UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
| | TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-28536
-----------
BILLING CONCEPTS CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2781950
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
7411 JOHN SMITH DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78229
(Address of principal executive offices) (Zip code)
(210) 949-7000
(Registrant's telephone number, including area code)
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. |X| Yes |_| No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at February 8, 2000:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- -----------
Common Stock, $.01 par value 38,592,200
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - December 31, 1999
and September 30, 1999........................................ 3
Condensed Consolidated Statements of Income - For the Three
Months Ended December 31, 1999 and 1998....................... 4
Condensed Consolidated Statements of Cash Flows - For the
Three Months Ended December 31, 1999 and 1998................. 5
Notes to Interim Condensed Consolidated Financial Statements...... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk......... 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 18
Item 2. Changes in Securities............................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 19
SIGNATURE................................................................... 20
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................................... $ 135,734 $ 134,007
Accounts receivable, net .......................................................... 38,471 44,053
Purchased receivables ............................................................. 20,279 31,375
Prepaids and other ................................................................ 3,491 3,776
------------- -------------
Total current assets ............................................................ 197,975 213,211
Property and equipment, net ........................................................ 25,572 25,868
Other assets, net .................................................................. 15,435 8,470
Investment in equity affiliate ..................................................... 6,512 7,530
------------- -------------
Total assets .................................................................... $ 245,494 $ 255,079
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ........................................................... $ 17,425 $ 21,397
Accounts payable - billing customers ............................................. 88,877 90,089
Accrued liabilities .............................................................. 22,402 28,172
------------- -------------
Total current liabilities ....................................................... 128,704 139,658
Deferred income taxes .............................................................. 1,889 1,971
Other liabilities .................................................................. 1,370 1,315
------------- -------------
Total liabilities ............................................................... 131,963 142,944
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; no shares issued or
outstanding at December 31 or September 30 ....................................... -- --
Common stock, $0.01 par value, 75,000,000 shares authorized; 38,540,557 shares
issued and outstanding at December 31; 37,378,216 shares issued and outstanding
at September 30 .................................................................. 385 374
Additional paid-in capital ......................................................... 69,354 63,771
Retained earnings .................................................................. 44,553 48,213
Deferred compensation .............................................................. (761) (223)
------------- -------------
Total stockholders' equity ...................................................... 113,531 112,135
------------- -------------
Total liabilities and stockholders' equity ...................................... $ 245,494 $ 255,079
============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Operating revenues .................................................... $ 37,972 $ 47,929
Cost of revenues ...................................................... 23,833 28,686
-------- --------
Gross profit .......................................................... 14,139 19,243
Selling, general and administrative expenses .......................... 9,957 7,572
Research and development .............................................. 4,220 774
Advance funding program income, net ................................... (593) (1,208)
Depreciation and amortization expense ................................. 2,955 2,228
Special charges ....................................................... 1,700 --
-------- --------
Income (loss) from operations ......................................... (4,100) 9,877
Other income (expense):
Interest income, net ................................................. 1,384 1,782
Equity in net loss of investee ....................................... (1,018) (200)
Other, net ........................................................... (174) (71)
-------- --------
Total other income, net ............................................. 192 1,511
-------- --------
Income (loss) before provision for income taxes ....................... (3,908) 11,388
Benefit (provision) for income taxes .................................. 248 (4,384)
-------- --------
Net income (loss) ..................................................... $ (3,660) $ 7,004
======== ========
Basic:
Net income (loss) per common share .................................... $ (0.10) $ 0.19
Weighted average common shares outstanding ............................ 38,061 36,866
Diluted:
Net income (loss) per common share and common share equivalents ....... $ (0.10) $ 0.19
Weighted average common shares and common share equivalents outstanding 38,061 37,740
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................... $ (3,660) $ 7,004
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ..................................... 2,955 2,228
Equity in net loss of investee .................................... 1,018 200
Noncash special charges ........................................... 1,700 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ........................ 5,582 (1,123)
Decrease in prepaids and other .................................... 285 496
Decrease in accounts payable ...................................... (4,051) (1,966)
Increase (decrease) in accrued liabilities ........................ (2,494) 1,903
Increase in other liabilities and other noncash items ............. 346 133
--------- ---------
Net cash provided by operating activities ............................ 1,681 8,875
Cash flows from investing activities:
Purchases of property and equipment ................................. (2,091) (1,402)
Purchase of Internet companies, net of cash acquired ................ (4,264) --
Collections of purchased receivables from billing customers, net .... 11,096 16,287
Collections of proceeds due (payments made) to billing customers, net (1,212) 12,576
Payments for sales taxes due on behalf of billing customers, net .... (3,273) (5,154)
Other investing activities .......................................... (240) (262)
--------- ---------
Net cash provided by investing activities ............................ 16 22,045
Cash flows from financing activities:
Payments on long-term debt .......................................... -- (3,035)
Payments on capital leases .......................................... -- (162)
Proceeds from issuance of common stock .............................. 30 553
--------- ---------
Net cash provided by (used in) financing activities .................. 30 (2,644)
--------- ---------
Net increase in cash and cash equivalents ............................ 1,727 28,276
Cash and cash equivalents, beginning of period ....................... 134,007 120,972
--------- ---------
Cash and cash equivalents, end of period ............................. $ 135,734 $ 149,248
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein
have been prepared by Billing Concepts Corp. ("BCC") and subsidiaries
(collectively referred to as the "Company"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
the Company's management, the accompanying interim condensed consolidated
financial statements reflect all adjustments that are necessary for a fair
presentation of the Company's financial position, results of operations and cash
flows for such periods. All such adjustments are of a normal recurring nature.
It is recommended that these interim condensed consolidated financial statements
be read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
September 30, 1999. Results of operations for interim periods are not
necessarily indicative of results that may be expected for any other interim
periods or the full fiscal year. Certain prior period amounts have been
reclassified for comparative purposes.
The preparation of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. EARNINGS PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share," established standards for computing and presenting earnings per
share ("EPS") for entities with publicly held common stock or potential common
stock. SFAS No. 128 requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
Basic EPS excludes dilution and is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in earnings
of the Company. As the Company had a net loss for the quarter ended December 31,
1999, diluted EPS equals basic EPS as potentially dilutive common stock
equivalents are antidilutive in loss periods. If the Company would have had net
income for the quarter ended December 31, 1999, the denominator (weighted
average number of common shares and common share equivalents outstanding) in the
diluted EPS calculation would have been increased, through application of the
treasury stock method, for each class of options for which the average market
price per share of the Company's common stock exceeded the common stock
equivalent's exercise price. For the quarter ended December 31, 1999, certain
options to purchase 5,454,085 shares of common stock at prices ranging from
$5.71 to $29.00 per share would not have been included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. There were additional options to purchase
2,704,329 shares of common stock at prices ranging from $1.98 to $5.25 per share
which were excluded as they were antidilutive for the loss period incurred for
the quarter ended December 31, 1999.
6
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the numerators and the denominators
of the basic and diluted per-share computations for net income for the quarter
ended December 31, 1998.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED DECEMBER 31, 1998
---------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- ------------- -------------
BASIC EPS
<S> <C> <C> <C>
Net income available to common stockholders $ 7,004,000 36,866,000 $ 0.19
============= ============= =============
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Stock options ............................. -- 874,000 --
------------- ------------- -------------
DILUTED EPS
Net income available to common stockholders
including assumed conversions .......... $ 7,004,000 37,740,000 $ 0.19
============= ============= =============
</TABLE>
Certain options to purchase 2,126,000 shares of common stock at prices
ranging from $14.00 to $29.00 per share were outstanding for a portion of the
quarter ended December 31, 1998. They were not included in the computation of
the diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
NOTE 3. ACQUISITIONS
In November 1999, the Company completed the acquisition of FIData, Inc., a
San Antonio, Texas-based company that provides Internet-based automated loan
approval products to the financial services industries. In conjunction with the
FIData transaction, the Company also completed the acquisition of the remaining
40% of an Internet company located in Austin, Texas that is developing an
Internet-based financial services Website focused on the credit union industry
and its members. This acquisition has been accounted for as a purchase.
Accordingly, the results of operations for FIData have been included in the
Company's consolidated financial statements, and the shares related to the
acquisition have been included in the weighted average shares outstanding for
purposes of calculating net income (loss) per common share since the date of
acquisition. The total consideration for the acquisition of FIData and the
remaining 40% of the Austin, Texas-based Internet company was approximately $4.2
million in cash and debt assumption, and 1,100,000 shares of the Company's
common stock. The excess of the purchase price over the fair value of net
tangible assets acquired amounted to approximately $9.1 million, of which
approximately $7.4 million was recorded as goodwill and other intangibles and is
being amortized on a straight-line basis over five years. The remaining balance
of $1.7 million was expensed as acquired in-process research and development
(see Note 7).
In connection with the acquisition of FIData, the Company acquired certain
intangible assets, including developed technology and goodwill. In connection
with this allocation, $1.7 million was expensed as a charge for the purchase of
in-process research and development. In performing this allocation, the Company
considered, among other factors, FIData's research and development projects
in-process at the date of acquisition. With regard to the in-process research
and development projects, the Company considered factors such as the stage of
development of the technology at the time of acquisition, the importance of each
project to the overall development plan, alternative future use of the
technology and the projected incremental cash flows from the projects when
completed and any associated risks.
The purchased in-process research and development focused on next
generation Internet-based automated loan approval products and banking systems
and solutions. Due to its specialized nature, the in-process research and
development projects had no alternative future use, either for re-deployment
elsewhere in the business or in liquidation, in the event the project failed.
7
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Income Approach was the primary technique utilized in valuing the
purchased research and development. The valuation technique employed in the
appraisal was designed to properly reflect all intellectual property rights in
the intangible assets, including core technology. The value of the developed
technology was derived from direct sales of existing products, including their
contribution to in-process research and development. In this way, value was
properly attributed to the engineering know-how embedded in the existing product
that will be used in developmental products. The appraisal also considered the
fact that the existing know-how diminishes in value over time as new
technologies are developed and changes in market conditions render current
products and methodologies obsolete. The assumptions underlying the cash flow
projections used were derived primarily from investment banking reports,
historical results, company records and discussions with management.
Revenue estimates for each in-process project were developed by management
and based on an assessment of the industry. Cost of goods sold for each project
are expected to be in line with historical results. Due to the technological and
economic risks associated with the developmental projects, a discount rate of
35% was used to discount cash flows from the in-process projects. The Company
believes that the foregoing assumptions used in the forecasts were reasonable at
the time of the acquisition. No assurance can be given, however, that the
underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.
NOTE 4. COMMITMENTS AND CONTINGENCIES
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. BCC has and will continue to cooperate and engage the BCP staff in good
faith negotiations. The Company is unable to predict what action, if any, the
FTC will take regarding the BCP staff's proposed complaint or what, if any,
financial impact would result.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party, including those described above,
will have a material adverse effect on the Company's financial position or
results of operations; however, due to the inherent uncertainty of litigation,
there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company's results of
operations for the fiscal period in which such resolution occurs.
8
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. BUSINESS SEGMENTS
The Company conducts operations in three principal segments - Transaction
Processing (formerly known as LEC Billing), Software and Internet. Information
as to the operations of the Company in different business segments is set forth
below based on the nature of the products and services offered. The Company
evaluates performance based on several factors, of which the primary financial
measures are segment revenues and operating income.
FOR THE QUARTER
ENDED DECEMBER 31,
----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
Operating revenues:
Transaction Processing ............................... $ 29,115 $ 36,079
Software ............................................. 8,806 11,850
Internet ............................................. 51 --
--------- ---------
Total operating revenues ........................... $ 37,972 $ 47,929
Income (loss) from operations:
Transaction Processing ............................... $ 7,478 $ 10,687
Software ............................................. (3,769) 2,295
Internet ............................................. (4,081) --
Corporate Overhead ................................... (3,728) (3,105)
--------- ---------
Total income (loss) from operations ................ $ (4,100) $ 9,877
Income (loss) before provision for income taxes:
Income (loss) from operations ........................ $ (4,100) $ 9,877
Interest income, net ................................. 1,384 1,782
Equity in net loss of investee ....................... (1,018) (200)
Other ................................................ (174) (71)
--------- ---------
Income (loss) before provision for income taxes .... $ (3,908) $ 11,388
Interest income (expense), net:
Transaction Processing ............................... $ 1,381 $ 1,792
Software ............................................. -- 6
Internet ............................................. 3 --
Corporate Overhead ................................... -- (16)
--------- ---------
Total interest income, net ......................... $ 1,384 $ 1,782
Depreciation and amortization:
Transaction Processing ............................... $ 1,475 $ 1,241
Software ............................................. 712 491
Internet ............................................. 260 --
Corporate Overhead ................................... 508 496
--------- ---------
Total depreciation and amortization ................ $ 2,955 $ 2,228
Total assets:
Transaction Processing ............................... $ 199,248 $ 236,583
Software ............................................. 29,643 21,147
Internet ............................................. 13,820 7,800
Corporate Overhead ................................... 2,783 13,241
--------- ---------
Total assets ....................................... $ 245,494 $ 278,771
9
<PAGE>
BILLING CONCEPTS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. RELATED PARTY TRANSACTIONS
From time to time, the Company has made advances to or was owed amounts
from certain officers of the Company. The highest aggregate amount outstanding
of advances to officers during the quarter ended December 31, 1999 was $252,000.
The Company had an aggregate of $248,000 in notes receivable bearing interest at
rates ranging from 7.0% to 10.0% from certain officers of the Company at
December 31, 1999. On January 4, 2000, the Company forgave a certain note with a
principal balance and accrued interest totaling approximately $70,000 in lieu of
a cash bonus.
NOTE 7. SPECIAL CHARGES
During the quarter ended December 31, 1999, the Company recognized special
charges in the amount of $1.7 million. The $1.7 million charge represented the
in-process research and development costs acquired in connection with the
acquisition of FIData (see Note 3).
10
<PAGE>
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN "FORWARD-LOOKING"
STATEMENTS AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES THAT
ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE
BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT" AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY
OR ITS SUBSIDIARIES OR COMPANY MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
RELATIONS, RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT,
GOVERNMENTAL REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS,
PRODUCT INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONETIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN AND IN OTHER
FILINGS MADE BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION. BASED
UPON CHANGING CONDITIONS, SHOULD ANY ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO UPDATE
THESE FORWARD-LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following is a discussion of the consolidated financial condition and
results of operations for Billing Concepts Corp. ("BCC") and subsidiaries
(collectively referred to as the "Company"), for the quarters ended December 31,
1999 and 1998. It should be read in conjunction with the Interim Condensed
Consolidated Financial Statements of the Company, the notes thereto and other
financial information included elsewhere in this report, and the Company's
Annual Report on Form 10-K for the year ended September 30, 1999. For purposes
of the following discussion, references to year periods refer to the Company's
fiscal year ended September 30 and references to quarterly periods refer to the
Company's fiscal quarter ended December 31.
RESULTS OF OPERATIONS - CONSOLIDATED
The following table presents certain items in the Company's Condensed
Consolidated Statements of Income as a percentage of total revenues:
QUARTER ENDED
DECEMBER 31,
---------------
1999 1998
----- -----
Operating revenues ......................................... 100.0% 100.0%
Cost of revenues ........................................... 62.8 59.9
----- -----
Gross profit ............................................... 37.2 40.1
Selling, general and administrative expenses ............... 26.2 15.8
Research and development ................................... 11.1 1.6
Advance funding program income, net ........................ (1.6) (2.5)
Depreciation and amortization expense ...................... 7.8 4.6
Special charges ............................................ 4.5 0.0
----- -----
Income (loss) from operations .............................. (10.8) 20.6
Other income, net .......................................... 0.5 3.2
----- -----
Income (loss) before provision for income taxes ............ (10.3) 23.8
Provision for income taxes ................................. 0.7 (9.2)
----- -----
Net income (loss) .......................................... (9.6)% 14.6%
===== =====
11
<PAGE>
The Company's revenues are derived primarily from the provision of billing
clearinghouse and information management services to telecommunications services
providers through Local Exchange Carrier billing ("LEC billing") by its
transaction processing services division ("Transaction Processing"), formerly
known as the LEC billing division. Through its subsidiary, Aptis, Inc.
("Aptis"), the Company also operates a software division ("Software") that
develops, markets and supports convergent billing and customer care software
applications for telecommunications and Internet services providers and provides
direct billing outsourcing services. In addition, the Company has an Internet
division ("Internet") with operations that include the development of a
financial services Website serving the credit union industry and its members and
an equity interest in Princeton eCom Corporation ("PTC"), which offers
electronic bill presentment and payment services via the Internet. During the
first quarter of 2000, the Company also completed the acquisition of FIData,
Inc. ("FIData"), which provides automated loan approval products via the
Internet. Total revenues for the quarter ended December 31, 1999 were $38.0
million, a decrease of 20.8% from $47.9 million in the comparable prior year
quarter. The decrease in total revenues from the prior year quarter was
primarily due to the 19.3% decrease in Transaction Processing revenues to $29.1
million in the first quarter of 2000 from $36.1 in the first quarter of 1999. In
addition, Software revenues decreased 25.7% to $8.8 million in the first quarter
of 2000 from $11.9 million in the first quarter of 1999. Gross profit margin of
37.2% reported for the first quarter of 2000 compares to 40.1% achieved in the
comparable quarter of 1999. The decrease in gross margin from the first quarter
of 1999 is primarily attributable to the decrease in software license revenues
generated by the software division. This decrease in software license revenues
resulted in a lower overall gross margin due to the higher margins associated
with such revenues.
Selling, general and administrative ("SG&A") expenses are comprised of all
selling, marketing and administrative costs incurred in direct support of the
business operations of the Company. SG&A expenses for the first quarter of 2000
were $10.0 million, or 26.2% of revenues, compared to $7.6 million, or 15.8% of
revenues, in the first quarter of 1999. SG&A expenses increased from the prior
year quarter primarily due to increased expenditures to provide additional
infrastructure for the software division. In addition, the Company's Internet
operations, which began during the fourth quarter of 1999, incurred $0.8 million
of SG&A expenses in the first quarter of 2000.
Research and development ("R&D") expenses are comprised of the salaries
and benefits of the employees involved in software development and related
expenses. The increase in R&D expenses to $4.2 million in the first quarter of
2000 from $0.8 million in the prior year quarter is attributable to the growth
of such expenses incurred by the software and Internet divisions to facilitate
the development of new and enhanced products.
Depreciation and amortization expenses are incurred with respect to
certain assets, including computer hardware, software, office equipment,
furniture, leasehold improvements, costs incurred in securing contracts with
local telephone companies, goodwill and other intangibles. Depreciation and
amortization expenses were $3.0 million in the first quarter of 2000 compared to
$2.2 million in the first quarter of 1999. The increase in depreciation and
amortization expenses from the prior year quarter is attributable to capital
expenditures as well as the amortization of intangibles acquired in connection
with the acquisition of FIData in November 1999.
The Company reported a loss from operations of $4.1 million for the first
quarter of 2000 compared to income from operations of $9.9 million in the first
quarter of 1999. The loss from operations for the quarter ended December 31,
1999 includes special charges of $1.7 million representing in-process research
and development costs acquired in connection with the acquisition of FIData. The
decrease in operating margin, exclusive of special charges, from the prior year
quarter is primarily attributable to lower revenues and higher SG&A and R&D
expenses.
Net other income of $0.2 million in the first quarter of 2000 compares to
net other income of $1.5 million in 1999. The decrease in net other income from
the prior year quarter was primarily due to the Company's equity in the net loss
of PTC of $1.0 million for the first quarter of 2000, as well as decreased
interest income from short-term investments due to lower cash balances in 2000.
The Company's effective tax rate was 6.3% in the first quarter of 2000 and
38.5% in the first quarter of 1999. Excluding its Internet operations, the
Company's effective tax rate would have been 42.0% and 37.8% in the first
quarter of 2000 and 1999, respectively.
12
<PAGE>
RESULTS OF OPERATIONS - TRANSACTION PROCESSING
The following table presents the operating results of the Company's
transaction processing division and as a percentage of related revenues for each
quarter:
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Operating revenues ......................... $ 29,115 100.0% $ 36,079 100.0%
Cost of revenues ........................... 18,038 62.0 22,511 62.4
-------- ----- -------- -----
Gross profit ............................... 11,077 38.0 13,568 37.6
Selling, general and administrative expenses 2,287 7.9 2,412 6.7
Research and development ................... 430 1.5 436 1.2
Advance funding program income, net ........ (593) (2.0) (1,208) (3.3)
Depreciation and amortization expense ...... 1,475 5.1 1,241 3.4
-------- ----- -------- -----
Income from operations ................... $ 7,478 25.7% $ 10,687 29.6%
======== ===== ======== =====
</TABLE>
OPERATING REVENUES
Transaction processing fees charged by the Company include processing and
customer service inquiry fees. Processing fees are assessed to customers either
as a fee charged for each telephone call record or other transaction processed
or as a percentage of the customer's revenue that is submitted by the Company to
local telephone companies for billing and collection. Processing fees also
include any charges assessed to the Company by local telephone companies for
billing and collection services that are passed through to the customer.
Customer service inquiry fees are assessed to customers either as a fee charged
for each record processed by the Company or as a fee charged for each billing
inquiry made by end users.
Transaction processing services revenues decreased $7.0 million, or 19.3%,
in the first quarter of 2000 from the prior year quarter. The decrease in
revenue from the first quarter of 1999 was attributable to an overall decrease
in the number of call records processed. The number of call records processed
for billing during the first quarter of 2000 continues to be negatively impacted
by "slamming" and "cramming" issues that have occurred in the long distance
industry. Management is continuing to take actions in order to mitigate the
effects of "slamming and cramming" issues on the call record volumes of its
current customer base. Consequently, the number of call records processed for
billing decreased from the prior year quarter. Telephone call record volumes
were as follows:
QUARTER ENDED
DECEMBER 31,
-----------------
1999 1998
------ ------
(IN MILLIONS)
Direct dial long distance services ................. 124.5 152.3
Operator services .................................. 20.5 24.5
Enhanced billing services .......................... 1.0 1.4
Billing management services ........................ 47.4 53.2
Additionally, revenues were adversely affected by the loss of certain
customers now using direct billing methods, versus LEC billing through the
Company. The Company has addressed the need for a direct billing solution and is
currently launching its own related product to be offered via a service bureau
environment.
13
<PAGE>
COST OF REVENUES
Cost of revenues includes billing and collection fees charged by local
telephone companies and related transmission costs, as well as all costs
associated with the customer service organization, including staffing expenses
and costs associated with telecommunications services. Billing and collection
fees charged by the local telephone companies include fees that are assessed for
each record submitted and for each bill rendered to its end-user customers. The
Company achieves discounted billing costs due to its aggregated volumes and can
pass these discounted costs on to its customers.
The gross profit margin for the first quarter of 2000 was 38.0% compared
to 37.6% achieved in the first quarter of 1999. The increase in the gross profit
margin from the prior year quarter is primarily attributable to lower customer
service costs as a percentage of revenue mainly due to lower telecommunications
costs.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for the first quarter of 2000 were $2.3 million, or 7.9% of
revenues, compared to $2.4 million, or 6.7% of revenues for the first quarter of
1999. The increase in SG&A as a percentage of revenue in 2000 was primarily due
to the overall decrease in Transaction Processing revenues. Expenses related to
certain corporate functions, such as treasury, financial reporting, investor
relations, legal, payroll, human resources and management information systems,
have not been fully charged to Transaction Processing, but are included in the
consolidated results of operations as general corporate expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
The Company internally funds research and development activities with respect to
efforts associated with creating new and enhanced transaction processing
services products. Research and development expenses in the first quarter of
both 2000 and 1999 were $0.4 million. The transaction processing division
intends to continue its research and development efforts in the future and
anticipates spending approximately $1 to $2 million during 2000 for such
expenses.
ADVANCE FUNDING PROGRAM INCOME AND EXPENSE
Advance funding program income was $0.6 million in the first quarter of
2000 compared with $1.2 million in the first quarter of 1999. The decrease from
the first quarter of 1999 was primarily the result of a lower level of customer
receivables financed under the Company's advance funding program. The quarterly
average balance of purchased receivables was $25.8 million and $56.3 million in
the first quarter of 2000 and 1999, respectively. The Company financed all
customer receivables during the first quarter of 2000 and 1999 with internally
generated funds rather than with funds borrowed through the Company's revolving
credit facility. The advance funding program expense recognized during the first
quarter of both 2000 and 1999 represents unused credit facility fees and is the
minimum expense that the Company could have incurred during these quarters.
INCOME FROM OPERATIONS
Income from operations in the first quarter of 2000 was $7.5 million, or
25.7% of revenues, compared to income from operations of $10.7 million, or 29.6%
of revenues, in the first quarter of 1999. The decrease in income from
operations as a percentage of revenues from the prior year quarter is
attributable to higher operating expenses and lower net advance funding income
as percentages of revenues, offset partly by a higher gross profit margin.
14
<PAGE>
RESULTS OF OPERATIONS - SOFTWARE
The following table presents the operating results of the Company's
software division and as a percentage of related revenues for each quarter:
<TABLE>
<CAPTION>
QUARTER ENDED DECEMBER 31,
------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C> <C> <C>
Software revenues .......................... $ 2,567 29.2% $ 4,423 37.3%
Services revenues .......................... 4,997 56.7 4,329 36.6
Hardware revenues .......................... 1,242 14.1 3,098 26.1
------- ----- ------- -----
Total operating revenues ................... 8,806 100.0 11,850 100.0
Cost of revenues ........................... 5,761 65.4 6,175 52.1
------- ----- ------- -----
Gross profit ............................... 3,045 34.6 5,675 47.9
Selling, general and administrative expenses 3,682 41.8 2,551 21.5
Research and development ................... 2,420 27.5 338 2.9
Depreciation and amortization expense ...... 712 8.1 491 4.1
------- ----- ------- -----
Income (loss) from operations ............. $(3,769) (42.8)% $ 2,295 19.4%
======= ===== ======= =====
</TABLE>
OPERATING REVENUES
In addition to license and maintenance fees charged by Aptis for the use
of its billing software applications, fees are charged on a time and materials
basis for software customization and professional services. Aptis revenues also
include retail sales of third-party computer hardware and software.
Aptis revenues decreased $3.0 million, or 25.7%, in the first quarter of
2000 from the comparable quarter of 1999. The decrease in revenues from the
prior year quarter was primarily attributable to lower sales of billing systems
in the first quarter of 2000, which corresponded to a decrease in software
license fees and hardware revenues.
COST OF REVENUES
Cost of revenues includes the cost of third-party computer hardware and
software sold, and the salaries and benefits of software support, technical and
professional service personnel who generate revenue from contracted services.
Gross profit margin of 34.6% reported for the first quarter of 2000
compares to 47.9% achieved in the first quarter of 1999. The decrease from the
prior year quarter is attributable to lower software license fees as a
percentage of total software division revenues in 2000. This decrease in
software license revenues resulted in a lower overall gross margin due to the
higher margins associated with such revenues.
SELLING, GENERAL AND ADMINISTRATIVE
SG&A expenses for the first quarter of 2000 were $3.7 million, or 41.8% of
revenues, compared to $2.6 million, or 21.5% of revenues, in the first quarter
of 1999. SG&A expenses increased from the prior year quarter due to an increase
in expenditures to provide additional infrastructure for the software business,
as well as increased marketing expenses. Additionally, the Company recorded a
higher level of bad debt expense in the first quarter of 2000 versus the prior
year quarter. The Company expects that marketing expenditures will continue to
increase in light of Aptis' aggressive marketing campaign. Expenses related to
certain corporate functions, such as treasury, financial reporting, investor
relations, legal, payroll, human resources and management information systems,
have not been fully charged to the Aptis division, but are included in the
consolidated results of operations as general corporate expenses.
15
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses are comprised of the salaries and
benefits of the employees involved in software development and related expenses.
Aptis is actively involved in ongoing research and development efforts
associated with creating new and enhanced products related to its convergent
billing software platform for both telecommunications and Internet service
providers. Research and development expenses in the first quarter of 2000
increased to $2.4 million from $0.3 million in the first quarter of 1999,
primarily due to an increase in the number of research and development personnel
necessary to support the efforts to expand the features and functionality of the
Company's Aptis ICP and TotalBill products. The Company intends to continue its
research and development efforts in the future and anticipates spending a total
of approximately $9 to $10 million during 2000 for such expenses.
INCOME FROM OPERATIONS
In the first quarter of 2000, the software division incurred a loss from
operations of $3.8 million compared to income from operations of $2.3 million in
the first quarter of 1999. The loss from operations in 2000 reflected lower
revenues and higher SG&A and R&D expenses.
RESULTS OF OPERATIONS - INTERNET
The Company began its Internet operations with its initial equity
investment in PTC in September 1998 and did not incur any operating expenses
until the fourth quarter of 1999. During the first quarter of 2000, in addition
to recording its equity in the net loss of PTC of $1.0 million, which is
included in "Other Income," the Company recorded $2.4 million of operating
expenses related to its Internet division. These expenses included the operating
results of FIData, a company that provides Internet-based automated loan
approval products to the financial services industries, since its acquisition
effective November 1, 1999, as well as expenses incurred by efforts to develop a
financial services Website focused on the credit union industry and its members.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance increased to $135.7 million at December 31,
1999 from $134.0 million at September 30, 1999. Large fluctuations in daily cash
balances are normal due to the large amount of customer receivables that the
Company collects on behalf of its LEC billing customers. The Company's working
capital position decreased to $69.3 million at December 31, 1999, from $73.6
million at September 30, 1999, and its current ratio was 1.5:1 at both December
31, 1999 and September 30, 1999. Net cash provided by operating activities
decreased to $1.7 million in the first quarter of 2000 from $8.9 million in the
first quarter of 1999 and primarily reflected the change in net income (loss)
from the prior year quarter, exclusive of special charges.
In December 1996, the Company obtained a $50.0 million revolving line of
credit facility with certain lenders primarily to draw upon to advance funds to
its billing customers prior to collection of the funds from the local telephone
companies. This credit facility terminates on March 20, 2000. Borrowings under
the credit facility are limited to a portion of the Company's eligible
receivables. The Company is currently in negotiations with its lenders to renew
the line of credit and expects that the credit facility will be further renewed
with similar or more favorable terms. No amounts were borrowed by the Company
under its credit facility at either December 31, 1999 or September 30, 1999. At
December 31, 1999, the amount available under the Company's credit facility was
$31.5 million.
Under certain of its credit agreements, the Company is prohibited from
paying dividends on its common stock, is required to comply with certain
financial covenants and is subject to certain limitations on the issuance of
additional secured debt. The Company was in compliance with all required
covenants at December 31, 1999.
16
<PAGE>
Capital expenditures amounted to approximately $2.1 million in the first
quarter of 2000 and related primarily to the purchase of computer equipment and
software. The Company anticipates capital expenditures before acquisitions, if
any, of approximately $6 million in the next nine months of fiscal 2000 largely
related to expenditures for furniture, fixtures, leasehold improvements,
computer software and hardware upgrades. The Company believes that it will be
able to fund expenditures with internally generated funds and borrowings, but
there can be no assurance that such funds will be available or expended.
In November 1999, the Company completed the acquisition of FIData, Inc., a
company located in San Antonio, Texas that provides Internet-based automated
loan approval products to the financial services industries. In conjunction with
the FIData transaction, the Company also completed the acquisition of an
Internet company located in Austin, Texas that is developing an Internet-based
financial services Website focused on the credit union industry and its members.
The total consideration for the acquisition was approximately $4.2 million in
cash and debt assumption, and 1,100,000 shares of the Company's common stock.
This acquisition has been accounted for as a purchase. Accordingly, the results
of operations for FIData have been included in the Company's consolidated
financial statements, and the shares related to the acquisition have been
included in the weighted average shares outstanding for purposes of calculating
net income per common share since the date of acquisition. During the first
quarter of 2000, the Company expensed $1.7 million of in-process research and
development costs acquired in connection with this acquisition.
During the first quarter of 2000, the Company signed an agreement to
increase its ownership in PTC to 27% with an additional $2.6 million equity
investment. The Company will continue to review additional strategic Internet
acquisition opportunities that will complement or enhance its existing
operations.
The Company's operating cash requirements consist principally of working
capital requirements, requirements under its advance funding program, and
capital expenditures. The Company believes that it has the ability to continue
to secure long-term equipment financing and that this ability, combined with
cash flows generated from operations and periodic borrowings under its
receivable financing facility, will be sufficient to fund capital expenditures,
advance funding requirements and working capital needs for the foreseeable
future.
YEAR 2000
As of February 8, 2000, the Year 2000 date change has not posed a
significant problem for the Company. However, because the Company's business
relies on processing date-sensitive telephone call records supplied by third
parties, it is possible that non-compliant third-party computer systems may not
have provided accurate data for processing through the Company's computer
systems. The Company's business, financial condition and results of operations
could be materially adversely affected by the Year 2000 date change if it or
unrelated parties failed to successfully address this issue.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the "Act"), which was signed into law on October 19, 1998. The Act provides
added protection from liability for certain public and private statements
concerning a company's Year 2000 readiness.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities. The Company
does not believe that it has significant exposure to market risks associated
with changing interest rates as of December 31, 1999 because the Company's
intention is to maintain a liquid portfolio to take advantage of investment
opportunities. The Company does not use derivative financial instruments in its
operations.
17
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A lawsuit was filed on December 31, 1998, in the United States District
Court in San Antonio, Texas by an alleged stockholder of the Company against the
Company and various of its officers and directors, alleging unspecified damages
as a result of alleged false statements in various press releases prior to
November 19, 1998. In September 1999, the U.S. District Court for the Western
District of Texas entered an order and judgment dismissing the plaintiff's
lawsuit. The plaintiff noticed an appeal of that decision on September 29, 1999.
Although no assurances can be given, the Company believes it has meritorious
defenses to this action and intends to defend itself vigorously.
The Company is cooperating with the Federal Trade Commission's ("FTC")
Bureau of Consumer Protection ("BCP") regarding BCP staff requests for industry
and customer specific information from the Company relating primarily to the
alleged cramming of charges for non-regulated telecommunication services by
certain of its customers. Cramming is the addition of charges to a telephone
bill for programs, products or services the consumer did not knowingly
authorize. In connection with the Company's responses to the ongoing
informational requests, the BCP staff has proposed a complaint against the
Company. The BCP staff alleges that it can impose a variety of civil remedies on
the Company, including consumer redress or other equitable relief as well as
restrictions on the way the Company processes charges for enhanced services. The
Company disputes the BCP staff's alleged basis for liability and is reviewing
the BCP staff's allegations to ensure that corrective action has already been
taken. BCC has and will continue to cooperate and engage the BCP staff in good
faith negotiations. The Company is unable to predict what action, if any, the
FTC will take regarding the BCP staff's proposed complaint or what, if any,
financial impact would result.
The Company is involved in various other claims, legal actions and
regulatory proceedings arising in the ordinary course of business. The Company
believes it is unlikely that the final outcome of any of the claims, litigation
or proceedings to which the Company is a party, including those described above,
will have a material adverse effect on the Company's financial position or
results of operations; however, due to the inherent uncertainty of litigation,
there can be no assurance that the resolution of any particular claim or
proceeding would not have a material adverse effect on the Company's results of
operations for the fiscal period in which such resolution occurs.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
(c) Pursuant to a Plan of Reorganization, Merger and Acquisition Agreement
(the "FIData Agreement") among the Company, BCC Merger Corp., a Delaware
corporation and wholly owned subsidiary of the Company, FIData, Inc., a Texas
corporation ("FIData "), and FIData Equity Partners, L.P., Southwest Business
Corporation, Mel Ray and William Hammock (collectively, the "FIData
Shareholders"), dated effective November 1, 1999, whereby the Company acquired
substantially all of the assets of FIData, the Company issued 1,100,000 shares
of common stock to the FIData Shareholders. Such common stock was not registered
under the Securities Exchange Act of 1933, as amended (the "Securities Act")
pursuant to the exemptions of such registration provided under Regulation D and
Section 4(2) of the Securities Act. The Company relied upon certain
representations and warranties of the FIData Shareholders, including, among
other things, as to the status of certain of the FIData Shareholders as
"accredited investors" (as that term is defined in Rule 501(a) of Regulation D)
and their ability to evaluate the merits and risks of the transactions
contemplated in the FIData Agreement and that the common stock was acquired
solely for their own accounts for investment and not with a view to
distribution.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation by
reference to a previously filed document, such document is identified in
parentheses.
EXHIBIT
NUMBER DESCRIPTION
2.1 Plan of Reorganization, Merger and Acquisition Agreement
dated November 8, 1999, by and among Billing Concepts Corp.,
BCC Merger Corp., FIData, Inc., FIData Equity Partners,
L.P., Southwest Business Corporation, Mel Ray and William
Hammock (filed herewith)
10.1 Registration Rights Agreement dated November 8, 1999, among
Billing Concepts Corp., FIData Equity Partners, L.P.,
Southwest Business Corporation, Mel Ray and William Hammock
(incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-3 filed January
28, 2000)
27.1 Financial Data Schedule as of December 31, 1999 (filed
herewith)
(b) Current Reports on Form 8-K:
None.
ITEMS 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BILLING CONCEPTS CORP.
(Registrant)
Date: February 10, 2000 By: /S/ DAVID P. TUSA
David P. Tusa
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and principal
financial officer)
20
EXHIBIT 2.1
PLAN OF REORGANIZATION, MERGER AND ACQUISITION AGREEMENT
DATED EFFECTIVE NOVEMBER 1, 1999
BY AND AMONG
BILLING CONCEPTS CORP.,
BCC MERGER CORP.,
FIDATA, INC.
AND
FIDATA EQUITY PARTNERS, L.P.
SOUTHWEST BUSINESS CORPORATION
MEL RAY
WILLIAM HAMMOCK
<PAGE>
TABLE OF CONTENTS
1. GENERAL DEFINITIONS....................................................1
1.1 "ACCOUNTS RECEIVABLE"............................................1
1.2 "AFFILIATE"......................................................2
1.3 "ARTICLE"........................................................2
1.4 "ASSETS".........................................................2
1.5 "ASSOCIATE"......................................................2
1.6 "AUTHORIZATION"..................................................2
1.7 "BALANCE SHEET DATE".............................................2
1.8 "BEST KNOWLEDGE".................................................2
1.9 "BCC STOCK"......................................................2
1.10 "BUSINESS".......................................................2
1.11 "BUSINESS COMBINATION"...........................................2
1.12 "BUSINESS DAY"...................................................2
1.13 "CERCLA".........................................................2
1.14 "CERTIFICATE"....................................................2
1.15 "CODE"...........................................................3
1.16 "CONTRACTS"......................................................3
1.17 "CONTROL"........................................................3
1.18 "DAMAGES"........................................................3
1.19 "DEPOSITS".......................................................3
1.20 "DISCLOSURE SCHEDULE"............................................3
1.21 "EFFECTIVE TIME".................................................3
1.22 "ENCUMBRANCE"....................................................3
1.23 "ENVIRONMENTAL LAWS".............................................3
1.24 "ENVIRONMENTAL LIABILITIES"......................................4
1.25 "ERISA"..........................................................4
1.26 "ESCROW AGREEMENT"...............................................4
1.27 "ESCROW AGENT"...................................................4
1.28 "EXCHANGE ACT"...................................................4
1.29 "FINANCIAL STATEMENTS"...........................................4
1.30 "FORMER SELLER SHAREHOLDER"......................................4
1.31 "GAAP"...........................................................4
1.32 "GOVERNMENTAL AUTHORITY".........................................4
1.33 "GOVERNMENTAL REQUIREMENT".......................................4
1.34 "HOLDBACK SHARES"................................................5
1.35 "HSR Act"........................................................5
1.36 "INDEMNITEE".....................................................5
1.37 "INDEMNITOR".....................................................5
1.38 "INTELLECTUAL PROPERTY"..........................................5
1.39 "IRS"............................................................6
1.40 "LOSSES".........................................................6
1.41 "MATERIAL ADVERSE EFFECT"........................................6
1.42 "MERGER".........................................................6
1.43 "MERGER CONSIDERATION"...........................................6
1.44 "ORDINARY COURSE OF BUSINESS"....................................6
1.45 "PARTIES ".......................................................6
1.46 "PBGC"...........................................................6
1.47 "PERMITTED ENCUMBRANCES".........................................6
1.48 "PROPORTIONATE INTEREST".........................................6
1.49 "PERSON".........................................................7
1.50 "PURCHASER STOCK"................................................7
-i-
<PAGE>
1.51 "RCRA"...........................................................7
1.52 "REFERENCE BALANCE SHEET"........................................7
1.53 "REORGANIZATION".................................................7
1.54 "SEC" or "COMMISSION"............................................7
1.55 "SEC DOCUMENTS"..................................................7
1.56 "SECTION"........................................................7
1.57 "SECURITIES ACT".................................................7
1.58 "SELLER STOCK"...................................................7
1.59 "SOFTWARE".......................................................7
1.60 "SOFTWARE TRADE SECRET"..........................................7
1.61 "SUBSIDIARY".....................................................7
1.62 "SURVIVING CORPORATION"..........................................8
1.63 "SYSTEM DOCUMENTATION"...........................................8
1.64 "TAXES"..........................................................8
1.65 "TAX RETURNS"....................................................8
1.66 "THIRD-PARTY CLAIMS".............................................8
1.67 "THIRD-PARTY SOFTWARE"...........................................8
1.68 "THIRD-PARTY SOFTWARE AGREEMENTS"................................8
1.69 "USER DOCUMENTATION".............................................8
1.70 "WASTE MATERIALS"................................................8
1.71 "WORKING CAPITAL"................................................8
2. MERGER.................................................................9
2.1 THE MERGER.......................................................9
2.2 SURVIVING CORPORATION............................................9
2.3 LIABILITIES......................................................9
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS..........................9
2.5 DIRECTORS AND OFFICERS...........................................9
2.6 CONVERSION OR CANCELLATION OF STOCK UPON MERGER..................9
2.7 FRACTIONAL SHARES...............................................10
2.8 EXCHANGE PROCEDURES.............................................10
2.9 ADJUSTMENT TO MERGER CONSIDERATION..............................10
2.10 PAYMENT OF CERTAIN LIABILITIES..................................10
2.11 INTERIM DIVIDENDS...............................................11
2.12 FURTHER ASSURANCES..............................................11
3. CLOSING; CLOSING DATE.................................................11
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.........12
4.1 INCORPORATION...................................................12
4.2 SHARE CAPITAL...................................................12
4.3 FINANCIAL STATEMENTS............................................13
4.4 EVENTS SINCE THE BALANCE SHEET DATE.............................14
4.5 COMPETING INTERESTS.............................................15
4.6 TAXES...........................................................15
4.7 EMPLOYEE MATTERS................................................16
4.8 CONTRACTS AND AGREEMENTS........................................17
4.9 EFFECT OF AGREEMENT.............................................19
4.10 PROPERTIES, ASSETS AND LEASEHOLD ESTATES........................20
4.11 INTELLECTUAL PROPERTY...........................................22
4.12 SUITS, ACTIONS AND CLAIMS.......................................23
4.13 LICENSES AND PERMITS; COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS.23
4.14 AUTHORIZATION...................................................24
4.15 RECORDS.........................................................26
4.16 ENVIRONMENTAL PROTECTION LAWS...................................26
-ii-
<PAGE>
4.17 ACCOUNTS RECEIVABLE.............................................27
4.18 BROKERS AND FINDERS.............................................28
4.19 DEPOSITS........................................................28
4.20 WORK ORDERS.....................................................28
4.21 CUSTOMER LIST; SUPPLIER LIST....................................28
4.22 NO ROYALTIES....................................................28
4.23 BANK ACCOUNTS...................................................28
4.24 INSURANCE.......................................................28
4.25 EMPLOYEE BENEFIT MATTERS........................................29
4.26 WARRANTIES AND PRODUCT LIABILITY................................31
4.27 CUVILLE.COM.....................................................31
4.28 SECURITIES LAWS MATTERS.........................................32
4.29 NO UNTRUE STATEMENTS............................................34
5. REPRESENTATIONS AND WARRANTIES OF THE BCC PARTIES.....................34
5.1 PURCHASER INCORPORATION.........................................34
5.2 BCC INCORPORATION...............................................34
5.3 AUTHORIZATION...................................................34
5.4 NO VIOLATION....................................................34
5.5 CONSENTS........................................................35
5.6 CERTAIN PROCEEDINGS.............................................35
5.7 BROKERS AND FINDERS.............................................35
5.8 AUTHORIZATION FOR STOCK CONSIDERATION...........................35
5.9 SEC DOCUMENTS...................................................35
5.10 S-3 ELIGIBILITY.................................................36
5.11 NO UNTRUE STATEMENTS............................................36
6. NATURE OF STATEMENTS AND SURVIVAL OF INDEMNIFICATIONS, GUARANTEES,
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.........36
7. TAX TREATMENT.........................................................37
8. PRE-CLOSING COVENANTS.................................................37
8.1 GENERAL.........................................................37
8.2 NOTICES AND CONSENTS............................................37
8.3 OPERATION OF BUSINESS...........................................37
8.4 FULL ACCESS.....................................................39
8.5 NOTICE OF DEVELOPMENTS..........................................39
8.6 EXCLUSIVITY.....................................................39
8.7 DISCLOSURE SCHEDULE.............................................40
8.8 VOTING OF SELLER STOCK..........................................40
8.9 ESCROW AGREEMENT................................................40
8.10 TERMINATION OF CONTRACTS........................................40
8.11 REGISTRATION RIGHTS AGREEMENT...................................41
8.12 RELEASE OF CLAIMS...............................................41
9. CONDITIONS TO OBLIGATION TO CLOSE.....................................41
9.1 CONDITIONS TO OBLIGATION OF THE BCC PARTIES.....................41
9.2 CONDITIONS TO OBLIGATION OF SELLER AND SHAREHOLDERS.............44
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS............................45
10.1 GENERAL.........................................................45
10.2 LITIGATION SUPPORT..............................................45
10.3 TRANSITION......................................................45
10.4 TERMINATION OF AGREEMENTS.......................................46
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10.5 INTELLECTUAL PROPERTY ASSIGNMENT................................46
10.6 USE OF NAME OF SELLER...........................................46
10.7 EMPLOYEE BENEFITS MATTER........................................46
10.8 TAX-FREE REORGANIZATION.........................................46
10.9 FEP PARTNERSHIP.................................................46
11. INDEMNITY BY THE SHAREHOLDERS.........................................47
11.1 INDEMNIFICATION BY THE SHAREHOLDERS.............................47
11.2 ENVIRONMENTAL INDEMNIFICATION...................................47
11.3 TAX INDEMNIFICATION.............................................47
11.4 PRODUCTS LIABILITY AND WARRANTY INDEMNIFICATION.................48
11.5 INDEMNIFICATION BY THE BCC PARTIES..............................48
11.6 LIMITATION ON INDEMNIFICATION...................................48
11.7 HOLDBACK........................................................49
11.8 ESCROW..........................................................49
11.9 PROCEDURE.......................................................49
11.10 PAYMENT.........................................................50
11.11 ADJUSTMENT OF LIABILITY.........................................50
11.12 FAILURE TO PAY INDEMNIFICATION..................................51
11.13 COOPERATION.....................................................51
11.14 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE.....................51
11.15 APPOINTMENT OF SUCCESSOR ESCROW AGENT...........................51
12. NON-COMPETITION AGREEMENT.............................................51
12.1 NON-COMPETITION.................................................51
12.2 JUDICIAL REFORMATION............................................52
12.3 CUSTOMER LISTS; NON-SOLICITATION................................52
12.4 COVENANTS INDEPENDENT...........................................53
12.5 REMEDIES........................................................53
13. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION............................53
14. NOTICES...............................................................54
15. TERMINATION...........................................................56
15.1 TERMINATION OF AGREEMENT........................................56
15.2 EFFECT OF TERMINATION...........................................57
16. GUARANTEE.............................................................57
17. GENERAL PROVISIONS....................................................57
17.1 GOVERNING LAW; INTERPRETATION; SECTION HEADINGS.................57
17.2 SEVERABILITY....................................................57
17.3 ENTIRE AGREEMENT................................................57
17.4 BINDING EFFECT..................................................58
17.5 ASSIGNMENT......................................................58
17.6 AMENDMENT; WAIVER...............................................58
17.7 GENDER; NUMBERS.................................................58
17.8 COUNTERPARTS....................................................58
17.9 TELECOPY EXECUTION AND DELIVERY.................................58
17.10 EXPENSES........................................................59
17.11 ARBITRATION.....................................................59
17.12 DAMAGE TO ASSETS................................................60
17.13 EFFECT OF DUE DILIGENCE.........................................60
17.14 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.........................60
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17.15 NO THIRD PARTY BENEFICIARIES....................................60
17.16 CONSTRUCTION....................................................60
17.17 INCORPORATION OF EXHIBITS, ANNEXES AND DISCLOSURE SCHEDULE......61
17.18 SPECIFIC PERFORMANCE............................................61
17.19 REMEDIES CUMULATIVE.............................................61
EXHIBIT A - FORM OF ESCROW AGREEMENT
EXHIBIT B - FORM OF SELLER INTELLECTUAL PROPERTY ASSIGNMENT
EXHIBIT C - FORM OF CONSULTING AGREEMENT
EXHIBIT D - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT E - FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT F - FORM OF PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
EXHIBIT G - FORM OF EMPLOYEE INTELLECTUAL PROPERTY ASSIGNMENT
EXHIBIT H - FORM OF RELEASE
EXHIBIT I - FORM OF NON-COMPETITION AGREEMENT
SCHEDULE A - DEBTS AND LIABILITIES OF SELLER TO BE PAID AT CLOSING
SCHEDULE B - SHAREHOLDER LIST
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PLAN OF REORGANIZATION, MERGER AND ACQUISITION AGREEMENT
THIS PLAN OF MERGER AND ACQUISITION AGREEMENT (as it may be amended,
supplemented or modified, this "Agreement") is entered effective the 1st day of
November, 1999, by and among FIData, Inc., a Texas corporation ("Seller"),
FIDATA Equity Partners, L.P., a Texas limited partnership ("FEP Partnership"),
Southwest Business Corporation, a Texas corporation ("SBC"), Mel Ray and William
Hammock (collectively, the "Shareholders"), Billing Concepts Corp., a Delaware
corporation ("BCC"), and BCC Merger Corp., a Delaware corporation ("Purchaser,"
and, together with BCC, the "BCC Parties").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, BCC is in the business of developing billing systems and
providing software development services; and
WHEREAS, in connection with the transactions contemplated by this
Agreement, BCC previously caused Purchaser to be organized and to issue to BCC
all of the issued and outstanding shares of capital stock of Purchaser; and
WHEREAS, Seller is in the business of developing, maintaining, servicing
and marketing proprietary automated loan underwriting software products and
related services, and related legacy software products and related services,
that facilitate Internet-based automated approval of consumer loans and that are
designed to be sold and/or licensed to customers in the credit union, banking,
insurance, mortgage and retail markets (the "Business"); and
WHEREAS, the Shareholders own, or upon the exercise or termination of
certain options or warrants will own, free and clear of any liens or
encumbrances, all of the issued and outstanding shares of capital stock of
Seller; and
WHEREAS, the respective boards of directors of Purchaser and Seller have
voted to approve the merger of Seller with and into Purchaser (the "Merger")
pursuant to the terms and subject to the conditions of this Agreement; and
WHEREAS, this Agreement is intended to qualify under Section 368 of the
Code;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree that Seller shall be merged with and into
Purchaser and that the terms and conditions of the Merger, the method of
carrying the Merger into effect and certain other provisions relating thereto
shall be as hereinafter set forth:
1. GENERAL DEFINITIONS. For purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
1.1 "ACCOUNTS RECEIVABLE" shall have the meaning assigned to it in SECTION
4.17.
<PAGE>
1.2 "AFFILIATE" of any Person shall mean any Person Controlling,
Controlled by or under common Control with such Person.
1.3 "ARTICLE" shall mean an Article of this Agreement unless otherwise
stated.
1.4 "ASSETS" shall mean the assets, properties and rights of Seller of
every nature, kind and description, wherever located, tangible and intangible,
real, personal and mixed, whether or not reflected in the books and records of
Seller, necessary or desirable to permit the Business to be carried on in the
manner as is presently conducted.
1.5 "ASSOCIATE" shall have the meaning assigned to it in SECTION 4.5.
1.6 "AUTHORIZATION" shall mean any consent, approval or authorization of,
expiration or termination of any waiting period requirement (including pursuant
to the HSR Act by, or filing, registration, qualification, declaration or
designation with, any Governmental Authority.
1.7 "BALANCE SHEET DATE" shall have the meaning assigned to it in SECTION
4.3.
1.8 "BEST KNOWLEDGE" shall mean what a Person knew or knows. When used
with respect to a Person other than a natural person, the term "Best Knowledge"
shall include the directors, officers, general partners, trustees,
administrators, executors and managers of the Person.
1.9 "BCC STOCK" shall mean the common stock, $.01 par value, of BCC.
1.10 "BUSINESS" shall have the meaning assigned to it in the recitals of
this Agreement.
1.11 "BUSINESS COMBINATION" shall mean (i) any merger or consolidation of,
or share exchange involving, the Seller with or into any Person, (ii) any sale,
lease, exchange, transfer or other disposition (whether in one transaction or a
series of related transactions) of more than ten percent of the Seller's
consolidated assets, (iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Seller, (iv) any issuance, sale, purchase or
redemption of equity securities, or any security, instrument or obligation that
is or may become convertible into or exchangeable for or into equity securities
(whether or not immediately exercisable) , of the Seller, any reclassification
of equity securities or recapitalization of the Seller, and (v) any transaction
having an effect similar to those described above.
1.12 "BUSINESS DAY" shall mean any day other than Saturday, Sunday or
other day on which federally chartered commercial banks in San Antonio, Texas
are authorized or required by law to close.
1.13 "CERCLA" shall mean the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980, as amended.
1.14 "CERTIFICATE" shall mean each stock certificate representing shares
of Seller Stock.
1.15 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2
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1.16 "CONTRACTS" shall have the meaning assigned to it in SECTION 4.8.
1.17 "CONTROL" and all derivations thereof shall mean the ability to
either (a) vote (or direct the vote of) 50% or more of the voting interests in
any Person or (b) direct the affairs of another, whether through voting power,
contract or otherwise.
1.18 "DAMAGES" shall mean any and all actual liabilities, losses, damages,
demands, assessments, refund obligations (including, without limitation,
interest and penalties thereon), claims of any and every kind whatsoever, costs
and expenses (including interest, awards, judgments, penalties, settlements,
fines, costs of remediation, diminutions in value, costs and expenses incurred
in connection with investigating, prosecuting and defending any claims or causes
of action (including, without limitation, reasonable attorneys' fees and
reasonable expenses and all reasonable fees and reasonable expenses of
consultants and other professionals)), but shall not include consequential,
incidental, special, exemplary or punitive damages.
1.19 "DEPOSITS" shall have the meaning assigned to it in SECTION 4.19.
1.20 "DISCLOSURE SCHEDULE" shall have the meaning assigned to it in
ARTICLE 4.
1.21 "EFFECTIVE TIME" shall mean the time at which a properly executed
certificate of merger in substantially the form attached to this Agreement as
Part 1.21(a) of the Disclosure Schedule (together with other documents required
by law to effect the Merger) shall have been filed with the Secretary of State
of Delaware, properly executed articles of merger in substantially the form
attached to this Agreement as Part 1.21(b) of the Disclosure Schedule (together
with other documents required by law to effect the Merger) shall have been filed
with the Secretary of State of Texas and such other documents and instruments
shall have been filed in any other jurisdiction where such a certificate or
articles of merger is required.
1.22 "ENCUMBRANCE" shall mean any security interest, mortgage, pledge,
trust, claim, lien, charge, option, defect, restriction, encumbrance or other
right or interest of any third Person of any nature whatsoever.
1.23 "ENVIRONMENTAL LAWS" shall mean any and all applicable laws,
statutes, ordinances, rules, regulations, orders, or determinations of any
Governmental Authority pertaining to the environment heretofore or currently in
effect in any and all jurisdictions in which Seller is conducting or at any time
has conducted business, or where any of the Assets are located, or where any
hazardous substances generated by or disposed of by Seller are located.
"Environmental Laws" shall include, but not be limited to, the Clean Air Act, as
amended, CERCLA, the Federal Water Pollution Control Act, as amended, RCRA, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, and all other applicable laws, statutes, ordinances, rules,
regulations, orders and determinations of any Governmental Authority relating to
(a) the control of any potential pollutant or protection of the air, water or
land, (b) solid, gaseous or liquid waste generation, handling, treatment,
storage, disposal or transportation and (c) exposure to hazardous, toxic or
other substances alleged to be harmful. The terms "hazardous substance,"
"release" and "threatened release" shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA.
3
<PAGE>
1.24 "ENVIRONMENTAL LIABILITIES" shall mean any and all liabilities,
responsibilities, claims, suits, losses, costs (including remediation, removal,
response, abatement, clean-up, investigative or monitoring costs and any other
related costs and reasonable expenses), other causes of action recognized now or
at any later time, damages, settlements, reasonable expenses, charges,
assessments, liens, penalties, fines, pre-judgment and post-judgment interest,
reasonable attorneys' fees and other reasonable legal fees (a) pursuant to any
agreement, order, notice of responsibility or directive embodied in
Environmental Laws or relating to environmental matters, injunction, judgment or
similar documents (including settlements) relating to environmental matters or
(b) pursuant to any claim by a Governmental Authority or other person for
personal injury, property damage, damage to natural resources, remediation or
similar costs or expenses incurred by such Governmental Authority or person
pursuant to common law or statute.
1.25 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.26 "ESCROW AGREEMENT" shall have the meaning assigned to it in SECTION
8.9.
1.27 "ESCROW AGENT" shall have the meaning assigned to it in SECTION
2.8(C).
1.28 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
1.29 "FINANCIAL STATEMENTS" shall have the meaning assigned to it in
SECTION 4.3.
1.30 "FORMER SELLER SHAREHOLDER" shall mean each Person who was,
immediately before the Effective Time, a holder of issued and outstanding shares
of Seller Stock.
1.31 "GAAP" shall mean United States generally accepted accounting
principles consistently applied.
1.32 "GOVERNMENTAL AUTHORITY" shall mean any and all foreign, federal,
state or local governments, governmental institutions, public authorities and
governmental entities of any nature whatsoever, and any subdivisions or
instrumentalities thereof, including, but not limited to, departments, boards,
bureaus, commissions, agencies, courts, administrations and panels, and any
divisions or instrumentalities thereof, whether permanent or ad hoc and whether
now or hereafter constituted or existing.
1.33 "GOVERNMENTAL REQUIREMENT" shall mean any and all applicable laws
(including, but not limited to, applicable common law principles), statutes,
ordinances, codes, rules, regulations, interpretations, guidelines, directions,
orders, judgments, writs, injunctions, decrees, decisions or similar items or
pronouncements, promulgated, issued, passed or set forth by any Governmental
Authority in effect as of the Effective Time.
1.34 "HOLDBACK SHARES" shall have the meaning assigned to it in SECTION
2.6.
1.35 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
4
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1.36 "INDEMNITEE" shall mean the BCC Parties and the Surviving Corporation
and each of their respective Affiliates, officers, directors, employees, agents,
consultants, representatives, attorneys, shareholders and controlling Persons
and their respective successors and assigns, on the one hand, and the
Shareholders and their respective Affiliates, partners, officers, directors,
employees, agents, consultants, representatives, attorneys, shareholders,
controlling Persons, heirs, beneficiaries, successors and assigns, on the other
hand, whether indemnified, or entitled, or claiming to be entitled to be
indemnified or receive property, pursuant to the provisions of ARTICLE 11
hereof.
1.37 "INDEMNITOR" shall mean the Person or Persons having the obligation
to indemnify or make payment pursuant to the provisions of ARTICLE 11 hereof.
1.38 "INTELLECTUAL PROPERTY" shall mean:
(a) the Software and the Software Trade Secrets; and
(b) all of Seller's patents and applications therefor, further
including, but not limited to, all divisions, reissues, substitutions,
reexaminations, continuations, continuations-in-part and extensions thereof; and
(c) all of Seller's inventions, whether or not patentable, further
including, but not limited to, all new developments and inventions, as well as
all improvements on prior inventions regardless of prior inventorship; and
(d) all of Seller's know-how and work product, regardless of form
and whether tangible or intangible, further including, but not limited to,
invention and laboratory notebooks, source code and object code, system design,
system specifications, flow charts, test data, records and journals; blueprints,
drawings and photographs; research and engineering reports, including any models
or other hardware; licensing, marketing or development analysis; and customer or
prospective customer lists; and
(e) all of Seller's copyright interests regardless of actual or
potential registrability, and including moral rights, rights of publication and
rights of attribution and integrity; and
(f) all of Seller's trademark or service mark interests, together
with all of the goodwill of the business associated therewith and represented
thereby; and
(g) all of Seller's trade secrets; and
(h) all of Seller's other intellectual property and other
proprietary interests, whether or not identifiable as of the date of execution
hereof, relating to, or used in connection with, the Business or Assets now or
at any time in the future.
1.39 "IRS" shall mean the Internal Revenue Service. ---
1.40 "LOSSES" shall mean General Losses, Environmental Losses, Tax Losses
and Product Losses (each as defined in ARTICLE 11 hereof), as the case may be.
5
<PAGE>
1.41 "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
Business, Assets, properties, operations, condition (financial or otherwise) or
results of operations of Seller, or BCC and its Subsidiaries, taken as a whole,
as applicable. In determining whether any individual event would result in a
Material Adverse Effect, notwithstanding that such event does not of itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
1.42 "MERGER" shall have the meaning assigned to it in the recitals to
this Agreement.
1.43 "MERGER CONSIDERATION" shall have the meaning assigned to it in
SECTION 2.6.
1.44 "ORDINARY COURSE OF BUSINESS" (or "ordinary course of business") of a
Person shall mean an action taken by that Person only if (a) such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person; (b) such action is
not required to be authorized by the board of directors (or group exercising
similar authority) of such Person; and (c) such action is similar in nature and
magnitude to actions customarily taken, without board authorization, in the
ordinary course of the normal day-to-day operations of other Persons that are in
the same line of business as such Person.
1.45 "PARTIES " or "PARTIES" shall mean collectively the BCC Parties, the
Shareholders and Seller.
1.46 "PBGC" shall have the meaning assigned to it in SECTION 4.25.
1.47 "PERMITTED ENCUMBRANCES" shall mean (a) Encumbrances for current
taxes and assessments not yet past due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves are
reflected in the Financial Statements, (b) mechanics and materialmen
Encumbrances for construction in progress to the extent not perfected by filing,
recording, giving of notice or other appropriate action in the relevant
jurisdiction, (c) workmen, repairmen, warehousemen, carriers, lessors and
operators Encumbrances arising in the ordinary course of business to the extent
not perfected by filing, recording, giving of notice or other appropriate action
in the relevant jurisdiction and (d) easements, including agreements and deeds
of easement, and other minor imperfections of title which would not have a
Material Adverse Effect.
1.48 "PROPORTIONATE INTEREST" shall mean the percentage of the issued and
outstanding shares of Seller Stock owned by each Shareholder, as reflected in
SCHEDULE B.
1.49 "PERSON" shall mean any natural person, any Governmental Authority
and any entity, the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not limited
to, corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
1.50 "PURCHASER STOCK" shall mean the common stock, $.01 par value, of
Purchaser.
1.51 "RCRA" shall mean the Resource Conservation and Recovery Act of 1976,
as amended.
6
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1.52 "REFERENCE BALANCE SHEET" shall have the meaning assigned to it in
SECTION 4.3.
1.53 "REORGANIZATION" shall have the meaning assigned to it in ARTICLE 7.
1.54 "SEC" or "COMMISSION" shall mean the United States Securities and
Exchange Commission.
1.55 "SEC DOCUMENTS" shall have the meaning assigned to it in SECTION 5.6.
1.56 "SECTION" shall mean a Section of this Agreement unless otherwise
stated.
1.57 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
1.58 "SELLER STOCK" shall mean the common stock, par value $.001, of
Seller.
1.59 "SOFTWARE" shall mean all of Seller's computer programs owned by
Seller (other than mass market software) as of the date of Closing, including
(without limitation) those itemized on Part 1.59 of the Disclosure Schedule,
whether in source code or object code or other forms, and regardless of the
format or medium in which said code may be stored or embodied. Software further
includes (i) any and all improvements, corrections, modifications, updates,
enhancements or other changes made thereto as of the Closing Date and owned by
Seller, whether or not included in the most recent version thereof; (ii) any
separate media objects or files embedded therein; and (iii) all System
Documentation and User Documentation relating to the Software.
1.60 "SOFTWARE TRADE SECRET" shall mean any non-public information,
design, process, procedure, formula or improvement included in or related to the
Software that is valuable, not generally known in the industry, and gives the
owner of the Software a competitive advantage over those competitors who do not
know or use such information.
1.61 "SUBSIDIARY" shall mean, with respect to any Person (the "parent"),
(a) any corporation, association, joint venture, partnership or other business
entity of which securities or other ownership interests representing more than
50% of the ordinary voting power or beneficial interest are, at the time as of
which any determination is being made, owned or controlled by the parent or one
or more subsidiaries of the parent or by the parent and one or more subsidiaries
of the parent and (b) any joint venture or partnership of which the parent or
any Subsidiary of the parent is a general partner or has responsibility for its
management.
1.62 "SURVIVING CORPORATION" shall mean the corporation existing at and
after the Effective Time as a result of the Merger.
1.63 "SYSTEM DOCUMENTATION" shall mean all documentation, whether in
tangible or electronic format, used in the development and updating of the
Software at any time, including, but not limited to, design or development
specifications, error reports, and related correspondence and memoranda.
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1.64 "TAXES" shall mean any foreign, federal, state or local tax,
assessment, levy, impost, duty, withholding, estimated payment or other similar
governmental charge, together with any penalties, additions to tax, fines,
interest and similar charges thereon or related thereto.
1.65 "TAX RETURNS" shall mean all Tax returns and reports (including,
without limitation, income, franchise, sales and use, unemployment compensation,
excise, severance, property, gross receipts, profits, payroll and withholding
Tax returns and information returns).
1.66 "THIRD-PARTY CLAIMS" shall have the meaning such term is given in
SECTION 11.9(B) hereof.
1.67 "THIRD-PARTY SOFTWARE" shall mean computer software (other than mass
market software) not owned by Seller but in which Seller has rights and/or
obligations, all of which is reflected on Part 1.67 of the Disclosure Schedule.
1.68 "THIRD-PARTY SOFTWARE AGREEMENTS" shall mean the agreements itemized
on Part 1.68 of the Disclosure Schedule.
1.69 "USER DOCUMENTATION" shall mean all end-user instruction manuals,
whether in tangible or electronic format, that have accompanied the Software
instructing end users in the use thereof.
1.70 "WASTE MATERIALS" shall mean any toxic or hazardous materials or
substances, or solid wastes, including asbestos, buried contaminants, chemicals,
flammable or explosive materials, radioactive materials, petroleum and petroleum
products, and any other chemical, pollutant, contaminant, substance or waste
that is regulated by any Governmental Authority under any Environmental Law.
1.71 "WORKING CAPITAL" shall mean (a) the sum of cash, accounts receivable
net of reserves for bad debt and prepaid expenses less (b) accounts payable,
accrued liabilities and all other current liabilities, each prepared and/or
calculated on an accrual basis as GAAP financials in all material respects;
provided, however, the debts and liabilities listed on SCHEDULE A hereto shall
not be taken into account when calculating Working Capital.
2. MERGER.
2.1 THE MERGER. Subject to the terms and conditions of this Agreement,
Seller shall be merged with and into Purchaser in accordance with all applicable
laws, with Purchaser being the Surviving Corporation. Purchaser and Seller shall
cause a certificate of merger to be filed with the Secretary of State of
Delaware, articles of merger to be filed with the Secretary of State of Texas
and such other documents and instruments to be filed in any other jurisdiction
where such a certificate or articles of merger is required, within two business
days after the Closing Date (as hereinafter defined), unless legally prohibited
from doing so. The Merger shall be effective at the Effective Time.
8
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2.2 SURVIVING CORPORATION. From and after the Effective Time, the
Surviving Corporation shall have the name "FIData, Inc." and shall possess all
assets and property of every description, and every interest in the assets and
property, wherever located, and the rights, privileges, immunities, powers,
franchises and authority, of a public as well as of a private nature, of each of
Seller and Purchaser, and all debts and all other things in action or belonging
or due to each of Seller and Purchaser, all of which shall be vested in the
Surviving Corporation without further act or deed, and title to any real estate
or any interest in the real estate vested in either Seller or Purchaser shall
not revert or in any way be impaired.
2.3 LIABILITIES. The Surviving Corporation shall be liable for all the
debts, liabilities and duties of each of Seller and Purchaser; any action or
proceeding pending, by or against either Seller or Purchaser, may be prosecuted
to judgment, with right of appeal, as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place, and all the rights of
creditors of each of Seller and Purchaser shall be preserved unimpaired, and all
liens upon the property of each of Seller and Purchaser shall be preserved
unimpaired, on only the property affected by the liens immediately prior to the
Effective Time.
2.4 CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate of
incorporation and bylaws of Purchaser in effect immediately prior to the
Effective Time shall be the certificate of incorporation and bylaws of the
Surviving Corporation following the Merger until otherwise amended or repealed.
2.5 DIRECTORS AND OFFICERS. The directors and officers of Purchaser
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation until their successors are duly elected or appointed
and qualified in the manner provided in the bylaws of the Surviving Corporation,
or as otherwise provided by law.
2.6 CONVERSION OR CANCELLATION OF STOCK UPON MERGER In consideration for
the Merger, the non-competition agreements in ARTICLE 12 hereof and the
non-disclosure agreement in ARTICLE 13 hereof, as of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
shares of Seller Stock, or the holder of the shares of Purchaser Stock, (a)
Seller Stock outstanding immediately before the Effective Time shall be
converted into the right to receive an aggregate of (i) $2,929,192.03, as may be
adjusted pursuant to SECTION 2.9 hereof (the "Cash Consideration"), and (ii)
subject to the provisions of SECTION 2.7, 1,100,000 shares of BCC Stock (the
"Stock Consideration" and together with the Cash Consideration, the "Merger
Consideration"); provided, however, that 75,000 shares of the Stock
Consideration (the "Holdback Shares") shall be pledged by the Shareholders to
secure the indemnification obligations of the Shareholders pursuant to ARTICLE
11 hereof, and (b) each share of Purchaser Stock outstanding immediately before
the Effective Time shall be converted into one share of common stock of the
Surviving Corporation. The Shareholder list set forth on SCHEDULE B hereto
describes the amount of Merger Consideration that is to be paid and delivered to
each Shareholder at the Closing. At the Closing, BCC shall deliver to the
Shareholders the (i) Cash Consideration by wire transfer of immediately
available funds to accounts specified to BCC by the Shareholders in writing at
least five (5) days prior to the Closing Date and (ii) certificates representing
the Stock Consideration, less the Holdback Shares.
2.7 FRACTIONAL SHARES.Notwithstanding SECTION 2.6, no certificates or
scrip representing fractional shares of BCC Stock shall be issued upon the
surrender for exchange of
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certificates that prior to the Effective Time represented shares of Seller
Stock, no dividend or distribution of BCC shall relate to any fractional share
interest and no fractional share interest shall entitle the owner thereof to
vote or to exercise any rights of a stockholder of BCC. In the event that any
Former Seller Shareholder shall be entitled to any fractional share interest,
then any fractional amount shall be rounded down to the nearest whole share.
2.8 EXCHANGE PROCEDURES.
(a) After the Effective Time, each outstanding Certificate shall, until
duly surrendered to Purchaser as contemplated by this SECTION 2.8, be deemed to
represent only the right to receive the applicable pro rata portion of the
Merger Consideration.
(b) After the Effective Time, there shall be no further transfer on the
records of Seller of Certificates, and each share of Seller Stock presented or
surrendered to Purchaser shall be canceled in exchange for the applicable pro
rata portion of the Merger Consideration as contemplated by SECTION 2.6.
Purchaser shall not be obligated to deliver any part of the Merger Consideration
to any holder of a Certificate until such holder surrenders such Certificate as
provided herein.
(c) The stock certificates representing the Holdback Shares shall be held
in escrow by U.S. Trust Company of Texas, Inc., Dallas, Texas, or another escrow
agent selected by BCC (the "Escrow Agent," which term shall include any
successor escrow agent appointed pursuant to the provisions of SECTION 11.15),
in accordance with ARTICLE 11 of this Agreement.
2.9 ADJUSTMENT TO MERGER CONSIDERATION. At the Closing, Shareholder shall
deliver to the BCC Parties a consolidated balance sheet and copies of the
workpapers relating thereto of Seller as of October 31, 1999, prepared by
Seller's independent public accountant on an accrual basis as GAAP financials in
all material respects (the "Closing Balance Sheet"), reporting a Working Capital
deficit no greater than $35,000. In the event the Working Capital deficit of
Seller at such date is greater than $35,000, then the Cash Consideration shall
be reduced by an amount equal to the difference between $35,000 and the amount
of Working Capital deficit of Seller.
2.10 PAYMENT OF CERTAIN LIABILITIES. At the Closing, the BCC Parties shall
pay to the payees listed on SCHEDULE A hereto, by wire transfer of immediately
available funds, those liabilities of Seller set forth on SCHEDULE A. The amount
to be paid by the BCC Parties to each payee is set forth opposite such payee's
name.
2.11 INTERIM DIVIDENDS. No dividends or other distributions declared after
the Effective Time on BCC Stock issuable pursuant to the Merger and payable to
the Former Seller Shareholders after the Effective Time shall be paid to the
holder of any unsurrendered certificates formerly representing shares of Seller
Stock until the certificates shall be surrendered as provided herein, provided,
however, that (a) upon surrender there shall be paid to the shareholder in whose
name the certificates representing the shares of BCC Stock shall be issued the
amount of unpaid dividends with respect to the holder's shares of BCC Stock and
(b) at the appropriate payment date, or as soon as practicable thereafter, there
shall be paid to the shareholder the amount of dividends declared with respect
to whole shares of BCC Stock with a record date on or after the Effective Time
but before surrender and a payment date subsequent to surrender, subject in any
case to any applicable escheat
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laws. No interest shall be payable with respect to the payment of dividends or
other distributions on surrender of outstanding certificates.
2.12 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or otherwise are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, all rights, title
and interests in all the Assets and all privileges, powers and franchises of
Seller and Purchaser, the Surviving Corporation and its proper officers and
directors, in the name and on behalf of Seller and Purchaser, shall execute and
deliver all such proper deeds, assignments and assurances in law and do all
things necessary and proper to vest, perfect or confirm title to such property
or rights in the Surviving Corporation and otherwise to carry out the purpose of
this Agreement, and the proper officers and directors of the Surviving
Corporation are fully authorized in the name of Seller or otherwise to take any
and all such action.
2.13 PAYMENTS INTO ESCROW. When making the issuances required by SECTION
2.8 above, and pursuant to the certificate of merger and notwithstanding any
provision therein to the contrary, the BCC Parties shall withhold from each
Shareholder and deliver to the Escrow Agent (as defined in the Escrow Agreement)
6.9% (an aggregate of 75,000 shares) of the BCC Stock issuable in respect of
each Shareholder's shares of Seller Stock, to be held and distributed by the
Escrow Agent pursuant to the terms of this Agreement and the Escrow Agreement.
SCHEDULE B sets forth the number of shares of BCC Stock of each Shareholder that
will be held in escrow by the Escrow Agent.
3. CLOSING; CLOSING DATE.
As soon as practicable after satisfaction or waiver of all conditions to
the Merger, including the expiration of any waiting period or extension thereof
applicable to the Merger under the HSR Act, but in any event no later than
November 8, 1999, unless otherwise agreed to by the parties, the consummation of
the transactions referenced above shall take place (the "Closing") at 10:00
a.m., San Antonio time, at the offices of BCC, 7411 John Smith Drive, Suite 200,
San Antonio, Texas , or at such other time, date and place as BCC and Seller
shall in writing designate. The date of the Closing is referred to herein as the
"Closing Date."
4. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.
Seller and each Shareholder hereby, jointly and severally (except as
expressly stated otherwise in certain sections of this ARTICLE 4), represent and
warrant to the BCC Parties that the statements contained in this Agreement are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Agreement),
except as set forth in the disclosure schedule delivered by Seller and each
Shareholder to the BCC Parties on the date hereof and initialed by the Parties,
as the same may be amended or supplemented from time to time as set forth in
SECTION 8.7 hereof (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and numbered paragraphs
contained in this
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Agreement. Seller and each Shareholder hereby, jointly and severally, represent
and warrant to the BCC Parties as follows:
4.1 INCORPORATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, and is duly
authorized, qualified and licensed under all applicable Governmental
Requirements to carry on its business in the places and in the manner as now
conducted and to own, operate and lease the Assets it now owns, operates or
holds under lease. There has not been any claim by any other jurisdiction to the
effect that Seller is required to qualify or otherwise be authorized to do
business as a foreign corporation therein in order to carry on any of its
businesses as now conducted or to own, lease or operate the Assets. Part 4.1 of
the Disclosure Schedule sets forth a complete list of all jurisdictions in which
Seller is qualified as a foreign corporation, and, except as set forth on Part
4.1 of the Disclosure Schedule, Seller is in good standing in each of such
jurisdictions. Complete and correct copies of the Articles of Incorporation of
Seller and all amendments thereto, certified in each case by the Secretary of
State of the State of Texas, and of the Bylaws of Seller and all amendments
thereto, certified by the Secretary of Seller, heretofore have been delivered to
the BCC Parties. The minute books of Seller previously made available to the BCC
Parties are complete and accurately reflect all action taken prior to the date
of this Agreement by its board of directors and shareholders, in their
capacities as such. Neither Seller nor any Shareholder has taken any action, or
failed to take any action which action or failure will preclude or prevent
Seller's business from being conducted in substantially the same manner in which
Seller has heretofore conducted the same. Seller has no Subsidiaries. Seller is
not engaged in any business or operations other than the Business. Except as
completely and accurately set forth on Part 4.1 of the Disclosure Schedule,
Seller is not a party to any partnership or joint venture agreement or any
agreement of any nature to acquire, directly or indirectly, any shares in the
capital of, or other equity or proprietary interest in, any person, firm or
corporation, and Seller is not a party to any agreement to acquire or lease any
other business operations.
4.2 SHARE CAPITAL.
(a) The authorized capital stock of Seller consists of 100,000,000
shares of Seller Stock and 50,000,000 shares of preferred stock, $.001 par value
("Preferred Stock"). The number of shares of Seller Stock and Preferred Stock
outstanding on the date hereof are set forth on Part 4.2(a) of the Disclosure
Schedule. All outstanding shares of Preferred Stock and accrued dividends
thereon will be converted into shares of Seller Stock prior to the Closing. All
of the outstanding Seller Stock and Preferred Stock is held of record and
beneficially by the Shareholders, in the respective amounts set forth in Part
4.2(a) of the Disclosure Schedule, free and clear of all Encumbrances and
restrictive agreements. All outstanding Seller Stock and Preferred Stock have
been duly authorized and issued in compliance with all federal, state and
foreign securities laws. True and correct copies of the stock records of Seller,
showing all issuances and transfers of shares of capital stock of Seller since
inception, have been provided to BCC.
(b) Except as set forth in Part 4.2(b) of the Disclosure Schedule,
there are outstanding on the date hereof no rights of first refusal, preemptive
rights, conversion rights, options, warrants, convertible securities or other
rights to acquire, directly or indirectly, capital stock from Seller or from any
Shareholder (collectively, the "Rights Against the Seller Stock"). All Rights
Against the Seller Stock will be either extinguished or converted into Seller
Stock at or prior to the
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Closing. All outstanding shares of capital stock of Seller are duly authorized,
validly issued, fully paid, and nonassessable. Except as completely and
accurately set forth in Part 4.2(b) of the Disclosure Schedule, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of Seller having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which Shareholders of
Seller may vote.
(c) Neither Seller nor any Shareholder is a party or subject to any
agreement or understanding, and there is no agreement or understanding between
any Persons, that affects or relates to the voting or giving of written consents
with respect to any securities of Seller or the voting by any director of
Seller. Except as reflected on the Referenced Balance Sheet, neither any
Shareholder nor any Affiliate thereof is indebted to Seller. Except as set forth
in Part 4.2(c) of the Disclosure Schedule, Seller is not indebted to any
Shareholder or any Affiliate thereof and Seller is not under any contractual or
other obligation to register any of its presently outstanding securities or any
of its securities which may hereafter be issued. Except as completely and
accurately set forth in Part 4.2(c) of the Disclosure Schedule, there are no
outstanding contractual obligations, commitments, understandings or arrangements
of Seller to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of Seller and no payments, dividends or
redemption rights in respect of any shares of capital stock of Seller are
accrued, due or payable. Except as completely and accurately set forth in Part
4.2(c) of the Disclosure Schedule, there are no agreements or arrangements
pursuant to which Seller is or could be required to register shares of capital
stock or options under the Securities Act, or other agreements or arrangements
with or among any security holders of Seller with respect to securities of
Seller.
4.3 FINANCIAL STATEMENTS. Seller has delivered to the BCC Parties copies
of the following financial statements for Seller, all of which financial
statements are included in Part 4.3(a) of the Disclosure Schedule (collectively,
the "Financial Statements"):
(a) Unaudited Balance Sheet of Seller (the "Reference Balance Sheet")
as of September 30, 1999 (the "Balance Sheet Date") and Unaudited Income
Statement of Seller for the nine-month period ended on the Balance Sheet Date;
and
(b) An unaudited Balance Sheet, Income Statement and Statement of Cash
Flows for Seller's year ended December 31, 1998.
All financial statements supplied to the BCC Parties by Seller, whether or not
included in Part 4.3(a) of the Disclosure Schedule, are true and accurate in all
material respects, have been prepared on an accrual basis as GAAP financials in
all material respects, and present fairly, in all material respects, the
financial condition of Seller as of the dates and for the periods indicated
thereon. The Reference Balance Sheet reflects, as of the Balance Sheet Date, all
liabilities, debts and obligations of any nature, kind or manner of Seller,
whether direct, accrued, absolute, contingent or otherwise, and whether due, or
to become due, whether or not such items are required to be reflected on such
balance sheet under GAAP. The Reference Balance Sheet reflects a Working Capital
deficit no greater than $35,000. Except as set forth in Part 4.3(b) of the
Disclosure Schedule attached hereto and made a part hereof or on the Reference
Balance Sheet, Seller does not have, and none of the Assets, properties or
Business of Seller is subject to, any liabilities or obligations (accrued,
absolute, contingent or otherwise), whether or not such liabilities are normally
shown or reflected on a balance
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sheet prepared in a manner consistent with tax-basis or GAAP, except for
liabilities (i) incurred in the ordinary course of Seller's business, or (ii)
fully covered by Seller's insurance policies, none of which have had a Material
Adverse Effect.
4.4 EVENTS SINCE THE BALANCE SHEET DATE. Since the Balance Sheet Date,
there has not been:
(a) any change in the condition (financial or otherwise) or in the
properties, assets, liabilities, business or prospects of the Business, except
normal and usual changes in the ordinary course of business, none of which has
been adverse and all of which in the aggregate have not been materially adverse;
(b) any labor trouble, strike or any other occurrence, event or condition
affecting the employees of Seller that adversely affects the condition
(financial or otherwise) of the Assets or the Business; (c) any breach or
default by Seller or, to the Best Knowledge of Seller and each Shareholder, by
any other party, under any agreement or obligation included in the Assets or by
which any of the Assets are bound; (d) any damage, destruction or loss (whether
or not covered by insurance) materially adversely affecting the Assets or the
Business; (e) any material change in the types, nature, composition or quality
of the services of the Business, any adverse change in the contributions of any
of the service lines of the Business to the revenues or net income of such
Business, or any adverse change in the sales, revenue or net income of the
Business; (f) any transaction related to or affecting the Assets or the Business
other than transactions in the ordinary course of business of Seller; (g) any
other occurrence, event or condition that has materially adversely affected (or,
to the Best Knowledge of the Seller and each Shareholder, can reasonably be
expected to materially adversely affect) the Assets or the Business; (h) any
declaration, setting aside or payment of any dividend (whether in cash, stock or
property) with respect to any of Seller's capital stock; (i) (x) any granting by
Seller to any executive officer of Seller of any increase in compensation, (y)
any granting by Seller to any executive officer of any increase in severance or
termination pay, or (z) any entry by Seller into any employment, severance or
termination agreement with any executive officer; (j) any change in accounting
methods, principles or practices by Seller materially affecting its Assets,
liabilities or Business, except insofar as may have been required by a change in
tax-basis or GAAP, and except as required by the BCC Parties; (k) to the Best
Knowledge of the Seller and each Shareholder, any condition, event or occurrence
through the date hereof which, individually or in the aggregate, could
reasonably be expected to prevent, hinder or delay in any material respect the
ability of Seller to consummate the transactions contemplated by this Agreement;
(l) except for contracts entered into in the ordinary course of business, any
leases, contracts, joint ventures, strategic relationships or alliances entered
into by Seller, whether written or oral; or (m) any agreement, in writing or
otherwise, by Seller or any corporate action by Seller with respect to the
foregoing.
4.5 COMPETING INTERESTS. Except as set forth on Part 4.5 of the Disclosure
Schedule, neither Seller nor any Shareholder, nor, to the Best Knowledge of such
parties, any director or officer of, or consultant to, Seller or any
Shareholder, and no Associate (as hereinafter defined) of Seller or any
Shareholder:
(a) owns, directly or indirectly, any equity interests in, or is a
director, officer or employee of, or consultant to, any entity which is a
competitor, supplier or customer of the Business, or, to the Best Knowledge of
Seller and each Shareholder, a competitor, supplier or customer of
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Seller or an Associate of Seller (except for ownership, if any, of less than
three percent of the outstanding capital stock of any corporation the capital
stock of which is traded on a nationally recognized securities exchange or which
has a class of securities registered pursuant to the Exchange Act), or
(b) owns, directly or indirectly, in whole or in part, any property,
asset or right which is associated with the Assets or the Business or which
Seller is presently operating or using in connection with or the use of which is
necessary for or material to the operation of the Business.
For purposes of this Agreement, the term "Associate" shall mean:
(y) with respect to an individual:
(i) the spouse of the individual, and
(ii) any trust or business entity which is directly or indirectly
Controlled by any of the foregoing; and
(z) with respect to a Person other than a natural person, any Person
Controlling, Controlled by or under common Control with such Person, and any
director, officer, general partner, trustee, administrator, executor, manager,
employee, consultant or agent of such Person and any Associate of any Person
described in this clause (z).
4.6 TAXES. Except as set forth in Part 4.6 of the Disclosure Schedule:
(a) all Tax Returns required to be filed on or before the Effective
Time, subject to any allowable extension periods, for, by or on behalf of or
with respect to Seller, including, but not limited to, those relating to the
income, business, operations or property of Seller (whether on a separate,
consolidated, affiliated, combined, unitary or any other basis), have been
timely filed with the appropriate foreign, federal, state and local authorities,
all such Tax Returns are true, correct and complete and all Taxes shown to be
due and payable on such Tax Returns or related to such Tax Returns have been
paid in full or adequately reserved for, all of which are reflected on the
Reference Balance Sheet;
(b) all such Tax Returns and the information and data contained
therein have been properly and accurately compiled and completed in all material
respects, fairly present the information purported to be shown therein, and
reflect all liabilities for Taxes for the periods covered by such Tax Returns,
net of any applicable reserves;
(c) none of such Tax Returns are under audit or examination by any
foreign, federal, state or local authority and there are no agreements, waivers
or other arrangements providing for an extension of time with respect to the
assessment or collection of any Tax or deficiency of any nature against Seller
or with respect to any such Tax Return, or any suits or other actions,
proceedings, investigations or claims now pending or, to the Best Knowledge of
Seller and each Shareholder, threatened against Seller with respect to any Tax,
or any matters under discussion with
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any foreign, federal, state or local authority relating to any Tax, or any
claims for any additional Tax asserted by any such authority;
(d) all Taxes assessed and due and owing from or against Seller on or
before the Effective Time (including, but not limited to, ad valorem taxes
relating to any property of Seller) have been timely paid in full on or before
the Effective Time;
(e) all withholding Tax, Tax deposit and estimated Tax payment
requirements imposed on Seller for any and all periods ending on or before the
Effective Time, or through and including the Effective Time for periods that
have not ended on or before the Effective Time, have been satisfied in full on
or before the Effective Time or reserves adequate for the payment of such
withholding, deposit and estimated Taxes have been or will be established in the
financial statements of Seller on or before the Effective Time, a copy of which
will be provided to BCC; and
(f) the Financial Statements reflect and include adequate charges,
accruals, reserves and provisions for the payment in full of any and all Taxes
payable with respect to any and all periods ending on or before the respective
dates thereof.
4.7 EMPLOYEE MATTERS. Part 4.7 of the Disclosure Schedule sets forth a
true and complete list of the names of, and current annual compensation paid by
Seller to, each employee of Seller utilized in connection with the operation of
the Business. Seller is not a party to or bound by any collective bargaining or
other union agreements. Seller has not, within the last five years, had or been
threatened with any union activities, work stoppages or other labor trouble with
respect to its employees, temporary employees or consultants. As of the date
hereof, there are no disputes with employees in general to which Seller is a
party. As of the date hereof, there are no strikes, slowdowns or picketing
against Seller (or, to the Best Knowledge of Seller and each Shareholder,
against any material supplier of goods or services to Seller) pending or, to the
Best Knowledge of Seller and each Shareholder, threatened. As of the date
hereof, Seller has not received notice from any union, employees, temporary
employees or consultants setting forth demands for representation, elections or
for present or future changes in wages, terms of employment or working
conditions. Other than wage increases in the ordinary course of business, since
the Balance Sheet Date, Seller has not made any commitment or agreement to
increase the wages or modify the conditions or terms of employment of any of the
employees of Seller used in connection with the Business.
4.8 CONTRACTS AND AGREEMENTS. (a) Except as set forth in Part 4.8(a) of
the Disclosure Schedule, Seller is not a party to or bound by:
(i) any contract, agreement or commitment in respect of the sale of
products or services or the purchase of raw materials, supplies or other
products or utilities;
(ii) any offer, tender or the like outstanding and capable of being
converted into an obligation of Seller by the passage of time or by an
acceptance or other act of some other Person, except for those incurred in the
ordinary course of Seller's business, none of which have had a Material Adverse
Effect;
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(iii) any sale, agency, distributorship agreement, franchise agreement
or legally enforceable commitment or obligation with respect thereto, including
but not limited to, any contract or agreement that would require Seller to pay
commissions or share profits or sales proceeds with any third party;
(iv) any collective bargaining agreement, union agreement, employment
agreement, consulting agreement, management service agreement, agreement
providing for the services of an independent contractor or any other similar
type of contract or agreement;
(v) any profit-sharing, pension, stock option, severance pay,
retirement, bonus, deferred compensation, group life and health insurance or
other employee benefit plan, agreement, arrangement or commitment of a similar
nature or any agreement with any present or former officer, director or
shareholder of Seller, except as indicated in Part 4.25(a) of the Disclosure
Schedule;
(vi) any loan or credit agreement, indenture, guarantee (other than
endorsements made for collection), mortgage, pledge, conditional sale or other
title retention agreement, any equipment financing obligation, lease and
lease-purchase agreement, except as indicated in Part 4.8(b) of the Disclosure
Schedule;
(vii) any lease related to the Assets or the Business, and any other
contract, agreement or legally enforceable commitment relating to or affecting
the Assets or the Business;
(viii)any performance bond, bid bond, surety bond and the like, any
contract and bid covered by such bond, and any letter of credit and guaranty;
(ix) any consent decree and other judgment, decree or order,
settlement agreement and agreement relating to competitive activities, requiring
or prohibiting any future action;
(x) any contract, commitment or agreement of any nature with any
Shareholder, or any Associate (as defined in SECTION 4.5) of a Shareholder or
Affiliate of any Shareholder, except as indicated in Part 4.2(b) of the
Disclosure Schedule;
(xi) any contracts, commitments and agreements entered into outside
the ordinary course of business of Seller;
(xii) any agreement, indenture or other instrument which contains
restrictions with respect to the payment of dividends or any other distribution
in respect of its capital stock or the purchase, redemption or other acquisition
of capital stock;
(xiii)other than expenditures regularly made in the ordinary course of
business of Seller for items that are not property, plant or equipment, any
agreement, contract or commitment relating to any expenditure or a series of
related expenditures in excess of $10,000;
(xiv) any outstanding loan or advance by Seller to, or investment by
Seller in, any Person, or any agreement, contract, commitment or understanding
relating to the making of any such loan, advance or investment (excluding trade
receivables);
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(xv) any contract, agreement, indenture, note or other instrument
relating to (A) the borrowing of money by Seller or the granting of any
Encumbrance or (B) any guarantee or other contingent liability (identifying the
primary contract or agreement to which such guarantee or contingent liability
relates or the agreement pursuant to which such guarantee was delivered) in
respect of any indebtedness, commitment, liability or obligation of any Person
(other than the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business);
(xvi) any agreement, contract or commitment limiting the freedom of
Seller or any Affiliate of Seller to engage in any line of business, to own,
operate, sell, transfer, pledge or otherwise dispose of or encumber any Asset or
to compete with any Person or to engage in any business or activity in any
geographic area;
(xvii)any agreement, lease, contract or commitment or series of
related agreements, leases, contracts or commitments not entered into in the
ordinary course of business that is not cancelable under the terms of such
agreement, lease, contract or commitment without penalty to Seller within 30
days;
(xviiiany agreement, contract or commitment requiring (A) the payment
for goods or services whether or not such goods or services are actually
provided or (B) the furnishing of goods or services at a price less than
Seller's cost of producing such goods or providing such services;
(xix) any agreement or contract obligating Seller or that would
obligate or require any subsequent owner of the business currently conducted by
Seller or any of the Assets to provide for indemnification or contribution with
respect to any matter (other than customary indemnification provisions in leases
of property leased by Seller);
(xx) any license, royalty or similar agreement; or
(xxi) any agreement, contract or commitment that Seller expects to
have a Material Adverse Effect on Seller and/or Purchaser subsequent to Closing.
Part 4.8(a) of the Disclosure Schedule sets forth with respect to each mortgage,
security agreement, letter of credit or guaranty, a cross-reference to the
principal agreement, instrument or document referred to in Part 4.8(a) of the
Disclosure Schedule pursuant to which such mortgage, security agreement, letter
of credit or guaranty was executed or to which such mortgage, security
agreement, letter of credit or guaranty relates.
(b) Part 4.8(b) of the Disclosure Schedule sets forth (i) the
aggregate outstanding principal amount as of September 30, 1999, with respect to
each loan, credit or other agreement, instrument or document listed in Part
4.8(b) of the Disclosure Schedule hereto relating to the borrowing of money by
Seller and (ii) the amount of available borrowings as of September 30, 1999,
with respect to each such loan, credit or other agreement, instrument or
document.
(c) All of such contracts, agreements, leases, licenses, plans,
arrangements, commitments and documents listed in Part 4.8(a) of the Disclosure
Schedule (collectively, the "Contracts") are valid, binding and in full force
and effect in accordance with their terms and
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conditions, other than as set forth in Part 4.8(a) of the Disclosure Schedule,
and, other than as set forth in Part 4.8(a) of the Disclosure Schedule, there is
no existing default thereunder or breach thereof by Seller, or, to the Best
Knowledge of Seller and each Shareholder, by any other party to a Contract, or
any conditions which, with the passage of time or the giving of notice or both,
might reasonably constitute such a default by Seller, or, to the Best Knowledge
of Seller and each Shareholder, by any other party to a Contract, and none of
the Contracts will be breached by or give any other party a right of termination
as a result of the transactions contemplated by this Agreement. There are no
pending or, to the Best Knowledge of Seller and each Shareholder, threatened
disputes with respect to the Contracts. Seller is not obligated to pay any
liquidated damages under any of the Contracts and to the Best Knowledge of
Seller and each Shareholder, there are no facts or circumstances that could
reasonably be expected to result in an obligation of Seller to pay any such
liquidated damages. To the Best Knowledge of Seller and Shareholder, other than
as set forth in Part 4.8(c) of the Disclosure Schedule, there is no reason why
any of the Contracts (i) will result in a loss to the Surviving Corporation on
completion by performance or (ii) cannot readily be fulfilled or performed by
the Surviving Corporation on time without undue or unusual expenditure of money
or effort. Copies of all of the documents (or in the case of oral commitments,
descriptions of the material terms thereof) relevant to the Contracts have been
delivered by Seller to the BCC Parties, and such copies and/or descriptions are
true, complete and accurate and include all amendments, supplements or
modifications thereto. All of the Contracts will be fully vested in Purchaser as
of the Effective Time of the Merger, without the approval or consent of any
Person, or, if such approval or consent is required, it will be obtained by
Seller and delivered to the BCC Parties at or prior to the Closing.
4.9 EFFECT OF AGREEMENT. The execution and delivery of this Agreement by
each of Seller and each Shareholder and the consummation of the transactions
contemplated hereby will not (a) violate any provision of the Articles of
Incorporation or other charter documents or bylaws of Seller or any Shareholder,
as the case may be; (b) result in any violation of any Governmental Requirement
applicable to any Shareholder, Seller, the Assets or the Business; (c) conflict
with, or result in any breach of, or default or loss of any right under (or an
event or circumstance that, with notice or the lapse of time, or both, would
result in a default), or the creation of an Encumbrance pursuant to, or cause or
permit the acceleration prior to maturity or "put" right with respect to, any
obligation under, any contract, indenture, mortgage, deed of trust, lease, loan
agreement or other agreement or instrument to which Seller or any Shareholder is
a party or to which any of the Assets or Business are subject; (d) relieve any
Person of any obligation (whether contractual or otherwise) or enable any Person
to accelerate or terminate any such obligation or any right or benefit enjoyed
by Seller or to exercise any right under any agreement in respect of the Assets
or the Business; and (e) require notice to or the consent, authorization,
approval, clearance, waiver or order of any Person (except as may be
contemplated by the last sentence of SECTION 4.8). Other than as set forth in
Part 4.9 of the Disclosure Schedule, to the Best Knowledge of Seller and each
Shareholder, the business relationships of clients, customers and suppliers of
the Business will not be adversely affected by the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby.
Except as set forth on Part 4.9 of the Disclosure Schedule hereto, the
execution, delivery and performance of this Agreement by Seller and each
Shareholder will not result in the loss of any governmental license, franchise
or permit possessed by Seller. Notwithstanding the joint and several nature of
the representations made by the Shareholders in other provisions of this ARTICLE
4, the representations contained in this SECTION 4.9 shall for all purposes be
deemed to be several, and not
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joint and several, representations of the Shareholders, and no representation in
this SECTION 4.9 as to any matter pertains to any other Shareholder.
4.10 PROPERTIES, ASSETS AND LEASEHOLD ESTATES.
(a) Set forth on Part 4.10(a) of the Disclosure Schedule is a
description of each item of personal property, excluding inventory, owned by
Seller that had a book value as of the Balance Sheet Date greater than $10,000.
For purposes of this SECTION 4.10, "personal property" excludes Intellectual
Property. Seller has good title to all of its personal property and intellectual
property that is material to Seller's business, results of operations, financial
condition or Assets (including, without limitation, those items of personal
property set forth on Part 4.10(a) of the Disclosure Schedule), free and clear
of all Encumbrances, except for Permitted Encumbrances and those Encumbrances
set forth on Part 4.10(a) of the Disclosure Schedule.
(b) Set forth on Part 4.10(b) of the Disclosure Schedule is a
description of each item of personal property leased by Seller for which the
annual rent payable under the applicable lease or contract exceeds $10,000.
Seller has good title to all the leasehold estates pursuant to which the
personal property set forth on Part 4.10(b) of the Disclosure Schedule is
leased, free and clear of all Encumbrances, except for Permitted Encumbrances
and those Encumbrances set forth on Part 4.10(b) of the Disclosure Schedule.
Seller is not in breach of any provision of and is not in default (and no event
or circumstance exists that with notice, or the lapse of time or both, would
constitute a default by Seller) under the terms of any lease or other agreement
pursuant to which the personal property set forth on Part 4.10(b) of the
Disclosure Schedule is leased. To the Best Knowledge of Seller and each
Shareholder, all of such leases or other agreements are in full force and
effect. There are no pending or, to the Best Knowledge of Seller and each
Shareholder, threatened disputes with respect to any lease or other agreement
pursuant to which the personal property set forth on Part 4.10(b) of the
Disclosure Schedule is leased and, to the Best Knowledge of Seller and each
Shareholder, the lessor thereunder has not breached any provision of and is not
in default (and no event or circumstance exists that with notice, or the lapse
or time or both, would constitute a default by the lessor) under the terms of
any such lease or other agreement.
(c) Seller owns no real property.
(d) Set forth on Part 4.10(d) of the Disclosure Schedule is a list of
all leases of Seller with respect to real property leased by Seller for which
the annual rent payable under the applicable lease or contract exceeds $10,000.
Seller has good and marketable title to all the leasehold estates pursuant to
which the real property set forth on Part 4.10(d) of the Disclosure Schedule is
leased, free and clear of all Encumbrances, except for Permitted Encumbrances.
Seller is not in breach of any provision of and is not in default (and no event
or circumstance exists that with notice, or the lapse of time or both, would
constitute a default by Seller) under the terms of any lease or other agreement
pursuant to which the real property set forth on Part 4.10(d) of the Disclosure
Schedule is leased. To the Best Knowledge of Seller and each Shareholder, all of
such leases or other agreements are in full force and effect. There are no
pending or, to the Best Knowledge of Seller and each Shareholder, threatened
disputes with respect to any lease or other agreement pursuant to which the real
property set forth on Part 4.10(d) of the Disclosure Schedule is leased and, to
the Best Knowledge of Seller and each Shareholder, the lessor thereunder has not
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breached any provision of and is not in default (and no event or circumstance
exists that with notice, or the lapse of time or both, would constitute a
default by the lessor) under the terms of any such lease or other agreement.
(e) To the Best Knowledge of Seller and each Shareholder, there is no
(i) change contemplated in any applicable law, statute, ordinance, rule,
regulation, order or determination of any Governmental Authority, (ii)
applicable law, statute, ordinance, rule, regulation, order or determination of
any Governmental Authority or any restrictive covenant or deed restriction
affecting the real property described in SECTION 4.10(C) and (D) hereof,
including without limitation any zoning ordinances, building codes, flood
disaster laws, wetlands regulations, health laws or environmental laws, (iii)
judicial or administrative action, (iv) action by adjacent landowners, (v)
administrative action, (vi) natural or artificial conditions on or about the
real property identified in SECTION 4.10(C) and (D) or (vii) significant adverse
fact or condition relating to such real property or its use that would, in each
case, prevent, limit, impede or render more costly the ownership, operation or
maintenance of such real property compared to the cost as of the date hereof.
(f) Seller has good title to all personal and intellectual property,
including equipment and other infrastructure, that will be required to execute
and implement Seller's business plan presented to the BCC Parties, except for
the items described in Part 4.10(f) of the Disclosure Schedule.
4.11 INTELLECTUAL PROPERTY.
(a) Parts 1.59 and 1.67 of the Disclosure Schedule are a complete list
of Software in which Seller either has an ownership interest or
rights/obligations pursuant to an agreement with a third party. Part 1.68 of the
Disclosure Schedule is a complete list of agreements under which Seller has
rights/obligations in respect of Third-Party Software. Part 4.11(a) of the
Disclosure Schedule is a complete list of all Intellectual Property, except as
set forth on Parts 1.59 and 1.67 of the Disclosure Schedule, including but not
limited to (i) all trademarks, service marks and trade names owned or claimed by
Seller, together with all U.S., state and foreign registrations thereof and/or
applications therefor, (ii) all U.S. and foreign copyright registrations owned
or claimed by Seller and/or applications therefor, and (iii) all U.S. and
foreign patents and applications therefor on inventions, discoveries,
improvements, ideas or know-how owned or claimed by Seller.
(b) All Software performs as intended in System Documentation and User
Documentation (subject to minor imperfections in the Software that are standard
in the software industry) and is free from defects, viruses or any other
impediment to Purchaser's quiet enjoyment in the operation thereof (subject to
minor imperfections in the Software that are standard in the software industry).
(c) Seller has developed all Intellectual Property through its own
efforts for its own account and has good and clear title thereto, and, except as
set forth in agreements itemized on Part 4.11(c) of the Disclosure Schedule, to
the Best Knowledge of Seller or any Shareholder, there is no contract
obligation, license, lien, encumbrance, alleged infringement, dispute, potential
dispute, claim or other cloud of title concerning such Intellectual Property
whatsoever. To the Best Knowledge of Seller or any Shareholder, the Intellectual
Property neither infringes nor is being
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infringed by any third party proprietary interest, including (without
limitation) any third party patent, copyright, trademark, or trade secret
interest (and neither Seller nor any Shareholder has undertaken a search of any
of the foregoing matters). The Intellectual Property is fully eligible for
protection under applicable law and has not been forfeited, abandoned, lapsed or
donated in any way into the public domain. All of Seller's trade secrets,
including source code, system specifications and other Software Trade Secrets
embodied in the Intellectual Property have been maintained in confidence and,
except as set forth in agreements itemized on Part 4.11(c) of the Disclosure
Schedule, are not known to any third party. All personnel, including employees,
agents, consultants and contractors, who have contributed to or participated in
the conception and development of the Intellectual Property (i) have been a
party to a work-for-hire relationship with Seller that has accorded Seller full,
effective and exclusive original ownership of all tangible and intangible
property arising with respect to the Intellectual Property and (ii) other than
David Biddix, have executed appropriate instruments of assignment in favor of
Seller as assignee that have conveyed to Seller full, effective and exclusive
ownership of all tangible and intangible property thereby arising with respect
to the Intellectual Property. Except for agreements itemized on Part 4.11(c) of
the Disclosure Schedule, no agreements or arrangements are in effect with
respect to the development, non-disclosure, marketing, distribution, licensing
or promotion of the Intellectual Property by any independent contractor,
salesperson, distributor, sublicensor or other remarketer or sales organization.
(d) All Third-Party Software Agreements are freely assignable to and
assumable by Purchaser as set forth herein so as to give Purchaser exactly the
same rights and/or obligations thereunder enjoyed by Seller, without the
requirement of obtaining any consent or approval, giving any prior or subsequent
notice, paying any further royalty or fee to any party thereto or to any other
third party, or performing any duty that has not already been fully performed by
Seller. Each Third- Party Software Agreement is in full force and effect in
accordance with its terms without modification or amendment and without default
by either party thereto, and without dispute by any party as to any term or
condition thereof. To the Best Knowledge of the Seller and each Shareholder,
there are no facts or documents rendering any Third-Party Software Agreement
unenforceable by Seller or otherwise invalid. To the Best Knowledge of the
Seller and each Shareholder, there are no obligations, including payment of
money, past due by any party to any Third-Party Software Agreement. To the Best
Knowledge of the Seller and each Shareholder, there are no disclosed or
undisclosed breaches of warranty, whether or not within a time period to cure,
pertaining to any Third-Party Software Agreement. To the Best Knowledge of the
Seller and each Shareholder, there is no condition existing that has or will
trigger a right to terminate any Third- Party Software Agreement. To the Best
Knowledge of the Seller and each Shareholder, there is no requirement in any
Third-Party Software Agreement requiring a third party to be a signatory to this
Agreement. The Third-Party Software neither infringes nor is being infringed by
any third party proprietary interest, including (without limitation) any third
party patent, copyright, trademark or trade secret interest.
(e) The Intellectual Property identified on Parts 1.59, 1.69 and 4.11
of the Disclosure Schedule constitutes all of the Intellectual Property used by
Seller or necessary to conduct the Business in the manner in which the Business
is being conducted and, except as set forth on Part 4.11(e) to the Disclosure
Schedule, necessary to conduct the business to be conducted under the business
plan as presented by Seller to the BCC Parties. The Intellectual Property has
not been licensed to any Person or pursuant to any agreement or arrangement
which restricts the ability of Seller or any other Person to use or license any
Intellectual Property. The computer software,
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computer firmware, computer
hardware (whether general or specific purpose), and similar or related items of
automated, computerized, or software system(s) that are used or relied on by
Seller in the conduct of the Business are year 2000 compliant.
4.12 SUITS, ACTIONS AND CLAIMS. Except as set forth in Part 4.12 of the
Disclosure Schedule, (a) there are no suits, actions, claims, inquiries or
investigations by any Person, or any legal, administrative or arbitration
proceedings in which Seller is engaged or which are pending or, to the Best
Knowledge of Seller and each Shareholder, threatened against or affecting Seller
or any of its properties, assets or business, or to which Seller is or is likely
to become a party, or which question the validity or legality of the
transactions contemplated hereby, (b) to the Best Knowledge of the Seller and
each Shareholder, no reasonable basis or reasonable grounds for any such suit,
action, claim, inquiry, investigation or proceeding exists and (c) there is no
outstanding order, writ, injunction or decree of any Governmental Authority
against or affecting Seller or any of its properties, assets or business.
4.13 LICENSES AND PERMITS; COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS.
Except as set forth in Part 4.13 of the Disclosure Schedule, to the Best
Knowledge of Seller and each Shareholder, Seller has all federal, state, local
and foreign governmental licenses and permits necessary to the conduct of the
operations of Seller's business as currently conducted, such licenses and
permits are in full force and effect, no material violations currently exist in
respect of any thereof and no proceeding is pending or, to the Best Knowledge of
Seller and each Shareholder, threatened to revoke or limit any thereof. Part
4.13 of the Disclosure Schedule contains a true, complete and accurate list of
(a) all such governmental licenses and permits, (b) all consents, orders,
decrees and other compliance agreements under which Seller is operating or
bound, copies of all of which have been furnished to the BCC Parties, and (c)
all material governmental licenses and permits applied for but not yet received
by Seller. Seller has not received and is not aware of any reports of
inspections under the United States Occupational Safety and Health Act, or under
any other applicable federal, state or local health and safety laws and
regulations relating to Seller, the Assets or the operation of Seller's
business. There are no safety, health, anti-competitive or discrimination claims
that have been made or are pending or, to the Best Knowledge of Seller and each
Shareholder, that are threatened relating to the business or employment
practices of Seller. To the Best Knowledge of Seller and Each Shareholder,
Seller has complied in all material respects with all Governmental Requirements
applicable to its business and all Governmental Requirements with respect to the
distribution and sale of products and services by it.
4.14 AUTHORIZATION.
(a) Seller has full legal right, power and authority to enter into and
deliver this Agreement, to consummate the transactions set forth herein and to
perform all the terms and conditions hereof to be performed by it. The execution
and delivery of this Agreement by Seller and the performance by it of the
transactions contemplated herein have been duly and validly authorized by all
requisite corporate actions of Seller, and this Agreement has been duly and
validly executed and delivered by Seller and is the legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with the terms of
the Agreement, except as limited by applicable bankruptcy, moratorium,
insolvency or other similar laws affecting generally the rights of creditors or
by principles of equity.
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(b) Mel Ray and William Hammock severally represent that each of them
(each an "Individual Shareholder") has full legal right, power and authority to
enter into and deliver this Agreement and the other agreements contemplated
hereby, to perform all the terms and conditions to be performed by such
Individual Shareholder under this Agreement and each of the other agreements
contemplated hereby and to consummate the transactions contemplated hereby and
thereby. This Agreement and the other agreements contemplated hereby have been
duly and validly executed and delivered by such Individual Shareholder and are
the legal, valid and binding obligation of such Individual Shareholder,
enforceable against such Individual Shareholder in accordance with the terms of
this Agreement and the other agreements contemplated hereby, except as limited
by applicable bankruptcy, moratorium, insolvency or similar laws affecting
generally the rights of creditors or by principles of equity. Neither Seller nor
any other Shareholder shall be liable for the representations of Mel Ray and
William Hammock contained in this SECTION 4.14(B).
(c) FEP Partnership severally represents that FEP Partnership is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Texas, and it possesses full power and authority to
execute and deliver this Agreement and the other agreements contemplated hereby
and to perform fully its obligations under this Agreement and each of the other
agreements contemplated hereby and no other corporate or limited partnership
activity on behalf of FEP Partnership is necessary to authorize this Agreement
and each of the other agreements contemplated hereby or to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the other agreements contemplated hereby and the consummation by
FEP Partnership of the transactions contemplated under this Agreement and each
of the other agreements contemplated hereby have been duly authorized by all
necessary corporate or limited partnership authority to execute and deliver this
Agreement and each of the other agreements contemplated hereby and fully perform
its obligations hereunder and thereunder. This Agreement and the other
agreements contemplated hereby have been duly executed by the general partners
of FEP Partnership and constitute the legal, valid and binding obligation of FEP
Partnership, enforceable against FEP Partnership in accordance with the terms of
this Agreement and the other agreements contemplated hereby, except to the
extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally. Neither Seller nor any
Shareholder other than FEP Partnership shall be liable for the representations
of FEP Partnership contained in this SECTION 4.14(C).
(d) SBC severally represents that SBC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
has all requisite corporate right, power and authority to execute and deliver
this Agreement and the other agreements contemplated hereby and to perform fully
its obligations under this Agreement and each of the other agreements
contemplated hereby. The execution and delivery of this Agreement and the other
agreements contemplated hereby and the consummation by SBC of the transactions
contemplated under this Agreement and each of the other agreements contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of SBC are necessary to authorize this
Agreement and each of the other agreements contemplated hereby or to consummate
the transactions contemplated hereby and thereby. This Agreement and the other
agreements contemplated hereby have been duly executed by SBC and constitute the
legal, valid and binding obligation of SBC, enforceable against SBC in
accordance with the terms of this Agreement and the other agreements
contemplated hereby, except to the extent that enforceability may be
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limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally. Neither Seller nor any Shareholder other than SBC shall be
liable for the representations of SBC contained in this SECTION 4.14(D).
(e) CONSENTS. Each Shareholder severally, and not jointly and
severally, represents that, except for filings under the HSR Act, if required to
be made, no consents, approvals or authorizations of any Person (other than
those which have been obtained) are required on the part of such Shareholder in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(f) LITIGATION. Each Shareholder severally, and not jointly and
severally, represents that there is no legal, judicial, administrative,
governmental, arbitration or other action or proceeding pending or, to the best
knowledge of such Shareholder, threatened against such Shareholder that could
affect the ability of such Shareholder to perform such Shareholder's obligations
under this Agreement.
(g) STOCK OWNERSHIP. Each Shareholder severally, and not jointly and
severally, represents that such Shareholder is the record and beneficial owner
of the shares of Seller Stock as described in Part 4.2(a) of the Disclosure
Schedule hereto, and has full authority to vote all of such shares as
contemplated by this Agreement and the shares of Seller Stock owned by such
Shareholder as set forth in Part 4.2(a) of the Disclosure Schedule hereto are
owned free and clear of all Encumbrances and restrictive agreements, including,
without limitation, voting trust or shareholders agreements. Such Shareholder
has full authority to transfer pursuant to the Merger all of the shares of
Seller Stock owned by such Shareholder free and clear of all Encumbrances and
restrictive agreements, including without limitation, voting trust or
shareholders agreements.
(h) INDEBTEDNESS AND AGREEMENTS. Immediately subsequent to the
Effective Time, upon the payment of the debts and liabilities described on
SCHEDULE A, the Surviving Corporation will have no indebtedness outstanding that
is payable to any Shareholder or any of their respective Affiliates. Immediately
subsequent to the Effective Time, except for this Agreement and any employment
agreements and/or consulting agreements contemplated to be entered into between
the Surviving Corporation and any Shareholder, there will be no agreements,
contracts, leases, arrangements or other understandings (either written or oral)
between such Shareholder and the Surviving Corporation.
4.15 RECORDS. The books, records and minutes kept by Seller with respect
to the Assets and the Business, including, but not limited to, all customer
files, service agreements, correspondence and historic revenue of Seller, have
been kept properly and contain records of all matters required to be included
therein by any Governmental Requirement or by generally accepted accounting
principles, and such books, records and minutes are true, accurate and complete.
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4.16 ENVIRONMENTAL PROTECTION LAWS.
(a) Except as set forth in Part 4.16 of the Disclosure Schedule,
Seller has at all times operated in compliance with all applicable limitations,
restrictions, conditions, standards, prohibitions, requirements and obligations
of Environmental Laws and related orders of any court or other Governmental
Authority.
(b) Except as set forth in Part 4.16 of the Disclosure Schedule, there
are no existing, pending or, to the Best Knowledge of Seller and each
Shareholder, threatened actions, suits, claims, investigations, inquiries or
proceedings by or before any court or any other Governmental Authority directed
against Seller or its Assets or the Business which pertain or relate to (i) any
remedial obligations under any applicable Environmental Law, (ii) violations of
any Environmental Law, (iii) personal injury or property damage claims relating
to the release of chemicals or Waste Materials or (iv) response, removal or
remedial costs under CERCLA or any similar state law.
(c) Except as set forth in Part 4.16 of the Disclosure Schedule, all
notices, permits, licenses or similar authorizations required to be obtained or
filed by Seller under all applicable Environmental Laws in connection with its
current and previous operation or use of the Assets, any other assets or
properties currently or previously leased or owned by Seller or the current and
previous conduct of its business have been duly obtained or filed and are in
full force and effect.
(d) Neither Seller nor any Shareholder has received notice that any
permit, license or similar authorization is to be revoked or suspended by any
Governmental Authority.
(e) Seller does not own or operate any underground storage tanks.
(f) No portion of the Assets or any other assets or properties
currently or previously leased or owned by Seller is part of a Superfund site
under CERCLA or any similar ranking or listing under any similar state law.
(g) All Waste Materials generated by Seller have been transported,
stored, treated and disposed of by carriers, storage, treatment and disposal
facilities authorized and maintaining valid permits under all applicable
Environmental Laws.
(h) No Person has disposed or released any Waste Materials on or under
the Assets or any other asset or property currently or previously leased or
owned by Seller and Seller has not disposed or released Waste Materials on or
under the Assets or any other asset or property currently or previously leased
or owned by Seller, except in compliance with all Environmental Laws.
(i) No facts or circumstances exist which could reasonably be expected
to result in any liability to any Person with respect to the current or past
business and operations of Seller, the Assets or any other assets or properties
currently or previously leased or owned by Seller in connection with (i) any
release, transportation or disposal of any Waste Materials, hazardous substance
or solid waste or (ii) action taken or omitted that was not in full compliance
with or was in violation of, any applicable Environmental Law.
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4.17 ACCOUNTS RECEIVABLE. All notes and accounts receivable of Seller that
are reflected on the Reference Balance Sheet or that have arisen since the
Balance Sheet Date ("Accounts Receivable") have arisen in the ordinary course of
business. All Accounts Receivable either (a) have been collected or (b) unless
otherwise noted on Part 4.17 of the Disclosure Statement, are collectible on the
respective due dates thereof, or, if no due date is stated with respect thereto,
within 90 days of their creation in the ordinary course of business, in each
case in the aggregate recorded amounts thereof, less the applicable reserves
with respect thereto reflected on the Reference Balance Sheet. Seller has not
factored or discounted or agreed to factor or discount any Account Receivable.
The values at which the Accounts Receivable are carried on the Reference Balance
Sheet reflect the accounts receivable valuation policy of Seller which is
consistent with GAAP in all material respects. Part 4.17 of the Disclosure
Schedule sets forth a true, correct and complete list of all Accounts Receivable
written off by Seller, in whole or in part, as uncollectible during the nine
months preceding the date hereof. Part 4.17 of the Disclosure Schedule also sets
forth a true, correct and complete aging of the Accounts Receivable of Seller as
of the most recent practicable date.
4.18 BROKERS AND FINDERS. No broker or finder has acted for Seller or any
Shareholder in connection with this Agreement or the transactions contemplated
by this Agreement, and no broker or finder is entitled to any brokerage or
finder's fee or to any commission in respect thereof based in any way on
agreements, arrangements or understandings made by or on behalf of Seller or any
Shareholder.
4.19 DEPOSITS. Except as set forth on Part 4.19 of the Disclosure
Schedule, Seller does not now hold any deposits or prepayments by third parties
with respect to any of the Assets or the Business ("Deposits").
4.20 WORK ORDERS. There are no outstanding work orders or contracts
relating to any portion of the Assets from or required by any policy of
insurance, fire department, sanitation department, health authority or other
Governmental Authority nor is there any matter under discussion with any such
parties or authorities relating to work orders or contracts.
4.21 CUSTOMER LIST; SUPPLIER LIST.
(a) Part 4.21(a) of the Disclosure Schedule sets forth a true, correct
and complete list of all customers of the Business to which Seller has sold or
provided products or services since January 1, 1998. This list provides an
accurate statement of the gross revenues received from each such customer by the
Business during the nine-month period ended September 30, 1999.
(b) Part 4.21(b) of the Disclosure Schedule sets forth a true, correct
and complete list of all suppliers of the Business from which Seller has
purchased or otherwise received more than $10,000 worth of products or services
since January 1, 1998. This list provides an accurate statement of the gross
payments to each such supplier by the Business during the nine-month period
ended September 30, 1999.
4.22 NO ROYALTIES. Unless otherwise set forth on Part 4.22 of the
Disclosure Schedule, no royalty, commission or similar item or amount is being
paid or is owing by Seller, nor is any such item accruing, with respect to the
operation, ownership or use of the Business or the Assets.
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4.23 BANK ACCOUNTS. Part 4.23 of the Disclosure Schedule sets forth a true
and complete list of all bank or financial accounts and safe deposit boxes of
Seller and of the credit and debit balances of such bank and financial accounts
as of the most recent practicable date. Except as set forth in Part 4.23 of the
Disclosure Schedule, since the date of the balances set forth on such list,
there have been no payments out of or drafts against any of the accounts
included therein other than routine payments and drafts in the ordinary course
of business, and the balances in such accounts as of the date hereof are not
materially different from those reflected in such list. Part 4.23 of the
Disclosure Schedule also lists all persons having signatory authority over or
access to such bank and financial accounts and safe deposit boxes.
4.24 INSURANCE. Part 4.24 of the Disclosure Schedule sets forth all
existing insurance policies held by Seller relating to the Business, Assets,
employees or agents of Seller. Each such policy is in full force and effect and
is with insurance carriers believed by Seller to be responsible. There is no
dispute with respect to such policies, and all claims arising from events or
circumstances occurring prior to the date hereof have been paid in full or
adequate reserves therefor are recorded in the Reference Balance Sheet. All
retroactive premium adjustments for any period ended on or before September 30,
1999, under any worker's compensation policy or any other insurance policies of
Seller have been recorded in accordance with generally accepted accounting
principles and are reflected in the Reference Balance Sheet. Except for the
policies identified as such on Part 4.24 of the Disclosure Schedule, none of the
policies set forth on Part 4.24 of the Disclosure Schedule will terminate as a
result of the transactions contemplated by this Agreement.
4.25 EMPLOYEE BENEFIT MATTERS. As used in this SECTION 4.25, "Seller"
shall include Seller and any member of a controlled group or affiliated service
group as defined in Sections 414(b), (c), (m) and (o) of the Code of which
Seller is a member.
(a) LIST OF ALL BENEFIT PLANS AND COMPENSATION AGREEMENTS. Part
4.25(a) of the Disclosure Schedule includes a complete and accurate list of all
employee welfare benefit and employee pension benefit plans as defined in
Sections 3(1), 3(2) and 3(3) of ERISA and all other employee benefit agreements
or arrangements, including, but not limited to, deferred compensation plans,
incentive plans, bonus plans or arrangements, stock option plans, stock purchase
plans, golden parachute agreements, severance pay plans, dependent care plans,
cafeteria plans, employee assistance programs, scholarship programs, employment
contracts and other similar plans, agreements and arrangements that are
currently in effect or were maintained within three years of the Closing Date,
or have been approved before this date but are not yet effective, for the
benefit of directors, officers, employees, or former employees (or their
beneficiaries) of Seller. Seller is not aware of any commitment to create any
new plan, agreement or arrangement or modify any now existing. Seller has
delivered to the BCC Parties, as to each plan, agreement or arrangement listed
in Part 4.25(a) of the Disclosure Schedule, as applicable, a complete and
accurate copy of (i) each plan, agreement or arrangement listed, (ii) the trust,
group annuity contract or other document which provides the funding for the
plan, agreement or arrangement, (iii) the most recent annual Form 5500, 990 and
1041 reports filed since January 1, 1998, (iv) the most recent actuarial report
or valuation statement, (v) the most current summary plan description, booklet,
or other descriptive written materials, and each summary of material
modifications prepared after the last summary plan description, (vi) the most
recent IRS determination letter and all rulings or determinations requested from
the IRS subsequent to the date of that exemption letter and (vii) all other
correspondence from
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the IRS or the Department of Labor received which relates to one or more of the
plans, agreements or arrangements. There are no pending or, to the Best
Knowledge of Seller and each Shareholder, threatened or anticipated claims
(other than routine claims for benefits) by, on behalf of or against any of the
plans disclosed on Part 4.25(a) of the Disclosure Schedule or their related
trusts.
(b) REPRESENTATIONS PERTAINING TO ALL EMPLOYEE BENEFIT PLANS. Each
employee welfare benefit plan and every employee pension benefit plan as defined
in Sections 3(1), 3(2) and 3(3) of ERISA which has been or is sponsored by,
participated in by or contributed to by Seller, to the Best Knowledge of Seller
and each Shareholder, (i) is in compliance with the Code and ERISA, including,
but not limited to, all reporting and disclosure requirements of Part 1 of
Subtitle B of Title I of ERISA; (ii) has had the appropriate Form 5500 filed
timely for each year of its existence; (iii) has not engaged in any transaction
described in Sections 406 or 407 of ERISA or Section 4975 of the Code unless
exempt under Section 408 of ERISA or Section 4975 of the Code, as applicable;
(iv) has at all times complied with the bonding requirements of Section 412 of
ERISA; (v) has no issue pending (other than the payment of benefits in the
normal course) nor any issue resolved adversely to Seller which may subject
Seller to the payment of a penalty, interest, tax or other amount and (vi) can
be unilaterally terminated or amended on no more than 90 days notice, and (vii)
all contributions or other amounts payable by Seller as of the Closing Date with
respect to each employee welfare benefit plan and each employee pension benefit
plan, other than an employee pension benefit plan which is subject to Section
412 of the Code, have either been paid or accrued in the Reference Balance
Sheet, a copy of which has been furnished to the BCC Parties. No notice has been
received by Seller of an increase or proposed increase in the cost of any
employee welfare benefit or employee pension benefit plan or other employee
benefit agreement or arrangement listed in Part 4.25(a) of the Disclosure
Schedule.
(c) ADDITIONAL REPRESENTATIONS PERTAINING TO CERTAIN EMPLOYEE WELFARE
BENEFIT PLANS. All voluntary employee benefit associations have been submitted
to and approved as exempt from federal income tax under Section 501(c)(9) of the
Code by the IRS or the applicable submission period will not have ended prior to
the Closing. No plan, arrangement or agreement with any one or more employees
will cause Seller to have liability for severance pay as a result of the Merger.
Except as listed in Part 4.25(a) of the Disclosure Schedule, Seller does not
provide employee benefits, including without limitation, death, post-retirement
medical or health coverage (whether or not insured) or contribute to or maintain
any employee benefit plan which provides for benefit coverage following
termination of employment, nor has it made any representations, agreements,
covenants or commitments to provide that coverage, except (i) as is required by
Section 4980B(f) of the Code or other applicable statute, (ii) death benefits or
retirement benefits under any employee pension benefit plan as defined in
Section 3(2) of ERISA, (iii) benefits the full cost of which is borne by the
current or former employee (or his beneficiary), or (iv) deferred compensation
benefits which have been accrued as liabilities on the books of Seller and
disclosed on its Financial Statements. All group health plans maintained by
Seller have been operated in compliance with Section 4980B(f) of the Code.
(d) ADDITIONAL REPRESENTATIONS PERTAINING TO CERTAIN EMPLOYEE PENSION
BENEFIT PLANS. All employee pension benefit plans as defined in Section 3(2) of
ERISA which are intended to qualify under Section 401(a) of the Code have been
submitted to and approved as qualifying under Section 401(a) of the Code by the
IRS or the applicable remedial amendment period will not have
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ended prior to the Closing. No facts have occurred which if known by the IRS
could cause disqualification of those plans. All employee pension benefit plans
to which Section 412 of the Code is applicable have fully complied with the
funding requirements of that Section and there is no accumulated funding
deficiency as defined in Section 302(a)(2) of ERISA (whether or not waived) in
any one or more of those plans. Seller has paid all premiums (any interest,
charges and penalties for late payment, if any applicable) due the Pension
Benefit Guaranty Corporation (the "PBGC") with respect to each employee pension
benefit plan for which premiums are required. No facts are known by Seller which
will materially increase those premiums within three years of the Closing Date.
Except as set forth on Part 4.25(d) of the Disclosure Schedule, no employee
pension benefit plan maintained by Seller has been terminated under
circumstances which would result in liability to the PBGC. There has been no
"reportable event" (as defined in Section 4043(b) of ERISA and the regulations
under that Section) with respect to any employee pension benefit plan subject to
Title IV of ERISA. Seller has not ceased operations at a facility so as to
become subject to the provisions of Section 4062(e) of ERISA, withdrawn as a
substantial employer so as to become subject to the provisions of Section 4063
of ERISA or ceased making contributions on or before the date of the Closing to
any employee pension benefit plan subject to Section 4064(a) of ERISA to which
Seller made contributions at any time during the six years prior to the date of
Closing. Seller has not made a complete or partial withdrawal from a
multiemployer plan (as defined in Section 3(37) of ERISA) so as to incur
withdrawal liability as defined in Section 4201 of ERISA. The aggregate
withdrawal liability of Seller, computed as if a complete withdrawal by Seller
had occurred under each multiemployer pension plan as of the date hereof, would
not exceed $10,000.
(e) Except as disclosed in Part 4.25(e) of the Disclosure Schedule,
the transactions contemplated by this Agreement will not accelerate the time of
payment or vesting, or increase the amount, of compensation due any director,
officer, consultant or employee or former director, officer, consultant or
employee (including any beneficiary) from Seller. Except as disclosed in Part
4.25(e) of the Disclosure Schedule, Seller is not obligated to any employee or
consultant for deferred salary, bonuses or other compensation.
4.26 WARRANTIES AND PRODUCT LIABILITY. Except for (i) warranties implied
by law and (ii) warranties disclosed on Part 4.26 of the Disclosure Schedule,
Seller has not given or made any warranties either express or implied in
connection with the sale or rental of goods or services, including, without
limitation, warranties covering the customer's consequential damages. To the
Best Knowledge of Seller and each Shareholder, and except as set forth in Part
4.26 of the Disclosure Schedule, there is no state of facts or occurrence of any
event forming the basis of any present claim against Seller with respect to
warranties relating to products produced, manufactured, marketed, sold,
transported or distributed by Seller or services rendered or allegedly offered
by or on behalf of Seller that could reasonably be expected to materially exceed
the reserves therefor.
4.27 CUVILLE.COM.(a) Seller is the record and beneficial owner of
1,000,000 shares of common stock, $0.001 par value (the "CUville Stock"), of
CUville.com, Inc., a Delaware corporation ("CUville") and the shares of CUville
Stock owned by Seller hereto are owned free and clear of all Encumbrances and
restrictive agreements, including, without limitation, voting trust or
shareholders agreements (other than the agreements referenced below). There are
outstanding on the date hereof no rights of first refusal, preemptive rights,
conversion rights, options, warrants or other rights to acquire, directly or
indirectly, shares of the CUville Stock from Seller.
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(b) Other than the Stockholders' Agreement dated July 9, 1999 among
CUville, Seller and Aptis, Inc., and a Voting Agreement dated July 9, 1999, by
and among CUville, Seller and Aptis, Inc., Seller is not a party or subject to
any agreement or understanding, and there is no agreement or understanding
between any Persons, that affects or relates to the voting or giving of written
consents with respect to any securities of CUville or the voting by any director
of CUville.
4.28 SECURITIES LAWS MATTERS.
(a) Except as contemplated by SECTION 8.12 hereof, each Shareholder
recognizes and understands that the Stock Consideration to be issued to each
Shareholder pursuant to this Agreement (the "securities") will not be registered
under the Securities Act, or under the securities laws of any state (the
"securities laws"). The securities are not being so registered in reliance upon
exemptions from the Securities Act and the securities laws which are predicated,
in part, on the representations, warranties and agreements of each Shareholder
contained herein.
(b) Each Shareholder severally represents and warrants that (i) such
Shareholder has business knowledge and experience, such experience being based
on actual participation therein, (ii) such Shareholder is capable of evaluating
the merits and risks of an investment in the Stock Consideration and the
suitability thereof as an investment therefor, (iii) the Stock Consideration to
be acquired by such Shareholder in connection with this Agreement will be
acquired solely for investment and not with a view toward resale or
redistribution in violation of the securities laws, (iv) such Shareholders'
residence and domicile, in the case of each natural person, is in the State set
forth opposite his or her name on Part 4.28(b) of the Disclosure Schedule, the
principal corporate office of each Shareholder that is not a natural person is
in the State set forth opposite its name on Part 4.28(b) of the Disclosure
Schedule, and the name, residence, domicile and ownership percentage of each
beneficial owner of partnership interests in the FEP Partnership (collectively,
the "Beneficial Shareholders") is set forth on Part 4.28(b) of the Disclosure
Schedule, (v) in connection with the transactions contemplated hereby, no
assurances have been made concerning the future results of the BCC Parties or
either of them or as to the value of the Stock Consideration and (vi) except as
disclosed on Part 4.28(b) of the Disclosure Schedule, such Shareholder is either
an "accredited investor," as that term is defined in Regulation D promulgated by
the SEC pursuant to the Securities Act, or has a Purchaser Representative, as
that term is defined in Regulation D promulgated by the SEC pursuant to the
Securities Act. FEP Partnership severally represents that each Beneficial
Shareholder is an accredited investor or has a Purchase Representative. Each
Shareholder that is not an accredited investor severally represents and warrants
that such Shareholder, together with his Purchaser Representative, has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the transactions contemplated and contained
herein. Each Shareholder understands that none of the BCC Parties is under any
obligation to file a registration statement or to take any other action under
the securities laws with respect to the Stock Consideration except as
contemplated by SECTION 8.11. After the Effective Time, the FEP Partnership
intends to distribute the Stock Consideration received by it (other than the
Holdback Shares) to the partners of the FEP Partnership in accordance with the
terms of the limited partnership agreement of the FEP Partnership.
(c) Such Shareholder has consulted with Shareholder's own counsel in
regard to the securities laws and is fully aware (i) of the circumstances under
which such Shareholder is
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required to hold the securities, (ii) of the limitations on the transfer or
disposition of the securities, (iii) that the securities must be held
indefinitely unless the transfer thereof is registered under the securities laws
or an exemption from registration is available and (iv) that no exemption from
registration is likely to become available for at least one year from the date
of acquisition of the securities. Such Shareholder has been advised by such
Shareholder's counsel as to the provisions of Rules 144 and 145 as promulgated
by the SEC under the Securities Act and has been advised of the applicable
limitations thereof. Such Shareholder acknowledges that the BCC Parties are
relying upon the truth and accuracy of the representations and warranties in
this SECTION 4.28 by such Shareholder in consummating the transactions
contemplated by this Agreement without registering the securities under the
securities laws.
(d) Such Shareholder has been furnished with BCC's Annual Report on
Form 10-K for the year ended September 30, 1998, BCC's Quarterly Reports on Form
10-Q for the quarters ended December 31, 1998 and March 31, and June 30, 1999,
BCC's proxy statement with respect to the Annual Meeting of Stockholders held on
February 25, 1999, BCC's Current Reports on Form 8-K filed December 23, 1998,
and February 16, February 25 and April 29, 1999, and BCC's Registration
Statement on Form S-3 dated January 21, 1999 (such documents collectively
referred to herein as the "SEC Documents"). Such Shareholder has been furnished
with the complete financial statements of BCC for the fiscal years ended
September 30, 1996, 1997 and 1998, and the three and nine months ended December
31, 1998 and June 30, 1999, respectively. The BCC Parties have made available to
such Shareholder the opportunity to ask questions and receive answers concerning
the terms and conditions of the transactions contemplated by this Agreement and
to obtain any additional information which they possess or could reasonably
acquire for the purpose of verifying the accuracy of information furnished to
such Shareholder as set forth herein or for the purpose of considering the
transactions contemplated hereby. BCC has offered to make available to such
Shareholder upon request at any time all exhibits filed by BCC with the
Commission as part of any of the reports filed therewith.
(e) Such Shareholder agrees that the certificates representing such
Shareholder's Stock Consideration to be acquired pursuant to this Agreement will
be imprinted with the following legend, the terms of which are specifically
agreed to:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF
COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
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Each Shareholder understands and agrees that appropriate stop transfer notations
will be placed in the records of BCC and with its transfer agent in respect of
the securities which are to be issued to each Shareholder pursuant to this
Agreement.
4.29 NO UNTRUE STATEMENTS. The statements, representations and warranties
of Seller and each Shareholder set forth in this Agreement and the Disclosure
Schedule and in all other documents and information furnished to the BCC
Parties, or either of them, and their representatives in connection herewith do
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements, representations and warranties
made not misleading. To the Best Knowledge of Seller and each Shareholder, there
is no fact or matter that is not disclosed to the BCC Parties in this Agreement
or the Disclosure Schedule that materially and adversely affects or, so far as
Seller or any Shareholder can now reasonably foresee, could materially and
adversely affect the condition (financial or otherwise) of any of the Assets or
the Business or the ability of Seller or any Shareholder to perform their
respective obligations under this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE BCC PARTIES. The BCC Parties
jointly and severally represent and warrant to the Shareholders as follows:
5.1 PURCHASER INCORPORATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power to own and operate its assets and to carry
on its business as presently conducted.
5.2 BCC INCORPORATION. BCC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power to own and operate its assets and to carry on its
business as presently conducted.
5.3 AUTHORIZATION. The BCC Parties have full legal right, power and
authority, corporate and otherwise, to enter into this Agreement and to
consummate the transactions set forth herein and to perform all the terms and
conditions hereof to be performed by them. The execution and delivery of this
Agreement and the performance by the BCC Parties of the transactions
contemplated herein have been duly authorized by all requisite corporate action
of the BCC Parties and is the legal, valid and binding obligation of each of
them, enforceable against each of them in accordance with its terms, except as
limited by applicable bankruptcy, moratorium, insolvency or similar laws
affecting generally the rights of creditors or by principles of equity.
5.4 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger and the other transactions
contemplated hereby:
(a) violates any law, order, writ, judgment, injunction, award,
decree, rule, statute, ordinance or regulation applicable to any BCC Party;
(b) conflicts with, results in a breach or termination of any
provision of, causes the acceleration of the maturity of any debt or obligation
pursuant to, constitutes a default (or gives rise to any right of termination,
cancellation or acceleration) under, or results in the creation of any
Encumbrance upon any of the assets of any BCC Party pursuant to, any terms,
conditions or provisions of any note, license, instrument, indenture, mortgage,
deed of trust or other agreement or
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understanding or any other restriction of any kind or character to which any BCC
Party is a party or by which any of their respective assets are subject or
bound, except, in each case, those that would not have a Material Adverse Effect
on any BCC Party; or
(c) conflicts with or results in any breach of any provision of the
Certificate of Incorporation or Bylaws of any BCC Party.
5.5 CONSENTS. Other than the filing of a certificate of merger with the
Secretary of State of Delaware and of articles of merger with the Secretary of
State of Texas, no consent, approval or authorization of, or designation,
declaration or filing with, any Person on the part of the BCC Parties is
required in connection with the valid execution and delivery of this Agreement
or the Merger, or the consummation of any other transaction contemplated by this
Agreement.
5.6 CERTAIN PROCEEDINGS. There is no pending litigation or other
proceeding that has been commenced against any BCC Party and that challenges, or
may have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Merger or other transactions contemplated hereby.
5.7 BROKERS AND FINDERS. No broker or finder has acted for the BCC Parties
in connection with this Agreement or the transactions contemplated by this
Agreement and no broker or finder is entitled to any brokerage or finder's fee
or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the BCC Parties.
5.8 AUTHORIZATION FOR STOCK CONSIDERATION. BCC has taken all necessary
action to permit it to issue the number of shares of Stock Consideration
required to be issued pursuant to the terms of this Agreement. The shares of
Stock Consideration issued pursuant to the terms of this Agreement will, when
issued, be validly issued, fully paid and nonassessable and not subject to
preemptive rights. The Stock Consideration issuable pursuant to this Agreement
will, when issued, be listed on the Nasdaq National Market.
5.9 SEC DOCUMENTS. Since August 2, 1996, BCC has filed all reports,
registration statements and other filings, together with any amendments required
to be made, that it has been required to file with the SEC under the Securities
Act and the Exchange Act. BCC has provided to Seller and each Shareholder the
SEC Documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of BCC included in the SEC Documents comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto, have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of BCC and
its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows
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for the periods then ended (except in the case of interim period financial
information for normal year-end adjustments).
5.10 S-3 ELIGIBILITY. As of the date hereof, BCC is eligible to file a
registration statement on Form S-3. BCC agrees to use reasonable efforts to
maintain such eligibility until the date BCC files the registration statement
contemplated by SECTION 8.11 hereof.
5.11 NO UNTRUE STATEMENTS. The statements, representations and warranties
of the BCC Parties set forth in this Agreement and in all other documents and
information furnished to the Shareholders in connection herewith do not include
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements, representations and warranties made not
misleading. To the Best Knowledge of the BCC Parties, except as set forth on
SCHEDULE 5.11 hereto, there is no fact or matter that had specific application
to the BCC Parties that is not disclosed to the Shareholders in this Agreement
or in the documents described in SECTION 5.9 that materially and adversely
affects or, so far as the BCC Parties can now reasonably foresee, could
materially and adversely affect the condition of the assets or business of the
BCC Parties or the ability of the BCC Parties to perform their obligations under
this Agreement.
6. NATURE OF STATEMENTS AND SURVIVAL OF INDEMNIFICATIONS, GUARANTEES,
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SHAREHOLDERS.
(a) All statements of fact contained in this Agreement or in any
written statement (including financial statements), certificate, schedule or
other document delivered by or on behalf of Seller or any Shareholder pursuant
to this Agreement or in connection with the transactions contemplated hereby
shall be deemed representations and warranties of Seller and the Shareholders
hereunder. All indemnifications, representations and warranties made by Seller
and/or any Shareholder hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Effective Time regardless of
any investigation at any time made by or on behalf of the BCC Parties. The
covenants and agreements made by Seller and/or any Shareholder hereunder or
pursuant hereto or in connection with the transactions contemplated hereby shall
continue until all obligations with respect thereto shall have been performed or
satisfied or shall have been terminated in accordance with their terms.
(b) All statements of fact contained in the Agreement or in any
written statement (including financial Statements), certificate, schedule or
other document delivered by or on behalf of the BCC Parties pursuant to this
Agreement or in connection with the transactions contemplated hereby shall be
deemed representations and warranties of the BCC Parties hereunder. All
indemnifications, representations and warranties made by the BCC Parties
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Effective Time, regardless of any investigation at any
time made by or on behalf of the Shareholders. The covenants and agreements made
by the BCC Parties hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall continue until all obligations with
respect thereto shall have been performed or satisfied or shall have been
terminated in accordance with their terms.
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7. TAX TREATMENT.
Seller, the Shareholders and the BCC Parties intend that the transactions
contemplated hereunder constitute a tax-free reorganization (a "Reorganization")
for federal income tax purposes under Section 368 of the Code, and agree to
treat and report for federal income tax purposes the transactions hereunder as a
Reorganization. This Agreement shall be considered by the parties as a plan of
reorganization and shall be construed in a manner to result in treatment of the
transactions hereunder as a Reorganization for federal income tax purposes.
8. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
8.1 GENERAL. Each of the Parties will use his or its best efforts to take
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
SECTION 9).
8.2 NOTICES AND CONSENTS. Each of the Parties, as promptly as practicable,
(i) will make, or cause to be made, all filings and submissions required under
laws, rules and regulations applicable to it, or to its Subsidiaries and
Affiliates, as may be required for it to consummate the transactions
contemplated hereby; (ii) will use his or its best efforts to obtain, or cause
to be obtained, all authorizations, approvals, consents and waivers from all
Persons and Governmental Authorities necessary to be obtained by each of them,
or any of his or its respective Subsidiaries or Affiliates, in order for each of
them, respectively, so to consummate such transactions; and (iii) will use his
or its respective best efforts to take, or cause to be taken, all other actions
necessary, proper or advisable in order for each of them to fulfill his or its
respective obligations hereunder.
8.3 OPERATION OF BUSINESS. Except as contemplated by this Agreement or as
set forth in the Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, (a) Seller will conduct its operations
according to its Ordinary Course of Business, (b) Seller will not enter into any
material transaction other than in the ordinary course of business and
consistent with past practice, and (c) to the extent consistent with the
foregoing, with no less diligence and effort than would be applied in the
absence of this Agreement, Seller will seek to preserve intact its current
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it with the objective that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Without limiting
the generality of the foregoing, and except as otherwise permitted in this
Agreement, prior to the Effective Time, Seller will not, and will not permit any
of its Subsidiaries to, without the prior written consent of BCC:
(a) except for the issuance of shares of Seller Stock to Mel Ray and
William Hammock upon the exercise of certain stock options, and the issuance of
shares of Seller Stock to SBC under the circumstances described on Part 8.3 of
the Disclosure Schedule, issue, deliver, sell, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, delivery, sale,
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disposition or pledge or other Encumbrance of (i) any additional shares of its
capital stock of any class (including the Seller Stock), or any securities or
rights convertible into, exchangeable for or evidencing the right to subscribe
for any shares of its capital stock, or any rights, warrants, options, calls,
commitments or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible into,
exchangeable for or evidencing the right to subscribe for any shares of its
capital stock, or (ii) any other securities in respect of, in lieu of or in
substitution for Seller Stock outstanding on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to redeem,
purchase or otherwise acquire, any of its outstanding securities (including the
Seller Stock);
(c) split, combine, subdivide or reclassify any shares of its capital
stock or declare, set aside for payment or pay any dividend, or make any other
actual, constructive or deemed distribution in respect of any shares of its
capital stock or otherwise make any payments to the Seller's shareholders in
their capacity as such;
(d) (i) grant any increases in the compensation of any of its
directors, officers or key employees, (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or contemplated by
any employee benefit plan as in effect on the date hereof to any such director,
officer or key employee, whether past or present, (iii) enter into any new, or
amend any existing, employment agreement with any such director, officer or key
employee, (iv) enter into any new, or amend any existing, severance agreement
with any such director, officer or key employee, or (v) except as may be
required to comply with applicable law, amend any existing, or become obligated
under any new, employee benefit plan;
(e) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of Seller (other than the Merger);
(f) make any acquisition, by means of merger, consolidation or
otherwise, of (i) any direct or indirect ownership interest in or assets
comprising any business enterprise or operation or (ii) except in the ordinary
course of business and consistent with past practice, any other assets in excess
of $10,000;
(g) adopt any amendments to its charter or Bylaws;
(h) except for a borrowing of up to $100,000 for working capital
purposes, incur any indebtedness for borrowed money or guarantee any such
indebtedness or make any loans, advances or capital contributions to, or
investments in, any other Person;
(i) engage in the conduct of any business the nature of which is
different than the business Seller is currently engaged in;
(j) enter into any agreement providing for acceleration of payment or
performance or other consequence as a result of a change of control of Seller or
its Subsidiaries;
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(k) enter into any contract, arrangement or understanding requiring
the purchase of equipment, materials, supplies or services over a period greater
than 12 months and for the expenditure of greater than $10,000 per year which is
not cancelable without penalty on 30 days' or less notice; or
(l) authorize or announce an intention to do any of the foregoing, or
enter into any contract, agreement, commitment or arrangement to do any of the
foregoing.
8.4 FULL ACCESS. The Seller and the Shareholders will, and each
Shareholder will cause the Seller to, permit representatives of the BCC Parties
to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Seller, to all premises,
properties, personnel, books, records (including Tax records and the workpapers
of the independent accountants for the Seller), contracts and documents of or
pertaining to the Seller.
8.5 NOTICE OF DEVELOPMENTS. At all times prior to the Closing Date, Seller
and each Shareholder shall promptly give written notice to Purchaser of, to the
extent they have Knowledge of such events, (i) any fact or circumstances or the
occurrence of any event or the failure of any event to occur, which will or may
result in, (x) an adverse effect on the Shareholders', or Seller's ability to
consummate the transactions contemplated hereby or by the agreements to be
entered into in connection therewith or to satisfy its obligations hereunder, or
(y) a breach of any representation or warranty made by any Shareholder or Seller
in this Agreement or in any agreements to be entered into in connection
therewith, if such representation and warranty had been made as of the time of
the occurrence, existence or discovery of such fact, circumstance or occurrence,
or such fact or circumstance had occurred or arisen or existed on or prior to
the date of this Agreement, (ii) any failure by a Shareholder or Seller to
comply with any covenant, condition or agreement contained in this Agreement,
(iii) any complaints, investigations or hearings (or communications indicating
that the same may be contemplated) of any Governmental Authority with respect to
this Agreement, the business of the Seller or the transactions contemplated
hereby or by the agreements to be entered into in connection therewith, (iv) the
institution or the threat of institution of any litigation or similar action
with respect to this Agreement, the business of the Seller, or the consummation
of the transactions contemplated hereby and (v) the occurrence of any event
which will or may result in the failure to satisfy any condition set forth in
ARTICLE 9. During the period from the date of this Agreement to the Closing
Date, the Shareholders and Seller will cause one or more representative to
confer on a regular basis with representatives of Purchaser to report on the
general status of the ongoing operations of the business of the Seller. No
notification given to Purchaser pursuant to this SECTION 8.5 shall limit or
otherwise affect any of the representations, warranties, covenants or
obligations of Shareholders or Seller contained in this Agreement.
8.6 EXCLUSIVITY.
(a) No Shareholder will, or cause or permit Seller to, (i) solicit,
initiate or encourage the submission, making or announcement of any proposal or
offer from any Person relating to a Business Combination or take any action that
could reasonably be expected to lead to a Business Combination or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek a Business
Combination. Each Shareholder will notify BCC immediately if any
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Person makes any proposal, offer, inquiry or contact with respect to any of the
foregoing. Each Shareholder and Seller, as applicable, shall immediately cease
and cause to be terminated any existing discussions with any Person that relate
to any Business Combination. Without limiting the generality of the foregoing,
each Shareholder acknowledges and agrees that any violation of any of the
restrictions set forth in the preceding sentence by Seller or any Shareholder,
any Affiliate or representative of Seller or any Shareholder, whether or not
such Affiliate or representative purports to act on behalf of any Shareholder or
the Seller, shall be deemed to constitute a breach of this SECTION 8.6 by the
Shareholders.
(b) The Parties hereto recognize and acknowledge that a breach by any
Shareholder or Seller of this SECTION 8.6 will cause irreparable and material
loss and damage to BCC as to which it will not have an adequate remedy at law or
in damages. Accordingly, each Party acknowledges and agrees that the issuance of
an injunction or other equitable remedy is an appropriate remedy for any such
breach. In addition, in the event of any breach of the foregoing which results
in Business Combination with a Person other than BCC, Seller and the
Shareholders shall promptly reimburse BCC for the reasonable expenses incurred
by BCC in connection with the transactions contemplated by this Agreement.
8.7 DISCLOSURE SCHEDULE. From time to time prior to the Closing, Seller
and the Shareholders will promptly supplement or amend the Disclosure Schedule
hereto with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such Disclosure Schedule. Without the prior consent of the
BCC Parties, no supplement or amendment of the Disclosure Schedule made pursuant
to this Section shall be deemed to cure any breach of, affect or otherwise
diminish any representation or warranty made in this Agreement unless BCC
specifically agrees thereto in writing.
8.8 VOTING OF SELLER STOCK. Until this Agreement has been terminated under
ARTICLE 15, each Shareholder agrees to vote all shares of Seller Stock held by
him or it in favor of the approval of this Agreement and the transactions
contemplated hereby and not to exercise any dissenters' rights he or it may have
under Texas law. Each Shareholder hereby grants to the BCC Parties for a period
commencing on the date hereof an continuing so long as this Agreement is in
effect, an irrevocable proxy, which is coupled with an interest, to vote such
shares of Seller Stock held by it to approve this Agreement and the transaction
contemplated hereby.
8.9 ESCROW AGREEMENT. The Shareholders shall execute and deliver an Escrow
Agreement (the "Escrow Agreement") in substantially the form attached hereto as
EXHIBIT A.
8.10 TERMINATION OF CONTRACTS. The contracts, agreements and other
instruments listed on Part 8.10 of the Disclosure Schedule shall have been duly
and validly terminated without any liability on the part of Seller, and Seller
and Shareholders shall have delivered to the BCC Parties at Closing a
certificate to such effect.
8.11 REGISTRATION RIGHTS AGREEMENT. BCC and the Shareholders shall execute
and deliver a Registration Rights Agreement in substantially the form attached
hereto as EXHIBIT E. Each Shareholder shall execute, acknowledge and deliver (or
cause to be executed, acknowledged and delivered), such agreements and other
instruments (including written consents) and shall take (or
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cause to be taken) such other action as may be necessary or appropriate to cause
the Seller to comply with its covenants and agreements set forth in this
Agreement and to implement and carry into effect the transactions contemplated
by this Agreement prior to the earlier of the Effective Time or the Termination
of this Agreement as provided for herein, each of the Shareholders agrees that
such Shareholder will not contract to sell, sell, encumber or otherwise transfer
or dispose of any shares of Seller Stock or any interest therein, or grant any
option or other right in respect thereof, or grant any voting rights with
respect thereto, without the prior written consent of Seller and the BCC
Parties.
8.12 RELEASE OF CLAIMS. (a) As of the Effective Time, each of the
Shareholders does hereby for itself and its Affiliates and for himself or his
heirs, executors, administrators and legal representatives remise, release,
acquit and forever discharge the Seller and CUville and its respective
Affiliates, partners, officers, directors, controlling Persons or entities,
employees, attorneys and successors and assigns of and from any and all claims,
demands, liabilities, responsibilities, disputes, causes of action and
obligations of every nature whatsoever, liquidated or unliquidated, known or
unknown, matured or unmatured, fixed or contingent, which each of such
Shareholders now has, owns or holds or has at any time previously had, owned or
held against the Seller or CUville, including without limitation all liabilities
created as a result of the negligence, gross negligence and willful acts of the
Seller or CUville and its employees and agents, existing as of the Effective
Time or relating to any matter that occurred on or prior to the Effective Time;
provided, however, that any claims, liabilities, debts or causes of action that
may arise in connection with the failure of any of the parties hereto to perform
any of their obligations hereunder or under any other agreement relating to the
transactions contemplated hereby or from any breaches by any of them of any
representations or warranties herein or in connection with any of such other
agreements shall not be released or discharged pursuant to this Agreement.
(b) Each of the Shareholders represents and warrants that he has not
previously assigned or transferred, or purported to assign or transfer, to any
Person or entity whatsoever all or any part of the claims, demands, liabilities,
responsibilities, disputes, causes of action or obligations released herein.
Each of the Shareholders covenants and agrees that he will not assign or
transfer to any Person or entity whatsoever all or any part of the claims,
demands, liabilities, responsibilities, disputes, causes of action or
obligations to be released herein. Each of the Shareholders represents and
warrants that Shareholder has read and understands all of the provisions of this
SECTION 8.13 and that Shareholder has been represented by legal counsel of his
own choosing in connection with the negotiation, execution and delivery of this
Agreement.
9. CONDITIONS TO OBLIGATION TO CLOSE.
9.1 CONDITIONS TO OBLIGATION OF THE BCC PARTIES. The obligation of the BCC
Parties to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(a) all representations and warranties of the Shareholders and Seller
contained in this Agreement (including the Disclosure Schedule hereto), and all
written information delivered to the BCC Parties by the Shareholders and Seller
on or prior to the Closing Date pursuant to this Agreement, (i) that are
qualified as to materiality shall be true in all respects on and as of the
Closing
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Date and (ii) that are not qualified as to materiality shall be true in all
material respects on and as of the Closing Date, with the same force and effect
as though such representations and warranties were made, and such written
information was delivered, on and as of the Closing Date;
(b) the Shareholders and Seller shall have performed and complied with
all of its or his covenants hereunder in all material respects through the
Closing;
(c) there shall have been no material adverse change in the Seller
from September 30, 1999 to the Closing Date not consented to by BCC in writing;
(d) the Seller and the Shareholders shall have procured all of the
third party consents required in connection with the consummation of the
transactions contemplated hereby;
(e) no action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) affect adversely the right of BCC to
control the Seller, (iv) affect adversely the right of the Seller to own its
assets and to operate its businesses, (v) require or could reasonably be
expected to require any divestiture by the Seller of a portion of its business
that BCC in its reasonable judgment believes will have a material adverse effect
on the Seller or (vi) imposes any condition upon the Seller that in BCC's
reasonable judgment (x) would be materially burdensome to the Seller or (y)
would materially increase the costs incurred or that will be incurred by BCC as
a result of consummating the merger and the other transactions contemplated
hereby (and no such injunction, judgment, order, decree, ruling or charge shall
be in effect);
(f) the Working Capital deficit of Seller on the Closing Date shall be
not greater than $35,000;
(g) Seller shall have delivered to BCC a certificate to the effect
that each of the conditions specified above in SECTION 9.1(A) through (F) is
satisfied in all respects;
(h) all applicable waiting periods (and any extensions thereof) under
the HSR Act shall have expired or otherwise been terminated and the Parties
shall have received all other authorizations, consents, and approvals of any
Governmental Authority required in connection with the consummation of the
transactions contemplated hereby;
(i) BCC shall have received from counsel to Seller an opinion in form
and substance reasonably acceptable to BCC, addressed to BCC, and dated as of
the Closing Date;
(j) all actions, proceedings, instruments and documents required or
incidental to carrying out this Agreement and all other related legal matters
shall have been approved by counsel to BCC;
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(k) the Board of Directors of BCC shall have approved this Agreement
and the consummation by BCC of the transactions contemplated hereby;
(l) BCC is satisfied in its reasonable discretion with the results of
its continuing business, legal and accounting due diligence regarding Seller;
(m) all actions to be taken by Seller and each Shareholder in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to BCC;
(n) Seller shall have executed and delivered to Purchaser the
intellectual property assignment (the "Intellectual Property Assignment") as
contemplated by SECTION 10.5;
(o) Robert Neyland shall have entered into a consulting agreement
substantially in the form attached hereto as EXHIBIT C;
(p) David W. Biddix, Alejandra Cantu, William A. Hammock, Charles M.
Przygoda, Mel D. Ray and David P. Smith shall each have entered into an
employment agreement substantially in the form attached hereto as EXHIBIT D and
a proprietary information and inventions agreement substantially in the form
attached hereto as EXHIBIT F;
(q) David W. Biddix, Charles M. Przygoda, Robert Neyland and David P.
Smith shall each have executed and delivered to BCC an assignment agreement in
the form attached hereto as EXHIBIT G;
(r) each Person listed on SCHEDULE A shall have executed and delivered
to BCC a release in the form attached hereto as EXHIBIT H;
(s) Seller shall have terminated and declared VOID AB INITITIO its
401(k) plan and shall have returned all contributions made by employees under
such plan, and the BCC Parties shall have received copies of each employee's
consent to such action;
(t) Seller shall have terminated the agreements listed on Part 8.10 of
the Disclosure Schedule;
(u) all Rights Against the Seller Stock shall have been either
extinguished or converted into Seller Stock;
(v) Gary Davis, Norma Gillingwater, Barry Gillingwater, Daniel N.
Matheson and Robert Neyland shall each have executed and delivered to BCC a
non-competition agreement in the form attached hereto as EXHIBIT I; ---------
(w) BCC shall have received Purchaser Representative Questionnaires
from each Shareholder and Beneficial Shareholder that is not an accredited
investor;
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(x) the BCC Parties and SBC shall have, to the reasonable satisfaction
of the BCC Parties, renegotiated the agreement between SBC and Seller dated
December 31, 1997, titled Compensation to Southwest Business Corporation;
(y) all of the employees designated by Purchaser with an asterisk on
Part 4.7 of the Disclosure Schedule hereto shall continue to be employees of
Seller, and none shall have communicated to Seller any intent to leave Seller's
employ within 12 months after the date of this Agreement; and
(z) as of the Closing Date, no Former Seller Shareholder shall have
demanded or otherwise purported to exercise dissenter's rights, if any, pursuant
to Texas law with respect to all or any portion of the Seller Stock.
BCC may waive any condition specified in this SECTION 9.1 if it executes a
writing so stating at or prior to the Closing.
9.2 CONDITIONS TO OBLIGATION OF SELLER AND SHAREHOLDERS. The obligation of
Seller and the Shareholders to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(a) all representations and warranties of BCC contained in this
Agreement, and all written information delivered to Seller by BCC on or prior to
the Closing Date pursuant to this Agreement, (i) that are qualified as to
materiality shall be true in all respects on and as of the Closing Date and (ii)
that are not qualified as to materiality shall be true in all material respects
on and as of the Closing Date, with the same force and effect as though such
representations and warranties were made, and such written information was
delivered, on and as of the Closing Date;
(b) BCC shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(c) no action, suit or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect);
(d) BCC shall have delivered to Seller a certificate to the effect
that each of the conditions specified above in SECTION 9.2(A) through (C) is
satisfied in all respects;
(e) all applicable waiting periods (and any extensions thereof) under
the HSR Act shall have expired or otherwise been terminated and the Parties
shall have received all other authorizations, consents and approvals of any
Governmental Authority required in connection with the consummation of the
transactions contemplated hereby; and
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(f) all actions to be taken by BCC in connection with consummation of
the transactions contemplated hereby and all certificates, opinions, instruments
and other documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to Seller.
Seller may waive any condition specified in this SECTION 9.2 if it
executes a writing so stating at or prior to the Closing.
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing:
10.1 GENERAL. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under ARTICLE 11
hereof). Seller and each Shareholder acknowledges and agrees that from and after
the Closing BCC will be entitled to possession of all documents, books, records
(including Tax records), agreements and financial data of any sort relating to
the Seller.
10.2 LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction on or prior
to the Closing Date involving the Seller, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
ARTICLE 10 hereof).
10.3 TRANSITION. Neither Seller nor any Shareholder will take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier or other business associate of the Seller from
maintaining the same business relationships with the Surviving Corporation after
the Closing as it maintained with the Seller prior to the Closing. Seller and
each Shareholder will refer all customer inquiries relating to the businesses of
the Seller to BCC from and after the Closing.
10.4 TERMINATION OF AGREEMENTS. Seller and each Shareholder shall take all
necessary efforts to ensure that the Agreements listed on Part 8.10 of the
Disclosure Schedule are terminated prior to Closing.
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10.5 INTELLECTUAL PROPERTY ASSIGNMENT. Although acknowledged by all
parties as also fully enabled by the Merger memorialized by this Agreement,
Seller shall also execute a separate assignment to Purchaser of all of Seller's
right, title and interest in and to Intellectual Property, including the
Software itemized on Part 1.59 of the Disclosure Schedule. This separate
assignment shall be set forth as EXHIBIT B hereto, and recordation thereof shall
be at the sole discretion (and responsibility) of Purchaser.
10.6 USE OF NAME OF SELLER. Immediately upon the occurrence of the
Closing, Seller and each Shareholder shall cease using the name "FIData, Inc."
and "FIData," and all derivations thereof. Seller and each Shareholder covenant
and agree that after the Closing they will not, directly or indirectly, use the
name "FIData, Inc." and "FIData," or any derivation thereof in connection with
any business enterprise.
10.7 EMPLOYEE BENEFITS MATTER.
(a) Seller and BCC shall cooperate to ensure orderly transfer of
employees of the Seller to employee benefit plans of BCC.
(b) This SECTION 10.7 reflects the agreements of the parties but does
not create any rights or obligations except as among the parties to this
Agreement, and it is specifically agreed that no present or future employee of
the Seller or its Subsidiaries will be treated as a third-party beneficiary of
the provisions of this SECTION 10.7. Nothing in this SECTION 10.7 or elsewhere
in this Agreement will preclude the Seller or any of its Subsidiaries from
terminating the employment of any employee of the Seller or its Subsidiaries, or
preclude the Seller from amending or terminating in its discretion any employee
benefit plan maintained by the Seller or any of its Subsidiaries.
10.8 TAX-FREE REORGANIZATION. Neither Seller, any Shareholder, Purchaser,
BCC nor any Affiliate or Subsidiary of BCC, shall take any action which would
disqualify the transactions contemplated by this Agreement from treatment as a
tax-free reorganization of the Seller, to the extent that such treatment is
otherwise available to such Shareholders.
10.9 FEP PARTNERSHIP. Upon reasonable advance notice from FEP Partnership
(and in any event within 10 days after such notice), BCC agrees to accept
delivery of the certificate evidencing the Stock Consideration received by the
FEP Partnership (excluding the Holdback Shares) and, upon exchange therefor, to
instruct its transfer agent to issue certificates to the partners of FEP
Partnership representing the Stock Consideration received by the FEP Partnership
(excluding the Holdback Shares) in accordance with the instructions of the
general partners of the FEP Partnership; PROVIDED, HOWEVER, the FEP Partnership
shall represent and warrant to BCC that such distribution to its partners shall
be made pro rata and without consideration and the stock certificates to be sent
to such partners shall contain the restrictive legend set forth in SECTION
4.28(E).
11. INDEMNITY BY THE SHAREHOLDERS.
11.1 INDEMNIFICATION BY THE SHAREHOLDERS. Each Shareholder, jointly and
severally, agrees to indemnify, defend and hold harmless the BCC Parties and the
Surviving Corporation and each of their respective Associates, Affiliates,
officers, directors, employees, agents, consultants,
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representatives, shareholders and controlling Persons and their respective
successors and assigns from and against and in respect of any and all Damages
which may now or in the future be paid, incurred or suffered by or asserted
against such party (collectively, "General Losses"), arising out of or resulting
from or relating to (a) any inaccuracy in or breach of any representation,
warranty, covenant, commitment or agreement made or undertaken by Seller or any
Shareholder in this Agreement, or any other agreement, certificate, Schedule,
Exhibit, or writing delivered to the BCC Parties pursuant to this Agreement, (b)
the legal proceedings listed in Part 4.12 of the Disclosure Schedule, (c) any
action taken or not taken in connection with the sale contemplated hereby and by
the documents contemplated hereby related to (i) the termination of employment
of any current, former or retired employee by Seller prior to the Effective
Time, or the termination by Seller of any independent contractor or consulting
agreement prior to the Effective Time; or (ii) the employment or retirement
status with Seller of any current, former or retired employee, officer,
consultant, independent contractor or director of Seller; and (d) any Damages
arising out of or relating to, the funding, operation, administration,
amendment, termination of, or withdrawal or partial withdrawal from, any
employee plan established, maintained or contributed to by the Seller or ERISA
Affiliate as of, or prior to, the Effective Time, whether such liabilities,
obligations or Damages arise out of or relate to, any event or state of facts
occurring or existing before, on or after the Effective Time. Any claim for
indemnification under this SECTION 11.1 must be made within one year after the
Effective Time (the "Indemnification Period").
11.2 ENVIRONMENTAL INDEMNIFICATION. Each Shareholder jointly and severally
agrees to indemnify, defend and hold harmless the BCC Parties and the Surviving
Corporation and each of their respective Affiliates, officers, directors,
employees, agents, consultants, representatives, shareholders and controlling
Persons and their respective successors and assigns from and against and in
respect of any and all Environmental Liabilities which may now or in the future
be paid, incurred or suffered by or asserted against such party, arising out of
or resulting from or relating to or in connection with (a) the acts or omissions
of any Person prior to the Effective Time relating to Seller, any business
currently or previously conducted by Seller, the Assets, the operations
currently or previously conducted by Seller or any other assets or properties
currently or previously leased or owned by Seller, or (b) any inaccuracy or
breach by Seller or any Shareholder of a representation or warranty contained in
SECTION 4.16 hereof (collectively, "Environmental Losses"). Any claim for
indemnification under this SECTION 11.2 must be made within the Indemnification
Period.
11.3 TAX INDEMNIFICATION Each Shareholder jointly and severally agrees to
indemnify, defend and hold harmless the BCC Parties and the Surviving
Corporation and each of their respective Associates, Affiliates, officers,
directors, employees, agents, consultants, representatives, shareholders and
controlling Persons and their respective successors and assigns from and against
and in respect of any and all Damages which may now or in the future be paid,
incurred or suffered by or asserted against such party arising out of or
resulting from or relating to any Taxes or Tax Returns of Seller for any period,
or portion thereof, up to and including the Effective Time (collectively, "Tax
Losses"). Any claim for indemnification under this SECTION 11.3 must be made
within the Indemnification Period.
11.4 PRODUCTS LIABILITY AND WARRANTY INDEMNIFICATION. Each Shareholder
jointly and severally agrees to indemnify, defend and hold harmless the BCC
Parties and the Surviving Corporation and each of their respective Associates,
Affiliates, officers, directors, employees, agents,
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consultants, representatives, shareholders and controlling Persons and their
respective successors and assigns from and against and in respect of any and all
Damages which may now or in the future be paid, incurred or suffered by or
asserted against such party arising out of or resulting from or relating to any
products manufactured, sold or distributed or services provided by or on behalf
of Seller on or prior to the Effective Time or with respect to any claims made
pursuant to warranties to third Persons in connection with products
manufactured, sold or distributed or services provided by or on behalf of Seller
on or prior to the Effective Time (collectively, "Product Losses"). Any claim
for indemnification under this SECTION 11.4 must be made within the
Indemnification Period.
11.5 INDEMNIFICATION BY THE BCC PARTIES. The BCC Parties, jointly and
severally, agree to indemnify, defend and hold harmless each Shareholder and
each of their respective Affiliates, officers, directors, employees, agents,
consultants, representatives, attorneys, shareholders, Controlling Persons,
heirs, successors and assigns from and against and in respect of any and all
Damages which may now or in the future be paid, incurred or suffered by or
asserted against any such party, arising out of or resulting from or relating to
any inaccuracy in or breach of any representation, warranty, covenant,
commitment or agreement made or undertaken by the BCC Parties in this Agreement.
Any claim for indemnification under this SECTION 11.5 must be made within the
Indemnification Period.
11.6 LIMITATION ON INDEMNIFICATION.
(a) The Holdback Shares are the sole source from which any and all
potential claims for indemnification by the BCC Parties and any other Indemnitee
other than the Shareholders under this ARTICLE 11 shall be satisfied and the
Shareholders shall not have any liability for indemnity claims hereunder other
than the Holdback Shares, except (i) to the extent otherwise provided in SECTION
12.5 and ARTICLE 13 below or in the non-competition agreements to be entered
into pursuant to SECTION 12.1, (ii) with respect to claims for indemnification
under SECTION 11.5 hereof, for which Damages shall be paid in cash by the BCC
Parties, (iii) any claim for indemnification based on a breach of a
representation, warranty or covenant contained in either SECTION 4.18 or SECTION
4.25 for which Damages shall be paid in cash by the Shareholders (without regard
to the Holdback Shares), and (iv) any claim involving the commission of an
intentional fraud, fraud in the inducement or intentional misrepresentation or
breach, for which Damages shall be paid in cash by the Shareholders (without
regard to the Holdback Shares). The indemnification obligations of the
Shareholders pursuant to SECTIONS 11.1 through 11.4 above shall be satisfied
through a reduction of the Merger Consideration effected by cancellation or
other disposition by BCC of Holdback Shares pursuant to SECTION 11.7 of this
Agreement. For purposes of any indemnification claim under this ARTICLE 11, the
Holdback Shares shall be valued on the basis of the average of the last reported
sales price of BCC Stock on the Nasdaq National Market over the ten trading days
preceding the Closing Date.
(b) No claim for indemnification under SECTIONS 11.1, 11.2, and 11.4
may be brought after the expiration of the Indemnification Period, except for
claims made in accordance with SECTION 11.9 prior to such expiration (whether or
not any action, demand or proceeding is instituted with respect to such claims
prior to the expiration of the Indemnification Period), it being understood,
without limitation, that any Damages arising after the expiration of the
Indemnification Period shall be recoverable upon notice properly given prior to
the expiration of the Indemnification Period.
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11.7 HOLDBACK. The Holdback Shares (which shall include for purposes of
this SECTION 11.7 any distributions accrued or made thereon after the date of
this Agreement), the net proceeds of any sale of Holdback Shares and any other
securities or property which may be issued after the date hereof in exchange for
such shares in any merger or recapitalization or similar transaction involving
BCC) shall be deemed as of the Effective Time to be deposited by the
Shareholders with the Escrow Agent, and certificates representing the Holdback
Shares shall be held by the Escrow Agent. The Shareholders shall deliver to the
Escrow Agent at the Closing the Escrow Agreement, appropriate stock powers
endorsed in blank and such other documentation as the Escrow Agent may
reasonably prescribe to carry out the purposes of this SECTION 11.7 So long as
any Holdback Shares are held by the Escrow Agent hereunder, BCC shall have, and
the Shareholders by execution and/or approval of this Agreement hereby grant,
effective as of the Effective Time, a perfected, first priority security
interest in such Holdback Shares to secure payment of amounts payable by the
Shareholders in respect of claims under this ARTICLE 11. In connection
therewith, the Shareholders shall execute and deliver such instruments as BCC or
the Escrow Agent may from time to time reasonably request for the purpose of
evidencing and perfecting such security interest. The Holdback Shares shall be
released from escrow and delivered by the Escrow Agent to the Shareholders
pro-rata according to their Proportionate Interests immediately following the
expiration of the Indemnification period, PROVIDED that no claims against the
Holdback Shares are pending under this ARTICLE XI at such time.
11.8 ESCROW. At Closing, the Purchaser and Seller shall deposit the
Holdback Shares with the Escrow Agent pursuant to the Escrow Agreement. The
Escrow Agreement shall be executed and delivered by the Shareholders and the
appropriate BCC Parties at Closing. Until such time as the Holdback Shares shall
have been delivered to the Shareholders pursuant to the terms of the Escrow
Agreement, each Shareholder covenants and agrees with the BCC Parties that no
Shareholder will sell, transfer, pledge, assign, hypothecate or otherwise
dispose of, or enter into any contract, option or other pledge agreement or
understanding (either written or oral) with respect to the sale, transfer,
pledge, assignment, hypothecation or other disposition of any Holdback Shares or
any dividends or distributions that may be declared or paid in respect thereof.
11.9 PROCEDURE. All claims for indemnification or payment under this
ARTICLE 11 shall be asserted and resolved as follows:
(a) An Indemnitee shall promptly give the Indemnitor notice of any
matter which an Indemnitee has determined has given or could give rise to a
right of indemnification under this Agreement stating the amount of the Loss, if
known, and method of computation thereof, all with reasonable particularity, and
stating with particularity the nature of such matter. Subject to the condition
that notice be delivered prior to the expiration of the Indemnification Period,
failure to provide such notice shall not affect the right of the Indemnitee to
indemnification except to the extent such failure shall have resulted in
liability to the Indemnitor that could have been actually avoided had such
notice been provided within such required time period.
(b) The obligations and liabilities of an Indemnitor under this
ARTICLE 11 with respect to Losses arising from claims of any third party that
are subject to the indemnification provided for in this ARTICLE 11 ("Third-Party
Claims") shall be governed by and contingent upon the following additional terms
and conditions: if an Indemnitee shall receive notice of any Third-Party Claim,
the Indemnitee shall give the Indemnitor prompt written notice of such
Third-Party Claim.
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Subject to the condition that notice be delivered prior to the expiration of the
Indemnification Period, failure to provide such notice shall not affect the
right of the Indemnitee to indemnification except to the extent such failure
shall have resulted in liability to the Indemnitor that could have been actually
avoided had such notice been provided within such required time period. The
Indemnitee shall have the right to undertake the sole defense of, and to
compromise or settle, the claim on behalf of, for the account, and at the risk
and expense of the Indemnitor; PROVIDED, HOWEVER, that if Indemnitee undertakes
the sole defense of such Third-Party Claim, it shall upon Indemnitor's request
advise Indemnitor of the progress of the defense. The Indemnitor shall cooperate
with the Indemnitee (and be entitled to participate) in such defense and attempt
to make available to it on a reasonable basis all such witnesses, records,
materials and information in its possession or under its control relating
thereto as is reasonably required by the Indemnitee. The Indemnitor understands
that if such Third-Party Claim results in an obligation to indemnify hereunder,
Damages shall include all reasonable costs and expenses of such defense. No
Third-Party Claim may be settled by Indemnitor without the written consent of
the Indemnitee, which consent shall not be unreasonably withheld.
(c) If a claim for indemnity is provided pursuant to this ARTICLE 11
by an Indemnitee and the Indemnitor does not pay such claim or object to such
claim within 15 Business Days after written notice is received by the
Indemnitor, such claim shall be deemed agreed to by the Indemnitor. If the
Indemnitor shall object to such claim, a written notice of such objection
setting forth in reasonable detail the basis for such objection shall be
provided to the Indemnitee and such dispute shall be resolved in accordance with
SECTION 17.11 hereof. In addition, if the claim shall have been determined to
have been a valid claim, Damages shall include interest at the prime rate as
quoted from time to time by Frost National Bank (San Antonio), N.A. (the "Prime
Rate") from the date the claim is first made until fully paid.
11.10 PAYMENT. Payment of any amounts due pursuant to this ARTICLE 11
shall be made within 10 Business Days after resolution of the claim.
11.11 ADJUSTMENT OF LIABILITY. The amount which an Indemnitee shall be
entitled to receive from an Indemnitor with respect to a Loss under this ARTICLE
11 shall be net of any insurance recovery by the Indemnitee on account of such
Loss. Any tax benefit actually realized by an Indemnitee on account of a Loss
that is fully indemnified by an Indemnitor shall be paid to the Indemnitor when
and if such benefit is actually realized and then only to the extent such
benefit is attributable to the indemnified portion of the Loss. The benefit
actually realized shall be based on the Federal Tax Returns of the Indemnitee
and any benefit shall not be considered realized unless and until the Tax Return
reflecting such benefit is filed. To the extent such benefit is disallowed or
reduced in connection with any audit, the Indemnitor shall promptly refund the
amount of the benefit so disallowed or reduced.
11.12 FAILURE TO PAY INDEMNIFICATION. If Indemnitor fails or refuses to
pay any amount due under this ARTICLE 11, the Indemnitee shall proceed in
accordance with the arbitration provisions of SECTION 17.11 hereof; provided,
however, that in the case of indemnification for a Third-Party Claim, such
matter need not be resolved by arbitration until the underlying Third-Party
Claim is finally resolved.
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11.13 COOPERATION. The Indemnitor and the Indemnitee shall cooperate with
each other with regard to any indemnification obligation under this ARTICLE 11
and each shall attempt to make available to the other on a reasonable basis all
personnel records, materials and information in its possession or under its
control as is reasonably requested by the other.
11.14 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE. THE INDEMNIFICATION
PROVIDED IN THIS ARTICLE 11 SHALL BE APPLICABLE WHETHER OR NOT THE SOLE OR
CONCURRENT NEGLIGENCE OR GROSS NEGLIGENCE OF THE PARTY SEEKING INDEMNIFICATION,
OR THE SOLE OR CONCURRENT STRICT LIABILITY IMPOSED ON THE PARTY SEEKING
INDEMNIFICATION, OR THE SOLE OR CONCURRENT LIABILITY IMPOSED VICARIOUSLY ON THE
PARTY SEEKING INDEMNIFICATION, IS ALLEGED OR PROVEN.
11.15 APPOINTMENT OF SUCCESSOR ESCROW AGENT. In the event the Escrow Agent
resigns and is discharged from its duties or obligations under the Escrow
Agreement, BCC will designate a successor Escrow Agent prior to the expiration
of the ten-day period following the notice date of the Escrow Agent's
resignation, by giving written notice to the Escrow Agent and the Shareholders.
BCC may appoint a successor Escrow Agent without the consent of the Shareholders
so long as such successor is a bank with assets of at least $500 million, and
may appoint any other successor Escrow Agent with the consent of the
Shareholders, which consent shall not be unreasonably withheld.
12. NON-COMPETITION AGREEMENT.
12.1 NON-COMPETITION. In consideration of the benefits of this Agreement
to each Shareholder and as a material inducement to the BCC Parties to enter
into this Agreement and pay to the Shareholders at Closing the Merger
Consideration, each Shareholder hereby covenants and agrees that, commencing on
the Closing Date and ending three years from the Closing Date, such Shareholder
shall not, and such Shareholder shall cause his Associates, Affiliates and
representatives not to, directly or indirectly, as proprietor, partner,
stockholder, director, executive, officer, employee, consultant, joint venturer,
investor or in any other capacity, engage in, or own, manage, operate or
control, or participate in the ownership, management, operation or control, of
any entity which engages anywhere in the United States or Canada in any business
activity that is in competition with the Business; provided, however, the
foregoing shall not prohibit a Shareholder, his Associates, Affiliates and
representatives from purchasing and holding as an investment not more than three
percent of any class of publicly traded securities of any entity which conducts
a business in competition with the business of Seller, so long as such
Shareholder, his Associates, Affiliates and representatives do not participate
in any way in the management, operation or control of such entity. In
consideration of the benefits of this Agreement to Gary J. Davis, Norma
Gillingwater, Barry Gillingwater, Daniel N. Matheson and Robert Neyland and as a
material inducement to the BCC Parties to enter into this Agreement and pay to
the Shareholders at Closing the Merger Consideration (the payment of which will
be a material benefit to each of Gary J. Davis, Norma Gillingwater, Barry
Gillingwater, Daniel N. Matheson and Robert Neyland), Gary J. Davis, Norma
Gillingwater, Barry Gillingwater, Daniel N. Matheson and Robert Neyland will
enter into the non-competition agreements in the form attached hereto as EXHIBIT
H. Nothing contained in this Section 12.1 or elsewhere in this Agreement (or in
any agreement delivered in connection with this Agreement) is intended to, or
shall be construed to, prohibit, limit or restrict any Shareholder or other
Person who
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is subject to the covenants contained in this Section 12.1 (or similar covenants
contained in any separate agreement) from, directly or indirectly, as a
proprietor, partner, shareholder, director, officer, employee, consultant, joint
venturer, investor, or in any other capacity, engaging in, or owning, managing,
operating or controlling, or participating in the ownership, management,
operation or control of any entity, regardless of where located, that is engaged
in any aspect of the credit union, banking, insurance, mortgage or retail
business solely because such entity (a) is a customer, client, buyer, licensee
or user (or prospective customer, client, buyer, licensee or user) of automated
loan underwriting software products that facilitate Internet-based automated
approval of consumer loans (provided that in such instance the entity does not
resell, sublicense or otherwise remarket such software to third parties and
maintains such software solely for its own use) or (b) develops, maintains or
services automated loan underwriting software solely for use by such entity and
its Affiliates; provided, however, neither Gary J. Davis, Norma Gillingwater,
Barry Gillingwater, Daniel N. Matheson, Robert Neyland nor any Shareholder shall
directly participate in developing, maintaining, servicing or marketing
automated loan underwriting software that facilitate Internet-based automated
approval of consumer loans.
12.2 JUDICIAL REFORMATION. Each Shareholder acknowledges that, given the
nature of the BCC Parties' business, the covenants contained in SECTION 12.1
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the BCC Parties'
business and to protect their legitimate business interests. If, however,
SECTION 12.1 is determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too long a period of time or over
too large a geographic area or by reason of it being too extensive in any other
respect or for any other reason, it will be interpreted to extend only over the
longest period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
12.3 CUSTOMER LISTS; NON-SOLICITATION. Each Shareholder further covenants
and agrees that he shall not, and such Shareholder will cause his Associates,
Affiliates and representatives not to, directly or indirectly, (a) use or make
known to any person or entity the names or addresses of any clients or customers
of Seller or the BCC Parties or any other information pertaining to them,
provided, however, such limitation shall not apply to any information which (i)
is then generally known to the public, (ii) become or becomes generally known to
the public through no fault of such Shareholder, his Associates, Affiliates and
representatives, and (iii) is disclosed in accordance with an order of a court
of competent jurisdiction or applicable law, (b) call on, solicit, take away or
attempt to call on, solicit or take away any clients or customers of Seller or
the BCC Parties, nor (c) solicit for employment, recruit, hire or attempt to
recruit or hire any employees of Seller or the BCC Parties. The provisions of
clause (b) above shall not shall not apply to any customers or clients of SBC,
whether before or after the Effective Time, so long as SBC complies with its
obligations under SECTION 12.1.
12.4 COVENANTS INDEPENDENT. The covenants of each Shareholder contained in
SECTIONS 12.1, 12.2 and 12.3 of this Agreement will be construed as independent
of any other provision in this Agreement, and the existence of any claim or
cause of action by any Shareholder against the BCC Parties will not constitute a
defense to the enforcement by the BCC Parties of said
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provisions. Each Shareholder understands that the provisions contained in
SECTIONS 12.1, 12.2 and 12.3 are essential elements of the transactions
contemplated by this Agreement and, but for the agreement of the Shareholders to
be bound by the provisions of SECTIONS 12.1, 12.2 and 12.3, the BCC Parties
would not have agreed to enter into this Agreement and the transactions
contemplated herein. Each Shareholder has been advised to consult with, and
represents that he has consulted with, counsel in order to be informed in all
respects concerning the reasonableness and propriety of SECTIONS 12.1, 12.2 and
12.3 with specific regard to the nature of the business conducted by Seller and
the BCC Parties and each Shareholder acknowledges that SECTIONS 12.1, 12.2 and
12.3 are reasonable in all respects.
12.5 REMEDIES. Each Shareholder acknowledges that in the event of a breach
or a threatened breach by a Shareholder of any of the provisions contained in
SECTIONS 12.1, 12.2 or 12.3 of this Agreement, the BCC Parties will suffer
irreparable damage or injury not fully compensable by money damages, or the
exact amount of which may be impossible to ascertain, and therefore, the BCC
Parties will not have an adequate remedy at law. Accordingly, the BCC Parties
shall be entitled to such injunctive relief or other equitable relief, without
the necessity of posting bond therefor, from any court of competent jurisdiction
as may be necessary or appropriate to prevent or curtail any such actual or
threatened breach. The foregoing shall be in addition to and without prejudice
to any other rights that the BCC Parties may have under this Agreement, at law
or in equity, including, without limitation, the right to sue for and recover
money damages.
13. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Each Shareholder
recognizes and acknowledges that he has and will have access to certain
confidential information of Seller that is included in the Assets (including,
but not limited to, lists of customers, software designs, system specifications,
trade secrets, Software source code, and costs and financial information) that
after the consummation of the transactions contemplated hereby will be valuable,
special and unique property of Purchaser. Each Shareholder agrees that he will,
and will cause his Associates, Affiliates and representatives, to keep
confidential and not disclose any confidential information to any other Person
or use for his own benefit or for the benefit of any other Person, and he will
use his best efforts to prevent disclosure by any other Person of, any such
confidential information to any Person for any purpose or reason whatsoever,
except to authorized representatives of Purchaser; provided, however, such
limitation shall not apply to any information which (i) is then generally known
to the public; (ii) become or becomes generally known to the public through no
fault of a Shareholder, his Associates, Affiliates and representatives, and
(iii) is disclosed in accordance with an order of a court of competent
jurisdiction or applicable law. Seller or a Shareholder may have entered into
certain confidentiality agreements with third parties regarding the possible
sale of Seller or its Business. Seller and/or such Shareholder has previously
requested that all such third parties return to Seller all confidential
information provided to such parties by or on behalf of Seller or such
Shareholder or that such information be destroyed. At the Closing, Seller shall
assign all of its rights in and to any such confidentiality agreements to
Purchaser. Each Shareholder acknowledges that in the event of a breach or
threatened breach by a Shareholder of any of the provisions contained in this
ARTICLE 13, the BCC Parties will suffer irreparable damage or injury not fully
compensable by money damages, or the exact amount of which may be impossible to
ascertain, and therefore, the BCC Parties will not have an adequate remedy at
law. Accordingly, the BCC Parties shall be entitled to such injunctive relief or
other equitable relief, without the necessity of posting bond therefor, from any
court of competent jurisdiction as may be necessary or
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appropriate to prevent or curtail any such actual or threatened breach. The
foregoing shall be in addition to and without prejudice to any other rights that
the BCC Parties may have under this Agreement, at law or in equity, including,
without limitation, the right to sue for and recover money damages.
14. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, given by prepaid telex
or telegram or by facsimile or other similar instantaneous electronic
transmission device or mailed first class, postage prepaid, certified United
States mail, return receipt requested, as follows:
(a) If to Purchaser or BCC, at:
Billing Concepts Corp.
7411 John Smith Drive, Suite 200
San Antonio, Texas 78229
Attention: W. Audie Long
Facsimile No.: (210) 949-7024
With a copy to:
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro
Facsimile No.: (210) 270-7205
(b) If to Seller, at:
FIData, Inc.
9311 San Pedro Avenue, Suite 1110
San Antonio, TX 78216
Attention: President
Facsimile No.: (210) 321-7368
With a copy to:
Munsch Hardt Kopf & Harr, P.C.
111 Congress Avenue, Suite 2010
Austin, Texas 78701
Attention: Daniel N. Matheson
Facsimile No.: (512) 391-6149
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(c) If to the Shareholders, at:
FIDATA Equity Partners, L.P.
400 East Anderson Lane, Suite 100
Austin, TX 78752
Attention: Barry S. Gillingwater
Facsimile No.: (512) 339-4526
Southwest Business Corporation
9311 San Pedro, Suite 600
San Antonio TX 78216
Attention: Charlie Amato
Facsimile No.: (210) 321-7543
Mel Ray
1100 Swan Point Road
Woodbridge, VA 22192
William Hammock
13515 West Ave., Apt. 1113
San Antonio, TX 78216
With a copy to:
Munsch Hardt Kopf & Harr, P.C.
111 Congress Avenue, Suite 2010
Austin, Texas 78701
Attention: Daniel N. Matheson
Facsimile No.: (512) 391-6149
provided that any party may change its address for notice by giving to the other
party written notice of such change. Any notice given under this ARTICLE 14
shall be effective (x) when delivered, if delivered personally, (y) 24 hours
after sending, if sent by telex or telegram or by facsimile or other similar
instantaneous electronic transmission device, and (z) five business days after
mailing, if mailed.
15. TERMINATION.
15.1 TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(a) BCC and Seller may terminate this Agreement by mutual written
consent at any time prior to the Closing;
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(b) BCC may terminate this Agreement by giving written notice to
Seller on or before the Closing Date if BCC is not satisfied with the results of
its continuing business, legal and accounting due diligence regarding the
Seller;
(c) BCC may terminate this Agreement by giving written notice to
Seller at any time prior to the Closing (i) in the event the Seller or any
Shareholder has breached any representation, warranty or covenant contained in
this Agreement in any material respect, BCC has notified Seller of the breach,
and the breach has continued without cure for a period of 15 days after the
notice of breach or (ii) if the Closing shall not have occurred on or before
November 30, 1999, by reason of the failure of any condition precedent under
SECTION 9.1 hereof (unless the failure results primarily from BCC itself
breaching any representation, warranty or covenant contained in this Agreement);
and
(d) Seller and the Shareholders may terminate this Agreement by giving
written notice to BCC at any time prior to the Closing (i) in the event BCC has
breached any representation, warranty or covenant contained in this Agreement in
any material respect, Seller has notified BCC of the breach, and the breach has
continued without cure for a period of 15 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before November 30, 1999, by
reason of the failure of any condition precedent under SECTION 9.2 hereof
(unless the failure results primarily from any Shareholder or Seller themselves
breaching any representation, warranty or covenant contained in this Agreement).
15.2 EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ARTICLE 15, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach).
16. GUARANTEE. Each Shareholder hereby (a) unconditionally guarantees the
prompt performance of the obligations of Seller under this Agreement, (b) waives
any requirements of notice, protest, demand or grace with respect thereto and
(c) agrees that the BCC Parties shall not be required to exhaust their remedies
against any other person or party (including, but not limited to, Seller or any
Shareholder) before enforcing the provisions of this guarantee. Each Shareholder
recognizes and acknowledges that the BCC Parties are relying on this guarantee
in entering into and consummating the transactions contemplated by this
Agreement, and that but for this guarantee the BCC Parties would not enter into
this Agreement or consummate the transactions contemplated hereby. Any liability
resulting from the foregoing guarantee shall be limited to the Holdback Shares.
17. GENERAL PROVISIONS.
17.1 GOVERNING LAW; INTERPRETATION; SECTION HEADINGS. This Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Texas without regard to conflict-of-laws rules as applied in Texas. The
section headings contained herein are for purposes of convenience only and shall
not be deemed to constitute a part of this Agreement or to affect the meaning or
interpretation of this Agreement in any way.
17.2 SEVERABILITY. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of Texas, or under any other
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applicable laws of any other jurisdiction, then the parties hereto agree that
such provision shall be deemed modified for purposes of performance of this
Agreement in such jurisdiction to the extent necessary to render it lawful and
enforceable, or if such a modification is not possible without materially
altering the intention of the parties hereto, then such provision shall be
severed herefrom for purposes of performance of this Agreement in such
jurisdiction. The validity of the remaining provisions of this Agreement shall
not be affected by any such modification or severance, except that if any
severance materially alters the intentions of the parties hereto as expressed
herein (a modification being permitted only if there is no material alteration),
then the parties hereto shall use commercially reasonable efforts to agree to
appropriate equitable amendments to this Agreement in light of such severance,
and if no such agreement can be reached within a reasonable time, any party
hereto may initiate arbitration pursuant to the provisions of SECTION 17.11 to
determine and effect such appropriate equitable amendments.
17.3 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the
documents and agreements referenced herein set forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings related to the subject matter hereof. No representation, promise,
inducement or statement of intention has been made by any party hereto which is
not embodied or referenced in this Agreement, the Disclosure Schedule or the
documents or agreements referenced herein, and no party hereto shall be bound by
or liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
17.4 BINDING EFFECT. All the terms, provisions, covenants and conditions
of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
17.5 ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereto shall not be assigned or delegated by any party hereto without
the prior written consent of the other parties hereto.
17.6 AMENDMENT; WAIVER. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provision, representation, warranty or
covenant contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach, or as a waiver of any other condition or of the breach of
any other term, provision, representation, warranty or covenant.
17.7 GENDER; NUMBERS. All references in this Agreement to the masculine,
feminine or neuter genders shall, where appropriate, be deemed to include all
other genders. All plurals used in this Agreement shall, where appropriate, be
deemed to be singular, and VICE VERSA.
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17.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall be
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as signatories.
17.9 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereof.
17.10 EXPENSES. Whether or not the transactions contemplated hereby are
consummated, each of the parties will pay all costs and expenses of its or his
performance of and compliance with this Agreement.
17.11 ARBITRATION. The parties acknowledge that money damages are not an
adequate remedy for violations of this Agreement and that, prior to the
Effective Time, any party may, in its sole discretion, apply to a court of
competent jurisdiction for specific performance or injunctive or such other
relief as such court may deem just and proper to enforce this Agreement or to
prevent any violation hereof and, to the extent permitted by applicable law,
each party waives any objection to the imposition of such relief. Except for the
provisions of ARTICLES 12 and 13 of this Agreement dealing with restrictive
covenants and non-disclosure of confidential information, with respect to which
the BCC Parties expressly reserve the right to petition a court directly for
injunctive and other relief, any controversy of any nature whatsoever, including
but not limited to tort claims or contract disputes, between the parties to this
Agreement or their respective heirs, executors, administrators, legal
representatives, successors and assigns, as applicable, arising out of or
related to this Agreement after the Effective Time, including the
implementation, applicability and interpretation thereof, shall, upon the
written request of one party served upon the other, be submitted to and settled
by arbitration in accordance with the provisions of the Federal Arbitration Act,
9 U.S.C. ss.ss.1- 15, as amended. The terms of the commercial arbitration rules
of the American Arbitration Association (the "AAA") shall apply except to the
extent they conflict with the provisions of this paragraph. If the amount in
controversy in the arbitration exceeds Two Hundred and Fifty Thousand Dollars
($250,000), exclusive of interest, attorneys' fees and costs, the arbitration
shall be conducted by a panel of three independent arbitrators. Otherwise, the
arbitration shall be conducted by a single independent arbitrator. The parties
shall endeavor to select independent arbitrators by mutual agreement. If such
agreement cannot be reached within 30 calendar days after a dispute has arisen
which is to be decided by arbitration, the selection of the arbitrator(s) shall
be made in accordance with Rule 13 of the Rules as presently in effect. If three
arbitrators are selected, the arbitrators shall elect a chairperson to preside
at all meetings and hearings. If a dispute is to be resolved by a sole
arbitrator in accordance with the terms hereof, or if the dispute is to be
resolved by a panel of three arbitrators as provided hereinabove, then each such
arbitrator shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
57
<PAGE>
arbitrators in the case of a panel of arbitrators, shall be based on the
evidence admitted and the substantive law of the State of Texas and shall
contain an award for each issue and counterclaim. The award shall be made 30
days following the close of the final hearing and the filing of any post hearing
briefs authorized by the arbitrator(s). The award of the arbitrator(s) shall be
final and binding on the parties hereto. Each party shall be entitled to inspect
and obtain a copy of non- privileged relevant documents in the possession or
control of the other party. All such discovery shall be in accordance with
procedures approved by the arbitrator(s). Unless otherwise provided in the
award, each party shall bear its own costs of discovery. Each party shall be
entitled to take one deposition. Each party shall be entitled to submit one set
of interrogatories which require no more than 30 answers. All discovery shall be
expedited, consistent with the nature and complexity of the claim or dispute and
consistent with fairness and justice. The arbitrator(s) shall have the power to
compel any party to comply with discovery requests of the other parties and to
issue binding orders relating to any discovery dispute which shall be
enforceable in the same manner as awards. The arbitrator(s) also shall have the
power to impose sanctions for abuse or frustration of the arbitration process,
including without limitation, the refusal to comply with orders of the
arbitrator(s) relating to discovery and compliance with subpoenas. The
arbitrator(s) shall require the non-prevailing party to pay the prevailing
party's attorneys' fees and costs incurred in connection with the arbitration.
It is further agreed that any of the parties hereto may petition the United
States District Court for the Western District of Texas, San Antonio Division,
for a judgment to be entered upon any award entered through such arbitration
proceedings. All arbitration proceedings shall be conducted in San Antonio,
Texas.
17.12 DAMAGE TO ASSETS. If, on or before the Closing Date, the assets or
properties of the Seller are damaged or destroyed, Seller and the Shareholders
shall notify BCC of such damage or destruction. In the event of any such damage
or destruction, BCC shall have the right, in its sole discretion, to either (i)
reduce the Merger Consideration by an amount equal to the value of the damaged
or destroyed asset or assets, and complete the purchase, or (ii) terminate this
Agreement as provided by SECTION 15.1 hereof and not complete the purchase.
17.13 EFFECT OF DUE DILIGENCE. No investigation by or on behalf of the BCC
Parties into the business, operations, prospects, assets or condition (financial
or otherwise) of the Seller shall diminish in any way the effect of any
representations or warranties made by Seller or any Shareholder in this
Agreement or shall relieve Seller or any Shareholder of any of its or his
obligations under this Agreement.
17.14 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of BCC
and Seller; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law (in which case the
disclosing Party will use its reasonable best efforts to advise the other
Parties prior to making the disclosure).
17.15 NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
58
<PAGE>
17.16 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
17.17 INCORPORATION OF EXHIBITS, ANNEXES AND DISCLOSURE SCHEDULE. The
Exhibits, Annexes and Disclosure Schedule identified in this Agreement are
incorporated herein by reference and made a part hereof.
17.18 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
17.19 REMEDIES CUMULATIVE. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
59
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Plan of Reorganization,
Merger and Acquisition Agreement as of the date first above written.
PURCHASER:
BCC MERGER CORP.
By:
----------------------------
David P. Tusa
Senior Vice President and
Chief Financial Officer
BCC:
BILLING CONCEPTS CORP.
By:
----------------------------
David P. Tusa
Senior Vice President and
Chief Financial Officer
SELLER:
FIDATA, INC.
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
60
<PAGE>
SHAREHOLDERS:
FIDATA EQUITY PARTNERS, L.P.
By: FIRST ADVISORS, INC.,
General Partner
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
and
By: TROY ASSET ADVISORS, INC.,
General Partner
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
SOUTHWEST BUSINESS CORPORATION
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-------------------------------
Mel Ray, individually
-------------------------------
William Hammock, individually
61
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR
BILLING CONCEPTS CORP. AND SUBSIDIARIES AS OF AND FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 135,734
<SECURITIES> 0
<RECEIVABLES> 40,874
<ALLOWANCES> 2,403
<INVENTORY> 0
<CURRENT-ASSETS> 197,975
<PP&E> 48,137
<DEPRECIATION> 22,565
<TOTAL-ASSETS> 245,494
<CURRENT-LIABILITIES> 128,704
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 113,146
<TOTAL-LIABILITY-AND-EQUITY> 245,494
<SALES> 1,242
<TOTAL-REVENUES> 37,972
<CGS> 1,202
<TOTAL-COSTS> 23,833
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> (3,908)
<INCOME-TAX> (248)
<INCOME-CONTINUING> (3,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,660)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
