for a registered public offering involving an underwriting, the Company shall have the sole right to select the managing underwriters. 15 20 (c) One Demand. The Company is obligated to effect only one demand registration pursuant to this Section 5.10. (d) Joinder of Company and other security holders. In any registration requested pursuant to this Section 5.10, the Company shall be entitled to register securities for sale for its own account or for the account of any other holder or holders of Company securities with rights to include their securities in such registration. (e) Parent will cause to be furnished to Seller two conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits) and such number of copies of the preliminary and final prospectuses and any other prospectus filed under Rule 424 as Seller may reasonably request in order to facilitate the sale of such Parent Common Stock. Seller and the Members, as applicable, will comply with all prospectus delivery requirements under the Securities Act. It will be a condition to Parent's obligations to effect registration of such Parent Common Stock that Seller and the Members, as applicable, provide Parent with all material facts including, without limitation, furnishing such certificates, questionnaires, and legal opinions as may be required by Parent concerning the Parent Common Stock to be registered which are reasonably required to be stated in the registration statement or in the prospectus or are otherwise required in connection with the offering. All expenses incurred by Parent or its Affiliates in complying with this Section 5.10, including, without limitation, all registration and filing fees, printing expenses, and fees and disbursements of counsel for Parent and its affiliates, are herein called Registration Expenses. All selling commissions applicable to the sales of the Parent Common Stock and all fees and disbursements of counsel for Seller and the Members are herein called Selling Expenses. Parent will pay all Registration Expenses in connection with registration pursuant to this Section 5.10. All Selling Expenses in connection with such registration will be borne by Seller and the Members. 5.11 Registration Procedures. In the case of each registration, qualification or compliance effected by the Company pursuant to this Agreement, the Company will keep the Seller and each Member (as applicable) advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Subject to Section 5.10(a), prepare and file with the Commission a registration statement with respect to such securities and use its commercially reasonable efforts to cause such registration statement to become and remain effective for at least ninety (90) days or until the distribution described in the Registration Statement has been completed; (b) Furnish to each underwriter such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such underwriter may reasonably request in order to facilitate the public sale of the shares by such underwriter, and promptly furnish to each underwriter, the Seller and each Member (as applicable) notice of any stop-order or similar notice issued by the Commission or any state agency charged with the regulation of securities; and (c) Use its commercially reasonable efforts to cause all Registrable Securities included in such registration to be listed or authorized for inclusion on each securities exchange or similar trading system on which similar securities issued by the Company are then listed or authorized for trading. 16 21 5.12 Indemnification. Parent agrees to indemnify and hold harmless (or if indemnification is held by a court of competent jurisdiction to be unavailable, to contribute to the amount paid or payable by) Seller and the Members holding Parent Common Stock included as part of any registration statement filed pursuant to this Section 5.12 against any losses, claims, damages, or liabilities (or actions in respect thereof), to which Seller and the Members may be subject under the Securities Act or any other statute or common law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or based upon (i) any untrue statement (or alleged untrue statement) of any material fact contained in any registration statement under which such securities were registered under the Securities Act, or any amendment or supplement thereto, or any other document used to sell these securities, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make any statement therein, in light of the circumstances under which it was made, not misleading, or (iii) any violation by Parent of the Securities Act or any Blue Sky law, or any rule or regulation promulgated under the Securities Act or any Blue Sky law, or any other law, applicable to Parent in connection with such registration, qualification, or compliance, and will reimburse Seller and the Members for any legal or other expenses reasonably incurred by them in connection with defending such loss, claim, damage, liability, or action; provided, however, that Parent will not be liable to any holder in such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon (a) any untrue statement or omission made in such registration statement, or amendment or supplement thereto, or any document, in reliance upon and in conformity with information furnished to Parent by Seller or the Members, including, but not limited to, any information disclosed as part of the representations and warranties contained herein; or (b) any untrue statement or alleged untrue statement of a material fact contained in, or any omission or alleged omission of material fact from, a registration statement if (x) such registration statement had been later amended or supplemented in a manner that would correct the untrue statement or alleged untrue statement, omission or alleged omission, which is the basis of the loss, liability, claim, damage, or expense for which indemnification is sought, (y) a copy of such amendment or supplement had been provided to Seller and the Members (as applicable) and had not been sent to or given to a purchaser at or prior to confirmation of sale to such purchaser and Seller or the Members, shall have been under an obligation to deliver such amendment or supplement, and (z) there would have been no such liability but for such failure to deliver such prospectus by Seller or the Members. ARTICLE 6 INDEMNIFICATION AND LIMITATIONS ON LIABILITY 6.1 Survival. The representations and warranties set forth in this Agreement and the other documents, instruments and agreements contemplated hereby shall survive after the date hereof to the extent provided herein. The representations and warranties of Seller and Members herein other than those of Seller and Members in Sections 3.1, 3.2 and 3.8 shall survive for a period of 24 months after the date hereof and the representations and warranties of Seller contained in Sections 3.1, 3.2 and 3.8, shall survive for the maximum period permitted by applicable law. The representations and warranties of Buyer and Parent herein other than those of Buyer and Parent in Sections 4.1 and 4.2 shall survive for a period of 24 months after the date hereof and the representations and warranties of Buyer contained in Sections 4.1 and 4.2 shall survive for the maximum period permitted by applicable law. The periods of survival of the representations and warranties as stated above in this Section 6.1 are referred to herein as the "Survival Period." The liabilities of the parties under their respective representations and warranties shall expire as of the expiration of the applicable Survival Period and no claim for indemnification may be made with respect to any breach of any representation or warranty, the applicable Survival Period of which shall have expired, except to the extent that written notice of such breach shall have been given to the party against which such claim is asserted on or before the date of such expiration. The covenants and agreements of the parties herein and in other documents and instruments executed and delivered in connection with the closing of the transactions contemplated hereby shall survive for the maximum period permitted by law. 17 22 6.2 Indemnity by Seller and the Members. Subject to the provisions of Sections 6.1 and 6.4, Seller and the Members, jointly and severally, shall indemnify, save and hold harmless Buyer and Parent, and any of their assigns (including lenders) and all of its shareholders, officers, directors, employees, representatives, agents, advisors and consultants and all of their respective heirs, legal representatives, successors and assigns (collectively the "Buyer Indemnified Parties") from and against any and all damages, liabilities, losses', loss of value (including the value of adverse effects on cash flow or earnings), claims, deficiencies, penalties, interest, expenses, fines, assessments, charges and costs, including reasonable attorneys' fees and court costs (collectively "Losses") arising from, out of or in any manner connected with or based on: (a) the breach of any covenant of Seller or Member or the failure by Seller or Members to perform any of their obligations contained herein; (b) any inaccuracy in or breach of any representation or warranty of Seller or Member contained herein; (c) any liability or obligation, fixed or contingent, direct or indirect, known or unknown, of Seller other than those specifically assumed by Buyer pursuant to Section 1.3; and (d) any act, omission, occurrence, event, condition or circumstance occurring or existing at any time on or before the date hereof and involving or related to the assets, properties, business or operations now or previously owned or operated by Seller and not included in the Purchased Assets except as disclosed in the Financial Statements or the Disclosure Schedule. Buyer Indemnified Parties shall be entitled to indemnification pursuant to this Agreement only if the aggregate Losses incurred or sustained by all Buyer Indemnified Parties exceed $35,000. In the event that the aggregate Losses incurred or sustained by all Buyer Indemnified Parties exceed $35,000, then the Buyer Indemnified Parties shall be entitled to indemnification for all such Losses exceeding $35,000; provided, however, that the aggregate Losses paid to the Buyer Indemnified Parties hereunder shall not exceed the Purchase Price. The foregoing indemnities shall not limit or otherwise adversely affect the indemnity rights of the Seller Indemnified Parties for Losses under Section 6.4. 6.3 Set-off Rights of Buyer. At the election of Buyer or Parent, losses payable to the Buyer Indemnified Parties hereunder shall be set-off against and shall reduce payments, if any, to be made by Buyer or Parent to Seller or the Members pursuant to this Agreement including, without limitation the Post-Closing Consideration, on a dollar-for-dollar basis. If Parent or Buyer elect to set-off under this Section 6.3, Parent or Buyer shall notify the Members of its intention to set-off amounts it believes in good faith are subject to indemnification by providing the Members with a written certificate signed by a Vice President or other Executive Officer of Parent, which briefly sets forth the basis of the claim and also recites an estimate, determined in good faith, of the amount Parent intends to set-off. Parent shall not withhold any more than 100% of the amount that Parent determines in good faith should be necessary to satisfy such claim. If the Members dispute a claim asserted hereunder, the Members shall deliver written notice of such dispute to Parent within 30 days. The parties shall negotiate the dispute in good faith. If the matter is not resolved within 30 days of Parent's receipt of notice of the dispute, the resolution of such claim shall be made in accordance with a binding arbitration proceeding conducted pursuant to the rules of the American Arbitration Association in Phoenix, Arizona. 6.4 Indemnity by Buyer. Subject to the provisions of Sections 6.1 and 6.4, Buyer shall indemnify, save and hold harmless Seller and the Members and their respective heirs, legal representatives, successors and assigns from and against all Losses arising from, out of or in any manner connected with or based on: 18 23 (a) any breach of any covenant of Buyer or the failure by Buyer to perform any of its obligations contained herein; (b) any inaccuracy in or breach of any representation or warranty of Buyer contained herein; (c) any act, omission, event, occurrence, condition or circumstance occurring or existing at any time after (but not on or before) the date hereof and involving or relating to the Purchased Assets or the Business; and (d) the obligations and liabilities of Seller assumed by Buyer under Section 1.3. Seller Indemnified Parties shall be entitled to indemnification pursuant to this Agreement only if the aggregate Losses incurred or sustained by all Seller Indemnified Parties exceed $35,000. In the event that the aggregate Losses incurred or sustained by all Seller Indemnified Parties exceed $35,000, then the Seller Indemnified Parties shall be entitled to indemnification for all such Losses exceeding $35,000; provided, however, that the aggregate Losses paid to the Seller Indemnified Parties hereunder shall not exceed the Purchase Price. The foregoing indemnities shall not limit or otherwise adversely affect the indemnity rights of of the Buyer Indemnified Parties for Losses under Section 6.2. 6.5 Procedures for Indemnification. (a) The party (the "Indemnified Party") that may be entitled to indemnity hereunder shall give prompt notice to the party obligated to give indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought hereunder. Any failure on the part of any Indemnified Party to give the notice described in this Section 6.5(a) shall relieve the Indemnifying Party of its obligations under this Article 6 only to the extent that such Indemnifying Party has been prejudiced by the lack of timely and adequate notice (except that the Indemnifying Party shall not be liable for any expenses incurred by the Indemnified Party during the period in which the Indemnified Party failed to give such notice). Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, promptly (and in any event within 10 days thereof) after the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to such claim, action, suit or proceeding. (b) Buyer shall have the obligation to assume the defense or settlement of any third-party claim, suit, action or proceeding in respect of which indemnity may be sought hereunder, provided that (i) Seller shall at all times have the right, at its option, to participate fully therein, and (ii) if Buyer does not proceed diligently to defend the third-party claim, suit, action or proceeding within 10 days after receipt of notice of such third-party claim, suit, action or proceeding, Seller shall have the right, but not the obligation, to undertake the defense of any such third-party claim, suit, action or proceeding. (c) The Indemnifying Party shall not be required to indemnify the Indemnified Party with respect to any amounts paid in settlement of any third-party suit, action, proceeding or investigation entered into without the written consent of the Indemnifying Party; provided, however, that if the Indemnified Party is a Buyer Indemnified Party, such third-party suit, action, proceeding or investigation may be settled without the consent of the Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if such third-party suit, action, proceeding or investigation is then unreasonably interfering with the Purchased Business or other operations of Buyer and the settlement is commercially reasonable under the circumstances; and provided further, that if the Indemnifying Party gives 10 days' 19 24 prior written notice to the Indemnified Party of a settlement offer that the Indemnifying Party desires to accept and to pay all Losses with respect thereto ("Settlement Notice") and the Indemnified Party fails or refuses to consent to such settlement within 10 days after delivery of the Settlement Notice to the Indemnified Party, the Indemnifying Party shall not be liable for Losses arising from such third-party suit, action, proceeding or investigation in excess of the amount proposed in such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will consent to the entry of any judgment or enter into any settlement without the consent of the Indemnified Party, if such judgment or settlement imposes any obligation or liability upon the Indemnified Party other than the execution, delivery or approval thereof and customary releases of claims with respect to the subject matter thereof. (d) The parties shall cooperate in defending any such third-party suit, action, proceeding or investigation, and the defending party shall have reasonable access to the books and records, and personnel in the possession or control of the Indemnified Party that are pertinent to the defense. The Indemnified Party may join the Indemnifying Party in any suit, action, claim or proceeding brought by a third party, as to which any right of indemnity created by this Agreement would or might apply, for the purpose of enforcing any right of the indemnity granted to such Indemnified Party pursuant to this Agreement. 6.6 Subrogation. Each Indemnifying Party hereby waives for itself and its affiliates any rights to subrogation against any Indemnified Party or its insurers for Losses arising from any third-party claims for which it is liable or against which it indemnifies any Indemnified Party and, if necessary, each Indemnifying Party shall obtain waivers of such subrogation from its, his or her insurers. ARTICLE 7 MISCELLANEOUS 7.1 Expenses. Except as specifically provided herein, all legal and other costs and expenses in connection with this Agreement and the transactions contemplated hereby shall be paid by Seller or Buyer, as the case may be, depending upon which party incurred such costs and expenses; provided, however, that any and all costs and expenses incurred that relate to Hart-Scott-Rodino filings shall be borne by Parent. 7.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be given by registered or certified mail (postage prepaid, return receipt requested), by personal delivery or by facsimile transmission, in each case addressed as follows: a) To Buyer: with a copy to: Cogent Acquisition Corp. Robert J. Viguet, Jr. c/o BrightStar Information Chamberlain, Hrdlicka, White, Technology Group, Inc. Williams & Martin 10375 Richmond Avenue, Suite 1620 1200 Smith Street, Suite 1400 Houston, Texas 77042 Houston, Texas 77002 Attn: President Telecopy: (713) 658-2553 Telecopy: (713) 361-2501
20 25 b) To Seller: with a copy to: Cogent Technologies, LLC Snell & Wilmer 2415 East Camelback Road, Suite 700 One Arizona Center Phoenix, Arizona 85016 Phoenix, Arizona 85004-0001 Attn: Shawn Tibbitts and Greg Robinson Attn: Samuel C. Cowley Telecopy: (602) 508-6099 Telecopy: (602) 382-6321
Any such notice or other communication shall be deemed received on the fifth business day following deposit in the mails or on the date of actual receipt, if earlier; provided that if such communication is received after the close of business on any day it shall be deemed received on the next business day. Any party shall be permitted to change its address for communications by notice to the other as provided herein. 7.3 Entire Agreement. This Agreement supersedes all prior agreements between the parties (written or oral) and is intended as a complete and exclusive statement of the terms of the Agreement between the parties. This Agreement may be amended only by a written instrument duly executed by the parties. 7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 7.5 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.6 Assignability. No party hereto shall assign this Agreement or any part hereof without the prior written consent of any other party, except that Buyer may assign its rights hereunder to any direct or indirect wholly-owned subsidiary of Parent.; provided, however, that no such assignment shall relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 7.7 No Third Party Beneficiaries. Except as expressly provided herein, nothing in this Agreement shall entitle any Person other than Seller, Buyer or Parent or their respective successors and assigns permitted hereby to any claim, cause of action, remedy or right of any kind. 7.8 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 7.9 Equitable Relief. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 7.10 Counterparts. This Agreement may be executed in any number of counterparts, no one of which needs to be executed by all the parties, and this Agreement shall be binding upon all the parties with the same 21 26 force and effect as if all the parties had signed the same document, and each such signed counterpart shall constitute an original of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By:/s/ DANIEL M. COFALL ------------------------------------------ Name: Daniel M. Cofall ----------------------------------------- Title: Chief Financial Officer --------------------------------------- COGENT, INC. By:/s/ DANIEL M. COFALL ------------------------------------------ Name: Daniel M. Cofall ----------------------------------------- Title: Chief Financial Officer --------------------------------------- COGENT TECHNOLOGIES, LLC By:/s/ R. SHAWN TIBBITTS ------------------------------------------ Name: R. Shawn Tibbitts ----------------------------------------- Title: President, Chief Executive Officer --------------------------------------- /s/ R. SHAWN TIBBITTS --------------------------------------------- SHAWN TIBBITTS /s/ GREG ROBINSON --------------------------------------------- GREG ROBINSON 22 27 EXHIBIT 1.1(a) PURCHASED ASSETS 23 28 EXHIBIT 1.1(b) PERSONAL PROPERTY LEASES 24 29 EXHIBIT 1.1(c) ASSUMED CONTRACTS 25 30 EXHIBIT 1.1(d) REAL PROPERTY LEASES 26 31 EXHIBIT 1.1(f) LICENSES 27 32 EXHIBIT 1.1(g) PROPRIETARY RIGHTS 28 33 EXHIBIT 1.1(l) GOODWILL 29 34 EXHIBIT 1.2 OTHER EXCLUDED ASSETS 30 35 EXHIBIT 1.7 ALLOCATION OF PURCHASE PRICE 31 EX-10.22 10 ASSET PURCHASE AGREEMENT - AUGUST 31, 1998 1 EXHIBIT 10.22 ASSET PURCHASE AGREEMENT DATED AS OF AUGUST 31, 1998 AMONG BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. SOFTWARE CONSULTING SERVICES AMERICA, INC., TBQ ASSOCIATES, INC. AND THE HOLDERS OF ALL THE OUTSTANDING CAPITAL STOCK OF TBQ ASSOCIATES, INC. 2 TABLE OF CONTENTS
Page No. ARTICLE 1 PURCHASE AND SALE...............................................................................1 1.1 Purchase and Sale of Assets.....................................................................1 1.2 Excluded Assets.................................................................................3 1.3 Obligations Assumed.............................................................................3 1.4 Closing.........................................................................................3 1.5 Purchase Price..................................................................................3 1.6 Determination and Payment of Earn-out...........................................................4 1.7 Determination of Earn-out upon Termination without Cause........................................5 1.8 Review of Earn-Out Statement....................................................................5 1.9 Allocation of Purchase Price....................................................................5 ARTICLE 2 CLOSING DELIVERIES..............................................................................5 2.1 Deliveries by Seller............................................................................5 2.2 Deliveries by Buyer.............................................................................6 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS...................................6 3.1 Organization....................................................................................6 3.2 Authority Relative to this Agreement............................................................7 3.3 Consents and Approvals..........................................................................7 3.4 No Violation....................................................................................7 3.5 Litigation......................................................................................7 3.6 Compliance with Laws............................................................................8 3.7 Financial Statements............................................................................8 3.8 Purchased Assets................................................................................8 3.9 Intellectual Property...........................................................................8 3.10 Inventories.....................................................................................9 3.11 Environmental Compliance........................................................................9 3.12 Contracts.......................................................................................9 3.13 Material Changes................................................................................9 3.14 Operation of Business..........................................................................11 3.15 Restricted Securities..........................................................................12 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT.............................................13 4.1 Organization...................................................................................13 4.2 Capitalization of the Parent...................................................................13 4.3 Authority Relative to this Agreement...........................................................13 4.4 Consents and Approvals.........................................................................13 4.5 No Violation...................................................................................14 4.6 Not an Investment Company......................................................................14 4.7 Financial Statements...........................................................................14 4.8 Misstatements..................................................................................14
i 3 ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS............................................................14 5.1 Taxes..........................................................................................14 5.2 Public Announcements...........................................................................16 5.3 Further Assurances.............................................................................16 5.4 Preservation of Business Records...............................................................16 5.5 Confidentiality................................................................................16 5.6 Covenant Not to Compete........................................................................17 5.7 Corporate Name.................................................................................18 5.8 Limitation on Assignments......................................................................18 ARTICLE 6 INDEMNIFICATION AND LIMITATIONS ON LIABILITY...................................................18 6.1 Survival.......................................................................................18 6.2 Indemnity by Seller and the Shareholders.......................................................18 6.3 Set-off Rights of Buyer........................................................................19 6.4 Indemnity by Buyer and Parent..................................................................19 6.5 Procedures for Indemnification.................................................................20 6.6 Subrogation....................................................................................21 ARTICLE 7 MISCELLANEOUS..................................................................................22 7.1 Expenses.......................................................................................22 7.2 Notices........................................................................................22 7.3 Entire Agreement...............................................................................23 7.4 GOVERNING LAW..................................................................................23 7.5 Headings.......................................................................................23 7.6 Assignability..................................................................................23 7.7 No Third Party Beneficiaries...................................................................23 7.8 Severability...................................................................................23 7.9 Equitable Relief...............................................................................24 7.10 Counterparts...................................................................................24 7.11 Facsimile or Electronic Transmission of Documents..............................................24
ii 4 EXHIBITS AND SCHEDULES Section Description 1.1(a) Tangible Personal Property 1.1(b) Personal Property Leases 1.1(c) Assured Contracts 1.1(d) Real Property Leases 1.1(f) Licenses 1.1(g) Proprietary Rights 1.1(j) Prepaid Items 1.2 Excluded Assets 1.5(b) TBQ Employees or Contractors 1.9 Allocation of Purchase Price DISCLOSURE SCHEDULE Section Description Page No. 3.3 Consents and Approvals 7 3.5 Litigation 7 3.6 Compliance with Laws 8 3.8 Purchased Assets 8 3.11 Environmental Compliance 9 3.12 Assumed Contracts 9 3.13 Conduct of Business 9 iii 5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of August 31, 1998, by and among BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation ("Parent"), SOFTWARE CONSULTING SERVICES AMERICA, INC., a Delaware corporation and a wholly owned subsidiary of Parent ("Buyer"), and TBQ ASSOCIATES, INC., a Nevada corporation ("Seller"), and ALL THE UNDERSIGNED HOLDERS OF ALL OF THE OUTSTANDING CAPITAL STOCK OF THE SELLER (the "Shareholders"). R E C I T A L S WHEREAS, Seller is engaged in the business of providing consulting services and consultant staffing to users of enterprise resource planning ("ERP") software in the following specialty areas: quality management, plant maintenance, service management and production planning for process industry (the "Business"); and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, certain assets used or held for use by Seller in the Business; NOW, THEREFORE, for and in consideration of the premises and the covenants herein contained and the benefits to be derived herefrom, the parties hereby agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 Purchase and Sale of Assets. Subject to the terms and conditions contained herein and simultaneously with the execution of this Agreement, Buyer is purchasing from Seller, and Seller is selling to Buyer, all of the right, title and interest of Seller in and to the following assets (the "Purchased Assets"): (a) Tangible Personal Property. All tangible personal property (including equipment, machinery, tools, appliances, implements, spare parts, instruments, furniture and supplies) owned by the Seller ("Tangible Personal Property"), including, without limitation, the Tangible Personal Property set forth on Exhibit 1.1(a); (b) Personal Property Leases. Seller's rights in, to and under all leases of equipment, machinery, tools, appliances, implements, spare parts, instruments, furniture, supplies, and other items of tangible personal property ("Personal Property Leases") which are set forth on Exhibit 1.1(b); (c) Assumed Contracts. Seller's rights in, to and under all contracts, agreements, insurance policies, purchase orders and commitments which are set forth on Exhibit 1.1(c), together with all instruments and all documents of title representing any of the foregoing, all 1 6 rights in any merchandise or goods which any of the same represent, and all rights, title, security and guaranties in favor of the Seller with respect to any of the foregoing (the "Assumed Contracts"); (d) Real Property Leases. The leasehold estates created by, and all rights conferred on the Seller under or by virtue of, all real property lease agreements (such real property lease agreements are hereinafter referred to as "Real Property Leases" and the parcels of real property in which the Seller has a leasehold interest and that are subject to the Real Property Leases are hereinafter referred to as "Leased Property"), which are set forth on Exhibit 1.1(d), and any and all estates, rights, titles and interests in, to and under all warehouses, storage facilities, buildings, works, structures, fixtures, landings, constructions in progress, improvements, betterments, installations and additions constructed or located on or attached or affixed to the Leased Property; (e) Business Records. All books and records of the Seller wherever located, including without limitation, all credit records, payroll records, computer records, computer programs, contracts, agreements, operating manuals, schedules of assets, accounting and financial records, sales and property tax records and returns, sales records, customer and supplier data, blueprints, specifications, plats, maps, surveys, building and machinery diagrams, maintenance records, personnel and labor relation records, real estate records, construction records, environmental records and returns, files, papers, books and all other public and confidential business records (together the "Business Records"), whether such Business Records are in hard copy form or are electronically or magnetically stored, excluding only the Seller's income tax records and returns, its corporate minute book and stock records; (f) Licenses. To the extent assignable, all franchises, licenses, permits, certificates, approvals and other authorizations from governmental authorities, software developers, manufacturers or other persons which are necessary to own and operate any of the Purchased Assets (the "Licenses"), a complete and correct list of which is set forth on Exhibit 1.1(f); (g) Proprietary Rights. All (i) United States and foreign patents, patent applications, trademarks, trademark applications and registrations, trade dress, brand names, logos, service marks, service mark applications and registrations, copyrights, copyright applications and registrations and trade names, fictitious names and assumed names of the Seller including, without limitation, all such rights described on Exhibit 1.1(g); (ii) proprietary data and technical, manufacturing know-how and information (and all materials embodying such information) of the Seller; (iii) developments, discoveries, inventions, ideas and trade secrets of the Seller; (iv) client lists, marketing plans, business plans, and client information; and (v) covenants by others not to compete, rights and privileges of the Seller used in the conduct of its Business, rights to exclusive use and rights to sue for past infringement with respect to any item described in this Section 1.1(g) (all of the foregoing, collectively, "Proprietary Rights"); 2 7 (h) Telephone Numbers. All of the Seller's right, title and interest in, to and under all telephone numbers used by the Seller and its employees, including all extensions thereto; (i) Certain Rights of the Seller. All rights in, to and under all representations, warranties, covenants, guaranties made or provided by third parties to or for the benefit of the Seller with respect to any of the other Purchased Assets and all rights, privileges, claims, causes of action and options of the Seller relating to the Purchased Assets; (j) Prepaid Items. All of the Seller's prepaid expenses, prepaid insurance, deposits and other similar items ("Prepaid Items"), a correct and complete list of which items is attached as Exhibit 1.1(j); and (k) Goodwill. All goodwill with respect to the Business and operations of the Seller. 1.2 Excluded Assets. Notwithstanding Section 1.1 hereof, the following assets (the "Excluded Assets") are not included in the Purchased Assets even though they might be deemed to be used, or held for use, in connection with the Business: (a) All cash and cash equivalents; (b) All accounts receivable; (c) Other assets listed on Exhibit 1.2. 1.3 Obligations Assumed. As part of the consideration for the Purchased Assets, Buyer hereby assumes the obligations of Seller that accrue after the Closing Date under the Personal Property Leases, the Assumed Contracts, the Real Property Leases and the Licenses if, but only if, they are assigned or transferred to Buyer or they are performed by the Seller for the benefit of Buyer pursuant to Section 5.8 hereunder. Other than as specifically set forth in this Section 1.3, Buyer expressly disclaims the assumption of, and does not assume, any liability of any type whatsoever of Seller or in connection with any of Seller's assets or Business operations. 1.4 Closing. The Closing (the "Closing") shall occur on the date hereof (the "Closing Date") immediately following the execution of this Agreement, at the offices of Chamberlain, Hrdlicka, White, Williams & Martin in Houston, Texas. Closing documents will be delivered through the use of the mail or other delivery services. No parties are required to be in attendance at the Closing. The parties may agree in writing on another date, time or place for the Closing. At the Closing, the parties will deliver or cause to be delivered the documents described in Article 2 below. 1.5 Purchase Price. In consideration of the delivery of the Purchased Assets, Parent and Buyer agree to pay and deliver to Seller at the Closing (as defined below) the Purchase Price, which shall be in the following manner: 3 8 (a) Closing Consideration. $1,450,000 shall be payable to Seller by wire transfer or other immediately available funds on the Closing Date; and (b) Additional Consideration. The Seller will be paid additional consideration (the "Earn-out") based on the performance of the Business for calendar year 1999 (the "Earn-out Period"), if the Seller meets the following conditions: (i) the Revenue, as herein defined, of the Business for the Earn-out Period is in excess of $3,000,000 and (ii) the Gross Margin, as herein defined, of the Business for the Earn-out Period is in excess of 30%. "Revenue" shall equal the sum of the revenue generated for the Buyer from the following sources: (i) the Assumed Contracts even if the revenue is derived from the performance of services outside the scope of the Business, (ii) any subsequent purchase orders or contracts for the services of Shareholders and the persons named on Schedule 1.5(b), even if the revenue is derived from the performance of services outside the scope of the Business, (iii) any purchase orders or contracts, within or outside the scope of the Business, for the services of new employees or contractors of the Buyer who are identified to the Buyer by an employee or contractor working within the scope of the Business, and (iv) any purchase orders or contracts, within or outside the scope of the Business, that arise from introductions provided to the Buyer by any employee or contractor working within the scope of the Business. The "Gross Margin" of the Business shall be the difference between the amount of Revenue and the cost of goods and services provided by the Business or other business unit from which Revenue was derived during any period. For purposes of determining the Earn-out, Gross Margin shall be calculated by dividing Gross Income, as defined herein, by Revenue and expressing the result as a percentage. "Gross Income" shall be equal to the difference between (i) Revenue minus (ii) the sum of all material and labor costs incurred, and all variable overhead reasonably related to the generation of Revenue, including (A) gross salaries and bonuses of all employees, (B) all federal and state payroll and unemployment taxes (including employer's portion), (C) travel and housing costs paid with respect to employees providing services to customers, (D) the allocated cost of benefits to employees and (E) reimbursable expenses to employees, but specifically excluding any allocation of Buyer's administrative expenses. 1.6 Determination and Payment of Earn-out. If the conditions set forth in Section 1.5 for payment of the Earn-out are satisfied, the amount of the Earn-out shall be determined as follows: (a) If Revenue is $4,000,000 or more during the Earn-out Period, the Earn-out shall be an amount equal to $1,100,000; (b) If Revenue is between $3,000,000 and $4,000,000 during the Earn-out Period, the Earn-out shall be an amount equal to the product of 1.10 multiplied by the difference resulting from subtracting $3,000,000 from Revenue. Subject to the provisions in Section 1.8 hereof, payment of the amount of the Earn-out will be paid to Seller within sixty (60) days following the last day of the Earn-out Period (the "Earn-out Date") in validly issued fully paid and non assessable shares of common stock, $.001 par value per 4 9 share, of the Parent (the "Parent Common Stock") at the Market Price; provided however, the Parent shall have the right to pay the Earn-out in cash if the Market Price of the Parent Common Stock is less than $10.00 per share. The "Market Price" shall be deemed to be the average of the daily closing price of the Parent Common Stock as reported by NASDAQ during the ten consecutive trading days ending on and including the day that is two trading days prior to the last day of the Earn-out Period. 1.7 Determination of Earn-out upon Termination without Cause. If any Shareholder's employment by the Buyer is terminated without "Cause" (as defined in such Shareholder's Employment Agreement with Buyer) prior to the end of the Earn-out Period, the Revenue for purposes of determining the Earn-out with respect to such terminated Shareholder pursuant to Section 1.6 hereof shall be determined by summing (i) the actual Revenue for the Earn-out Period and (ii) the Revenue attributable to the terminated Shareholder on an annualized basis; and then subtracting the Revenue attributable to the terminated Shareholder prior to the date of termination of his employment and included in the Revenue. 1.8 Review of Earn-Out Statement. Buyer shall prepare and deliver to Seller, on or before the Earn-out Date, a statement (the "Earn-out Statement") setting forth the calculation of the Earn-out. Seller shall have the right to review the Earn-out Statement (and supporting work papers) and provide written notice to Buyer of Seller's objections with respect to any error, omission or other discrepancy in the Earn-out Statement (the "Discrepancy Notice") not later than 20 days following Seller's receipt of the Earn-out Statement. Buyer and Seller shall work together in good faith to resolve any such dispute and agree on the final Earn-out Statement. In the event that Buyer and Seller cannot agree on the final Earn-out Statement within 10 days after delivery of Seller's Discrepancy Notice, Buyer and Seller shall refer the disputed issue or issues to a national independent public accounting firm (other than the regular accountants for any party or the accountants who prepared the Earn-out Statement) which is reasonably acceptable to each party (the "Arbitrating Accountants") within 15 days following delivery of Seller's Discrepancy Notice. The Arbitrating Accountants shall be instructed to render a decision, which shall be binding upon both parties, within 20 days. Each party shall be entitled to present any information or analysis concerning the matter in good faith to the Arbitrating Accountants with a copy provided to the other party. Buyer and Seller shall each bear their own fees and expenses, and the fees and expenses of the Arbitrating Accountants shall be shared equally by Buyer and Seller. 1.9 Allocation of Purchase Price. Buyer and Seller shall report the allocation of the Purchase Price among the Purchased Assets as provided on Exhibit 1.9. ARTICLE 2 CLOSING DELIVERIES 2.1 Deliveries by Seller. Simultaneously with the execution of this Agreement, Seller is delivering to Buyer the following: 5 10 (a) A bill of sale, assignment and assumption agreement executed by Seller conveying all of the Purchased Assets to Buyer; (b) A legal opinion of Lippenberger, Thompson, Welch, Soroko & Gilbert LLP, counsel to Seller; (c) Employment Agreements between Buyer and each of the Shareholders shall execute and deliver an employment agreement with Buyer, effective as of the Closing Date; (d) Any consents, waivers, approvals, exemptions, authorizations or notices required by any third party, court, administrative agency or other governmental or regulatory authority in accordance with Section 3.3; and (e) Any other documents, certificates, instruments, agreements and writings required to be delivered by Seller at the Closing pursuant to this Agreement and such conveyances and instruments as may be necessary or appropriate to convey the Purchased Assets to Buyer. 2.2 Deliveries by Buyer. Simultaneously with the execution of this Agreement, Buyer is delivering to Seller the following: (a) The Closing Consideration in the manner set forth in Section 1.5; (b) A bill of sale, assignment and assumption agreement executed by Buyer under which Buyer will assume the Personal Property Leases, the Assumed Contracts, the Real Property Leases and the Licenses; (c) A legal opinion of Chamberlain, Hrdlicka, White, Williams & Martin, counsel to Buyer; and (d) The other documents, instruments and writings required to be delivered by Buyer at the Closing pursuant to this Agreement or otherwise required in connection herewith. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS Seller and the Shareholders represent and warrant to Buyer and Parent as set forth below: 3.1 Organization. Seller (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, (ii) has the requisite corporate power to own, lease and operate its properties and conduct its business as it is presently being conducted, and (iii) is duly 6 11 qualified to conduct business in and is in good standing in each state where the ownership of its assets or the conduct of its business requires qualification. 3.2 Authority Relative to this Agreement. Seller has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Seller and no other corporate proceedings on the part of Seller are necessary. This Agreement has been duly and validly executed and delivered by Seller and constitutes a legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 3.3 Consents and Approvals. The execution and delivery of this Agreement by Seller, and performance by Seller of its obligations hereunder, do not require Seller to obtain any consent, waiver, approval, exemption, authorization or other action of, or make any filing with or give any notice to, any third party or any court, administrative agency or other governmental or regulatory authority or any other Person, except (i) as disclosed in Section 3.3 of the Disclosure Schedule previously provided to the Parent and Buyer by the Seller (the "Disclosure Schedule"). "Person" shall mean an individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, or governmental entity (or any department, agency or political subdivision thereof). 3.4 No Violation. Assuming all consents, approvals, waivers, exemptions, authorizations and other actions described in Section 3.3 of the Disclosure Schedule have been obtained or taken, the execution and delivery of this Agreement by Seller, and the performance by Seller of its obligations hereunder, do not (i) conflict with or result in a breach of the charter or bylaws of Seller; (ii) result in the imposition of any mortgage, pledge, lien, charge, security interest or other encumbrance (a "Lien") on the Purchased Assets; (iii) result in, or constitute an event which with the passage of time or giving of notice would be, a breach, violation or default (or give rise to any right of termination, cancellation or acceleration) under any contract or agreement to which Seller is a party or is bound; or (iv) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, in each such case where such breach, violation, conflict, default or Lien could reasonably be expected to have a Material Adverse Effect on the Purchased Business. The term "Material Adverse Effect" or "Material Adverse Change" shall mean an adverse effect on or change of the properties, assets, financial position, results of operations, long-term debt, other indebtedness, cash flows or contingent liabilities of the Seller in an amount of $10,000.00 or more. 3.5 Litigation. Except as set forth in Section 3.5 of the Disclosure Schedule, (i) there are no actions, suits, claims, arbitration proceedings or governmental investigations or inquiries pending or threatened to the knowledge of Seller or Shareholders, (A) against Seller or any of its affiliates seeking to prevent or delay the consummation of the transactions contemplated hereby, or (B) against Seller or its officers, directors or employees which, individually or in the aggregate, could reasonably 7 12 be expected to have a Material Adverse Effect on the Purchased Business, and (ii) there are no judgments, decrees, injunctions, orders or consent orders of any court, governmental authority or arbitrator issued in any proceeding to which Seller or any of the Shareholders is or was a party which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Purchased Business. 3.6 Compliance with Laws. Except as set forth in Section 3.6 of the Disclosure Schedule, (i) Seller is in compliance with all laws, ordinances, regulations, orders, judgment and decrees applicable to the operation of the Purchased Assets as currently operated, where the failure to be in such compliance, singularly or in the aggregate, could reasonably be expected to have a Material Adverse Effect on the Purchased Business; and (ii) neither Seller nor any of the Shareholders has received any notice of, or citation for, any violation of any law, regulation or order which has not been resolved, which notice or citation relates to the ownership or operation of the Purchased Assets and the violation of which law, regulation or order could reasonably be expected to have a Material Adverse Effect on the Purchased Business. 3.7 Financial Statements. Seller has delivered to Buyer copies of the following financial statements of Seller: (i) a balance sheet as of December 31, 1997; (ii) a balance sheet as of July 31, 1998 ("Balance Sheet Date"); and (iii) an income statement for the six month period ended July 31, 1998. (Such financial statements are collectively referred to herein as the "Financial Statements".) Except as set forth in the notes to such financial statements, such financial statements have been prepared from Seller's records and fairly present, on a cash basis, in all material respects, the financial condition of Seller as of the dates indicated therein and the results of its operations for the periods indicated therein. To the best of its knowledge, Seller does not have any liabilities or obligations of a type that should be included in or reflected in such financial statements if prepared in accordance with generally accepted accounting principals ("GAAP"), whether related to tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or unliquidated, or otherwise, except as and to the extent disclosed or reflected in such financial statements or Section 3.7 of the Disclosure Schedule. 3.8 Purchased Assets. The Purchased Assets and the Excluded Assets constitute all of the assets used or held for use by Seller in the conduct of the Business. Seller has good title to all Purchased Assets, and all such property is owned free and clear of any Lien, other than the property held under the Personal Property Leases. Except as set forth on Section 3.8 of the Disclosure Schedule, to the best of Seller's knowledge each item of tangible personal property included in the Purchased Assets is in good operating condition and repair, normal wear and tear excepted. 3.9 Intellectual Property. Neither Seller, Shareholders, nor any of its or their affiliates has received any notice from any Person pertaining to or challenging the right of Seller to use any of the patents, trademarks, service marks, trade names, copyrights, other proprietary intellectual property rights and applications for registration and registrations thereof that are used or held for use in the Purchased Business (the "Intellectual Property"). Seller owns the Intellectual Property free and clear of Liens. To the knowledge of Seller and Shareholders, (i) the Intellectual Property does not infringe upon and is free of conflict with the rights of any other Person, trade name or trademark of another 8 13 and (ii) the conduct of the Purchased Business does not conflict with, infringe on, or otherwise violate any copyright, trade secret, or patent rights of others. 3.10 Inventories. All items of inventory included, if any, in the Purchased Assets are merchantable, or suitable and usable for the production or completion of merchantable products, for sale in the ordinary course of business as first quality goods, and none of such items is obsolete or below standard quality. 3.11 Environmental Compliance. Except as set forth in Section 3.11 of the Disclosure Schedule, (a) the operation of the tangible personal property included in the Purchased Assets does not involve the use of any material, pollutant, or waste regulated as of the date hereof under any federal, state, local or foreign law, statute, ordinance, regulation, rule, order, requirement or agreement with any governmental authority in effect in any and all jurisdictions in which the Purchased Assets are located relating to the protection, preservation or restoration of the environment or conserving or protecting the environment, wildlife, or natural resources ("Hazardous Materials"); and (b) there is no proceeding pending against Seller, Shareholders or any of its or their affiliates by any federal, state, foreign or local court, tribunal, administrative agency, department, commission, board, or other authority or instrumentality with respect to the presence or release of any Hazardous Materials from real property currently or previously owned, leased or used, and which relate to the Purchased Assets. 3.12 Contracts. Section 3.12 of the Disclosure Schedule lists all contracts or other arrangements relating to the Business or the Purchased Assets to which the Seller is a party or to which its assets are bound. Except as set forth in Section 3.12 of the Disclosure Schedule, each of the above-described contracts is in full force and effect and there is no breach or default (or any event which, with the giving of notice or lapse of time or both, would be a breach or default) by Seller, or to the knowledge of Seller or Shareholders, any other party under any such contract and, to the knowledge of Seller or Shareholders, there are no facts or circumstances which make such a breach or default likely to occur subsequent to the date hereof. There are no finders fees, referral fees, sales commissions or income or revenue sharing arrangements ("Fees") payable in connection with the Purchased Assets. Seller and Shareholders shall indemnify and hold harmless Buyer and Parent from any and all liability incurred in connection with such Fees after the Closing Date, notwithstanding the provisions of Section 6.2 hereof. 3.13 Material Changes. Except as specifically set forth on Schedule 3.13 of the Disclosure Schedule, since the Balance Sheet Date, there has not been: (a) any change in the Seller's Articles of Incorporation or Bylaws; 9 14 (b) any Material Adverse Change of any nature whatsoever in the financial condition, assets, liabilities (contingent or otherwise), income, Business or prospects of the Seller; (c) any damage, destruction or loss (whether or not covered by insurance) materially adversely affecting the properties or Business of the Seller; (d) any change in the authorized capital of the Seller or in its securities outstanding or any change in its ownership interests; (e) any declaration or payment of any dividend or distribution in respect of the capital stock or any direct or indirect redemption, purchase or other acquisition of any of the capital stock of the Seller; (f) any contract or commitment entered into by the Seller or Shareholders or any incurrence by the Seller or Shareholders or agreement by the Seller or Shareholders to incur any liability or make any capital expenditures in excess of $5,000, except in the normal course of business; (g) any work interruptions, labor grievances or claims filed, or any event or condition of any character effecting a Material Adverse Change in the Purchased Business or future prospects of the Seller; (h) any plan, agreement or arrangement granting any preferential rights to purchase or acquire any interest in any of the assets, properties or rights of the Seller or requiring consent of any party to the transfer and assignment of any such assets, properties or rights; (i) any purchase or acquisition, or agreement, plan or arrangement to purchase or acquire, any property, rights or assets of the Seller, other than in the ordinary course of business; (j) any merger or consolidation or agreement to merge or consolidate with or into any other corporation (except the transactions contemplated by this Agreement); (k) any waiver of any material rights or claims of the Seller with respect to any contract included in the Purchased Assets; (l) any breach, amendment or termination of any material contract, agreement, license, permit, permit application or other right to which the Seller is a party; (m) any discharge, satisfaction, compromise or settlement of any claim, lien, charge or encumbrance or payment of any obligation or liability, contingent or otherwise, other than current liabilities as of the Balance Sheet Date, current liabilities incurred since the 10 15 Balance Sheet Date in the ordinary course of business and prepayments of obligations in accordance with normal and customary past practices; or (n) any transaction by the Seller outside the ordinary course of its business or prohibited hereunder. 3.14 Operation of Business. Except as set forth in Schedule 3.14 of the Disclosure Schedule. (a) From the Balance Sheet Date until the date hereof, Seller has: (i) used all reasonable efforts to maintain its assets in their present state of repair, ordinary wear and tear excepted, to preserve the Business and relationships with its customers, suppliers, employees and other Persons having business relationships with the Business; and (ii) operated the Business in the ordinary course consistent with prior practice except as otherwise provided by this Agreement. (b) From the Balance Sheet Date to the date hereof, Seller has not taken any of the following actions in respect of the operation of the Business: (i) disposed of or encumbered, or entered into any agreement to sell or transfer, directly or indirectly, any assets except sales and consumption of inventory in the ordinary course of business; (ii) increased in any manner compensation or benefits of any employees, officers or directors, stockholders, consultants or agents of the Seller, except any increase made in the ordinary course of business under existing employment contracts or policies; (iii) increased, terminated, amended or otherwise modified any plan for the benefit of any employee of Seller; (iv) paid or agreed to pay any pension, retirement allowance, severance or other employee benefit not required under any existing plan to any employee of Seller; (v) entered into, extended, renewed, modified or canceled any agreements, leases, commitments or contracts, except as required in the ordinary course of business; (vi) implemented any price discount or extended payment terms or other incentives except routine transactions in the ordinary course of business; 11 16 (vii) mortgaged, pledged or subjected to any Lien any of the Purchased Assets; (viii) waived any material rights or privileges it may have under, or amended in any respect, any contract included in the Purchased Assets; (ix) maintained its books of account other than in the usual, regular and ordinary manner in accordance with generally accepted accounting principles and on a basis consistent with prior periods or made any change in any of its accounting methods or practices; or (x) acquired any assets that would be included in the Purchased Assets. 3.15 Restricted Securities. (a) Seller and the Shareholders acknowledge that the shares of Parent Common Stock to be acquired by Seller hereunder, and then by the Shareholders by distribution from the Seller, have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are being acquired for Seller and the Shareholders' own account for investment and not with a view to the distribution thereof. (b) Seller and each Shareholder has the knowledge and experience in financial and business matters to enable it to evaluate the merits and risks of entering this Agreement and the transactions contemplated hereby and acquiring shares of Parent Common Stock. (c) Seller and each Shareholder is able to bear the economic risks of its investment in the Parent Common Stock, including the risk of a loss of the value of the Parent Common Stock. (d) Seller and the Shareholders have been represented by legal counsel in this transaction and they and their representatives, including such counsel, have been given the opportunity to ask questions of, and receive answers from, the officers of the Parent concerning the terms of the transactions contemplated by this Agreement and the affairs and the business and financial condition of the Parent. (e) Seller and each Shareholder has received the PPM concerning the Parent and an investment in shares of Parent Common Stock, and each of them and their representatives have been given such access to all documents, books and additional information concerning Parent which they have requested regarding the Parent. (f) Seller and each Shareholder and their representatives have conducted such investigations in making a decision to approve this Agreement and the transactions contemplated hereby as they have deemed necessary and advisable. 12 17 (g) Seller and each Shareholder acknowledge and agree that the Parent Common Stock to be issued to the Seller and Shareholders may not be disposed of except in accordance with the requirements of the Securities Act and any applicable state securities laws. 3.16 Undisclosed Liabilities. Except as and to the extent disclosed in Section 3.7 of the Disclosure Schedules or in the Seller's Financial Statements, Seller has no liabilities or obligations of any nature (whether absolute, contingent or otherwise) relating to the Purchased Assets other than performance of the services contemplated under the terms of the Assumed Contracts and compliance with any restrictive covenants contained therein following the Closing Date. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT Buyer represents and warrants to Seller and the Shareholders as set forth below: 4.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Parent is a corporation duly organized and validly existing and in good standing under the laws of Delaware. 4.2 Capitalization of the Parent. The total authorized capital stock of Parent is as set forth and described in Parent's Confidential Private Placement Memorandum ("PPM") delivered to Shareholders in connection with the transactions contemplated by this Agreement. The outstanding shares of Parent Common Stock have been duly and validly issued and are fully paid and non-assessable. All shares of Parent Common Stock to be issued pursuant hereto, when issued, will be duly authorized, validly issued, fully paid and non-assessable. 4.3 Authority Relative to this Agreement. Buyer and Parent each have all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Buyer and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Buyer and no other corporate proceedings on the part of Buyer are necessary. The execution and delivery of this Agreement by Parent has been duly authorized by all necessary corporate action on the part of Parent. Once the Earn-out has been determined in accordance with this Agreement, the consummation of the transactions contemplated hereby will be duly authorized by all necessary corporate action on the part of Parent. This Agreement has been duly executed and delivered by each of Buyer and Parent and constitutes a legal, valid and binding obligation of both Buyer and Parent enforceable against Buyer and Parent in accordance with its terms subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights and remedies generally and to the effect of general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 13 18 4.4 Consents and Approvals. Except as set forth in Section 4.4 of the Disclosure Schedule, the execution and delivery by Buyer and Parent of this Agreement, and performance by Buyer and Parent of its obligations hereunder, do not require Buyer or Parent to obtain any consent, waiver, approval, exemption, authorization or other action of, or make any filing with or give any notice to, any third party or any court, administrative agency or other governmental or regulatory authority or any other Person where failure to obtain such consents, waivers, approvals, exemptions, authorizations or actions, make such filings or give such notices could reasonably be expected to materially affect the ability of Buyer or Parent to perform any of their material obligations hereunder. 4.5 No Violation. Assuming all consents, approvals, waivers, exemptions, authorizations and other actions described in Section 4.4 of the Disclosure Schedule have been obtained or taken, the execution and delivery of this Agreement by Buyer and Parent, and the performance by Buyer or Parent of their obligations hereunder, do not (i) conflict with or result in a breach of the charter or bylaws of Buyer or Parent, respectively, or (ii) violate, or conflict with, or constitute a default under, or result in the creation or imposition of any Lien upon the properties or assets of Buyer or Parent under any mortgage, indenture, agreement, judgment, decree or court order to which either of them is a party or by which any of the assets of Buyer or Parent are bound, which violation, conflict, default or Lien could reasonably be expected to adversely affect the ability of Buyer or Parent to perform their obligations under this Agreement. 4.6 Not an Investment Company. The Parent is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company," a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 4.7 Financial Statements. The Parent has provided certain financial statements to the Shareholders in the PPM ("Parent Financial Statements") and such Parent Financial Statements have been prepared in accordance with GAAP and fairly present the consolidated financial position, results of operations and cash flows of the Parent and its then existing consolidated subsidiaries as of the dates and for the periods indicated, subject to normal year-end adjustments and any other adjustments described therein or in the notes or schedules thereto. The books and records of the Parent have been kept in reasonable detail and accurately and fairly reflect the transactions of the Parent. 4.8 Misstatements. The PPM doe not contain any untrue statements of a material fact or omit any material facts necessary in order to make such statements, in the light of the circumstances under which they are made, not misleading. 14 19 ARTICLE 5 ADDITIONAL AGREEMENTS AND COVENANTS 5.1 Taxes. (a) Seller shall be liable for and shall pay, and pursuant to Section 6.2 Seller and the Shareholders shall indemnify Buyer and Parent against, all taxes (whether assessed or unassessed) applicable to the Business or the Purchased Assets, in each case attributable to taxable years or periods ending at the time of or prior to the Closing and, with respect to any tax period that begins before and ends after the Closing Date (a "Straddle Period"), the portion of such Straddle Period ending at the time of the Closing. Buyer shall pay, and pursuant to Section 6.3 shall indemnify Seller against, all taxes (whether assess or unassessed) applicable to the Business or the Purchased Assets, in each case attributable to taxable years or period beginning after the Closing and, with respect to any Straddle Period, the portion of such Straddle Period beginning immediately after the Closing. For purposes of this Section 5.1, any Straddle Period shall be treated on a "closing of the books" basis as two partial periods, one ending at the time of the Closing, provided, however, that taxes imposed on a periodic basis shall be allocated on a daily basis. (b) Notwithstanding paragraph (a), any sales tax, motor vehicle tax, excise tax, use tax, real property transfer or gains tax, documentary stamp tax or similar tax attributable to the sale or transfer of the Business or the Purchased Assets shall be paid 0% by Seller and 100% by Buyer. Buyer and Seller each agrees to timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file tax returns with respect to, such taxes including a resale certificate as provided for under Nevada and California sales tax law. (c) Buyer or Seller, as the case may be, shall provide reimbursement for any tax paid by one party all or a portion of which is the responsibility of the other party in accordance with the terms of this Section 5.1. Not later than 30 days prior to the payment of any said tax, the party paying such tax shall give notice to the other party of the tax payable and the portion that is the liability of each party, although failure to do so will not relieve the other party from its liability hereunder. Each party shall have the right at all reasonable times to examine the books and records of the other party to the extent necessary to verify the accuracy of any request. (d) After the Closing, each of Buyer and Seller shall (and cause their respective employees, agents and affiliates to): (i) assist the other party in preparing any tax returns that such other party is responsible for preparing and filing; (ii) cooperate fully in preparing for any audits of, or disputes with taxing authorities regarding, any tax returns relating to the Business or the Purchased Assets; (iii) make available to the other and to any taxing authority as reasonably requested all information, records, and documents relating to taxes relating to the Business or the Purchased Assets; 15 20 (iv) provide timely notice to the other in writing of any pending or threatened tax audits or assessments relating to the Business or the Purchased Assets for taxable periods for which the other may have a liability under this Section 5.1; (v) furnish the other with copies of all correspondence received from any taxing authority in connection with any tax audit or information request with respect to any such taxable period. 5.2 Public Announcements. Neither Parent nor Buyer will disclose or deliver any information about the Seller to any third Person without the prior written consent of the Seller except as permitted by this Section 5.2. The Parent and Buyer may disclose pertinent information regarding this Agreement to its existing and prospective investors, lenders, or investment bankers or financial advisors for the purpose of obtaining financing, including, without limitation, descriptions of this Agreement and the transactions contemplated hereby may be included in the PPM or any private placement memorandum prepared by the Parent or any registration statement filed by the Parent under the Securities Act and in reports filed by the Parent under the Securities Exchange Act of 1934, and this Agreement may be filed as an exhibit to any thereof. The Parent may also make appropriate disclosures of the general nature of this Agreement and the identity, nature and scope of the Seller's operations to prospective acquisition candidates in connection with the Parent's efforts to effect additional acquisitions. Each party will have mutual approval rights with respect to written employee presentations concerning this Agreement. The Shareholders shall be provided the opportunity for prior review and comment with respect to any description of the Purchased Business contained in any press release regarding the execution of this Agreement, and Stockholders shall be provided the opportunity for prior review and comment with respect to any description of the Seller contained in any press release regarding the execution of this Agreement. 5.3 Further Assurances. Seller, Buyer and Parent shall use reasonable efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable to carry out all of their respective obligations under this Agreement and to consummate and make effective the purchase and sale of the Purchased Assets pursuant to this Agreement. Seller, Buyer and Parent shall, and shall cause their affiliates, employees and agents, employees and agents to, execute, acknowledge and deliver all such further conveyances, notices, assumptions, releases and acquittances and such other instruments, and shall take such further actions, as may be necessary or appropriate more fully to assure to Seller, and its successors or assigns, all of the Excluded Assets intended to be retained by Seller pursuant to this Agreement. 5.4 Preservation of Business Records. Buyer shall preserve and keep (or cause to be preserved and kept) the Business Records, and Seller shall preserve and keep (or cause to be preserved and kept) its books and records not included in the Purchased Assets, for a period of seven years after the date hereof, and Buyer and Seller shall each grant to the other reasonable access to such Business Records retained by them during such period. In the event Buyer or Seller wishes to destroy Business Records after that time, it shall first give written notice to the other party, and the other party shall have the right at its option, upon prior written notice given to the party providing 16 21 the initial notice, to take possession of said Business Records as promptly as practicable, but in any event within 90 days after the date of its notice requesting the same. 5.5 Confidentiality. Except as permitted by Section 5.2 and except for reasonable disclosures made in the ordinary course of Shareholder's employment with Buyer, Seller and each of the Shareholders, and its and their affiliates, shall keep confidential all information regarding the Purchased Assets and the Purchased Business, including without limitation, information included in books and records retained by Seller, and will not, without the prior written consent of Buyer and Parent, disclose such information except as required by law or in connection with tax matters or as becomes generally available to and known by the public other than as a result of disclosure by Seller. 5.6 Covenant Not to Compete. (a) For the considerations specified in this Agreement and in recognition that the covenants by the Shareholders and the Seller in this Section are a material inducement to Parent and Buyer to enter into and perform this Agreement, each Shareholder agrees that for the period (the "Noncompetition Period") from the date hereof to the earlier to occur of (a) the date which is five (5) years after the Closing Date, or (b) the date which is two years following any termination of such Shareholder's employment by Buyer, such Shareholder will not represent, engage in, carry on, or have a financial interest in, directly or indirectly, in any business that directly competes with any of the services or products produced, sold, conducted, developed, or in the process of development by Buyer, Parent or any of their respective affiliates on the date of termination of Employee's employment (including any aspect of the information technology consulting services industry) within a 100 mile radius of the city or county limits of any city or county in the United States or foreign countries where the Buyer or any of its affiliates maintains an office. For purposes of this Section 5.6, a "financial interest" means any interest, individually, as a member of a partnership or limited liability company, equity owner, shareholder (other than as a shareholder of less than one percent (1%) of the issued and outstanding stock of a publicly-held company whose gross assets exceed one hundred million dollars), investor, officer, director, trustee, manager, employee, agent, associate or consultant. (b) Shareholders agree that the limitations set forth herein on Shareholders' rights to compete with Parent, Buyer or their affiliates as set forth in clause (a) are reasonable and necessary for the protection of Buyer, Parent and their affiliates. In this regard, Shareholders specifically agree that the limitations as to period of time and geographic area, as well as all other restrictions on Shareholders' activities specified herein, are reasonable and necessary for the protection of Buyer, Parent and their affiliates. Shareholders agree that, in the event that the provisions of this Section should ever be deemed to exceed the scope of business, time or geographic limitations permitted by applicable law, such provision shall be and are hereby reformed to the maximum scope of business, time or geographic limitations permitted by applicable law. 17 22 (c) If there shall be any violation of the covenant not to compete set forth in Section 5.6(a) above, then the time limitation thereof shall be extended for a period of time equal to the period of time during which such violation continues; and in the event Buyer is required to seek relief from such violation in any court, board of arbitration or tribunal, then the covenant shall be extended for a period of time equal to the pendency of such proceedings, including all appeals. (d) Shareholders agree that the remedy at law for any breach by Shareholders of this Section 5.6 will be inadequate and that Buyer and Parent shall be entitled to injunctive relief. 5.7 Corporate Name. Within 60 days after the date hereof, Seller and the Shareholders shall take such action as is necessary to change the name of Seller to remove therefrom the words "TBQ Associates, Inc." or any word or expression similar thereto. 5.8 Limitation on Assignments. Notwithstanding anything herein contained to the contrary, this Agreement shall not constitute nor require an assignment to Buyer of any Contract, License or other right if an attempted assignment of the same without the consent of any party would constitute a breach thereof unless and until such consent shall have been obtained. In the case of any such Contract, License or other right which cannot effectively be transferred to Buyer without such consent, the Shareholders and Seller will each use all reasonable efforts to obtain such consent promptly and if such consent is not obtained, Seller and Buyer agree to enter into such reasonable arrangements as may be appropriate to provide Buyer with benefits purported to be vested in Buyer pursuant to the terms of this Agreement had such consent been obtained. ARTICLE 6 INDEMNIFICATION AND LIMITATIONS ON LIABILITY 6.1 Survival. The representations and warranties set forth in this Agreement and the other documents, instruments and agreements contemplated hereby shall survive after the date hereof to the extent provided herein. The representations and warranties of Seller and Shareholders herein other than those of Seller and Shareholders in Sections 3.1, 3.2 and 3.8 shall survive for a period of 24 months after the date hereof and the representations and warranties of Seller contained in Sections 3.1, 3.2 and 3.8, shall survive for the maximum period permitted by applicable law. The representations and warranties of Buyer and Parent herein other than those of Buyer and Parent in Sections 4.1 and 4.2 shall survive for a period of 24 months after the date hereof and the representations and warranties of buyer contained in Sections 4.1 and 4.2 shall survive for the maximum period permitted by applicable law. The periods of survival of the representations and warranties as stated above in this Section 6.1 are referred to herein as the "Survival Period." The liabilities of the parties under their respective representations and warranties shall expire as of the expiration of the applicable Survival Period and no claim for indemnification may be made with respect to any breach of any representation or warranty, the applicable Survival Period of which shall have expired, except to the extent that written notice of such breach shall have been given to the party against which such claim is asserted on or before the date of such expiration. The covenants and 18 23 agreements of the parties herein and in other documents and instruments executed and delivered in connection with the closing of the transactions contemplated hereby shall survive for the maximum period permitted by law. 6.2 Indemnity by Seller and the Shareholders. Subject to the provisions of Sections 6.1 and 6.4, Seller and the Shareholders, jointly and severally, shall indemnify, save and hold harmless Buyer, Parent and any of their assigns (including lenders) and all of its shareholders, officers, directors, employees, representatives, agents, advisors and consultants and all of their respective heirs, legal representatives, successors and assigns (collectively the "Buyer Indemnified Parties") from and against any and all damages, liabilities, losses, loss of value (including the value of adverse effects on earnings), claims, deficiencies, penalties, interest, expenses, fines, assessments, charges and costs, including reasonable attorneys' fees and court costs (collectively "Losses") arising from, out of or in any manner connected with or based on: (a) the breach of any covenant of Seller or Shareholders or the failure by Seller or Shareholders to perform any of its or their obligations contained herein; (b) any inaccuracy in or breach of any representation or warranty of Seller or Shareholders contained herein; (c) any liability or obligation, fixed or contingent, direct or indirect, known or unknown, of Seller other than those specifically assumed by Buyer pursuant to Section 1.3; and (d) any act, omission, occurrence, event, condition or circumstance occurring or existing at any time on or before the date hereof and involving or related to the assets, properties, business or operations now or previously owned or operated by Seller and not included in the Purchased Assets. Buyer Indemnified Parties shall be entitled to indemnification pursuant to this Agreement only if the aggregate Losses incurred or sustained by all Buyer Indemnified Parties exceed $25,000. In the event that the aggregate Losses incurred or sustained by all Buyer Indemnified Parties exceed $25,000, then the Buyer Indemnified Parties shall be entitled to indemnification for all such Losses in the aggregate; provided, however, that the aggregate Losses paid to the Buyer Indemnified Parties hereunder shall not exceed the Purchase Price. The foregoing indemnities shall not limit or otherwise adversely affect the indemnity rights of the Seller Indemnified Parties for Losses under Section 6.4. 6.3 Set-off Rights of Buyer. At the election of Buyer or Parent, Losses payable to the Buyer Indemnified Parties hereunder shall be set-off against and shall reduce payments, if any, to be made by Buyer or Parent to Seller or the Shareholders pursuant to this Agreement or the Employment Agreements including, without limitation the Earn-out, on a dollar-for-dollar basis. 19 24 6.4 Indemnity by Buyer and Parent. (a) Subject to the provisions of Sections 6.1 and 6.4, Buyer shall indemnify, save and hold harmless Seller and the Shareholders and their respective heirs, legal representatives, successors and assigns (collectively the "Seller Indemnified Parties") from and against all Losses arising from, out of or in any manner connected with or based on: (i) any breach of any covenant of Buyer or the failure by Buyer to perform any of its obligations contained herein; (ii) any inaccuracy in or breach of any representation or warranty of Buyer contained herein; (iii) any act, omission, event, occurrence, condition or circumstance occurring or existing at any time after (but not on or before) the date hereof and involving or relating to the Purchased Assets; and (iv) the obligations and liabilities of Seller assumed by Buyer under Section 1.3. (b) Subject to the provisions of Sections 6.1 and 6.4, Parent shall indemnify, save and hold harmless Seller Indemnified Parties from and against all Losses arising from, out of or in any manner connected with or based on: (i) any breach of any covenant of Parent or the failure by Parent to perform any of its obligations contained herein; and (ii) any inaccuracy in or breach of any representation or warranty of Parent contained herein; Seller Indemnified Parties shall be entitled to indemnification pursuant to this Agreement only if the aggregate Losses incurred or sustained by all Seller Indemnified Parties exceed $25,000. In the event that the aggregate Losses incurred or sustained by all Seller Indemnified Parties exceed $25,000, then the Seller Indemnified Parties shall be entitled to indemnification for all such Losses in the aggregate; provided, however, that the aggregate Losses paid to the Seller Indemnified Parties hereunder shall not exceed the Purchase Price. The foregoing indemnities shall not limit or otherwise adversely affect the Buyer's and Parent's rights of indemnity for Losses under Section 6.2. 6.5 Procedures for Indemnification. (a) The party (the "Indemnified Party") that may be entitled to indemnity hereunder shall give prompt notice to the party obligated to give indemnity hereunder (the "Indemnifying Party") of the assertion of any claim, or the commencement of any suit, action or proceeding in respect of which indemnity may be sought hereunder. Any failure on the part of any Indemnified Party to give the notice described in this Section 6.5(a) shall relieve the Indemnifying Party of its obligations under this Article 6 only to the extent that such 20 25 Indemnifying Party has been prejudiced by the lack of timely and adequate notice (except that the Indemnifying Party shall not be liable for any expenses incurred by the Indemnified Party during the period in which the Indemnified Party failed to give such notice). Thereafter, the Indemnified Party shall deliver to the Indemnifying Party, promptly (and in any event within 10 days thereof) after the Indemnified Party's receipt thereof, copies of all notices and documents (including court papers) received by the Indemnified Party relating to such claim, action, suit or proceeding. (b) Buyer shall have the obligation to assume the defense or settlement of any third-party claim, suit, action or proceeding in respect of which indemnity may be sought hereunder, provided that (i) Seller shall at all times have the right, at its option, to participate fully therein, and (ii) if Buyer does not proceed diligently to defend the third-party claim, suit, action or proceeding within 10 days after receipt of notice of such third-party claim, suit, action or proceeding, Seller shall have the right, but not the obligation, to undertake the defense of any such third-party claim, suit, action or proceeding. (c) The Indemnifying Party shall not be required to indemnify the Indemnified Party with respect to any amounts paid in settlement of any third-party suit, action, proceeding or investigation entered into without the written consent of the Indemnifying Party; provided, however, that if the Indemnified Party is a Buyer Indemnified Party, such third-party suit, action, proceeding or investigation may be settled without the consent of the Indemnifying Party on 10 days' prior written notice to the Indemnifying Party if such third-party suit, action, proceeding or investigation is then unreasonably interfering with the Purchased Business or other operations of Buyer and the settlement is commercially reasonable under the circumstances; and provided further, that if the Indemnifying Party gives 10 days' prior written notice to the Indemnified Party of a settlement offer that the Indemnifying Party desires to accept and to pay all Losses with respect thereto ("Settlement Notice") and the Indemnified Party fails or refuses to consent to such settlement within 10 days after delivery of the Settlement Notice to the Indemnified Party, and such settlement otherwise complies with the provisions of this Section 6.5, the Indemnifying Party shall not be liable for Losses arising from such third-party suit, action, proceeding or investigation in excess of the amount proposed in such settlement offer. Notwithstanding the foregoing, no Indemnifying Party will consent to the entry of any judgment or enter into any settlement without the consent of the Indemnified Party, if such judgment or settlement imposes any obligation or liability upon the Indemnified Party other than the execution, delivery or approval thereof and customary releases of claims with respect to the subject matter thereof. (d) The parties shall cooperate in defending any such third-party suit, action, proceeding or investigation, and the defending party shall have reasonable access to the books and records, and personnel in the possession or control of the Indemnified Party that are pertinent to the defense. The Indemnified Party may join the Indemnifying Party in any suit, action, claim or proceeding brought by a third party, as to which any right of indemnity created by this Agreement would or might apply, for the purpose of enforcing any right of the indemnity granted to such Indemnified Party pursuant to this Agreement. 21 26 6.6 Subrogation. Each Indemnifying Party hereby waives for itself and its affiliates any rights to subrogation against any Indemnified Party or its insurers for Losses arising from any third-party claims for which it is liable or against which it indemnifies any Indemnified Party and, if necessary, each Indemnifying Party shall obtain waivers of such subrogation from its, his or her insurers. ARTICLE 7 MISCELLANEOUS 7.1 Expenses. Except as specifically provided herein, all legal and other costs and expenses in connection with this Agreement and the transactions contemplated hereby shall be paid by Seller or Buyer, as the case may be, depending upon which party incurred such costs and expenses. 7.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be given by registered or certified mail (postage prepaid, return receipt requested), by personal delivery or by facsimile transmission, in each case addressed as follows: (a) To Buyer: Software Consulting Services America, Inc. 950 Tower Lane, Suite 1850 Foster City, CA 94404 Telecopy: (650) 578-6530 with a copy to: Robert J. Viguet, Jr. Chamberlain, Hrdlicka, White, Williams & Martin 1200 Smith Street, Suite 1400 Houston, Texas 77002 Telecopy: (713) 658-2553 with a copy to: BrightStar Information Technology Group, Inc. 10375 Richmond Avenue, Suite 1620 Houston, Texas 77042 Attn: President Telecopy: (713) 361-2501 22 27 (b) To Seller: TBQ Associates, Inc. 930 Tahoe Boulevard #802, Suite 241 Incline Village, Nevada 89451 Telecopy: ------------------- with a copy to: Richard Soroko Lippenberger, Thompson, Welch, Soroko & Gilbert LLP 250 Montgomery Street, Suite 500 San Francisco, California 94104 Telecopy: (415) 421-0225 Any such notice or other communication shall be deemed received on the fifth business day following deposit in the mails or on the date of actual receipt, if earlier; provided that if such communication is received after the close of business on any day it shall be deemed received on the next business day. Any party shall be permitted to change its address for communications by notice to the other as provided herein. 7.3 Entire Agreement. This Agreement supersedes all prior agreements between the parties (written or oral) and is intended as a complete and exclusive statement of the terms of the Agreement between the parties. This Agreement may be amended only by a written instrument duly executed by the parties. 7.4 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 7.5 Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 7.6 Assignability. No party hereto shall assign this Agreement or any part hereof without the prior written consent of any other party, except that Buyer may assign its rights hereunder to any direct or indirect wholly-owned subsidiary of Parent; provided, however, that no such assignment shall relieve Buyer of its obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 23 28 7.7 No Third Party Beneficiaries. Except as expressly provided herein, nothing in this Agreement shall entitle any Person other than Seller, Buyer or Parent or their respective successors and assigns permitted hereby to any claim, cause of action, remedy or right of any kind. 7.8 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 7.9 Equitable Relief. The parties hereto agree that irreparable damage would occur in the event that the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 7.10 Counterparts. This Agreement may be executed in any number of counterparts, no one of which needs to be executed by all the parties, and this Agreement shall be binding upon all the parties with the same force and effect as if all the parties had signed the same document, and each such signed counterpart shall constitute an original of this Agreement. 7.11 Facsimile or Electronic Transmission of Documents. Executed counterparts of this Agreement may be delivered by facsimile or other electronic means of transmission, and upon receipt such transmission shall be deemed delivery of an original. Within a reasonable time after such electronic delivery, the sender shall mail or deliver an originally signed copy of such document. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: /s/ MARSHALL G. WEBB ------------------------------------- MARSHALL G. WEBB, PRESIDENT AND CHIEF EXECUTIVE OFFICER SOFTWARE CONSULTING SERVICES AMERICA, INC. By: /s/ MICHAEL A. OBER ------------------------------------- MICHAEL A. OBER, PRESIDENT 24 29 TBQ ASSOCIATES, INC. By: ------------------------------------ Name: ----------------------------------- Title: ----------------------------------- /s/ CARL W. DUNLAP ----------------------------------------- CARL W. DUNLAP /s/ CARL W. DUNLAP ---------------------------------------- EVAN C. OSBORN 25 30 EXHIBIT 1.1(a) TANGIBLE PERSONAL PROPERTY 31 EXHIBIT 1.1(b) PERSONAL PROPERTY LEASES 32 EXHIBIT 1.1(c) ASSUMED CONTRACTS 33 EXHIBIT 1.1(d) REAL PROPERTY LEASES 34 EXHIBIT 1.1(f) LICENSES 35 EXHIBIT 1.1(g) PROPRIETARY RIGHTS 36 EXHIBIT 1.1(j) PREPAID ITEMS 37 EXHIBIT 1.2 OTHER EXCLUDED ASSETS 38 EXHIBIT 1.9 ALLOCATION OF PURCHASE PRICE EX-10.24 11 FACTORING AGREEMENT AND SECURITY AGREEMENT 1 EXHIBIT 10.24 FACTORING AGREEMENT AND SECURITY AGREEMENT This Agreement, by and between METRO FACTORS, INC. DBA METRO FINANCIAL SERVICES, a Texas corporation with its principal place of business located in Dallas, Texas (herein called METRO) and BRIAN R. BLACKMARR AND ASSOCIATES, INC., a Texas corporation (herein individually called BLACKMARR), SOFTWARE CONSULTING SERVICES AMERICA, INC., a Delaware corporation (herein individually called SCS AMERICA), SOFTWARE INNOVATORS, INC., an Arkansas corporation (herein individually called SII), and INTEGRATED CONTROLS, INC., a Louisiana corporation (herein individually called ICON), is effective as of the date of acceptance by METRO as indicated below. BLACKMARR, SCS AMERICA, SII, and ICON are collectively called CLIENTS herein. Reference to CLIENTS herein shall include one or any combination of BLACKMARR, SCS AMERICA, SII, and/or ICON. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, CLIENTS agree to sell to METRO and METRO agrees to purchase from CLIENTS all presently existing INVOICES and all INVOICES hereafter acquired and arising during the term of this Agreement for the sale of inventory or goods or the rendering of services or labor upon the following terms and conditions: 1. DEFINITIONS: 1.1 CUSTOMER. That person or business entity legally obligated to pay an INVOICE sold and/or assigned by CLIENTS to METRO. 1.2 INVOICE. Any right to payment (account receivable, note, contract, etc.) for the sale of inventory or goods or the rendering of services or labor by CLIENTS. 1.3 RECOURSE BASIS. The purchase of INVOICES from CLIENTS by METRO wherein CLIENTS retain the risk of non-payment of an INVOICE by a CUSTOMER for any reason whatsoever. 1.4 DISPUTE. Any defense, dispute, offset, or claim asserted by a CUSTOMER with respect to an INVOICE whether valid or invalid. 1.5 NET CASH EMPLOYED. The total amount of all unpaid advances made to CLIENTS by METRO, together with all commissions, fees and interest payable to METRO by CLIENTS which have not been paid either directly by CLIENTS or through METRO'S application of collections on INVOICES purchased from CLIENTS. 1.6 MAXIMUM NET CASH EMPLOYED. The aggregate NET CASH EMPLOYED by CLIENTS shall not exceed the lesser of $6,000,000 or 80.0% of ELIGIBLE INVOICES. 1.7 ELIGIBLE INVOICE. An INVOICE which complies with all terms, representations, warranties, and covenants of this Agreement which is not greater than ninety (90) days old from original date of such INVOICE. 1.8 CLOSING DATE. On or before January ________, 1999. 1.9 RESERVE FUNDS. At any time, the aggregate outstanding balances of all outstanding INVOICES plus the amounts of net cash proceeds held by METRO which are payable to CLIENTS, less the current amounts of NET CASH EMPLOYED. In the event that METRO holds cash proceeds from INVOICES which have not been applied to repayment of NET CASH EMPLOYED or to the payment of fees and expenses hereunder, such funds will be deemed to comprise a portion of "net cash proceeds held by METRO which are payable to CLIENTS" for purposes of determining the amounts of CLIENTS' RESERVE FUNDS. 1.10 REQUIRED RESERVE BALANCES. The REQUIRED RESERVE BALANCES are the minimum amounts of ELIGIBLE INVOICES (at face value thereof) and cash, if any, included in CLIENTS' INITIALS: ____|____ 1 2 RESERVE FUNDS in excess of the amount of NET CASH EMPLOYED which are required to be maintained by CLIENTS pursuant to this Agreement. At any time the REQUIRED RESERVE BALANCES shall be equal to the product of the current amounts of NET CASH EMPLOYED multiplied by 1.25 multiplied by 0.20. 2. BASIC TERMS OF PROPOSED TRANSACTIONS. 2.1 AGREEMENT TO SELL INVOICES. Pursuant to this Agreement, and so long as it is in effect, CLIENTS will sell, and METRO will purchase, all of CLIENTS' presently existing INVOICES and all of CLIENTS' INVOICES hereafter arising. In connection with such purchase and sale of such INVOICES, under Section 17 below, CLIENTS grant to METRO a security interest in and a lien on all of CLIENTS' accounts receivable, including the INVOICES. The aggregate purchase price for such INVOICES shall be 100% of the face amount thereof, minus the FACTOR'S COMMISSION pursuant to Section 5.2, and upon collection of such INVOICES, proceeds thereof shall reduce NET CASH EMPLOYED by the amount of such collections (NET CASH EMPLOYED may be thus reduced below zero and may be further reduced as a negative number). To the extent that the balances of the CLIENTS' RESERVE FUNDS exceed the amounts of outstanding INVOICES, METRO shall pay such excess funds to CLIENTS or their designees upon request. If METRO receives payment of any INVOICE in an amount which is different from the amount of the INVOICE by $1 or more, METRO shall promptly notify CLIENTS of such discrepancy. 2.2 AGREEMENT TO PROVIDE ADVANCES. In addition to the application of all funds collected in connection with purchased INVOICES to reduce the amount of NET CASH EMPLOYED, as provided in Section 4 below, METRO will provide cash advances from time to time at the request of CLIENTS with respect to unpaid INVOICES purchased by METRO. Such advances, together with all unpaid commissions, fees and interest payable to METRO by CLIENT shall not exceed the amounts of MAXIMUM NET CASH EMPLOYED. The ratio of the total of CLIENTS' INVOICES and the INVOICES sold to METRO hereunder less the amount of all DISPUTES to the NET CASH EMPLOYED will not be less than 1.75:1.0. As an additional condition of such advances, CLIENTS shall at all times maintain an amount of ELIGIBLE INVOICES, at face value, plus cash, if any, in CLIENTS' RESERVE FUNDS equal to an amount not less than the amount of the REQUIRED RESERVE BALANCE. In the event that the amount of the REQUIRED RESERVE BALANCE exceeds the face amount of ELIGIBLE INVOICES plus cash, if any, included in CLIENTS' RESERVE FUNDS (such excess is the "RESERVE DEFICIENCY"), CLIENTS shall deliver additional ELIGIBLE INVOICES or cash as required to eliminate the RESERVE DEFICIENCY. METRO may reserve and withhold from any payments or credits otherwise to be made to CLIENTS, an aggregate amount equal to the RESERVE DEFICIENCY. Subject to the terms and conditions of this Agreement, CLIENTS can receive and repay advances at their discretion from time to time during the term hereof. 2.3 SALE OF ACCOUNTS. All INVOICES sold to METRO shall be identified by separate and subsequent written assignments in a form approved by METRO, which form shall include, but not be limited to, all forms of electronic transfers. CLIENTS will immediately upon sale of INVOICES to METRO make proper entries on its books and records disclosing the sale of all such INVOICES to METRO. All INVOICES purchased by METRO from CLIENTS constitute a sale of accounts and legal and equitable title to said INVOICES shall pass to METRO. 3. CREDIT APPROVAL. Prior to the purchase of any INVOICE, METRO shall be permitted to exclude from ELIGIBLE INVOICES any INVOICE from any CUSTOMER, which METRO reasonably believes is unlikely to make payment on such INVOICE. METRO may, but shall not be obligated to, establish maximum credit limits upon any CUSTOMER and INVOICES of such CUSTOMERS shall be deemed ELIGIBLE INVOICES only to the extent that the aggregate amount thereof does not exceed such maximum amount. METRO will promptly notify CLIENTS of any CUSTOMER which it reasonably believes is unlikely to make payment on its INITIALS: ____|____ 2 3 INVOICES and inform CLIENTS of the maximum credit limits of such CUSTOMER beyond which such CUSTOMER'S INVOICES will not be ELIGIBLE INVOICES. All INVOICES are purchased by METRO on a RECOURSE BASIS. 4. ADVANCES (NET CASH EMPLOYED). CLIENTS shall have the right at any time to be advanced funds from METRO in an aggregate amount equal to the lesser of 80.0% of the total face amount of outstanding and unpaid ELIGIBLE INVOICES purchased from CLIENTS by METRO or $6,000,000, subject to the adequacy of the RESERVE FUNDS as provided herein. Any advance request received by METRO before 10:00 a.m. Dallas, Texas time, will be funded that business day, and any advance request received by METRO after such time will be funded the next business day. Each advance request pursuant to this Agreement will be funded by wire transfer of immediately available funds to the account designated by CLIENTS. 5. INTEREST, FEES, AND EXPENSES. 5.1 INTEREST ON NET CASH EMPLOYED. CLIENTS agree to pay interest to METRO upon the NET CASH EMPLOYED at an annual rate equal to the lesser of the BASE LENDING RATE plus 2.0% or the maximum rate allowed by applicable state or federal law. Such interest shall be calculated on a daily basis upon a year consisting of 360 days and shall be due and payable daily as it accrues. BASE LENDING RATE as used herein shall be the BASE LENDING RATE from time to time announced by KEYBANK NATIONAL ASSOCIATION, Cleveland, Ohio (herein called KEYBANK) on the date such BASE LENDING RATE must be determined. Each change in the BASE LENDING RATE shall be effective without notice to CLIENTS on the date on which a change in the BASE LENDING RATE shall have been made by KEYBANK. KEYBANK charges its customers interest at rates at, above, or below its BASE LENDING RATE. The BASE LENDING RATE of KEYBANK is currently 7.75%. For purposes of calculating interest, CLIENTS' accounts shall be credited with payments received from CUSTOMERS after allowance of three banking days (Collection Days). In no event shall the rate charged by METRO exceed the maximum rate of interest permitted by applicable state or federal law. All sums of money which shall not be paid to METRO by CLIENTS when due, including deficiencies in the RESERVE FUNDS, shall bear interest at the lower of 18.0% per annum or the highest rate allowed by law from such due date until paid in full. To the extent that the balances of the CLIENTS' RESERVE FUNDS exceed the amounts of outstanding INVOICES, METRO shall pay interest to CLIENT at the BASE LENDING RATE of KEYBANK minus 2.0% or the maximum amount permitted by state or federal law, whichever is less. 5.2 FACTOR'S COMMISSION. For each calendar month or part thereof, CLIENTS agree to pay METRO a commission equal to 125.0% of the average daily balance of NET CASH EMPLOYED during the calendar month for which such calculation is made multiplied by 1.0% as consideration for METRO'S services in, among other things, making credit investigations, supervising the ledgering and collection of INVOICES purchased hereunder, generation of management accounting reports, and being prepared to advance CLIENTS up to $6,000,000 NET CASH EMPLOYED. Such commission shall be due and payable in the amount of $75,000 on the CLOSING DATE and $75,000 on the first day of each calendar month thereafter, provided, however, that METRO shall rebate to CLIENTS any unearned commission on the last day of each calendar month and shall be deducted from any sums otherwise due CLIENTS. Notwithstanding the foregoing, the minimum aggregate commission due to METRO hereunder during the term of this Agreement shall equal the greater of $133,000 or $40,000 per calendar month or part thereof. 5.3 PROCESSING FEES. CLIENTS agree to pay METRO processing fees as follows: A. Wire transfers: $15 each B. Courier deliveries: $15 each INITIALS: ____|____ 3 4 5.4 INITIAL SETUP FEE. CLIENTS agree to reimburse METRO for out-of-pocket fees and expenses incurred by METRO in the preparation of this Agreement for public records search fees and UCC filing fees. 6. REQUIRED RESERVE FUND BALANCES. In the event that the REQUIRED RESERVE BALANCES exceed the sum of the amounts of ELIGIBLE INVOICES plus cash, if any, included in CLIENTS' RESERVE FUNDS, METRO may reserve and withhold from any payments or credits otherwise to be made to CLIENTS, an aggregate amount equal to the RESERVE DEFICIENCY. Such amounts reserved and withheld by METRO shall immediately reduce the amount of NET CASH EMPLOYED. Any underpayments on INVOICES due to a DISPUTE shall be debited to the RESERVE FUNDS and any overpayments on INVOICES to which CLIENTS are legally entitled shall be credited to the RESERVE FUNDS. METRO may charge to such RESERVE FUNDS any indebtedness of CLIENTS to METRO. CLIENTS shall be obligated to pay METRO deficiencies, if any, in such RESERVE FUNDS. METRO may withhold such additional amounts in the RESERVE FUNDS as it may reasonably deem necessary to cover and provide for any DISPUTES, unpaid INVOICES which are more than ninety (90) days old, and any other present or potential indebtedness of CLIENTS to METRO. RESERVE FUNDS in excess of those necessary to satisfy the above requirements shall be available to be paid to CLIENTS as CLIENTS so instruct METRO. 7. HOLD IN TRUST. If any payment of any INVOICES purchased by METRO shall be received by CLIENTS from a CUSTOMER, such payment shall be held by CLIENTS in trust for METRO, and CLIENTS shall use their best efforts to hold such payment separate and apart from CLIENTS' own funds and immediately deliver such payment to METRO in the identical form in which it was received. If such payment is inadvertently or otherwise deposited to a bank account other than the following, CLIENTS shall immediately notify METRO and METRO shall have the election to either charge back such payment to CLIENTS' RESERVE FUNDS or require that CLIENTS remit payment to METRO in cash or cashier's check in an amount equal to the amount of payment. Failure to timely deliver such payment shall give METRO, at its option, the right to terminate this Agreement and/or resort to the collection of said sums due from the RESERVE FUNDS and/or other balances or credits otherwise due to or held for CLIENTS by METRO without demand or notice. Should CLIENTS come into possession of a payment comprised of amounts owing to both METRO and CLIENTS, CLIENTS shall remit such payment in the identical form in which it was received to METRO and METRO shall refund CLIENTS' portion directly to CLIENTS or credit CLIENTS' RESERVE FUNDS with CLIENTS' portion thereof when such check has cleared the bank upon which it was drawn. Without waiving any other right of METRO hereunder, METRO may charge CLIENTS a service fee of up to 3.0% of the amount of any payments due to METRO not remitted by CLIENTS as herein provided. 8. SETTLEMENT OF DISPUTE. CLIENTS shall at their own expense settle all DISPUTES. In the event of a DISPUTE or other breach of warranty hereunder as to any INVOICE, METRO may in its discretion immediately or at such time as METRO may elect, charge the unpaid balance of the related INVOICE (or any DISPUTED portion thereof) to CLIENTS' RESERVE FUNDS. 9. REPURCHASE OF UNPAID INVOICES. If any INVOICE purchased by METRO remains unpaid for any reason ninety (90) days after date of such INVOICE or sooner if in METRO'S sole discretion such INVOICE is determined to be uncollectible, CLIENTS agree to repurchase such INVOICES from METRO at the full face amount of such INVOICE if METRO so elects. In any event, if more than 25.0% of a CUSTOMER'S account is unpaid after ninety (90) days from dates of the respective INVOICES, CLIENTS agree to repurchase the unpaid balance of such account. The purchase price for such unpaid balance shall be paid by offset against METRO'S aggregate unpaid balance of INVOICES purchased from CLIENTS. 10. WARRANTIES, REPRESENTATIONS, AND COVENANTS OF CLIENTS. As an inducement for METRO to enter into this Agreement, and with full knowledge that the truth and accuracy of the WARRANTIES, REPRESENTATIONS, AND COVENANTS in this Agreement are being relied upon by METRO, CLIENTS warrant, represent and/or covenant that (a) CLIENTS are properly licensed and authorized to operate their businesses under all applicable state and federal laws in the name and/or trade name designated for CLIENTS INITIALS: ____|____ 4 5 herein; (b) CLIENTS' businesses are solvent; (c) Each of CLIENTS' CUSTOMER'S businesses are solvent to the best of CLIENTS' knowledge and belief; (d) Except for liens assigned to METRO concurrently with the execution of this Agreement, CLIENTS have good and clear title to the INVOICES sold and/or assigned to METRO and to all property in which a security interest is granted to METRO herein; (e) Assignment to METRO of each INVOICE purchased by METRO hereunder will thereby vest absolute ownership of such INVOICE in METRO free from any liens, claims, security interests, or equities of third parties; (f) Each INVOICE shall, on the date of assignment, be based upon a bona fide rendering of services or sale of goods or products by CLIENTS and shall be a valid and enforceable obligation of the CUSTOMER who is designated upon the face of the INVOICE; (g) To the best of CLIENTS knowledge and belief, there will be no DISPUTE associated with any INVOICE at the time of sale of such INVOICE to METRO by CLIENTS and CLIENTS agree to immediately notify METRO in writing of any DISPUTE which may adversely affect payment of any INVOICE assigned or sold to METRO; (h) Neither CLIENTS nor any officer or director of CLIENTS own, control, or in any way whatsoever exercise dominion over the business of any CUSTOMER, the INVOICES of which are sold hereunder to METRO except as the owner of publicly traded stock of a corporation other than CLIENTS or BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. (herein called BRIGHTSTAR); (i) That no INVOICE (or the goods or services related thereto) sold to METRO hereunder is subject to or affected by any of the following types of agreement: consignment, sale on approval, conditional sale, guaranteed sale, sell or return, buy-back, bill and hold, or any similar type of agreement however named nor is there any debt owing by CLIENTS to any CUSTOMER related to any INVOICE sold to METRO hereunder; (j) All financial records, statements, books, or other documents relating to the businesses of CLIENTS which are supplied to METRO by CLIENTS or any of their authorized representatives, either before or after the signing of this Agreement, are true and accurate; (k) CLIENTS will not transfer, pledge, or give a security interest in any of their INVOICES to any other party during the life of this Agreement; (l) CLIENTS will not permit a lien or encumbrance to be created upon any of the INVOICES sold and/or COLLATERAL assigned to METRO hereunder; (m) CLIENTS will maintain such insurance covering CLIENTS' businesses and/or the property of CLIENTS' CUSTOMERS as is customary or required by law for businesses similar to the businesses of CLIENTS; (n) CLIENTS will promptly notify METRO in writing of any proposed or actual change in their owners, officers, and/or directors, location of their principal offices, location of the offices in which books and records concerning INVOICES and COLLATERAL are kept, change of CLIENTS' names, bankruptcy or dissolution of their owner, any sale or purchase of assets of CLIENTS out of the regular course of CLIENTS' businesses, and any other material change in the business or financial affairs of CLIENTS; (o) CLIENTS will promptly pay all sums due METRO when due; (p) Each INVOICE sold and/or assigned to METRO is genuine and in all respects what it purports to be and is not a duplicate of another INVOICE covering the same charges; (q) In the event that CLIENTS fail to repurchase INVOICES subject to DISPUTE, CLIENTS will fully cooperate with METRO in any litigation between METRO and a CUSTOMER relating to any INVOICES purchased and/or assigned to METRO hereunder, including but not limited to furnishing at CLIENTS' expense any witnesses (other than METRO'S employees) and documentation which is or should be under CLIENTS' control; (r) CLIENTS will promptly pay when due all federal, state and local taxes and will immediately notify METRO in writing if any such taxes are not paid when due; (s) CLIENTS will immediately notify METRO of the filing of any Local, State, or Federal Tax Lien or Levy or if any agreement is made with any taxing authority to pay out any due and unpaid taxes; (t) CLIENTS will immediately notify METRO of the filing of any petition of bankruptcy by or against CLIENTS, the composition of CLIENTS' creditors, or the appointment of a trustee or receiver for CLIENTS' businesses; (u) CLIENTS will immediately notify METRO of any change, or intent to change, the nature of their businesses as it relates to the products or services presently sold to CUSTOMERS. 11. CHANGE IN OWNERSHIP. METRO shall have the right to immediately terminate this Agreement if CLIENTS' ownership changes subsequent to the execution of this Agreement. 12. BILLING REQUIREMENTS. CLIENTS further warrant, represent, and/or covenant that all INVOICES submitted for sale to METRO shall be presented to METRO within thirty (30) days after the sale of inventory or goods or the rendering of services or labor related to such INVOICE and shall conform to the following requirements: INITIALS: ____|____ 5 6 12.1 The original of all such INVOICES and any supporting documentation required by the CUSTOMER as a pre-condition to payment of the INVOICE shall have been delivered to the CUSTOMER. 12.2 A copy of all such INVOICES together with supporting documentation shall be delivered to METRO as requested by METRO. 12.3 Be legible. 12.4 Clearly state the full legal name and address of CUSTOMER and the party to whom such INVOICE is to be mailed. 12.5 Be stamped or imprinted with instructions to remit payment directly the following bank lockbox addresses which addresses shall not be changed by CLIENTS without the prior written consent of METRO: A. For BLACKMARR: -------------------------------- B. For SCS AMERICA: -------------------------------- C. For SII: -------------------------------- D. For ICON: -------------------------------- In connection herewith, CLIENTS agree that all funds received at such bank lockbox addresses shall be deposited to bank accounts under the exclusive control of METRO. 12.6 Except as METRO may otherwise consent, the terms of CUSTOMER'S payment of INVOICES shall be "Net 30 days" or less. 12.7 CLIENTS shall timely issue credit memos when appropriate and immediately deliver the original of such credit memos to the respective CUSTOMER and a copy to METRO. 12.8 Be verifiable by the CUSTOMER to METRO'S satisfaction. 13. EVENT OF DEFAULT. CLIENTS shall be in default of this Agreement upon the happening of any of the following events (herein called EVENT OF DEFAULT): The breach of any warranty, covenant, or representation made herein or in connection herewith, whether written or oral, the filing of an involuntary petition of bankruptcy against CLIENTS, or the filing of a voluntary petition in bankruptcy by CLIENTS. CLIENTS will give METRO at least forty-eight (48) hours advance notice of the filing of any voluntary petition of bankruptcy by CLIENTS. 14. REMEDIES. Upon the occurrence of an EVENT OF DEFAULT, and at any time thereafter, METRO may elect to declare any and all indebtedness hereby secured immediately due and payable, CLIENTS hereby expressly waiving notice, demand, and presentment. METRO shall be entitled to all rights and remedies of a Secured Party under the Uniform Commercial Code of Texas as presently existing or hereafter amended, including the right to enter upon the premises where any COLLATERAL is located and take immediate possession of such INITIALS: ____|____ 6 7 COLLATERAL and remove same from such premises. To the extent deemed reasonably necessary by METRO to aid in the collection of its collateral, METRO shall have the right to the use of any computer hardware or software used by CLIENTS pertaining to their accounts receivable. METRO shall be entitled to avail itself of all such other rights and remedies as may now or hereafter exist at law or in equity for collection of said indebtedness and the enforcement of the covenants, warranties, and representations herein and the resort to any one or combination of such remedies provided hereunder shall not prevent the concurrent or subsequent employment of any other appropriate remedy. CLIENTS shall be liable to METRO for any deficiencies after foreclosure of METRO'S security interest herein. The waiver by METRO of the breach of any term of this Agreement or the compliance therewith shall not be construed as a waiver of any subsequent breach or compliance. CLIENTS agree to reimburse METRO for any out-of-pocket expenses incurred by METRO as a result of an EVENT OF DEFAULT or in connection therewith. 15. ARBITRATION, JURISDICTION, VENUE, AND AGENT FOR SERVICE OF PROCESS. All DISPUTES arising out of or in connection with this Agreement or any transaction hereunder shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association then in effect by an arbitrator chosen from such association's blind pool of arbitrators with significant knowledge and experience in the field of factoring of accounts receivable who shall be appointed in accordance with such Rules. The arbitrator's award shall be final and binding. Judgment upon the award rendered may be entered in any court having jurisdiction over the party against which the award is rendered. The parties expressly consent to the jurisdiction of the federal and state courts situated in the State of Texas for the purpose of enforcing any arbitration award rendered pursuant to this Paragraph 16 and the parties further agree that venue shall be Dallas County, Texas. The arbitration shall take place in Dallas, Texas, or such other place as the parties may agree. The arbitration shall include (i) a provision that the prevailing party in such arbitration shall recover its costs of the arbitration and reasonable attorneys' fees from the other party or parties, and (ii) the amount of such fees and costs. In the event CLIENTS have no agent appointed for the service of process in the State of Texas, CLIENTS authorize service upon the Secretary of the State of Texas on their behalf. 16. SECURITY INTEREST. METRO, in addition to the outright ownership of those INVOICES purchased from CLIENTS hereunder, is hereby granted a continuing security interest in all of CLIENTS' presently owned and existing and hereafter acquired and arising accounts receivable, all other forms of obligations owing to CLIENTS with respect to the INVOICES, all contract rights and general intangibles pertaining to accounts receivable, and all instruments, documents, books, and records pertaining to any of the foregoing together with all damage claims and insurance proceeds of any of the foregoing, together with all guarantees, securities, and liens for payment of any INVOICES and all products and proceeds of any of the foregoing. All of the foregoing is sometimes collectively called herein COLLATERAL. Such security interest in such COLLATERAL is to be security for any and all obligations or indebtedness of any kind, direct or indirect, absolute or contingent, owing by CLIENTS to METRO however incurred or evidenced and however and whenever same shall arise or have arisen, and whether such COLLATERAL is now or hereafter existing. 17. FINANCIAL STATEMENTS, BOOKS AND RECORDS, AND RIGHT OF INSPECTION. As often as such are prepared, but no less than within thirty (30) days after the close of each month, CLIENTS shall furnish METRO with a copy of CLIENTS' most recent profit and loss statements and balance sheets. Within ninety (90) days after the close of each fiscal year, CLIENTS shall furnish METRO with a profit and loss statement and balance sheet as of the close of such fiscal year, prepared and signed by an independent certified public accountant. CLIENTS agree to timely furnish METRO such additional financial information as METRO shall request. METRO and METRO'S agents shall have the right at all times between the hours of 8:00 a.m. and 6:00 p.m. Monday through Friday to examine and make extracts from all books and records of CLIENTS. Failure to comply with this paragraph may at METRO'S discretion be deemed an EVENT OF DEFAULT. 18. INDEMNITY. All taxes and governmental charges imposed upon CLIENTS with respect to the sale of inventory or goods or the rendering of services or labor by CLIENTS shall be the sole responsibility of CLIENTS and CLIENTS shall indemnify and hold METRO harmless from and against all liabilities for any acts or omissions of CLIENTS. INITIALS: ____|____ 7 8 19. NON-ASSIGNABILITY BY CLIENTS. CLIENTS may not assign any of their rights or obligations hereunder without METRO'S prior written consent; however, METRO may assign to KEYBANK, its successors or assigns, any of its rights and remedies with respect to CLIENTS. 20. AGREEMENT BINDING. This Agreement shall be binding upon CLIENTS and METRO, their heirs, successors, and assigns. 21. SEVERABILITY. The provisions of this Agreement are severable and if any of these provisions shall be held by any court of competent jurisdiction to be unenforceable such holdings shall not affect or impair any other provisions hereof. 22. ENTIRE AGREEMENT. It is expressly acknowledged and agreed by CLIENTS that (a) No representations have been made, whether oral or written, except as expressly set forth in this Agreement or in a writing signed by a corporate officer of METRO, or (b) If any such representations have been made and are not expressly set forth herein, that any such representations have no binding effect whatsoever. CLIENTS have not relied on any inducement to enter into this Agreement except as wholly set forth herein or as communicated in writing by a duly constituted and authorized corporate officer of METRO. This Agreement may only be changed, modified, supplemented or amended by a written document signed by all parties hereto. This Agreement may be signed in any number of counterparts, each of which when so executed shall be deemed to constitute one and the same agreement, whether signed and delivered via facsimile or otherwise. 23. NOTICES. Notices from either party to the other shall be given in writing and delivered via facsimile and/or mailed postage prepaid, registered or certified mail, or placed in the hands of a national overnight delivery service addressed to the addresses set forth at the end of this Agreement, or at such other address as either party may advise the other in writing. If mailed, notice shall be deemed to have been received three (3) days after the date of postmark. Otherwise, notice shall be deemed to be received upon actual receipt thereof, and if via facsimile, a confirmation thereof shall constitute acknowledgment of receipt thereof. 24. ACCEPTANCE AND TERMINATION. This Agreement will become effective when accepted by METRO as evidenced by signature of any duly authorized officer of METRO, shall continue until terminated as provided herein. METRO shall have the right to terminate this Agreement at any time by giving thirty (30) days prior written notice to CLIENTS. CLIENTS shall have the right to terminate this Agreement at any time by giving METRO at least ten (10) days prior written notice of such termination. In the event of termination, METRO shall provide payoff information, terminate, or assign without recourse to or warranties and representations by METRO, its liens, as requested, and otherwise cooperate with CLIENTS, provided such terminations or assignments shall not be effective until METRO has received payment in full of amounts secured hereby. Notwithstanding such notice, CLIENTS shall have no right to terminate this Agreement until all obligations (direct or contingent) owing by CLIENTS to METRO hereunder or otherwise shall have been paid in full, whether or not such obligations are due or are to become due in the future. Upon the occurrence of an EVENT OF DEFAULT, or if any guaranty of the obligations of CLIENTS hereunder shall be terminated by the guarantor, METRO may at METRO'S election consider such occurrence an anticipatory repudiation of this Agreement and/or immediately terminate this Agreement as to future transactions without notice. No termination of this Agreement shall in any way affect or impair any right of METRO arising prior thereto or by reason thereof, nor shall any such termination relieve CLIENTS or any of their guarantors of any obligation to METRO under this Agreement or otherwise until all of said obligations are fully paid and performed, nor shall any such termination affect any right or remedy of METRO arising from any such obligation, and all agreements, warranties, representations, and covenants of CLIENTS or their guarantors shall survive termination. In the event that CLIENTS shall have breached any provision of this Agreement or if notice of termination is given by either party, the RESERVE FUNDS and any other balances or credits otherwise due by METRO to CLIENTS may be retained and applied by METRO from time to time upon any indebtedness then or thereafter due from CLIENTS and the RESERVE FUNDS may at METRO'S discretion upon such breach or notice of termination, be increased to an amount equal to the then total unpaid face amount of all INVOICES purchased by METRO hereunder and INITIALS: ____|____ 8 9 other present or potential indebtedness of CLIENTS to METRO, whether matured or unmatured. In such event, as the RESERVE FUNDS exceed all present and potential indebtedness of CLIENTS to METRO, METRO shall remit such excess to CLIENTS. Upon payment in full by CLIENTS of all obligations arising under this Agreement, METRO shall record any terminations or satisfactions of any of METRO'S liens on the COLLATERAL; provided, however, that in the event of a DISPUTE arises concerning the amounts owed by CLIENTS, METRO shall not be obligated to record terminations or satisfactions of METRO'S liens unless and until CLIENTS provide a commercially reasonable form of bond or other assurance of payment in an amount equal to the amount in controversy. 25. POWER OF ATTORNEY. In order to carry out this Agreement, CLIENTS irrevocably appoint METRO, or any authorized designee of METRO, as CLIENTS' special attorney-in-fact with power: 25.1 In the EVENT OF DEFAULT, to delete CLIENTS' address on all INVOICES sold and/or assigned to METRO by CLIENTS and insert METRO'S address in its place. 25.2 To receive, accept, open and dispose in a commercially reasonable manner of all mail addressed to CLIENTS which may come into METRO'S possession. 25.3 To endorse the name of CLIENTS on any checks or other instruments or evidence of payment that may come into the possession of METRO on INVOICES purchased by METRO from CLIENTS or in which CLIENTS have granted METRO a security interest. 25.4 In the EVENT OF DEFAULT, in CLIENTS' name, or otherwise, to demand, sue for, collect and obtain releases for any and all monies due or to become due on INVOICES purchased by METRO from CLIENTS or in which CLIENTS have granted METRO a security interest. 25.5 In the EVENT OF DEFAULT, to compromise, prosecute or defend any action, claim or proceeding as to INVOICES purchased by METRO from CLIENTS or in which CLIENTS have granted METRO a security interest. 25.6 In the EVENT OF DEFAULT, to notify, direct or instruct CLIENTS' CUSTOMER in CLIENTS' name of the proper remittance address and of procedures for making payment on any INVOICES that are sold to METRO by CLIENTS or in which CLIENTS have granted METRO a security interest. 25.7 To execute on CLIENTS' behalf and file such UCC financing statements as METRO may deem necessary in order to perfect and maintain the security interests granted by CLIENTS in accordance with this and any other agreement between CLIENTS and METRO, and CLIENTS further agree that METRO may file this Agreement or a copy thereof as such UCC financing statement. 26. This Agreement includes all assumed names, tradestyles, and divisions of CLIENTS unless specifically agreed to in writing by METRO. Further, notwithstanding anything herein to the contrary, this Agreement is conditioned upon there being no change in the nature of CLIENT'S business which is presently providing implementation of enterprise resource planning (ERP) software systems and enterprise-wide business and technology solutions, consulting, software application development, systems integration, outsourcing, training, upgrades, support, and other computer or information technology related services. 27. This Agreement is contingent upon the delivery of the corporate guaranty of BRIGHTSTAR, ancillary documentation to METRO, in a form approved by METRO, and receipt by METRO of an assignment from Banque Paribas of their security interest in the COLLATERAL. 28. This Agreement is an amendment and restatement of all of CLIENTS' obligations and indebtedness to Paribas pursuant only to that certain Promissory Note dated November 10, 1998, executed by BRIGHTSTAR and payable in the original principal amount of $2,500,000 to Paribas and related Interim Security Agreement dated INITIALS: ____|____ 9 10 November 10, 1998, executed and delivered by BRIGHTSTAR and various subsidiaries and affiliates thereof, including but not limited to, CLIENTS (herein called the "Assigned Documents"). CLIENTS hereby authorize METRO to pay $2,500,000 to Paribas for the benefit of BRIGHTSTAR, Account No. 04202195, for further credit to Account No. 001826 Paribas Houston Cayman and to receive from Paribas an assignment of all their right, title, and interest in the Assigned Documents, all guaranties thereof, and all assets previously assigned to Paribas but only to the extent of the COLLATERAL as defined herein. All warranties, representations, covenants, terms, and conditions of this Agreement shall apply as fully to any such COLLATERAL as if the sale or assignment had been made initially and directly to METRO rather than Paribas. 29. CLIENTS WARRANT AND REPRESENT TO METRO THAT CLIENTS HAVE READ THIS AGREEMENT IN ITS ENTIRETY PRIOR TO SIGNING AND THAT PRIOR TO SIGNING THIS AGREEMENT, ALL BLANKS WERE FILLED IN (EXCEPT FOR DATES AND SIGNATURES) AND ALL ALTERNATIONS OF THIS AGREEMENT WERE INITIALED BY CLIENTS. CLIENTS: BRIAN R. BLACKMARR AND ASSOCIATES, INC. By: ---------------------------------------------------- Patrick R. Quinn, Authorized Agent Date Signed: -------------------------------------------- Physical Address: 2215 McKinney Avenue, Suite 1700, Dallas, Dallas County, Texas 75201 Mailing Address: ----------------------------------------- SOFTWARE CONSULTING SERVICES AMERICA, INC. By: ---------------------------------------------------- Patrick R. Quinn, Authorized Agent Date Signed: -------------------------------------------- Physical Address: 950 Tower Lane, Suite 1850, Foster City, San Mateo County, California 94404 Mailing Address: ---------------------------------------- SOFTWARE INNOVATORS, INC. By: ------------------------------------------------------- Patrick R. Quinn, Authorized Agent Date Signed: -------------------------------------------- INITIALS: ____|____ 10 11 Physical Address: 1501 North University Avenue, Suite 670, Little Rock, Pulaski County, Arkansas 72207 Mailing Address: ---------------------------------------- INTEGRATED CONTROLS, INC. By: ---------------------------------------------------- Patrick R. Quinn, Authorized Agent Date Signed: -------------------------------------------- Physical Address: 100 Asma Blvd., Suite 300, Lafayette, Lafayette Parish, Louisiana 70508 Mailing Address: ---------------------------------------- METRO FACTORS, INC. By: ------------------------------------------------------ Its: ----------------------------------------------------- Date Signed: ------------------------------------------- Physical Address: 8144 Walnut Hill Lane, Suite 1099, Dallas, Dallas County, Texas 75231-4316 Mailing Address: P. O. Box 38604, Dallas, Dallas County, Texas 75238 Attested By: ---------------------------------------------- Laura Kelley, Assistant Secretary INITIALS: ____|____ 11 EX-10.25 12 GUARANTY DATED JANUARY 22, 1999 1 EXHIBIT 10.25 CORPORATE GUARANTY AGREEMENT (Unsecured) This guaranty agreement (this "Agreement") is made by Guarantor identified on the last page of this Agreement ("Guarantor"). Brian R. Blackmarr and Associates, Inc., whose address is 2215 McKinney Avenue, Suite 1700, Dallas, Texas 75201, Software Consulting Services America, Inc., whose address is 950 Tower Lane, Suite 1850, Foster City, California 94404, Software Innovators, Inc., whose address is 1501 North University Avenue, Suite 670, Little Rock, Arkansas 72207, and Integrated Controls, Inc., whose address is 100 Asma Blvd., Suite 300, Lafayette, Louisiana 70508 (hereafter individually and/or collectively "Companies"), have applied to Metro Factors, Inc. ("Metro") for factoring services, and as a condition of providing such services to Companies, Metro requires the corporate guaranty of Guarantor. Guarantor makes this Agreement for the purpose of providing additional security to Metro and as an inducement to Metro to provide such services to Companies. Therefore, in consideration of providing such services to Companies Guarantor unconditionally agrees with Metro as follows: 1. The assumption by Guarantor of its obligations hereunder will result in a direct financial benefit to Guarantor. 2. Guarantor hereby unconditionally guarantees to Metro the full and prompt performance of all obligations of Companies to Metro including but not limited to the obligations of Companies under the Factoring Agreement and Security Agreement between Metro and Companies. The obligations of Guarantor shall be absolute and unconditional and shall remain in full force and effect so long as Companies are receiving services from Metro, and upon the termination of the Factoring Agreement and Security Agreement with Metro the guaranty shall remain in full force and effect until all obligations of Companies to Metro are discharged and satisfied in full. The obligations of Guarantor shall not be affected by the voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets of Companies or of their insolvency, receivership, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors, or similar proceedings affecting Companies or any other guarantor of their obligations to Metro, nor by any merger, consolidation, or other reorganization of any kind involving Companies. The liability of Guarantor hereunder is an absolute, direct, immediate, and unconditional guarantee of payment and not of collectability. Guarantor agrees on request to supply Metro with true and correct financial statements in such form as Metro may reasonably prescribe. 3. No set-off, counterclaim, reduction or diminution of any obligation or any defense of any kind or nature which Companies may have against Metro shall be available hereunder to Guarantor. 4. Guarantor waives notice of demand of any kind to Guarantor personally and agrees that notice to Companies is notice to Guarantor. 5. Guarantor authorizes Metro, without notice or demand, and without affecting Guarantor's liability hereunder, from time to time, to: (i) renew, compromise, extend, accelerate, or otherwise change the terms of the obligations of Companies to Metro or any part thereof; (ii) take and hold security for the payment of this Agreement of the obligations of Companies to Metro and exchange, enforce, waive, and release any such security; (iii) apply such security and direct the order or manner of sale thereof as Metro in its discretion may determine; and (iv) release or substitute any one or more of any guarantor of any of Companies' obligations to Metro. Metro may, without notice or consent, assign this Agreement in whole or in part. 2 6. Any indebtedness of Companies now or hereafter held by Guarantor is hereby subordinated to the obligations of Companies to Metro, and such indebtedness of Companies to Guarantor, if Metro so requests, shall be collected, enforced and received by Guarantor as trustee for Metro and be paid over to Metro on account of the obligations of Companies to Metro, but without reducing or affecting in any manner the liability of Guarantor under the provisions hereof. Guarantor shall immediately inform Metro on request of any indebtedness of Companies held by Guarantor. 7. Guarantor waives any claim, right or remedy which Guarantor may now have or hereafter acquire against Companies or any person primarily or contingently liable for the guaranteed obligations or that arise from the existence or performance of Guarantor's obligations hereunder, including, without limitation, any claim, remedy or right or subrogation, reimbursement, exoneration, contribution, indemnification, or participation in any claim, right or remedy of Metro against Companies or any collateral security Metro now has or hereafter acquires, regardless of how such claim, remedy or right arises. 8. All disputes arising out of or in connection with this Agreement or any transaction hereunder shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association then in effect by an arbitrator chosen from such association's blind pool of arbitrators with significant knowledge and experience in the field of factoring of accounts receivable who shall be appointed in accordance with such Rules. The arbitrator's award shall be final and binding. Judgment upon the award rendered may be entered in any court having jurisdiction over the party against which the award is rendered. The parties expressly consent to the jurisdiction of the federal and state courts situated in the State of Texas for the purpose of enforcing any arbitration award rendered pursuant to this Paragraph 8 and the parties further agree that venue shall be Dallas County, Texas. The arbitration shall take place in Dallas, Texas, or such other place as the parties may agree. The arbitration shall include (i) a provision that the prevailing party in such arbitration shall recover its costs of the arbitration and reasonable attorneys' fees from the other party or parties, and (ii) the amount of such fees and costs. Guarantor hereby authorizes service of any legal process or notice upon the Secretary of State of Texas as Guarantor's agent. 9. Upon happening of a default in the obligation of Companies to Metro, then Metro shall have the right to proceed first and directly against Guarantor under this Agreement without proceeding against or exhausting any other remedies which it may have against Companies or any other guarantor of Companies' obligations to Metro and without realizing upon any security held by Metro. 10. No remedy herein conferred upon Metro is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by Metro to exercise any right accruing upon any default or failure of performance by Companies to Metro shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed to be expedient by Metro. This Agreement shall be binding upon Guarantor's successors and assigns. DATED and effective: __________________________________, 1999. GUARANTOR: BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: --------------------------------------------- Patrick R. Quinn, Authorized Agent/Chief Accounting Officer WITNESSED BY: - - ----------------------------------- EX-10.26 13 SEVERANCE AGREEMENT AND RELEASE - THOMAS A HUDGINS 1 EXHIBIT 10.26 SEVERANCE AGREEMENT AND RELEASE This Severance Agreement and Release is entered into as a binding contract between Thomas A. Hudgins ("Employee") and BrightStar Information Technology Group, Inc. ("the Company"), as of the last date executed. W I T N E S S E T H: WHEREAS, Employee and the Company (collectively, "the Parties") have been parties to an Executive Employment Agreement dated as of January 1, 1998 ("the Employment Agreement"); WHEREAS, the Parties wish to make clear their positions and understandings and to provide additional understandings relating to the termination of Employee's employment under the Employment Agreement; NOW, THEREFORE, the Parties agree as follows: 1. TERMINATION OF EMPLOYMENT. The parties hereto agree that Employee's employment under the Employment Agreement shall terminate effective November 20, 1998. Employee and the Company agree that the termination of employment shall be deemed "termination without cause" under Section 7(c) of the Employment Agreement, and shall not be deemed a termination with "cause" nor repudiation or renunciation of the employment agreement or a voluntary cessation of employment under Section 2 of the Stock Repurchase Agreement between Employee and the Company, dated April, 1998. The parties further agree that the rights and obligations of the parties shall continue as provided by such agreements except to the extent expressly amended or modified herein, and that Employee shall be entitled to the following compensation as a result of such termination: 1. As provided by Section 7(c) of the Employment Agreement, Employee will continue to receive base salary, consistent with the Company's normal payroll practices, through December 31, 2000. 2. Employee will be paid for any accrued, unused vacation time he may have on the date of termination. 3. The Company will continue to pay an automobile allowance of $1,000 per month to Employee, payable in a manner consistent with the Company's prior payment practices, with respect to each month through December 2000. 4. The Company will continue benefit coverages for Employee and his family for up to twelve (12) months after the date of termination, under the same limitations and conditions as provided in the Employment Agreement. These benefits will terminate upon the earlier of Employee's participation in other, similar plans, or 12 months following the date of termination (the "Benefits Period"). On or soon after the termination date, the Company will provide Employee with a COBRA election form for health coverage. Employee will complete the form and elect full continuation of 2 benefits. The Company will pay the difference between the cost of COBRA coverage and Employee's regular employee contribution, if any, during the Benefits Period. 2. STOCK OPTIONS. Under terms of that certain Incentive Stock Option Agreement between Employee and the Company dated as of April 16, 1998, Employee has been granted options (the "ISOs") to purchase 68,000 shares of the Company's common stock at an exercise price of $13.00 per share, under certain terms and conditions. The ISOs must be exercised by Employee within three months following termination of employment pursuant to the Employment Agreement. In consideration for the immediate termination of all of Employee's rights to the ISOs and all of Employee's rights under the Incentive Stock Option Agreement, and in consideration for Employee's full release, set forth below, of any and all claims relating to the Company and all related persons and entities, the Company will grant options (the "NQSOs") to purchase 68,000 shares of the Company's common stock pursuant to a Non-Qualified Stock Option Agreement in the form attached hereto as Exhibit "A". The NQSOs shall be exercisable, in whole or in part, at an exercise price of $13.00 per share at any time, and from time to time, during the period beginning upon expiration of the seven day period described in Section 11.c of this Agreement (provided that Employee has not elected to revoke this Agreement pursuant to such provision) until 5:00 p.m. Houston, Texas, time on March 31, 2001. 3. EMPLOYEE'S NON-DISPARAGEMENT AGREEMENT. Employee agrees that he will not in any way disparage the Company or its affiliates, including their current or former officers, directors and employees, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Company that Employee is or may be come under a legal duty to make disparaging remarks, opinions or disclosures. To the extent permitted by law, Employee agrees to refer all inquiries concerning the Company or its Affiliates, including their current or former officers, directors and employees, to the Company. 4. THE COMPANY'S NON-DISPARAGEMENT AGREEMENT. The Company agrees that it will not in any way disparage Employee, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Employee that the Company is or may be come under a legal duty to make disparaging remarks, opinions or disclosures. The Company agrees to respond to all inquiries concerning Employee, to the extent permitted by law, by confirming dates of employment and positions held and advising persons making such inquiry that it is Company policy not to comment further on the performance of any former employee. 5. EMPLOYEE'S RELEASE OF CLAIMS. Except as otherwise expressly provided herein, Employee, on behalf of himself, and anyone who may now or later have the right to sue for or through him, his descendants, heirs, executors, administrators, and assigns, promises never to sue, and fully and forever releases and discharges the Company, its parents, subsidiaries, affiliates, successors and assigns, together with its and their past and present directors, officers, agents, attorneys, insurers, employees, stockholders, and any employee benefit plans established or maintained by any such entities, together with their fiduciaries and agents (collectively, the "Released Parties"), from any and all claims, demands, obligations, damages, or liabilities of any kind whatsoever, at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, which Employee now owns or holds, or has ever owned or held, against the Released Parties. -2- 3 1. The claims released include all claims arising out of or in any way connected with Employee's employment with the Company, Employee's termination from the Company, or any other contracts, transactions, occurrences, acts, or omissions, or any losses, damage, or injury whatsoever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of any of the Released Parties, committed or omitted prior to the date of this Agreement. Employee does not release any claims against any of the Released Parties which arise after he signs this Agreement. 2. The claims hereby released include, without limitation, claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e; the Civil Rights Act of 1866, 42 U.S.C. Section 1981; the Age Discrimination in Employment Act, 29 U.S.C. Sections 621 et seq.; the Americans With Disabilities Act, 42 U.S.C. Section 12101 et seq.; the Texas Commission on Human Rights Act, TEX. LABOR CODE Section 21.001 et seq.; any claim for severance pay, bonus, salary, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance, or any other fringe benefit, compensation, or disability benefit; or any other federal, state or local statute, executive order, or regulation regarding employment or the termination of employment, or the common law of any state relating to torts, employment contracts, and employment terminations; before any state or federal court or administrative agency, civil rights agency, or any other forum. 3. This Agreement will not impair Employee's rights, if any, to continue health care benefits coverage under COBRA, 29 U.S.C. Sections 1161-68, or to any vested rights under any retirement plan maintained by the Company. 6. THE COMPANY'S RELEASE OF CLAIMS. The Company, on behalf of all predecessors, successors, assignees, beneficiaries, subrogees, agents, representatives, employees, officers, directors, shareholders, partners, insurers, parents, subsidiaries, and affiliates, and all other persons, natural or otherwise, claiming by, under, or through the Company, releases and forever discharges Employee, his predecessors, successors, assignees, beneficiaries, executors, administrators, subrogees, agents, representatives, and all other persons, natural or otherwise, in privity with him, of and from any and all claims whatsoever, at common law, statutory, or otherwise; in contract, in tort, or otherwise; for any act or omission whether negligent, reckless, intentional, or malicious; for damages or compensation of any type, including attorney fees, court costs, expenses, or other costs that the Company might have or might claim to have, whether currently known or unknown. 7. SURVIVAL: This Severance Agreement and Release shall survive the Death or Disability of Employee and all the rights and entitlements of Employee under the Severance Agreement and Release, the Employment Agreement and Non-Qualified Stock Option Agreement shall inure to the benefit of Employee's personal representatives, heirs, administrators and executors and shall be binding on the Company and its successors and assigns. 8. ATTORNEYS FEES: The Parties agree that, if any action is brought by either Party to the Employment Agreement, this Agreement or the Non-Qualified Stock Option Agreement, all reasonable costs and expenses of suit (including attorneys fees) shall be awarded to the prevailing party. -3- 4 9. POST-EMPLOYMENT COVENANTS: Company agrees to waive Employee's post-employment covenants contained in Section 8(c) of the Employment Agreement with respect to any business which Employee represents, engages in or carries on in Harris County, Texas and contiguous counties. Employee may request in writing additional waivers of the post-employment covenants described in Section 8 of the Employment Agreement. The Company agrees to respond to any such request within ten (10) working days of receipt and agrees that no such request will be unreasonably refused. 10. INDEMNITY. The Parties acknowledge that Employee has served as Director, officer, agent, employee or representative of (a) the Company; (b) affiliates of the Company; and/or (c) the Company's current or predecessor affiliates, alliances, associations, ventures, enterprises, and/or pre-incorporation business in the course of his association and employment by and for the Company and predecessors ( the "Service") and that Employee may be subject to legal claims, suits or proceedings, whether civil, criminal, investigative or administrative, in connection with his performance of the Service. Notwithstanding anything herein to the contrary, the Company agrees to indemnify and hold harmless Employee against any and all claims, suits, actions, damages, liability, expenses (including attorneys fees and cost of litigation), costs, judgments, fines or amounts paid in settlement that are reasonably and actually incurred by employee in connection with any proceeding or investigation concerning any of Employee's Service. This indemnity shall extend to punitive damages only to the extent the Company has a current obligation to Employee to indemnify Employee for such damages, in which case the Company shall indemnify the Employee for such damages to the extent allowed by law. In all other respects, the Company shall indemnify the Employee to the fullest extend permitted by applicable law. The Company shall have the right to control the defense of any action to the extent of its indemnity obligation. Neither Company nor Employee will settle or compromise any claim on any basis or manner that would impose any liability, limitation, or restriction on the other without both parties' express written consent. On written request to the Company by the Employee, the Company shall advance to the Employee amounts of money sufficient to cover any expenses in advance of the final disposition of them and Employee's written certification, together with a copy of the statement paid or to be paid by the Employee, shall constitute satisfactory evidence, absent manifest error. This indemnity obligation shall not be deemed exclusive, or in limitation of, any indemnity rights to which Employee may be entitled under law, the Company's Certificate of Incorporation, By-laws, vote of the shareholders, determination of the Company's board of directors or otherwise. 11. ACKNOWLEDGMENTS OF EMPLOYEE 1. Employee acknowledges that Company has advised him to consult with an attorney of his own choice before signing this Agreement. 2. Employee has acknowledges that he has been given up to twenty-one (21) days after he received this Agreement to sign it. 3. Employee understands that he has seven (7) days after he signs this Agreement during which he may revoke it. If Employee revokes this Agreement, it will not be effective, and Employee will not receive any of the payments or benefits described above. Employee understands -4- 5 and agrees that he will not receive any of these payments or benefits until after the seven days have passed. IN WITNESS WHEREOF, the Parties have caused this Severance Agreement and Release to be executed and delivered as of the last date executed. Thomas A. Hudgins BrightStar Information Technology Group, Inc. /s/ THOMAS A. HUDGINS By: /s/ GEORGE M. SIEGEL - - ----------------------------- ------------------------------------------ Thomas A. Hudgins Date: November 25, 1998 Date: ------------------------ ---------------------------------------- -5- EX-10.27 14 SEVERANCE AGREEMENT AND RELEASE - DANIEL M COFALL 1 EXHIBIT 10.27 SEVERANCE AGREEMENT AND RELEASE This Severance Agreement and Release ("Severance Agreement") is entered into as a binding contract between Daniel M. Cofall ("Employee") and BrightStar Information Technology Group, Inc. ("the Company"), as of the last date executed. W I T N E S S E T H: WHEREAS, Employee and the Company (collectively, "the Parties") have been parties to an Executive Employment Agreement dated as of August 16, 1997 ("the Employment Agreement"); WHEREAS, Employee was a founder of the Company and has served as Chief Financial Officer, Executive Vice President, and Treasurer of the Company since its inception, has made valuable and important contributions to the Company in connection with its recent public offering and acquisitions, and has demonstrated a high level of principle, skill, energy and expertise in these and other areas; and WHEREAS, the Company has named a new Chief Executive Officer and other officers and has resolved to move its base of operations; NOW, THEREFORE, the Parties agree as follows: 1. TERMINATION OF EMPLOYMENT. The Parties agree that Employee's employment under the Employment Agreement shall terminate effective January 31,1999 or at such earlier time as the Parties may agree or the Company may determine. Employee and the Company agree that the termination of employment shall be deemed "termination without cause" under Section 7(c) of the Employment Agreement, and shall not be deemed a termination with "cause" nor repudiation or renunciation of the Employment Agreement or a voluntary cessation of employment under Section 2 the Stock Repurchase Agreement between Employee and the Company, dated April, 1998. The Stock Repurchase Agreement is hereby terminated and will be of no further force and effect. The Parties further agree that the rights and obligations of the Parties shall continue as provided by this Severance Agreement, the Employment Agreement, and the Non-Qualified Stock Option Agreement described in Section 2 of this Severance Agreement except to the extent expressly amended or modified herein. Prior to the date of termination, Employee will have normal and customary access to all Company data, employees, officers, directors and outside consultants and professionals consistent with his duties and the usual and customary functions of Chief Financial Officer. The Parties further agree that Employee shall be entitled to the following compensation as a result of such termination: a. As provided by Section 7(c) of the Employment Agreement, Employee will continue to receive his current base salary, consistent with the Company's normal payroll practices, through July 31, 2000. Unpaid compensation of $6,250 will be paid on or before January 31, 1999. Employee will be reimbursed for reasonable business expenses incurred prior to termination pursuant to Section 6 of the Employment Agreement. 2 b. Employee will be paid for 20 days of accrued, unused vacation time on or before January 31, 1999. c. Employee will be paid $5,000 representing 1997 automobile allowance on or before January 31, 1999. The Company will continue to pay an automobile allowance of $1,000 per month to Employee, payable in a manner consistent with the Company's prior payment practices, with respect to each month through July, 2000. d. The Company will continue benefit coverages for Employee for up to twelve (12) months after the date of termination, under the same limitations and conditions as provided in the Employment Agreement. These benefits will terminate upon the earlier of Employee's participation in other, similar plans, or 12 months following the date of termination (the "Benefits Period"). On or soon after the termination date, the Company will provide Employee with a COBRA election form for health coverage. Employee will complete the form and elect full continuation of benefits. The Company will pay the cost of COBRA coverage during the Benefits Period. 2. STOCK OPTIONS. Under terms of that certain Incentive Stock Option Agreement between Employee and the Company dated as of April 16, 1998, Employee has been granted options (the "ISOs") to purchase 68,000 shares of the Company's common stock at an exercise price of $13.00 per share, under certain terms and conditions. The ISOs must be exercised by Employee within three months following termination of employment pursuant to the Employment Agreement. In consideration for the immediate termination of all of Employee's rights to the ISOs and all of Employee's rights under the Incentive Stock Option Agreement, and in consideration for Employee's full release, set forth below, of any and all claims relating to the Company and all related persons and entities, the Company will grant options (the "NQSOs") to purchase 68,000 shares of the Company's common stock pursuant to a Non-Qualified Stock Option Agreement in the form attached hereto as Exhibit "A". The NQSOs shall be exercisable, in whole or in part, at an exercise price of $13.00 per share at any time, and from time to time, during the period beginning upon expiration of the seven-day period described in Section 11.c of this Agreement (provided that Employee has not elected to revoke this Agreement pursuant to such provision) until 5:00 p.m. Houston, Texas, time on October 31, 2000. 3. EMPLOYEE'S NON-DISPARAGEMENT AGREEMENT. Employee agrees that he will not in any way disparage the Company or its affiliates, including their current or former officers, directors and employees, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Company that Employee is or may become under a legal duty to make disparaging remarks, opinions or disclosures. To the extent permitted by law, Employee agrees to refer all inquiries concerning the Company or its affiliates, including their current or former officers, directors and employees, to the Company. 4. THE COMPANY'S NON-DISPARAGEMENT AGREEMENT. The Company agrees that it will not in any way disparage Employee, nor cause its officers, directors, employees agents and representatives to disparage Employee, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Employee that the Company is or may become under a legal duty to make disparaging remarks, opinions or disclosures. The Company _2_ 3 agrees to respond to all inquiries concerning Employee, to the extent permitted by law, by confirming dates of employment and positions held pursuant to the Company's customary policy. 5. EMPLOYEE'S RELEASE OF CLAIMS. Except as otherwise expressly provided herein, Employee, on behalf of himself, and anyone who may now or later have the right to sue for or through him, his descendants, heirs, executors, administrators, and assigns, promises never to sue, and fully and forever releases and discharges the Company, its parents, subsidiaries, affiliates, successors and assigns, together with its and their past and present directors, officers, agents, insurers, employees, and any employee benefit plans established or maintained by any such entities, together with such plans' fiduciaries and agents (collectively, the "Employee Released Parties"), from any and all claims, demands, obligations, damages, or liabilities of any kind whatsoever, at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, which Employee now owns or holds, or has ever owned or held, against the Employee Released Parties. a. The claims released include all claims arising out of or in any way connected with Employee's employment with the Company, Employee's termination from the Company, or any other transactions, occurrences, acts, or omissions, or any losses, damage, or injury whatsoever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of any of the Employee Released Parties, committed or omitted prior to the date of this Agreement. Employee does not release any claims against any of the Employee Released Parties which arise after he signs this Agreement. b. The claims hereby released include, without limitation, claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e; the Civil Rights Act of 1866, 42 U.S.C. Section 1981; the Age Discrimination in Employment Act, 29 U.S.C. Sections 621 et seq.; the Americans With Disabilities Act, 42 U.S.C. Section 12101 et seq.; the Texas Commission on Human Rights Act, TEX. LABOR CODE Section 21.001 et seq.; any claim for severance pay, bonus, salary, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance, or any other fringe benefit, compensation, or disability benefit; or any other federal, state or local statute, executive order, or regulation regarding employment or the termination of employment, or the common law of any state relating to torts, employment contracts, and employment terminations; before any state or federal court or administrative agency, civil rights agency, or any other forum. c. This Agreement will not impair Employee's rights, if any, to continue health care benefits coverage under COBRA, 29 U.S.C. Sections 1161-68, or to any vested rights under any retirement plan maintained by the Company. 6. THE COMPANY'S RELEASE OF CLAIMS. The Company, on behalf of all predecessors, successors, assignees, beneficiaries, subrogees, agents, representatives, employees, officers, directors, partners, insurers, parents, subsidiaries, and affiliates, and all other persons, natural or otherwise, claiming by, under, or through the Company, promises never to sue and fully and forever releases and discharges Employee, his successors, assignees, beneficiaries, executors, administrators, subrogees, agents, representatives, and all other persons, natural or otherwise, in privity with him (collectively, the "Company Released Parties") of and from any and all claims demands, obligations, damages, or liabilities of any kind whatsoever, at law, in equity, or otherwise; in contract, in tort, or otherwise; _3_ 4 for any act or omission whether negligent, reckless, intentional, or malicious; for damages or compensation of any type, including attorney fees, court costs, expenses, or other costs that the Company might have or might claim to have, whether currently known or unknown, suspected or unsuspected, which Company now owns or holds, or has ever owned or held, against the Company Released Parties. a. The claims released include all claims arising out of or in any way connected with Employee's employment with the Company, Employee's termination from the Company, or any other transactions, occurrences, acts, or omissions, or any losses, damage, or injury whatsoever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of any of the Company Released Parties, committed or omitted prior to the date of this Agreement. The Company does not release any claims against any of the Company Released Parties which arise after the Company signs this Agreement. 7. SURVIVAL. This Severance Agreement shall survive the Death or Disability of Employee and all the rights and entitlements of Employee under this Severance Agreement, the Employment Agreement and Non-Qualified Stock Option Agreement shall inure to the benefit of Employee's personal representatives, heirs, administrators and executors and shall be binding on the Company and its successors and assigns. 8. ATTORNEYS FEES. The Parties agree that, if any action is brought by either Party to the Employment Agreement, this Severance Agreement or the Non-Qualified Stock Option Agreement, all reasonable costs and expenses of suit (including attorneys fees) shall be awarded to the prevailing party. 9. POST-EMPLOYMENT COVENANTS. Sections 8(a), 8(b), 8(c), 8(d) and 8(f) of the Employment Agreement are deleted in their entirety. So long as Employee is receiving compensation pursuant to Section 1(a) above, Employee shall respond to inquiries from BrightStar regarding Employee's knowledge of the business of the Company. 10. INDEMNITY. The Parties acknowledge that Employee has served as director, officer, agent, employee or representative of the Company and/or certain affiliates of the Company in the course of his employment by the Company (the "Service") and that Employee may be subject to legal claims in connection with his performance of the Service. Notwithstanding anything herein to the contrary, the Company agrees to indemnify and hold harmless Employee against any and all claims, suits, actions, damages, liability, expenses (including attorneys fees and costs of litigation), costs, judgments, fines or amounts paid in settlement that are reasonably and actually incurred by Employee in connection with any proceeding or investigation concerning any of Employee's Service. This indemnity shall not extend to punitive damages unless the Company has a current obligation to Employee to indemnify Employee for such damages, in which case the Company shall indemnify the Employee for such damages to the extent and under the conditions that may now exist. In all other respects, the Company shall indemnify the Employee to the fullest extent permitted by applicable law. The Company shall have the right to control the defense of any action to the extent of its indemnity obligation. Neither the Company nor Employee will settle or compromise any claims on any basis that would impose liability, limitation, or restriction on the other without both Parties' express written _4_ 5 consent. This indemnity obligation shall not be deemed limited by the scope of any insurance coverage in effect, nor shall this obligation be deemed exclusive, or in limitation of, any indemnity rights to which Employee may be entitled under law, the Company's certificate of incorporation, by-laws, vote of the shareholders, determination of the Company's board of directors or otherwise. To the extent that Employee is required to separately incur reasonable and necessary legal costs and expenses in connection with any claim indemnified herein, Company shall advance Employee any amounts which may be necessary to pay all such costs and expenses promptly upon the receipt by the Company of a written request therefor. 11. ACKNOWLEDGMENTS OF EMPLOYEE. a. Employee acknowledges that the Company has advised him to consult with an attorney of his own choice before signing this Agreement. b. Employee has acknowledges that he has been given up to twenty-one (21) days after he received this Agreement to sign it. c. Employee understands that he has seven (7) days after he signs this Agreement during which he may revoke it. If Employee revokes this Agreement, it will not be effective, and Employee will not receive any of the payments or benefits described above. Employee understands and agrees that he will not receive any of these payments or benefits until after the seven days have passed. IN WITNESS WHEREOF, the Parties have caused this Severance Agreement and Release to be executed and delivered as of the last date executed. Daniel M. Cofall BrightStar Information Technology Group, Inc. /S/DANIEL M. COFALL By:/S/GEORGE M. SIEGEL - - -------------------------------- -------------------------------- Daniel M. Cofall Date: January 20, 1999 Date: January 18, 1999 --------------------------- --------------------------- _5_ EX-10.28 15 SEVERANCE AND RELEASE AGREEMENT - MARSHALL WEBB 1 EXHIBIT 10.28 SEVERANCE AGREEMENT AND RELEASE This Severance Agreement and Release is entered into as a binding contract between Marshall Webb ("Employee") and BrightStar Information Technology Group, Inc. ("the Company"), as of the last date executed. W I T N E S S E T H: WHEREAS, Employee and the Company (collectively, "the Parties") have been parties to an Executive Employment Agreement dated as of January 1, 1998 ("the Employment Agreement"); WHEREAS, the Parties wish to make clear their positions and understandings and to provide additional understandings relating to the termination of Employee's employment under the Employment Agreement; NOW, THEREFORE, the Parties agree as follows: 1. TERMINATION OF EMPLOYMENT. The Parties hereto agree that Employee's employment under the Employment Agreement shall terminate effective January 31,1999. Employee further agrees to submit his resignation from the Company's Board of Directors effective January 31, 1999. Employee and the Company agree that the termination of employment shall be deemed "termination without cause" under Section 7(c) of the Employment Agreement, and shall not be deemed a termination with "cause" nor repudiation or renunciation of the employment agreement or a voluntary cessation of employment under Section 2 the Stock Repurchase Agreement between Employee and the Company, dated April, 1998. The Parties further agree that the rights and obligations of the Parties shall continue as provided by such agreements except to the extent expressly amended or modified herein, and that Employee shall be entitled to the following compensation as a result of such termination: a. As provided by Section 7(c) of the Employment Agreement, Employee will continue to receive base salary of $175,000 per annum, paid semi-monthly, consistent with the Company's normal payroll practices, through December 31, 2000. b. Employee will be paid for 20 days of accrued, unused vacation time on or before December 31, 1998. c. The Company will continue to pay an automobile allowance of $1,000 per month to Employee, payable in a manner consistent with the Company's prior payment practices, with respect to each month through December, 2000. d. The Company will continue benefit coverages for Employee and his family for up to twelve (12) months after the date of termination, under the same limitations and conditions as provided in the Employment Agreement. These benefits will terminate upon the earlier of Employee's participation in other, similar plans, or 12 months following the date of termination (the "Benefits Period"). On or soon after the termination date, the Company will provide Employee with a COBRA election form for health coverage. Employee will complete the form and elect full continuation 2 of benefits. The Company will pay the difference between the cost of COBRA coverage and Employee's regular employee contribution, if any, during the Benefits Period. 2. CONSULTING AGREEMENT. The Employee agrees to advise and consult with the Company from time to time during the ninety day period immediately following termination of employment under the Employment Agreement as reasonably called upon to do so by the Company during normal and customary business hours on normal and customary business days. Expenses incurred by Employee in connection with any such consulting services shall be paid by the Company. In consideration of such services, the Company agrees to pay Employee a one-time fee of fifty thousand dollars ($50,000) on or before January 31, 1999. 3. STOCK OPTIONS. Under terms of that certain Incentive Stock Option Agreement between Employee and the Company dated as of April 16, 1998, Employee has been granted options (the "ISOs") to purchase 76,000 shares of the Company's common stock at an exercise price of $13.00 per share, under certain terms and conditions. The ISOs must be exercised by Employee within three months following termination of employment pursuant to the Employment Agreement. In consideration for the immediate termination of all of Employee's rights to the ISOs and all of Employee's rights under the Incentive Stock Option Agreement, and in consideration for Employee's full release, set forth below, of any and all claims relating to the Company and all related persons and entities, the Company will grant options (the "NQSOs") to purchase 76,000 shares of the Company's common stock pursuant to a Non-Qualified Stock Option Agreement in the form attached hereto as Exhibit "A". The NQSOs shall be exercisable, in whole or in part, at an exercise price of $13.00 per share at any time, and from time to time, during the period beginning upon expiration of the seven-day period described in Section 12.c of this Agreement (provided that Employee has not elected to revoke this Agreement pursuant to such provision) until 5:00 p.m. Houston, Texas, time on March 31, 2001. 4. EMPLOYEE'S NON-DISPARAGEMENT AGREEMENT. Employee agrees that he will not in any way disparage the Company or its affiliates, including their current or former officers, directors and employees, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Company that Employee is or may become under a legal duty to make disparaging remarks, opinions or disclosures. To the extent permitted by law, Employee agrees to refer all inquiries concerning the Company or its affiliates, including their current or former officers, directors and employees, to the Company. 5. THE COMPANY'S NON-DISPARAGEMENT AGREEMENT. The Company agrees that it will not in any way disparage Employee, except as may be necessary to comply with a valid order, subpoena or law and after reasonable notice has been given to the Employee that the Company is or may become under a legal duty to make disparaging remarks, opinions or disclosures. The Company agrees to respond to all inquiries concerning Employee, to the extent permitted by law, by confirming dates of employment and positions held and by giving a positive reference. 6. EMPLOYEE'S RELEASE OF CLAIMS. Except as otherwise expressly provided herein, Employee, on behalf of himself, and anyone who may now or later have the right to sue for or through him, his descendants, heirs, executors, administrators, and assigns, promises never to sue, and fully and forever releases and discharges the Company, its parents, subsidiaries, affiliates, -2- 3 successors and assigns, together with its and their past and present directors, officers, agents, attorneys, insurers, employees, stockholders, and any employee benefit plans established or maintained by any such entities, together with their fiduciaries and agents (collectively, the "Released Parties"), from any and all claims, demands, obligations, damages, or liabilities of any kind whatsoever, at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, which Employee now owns or holds, or has ever owned or held, against the Released Parties. a. The claims released include all claims arising out of or in any way connected with Employee's employment with the Company, Employee's termination from the Company, or any other transactions, occurrences, acts, or omissions, or any losses, damage, or injury whatsoever, known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of any of the Released Parties, committed or omitted prior to the date of this Agreement. Employee does not release any claims against any of the Released Parties which arise after he signs this Agreement. b. The claims hereby released include, without limitation, claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e; the Civil Rights Act of 1866, 42 U.S.C. Section 1981; the Age Discrimination in Employment Act, 29 U.S.C. Sections 621 et seq.; the Americans With Disabilities Act, 42 U.S.C. Section 12101 et seq.; the Texas Commission on Human Rights Act, TEX. LABOR CODE Section 21.001 et seq.; any claim for severance pay, bonus, salary, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance, or any other fringe benefit, compensation, or disability benefit; or any other federal, state or local statute, executive order, or regulation regarding employment or the termination of employment, or the common law of any state relating to torts, employment contracts, and employment terminations; before any state or federal court or administrative agency, civil rights agency, or any other forum. c. This Agreement will not impair Employee's rights, if any, to continue health care benefits coverage under COBRA, 29 U.S.C. Sections 1161-68, or to any vested rights under any retirement plan maintained by the Company. 7. THE COMPANY'S RELEASE OF CLAIMS. The Company, on behalf of all predecessors, successors, assignees, beneficiaries, subrogees, agents, representatives, employees, officers, directors, shareholders, partners, insurers, parents, subsidiaries, and affiliates, and all other persons, natural or otherwise, claiming by, under, or through the Company, releases and forever discharges Employee, his predecessors, successors, assignees, beneficiaries, executors, administrators, subrogees, agents, representatives, and all other persons, natural or otherwise, in privity with him of and from any and all claims whatsoever, at common law, statutory, or otherwise; in contract, in tort, or otherwise; for any act or omission whether negligent, reckless, intentional, or malicious; for damages or compensation of any type, including attorney fees, court costs, expenses, or other costs that the Company might have or might claim to have, whether currently known or unknown. 8. SURVIVAL. This Severance Agreement and Release shall survive the Death or Disability of Employee and all the rights and entitlements of Employee under the Severance Agreement and Release, the Employment Agreement and Non-Qualified Stock Option Agreement shall inure to the -3- 4 benefit of Employee's personal representatives, heirs, administrators and executors and shall be binding on the Company and its successors and assigns. 9. ATTORNEYS FEES. The Parties agree that, if any action is brought by either Party to the Employment Agreement, this Agreement or the Non-Qualified Stock Option Agreement, all reasonable costs and expenses of suit (including attorneys fees) shall be awarded to the prevailing party. 10. POST-EMPLOYMENT COVENANTS. Company agrees to waive Employee's post-employment covenants contained in Section 8(c) of the Employment Agreement with respect to any business which Employee represents, engages in, or carries on in Harris County, Texas and contiguous counties. As to further waiver, Employee may request in writing a waiver of Employee's post-employment covenants described in Section 8 of the Employment Agreement. Company agrees to respond to any such request within ten (10) working days of receipt and that no such request will be unreasonably refused. So long as Employee is receiving compensation pursuant to Section 1(a) above, Employee shall respond to reasonable and customary inquiries from BrightStar during normal and customary business hours on normal and customary business days regarding Employee's knowledge of the business of the Company. 11. INDEMNITY. The Parties acknowledge that Employee has served as director, officer, agent, employee or representative of the Company and/or certain affiliates of the Company in the course of his employment by the Company (the "Service") and that Employee may be subject to legal claims in connection with his performance of the Service. Notwithstanding anything herein to the contrary, the Company agrees to indemnify and hold harmless Employee against any and all claims, suits, actions, damages, liability, expenses (including attorneys fees and costs of litigation), costs, judgments, fines or amounts paid in settlement that are reasonably and actually incurred by Employee in connection with any proceeding or investigation concerning any of Employee's Service. This indemnity shall not extend to punitive damages unless the Company has a current obligation to Employee to indemnify Employee for such damages, in which case the Company shall indemnify the Employee for such damages to the extent and under the conditions that may now exist. In all other respects, the Company shall indemnify the Employee to the fullest extent permitted by applicable law. The Company shall have the right to control the defense of any action to the extent of its indemnity obligation. Neither the Company nor Employee will settle or compromise any claims on any basis that would impose liability, limitation, or restriction on the other without both Parties' express written consent. This indemnity obligation shall not be deemed limited by the scope of any insurance coverage in effect, nor shall this obligation be deemed exclusive, or in limitation of, any indemnity rights to which Employee may be entitled under law, the Company's certificate of incorporation, by-laws, vote of the shareholders, determination of the Company's board of directors or otherwise. 12. ACKNOWLEDGMENTS OF EMPLOYEE. a. Employee acknowledges that Company has advised him to consult with an attorney of his own choice before signing this Agreement. -4- 5 b. Employee has acknowledges that he has been given up to twenty-one (21) days after he received this Agreement to sign it. c. Employee understands that he has seven (7) days after he signs this Agreement during which he may revoke it. If Employee revokes this Agreement, it will not be effective, and Employee will not receive any of the payments or benefits described above. Employee understands and agrees that he will not receive any of these payments or benefits until after the seven days have passed. IN WITNESS WHEREOF, the Parties have caused this Severance Agreement and Release to be executed and delivered as of the last date executed. Marshall Webb BrightStar Information Technology Group, Inc. /s/ MARSHALL G. WEBB By: /s/ GEORGE M. SIEGEL - - ------------------------------- ------------------------------- Marshall Webb Date: February 1, 1999 Date: -------------------------- ---------------------------- -5- EX-10.29 16 REVOLVING CREDIT AGREEMENT 1 ======================================================================== REVOLVING CREDIT AGREEMENT DATED MARCH 29, 1999 BETWEEN BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND COMERICA BANK ======================================================================== 2 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT made as of the 29th day March, 1999, by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. and COMERICA BANK. WITNESSETH: WHEREAS, the Borrower has requested Bank to make certain loans and extensions of credit to Borrower; and WHEREAS, the Bank is willing to do so subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, the Borrower and the Bank agree: 1. ARTICLE 1; DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Account Debtor," "Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments" and "Inventory" shall have the meanings assigned to them in the UCC. 1.2 "Accounts Receivable" shall mean and include all Accounts, Chattel Paper and General Intangibles (including, but not limited to tax refunds, trade names, trade styles and goodwill, trade marks, copyrights and patents, and applications therefor, trade and proprietary secrets, formulae, designs, blueprints and plans, customer lists, literary rights, licenses and permits, receivables, insurance proceeds, beneficial interests in trusts and minute books and other books and records) now owned or hereafter acquired by Borrower. 1.3 "Affiliate" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. 1.4 "Agreement" shall mean this Agreement as amended from time to time in accordance with the terms hereof. 3 1.5 "Applicable Interest Rate" shall mean the Eurodollar-based Rate or the Prime-based Rate, as selected by Borrower from time to time or otherwise determined pursuant to the terms and conditions of this Agreement. 1.6 "Bank" shall mean Comerica Bank, a Michigan banking corporation. 1.7 "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended, or any successor act or code. 1.8 "Borrowing Base Amount" shall mean, as of any date, an amount equal to the sum of: (a) eighty five percent (85%) of the Eligible Time Accounts; plus (b) seventy five percent (75%) of the Eligible Fixed Accounts. 1.9 "Borrower" shall mean BrightStar Information Technology Group, Inc., a Delaware corporation. 1.10 "Business Day" shall mean any day on which Bank is open for domestic business in Detroit and (when used in connection with any provision regarding Eurodollar-based Loans) also a day on which commercial banks are open for international business (including dealings in dollar deposits in the interbank market) in Detroit and London. 1.11 "Collateral" shall mean all property of the Borrower now or hereafter in the possession of the Bank or any Affiliate of the Bank (or as to which the Bank or any Affiliate of the Bank now or hereafter controls possession by documents or otherwise), all amounts in all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the Borrower now or hereafter with the Bank or any Affiliate of the Bank and all of Borrower's Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, wherever located and whether now owned or hereafter acquired, together with all replacements of any of the foregoing, substitutions therefor, accessions thereto, and all proceeds and products of all the foregoing, and all additional property (real or personal) of the Borrower which is now or hereafter subject to a security interest, mortgage, lien, claim or other encumbrance granted by the Borrower to, or in favor of, the Bank. 1.12 "Commitment Amount" shall mean Fifteen Million Dollars ($15,000,000). 1.13 "Contribution Agreement" shall mean the Contribution Agreement among the Subsidiaries wherein the Subsidiaries allocate among themselves, the liability to one another arising under the Guaranty. -2- 4 1.14 "Debt" shall mean, as of the date of any determination thereof, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several of Company, that should be classified as liabilities in accordance with GAAP. 1.15 "Debt to Tangible Net Worth Ratio" shall mean, as of the date of any determination thereof, the ratio of (i) Debt to (ii) Tangible Net Worth. 1.16 "Default" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. 1.17 "Documents" shall mean this Agreement, the Note, the Security Agreement, the Stock Pledge, the Guaranty, the Guarantors' Security Agreements, the Subsidiary Security Agreement, the Financing Statements and all other documents, agreements and instruments delivered to Bank pursuant to this Agreement or any of the foregoing. 1.18 "EBITDA" shall mean for any period of determination thereof, Net Income plus any amounts deducted in the calculation thereof with respect to interest expense, taxes, non-cash compensation in the form of stock options, depreciation or amortization of Company, all determined in accordance with GAAP. 1.19 "Eligible Time Account" shall mean an Account (not including interest and service charges) arising from services performed and billed for time and materials and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; -3- 5 (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Fixed Accounts. -4- 6 An Account Receivable which is at any time an Eligible Fixed Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Fixed Account. 1.20 "Eligible Fixed Account" shall mean an Account (not including interest and service charges) arising from services performed on turnkey or fixed price projects and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; -5- 7 (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Time Accounts. An Account Receivable which is at any time an Eligible Time Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Time Account. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as amended, or any successor act or code. 1.22 "Eurodollar-based Loan" shall mean a Loan at any time during which such Loan bears interest at a Eurodollar-based Rate. 1.23 "Eurodollar-based Rate" shall mean a per annum interest rate equal to the Eurodollar Rate, plus two and one-half (2.5%) per annum. 1.24 "Eurodollar Rate" shall mean, for any Eurodollar-based Loan: (a) the per annum interest rate at which the Bank's eurodollar lending office offers deposits in eurodollars to prime banks in the eurodollar market in an amount comparable to the relevant Eurodollar-based Loan and for a period equal to the Interest Period therefore at approximately 11:00 a.m. Detroit time two (2) Business Days prior to the first day of such Interest Period; divided by, -6- 8 (b) a percentage (expressed as a decimal) equal to one hundred percent (100%) minus that percentage which is in effect on the date for an Advance of a Eurodollar-based Loan, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements for a member bank of the Federal Reserve System with deposits exceeding five billion dollars in respect of "Euro-currency Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar-based Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States Eurodollar Lending Office of such a bank to United States residents). 1.25 "Event of Default" shall mean any of those conditions or events listed in Section 8.1 of this Agreement. 1.26 "Financial Statements" shall mean all historical balance sheets and earnings statements and other financial data which have been furnished to the Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby, including without limit balance sheets, statements of income, retained earnings and cash flow, and all footnotes. 1.27 "Financing Statements" shall mean UCC financing statements describing the Bank as secured party and the Borrower as debtor covering the Collateral and otherwise in such form, for filing in such jurisdictions and with such filing offices, and/or any financing statement(s) required to perfect any security agreements entered into in connection with the Loan, as the Bank shall reasonably deem necessary or advisable. 1.28 "Foreign Subsidiaries" shall mean BrightStar Information Technology Group, Pty. Ltd., PROSAP AG, PROSAP Australia Pty., Ltd., SCS Offshore Pty., Ltd. And SCS Consulting & Services Pte. Ltd. 1.29 "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied in the country of incorporation of the relevant Person. 1.30 "Guarantors" shall mean each of the Subsidiaries, jointly and severally. 1.31 "Guarantors' Security Agreements" shall mean those Security Agreements by each Guarantor pursuant to which each Guarantor grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the respective Guarantor, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. -7- 9 1.32 "Guaranty" shall mean the joint and several guaranty executed by Guarantors to Bank guarantying payment of all principal, interest and costs due Bank from Borrower. 1.33 "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of the Borrower to the Bank under the Notes, this Agreement and the Documents, together with all other indebtedness, obligations and liabilities whatsoever of the Borrower to the Bank, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising. 1.34 "Interest Coverage Ratio" shall mean, as of the date of any calculation thereof, the ratio of (i) the EBITDA of Company for the four quarter period most recently ended, to (ii) the Interest Expense of Company for the period of such calculation. 1.35 "Interest Expense" shall mean the interest expense of Company, determined in accordance with GAAP. 1.36 "Interest Period" shall mean an interest period for a Eurodollar-based Loan of one (1), three (3), or six (6) months, provided however, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless the next succeeding Business Day falls in another calendar month, in which case, such Interest Period shall end on the immediately preceding Business Day; and (b) no Interest Period may end after the Maturity Date. 1.37 "Legal Rate" shall mean at the particular time in question the maximum rate of interest which, under applicable law, the Bank is then permitted to charge on the Indebtedness. If the maximum rate of interest which, under applicable law, the Bank is permitted to charge on the Indebtedness shall change after the date hereof, the Legal Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Legal Rate without notice to the Borrower. For purposes of determining the Legal Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a) (I) of Art. 1.04, or (b) if the parties subsequently contract as allowed by applicable law, the quarterly ceiling or the annualized ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that at any time the indicated rate ceiling, the quarterly ceiling of the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for purposes of such determination, as applicable. -8- 10 1.38 "Loan" shall mean, individually and /or collectively as the context may require, the advances evidenced by the Note. 1.39 "Maturity Date" shall mean March 29, 2001. 1.40 "Note" shall mean the promissory note executed and delivered by Borrower to Bank pursuant to Section 2.3 of this Agreement in the form of Exhibit "A" to this Agreement. 1.41 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. 1.42 "Permitted Liens" shall mean: (a) Liens and encumbrances in favor of the Bank; (b) Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank; (c) Liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) Liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and (e) Encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use. 1.43 "Person" or "person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. 1.44 "Prime-based Loan" shall mean a Loan that at any time during such Loan bears interest at a Prime-based Rate. -9- 11 1.45 "Prime-based Rate" shall mean the Prime Rate in effect from time to time plus one-quarter percent (1/4%). 1.46 "Prime Rate" shall mean that annual rate of interest designated by the Bank as its prime rate, which rate may not be the lowest rate of interest charged by the Bank to any of its customers, and which rate is changed by the Bank from time to time. 1.47 "Request for Loan" shall mean a request for loan delivered by Borrower to Bank in the form of Exhibit "B" to this Agreement, pursuant to Section 2.2 of this Agreement. 1.48 "Revolving Maximum" shall mean, as of any date, the lesser of: (a) the Commitment Amount, or (b) the Borrowing Base Amount. 1.49 "Security Agreement" shall mean the Security Agreement by Borrower pursuant to which the Borrower grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the Borrower, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.50 "Stock Pledge" shall mean the Stock Pledge by Borrower pursuant to which Borrower grants to Bank a first priority pledge of one hundred percent (100%) of the issued and outstanding stock in the Subsidiaries. 1.51 "Subsidiaries" shall mean BrightStar Group International, Inc., Mindworks Professional Education Group, Inc., Brian R. Blackmarr and Associates, Inc., Integrated Controls, Inc., Cogent, Inc., Software Consulting Services America, Inc. and Software Innovators, Inc., all wholly owned subsidiaries of Borrower. 1.52 "Subsidiary Security Agreement" shall mean the Security Agreement by all of the Subsidiaries pursuant to which the Subsidiaries grant to Borrower a priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of each respective Subsidiary, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.53 "Tangible Net Worth" shall mean as of the date of any determination, the excess of the net book value of the assets of Company (other than patents, patent rights, trademarks, trade names, copy rights, franchises, licenses, goodwill and other intangible assets) after all appropriate deductions in accordance with GAAP, less all Debt of Company. -10- 12 1.54 "UCC" shall mean the Uniform Commercial Code in effect with respect to the jurisdictions of the various Locations. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. 2. ARTICLE 2; COMMITMENT, INTEREST AND FEES 2.1 Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make Advances to the Borrower from the date hereof until the Maturity Date, in aggregate principal amount at any time outstanding not to exceed the Revolving Maximum. 2.2 Requests for Loans. Borrower may request an Advance by delivery to Bank of a Request for Loan executed by an authorized officer Borrower and subject to the following: (a) each such Request for Loan shall set forth the information required on the Request for Loan form; (b) each such Request for Loan shall be delivered to Bank by 10:00 a.m. three (3) Business Days prior to the proposed date of Advance, except if the Applicable Interest Rate for such Advance is to be the Prime-based Rate, such Request for Loan must be delivered by 10:00 a.m. (Detroit time) on such proposed date; (c) if the Request for Loan is a request for a Eurodollar-based Loan, the principal amount of the Advance requested shall be at least Five Hundred Thousand Dollars ($500,000) or an integral multiple thereof; and (d) each Request for Loan shall constitute a certification by the Borrower as of the date thereof that all of the conditions set forth in Article 4 hereof are satisfied as of the date of such request and shall be satisfied as of the date such Advance is requested. 2.3 Note. The Revolving Loan shall be evidenced by a Note in the form of Exhibit "A" hereto executed by Borrower. 2.4 Payments of Principal. The principal of the Note shall be payable (unless sooner accelerated pursuant to the terms of this Agreement) on the Maturity Date, when -11- 13 the entire balance then outstanding and all accrued and unpaid interest thereon, shall be due and payable. 2.5 Interest. The principal balance of each Advance from time to time outstanding under each Note shall bear interest at its Applicable Interest Rate. Interest shall be payable on all Prime-based Advances, monthly, on the first Business Day of each month. Interest shall be payable on each Eurodollar-based Advance on the last day of its Interest Period and, if such Interest Period has a duration of longer than three (3) months, also at each three month interval from the first day of such interest period. 2.6 Preparation, Closing & Ongoing Fees. Borrower shall pay to Bank: (a) concurrently with the execution of this Agreement, the amount of the expenses (including without limit reasonable attorneys' fees, whether of inside or outside counsel, and disbursements) incurred by the Bank in connection with the preparation and closing of this Agreement and related instruments and/or making of advances hereunder, including but not limited to costs to conduct audits, monitoring and appraisals; (b) concurrently with the execution of this Agreement, a non-refundable closing fee in the amount of Seventy Five Thousand Dollars ($75,000); (c) on an ongoing basis, all audit costs and all collateral monitoring costs of Bank. 2.7 Commitment Fees. Borrower shall pay Bank monthly, on the first Business Day of each month, a commitment fee in the amount equal to the three-eighths of one percent (3/8%) per annum on the average daily amount by which the Commitment Amount exceeded the principal amount of outstanding Advances during the preceding month. 2.8 Basis of Computation. The amount of all interest and fees hereunder shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred sixty (360) days. 2.9 Basis of Payments. All sums payable by the Borrower to the Bank under this Agreement or the other documents contemplated hereby shall be paid directly to the Bank at its office set forth in Section 9.10 hereof in immediately available United States funds, without set off, deduction or counterclaim. Borrower hereby authorizes and request Bank to debit Borrower's checking or deposit or other accounts with the Bank for all or a part of any such amounts when due, provided, however, that this authorization shall not affect the Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. -12- 14 2.10 Receipt of Payments. Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by the Bank at the address designated for such payment, whether or not the Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. The Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by the Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only. 2.11 Default Interest. Notwithstanding anything herein to the contrary, in the event and so long as an Event of Default shall exist, all principal outstanding under the Note shall bear interest, payable on demand, from the date of such Event of Default at a rate per annum equal to: (a) in the case of a Prime-based Loan, three percent (3%) above the Prime-base Rate; and (b) in the case of a Eurodollar-based Loan, three percent (3%) above the Eurodollar-based Rate until the end of the then current Interest Period, at which time such Eurodollar-based Loans shall be automatically converted into Prime-based Loans and bear interest at the rate provided for in clause (a) above. 2.12 Conversion and Renewal of Loans. Providing that no Event of Default shall have occurred and be continuing, the Borrower may elect to renew or convert Applicable Interest Rates applicable to Advances from the Prime-based Rate to the Eurodollar-based Rate or from the Eurodollar-based Rate to the Prime-based Rate, provided that any conversion of a Eurodollar-based Loan shall be made only on the last Business Day of the Interest Period applicable to such Eurodollar-based Loan. If the Borrower desires such a renewal or conversion, it shall give Bank not less than three (3) Business Days' prior notice in the manner provided in Section 2.2 hereof, specifying the date of such renewal or conversion, the Advances to be converted and the type of Advances elected. If with respect to any Eurodollar-based Loan outstanding at any time the Bank does not receive notice of the election from a Borrower not less than three (3) Business Days prior to the last day of the Interest Period therefor, the Borrower shall be deemed to have elected to convert such Eurodollar-based Loan to a Prime-based Loan at the end of the then current Interest Period unless such Eurodollar-based Loan is repaid upon the last day of such Interest Period. 2.13 Early Termination Compensation. In the event that Borrower shall terminate this Agreement on or before the Maturity Date, Borrower shall be obligated to pay to Bank, as a condition to such termination and prior to the release of Bank's liens and encumbrances, the amount of: (a) One Hundred and Fifty Thousand Dollars -13- 15 ($150,000) if such termination occurs before the first anniversary hereof; or (b) Seventy Five Thousand Dollars ($75,000) if such termination occurs on or after the first anniversary hereof but before the second anniversary of this Agreement. This Early Termination Compensation shall be waived if the Loan is replaced by another credit facility with Bank. 3. ARTICLE 3; SPECIAL PROVISIONS FOR EURODOLLAR-BASED LOANS 3.1 Reimbursement of Prepayment Costs. As to any Advances, if any prepayment thereof shall occur on any day other than the last day of an Interest Period (in the case of a Eurodollar-based Loan) or the first day of an Interest Period (with regard to a Prime-Based Loan) (whether pursuant to this Article, or by acceleration, or otherwise), or if an Applicable Interest Rate shall be changed during any Interest Period pursuant to this Article, the Borrower agrees to reimburse Bank any costs incurred by Bank as a result of the timing thereof including but not limited to any net costs incurred in liquidating or employing deposits from third parties, upon Bank's delivery to Borrower of a certificate setting forth in reasonable detail the basis for determining such costs, which certificate shall be conclusively presumed correct save for manifest error. 3.2 Eurodollar Lending Office. For any Advance for which the Applicable Interest Rate is the Eurodollar-based Rate, if Bank shall designate a eurodollar lending office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying the relevant advance on the books of such office. 3.3 Circumstances Affecting Eurodollar-based Availability. If Bank determines that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts are not being offered to Bank for an Interest Period, then Bank shall forthwith give notice thereof to the Borrower. Thereafter, the obligation of Bank to make Eurodollar-based Loans, and the right of Borrower to convert an Advance to or refund an Advance as a Eurodollar-based Loan shall be suspended and all of the Loans shall be Prime-based Loans bearing interest at the Prime-based Rate until the Bank notifies Borrower that such circumstance no longer exists. 3.4 Laws Affecting Eurodollar-based Loan Availability. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by Bank (or its eurodollar lending offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for Bank to honor its obligations hereunder to make or maintain any Advance with interest at the Eurodollar-based Rate, Bank shall forthwith give notice thereof to Borrower. Thereafter: (a) the obligations to -14- 16 make Eurodollar-based Loans and the right of Borrower to convert an Advance or refund an Advance as a Eurodollar-based Loan shall be suspended; and (b) if Bank may not lawfully continue to maintain a Eurodollar-based Loan to the end of the then current Interest Period, the Prime-based Rate shall be the Applicable Interest Rate for such Eurodollar-based Loan for the remainder of such Interest Period. 3.5 Increased Costs. In the event that any change after the date hereof in applicable law, treaty or governmental regulation, or in the interpretation or application thereof, or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority: (a) shall subject Bank (or its eurodollar lending office) to any tax, duty or other charge with respect to any Advance or shall change the basis of taxation of payments to Bank (or its eurodollar lending office) of the principal of or interest on any Advance or any other amounts due under this Agreement (except for changes in the rate of tax on the overall net income or gross receipts of Bank or its eurodollar lending office imposed by the jurisdiction in which Bank's principal executive office or eurodollar lending office is located); or (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System but excluding with respect to any Eurodollar-based Loan any such requirement included in an applicable Eurodollar Reserve Requirement), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its eurodollar lending offices) or shall impose on Bank (or its eurodollar lending offices) or the foreign exchange and interbank markets or other condition affecting any Advance or any commitment of Bank under this Agreement; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any Advance or its commitments hereunder or to reduce the amount or rate of return on any sum received or receivable by Bank under this Agreement, or under any Note, then Bank may promptly notify Borrower of such fact and demand compensation therefor and Borrower agrees to pay to Bank (so long as such event or circumstance continues to exist) such additional amount or amounts as will compensate Bank for such increased costs or reduced return within thirty (30) days of such notice; provided, however that, to the extent doing so would eliminate or decrease Borrower's liability for increased costs hereunder, and to the extent that doing so would not otherwise be disadvantageous to Bank, Bank will attempt to designate a eurodollar lending office for which the tax, duty, reserve, deposit requirement, or other circumstance giving rise to Bank's demand for increased compensation, is not applicable. A certificate of the Bank demanding such compensation setting forth in reasonable detail the basis for determining such additional amount or amounts necessary to compensate shall be conclusively presumed to be correct save for manifest error. -15- 17 3.6 Limitation on Outstanding Advances. At no time shall there be greater than three (3) outstanding Advances on a Eurodollar-based Loan. 4. ARTICLE 4; CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK The obligations of the Bank under this Agreement are subject to the satisfaction of each of the following conditions: 4.1 Documents Executed and Filed. The Borrower shall have executed (or caused to be executed) and delivered to the Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Bank shall deem appropriate, the following: (a) The Note; (b) The Security Agreement; (c) The Subsidiary Security Agreement; (d) The Gurantors' Security Agreements; (e) The Financing Statements; (f) The Guaranty; (g) The Stock Pledge; (h) The Contribution Agreement; (i) Acknowledgements of Borrower's landlords with respect to each Location, together with true copies of each Lease for such Locations. 4.2 Certified Resolutions. The Borrower shall have furnished to the Bank a copy of resolutions of the Board of Directors of the Borrower and the Guarantors authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Note and the Documents to which Borrower and/or Guarantors are a party, which shall have been certified by the Secretary or Assistant Secretary of the Borrower or Guarantors, as the case may be, as being complete, accurate and in effect. 4.3 Certified Articles. The Borrower shall have furnished to the Bank a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the Borrower and Guarantors, which shall have been certified by the jurisdiction of organization of the respective parties thereto. -16- 18 4.4 Certified Bylaws. The Borrower shall have furnished to the Bank a copy of the Bylaws of the Borrower and Guarantors, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of the Borrower and Guarantors, as the case may be, as being complete, accurate and in effect. 4.5 Certificate of Good Standing. The Borrower shall have furnished to the Bank a certificates of good standing with respect to the Borrower and Guarantors certified by the Secretary of State of the States in which they are organized in. 4.6 Certificate of Incumbency. The Borrower shall have furnished to the Bank a certificate of the Secretary or Assistant Secretary of the Borrower and the Guarantors, as to the incumbency and signatures of the officers of the Borrower and Guarantors, as the case may be, signing this Agreement, the Note and Documents. 4.7 UCC Lien Search. The Bank shall have received UCC record and copy searches, evidencing the appropriate filing and recording of the Financing Statements and disclosing no notice of any liens or encumbrances filed against any of the Collateral. 4.8 Casualty Insurance. The Borrower shall have furnished to the Bank, in form, content and amounts and with companies satisfactory to the Bank, casualty insurance policies with loss payable clauses in favor of the Bank, relating to the assets and properties (including, but not limited to, the Collateral) of the Borrower. 4.9 Opinion of Counsel. Borrower shall have caused its legal counsel to deliver to Bank a legal opinion covering such matters as Bank shall require, and otherwise in form and content satisfactory to Bank. 4.10 Approval of Bank Counsel. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been satisfactory to and approved by legal counsel for the Bank, and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested. 5. ARTICLE 5; WARRANTIES AND REPRESENTATIONS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower represents and warrants that: 5.1 Corporate Existence and Power. (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) it has the power and authority to own its properties and assets and to carry out its -17- 19 business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary and (c) the Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Note and other Documents to which it is party and to grant to the Bank liens and security interests in the Collateral as hereby contemplated and to do any and all other things required of it hereunder. 5.2 Authorization and Approvals. The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Note, the other Documents: (a) have been duly authorized by all requisite corporate action of the Borrower (b) except for UCC filings, do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, (c) will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of the Borrower, any provision of any indenture, note, agreement or other instrument to which any of them are a party, or by which any of their properties or assets are bound, (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument, and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, other than in favor of the Bank and as contemplated hereby. 5.3 Valid and Binding Agreement. This Agreement and the Documents will be, when delivered, valid and binding obligations of the Borrower, in accordance with its respective terms except to the extent enforceability thereof may be limited under applicable bankruptcy, moratorium, insolvency, rearrangement, reorganization or similar debtor relief laws affecting the rights of creditors generally from time to time in effect. 5.4 Actions, Suits or Proceedings. There are no actions, suits or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any properties or rights of the Borrower which, if adversely determined, could materially impair the right of it to carry on its business substantially as now conducted or could have a material adverse effect upon its financial condition. 5.5 No Liens, Pledges, Mortgage or Security Interests. Except for Permitted Liens none of the Borrower's assets and properties, including without limit the Collateral, are subject to any mortgage, pledge, lien, security interest or other encumbrances of any kind or character other than in favor of Bank and Permitted Liens. 5.6 Accounting Principles. All consolidated and consolidating balance sheets, earnings statements and other historical financial data furnished to the Bank for the -18- 20 purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of the Borrower, as of the dates, and the results of its operations for the periods, for which the same are furnished to the Bank. Without limiting the generality of the foregoing, the annual and quarterly Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and the monthly Financial Statements have been prepared in a manner consistent with the calculations used in quarterly Financial Statements, and all of them fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to the Bank. The Borrower has no material contingent obligations, liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 Financial Condition. The Borrower is solvent, able to pay its respective debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and the Borrower will not be rendered insolvent, under-capitalized or unable to pay maturing debts by the execution or performance of this Agreement or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest of the Financial Statements. 5.8 Taxes. The Borrower has filed by the due date therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and has made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. The Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 5.9 Compliance with Laws. The Borrower has complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of the Borrower as presently conducted. 5.10 Indebtedness. Except as permitted under Section 7.4 hereof, the Borrower has no indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit or collection. 5.11 Material Agreements. Except as disclosed on Schedule 5.11 attached hereto, the Borrower has no material contracts (as defined in the Regulations under the -19- 21 Securities Act of 1933, as amended), which may include, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements; to the best knowledge of Borrower, all parties to such agreements have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of the Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 5.12 Margin Stock. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any Loan hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.13 Pension Funding. The Borrower has not incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by the Borrower and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 5.14 Misrepresentation. No warranty or representation by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. 5.15 Hazardous Materials Warranties, Representations and Covenants. (a) Borrower is not party to any litigation or administrative proceeding, nor so far as is known by Borrower, is any litigation or administrative proceeding threatened against it, which in either case (a) asserts or alleges that Borrower violated any federal, state or local laws, ordinances, statutes, rules, regulations or judgments governing the use, storage, transportation, or disposal of Hazardous Materials ("Environmental Laws"), (b) asserts or alleges that Borrower is required to clean up, remove, or take remedial or other response action due to the disposal, depositing discharge, leaking or other release of any Hazardous Materials, (c) asserts or alleges that Borrower is required to pay all or a portion of the cost of any past, present, or future clean up, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Material by any one of them. -20- 22 (b) To the best knowledge of Borrower, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Borrower to damages, penalties, injunctive relief or clean up costs under any Environmental Laws or which require or are likely to require clean up, removal, remedial action or other response pursuant to Environmental Laws by Borrower. (c) The Borrower is not subject to any judgment, decree, order or citation related to or arising under the Environmental Laws and Borrower has not received any notice ("Environmental Complaint") of any violations of Environmental Laws (and, within five days of receipt of any Environmental Complaint the Borrower shall deliver to the Bank a copy thereof), and to the best of Borrower's knowledge, there have been no actions commenced or threatened by any party for noncompliance with any Environmental Laws. (d) The Borrower has all permits, licenses, approvals and other authorizations required under the Environmental Laws. (e) The Borrower covenants and agrees that it shall not use, introduce or maintain Hazardous Materials in any premises which they may from time to time occupy other than in strict accordance and compliance with Environmental Laws. (f) Borrower agrees that it shall promptly notify Bank in writing as soon as Borrower becomes aware of any condition or circumstance which makes the environmental warranties, representations and covenants contained herein incomplete or inaccurate in any material respect as of any date. (g) In the event of any condition or circumstance that makes any environmental representation, warranty or covenant incomplete or inaccurate in any material respect as of any date, Borrower shall, at the request of Bank, at the sole expense of Borrower, retain an environmental consultant acceptable to Bank, to conduct a thorough and complete environmental assessment in respect of any environmental concerns of Bank arising from that changed condition or circumstance. A copy of said assessment will be addressed to Bank and promptly delivered to Bank, Borrower upon completion. (h) In the event of a violation of Environmental Laws, whether discovered pursuant to an environmental consultant's assessment or otherwise, Borrower covenants and agrees to complete all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials on or affecting premises or property occupied or used by Borrower, whether caused by the Borrower or a third party, in accordance with Environmental Laws to the satisfaction of Bank, and in accordance with the directives of all federal, state, and local governmental authorities. -21- 23 (i) At any time Borrower, directly or indirectly through any professional consultant or other representative, determines to undertake an environmental audit, assessment or investigation, Borrower shall promptly provide Bank with written notice of the initiation of the environmental audit/assessment, fully describing the purpose and intended scope of the said audit/assessment. Upon receipt, Borrower shall promptly provide Bank copies of all final findings and conclusions of any such environmental investigation. Preliminary findings and conclusions shall be provided if final reports have not been completed and delivered to Bank within sixty days following completion of the preliminary findings and conclusions. (j) Borrower hereby indemnifies, saves and holds Bank and any of its past, present and future officers, directors, shareholders, employees, representatives and consultants harmless from any and all loss damages, suits, penalties, costs, liabilities and expenses (including, but not limited to reasonable investigation, environmental audit(s), and legal expenses), arising out of any claim, loss or damages of any property, injuries to or death of persons, contamination of or adverse effects on the environment, or any violation of any Environmental Laws, caused by or in any way related to the real property of Borrower, or due to any acts of Borrower or its officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnifications shall not be applicable when arising from events or conditions occurring while the Bank is in sole possession (subject to the rights of any creditors of Borrower) of the real property of Borrower. In no event shall Borrower be liable hereunder for any loss, damages, suits, penalties, costs, liabilities or expenses arising solely from any act or willful misconduct or gross negligence of Bank or its agents or employees. It is expressly agreed and understood by Borrower that the indemnifications granted herein are intended to protect Bank, its past, present and future officers, directors, shareholders, employees, consultants and representatives from any claims that may arise by reason of any security interest, liens and/or mortgages granted to Bank, or under any other document or agreement given to secure repayment of the Indebtedness, whether or not such claims arise before or after Bank has foreclosed upon and/or otherwise becomes the owner of any such property, real or personal. All obligations of indemnity as provided hereunder shall be supported and secured by any Documents executed by Borrower in favor of Bank. The indemnifications contained herein extend to shareholders of Bank qua shareholders only, and nothing contained herein shall be construed to prevent Borrower from asserting any claim whatsoever against any party or entity that occasions any adverse environmental effects or any violation of any Environmental Laws upon or in any way related to the real property of Borrower, whether or not such party or entity is a shareholder of Bank. (k) In the event any mortgage securing the Indebtedness is foreclosed or the Borrower tenders a deed in lieu of foreclosure, the Borrower shall deliver the -22- 24 premises to the Bank free of any and all Hazardous Materials to the extent necessary so that the condition of the premises shall not be a violation of any Environmental Laws. (l) The provisions of this section shall be in addition to any and all other obligations and liabilities the Borrower may have to the Bank at common law or pursuant to any other agreement and shall survive (i) the repayment of the Indebtedness, (ii) the satisfaction of all of the other obligations of the Borrower hereunder and under the other Documents, (iii) the discharge of the Mortgage, and (iv) the foreclosure of the Mortgages or acceptance of a deed in lieu thereof. (m) "Hazardous Materials" includes, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local governmental law, ordinance, rule, or regulation. 6. ARTICLE 6; AFFIRMATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will: 6.1 Financial and Other Information. (a) Annual Financial Reports. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, not later than one hundred twenty (120) days after the close of each fiscal year of the Borrower, financial statements of the Borrower containing the balance sheet of the Borrower of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by the Borrower and acceptable to the Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. These statements shall be prepared on an audited basis. (b) Monthly Financial Statements. Furnish to the Bank not later than fifty five (55) days after the close of each month of each fiscal year of the Borrower, unaudited financial statements on a consolidated basis containing the balance sheet of the Borrower as of the end of each such period, statements of income and retained earnings -23- 25 of the Borrower and a statement of cash flows of the Borrower for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. The statements shall be in such detail as the Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of the Borrower. (c) No Default Certificate. Together with each delivery of the financial statements required by Sections 6.1(a) and 6.1(b) of this Agreement, furnish to the Bank a certificate of its chief executive or financial officer stating that no Event of Default or Default has occurred, or if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto. (d) Accounts. Furnish to Bank not later than fifteen (15) days after and as of the end of each month, agings of the Accounts and any accounts payable of Borrower, and a schedule identifying each Eligible Account and identifying for each Eligible Account, the portions thereof which constitute Eligible Fixed Accounts and Eligible Time Accounts. Any such schedule, certificate or report shall be executed by a duly authorized officer of Borrower and shall be in such form and detail as Bank may specify. (e) Borrowing Base Report. Furnish to the Bank not later than five (5) days after and as of the end of each week, in form, content, and reporting basis satisfactory to the Bank, a Borrowing Base report. (f) Reports Filed with the SEC. Furnish to the Bank copies of all reports and information filings by Borrower required by the Securities and Exchange Commission ("SEC") on or before the statutory filing date. (g) Annual Financial Projections. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, prior to the commencement of each fiscal year of the Borrower, projected financial statements of the Borrower containing the balance sheet of the Borrower of the beginning of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports prepared by management of Borrower utilizing their then current knowledge and reasonable expectations with respect to the periods covered thereby. (h) Adverse Events. Promptly inform the Bank of the occurrence of any Event of Default or Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon the Borrower's business, properties, or financial condition or upon the Borrower's ability to comply with its obligations under the Documents. -24- 26 (i) Other Information As Requested. Promptly furnish to the Bank such other information regarding the operations, business affairs and financial condition of the Borrower and its subsidiaries as the Bank may reasonably request from time to time and permit the Bank, its employees, attorneys and agents, upon 72 hours prior notice (except in case of emergency or during the existence of an Event of Default) to inspect all of the books, records and properties of the Borrower and its subsidiaries during normal business hours. 6.2 Compliance with Borrowing Formula. In the event that at any time, the aggregate principal amount of Advances exceeds the Revolving Maximum, immediately pay to Bank for application against such Advances, an amount sufficient to eliminate such excess. 6.3 New Subsidiaries. Cause each domestic subsidiary of Borrower now or hereafter owned or acquired by Bank which Bank determines (in its sole discretion) to have significant assets or revenues, to guaranty the obligations of Borrower to Bank and to secure such guaranty with liens upon and security interests in all such subsidiary's assets. 6.4 Insurance. Keep its insurable properties (including but not limited to the Collateral) adequately insured and maintain (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of the Borrower, (b) necessary worker's compensation insurance, (c) public liability and product liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by the Bank, all of which Insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as shall be satisfactory to the Bank. All such policies shall contain a provision whereby they may not be canceled or amended except upon thirty (30) days' prior written notice to the Bank. The Borrower will promptly deliver to the Bank, at the Bank's request, evidence satisfactory to the Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to the Bank. If the Borrower fails to maintain satisfactory insurance as herein provided, the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate then in effect for the Revolving, all amounts so expended by the Bank. The Borrower hereby appoints the Bank or any employee or agent of the Bank as the Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes the Bank or any employee or agent of the Bank, on behalf of the Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to the Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected shall be applied toward repair and/or replacement of the Collateral to which such casualty occurred or satisfaction of the Indebtedness in -25- 27 accordance in accordance with the provisions governing such application in the Documents pursuant to which Bank's Liens on such Collateral were granted. 6.5 Taxes. Pay in accordance with commercially reasonable practices and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon the Borrower, and its property, except to the extent being contested in good faith and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate from time to time in effect under the Note, all amounts so expended by the Bank. 6.6 Maintain Corporation and Business. Do or cause to be done all things necessary to preserve and keep in full force and effect the Borrower's corporate existence, and material rights and franchises and comply with all material respects with applicable laws, continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year, at all times maintain, preserve and protect all material franchises and trade names and property and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 6.7 ERISA. (a) At all times meet the minimum funding requirements of ERISA with respect to the Borrower's employee benefit plans subject to ERISA, (b) promptly after the Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or the Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth details as to such event or proceedings and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC, and (c) furnish to the Bank (or cause the plan administrator to furnish the Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by the Borrower not later than ten (10) days after such report has been so filed. 6.8 Financial Covenants. (a) Maintain a Tangible Net Worth of not less than: -26- 28
As of: ------ 3/31/99 $2,500,000; 6/30/99 $2,500,000; 9/30/99 $4,000,000; 12/31/99 $5,500,000; 3/31/2000 $7,000,000; 6/30/2000 $8,500,000; 9/30/2000 $10,000,000; 12/31/2000 $11,500,000; 3/31/2001 $13,000,000;
(b) Maintain an Interest Coverage Ratio of not less than:
As of: ------ 3/31/99 9 to 1 6/30/99 10 to 1 9/30/99 11 to 1 12/31/99 12 to 1 3/31/2000 13 to 1 6/30/2000 14 to 1 9/30/2000 15 to 1 12/31/2000 16 to 1 3/31/2001 17 to 1
(c) At all times maintain a Debt to Tangible Net Worth Ratio of not more than 12 to 1. 6.9 Bank Accounts. Establish and maintain with Bank a general checking account. 7. ARTICLE 7; NEGATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will not, without the Bank's prior written consent: -27- 29 7.1 Dividends. Declare or pay any cash dividends on, or make any other cash distribution (whether by reduction of capital or otherwise) with respect to any shares of its capital stock. 7.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so. 7.3 Liens and Encumbrances. Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including without limit any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired, other than: (a) to Bank; and (b) Permitted Liens. 7.4 Indebtedness. Incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for: (a) the Indebtedness; (b) indebtedness secured by Permitted Liens. 7.5 Extension of Credit. Make loans, advances or extensions of credit to any Person, except (a) loans and advances to Foreign Subsidiaries in an amount not to exceed $2,000,000 in the aggregate during any fiscal year; and (b) loans and advances to Subsidiaries, provided that in both instances, promptly upon the making of any such loan, Borrower delivers and collaterally assigns to Bank all of Borrower's interest in a note evidencing such loan and any security therefor. 7.6 Guarantee Obligations. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit for collection. 7.7 Subordination of Receivables. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. -28- 30 7.8 Property Transfer, Merger or Lease-Back. (a) Sell, lease, transfer or otherwise dispose of properties and asset, having an aggregate book value of more than Two Hundred Fifty Thousand Dollars ($250,000), (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock, except for such merger(s) of a Subsidiary into Borrower; or (c) enter into any sale-leaseback transaction. 7.9 Acquire Securities. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000 and direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 7.10 Pension Plan. (a) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of the Borrower to the PBGC which, in the opinion of the Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. 8. ARTICLE 8; EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Failure to Pay Monies Due. If the Borrower shall fail to pay, when due, any principal or interest under any Note or other Indebtedness when due or shall default in an obligation described in Section 6.1 or 6.2 hereof and such failure or default shall continue for a period in excess of three (3) Business Days after notice by Bank to Borrower thereof. (b) Misrepresentation. If any warranty or representation in connection with or contained in this Agreement or any Document, or if any Financial Statements now or hereafter furnished to the Bank by or on behalf of the Borrower, shall prove to be false or misleading in any material respect as of the date made or deemed made hereunder. -29- 31 (c) Noncompliance with Bank Agreement. If the Borrower shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement or any other Document and, in the case of a failure to perform obligations other than those described in Section 6.4, Sections 7.1 through 7.10 hereof or Section 8.1(a) above, such failure shall continue for a period in excess of thirty (30) days after the earlier of Bank's notice to Borrower thereof or the date Borrower actually becomes aware thereof. (d) Other Defaults. If the Borrower shall default in the payment when due of any of its borrowed money indebtedness (other than to the Bank) in amounts in excess of Five Hundred Thousand Dollars ($500,000) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof. (e) Judgments. If there shall be rendered against the Borrower one or more judgments or decrees involving an aggregate liability of Five Hundred Thousand Dollars ($500,000)or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive, or if a writ of attachment or garnishment against the property of the Borrower shall be issued and levied in an action claiming Five Hundred Thousand Dollars ($500,000)or more and not released or appealed and bonded in an amount and manner satisfactory to the Bank within thirty (30) days after such issuance and levy. (f) Business Suspension Bankruptcy Etc. If the Borrower shall voluntarily suspend transaction of its business, or if the Borrower shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors, or proceedings in bankruptcy, or for reorganization or liquidation of the Borrower under the Bankruptcy Code or under any other, state federal or other applicable law for the relief of debtors shall be commenced by Borrower, or shall be commenced against the Borrower and shall not be discharged within sixty (60) days of commencement, or a receiver, trustee or custodian shall be appointed for the Borrower or for any substantial portion of their respective properties or assets. (g) Change of Management or Ownership. If a majority of the persons serving on the board of directors of Borrower as of the date of this Agreement shall cease to serve on such board of directors and Bank considers (in its reasonable discretion) such change to affect materially and adversely the prospects of Borrower. (h) Inadequate Funding or Termination of Employee Benefit Plan. If the Borrower shall fail to meet its minimum funding requirements under ERISA with respect -30- 32 to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower to the PBGC which in the opinion of the Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. (i) Occurrence of Certain Reportable Events. If there shall occur, with respect to any pension plan maintained by the Borrower any reportable event (within the meaning of Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after the Bank gives written notice to the Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of the Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, as the case may be. (j) Repudiation of Documents. If Borrower repudiates, contests, revokes or purports to revoke any of its obligations to Bank, or any rights or remedies of Bank, under Documents to which they are party. (k) Loans or Guarantees of Subsidiaries. If any Subsidiary shall loan or advance monies to, or invest in, or guaranty a debt or obligation of, a Foreign Subsidiary. 8.2 Acceleration of Indebtedness, Remedies. Upon the occurrence of an Event of Default, all Indebtedness shall be due and payable in full immediately (without notice or demand in the case of an Event of Default of the type described in Section 8.1.(f) above, and upon written notice from Bank in the case of any other Event of Default) without presentation, demand, protest, notice of dishonor or other further notice of any kind, all of which are hereby expressly waived, and Bank shall have no further commitment to make Advances. Unless all of the Indebtedness is then immediately fully paid, the Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, under the or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral and to set off against the Indebtedness any amount owing by the Bank to the Borrower and/or any property of the Borrower in possession of the Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral and make it available to the Bank at any place designated by the Bank. 8.3 Application of Proceeds. All of the Indebtedness shall constitute one loan secured by the Bank's security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from the Borrower to the Bank. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 8.1, the Bank may in its sole -31- 33 discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the Bank, first upon all expenses authorized by the UCC or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by the Bank, the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower shall remain liable for any deficiency, which the Borrower shall pay to the Bank immediately upon demand. 8.4 Cumulative Remedies. The remedies provided for herein are cumulative to the remedies for collection of the Indebtedness as provided by law, in equity or by any Document. Nothing herein contained is intended, nor shall it be construed, to preclude the Bank from pursuing any other remedy for the recovery of any other sum to which the Bank may be or become entitled for the breach of this Agreement by the Borrower. 9. ARTICLE 9; MISCELLANEOUS 9.1 Independent Rights. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 9.2 Covenant Independence. Each covenant in this Agreement shall deemed to be independent of any other covenant, and an exception illegality in one covenant shall not create an exception or illegality another covenant. 9.3 Waivers and Amendments. No forbearance on the part of the Bank in enforcing any of its rights under this Agreement or any other Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No Default or Event of Default shall be waived by the Bank except in a writing signed and delivered by an officer of the Bank, and no waiver of any other Default or Event of Default shall operate as a waiver of any Default or Event of Default or of the same Default or Event of Default on a future occasion. No other amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Note or other Documents shall be effective unless the same shall be in writing and signed and delivered by an officer of the Bank. 9.4 Governing Law. This Agreement, and each and every term and provision hereof, shall be governed by and construed in accordance with the internal law of the State of Michigan. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or -32- 34 unenforceable provisions had never been contained herein. Borrower hereby consents to the jurisdiction of the courts of the State of Michigan and to the Federal Courts which include the Eastern District of Michigan and their territorial institutions, for all proceedings relating to the enforcement hereof or any indebtedness hereunder. 9.5 Survival of Warranties, Etc. All of the Borrower's covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Notes and shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank. All statements contained in any certificate or other document delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower in connection with this Agreement. 9.6 Costs and Expenses. The Borrower agrees that it will reimburse the Bank, upon demand, for all reasonable costs and expenses incurred by the Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof, (ii) maintaining or defending the Bank's security interests or liens (or the priority thereof), (iii) the enforcement of the Bank's rights or remedies under this Agreement or the other documents contemplated hereby, (iv) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby, and/or (v) any other matters or proceedings arising out of or in connection with any lending arrangement between the Bank and the Borrower, which costs and expenses include without limit payments made by the Bank for taxes, insurance, assessments, or other costs or expenses which the Borrower is required to pay under this Agreement or the other documents contemplated hereby, expenses related to the examination of the Collateral, audit expenses, court costs and reasonable attorneys' fees (whether in-house or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal bankruptcy proceedings, probate proceedings, on appeal or otherwise), and all other costs and expenses of the Bank incurred in connection with any of the foregoing. 9.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 9.8 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns, provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. -33- 35 9.9 Maintenance of Records. The Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. The Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 9.10 Notices. All notices and communications provided for herein or in any Document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two (2) days after sending by first class mail, postage prepaid, addressed as follows: (a) If to the Borrower, to:Patrick R. Quinn, Vice President - Finance, 2515 McKinney Avenue, Suite 1700, Dallas, Texas 75201, and (b) if to the Bank, to: Comerica Bank, 500 Woodward Avenue, Detroit, Michigan 48226, Attention: Barry Carroll, or to such other address as a party shall have designated to the other in writing in accordance with this section. The giving of at least five (5) days notice before the Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes, provided, that this shall not be deemed to require the Bank to give five day notice or any notice if not specifically required in this Agreement. 9.11 Interest and Charges. It is not the intention of any parties to this Agreement to make an agreement in violation of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Agreement, Bank shall ever be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the Legal Rate. If any Bank ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Legal Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Indebtedness so that the interest rate is uniform throughout the entire term of the indebtedness; provided; however, that if the Indebtedness are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Legal Rate, the Bank shall refund to the Borrower the amount of such excess or credit the amount of such excess against the total principal amount of the Indebtedness owing, and in such event, the Bank shall not be subject to any penalties provided by any Applicable Law for contracting for, charging or receiving interest in excess of the Legal Rate. This Section shall control every other provision of all agreements pertaining to the transactions contemplated by or contained herein. -34- 36 9.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. 9.13 Headings. Article and section headings in this Agreement are included for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 9.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH THE BORROWER AND THE BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS. -35- 37 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- COMERICA BANK By: ----------------------------------------- Barry T. Carroll Its: Vice President -36- 38 EXHIBIT "A" REVOLVING NOTE $15,000,000 Detroit, Michigan _________, 1999 FOR VALUE RECEIVED, on or before the Maturity Date, BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation promises to pay to the order of COMERICA BANK, a Michigan banking corporation ("Bank") at its main office at One Detroit Center, Detroit, Michigan, in lawful money of the United States of America so much of the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) as shall have been advanced and then be outstanding hereunder and all the accrued and unpaid interest thereon. Capitalized terms used herein and not defined to the contrary have the meanings given them in the Revolving Credit Agreement of even date herewith between the undersigned and Bank ("Agreement") to which reference is hereby made. Interest on the Advances from time to time outstanding shall bear interest at their Applicable Interest Rates; provided, however, that in the event and so long as there shall exist an Event of Default, the principal balance from time to time outstanding shall bear interest at the rates provided in Section 2.11 of the Agreement. Interest shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed. This Note is note under which advances, repayments and readvances may be made subject to the terms and conditions of the Agreement. This Note evidences borrowing under, is subject to, is secured in accordance with, and may be matured under, the terms of the Agreement, to which reference is hereby made. As additional security for this Note, Company grants Bank a lien on all property and assets including deposits and other credits of the Company, at any time in possession or control of or owing by Bank for any purpose. Company hereby waives presentment for payment, demand, protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence, release, or forbearance granted by any holder of this Note to any party now or hereafter liable hereon or any present or subsequent owner of any property, real or personal, which is now or hereafter security for this Note. Any transferees of, or endorser, guarantor or surety paying this Note in full may succeed to all rights of Bank, and Bank shall be under no further responsibility for the exercise thereof or the loan evidenced hereby. Nothing herein shall limit any right granted Bank by other instrument or by law. -37- 39 This Note shall be governed by and construed in accordance with the laws of the State of Michigan. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: -------------------------------------- Its: -------------------------------------- -2- 40 EXHIBIT "B" REQUEST FOR LOAN The undersigned authorized officer of BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. ("Borrower") hereby submits this Request for Loan to COMERICA BANK ("Bank") pursuant to Section 2.2 of the Revolving Credit Agreement ("Agreement") dated ____________, 1999 between Company and Bank. Capitalized terms used herein and not defined to the contrary have meanings given them in the Agreement. Company: (a) requests an Advance under the Note in the amount of $____________________ to be made on _______________, ______, (b) certifies that all of the conditions for the Advance requested hereby under the Agreement, are satisfied as of the date hereof and shall be satisfied as of the date for the requested Advance, and (c) directs Bank to disburse proceeds of the Advance requested hereby as follows: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -----------------------------------------------------------------------------(1) Executed as of this _____ day of ____________________, _____. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- - - -------- (1) If request is for the renewal or conversion of an existing Advance, identify Advance to be converted by Applicable Interest Rate and Interest Period. 41 SCHEDULE 5.11 MATERIAL AGREEMENTS EX-10.30 17 FORM OF SUBSIDIARIES 1 ======================================================================== REVOLVING CREDIT AGREEMENT DATED MARCH 29, 1999 BETWEEN BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND COMERICA BANK ======================================================================== 2 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT made as of the 29th day March, 1999, by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. and COMERICA BANK. WITNESSETH: WHEREAS, the Borrower has requested Bank to make certain loans and extensions of credit to Borrower; and WHEREAS, the Bank is willing to do so subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, the Borrower and the Bank agree: 1. ARTICLE 1; DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Account Debtor," "Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments" and "Inventory" shall have the meanings assigned to them in the UCC. 1.2 "Accounts Receivable" shall mean and include all Accounts, Chattel Paper and General Intangibles (including, but not limited to tax refunds, trade names, trade styles and goodwill, trade marks, copyrights and patents, and applications therefor, trade and proprietary secrets, formulae, designs, blueprints and plans, customer lists, literary rights, licenses and permits, receivables, insurance proceeds, beneficial interests in trusts and minute books and other books and records) now owned or hereafter acquired by Borrower. 1.3 "Affiliate" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. 1.4 "Agreement" shall mean this Agreement as amended from time to time in accordance with the terms hereof. 3 1.5 "Applicable Interest Rate" shall mean the Eurodollar-based Rate or the Prime-based Rate, as selected by Borrower from time to time or otherwise determined pursuant to the terms and conditions of this Agreement. 1.6 "Bank" shall mean Comerica Bank, a Michigan banking corporation. 1.7 "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended, or any successor act or code. 1.8 "Borrowing Base Amount" shall mean, as of any date, an amount equal to the sum of: (a) eighty five percent (85%) of the Eligible Time Accounts; plus (b) seventy five percent (75%) of the Eligible Fixed Accounts. 1.9 "Borrower" shall mean BrightStar Information Technology Group, Inc., a Delaware corporation. 1.10 "Business Day" shall mean any day on which Bank is open for domestic business in Detroit and (when used in connection with any provision regarding Eurodollar-based Loans) also a day on which commercial banks are open for international business (including dealings in dollar deposits in the interbank market) in Detroit and London. 1.11 "Collateral" shall mean all property of the Borrower now or hereafter in the possession of the Bank or any Affiliate of the Bank (or as to which the Bank or any Affiliate of the Bank now or hereafter controls possession by documents or otherwise), all amounts in all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the Borrower now or hereafter with the Bank or any Affiliate of the Bank and all of Borrower's Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, wherever located and whether now owned or hereafter acquired, together with all replacements of any of the foregoing, substitutions therefor, accessions thereto, and all proceeds and products of all the foregoing, and all additional property (real or personal) of the Borrower which is now or hereafter subject to a security interest, mortgage, lien, claim or other encumbrance granted by the Borrower to, or in favor of, the Bank. 1.12 "Commitment Amount" shall mean Fifteen Million Dollars ($15,000,000). 1.13 "Contribution Agreement" shall mean the Contribution Agreement among the Subsidiaries wherein the Subsidiaries allocate among themselves, the liability to one another arising under the Guaranty. -2- 4 1.14 "Debt" shall mean, as of the date of any determination thereof, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several of Company, that should be classified as liabilities in accordance with GAAP. 1.15 "Debt to Tangible Net Worth Ratio" shall mean, as of the date of any determination thereof, the ratio of (i) Debt to (ii) Tangible Net Worth. 1.16 "Default" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. 1.17 "Documents" shall mean this Agreement, the Note, the Security Agreement, the Stock Pledge, the Guaranty, the Guarantors' Security Agreements, the Subsidiary Security Agreement, the Financing Statements and all other documents, agreements and instruments delivered to Bank pursuant to this Agreement or any of the foregoing. 1.18 "EBITDA" shall mean for any period of determination thereof, Net Income plus any amounts deducted in the calculation thereof with respect to interest expense, taxes, non-cash compensation in the form of stock options, depreciation or amortization of Company, all determined in accordance with GAAP. 1.19 "Eligible Time Account" shall mean an Account (not including interest and service charges) arising from services performed and billed for time and materials and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; -3- 5 (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Fixed Accounts. -4- 6 An Account Receivable which is at any time an Eligible Fixed Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Fixed Account. 1.20 "Eligible Fixed Account" shall mean an Account (not including interest and service charges) arising from services performed on turnkey or fixed price projects and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; -5- 7 (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Time Accounts. An Account Receivable which is at any time an Eligible Time Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Time Account. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as amended, or any successor act or code. 1.22 "Eurodollar-based Loan" shall mean a Loan at any time during which such Loan bears interest at a Eurodollar-based Rate. 1.23 "Eurodollar-based Rate" shall mean a per annum interest rate equal to the Eurodollar Rate, plus two and one-half (2.5%) per annum. 1.24 "Eurodollar Rate" shall mean, for any Eurodollar-based Loan: (a) the per annum interest rate at which the Bank's eurodollar lending office offers deposits in eurodollars to prime banks in the eurodollar market in an amount comparable to the relevant Eurodollar-based Loan and for a period equal to the Interest Period therefore at approximately 11:00 a.m. Detroit time two (2) Business Days prior to the first day of such Interest Period; divided by, -6- 8 (b) a percentage (expressed as a decimal) equal to one hundred percent (100%) minus that percentage which is in effect on the date for an Advance of a Eurodollar-based Loan, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements for a member bank of the Federal Reserve System with deposits exceeding five billion dollars in respect of "Euro-currency Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar-based Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States Eurodollar Lending Office of such a bank to United States residents). 1.25 "Event of Default" shall mean any of those conditions or events listed in Section 8.1 of this Agreement. 1.26 "Financial Statements" shall mean all historical balance sheets and earnings statements and other financial data which have been furnished to the Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby, including without limit balance sheets, statements of income, retained earnings and cash flow, and all footnotes. 1.27 "Financing Statements" shall mean UCC financing statements describing the Bank as secured party and the Borrower as debtor covering the Collateral and otherwise in such form, for filing in such jurisdictions and with such filing offices, and/or any financing statement(s) required to perfect any security agreements entered into in connection with the Loan, as the Bank shall reasonably deem necessary or advisable. 1.28 "Foreign Subsidiaries" shall mean BrightStar Information Technology Group, Pty. Ltd., PROSAP AG, PROSAP Australia Pty., Ltd., SCS Offshore Pty., Ltd. And SCS Consulting & Services Pte. Ltd. 1.29 "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied in the country of incorporation of the relevant Person. 1.30 "Guarantors" shall mean each of the Subsidiaries, jointly and severally. 1.31 "Guarantors' Security Agreements" shall mean those Security Agreements by each Guarantor pursuant to which each Guarantor grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the respective Guarantor, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. -7- 9 1.32 "Guaranty" shall mean the joint and several guaranty executed by Guarantors to Bank guarantying payment of all principal, interest and costs due Bank from Borrower. 1.33 "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of the Borrower to the Bank under the Notes, this Agreement and the Documents, together with all other indebtedness, obligations and liabilities whatsoever of the Borrower to the Bank, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising. 1.34 "Interest Coverage Ratio" shall mean, as of the date of any calculation thereof, the ratio of (i) the EBITDA of Company for the four quarter period most recently ended, to (ii) the Interest Expense of Company for the period of such calculation. 1.35 "Interest Expense" shall mean the interest expense of Company, determined in accordance with GAAP. 1.36 "Interest Period" shall mean an interest period for a Eurodollar-based Loan of one (1), three (3), or six (6) months, provided however, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless the next succeeding Business Day falls in another calendar month, in which case, such Interest Period shall end on the immediately preceding Business Day; and (b) no Interest Period may end after the Maturity Date. 1.37 "Legal Rate" shall mean at the particular time in question the maximum rate of interest which, under applicable law, the Bank is then permitted to charge on the Indebtedness. If the maximum rate of interest which, under applicable law, the Bank is permitted to charge on the Indebtedness shall change after the date hereof, the Legal Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Legal Rate without notice to the Borrower. For purposes of determining the Legal Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a) (I) of Art. 1.04, or (b) if the parties subsequently contract as allowed by applicable law, the quarterly ceiling or the annualized ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that at any time the indicated rate ceiling, the quarterly ceiling of the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for purposes of such determination, as applicable. -8- 10 1.38 "Loan" shall mean, individually and /or collectively as the context may require, the advances evidenced by the Note. 1.39 "Maturity Date" shall mean March 29, 2001. 1.40 "Note" shall mean the promissory note executed and delivered by Borrower to Bank pursuant to Section 2.3 of this Agreement in the form of Exhibit "A" to this Agreement. 1.41 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. 1.42 "Permitted Liens" shall mean: (a) Liens and encumbrances in favor of the Bank; (b) Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank; (c) Liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) Liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and (e) Encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use. 1.43 "Person" or "person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. 1.44 "Prime-based Loan" shall mean a Loan that at any time during such Loan bears interest at a Prime-based Rate. -9- 11 1.45 "Prime-based Rate" shall mean the Prime Rate in effect from time to time plus one-quarter percent (1/4%). 1.46 "Prime Rate" shall mean that annual rate of interest designated by the Bank as its prime rate, which rate may not be the lowest rate of interest charged by the Bank to any of its customers, and which rate is changed by the Bank from time to time. 1.47 "Request for Loan" shall mean a request for loan delivered by Borrower to Bank in the form of Exhibit "B" to this Agreement, pursuant to Section 2.2 of this Agreement. 1.48 "Revolving Maximum" shall mean, as of any date, the lesser of: (a) the Commitment Amount, or (b) the Borrowing Base Amount. 1.49 "Security Agreement" shall mean the Security Agreement by Borrower pursuant to which the Borrower grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the Borrower, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.50 "Stock Pledge" shall mean the Stock Pledge by Borrower pursuant to which Borrower grants to Bank a first priority pledge of one hundred percent (100%) of the issued and outstanding stock in the Subsidiaries. 1.51 "Subsidiaries" shall mean BrightStar Group International, Inc., Mindworks Professional Education Group, Inc., Brian R. Blackmarr and Associates, Inc., Integrated Controls, Inc., Cogent, Inc., Software Consulting Services America, Inc. and Software Innovators, Inc., all wholly owned subsidiaries of Borrower. 1.52 "Subsidiary Security Agreement" shall mean the Security Agreement by all of the Subsidiaries pursuant to which the Subsidiaries grant to Borrower a priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of each respective Subsidiary, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.53 "Tangible Net Worth" shall mean as of the date of any determination, the excess of the net book value of the assets of Company (other than patents, patent rights, trademarks, trade names, copy rights, franchises, licenses, goodwill and other intangible assets) after all appropriate deductions in accordance with GAAP, less all Debt of Company. -10- 12 1.54 "UCC" shall mean the Uniform Commercial Code in effect with respect to the jurisdictions of the various Locations. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. 2. ARTICLE 2; COMMITMENT, INTEREST AND FEES 2.1 Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make Advances to the Borrower from the date hereof until the Maturity Date, in aggregate principal amount at any time outstanding not to exceed the Revolving Maximum. 2.2 Requests for Loans. Borrower may request an Advance by delivery to Bank of a Request for Loan executed by an authorized officer Borrower and subject to the following: (a) each such Request for Loan shall set forth the information required on the Request for Loan form; (b) each such Request for Loan shall be delivered to Bank by 10:00 a.m. three (3) Business Days prior to the proposed date of Advance, except if the Applicable Interest Rate for such Advance is to be the Prime-based Rate, such Request for Loan must be delivered by 10:00 a.m. (Detroit time) on such proposed date; (c) if the Request for Loan is a request for a Eurodollar-based Loan, the principal amount of the Advance requested shall be at least Five Hundred Thousand Dollars ($500,000) or an integral multiple thereof; and (d) each Request for Loan shall constitute a certification by the Borrower as of the date thereof that all of the conditions set forth in Article 4 hereof are satisfied as of the date of such request and shall be satisfied as of the date such Advance is requested. 2.3 Note. The Revolving Loan shall be evidenced by a Note in the form of Exhibit "A" hereto executed by Borrower. 2.4 Payments of Principal. The principal of the Note shall be payable (unless sooner accelerated pursuant to the terms of this Agreement) on the Maturity Date, when -11- 13 the entire balance then outstanding and all accrued and unpaid interest thereon, shall be due and payable. 2.5 Interest. The principal balance of each Advance from time to time outstanding under each Note shall bear interest at its Applicable Interest Rate. Interest shall be payable on all Prime-based Advances, monthly, on the first Business Day of each month. Interest shall be payable on each Eurodollar-based Advance on the last day of its Interest Period and, if such Interest Period has a duration of longer than three (3) months, also at each three month interval from the first day of such interest period. 2.6 Preparation, Closing & Ongoing Fees. Borrower shall pay to Bank: (a) concurrently with the execution of this Agreement, the amount of the expenses (including without limit reasonable attorneys' fees, whether of inside or outside counsel, and disbursements) incurred by the Bank in connection with the preparation and closing of this Agreement and related instruments and/or making of advances hereunder, including but not limited to costs to conduct audits, monitoring and appraisals; (b) concurrently with the execution of this Agreement, a non-refundable closing fee in the amount of Seventy Five Thousand Dollars ($75,000); (c) on an ongoing basis, all audit costs and all collateral monitoring costs of Bank. 2.7 Commitment Fees. Borrower shall pay Bank monthly, on the first Business Day of each month, a commitment fee in the amount equal to the three-eighths of one percent (3/8%) per annum on the average daily amount by which the Commitment Amount exceeded the principal amount of outstanding Advances during the preceding month. 2.8 Basis of Computation. The amount of all interest and fees hereunder shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred sixty (360) days. 2.9 Basis of Payments. All sums payable by the Borrower to the Bank under this Agreement or the other documents contemplated hereby shall be paid directly to the Bank at its office set forth in Section 9.10 hereof in immediately available United States funds, without set off, deduction or counterclaim. Borrower hereby authorizes and request Bank to debit Borrower's checking or deposit or other accounts with the Bank for all or a part of any such amounts when due, provided, however, that this authorization shall not affect the Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. -12- 14 2.10 Receipt of Payments. Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by the Bank at the address designated for such payment, whether or not the Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. The Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by the Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only. 2.11 Default Interest. Notwithstanding anything herein to the contrary, in the event and so long as an Event of Default shall exist, all principal outstanding under the Note shall bear interest, payable on demand, from the date of such Event of Default at a rate per annum equal to: (a) in the case of a Prime-based Loan, three percent (3%) above the Prime-base Rate; and (b) in the case of a Eurodollar-based Loan, three percent (3%) above the Eurodollar-based Rate until the end of the then current Interest Period, at which time such Eurodollar-based Loans shall be automatically converted into Prime-based Loans and bear interest at the rate provided for in clause (a) above. 2.12 Conversion and Renewal of Loans. Providing that no Event of Default shall have occurred and be continuing, the Borrower may elect to renew or convert Applicable Interest Rates applicable to Advances from the Prime-based Rate to the Eurodollar-based Rate or from the Eurodollar-based Rate to the Prime-based Rate, provided that any conversion of a Eurodollar-based Loan shall be made only on the last Business Day of the Interest Period applicable to such Eurodollar-based Loan. If the Borrower desires such a renewal or conversion, it shall give Bank not less than three (3) Business Days' prior notice in the manner provided in Section 2.2 hereof, specifying the date of such renewal or conversion, the Advances to be converted and the type of Advances elected. If with respect to any Eurodollar-based Loan outstanding at any time the Bank does not receive notice of the election from a Borrower not less than three (3) Business Days prior to the last day of the Interest Period therefor, the Borrower shall be deemed to have elected to convert such Eurodollar-based Loan to a Prime-based Loan at the end of the then current Interest Period unless such Eurodollar-based Loan is repaid upon the last day of such Interest Period. 2.13 Early Termination Compensation. In the event that Borrower shall terminate this Agreement on or before the Maturity Date, Borrower shall be obligated to pay to Bank, as a condition to such termination and prior to the release of Bank's liens and encumbrances, the amount of: (a) One Hundred and Fifty Thousand Dollars -13- 15 ($150,000) if such termination occurs before the first anniversary hereof; or (b) Seventy Five Thousand Dollars ($75,000) if such termination occurs on or after the first anniversary hereof but before the second anniversary of this Agreement. This Early Termination Compensation shall be waived if the Loan is replaced by another credit facility with Bank. 3. ARTICLE 3; SPECIAL PROVISIONS FOR EURODOLLAR-BASED LOANS 3.1 Reimbursement of Prepayment Costs. As to any Advances, if any prepayment thereof shall occur on any day other than the last day of an Interest Period (in the case of a Eurodollar-based Loan) or the first day of an Interest Period (with regard to a Prime-Based Loan) (whether pursuant to this Article, or by acceleration, or otherwise), or if an Applicable Interest Rate shall be changed during any Interest Period pursuant to this Article, the Borrower agrees to reimburse Bank any costs incurred by Bank as a result of the timing thereof including but not limited to any net costs incurred in liquidating or employing deposits from third parties, upon Bank's delivery to Borrower of a certificate setting forth in reasonable detail the basis for determining such costs, which certificate shall be conclusively presumed correct save for manifest error. 3.2 Eurodollar Lending Office. For any Advance for which the Applicable Interest Rate is the Eurodollar-based Rate, if Bank shall designate a eurodollar lending office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying the relevant advance on the books of such office. 3.3 Circumstances Affecting Eurodollar-based Availability. If Bank determines that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts are not being offered to Bank for an Interest Period, then Bank shall forthwith give notice thereof to the Borrower. Thereafter, the obligation of Bank to make Eurodollar-based Loans, and the right of Borrower to convert an Advance to or refund an Advance as a Eurodollar-based Loan shall be suspended and all of the Loans shall be Prime-based Loans bearing interest at the Prime-based Rate until the Bank notifies Borrower that such circumstance no longer exists. 3.4 Laws Affecting Eurodollar-based Loan Availability. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by Bank (or its eurodollar lending offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for Bank to honor its obligations hereunder to make or maintain any Advance with interest at the Eurodollar-based Rate, Bank shall forthwith give notice thereof to Borrower. Thereafter: (a) the obligations to -14- 16 make Eurodollar-based Loans and the right of Borrower to convert an Advance or refund an Advance as a Eurodollar-based Loan shall be suspended; and (b) if Bank may not lawfully continue to maintain a Eurodollar-based Loan to the end of the then current Interest Period, the Prime-based Rate shall be the Applicable Interest Rate for such Eurodollar-based Loan for the remainder of such Interest Period. 3.5 Increased Costs. In the event that any change after the date hereof in applicable law, treaty or governmental regulation, or in the interpretation or application thereof, or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority: (a) shall subject Bank (or its eurodollar lending office) to any tax, duty or other charge with respect to any Advance or shall change the basis of taxation of payments to Bank (or its eurodollar lending office) of the principal of or interest on any Advance or any other amounts due under this Agreement (except for changes in the rate of tax on the overall net income or gross receipts of Bank or its eurodollar lending office imposed by the jurisdiction in which Bank's principal executive office or eurodollar lending office is located); or (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System but excluding with respect to any Eurodollar-based Loan any such requirement included in an applicable Eurodollar Reserve Requirement), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its eurodollar lending offices) or shall impose on Bank (or its eurodollar lending offices) or the foreign exchange and interbank markets or other condition affecting any Advance or any commitment of Bank under this Agreement; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any Advance or its commitments hereunder or to reduce the amount or rate of return on any sum received or receivable by Bank under this Agreement, or under any Note, then Bank may promptly notify Borrower of such fact and demand compensation therefor and Borrower agrees to pay to Bank (so long as such event or circumstance continues to exist) such additional amount or amounts as will compensate Bank for such increased costs or reduced return within thirty (30) days of such notice; provided, however that, to the extent doing so would eliminate or decrease Borrower's liability for increased costs hereunder, and to the extent that doing so would not otherwise be disadvantageous to Bank, Bank will attempt to designate a eurodollar lending office for which the tax, duty, reserve, deposit requirement, or other circumstance giving rise to Bank's demand for increased compensation, is not applicable. A certificate of the Bank demanding such compensation setting forth in reasonable detail the basis for determining such additional amount or amounts necessary to compensate shall be conclusively presumed to be correct save for manifest error. -15- 17 3.6 Limitation on Outstanding Advances. At no time shall there be greater than three (3) outstanding Advances on a Eurodollar-based Loan. 4. ARTICLE 4; CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK The obligations of the Bank under this Agreement are subject to the satisfaction of each of the following conditions: 4.1 Documents Executed and Filed. The Borrower shall have executed (or caused to be executed) and delivered to the Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Bank shall deem appropriate, the following: (a) The Note; (b) The Security Agreement; (c) The Subsidiary Security Agreement; (d) The Gurantors' Security Agreements; (e) The Financing Statements; (f) The Guaranty; (g) The Stock Pledge; (h) The Contribution Agreement; (i) Acknowledgements of Borrower's landlords with respect to each Location, together with true copies of each Lease for such Locations. 4.2 Certified Resolutions. The Borrower shall have furnished to the Bank a copy of resolutions of the Board of Directors of the Borrower and the Guarantors authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Note and the Documents to which Borrower and/or Guarantors are a party, which shall have been certified by the Secretary or Assistant Secretary of the Borrower or Guarantors, as the case may be, as being complete, accurate and in effect. 4.3 Certified Articles. The Borrower shall have furnished to the Bank a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the Borrower and Guarantors, which shall have been certified by the jurisdiction of organization of the respective parties thereto. -16- 18 4.4 Certified Bylaws. The Borrower shall have furnished to the Bank a copy of the Bylaws of the Borrower and Guarantors, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of the Borrower and Guarantors, as the case may be, as being complete, accurate and in effect. 4.5 Certificate of Good Standing. The Borrower shall have furnished to the Bank a certificates of good standing with respect to the Borrower and Guarantors certified by the Secretary of State of the States in which they are organized in. 4.6 Certificate of Incumbency. The Borrower shall have furnished to the Bank a certificate of the Secretary or Assistant Secretary of the Borrower and the Guarantors, as to the incumbency and signatures of the officers of the Borrower and Guarantors, as the case may be, signing this Agreement, the Note and Documents. 4.7 UCC Lien Search. The Bank shall have received UCC record and copy searches, evidencing the appropriate filing and recording of the Financing Statements and disclosing no notice of any liens or encumbrances filed against any of the Collateral. 4.8 Casualty Insurance. The Borrower shall have furnished to the Bank, in form, content and amounts and with companies satisfactory to the Bank, casualty insurance policies with loss payable clauses in favor of the Bank, relating to the assets and properties (including, but not limited to, the Collateral) of the Borrower. 4.9 Opinion of Counsel. Borrower shall have caused its legal counsel to deliver to Bank a legal opinion covering such matters as Bank shall require, and otherwise in form and content satisfactory to Bank. 4.10 Approval of Bank Counsel. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been satisfactory to and approved by legal counsel for the Bank, and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested. 5. ARTICLE 5; WARRANTIES AND REPRESENTATIONS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower represents and warrants that: 5.1 Corporate Existence and Power. (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) it has the power and authority to own its properties and assets and to carry out its -17- 19 business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary and (c) the Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Note and other Documents to which it is party and to grant to the Bank liens and security interests in the Collateral as hereby contemplated and to do any and all other things required of it hereunder. 5.2 Authorization and Approvals. The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Note, the other Documents: (a) have been duly authorized by all requisite corporate action of the Borrower (b) except for UCC filings, do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, (c) will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of the Borrower, any provision of any indenture, note, agreement or other instrument to which any of them are a party, or by which any of their properties or assets are bound, (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument, and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, other than in favor of the Bank and as contemplated hereby. 5.3 Valid and Binding Agreement. This Agreement and the Documents will be, when delivered, valid and binding obligations of the Borrower, in accordance with its respective terms except to the extent enforceability thereof may be limited under applicable bankruptcy, moratorium, insolvency, rearrangement, reorganization or similar debtor relief laws affecting the rights of creditors generally from time to time in effect. 5.4 Actions, Suits or Proceedings. There are no actions, suits or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any properties or rights of the Borrower which, if adversely determined, could materially impair the right of it to carry on its business substantially as now conducted or could have a material adverse effect upon its financial condition. 5.5 No Liens, Pledges, Mortgage or Security Interests. Except for Permitted Liens none of the Borrower's assets and properties, including without limit the Collateral, are subject to any mortgage, pledge, lien, security interest or other encumbrances of any kind or character other than in favor of Bank and Permitted Liens. 5.6 Accounting Principles. All consolidated and consolidating balance sheets, earnings statements and other historical financial data furnished to the Bank for the -18- 20 purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of the Borrower, as of the dates, and the results of its operations for the periods, for which the same are furnished to the Bank. Without limiting the generality of the foregoing, the annual and quarterly Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and the monthly Financial Statements have been prepared in a manner consistent with the calculations used in quarterly Financial Statements, and all of them fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to the Bank. The Borrower has no material contingent obligations, liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 Financial Condition. The Borrower is solvent, able to pay its respective debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and the Borrower will not be rendered insolvent, under-capitalized or unable to pay maturing debts by the execution or performance of this Agreement or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest of the Financial Statements. 5.8 Taxes. The Borrower has filed by the due date therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and has made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. The Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 5.9 Compliance with Laws. The Borrower has complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of the Borrower as presently conducted. 5.10 Indebtedness. Except as permitted under Section 7.4 hereof, the Borrower has no indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit or collection. 5.11 Material Agreements. Except as disclosed on Schedule 5.11 attached hereto, the Borrower has no material contracts (as defined in the Regulations under the -19- 21 Securities Act of 1933, as amended), which may include, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements; to the best knowledge of Borrower, all parties to such agreements have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of the Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 5.12 Margin Stock. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any Loan hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.13 Pension Funding. The Borrower has not incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by the Borrower and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 5.14 Misrepresentation. No warranty or representation by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. 5.15 Hazardous Materials Warranties, Representations and Covenants. (a) Borrower is not party to any litigation or administrative proceeding, nor so far as is known by Borrower, is any litigation or administrative proceeding threatened against it, which in either case (a) asserts or alleges that Borrower violated any federal, state or local laws, ordinances, statutes, rules, regulations or judgments governing the use, storage, transportation, or disposal of Hazardous Materials ("Environmental Laws"), (b) asserts or alleges that Borrower is required to clean up, remove, or take remedial or other response action due to the disposal, depositing discharge, leaking or other release of any Hazardous Materials, (c) asserts or alleges that Borrower is required to pay all or a portion of the cost of any past, present, or future clean up, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Material by any one of them. -20- 22 (b) To the best knowledge of Borrower, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Borrower to damages, penalties, injunctive relief or clean up costs under any Environmental Laws or which require or are likely to require clean up, removal, remedial action or other response pursuant to Environmental Laws by Borrower. (c) The Borrower is not subject to any judgment, decree, order or citation related to or arising under the Environmental Laws and Borrower has not received any notice ("Environmental Complaint") of any violations of Environmental Laws (and, within five days of receipt of any Environmental Complaint the Borrower shall deliver to the Bank a copy thereof), and to the best of Borrower's knowledge, there have been no actions commenced or threatened by any party for noncompliance with any Environmental Laws. (d) The Borrower has all permits, licenses, approvals and other authorizations required under the Environmental Laws. (e) The Borrower covenants and agrees that it shall not use, introduce or maintain Hazardous Materials in any premises which they may from time to time occupy other than in strict accordance and compliance with Environmental Laws. (f) Borrower agrees that it shall promptly notify Bank in writing as soon as Borrower becomes aware of any condition or circumstance which makes the environmental warranties, representations and covenants contained herein incomplete or inaccurate in any material respect as of any date. (g) In the event of any condition or circumstance that makes any environmental representation, warranty or covenant incomplete or inaccurate in any material respect as of any date, Borrower shall, at the request of Bank, at the sole expense of Borrower, retain an environmental consultant acceptable to Bank, to conduct a thorough and complete environmental assessment in respect of any environmental concerns of Bank arising from that changed condition or circumstance. A copy of said assessment will be addressed to Bank and promptly delivered to Bank, Borrower upon completion. (h) In the event of a violation of Environmental Laws, whether discovered pursuant to an environmental consultant's assessment or otherwise, Borrower covenants and agrees to complete all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials on or affecting premises or property occupied or used by Borrower, whether caused by the Borrower or a third party, in accordance with Environmental Laws to the satisfaction of Bank, and in accordance with the directives of all federal, state, and local governmental authorities. -21- 23 (i) At any time Borrower, directly or indirectly through any professional consultant or other representative, determines to undertake an environmental audit, assessment or investigation, Borrower shall promptly provide Bank with written notice of the initiation of the environmental audit/assessment, fully describing the purpose and intended scope of the said audit/assessment. Upon receipt, Borrower shall promptly provide Bank copies of all final findings and conclusions of any such environmental investigation. Preliminary findings and conclusions shall be provided if final reports have not been completed and delivered to Bank within sixty days following completion of the preliminary findings and conclusions. (j) Borrower hereby indemnifies, saves and holds Bank and any of its past, present and future officers, directors, shareholders, employees, representatives and consultants harmless from any and all loss damages, suits, penalties, costs, liabilities and expenses (including, but not limited to reasonable investigation, environmental audit(s), and legal expenses), arising out of any claim, loss or damages of any property, injuries to or death of persons, contamination of or adverse effects on the environment, or any violation of any Environmental Laws, caused by or in any way related to the real property of Borrower, or due to any acts of Borrower or its officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnifications shall not be applicable when arising from events or conditions occurring while the Bank is in sole possession (subject to the rights of any creditors of Borrower) of the real property of Borrower. In no event shall Borrower be liable hereunder for any loss, damages, suits, penalties, costs, liabilities or expenses arising solely from any act or willful misconduct or gross negligence of Bank or its agents or employees. It is expressly agreed and understood by Borrower that the indemnifications granted herein are intended to protect Bank, its past, present and future officers, directors, shareholders, employees, consultants and representatives from any claims that may arise by reason of any security interest, liens and/or mortgages granted to Bank, or under any other document or agreement given to secure repayment of the Indebtedness, whether or not such claims arise before or after Bank has foreclosed upon and/or otherwise becomes the owner of any such property, real or personal. All obligations of indemnity as provided hereunder shall be supported and secured by any Documents executed by Borrower in favor of Bank. The indemnifications contained herein extend to shareholders of Bank qua shareholders only, and nothing contained herein shall be construed to prevent Borrower from asserting any claim whatsoever against any party or entity that occasions any adverse environmental effects or any violation of any Environmental Laws upon or in any way related to the real property of Borrower, whether or not such party or entity is a shareholder of Bank. (k) In the event any mortgage securing the Indebtedness is foreclosed or the Borrower tenders a deed in lieu of foreclosure, the Borrower shall deliver the -22- 24 premises to the Bank free of any and all Hazardous Materials to the extent necessary so that the condition of the premises shall not be a violation of any Environmental Laws. (l) The provisions of this section shall be in addition to any and all other obligations and liabilities the Borrower may have to the Bank at common law or pursuant to any other agreement and shall survive (i) the repayment of the Indebtedness, (ii) the satisfaction of all of the other obligations of the Borrower hereunder and under the other Documents, (iii) the discharge of the Mortgage, and (iv) the foreclosure of the Mortgages or acceptance of a deed in lieu thereof. (m) "Hazardous Materials" includes, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local governmental law, ordinance, rule, or regulation. 6. ARTICLE 6; AFFIRMATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will: 6.1 Financial and Other Information. (a) Annual Financial Reports. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, not later than one hundred twenty (120) days after the close of each fiscal year of the Borrower, financial statements of the Borrower containing the balance sheet of the Borrower of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by the Borrower and acceptable to the Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. These statements shall be prepared on an audited basis. (b) Monthly Financial Statements. Furnish to the Bank not later than fifty five (55) days after the close of each month of each fiscal year of the Borrower, unaudited financial statements on a consolidated basis containing the balance sheet of the Borrower as of the end of each such period, statements of income and retained earnings -23- 25 of the Borrower and a statement of cash flows of the Borrower for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. The statements shall be in such detail as the Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of the Borrower. (c) No Default Certificate. Together with each delivery of the financial statements required by Sections 6.1(a) and 6.1(b) of this Agreement, furnish to the Bank a certificate of its chief executive or financial officer stating that no Event of Default or Default has occurred, or if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto. (d) Accounts. Furnish to Bank not later than fifteen (15) days after and as of the end of each month, agings of the Accounts and any accounts payable of Borrower, and a schedule identifying each Eligible Account and identifying for each Eligible Account, the portions thereof which constitute Eligible Fixed Accounts and Eligible Time Accounts. Any such schedule, certificate or report shall be executed by a duly authorized officer of Borrower and shall be in such form and detail as Bank may specify. (e) Borrowing Base Report. Furnish to the Bank not later than five (5) days after and as of the end of each week, in form, content, and reporting basis satisfactory to the Bank, a Borrowing Base report. (f) Reports Filed with the SEC. Furnish to the Bank copies of all reports and information filings by Borrower required by the Securities and Exchange Commission ("SEC") on or before the statutory filing date. (g) Annual Financial Projections. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, prior to the commencement of each fiscal year of the Borrower, projected financial statements of the Borrower containing the balance sheet of the Borrower of the beginning of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports prepared by management of Borrower utilizing their then current knowledge and reasonable expectations with respect to the periods covered thereby. (h) Adverse Events. Promptly inform the Bank of the occurrence of any Event of Default or Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon the Borrower's business, properties, or financial condition or upon the Borrower's ability to comply with its obligations under the Documents. -24- 26 (i) Other Information As Requested. Promptly furnish to the Bank such other information regarding the operations, business affairs and financial condition of the Borrower and its subsidiaries as the Bank may reasonably request from time to time and permit the Bank, its employees, attorneys and agents, upon 72 hours prior notice (except in case of emergency or during the existence of an Event of Default) to inspect all of the books, records and properties of the Borrower and its subsidiaries during normal business hours. 6.2 Compliance with Borrowing Formula. In the event that at any time, the aggregate principal amount of Advances exceeds the Revolving Maximum, immediately pay to Bank for application against such Advances, an amount sufficient to eliminate such excess. 6.3 New Subsidiaries. Cause each domestic subsidiary of Borrower now or hereafter owned or acquired by Bank which Bank determines (in its sole discretion) to have significant assets or revenues, to guaranty the obligations of Borrower to Bank and to secure such guaranty with liens upon and security interests in all such subsidiary's assets. 6.4 Insurance. Keep its insurable properties (including but not limited to the Collateral) adequately insured and maintain (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of the Borrower, (b) necessary worker's compensation insurance, (c) public liability and product liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by the Bank, all of which Insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as shall be satisfactory to the Bank. All such policies shall contain a provision whereby they may not be canceled or amended except upon thirty (30) days' prior written notice to the Bank. The Borrower will promptly deliver to the Bank, at the Bank's request, evidence satisfactory to the Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to the Bank. If the Borrower fails to maintain satisfactory insurance as herein provided, the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate then in effect for the Revolving, all amounts so expended by the Bank. The Borrower hereby appoints the Bank or any employee or agent of the Bank as the Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes the Bank or any employee or agent of the Bank, on behalf of the Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to the Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected shall be applied toward repair and/or replacement of the Collateral to which such casualty occurred or satisfaction of the Indebtedness in -25- 27 accordance in accordance with the provisions governing such application in the Documents pursuant to which Bank's Liens on such Collateral were granted. 6.5 Taxes. Pay in accordance with commercially reasonable practices and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon the Borrower, and its property, except to the extent being contested in good faith and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate from time to time in effect under the Note, all amounts so expended by the Bank. 6.6 Maintain Corporation and Business. Do or cause to be done all things necessary to preserve and keep in full force and effect the Borrower's corporate existence, and material rights and franchises and comply with all material respects with applicable laws, continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year, at all times maintain, preserve and protect all material franchises and trade names and property and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 6.7 ERISA. (a) At all times meet the minimum funding requirements of ERISA with respect to the Borrower's employee benefit plans subject to ERISA, (b) promptly after the Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or the Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth details as to such event or proceedings and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC, and (c) furnish to the Bank (or cause the plan administrator to furnish the Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by the Borrower not later than ten (10) days after such report has been so filed. 6.8 Financial Covenants. (a) Maintain a Tangible Net Worth of not less than: -26- 28
As of: ------ 3/31/99 $2,500,000; 6/30/99 $2,500,000; 9/30/99 $4,000,000; 12/31/99 $5,500,000; 3/31/2000 $7,000,000; 6/30/2000 $8,500,000; 9/30/2000 $10,000,000; 12/31/2000 $11,500,000; 3/31/2001 $13,000,000;
(b) Maintain an Interest Coverage Ratio of not less than:
As of: ------ 3/31/99 9 to 1 6/30/99 10 to 1 9/30/99 11 to 1 12/31/99 12 to 1 3/31/2000 13 to 1 6/30/2000 14 to 1 9/30/2000 15 to 1 12/31/2000 16 to 1 3/31/2001 17 to 1
(c) At all times maintain a Debt to Tangible Net Worth Ratio of not more than 12 to 1. 6.9 Bank Accounts. Establish and maintain with Bank a general checking account. 7. ARTICLE 7; NEGATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will not, without the Bank's prior written consent: -27- 29 7.1 Dividends. Declare or pay any cash dividends on, or make any other cash distribution (whether by reduction of capital or otherwise) with respect to any shares of its capital stock. 7.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so. 7.3 Liens and Encumbrances. Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including without limit any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired, other than: (a) to Bank; and (b) Permitted Liens. 7.4 Indebtedness. Incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for: (a) the Indebtedness; (b) indebtedness secured by Permitted Liens. 7.5 Extension of Credit. Make loans, advances or extensions of credit to any Person, except (a) loans and advances to Foreign Subsidiaries in an amount not to exceed $2,000,000 in the aggregate during any fiscal year; and (b) loans and advances to Subsidiaries, provided that in both instances, promptly upon the making of any such loan, Borrower delivers and collaterally assigns to Bank all of Borrower's interest in a note evidencing such loan and any security therefor. 7.6 Guarantee Obligations. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit for collection. 7.7 Subordination of Receivables. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. -28- 30 7.8 Property Transfer, Merger or Lease-Back. (a) Sell, lease, transfer or otherwise dispose of properties and asset, having an aggregate book value of more than Two Hundred Fifty Thousand Dollars ($250,000), (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock, except for such merger(s) of a Subsidiary into Borrower; or (c) enter into any sale-leaseback transaction. 7.9 Acquire Securities. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000 and direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 7.10 Pension Plan. (a) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of the Borrower to the PBGC which, in the opinion of the Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. 8. ARTICLE 8; EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Failure to Pay Monies Due. If the Borrower shall fail to pay, when due, any principal or interest under any Note or other Indebtedness when due or shall default in an obligation described in Section 6.1 or 6.2 hereof and such failure or default shall continue for a period in excess of three (3) Business Days after notice by Bank to Borrower thereof. (b) Misrepresentation. If any warranty or representation in connection with or contained in this Agreement or any Document, or if any Financial Statements now or hereafter furnished to the Bank by or on behalf of the Borrower, shall prove to be false or misleading in any material respect as of the date made or deemed made hereunder. -29- 31 (c) Noncompliance with Bank Agreement. If the Borrower shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement or any other Document and, in the case of a failure to perform obligations other than those described in Section 6.4, Sections 7.1 through 7.10 hereof or Section 8.1(a) above, such failure shall continue for a period in excess of thirty (30) days after the earlier of Bank's notice to Borrower thereof or the date Borrower actually becomes aware thereof. (d) Other Defaults. If the Borrower shall default in the payment when due of any of its borrowed money indebtedness (other than to the Bank) in amounts in excess of Five Hundred Thousand Dollars ($500,000) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof. (e) Judgments. If there shall be rendered against the Borrower one or more judgments or decrees involving an aggregate liability of Five Hundred Thousand Dollars ($500,000)or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive, or if a writ of attachment or garnishment against the property of the Borrower shall be issued and levied in an action claiming Five Hundred Thousand Dollars ($500,000)or more and not released or appealed and bonded in an amount and manner satisfactory to the Bank within thirty (30) days after such issuance and levy. (f) Business Suspension Bankruptcy Etc. If the Borrower shall voluntarily suspend transaction of its business, or if the Borrower shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors, or proceedings in bankruptcy, or for reorganization or liquidation of the Borrower under the Bankruptcy Code or under any other, state federal or other applicable law for the relief of debtors shall be commenced by Borrower, or shall be commenced against the Borrower and shall not be discharged within sixty (60) days of commencement, or a receiver, trustee or custodian shall be appointed for the Borrower or for any substantial portion of their respective properties or assets. (g) Change of Management or Ownership. If a majority of the persons serving on the board of directors of Borrower as of the date of this Agreement shall cease to serve on such board of directors and Bank considers (in its reasonable discretion) such change to affect materially and adversely the prospects of Borrower. (h) Inadequate Funding or Termination of Employee Benefit Plan. If the Borrower shall fail to meet its minimum funding requirements under ERISA with respect -30- 32 to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower to the PBGC which in the opinion of the Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. (i) Occurrence of Certain Reportable Events. If there shall occur, with respect to any pension plan maintained by the Borrower any reportable event (within the meaning of Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after the Bank gives written notice to the Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of the Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, as the case may be. (j) Repudiation of Documents. If Borrower repudiates, contests, revokes or purports to revoke any of its obligations to Bank, or any rights or remedies of Bank, under Documents to which they are party. (k) Loans or Guarantees of Subsidiaries. If any Subsidiary shall loan or advance monies to, or invest in, or guaranty a debt or obligation of, a Foreign Subsidiary. 8.2 Acceleration of Indebtedness, Remedies. Upon the occurrence of an Event of Default, all Indebtedness shall be due and payable in full immediately (without notice or demand in the case of an Event of Default of the type described in Section 8.1.(f) above, and upon written notice from Bank in the case of any other Event of Default) without presentation, demand, protest, notice of dishonor or other further notice of any kind, all of which are hereby expressly waived, and Bank shall have no further commitment to make Advances. Unless all of the Indebtedness is then immediately fully paid, the Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, under the or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral and to set off against the Indebtedness any amount owing by the Bank to the Borrower and/or any property of the Borrower in possession of the Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral and make it available to the Bank at any place designated by the Bank. 8.3 Application of Proceeds. All of the Indebtedness shall constitute one loan secured by the Bank's security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from the Borrower to the Bank. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 8.1, the Bank may in its sole -31- 33 discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the Bank, first upon all expenses authorized by the UCC or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by the Bank, the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower shall remain liable for any deficiency, which the Borrower shall pay to the Bank immediately upon demand. 8.4 Cumulative Remedies. The remedies provided for herein are cumulative to the remedies for collection of the Indebtedness as provided by law, in equity or by any Document. Nothing herein contained is intended, nor shall it be construed, to preclude the Bank from pursuing any other remedy for the recovery of any other sum to which the Bank may be or become entitled for the breach of this Agreement by the Borrower. 9. ARTICLE 9; MISCELLANEOUS 9.1 Independent Rights. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 9.2 Covenant Independence. Each covenant in this Agreement shall deemed to be independent of any other covenant, and an exception illegality in one covenant shall not create an exception or illegality another covenant. 9.3 Waivers and Amendments. No forbearance on the part of the Bank in enforcing any of its rights under this Agreement or any other Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No Default or Event of Default shall be waived by the Bank except in a writing signed and delivered by an officer of the Bank, and no waiver of any other Default or Event of Default shall operate as a waiver of any Default or Event of Default or of the same Default or Event of Default on a future occasion. No other amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Note or other Documents shall be effective unless the same shall be in writing and signed and delivered by an officer of the Bank. 9.4 Governing Law. This Agreement, and each and every term and provision hereof, shall be governed by and construed in accordance with the internal law of the State of Michigan. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or -32- 34 unenforceable provisions had never been contained herein. Borrower hereby consents to the jurisdiction of the courts of the State of Michigan and to the Federal Courts which include the Eastern District of Michigan and their territorial institutions, for all proceedings relating to the enforcement hereof or any indebtedness hereunder. 9.5 Survival of Warranties, Etc. All of the Borrower's covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Notes and shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank. All statements contained in any certificate or other document delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower in connection with this Agreement. 9.6 Costs and Expenses. The Borrower agrees that it will reimburse the Bank, upon demand, for all reasonable costs and expenses incurred by the Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof, (ii) maintaining or defending the Bank's security interests or liens (or the priority thereof), (iii) the enforcement of the Bank's rights or remedies under this Agreement or the other documents contemplated hereby, (iv) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby, and/or (v) any other matters or proceedings arising out of or in connection with any lending arrangement between the Bank and the Borrower, which costs and expenses include without limit payments made by the Bank for taxes, insurance, assessments, or other costs or expenses which the Borrower is required to pay under this Agreement or the other documents contemplated hereby, expenses related to the examination of the Collateral, audit expenses, court costs and reasonable attorneys' fees (whether in-house or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal bankruptcy proceedings, probate proceedings, on appeal or otherwise), and all other costs and expenses of the Bank incurred in connection with any of the foregoing. 9.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 9.8 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns, provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. -33- 35 9.9 Maintenance of Records. The Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. The Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 9.10 Notices. All notices and communications provided for herein or in any Document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two (2) days after sending by first class mail, postage prepaid, addressed as follows: (a) If to the Borrower, to:Patrick R. Quinn, Vice President - Finance, 2515 McKinney Avenue, Suite 1700, Dallas, Texas 75201, and (b) if to the Bank, to: Comerica Bank, 500 Woodward Avenue, Detroit, Michigan 48226, Attention: Barry Carroll, or to such other address as a party shall have designated to the other in writing in accordance with this section. The giving of at least five (5) days notice before the Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes, provided, that this shall not be deemed to require the Bank to give five day notice or any notice if not specifically required in this Agreement. 9.11 Interest and Charges. It is not the intention of any parties to this Agreement to make an agreement in violation of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Agreement, Bank shall ever be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the Legal Rate. If any Bank ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Legal Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Indebtedness so that the interest rate is uniform throughout the entire term of the indebtedness; provided; however, that if the Indebtedness are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Legal Rate, the Bank shall refund to the Borrower the amount of such excess or credit the amount of such excess against the total principal amount of the Indebtedness owing, and in such event, the Bank shall not be subject to any penalties provided by any Applicable Law for contracting for, charging or receiving interest in excess of the Legal Rate. This Section shall control every other provision of all agreements pertaining to the transactions contemplated by or contained herein. -34- 36 9.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. 9.13 Headings. Article and section headings in this Agreement are included for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 9.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH THE BORROWER AND THE BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS. -35- 37 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- COMERICA BANK By: ----------------------------------------- Barry T. Carroll Its: Vice President -36- 38 EXHIBIT "A" REVOLVING NOTE $15,000,000 Detroit, Michigan _________, 1999 FOR VALUE RECEIVED, on or before the Maturity Date, BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation promises to pay to the order of COMERICA BANK, a Michigan banking corporation ("Bank") at its main office at One Detroit Center, Detroit, Michigan, in lawful money of the United States of America so much of the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) as shall have been advanced and then be outstanding hereunder and all the accrued and unpaid interest thereon. Capitalized terms used herein and not defined to the contrary have the meanings given them in the Revolving Credit Agreement of even date herewith between the undersigned and Bank ("Agreement") to which reference is hereby made. Interest on the Advances from time to time outstanding shall bear interest at their Applicable Interest Rates; provided, however, that in the event and so long as there shall exist an Event of Default, the principal balance from time to time outstanding shall bear interest at the rates provided in Section 2.11 of the Agreement. Interest shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed. This Note is note under which advances, repayments and readvances may be made subject to the terms and conditions of the Agreement. This Note evidences borrowing under, is subject to, is secured in accordance with, and may be matured under, the terms of the Agreement, to which reference is hereby made. As additional security for this Note, Company grants Bank a lien on all property and assets including deposits and other credits of the Company, at any time in possession or control of or owing by Bank for any purpose. Company hereby waives presentment for payment, demand, protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence, release, or forbearance granted by any holder of this Note to any party now or hereafter liable hereon or any present or subsequent owner of any property, real or personal, which is now or hereafter security for this Note. Any transferees of, or endorser, guarantor or surety paying this Note in full may succeed to all rights of Bank, and Bank shall be under no further responsibility for the exercise thereof or the loan evidenced hereby. Nothing herein shall limit any right granted Bank by other instrument or by law. -37- 39 This Note shall be governed by and construed in accordance with the laws of the State of Michigan. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: -------------------------------------- Its: -------------------------------------- -2- 40 EXHIBIT "B" REQUEST FOR LOAN The undersigned authorized officer of BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. ("Borrower") hereby submits this Request for Loan to COMERICA BANK ("Bank") pursuant to Section 2.2 of the Revolving Credit Agreement ("Agreement") dated ____________, 1999 between Company and Bank. Capitalized terms used herein and not defined to the contrary have meanings given them in the Agreement. Company: (a) requests an Advance under the Note in the amount of $____________________ to be made on _______________, ______, (b) certifies that all of the conditions for the Advance requested hereby under the Agreement, are satisfied as of the date hereof and shall be satisfied as of the date for the requested Advance, and (c) directs Bank to disburse proceeds of the Advance requested hereby as follows: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -----------------------------------------------------------------------------(1) Executed as of this _____ day of ____________________, _____. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- - - -------- (1) If request is for the renewal or conversion of an existing Advance, identify Advance to be converted by Applicable Interest Rate and Interest Period. 41 SCHEDULE 5.11 MATERIAL AGREEMENTS EX-10.31 18 SECURITY AGREEMENT 1 ======================================================================== REVOLVING CREDIT AGREEMENT DATED MARCH 29, 1999 BETWEEN BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND COMERICA BANK ======================================================================== 2 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT made as of the 29th day March, 1999, by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. and COMERICA BANK. WITNESSETH: WHEREAS, the Borrower has requested Bank to make certain loans and extensions of credit to Borrower; and WHEREAS, the Bank is willing to do so subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, the Borrower and the Bank agree: 1. ARTICLE 1; DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Account Debtor," "Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments" and "Inventory" shall have the meanings assigned to them in the UCC. 1.2 "Accounts Receivable" shall mean and include all Accounts, Chattel Paper and General Intangibles (including, but not limited to tax refunds, trade names, trade styles and goodwill, trade marks, copyrights and patents, and applications therefor, trade and proprietary secrets, formulae, designs, blueprints and plans, customer lists, literary rights, licenses and permits, receivables, insurance proceeds, beneficial interests in trusts and minute books and other books and records) now owned or hereafter acquired by Borrower. 1.3 "Affiliate" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. 1.4 "Agreement" shall mean this Agreement as amended from time to time in accordance with the terms hereof. 3 1.5 "Applicable Interest Rate" shall mean the Eurodollar-based Rate or the Prime-based Rate, as selected by Borrower from time to time or otherwise determined pursuant to the terms and conditions of this Agreement. 1.6 "Bank" shall mean Comerica Bank, a Michigan banking corporation. 1.7 "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended, or any successor act or code. 1.8 "Borrowing Base Amount" shall mean, as of any date, an amount equal to the sum of: (a) eighty five percent (85%) of the Eligible Time Accounts; plus (b) seventy five percent (75%) of the Eligible Fixed Accounts. 1.9 "Borrower" shall mean BrightStar Information Technology Group, Inc., a Delaware corporation. 1.10 "Business Day" shall mean any day on which Bank is open for domestic business in Detroit and (when used in connection with any provision regarding Eurodollar-based Loans) also a day on which commercial banks are open for international business (including dealings in dollar deposits in the interbank market) in Detroit and London. 1.11 "Collateral" shall mean all property of the Borrower now or hereafter in the possession of the Bank or any Affiliate of the Bank (or as to which the Bank or any Affiliate of the Bank now or hereafter controls possession by documents or otherwise), all amounts in all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the Borrower now or hereafter with the Bank or any Affiliate of the Bank and all of Borrower's Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, wherever located and whether now owned or hereafter acquired, together with all replacements of any of the foregoing, substitutions therefor, accessions thereto, and all proceeds and products of all the foregoing, and all additional property (real or personal) of the Borrower which is now or hereafter subject to a security interest, mortgage, lien, claim or other encumbrance granted by the Borrower to, or in favor of, the Bank. 1.12 "Commitment Amount" shall mean Fifteen Million Dollars ($15,000,000). 1.13 "Contribution Agreement" shall mean the Contribution Agreement among the Subsidiaries wherein the Subsidiaries allocate among themselves, the liability to one another arising under the Guaranty. -2- 4 1.14 "Debt" shall mean, as of the date of any determination thereof, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several of Company, that should be classified as liabilities in accordance with GAAP. 1.15 "Debt to Tangible Net Worth Ratio" shall mean, as of the date of any determination thereof, the ratio of (i) Debt to (ii) Tangible Net Worth. 1.16 "Default" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. 1.17 "Documents" shall mean this Agreement, the Note, the Security Agreement, the Stock Pledge, the Guaranty, the Guarantors' Security Agreements, the Subsidiary Security Agreement, the Financing Statements and all other documents, agreements and instruments delivered to Bank pursuant to this Agreement or any of the foregoing. 1.18 "EBITDA" shall mean for any period of determination thereof, Net Income plus any amounts deducted in the calculation thereof with respect to interest expense, taxes, non-cash compensation in the form of stock options, depreciation or amortization of Company, all determined in accordance with GAAP. 1.19 "Eligible Time Account" shall mean an Account (not including interest and service charges) arising from services performed and billed for time and materials and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; -3- 5 (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Fixed Accounts. -4- 6 An Account Receivable which is at any time an Eligible Fixed Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Fixed Account. 1.20 "Eligible Fixed Account" shall mean an Account (not including interest and service charges) arising from services performed on turnkey or fixed price projects and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; -5- 7 (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Time Accounts. An Account Receivable which is at any time an Eligible Time Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Time Account. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as amended, or any successor act or code. 1.22 "Eurodollar-based Loan" shall mean a Loan at any time during which such Loan bears interest at a Eurodollar-based Rate. 1.23 "Eurodollar-based Rate" shall mean a per annum interest rate equal to the Eurodollar Rate, plus two and one-half (2.5%) per annum. 1.24 "Eurodollar Rate" shall mean, for any Eurodollar-based Loan: (a) the per annum interest rate at which the Bank's eurodollar lending office offers deposits in eurodollars to prime banks in the eurodollar market in an amount comparable to the relevant Eurodollar-based Loan and for a period equal to the Interest Period therefore at approximately 11:00 a.m. Detroit time two (2) Business Days prior to the first day of such Interest Period; divided by, -6- 8 (b) a percentage (expressed as a decimal) equal to one hundred percent (100%) minus that percentage which is in effect on the date for an Advance of a Eurodollar-based Loan, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements for a member bank of the Federal Reserve System with deposits exceeding five billion dollars in respect of "Euro-currency Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar-based Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States Eurodollar Lending Office of such a bank to United States residents). 1.25 "Event of Default" shall mean any of those conditions or events listed in Section 8.1 of this Agreement. 1.26 "Financial Statements" shall mean all historical balance sheets and earnings statements and other financial data which have been furnished to the Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby, including without limit balance sheets, statements of income, retained earnings and cash flow, and all footnotes. 1.27 "Financing Statements" shall mean UCC financing statements describing the Bank as secured party and the Borrower as debtor covering the Collateral and otherwise in such form, for filing in such jurisdictions and with such filing offices, and/or any financing statement(s) required to perfect any security agreements entered into in connection with the Loan, as the Bank shall reasonably deem necessary or advisable. 1.28 "Foreign Subsidiaries" shall mean BrightStar Information Technology Group, Pty. Ltd., PROSAP AG, PROSAP Australia Pty., Ltd., SCS Offshore Pty., Ltd. And SCS Consulting & Services Pte. Ltd. 1.29 "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied in the country of incorporation of the relevant Person. 1.30 "Guarantors" shall mean each of the Subsidiaries, jointly and severally. 1.31 "Guarantors' Security Agreements" shall mean those Security Agreements by each Guarantor pursuant to which each Guarantor grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the respective Guarantor, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. -7- 9 1.32 "Guaranty" shall mean the joint and several guaranty executed by Guarantors to Bank guarantying payment of all principal, interest and costs due Bank from Borrower. 1.33 "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of the Borrower to the Bank under the Notes, this Agreement and the Documents, together with all other indebtedness, obligations and liabilities whatsoever of the Borrower to the Bank, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising. 1.34 "Interest Coverage Ratio" shall mean, as of the date of any calculation thereof, the ratio of (i) the EBITDA of Company for the four quarter period most recently ended, to (ii) the Interest Expense of Company for the period of such calculation. 1.35 "Interest Expense" shall mean the interest expense of Company, determined in accordance with GAAP. 1.36 "Interest Period" shall mean an interest period for a Eurodollar-based Loan of one (1), three (3), or six (6) months, provided however, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless the next succeeding Business Day falls in another calendar month, in which case, such Interest Period shall end on the immediately preceding Business Day; and (b) no Interest Period may end after the Maturity Date. 1.37 "Legal Rate" shall mean at the particular time in question the maximum rate of interest which, under applicable law, the Bank is then permitted to charge on the Indebtedness. If the maximum rate of interest which, under applicable law, the Bank is permitted to charge on the Indebtedness shall change after the date hereof, the Legal Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Legal Rate without notice to the Borrower. For purposes of determining the Legal Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a) (I) of Art. 1.04, or (b) if the parties subsequently contract as allowed by applicable law, the quarterly ceiling or the annualized ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that at any time the indicated rate ceiling, the quarterly ceiling of the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for purposes of such determination, as applicable. -8- 10 1.38 "Loan" shall mean, individually and /or collectively as the context may require, the advances evidenced by the Note. 1.39 "Maturity Date" shall mean March 29, 2001. 1.40 "Note" shall mean the promissory note executed and delivered by Borrower to Bank pursuant to Section 2.3 of this Agreement in the form of Exhibit "A" to this Agreement. 1.41 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. 1.42 "Permitted Liens" shall mean: (a) Liens and encumbrances in favor of the Bank; (b) Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank; (c) Liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) Liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and (e) Encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use. 1.43 "Person" or "person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. 1.44 "Prime-based Loan" shall mean a Loan that at any time during such Loan bears interest at a Prime-based Rate. -9- 11 1.45 "Prime-based Rate" shall mean the Prime Rate in effect from time to time plus one-quarter percent (1/4%). 1.46 "Prime Rate" shall mean that annual rate of interest designated by the Bank as its prime rate, which rate may not be the lowest rate of interest charged by the Bank to any of its customers, and which rate is changed by the Bank from time to time. 1.47 "Request for Loan" shall mean a request for loan delivered by Borrower to Bank in the form of Exhibit "B" to this Agreement, pursuant to Section 2.2 of this Agreement. 1.48 "Revolving Maximum" shall mean, as of any date, the lesser of: (a) the Commitment Amount, or (b) the Borrowing Base Amount. 1.49 "Security Agreement" shall mean the Security Agreement by Borrower pursuant to which the Borrower grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the Borrower, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.50 "Stock Pledge" shall mean the Stock Pledge by Borrower pursuant to which Borrower grants to Bank a first priority pledge of one hundred percent (100%) of the issued and outstanding stock in the Subsidiaries. 1.51 "Subsidiaries" shall mean BrightStar Group International, Inc., Mindworks Professional Education Group, Inc., Brian R. Blackmarr and Associates, Inc., Integrated Controls, Inc., Cogent, Inc., Software Consulting Services America, Inc. and Software Innovators, Inc., all wholly owned subsidiaries of Borrower. 1.52 "Subsidiary Security Agreement" shall mean the Security Agreement by all of the Subsidiaries pursuant to which the Subsidiaries grant to Borrower a priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of each respective Subsidiary, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.53 "Tangible Net Worth" shall mean as of the date of any determination, the excess of the net book value of the assets of Company (other than patents, patent rights, trademarks, trade names, copy rights, franchises, licenses, goodwill and other intangible assets) after all appropriate deductions in accordance with GAAP, less all Debt of Company. -10- 12 1.54 "UCC" shall mean the Uniform Commercial Code in effect with respect to the jurisdictions of the various Locations. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. 2. ARTICLE 2; COMMITMENT, INTEREST AND FEES 2.1 Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make Advances to the Borrower from the date hereof until the Maturity Date, in aggregate principal amount at any time outstanding not to exceed the Revolving Maximum. 2.2 Requests for Loans. Borrower may request an Advance by delivery to Bank of a Request for Loan executed by an authorized officer Borrower and subject to the following: (a) each such Request for Loan shall set forth the information required on the Request for Loan form; (b) each such Request for Loan shall be delivered to Bank by 10:00 a.m. three (3) Business Days prior to the proposed date of Advance, except if the Applicable Interest Rate for such Advance is to be the Prime-based Rate, such Request for Loan must be delivered by 10:00 a.m. (Detroit time) on such proposed date; (c) if the Request for Loan is a request for a Eurodollar-based Loan, the principal amount of the Advance requested shall be at least Five Hundred Thousand Dollars ($500,000) or an integral multiple thereof; and (d) each Request for Loan shall constitute a certification by the Borrower as of the date thereof that all of the conditions set forth in Article 4 hereof are satisfied as of the date of such request and shall be satisfied as of the date such Advance is requested. 2.3 Note. The Revolving Loan shall be evidenced by a Note in the form of Exhibit "A" hereto executed by Borrower. 2.4 Payments of Principal. The principal of the Note shall be payable (unless sooner accelerated pursuant to the terms of this Agreement) on the Maturity Date, when -11- 13 the entire balance then outstanding and all accrued and unpaid interest thereon, shall be due and payable. 2.5 Interest. The principal balance of each Advance from time to time outstanding under each Note shall bear interest at its Applicable Interest Rate. Interest shall be payable on all Prime-based Advances, monthly, on the first Business Day of each month. Interest shall be payable on each Eurodollar-based Advance on the last day of its Interest Period and, if such Interest Period has a duration of longer than three (3) months, also at each three month interval from the first day of such interest period. 2.6 Preparation, Closing & Ongoing Fees. Borrower shall pay to Bank: (a) concurrently with the execution of this Agreement, the amount of the expenses (including without limit reasonable attorneys' fees, whether of inside or outside counsel, and disbursements) incurred by the Bank in connection with the preparation and closing of this Agreement and related instruments and/or making of advances hereunder, including but not limited to costs to conduct audits, monitoring and appraisals; (b) concurrently with the execution of this Agreement, a non-refundable closing fee in the amount of Seventy Five Thousand Dollars ($75,000); (c) on an ongoing basis, all audit costs and all collateral monitoring costs of Bank. 2.7 Commitment Fees. Borrower shall pay Bank monthly, on the first Business Day of each month, a commitment fee in the amount equal to the three-eighths of one percent (3/8%) per annum on the average daily amount by which the Commitment Amount exceeded the principal amount of outstanding Advances during the preceding month. 2.8 Basis of Computation. The amount of all interest and fees hereunder shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred sixty (360) days. 2.9 Basis of Payments. All sums payable by the Borrower to the Bank under this Agreement or the other documents contemplated hereby shall be paid directly to the Bank at its office set forth in Section 9.10 hereof in immediately available United States funds, without set off, deduction or counterclaim. Borrower hereby authorizes and request Bank to debit Borrower's checking or deposit or other accounts with the Bank for all or a part of any such amounts when due, provided, however, that this authorization shall not affect the Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. -12- 14 2.10 Receipt of Payments. Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by the Bank at the address designated for such payment, whether or not the Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. The Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by the Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only. 2.11 Default Interest. Notwithstanding anything herein to the contrary, in the event and so long as an Event of Default shall exist, all principal outstanding under the Note shall bear interest, payable on demand, from the date of such Event of Default at a rate per annum equal to: (a) in the case of a Prime-based Loan, three percent (3%) above the Prime-base Rate; and (b) in the case of a Eurodollar-based Loan, three percent (3%) above the Eurodollar-based Rate until the end of the then current Interest Period, at which time such Eurodollar-based Loans shall be automatically converted into Prime-based Loans and bear interest at the rate provided for in clause (a) above. 2.12 Conversion and Renewal of Loans. Providing that no Event of Default shall have occurred and be continuing, the Borrower may elect to renew or convert Applicable Interest Rates applicable to Advances from the Prime-based Rate to the Eurodollar-based Rate or from the Eurodollar-based Rate to the Prime-based Rate, provided that any conversion of a Eurodollar-based Loan shall be made only on the last Business Day of the Interest Period applicable to such Eurodollar-based Loan. If the Borrower desires such a renewal or conversion, it shall give Bank not less than three (3) Business Days' prior notice in the manner provided in Section 2.2 hereof, specifying the date of such renewal or conversion, the Advances to be converted and the type of Advances elected. If with respect to any Eurodollar-based Loan outstanding at any time the Bank does not receive notice of the election from a Borrower not less than three (3) Business Days prior to the last day of the Interest Period therefor, the Borrower shall be deemed to have elected to convert such Eurodollar-based Loan to a Prime-based Loan at the end of the then current Interest Period unless such Eurodollar-based Loan is repaid upon the last day of such Interest Period. 2.13 Early Termination Compensation. In the event that Borrower shall terminate this Agreement on or before the Maturity Date, Borrower shall be obligated to pay to Bank, as a condition to such termination and prior to the release of Bank's liens and encumbrances, the amount of: (a) One Hundred and Fifty Thousand Dollars -13- 15 ($150,000) if such termination occurs before the first anniversary hereof; or (b) Seventy Five Thousand Dollars ($75,000) if such termination occurs on or after the first anniversary hereof but before the second anniversary of this Agreement. This Early Termination Compensation shall be waived if the Loan is replaced by another credit facility with Bank. 3. ARTICLE 3; SPECIAL PROVISIONS FOR EURODOLLAR-BASED LOANS 3.1 Reimbursement of Prepayment Costs. As to any Advances, if any prepayment thereof shall occur on any day other than the last day of an Interest Period (in the case of a Eurodollar-based Loan) or the first day of an Interest Period (with regard to a Prime-Based Loan) (whether pursuant to this Article, or by acceleration, or otherwise), or if an Applicable Interest Rate shall be changed during any Interest Period pursuant to this Article, the Borrower agrees to reimburse Bank any costs incurred by Bank as a result of the timing thereof including but not limited to any net costs incurred in liquidating or employing deposits from third parties, upon Bank's delivery to Borrower of a certificate setting forth in reasonable detail the basis for determining such costs, which certificate shall be conclusively presumed correct save for manifest error. 3.2 Eurodollar Lending Office. For any Advance for which the Applicable Interest Rate is the Eurodollar-based Rate, if Bank shall designate a eurodollar lending office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying the relevant advance on the books of such office. 3.3 Circumstances Affecting Eurodollar-based Availability. If Bank determines that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts are not being offered to Bank for an Interest Period, then Bank shall forthwith give notice thereof to the Borrower. Thereafter, the obligation of Bank to make Eurodollar-based Loans, and the right of Borrower to convert an Advance to or refund an Advance as a Eurodollar-based Loan shall be suspended and all of the Loans shall be Prime-based Loans bearing interest at the Prime-based Rate until the Bank notifies Borrower that such circumstance no longer exists. 3.4 Laws Affecting Eurodollar-based Loan Availability. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by Bank (or its eurodollar lending offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for Bank to honor its obligations hereunder to make or maintain any Advance with interest at the Eurodollar-based Rate, Bank shall forthwith give notice thereof to Borrower. Thereafter: (a) the obligations to -14- 16 make Eurodollar-based Loans and the right of Borrower to convert an Advance or refund an Advance as a Eurodollar-based Loan shall be suspended; and (b) if Bank may not lawfully continue to maintain a Eurodollar-based Loan to the end of the then current Interest Period, the Prime-based Rate shall be the Applicable Interest Rate for such Eurodollar-based Loan for the remainder of such Interest Period. 3.5 Increased Costs. In the event that any change after the date hereof in applicable law, treaty or governmental regulation, or in the interpretation or application thereof, or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority: (a) shall subject Bank (or its eurodollar lending office) to any tax, duty or other charge with respect to any Advance or shall change the basis of taxation of payments to Bank (or its eurodollar lending office) of the principal of or interest on any Advance or any other amounts due under this Agreement (except for changes in the rate of tax on the overall net income or gross receipts of Bank or its eurodollar lending office imposed by the jurisdiction in which Bank's principal executive office or eurodollar lending office is located); or (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System but excluding with respect to any Eurodollar-based Loan any such requirement included in an applicable Eurodollar Reserve Requirement), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its eurodollar lending offices) or shall impose on Bank (or its eurodollar lending offices) or the foreign exchange and interbank markets or other condition affecting any Advance or any commitment of Bank under this Agreement; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any Advance or its commitments hereunder or to reduce the amount or rate of return on any sum received or receivable by Bank under this Agreement, or under any Note, then Bank may promptly notify Borrower of such fact and demand compensation therefor and Borrower agrees to pay to Bank (so long as such event or circumstance continues to exist) such additional amount or amounts as will compensate Bank for such increased costs or reduced return within thirty (30) days of such notice; provided, however that, to the extent doing so would eliminate or decrease Borrower's liability for increased costs hereunder, and to the extent that doing so would not otherwise be disadvantageous to Bank, Bank will attempt to designate a eurodollar lending office for which the tax, duty, reserve, deposit requirement, or other circumstance giving rise to Bank's demand for increased compensation, is not applicable. A certificate of the Bank demanding such compensation setting forth in reasonable detail the basis for determining such additional amount or amounts necessary to compensate shall be conclusively presumed to be correct save for manifest error. -15- 17 3.6 Limitation on Outstanding Advances. At no time shall there be greater than three (3) outstanding Advances on a Eurodollar-based Loan. 4. ARTICLE 4; CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK The obligations of the Bank under this Agreement are subject to the satisfaction of each of the following conditions: 4.1 Documents Executed and Filed. The Borrower shall have executed (or caused to be executed) and delivered to the Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Bank shall deem appropriate, the following: (a) The Note; (b) The Security Agreement; (c) The Subsidiary Security Agreement; (d) The Gurantors' Security Agreements; (e) The Financing Statements; (f) The Guaranty; (g) The Stock Pledge; (h) The Contribution Agreement; (i) Acknowledgements of Borrower's landlords with respect to each Location, together with true copies of each Lease for such Locations. 4.2 Certified Resolutions. The Borrower shall have furnished to the Bank a copy of resolutions of the Board of Directors of the Borrower and the Guarantors authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Note and the Documents to which Borrower and/or Guarantors are a party, which shall have been certified by the Secretary or Assistant Secretary of the Borrower or Guarantors, as the case may be, as being complete, accurate and in effect. 4.3 Certified Articles. The Borrower shall have furnished to the Bank a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the Borrower and Guarantors, which shall have been certified by the jurisdiction of organization of the respective parties thereto. -16- 18 4.4 Certified Bylaws. The Borrower shall have furnished to the Bank a copy of the Bylaws of the Borrower and Guarantors, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of the Borrower and Guarantors, as the case may be, as being complete, accurate and in effect. 4.5 Certificate of Good Standing. The Borrower shall have furnished to the Bank a certificates of good standing with respect to the Borrower and Guarantors certified by the Secretary of State of the States in which they are organized in. 4.6 Certificate of Incumbency. The Borrower shall have furnished to the Bank a certificate of the Secretary or Assistant Secretary of the Borrower and the Guarantors, as to the incumbency and signatures of the officers of the Borrower and Guarantors, as the case may be, signing this Agreement, the Note and Documents. 4.7 UCC Lien Search. The Bank shall have received UCC record and copy searches, evidencing the appropriate filing and recording of the Financing Statements and disclosing no notice of any liens or encumbrances filed against any of the Collateral. 4.8 Casualty Insurance. The Borrower shall have furnished to the Bank, in form, content and amounts and with companies satisfactory to the Bank, casualty insurance policies with loss payable clauses in favor of the Bank, relating to the assets and properties (including, but not limited to, the Collateral) of the Borrower. 4.9 Opinion of Counsel. Borrower shall have caused its legal counsel to deliver to Bank a legal opinion covering such matters as Bank shall require, and otherwise in form and content satisfactory to Bank. 4.10 Approval of Bank Counsel. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been satisfactory to and approved by legal counsel for the Bank, and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested. 5. ARTICLE 5; WARRANTIES AND REPRESENTATIONS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower represents and warrants that: 5.1 Corporate Existence and Power. (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) it has the power and authority to own its properties and assets and to carry out its -17- 19 business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary and (c) the Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Note and other Documents to which it is party and to grant to the Bank liens and security interests in the Collateral as hereby contemplated and to do any and all other things required of it hereunder. 5.2 Authorization and Approvals. The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Note, the other Documents: (a) have been duly authorized by all requisite corporate action of the Borrower (b) except for UCC filings, do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, (c) will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of the Borrower, any provision of any indenture, note, agreement or other instrument to which any of them are a party, or by which any of their properties or assets are bound, (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument, and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, other than in favor of the Bank and as contemplated hereby. 5.3 Valid and Binding Agreement. This Agreement and the Documents will be, when delivered, valid and binding obligations of the Borrower, in accordance with its respective terms except to the extent enforceability thereof may be limited under applicable bankruptcy, moratorium, insolvency, rearrangement, reorganization or similar debtor relief laws affecting the rights of creditors generally from time to time in effect. 5.4 Actions, Suits or Proceedings. There are no actions, suits or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any properties or rights of the Borrower which, if adversely determined, could materially impair the right of it to carry on its business substantially as now conducted or could have a material adverse effect upon its financial condition. 5.5 No Liens, Pledges, Mortgage or Security Interests. Except for Permitted Liens none of the Borrower's assets and properties, including without limit the Collateral, are subject to any mortgage, pledge, lien, security interest or other encumbrances of any kind or character other than in favor of Bank and Permitted Liens. 5.6 Accounting Principles. All consolidated and consolidating balance sheets, earnings statements and other historical financial data furnished to the Bank for the -18- 20 purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of the Borrower, as of the dates, and the results of its operations for the periods, for which the same are furnished to the Bank. Without limiting the generality of the foregoing, the annual and quarterly Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and the monthly Financial Statements have been prepared in a manner consistent with the calculations used in quarterly Financial Statements, and all of them fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to the Bank. The Borrower has no material contingent obligations, liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 Financial Condition. The Borrower is solvent, able to pay its respective debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and the Borrower will not be rendered insolvent, under-capitalized or unable to pay maturing debts by the execution or performance of this Agreement or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest of the Financial Statements. 5.8 Taxes. The Borrower has filed by the due date therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and has made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. The Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 5.9 Compliance with Laws. The Borrower has complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of the Borrower as presently conducted. 5.10 Indebtedness. Except as permitted under Section 7.4 hereof, the Borrower has no indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit or collection. 5.11 Material Agreements. Except as disclosed on Schedule 5.11 attached hereto, the Borrower has no material contracts (as defined in the Regulations under the -19- 21 Securities Act of 1933, as amended), which may include, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements; to the best knowledge of Borrower, all parties to such agreements have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of the Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 5.12 Margin Stock. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any Loan hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.13 Pension Funding. The Borrower has not incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by the Borrower and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 5.14 Misrepresentation. No warranty or representation by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. 5.15 Hazardous Materials Warranties, Representations and Covenants. (a) Borrower is not party to any litigation or administrative proceeding, nor so far as is known by Borrower, is any litigation or administrative proceeding threatened against it, which in either case (a) asserts or alleges that Borrower violated any federal, state or local laws, ordinances, statutes, rules, regulations or judgments governing the use, storage, transportation, or disposal of Hazardous Materials ("Environmental Laws"), (b) asserts or alleges that Borrower is required to clean up, remove, or take remedial or other response action due to the disposal, depositing discharge, leaking or other release of any Hazardous Materials, (c) asserts or alleges that Borrower is required to pay all or a portion of the cost of any past, present, or future clean up, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Material by any one of them. -20- 22 (b) To the best knowledge of Borrower, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Borrower to damages, penalties, injunctive relief or clean up costs under any Environmental Laws or which require or are likely to require clean up, removal, remedial action or other response pursuant to Environmental Laws by Borrower. (c) The Borrower is not subject to any judgment, decree, order or citation related to or arising under the Environmental Laws and Borrower has not received any notice ("Environmental Complaint") of any violations of Environmental Laws (and, within five days of receipt of any Environmental Complaint the Borrower shall deliver to the Bank a copy thereof), and to the best of Borrower's knowledge, there have been no actions commenced or threatened by any party for noncompliance with any Environmental Laws. (d) The Borrower has all permits, licenses, approvals and other authorizations required under the Environmental Laws. (e) The Borrower covenants and agrees that it shall not use, introduce or maintain Hazardous Materials in any premises which they may from time to time occupy other than in strict accordance and compliance with Environmental Laws. (f) Borrower agrees that it shall promptly notify Bank in writing as soon as Borrower becomes aware of any condition or circumstance which makes the environmental warranties, representations and covenants contained herein incomplete or inaccurate in any material respect as of any date. (g) In the event of any condition or circumstance that makes any environmental representation, warranty or covenant incomplete or inaccurate in any material respect as of any date, Borrower shall, at the request of Bank, at the sole expense of Borrower, retain an environmental consultant acceptable to Bank, to conduct a thorough and complete environmental assessment in respect of any environmental concerns of Bank arising from that changed condition or circumstance. A copy of said assessment will be addressed to Bank and promptly delivered to Bank, Borrower upon completion. (h) In the event of a violation of Environmental Laws, whether discovered pursuant to an environmental consultant's assessment or otherwise, Borrower covenants and agrees to complete all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials on or affecting premises or property occupied or used by Borrower, whether caused by the Borrower or a third party, in accordance with Environmental Laws to the satisfaction of Bank, and in accordance with the directives of all federal, state, and local governmental authorities. -21- 23 (i) At any time Borrower, directly or indirectly through any professional consultant or other representative, determines to undertake an environmental audit, assessment or investigation, Borrower shall promptly provide Bank with written notice of the initiation of the environmental audit/assessment, fully describing the purpose and intended scope of the said audit/assessment. Upon receipt, Borrower shall promptly provide Bank copies of all final findings and conclusions of any such environmental investigation. Preliminary findings and conclusions shall be provided if final reports have not been completed and delivered to Bank within sixty days following completion of the preliminary findings and conclusions. (j) Borrower hereby indemnifies, saves and holds Bank and any of its past, present and future officers, directors, shareholders, employees, representatives and consultants harmless from any and all loss damages, suits, penalties, costs, liabilities and expenses (including, but not limited to reasonable investigation, environmental audit(s), and legal expenses), arising out of any claim, loss or damages of any property, injuries to or death of persons, contamination of or adverse effects on the environment, or any violation of any Environmental Laws, caused by or in any way related to the real property of Borrower, or due to any acts of Borrower or its officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnifications shall not be applicable when arising from events or conditions occurring while the Bank is in sole possession (subject to the rights of any creditors of Borrower) of the real property of Borrower. In no event shall Borrower be liable hereunder for any loss, damages, suits, penalties, costs, liabilities or expenses arising solely from any act or willful misconduct or gross negligence of Bank or its agents or employees. It is expressly agreed and understood by Borrower that the indemnifications granted herein are intended to protect Bank, its past, present and future officers, directors, shareholders, employees, consultants and representatives from any claims that may arise by reason of any security interest, liens and/or mortgages granted to Bank, or under any other document or agreement given to secure repayment of the Indebtedness, whether or not such claims arise before or after Bank has foreclosed upon and/or otherwise becomes the owner of any such property, real or personal. All obligations of indemnity as provided hereunder shall be supported and secured by any Documents executed by Borrower in favor of Bank. The indemnifications contained herein extend to shareholders of Bank qua shareholders only, and nothing contained herein shall be construed to prevent Borrower from asserting any claim whatsoever against any party or entity that occasions any adverse environmental effects or any violation of any Environmental Laws upon or in any way related to the real property of Borrower, whether or not such party or entity is a shareholder of Bank. (k) In the event any mortgage securing the Indebtedness is foreclosed or the Borrower tenders a deed in lieu of foreclosure, the Borrower shall deliver the -22- 24 premises to the Bank free of any and all Hazardous Materials to the extent necessary so that the condition of the premises shall not be a violation of any Environmental Laws. (l) The provisions of this section shall be in addition to any and all other obligations and liabilities the Borrower may have to the Bank at common law or pursuant to any other agreement and shall survive (i) the repayment of the Indebtedness, (ii) the satisfaction of all of the other obligations of the Borrower hereunder and under the other Documents, (iii) the discharge of the Mortgage, and (iv) the foreclosure of the Mortgages or acceptance of a deed in lieu thereof. (m) "Hazardous Materials" includes, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local governmental law, ordinance, rule, or regulation. 6. ARTICLE 6; AFFIRMATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will: 6.1 Financial and Other Information. (a) Annual Financial Reports. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, not later than one hundred twenty (120) days after the close of each fiscal year of the Borrower, financial statements of the Borrower containing the balance sheet of the Borrower of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by the Borrower and acceptable to the Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. These statements shall be prepared on an audited basis. (b) Monthly Financial Statements. Furnish to the Bank not later than fifty five (55) days after the close of each month of each fiscal year of the Borrower, unaudited financial statements on a consolidated basis containing the balance sheet of the Borrower as of the end of each such period, statements of income and retained earnings -23- 25 of the Borrower and a statement of cash flows of the Borrower for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. The statements shall be in such detail as the Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of the Borrower. (c) No Default Certificate. Together with each delivery of the financial statements required by Sections 6.1(a) and 6.1(b) of this Agreement, furnish to the Bank a certificate of its chief executive or financial officer stating that no Event of Default or Default has occurred, or if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto. (d) Accounts. Furnish to Bank not later than fifteen (15) days after and as of the end of each month, agings of the Accounts and any accounts payable of Borrower, and a schedule identifying each Eligible Account and identifying for each Eligible Account, the portions thereof which constitute Eligible Fixed Accounts and Eligible Time Accounts. Any such schedule, certificate or report shall be executed by a duly authorized officer of Borrower and shall be in such form and detail as Bank may specify. (e) Borrowing Base Report. Furnish to the Bank not later than five (5) days after and as of the end of each week, in form, content, and reporting basis satisfactory to the Bank, a Borrowing Base report. (f) Reports Filed with the SEC. Furnish to the Bank copies of all reports and information filings by Borrower required by the Securities and Exchange Commission ("SEC") on or before the statutory filing date. (g) Annual Financial Projections. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, prior to the commencement of each fiscal year of the Borrower, projected financial statements of the Borrower containing the balance sheet of the Borrower of the beginning of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports prepared by management of Borrower utilizing their then current knowledge and reasonable expectations with respect to the periods covered thereby. (h) Adverse Events. Promptly inform the Bank of the occurrence of any Event of Default or Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon the Borrower's business, properties, or financial condition or upon the Borrower's ability to comply with its obligations under the Documents. -24- 26 (i) Other Information As Requested. Promptly furnish to the Bank such other information regarding the operations, business affairs and financial condition of the Borrower and its subsidiaries as the Bank may reasonably request from time to time and permit the Bank, its employees, attorneys and agents, upon 72 hours prior notice (except in case of emergency or during the existence of an Event of Default) to inspect all of the books, records and properties of the Borrower and its subsidiaries during normal business hours. 6.2 Compliance with Borrowing Formula. In the event that at any time, the aggregate principal amount of Advances exceeds the Revolving Maximum, immediately pay to Bank for application against such Advances, an amount sufficient to eliminate such excess. 6.3 New Subsidiaries. Cause each domestic subsidiary of Borrower now or hereafter owned or acquired by Bank which Bank determines (in its sole discretion) to have significant assets or revenues, to guaranty the obligations of Borrower to Bank and to secure such guaranty with liens upon and security interests in all such subsidiary's assets. 6.4 Insurance. Keep its insurable properties (including but not limited to the Collateral) adequately insured and maintain (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of the Borrower, (b) necessary worker's compensation insurance, (c) public liability and product liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by the Bank, all of which Insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as shall be satisfactory to the Bank. All such policies shall contain a provision whereby they may not be canceled or amended except upon thirty (30) days' prior written notice to the Bank. The Borrower will promptly deliver to the Bank, at the Bank's request, evidence satisfactory to the Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to the Bank. If the Borrower fails to maintain satisfactory insurance as herein provided, the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate then in effect for the Revolving, all amounts so expended by the Bank. The Borrower hereby appoints the Bank or any employee or agent of the Bank as the Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes the Bank or any employee or agent of the Bank, on behalf of the Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to the Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected shall be applied toward repair and/or replacement of the Collateral to which such casualty occurred or satisfaction of the Indebtedness in -25- 27 accordance in accordance with the provisions governing such application in the Documents pursuant to which Bank's Liens on such Collateral were granted. 6.5 Taxes. Pay in accordance with commercially reasonable practices and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon the Borrower, and its property, except to the extent being contested in good faith and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate from time to time in effect under the Note, all amounts so expended by the Bank. 6.6 Maintain Corporation and Business. Do or cause to be done all things necessary to preserve and keep in full force and effect the Borrower's corporate existence, and material rights and franchises and comply with all material respects with applicable laws, continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year, at all times maintain, preserve and protect all material franchises and trade names and property and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 6.7 ERISA. (a) At all times meet the minimum funding requirements of ERISA with respect to the Borrower's employee benefit plans subject to ERISA, (b) promptly after the Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or the Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth details as to such event or proceedings and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC, and (c) furnish to the Bank (or cause the plan administrator to furnish the Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by the Borrower not later than ten (10) days after such report has been so filed. 6.8 Financial Covenants. (a) Maintain a Tangible Net Worth of not less than: -26- 28
As of: ------ 3/31/99 $2,500,000; 6/30/99 $2,500,000; 9/30/99 $4,000,000; 12/31/99 $5,500,000; 3/31/2000 $7,000,000; 6/30/2000 $8,500,000; 9/30/2000 $10,000,000; 12/31/2000 $11,500,000; 3/31/2001 $13,000,000;
(b) Maintain an Interest Coverage Ratio of not less than:
As of: ------ 3/31/99 9 to 1 6/30/99 10 to 1 9/30/99 11 to 1 12/31/99 12 to 1 3/31/2000 13 to 1 6/30/2000 14 to 1 9/30/2000 15 to 1 12/31/2000 16 to 1 3/31/2001 17 to 1
(c) At all times maintain a Debt to Tangible Net Worth Ratio of not more than 12 to 1. 6.9 Bank Accounts. Establish and maintain with Bank a general checking account. 7. ARTICLE 7; NEGATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will not, without the Bank's prior written consent: -27- 29 7.1 Dividends. Declare or pay any cash dividends on, or make any other cash distribution (whether by reduction of capital or otherwise) with respect to any shares of its capital stock. 7.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so. 7.3 Liens and Encumbrances. Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including without limit any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired, other than: (a) to Bank; and (b) Permitted Liens. 7.4 Indebtedness. Incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for: (a) the Indebtedness; (b) indebtedness secured by Permitted Liens. 7.5 Extension of Credit. Make loans, advances or extensions of credit to any Person, except (a) loans and advances to Foreign Subsidiaries in an amount not to exceed $2,000,000 in the aggregate during any fiscal year; and (b) loans and advances to Subsidiaries, provided that in both instances, promptly upon the making of any such loan, Borrower delivers and collaterally assigns to Bank all of Borrower's interest in a note evidencing such loan and any security therefor. 7.6 Guarantee Obligations. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit for collection. 7.7 Subordination of Receivables. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. -28- 30 7.8 Property Transfer, Merger or Lease-Back. (a) Sell, lease, transfer or otherwise dispose of properties and asset, having an aggregate book value of more than Two Hundred Fifty Thousand Dollars ($250,000), (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock, except for such merger(s) of a Subsidiary into Borrower; or (c) enter into any sale-leaseback transaction. 7.9 Acquire Securities. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000 and direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 7.10 Pension Plan. (a) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of the Borrower to the PBGC which, in the opinion of the Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. 8. ARTICLE 8; EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Failure to Pay Monies Due. If the Borrower shall fail to pay, when due, any principal or interest under any Note or other Indebtedness when due or shall default in an obligation described in Section 6.1 or 6.2 hereof and such failure or default shall continue for a period in excess of three (3) Business Days after notice by Bank to Borrower thereof. (b) Misrepresentation. If any warranty or representation in connection with or contained in this Agreement or any Document, or if any Financial Statements now or hereafter furnished to the Bank by or on behalf of the Borrower, shall prove to be false or misleading in any material respect as of the date made or deemed made hereunder. -29- 31 (c) Noncompliance with Bank Agreement. If the Borrower shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement or any other Document and, in the case of a failure to perform obligations other than those described in Section 6.4, Sections 7.1 through 7.10 hereof or Section 8.1(a) above, such failure shall continue for a period in excess of thirty (30) days after the earlier of Bank's notice to Borrower thereof or the date Borrower actually becomes aware thereof. (d) Other Defaults. If the Borrower shall default in the payment when due of any of its borrowed money indebtedness (other than to the Bank) in amounts in excess of Five Hundred Thousand Dollars ($500,000) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof. (e) Judgments. If there shall be rendered against the Borrower one or more judgments or decrees involving an aggregate liability of Five Hundred Thousand Dollars ($500,000)or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive, or if a writ of attachment or garnishment against the property of the Borrower shall be issued and levied in an action claiming Five Hundred Thousand Dollars ($500,000)or more and not released or appealed and bonded in an amount and manner satisfactory to the Bank within thirty (30) days after such issuance and levy. (f) Business Suspension Bankruptcy Etc. If the Borrower shall voluntarily suspend transaction of its business, or if the Borrower shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors, or proceedings in bankruptcy, or for reorganization or liquidation of the Borrower under the Bankruptcy Code or under any other, state federal or other applicable law for the relief of debtors shall be commenced by Borrower, or shall be commenced against the Borrower and shall not be discharged within sixty (60) days of commencement, or a receiver, trustee or custodian shall be appointed for the Borrower or for any substantial portion of their respective properties or assets. (g) Change of Management or Ownership. If a majority of the persons serving on the board of directors of Borrower as of the date of this Agreement shall cease to serve on such board of directors and Bank considers (in its reasonable discretion) such change to affect materially and adversely the prospects of Borrower. (h) Inadequate Funding or Termination of Employee Benefit Plan. If the Borrower shall fail to meet its minimum funding requirements under ERISA with respect -30- 32 to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower to the PBGC which in the opinion of the Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. (i) Occurrence of Certain Reportable Events. If there shall occur, with respect to any pension plan maintained by the Borrower any reportable event (within the meaning of Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after the Bank gives written notice to the Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of the Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, as the case may be. (j) Repudiation of Documents. If Borrower repudiates, contests, revokes or purports to revoke any of its obligations to Bank, or any rights or remedies of Bank, under Documents to which they are party. (k) Loans or Guarantees of Subsidiaries. If any Subsidiary shall loan or advance monies to, or invest in, or guaranty a debt or obligation of, a Foreign Subsidiary. 8.2 Acceleration of Indebtedness, Remedies. Upon the occurrence of an Event of Default, all Indebtedness shall be due and payable in full immediately (without notice or demand in the case of an Event of Default of the type described in Section 8.1.(f) above, and upon written notice from Bank in the case of any other Event of Default) without presentation, demand, protest, notice of dishonor or other further notice of any kind, all of which are hereby expressly waived, and Bank shall have no further commitment to make Advances. Unless all of the Indebtedness is then immediately fully paid, the Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, under the or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral and to set off against the Indebtedness any amount owing by the Bank to the Borrower and/or any property of the Borrower in possession of the Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral and make it available to the Bank at any place designated by the Bank. 8.3 Application of Proceeds. All of the Indebtedness shall constitute one loan secured by the Bank's security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from the Borrower to the Bank. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 8.1, the Bank may in its sole -31- 33 discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the Bank, first upon all expenses authorized by the UCC or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by the Bank, the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower shall remain liable for any deficiency, which the Borrower shall pay to the Bank immediately upon demand. 8.4 Cumulative Remedies. The remedies provided for herein are cumulative to the remedies for collection of the Indebtedness as provided by law, in equity or by any Document. Nothing herein contained is intended, nor shall it be construed, to preclude the Bank from pursuing any other remedy for the recovery of any other sum to which the Bank may be or become entitled for the breach of this Agreement by the Borrower. 9. ARTICLE 9; MISCELLANEOUS 9.1 Independent Rights. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 9.2 Covenant Independence. Each covenant in this Agreement shall deemed to be independent of any other covenant, and an exception illegality in one covenant shall not create an exception or illegality another covenant. 9.3 Waivers and Amendments. No forbearance on the part of the Bank in enforcing any of its rights under this Agreement or any other Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No Default or Event of Default shall be waived by the Bank except in a writing signed and delivered by an officer of the Bank, and no waiver of any other Default or Event of Default shall operate as a waiver of any Default or Event of Default or of the same Default or Event of Default on a future occasion. No other amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Note or other Documents shall be effective unless the same shall be in writing and signed and delivered by an officer of the Bank. 9.4 Governing Law. This Agreement, and each and every term and provision hereof, shall be governed by and construed in accordance with the internal law of the State of Michigan. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or -32- 34 unenforceable provisions had never been contained herein. Borrower hereby consents to the jurisdiction of the courts of the State of Michigan and to the Federal Courts which include the Eastern District of Michigan and their territorial institutions, for all proceedings relating to the enforcement hereof or any indebtedness hereunder. 9.5 Survival of Warranties, Etc. All of the Borrower's covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Notes and shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank. All statements contained in any certificate or other document delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower in connection with this Agreement. 9.6 Costs and Expenses. The Borrower agrees that it will reimburse the Bank, upon demand, for all reasonable costs and expenses incurred by the Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof, (ii) maintaining or defending the Bank's security interests or liens (or the priority thereof), (iii) the enforcement of the Bank's rights or remedies under this Agreement or the other documents contemplated hereby, (iv) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby, and/or (v) any other matters or proceedings arising out of or in connection with any lending arrangement between the Bank and the Borrower, which costs and expenses include without limit payments made by the Bank for taxes, insurance, assessments, or other costs or expenses which the Borrower is required to pay under this Agreement or the other documents contemplated hereby, expenses related to the examination of the Collateral, audit expenses, court costs and reasonable attorneys' fees (whether in-house or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal bankruptcy proceedings, probate proceedings, on appeal or otherwise), and all other costs and expenses of the Bank incurred in connection with any of the foregoing. 9.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 9.8 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns, provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. -33- 35 9.9 Maintenance of Records. The Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. The Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 9.10 Notices. All notices and communications provided for herein or in any Document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two (2) days after sending by first class mail, postage prepaid, addressed as follows: (a) If to the Borrower, to:Patrick R. Quinn, Vice President - Finance, 2515 McKinney Avenue, Suite 1700, Dallas, Texas 75201, and (b) if to the Bank, to: Comerica Bank, 500 Woodward Avenue, Detroit, Michigan 48226, Attention: Barry Carroll, or to such other address as a party shall have designated to the other in writing in accordance with this section. The giving of at least five (5) days notice before the Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes, provided, that this shall not be deemed to require the Bank to give five day notice or any notice if not specifically required in this Agreement. 9.11 Interest and Charges. It is not the intention of any parties to this Agreement to make an agreement in violation of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Agreement, Bank shall ever be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the Legal Rate. If any Bank ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Legal Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Indebtedness so that the interest rate is uniform throughout the entire term of the indebtedness; provided; however, that if the Indebtedness are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Legal Rate, the Bank shall refund to the Borrower the amount of such excess or credit the amount of such excess against the total principal amount of the Indebtedness owing, and in such event, the Bank shall not be subject to any penalties provided by any Applicable Law for contracting for, charging or receiving interest in excess of the Legal Rate. This Section shall control every other provision of all agreements pertaining to the transactions contemplated by or contained herein. -34- 36 9.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. 9.13 Headings. Article and section headings in this Agreement are included for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 9.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH THE BORROWER AND THE BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS. -35- 37 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- COMERICA BANK By: ----------------------------------------- Barry T. Carroll Its: Vice President -36- 38 EXHIBIT "A" REVOLVING NOTE $15,000,000 Detroit, Michigan _________, 1999 FOR VALUE RECEIVED, on or before the Maturity Date, BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation promises to pay to the order of COMERICA BANK, a Michigan banking corporation ("Bank") at its main office at One Detroit Center, Detroit, Michigan, in lawful money of the United States of America so much of the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) as shall have been advanced and then be outstanding hereunder and all the accrued and unpaid interest thereon. Capitalized terms used herein and not defined to the contrary have the meanings given them in the Revolving Credit Agreement of even date herewith between the undersigned and Bank ("Agreement") to which reference is hereby made. Interest on the Advances from time to time outstanding shall bear interest at their Applicable Interest Rates; provided, however, that in the event and so long as there shall exist an Event of Default, the principal balance from time to time outstanding shall bear interest at the rates provided in Section 2.11 of the Agreement. Interest shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed. This Note is note under which advances, repayments and readvances may be made subject to the terms and conditions of the Agreement. This Note evidences borrowing under, is subject to, is secured in accordance with, and may be matured under, the terms of the Agreement, to which reference is hereby made. As additional security for this Note, Company grants Bank a lien on all property and assets including deposits and other credits of the Company, at any time in possession or control of or owing by Bank for any purpose. Company hereby waives presentment for payment, demand, protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence, release, or forbearance granted by any holder of this Note to any party now or hereafter liable hereon or any present or subsequent owner of any property, real or personal, which is now or hereafter security for this Note. Any transferees of, or endorser, guarantor or surety paying this Note in full may succeed to all rights of Bank, and Bank shall be under no further responsibility for the exercise thereof or the loan evidenced hereby. Nothing herein shall limit any right granted Bank by other instrument or by law. -37- 39 This Note shall be governed by and construed in accordance with the laws of the State of Michigan. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: -------------------------------------- Its: -------------------------------------- -2- 40 EXHIBIT "B" REQUEST FOR LOAN The undersigned authorized officer of BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. ("Borrower") hereby submits this Request for Loan to COMERICA BANK ("Bank") pursuant to Section 2.2 of the Revolving Credit Agreement ("Agreement") dated ____________, 1999 between Company and Bank. Capitalized terms used herein and not defined to the contrary have meanings given them in the Agreement. Company: (a) requests an Advance under the Note in the amount of $____________________ to be made on _______________, ______, (b) certifies that all of the conditions for the Advance requested hereby under the Agreement, are satisfied as of the date hereof and shall be satisfied as of the date for the requested Advance, and (c) directs Bank to disburse proceeds of the Advance requested hereby as follows: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -----------------------------------------------------------------------------(1) Executed as of this _____ day of ____________________, _____. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- - - -------- (1) If request is for the renewal or conversion of an existing Advance, identify Advance to be converted by Applicable Interest Rate and Interest Period. 41 SCHEDULE 5.11 MATERIAL AGREEMENTS EX-10.32 19 SECURITY AGREEMENT 1 ======================================================================== REVOLVING CREDIT AGREEMENT DATED MARCH 29, 1999 BETWEEN BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. AND COMERICA BANK ======================================================================== 2 REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT made as of the 29th day March, 1999, by and between BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. and COMERICA BANK. WITNESSETH: WHEREAS, the Borrower has requested Bank to make certain loans and extensions of credit to Borrower; and WHEREAS, the Bank is willing to do so subject to the terms and conditions set forth in this Agreement; NOW, THEREFORE, the Borrower and the Bank agree: 1. ARTICLE 1; DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "Account Debtor," "Accounts," "Chattel Paper," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments" and "Inventory" shall have the meanings assigned to them in the UCC. 1.2 "Accounts Receivable" shall mean and include all Accounts, Chattel Paper and General Intangibles (including, but not limited to tax refunds, trade names, trade styles and goodwill, trade marks, copyrights and patents, and applications therefor, trade and proprietary secrets, formulae, designs, blueprints and plans, customer lists, literary rights, licenses and permits, receivables, insurance proceeds, beneficial interests in trusts and minute books and other books and records) now owned or hereafter acquired by Borrower. 1.3 "Affiliate" shall mean, when used with respect to any person, any other person which, directly or indirectly, controls or is controlled by or is under common control with such person. For purposes of this definition, "control" (including the correlative meanings of the terms "controlled by" and "under common control with"), with respect to any person, shall mean possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. 1.4 "Agreement" shall mean this Agreement as amended from time to time in accordance with the terms hereof. 3 1.5 "Applicable Interest Rate" shall mean the Eurodollar-based Rate or the Prime-based Rate, as selected by Borrower from time to time or otherwise determined pursuant to the terms and conditions of this Agreement. 1.6 "Bank" shall mean Comerica Bank, a Michigan banking corporation. 1.7 "Bankruptcy Code" shall mean Title 11 of the United States Code, as amended, or any successor act or code. 1.8 "Borrowing Base Amount" shall mean, as of any date, an amount equal to the sum of: (a) eighty five percent (85%) of the Eligible Time Accounts; plus (b) seventy five percent (75%) of the Eligible Fixed Accounts. 1.9 "Borrower" shall mean BrightStar Information Technology Group, Inc., a Delaware corporation. 1.10 "Business Day" shall mean any day on which Bank is open for domestic business in Detroit and (when used in connection with any provision regarding Eurodollar-based Loans) also a day on which commercial banks are open for international business (including dealings in dollar deposits in the interbank market) in Detroit and London. 1.11 "Collateral" shall mean all property of the Borrower now or hereafter in the possession of the Bank or any Affiliate of the Bank (or as to which the Bank or any Affiliate of the Bank now or hereafter controls possession by documents or otherwise), all amounts in all deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the Borrower now or hereafter with the Bank or any Affiliate of the Bank and all of Borrower's Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, wherever located and whether now owned or hereafter acquired, together with all replacements of any of the foregoing, substitutions therefor, accessions thereto, and all proceeds and products of all the foregoing, and all additional property (real or personal) of the Borrower which is now or hereafter subject to a security interest, mortgage, lien, claim or other encumbrance granted by the Borrower to, or in favor of, the Bank. 1.12 "Commitment Amount" shall mean Fifteen Million Dollars ($15,000,000). 1.13 "Contribution Agreement" shall mean the Contribution Agreement among the Subsidiaries wherein the Subsidiaries allocate among themselves, the liability to one another arising under the Guaranty. -2- 4 1.14 "Debt" shall mean, as of the date of any determination thereof, all items of indebtedness, obligation or liability, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several of Company, that should be classified as liabilities in accordance with GAAP. 1.15 "Debt to Tangible Net Worth Ratio" shall mean, as of the date of any determination thereof, the ratio of (i) Debt to (ii) Tangible Net Worth. 1.16 "Default" shall mean a condition or event which, with the giving of notice or the passage of time, or both, would become an Event of Default. 1.17 "Documents" shall mean this Agreement, the Note, the Security Agreement, the Stock Pledge, the Guaranty, the Guarantors' Security Agreements, the Subsidiary Security Agreement, the Financing Statements and all other documents, agreements and instruments delivered to Bank pursuant to this Agreement or any of the foregoing. 1.18 "EBITDA" shall mean for any period of determination thereof, Net Income plus any amounts deducted in the calculation thereof with respect to interest expense, taxes, non-cash compensation in the form of stock options, depreciation or amortization of Company, all determined in accordance with GAAP. 1.19 "Eligible Time Account" shall mean an Account (not including interest and service charges) arising from services performed and billed for time and materials and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; -3- 5 (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Fixed Accounts. -4- 6 An Account Receivable which is at any time an Eligible Fixed Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Fixed Account. 1.20 "Eligible Fixed Account" shall mean an Account (not including interest and service charges) arising from services performed on turnkey or fixed price projects and in the ordinary course of Borrower's business which meets each of the following requirements: (a) it is not owing to Borrower more than ninety (90) days after the date of invoice for same; (b) it is not owing by an Account Debtor (as defined in the UCC) who has failed to pay twenty five percent (25%) or more of the aggregate amount of its Accounts owing to Debtor within ninety (90) days after the date of the respective invoices or other writings evidencing such Accounts; (c) it arises from the sale or lease of goods and such goods have been shipped or delivered to the Account Debtor under such Account; or it arises from services rendered and such services have been performed; (d) it is evidenced by an invoice, dated not later than the date of shipment or performance, rendered to such Account Debtor or some other evidence of billing acceptable to Bank; (e) it is not evidenced by any note, trade acceptance, draft or other negotiable instrument or by any chattel paper, unless such note or other document or instrument previously has been endorsed and delivered by Debtor to Bank; (f) it is a valid, legally enforceable obligation of the Account Debtor thereunder, and is not subject to any offset, counterclaim or other defense on the part of such Account Debtor or to any claim on the part of such Account Debtor denying liability thereunder in whole or in part; (g) it is not subject to any sale of accounts, any rights of offset, assignment, lien or security interest whatsoever other than to Bank; (h) it is not owing by a subsidiary or affiliate of Debtor, nor by an Account Debtor which (i) does not maintain its chief executive office in the United States of America, (ii) is not organized under the laws of the United States of America, or any state thereof, unless such Account Debtor is a Canadian subsidiary of General Motors, Ford or Chrysler, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality or other instrumentality thereof; -5- 7 (i) it is not an account owing by the United States of America or any state or political subdivision thereof, or by any department, agency, public body corporate or other instrumentality of any of the foregoing, unless all necessary steps are taken to comply with the Federal Assignment of Claims Act of 1940, as amended, or with any comparable state law, if applicable, and all other necessary steps are taken to perfect Bank's security interest in such account; (j) it is not owing by an Account Debtor for which Debtor has received a notice of (i) the death of the Account Debtor or any partner of the Account Debtor, (ii) the dissolution, liquidation, termination of existence, insolvency or business failure of the Account Debtor, (iii) the appointment of a receiver for any part of the property of the Account Debtor, or (iv) an assignment for the benefit of creditors, the filing of a petition in bankruptcy, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against the Account Debtor; (k) it is not an account billed in advance, payable on delivery, for consigned goods, for guaranteed sales, for unbilled sales, for progress billings, payable at a future date in accordance with its terms, subject to a retainage or holdback by the Account Debtor or insured by a surety company; and (l) it is not owing by any Account Debtor whose obligations Bank, acting in its sole discretion, shall have notified Debtor are not deemed to constitute Eligible Time Accounts. An Account Receivable which is at any time an Eligible Time Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Time Account. 1.21 "ERISA" shall mean the Employee Retirement Income Security Act of 1974 as amended, or any successor act or code. 1.22 "Eurodollar-based Loan" shall mean a Loan at any time during which such Loan bears interest at a Eurodollar-based Rate. 1.23 "Eurodollar-based Rate" shall mean a per annum interest rate equal to the Eurodollar Rate, plus two and one-half (2.5%) per annum. 1.24 "Eurodollar Rate" shall mean, for any Eurodollar-based Loan: (a) the per annum interest rate at which the Bank's eurodollar lending office offers deposits in eurodollars to prime banks in the eurodollar market in an amount comparable to the relevant Eurodollar-based Loan and for a period equal to the Interest Period therefore at approximately 11:00 a.m. Detroit time two (2) Business Days prior to the first day of such Interest Period; divided by, -6- 8 (b) a percentage (expressed as a decimal) equal to one hundred percent (100%) minus that percentage which is in effect on the date for an Advance of a Eurodollar-based Loan, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirements for a member bank of the Federal Reserve System with deposits exceeding five billion dollars in respect of "Euro-currency Liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Eurodollar-based Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States Eurodollar Lending Office of such a bank to United States residents). 1.25 "Event of Default" shall mean any of those conditions or events listed in Section 8.1 of this Agreement. 1.26 "Financial Statements" shall mean all historical balance sheets and earnings statements and other financial data which have been furnished to the Bank for the purposes of, or in connection with, this Agreement and the transactions contemplated hereby, including without limit balance sheets, statements of income, retained earnings and cash flow, and all footnotes. 1.27 "Financing Statements" shall mean UCC financing statements describing the Bank as secured party and the Borrower as debtor covering the Collateral and otherwise in such form, for filing in such jurisdictions and with such filing offices, and/or any financing statement(s) required to perfect any security agreements entered into in connection with the Loan, as the Bank shall reasonably deem necessary or advisable. 1.28 "Foreign Subsidiaries" shall mean BrightStar Information Technology Group, Pty. Ltd., PROSAP AG, PROSAP Australia Pty., Ltd., SCS Offshore Pty., Ltd. And SCS Consulting & Services Pte. Ltd. 1.29 "GAAP" shall mean, as of any applicable date of determination, generally accepted accounting principles consistently applied in the country of incorporation of the relevant Person. 1.30 "Guarantors" shall mean each of the Subsidiaries, jointly and severally. 1.31 "Guarantors' Security Agreements" shall mean those Security Agreements by each Guarantor pursuant to which each Guarantor grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the respective Guarantor, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. -7- 9 1.32 "Guaranty" shall mean the joint and several guaranty executed by Guarantors to Bank guarantying payment of all principal, interest and costs due Bank from Borrower. 1.33 "Indebtedness" shall mean all loans, advances, indebtedness, obligations and liabilities of the Borrower to the Bank under the Notes, this Agreement and the Documents, together with all other indebtedness, obligations and liabilities whatsoever of the Borrower to the Bank, whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or hereafter arising. 1.34 "Interest Coverage Ratio" shall mean, as of the date of any calculation thereof, the ratio of (i) the EBITDA of Company for the four quarter period most recently ended, to (ii) the Interest Expense of Company for the period of such calculation. 1.35 "Interest Expense" shall mean the interest expense of Company, determined in accordance with GAAP. 1.36 "Interest Period" shall mean an interest period for a Eurodollar-based Loan of one (1), three (3), or six (6) months, provided however, that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless the next succeeding Business Day falls in another calendar month, in which case, such Interest Period shall end on the immediately preceding Business Day; and (b) no Interest Period may end after the Maturity Date. 1.37 "Legal Rate" shall mean at the particular time in question the maximum rate of interest which, under applicable law, the Bank is then permitted to charge on the Indebtedness. If the maximum rate of interest which, under applicable law, the Bank is permitted to charge on the Indebtedness shall change after the date hereof, the Legal Rate shall be automatically increased or decreased, as the case may be, from time to time as of the effective time of each change in the Legal Rate without notice to the Borrower. For purposes of determining the Legal Rate under the Applicable Law of the State of Texas, the applicable rate ceiling shall be (a) the indicated rate ceiling described in and computed in accordance with the provisions of Section (a) (I) of Art. 1.04, or (b) if the parties subsequently contract as allowed by applicable law, the quarterly ceiling or the annualized ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that at any time the indicated rate ceiling, the quarterly ceiling of the annualized ceiling shall be less than 18% per annum or more than 24% per annum, the provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for purposes of such determination, as applicable. -8- 10 1.38 "Loan" shall mean, individually and /or collectively as the context may require, the advances evidenced by the Note. 1.39 "Maturity Date" shall mean March 29, 2001. 1.40 "Note" shall mean the promissory note executed and delivered by Borrower to Bank pursuant to Section 2.3 of this Agreement in the form of Exhibit "A" to this Agreement. 1.41 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any person succeeding to the present powers and functions of the Pension Benefit Guaranty Corporation. 1.42 "Permitted Liens" shall mean: (a) Liens and encumbrances in favor of the Bank; (b) Liens for taxes, assessments or other governmental charges incurred in the ordinary course of business and for which no interest, late charge or penalty is attaching or which is being contested in good faith by appropriate proceedings and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank; (c) Liens, not delinquent, created by statute in connection with worker's compensation, unemployment insurance, social security and similar statutory obligations; (d) Liens of mechanics, materialmen, carriers, warehousemen or other like statutory or common law liens securing obligations incurred in good faith in the ordinary course of business that are not yet due and payable; and (e) Encumbrances consisting of existing or future zoning restrictions, existing recorded rights-of-way, existing recorded easements, existing recorded private restrictions or existing or future public restrictions on the use of real property, none of which materially impairs the use of such property in the operation of the business for which it is used and none of which is violated in any material respect by any existing or proposed structure or land use. 1.43 "Person" or "person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated association, joint stock company, government, municipality, political subdivision or agency, or other entity. 1.44 "Prime-based Loan" shall mean a Loan that at any time during such Loan bears interest at a Prime-based Rate. -9- 11 1.45 "Prime-based Rate" shall mean the Prime Rate in effect from time to time plus one-quarter percent (1/4%). 1.46 "Prime Rate" shall mean that annual rate of interest designated by the Bank as its prime rate, which rate may not be the lowest rate of interest charged by the Bank to any of its customers, and which rate is changed by the Bank from time to time. 1.47 "Request for Loan" shall mean a request for loan delivered by Borrower to Bank in the form of Exhibit "B" to this Agreement, pursuant to Section 2.2 of this Agreement. 1.48 "Revolving Maximum" shall mean, as of any date, the lesser of: (a) the Commitment Amount, or (b) the Borrowing Base Amount. 1.49 "Security Agreement" shall mean the Security Agreement by Borrower pursuant to which the Borrower grants to the Bank a first priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of the Borrower, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.50 "Stock Pledge" shall mean the Stock Pledge by Borrower pursuant to which Borrower grants to Bank a first priority pledge of one hundred percent (100%) of the issued and outstanding stock in the Subsidiaries. 1.51 "Subsidiaries" shall mean BrightStar Group International, Inc., Mindworks Professional Education Group, Inc., Brian R. Blackmarr and Associates, Inc., Integrated Controls, Inc., Cogent, Inc., Software Consulting Services America, Inc. and Software Innovators, Inc., all wholly owned subsidiaries of Borrower. 1.52 "Subsidiary Security Agreement" shall mean the Security Agreement by all of the Subsidiaries pursuant to which the Subsidiaries grant to Borrower a priority security interest in all Accounts, Chattel Paper, Documents, Equipment, Fixtures, General Intangibles, Goods, Instruments and Inventory, Machinery and Equipment of each respective Subsidiary, wherever located and whether now owned or hereafter acquired, together with all replacements thereof, substitutions therefor, accessions thereto and all proceeds and products of all the foregoing. 1.53 "Tangible Net Worth" shall mean as of the date of any determination, the excess of the net book value of the assets of Company (other than patents, patent rights, trademarks, trade names, copy rights, franchises, licenses, goodwill and other intangible assets) after all appropriate deductions in accordance with GAAP, less all Debt of Company. -10- 12 1.54 "UCC" shall mean the Uniform Commercial Code in effect with respect to the jurisdictions of the various Locations. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP. Where the context herein requires, the singular number shall be deemed to include the plural, the masculine gender shall include the feminine and neuter genders, and vice versa. 2. ARTICLE 2; COMMITMENT, INTEREST AND FEES 2.1 Loans. Subject to the terms and conditions of this Agreement, the Bank agrees to make Advances to the Borrower from the date hereof until the Maturity Date, in aggregate principal amount at any time outstanding not to exceed the Revolving Maximum. 2.2 Requests for Loans. Borrower may request an Advance by delivery to Bank of a Request for Loan executed by an authorized officer Borrower and subject to the following: (a) each such Request for Loan shall set forth the information required on the Request for Loan form; (b) each such Request for Loan shall be delivered to Bank by 10:00 a.m. three (3) Business Days prior to the proposed date of Advance, except if the Applicable Interest Rate for such Advance is to be the Prime-based Rate, such Request for Loan must be delivered by 10:00 a.m. (Detroit time) on such proposed date; (c) if the Request for Loan is a request for a Eurodollar-based Loan, the principal amount of the Advance requested shall be at least Five Hundred Thousand Dollars ($500,000) or an integral multiple thereof; and (d) each Request for Loan shall constitute a certification by the Borrower as of the date thereof that all of the conditions set forth in Article 4 hereof are satisfied as of the date of such request and shall be satisfied as of the date such Advance is requested. 2.3 Note. The Revolving Loan shall be evidenced by a Note in the form of Exhibit "A" hereto executed by Borrower. 2.4 Payments of Principal. The principal of the Note shall be payable (unless sooner accelerated pursuant to the terms of this Agreement) on the Maturity Date, when -11- 13 the entire balance then outstanding and all accrued and unpaid interest thereon, shall be due and payable. 2.5 Interest. The principal balance of each Advance from time to time outstanding under each Note shall bear interest at its Applicable Interest Rate. Interest shall be payable on all Prime-based Advances, monthly, on the first Business Day of each month. Interest shall be payable on each Eurodollar-based Advance on the last day of its Interest Period and, if such Interest Period has a duration of longer than three (3) months, also at each three month interval from the first day of such interest period. 2.6 Preparation, Closing & Ongoing Fees. Borrower shall pay to Bank: (a) concurrently with the execution of this Agreement, the amount of the expenses (including without limit reasonable attorneys' fees, whether of inside or outside counsel, and disbursements) incurred by the Bank in connection with the preparation and closing of this Agreement and related instruments and/or making of advances hereunder, including but not limited to costs to conduct audits, monitoring and appraisals; (b) concurrently with the execution of this Agreement, a non-refundable closing fee in the amount of Seventy Five Thousand Dollars ($75,000); (c) on an ongoing basis, all audit costs and all collateral monitoring costs of Bank. 2.7 Commitment Fees. Borrower shall pay Bank monthly, on the first Business Day of each month, a commitment fee in the amount equal to the three-eighths of one percent (3/8%) per annum on the average daily amount by which the Commitment Amount exceeded the principal amount of outstanding Advances during the preceding month. 2.8 Basis of Computation. The amount of all interest and fees hereunder shall be computed for the actual number of days elapsed on the basis of a year consisting of three hundred sixty (360) days. 2.9 Basis of Payments. All sums payable by the Borrower to the Bank under this Agreement or the other documents contemplated hereby shall be paid directly to the Bank at its office set forth in Section 9.10 hereof in immediately available United States funds, without set off, deduction or counterclaim. Borrower hereby authorizes and request Bank to debit Borrower's checking or deposit or other accounts with the Bank for all or a part of any such amounts when due, provided, however, that this authorization shall not affect the Borrower's obligation to pay, when due, any Indebtedness whether or not account balances are sufficient to pay amounts due. -12- 14 2.10 Receipt of Payments. Any payment of the Indebtedness made by mail will be deemed tendered and received only upon actual receipt by the Bank at the address designated for such payment, whether or not the Bank has authorized payment by mail or any other manner, and shall not be deemed to have been made in a timely manner unless received on the date due for such payment, time being of the essence. The Borrower expressly assumes all risks of loss or liability resulting from non-delivery or delay of delivery of any item of payment transmitted by mail or in any other manner. Acceptance by the Bank of any payment in an amount less than the amount then due shall be deemed an acceptance on account only. 2.11 Default Interest. Notwithstanding anything herein to the contrary, in the event and so long as an Event of Default shall exist, all principal outstanding under the Note shall bear interest, payable on demand, from the date of such Event of Default at a rate per annum equal to: (a) in the case of a Prime-based Loan, three percent (3%) above the Prime-base Rate; and (b) in the case of a Eurodollar-based Loan, three percent (3%) above the Eurodollar-based Rate until the end of the then current Interest Period, at which time such Eurodollar-based Loans shall be automatically converted into Prime-based Loans and bear interest at the rate provided for in clause (a) above. 2.12 Conversion and Renewal of Loans. Providing that no Event of Default shall have occurred and be continuing, the Borrower may elect to renew or convert Applicable Interest Rates applicable to Advances from the Prime-based Rate to the Eurodollar-based Rate or from the Eurodollar-based Rate to the Prime-based Rate, provided that any conversion of a Eurodollar-based Loan shall be made only on the last Business Day of the Interest Period applicable to such Eurodollar-based Loan. If the Borrower desires such a renewal or conversion, it shall give Bank not less than three (3) Business Days' prior notice in the manner provided in Section 2.2 hereof, specifying the date of such renewal or conversion, the Advances to be converted and the type of Advances elected. If with respect to any Eurodollar-based Loan outstanding at any time the Bank does not receive notice of the election from a Borrower not less than three (3) Business Days prior to the last day of the Interest Period therefor, the Borrower shall be deemed to have elected to convert such Eurodollar-based Loan to a Prime-based Loan at the end of the then current Interest Period unless such Eurodollar-based Loan is repaid upon the last day of such Interest Period. 2.13 Early Termination Compensation. In the event that Borrower shall terminate this Agreement on or before the Maturity Date, Borrower shall be obligated to pay to Bank, as a condition to such termination and prior to the release of Bank's liens and encumbrances, the amount of: (a) One Hundred and Fifty Thousand Dollars -13- 15 ($150,000) if such termination occurs before the first anniversary hereof; or (b) Seventy Five Thousand Dollars ($75,000) if such termination occurs on or after the first anniversary hereof but before the second anniversary of this Agreement. This Early Termination Compensation shall be waived if the Loan is replaced by another credit facility with Bank. 3. ARTICLE 3; SPECIAL PROVISIONS FOR EURODOLLAR-BASED LOANS 3.1 Reimbursement of Prepayment Costs. As to any Advances, if any prepayment thereof shall occur on any day other than the last day of an Interest Period (in the case of a Eurodollar-based Loan) or the first day of an Interest Period (with regard to a Prime-Based Loan) (whether pursuant to this Article, or by acceleration, or otherwise), or if an Applicable Interest Rate shall be changed during any Interest Period pursuant to this Article, the Borrower agrees to reimburse Bank any costs incurred by Bank as a result of the timing thereof including but not limited to any net costs incurred in liquidating or employing deposits from third parties, upon Bank's delivery to Borrower of a certificate setting forth in reasonable detail the basis for determining such costs, which certificate shall be conclusively presumed correct save for manifest error. 3.2 Eurodollar Lending Office. For any Advance for which the Applicable Interest Rate is the Eurodollar-based Rate, if Bank shall designate a eurodollar lending office which maintains books separate from those of the rest of Bank, Bank shall have the option of maintaining and carrying the relevant advance on the books of such office. 3.3 Circumstances Affecting Eurodollar-based Availability. If Bank determines that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars in the applicable amounts are not being offered to Bank for an Interest Period, then Bank shall forthwith give notice thereof to the Borrower. Thereafter, the obligation of Bank to make Eurodollar-based Loans, and the right of Borrower to convert an Advance to or refund an Advance as a Eurodollar-based Loan shall be suspended and all of the Loans shall be Prime-based Loans bearing interest at the Prime-based Rate until the Bank notifies Borrower that such circumstance no longer exists. 3.4 Laws Affecting Eurodollar-based Loan Availability. If, after the date hereof, the introduction of, or any change in, any applicable law, rule or regulation or in the interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof, or compliance by Bank (or its eurodollar lending offices) with any request or directive (whether or not having the force of law) of any such authority, shall make it unlawful or impossible for Bank to honor its obligations hereunder to make or maintain any Advance with interest at the Eurodollar-based Rate, Bank shall forthwith give notice thereof to Borrower. Thereafter: (a) the obligations to -14- 16 make Eurodollar-based Loans and the right of Borrower to convert an Advance or refund an Advance as a Eurodollar-based Loan shall be suspended; and (b) if Bank may not lawfully continue to maintain a Eurodollar-based Loan to the end of the then current Interest Period, the Prime-based Rate shall be the Applicable Interest Rate for such Eurodollar-based Loan for the remainder of such Interest Period. 3.5 Increased Costs. In the event that any change after the date hereof in applicable law, treaty or governmental regulation, or in the interpretation or application thereof, or compliance by Bank with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority: (a) shall subject Bank (or its eurodollar lending office) to any tax, duty or other charge with respect to any Advance or shall change the basis of taxation of payments to Bank (or its eurodollar lending office) of the principal of or interest on any Advance or any other amounts due under this Agreement (except for changes in the rate of tax on the overall net income or gross receipts of Bank or its eurodollar lending office imposed by the jurisdiction in which Bank's principal executive office or eurodollar lending office is located); or (b) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System but excluding with respect to any Eurodollar-based Loan any such requirement included in an applicable Eurodollar Reserve Requirement), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by Bank (or its eurodollar lending offices) or shall impose on Bank (or its eurodollar lending offices) or the foreign exchange and interbank markets or other condition affecting any Advance or any commitment of Bank under this Agreement; and the result of any of the foregoing is to increase the cost to Bank of making, renewing or maintaining any Advance or its commitments hereunder or to reduce the amount or rate of return on any sum received or receivable by Bank under this Agreement, or under any Note, then Bank may promptly notify Borrower of such fact and demand compensation therefor and Borrower agrees to pay to Bank (so long as such event or circumstance continues to exist) such additional amount or amounts as will compensate Bank for such increased costs or reduced return within thirty (30) days of such notice; provided, however that, to the extent doing so would eliminate or decrease Borrower's liability for increased costs hereunder, and to the extent that doing so would not otherwise be disadvantageous to Bank, Bank will attempt to designate a eurodollar lending office for which the tax, duty, reserve, deposit requirement, or other circumstance giving rise to Bank's demand for increased compensation, is not applicable. A certificate of the Bank demanding such compensation setting forth in reasonable detail the basis for determining such additional amount or amounts necessary to compensate shall be conclusively presumed to be correct save for manifest error. -15- 17 3.6 Limitation on Outstanding Advances. At no time shall there be greater than three (3) outstanding Advances on a Eurodollar-based Loan. 4. ARTICLE 4; CONDITIONS PRECEDENT TO OBLIGATIONS OF BANK The obligations of the Bank under this Agreement are subject to the satisfaction of each of the following conditions: 4.1 Documents Executed and Filed. The Borrower shall have executed (or caused to be executed) and delivered to the Bank and, as appropriate, there shall have been filed or recorded with such filing or recording offices as the Bank shall deem appropriate, the following: (a) The Note; (b) The Security Agreement; (c) The Subsidiary Security Agreement; (d) The Gurantors' Security Agreements; (e) The Financing Statements; (f) The Guaranty; (g) The Stock Pledge; (h) The Contribution Agreement; (i) Acknowledgements of Borrower's landlords with respect to each Location, together with true copies of each Lease for such Locations. 4.2 Certified Resolutions. The Borrower shall have furnished to the Bank a copy of resolutions of the Board of Directors of the Borrower and the Guarantors authorizing the execution, delivery and performance of this Agreement, the borrowing hereunder, the Note and the Documents to which Borrower and/or Guarantors are a party, which shall have been certified by the Secretary or Assistant Secretary of the Borrower or Guarantors, as the case may be, as being complete, accurate and in effect. 4.3 Certified Articles. The Borrower shall have furnished to the Bank a copy of the Articles of Incorporation including all amendments thereto and restatements thereof, and all other charter documents of the Borrower and Guarantors, which shall have been certified by the jurisdiction of organization of the respective parties thereto. -16- 18 4.4 Certified Bylaws. The Borrower shall have furnished to the Bank a copy of the Bylaws of the Borrower and Guarantors, including all amendments thereto and restatements thereof, which shall have been certified by the Secretary or Assistant Secretary of the Borrower and Guarantors, as the case may be, as being complete, accurate and in effect. 4.5 Certificate of Good Standing. The Borrower shall have furnished to the Bank a certificates of good standing with respect to the Borrower and Guarantors certified by the Secretary of State of the States in which they are organized in. 4.6 Certificate of Incumbency. The Borrower shall have furnished to the Bank a certificate of the Secretary or Assistant Secretary of the Borrower and the Guarantors, as to the incumbency and signatures of the officers of the Borrower and Guarantors, as the case may be, signing this Agreement, the Note and Documents. 4.7 UCC Lien Search. The Bank shall have received UCC record and copy searches, evidencing the appropriate filing and recording of the Financing Statements and disclosing no notice of any liens or encumbrances filed against any of the Collateral. 4.8 Casualty Insurance. The Borrower shall have furnished to the Bank, in form, content and amounts and with companies satisfactory to the Bank, casualty insurance policies with loss payable clauses in favor of the Bank, relating to the assets and properties (including, but not limited to, the Collateral) of the Borrower. 4.9 Opinion of Counsel. Borrower shall have caused its legal counsel to deliver to Bank a legal opinion covering such matters as Bank shall require, and otherwise in form and content satisfactory to Bank. 4.10 Approval of Bank Counsel. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this Agreement or incidental thereto and all other related legal matters shall have been satisfactory to and approved by legal counsel for the Bank, and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested. 5. ARTICLE 5; WARRANTIES AND REPRESENTATIONS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower represents and warrants that: 5.1 Corporate Existence and Power. (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) it has the power and authority to own its properties and assets and to carry out its -17- 19 business as now being conducted and is qualified to do business and in good standing in every jurisdiction wherein such qualification is necessary and (c) the Borrower has the power and authority to execute, deliver and perform this Agreement, to borrow money in accordance with its terms, to execute, deliver and perform the Note and other Documents to which it is party and to grant to the Bank liens and security interests in the Collateral as hereby contemplated and to do any and all other things required of it hereunder. 5.2 Authorization and Approvals. The execution, delivery and performance of this Agreement, the borrowings hereunder and the execution, delivery and performance of the Note, the other Documents: (a) have been duly authorized by all requisite corporate action of the Borrower (b) except for UCC filings, do not require registration with or consent or approval of, or other action by, any federal, state or other governmental authority or regulatory body, (c) will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or Bylaws of the Borrower, any provision of any indenture, note, agreement or other instrument to which any of them are a party, or by which any of their properties or assets are bound, (d) will not be in conflict with, result in a breach of or constitute (with or without notice or passage of time) a default under any such indenture, note, agreement or other instrument, and (e) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower, other than in favor of the Bank and as contemplated hereby. 5.3 Valid and Binding Agreement. This Agreement and the Documents will be, when delivered, valid and binding obligations of the Borrower, in accordance with its respective terms except to the extent enforceability thereof may be limited under applicable bankruptcy, moratorium, insolvency, rearrangement, reorganization or similar debtor relief laws affecting the rights of creditors generally from time to time in effect. 5.4 Actions, Suits or Proceedings. There are no actions, suits or proceedings, at law or in equity, and no proceedings before any arbitrator or by or before any governmental commission, board, bureau, or other administrative agency, pending, or, to the best knowledge of the Borrower, threatened against or affecting the Borrower or any properties or rights of the Borrower which, if adversely determined, could materially impair the right of it to carry on its business substantially as now conducted or could have a material adverse effect upon its financial condition. 5.5 No Liens, Pledges, Mortgage or Security Interests. Except for Permitted Liens none of the Borrower's assets and properties, including without limit the Collateral, are subject to any mortgage, pledge, lien, security interest or other encumbrances of any kind or character other than in favor of Bank and Permitted Liens. 5.6 Accounting Principles. All consolidated and consolidating balance sheets, earnings statements and other historical financial data furnished to the Bank for the -18- 20 purposes of, or in connection with, this Agreement and the transactions contemplated by this Agreement, have been prepared in accordance with GAAP, and do or will fairly present the financial condition of the Borrower, as of the dates, and the results of its operations for the periods, for which the same are furnished to the Bank. Without limiting the generality of the foregoing, the annual and quarterly Financial Statements have been prepared in accordance with GAAP (except as disclosed therein) and the monthly Financial Statements have been prepared in a manner consistent with the calculations used in quarterly Financial Statements, and all of them fairly present the financial condition of the Borrower as of the dates, and the results of its operations for the fiscal periods, for which the same are furnished to the Bank. The Borrower has no material contingent obligations, liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, the Financial Statements. 5.7 Financial Condition. The Borrower is solvent, able to pay its respective debts as they mature, has capital sufficient to carry on its business and has assets the fair market value of which exceed its liabilities, and the Borrower will not be rendered insolvent, under-capitalized or unable to pay maturing debts by the execution or performance of this Agreement or the other documents contemplated hereby. There has been no material adverse change in the business, properties or condition (financial or otherwise) of the Borrower since the date of the latest of the Financial Statements. 5.8 Taxes. The Borrower has filed by the due date therefor all federal, state and local tax returns and other reports it is required by law to file, has paid or caused to be paid all taxes, assessments and other governmental charges that are shown to be due and payable under such returns, and has made adequate provision for the payment of such taxes, assessments or other governmental charges which have accrued but are not yet payable. The Borrower has no knowledge of any deficiency or assessment in connection with any taxes, assessments or other governmental charges not adequately disclosed in the Financial Statements. 5.9 Compliance with Laws. The Borrower has complied with all applicable laws, to the extent that failure to comply would materially interfere with the conduct of the business of the Borrower as presently conducted. 5.10 Indebtedness. Except as permitted under Section 7.4 hereof, the Borrower has no indebtedness for money borrowed or any direct or indirect obligations under any leases (whether or not required to be capitalized under GAAP) or any agreements of guarantee or surety except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit or collection. 5.11 Material Agreements. Except as disclosed on Schedule 5.11 attached hereto, the Borrower has no material contracts (as defined in the Regulations under the -19- 21 Securities Act of 1933, as amended), which may include, without limitation, employment agreements, collective bargaining agreements, powers of attorney, distribution contracts, patent or trademark licenses, bonus, pension and retirement plans, or accrued vacation pay, insurance and welfare agreements; to the best knowledge of Borrower, all parties to such agreements have complied with the provisions of such leases, contracts or commitments; and to the best knowledge of the Borrower, no party to such agreements is in default thereunder, nor has there occurred any event which with notice or the passage of time, or both, would constitute such a default. 5.12 Margin Stock. The Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, and no part of the proceeds of any Loan hereunder will be used, directly or indirectly, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 5.13 Pension Funding. The Borrower has not incurred any accumulated funding deficiency within the meaning of ERISA or incurred any liability to the PBGC in connection with any employee benefit plan established or maintained by the Borrower and no reportable event or prohibited transaction, as defined in ERISA, has occurred with respect to such plans. 5.14 Misrepresentation. No warranty or representation by the Borrower contained herein or in any certificate or other document furnished by the Borrower pursuant hereto contains any untrue statement of material fact or omits to state a material fact necessary to make such warranty or representation not misleading in light of the circumstances under which it was made. 5.15 Hazardous Materials Warranties, Representations and Covenants. (a) Borrower is not party to any litigation or administrative proceeding, nor so far as is known by Borrower, is any litigation or administrative proceeding threatened against it, which in either case (a) asserts or alleges that Borrower violated any federal, state or local laws, ordinances, statutes, rules, regulations or judgments governing the use, storage, transportation, or disposal of Hazardous Materials ("Environmental Laws"), (b) asserts or alleges that Borrower is required to clean up, remove, or take remedial or other response action due to the disposal, depositing discharge, leaking or other release of any Hazardous Materials, (c) asserts or alleges that Borrower is required to pay all or a portion of the cost of any past, present, or future clean up, removal or remedial or other response action which arises out of or is related to the disposal, depositing, discharge, leaking or other release of any Hazardous Material by any one of them. -20- 22 (b) To the best knowledge of Borrower, there are no conditions existing currently or likely to exist during the term of this Agreement which would subject the Borrower to damages, penalties, injunctive relief or clean up costs under any Environmental Laws or which require or are likely to require clean up, removal, remedial action or other response pursuant to Environmental Laws by Borrower. (c) The Borrower is not subject to any judgment, decree, order or citation related to or arising under the Environmental Laws and Borrower has not received any notice ("Environmental Complaint") of any violations of Environmental Laws (and, within five days of receipt of any Environmental Complaint the Borrower shall deliver to the Bank a copy thereof), and to the best of Borrower's knowledge, there have been no actions commenced or threatened by any party for noncompliance with any Environmental Laws. (d) The Borrower has all permits, licenses, approvals and other authorizations required under the Environmental Laws. (e) The Borrower covenants and agrees that it shall not use, introduce or maintain Hazardous Materials in any premises which they may from time to time occupy other than in strict accordance and compliance with Environmental Laws. (f) Borrower agrees that it shall promptly notify Bank in writing as soon as Borrower becomes aware of any condition or circumstance which makes the environmental warranties, representations and covenants contained herein incomplete or inaccurate in any material respect as of any date. (g) In the event of any condition or circumstance that makes any environmental representation, warranty or covenant incomplete or inaccurate in any material respect as of any date, Borrower shall, at the request of Bank, at the sole expense of Borrower, retain an environmental consultant acceptable to Bank, to conduct a thorough and complete environmental assessment in respect of any environmental concerns of Bank arising from that changed condition or circumstance. A copy of said assessment will be addressed to Bank and promptly delivered to Bank, Borrower upon completion. (h) In the event of a violation of Environmental Laws, whether discovered pursuant to an environmental consultant's assessment or otherwise, Borrower covenants and agrees to complete all investigations, studies, sampling and testing, and all remedial, removal and other actions necessary to clean up and remove all Hazardous Materials on or affecting premises or property occupied or used by Borrower, whether caused by the Borrower or a third party, in accordance with Environmental Laws to the satisfaction of Bank, and in accordance with the directives of all federal, state, and local governmental authorities. -21- 23 (i) At any time Borrower, directly or indirectly through any professional consultant or other representative, determines to undertake an environmental audit, assessment or investigation, Borrower shall promptly provide Bank with written notice of the initiation of the environmental audit/assessment, fully describing the purpose and intended scope of the said audit/assessment. Upon receipt, Borrower shall promptly provide Bank copies of all final findings and conclusions of any such environmental investigation. Preliminary findings and conclusions shall be provided if final reports have not been completed and delivered to Bank within sixty days following completion of the preliminary findings and conclusions. (j) Borrower hereby indemnifies, saves and holds Bank and any of its past, present and future officers, directors, shareholders, employees, representatives and consultants harmless from any and all loss damages, suits, penalties, costs, liabilities and expenses (including, but not limited to reasonable investigation, environmental audit(s), and legal expenses), arising out of any claim, loss or damages of any property, injuries to or death of persons, contamination of or adverse effects on the environment, or any violation of any Environmental Laws, caused by or in any way related to the real property of Borrower, or due to any acts of Borrower or its officers, directors, shareholders, employees, consultants and/or representatives; provided, however, that the foregoing indemnifications shall not be applicable when arising from events or conditions occurring while the Bank is in sole possession (subject to the rights of any creditors of Borrower) of the real property of Borrower. In no event shall Borrower be liable hereunder for any loss, damages, suits, penalties, costs, liabilities or expenses arising solely from any act or willful misconduct or gross negligence of Bank or its agents or employees. It is expressly agreed and understood by Borrower that the indemnifications granted herein are intended to protect Bank, its past, present and future officers, directors, shareholders, employees, consultants and representatives from any claims that may arise by reason of any security interest, liens and/or mortgages granted to Bank, or under any other document or agreement given to secure repayment of the Indebtedness, whether or not such claims arise before or after Bank has foreclosed upon and/or otherwise becomes the owner of any such property, real or personal. All obligations of indemnity as provided hereunder shall be supported and secured by any Documents executed by Borrower in favor of Bank. The indemnifications contained herein extend to shareholders of Bank qua shareholders only, and nothing contained herein shall be construed to prevent Borrower from asserting any claim whatsoever against any party or entity that occasions any adverse environmental effects or any violation of any Environmental Laws upon or in any way related to the real property of Borrower, whether or not such party or entity is a shareholder of Bank. (k) In the event any mortgage securing the Indebtedness is foreclosed or the Borrower tenders a deed in lieu of foreclosure, the Borrower shall deliver the -22- 24 premises to the Bank free of any and all Hazardous Materials to the extent necessary so that the condition of the premises shall not be a violation of any Environmental Laws. (l) The provisions of this section shall be in addition to any and all other obligations and liabilities the Borrower may have to the Bank at common law or pursuant to any other agreement and shall survive (i) the repayment of the Indebtedness, (ii) the satisfaction of all of the other obligations of the Borrower hereunder and under the other Documents, (iii) the discharge of the Mortgage, and (iv) the foreclosure of the Mortgages or acceptance of a deed in lieu thereof. (m) "Hazardous Materials" includes, without limitation, any flammable explosives, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances or related materials defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the regulations adopted and publications promulgated pursuant thereto, or any other federal, state or local governmental law, ordinance, rule, or regulation. 6. ARTICLE 6; AFFIRMATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will: 6.1 Financial and Other Information. (a) Annual Financial Reports. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, not later than one hundred twenty (120) days after the close of each fiscal year of the Borrower, financial statements of the Borrower containing the balance sheet of the Borrower of the close of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports. Such reports shall be prepared in accordance with GAAP by independent certified public accountants of recognized standing selected by the Borrower and acceptable to the Bank and shall contain unqualified opinions as to the fairness of the statements therein contained. These statements shall be prepared on an audited basis. (b) Monthly Financial Statements. Furnish to the Bank not later than fifty five (55) days after the close of each month of each fiscal year of the Borrower, unaudited financial statements on a consolidated basis containing the balance sheet of the Borrower as of the end of each such period, statements of income and retained earnings -23- 25 of the Borrower and a statement of cash flows of the Borrower for the portion of the fiscal year up to the end of such period, and such other comments and financial details as are usually included in similar reports. The statements shall be in such detail as the Bank may reasonably require, and the accuracy of the statements shall be certified by the chief executive or financial officer of the Borrower. (c) No Default Certificate. Together with each delivery of the financial statements required by Sections 6.1(a) and 6.1(b) of this Agreement, furnish to the Bank a certificate of its chief executive or financial officer stating that no Event of Default or Default has occurred, or if any such Event of Default or Default exists, stating the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto. (d) Accounts. Furnish to Bank not later than fifteen (15) days after and as of the end of each month, agings of the Accounts and any accounts payable of Borrower, and a schedule identifying each Eligible Account and identifying for each Eligible Account, the portions thereof which constitute Eligible Fixed Accounts and Eligible Time Accounts. Any such schedule, certificate or report shall be executed by a duly authorized officer of Borrower and shall be in such form and detail as Bank may specify. (e) Borrowing Base Report. Furnish to the Bank not later than five (5) days after and as of the end of each week, in form, content, and reporting basis satisfactory to the Bank, a Borrowing Base report. (f) Reports Filed with the SEC. Furnish to the Bank copies of all reports and information filings by Borrower required by the Securities and Exchange Commission ("SEC") on or before the statutory filing date. (g) Annual Financial Projections. Furnish to the Bank, in form and reporting basis satisfactory to the Bank, prior to the commencement of each fiscal year of the Borrower, projected financial statements of the Borrower containing the balance sheet of the Borrower of the beginning of each such fiscal year, statements of income and retained earnings and a statement of cash flows for each such fiscal year, and such other comments and financial details as are usually included in similar reports prepared by management of Borrower utilizing their then current knowledge and reasonable expectations with respect to the periods covered thereby. (h) Adverse Events. Promptly inform the Bank of the occurrence of any Event of Default or Default, or of any other occurrence which has or could reasonably be expected to have a materially adverse effect upon the Borrower's business, properties, or financial condition or upon the Borrower's ability to comply with its obligations under the Documents. -24- 26 (i) Other Information As Requested. Promptly furnish to the Bank such other information regarding the operations, business affairs and financial condition of the Borrower and its subsidiaries as the Bank may reasonably request from time to time and permit the Bank, its employees, attorneys and agents, upon 72 hours prior notice (except in case of emergency or during the existence of an Event of Default) to inspect all of the books, records and properties of the Borrower and its subsidiaries during normal business hours. 6.2 Compliance with Borrowing Formula. In the event that at any time, the aggregate principal amount of Advances exceeds the Revolving Maximum, immediately pay to Bank for application against such Advances, an amount sufficient to eliminate such excess. 6.3 New Subsidiaries. Cause each domestic subsidiary of Borrower now or hereafter owned or acquired by Bank which Bank determines (in its sole discretion) to have significant assets or revenues, to guaranty the obligations of Borrower to Bank and to secure such guaranty with liens upon and security interests in all such subsidiary's assets. 6.4 Insurance. Keep its insurable properties (including but not limited to the Collateral) adequately insured and maintain (a) insurance against fire and other risks customarily insured against under an "all-risk" policy and such additional risks customarily insured against by companies engaged in the same or a similar business to that of the Borrower, (b) necessary worker's compensation insurance, (c) public liability and product liability insurance, and (d) such other insurance as may be required by law or as may be reasonably required in writing by the Bank, all of which Insurance shall be in such amounts, containing such terms, in such form, for such purposes, prepaid for such time period, and written by such companies as shall be satisfactory to the Bank. All such policies shall contain a provision whereby they may not be canceled or amended except upon thirty (30) days' prior written notice to the Bank. The Borrower will promptly deliver to the Bank, at the Bank's request, evidence satisfactory to the Bank that such insurance has been so procured and, with respect to casualty insurance, made payable to the Bank. If the Borrower fails to maintain satisfactory insurance as herein provided, the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate then in effect for the Revolving, all amounts so expended by the Bank. The Borrower hereby appoints the Bank or any employee or agent of the Bank as the Borrower's attorney-in-fact, which appointment is coupled with an interest and irrevocable, and authorizes the Bank or any employee or agent of the Bank, on behalf of the Borrower, to adjust and compromise any loss under said insurance and to endorse any check or draft payable to the Borrower in connection with returned or unearned premiums on said insurance or the proceeds of said insurance, and any amount so collected shall be applied toward repair and/or replacement of the Collateral to which such casualty occurred or satisfaction of the Indebtedness in -25- 27 accordance in accordance with the provisions governing such application in the Documents pursuant to which Bank's Liens on such Collateral were granted. 6.5 Taxes. Pay in accordance with commercially reasonable practices and within the time that they can be paid without late charge, penalty or interest all taxes, assessments and similar imposts and charges of every kind and nature lawfully levied, assessed or imposed upon the Borrower, and its property, except to the extent being contested in good faith and, if requested by the Bank, bonded in an amount and manner satisfactory to the Bank. If the Borrower shall fail to pay such taxes and assessments within the time they can be paid without penalty, late charge or interest the Bank shall have the option to do so, and the Borrower agrees to repay the Bank upon demand, with interest at the Prime-based Rate from time to time in effect under the Note, all amounts so expended by the Bank. 6.6 Maintain Corporation and Business. Do or cause to be done all things necessary to preserve and keep in full force and effect the Borrower's corporate existence, and material rights and franchises and comply with all material respects with applicable laws, continue to conduct and operate its business substantially as conducted and operated during the present and preceding calendar year, at all times maintain, preserve and protect all material franchises and trade names and property and keep the same in good repair, working order and condition, and from time to time make, or cause to be made, all needed and proper repairs, renewals, replacements, betterments and improvements thereto so that the business carried on in connection therewith may be properly and advantageously conducted at all times. 6.7 ERISA. (a) At all times meet the minimum funding requirements of ERISA with respect to the Borrower's employee benefit plans subject to ERISA, (b) promptly after the Borrower knows or has reason to know (i) of the occurrence of any event, which would constitute a reportable event or prohibited transaction under ERISA, or (ii) that the PBGC or the Borrower has instituted or will institute proceedings to terminate an employee pension plan, deliver to the Bank a certificate of the chief financial officer of the Borrower setting forth details as to such event or proceedings and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such event which may be required to be filed with the PBGC, and (c) furnish to the Bank (or cause the plan administrator to furnish the Bank) a copy of the annual return (including all schedules and attachments) for each plan covered by ERISA, and filed with the Internal Revenue Service by the Borrower not later than ten (10) days after such report has been so filed. 6.8 Financial Covenants. (a) Maintain a Tangible Net Worth of not less than: -26- 28
As of: ------ 3/31/99 $2,500,000; 6/30/99 $2,500,000; 9/30/99 $4,000,000; 12/31/99 $5,500,000; 3/31/2000 $7,000,000; 6/30/2000 $8,500,000; 9/30/2000 $10,000,000; 12/31/2000 $11,500,000; 3/31/2001 $13,000,000;
(b) Maintain an Interest Coverage Ratio of not less than:
As of: ------ 3/31/99 9 to 1 6/30/99 10 to 1 9/30/99 11 to 1 12/31/99 12 to 1 3/31/2000 13 to 1 6/30/2000 14 to 1 9/30/2000 15 to 1 12/31/2000 16 to 1 3/31/2001 17 to 1
(c) At all times maintain a Debt to Tangible Net Worth Ratio of not more than 12 to 1. 6.9 Bank Accounts. Establish and maintain with Bank a general checking account. 7. ARTICLE 7; NEGATIVE COVENANTS On a continuing basis from the date of this Agreement until the Indebtedness is paid in full and the Borrower has performed all of its other obligations hereunder, the Borrower covenants and agrees that it will not, without the Bank's prior written consent: -27- 29 7.1 Dividends. Declare or pay any cash dividends on, or make any other cash distribution (whether by reduction of capital or otherwise) with respect to any shares of its capital stock. 7.2 Stock Acquisition. Purchase, redeem, retire or otherwise acquire any of the shares of its capital stock, or make any commitment to do so. 7.3 Liens and Encumbrances. Create, incur, assume or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property or assets (including without limit any charge upon property purchased or acquired under a conditional sales or other title retaining agreement or lease required to be capitalized under GAAP) whether now owned or hereafter acquired, other than: (a) to Bank; and (b) Permitted Liens. 7.4 Indebtedness. Incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness or liability for borrowed money, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, or any other indebtedness whatsoever, except for: (a) the Indebtedness; (b) indebtedness secured by Permitted Liens. 7.5 Extension of Credit. Make loans, advances or extensions of credit to any Person, except (a) loans and advances to Foreign Subsidiaries in an amount not to exceed $2,000,000 in the aggregate during any fiscal year; and (b) loans and advances to Subsidiaries, provided that in both instances, promptly upon the making of any such loan, Borrower delivers and collaterally assigns to Bank all of Borrower's interest in a note evidencing such loan and any security therefor. 7.6 Guarantee Obligations. Guarantee or otherwise, directly or indirectly, in any way be or become responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, agreement for the furnishing of funds to any other Person through the furnishing of goods, supplies or services, by way of stock purchase, capital contribution, advance or loan, for the purpose of paying or discharging (or causing the payment or discharge of) the indebtedness of any other Person, or otherwise, except for the endorsement of negotiable instruments by the Borrower in the ordinary course of business for deposit for collection. 7.7 Subordination of Receivables. Subordinate any indebtedness due to it from a Person to indebtedness of other creditors of such Person. -28- 30 7.8 Property Transfer, Merger or Lease-Back. (a) Sell, lease, transfer or otherwise dispose of properties and asset, having an aggregate book value of more than Two Hundred Fifty Thousand Dollars ($250,000), (whether in one transaction or in a series of transactions) except as to the sale of inventory in the ordinary course of business; (b) change its name, consolidate with or merge into any other corporation, permit another corporation to merge into it, acquire all or substantially all the properties or assets of any other Person, enter into any reorganization or recapitalization or reclassify its capital stock, except for such merger(s) of a Subsidiary into Borrower; or (c) enter into any sale-leaseback transaction. 7.9 Acquire Securities. Purchase or hold beneficially any stock or other securities of, or make any investment or acquire any interest whatsoever in, any other Person, except for certificates of deposit with maturities of one year or less of United States commercial banks with capital, surplus and undivided profits in excess of $100,000,000 and direct obligations of the United States Government maturing within one year from the date of acquisition thereof. 7.10 Pension Plan. (a) Allow any fact, condition or event to occur or exist with respect to any employee pension or profit sharing plans established or maintained by it which might constitute grounds for termination of any such plan or for the court appointment of a trustee to administer any such plan, or (b) permit any such plan to be the subject of termination proceedings (whether voluntary or involuntary) from which termination proceedings there may result a liability of the Borrower to the PBGC which, in the opinion of the Bank, will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. 8. ARTICLE 8; EVENTS OF DEFAULT - ENFORCEMENT - APPLICATION OF PROCEEDS 8.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Failure to Pay Monies Due. If the Borrower shall fail to pay, when due, any principal or interest under any Note or other Indebtedness when due or shall default in an obligation described in Section 6.1 or 6.2 hereof and such failure or default shall continue for a period in excess of three (3) Business Days after notice by Bank to Borrower thereof. (b) Misrepresentation. If any warranty or representation in connection with or contained in this Agreement or any Document, or if any Financial Statements now or hereafter furnished to the Bank by or on behalf of the Borrower, shall prove to be false or misleading in any material respect as of the date made or deemed made hereunder. -29- 31 (c) Noncompliance with Bank Agreement. If the Borrower shall fail to perform in the time and manner required any of its obligations or covenants under, or shall fail to comply with any of the provisions of, this Agreement or any other Document and, in the case of a failure to perform obligations other than those described in Section 6.4, Sections 7.1 through 7.10 hereof or Section 8.1(a) above, such failure shall continue for a period in excess of thirty (30) days after the earlier of Bank's notice to Borrower thereof or the date Borrower actually becomes aware thereof. (d) Other Defaults. If the Borrower shall default in the payment when due of any of its borrowed money indebtedness (other than to the Bank) in amounts in excess of Five Hundred Thousand Dollars ($500,000) or in the observance or performance of any term, covenant or condition in any agreement or instrument evidencing, securing or relating to such indebtedness, and such default be continued for a period sufficient to permit acceleration of the indebtedness, irrespective of whether any such default shall be forgiven or waived or there has been acceleration by the holder thereof. (e) Judgments. If there shall be rendered against the Borrower one or more judgments or decrees involving an aggregate liability of Five Hundred Thousand Dollars ($500,000)or more, which has or have become non-appealable and shall remain undischarged, unsatisfied by insurance and unstayed for more than thirty (30) days, whether or not consecutive, or if a writ of attachment or garnishment against the property of the Borrower shall be issued and levied in an action claiming Five Hundred Thousand Dollars ($500,000)or more and not released or appealed and bonded in an amount and manner satisfactory to the Bank within thirty (30) days after such issuance and levy. (f) Business Suspension Bankruptcy Etc. If the Borrower shall voluntarily suspend transaction of its business, or if the Borrower shall not pay its debts as they mature or shall make a general assignment for the benefit of creditors, or proceedings in bankruptcy, or for reorganization or liquidation of the Borrower under the Bankruptcy Code or under any other, state federal or other applicable law for the relief of debtors shall be commenced by Borrower, or shall be commenced against the Borrower and shall not be discharged within sixty (60) days of commencement, or a receiver, trustee or custodian shall be appointed for the Borrower or for any substantial portion of their respective properties or assets. (g) Change of Management or Ownership. If a majority of the persons serving on the board of directors of Borrower as of the date of this Agreement shall cease to serve on such board of directors and Bank considers (in its reasonable discretion) such change to affect materially and adversely the prospects of Borrower. (h) Inadequate Funding or Termination of Employee Benefit Plan. If the Borrower shall fail to meet its minimum funding requirements under ERISA with respect -30- 32 to any employee benefit plan established or maintained by it, or if any such plan shall be subject of termination proceedings (whether voluntary or involuntary) and there shall result from such termination proceedings a liability of Borrower to the PBGC which in the opinion of the Bank will have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower. (i) Occurrence of Certain Reportable Events. If there shall occur, with respect to any pension plan maintained by the Borrower any reportable event (within the meaning of Section 4043(b) of ERISA) which the Bank shall determine constitutes a ground for the termination of any such plan, and if such event continues for thirty (30) days after the Bank gives written notice to the Borrower, provided that termination of such plan or appointment of such trustee would, in the opinion of the Bank, have a materially adverse effect upon the operations, business, property, assets, financial condition or credit of the Borrower, as the case may be. (j) Repudiation of Documents. If Borrower repudiates, contests, revokes or purports to revoke any of its obligations to Bank, or any rights or remedies of Bank, under Documents to which they are party. (k) Loans or Guarantees of Subsidiaries. If any Subsidiary shall loan or advance monies to, or invest in, or guaranty a debt or obligation of, a Foreign Subsidiary. 8.2 Acceleration of Indebtedness, Remedies. Upon the occurrence of an Event of Default, all Indebtedness shall be due and payable in full immediately (without notice or demand in the case of an Event of Default of the type described in Section 8.1.(f) above, and upon written notice from Bank in the case of any other Event of Default) without presentation, demand, protest, notice of dishonor or other further notice of any kind, all of which are hereby expressly waived, and Bank shall have no further commitment to make Advances. Unless all of the Indebtedness is then immediately fully paid, the Bank shall have and may exercise any one or more of the rights and remedies for which provision is made for a secured party under the UCC, under the or for which provision is provided by law or in equity, including, without limitation, the right to take possession and sell, lease or otherwise dispose of any or all of the Collateral and to set off against the Indebtedness any amount owing by the Bank to the Borrower and/or any property of the Borrower in possession of the Bank. The Borrower agrees, upon request of the Bank, to assemble the Collateral and make it available to the Bank at any place designated by the Bank. 8.3 Application of Proceeds. All of the Indebtedness shall constitute one loan secured by the Bank's security interest in the Collateral and by all other security interests, mortgages, liens, claims, and encumbrances now and from time to time hereafter granted from the Borrower to the Bank. Upon the occurrence of an Event of Default which is not cured within the cure period, if any, provided under Section 8.1, the Bank may in its sole -31- 33 discretion apply the Collateral to any portion of the Indebtedness. The proceeds of any sale or other disposition of the Collateral authorized by this Agreement shall be applied by the Bank, first upon all expenses authorized by the UCC or otherwise in connection with the sale and all reasonable attorneys' fees and legal expenses incurred by the Bank, the balance of the proceeds of such sale or other disposition shall be applied in the payment of the Indebtedness, first to interest, then to principal, then to other Indebtedness and the surplus, if any, shall be paid over to the Borrower or to such other Person or Persons as may be entitled thereto under applicable law. The Borrower shall remain liable for any deficiency, which the Borrower shall pay to the Bank immediately upon demand. 8.4 Cumulative Remedies. The remedies provided for herein are cumulative to the remedies for collection of the Indebtedness as provided by law, in equity or by any Document. Nothing herein contained is intended, nor shall it be construed, to preclude the Bank from pursuing any other remedy for the recovery of any other sum to which the Bank may be or become entitled for the breach of this Agreement by the Borrower. 9. ARTICLE 9; MISCELLANEOUS 9.1 Independent Rights. No single or partial exercise of any right, power or privilege hereunder, or any delay in the exercise thereof, shall preclude other or further exercise of the rights of the parties to this Agreement. 9.2 Covenant Independence. Each covenant in this Agreement shall deemed to be independent of any other covenant, and an exception illegality in one covenant shall not create an exception or illegality another covenant. 9.3 Waivers and Amendments. No forbearance on the part of the Bank in enforcing any of its rights under this Agreement or any other Document, nor any renewal, extension or rearrangement of any payment or covenant to be made or performed by the Borrower hereunder, shall constitute a waiver of any of the terms of this Agreement or of any such right. No Default or Event of Default shall be waived by the Bank except in a writing signed and delivered by an officer of the Bank, and no waiver of any other Default or Event of Default shall operate as a waiver of any Default or Event of Default or of the same Default or Event of Default on a future occasion. No other amendment, modification or waiver of, or consent with respect to, any provision of this Agreement or any Note or other Documents shall be effective unless the same shall be in writing and signed and delivered by an officer of the Bank. 9.4 Governing Law. This Agreement, and each and every term and provision hereof, shall be governed by and construed in accordance with the internal law of the State of Michigan. If any provisions of this Agreement shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, but this Agreement shall be construed as if such invalid or -32- 34 unenforceable provisions had never been contained herein. Borrower hereby consents to the jurisdiction of the courts of the State of Michigan and to the Federal Courts which include the Eastern District of Michigan and their territorial institutions, for all proceedings relating to the enforcement hereof or any indebtedness hereunder. 9.5 Survival of Warranties, Etc. All of the Borrower's covenants, agreements, representations and warranties made in connection with this Agreement and any document contemplated hereby shall survive the borrowing and the delivery of the Notes and shall be deemed to have been relied upon by the Bank, notwithstanding any investigation heretofore or hereafter made by the Bank. All statements contained in any certificate or other document delivered to the Bank at any time by or on behalf of the Borrower pursuant hereto or in connection with the transactions contemplated hereby shall constitute representations and warranties by the Borrower in connection with this Agreement. 9.6 Costs and Expenses. The Borrower agrees that it will reimburse the Bank, upon demand, for all reasonable costs and expenses incurred by the Bank in connection with (i) collecting or attempting to collect the Indebtedness or any part thereof, (ii) maintaining or defending the Bank's security interests or liens (or the priority thereof), (iii) the enforcement of the Bank's rights or remedies under this Agreement or the other documents contemplated hereby, (iv) the preparation or making of any amendments, modifications, waivers or consents with respect to this Agreement or the other documents contemplated hereby, and/or (v) any other matters or proceedings arising out of or in connection with any lending arrangement between the Bank and the Borrower, which costs and expenses include without limit payments made by the Bank for taxes, insurance, assessments, or other costs or expenses which the Borrower is required to pay under this Agreement or the other documents contemplated hereby, expenses related to the examination of the Collateral, audit expenses, court costs and reasonable attorneys' fees (whether in-house or outside counsel is used, whether legal assistants are used, and whether such costs are incurred in formal or informal collection actions, federal bankruptcy proceedings, probate proceedings, on appeal or otherwise), and all other costs and expenses of the Bank incurred in connection with any of the foregoing. 9.7 Payments on Saturdays, Etc. Whenever any payment to be made hereunder shall be stated to be due on a Saturday, Sunday or any other day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension, if any, shall be included in computing interest in connection with such payment. 9.8 Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors and assigns, provided, however, that the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Bank. -33- 35 9.9 Maintenance of Records. The Borrower will keep all of its records concerning its business operations and accounting at its principal place of business. The Borrower will give the Bank prompt written notice of any change in its principal place of business, or in the location of its records. 9.10 Notices. All notices and communications provided for herein or in any Document contemplated hereby or required by law to be given shall be in writing (unless expressly provided to the contrary) and, if personally delivered, effective when delivered at the address below or, in the case of mailing, effective two (2) days after sending by first class mail, postage prepaid, addressed as follows: (a) If to the Borrower, to:Patrick R. Quinn, Vice President - Finance, 2515 McKinney Avenue, Suite 1700, Dallas, Texas 75201, and (b) if to the Bank, to: Comerica Bank, 500 Woodward Avenue, Detroit, Michigan 48226, Attention: Barry Carroll, or to such other address as a party shall have designated to the other in writing in accordance with this section. The giving of at least five (5) days notice before the Bank shall take any action described in any notice shall conclusively be deemed reasonable for all purposes, provided, that this shall not be deemed to require the Bank to give five day notice or any notice if not specifically required in this Agreement. 9.11 Interest and Charges. It is not the intention of any parties to this Agreement to make an agreement in violation of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Agreement, Bank shall ever be entitled to receive, collect or apply, as interest on the Obligations, any amount in excess of the Legal Rate. If any Bank ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such; and if principal is paid in full, any remaining excess shall be paid to the Borrower. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the Legal Rate, the Borrower and the Bank shall, to the maximum extent permitted under applicable law, (a) characterize any nonprincipal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effect thereof, and (c) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of the Indebtedness so that the interest rate is uniform throughout the entire term of the indebtedness; provided; however, that if the Indebtedness are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Legal Rate, the Bank shall refund to the Borrower the amount of such excess or credit the amount of such excess against the total principal amount of the Indebtedness owing, and in such event, the Bank shall not be subject to any penalties provided by any Applicable Law for contracting for, charging or receiving interest in excess of the Legal Rate. This Section shall control every other provision of all agreements pertaining to the transactions contemplated by or contained herein. -34- 36 9.12 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. 9.13 Headings. Article and section headings in this Agreement are included for the convenience of reference only and shall not constitute a part of this Agreement for any purpose. 9.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY AND ALL ACTIONS OR PROCEEDINGS AT ANY TIME IN WHICH THE BORROWER AND THE BANK ARE PARTIES ARISING OUT OF THIS AGREEMENT OR THE OTHER DOCUMENTS. -35- 37 IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be executed by their duly authorized officers as of the day and year first written above. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- COMERICA BANK By: ----------------------------------------- Barry T. Carroll Its: Vice President -36- 38 EXHIBIT "A" REVOLVING NOTE $15,000,000 Detroit, Michigan _________, 1999 FOR VALUE RECEIVED, on or before the Maturity Date, BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC., a Delaware corporation promises to pay to the order of COMERICA BANK, a Michigan banking corporation ("Bank") at its main office at One Detroit Center, Detroit, Michigan, in lawful money of the United States of America so much of the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) as shall have been advanced and then be outstanding hereunder and all the accrued and unpaid interest thereon. Capitalized terms used herein and not defined to the contrary have the meanings given them in the Revolving Credit Agreement of even date herewith between the undersigned and Bank ("Agreement") to which reference is hereby made. Interest on the Advances from time to time outstanding shall bear interest at their Applicable Interest Rates; provided, however, that in the event and so long as there shall exist an Event of Default, the principal balance from time to time outstanding shall bear interest at the rates provided in Section 2.11 of the Agreement. Interest shall be computed on the basis of a 360 day year and assessed for the actual number of days elapsed. This Note is note under which advances, repayments and readvances may be made subject to the terms and conditions of the Agreement. This Note evidences borrowing under, is subject to, is secured in accordance with, and may be matured under, the terms of the Agreement, to which reference is hereby made. As additional security for this Note, Company grants Bank a lien on all property and assets including deposits and other credits of the Company, at any time in possession or control of or owing by Bank for any purpose. Company hereby waives presentment for payment, demand, protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence, release, or forbearance granted by any holder of this Note to any party now or hereafter liable hereon or any present or subsequent owner of any property, real or personal, which is now or hereafter security for this Note. Any transferees of, or endorser, guarantor or surety paying this Note in full may succeed to all rights of Bank, and Bank shall be under no further responsibility for the exercise thereof or the loan evidenced hereby. Nothing herein shall limit any right granted Bank by other instrument or by law. -37- 39 This Note shall be governed by and construed in accordance with the laws of the State of Michigan. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: -------------------------------------- Its: -------------------------------------- -2- 40 EXHIBIT "B" REQUEST FOR LOAN The undersigned authorized officer of BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. ("Borrower") hereby submits this Request for Loan to COMERICA BANK ("Bank") pursuant to Section 2.2 of the Revolving Credit Agreement ("Agreement") dated ____________, 1999 between Company and Bank. Capitalized terms used herein and not defined to the contrary have meanings given them in the Agreement. Company: (a) requests an Advance under the Note in the amount of $____________________ to be made on _______________, ______, (b) certifies that all of the conditions for the Advance requested hereby under the Agreement, are satisfied as of the date hereof and shall be satisfied as of the date for the requested Advance, and (c) directs Bank to disburse proceeds of the Advance requested hereby as follows: - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- - - -----------------------------------------------------------------------------(1) Executed as of this _____ day of ____________________, _____. BRIGHTSTAR INFORMATION TECHNOLOGY GROUP, INC. By: ---------------------------------------- Its: ---------------------------------------- - - -------- (1) If request is for the renewal or conversion of an existing Advance, identify Advance to be converted by Applicable Interest Rate and Interest Period. 41 SCHEDULE 5.11 MATERIAL AGREEMENTS EX-21 20 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 BrightStar - List of Subsidiaries 1. BIT Group Services, Inc., a Delaware corporation 2. Brian R. Blackmarr and Associates, Inc., a Texas corporation 3. Cogent, Inc., an Arizona corporation 4. Integrated Controls, Inc., a Louisiana corporation 5. Mindworks Professional Education Group, Inc., an Arizona corporation 6. PROSAP AG, Switzerland 7. PROSAP Australia Pty Limited, Australia 8. Software Consulting Services America, Inc., a Delaware corporation 9. Software Consulting Services Pty. Ltd., Australia 10. Software Innovators, Inc., an Arkansas corporation 11. Zelo Group, Inc., a California corporation EX-24.1 21 POWER OF ATTORNEY 1 EXHIBIT 24.1 POWER OF ATTORNEY The undersigned directors and officers of BrightStar Information Technology Group, Inc. a Delaware corporation (the "Company"), hereby constitute and appoint George M. Siegel and Michael A. Ober, and each of them with full power to act without the other, the undersigned's true and lawful attorney-in-fact, with full power of substitution and resubstitution, for the undersigned and in the undersigned's name, place and stead in the undersigned's capacity as an officer and/or director of the Company, to execute in the name and on behalf of the undersigned an annual report of the Company on Form 10-K for the fiscal year ended December 31, 1998 (the "Report"), under the Securities and Exchange Act of 1934, as amended, and to file such Report, with exhibits thereto and other documents in connection therewith and any and all amendments thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, and each of them, full power and authority to do and perform each and every act and thing necessary or desirable to be done and to take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact, may be of benefit to, in the best interest of, or legally required of, the undersigned, it being understood that the documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact's discretion. IN WITNESS WHEREOF, I have hereunto set my hand this 26th day of March, 1999. /s/ GEORGE M. SIEGEL - - ---------------------------------- George M. Siegel /s/ JENNIFER T. BARRETT - - ---------------------------------- Jennifer T. Barrett /s/ BRIAN R. BLACKMARR - - ---------------------------------- Brian R. Blackmarr /s/ MICHAEL A. OBER - - ---------------------------------- Michael A. Ober /s/ DAVID A. REAMER - - ---------------------------------- David A. Reamer /s/ DONALD W. ROWLEY - - ---------------------------------- Donald W. Rowley /s/ WILLIAM A. SITTER - - ---------------------------------- William A. Sitter EX-27 22 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 3,672,103 0 0 0 0 28,289,997 5,050,711 1,504,706 93,563,728 23,308,909 0 0 0 7,989 70,065,529 93,563,728 0 30,524,537 25,696,595 0 0 0 0 (12,762,197) (458,806) 0 0 0 0 (12,303,391) $(1.46) $(1.46)
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