<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DOCUCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7372 75-2690838
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
5910 NORTH CENTRAL EXPRESSWAY
SUITE 800
DALLAS, TX 75206
(214) 891-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL D. ANDERECK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DOCUCORP, INC.
5910 NORTH CENTRAL EXPRESSWAY
SUITE 800
DALLAS, TX 75206
(214) 891-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS TO:
THOMAS J. SHARBAUGH, ESQ. BRUCE H. HALLETT, ESQ.
MORGAN, LEWIS & BOCKIUS LLP CROUCH & HALLETT, L.L.P.
2000 ONE LOGAN SQUARE 717 N. HARWOOD, SUITE 1400
PHILADELPHIA, PA 19103-6993 DALLAS, TX 75201
(215) 963-5000 (214) 922-4120
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT(1) PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value......... 4,450,179 $1.26 $5,607,226 $1,699.41
- --------------------------------------------------------------------------------------------------------------
Class B Common Stock,
$.01 par value......... 4,700,786 $1.26 $5,922,990 $1,794.85
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933, as
amended, calculated based on the book value, on February 21, 1997, of the
securities to be received by the Registrant in the Merger.
(2) The Registration Statement also covers an indeterminate number of shares
of Class A Common Stock issuable upon conversion of Class B Common Stock.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
IMAGE SCIENCES, INC.
5910 NORTH CENTRAL EXPRESSWAY
SUITE 800
DALLAS, TEXAS 75206
NOTICE OF SPECIAL MEETING OF STOCKHOLDER
TO BE HELD , 1997
To the Stockholders of
Image Sciences, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the "Image
Sciences Special Meeting") of Image Sciences, Inc. ("Image Sciences") will be
held at , at a.m., local time, on , , 1997, for the following
purposes:
(1) To consider and vote upon a proposal, recommended by the Board of
Directors of Image Sciences, to approve the Agreement and Plan of Merger
dated January 15, 1997 (the "Merger Agreement") among DocuCorp, Inc., a
Delaware corporation ("DocuCorp"), ISI Merger Corp., a Texas corporation
and wholly-owned subsidiary of DocuCorp (the "Texas Sub"), FormMaker
Acquisition Corp., a Georgia corporation and wholly-owned subsidiary of
DocuCorp (the "Georgia Sub"), Image Sciences and FormMaker Software, Inc.,
a Georgia corporation ("FormMaker"), providing for the merger (the
"Merger") of (i) the Texas Sub with and into Image Sciences and (ii) the
Georgia Sub with and into FormMaker.
(2) To transact such other business as may properly come before the Image
Sciences Special Meeting and any adjournments thereof.
Stockholders of record at the close of business on , 1997 will be entitled
to notice of and to vote at the Image Sciences Special Meeting, or any
adjournment or adjournments thereof. Stockholders are cordially invited to
attend the Image Sciences Special Meeting in person. Those who will not attend
and who wish their shares to be voted are requested to sign, date and mail
promptly the enclosed proxy for which a stamped return envelope is provided.
The specific details of the Merger are fully described in the accompanying
Joint Proxy Statement/Prospectus and in the Merger Agreement. A copy of the
Merger Agreement is attached to the Joint Proxy Statement/Prospectus as
Appendix A.
By Order of the Board of Directors
Joan P. Moore, Secretary
Dallas, Texas
, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE IMAGE SCIENCES SPECIAL MEETING,
YOU ARE URGED TO SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY. IF YOU
ATTEND THE IMAGE SCIENCES SPECIAL MEETING, YOU CAN VOTE EITHER IN PERSON OR BY
YOUR PROXY.
<PAGE>
[LETTERHEAD OF IMAGE SCIENCES, INC.]
To the Stockholders of Image Sciences, Inc.:
You are hereby asked to consider and act upon a proposal to approve an
Agreement and Plan of Merger dated as of January 15, 1997 (the "Merger
Agreement") providing for the merger (the "Merger") of (i) ISI Merger Corp.
(the "Texas Sub"), a Texas corporation and wholly-owned subsidiary of
DocuCorp, Inc., a Delaware corporation ("DocuCorp"), with and into Image
Sciences, Inc., a Texas corporation ("Image Sciences"), and (ii) FormMaker
Acquisition Corp. (the "Georgia Sub"), a Georgia corporation and wholly-owned
subsidiary of DocuCorp, with and into FormMaker Software, Inc., a Georgia
corporation ("FormMaker").
If the Merger Agreement is approved by (i) the holders (the "Image Sciences
Stockholders") of Image Sciences Common Stock, par value $.01 per share
("Image Sciences Common Stock"), and Image Sciences Preferred Stock, par value
$.10 per share ("Image Sciences Preferred Stock"), and (ii) the holders (the
"FormMaker Stockholders") of FormMaker Common Stock, par value $.01 per share
("FormMaker Common Stock"), the Texas Sub will be merged with and into Image
Sciences and the Georgia Sub will be merged with and into FormMaker, with
Image Sciences and FormMaker surviving as wholly-owned subsidiaries of
DocuCorp. Pursuant to the Merger and assuming that there are no dissenting
Image Sciences Stockholders or FormMaker Stockholders, (i) each issued and
outstanding share of Image Sciences Common Stock will be converted into 1.4432
shares of DocuCorp Class B Common Stock, par value $.01 per share ("DocuCorp
Class B Common Stock") (assuming for such purposes that 477,851 shares of
Image Sciences Common Stock and options to purchase 560,607 shares of Image
Sciences Common Stock have been repurchased by Image Sciences pursuant to a
tender offer); (ii) each issued and outstanding share of Image Sciences
Preferred Stock will be converted into 1.029 shares of DocuCorp Class B Common
Stock; and (iii) each issued and outstanding share of FormMaker Common Stock
will be converted into .7144 shares of DocuCorp Class A Common Stock, par
value $.01 per share ("DocuCorp Class A Common Stock, and together with the
DocuCorp Class B Common Stock, the DocuCorp Common Stock"). Shares of DocuCorp
Class A Common Stock and DocuCorp Class B Common Stock are identical in all
respects except that shares of DocuCorp Class B Common Stock have a redemption
feature exercisable at the option of the holder of such shares upon the
occurrence of certain events.
The affirmative vote of at least two-thirds of the outstanding shares of
Image Sciences Common Stock and Image Sciences Preferred Stock, voting as
separate classes, is required to approve the Merger Agreement. After careful
consideration, the Board of Directors of Image Sciences has determined that
the Merger and the transactions contemplated thereby are in the best interests
of Image Sciences and the Image Sciences Stockholders. The directors and
executive officers of Image Sciences, who beneficially own in the aggregate
41% of the Image Science Common Stock on the record date for the Image
Sciences Special Meeting have advised Image Sciences that they intend to vote
the shares of Image Sciences Common Stock held by them in favor of the Merger.
Certain Stockholders of Image Sciences owning an aggregate of approximately
39% of the outstanding Image Sciences Common Stock and 100% of the outstanding
Image Sciences Preferred Stock as of the record date for the Image Sciences
Special Meeting have agreed pursuant to a Voting and Lockup Agreement dated
January 15, 1997 to vote their shares in favor of the Merger.
Enclosed is a Joint Proxy Statement/Prospectus containing detailed
information concerning the Merger and the transactions contemplated thereby.
Please sign, date and return the enclosed proxy at your earliest convenience.
THE BOARD OF DIRECTORS OF IMAGE SCIENCES UNANIMOUSLY RECOMMENDS THAT THE
IMAGE SCIENCES STOCKHOLDERS APPROVE THE MERGER.
Sincerely,
Michael D. Andereck
President and Chief Executive
Officer
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FORMMAKER SOFTWARE, INC.
2300 WINDY RIDGE PARKWAY
SUITE 400 NORTH
ATLANTA, GEORGIA 30339
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1997
To the Stockholders of
FormMaker Software, Inc.:
Notice is hereby given that a Special Meeting of Stockholders (the
"FormMaker Special Meeting") of FormMaker Software, Inc. ("FormMaker") will be
held at , at a.m., local time, on , 1997, for the following
purposes:
(1) To consider and vote upon a proposal, recommended by the Board of
Directors of FormMaker, to approve the Agreement and Plan of Merger dated
January 15, 1997 (the "Merger Agreement") among DocuCorp, Inc., a Delaware
corporation ("DocuCorp"), ISI Merger Corp., a Texas corporation and wholly-
owned subsidiary of DocuCorp (the "Texas Sub"), FormMaker Acquisition
Corp., a Georgia corporation and wholly-owned subsidiary of DocuCorp (the
"Georgia Sub"), Image Sciences, Inc., a Texas corporation ("Image
Sciences") and FormMaker, providing for the merger (the "Merger") of (i)
the Texas Sub with and into Image Sciences and (ii) the Georgia Sub with
and into FormMaker.
(2) To transact such other business as may properly come before the Image
Sciences Special Meeting and any adjournments thereof.
Stockholders of record at the close of business on , 1997 will be
entitled to notice of and to vote at the FormMaker Special Meeting, or any
adjournment or adjournments thereof. Stockholders are cordially invited to
attend the FormMaker Special Meeting in person. Those who will not attend and
who wish their shares to be voted are requested to sign, date and mail
promptly the enclosed proxy for which a stamped return envelope is provided.
The specific details of the Merger are fully described in the accompanying
Joint Proxy Statement/ Prospectus and in the Merger Agreement. A copy of the
Merger Agreement is attached to the Joint Proxy Statement/Prospectus as
Appendix A.
By Order of the Board of Directors
R. Lee Morris, Secretary
Atlanta, Georgia
, 1997
WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE FORMMAKER SPECIAL MEETING, YOU
ARE URGED TO SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY. IF YOU ATTEND
THE FORMMAKER SPECIAL MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE>
[LETTERHEAD OF FORMMAKER SOFTWARE, INC.]
To the Stockholders of FormMaker Software, Inc.:
You are hereby asked to consider and act upon a proposal to approve an
Agreement and Plan of Merger dated as of January 15, 1997 (the "Merger
Agreement") providing for the merger (the "Merger") of (i) ISI Merger Corp.
(the "Texas Sub"), a Texas corporation and wholly-owned subsidiary of
DocuCorp, Inc., a Delaware corporation ("DocuCorp"), with and into Image
Sciences, Inc., a Texas corporation ("Image Sciences"), and (ii) FormMaker
Acquisition Corp. (the "Georgia Sub"), a Georgia corporation and wholly-owned
subsidiary of DocuCorp, with and into FormMaker Software, Inc., a Georgia
corporation ("FormMaker").
If the Merger Agreement is approved by (i) the holders (the Image Sciences
Stockholders ) of Image Sciences Common Stock, par value $.01 per share
("Image Sciences Common Stock"), and Image Sciences Preferred Stock, par value
$.10 per share ("Image Sciences Preferred Stock"), and (ii) the holders (the
"FormMaker Stockholders") of FormMaker Common Stock, par value $.01 per share
("FormMaker Common Stock"), the Texas Sub will be merged with and into Image
Sciences and the Georgia Sub will be merged with and into FormMaker, with
Image Sciences and FormMaker surviving as wholly-owned subsidiaries of
DocuCorp. Pursuant to the Merger and assuming that there are no dissenting
Image Sciences Stockholders or FormMaker Stockholders, (i) each issued and
outstanding share of Image Sciences Common Stock will be converted into 1.4432
shares of DocuCorp Class B Common Stock, par value $.01 per share ("DocuCorp
Class B Common Stock") (assuming for such purposes that 477,851 shares of
Image Sciences Common Stock and options to purchase 560,607 shares of Image
Sciences Common Stock have been repurchased by Image Sciences pursuant to a
tender offer); (ii) each issued and outstanding share of Image Sciences
Preferred Stock will be converted into 1.029 shares of DocuCorp Class B Common
Stock; and (iii) each issued and outstanding share of FormMaker Common Stock
will be converted into .7144 shares of DocuCorp Class A Common Stock, par
value $.01 per share ("DocuCorp Class A Common Stock," and together with the
DocuCorp Class B Common Stock, the "DocuCorp Common Stock"). Shares of
DocuCorp Class A Common Stock and DocuCorp Class B Common Stock are identical
in all respects except that shares of DocuCorp Class B Common Stock have a
redemption feature exercisable at the option of the holder of such shares upon
the occurrence of certain events.
The affirmative vote of at least a majority of the outstanding shares of
FormMaker Common Stock is required to approve the Merger. After careful
consideration, the Board of Directors of FormMaker has determined that the
Merger and the transactions contemplated thereby are in the best interests of
FormMaker and the FormMaker Stockholders. The directors and executive officers
of FormMaker, who beneficially own in the aggregate 22% of the FormMaker
Common Stock on the record date for the FormMaker Special Meeting, have
advised FormMaker that they intend to vote the shares of FormMaker Common
Stock held by them in favor of the Merger. Certain stockholders of FormMaker
owning an aggregate of approximately 80% of the outstanding FormMaker Common
Stock on the record date for the Special Meeting of FormMaker have agreed
pursuant to a Voting and Lockup Agreement dated January 15, 1997 to vote their
shares in favor of the Merger. Therefore, approval of the Merger by the
FormMaker Stockholders has been assured.
Enclosed is a Joint Proxy Statement/Prospectus containing detailed
information concerning the Merger and the transactions contemplated thereby.
Please sign, date and return the enclosed proxy at your earliest convenience.
THE BOARD OF DIRECTORS OF FORMMAKER UNANIMOUSLY RECOMMENDS THAT THE
FORMMAKER STOCKHOLDERS APPROVE THE MERGER.
Sincerely,
John D. Loewenberg
Chief Executive Officer and
President
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
JOINT PROXY STATEMENT
FOR
IMAGE SCIENCES, INC.
AND
FORMMAKER SOFTWARE, INC.
FOR MEETINGS OF THEIR RESPECTIVE
STOCKHOLDERS TO BE HELD
ON , 1997
----------------
DOCUCORP, INC.
PROSPECTUS
FOR
4,450,179 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE, ISSUABLE
IN CONNECTION WITH THE MERGER
4,700,786 SHARES OF CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE, ISSUABLE
IN CONNECTION WITH THE MERGER
This Joint Proxy Statement/Prospectus of Image Sciences, Inc., a Texas
corporation ("Image Sciences"), is being furnished to holders of outstanding
shares of Common Stock of Image Sciences, par value $.01 per share (the "Image
Sciences Common Stock"), and holders of outstanding shares of Preferred Stock
of Image Sciences, par value $.10 per share (the "Image Sciences Preferred
Stock"), in connection with the solicitation of proxies from all such holders
(the "Image Sciences Stockholders") by the Board of Directors of Image
Sciences (the "Image Sciences Board") for use at the Special Meeting of
Stockholders of Image Sciences (the "Image Sciences Special Meeting") to be
held on , 1997, at at a.m., local time, and any adjournment
thereof.
This Joint Proxy Statement/Prospectus of FormMaker Software, Inc., a Georgia
corporation ("FormMaker"), is being furnished to holders (the "FormMaker
Stockholders") of outstanding shares of Common Stock of FormMaker, par value
$.01 per share (the "FormMaker Common Stock"), in connection with the
solicitation of proxies from all such holders by the Board of Directors of
FormMaker (the "FormMaker Board") for use at the Special Meeting of
Stockholders of FormMaker (the "FormMaker Special Meeting") to be held on
, 1997, at at a.m., local time, and any adjournment thereof.
This Joint Proxy Statement/Prospectus also constitutes a prospectus filed as
part of a Registration Statement (defined below) of DocuCorp, Inc., a Delaware
corporation ("DocuCorp"), filed with the Securities and Exchange Commission
(the "Commission") in connection with the issuance of 4,450,179 shares of
Class A Common Stock of DocuCorp, par value $.01 per share (the "DocuCorp
Class A Common Stock"), and 4,700,786 shares of Class B Common Stock, par
value $.01 (the "DocuCorp Class B Common Stock," and together with the
DocuCorp Class A Common Stock, the "DocuCorp Common Stock"), issuable pursuant
to the Merger (defined below).
IN EVALUATING THE MERGER, THE IMAGE SCIENCES STOCKHOLDERS AND THE FORMMAKER
STOCKHOLDERS SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED BEGINNING ON PAGE
13 UNDER "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is , 1997.
<PAGE>
(cover continued from previous page)
The Image Sciences Stockholders and the FormMaker Stockholders will be asked
to consider and act upon a proposal to approve an Agreement and Plan of Merger
dated as of January 15, 1997 (the "Merger Agreement"), among DocuCorp, Inc., a
Delaware corporation ("DocuCorp"), Image Sciences, FormMaker, ISI Merger
Corp., a Texas corporation and a wholly-owned subsidiary of DocuCorp (the
"Texas Sub"), and FormMaker Acquisition Corp., a Georgia corporation and a
wholly-owned subsidiary of DocuCorp (the "Georgia Sub"), providing for the
merger (the "Merger") of (i) the Texas Sub with and into Image Sciences and
(ii) the Georgia Sub with and into FormMaker, with Image Sciences and
FormMaker surviving as wholly-owned subsidiaries of DocuCorp.
The affirmative vote of the holders of at least two-thirds of the
outstanding shares of Image Sciences Common Stock and Image Sciences Preferred
Stock, voting as separate classes, is required to approve the Merger
Agreement. The affirmative vote of the holders of at least a majority of the
outstanding shares of FormMaker Common Stock is required to approve the Merger
Agreement. Certain stockholders of Image Sciences and FormMaker owning an
aggregate of approximately 39% of the outstanding Image Sciences Common Stock,
100% of the Image Sciences Preferred Stock and 80% of the outstanding
FormMaker Common Stock as of February 1, 1997 have agreed pursuant to a Voting
and Lockup Agreement dated as of January 15, 1997 (the "Voting and Lockup
Agreement") to vote their shares in favor of the Merger Agreement. Therefore,
approval of the Merger Agreement by the FormMaker Stockholders has been
assured. As of February 1, 1997, the directors and executive officers of Image
Sciences owned of record approximately 41% of the Image Sciences Common Stock
entitled to vote at the Image Sciences Special Meeting and the directors and
executive officers of FormMaker owned of record approximately 22% of the
FormMaker Common Stock entitled to vote at the FormMaker Special Meeting.
The Image Sciences Stockholders and the FormMaker Stockholders will have
dissenters' rights of appraisal in connection with the Merger. See "The Merger
and Related Transactions--Dissenters' Rights." In order to exercise such
dissenters' rights of appraisal properly, a dissenting Image Sciences
Stockholder or FormMaker Stockholder, as the case may be, must refrain from
voting, by proxy or in person, his or her shares in favor of the Merger
Agreement.
There has not been, nor is there expected to be upon consummation of the
Merger, a public market for the DocuCorp Common Stock. Immediately after the
consummation of the Merger, the Image Sciences Stockholders, in the aggregate,
will own approximately 51% of the then outstanding shares of DocuCorp Common
Stock (51% on a fully diluted basis) and the FormMaker Stockholders will own
approximately 49% of the then outstanding shares of DocuCorp Common Stock (49%
on a fully diluted basis).
This Joint Proxy Statement/Prospectus and the accompanying forms of proxies
are first being mailed to the stockholders of Image Sciences and FormMaker on
or about , 1997.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF DOCUCORP
CLASS A COMMON STOCK OR DOCUCORP CLASS B COMMON STOCK TO BE RECEIVED BY THE
HOLDERS OF IMAGE SCIENCES COMMON STOCK, IMAGE SCIENCES PREFERRED STOCK OR
FORMMAKER COMMON STOCK UPON CONSUMMATION OF THE PROPOSED MERGER AND NO PERSON
IS AUTHORIZED TO MAKE ANY USE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH ANY SUCH RESALES.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DOCUCORP,
IMAGE SCIENCES OR FORMMAKER. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITY OTHER THAN THE SECURITIES COVERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY FROM ANY PERSON IN ANY
JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER OR PROXY. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION ABOUT DOCUCORP, IMAGE SCIENCES OR FORMMAKER CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS SINCE THE DATE HEREOF.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................... 5
The Parties.............................................................. 5
The Special Meetings..................................................... 6
Risk Factors............................................................. 6
The Merger and Related Transactions...................................... 6
Effective Time........................................................... 7
Conversion of Securities................................................. 7
Recommendations of the Boards of Directors............................... 8
The Merger Agreement..................................................... 8
Exchange of Stock Certificates, Warrants and Option Agreements........... 8
Interests of Certain Persons in Merger................................... 8
Management After the Merger.............................................. 9
Absence of Regulatory Filings and Approvals.............................. 9
Accounting Treatment..................................................... 9
Material Federal Income Tax Consequences................................. 9
Dissenters' Rights....................................................... 9
Comparative Per Share Data............................................... 10
RISK FACTORS............................................................... 11
THE SPECIAL MEETINGS....................................................... 14
Image Sciences Special Meeting........................................... 14
FormMaker Special Meeting................................................ 15
THE MERGER AND RELATED TRANSACTIONS........................................ 17
General.................................................................. 17
Effective Time........................................................... 17
Conversion of Securities................................................. 17
Background of the Merger................................................. 17
Reasons for and Effects of the Merger; Recommendations................... 18
The Merger Agreement..................................................... 19
The Image Sciences Closing Transactions.................................. 23
The Liquidity Agreement.................................................. 23
Interests of Certain Persons in the Merger............................... 23
Exchange of Stock Certificates, Warrants and Option Agreements........... 24
Conversion of Options and Warrants....................................... 24
Management After the Merger.............................................. 25
Absence of Regulatory Filings and Approvals.............................. 25
Accounting Treatment..................................................... 25
Material Federal Income Tax Consequences................................. 25
Consequences Under Federal Securities Laws............................... 27
Dissenters' Rights....................................................... 27
DESCRIPTION OF DOCUCORP CAPITAL STOCK...................................... 32
DocuCorp Common Stock.................................................... 32
DocuCorp Preferred Stock................................................. 33
Limitation on Liability.................................................. 33
Certain Anti-Takeover Provisions......................................... 34
Section 203 of Delaware General Corporation Law.......................... 34
Transfer Agent and Registrar............................................. 34
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 34
Removal of Directors.................................................... 35
Call of Special Stockholder Meetings.................................... 35
Dissenters' Rights...................................................... 35
Dividends and Distributions............................................. 36
Indemnification of Officers and Directors............................... 37
Amendment to Certificate of Incorporation............................... 37
Vote Required for Extraordinary Corporate Transactions.................. 37
Class Voting............................................................ 38
Interested Stockholder Transactions..................................... 38
Director Liability...................................................... 39
MARKET PRICE OF AND DIVIDENDS ON DOCUCORP COMMON STOCK AND RELATED
STOCKHOLDER MATTERS...................................................... 40
Market Price............................................................ 40
Dividend Policy......................................................... 40
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA...................... 41
SELECTED FINANCIAL DATA OF IMAGE SCIENCES................................. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF IMAGE SCIENCES............................................. 48
SELECTED FINANCIAL DATA OF FORMMAKER...................................... 54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FORMMAKER.................................................. 55
BUSINESS OF DOCUCORP...................................................... 60
BUSINESS OF IMAGE SCIENCES................................................ 61
BUSINESS OF FORMMAKER..................................................... 66
MANAGEMENT OF DOCUCORP.................................................... 72
Compensation of Directors............................................... 73
Executive Compensation.................................................. 74
Employment Agreements................................................... 76
Stock Option Plan....................................................... 76
401(k) Profit Sharing Plan.............................................. 76
Certain Relationships and Related Transactions.......................... 76
PRINCIPAL STOCKHOLDERS OF DOCUCORP........................................ 78
PRINCIPAL STOCKHOLDERS OF IMAGE SCIENCES.................................. 79
PRINCIPAL STOCKHOLDERS OF FORMMAKER....................................... 80
EXPERTS................................................................... 81
LEGAL MATTERS............................................................. 81
ADDITIONAL INFORMATION.................................................... 81
REPORTS TO SECURITY HOLDERS............................................... 81
APPENDIX A MERGER AGREEMENT
APPENDIX B ARTICLES 5.11, 5.12 and 5.13 OF THE TEXAS BUSINESS CORPORATION ACT
APPENDIX C SECTIONS 14-2-1302, 14-2-1303, 14-2-1321 THROUGH 14-2-1323 AND 14-2-
1330 THROUGH 14-2-1332 OF THE GEORGIA BUSINESS CORPORATION CODE
</TABLE>
4
<PAGE>
SUMMARY
The following is a summary of certain significant matters discussed elsewhere
in this Joint Proxy Statement/Prospectus. This summary is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Joint Proxy Statement/Prospectus and the Appendices hereto. Stockholders
are urged to read the entire Joint Proxy Statement/Prospectus, including the
Appendices hereto. Certain terms used in this summary and elsewhere in this
Joint Proxy Statement/Prospectus are used as defined in the Summary or
elsewhere in this Joint Proxy Statement/Prospectus.
Unless the context indicates otherwise, all Image Sciences share and option
data and references to conversion ratios for the Image Sciences Common Stock in
the Merger are based upon the assumption of full participation in the Image
Sciences Tender Offer (described below). All of these items would change if
there was less than full participation in the Image Sciences Tender Offer. See
"The Merger and Related Transactions--The Image Sciences Closing Transaction."
THE PARTIES
DocuCorp
DocuCorp was organized on January 13, 1997 as a holding company in connection
with the Merger. The Merger will be treated as a purchase of FormMaker by Image
Sciences for financial reporting purposes and will become effective upon the
filing of articles of merger and all other necessary documents with the
Secretaries of State of Texas and Georgia and the issuance of a certificate of
merger by the Secretary of State of Texas. No purchase accounting is required
related to the conversion of Image Sciences Common Stock and Image Sciences
Preferred Stock into DocuCorp Common Stock, as Image Sciences is considered the
acquiror for financial reporting purposes. It is expected that all of
DocuCorp's business will be conducted through Image Sciences and FormMaker.
As a result of the Merger, DocuCorp will be a leading national provider of
document automation software and services to the insurance, financial services,
utilities, healthcare and other document-intensive industries. See "Business of
DocuCorp."
DocuCorp's executive offices are located at 5910 North Central Expressway,
Suite 800, Dallas, Texas 75206 and its telephone number is (214) 891-6500.
Image Sciences
Image Sciences develops, markets and supports software products designed to
automate the processing of business forms and documents. See "Business of Image
Sciences."
Image Sciences' executive offices are located at 5910 North Central
Expressway, Suite 800, Dallas, Texas 75206, and its telephone number is (214)
891-6500.
FormMaker
FormMaker develops, markets, installs and services electronic document
automation and imaging systems to meet the needs of insurance, financial
services, utilities, healthcare and other document-intensive industries. See
"Business of FormMaker."
FormMaker's executive offices are located at 2300 Windy Ridge Parkway, Suite
400 North, Atlanta, Georgia 30339, and its telephone number is (770) 859-9900.
5
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THE SPECIAL MEETINGS
Image Sciences Special Meeting. This Joint Proxy Statement/Prospectus of
Image Sciences is being furnished to the Image Sciences Stockholders in
connection with the solicitation of proxies by the Image Sciences Board. The
Image Sciences Special Meeting will be held at a.m., local time on ,
1997, at , for the purpose of approving the Merger Agreement.
The affirmative vote of the holders of at least two-thirds of the outstanding
shares of Image Sciences Common Stock and Image Sciences Preferred Stock,
voting as separate classes, is required to approve the Merger Agreement.
Holders of record of Image Sciences Common Stock and holders of record of Image
Sciences Preferred Stock as of the close of business on , 1997 (the "Image
Sciences Record Date") will be entitled to cast one vote for each share of
Image Sciences Common Stock or Image Sciences Preferred Stock held as of such
date. At the Image Sciences Record Date, there were 2,335,082 shares of Image
Sciences Common Stock and 1,963,433 shares of Image Sciences Preferred Stock
outstanding and entitled to vote on the Merger. Holders of approximately 39% of
Image Sciences Common Stock and 100% of the Image Sciences Preferred Stock have
entered into the Voting and Lockup Agreement in which they have agreed to vote
in favor of the Merger Agreement. As of February 1, 1997, the directors and
executive officers of Image Sciences owned of record approximately 41% of the
Image Sciences Common Stock entitled to vote at the Image Sciences Special
Meeting. THE IMAGE SCIENCES BOARD UNANIMOUSLY RECOMMENDS THAT THE IMAGE
SCIENCES STOCKHOLDERS APPROVE THE MERGER AGREEMENT. See "The Special Meetings--
Image Sciences Special Meeting."
FormMaker Special Meeting. This Joint Proxy Statement/Prospectus of FormMaker
is being furnished to the FormMaker Stockholders in connection with the
solicitation of proxies by the FormMaker Board. The FormMaker Special Meeting
will be held at a.m., local time on , 1997, at , for the purpose of
approving the Merger Agreement.
The affirmative vote of the holders of at least a majority of the outstanding
shares of FormMaker Common Stock is required to approve the Merger Agreement.
Holders of record of the FormMaker Common Stock as of the close of business on
, 1997 (the "FormMaker Record Date") will be entitled to cast one vote for
each share of the FormMaker Common Stock held as of such date. At the FormMaker
Record Date, there were 6,229,511 shares of FormMaker Common Stock outstanding
and entitled to vote on the Merger Agreement. Holders of approximately 80% of
the FormMaker Common Stock have entered into the Voting and Lockup Agreement in
which they have agreed to vote in favor of the Merger. As of February 1, 1997,
the directors and executive officers of FormMaker owned of record 22% of the
FormMaker Common Stock entitled to vote at the FormMaker Special Meeting.
Accordingly, the approval of the Merger Agreement by the holders of the
FormMaker Common Stock has been assured. THE FORMMAKER BOARD UNANIMOUSLY
RECOMMENDS THAT THE FORMMAKER STOCKHOLDERS APPROVE THE MERGER AGREEMENT. See
"The Special Meetings--FormMaker Special Meeting."
RISK FACTORS
The Image Sciences Stockholders and the FormMaker Stockholders should
carefully consider certain risk factors in evaluating the Merger. See "Risk
Factors."
THE MERGER AND RELATED TRANSACTIONS
The Image Sciences Stockholders and the FormMaker Stockholders will each vote
separately on the Merger Agreement. Upon the consummation of the Merger, Image
Sciences will be the surviving Texas corporation and FormMaker will be the
surviving Georgia corporation, and each will be a wholly-owned subsidiary of
DocuCorp. See "The Merger and Related Transactions--General."
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Since DocuCorp is a Delaware corporation, from and after the Effective Time
(defined below), Delaware law will govern the rights of the former Image
Sciences Stockholders and FormMaker Stockholders rather than Texas and Georgia
law, respectively, except with respect to dissenters' rights applicable to such
Image Sciences Stockholders and FormMaker Stockholders, which will be governed
by Texas law and Georgia law, respectively, after the Effective Time of the
Merger. See "The Merger and Related Transactions--Dissenters' Rights" and
"Comparison of Stockholder Rights."
Image Sciences is offering (the "Image Sciences Tender Offer"), conditioned
upon the satisfaction of all conditions precedent to the Merger, to repurchase
up to 477,851 shares of Images Sciences Common Stock and Image Sciences options
to purchase up to 560,607 shares of Image Sciences Common Stock granted prior
to July 31, 1991, and will declare and distribute a cash dividend to the holder
of Image Sciences Preferred Stock (the "Image Sciences Preferred Stock
Dividend," and together with the Image Sciences Tender Offer, the "Image
Sciences Closing Transactions"). See "The Merger and Related Transactions--The
Image Sciences Closing Transactions."
DocuCorp, Safeguard Scientifics (Delaware), Inc., a Delaware corporation
("Safeguard Delaware"), Safeguard Scientifics, Inc., a Pennsylvania corporation
("Safeguard"), Technology Leaders II L.P., a Delaware limited partnership ("TL
II"), and Technology Leaders II Offshore C.V., a Netherlands Antilles limited
partnership ("TL II Offshore," and together with Safeguard Delaware and TL II,
the "SG/TL Stockholders"), have entered into a Liquidity Agreement dated
January 15, 1997 (the "Liquidity Agreement") pursuant to which (i) Safeguard
has agreed to use commercially reasonable efforts to conduct and consummate an
underwritten public offering of rights to purchase shares of DocuCorp Class A
Common Stock ("DocuCorp Rights") in which the managing underwriter values the
equity of DocuCorp at $62.1 million or more (a "Qualified Rights Offering");
(ii) the SG/TL Stockholders have agreed to purchase a certain number of shares
of DocuCorp Class A Common Stock if DocuCorp is required to redeem shares of
DocuCorp Class B Common Stock, and to guarantee an existing line of credit of
FormMaker (to be amended as contemplated by the Merger Agreement); and (iii)
DocuCorp has agreed to grant warrants ("DocuCorp Warrants") to purchase 610,000
shares of DocuCorp Class A Common Stock to the SG/TL Stockholders. See "The
Merger and Related Transactions--the Liquidity Agreement."
EFFECTIVE TIME
As soon as practicable following the satisfaction or waiver of all conditions
to the Merger, the Merger will be consummated upon the filing of articles of
merger and all other necessary documents with the Secretaries of State of Texas
and Georgia and the issuance of a certificate of merger by the Secretary of
State of Texas, the later of which times is referred to herein as the
"Effective Time." See "The Merger and Related Transactions--Effective Time."
CONVERSION OF SECURITIES
Pursuant to the Merger Agreement, (i) each issued and outstanding share of
Image Sciences Common Stock will be converted into 1.4432 shares of DocuCorp
Class B Common Stock (assuming for such purposes that 477,851 shares of Image
Sciences Common Stock and Image Sciences options to purchase 560,607 shares of
Image Sciences Common Stock have been repurchased in the Image Sciences Tender
Offer); and (ii) each issued and outstanding share of Image Sciences Preferred
Stock will be converted into 1.029 shares of DocuCorp Class B Common Stock.
Additionally, pursuant to the Merger Agreement, each issued and outstanding
share of FormMaker Common Stock will be converted into .7144 shares of DocuCorp
Class A Common Stock. Shares of DocuCorp Class A Common Stock and DocuCorp
Class B Common Stock are identical in all respects except that shares of
DocuCorp Class B Common Stock have a redemption feature exercisable at the
option of the holder of such shares upon the occurrence of certain events. See
"Description of DocuCorp Capital Stock."
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Immediately after the Effective Time, the Image Sciences Stockholders, in the
aggregate, will own approximately 51% of the then outstanding shares of
DocuCorp Common Stock (51% on a fully diluted basis) and the FormMaker
Stockholders, in the aggregate, will own approximately 49% of the then
outstanding shares of DocuCorp Common Stock (49% on a fully diluted basis).
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Image Sciences Board and the FormMaker Board each have unanimously
approved the Merger Agreement and determined that the terms of the proposed
Merger are fair to and in the best interests of their respective stockholders.
The Image Sciences Board and the FormMaker Board each unanimously recommends
that the Image Sciences Stockholders and the FormMaker Stockholders,
respectively, approve the Merger Agreement. See "The Merger and Related
Transactions--Background of the Merger" and "The Merger and Related
Transactions--Reasons for and Effects of the Merger; Recommendations."
THE MERGER AGREEMENT
The Merger Agreement sets forth the principal terms upon which the Merger
will be consummated, the terms upon which shares of Image Sciences Common
Stock, Image Sciences Preferred Stock and FormMaker Common Stock will be
converted into DocuCorp Class A Common Stock or DocuCorp Class B Common Stock,
as the case may be, and also sets forth the terms upon which Image Sciences
options to purchase Image Sciences Common Stock ("Image Sciences Options") and
FormMaker options to purchase FormMaker Common Stock ("FormMaker Options") will
be converted into DocuCorp Options and the terms upon which FormMaker warrants
to purchase FormMaker Common Stock ("FormMaker Warrants") will be converted
into DocuCorp Warrants. The Merger Agreement contains representations,
warranties and agreements of the parties, and provides specific conditions to
the consummation of the Merger and terms under which the Merger may be
terminated. See "The Merger and Related Transactions--The Merger Agreement."
EXCHANGE OF STOCK CERTIFICATES, WARRANTS AND OPTION AGREEMENTS
At the Effective Time, in accordance with the conversion ratios described in
this Joint Proxy Statement/ Prospectus, (i) each holder of shares of Image
Sciences Common Stock, Image Sciences Preferred Stock or FormMaker Common Stock
will be entitled to receive, upon surrender of certificate(s) formerly
representing such Image Sciences or FormMaker capital stock, certificates
representing DocuCorp Common Stock; (ii) each holder of FormMaker Warrants will
be entitled to receive, upon surrender of such warrants, new warrant agreements
with respect to DocuCorp Warrants; and (iii) each holder of Image Sciences
Options or FormMaker Options will be entitled to receive, upon surrender of
agreements representing such options, new option agreements with respect to
DocuCorp Options. See "The Merger and Related Transactions--Exchange of
Securities." Instructions with respect to the surrender of certificates,
warrants and option agreements, together with a letter of transmittal to be
used for this purpose, will be forwarded to the holders of such securities
contemporaneously with the mailing of this Joint Proxy Statement/Prospectus.
Security holders should surrender such certificates, warrants and option
agreements only with an accompanying letter of transmittal. See "The Merger and
Related Transactions--Exchange of Stock Certificates, Warrants and Option
Agreements."
INTERESTS OF CERTAIN PERSONS IN MERGER
No director or executive officer of Image Sciences had or will have a
personal or business relationship with FormMaker prior to the Effective Time.
No director or executive officer of FormMaker had or will have a personal or
business relationship with Image Sciences prior to the Effective Time. In
considering recommendations of the Image Sciences Board and the FormMaker Board
with respect to the Merger, however, the Image Sciences Stockholders and the
FormMaker Stockholders should be aware that certain directors and executive
officers of Image Sciences and FormMaker have an interest in the consummation
of the Merger, as
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<PAGE>
described in this Joint Proxy Statement/Prospectus. See "Management of
DocuCorp--Certain Relationships and Related Transactions."
MANAGEMENT AFTER THE MERGER
At the Effective Time, the DocuCorp Board of Directors (the "DocuCorp Board")
will consist of seven members: Arthur R. Spector, Michael D. Andereck, Milledge
A. Hart, III, John D. Loewenberg, Warren V. Musser, one independent director
and one designee of Xerox Corporation, a New York corporation and the holder of
Image Sciences Preferred Stock ("Xerox"). At the Effective Time, (i) Mr.
Spector, Chairman of the FormMaker Board, will be the Chairman of the DocuCorp
Board and of the boards of directors of Image Sciences and FormMaker; (ii) Mr.
Andereck, the President and Chief Executive Officer of Image Sciences, will be
the President and Chief Executive Officer of DocuCorp, Image Sciences and
FormMaker; (iii) Samuel M. Wilkes, the Chief Operating Officer of FormMaker,
will be the Senior Vice President of Sales and Marketing of DocuCorp, Image
Sciences and FormMaker; (iv) B. Bruce Dale, Vice President of Development of
Image Sciences, will be the Senior Vice President of Products of DocuCorp,
Image Sciences and FormMaker; (v) Kerry LeCrone, the Senior Vice President of
Services of FormMaker, will be the Senior Vice President of Services of
DocuCorp, Image Sciences and FormMaker, (vi) Hsi-Ming Lin, the Senior Vice
President of Research and Development of FormMaker, will be the Senior Vice
President of Research and Development of DocuCorp, Image Sciences and
FormMaker; and (vi) Todd A. Rognes, the Vice President of Finance of Image
Sciences, will be the Senior Vice President of Finance of DocuCorp, Image
Sciences and FormMaker. See "Management of Systems--Executive Officers and
Directors."
ABSENCE OF REGULATORY FILINGS AND APPROVALS
Other than certain filings and approvals which may be required under certain
state securities or "blue sky" laws and the effectiveness of the registration
statement on Form S-4 (the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), related to this Joint Proxy
Statement/Prospectus, there are no federal or state regulatory requirements
that must be complied with or approvals that must be obtained in connection
with the Merger. See "The Merger and Related Transactions--Absence of
Regulatory Filings and Approvals."
ACCOUNTING TREATMENT
For historical accounting purposes, Image Sciences will be considered the
survivor in the Merger and no purchase accounting is required related to the
conversion of Image Sciences Common Stock and Image Sciences Preferred Stock
into DocuCorp Common Stock. The merger of FormMaker into a wholly-owned
subsidiary of DocuCorp will be treated as an acquisition of FormMaker by Image
Sciences; accordingly, this transaction will be recorded under the purchase
method of accounting. See "The Merger and Related Transactions--Accounting
Treatment."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
DocuCorp, Image Sciences and FormMaker intend that the Merger qualify as a
tax-free reorganization. Steptoe & Johnson, special tax counsel to DocuCorp,
will render a tax opinion to Image Sciences and FormMaker to the effect that
the Merger will qualify as a tax-free reorganization, and that no gain or loss
will be recognized by the Image Sciences Stockholders on the conversion of
Image Sciences Common Stock or Image Sciences Preferred Stock or by the
FormMaker Stockholders on the conversion of FormMaker Common Stock into
DocuCorp Class A Common Stock or DocuCorp Class B Common Stock, as the case may
be. See "The Merger and Related Transactions--Material Federal Income Tax
Consequences."
DISSENTERS' RIGHTS
The Image Sciences Stockholders and the FormMaker Stockholders will have
dissenters' rights of appraisal in connection with the Merger. See "The Merger
and Related Transactions--Dissenters' Rights."
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COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited selected financial
information on a pro forma and pro forma equivalent basis per common share and
is derived from, should be read in conjunction with and is qualified in its
entirety by reference to the unaudited pro forma combined financial data of
DocuCorp that appears elsewhere in this Joint Proxy Statement/Prospectus. For
purposes of this presentation, the "DocuCorp--Historical" financial information
represents that of Image Sciences, the surviving entity for financial reporting
purposes, on a historical basis. The information presented in this table is for
informational purposes only and is not necessarily indicative of the financial
position or operating results that would have occurred or that will occur upon
the consummation of the Merger.
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
JULY 31, 1996 OCTOBER 31, 1996
------------------ ----------------
<S> <C> <C>
DOCUCORP--HISTORICAL
Book value per share(1).............. $ 1.47 $1.59
Cash dividends per share............. 0 0
Earnings per share................... $ 0.43 $0.11
PRO FORMA COMBINED
Book value per share(1).............. $ 1.04 $1.04
Cash dividends per share............. 0 0
Earnings per share................... $ 0.05 $0.04
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------
<S> <C> <C>
FORMMAKER--HISTORICAL
Book value per share(1).............. $ 0.76
Cash dividends per share............. 0
Earnings (loss) per share............ $(0.25)
FORMMAKER PRO FORMA EQUIVALENT
AMOUNTS(4)
Book value per share(3).............. $ 0.74
Cash dividends per share............. 0
Earnings per share(2)................ $ 0.04
</TABLE>
- --------
(1) Computed as of balance sheet date at end of period.
(2) Computed using pro-forma combined statements of operations for the year
ended July 31, 1996.
(3) Computed using October 31, 1996 pro-forma combined balance sheet.
(4) Equivalent amounts have been computed using an exchange ratio of one share
of FormMaker Common Stock to .7144 shares of DocuCorp Class A Common Stock.
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RISK FACTORS
The Image Sciences Stockholders and the FormMaker Stockholders should
consider carefully the following risk factors, as well as the other
information contained in this Joint Proxy Statement/Prospectus, in evaluating
the Merger. The occurrence of certain of the events described in these risk
factors may have a material adverse effect on DocuCorp's business, results of
operations and financial condition.
RELIANCE ON A MAJOR CLIENT RELATIONSHIP
A substantial portion of FormMaker's revenues are generated from a marketing
agreement with Policy Management Systems Corporation ("PMSC") under which
FormMaker (i) provides third-party processing and software implementation
services in the insurance industry, (ii) has granted PMSC rights to use,
execute, copy or license certain proprietary software and (iii) has granted
PMSC the exclusive right to market FormMaker's proprietary software in the
insurance industry. In 1994, 1995, and 1996, PMSC represented approximately
85%, 72% and 65%, respectively, of FormMaker's revenues. Beginning on January
1, 1998, PMSC can unilaterally terminate the marketing agreement for any
reason whatsoever by providing 90 days' prior written notice to FormMaker. In
addition, PMSC may terminate the Marketing Agreement as a result of the filing
of the Registration Statement by providing 10 days' prior written notice to
FormMaker. Unless renewed or terminated at an earlier date, the marketing
agreement will terminate on December 31, 1999.
NONEXCLUSIVE PERPETUAL LICENSE
FormMaker has also entered into a license agreement with PMSC under which
FormMaker granted PMSC a non-exclusive, perpetual, royalty-free, worldwide
license to use, execute, copy or license FormMaker's software (and derivatives
thereof) to third parties within the insurance industry and such other
industries in which FormMaker from time to time operates. Therefore, upon
termination of the above-described Marketing Agreement and PMSC's exclusive
rights thereunder, PMSC will continue to have the right to use FormMaker's
software and to compete directly with FormMaker in the insurance industry.
Given that PMSC has financial and other resources significantly greater than
FormMaker, there can be no assurance that FormMaker will be able to withstand
competition from PMSC if PMSC decided to compete directly with FormMaker. See
"Business of FormMaker--Customers and Distributions."
INTEGRATION OF IMAGE SCIENCES AND FORMMAKER
DocuCorp is a holding company whose wholly-owned subsidiaries are expected
to conduct the operations of DocuCorp following the consummation of the
Merger. DocuCorp may not be able to integrate successfully the operations,
facilities and management of Image Sciences and FormMaker or realize any
benefits from the Merger. Additionally, the Merger could have an adverse
effect on DocuCorp's relationships with customers, distributors or suppliers
of Image Sciences or FormMaker. See "The Merger and Related Transactions."
INTEGRATION OF PRODUCTS
DocuCorp plans to integrate certain of its products, if practicable.
However, DocuCorp may not be able to accomplish such integration in a timely
manner and such integration may not be technologically feasible. Moreover, the
focus on possible product integration efforts may have an adverse effect on
the development of new product offerings.
DEPENDENCE UPON INSURANCE INDUSTRY
The majority of Image Sciences' and FormMaker's revenues is derived from the
insurance industry. DocuCorp's future growth and financial performance will
depend in part upon its ability to continue to market its products
successfully in the insurance industry and to enhance and develop technologies
for distribution in markets other than the insurance market. This will require
DocuCorp to make substantial product development
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<PAGE>
and distribution channel investments. It is uncertain that new products or
product enhancements intended for markets other than the insurance industry
will achieve acceptance.
FLUCTUATIONS IN OPERATING RESULTS
Following the Merger, DocuCorp's revenue will continue to be difficult to
forecast due to the fact that both Image Sciences' and FormMaker's sales
cycles, from initial evaluation to purchase, vary substantially from customer
to customer. Both Image Sciences and FormMaker typically have operated with
little backlog for licensing revenue because software products generally are
shipped as orders are received. As a result, license revenue in any quarter is
substantially dependent on orders booked and shipped in that quarter. Both
companies have earned a substantial portion of their licensing revenues in the
last weeks of any particular quarter. To the extent this trend continues
following the Merger, the failure to achieve such revenues in the last weeks
of any given quarter will have a material adverse effect on DocuCorp's
financial results for that quarter.
Image Sciences' and FormMaker's sales structure has historically resulted in
revenues for the first quarter of a fiscal year being lower than revenues for
the fourth quarter of the prior fiscal year. Similar fluctuations may occur
again in the future.
DEPENDENCE UPON KEY PERSONNEL
Both Image Sciences and FormMaker believe that the hiring and retaining of
qualified individuals at all levels will be essential to DocuCorp's ability to
manage growth successfully, but DocuCorp may not be successful in attracting
and retaining the necessary personnel. The development of the business of
Image Sciences has been largely dependent on the services of Michael D.
Andereck, the President and Chief Executive Officer of Image Sciences, and the
development of the business of FormMaker has been largely dependent on the
services of Samuel M. Wilkes, Chief Operating Officer of FormMaker. Mr.
Andereck will be the President and Chief Executive Officer of DocuCorp, and
Mr. Wilkes will become the Senior Vice President of Sales and Marketing of
DocuCorp; both of these gentlemen have entered into employment agreements with
DocuCorp. The departure of either Mr. Andereck or Mr. Wilkes could have a
material adverse effect on DocuCorp's results of operations or financial
condition.
MANAGEMENT OF GROWTH
In recent years, Image Sciences and FormMaker have expanded their respective
businesses, and DocuCorp intends to continue to expand its business. To manage
expansion effectively, DocuCorp will be required to evaluate the adequacy of
existing systems and procedures, including, but not limited to, information
management systems, financial and internal control systems, and management
structure. In addition, if DocuCorp enters new markets, DocuCorp will be
required to, among other things, hire personnel and establish distribution
channels. Management may not adequately anticipate all of the changing demands
that growth will impose on DocuCorp's procedures and structure or that
DocuCorp will be able to successfully enter additional markets. In addition,
if DocuCorp expands through acquisitions, it may require further capital
through public or private equity offerings or financings. Additional capital
may not be available to DocuCorp or, if available, may not be on terms
acceptable to DocuCorp. See "The Merger and Related Transactions--Reasons For
and Effects of the Merger; Recommendations."
RAPID TECHNOLOGICAL CHANGE
The document automation industry is characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements. Such developments will require DocuCorp to
make substantial product development investments. Any failure by DocuCorp to
anticipate or respond adequately to technology developments and customer
requirements or any significant delays in product development or introduction,
could result in a loss of competitiveness or revenue. In addition, new
products or product enhancements intended to respond to technological change
or evolving customer requirements may not achieve acceptance.
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LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Image Sciences and FormMaker rely on a combination of copyright and
trademark laws, employee and third-party nondisclosure agreements and other
methods to protect their respective proprietary rights. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of their respective products or to obtain and use information that
Image Sciences or FormMaker regards as proprietary.
Image Sciences' and FormMaker's software products are licensed to end-users
on a "right to use" basis pursuant to a perpetual or term license. Certain
license provisions protecting against unauthorized use, copying, transfer and
disclosure of the licensed program may be unenforceable under the laws of
certain jurisdictions and foreign countries. In addition, the laws of some
foreign countries do not protect the proprietary rights to the same extent as
do the laws of the United States.
As the number of software products in the industry increases and the
functionality of these products further overlap, Image Sciences and FormMaker
believe that software programs will increasingly become subject to
infringement claims. Third parties may assert infringement claims against
DocuCorp in the future with respect to current or future products, which could
require DocuCorp. to enter into royalty arrangements or result in costly
litigation.
Each of Image Sciences and FormMaker also relies on certain software that it
licenses from third parties, including software that is integrated with
internally developed software and used in its products to perform key
functions. These third-party software licenses may not continue to be
available to DocuCorp on commercially reasonable terms and the related
software may not continue to be appropriately supported, maintained or
enhanced by the licensors. The loss of licenses to, or the inability to
support, maintain and enhance, any of such software could result in increased
costs, or delays or reductions in product shipments until equivalent software
could be developed or licensed and integrated.
EFFECT OF MERGER ON CUSTOMER ORDERS
The announcement and consummation of the Merger could cause present and
potential customers of Image Sciences or FormMaker to delay or cancel orders
for products as a result of concerns about product evolution, integration and
support of Image Sciences' and FormMaker's software products following the
Merger.
COMPETITION
The market for Image Sciences' and FormMaker's document automation products
is intensely competitive, subject to rapid change and significantly affected
by new product introductions and other market activities of industry
participants. Each company targets its software products at organizations that
require the ability to produce large quantities of customized and personalized
documents in paper or electronic form. DocuCorp expects to face direct and
indirect competition from a broad range of competitors who offer a variety of
products and solutions to current and potential customers. Image Sciences' and
FormMaker's principal competition currently comes from (i) systems developed
in-house by the internal MIS departments of large organizations and (ii)
direct competition from companies such as Document Sciences Corporation (which
is partially owned by Xerox) M&I DataServices, Inc., and Group 1 Software,
Inc.
It is also possible that DocuCorp will face competition from new
competitors. Moreover, as the market for document automation software
develops, current or potential competitors with significantly greater
resources than DocuCorp could attempt to enter or increase their presence in
the market either independently or by acquiring or forming strategic alliances
with competitors of DocuCorp or otherwise increase their focus on the
industry. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the needs of DocuCorp's
current and prospective customers, and it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition may result in price reductions,
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reduced gross margins and loss of market share. DocuCorp may not be able to
compete successfully against current or future competitors or withstand
competitive pressures effectively.
RISK OF SOFTWARE DEFECTS
Software products as complex as those offered by Image Sciences and
FormMaker often contain undetected errors or performance problems. Such
defects are most frequently found during the period immediately following
introduction of new products or enhancements to existing products. Despite
extensive product testing prior to introduction, Image Sciences' and
FormMaker's products have in the past contained software errors that were
discovered after commercial introduction. There may be more errors or
performance problems that will be discovered in the future. Any future
software defects discovered after shipment of Image Sciences' or FormMaker's
products could result in loss of revenues or delays in customer acceptance.
ANTI-TAKEOVER ISSUES
Through its ownership of DocuCorp Common Stock, the management of DocuCorp
and the other former stockholders of Image Sciences and FormMaker will have a
significant influence with respect to any decisions regarding a change in
ownership of DocuCorp. Such a concentration of ownership may have the effect
of delaying, deferring or preventing a change of control of DocuCorp and
consequently could adversely affect the value of the DocuCorp Common Stock.
See "Principal Stockholders of DocuCorp."
DocuCorp's Certificate of Incorporation (the "DocuCorp Certificate") and
bylaws (the "DocuCorp Bylaws") contain certain provisions that could delay or
hinder the removal of incumbent directors and could discourage or make more
difficult a proposed merger, tender offer or proxy contest involving DocuCorp.
Pursuant to the DocuCorp Certificate, shares of DocuCorp Preferred Stock (the
"DocuCorp Preferred Stock") may be issued in the future without stockholder
approval and upon such terms and conditions as the DocuCorp Board may
determine. DocuCorp also will be subject to provisions of Delaware corporate
law that will restrict DocuCorp from engaging in certain business combinations
with a person who, together with affiliates and associates, owns 15% or more
of DocuCorp Common Stock, unless certain conditions are met or the business
combination is approved by the DocuCorp Board or its stockholders in a
prescribed manner. See "Description of DocuCorp Capital Stock."
ABSENCE OF DIVIDENDS
DocuCorp does not anticipate paying any cash dividends in the foreseeable
future. DocuCorp currently intends to retain future earnings to finance
operations and the expansion of its business. Any future determination to pay
dividends will be at the discretion of the DocuCorp Board and will depend upon
DocuCorp's financial condition, operating results, capital requirements and
such other factors as the DocuCorp Board deems relevant. Further, the terms of
the revolving credit line that DocuCorp intends to obtain contemporaneously
with the consummation of the Merger are expected to include restrictions on
the ability of DocuCorp to pay dividends. See "Market Price of and Dividends
on DocuCorp Common Stock and Related Stockholder Matters."
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THE SPECIAL MEETINGS
IMAGE SCIENCES SPECIAL MEETING
Date, Time and Place of Image Sciences Special Meeting
The Image Sciences Special Meeting will be held at a.m., local time, on
, , 1997, at .
Matters to be Considered at the Image Sciences Special Meeting
At the Image Sciences Special Meeting, holders of Image Sciences Common
Stock and Image Sciences Preferred Stock will consider and vote upon the
Merger Agreement. See "The Merger and Related Transactions" and Appendix A.
Voting at the Image Sciences Special Meeting; Record Date
On the Image Sciences Record Date, there were 2,335,082 shares of Image
Sciences Common Stock outstanding and entitled to vote at the Image Sciences
Special Meeting, held by approximately 124 holders of record, and 1,963,433
shares of Image Sciences Preferred Stock outstanding and entitled to vote at
the Image Sciences Special Meeting, held by one holder of record. Each holder
of record of Image Sciences Common Stock and Image Sciences Preferred Stock on
the Record Date is entitled to cast one vote per share on the approval of the
Merger Agreement, exercisable in person or by properly executed proxy, at the
Image Sciences Special Meeting. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Image Sciences Common Stock
and the holders of a majority of the outstanding shares of Image Sciences
Preferred Stock entitled to vote at the Image Sciences Special Meeting is
necessary to constitute a quorum at the Image Sciences Special Meeting. The
affirmative vote of the holders of two-thirds of the outstanding Image
Sciences Common Stock and of the holders of two-thirds of the outstanding
Image Sciences Preferred Stock, voting as separate classes, is required to
approve the Merger Agreement. Holders of 39% of Image Sciences Common Stock
and the holders of 100% of Image Sciences Preferred Stock have entered into
the Voting and Lockup Agreement in which they have agreed to vote their shares
in favor of the Merger Agreement.
Proxies
This Joint Proxy Statement/Prospectus is being furnished to the Image
Sciences Stockholders in connection with the solicitations of proxies by and
on behalf of the Image Sciences Board for use at the Image Sciences Special
Meeting. Proxies in the form enclosed, which are properly executed and
returned and not subsequently revoked, will be voted at the Image Sciences
Special Meeting, in accordance with the directions specified thereon, and
otherwise in accordance with the judgment of the persons designated as
proxies. If no directions are indicated on a properly executed proxy, such
proxy will be voted in favor of the Merger Agreement. A proxy received by the
Image Sciences Board may be revoked by the person giving it at any time before
it is exercised. An Image Sciences Stockholder may revoke a proxy by
notification in writing to Image Sciences at 5910 North Central Expressway,
Suite 800, Dallas, Texas 75206, Attention: Secretary. A proxy may also be
revoked by execution and delivery of a proxy bearing a later date or by
attendance at the Image Sciences Special Meeting and voting by ballot.
FORMMAKER SPECIAL MEETING
Date, Time and Place of FormMaker Special Meeting
The FormMaker Special Meeting will be held at a.m., local time, on ,
, 1997, at .
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Matters to be Considered at the FormMaker Special Meeting
At the FormMaker Special Meeting, holders of FormMaker Common Stock will
consider and vote upon the Merger Agreement. See "The Merger and Related
Transactions" and Appendix A.
Voting at the FormMaker Special Meeting; Record Date
On the FormMaker Record Date, there were 6,229,511 shares of FormMaker
Common Stock outstanding and entitled to vote at the FormMaker Special Meeting
held by approximately 82 holders of record. Each holder of record of FormMaker
Common Stock on the Record Date is entitled to cast one vote per share on the
approval of the Merger Agreement, exercisable in person or by properly
executed proxy, at the FormMaker Special Meeting. The presence, in person or
by proxy, by the holders of a majority of the outstanding shares of FormMaker
Common Stock entitled to vote at the FormMaker Special Meeting is necessary to
constitute a quorum at the FormMaker Special Meeting. The affirmative vote of
the holders of a majority of all the outstanding FormMaker Common Stock is
required to approve the Merger Agreement. Holders of 80% of FormMaker Common
Stock have entered into the Voting and Lockup Agreement in which they have
agreed to vote their shares in favor of the Merger Agreement.
Proxies
This Joint Proxy Statement/Prospectus is being furnished to the FormMaker
Stockholders in connection with the solicitations of proxies by and on behalf
of the FormMaker Board for use at the FormMaker Special Meeting. Proxies in
the form enclosed, which are properly executed and returned and not
subsequently revoked, will be voted at the FormMaker Special Meeting, in
accordance with the directions specified thereon, and otherwise in accordance
with the judgment of the persons designated as proxies. If no directions are
indicated on a properly executed proxy, such proxy will be voted in favor of
the Merger Agreement. A proxy received by the FormMaker Board may be revoked
by the person giving it at any time before it is exercised. A FormMaker
Stockholder may revoke a proxy by notification in writing to FormMaker at 2300
Windy Ridge Parkway, Atlanta, Georgia 30339, Attention: Secretary. A proxy may
also be revoked by execution and delivery of a proxy bearing a later date or
by attendance at the FormMaker Special Meeting and voting by ballot.
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THE MERGER AND RELATED TRANSACTIONS
GENERAL
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached to this Joint
Proxy Statement/Prospectus as Appendix A and is incorporated herein by
reference. The Image Sciences Stockholders and the FormMaker Stockholders are
urged to read the Merger Agreement carefully.
EFFECTIVE TIME
As soon as practicable following the satisfaction or waiver of all
conditions to the Merger, the Merger will be consummated upon the filing of
articles of merger and all other necessary documents with the Secretaries of
State of Texas and Georgia and the issuance of a certificate of merger by the
Secretary of State of Texas, the later of which times will be the Effective
Time.
CONVERSION OF SECURITIES
Pursuant to the Merger Agreement, (i) each issued and outstanding share of
Image Sciences Common Stock will be converted into 1.4432 shares of DocuCorp
Class B Common Stock (assuming for such purposes that 477,851 shares of Image
Sciences Common Stock and Image Sciences Options to purchase 560,607 shares of
Image Sciences Common Stock have been repurchased in the Image Sciences Tender
Offer), (ii) each issued and outstanding share of Image Sciences Preferred
Stock will be converted into 1.029 shares of DocuCorp Class B Stock and (iii)
each issued and outstanding share of FormMaker Common Stock will be converted
into .7144 shares of DocuCorp Class A Common Stock.
Additionally, pursuant to the Merger Agreement, (i) each vested Image
Sciences Option will be converted into a DocuCorp Class B Option, (ii) each
unvested Image Sciences Option will be converted into a DocuCorp Class A
Option, (iii) each FormMaker Option will be converted into a DocuCorp Class A
Option, and (iv) each FormMaker Warrant will be converted into a DocuCorp
Warrant.
At the Effective Time, the current holders of Image Sciences Common Stock
and Image Sciences Preferred Stock, in the aggregate, will own approximately
51% of the then outstanding shares of DocuCorp Common Stock (51% on a fully
diluted basis). At the Effective Time, the current holders of FormMaker Common
Stock, in the aggregate, will own approximately 49% of the then outstanding
shares of DocuCorp Common Stock (49% on a fully diluted basis).
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Image Sciences and FormMaker. The
following is a brief discussion of the background of these negotiations.
In late May 1996 Joe Rose, FormMaker's then President and Chief Executive
Officer, and Michael D. Andereck, Image Sciences' President and Chief
Executive Officer, initiated discussions relating to a potential transaction
between FormMaker and Image Sciences. Throughout the summer of 1996, executive
officers of each company met to further discuss the potential transaction.
On August 23, 1996, the parties executed a confidentiality agreement and a
proposal letter with respect to the transaction. On August 26, 1996, Image
Sciences and Safeguard executed a confidentiality agreement. The parties
subsequently commenced their due diligence reviews.
On September 24, 1996, FormMaker's legal counsel provided a draft of the
Merger Agreement to Image Sciences and its legal counsel and telephone
conferences and meetings were held among the principals of Image
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Sciences and FormMaker, and in certain instances with their respective
counsel, to negotiate the terms of the Merger Agreement on several occasions
in the third and fourth quarters of 1996 and the first quarter of 1997.
On January 13, 1997 and December 9, 1996, respectively, the Image Sciences
Board and the FormMaker Board unanimously approved and adopted the Merger
Agreement and the transactions contemplated thereby. DocuCorp, Image Sciences,
FormMaker, the Texas Sub and the Georgia Sub executed the Merger Agreement on
January 15, 1997.
REASONS FOR AND EFFECTS OF THE MERGER; RECOMMENDATIONS
The Image Sciences Board and the FormMaker Board believe that the Merger is
in the best interests of their respective stockholders, and unanimously
recommend to the Image Sciences Stockholders and the FormMaker Stockholders,
respectively, that they approve the Merger Agreement. The Merger will combine
the software products and services of Image Sciences and FormMaker, thus
offering customers a more complete suite of document automation software
products and a broader range of services. Anticipated benefits of the Merger
include the following:
Cost Savings. The combination of the businesses of Image Sciences and
FormMaker will result in the consolidation of certain functions creating cost
savings. For example, certain duplicative administrative functions will be
eliminated.
Economies of Scale. The combination of the businesses of Image Sciences and
FormMaker will provide DocuCorp with increased ability to achieve economies of
scale, including increased purchasing power, which DocuCorp believes will
contribute to increased efficiency and improved profitability.
Knowledgeable and Experienced Personnel. The Merger will bring together a
knowledgeable team of industry executives and sales managers with many years
of experience in the document automation industry and firmly established
customer and distributor relationships.
Increased Diversification of Services. FormMaker engages in consulting,
project management and outsourcing services in addition to providing document
automation software products to its customers. The combined company will have
the ability to offer such consulting, project management and outsourcing
services to Image Sciences' customer base, including Image Sciences' insurance
industry clients.
As discussed below, the Image Sciences Board and the FormMaker Board also
believe that the Merger will facilitate certain strategic objectives of the
companies. Through the Merger, it is DocuCorp's objective to become the
leading provider of document automation software products through strategic
expansion and a focus on high quality, value-added customer service.
Specifically, DocuCorp seeks to: (i) penetrate additional markets through the
expansion of its sales networks; (ii) expand product offerings and services;
and (iii) integrate and exploit its technology to provide its customers with
the most advanced software products and services.
The Image Sciences Board also considered certain potential disadvantages or
negative factors relating to the proposed merger with FormMaker, including the
fact that FormMaker had historic losses, the potential inability of the
companies to integrate successfully their operations, facilities and
management and the possibility that the Merger could have an adverse effect on
the companies' relationships with customers, distributors or suppliers. The
Image Sciences Board believed that these risks were outweighed by the
potential benefits of the Merger. After considering the advantages and
disadvantages of a merger with FormMaker, the Image Sciences Board has
determined that the Merger is in the best interests of Image Sciences and its
stockholders.
The FormMaker Board also considered certain potential disadvantages or
negative factors relating to the proposed merger with Image Sciences,
including the potential inability of the companies to integrate successfully
their operations, facilities and management and the possibility that the
Merger could have an adverse effect on the companies' relationships with
customers, distributors or suppliers. The FormMaker Board believed that these
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risks were outweighed by the potential benefits of the Merger. After
considering the advantages and disadvantages of a merger with Image Sciences,
the FormMaker Board has determined that the Merger is in the best interests of
FormMaker and the FormMaker Stockholders.
In reaching these conclusions, the Image Sciences Board and the FormMaker
Board considered a number of factors, including among other things, the terms
and conditions of the Merger Agreement; information with respect to the
financial condition, business operations and prospects of both Image Sciences
and FormMaker on both a historical and prospective basis, including
information reflecting the two companies on a pro forma combined basis, and
the views and opinions of their respective managements and financial advisors.
THE IMAGE SCIENCES BOARD RECOMMENDS THAT THE IMAGE SCIENCES STOCKHOLDERS
APPROVE THE MERGER.
THE FORMMAKER BOARD RECOMMENDS THAT THE FORMMAKER STOCKHOLDERS APPROVE THE
MERGER.
THE MERGER AGREEMENT
Plan of Merger
Pursuant to the Merger Agreement, the Texas Sub will be merged with and into
Image Sciences and the Georgia Sub will be merged with and into FormMaker so
that both Image Sciences and FormMaker will become wholly-owned subsidiaries
of DocuCorp. Following the Merger, (i) Image Sciences will continue its
existence under the laws of the State of Texas, and the separate corporate
existence of the Texas Sub will cease and (ii) FormMaker will continue its
existence under the laws of the State of Georgia, and the separate corporate
existence of the Georgia Sub will cease. All shares of capital stock of Image
Sciences and FormMaker will be converted into shares of capital stock of
DocuCorp as described below. All shares of capital stock of the Texas Sub and
the Georgia Sub will be converted into shares of Image Sciences and FormMaker,
respectively, and DocuCorp, as the sole stockholder of the Texas Sub and the
Georgia Sub, will, therefore, own all of the outstanding securities of
FormMaker and Image Sciences following the Merger.
Conversion of Securities
Pursuant to the Merger Agreement, the securities of FormMaker and Image
Sciences, respectively, will be converted into securities of DocuCorp, as
follows:
<TABLE>
<CAPTION>
SECURITIES OWNED AS CONVERTED
PRE-MERGER (1) POST MERGER (2)
- ------------------------------------ -----------------------------------------
NUMBER
OF NUMBER OF
SECURITY SHARES SECURITY SHARES
- -------------------------- --------- ------------------------------- ---------
<S> <C> <C> <C>
Image Sciences Common 2,335,082 DocuCorp Class B Common Stock.. 2,680,413
Stock....................
Image Sciences Preferred 1,963,433 DocuCorp Class B Common Stock.. 2,020,373
Stock....................
Image Sciences Options 1,497,100 DocuCorp Class B Options....... 1,351,576
(vested).................
Image Sciences Options 221,000 DocuCorp Class A Options....... 318,954
(unvested)...............
FormMaker Common Stock.... 6,229,511 DocuCorp Class A Common Stock.. 4,450,179
FormMaker Warrants........ 465,746 DocuCorp Warrants.............. 332,715
FormMaker Options......... 1,141,971 DocuCorp Class A Options....... 815,790
</TABLE>
- --------
(1) Assumes full participation in the Image Sciences Tender Offer with the
repurchase of 477,851 shares of Image Sciences Common Stock and Image
Sciences Options for 560,607 shares of Image Sciences Common Stock.
(2) The Registration Statement also covers an indeterminate number of shares
of DocuCorp Class A Common Stock issuable upon conversion of shares of
DocuCorp Class B Common Stock. See "Description of DocuCorp Capital
Stock."
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Representations and Warranties
The Merger Agreement contains representations and warranties by FormMaker
and Image Sciences, relating to, among other things, (a) proper organization
and similar corporate matters; (b) the authorization, delivery, performance
and enforceability of the Merger Agreement and the transactions contemplated
thereby; (c) other than as specified, the absence of any filings, consents or
approvals; (d)(i) the capital structure; (ii) other than as specified, the
absence of options, warrants, calls or similar agreements relating to the
acquisition of capital stock; and (iii) the validity and nonassessability of
issued and outstanding securities; (e) financial statements; (f) title to and
working condition of assets; (g) real estate, personal property and non-real
estate leases; (h) bona fide nature of accounts receivable and the
merchantable quality of all inventory; (i) absence of undisclosed liabilities;
(j) the filing and payment of taxes; (k) subsidiaries; (l) legal proceedings
and compliance with applicable laws and court orders; (m) contracts; (n)
insurance coverage; (o) intellectual property and software products; (p)
absence of labor disputes; (q) employee benefit plans; (r) corporate records;
(s) absence of certain events subsequent to November 30, 1996; (t) the non-
existence of breaches of any express or implied warranties in connection with
the sale or distribution of goods and services; (u) maintenance of customer
relationships; (v) absence of third party broker's or finder's fees arising
from the Merger Agreement or the transactions contemplated thereby; (w)
absence of any materially misleading statement or omission of material fact in
the foregoing representations and warranties; and (x) the inapplicability of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The Merger Agreement contains further representations and warranties by
DocuCorp, ISI Merger Corp. and FormMaker Acquisition Corp. concerning each
corporation's lack of assets, liabilities or business activity.
Conduct of Business Prior to Merger
FormMaker and Image Sciences have each agreed that, except as otherwise
approved by the parties in writing or provided in the Merger Agreement, it
will not, and, in the case of FormMaker, will cause DocuCorp not to, do any of
the following prior to the closing contemplated by the Merger Agreement (the
"Closing"): (a) amend its charter documents or bylaws; (b) merge or
consolidate with, purchase substantially all of the assets of, or otherwise
acquire any other business entity; (c) issue (other than upon the exercise or
conversion of existing rights) additional shares of, or split, combine or
reclassify, its capital stock; (d) pay any dividends or redeem any of its
outstanding capital stock; (e) enter into any contract or otherwise incur any
liability outside the ordinary course of business unless the executory
obligation in any individual case is less than $100,000; (f) incur any
additional indebtedness for borrowed money outside the ordinary course of
business; (g) discharge or satisfy any encumbrance or pay or satisfy any
material liability except pursuant to the terms thereof; (h) compromise,
settle or otherwise adjust any material claim or litigation unless such
compromise, settlement or adjustment involves a sum of not more than $100,000
in excess of reserves therefor; (i) make capital expenditures of more than
$100,000 in the aggregate; or (j) modify existing benefit plans or enter into
new employment agreements.
Certain Covenants
Pursuant to the Merger Agreement, each of FormMaker and Image Sciences has
agreed that it will use commercially reasonable efforts to fulfill, and, in
the case of FormMaker, to cause DocuCorp to fulfill, the conditions to the
Merger described below. See "--Conditions to the Merger." In this regard,
FormMaker and Image Sciences will, and FormMaker will cause DocuCorp to, (a)
refrain from any actions that would cause any of its representations and
warranties to be inaccurate in any material respect as of the Closing (the
date on which such closing occurs is referred to herein as the "Closing
Date"); (b) execute and deliver certain documents and agreements at the
Closing; (c) comply in all material respects with all applicable laws in
connection with its execution, delivery and performance of the Merger
Agreement and certain transactions contemplated thereby; (d) use commercially
reasonable efforts to obtain in a timely manner all necessary waivers,
consents and approvals required under any laws or contracts; and (e) use
commercially reasonable efforts to take, or cause to be taken, all other
actions reasonably necessary to consummate the transactions contemplated by
the Merger Agreement.
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FormMaker and Image Sciences also have each agreed (a) to give the other
party full access to its properties, contracts, books, records and affairs
(and, in the case of FormMaker, to cause DocuCorp to give Image Sciences full
access to its properties, contracts, books, records and affairs); (b) not to
solicit, initiate or encourage (including by way of furnishing information)
the making of any inquiry or proposal to acquire in any manner a substantial
equity interest in such company or all or substantially all of its assets, or
participate in any discussions or negotiations with any third person
concerning a tender or exchange offer, merger, consolidation or other business
combination; (c) with respect to its meeting of stockholders to consider the
Merger, to deliver to its stockholders necessary proxy materials and use
reasonable efforts to obtain the necessary stockholder approval of the Merger;
(d) to identify in a letter to DocuCorp all persons who may be deemed
"affiliates" of the Company for the purposes of Rule 145 under the Securities
Act and to use reasonable efforts to cause each such person to acknowledge
their responsibilities as such an affiliate under the Securities Act; (e) to
deliver financial statements to the other party prepared in accordance with
GAAP consistently applied for the twelve-month period ending December 31,
1996; and (f) to deliver to the other party all information listed in Schedule
6.3 to the Merger Agreement not previously delivered and deliver an updated
disclosure schedule incorporating such information therein.
FormMaker and Image Sciences have agreed to pay their own expenses in
connection with the Merger; provided, however, that DocuCorp will pay all such
expenses if the Merger becomes effective. Notwithstanding the above, upon
termination of the Merger Agreement for certain events relating to the breach
of the Merger Agreement, the expenses of the nonbreaching party are payable by
the breaching party. See "--Amendments, Waiver and Termination."
FormMaker has agreed to cause DocuCorp to perform its obligations hereunder
and under certain documents referred to in the Merger Agreement. DocuCorp has
agreed to (a) adopt an employee stock option plan covering 400,000 shares of
DocuCorp Class A Common Stock; (b) file a Registration Statement on Form S-8
for purposes of registering shares of DocuCorp Class A Common Stock issuable
upon exercise of DocuCorp Options as promptly as practicable following
consummation of the Qualified Rights Offering; (c) maintain, for a period of
five years, Image Sciences' and FormMaker's current directors' and officers'
liability insurance covering those officers and directors who were covered on
the Closing Date of the Merger Agreement by such policies and abstain, for a
period of five years, from amending any provision in FormMaker's or Image
Sciences' charter or bylaws providing for indemnification of officers or
directors; and (d) use commercially reasonable efforts to obtain a line of
credit from a bank for $10 million on terms substantially similar to the
existing FormMaker line of credit with NationsBank of Georgia, National
Association. If such a line of credit cannot be obtained, FormMaker has agreed
to use commercially reasonable efforts to amend its line of credit, or obtain
appropriate waivers, to permit the transactions contemplated by the Merger
Agreement and to allow DocuCorp to draw on the entire line of credit for
working capital purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Image Sciences--Liquidity and
Capital Resources."
Image Sciences has agreed that it will not distribute to its stockholders
and option holders more than $8 million in connection with the Image Sciences
Closing Transactions.
Conditions to the Merger
The obligations of each of the parties to the Merger Agreement to consummate
the Merger are subject to, among other matters, satisfaction of the following
conditions (unless waived or changed where permissible): (a) no law or court
order shall have been enacted, issued or entered which would have the effect
of making the Merger illegal or otherwise prohibiting the consummation of the
Merger or which would have a material adverse effect on FormMaker or Image
Sciences; (b) the Registration Statement shall have been declared effective,
no stop order suspending the effectiveness of the Registration Statement shall
then be in effect, no proceeding for that purpose shall then be threatened by
the Commission (unless concluded or withdrawn) and all state securities or
blue sky permits or approvals required to carry out the transactions
contemplated by the Merger Agreement shall have been received; (c) the Merger
shall be effective in the States of Texas and Georgia; (d) the
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stockholders of each of FormMaker and Image Sciences shall have approved the
Merger in accordance with applicable law and holders of no more than 8% of the
total outstanding common stock of either company shall have dissented under
the applicable state corporation law; (e) DocuCorp, FormMaker and Image
Sciences shall each have (i) caused its Board of Directors to consist of a
total of seven members, (ii) obtained any necessary resignations of incumbent
directors or officers, (iii) elected the following persons to its board of
directors: three persons designated by Image Sciences, three persons
designated by the SG/TL Stockholders and one independent person mutually
designated by Image Sciences and the SG/TL Stockholders, and (iv) appointed
the following persons to the following offices: Michael D. Andereck--President
and Chief Executive Officer and Arthur R. Spector--Chairman of the Board; (f)
the Administrative Services Agreements between Safeguard and FormMaker and
Safeguard and MicroDynamics shall have been terminated; (g) the
representations and warranties of the other parties shall be true and correct
in all material respects on the Closing Date; (h) all agreements and
conditions required by the Merger Agreement to be performed or satisfied prior
to the Closing Date shall be performed and satisfied; (i) an executive officer
of each of FormMaker and Image Sciences shall certify that the conditions
specified in (g) and (h) of this paragraph have been fulfilled; (j) all
approvals and consents required in connection with the Merger shall have been
obtained; (k) FormMaker, Image Sciences, the Texas Sub, the Georgia Sub and
DocuCorp shall have tendered executed copies of the respective transaction
documents contemplated by the Merger Agreement to which they are parties; (l)
DocuCorp, the SG/TL Stockholders and Xerox shall have tendered executed copies
of the Stockholders' Agreement; (m) Image Sciences shall have tendered a legal
opinion of Crouch & Hallett, L.L.P. in the form of that agreed to as of the
date of the Merger Agreement; and (n) FormMaker shall have tendered a legal
opinion of Morgan, Lewis & Bockius L.L.P. in the form of that agreed to as of
the date of the Merger Agreement.
Survival of Representations, Warranties and Covenants
The Merger Agreement provides that, except with respect to agreements to be
performed at least in part after the consummation of the Merger, the
representations, warranties, covenants and other agreements set forth therein
will not survive the consummation of the Merger.
Amendments, Waiver and Termination
The Merger Agreement may be amended only by written agreement of each of the
parties thereto. Any term or provision of the Merger Agreement may be waived
at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party.
The Merger Agreement may be terminated at any time prior to the Effective
Time (a) by mutual written consent of each of FormMaker and Image Sciences;
(b) by either FormMaker or Image Sciences if (i) the Merger is not consummated
on or before June 30, 1997, provided that the party seeking to terminate the
Merger Agreement is not otherwise in breach in any material respect of any of
its obligations thereunder, (ii) any court of competent jurisdiction has
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling
or other action has become final and nonappealable; (iii) upon notice in
writing to the other party prior to the tenth business day following delivery
to such other party of the Second Stage Due Diligence Materials that such
materials have revealed matters which could have a material adverse effect on
the combined entity; or (c) by FormMaker if Image Sciences, or by Image
Sciences if FormMaker, the Texas Sub, the Georgia Sub or DocuCorp has
breached, or failed to comply with, any of its obligations under the Merger
Agreement or any representation or warranty made by it shall have been
incorrect in any material respect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice thereof, and any
such breach, failure or misrepresentation, individually or in the aggregate,
results or would be expected to result in a material adverse effect on
DocuCorp.
If the Merger Agreement is terminated by Image Sciences as a result of a
breach by FormMaker, the Texas Sub, the Georgia Sub or DocuCorp, FormMaker is
required to pay Image Sciences an amount equal to the expenses incurred by
Image Sciences in connection with the Transactions up to a maximum of
$100,000, except
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that in the case of a termination due to a willful breach by FormMaker,
FormMaker shall pay to Image Sciences $500,000. If the Merger Agreement is
terminated by Image Sciences or FormMaker because FormMaker fails to obtain
all required approvals of the Merger by its stockholders, FormMaker must pay
to Image Sciences an amount equal to all of the expenses incurred by Image
Sciences in connection with the Transactions up to a maximum of $100,000.
If the Merger Agreement is terminated by FormMaker as a result of a breach
by Image Sciences, Image Sciences shall pay to FormMaker an amount equal to
all of the expenses incurred by FormMaker in connection with the Transactions
up to a maximum of $100,000, except that in the case of a termination due to a
willful breach by Image Sciences, Image Sciences shall pay to FormMaker
$500,000. Further, if the Merger Agreement is terminated by Image Sciences or
FormMaker as a result of the failure of Image Sciences to obtain all required
approvals of the Merger by Image Sciences stockholders, Image Sciences shall
pay to FormMaker an amount equal to all of the expenses incurred by FormMaker
in connection with the Transactions up to a maximum of $100,000.
THE IMAGE SCIENCES CLOSING TRANSACTIONS
Image Sciences is offering to repurchase in the Image Sciences Tender Offer
(i) up to 477,851 shares of Image Sciences Common Stock and (ii) Image
Sciences Options that were granted prior to July 31, 1991 for up to 560,607
shares of Image Sciences Common Stock (collectively, the "Image Sciences
Securities") at a price equal to $5.00 less, in the case of Image Sciences
Options, the applicable option exercise price. Image Sciences has set aside
the sum of $5,192,291 for the repurchase of Image Sciences Securities and will
accept (in accordance with the terms and conditions of the Image Sciences
Tender Offer) as many tendered Image Sciences Securities as may be purchased
with such funds.
If the Image Sciences Tender Offer is not fully subscribed, the funds set
aside for the Image Sciences Tender Offer which are not used to repurchase
Image Sciences Securities will be distributed pro rata (after giving effect to
the consummation of the Image Sciences Tender Offer but prior to giving effect
to the consummation of the Merger) to all holders of Image Sciences Common
Stock as a cash dividend and the conversion ratio for such Image Sciences
Common Stock and Image Sciences Options in the Merger will be adjusted
downward accordingly.
Concurrently with the Image Sciences Tender Offer, Image Sciences will
declare and distribute a $2,807,709 cash dividend to Xerox, as the holder of
all outstanding shares of Image Sciences Preferred Stock. In consideration for
its receipt of such Image Sciences Preferred Dividend, Xerox has agreed that
(i) the Image Sciences Preferred Stock will have a less favorable conversion
ratio than the Image Sciences Common Stock in the Merger and (ii) Xerox will
not convert any of its Image Sciences Preferred Stock into Image Sciences
Common Stock.
THE LIQUIDITY AGREEMENT
DocuCorp, Safeguard and the SG/TL Stockholders have entered into the
Liquidity Agreement providing that (i) Safeguard will use commercially
reasonable efforts to conduct and consummate a Qualified Rights Offering; (ii)
the SG/TL Stockholders will purchase a certain number of shares of DocuCorp
Class A Common Stock if DocuCorp is required to redeem shares of DocuCorp
Class B Common Stock, and guarantee an existing line of credit of FormMaker
(as amended); and (iii) DocuCorp will grant, at the Closing and upon payment
of $6,100, to the SG/TL Stockholders DocuCorp Warrants to purchase 610,000
shares of DocuCorp Class A Common Stock with an exercise price of $5.00 per
share and a term of three years.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
No director or executive officer of Image Sciences had or will have a
personal or business relationship with FormMaker prior to the Closing. No
director or executive officer of FormMaker had or will have a personal or
business relationship with Image Sciences prior to the Closing. In considering
recommendations of the Image
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Sciences and FormMaker Boards with respect to the Merger, however, the Image
Sciences Stockholders and the FormMaker Stockholders should be aware that
certain directors and executive officers of Image Sciences and FormMaker have
an interest in the consummation of the Merger, as described in this Joint
Proxy Statement/Prospectus. See "Management of DocuCorp--Certain Relationships
and Related Transactions."
EXCHANGE OF STOCK CERTIFICATES, WARRANTS AND OPTION AGREEMENTS
As of the Closing, in accordance with the conversion ratios described in
this Joint Proxy Statement/ Prospectus, (i) each holder of shares of Image
Sciences Common Stock, Image Sciences Preferred Stock or FormMaker Common
Stock will be entitled to receive, upon surrender of certificate(s) formerly
representing such Image Sciences or FormMaker capital stock, certificates
representing DocuCorp Class A Common Stock or DocuCorp Class B Common Stock,
as the case may be; (ii) each holder of FormMaker Warrants will be entitled to
receive, upon surrender of such warrants, a new warrant agreement with respect
to DocuCorp Warrants; and (iii) each holder of FormMaker Options or Image
Sciences Options will be entitled to receive, upon surrender of agreements
representing such options, a new option agreement with respect to DocuCorp
Options.
Contemporaneously with the mailing of this Joint Proxy Statement/Prospectus,
DocuCorp, or an exchange agent designated by DocuCorp (DocuCorp or such
exchange agent is referred to herein as the "Exchange Agent"), will mail a
letter of transmittal and instructions with respect to the surrender of
certificates, warrants and option agreements to each former holder of record
of securities of Image Sciences and FormMaker to be used by such holder in
forwarding certificates, warrants and option agreements to the Exchange Agent.
Each stockholder will be required to return a properly completed transmittal
letter, together with any certificates, warrants and option agreements listed
on the transmittal letter and, in the case of optionholders, an option
consent, to the Exchange Agent in order to receive the securities of DocuCorp
issuable in respect of such certificates, warrants and option agreements.
STOCKHOLDERS OF IMAGE SCIENCES AND FORMMAKER SHOULD NOT SEND CERTIFICATES,
WARRANTS OR OPTION AGREEMENTS TO THE EXCHANGE AGENT UNTIL THEY RECEIVE A
TRANSMITTAL LETTER. Any certificate, warrant or option agreement that prior to
the Effective Time represented outstanding securities of Image Sciences or
FormMaker (other than shares of Image Sciences Common Stock or FormMaker
Common Stock, as the case may be, with respect to which dissenters' rights of
appraisal have been duly exercised) will, after the Effective Time and prior
to surrender, be deemed to evidence ownership of the right to receive the
securities of DocuCorp that the holder of such certificate, warrant or option
agreement would be entitled to receive upon surrender of such certificate,
warrant or option agreement. See "--Exchange of Securities."
CONVERSION OF OPTIONS AND WARRANTS
At February 1, 1997, a total of 1,718,100 shares of Image Sciences Common
Stock and 1,141,971 shares of FormMaker Common Stock were reserved for
issuance upon the exercise of options outstanding under the respective Image
Sciences and FormMaker stock option plans. DocuCorp will assume all of Image
Sciences' and FormMaker's obligations under such plans in accordance with
their terms and conditions as in effect at the Effective Time, except that (i)
each option shall thereafter evidence the right to purchase only the number of
shares of DocuCorp Common Stock that would have been issued if the shares of
Image Sciences Common Stock or FormMaker Common Stock (as the case may be)
represented by the option had been outstanding at the Effective Time and (ii)
the exercise price for each share of DocuCorp Common Stock issuable upon
exercise of stock options will be equal to the option price per share in
effect immediately prior to the Effective Time divided by the conversion
ratios for such common stock described above. All Image Sciences Options, or
portions thereof, that are vested at the Effective Time will be converted into
options to purchase DocuCorp Class B Common Stock. All Image Sciences Options,
or portions thereof, that are unvested at the Effective Time, and all
FormMaker Options will be converted into options to purchase DocuCorp Class A
Common Stock. In accordance with the terms of options outstanding under the
Image Sciences and FormMaker stock option plans, the vesting provisions with
respect to options to purchase an aggregate of 151,800 and 0 shares of Image
Sciences and FormMaker Common Stock, respectively, will be accelerated at the
Effective Time.
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At February 1, 1997, a total of 465,746 shares of FormMaker Common Stock
were reserved for issuance upon the exercise of FormMaker Warrants. DocuCorp
will assume FormMaker's obligations under the FormMaker Warrants, except that
(i) each warrant shall thereafter evidence the right to purchase only the
number of shares of DocuCorp Common Stock that would have been issued if the
shares of FormMaker Common Stock represented by the warrant had been
outstanding at the Effective Time and (ii) the exercise price for each share
of DocuCorp Common Stock issuable upon exercise of warrants will be equal to
the warrant price per share in effect for such warrant immediately prior to
the Effective Time divided by the conversion ratios for FormMaker Common Stock
described above.
MANAGEMENT AFTER THE MERGER
At the Effective Time, the DocuCorp Board will consist of the following
seven members: Arthur R. Spector, Michael D. Andereck, Milledge A. Hart, III,
John D. Loewenberg, Warren V. Musser, one independent director and one
designee of Xerox.
At the Effective Time, (i) Mr. Spector, Chairman of the FormMaker Board,
will be the Chairman of the DocuCorp Board and of the boards of directors of
Image Sciences and FormMaker; (ii) Mr. Andereck, the President and Chief
Executive Officer of Image Sciences, will be the President and Chief Executive
Officer of DocuCorp, Image Sciences and FormMaker; (iii) Samuel M. Wilkes, the
Chief Operating Officer of FormMaker, will be the Senior Vice President of
Sales and Marketing of DocuCorp, Image Sciences and FormMaker; (iv) B. Bruce
Dale, Vice President of Development of Image Sciences, will be the Senior Vice
President of Products of DocuCorp, Image Sciences and FormMaker; (v) Kerry
LeCrone, the Senior Vice President of Services of FormMaker, will be the
Senior Vice President of Services of DocuCorp, Image Sciences and FormMaker,
(vi) Hsi-Ming Lin, the Senior Vice President of Research and Development of
FormMaker, will be the Senior Vice President of Research and Development of
DocuCorp, Image Sciences and FormMaker; and (vi) Todd A. Rognes, the Vice
President of Finance of Image Sciences, will be the Senior Vice President of
Finance of DocuCorp, Image Sciences and FormMaker. See "Management of
Systems--Executive Officers and Directors."
ABSENCE OF REGULATORY FILINGS AND APPROVALS
The Merger is not subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder, which provide that certain merger transactions may not be
consummated until required information and material have been furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and certain waiting periods have expired or been terminated. Other
than certain filings and approvals which may be required under certain state
securities or "blue sky" laws and the effectiveness of the Registration
Statement, there are no federal or state regulatory requirements that must be
complied with or approvals that must be obtained in connection with the
Merger.
ACCOUNTING TREATMENT
For historical accounting purposes, Image Sciences will be considered the
survivor in the Merger and no purchase accounting is required related to the
conversion of Image Sciences Common Stock and Image Sciences Preferred Stock
into DocuCorp Common Stock. The merger of FormMaker into a wholly-owned
subsidiary of DocuCorp will be treated as an acquisition of FormMaker by Image
Sciences; accordingly, the transaction will be recorded under the purchase
method of accounting.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Merger to holders of shares of Image Sciences Common
Stock, Image Sciences Preferred Stock and FormMaker Common Stock and holders
of FormMaker Warrants. The federal income tax discussion set forth below does
not address all aspects of federal income taxation that may be relevant to
particular categories of holders of shares of Image
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Sciences Common Stock, Image Sciences Preferred Stock and FormMaker Common
Stock and holders of FormMaker Warrants who are subject to special treatment
under the Code, including, without limitation, holders who are not citizens or
residents of the United States, or holders whose shares were acquired or will
be acquired pursuant to the exercise or termination of employee stock options
or otherwise as compensation, nor does the discussion address the effect of
any applicable foreign, state, local or other tax laws. This discussion
assumes that holders of shares of Image Sciences Common Stock, Image Sciences
Preferred Stock and FormMaker Common Stock and holders of FormMaker Warrants
hold their shares and/or warrants as capital assets within the meaning of
Section 1221 of the Code. HOLDERS OF SHARES OF IMAGE SCIENCES COMMON STOCK,
IMAGE SCIENCES PREFERRED STOCK AND FORMMAKER COMMON STOCK AND HOLDERS OF
FORMMAKER WARRANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT
OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
Steptoe & Johnson, special tax counsel to DocuCorp, will render a tax
opinion to Image Sciences and FormMaker that the Merger will qualify as a tax-
free reorganization for federal income tax purposes. Such opinion will not be
binding on the Internal Revenue Service or any court, and will be based upon
certain written representations of Image Sciences and FormMaker. No ruling has
been sought from the Internal Revenue Service as to the federal income tax
consequences of the Merger.
As a tax-free reorganization, no gain or loss will be recognized for federal
income tax purposes by Image Sciences, FormMaker, DocuCorp, the Texas Sub and
the Georgia Sub as a result of the Merger. In addition, the Merger will have
the following federal income tax consequences to holders of shares of Image
Sciences Common Stock, Image Sciences Preferred Stock and FormMaker Common
Stock and holders of FormMaker Warrants:
Tax Consequences to Holders of Image Sciences Common Stock. No gain or loss
will be recognized by holders of Image Sciences Common Stock as a result of
the conversion of their shares of Image Sciences Common Stock for shares of
DocuCorp Class B Common Stock pursuant to the Merger. The tax basis of the
shares of DocuCorp Class B Common Stock received by each holder of Image
Sciences Common Stock will equal the tax basis of such holder's shares of
Image Sciences Common Stock converted in the Merger. The holding period for
the shares of DocuCorp Class B Common Stock received by each holder of Image
Sciences Common Stock will include the holding period for the shares of Image
Sciences Common Stock of such holder exchanged in the Merger.
Tax Consequences to Holders of Image Sciences Preferred Stock. No gain or
loss will be recognized by holders of Image Sciences Preferred Stock as a
result of the conversion of their shares of Image Sciences Preferred Stock for
shares of DocuCorp Class B Common Stock pursuant to the Merger. The tax basis
of the shares of DocuCorp Class B Common Stock received by each holder of
Image Sciences Preferred Stock will equal the tax basis of such holder's
shares of Image Sciences Preferred Stock converted in the Merger. The holding
period for the shares of DocuCorp Class B Common Stock received by each holder
of Image Sciences Preferred Stock will include the holding period for the
shares of Image Sciences Preferred Stock of such holder converted in the
Merger.
Tax Consequences to Holders of FormMaker Common Stock. No gain or loss will
be recognized by holders of FormMaker Common Stock as a result of the
conversion of their shares of FormMaker Common Stock for shares of DocuCorp
Class A Common Stock pursuant to the Merger. The tax basis of the shares of
DocuCorp Class A Common Stock received by each holder of FormMaker Common
Stock will equal the tax basis of such holder's shares of FormMaker Common
Stock converted in the Merger. The holding period for the shares of DocuCorp
Class A Common Stock received by each holder of FormMaker Common Stock will
include the holding period for the shares of FormMaker Common Stock of such
holder converted in the Merger.
Tax Consequences to Holders of FormMaker Warrants. For federal income tax
purposes, the exchange of FormMaker Warrants for DocuCorp Warrants will be
treated as a taxable exchange pursuant to Section 1001 of the Code.
Accordingly, a holder of FormMaker Warrants will recognize capital gain or
loss equal to the
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difference between the fair market value of DocuCorp Warrants received in the
Merger and such holder's tax basis in FormMaker Warrants converted therefor. A
FormMaker Warrant holder's tax basis in the DocuCorp Warrants received in the
conversion will be equal to the fair market value of such DocuCorp Warrants.
CONSEQUENCES UNDER FEDERAL SECURITIES LAWS
The shares of DocuCorp Class A Common Stock and DocuCorp Class B Common
Stock issuable in connection with the Merger have been registered under the
Securities Act. Accordingly, there will be no federal securities law
restrictions upon the resale or transfer of such shares by former Image
Sciences or FormMaker stockholders except for those stockholders who are
deemed "affiliates" of Image Sciences or FormMaker, as that term is defined in
Rule 144 and Rule 145 under the Securities Act. See "Principal Stockholders of
DocuCorp."
DISSENTERS' RIGHTS
Image Sciences. Any Image Sciences Stockholder of record may exercise
dissenters' rights in connection with the Merger by properly complying with
the requirements of Articles 5.11, 5.12 and 5.13 of the Texas Business
Corporation Act, as amended (the "TBCA"). By exercising dissenter's rights,
any such Image Sciences Stockholder would be entitled to have the "fair value"
of his or her shares of Image Sciences Common Stock and/or Image Sciences
Preferred Stock determined by a court and paid to him or her in cash.
In order to exercise his or her dissenter's rights properly, a dissenting
Image Sciences Stockholder must refrain from executing the Image Sciences
Proxy or voting his or her shares in favor of the Merger in person at the
Image Sciences Special Meeting. The execution and return by an Image Sciences
Stockholder of the Image Sciences proxy or voting in favor of the Merger
Agreement at the Image Sciences Special meeting will evidence such
stockholder's consent to the Merger, and as a consequence thereof, such
stockholder will be foreclosed from exercising his or her rights as a
dissenting stockholder.
The following is a summary of the statutory procedures that a stockholder of
a Texas corporation must follow in order to exercise his or her dissenter's
rights under Texas law in connection with the Merger. This summary is not
complete and is qualified in its entirety by reference to Articles 5.11, 5.12
and 5.13 of the TBCA, the text of which is set forth in full in Appendix B of
this Joint Proxy Statement/Prospectus.
The TBCA provides that a stockholder of a Texas corporation, who holds
shares of a class or series that is entitled to vote with respect to a plan of
merger as a class or otherwise, has the right to dissent from such plan of
merger. Any such stockholder who wishes to dissent to a plan of merger may
exercise the rights and remedies of a dissenting stockholder as set forth in
Articles 5.11, 5.12 and 5.13 of the TBCA. Under the TBCA, the surviving
corporation (which, in the present case, would be Image Sciences) shall be
required to mail to each Image Sciences Stockholder who has not executed and
returned the Image Sciences proxy or voted at the Image Sciences Special
Meeting, within 10 days after the Effective Time of the Merger, notice (the
"Notice") of (i) the fact and date of the Merger and (ii) that such Image
Sciences Stockholder may exercise his or her right to dissent from the Merger.
Any Image Sciences Stockholder desiring to exercise his or her right of
dissent must, within 20 days after the mailing of the Notice, make a written
demand on Image Sciences for payment of the fair value of such stockholder's
shares of Image Sciences Common Stock and/or Image Sciences Preferred Stock.
The demand must state the number and class of shares owned by the dissenting
stockholder and the fair value of the shares as estimated by the stockholder.
The fair value of the shares shall be the value thereof as of the date of the
Image Sciences Special Meeting authorizing the Merger was delivered to Image
Sciences, excluding any appreciation or depreciation in anticipation of the
Merger.
ANY WRITTEN DEMAND REQUIRED OF ANY DISSENTING STOCKHOLDER UNDER ARTICLES
5.11 THROUGH 5.13 OF THE TBCA SHOULD BE SENT IN A MANNER THAT ASSURES THAT
SUCH NOTICE IS RECEIVED BY IMAGE SCIENCES NO LATER THAN , 1997, ADDRESSED
TO IMAGE SCIENCES, INC., ATTENTION: PRESIDENT, 5910 NORTH CENTRAL EXPRESSWAY,
SUITE 800, DALLAS, TEXAS 75206.
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Any Image Sciences Stockholder who fails to make such written demand within
the 20-day period will lose the right to dissent and will be bound by the
terms of the Merger. In order to preserve his or her dissenter's rights, a
dissenting Image Sciences Stockholder must also, within 20 days after making a
demand for payment, submit his or her stock certificates to Image Sciences for
notation thereon that such demand has been made. The failure of such
dissenting stockholder to do so shall, at the option of Image Sciences,
terminate the stockholder's rights to dissent and appraisal, unless a court of
competent jurisdiction for good and sufficient cause shown shall direct
otherwise. Image Sciences intends to terminate a stockholder's rights to
dissent and appraisal for failure of any such stockholder to comply with the
statutory deadlines for submission of stock certificates and any other
statutory requirements, unless a court of competent jurisdiction directs
otherwise.
Any Image Sciences Stockholder who has properly demanded payment for his or
her shares will not thereafter have any rights as a stockholder, except the
right to receive payment for his or her shares pursuant to Article 5.12 of the
TBCA and the right to maintain an appropriate action to obtain relief on the
grounds that the Merger and the related transactions were fraudulent.
Within 20 days after its receipt of a demand for payment, Image Sciences
must deliver or mail to the dissenting Image Sciences Stockholder written
notice stating that either (i) Image Sciences agrees to pay the amount of the
stockholder's demand within 90 days after the Effective Time of the Merger
upon receipt of the dissenting stockholder's duly endorsed stock certificates
or (ii) Image Sciences offers to pay its own estimate of the fair value of the
shares within 90 days after the Effective Time of the Merger upon receipt of
the dissenting stockholder's duly endorsed stock certificates and upon receipt
of notice within 60 days after the Effective Time of the Merger that the
dissenting stockholder agrees to accept Image Sciences' estimate. If the
dissenting Image Sciences Stockholder and Image Sciences agree upon the value
of the dissenting stockholder's shares within 60 days after the Effective Time
of the Merger, Image Sciences shall pay the amount of the agreed value to the
dissenting stockholder upon receipt of the dissenting stockholder's duly
endorsed stock certificates within 90 days after the Effective Time of the
Merger. Upon payment of the agreed value, the dissenting stockholder will
cease to have any interest in such shares.
If the dissenting Image Sciences Stockholder and Image Sciences do not agree
upon the value of the dissenting stockholder's shares within 60 days after the
Effective Time of the Merger, then either the dissenting stockholder or Image
Sciences may, within 60 days after the expiration of such 60-day period for
agreement, file a petition in a court of competent jurisdiction in the county
in Texas in which the principal office of Image Sciences is located (Dallas
County), seeking a determination of the fair value of the shares. Within 10
days following its receipt of notice of such a petition filed by a dissenting
stockholder or upon the filing of such a petition by Image Sciences, Image
Sciences must file with the court a list of the names and addresses of all
Image Sciences Stockholders who have demanded payment for their shares and
with whom agreements as to value have not been reached. The clerk of the court
will then give notice of the hearing of any such petition to Image Sciences
and to all of the dissenting Image Sciences Stockholders on the list provided
by Image Sciences. All dissenting Image Sciences Stockholders notified in this
manner and Image Sciences will be bound by the final judgment of the court as
to the value of the shares.
Image Sciences has not yet determined whether it will institute an action
seeking a judicial determination of the fair value of the Image Sciences
Common Stock and/or Image Sciences Preferred Stock in the event that Image
Sciences and dissenting Image Sciences Stockholders do not agree as to the
value of the dissenting stockholders' shares; such determination will depend,
among other considerations, upon the number of dissenting Image Sciences
Stockholders with whom such a disagreement exists and the magnitude of the
difference in the parties' respective opinions as to the value of the
dissenting stockholders' shares.
In considering such a claim, the court will determine which of the
dissenting Image Sciences Stockholders have complied with the provisions of
the TBCA and are entitled to valuation and payment for their shares and will
appoint one or more qualified appraisers to assist in the determination of the
fair value of the shares upon such investigation as the appraisers consider
proper. The appraisers shall afford a reasonable opportunity to the dissenting
Image Sciences Stockholders and Image Sciences to submit evidence as to the
value of the shares.
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Upon receipt of the appraisers' report, the court will by its judgment
determine the fair value of the shares of the dissenting Image Sciences
Stockholders and will direct Image Sciences, upon its receipt of the
dissenting Image Sciences Stockholders' duly endorsed stock certificates, to
pay to the dissenting stockholders the amount of the fair value of their
shares, with interest thereon beginning 91 days after the Effective Time of
the Merger to the date of the judgment. Upon payment of the judgment, the
dissenting Image Sciences Stockholders will cease to have any interest in the
shares or in Image Sciences. The court will allow the appraisers a reasonable
fee as court costs and will allocate all court costs between the parties in
such manner as it determines to be fair and equitable.
Any dissenting Image Sciences Stockholder may withdraw his or her demand at
any time before receiving payment for his or her shares or before a petition
has been filed seeking determination of the fair value of his or her shares.
No such dissenting stockholder may withdraw his or her demand after payment
for the shares has been made or, unless Image Sciences consents to the
withdrawal, after such a petition has been filed.
Image Sciences Stockholders considering appraisal rights should consider
that the payment which they eventually receive in exchange for their shares in
a dissenters' rights proceeding under Texas law could be less than, equal to,
or greater than the eventual market value of the consideration they would
receive as a result of the consummation of the Merger.
Any Image Sciences Stockholder who exercises his or her appraisal rights and
receives cash from Image Sciences in exchange for his or her shares of Image
Sciences Common Stock and/or Image Sciences Preferred Stock will recognize
taxable gain or loss in an amount equal to the difference between (a) the sum
of cash received from Image Sciences and (b) the basis of the shares of Image
Sciences Common Stock and/or Image Sciences Preferred Stock so exchanged. Any
such gain or loss recognized would be long-term capital gain or loss if such
shares constitute capital assets in the hands of the dissenting Image Sciences
Stockholder and have been held by such stockholder for more than one year at
the Effective Time.
IMAGE SCIENCES STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER
ARE URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
FormMaker Stockholders. Any FormMaker Stockholder of record may exercise
dissenters' rights in connection with the Merger by properly complying with
the requirements of Sections 14-2-1302, 14-2-1303, 14-2-1321 through 14-2-1327
and 14-2-1330 through 14-2-1332 of the Georgia Business Corporation Code, as
amended (the "GBCC"). By exercising dissenter's rights, any such FormMaker
Stockholder would be entitled to payment of the "fair value" of his or her
shares of FormMaker Common Stock.
In order to exercise his or her dissenter's rights properly, a dissenting
FormMaker Stockholder must refrain from executing the FormMaker Proxy or
voting his or her shares in favor of the Merger Agreement in person at the
FormMaker Special Meeting. The execution and return by a FormMaker Stockholder
of the FormMaker Proxy or voting in favor of the Merger Agreement at the
Special Meeting will evidence such stockholder's consent to the Merger, and as
a consequence thereof, such stockholder will be foreclosed from exercising his
or her rights as a dissenting stockholder.
The following is a summary of the statutory procedures that a stockholder of
a Georgia corporation must follow in order to exercise his or her dissenter's
rights under Georgia law in connection with the Merger. This summary is not
complete and is qualified in its entirety by reference to Sections 14-2-1302,
14-2-1303, 14-2-1321 through 14-2-1323 and 14-2-1330 through 14-2-1332 of the
GBCC, the text of which is set forth in full in Appendix C of this Joint Proxy
Statement/Prospectus.
The GBCC provides that a stockholder of a Georgia corporation, who holds
shares of a class or series that is entitled to vote with respect to a plan of
merger as a class or otherwise, has the right to dissent from such plan of
merger. Any such stockholder who wishes to dissent from a plan of merger may
exercise the rights and
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remedies of a dissenting stockholder as set forth in Sections 14-2-1302, 14-2-
1303, 14-2-1321 through 14-2-1323 and 14-2-1330 through 14-2-1332 of the GBCC.
A FormMaker Stockholder who wishes to exercise his or her dissenter's rights
must deliver to FormMaker, before the FormMaker Special Meeting, written
notice of his or her intent to demand payment for his or her shares if the
Merger is approved. Additionally, such stockholder must not vote his or her
shares in favor of the Merger. A dissenting FormMaker Dissenter who does not
deliver notice of his intention to demand payment for his or her shares, or
votes in favor of the Merger will not be entitled to payment for his or her
shares.
If the Merger Agreement is approved by the FormMaker Stockholders, FormMaker
must deliver, within ten days after the FormMaker Special Meeting, a written
dissenters' notice (the "Dissenters' Notice") to all stockholders who (a)
delivered notice of his or her intention to demand payment and (b) did not
vote in favor of the Merger. The Dissenters' Notice must state where the
payment demand must be sent, when and where certificates for certificated
shares must be deposited and must inform holders of uncertificated shares to
what extent transfer of such shares will be restricted after the payment
demand is received. FormMaker may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the Merger
is consummated. The Dissenters' Notice must also be accompanied by the
dissenters' rights provisions of the GBCC and must set a date by which
FormMaker must receive payment demand (such date may not be fewer than 30 nor
more than 60 days after the date of delivery by FormMaker of the dissenters'
notice) (the "Demand Due Date").
A dissenting FormMaker Stockholder who receives a Dissenters' Notice, in
order to be entitled to payment for his or her shares under the dissenters'
rights provisions of the GBCC, must demand payment for his or her shares and
deposit his or her certificates as specified in the notice before the Demand
Due Date. A dissenting FormMaker Stockholder who demands payment retains all
other rights of a FormMaker Stockholder until these rights are canceled or
modified by the consummation of the Merger.
ANY WRITTEN DEMAND REQUIRED OF ANY DISSENTING STOCKHOLDER UNDER SECTIONS 14-
2-1302, 14-2-1303, 14-2-1321 THROUGH 14-2-1323 AND 14-2-1330 THROUGH 14-2-1332
OF THE GBCC SHOULD BE SENT IN A MANNER THAT ASSURES THAT SUCH NOTICE IS
RECEIVED BY FORMMAKER NO LATER THAN , 1997, ADDRESSED TO FORMMAKER
SOFTWARE, INC., ATTENTION: PRESIDENT, 2300 WINDY RIDGE PARKWAY, SUITE 400
NORTH, ATLANTA, GEORGIA, 30339.
FormMaker shall send to each FormMaker Stockholder who satisfied the
requirements for demanding payment, notice of an offer to pay such dissenter
the amount the corporation estimates to be the value of the shares immediately
before the consummation of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger (the "fair value"), plus accrued
interest. The offer of payment must be accompanied by FormMaker's balance
sheet as of the end of the fiscal year ending not more than 16 months before
the date of payment, an income statement for such year, a statement of changes
in stockholders' equity for such year, and the latest available interim
financial statements, if any. FormMaker must also send, along with the offer
of payment, a statement of FormMaker's estimate of the fair value of the
shares, an explanation of how the interest was calculated, a statement of the
dissenter's right to demand payment if he or she is dissatisfied with the
offer (discussed below), and a copy of the dissenters' rights provisions of
the GBCC. If a dissenting FormMaker Stockholder accepts FormMaker's offer by
written notice to FormMaker within 30 days after the FormMaker's offer, or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making of
the offer or the consummation of the merger, whichever is later.
If (a) a FormMaker Stockholder believes that FormMaker's offer of payment
for the shares is less than the fair value of his shares and accrued interest
or (b) the Merger is not consummated and FormMaker has not returned the
certificates or released the transfer restrictions within 60 days after the
Demand Due Date, the FormMaker Dissenter may notify FormMaker of his or her
own estimate for the fair value plus accrued interest,
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and demand payment of such estimate. If a dissenting FormMaker Stockholder
does not notify FormMaker of his or her own estimate within 30 days after
FormMaker's offer, he or she is deemed to have accepted the offer and thus
waives his or her right to demand payment. A FormMaker Stockholder may also
notify FormMaker of his or her own estimate for the fair value of the shares
(and request that FormMaker send the information required in the Dissenters'
Notice) if FormMaker does not offer payment for his or shares within ten days
of (a) the consummation of the Merger or (b) FormMaker's receipt of a payment
demand (whichever is later).
If the Merger is not consummated within 60 days after the Demand Due Date,
FormMaker shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares. If after returning the
certificates and releasing transfer restrictions, FormMaker consummates the
Merger, it must send a new Dissenters' Notice and repeat the payment demand
procedure.
If FormMaker disagrees with the estimate of fair value of the dissenting
FormMaker Stockholder, FormMaker shall commence a proceeding within 60 days
after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If FormMaker does not commence
the proceeding within the 60 day period, it shall pay each dissenting
FormMaker Stockholder whose demand remains unsettled the amount demanded.
FormMaker has not yet determined whether it will institute a proceeding
seeking a judicial determination of the fair value of the FormMaker Common
Stock in the event that FormMaker and dissenting FormMaker Stockholders do not
agree as to the value of the dissenting stockholders' shares; such
determination will depend, among other considerations, upon the number of
dissenting FormMaker Stockholders with whom such a disagreement exists and the
magnitude of the difference in the parties' respective opinions as to the
value of the dissenting stockholders' shares.
FormMaker, if it chooses to institute an action, shall commence the
proceeding, which shall be a nonjury equitable valuation proceeding, in the
superior court of Fulton County. FormMaker shall make all dissenting FormMaker
Stockholders, whether or not residents of Georgia, whose demands remain
unsettled, parties to the proceeding, which shall have the effect of an action
quasi in rem against their shares. FormMaker shall serve a copy of the
petition in the proceeding upon each dissenting FormMaker Stockholder who is a
resident of Georgia in the manner provided by law for the service of a summons
and complaint, and upon each nonresident FormMaker Stockholder either by
registered or certified mail or by publication, or in any other manner
permitted by law.
The jurisdiction of the court in which the proceeding is commenced is
plenary and exclusive. The court may appoint one or more persons as appraisers
to receive evidence and recommend decision on the question of fair value. Each
dissenting FormMaker Stockholder made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of shares,
plus interest to the date of judgment.
The court shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court, but
not including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against FormMaker, except that the
court may assess the costs against all or some of the dissenting FormMaker
Stockholders, in amounts the court finds equitable, to the extent the court
finds that the dissenting FormMaker Stockholders acted arbitrarily,
vexatiously, or not in good faith in demanding payment.
The court may also assess the fees and expenses of attorneys and experts for
the respective parties (a) against FormMaker and in favor of any or all
dissenting FormMaker Stockholders if the court finds FormMaker did not
substantially comply with the requirements of the GBCC dissenter's rights
provisions or against either FormMaker or a dissenting FormMaker Stockholder,
in favor of any other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily, vexatiously, or not in
good faith. If the court finds that the services of attorneys for any
dissenting FormMaker Stockholder were of substantial benefit to other such
dissenters similarly situated, and that the fees for those services should not
be assessed against FormMaker,
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the court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenting FormMaker Stockholders who were benefited.
No action by any dissenting FormMaker Stockholder to enforce dissenters'
rights shall be brought more than three years after the consummation of the
Merger, regardless of whether notice of the Merger and of the right to dissent
was given by FormMaker in compliance with the provisions of the GBCC.
FormMaker Stockholders considering appraisal rights should consider that the
payment which they eventually receive in exchange for their shares in a
dissenters' rights proceeding under Georgia law could be less than, equal to,
or greater than the eventual market value of the consideration they would
receive as a result of the consummation of the Merger.
Any FormMaker Stockholder who exercises his or her appraisal rights and
receives cash from FormMaker in exchange for his or her shares of FormMaker
Common Stock will recognize taxable gain or loss in an amount equal to the
difference between (a) the sum of cash received from FormMaker and (b) the
basis of the shares of FormMaker Common Stock. Any such gain or loss
recognized would be long-term capital gain or loss if such shares constitute
capital assets in the hands of the FormMaker Dissenter and have been held by
such stockholder for more than one year at the Effective Time.
FORMMAKER STOCKHOLDERS WHO ARE CONSIDERING DISSENTING FROM THE MERGER ARE
URGED TO CONSULT THEIR OWN LEGAL COUNSEL.
DESCRIPTION OF DOCUCORP CAPITAL STOCK
The authorized capital stock of DocuCorp consists of 28,000,000 shares of
DocuCorp Common Stock consisting of 20,000,000 shares of DocuCorp Class A
Common Stock, par value $0.01 per share, and 7,000,000 shares of DocuCorp
Class B Common Stock, par value $0.01 per share, and 1,000,000 shares of
DocuCorp Preferred Stock, par value $0.01 per share. The DocuCorp Class A
Common Stock and the DocuCorp Class B Common Stock are referred to herein
collectively as the "DocuCorp Common Stock." At the Effective Time, there will
be issued and outstanding 4,450,179 shares of DocuCorp Class A Common Stock,
4,700,786 shares of DocuCorp Class B Common Stock and no shares of DocuCorp
Preferred Stock.
DOCUCORP COMMON STOCK
Holders of DocuCorp Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by the stockholders and do not
have cumulative voting rights. The election of directors is determined by a
plurality of the votes cast. Amendments to the DocuCorp Certificate of
Incorporation (the "DocuCorp Certificate") require the approval of the holders
of a majority of the DocuCorp Class A Common Stock and 75% of the DocuCorp
Class B Common Stock. Except as otherwise required by law and as may be
required by the terms of the DocuCorp Preferred Stock, all other matters are
determined by a majority of the votes cast. The holders of DocuCorp Common
Stock are entitled to receive dividends when, as and if declared by the
DocuCorp Board out of funds legally available for the payment thereof, subject
to any preferential dividend rights of outstanding DocuCorp Preferred Stock.
Upon the liquidation, dissolution or winding up of DocuCorp, holders of
DocuCorp Common Stock are entitled to receive ratably the net assets of
DocuCorp available for distribution after preferred distributions, if any, to
the holders of DocuCorp Preferred Stock. The shares of DocuCorp Common Stock
that will be outstanding upon the consummation of the Merger will be, when
issued and paid for, fully paid and nonassessable. The rights, preferences and
privileges of holders of DocuCorp Common Stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
DocuCorp Preferred Stock which DocuCorp may designate and issue in the future.
See "Risk Factors--Anti-Takeover Provisions" and "--DocuCorp Preferred Stock."
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Holders of DocuCorp Common Stock do not have any preemptive or subscription
rights, and holders of DocuCorp Class A Common Stock do not have any
redemption or conversion rights. Holders of issued and outstanding shares of
DocuCorp Class B Common Stock will have the option to have such shares
redeemed by following the procedures described in the following paragraph if
DocuCorp does not consummate by January 31, 1998 an underwritten public
offering of securities of DocuCorp in which the managing underwriter values
the equity of DocuCorp immediately prior to the offering at $62,100,000 or
more without taking into account any proceeds to be received from such
offering (a "Qualified Public Offering") until February 1, 1999 at a price per
share of $3.45 (the "Redemption Price"); provided, however, that if the
increase of pro forma combined revenues of Image Sciences and FormMaker
(consolidated with its majority-owned subsidiary, Micro Dynamics, Ltd., a
Delaware Corporation ("Micro Dynamics")) for the twelve month period ending
July 31, 1997 over pro forma combined revenues of such entities for the twelve
months period ending July 31, 1996 exceeds 20%, then the Redemption Price
shall be increased to $4.08 per share. If a Qualified Public Offering occurs
on or prior to February 1, 1999, each issued and outstanding share of DocuCorp
Class B Common Stock will be automatically converted into a share of DocuCorp
Class A Common Stock and all redemption obligations on the part of DocuCorp
with respect to the DocuCorp Class B Common Stock will cease.
If a Qualified Public Offering does not occur by January 31, 1998, DocuCorp
is required to mail to each holder of DocuCorp Class B Common Stock a notice
regarding such holder's right to redeem his or her DocuCorp Class B Common
Stock. DocuCorp will pay the Redemption Price to a holder of shares of
DocuCorp Class B Common Stock, upon receipt of the certificate or certificates
evidencing such shares of DocuCorp Class B Common Stock, within 60 days of
receiving a claim notice (a "Claim Notice") from such holder providing the
following information: (i) such holder's intention to redeem all or a portion
of his or her shares; (ii) the number of shares of DocuCorp Class B Common
Stock owned of record by such holder; (iii) the name and address of the person
to whom the Redemption Price should be mailed; and (iv) the federal tax
identification number of the person receiving payment of the Redemption Price.
The SG/TL Stockholders have agreed in the Liquidity Agreement to subscribe for
a number of shares of DocuCorp Class A Common Stock at the Redemption Price
equal to the number of shares of DocuCorp Class B Common Stock for which a
valid Claim Notice has been received in order to fund the redemption of
DocuCorp Class B Common Stock. See "The Merger and Related Transactions--The
Liquidity Agreement."
DOCUCORP PREFERRED STOCK
DocuCorp has authorized 1,000,000 shares of DocuCorp Preferred Stock which
the DocuCorp Board has discretion to issue in such series and with such
preferences and rights as it may designate without the approval of the holders
of DocuCorp Common Stock. Such preferences and rights may be superior to those
of the holders of DocuCorp Common Stock. For example, the holders of DocuCorp
Preferred Stock may be given a preference in payment upon liquidation of
DocuCorp, or for the payment or accumulation of dividends before any
distributions are made to the holders of DocuCorp Common Stock. As of the date
of this Joint Proxy Statement/ Prospectus, no DocuCorp Preferred Stock has
been designated or issued by DocuCorp, and DocuCorp has no plans, agreements
or understandings for the issuance of DocuCorp Preferred Stock. For a
description of the possible anti-takeover effects of the DocuCorp Preferred
Stock, see "Risk Factors--Anti-Takeover Provisions" and "--Certain Anti-
Takeover Provisions."
LIMITATION ON LIABILITY
The DocuCorp Certificate limits or eliminates the liability of DocuCorp's
directors or officers to DocuCorp or its stockholders for monetary damages to
the fullest extent permitted by the Delaware General Corporation Law, as
amended (the "DGCL"). The DGCL provides that a director of DocuCorp shall not
be personally liable to DocuCorp or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except for liability: (i) for any
breach of such person's duty of loyalty; (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law;
(iii) for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law; and (iv) for any transaction resulting
in receipt by such person of an improper personal benefit.
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DocuCorp intends to apply for directors' and officers' liability insurance
to provide its directors and officers and the directors and officers of
FormMaker and Image Sciences with insurance coverage for losses arising from
claims based on breaches of duty, negligence, error and other wrongful acts to
be effective contemporaneously with the Closing. See "Business of Image
Sciences--Legal Proceedings" for a discussion of pending litigation.
CERTAIN ANTI-TAKEOVER PROVISIONS
The ability of the DocuCorp Board to establish the rights of, and to issue,
substantial amounts of DocuCorp Preferred Stock without the need for
stockholder approval, upon such terms and conditions, and having such rights,
privileges and preferences, as the DocuCorp Board may determine in the
exercise of its business judgment, may, among other things, be used to create
voting impediments with respect to changes in control of DocuCorp or to dilute
the stock ownership of holders of DocuCorp Common Stock seeking to obtain
control of DocuCorp. The rights of the holders of DocuCorp Common Stock will
be subject to, and may be adversely affected by, any DocuCorp Preferred Stock
that may be issued in the future. The issuance of DocuCorp Preferred Stock,
while providing desirable flexibility in connection with possible
acquisitions, financings and other corporate transactions, may have the effect
of discouraging, delaying or preventing a change in control of DocuCorp.
DocuCorp has no present plans to issue any shares of DocuCorp Preferred Stock.
See "Risk Factors--Anti-Takeover Provisions," "--DocuCorp Common Stock" and
"--DocuCorp Preferred Stock."
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits certain business combinations between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15% or more of the outstanding
voting shares of a Delaware corporation. For purposes of Section 203, business
combinations are defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits any such business combination for a period
of three years commencing on the date the interested stockholder becomes an
interested stockholder, unless: (i) the business combination is approved by
the corporation's board of directors prior to the date the interested
stockholder becomes an interested stockholder; (ii) the interested stockholder
acquired at least 85% of the voting stock of the corporation (other than stock
held by directors who are also officers or by certain employee stock plans) in
the transaction in which it becomes an interested stockholder; or (iii) the
business combination is approved by a majority of the board of directors and
by the affirmative vote of two-thirds of the outstanding voting stock that is
not owned by the interested stockholder. See "Risk Factors--Anti-Takeover
Provisions."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the DocuCorp Common Stock is ,
Dallas, Texas.
COMPARISON OF STOCKHOLDER RIGHTS
At the Effective Time, the stockholders of Image Sciences, a Texas
corporation, and the stockholders of FormMaker, a Georgia corporation, will
become stockholders of DocuCorp, a Delaware corporation, and Delaware law will
govern such stockholders' rights after the Merger, except with respect to
dissenters' rights for the stockholders of Image Sciences and FormMaker, which
are governed by Texas law and Georgia law, respectively, even after the
Effective Time. See "The Merger--Dissenters' Rights." Differences among the
DGCL, the TBCA and the GBCC, and among the DocuCorp Certificate and the
DocuCorp Bylaws, Image Sciences's Articles of Incorporation, as amended, and
bylaws, as amended (respectively, the "Image Sciences Articles" and the "Image
Sciences Bylaws"), and FormMaker's Articles of Incorporation, as amended, and
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bylaws (respectively, the "FormMaker Articles" and the "FormMaker Bylaws"),
will result in various changes in the rights of stockholders of Image Sciences
and FormMaker.
The following is a summary of material differences between the rights of
stockholders of DocuCorp under Delaware law and the DocuCorp Certificate and
DocuCorp Bylaws, as compared with those of stockholders of Image Sciences
under Texas law and the Image Sciences Articles and Image Sciences Bylaws, and
the stockholders of FormMaker under Georgia law and the FormMaker Articles and
FormMaker Bylaws. This summary does not purport to be a complete description
of the provisions discussed and is qualified in its entirety by the DGCL,
TBCA, GBCC, DocuCorp Certificate, DocuCorp Bylaws, Image Sciences Articles,
Image Sciences Bylaws, FormMaker Articles and FormMaker Bylaws, to which the
stockholders of Image Sciences and FormMaker are referred.
REMOVAL OF DIRECTORS
Under the DGCL, directors generally may be removed, with or without cause,
by a vote of the holders of a majority of the shares then entitled to vote at
an election of directors. Under the DocuCorp Bylaws, directors generally may
be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote at an election of directors. See "Management
of DocuCorp--Certain Relationships and Related Transactions." Under the TBCA,
a Texas corporation may provide in its articles of incorporation or bylaws
that directors may be removed with or without cause in accordance with the
provisions of the bylaws or articles of incorporation. The Image Sciences
Bylaws provide that directors may be removed with or without cause by a vote
of the holders of the majority of shares then entitled to vote at an election
of directors at any annual or special meeting called for such purpose. Under
the GBCC, stockholders may remove directors with or without cause unless the
articles of incorporation or a bylaw adopted by the stockholders provide that
directors may be removed only for cause.
CALL OF SPECIAL STOCKHOLDER MEETINGS
Stockholders of a Delaware corporation do not have a right to call special
meetings unless it is conferred in the corporation's certificate of
incorporation or bylaws. The DGCL provides that special meetings of
stockholders may be called by the board of directors or by a person authorized
by the certificate of incorporation or bylaws. The DocuCorp Bylaws provide
that special stockholder meetings may be called by the chairman of the board,
a majority of the directors, the president or at the written request of
stockholders owning a majority of the amount of the entire capital stock of
the corporation issued and outstanding and entitled to vote. Under the TBCA,
special meetings of stockholders may be called by the president, the board of
directors, a person authorized by the articles of incorporation or bylaws, or
by holders of not less than 10% of all the shares entitled to vote, unless the
articles of incorporation provide otherwise, but in no event may the articles
of incorporation require a number of shares greater than 50% to call a special
meeting. The Image Sciences Bylaws provide that a special meeting may be
called at any time by the chief executive officer or the Board of Directors,
and shall be called by the chief executive officer at the request in writing
by holders of not less than 10% of all the shares entitled to vote. Under the
GBCC, a special meeting may be called by the board of directors, by a person
authorized to do so by the articles of incorporation or bylaws, or by the
holders of at least 25%, or such lesser percentage as may be provided in the
articles of incorporation or bylaws, of all the votes entitled to be cast at
the special meeting. The FormMaker Bylaws provide that a special meeting of
the stockholders may be called by the president or by the directors, and shall
be called by the president at the request of the holders of not less than 25%
of all the outstanding shares entitled to vote at the meeting.
DISSENTERS' RIGHTS
The DGCL generally entitles a stockholder to exercise its appraisal rights
upon a merger or consolidation of the corporation effected pursuant to the
DGCL if the holder complies with the requirements of Section 262 thereof. The
DGCL, however, does not provide appraisal rights for stockholders of a
corporation that engages in (a) a merger or consolidation of the corporation
if the stock of the Delaware corporation is listed on a national
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securities exchange or designated as a Nasdaq National Market security, or
held of record by more than 2,000 stockholders; (b) a merger in which a
Delaware corporation is the surviving corporation, if (i) the merger agreement
does not amend the surviving corporation's certificate of incorporation, (ii)
each share of stock of the surviving corporation outstanding immediately prior
to the effective date of the merger is to be an identical outstanding share of
the surviving corporation after the merger, and (iii) the increase in the
outstanding shares as a result of the merger does not exceed 20% of the shares
of common stock of the surviving corporation outstanding immediately prior to
the effective date of the merger; or (c) a merger or consolidation where the
stockholders are required to accept (i) shares of the corporation surviving or
resulting from the merger or consolidation, (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
listed on a national securities exchange or designated as a Nasdaq National
Market security, or held of record by more than 2,000 stockholders, (iii) cash
in lieu of fractional shares, or (iv) any combination of shares of stock and
cash in lieu of fractional shares.
The TBCA generally entitles a stockholder to exercise its appraisal rights
upon a merger of the corporation (except for the limited classes of mergers
for which no stockholder approval is required, and as set forth hereunder),
the sale, lease, exchange or other disposition of all, or substantially all,
the property and assets of the corporation, or a share exchange in which the
shares of the stockholder are to be acquired, if the stockholder complies with
the requirements of Articles 5.12 and 5.13 thereof. The TBCA, however, does
not provide appraisal rights for stockholders with respect to any plan of
merger in which there is a single surviving or new domestic or foreign
corporation, or from any plan of exchange, if (a) the shares held by the
stockholder are part of a class of shares which are listed on a national
securities exchange, or held by not less than 2,000 stockholders and (b) the
stockholder is not required by the terms of the plan of merger or exchange to
accept for such stockholder's shares any consideration other than (i) shares
of a corporation that, immediately after the merger or exchange, will be part
of a class or series of shares which are listed, or authorized for listing, on
a national securities exchange, or held of record by not less than 2,000
stockholders, and (ii) cash in lieu of fractional shares otherwise entitled to
be received.
If a stockholder complies with the requirements of Article 13 of the GBCC,
the statute generally entitles the stockholder to exercise its appraisal
rights upon a merger of the corporation (if stockholder approval is required
or if the corporation is a subsidiary that is merged with its parent), the
acquisition of the corporation pursuant to a share exchange (if the
stockholder is entitled to vote on the plan of exchange), the sale or exchange
of all or substantially all of the property of the corporation (if stockholder
approval is required), an amendment of the articles or incorporation that
materially and adversely affects rights in respect of a dissenter's shares in
ways specified in the GBCC, and any corporate action taken pursuant to a
stockholder vote to the extent that the statute, articles of incorporation,
bylaws or resolution of the board of directors provide that voting or
nonvoting stockholders are entitled to dissent and obtain payment for their
shares. The GBCC, however, does not provide appraisal rights for holders of
shares of any class or series which were either listed on a national
securities exchange or held by more than 2,000 stockholders, unless (a) in the
case of a merger or share exchange, the holders of shares of the class or
series are required under the merger or share exchange to accept for their
shares anything other than (i) shares of the surviving corporation or another
publicly held corporation which are either listed on a national securities
exchange or held by more than 2,000 stockholders, or (ii) cash in lieu of
fractional shares, or (b) the articles of incorporation or a resolution of the
board of directors approving the transaction provide otherwise.
DIVIDENDS AND DISTRIBUTIONS
The DGCL provides that a corporation may declare and pay dividends out of
surplus (defined as the excess, if any, of net assets over stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Dividends may not be
paid out of net profits if the stated capital of the corporation is less than
the amount of stated capital represented by the issued and outstanding stock
of all classes having a preference upon the distribution of assets.
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The TBCA provides that distributions may not be made if after giving effect
to the distribution the corporation would be insolvent or the distribution
exceeds the surplus (defined as the excess, if any, of net assets over stated
capital) of the corporation.
The GBCC provides that distributions may not be made if, after giving effect
to the distribution, the corporation would not be able to pay its debts as
they become due in the usual course of business, or if the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise) the amount that would be needed,
if the corporation were to be dissolved at the time of distribution, to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The DGCL, the TBCA and the GBCC have similar provisions for indemnification
of directors and officers except with respect to the areas discussed herein.
Under the DGCL, if a director or officer is adjudged to be liable to the
corporation, the person is not entitled to indemnification unless the court of
chancery or the court in which the action was brought determines that, despite
the adjudication of liability, the person is fairly and reasonably entitled to
indemnity for expenses the court deems proper. Under the TBCA, if a director
or officer is found liable to the corporation or is found liable on the basis
that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred and shall
not be made if the person is found liable for wilful or intentional
misconduct, unless a court orders that the person is entitled to indemnity,
but the indemnification is limited to reasonable expenses actually incurred.
Under the GBCC, a corporation may not indemnify a director or officer who is
adjudicated liable to the corporation or adjudicated liable on the basis that
personal benefit was improperly received, unless a court orders that the
director or officer is entitled to indemnity, but the indemnification is
limited to reasonable expenses actually incurred.
The DGCL, the GBCC and the TBCA provide that expenses incurred in defending
any action or proceeding may be paid by the corporation in advance of the
final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that
the director or officer is not entitled to be indemnified by the corporation.
The GBCC and the TBCA also require a written affirmation of good faith belief
that the director or officer has met the standard of conduct necessary for
indemnification.
AMENDMENT TO CERTIFICATE OF INCORPORATION
The DGCL requires the approval of the holders of a majority of the
outstanding stock entitled to vote for any amendment to the certificate of
incorporation, unless such level of approval is increased by the certificate
of incorporation. The DocuCorp Certificate provides that approval of the
holders of a majority of the outstanding DocuCorp Class A Common Stock and 75%
of the outstanding DocuCorp Class B Common Stock is required to amend the
DocuCorp Certificate. The TBCA requires the affirmative vote of the holders of
at least two-thirds of the outstanding shares entitled to vote thereon for any
amendment to the articles of incorporation, unless such level is decreased by
the articles of incorporation. The Image Sciences Articles do not decrease
such level. Comparisons to the GBCC and FormMaker Articles are immaterial.
VOTE REQUIRED FOR EXTRAORDINARY CORPORATE TRANSACTIONS
Under the DGCL, a merger, consolidation, dissolution or sale or other
disposition of substantially all of a corporation's assets must be approved by
the affirmative vote of the holders of a majority of the outstanding stock
entitled to vote thereon. Additionally, the DGCL provides that no vote of the
stockholders of the surviving corporation is required, unless the certificate
of incorporation provides otherwise, to approve a merger if (a) the agreement
of merger does not amend in any respect the corporation's certificate of
incorporation; (b) each share of the corporation's stock outstanding
immediately prior to the merger is to be an identical outstanding or treasury
share of the surviving corporation after the merger; and (c) either (i) no
shares of common stock of the surviving corporation and no shares, securities
or obligations convertible into such stock are to be issuable as a
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result of the merger or (ii) the increase in the outstanding shares as a
result of the merger does not exceed 20% of the shares of common stock of the
surviving corporation outstanding immediately prior to the effective date of
the merger.
Under the TBCA, a merger or exchange requires the approval of two-thirds of
the shares entitled to vote (unless the board of directors requires a greater
vote) of each constituent corporation, unless the certificate of incorporation
provides otherwise, except if the domestic corporation meets the following
requirements: (a) the corporation will be the sole surviving corporation in
the merger; (b) the articles of incorporation will remain unchanged after the
merger; (c) each stockholder will hold the same number of shares, with
identical designations, preferences, limitations and relative rights,
immediately after the merger; (d) the voting power of outstanding voting
shares immediately after the merger plus the voting power of the total number
of voting shares issuable as a result of the merger will not exceed by more
than 20% of the voting power of the total number of voting shares outstanding
before the merger; (e) the number of outstanding participating shares
immediately after the merger plus the number of participating shares issuable
as a result of the merger will not exceed by more than 20% the total number of
participating shares outstanding before the merger; and (f) the board of
directors adopts a resolution approving the plan of merger. A dissolution or a
sale, lease, exchange or other disposition of substantially all of the
corporation's assets if not made in the usual and regular course of business
also requires stockholder approval. Such a transaction is in the usual and
ordinary course of business if the corporation shall, directly or indirectly,
either continue to engage in one or more businesses or apply the consideration
received in connection with the transaction to the conduct of a business in
which it engages following the transaction. Under the TBCA, the approval of a
dissolution or the sale of substantially all of the corporation's assets also
requires the affirmative vote of at least two-thirds of the outstanding shares
entitled to vote thereon.
Under the GBCC, a merger or exchange requires the approval of a majority of
the shares entitled to vote, voting as a single group. Stockholders of the
surviving corporation need not approve a merger if (i) the articles of
incorporation of the surviving corporation will not differ from its articles
before the merger, (ii) each stockholder of the surviving corporation whose
shares were outstanding immediately before the effective date of the merger
will hold the same number and type of shares immediately after the merger, and
(iii) the number and kind of shares outstanding immediately after the merger,
plus the number and kind of shares issuable as a result of the merger, do not
exceed the total number and kind of shares of the surviving corporation
authorized by its articles of incorporation immediately before the merger.
CLASS VOTING
Under the DGCL and the DocuCorp Certificate, class voting is not required in
connection with amendments to the certificate of incorporation or a merger or
consolidation, except in the case of an amendment of a corporation's
certificate of incorporation which adversely affects a class of shares. Under
the TBCA and GBCC, class voting is required in connection with certain
amendments to a corporation's articles of incorporation, a merger or
consolidation if the plan of merger or consolidation contains any provision
which, if contained in a proposed amendment to a corporation's articles of
incorporation, would require class voting, or certain sales of all or
substantially all of a corporation's assets.
INTERESTED STOCKHOLDER TRANSACTIONS
The DGCL prohibits a "business combination" between the corporation and an
"interested stockholder" within three years of the stockholder becoming an
"interested stockholder." An "interested stockholder" is one who, directly or
indirectly, controls 15% or more of the outstanding voting stock of a
corporation. A "business combination" includes a merger, consolidation, sale
or other disposition of assets having an aggregate value equal to or greater
than 10% of the consolidated assets of the corporation or the aggregate market
value of the outstanding stock of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation. This provision does not apply where (a) the business
combination is approved by the corporation's board of directors prior to the
date the interested stockholder
38
<PAGE>
acquired its shares; (b) the interested stockholder acquired at least 85% of
the outstanding voting stock of the corporation in the transaction in which
the stockholder became an interested stockholder excluding, for determining
the number of shares outstanding, shares held by persons who are directors and
also officers and by employee stock plans in which participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; (c) the business combination
is approved by the board of directors and the affirmative vote of 66 2/3% of
the outstanding stock entitled to be voted by disinterested stockholders at an
annual or special meeting; (d) the corporation does not have a class of voting
stock that is listed on a national securities exchange, authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or held by more than 2,000 stockholders unless any of
the foregoing results from action taken, directly or indirectly, by an
interested stockholder; (e) the stockholder became an interested stockholder
inadvertently and (i) as soon as practicable divested itself of ownership of
sufficient shares so that the stockholder ceases to be an interested
stockholder and (ii) would not, at any time within the three- year period
immediately prior to a business combination, have been an interested
stockholder but for the inadvertent acquisition of ownership; or (f) the
corporation has opted out of this provision.
The TBCA has no similar statute currently existing and the Image Sciences
Articles do not contain business combination provisions.
The GBCC prohibits a "business combination" between the corporation and an
"interested stockholder" within five years of the time that such stockholder
became an "interested stockholder." An "interested stockholder" is one which
owns 10% or more of the voting power of the outstanding voting stock of the
corporation, or one which is an affiliate of the corporation and, at any time
within the two-year period immediately prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then outstanding
voting stock of the corporation. A "business combination" includes a merger,
consolidation or sale, lease, transfer or other disposition, other than in the
ordinary course of business, of 10% or more of the corporation's net assets.
This provision does not apply where (a) the business combination is approved
by the board of directors prior to the time that the stockholder became an
interested stockholder; (b) the interested stockholder became the beneficial
owner of at least 90% of the voting stock of the corporation in the
transaction in which the stockholder became an interested stockholder,
excluding for purposes of determining the number of shares outstanding those
shares owned by (i) directors, officers, their affiliates or associates, (ii)
subsidiaries of the corporation, and (iii) any employee stock plan under which
participants do not have the right to determine confidentially the extent to
which the shares held under such plan will be tendered in a tender or exchange
offer; (c) the stockholder became an interested stockholder inadvertently and
(i) as soon as practicable, divested sufficient shares so that the stockholder
ceased to be an interested stockholder and (ii) would not, at any time within
the five-year period immediately prior to the business combination, have been
an interested stockholder but for the inadvertent acquisition; or (d)
subsequent to becoming an interested stockholder, such stockholder acquired
additional shares resulting in the interested stockholder being the beneficial
owner of at least 90% of the outstanding voting stock of the corporation, and
the business combination was approved at a meeting of the stockholders by the
holders of a majority of the voting stock entitled to vote thereon. Those
shares owned by (i) directors, officers, their affiliates or associates; (ii)
subsidiaries of the corporation; and (iii) any employee stock plan under which
participants do not have the right to determine confidentially the extent to
which the shares held under such plan will be tendered in a tender or exchange
offer, shall be excluded for purposes of determining the number of shares
outstanding when calculating the interested stockholder's 90%, and when
calculating the number of votes at the meeting approving the business
combination.
DIRECTOR LIABILITY
The DGCL, the Texas Miscellaneous Corporation Laws Act and the GBCC provide
that a corporation may include in its certificate or articles of incorporation
a provision which limits or eliminates the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided such liability does not arise from certain
proscribed conduct, including intentional misconduct and breach of the duty of
loyalty.
39
<PAGE>
The DocuCorp Certificate, Image Sciences Articles and the FormMaker Articles
provide that the liability of directors shall be eliminated or limited to the
fullest extent permitted by Delaware, Texas and Georgia law, respectively,
including any changes in the law after adoption of the certificate or
articles.
MARKET PRICE OF AND DIVIDENDS ON DOCUCORP COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
MARKET PRICE
There has not been, and following the consummation of the Merger, there will
not be, an established public trading market for the DocuCorp Common Stock.
At the Effective Time, the directors, executive officers and holders of 5%
or more of the DocuCorp Common Stock will own approximately 78% of the then
outstanding shares of DocuCorp Common Stock (71% on a fully diluted basis).
See "Principal Stockholders of DocuCorp."
It is anticipated that there will be approximately 200 beneficial holders of
record of DocuCorp Common Stock at the Effective Time.
DIVIDEND POLICY
DocuCorp does not anticipate paying any cash dividends in the foreseeable
future. DocuCorp currently intends to retain future earnings to finance
operations and the expansion of its business. Any future determination to pay
cash dividends will be at the discretion of the DocuCorp Board and will be
dependent upon DocuCorp's financial condition, operating results, capital
requirements and such other factors as the DocuCorp Board deems relevant.
Further, the terms of the revolving credit line that DocuCorp intends to
obtain contemporaneously with or shortly after the consummation of the Merger
may include, restrictions on the ability of DocuCorp to pay dividends. See
"Risk Factors--Absence of Dividends."
40
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
DocuCorp is a holding company organized in 1997 in connection with the
acquisition of FormMaker by Image Sciences. For historical accounting
purposes, Image Sciences will be considered the survivor in the Merger and no
purchase accounting is required related to the conversion of Image Sciences
Common Stock and Image Sciences Preferred Stock into DocuCorp stock. The
merger of FormMaker into a wholly-owned subsidiary of DocuCorp will be treated
as an acquisition of FormMaker by Image Sciences; accordingly this transaction
will be recorded under the purchase method of accounting. The selected
unaudited pro forma combined financial data of DocuCorp reflect the
acquisition of FormMaker by Image Sciences and the effect of the Image
Sciences tender offer and preferred stock dividend. The unaudited pro forma
combined income statement data of DocuCorp for and as of the year ended July
31, 1996 has been derived from the audited financial statements of Image
Sciences and the unaudited financial statements of FormMaker. The unaudited
pro forma combined statements of operations and balance sheet data of DocuCorp
as of and for the three months ended October 31, 1996 has been derived from
the unaudited financial statements of each of Image Sciences and FormMaker,
which in the opinion of management of Image Sciences and FormMaker,
respectively, reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of the results for
such periods.
The selected unaudited pro forma combined financial data do not give effect
to any cost savings that may result from the Merger. During the periods
presented, Image Sciences and FormMaker were not under common control or
management and, as a result, the selected unaudited pro forma combined
financial data are not necessarily indicative of or comparable to the
financial position or operating results that would have occurred had the
Merger occurred as of or at the beginning of the periods presented or that
will occur following the Merger. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Image Sciences," "Selected
Financial Data of Image Sciences," "Selected Financial Data of FormMaker,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of FormMaker," and the related unaudited pro forma combined
financial statements of DocuCorp, and the notes thereto, and the audited and
unaudited financial statements of each of Image Sciences and FormMaker, and
the notes thereto, appearing elsewhere in this Joint Proxy
Statement/Prospectus.
41
<PAGE>
DOCUCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1996
------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- --------------------------
IMAGE SCIENCES FORMMAKER ADJUSTMENTS COMBINED
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Professional
services............. $ 819,034 $11,377,585 $12,196,619
License............... 4,793,031 3,634,386 8,427,417
Maintenance and other
recurring............ 5,858,256 1,433,572 7,291,828
----------- ----------- -----------
TOTAL REVENUES...... 11,470,321 16,445,543 27,915,864
----------- ----------- -----------
EXPENSES
Professional
services............. 605,504 9,880,459 10,485,963
Product development
and support.......... 3,981,156 1,577,796 $ 132,781 (G) 5,691,733
Selling and
marketing............ 1,568,129 2,258,007 3,826,136
General and
administrative....... 1,899,156 4,355,796 307,299 (I) 6,562,251
----------- ----------- --------- -----------
Total expenses...... 8,053,945 18,072,058 440,080 26,566,083
----------- ----------- --------- -----------
Operating income
(loss)............. 3,416,376 (1,626,515) (440,080) 1,349,781
Other income (expense).. 239,904 (308,163) (333,906)(J) (402,165)
----------- ----------- --------- -----------
Income (loss) before
income taxes....... 3,656,280 (1,934,678) (773,986) 947,616
Provision for income
taxes.................. 1,335,000 (412,193) (530,000)(K) 392,807
----------- ----------- --------- -----------
Net income (loss)... $ 2,321,280 $(1,522,485) $(243,986) $ 554,809
=========== =========== ========= ===========
Net income per share of
common stock........... $ 0.43 $ 0.05
=========== ===========
Weighted average number
of shares of common
stock and common stock
equivalents used in
calculating earnings
per share.............. 5,468,941 11,101,773
=========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
42
<PAGE>
DOCUCORP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, 1996
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------- -------------------------
IMAGE SCIENCES FORMMAKER ADJUSTMENTS COMBINED
-------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Professional services.. $ 195,870 $4,326,134 $4,522,004
License................ 1,043,687 1,283,654 2,327,341
Maintenance and other
recurring............. 1,591,460 589,088 2,180,548
---------- ---------- ----------
TOTAL REVENUES....... 2,831,017 6,198,876 9,029,893
---------- ---------- ----------
EXPENSES
Professional services.. 146,286 3,269,098 3,415,384
Product development and
support............... 1,002,957 782,992 ($107,227)(G) 1,678,722
Selling and marketing.. 405,240 974,108 1,379,348
General and
administrative........ 464,908 1,203,791 33,988 (I) 1,702,687
---------- ---------- --------- ----------
Total expenses....... 2,019,391 6,229,989 (73,239) 8,176,141
---------- ---------- --------- ----------
Operating income..... 811,626 (31,113) 73,239 853,752
Other income (expense)... 95,314 (130,326) (139,373)(J) (174,385)
---------- ---------- --------- ----------
Income (loss) before
income taxes........ 906,940 (161,439) (66,134) 679,367
Provision for income
taxes................... 330,000 0 (60,000)(K) 270,000
---------- ---------- --------- ----------
Net income (loss).... $ 576,940 $ (161,439) $ (6,134) $ 409,367
========== ========== ========= ==========
Net income per share of
common stock............ $ 0.11 $ 0.04
========== ==========
Weighted average number
of shares of common
stock and common stock
equivalents used in
calculating earnings per
share................... 5,421,481 11,101,773
========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
43
<PAGE>
DOCUCORP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
OCTOBER 31, 1996
---------------------------------------------------------
HISTORICAL PRO FORMA
-------------------------- -----------------------------
IMAGE SCIENCES FORMMAKER ADJUSTMENTS COMBINED
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash
equivalents.......... $ 3,091,121 $ 0 $ (3,000,000)(A) $ 91,121
Short-term
investments.......... 5,000,000 0 (5,000,000)(A) 0
Accounts receivable,
net of allowance..... 3,744,794 4,409,909 8,154,703
Current portion of
deferred taxes....... 320,472 0 320,472
Other current assets.. 155,592 394,114 1,050,000 (A) 1,599,706
----------- ----------- ------------ ------------
Total current
assets.............. 12,311,979 4,804,023 (6,950,000) 10,166,002
Fixed assets, net of
accumulated
depreciation........... 787,099 2,433,344 3,220,443
Software, net of
amortization........... 1,882,736 4,393,067 1,406,933 (G) 7,682,736
Deferred taxes.......... 0 911,330 1,950,000 (C) 2,861,330
Goodwill................ 0 4,348,859 1,548,576 (I) 5,897,435
Other assets............ 16,300 93,985 110,285
----------- ----------- ------------ ------------
$14,998,114 $16,984,608 $ (2,044,491) $ 29,938,231
=========== =========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable...... $ 221,972 $ 1,274,256 $ 150,000 (H) $ 1,646,228
Accrued liabilities... 787,731 1,373,265 2,160,996
Income taxes payable.. 376,516 823,052 1,199,568
Current portion of
notes payable........ 0 5,135,703 5,135,703
Current portion of
obligations under
capital leases....... 30,864 626,963 657,827
Deferred revenue...... 4,384,275 846,389 5,230,664
----------- ----------- ------------ ------------
Total current
liabilities......... 5,801,358 10,079,628 150,000 16,030,986
Obligations under
capital leases......... 0 346,212 346,212
Deferred taxes.......... 570,074 0 500,000 (G) 1,070,074
Other long term
liabilities............ 0 935,452 935,452
Stockholders' equity
Preferred stock....... 196,343 0 (196,343)(B) 0
Common stock--Class
A.................... 23,351 58,981 (4,779)(A) 44,502
(18,572)(B)
44,502 (D)
(58,981)(E)
Common stock--Class
B.................... 0 0 47,011 (B) 47,011
Additional paid-in
capital.............. 1,333,645 7,312,882 (2,384,476)(A) 24,272,571
167,904 (B)
5,200,000 (C)
19,955,498 (D)
(7,312,882)(E)
Retained earnings
(deficit)............ 7,073,343 (1,677,372) (4,560,745)(A) (12,737,402)
(3,250,000)(C)
1,677,372 (E)
(12,000,000)(F)
Notes receivable--
stockholders......... 0 (71,175) (71,175)
----------- ----------- ------------ ------------
Total stockholders'
equity.............. 8,626,682 5,623,316 (2,694,491) 11,555,507
----------- ----------- ------------ ------------
$14,998,114 $16,984,608 $ (2,044,491) $ 29,938,231
=========== =========== ============ ============
</TABLE>
See accompanying notes to unaudited pro forma financial data.
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
DocuCorp was organized on January 13, 1997 as a holding company in
connection with the acquisition of FormMaker by Image Sciences. For historical
accounting purposes, Image Sciences will be considered the survivor in the
Merger and no purchase accounting is required related to the conversion of
Image Sciences Common Stock and Image Sciences Preferred Stock into DocuCorp
Common Stock. The merger of FormMaker into a wholly-owned subsidiary of
DocuCorp will be treated as an acquisition of FormMaker by Image Sciences;
accordingly this transaction will be recorded under the purchase method of
accounting. DocuCorp's business will be conducted through Image Sciences and
FormMaker. The following brief descriptive financial information for DocuCorp
assumes the businesses of Image Sciences and FormMaker have been combined.
The purchase price was allocated to the assets of FormMaker based on their
estimated respective fair values. Completed technology that has reached
technological feasibility is valued using a risk adjusted cash flow model
under which future cash flows were discounted, taking into account risks
related to existing and future markets and assessments of the life expectancy
of the completed technology. In-process technology that has not reached
technological feasibility and that has no alternative future use is valued
using the same method. Expected future cash flows associated with in-process
technology are discounted considering risks and uncertainties related to the
viability of and to the potential changes in future target markets and to the
completion of the products expected to ultimately be marketed by DocuCorp.
The periods presented represent Image Sciences fiscal year ended July 31,
1996 and three month period ended October 31, 1996. FormMaker's fiscal year
end is December 31. For purposes of pro forma presentation, FormMaker's
historical results have been accumulated based on the 12 month period ended
July 31, 1996 and the three month period ended October 31, 1996.
Pro forma adjustments to pro forma combined financial statements
(a) The pro forma combined balance sheet reflects the acquisition of
FormMaker as if the Merger and Image Sciences tender offer and preferred
stock dividend had occurred on October 31, 1996. The pro forma adjustment
to reflect the excess of the purchase price over the estimated fair value
of the identifiable assets of FormMaker has been recorded as goodwill. The
ultimate allocation of the purchase price to the assets acquired is subject
to change based on the final determination of their respective fair values.
(b) The pro forma combined statements of operations have been prepared
assuming the acquisition of FormMaker occurred on August 1, 1995. Pro forma
adjustments to the pro forma statements of operations do not give effect to
(i) an anticipated charge for in-process technology, which is non-
deductible for tax purposes and which is expected to be charged to the
operations upon consummation of the Merger, or (ii) compensation expense
related to the repurchase of options to purchase Image Sciences Common
Stock discussed in Note A and compensation expense related to the creation
of a new measurement date for outstanding options to purchase Image
Sciences Common Stock deemed to be converted to options to purchase
DocuCorp Class B Common Stock at consummation of the Merger. The
anticipated charges described above are currently expected to amount to
$12,000,000 and $5,000,000 (net of the resulting income tax benefit),
respectively. The allocation of the purchase price to the fair value of the
in-process technology related to FormMaker is subject to change based on
the final determination of the fair values of the assets of FormMaker.
The following pro forma adjustments are reflected in the unaudited pro forma
combined financial statements.
(A) To record, concurrent with the Merger, cash payments totaling
$8,000,000, and the associated tax benefit, related to (i) the repurchase
of approximately 1,038,458 shares of Image Sciences Common Stock and
options to purchase Common Stock at a price of $5 per share, and (ii) the
declaration and payment of a dividend to the Preferred Stockholder in the
amount of $2,807,709. Such payments have been recorded as a reduction in
cash and cash equivalents of $3,000,000 and short-term investments of
$5,000,000. The associated tax benefit, created upon the repurchase of
options to purchase Image Sciences Common Stock, has been recorded as an
income tax receivable.
(B) To record the issuance in the Merger of an estimated 4,700,786 shares
of DocuCorp Class B Common Stock in exchange for outstanding Image Sciences
Common Stock and Image Sciences Preferred Stock.
45
<PAGE>
(C) To record estimated compensation expense, and associated deferred tax
asset, related to the estimated fair value of the options to purchase
DocuCorp Class B Common Stock deemed to be exchanged for the outstanding
vested options to purchase Image Sciences Common Stock as a result of the
creation of a new measurement date. A new measurement date results from the
additional rights holders of vested options to purchase common stock of
Image Sciences will receive upon conversion of such options to options to
purchase Class B common stock of DocuCorp.
(D) To record the issuance in the Merger of 4,450,179 shares of DocuCorp
Class A Common Stock in exchange for outstanding FormMaker Common Stock.
(E) To eliminate FormMaker's stockholders' equity.
(F) To record the impact to retained earnings of the charge for acquired
in-process technology of $12,000,000 expected to be recorded upon
consummation of the Merger.
(G) To record the estimated fair value of acquired completed technology
of $5,800,000, less the amount currently recorded in the financial
statements, the related deferred tax liability, and to adjust amortization
expense over the remaining estimated useful life of six (6) years.
(H) To record estimated direct transaction costs related to the merger.
(I) To record the excess of the purchase price over the fair value of the
identifiable assets acquired as goodwill, and to adjust amortization of
goodwill over the remaining expected period of benefit of ten (10) years.
(J) To record reduced interest income resulting from the Image Sciences'
Closing Transactions made in connection with the Merger.
(K) To record the income tax effect associated with Notes G, I, and J
above and the income tax effect of combined operations for the entire
period presented.
46
<PAGE>
SELECTED FINANCIAL DATA OF IMAGE SCIENCES
The following selected financial data of Image Sciences as of and for the
years ended July 31, 1992, 1993, 1994, 1995, and 1996 have been derived from
the audited financial statements of Image Sciences. The selected financial
data of Image Sciences as of and for the three months ended October 31, 1995
and 1996 have been derived from the unaudited financial statements of Image
Sciences, which in the opinion of the management of Image Sciences, reflect
all adjustments (consisting only of normal recurring adjustments) that are
necessary for a fair presentation of the results for such periods. The
following data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Image Sciences"
and the audited financial statements of Image Sciences, and the notes thereto,
appearing elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
YEARS ENDED JULY 31, (UNAUDITED)
---------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- ------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
REVENUES
Professional
services............. $ 637 $ 603 $ 549 $ 587 $ 819 $ 154 $ 196
License............... 4,387 4,833 5,608 4,807 4,793 1,044 1,044
Maintenance........... 3,173 3,884 4,717 5,420 5,858 1,383 1,591
------ ------ ------- ------- ------- --------- ---------
Total revenues...... 8,197 9,320 10,874 10,814 11,470 2,581 2,831
------ ------ ------- ------- ------- --------- ---------
EXPENSES
Professional
services............. 444 357 529 430 606 116 146
Product development
and support.......... 3,490 3,250 3,426 3,560 3,981 1,006 1,003
Selling and
marketing............ 1,472 1,692 1,676 1,834 1,568 359 405
General and
administrative....... 1,149 1,366 1,697 1,832 1,899 421 465
------ ------ ------- ------- ------- --------- ---------
Total expenses...... 6,555 6,665 7,328 7,656 8,054 1,902 2,019
------ ------ ------- ------- ------- --------- ---------
Operating income........ 1,642 2,655 3,546 3,158 3,416 679 812
Other income (expense),
net.................... (373) (288) (147) 28 240 46 95
------ ------ ------- ------- ------- --------- ---------
Income before income
taxes.................. 1,269 2,367 3,399 3,186 3,656 725 907
Provision for income
taxes.................. 170 560 1,230 1,183 1,335 262 330
------ ------ ------- ------- ------- --------- ---------
Net income.............. $1,099 $1,807 $ 2,169 $ 2,003 $ 2,321 $ 463 $ 577
====== ====== ======= ======= ======= ========= =========
Net income per share.... $ 0.19 $ 0.31 $ 0.38 $ 0.35 $ 0.43 $ 0.09 $ 0.11
Weighted average number
of shares of common
stock and common stock
equivalents............ 5,852 5,882 5,728 5,742 5,469 5,642 5,421
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
--------------------------------------- OCTOBER 31,
1992 1993 1994 1995 1996 1996
------ ------ ------- ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents,
and short-term
investments.............. $ 852 $2,853 $ 3,310 $ 5,290 $ 7,218 $ 8,091
Accounts receivable, net
of allowance............. 2,786 2,644 4,161 4,109 4,106 3,745
Working capital
(deficit)................ (198) (459) 1,930 4,049 5,640 6,511
Total assets.............. 7,845 9,785 11,572 13,145 14,691 14,998
Total debt including
obligations under capital
lease.................... 4,285 3,158 1,987 1,637 46 31
Stockholders' equity
(deficit)................ (271) 1,326 3,545 5,606 8,037 8,627
</TABLE>
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF IMAGE SCIENCES
Certain information contained herein may include forward-looking statements
that involve risks and uncertainties. Image Sciences' actual results may
differ materially from those discussed in the forward-looking statements.
Potential risks and uncertainties include market responses to pricing
pressures, changes in product and service mix, results from litigation, the
timely development and acceptance of new products and services, and changes in
customer preferences. Consequently, the actual results realized by Image
Sciences could differ materially from the statements made herein. Readers of
this report are cautioned not to place undue reliance on the forward-looking
statements made herein.
RESULTS OF OPERATIONS
The following table sets forth revenue and selected data of Image Sciences
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
YEARS ENDED JULY 31, (UNAUDITED)
------------------------- --------------------
1994 1995 1996 1995 1996
------- ------- ------- --------- ---------
DOLLARS IN THOUSANDS
<S> <C> <C> <C> <C> <C>
REVENUES
Professional services...... $ 549 $ 587 $ 819 $ 154 $ 196
License.................... 5,608 4,807 4,793 1,044 1,044
Maintenance................ 4,717 5,420 5,858 1,383 1,591
------- ------- ------- --------- ---------
Total revenues........... 10,874 10,814 11,470 2,581 2,831
------- ------- ------- --------- ---------
PERCENTAGE RELATIONSHIP TO
TOTAL REVENUES
REVENUES
Professional services...... 5% 5% 7% 6% 7%
License.................... 52 45 42 40 37
Maintenance................ 43 50 51 54 56
------- ------- ------- --------- ---------
Total revenues........... 100 100 100 100 100
EXPENSES
Professional services...... 5 4 5 5 5
Product development and
support................... 31 33 35 39 36
Selling and marketing...... 15 17 14 14 14
General and
administrative............ 16 17 16 16 16
------- ------- ------- --------- ---------
Total expenses........... 67 71 70 74 71
------- ------- ------- --------- ---------
Operating income............. 33 29 30 26 29
Other income (expense), net.. (2) 0 2 2 3
------- ------- ------- --------- ---------
Income before income taxes... 31 29 32 28 32
Provision for income taxes... 11 11 12 10 12
------- ------- ------- --------- ---------
Net income............... 20% 18% 20% 18% 20%
======= ======= ======= ========= =========
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
REVENUES
Image Sciences derives its revenues from license fees, recurring maintenance
fees, and professional services related to its software products. License
revenues are derived from perpetual licenses of software products.
48
<PAGE>
Maintenance revenues consist primarily of annual maintenance contracts.
Professional services revenues include fees for consulting, contract
programming projects, education services, and a biennial user group
conference.
Total revenues increased 10% for the three months ended October 31, 1996 due
to an increase in maintenance revenues and professional services revenues.
License revenues remained materially unchanged. Maintenance revenues increased
15% due to an expanding customer base. An increase in educational class
offerings and additional revenue from a contract programming agreement are
responsible for a 27% increase in professional services revenues.
Image Sciences' backlog consisted primarily of $3,600,000 of revenue for
annual maintenance contracts entitling the end-user to product enhancements
and telephone support as of October 31, 1996. Maintenance contracts may
generally be terminated upon a 30 day notice period; however, Image Sciences
has not historically experienced material cancellations of such contracts.
PROFESSIONAL SERVICES EXPENSE
Professional services expense consists principally of personnel costs and
direct travel and living costs associated with Image Sciences' consulting,
education services, and contract programming projects. For the three month
period ended October 31, 1996, professional services expense increased 26%
which is a result of costs to provide increased professional services. These
costs represented 76% and 75%, respectively, of professional services revenues
for the three months ended October 31, 1995 and 1996.
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
Product development and support expense remained materially unchanged for
the three month period ended October 31, 1996. Before capitalization and
amortization, product development and support expense increased 6% primarily
resulting from increased staffing associated with Image Sciences' continued
focus on research activities and enhancing customer satisfaction.
SELLING AND MARKETING EXPENSE
An increase of 13% in selling and marketing expense for the three month
period ended October 31, 1996 was the result of increased sales commissions.
While license revenues remained materially unchanged, sales commissions
increased as a result of higher commission percentages associated with large
dollar contracts being executed.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense increased 11% for the three month period
ended October 31, 1996. The increase was a result of additional corporate
office rent due to a renegotiation of Image Sciences' office lease, which
included an additional 3,000 square feet expansion. This lease was effective
November 1, 1995.
OTHER INCOME (EXPENSE), NET
For the three month period ended October 31, 1996, a 106% increase in other
income was due to a 10% increase in interest income and a 97% decrease in
interest expense. Interest expense decreased significantly due to retirement
of all outstanding subordinated debentures in March 1996.
PROVISION FOR INCOME TAXES
The income tax provision was calculated utilizing Federal income tax rates
for corporations. Effective tax rates for the three months ended October 31,
1995 and 1996 were approximately 36% for each period. These rates differ from
the Federal statutory rate primarily due to state income taxes. Image Sciences
used a portion of
49
<PAGE>
its outstanding tax credits to offset its current tax liability for the three
month periods ended October 31, 1995 and 1996.
NET INCOME
Profitability increased 25% during the three month period ended October 31,
1996 as a result of a 10% increase in revenues and a 106% increase in other
income, while maintaining an expense level increase of only 6%.
FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995
REVENUES
Total revenues increased 6% in fiscal 1996 primarily as a result of
increased maintenance revenues and professional services revenues, while
license revenues decreased slightly. Maintenance revenues increased 8% in
fiscal 1996 due to an expanding customer base and retention of existing
customers. In fiscal 1996, professional services revenues increased 40% as a
result of a significant increase in consulting revenues and revenue generated
from Image Sciences' biennial user group conference. The 1996 user group
conference, held in Dallas, Texas, was attended by approximately 165
customers. The conference provides a forum for customers to learn more about
Image Sciences' product and service offerings and to exchange ideas with other
Image Sciences customers. License revenues decreased due to a decrease in
international software license revenues, partially offset by an 8% increase in
North American direct license revenues. Image Sciences terminated its most
significant European distributor agreement in fiscal 1995, and did not replace
the European distributor until fiscal 1996. The new distribution agreement
with The Continuum Company did not generate any material revenues during
fiscal 1996. Image Sciences' maintenance contract backlog totaled
approximately $3,700,000 as of July 31, 1996.
PROFESSIONAL SERVICES EXPENSE
During fiscal 1996, professional services expense increased 41% which was
primarily attributable to the cost associated with Image Sciences' biennial
user group conference and costs associated with Image Sciences' expanding
consulting services. Costs for professional services expenses, before the
effect of the biennial user group conference held in fiscal 1996, represented
73% and 68% of professional services revenues for fiscal 1995 and 1996,
respectively. The decrease in cost as a percentage of professional services
revenue is primarily due to more efficient management of Image Sciences'
consulting resources.
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
Image Sciences continues to commit significant resources to development and
support activities. The 12% increase in product development and support
expense in fiscal 1996 was a result of increased staffing, a decrease in
capitalizable development efforts, an increase in software amortization, and
costs related to a continued focus on customer support of Image Sciences'
expanding customer base. Product development and support expense before
capitalization and amortization increased 6% as a result of increased staffing
to sustain new product development and to enhance and maintain existing
products. Software capitalization decreased due to increased research of new
technologies, and focusing development efforts on more efficient methods of
maintaining existing products. These efforts are not eligible for
capitalization. Amortization of capitalized software in fiscal 1996 increased
due to the release of several new client/server products at the end of fiscal
1995.
SELLING AND MARKETING EXPENSE
In fiscal 1996, selling and marketing expense decreased 14% primarily as a
result of decreased staffing and related travel costs. The decreased staffing
relates to several unfilled sales and sales management positions that Image
Sciences expects to fill in fiscal 1997. These decreases were partially offset
by an increase related to international expatriate expenses. In September
1995, Image Sciences transferred one employee to the United Kingdom to assume
a sales support function.
50
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSE
During fiscal 1996, general and administrative expense increased 4% as a
result of increases in corporate office rent and profit sharing bonuses,
partially offset by decreased legal costs. Rent expense increased due to the
renegotiation of Image Sciences' corporate office lease, which included an
approximate 3,000 square feet expansion. Profit-based bonuses increased due to
a 15% increase in net income before taxes. Legal costs associated with two
outstanding lawsuits decreased significantly. One lawsuit is scheduled for
arbitration in 1997 regarding the majority of the claims. A summary judgment
in favor of Image Sciences was entered on certain of the claims on the other
case and is currently under appeal. Image Sciences intends to vigorously
contest these claims and believes that the resolution of such claims will not
have a material adverse effect on its financial condition or results of
operations.
OTHER INCOME (EXPENSE), NET
In fiscal 1996, other income increased $211,757 as a result of a 60%
increase in interest income due to a significant increase in cash, cash
equivalents, and short-term investments. Additionally, interest expense
decreased 48% because of the scheduled January 1996 principal installment
payment and the March 1996 retirement of all outstanding subordinated
debentures.
PROVISION FOR INCOME TAXES
The income tax provisions were calculated utilizing Federal income tax rates
for corporations. Effective tax rates for the years ended July 31, 1995 and
1996 were approximately 37% each year. These rates differ from the Federal
statutory rate due primarily to state income taxes. Image Sciences used a
portion of its outstanding tax credits to offset its current tax liability in
fiscal 1996. The remaining net operating loss carryforward was also used in
fiscal 1994 and 1995.
NET INCOME
Profitability increased 16% in fiscal 1996 due to the 6% increase in
revenues and an approximate $200,000 increase in other income, while expenses
only increased 5%.
FISCAL YEAR ENDED JULY 31, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994
REVENUES
Total revenues decreased 1% in fiscal 1995 as a result of a 14% decrease in
license revenue offset by a 15% increase in recurring maintenance revenues,
and a 7% increase in professional services revenues. The decrease in license
revenues was essentially attributable to significant turn-over in Image
Sciences' domestic sales force. Maintenance revenues increased by $702,495 due
primarily to an expanding customer base. Professional services revenues
increased 7% in fiscal 1995 due primarily to increases in consulting and
education. The increase was partially offset because Image Sciences did not
hold a user group conference in fiscal 1995.
PROFESSIONAL SERVICES EXPENSE
The 19% decrease in professional services expense during fiscal 1995 was
primarily because Image Sciences did not hold a user group conference in
fiscal 1995. The increase was partially offset by additional staffing and
increased travel costs to support Image Sciences' growing consulting services.
Costs for professional services expense, before the effect of the 1994 user
group conference, represented 91% and 73% of professional services revenues
for fiscal 1994 and 1995, respectively.
PRODUCT DEVELOPMENT AND SUPPORT EXPENSE
Product development and support expense increased 4% during fiscal 1995
primarily as the result of development of new technologies, continued
significant enhancements to Image Sciences' existing client/server
51
<PAGE>
and mainframe platform software product offering, and support costs for Image
Sciences' expanding customer base. Product development and support expense
before capitalization and amortization increased 5% from the previous year.
SELLING AND MARKETING EXPENSE
Selling and marketing expense increased 9% in fiscal 1995 due principally to
expansion of marketing efforts and additional travel expenses, offset by a
decrease in commissions paid to sales representatives. Travel expenses
increased due to international expansion requiring increased international
travel for sales and sales support personnel. The decrease in commissions paid
to sales representatives was a result of a 14% decrease in direct license
revenues from fiscal 1994.
GENERAL AND ADMINISTRATIVE EXPENSE
The 8% increase in general and administrative expense during fiscal 1995 was
primarily the result of increases in compensation, legal, and telephone
expense. Compensation increased due to the additions of an Assistant
Controller and full-time Human Resources positions. Legal expenses increased
due to activity related to two outstanding lawsuits. Telephone expense
increased due primarily to increased international activity.
OTHER INCOME (EXPENSE), NET
Other income increased in fiscal 1995 due to an increase in interest income
and a decrease in interest expense. Interest income increased 129% due to an
increase in cash, cash equivalents, and short-term investment balances.
Interest expense decreased 24% as a result of scheduled repayments of
subordinated debentures and capital lease obligations.
PROVISION FOR INCOME TAXES
The income tax provisions were calculated utilizing Federal income tax rates
for corporations. Effective tax rates for the years ended July 31, 1994 and
1995 were approximately 36% and 37%, respectively. These rates differ from the
Federal statutory rate primarily due to state income taxes. Image Sciences
used a portion of its outstanding tax credits to offset its current tax
liability in fiscal 1995. The remaining net operating loss carryforward was
also used in fiscal 1994 and 1995.
NET INCOME
The 8% decrease in profitability in fiscal 1995 was the result of a 4%
increase in expenses during a period of generally flat revenues.
LIQUIDITY & CAPITAL RESOURCES
At October 31, 1996, Image Sciences' principal sources of liquidity
consisted of cash, cash equivalents, and short-term investments aggregating
$8,091,121.
Cash and cash equivalents increased $1,182,105 during the three month period
ended October 31, 1996 due primarily to net income of $576,940 and maturities
of short-term investments of $308,806. Working capital increased $870,781 from
$5,639,840 at July 31, 1996 to $6,510,621 at October 31, 1996, primarily as
the result of profitable operations.
Cash and cash equivalents decreased $380,964 during 1996 primarily as a
result of investing excess cash in short-term investments and repayment of
subordinated debentures. Cash flows from operating activities generated
$4,347,972 primarily from net income of $2,321,280 and other non-cash items.
Of the $3,198,472 cash used for investing activities, $2,308,806 was used for
the purchase of short-term investments. Short-term investment purchases
consisted of six month commercial paper and treasury bills with staggered
maturity dates. The
52
<PAGE>
remaining cash used for investing purposes was for the purchase of fixed
assets and development of software. Cash flows from financing activities used
$1,530,464. Substantially all of this cash was used for the repayment of the
outstanding balance of subordinated debentures aggregating $1,534,430. Working
capital at July 31, 1996 increased by $1,590,395, primarily as the result of
profitable operations.
As of October 31, 1996, Image Sciences has repaid all existing debt, except
for immaterial obligations under capital leases. Capital expenditures have
generally not been material. Concurrent with the consummation of the Merger,
Image Sciences expects to disburse $8,000,000 of its cash, cash equivalents,
and short-term investments to its common and preferred stockholders.
Consequently, subsequent to the Merger, Image Sciences' working capital and
financial resources will be significantly reduced. Image Sciences' intends to
fund its future operations through its cash from operations and renegotiation
or replacement of the existing FormMaker $10,000,000 line of credit, which has
available funds of approximately $3,900,000 as of December 31, 1996.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial accounting and
reporting standards for stock-based compensation plans. SFAS 123 gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and stock based awards or to continue to account for
such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), with pro forma disclosures of net income and net income per share
as if the fair value method had been applied. Image Sciences has adopted SFAS
123 effective August 1, 1996 by electing to continue to apply APB 25 for
future stock options and stock based awards, and, accordingly, does not
anticipate that SFAS 123 will have a material impact on its results of
operations or financial position. In accordance with the disclosure provisions
of SFAS 123, Image Sciences will initially present the disclosure required by
SFAS 123 in its financial statements as of and for the periods ending July 31,
1997.
53
<PAGE>
SELECTED FINANCIAL DATA OF FORMMAKER
The following selected financial data of FormMaker as of and for the years
ended December 31, 1993, 1994, 1995 and 1996 have been derived from the
audited financial statements of FormMaker. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of FormMaker" and the audited financial
statements of FormMaker, and the notes thereto, appearing elsewhere in this
Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1992 1993 1994 1995 1996
----------- ------ ------ ------- -------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Revenue:
Software licenses.............. $ 708 $1,358 $1,700 $ 3,197 $ 4,533
Maintenance and other
recurring..................... 168 264 418 787 2,067
Processing services............ 166 1,058 3,039 4,646 4,555
Professional services and
other......................... 412 672 2,262 5,699 8,714
------ ------ ------ ------- -------
Total revenue................ 1,454 3,352 7,419 14,329 19,869
------ ------ ------ ------- -------
Operating expenses:
Processing services............ 212 1,240 2,615 4,149 4,317
Professional services and
other......................... 387 471 1,580 4,223 7,248
Research and product
development................... 247 483 550 1,254 2,239
Sales and marketing............ 285 413 843 1,578 3,294
General and administrative..... 513 617 923 3,486 3,561
Amortization of goodwill....... 9 -- -- -- 282
------ ------ ------ ------- -------
Total operating expenses..... 1,644 3,224 6,511 14,690 20,941
------ ------ ------ ------- -------
Operating income (loss).......... (199) 128 908 (361) (1,072)
Other income (expense)
Interest expense, net.......... (76) (153) (217) (325) (418)
Other, net..................... (140) 71 -- -- --
------ ------ ------ ------- -------
Income (loss) before income
taxes........................... (415) 46 691 (686) (1,490)
Income tax (benefit)............. -- -- (160) (260) --
------ ------ ------ ------- -------
Net income (loss)............ $ (415) $ 46 $ 851 $ (426) $(1,490)
====== ====== ====== ======= =======
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 15 $ 21 $ 46 $ 2,164 $ 5
Accounts receivable, net of
allowance..................... 338 386 1,680 2,679 4,935
Working capital (deficit)...... (739) (412) (72) 254 (6,232)
Total assets................... 1,739 2,052 5,583 10,137 17,701
Total debt..................... 1,368 1,933 3,361 1,509 7,578
Stockholders' equity........... 104 (193) 659 4,024 4,763
</TABLE>
54
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FORMMAKER
Certain information contained herein may include forward-looking statements
that involve risks and uncertainties. FormMaker's actual results may differ
materially from those discussed in the forward-looking statements. Potential
risks and uncertainties include market responses to pricing pressures, changes
in product and service mix, results from litigation, the timely development
and acceptance of new products and services, and changes in customer
preferences. Consequently, the actual results realized by FormMaker could
differ materially from the statements made herein. Readers of this report are
cautioned not to place undue reliance on the forward-looking statements made
herein.
RESULTS OF OPERATIONS
The following table sets forth revenue, rounded to the nearest thousands,
and income statement data of FormMaker Software expressed as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
REVENUE ($ IN THOUSANDS)
Software licenses.............................. $ 1,700 $ 3,197 $ 4,533
Maintenance and other recurring................ 418 787 2,067
Processing services............................ 3,039 4,646 4,555
Professional services and other................ 2,262 5,699 8,714
------- -------- --------
Total revenue................................ $ 7,419 $ 14,329 $ 19,869
======= ======== ========
REVENUE
Software licenses.............................. 23% 22% 23%
Maintenance and other recurring................ 6 6 10
Processing services............................ 41 32 23
Professional services and other................ 30 40 44
------- -------- --------
Total revenue................................ 100% 100% 100%
------- -------- --------
OPERATING EXPENSES
Processing services............................ 35% 29% 22%
Professional services and other................ 21 29 36
Research and product development............... 7 9 11
Sales and marketing............................ 12 11 17
General and administrative..................... 13 25 18
Amortization of goodwill....................... 0 0 1
------- -------- --------
Total operating expenses..................... 88% 103% 105%
------- -------- --------
Operating income (loss)........................ 12 (3) (5)
Interest expense, net.......................... (3) (2) (2)
------- -------- --------
Income (loss) before income taxes............. 9 (5) (7)
Income tax benefit--deferred................... 2 2 0
------- -------- --------
Net income (loss)............................ 11% (3)% (7)%
======= ======== ========
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue
FormMaker's revenue increased 39% in 1996 to $19,869,063 from $14,328,786 in
1995. Software licensing revenue increased from $3,196,613 in 1995 to
$4,533,276 in 1996. Of this increase in software licensing revenue,
55
<PAGE>
$1,232,520 or 92% resulted from licensing revenue generated by Micro Dynamics
Ltd. ("Micro Dynamics") which was acquired in May 1996. Despite the inclusion
of $589,018 related to nonrefundable advance purchases of licenses by PMSC in
1995, 1996 licensing revenues increased 42% over 1995. Maintenance and other
recurring revenue increased from 5.5% of total revenue in 1995 to 10.4% in
1996 due primarily to the inclusion of Micro Dynamics revenue because Micro
Dynamics has a greater percent of maintenance and other recurring revenue in
relation to total revenue. Professional services revenue increased by 53%,
from $5,699,287 in 1995 to $8,713,797 in 1996 resulting from implementation
services provided to customers installing new systems. Revenue from processing
services decreased slightly from $4,645,420 in 1995 to $4,555,189 in 1996
because there was a reduction in transactions due to changes in the rate
structure of high risk insurance in the State of Texas. Lower rates on
voluntary coverage makes the assigned risk pool, which represents the business
that FormMaker handles, less attractive. The reduction in this business was
partially offset by new customers added.
Backlog for FormMaker's products and services is comprised of recurring
software licenses for ongoing maintenance and support of the product, software
implementation services and processing services. Recurring maintenance and
support backlog at December 31, 1996 totaled $7.5 million, up 82% over 1995.
Software implementation services backlog, which are principally performed
under time and material type agreements of which some have cancellation
provisions, were $4.1 million at December 31, 1996 compared to $3.5 million in
1995. FormMaker's agreements for processing services generally provide that
fees are charged on a per transaction basis and the related backlog totaled
$8.3 million at December 31, 1996, an increase of 77% over 1995. The estimated
future revenue with respect to FormMaker's software implementation and
processing services are based on management's estimate of revenue over the
remaining life of the contract.
Professional and Processing Services Expense
Professional services expense as a percent of professional services revenue
increased from 74% in 1995 to 83% in 1996 due to a significant addition of
personnel primarily in the last half of 1996 and the related recruiting fees
and training expense incurred as a result. Processing services expense as a
percent of processing revenue increased from 89% in 1995 to 95% in 1996 due to
investments made in new equipment and the moving of the print center to
Atlanta.
Research and Product Development Expense
Product development and support costs consist primarily of amortization of
capitalized software development costs, costs associated with development
projects for which technological feasibility has not yet been achieved, and
other product support costs. During 1996, total product development costs of
$3,046,000 were incurred of which $2,414,000 relating to the enhancement of
FormMakers' existing base technology were capitalized and $632,000 was charged
to expense. Development costs expensed related to integration of FormMaker's
modules with the Internet, development of systems for use in the utilities and
financial services industries, and other efforts. Product development expenses
increased 79% primarily due to the effect of the acquisition of Micro
Dynamics, development efforts associated with positioning FormMaker in new
markets, and increased amortization associated with the acquisition of Micro
Dynamics and other increased investments in the maintenance support area
associated with the growth in FormMaker's installed base.
Sales and Marketing Expense
Sales and marketing expenses increased by 109% over last year due to the
inclusion of Micro Dynamics selling costs and to the investments made in 1996
in developing new markets.
General and Administrative Expense
Total general and administrative expenses were up slightly from last year;
however, 1995 included a non-recurring expenses of $1,100,000 for the
repurchase from PMSC of certain marketing rights to the healthcare
56
<PAGE>
industry. Other general and administrative expenses in 1996 increased 49% over
1995 due primarily to the inclusion of Micro Dynamics in 1996.
Amortization of Goodwill
Goodwill amortization reported in 1996 was the result of the acquisition of
Micro Dynamics in May of 1996.
Operating Income
The operating loss in 1996 increased from ($360,771) in 1995 to ($1,071,671)
in 1996 due to continued investment in new technology and new markets.
Additionally, the higher growth rate of the lower margin services business also
had a negative impact on operating margins.
Other Income (Expense)
Other income (expense) increased to ($418,356) in 1996 from ($324,726) in
1995 due to an increase in interest expense resulting from increased debt
levels incurred with the acquisition of Micro Dynamics.
Income Taxes
FormMaker did not recognize an income tax benefit with respect to its pretax
losses in 1996. SFAS No. 109 requires that a valuation allowance be recorded
against tax assets which are not likely to be realized. Specifically,
FormMaker's net operating loss and other carryforwards expire at specific
future dates and utilization of certain carryforwards is limited to specific
amounts each year. Due to the uncertain nature of the ultimate realization of
the incremental net operating loss carryforwards generated in 1996 considering
past performance and expiration dates, FormMaker has increased its valuation
allowance in 1996 to the extent there was an increase in the deferred tax
assets associated with the incremental carryforwards.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue
FormMaker's overall revenue increased 93% to $14,328,786 in 1995 from
$7,419,192 in 1994. Licensing revenue increased 88% to $3,196,613 in 1995 from
$1,699,718 in 1994. FormMaker attributes this increase primarily to greater
demand for its client server product solutions in the marketplace.
On October 13, 1995, FormMaker and PMSC entered into an amendment to their
Marketing Agreement, whereby PMSC purchased software licenses for inventory and
prospective sublicensing to end users in the amount of $2 million. Under this
amendment PMSC was to receive credit in the amount of $2.6 million against
amounts which would otherwise have been due FormMaker on future licenses.
FormMaker recorded $2 million in licenses fee revenue with respect to this
transaction. On December 31, 1995, FormMaker and PMSC agreed to further amend
their Marketing Agreement to provide for (a) the return of $1 million of this
inventory and the elimination of the $600,000 credit, (b) the elimination of
PMSC's exclusive right to market and sublicense FormMaker's software within a
particular industry segment and (c) the elimination of $750,000 in credits
which were to be applied against future service billings. As a result of this
amendment, FormMaker paid $2.1 million to PMSC on January 3, 1996. FormMaker
recorded, in the 1995 financial statements, the $1 million in returned
inventory as a reduction of revenue and a charge to general and administrative
expense in the amount of $1.1 million as a result of this latter amendment. The
net effect to 1995 revenue related to non-refundable advance purchases of
licenses by PMSC, net of licenses actually sold by PMSC, was $589,018.
FormMaker's maintenance and other recurring fee revenue represented
approximately 5.5% of total revenue in both 1995 and 1994. Processing revenue
increased to $4,645,420 in 1995 from $3,039,177 in 1994. This increase is
directly attributable to additional applications being utilized by one customer
requiring FormMaker's
57
<PAGE>
processing services. Professional services revenue in 1995 was $5,699,287
compared to $2,262,145 in 1994, a 252% increase over 1994. The increase in
professional services revenue is principally the result of increased software
license revenue and the associated implementation services provided to these
new customers.
Professional and Processing Services Expense
Professional services expense in 1995 increased 167% over 1994 on a 152%
increase in professional services revenue. Professional services expense as a
percent of professional services revenue increased slightly from 70% in 1994
to 74% in 1995. Processing services expenses also increased 59% for the period
on a 53% increase in processing services revenue. Processing services margins
remained relatively unchanged from 1994 to 1995.
Research and Product Development Expense
Product development and support expenses increased by 128% due to additional
investments in enhancements and the development of the DAP technology platform
and a larger customer base to support. Total product development costs of
$1,784,405 was incurred of which $1,366,000 were capitalized and $419,000 was
charged to expense.
Sales and Marketing Expense
Sales and marketing expenses in 1995 increased 87% over the prior year which
was in line with the increase in total revenue during the same period.
General and Administrative Expense
General and administrative expenses reflect a payment of $1,100,000 in 1995
for the purchase by FormMaker of certain marketing rights and the elimination
of previously agreed upon discounting of future licensing and service fees
with PMSC. Office lease costs increased from $216,844 in 1994 to $891,502 in
1995 due to FormMaker's move to expanded offices during the year and current
recognition of all estimated future costs associated with vacated facilities
under lease. Increases in salary expense was due to the addition of new
executive and senior officers.
Operating Income
Operating income for 1995 decreased $1,268,464 from $907,694 for 1994. Net
of the effect of the non-recurring transaction described above, operating
income would have been approximately $739,000 for 1995. The general reason for
the decrease in profitability in 1995 is FormMaker's increased investment in
new markets and technology, as well as, the overall higher growth rate of the
lower margin services business in relation to its software revenue.
Other Income (Expense)
The overall increase in other expense is primarily attributable to an
increase in interest expense incurred during 1995 over 1994. Additional
interest expense was incurred due to increased outstanding balances on
FormMaker's lines of credit, as well as new capitalized lease obligations
during 1995; all of which were required to fund working capital requirements
and investments in new markets and technology.
Income Taxes
For 1995, FormMaker's income tax benefit approximated the income tax benefit
calculated at statutory tax rates. For 1994, FormMaker recognized an income
tax benefit due to a change in the net deferred tax asset valuation allowance
from December 31, 1993 and the realization of a portion of net operating loss
carryforwards.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at December 31, 1996 was $4,925 compared to
$2,163,548 a year earlier. Availability under FormMaker's line of credit at
the end of 1996 was $3,916,297.
Cash used in operating activities was $2,725,772 in 1996 compared to
$2,843,676 generated in 1995. Operating losses and increases in accounts
receivable incurred due to the increase in revenue caused a usage of cash. At
December 31, 1995, FormMaker had $2,100,000 of cash available resulting from
the purchase by PMSC of software licenses for inventory and prospective
sublicensing purposes that was repaid to PMSC on January 3, 1996. This
transaction increased operating cash flow in 1995 while decreasing it in 1996
by the same amount.
Cash used in investing activities related primarily to capital expenditures
used to expand the processing center and offices to accommodate added
personnel, development expenditures that were capitalized and the Micro
Dynamics acquisition. On May 17, 1996, FormMaker acquired 99.89% of the
outstanding shares of common stock of Micro Dynamics. FormMaker issued 653,033
shares of FormMaker Common Stock valued at $2.90 per share in exchange for
4,029,417 shares of MDL stock valued at $.47 per share. FormMaker also paid
cash of $947,232 in exchange for 2,015,388 shares of MDL common stock. This
transaction was accounted for using the purchase method of accounting.
On December 20, 1995 FormMaker completed a recapitalization which generally
provided $3,333,333 in cash in exchange for the issuance of Common Stock.
Approximately $2,850,000 of the recapitalization proceeds were used to repay
bank and stockholder debt. Concurrent with the recapitalization, FormMaker
established a bank line of credit which provides $10,000,000 in availability
to fund future working capital requirements and acquisitions. At December 31,
1996 this outstanding balance of this credit line was $6,083,703 leaving
$3,916,297 available.
FormMaker's liquidity needs will arise primarily from funding the continued
enhancement and development of the enterprise document automation software
offering and the selling and marketing costs associated principally with
FormMaker's continued entry into new vertical markets. Capital expenditures
are generally not significant. Although management believes that FormMaker's
cash and availability under its line of credit will be sufficient to meet cash
flow requirements for the remainder of 1997, there can be no assurances that
additional capital will not be required to secure FormMaker's future in
today's environment.
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BUSINESS OF DOCUCORP
DocuCorp was organized on January 13, 1997 in connection with the Merger. It
is expected that all of DocuCorp's business will be conducted through Image
Sciences and FormMaker. As a result of the Merger, DocuCorp believes that it
will be a leading national provider of document automation software and
services to the insurance, financial services, utilities, healthcare and other
document-intensive industries.
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BUSINESS OF IMAGE SCIENCES
GENERAL
Image Sciences develops, markets, and supports software products designed to
automate the processing of business forms and documents. Image Sciences
software and services offer solutions to the challenges associated with
enterprise-wide document production which emerged with the rapid growth of
laser printing and imaging technologies. Image Sciences' mainframe and
client/server software products are utilized by some of the largest
corporations in the insurance, telecommunications, transportation, and
financial services industries.
Well over half of the 200 largest insurance companies in the U.S. utilize
the Image Sciences DocuMerge software product to automate strategic
applications within their businesses. Image Sciences' end user customers
include 7 of the top 10 life insurance companies and 9 of the top 10 property
and casualty insurance companies in the U.S.
Image Sciences principally licenses its software products domestically
through a direct sales force and internationally through distributors and
direct sales.
Image Sciences was incorporated in the state of Texas in 1982. Xerox
currently owns approximately 35% of Image Sciences' fully-diluted outstanding
stock. Image Sciences also has a joint marketing agreement with Xerox. Image
Sciences' executive offices are located at 5910 N. Central Expressway, Suite
800, Dallas, TX 75206.
PRODUCTS
Image Sciences offers corporate-wide integrated solutions for electronic
publishing and archival. Image Sciences' software products are compatible with
leading document composition products, laser printers, mail-handling
equipment, and imaging systems.
Image Sciences' DocuFlex family of mainframe software products includes
DocuMerge, ImageCreate, and I.R.I.S. DocuMerge, historically the largest
source of revenue, has been marketed primarily to the insurance industry as a
tool enabling companies to print entire insurance policies on in-house laser
printers.
Image Sciences' initial applications were all designed to be processed on
mainframe computers. In the early 1990s, many of Image Sciences' end-user
customers began significant migrations to LAN (Local Area Network) and WAN
(Wide Area Network) client/server environments. In response to the changing
computing environments of Image Sciences' existing and potential customers,
Image Sciences developed software products to run in client/server
environments. The client/server products are compatible with Image Sciences'
existing mainframe products, allowing portability and cooperative processing.
The significant expansion of the product line allows customers the flexibility
to process the document wherever they like.
The client/server products include DocuMerge, DocuSolve, DocuView, I.R.I.S.,
and ImageCreate. These products operate under Microsoft Windows, IBM OS/2,
and/or several UNIX platforms, allowing personal computers to manage host data
and interface with high-speed Xerox Metacode, Windows and IBM AFP laser
printers.
Image Sciences also offers numerous mainframe and client/server based
utility products. Image Sciences' product offerings can be classified in the
following categories:
Publishing Products
DocuMerge. DocuMerge is a scalable, high performance product designed for
centralized and distributed enterprise-wide publishing of documents that may
be tailored for each recipient. DocuMerge applications include insurance
policies, bank statements, utility bills, bills of lading and other
customized, high-volume documents
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that must be repeatedly produced under tight deadlines. DocuMerge can be
integrated with existing application systems to automate high-volume merging,
collating, assembling, printing, and managing of complex documents. DocuMerge
operates under MVS, VSE, Microsoft Windows, IBM OS/2, HP-UX and AIX operating
systems.
DocuSolve. DocuSolve is an interactive forms fill, data editing and document
collation application that runs under Microsoft Windows. DocuSolve can be used
as a stand-alone application for customizing large volumes of documents, or as
a product that can be tightly integrated with DocuMerge to enable data and
forms that are not available initially to DocuMerge to be provided
interactively by DocuSolve.
Imaging and Archiving Products
ImageCreate. ImageCreate is an imaging software product that converts print
datastreams into indexed documents for storage in leading imaging systems.
ImageCreate applications include indexing and archiving telephone bills,
insurance documents, and customer statements. ImageCreate accepts documents in
IBM Advanced Function Presentation (AFP), Xerox Metacode, and 3211 line
printer data formats. The software then indexes and transforms them into a
format for storage in imaging systems such as Cirrus, FileNet, ImagePlus,
KeyFile, Sigma, ViewStar and WANG. Additionally, ImageCreate comes with an API
for custom storage and FAX Server integration. ImageCreate operates under MVS,
IBM OS/2, HP-UX, and AIX operating systems.
I.R.I.S. I.R.I.S. is an imaging software product that converts images from
imaging systems to print datastreams. I.R.I.S. applications include the
conversion of scanned or archived images into print objects for inclusion in
bank statements, life insurance policies, and invoices. I.R.I.S. accepts
images from scanners, fax or imaging systems and converts the images to a
format required by IBM AFP and Xerox Metacode printers. Also, I.R.I.S. comes
with an API to provide integration support with almost any imaging or document
management system. I.R.I.S. operates under MVS, IBM OS/2, HP-UX, and AIX
operating systems.
DocuView. DocuView includes the DocuView Client and DocuSave Server.
DocuView allows users to archive, retrieve, view, and reprint internally
generated documents utilizing their original resources (e.g., fonts) at a
fraction of the cost of traditional imaging systems. Documents are archived in
their native print stream formats rather than in large raster formats.
DocuView can be integrated with traditional imaging systems when necessary.
The DocuView client operates under Microsoft Windows. The DocuSave server
operates under AIX and OS/2.
Utility Products
The Commander series of publishing utilities are tools that enable customers
to integrate existing industry-standard publishing and communications products
with Image Sciences products.
DocuGraph. DocuGraph uses variable data to dynamically generate two and
three-dimensional graphs that can be incorporated into documents and printed
on high-speed Xerox or IBM laser printers. DocuGraph operates on MVS,
Microsoft Windows, IBM OS/2, and UNIX platforms.
DocuWord. DocuWord performs as a stand-alone multi-platform document
composition system, or in conjunction with DocuMerge to produce highly
personalized documents. DocuWord operates on MVS, Microsoft Windows, IBM OS/2,
and UNIX platforms.
PrintCommander. PrintCommander is a print driver for Microsoft Windows that
allows the user to use Windows-based composition products for printing on
high-speed production Xerox Metacode and IBM AFP printers. PrintCommander also
enables the user to convert fonts, create forms, and normalize documents for
use with DocuMerge and DocuSolve.
TagCommander. TagCommander for Windows enables OLE-compatible Windows
composition tools to automate the insertion of variable data spaces for use by
DocuMerge and DocuSolve.
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RuleCommander. RuleCommander for Windows gives DocuMerge users an easy-to-
use graphical user interface (GUI) to set up and maintain document assembly
rules for DocuMerge.
GrafxCommander. GrafxCommander for Windows creates graphic print resources
for IBM AFP and Xerox Metacode printers from Windows applications, and
converts AFP and Metacode print resources for use by Windows applications.
CommCommander. CommCommander provides peer-to-peer communication
capabilities between mainframe and client/server based Image Sciences
applications.
PRODUCT DEVELOPMENT
Since its inception, Image Sciences has made substantial investments in
research and product development. Image Sciences' product development efforts
are focused on enhancing and broadening it's current software product
offerings, as well as developing new products to compliment existing products
and provide additional functionality.
In fiscal 1996 and 1995, Image Sciences incurred total software development
costs of approximately $2,385,000 and $2,094,000, respectively, of which Image
Sciences capitalized approximately $534,000 and $668,000, respectively, and
expensed approximately $1,851,000 and $1,426,000, respectively. During fiscal
1996 and 1995, Image Sciences charged to expense approximately $814,000 and
$736,000, respectively, related to the amortization of capitalized computer
software development costs.
CUSTOMERS AND DISTRIBUTION
Image Sciences markets its products through various channels, including
direct sales, marketing alliances, and distributors. Image Sciences employs
direct sales representatives that operate from the corporate headquarters in
Dallas, Texas, except for one sales representative located in California.
Image Sciences generally markets to large and mid-size organizations that
have a need for integrated solutions for the production of insurance policies,
bank statements, credit card statements, direct mail, bills of lading,
invoices, and many other document publishing applications. Currently, the
majority of Image Sciences revenue is generated from the insurance industry.
For the year ended July 31, 1996, 85% of Image Sciences' revenues were derived
from customers in the insurance industry. No one customer accounted for more
than 10% of revenue for the year ended July 31, 1996.
Outside of North America, Image Sciences relies heavily on distributor
relationships to market its products. Distributor relationships are
established in Europe, South Africa, and Asia. Image Sciences' most
significant marketing alliance is with The Continuum Company for the insurance
and financial services industries in Europe and most of Asia.
EMPLOYEES
As of January 31, 1997, Image Sciences had 64 full-time employees. Image
Sciences believes its future success will depend in part on its continued
ability to attract and retain highly qualified personnel in a competitive
market for experienced and talented software engineers and sales and marketing
personnel. None of Image Sciences' employees are represented by a labor union
or subject to a collective bargaining agreement.
COMPETITION
The market for Image Sciences document automation products is intensely
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. Image
Sciences' software products are targeted at organizations that require the
ability to produce large quantities of customized and personalized documents
in paper or electronic form. Image Sciences faces
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direct and indirect competition from a broad range of competitors who offer a
variety of products and solutions to Image Sciences' current and potential
customers. Image Sciences' principal competition currently comes from (i)
systems developed in-house by the internal MIS departments of large
organizations, and (ii) direct competition in a number of its vertical
markets, including Document Sciences Corporation (which is partially owned by
Xerox), M&I DataServices, Inc., and Group 1 Software, Inc.
It is also possible that the company will face competition from new
competitors. Moreover, as the market for document automation software
develops, current or potential competitors with significantly greater
resources than Image Sciences, could attempt to enter or increase their
presence in the company's market either independently or by acquiring or
forming strategic alliances with competitors of Image Sciences or to otherwise
increase their focus on the industry. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of Image Sciences' current and prospective customers, and it
is possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could have a material adverse effect on Image Sciences' business, operating
results and financial condition. There can be no assurance that Image Sciences
will be able to compete successfully against current or future competitors or
that competitive pressures faced by Image Sciences will not materially
adversely affect its business, operating results and financial condition. See
"Risk Factors--Competition."
INTELLECTUAL PROPERTY, TRADEMARKS AND PROPRIETARY RIGHTS
Image Sciences relies on a combination of copyright, trademark and trade
secret laws, employee and third-party nondisclosure agreements and other
methods to protect their respective proprietary rights. Despite these
precautions, it may be possible for unauthorized third parties to copy certain
portions of Image Sciences' products or obtain and use information Image
Sciences regards as proprietary. While Image Sciences' competitive position
may be affected by its ability to protect its proprietary information, Image
Sciences believes that trademark and copyright protections are less
significant to Image Sciences' success than other factors, such as the
knowledge, ability, and experience of Image Sciences' personnel, name
recognition, and ongoing product development and support.
Image Sciences software products are licensed to end-users on a "right to
use" basis pursuant to a perpetual license, which is signed by the end-user
and Image Sciences. The laws of some foreign countries do not protect Image
Sciences' proprietary rights to the same extent as do the laws of the United
States. See "Risk Factors--Limited Protection of Intellectual Property and
Proprietary Rights."
As the number of software products in the industry increases and the
functionality of these products further overlap, Image Sciences believes that
software programs will increasingly become subject to infringement claims.
There can be no assurance that third parties will not assert infringement
claims against Image Sciences in the future with respect to current or future
products. Any such assertion could require Image Sciences to enter into
royalty arrangements or result in costly litigation.
Image Sciences also relies on certain software that it licenses from third
parties, including software that is integrated with internally developed
software and used in its products to perform key functions. There can be no
assurances that these third-party software licenses will continue to be
available to Image Sciences on commercially reasonable terms, or that the
software will be appropriately supported, maintained or enhanced by the
licensors.
FACILITIES
Image Sciences leases approximately 23,000 square feet of office space in
Dallas, Texas for its corporate headquarters, including administrative, sales,
services, and product development. This lease expires April 30, 2005, but may
be terminated May 31, 2000. Office space is also leased in California for a
sales office. Image
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Sciences believes that its existing office facilities and additional space
available to it are adequate to meet its requirements, and that in any event,
suitable additional or alternative space adequate to serve Image Sciences'
foreseeable needs will be available on commercially reasonable terms.
LEGAL PROCEEDINGS
In August 1992, a customer brought a lawsuit against Image Sciences,
International Business Machines Corp. ("IBM") and IBM's sales manager seeking
substantial actual damages and punitive damages relating to the performance of
its computer system. Image Sciences was a subcontractor to an agreement
between IBM and such customer to provide a computer hardware and software
system for image processing, among other functions. The customer also signed a
license agreement with Image Sciences for certain image processing software.
Although summary judgment has been granted in favor of Image Sciences as to
certain claims, this has been appealed and other claims, as well as the
appeal, remain pending.
In December 1995, a former employee and her family filed a lawsuit against
Image Sciences, certain current and former officers of Image Sciences, IBM and
related parties, alleging, among other claims, breach of a settlement
agreement in a prior lawsuit. The plaintiffs seek unspecified actual and
punitive damages.
Image Sciences intends to continue to vigorously contest these claims and
believes that the resolution of such claims will not have a material adverse
effect on its financial condition or results of operations.
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BUSINESS OF FORMMAKER
GENERAL
FormMaker develops, markets, installs and services electronic document
automation and imaging systems to meet the needs of insurance, financial
services, utility and other document-intensive industries. FormMaker's
Document Automation Platform ("DAP") software technology was developed
specifically for paper-intensive industries to reduce manual procedures,
improve workflow and reduce the costs associated with paper-based
transactions. DAP components can be implemented on either a departmental or
enterprise-wide basis. DAP offers support for multiple hardware platforms and
operating environments to provide a high degree of flexibility and
scalability. DAP's electronic images can be used on a "front-end" and "back-
end" basis. On the front-end, electronic images can be used to collect and
edit data. On the back-end, the electronic images can accept data from the
business applications and match the data to the forms or documents. Documents
can then be assembled into sets and properly sequenced to print, sorted in
recipient order. DAP has the ability to electronically store and later
retrieve every printed document on-line saving cost when compared with the
storage and retrieval of paper documents. User's can also reduce costs by not
printing paper which would have to be manually filed and retrieved. The
archive and retrieval technology of DAP can also replace inefficient storage
methods such as microfiche.
FormMaker's imaging products are marketed under the Micro Dynamics MARS/NT
("Micro Dynamics MARS/NT"), Micro Dynamics MARS/2000 ("Micro Dynamics
MARS/2000") and Micro Dynamics FreeForm ("FreeForm") names. Micro Dynamics
MARS/NT is a highly scalable, cross platform archival document imaging system
with a client-server architecture. FreeForm adds content based searching to
Micro Dynamics MARS/NT, and Micro Dynamics MARS/2000 adds full document
management and workflow capabilities to Micro Dynamics MARS/NT.
Micro Dynamics MARS/NT systems are typically installed at the departmental
level in large organizations. Application areas vary widely and include
managing manufacturing records for quality control, storing student records in
secondary education, and providing litigation support in corporate legal
departments. Micro Dynamics MARS/NT includes an Application Program Interface
that allows third parties to customize Micro Dynamics MARS/NT functionality.
The FormMaker imaging products use a client-server architecture connected over
TCP/IP networks including LANS, company intranets and wide area networks such
as the Internet. They support Windows (3.1.x, 95 and NT) and Macintosh desktop
computers with servers running on Windows NT of Macintosh operating systems.
FormMaker was founded in 1983 under the name Turnkey Computers, Inc. an
Alabama corporation. Turnkey, a systems consulting and custom development
company, became FormMaker Software, Inc. On December 31, 1988, FormMaker
merged with Software Partners, an Atlanta-based firm. Software Partners
contributed key management and technical personnel to the merger and
substantially broadened FormMaker's technology base. In late 1991, FormMaker
consolidated operations in Atlanta and established itself as a Georgia
corporation. On May 18, 1996, FormMaker acquired Micro Dynamics through a
purchase transaction for an aggregate purchase price of $3,225,000, consisting
of $1,124,887 in cash and 653,033 shares of FormMaker stock.
PRODUCTS
FormMaker's document automation products include proprietary and third party
software which are integrated to automate paper-intensive business
transactions, principally for insurance, financial services, utilities and
healthcare industries. Through the acquisition of Micro Dynamics, FormMaker
develops and markets fully scalable, cross platform imaging, document
management and workflow products and services under the Micro Dynamics
MARS/2000 name to the education, government, legal and corporate market.
FormMaker's document automation products are based upon a core technology of
software that can be configured to automate and document a variety of business
transactions. Base architecture is based upon the concept of "resource
libraries."
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These libraries contain the electronic document images for the forms, data
definitions for the data elements to be processed with these images, and the
processing logic for the manner in which these electronic documents will be
"filled out," routed, assembled and, if necessary, printed. FormMaker provides
a comprehensive set of software tools to develop and maintain these resource
libraries.
FormMaker's document automation software enables end-users to share
documents, pass data through systems, maintain version control when revising
or updating a form or document, improve and create more efficient internal
workflows, eliminate manual assembly, document filing and document retrieval,
and eliminate the necessity of physical space to file and store paper
documents. Key features of FormMaker's software include graphical user
interface to display electronic documents and support data entry; automation
of business procedures with "processing rules"; tools for error checking,
storage, handling and routing of incomplete transactions; the ability to
provide output fully sorted and collated; the support of distributed,
centralized and client/server document operations; the support of multiple
hardware platforms and operating systems; and the inclusion of software tools
for creating, editing and maintaining electronic document libraries.
The FormMaker system license fee typically ranges from $5,000 for a small
departmental system to in excess of $1.0 million for a large enterprise-wide
system. Most customers expand their systems with additional product options
and services which may exceed the original system purchase price. FormMaker's
document automation software products are written in C programming languages
and operate on a variety of platforms, including Microsoft Windows, Microsoft
Windows 95, IBM OS/2, Microsoft Windows NT, UNIX, IBM AS/400 and IBM MVS.
FormMaker's mainframe and midrange product supports systems running on
operating environments which range from IBM, HP, AT&T, UNISYS, PCs or other
workstations.
The components of FormMaker's DAP may be generally described as follows:
Entry/Display Module. The display consists of an electronic document image
on the computer screen in WYSIWYG format, allowing fill-in of data directly
onto the document image. "Intelligent" features speed data and entry and
improve accuracy. These features are designed for non-technical data entry
personnel and include guidance of users from field to field, bypassing fields
that do not require the user's attention; format masks to automatically assign
values such as currency, commas or data formats; automatic fill-in of
repetitive data, such as a client's name, to reduce data entry errors; and
easy to use scripting language to perform calculations and create pop-up
messages. The Entry/Display module operates in stand-alone, LAN or
client/server environments under IBM OS/2 or Microsoft Windows.
Work-In Process Module. The Work-in-Process module stores incomplete or
pending work for later completion, error correction and electronic routing.
Work-in-Process operates in stand-alone, LAN or client/server configurations
under IBM OS/2 or Microsoft Windows. It also interfaces with cc:Mail and
Microsoft Mail.
Print/Merge Module. The Print/Merge module provides hard copy printing and
data merge capabilities. This module prints individual forms or documents and
allows documents to be grouped into "sets." It supports both on-demand and
batch printing. Prior to printing, the Print/Merge module accesses the
selected documents and merges the electronic images with the variable data.
The module sequences the documents so that output is printed fully collated by
recipient and sorted in the correct document order. Print/Merge printer
support includes IBM Advanced Function Printing, Hewlett Packard PCL, Xerox
Metacode and Postscript. The module operates in stand-alone, LAN,
client/server, midrange and mainframe environments under UNIX, IBM AS/400, IBM
OS/2, Microsoft Windows or MVS operating systems.
Archive and Retrieval Module. The Archive and Retrieval module provides
permanent storage and retrieval for all documents which have been printed.
Data can be stored to a hard disk, optical disk or other media in compressed
format. The data is archived once for each transaction, while the document
image is stored just once. When the document is needed again, the system
retrieves the data, merges the document images with the Library Manager and
displays the document for on-screen review, reprinting or importing into
another
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application. Archive functions in stand-alone, LAN, client/server, midrange
and mainframe environments under UNIX, IBM AS/400, IBM OS/2, Microsoft Windows
or IBM MVS operating systems.
Rules Processors Module. The Rules Processor module manages the execution of
the other modules and gives DAP its flexibility. As the most powerful system
component, the Rules Processor executes rules which are integrated
specifically for a particular system. Rules may include when to process a
certain kind of job, how to define a particular document set, what to do with
a specific form or document and how to process a certain data field. The
module operates in workstation, mid-range and mainframe environments under IBM
OS/2, Microsoft Windows, UNIX, IBM AS/400 and IBM MVS operating systems.
Micro Dynamics MARS/NT. Micro Dynamics MARS/NT offers high volume scanning
of paper documents, indexing of documents in a database and document storage
on high capacity devices (including Write Once Read Multiple optical disks).
Once documents are in the system, Micro Dynamics MARS/NT allows flexible
searching to locate documents on workstations connected to servers by the
network.
Micro Dynamics FreeForm. Freeform is an optional component of Micro Dynamics
MARS/NT that offers high performance searching through the full text of a
document. Using optical character recognition, document images are converted
to document text. FreeForm then creates an index of every word in each page of
each document, then any word or phrase in the collection can be located
instantly. FreeForm is used to quickly navigate through many kinds of text
documents (e.g., legal transcripts, contracts, collected correspondence and
technical documentation).
Micro Dynamics MARS/2000. Micro Dynamics MARS/2000 extends the Micro
Dynamics MARS/NT system to include full document management and workflow
allowing users to control access to documents, route them through a sequence
of steps involving other users, organize them into folders, and track versions
and revisions of changing documents. Micro Dynamics MARS/2000 is an optional
extension to the Micro Dynamics MARS/NT imaging system and incorporates the
OpenText LiveLink product.
Services. FormMaker offers a full range of services, including consulting,
implementation, custom development, print outsourcing, training and electronic
document library development. FormMaker's consulting services group works with
clients to develop and define document automation strategies. They have
developed a unique six phased approach to build a document automation
strategy. FormMaker's print outsourcing services utilizes FormMaker's software
to provide customers with a solution for handling high volume, complex print,
finish and mailing requirements.
MARKETING, CUSTOMERS AND DISTRIBUTION
FormMaker currently sells its products and services directly through its own
sales organization, which presently consists of eleven salespersons, and
through its marketing alliance partners in the insurance and financial
services industries. FormMaker is committed to expanding its presence in these
and other industries through pursuing additional marketing partnerships and by
continuing to market directly to businesses within the document-intensive
industries.
FormMaker's marketing alliance partner is PMSC for the insurance industry.
FormMaker's marketing alliance partner has entered into a marketing agreement
whereby the partner provides a range of marketing, sales, implementation and
support services. PMSC, markets FormMaker's products and services primarily to
the insurance industry. Revenues from PMSC represented 65% of FormMaker's
total 1996 revenues.
Effective January 1, 1997, FormMaker entered into a marketing agreement with
PMSC. Under the terms of the marketing agreement, PMSC was granted the
exclusive worldwide right to market and license FormMaker's non-imaging
software within the property and casualty and life insurance markets.
Additionally, PMSC has a world-wide non-exclusive right to market and license
such software in industries other than the aforementioned markets, but only
for so long as FormMaker does not grant exclusive rights with respect to a
particular territory or industry to FormMaker sales personnel or a third
party. In consideration, PMSC pays FormMaker a portion of
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the end-user license fees for the software received by PMSC. Under a
subcontractor agreement and a related agreement with PMSC, FormMaker provides
third party processing and other services to end-users and PMSC. In
consideration, PMSC pays service fees to FormMaker. The three-year term of the
marketing agreement and subcontractor agreement expires on December 31, 1999,
unless earlier terminated in accordance with such agreement. The related
agreement expires in June 1997 unless extended by mutual agreement of the
parties. Revenues for fiscal year 1996 for FormMaker were approximately $8.3
million from the marketing agreement and the subcontractor agreement and
approximately $4.6 million from the related agreement. See "Risk Factors--
Reliance on a Major Client Relationship."
FormMaker has also entered into a license agreement with PMSC granting PMSC
a perpetual, non-exclusive, royalty-free, worldwide license to use or license
FormMaker's software (and derivatives thereof) to third parties within the
insurance industry. FormMaker is obligated to provide PMSC with all object
code, source code and documentation relating to FormMaker's software as it
currently exists and as it shall be improved or modified during the term of
the marketing agreement described in the preceding paragraph.
Under the terms of the marketing agreement and the license agreement between
FormMaker and PMSC, FormMaker shall not be entitled to revenues from PMSC use
or licensing of FormMaker's software once the marketing agreement terminates,
but PMSC shall have the right to continue to use and license such software.
See "Risk Factors--Reliance on a Major Client Relationship."
FormMaker's sales resources for both direct and indirect sales are organized
based upon the industry markets being pursued by FormMaker described above.
When working with a marketing alliance partner, FormMaker's sales persons work
as a complementary extension of the partner's sales assistants. FormMaker
requires the marketing organizations to provide technical product
demonstrations, public relations assistance, assistance at trade shows,
advertising assistance, assistance in development of marketing collateral and
assistance with proposal development.
FormMaker targets customers world-wide, although emphasis is placed upon
sales to clients in the United States and Canada. FormMaker's sales force and
sales support staff conduct multiple presentations of the DAP technology.
FormMaker's consulting services group may be utilized to conduct requirement
studies or needs analysis. In the large account insurance market place, the
sales cycle is generally from six to nine months.
FormMaker's customers include businesses in the insurance, financial
services, and utilities industries. In 1996, 71% of FormMaker's revenues were
derived from customers in the insurance industry. As of December 31, 1996,
FormMaker had approximately 383 end-user customers worldwide with the primary
customer concentration being in the United States and Canada. FormMaker's end-
user customers include the Internal Revenue Service, American Home Assurance
Company, Kemper Corporation, Prudential Insurance Company, Commonwealth Bank,
Unisys Corporation, Royal Bank and ABN Amro.
In 1996, PMSC accounted for approximately 65% of the Company's total
revenues. No other customers accounted for more than 10% of total revenues in
such fiscal year. In the year ended December 31, 1995, PMSC accounted for
approximately 72% of the Company's total revenues. See "Risk Factors--Reliance
on a Major Client Relationship."
COMPETITION
FormMaker competes with other document automation and imaging companies, as
well as producers of pre-printed forms mainly on the basis of product
functionality and compatibility, services capability and cost savings
potential. The document automation marketplace is characterized by different
technology clusters and no single vendor dominates all the clusters.
FormMaker's competitors include many companies which are larger and more
established and have substantially more resources than FormMaker. FormMaker
believes that its ability to provide a comprehensive,
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<PAGE>
modular, enterprise-wide solution consisting of the components described above
distinguishes FormMaker's software from that of its competitors. See "Risk
Factors--Nonexclusive Perpetual License" and "--Competition."
RESEARCH AND DEVELOPMENT
FormMaker's software development efforts are focused primarily on enhancing
existing products and developing new technology in a manner which will better
reposition FormMaker to penetrate new markets.
FormMaker's research and development efforts are influenced significantly by
customer requirements. New features may be customized initially for delivery
to a single customer and then incorporated into future versions of its
products. FormMaker recently completed development of an improved, higher
capacity version of its batch printing system and intends to extend the
document routing and tracking capability of its software.
New research and development includes the integration of FormMaker's modules
with the Internet to provide an enterprise Internet solution and development
of systems for use in the utility and financial services industries. FormMaker
also intends to extend support beyond traditional Microsoft Windows, OS/2
client workstation to operating environments based on the Internet.
In 1996 and 1995, FormMaker incurred total software development costs of
approximately $3,046,000 and $1,784,000 respectively, of which FormMaker
capitalized approximately $2,414,000 and $1,366,000, respectively, and
expensed approximately $632,000 and $418,000, respectively. Separately during
1996 and 1995, FormMaker expensed approximately $1,134,000 and $519,000,
respectively, related to the amortization of capitalized computer software
development costs.
INTELLECTUAL PROPERTY
FormMaker regards its software as proprietary and relies primarily on a
combination of copyrights, trade secrets, distribution, software license
agreements and other intellectual property protection methods to safeguard its
software products. See "Risk Factors--Nonexclusive Perpetual License" and "--
Protection of Intellectual Property."
As a result of the merger of FormMaker's predecessor corporation into
FormMaker in June 1992, FormMaker owns the federal trademark FORMMAKER.
FormMaker is in the process of filing documentation with the United States
Patent and Trademark Office to update its records with respect to the chain of
title for such trademark.
EMPLOYEES
As of December 31, 1996, FormMaker employed 236 full-time employees and five
contract employees. Approximately 195 of FormMaker's employees are located in
Atlanta. None of FormMaker's employees are represented by a labor union or are
subject to a collective bargaining agreement. FormMaker has never experienced
a work stoppage and believes that its employee relations are good.
LEGAL PROCEEDINGS
As of the date of this Joint Proxy Statement/Prospectus, FormMaker is not a
party to any legal proceedings.
PROPERTIES
FormMaker's principal administrative, sales, marketing and research and
development departments occupy approximately 55,396 square feet of office
space located at 2300 Windy Ridge Parkway, Suite 400 North, Atlanta, Georgia
30339. The lease for this space expires on December 31, 2002. FormMaker's
print outsourcing
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<PAGE>
facility is located at 100 Tradeport Boulevard, Suite 1011, Atlanta, Georgia
30354. This facility occupies approximately 10,000 square feet under a lease
which expires on November 16, 2000. FormMaker's staff in New Hampshire is
located in a 1,700 square foot facility situated at 6 Bedford Farms, Kilton
Road, Bedford, New Hampshire 03110. The lease for this facility expires on
February 28, 1998. FormMaker's Micro Dynamics facility is located at 8455
Colesville Road, Silver Springs, Maryland 20910. This facility occupies
approximately 10,271 square feet under a lease which expires December 31,
2001.
FormMaker believes that its facilities are suitable and adequate for its
current operations.
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<PAGE>
MANAGEMENT OF DOCUCORP
The following table sets forth information with respect to each person who
will serve as a director or an executive officer of DocuCorp and their ages as
of January 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Arthur R. Spector....... 56 Chairman of the Board
Michael D. Andereck..... 44 President, Chief Executive Officer and Director
Samuel M. Wilkes........ 52 Senior Vice President, Sales and Marketing
B. Bruce Dale........... 33 Senior Vice President, Products
Kerry LeCrone........... 50 Senior Vice President, Services
Hsi-Ming Lin............ 40 Senior Vice President, Research and Development
Todd A. Rognes.......... 33 Senior Vice President, Finance
Milledge A. Hart, III... 62 Director
John D. Loewenberg...... 56 Director
Warren V. Musser........ 69 Director
</TABLE>
DocuCorp is currently evaluating other director candidates and anticipates
that one independent director and one Xerox designated director will be added
to the DocuCorp Board upon the Closing or as soon thereafter as practicable.
Each director will hold office until the next annual meeting of stockholders
of DocuCorp or until his successor has been elected and qualified. The
executive officers of DocuCorp are elected by the DocuCorp Board and serve at
the DocuCorp Board's discretion.
ARTHUR R. SPECTOR has been Chairman of the Board and a Director of FormMaker
since December 1995 when Safeguard Delaware acquired stock in FormMaker. Since
January 1997, Mr. Spector has been the managing director of TL Ventures LLC, a
fund management company organized to manage the day-to-day operations of TL
Ventures III L.P. and TL Ventures III Offshore L.P., which are recently
organized venture capital partnerships investing in tandem. Mr. Spector has
also served as an executive officer of several of TL Ventures III L.P.'s and
TL Venture III Offshore L.P.'s portfolio companies. From January 1995 through
December 1996, Mr. Spector served as Director of Acquisitions of Safeguard
Scientifics, Inc. and since November 1994 has been Chairman of the Board of
USDATA Corporation, a multinational supplier of applications development
tools, distribution management software and integration devices. He also
serves as Chairman of the Board of HDS Network Systems Inc., a manufacturer of
network computers and a provider of desktop computing services. From July 1992
until May 1995, Mr. Spector served as Vice Chairman and Secretary of Casino &
Credit Services, Inc. From October 1991 to December 1994, Mr. Spector was
Chief Executive Officer and a director of Perpetual Capital Corporation, a
merchant banking organization. Mr. Spector is a graduate of the Wharton School
of the University of Pennsylvania Law School.
MICHAEL D. ANDERECK has been President and Chief Executive Officer of Image
Sciences since 1984. He joined Image Sciences as Vice President-Finance in
1983, and was elected to the Board of Directors and named Treasurer of Image
Sciences shortly thereafter. In 1984, Mr. Andereck assumed the position of
President and Chief Executive Officer. From 1975 through 1983, Mr. Andereck
was with KPMG Peat Marwick, where he dealt extensively with initial and
recurring registrations with the Securities and Exchange Commission and
attained the position of senior manager. Mr. Andereck holds a Bachelor of
Business Administration degree in Accounting and Information Sciences from the
University of North Texas.
SAMUEL M. WILKES became Vice Chairman and Chief Operating Officer of
FormMaker in December 1995. He has been a director of FormMaker since 1988 and
served as President from such date through December 1995. Mr. Wilkes founded
Software Partners, Inc. in 1986, which merged into FormMaker in 1988. From
1985 to 1986, Mr. Wilkes was President of Automation Solutions, Inc., a
software company, and from 1979 to 1985,
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<PAGE>
he served as Chief Operating Officer of Leader Systems, Inc., a software
company. Mr. Wilkes holds a B.S. degree in chemistry and an M.B.A. in
International Marketing from the University of Florida.
B. BRUCE DALE has served as Vice President of Product Development of Image
Sciences since 1994. He joined Image Sciences in 1986 as a Client Services
Custom Software Developer. Since 1988, Mr. Dale has held several management
positions within Client Services, Marketing and Product Development. In 1992,
he was appointed Director of Product Direction. Mr. Dale received a Bachelor
of Science degree in Computer Science from Western Kentucky University.
KERRY LECRONE became Senior Vice President, Technical and Processing
Services of FormMaker in March 1995. Between 1974 and 1990, Mr. LeCrone served
in various capacities for several insurance and financial service businesses
with primarily responsibilities for software development and operations. In
1990, Mr. LeCrone co-founded Adam Investment Services, a financial services
company that became a leading retail investment management organization with
more than $1.0 billion in assets under management.
HSI-MING LIN joined FormMaker in 1987 as Manager of Development and is
credited with developing FormMaker's current technology. He became Senior Vice
President, Research and Development of FormMaker in January 1994, and in such
capacity has responsibility for designing, developing and providing
programming service. Prior to joining FormMaker, Mr. Lin held various
management and programming positions with other software and service
companies. Mr. Lin received a B.E. in Computer Science from TamKang
University, Taiwan, R.O.C. and an M.S. degree in Information and Computer
Science from Georgia Tech University.
TODD A. ROGNES has been Vice President of Finance and Administration of
Image Sciences since 1994. Mr. Rognes joined Image Sciences in 1986 as a Staff
Accountant and was appointed Controller in 1991. Prior to joining Image
Sciences, Mr. Rognes was a staff accountant with IBP, Inc. Mr. Rognes holds a
Bachelor of Business Administration degree in Accounting from Iowa State
University. Mr. Rognes is a Certified Public Accountant.
MILLEDGE A. HART, III has been a member of Image Sciences' Board of
Directors since 1985. Mr. Hart is founder and Chairman of the Board of Hart
Group, Inc., Rmax, Inc., and Axon, Inc. He also serves on the Board of
Directors of Home Depot and the Board of Trustees of Southern Methodist
University. Mr. Hart served as President of Electronic Data Systems from 1970
until his retirement in 1977.
JOHN D. LOEWENBERG is currently Chief Executive Officer and President of
FormMaker. Before that he served as Executive Vice President and Chief
Administrative Officer of Connecticut Mutual, a life insurance company, from
May 1995 through March 1996. Prior to joining Connecticut Mutual, Mr.
Loewenberg served as Senior Vice President of Aetna Life and Casualty, a
multi-line insurer, and as Chief Executive Officer of Aetna Information
Technology, the information systems company of Aetna Life and Casualty, from
March 1989 to May 1995. Mr. Loewenberg was Chairman of Precision Systems, Inc.
until April 1996 and is currently a member of the Board of CompuCom Systems,
Inc., Diamond Technology Partners, Sanchez Computer Associates and Imetrix. He
is also a trustee of several not for profit organizations.
WARREN V. MUSSER has been Chairman of the Board and Chief Executive Officer
of Safeguard since 1953. Mr. Musser is also the Chairman of the Board of
Cambridge Technology Partners (Massachusetts), Inc., a director of Coherent
Communications Systems Corporation and CompuCom, and a trustee of Brandywine
Realty Trust. Mr. Musser also serves on a variety of civic, educational and
charitable Boards of Directors including the Board of Overseers of The Wharton
School of the University of Pennsylvania and serves as Vice
President/Development, Cradle Liberty Council, Boy Scouts of America, as Vice
Chairman of The Eastern Technology Council, and as Chairman of the
Pennsylvania Council on Economic Education.
COMPENSATION OF DIRECTORS
It has not yet been determined whether and to what extent directors will be
compensated for their services to DocuCorp.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth, for the periods set forth below, the
compensation paid to those individuals that DocuCorp believes will be its five
most highly compensated officers (the "Named Executive Officers"). The
information set forth below relating to Messrs. Andereck and Dale relate to
the fiscal year ended July 31, 1996 and the information relating to Messrs.
Wilkes, LeCrone and Lin relate to the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- ------------------- ---------------
<S> <C> <C> <C>
Michael D. Andereck.................... $ 200,000 $ 100,000 $ 4,121
President and Chief Executive Officer
Samuel M. Wilkes ...................... 150,000 27,432 10,955
Senior Vice President, Sales and
Marketing
B. Bruce Dale ......................... 90,000 20,000 571
Senior Vice President, Products
Kerry LeCrone ......................... 110,000 27,000 1,946
Senior Vice President, Services
Hsi Ming Lin........................... 120,000 23,614 2,047
Senior Vice President, Research and
Development
</TABLE>
- --------
(1) Includes: (i) contributions of $2,453 and $571 to Image Sciences' 401(k)
tax-qualified employee savings and retirement plan on behalf of Mr.
Andereck and Mr. Dale, respectively, and contributions of $2,375, $1,946
and $2,047 to FormMaker's 401(k) tax-qualified employee savings and
retirement plan on behalf of Messrs. Wilkes, LeCrone and Lin,
respectively; (ii) premiums paid by Image Sciences in the amount of $1,668
for term life insurance on behalf of Mr. Andereck; (iii) payment of $2,100
for country club fees by FormMaker on behalf of Mr. Wilkes; and (iv)
payment of $6,480 for a car allowance by FormMaker on behalf of Mr.
Wilkes.
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<PAGE>
The following table sets forth certain information regarding stock options
granted, during the year ended as identified below, to the Named Executive
Officers. The information relating to Messrs. Andereck and Dale relate to the
fiscal year ended July 31, 1996 and the information relating to Messrs.
Wilkes, LeCrone and Lin relate to the fiscal year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PER SHARE DATE
---- ----------- ---------------- -------------- ----------
<S> <C> <C> <C> <C>
Michael D. Andereck...... -- -- -- --
Samuel M. Wilkes(1)...... 150,000 16.5 3.48 09/29/06
B. Bruce Dale(2)......... 20,000 10.0 1.25 03/01/06
Kerry LeCrone(1)......... 25,000 2.4 3.48 01/01/06
Hsi-Ming Lin(1).......... 25,000 2.4 3.48 01/01/06
</TABLE>
- --------
(1) These options were granted under FormMaker's stock option plan and
generally vest in four annual installments. DocuCorp will assume all of
FormMaker's obligations under such plan in accordance with its terms and
conditions as in effect at the Effective Time. See "The Merger and Related
Transactions--Conversion of Options."
(2) These options were granted under Image Sciences' stock option plan and
vest in five annual installments. DocuCorp will assume all of Image
Sciences' obligations under such plan in accordance with its terms and
conditions as in effect at the Effective Time. See "The Merger and Related
Transactions--Conversion of Options."
The following table sets forth certain information regarding options held by
each of the Named Executive Officers as of the end of the last fiscal year.
The information for Messrs. Andereck and Dale relate to the fiscal year ended
July 31, 1996 and the information for Messrs. Wilkes, LeCrone and Lin relate
to the fiscal year ended December 31, 1996.
FISCAL YEAR-END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS
AT FISCAL YEAR-END (#)
-------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
<S> <C> <C>
Michael D. Andereck(1)............................... 600,000 --
Samuel M. Wilkes(2).................................. 43,750 131,250
B. Bruce Dale(1)..................................... 102,300 61,200
Kerry LeCrone(2)..................................... 36,250 48,750
Hsi-Ming Lin(1)...................................... 38,750 38,750
</TABLE>
- --------
(1) These options were granted under Image Sciences' stock option plan.
DocuCorp will assume all of Image Sciences' obligations under such plan in
accordance with its terms and conditions as in effect at the Effective
Time. See "The Merger and Related Transactions--Conversion of Options."
(2) These options were granted under FormMaker's stock option plan. DocuCorp
will assume all of FormMaker's obligations under such plan in accordance
with its terms and conditions as in effect at the Effective Time. See "The
Merger and Related Transactions--Conversion of Options."
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<PAGE>
EMPLOYMENT AGREEMENTS
In January 1997, DocuCorp entered into employment agreements with Michael D.
Andereck and Samuel M. Wilkes providing for base salaries of $225,000 and
$157,500 per year, respectively. Each employment agreement has an indefinite
term and provides that the employee's salary is to be reviewed annually by the
Board of Directors. In addition to base salary, the agreements allow for
discretionary bonuses, participation in any 401(K) plan and stock option plan
maintained by DocuCorp and other fringe benefits that DocuCorp maintains for
its top-level executives. Both agreements contain severance provisions which,
if triggered, entitle the employees to monthly severance payments in an amount
equal to the affected employees then-current monthly salary for a period of up
to 12 months. The severance payments are triggered by the occurrence of any of
the following events: termination of employment by DocuCorp without cause,
termination of employment by the employee for good reason (which includes a
material failure of DocuCorp to observe or perform any material term of the
employment agreement, the exclusion of the employee from participation in any
new compensation or benefit arrangement offered to similarly situated
employees or a reduction in the employee's level of responsibility, position,
authority or duties), resignation by the employee with 60 days' notice, and,
in the case of Mr. Andereck, total disability. Each employment agreement also
provides a non-competition provision prohibiting the employee from competing
against DocuCorp while employed by DocuCorp and for one year following the
termination of employment.
STOCK OPTION PLAN
DocuCorp intends to adopt a stock option plan prior to the consummation of
the Merger. See "The Merger and Related Transactions--The Merger Agreement"
and "--Conversion of Options."
401(K) PROFIT SHARING PLAN
DocuCorp intends to adopt a 401(k) Profit Sharing Plan, or combine the
existing 401(k) Profit Sharing Plans of Image Sciences and FormMaker, which
plan generally will be available to all full-time employees of DocuCorp and
its subsidiaries and will provide for discretionary contributions by DocuCorp
to such employees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DocuCorp, Safeguard and the SG/TL Stockholders entered into the Liquidity
Agreement providing that (i) Safeguard will use commercially reasonable
efforts to conduct and consummate a Qualified Rights Offering; (ii) the SG/TL
Stockholders will purchase a certain number of shares of DocuCorp Class A
Common Stock if DocuCorp is required to redeem shares of DocuCorp Class B
Common Stock, and guarantee an existing line of credit of FormMaker (as
amended); and (iii) DocuCorp will grant, at the Closing and upon payment of
$6,100, to the SG/TL Stockholders DocuCorp Warrants to purchase 610,000 shares
of DocuCorp Class A Common Stock with an exercise price of $5.00 per share and
a term of three years.
FormMaker has entered into an administrative services agreement with
Safeguard providing for the payment of a fee to Safeguard equal to .75% of the
sales of FormMaker through May 31, 1997 and 1% of sales of FormMaker
thereafter. The administrative services agreement will terminate upon
consummation of the Merger.
Micro Dynamics currently owes Safeguard $275,000 and $300,000 under two term
notes. The term notes bear interest at prime plus 1% and are due in monthly
installments through January 1, 2000.
Pursuant to an agreement between Mr. Andereck and Xerox Corporation, the
three Xerox designees to the DocuCorp Board will consist of a designee of Mr.
Andereck (who shall initially be Mr. Andereck), a designee of Xerox
Corporation (who shall initially be determined prior to closing) and a
mutually acceptable designee of Xerox and Mr. Andereck (who shall initially be
Milledge A. Hart III).
Pursuant to the Voting and Lockup Agreement, Xerox, Michael D. Andereck, the
SG/TL Stockholders, Joe A Rose, Samuel M. Wilkes and Arthur R. Spector have
(i) agreed to vote shares held by them in favor of the
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<PAGE>
Merger; (ii) appointed Michael D. Andereck and Arthur R. Spector as attorney-
in-fact and proxy to vote such shares as necessary to approve the Merger and
the transactions contemplated thereby; and (iii) agreed not to transfer or
sell their shares or the shares they receive pursuant to the terms of the
Merger for a period of time.
The Merger Agreement requires as a condition to Closing that certain
existing stockholders enter into a stockholders' agreement requiring such
parties to vote shares they will receive of DocuCorp in such a manner as to
maintain the election to the DocuCorp Board of three designees of Xerox, three
designees of the SG/TL Stockholders and one independent designee mutually
agreed upon by the other six.
Pursuant to a Stock Purchase Agreement between Samuel M. Wilkes, TL II and
TL II Offshore dated January 15, 1997, Mr. Wilkes has agreed to sell
immediately prior to the consummation of the Merger 502,640 shares of
FormMaker Common Stock to TL II and TL II Offshore at a price per share of
$3.09.
Pursuant to a Co-Sale Agreement by and among the SG/TL Stockholders and
Samuel M. Wilkes dated January 15, 1997, the SG/TL Stockholders granted to Mr.
Wilkes the right to "tag-along" in any sale of DocuCorp Common Stock by the
SG/TL Stockholders.
Image Sciences and Xerox Corporation, a stockholder of Image Sciences,
entered into a Cooperative Marketing Agreement in August 1994. Under the terms
of the agreement, Image Sciences and Xerox agree to pay each other commissions
on sales of each others products resulting from successful referrals.
All future transactions between DocuCorp and its officers, directors and
principal stockholders or their affiliates will be on terms no less favorable
to DocuCorp than may be obtained from unrelated third parties, and any such
transactions will be approved by a majority of the disinterested directors of
DocuCorp.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF DOCUCORP
The following table sets forth certain information regarding the beneficial
ownership of the DocuCorp Common Stock after giving effect to the Merger and
the Image Sciences Tender Offer, by (i) each person known to own beneficially
5% or more of the outstanding shares of DocuCorp Common Stock; (ii) each
director of DocuCorp; (iii) each Named Executive Officer; and (iv) all
executive officers and directors as a group. Each of such stockholders has
sole voting and investment power as to shares shown, unless otherwise noted.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AFTER MERGER AND OFFERING
---------------------------
NAME(1) SHARES(2) PERCENT
------- --------------- -----------
<S> <C> <C>
Safeguard Delaware................................ 2,649,199 25
Xerox Corporation................................. 2,234,692 21
Michael D. Andereck(3)(5)......................... 1,484,235 14
Technology Leaders II(4).......................... 1,287,616 12
Samuel M. Wilkes(6)............................... 390,325 4
B. Bruce Dale(3).................................. 151,828 1
Hsi-Ming Lin...................................... 117,760 1
Arthur R. Spector................................. 107,156 1
Milledge A. Hart, III(3).......................... 101,026 *
Kerry LeCrone..................................... 52,685 *
John D. Loewenberg(7)............................. 0 *
Warren V. Musser.................................. 0 *
All Directors, Named Executive Officers, and other
executive officers
as a group (10 persons).......................... 2,498,745 23
</TABLE>
- --------
* Represents less than 1%
(1) The address of Messrs. Andereck, Dale, Hart, LeCrone, Lin, Loewenberg and
Wilkes is c/o DocuCorp, 5910 N. Central Expressway, Suite 800, Dallas, TX
75206. The address of Messrs. Spector and Musser and the address of
Safeguard Delaware and Technology Leaders II is c/o Safeguard Scientifics,
Inc., The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087. The
address of Xerox Corporation is P.O. Box 1600, Stamford, CT 06904.
(2) Includes 1,632,899 shares issuable pursuant to outstanding options and
warrants exercisable within 60 days.
(3) Assumes pro-rata participation in the Image Sciences Tender Offer.
(4) Technology Leaders II consists of Technology Leaders II L.P. and
Technology Leaders II Offshore C.V. Gives effect to the purchase of
502,640 shares of FormMaker Common Stock from Samuel M. Wilkes concurrent
with the closing of the Merger.
(5) Includes beneficial ownership, of which 72,162 shares are held in a trust
which is not in Mr. Andereck's control. Mr. Andereck disclaims any
beneficial ownership as to such shares.
(6) Gives effect to the sale of 502,640 shares of FormMaker Common Stock to
Technology Leaders II concurrent with the Closing.
(7) Under the terms of an employment agreement with FormMaker, Mr. Loewenberg
is to be issued options entitling him to purchase 30,000 shares of
DocuCorp Common Stock. Such options will be granted within the next 60
days, however, it is not presently known when such options will become
exercisable. If exercisable within 60 days, such interest would
approximate 1%.
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<PAGE>
PRINCIPAL STOCKHOLDERS OF IMAGE SCIENCES
The following table sets forth certain information regarding the beneficial
ownership of the Image Sciences Common Stock as of the Image Sciences Record
Date by (i) each person known to own beneficially 5% or more of the
outstanding shares of Image Sciences Common Stock; (ii) each director of Image
Sciences; (iii) each executive officer of Image Sciences; and (iv) all
executive officers and directors as a group. Each of such stockholders has
sole voting and investment power as to shares shown, unless otherwise noted.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------
NAME(1) SHARES(2) PERCENT
------- --------------- -----------
<S> <C> <C>
Xerox Corporation(3).............................. 2,111,933 40
Michael D. Andereck(4)............................ 1,401,014 26
B. Bruce Dale..................................... 138,275 3
Elliott S. Tucker................................. 127,225 2
J.E.R. Chilton, III............................... 110,015 2
Todd A. Rognes.................................... 94,200 2
William E. Weatherford............................ 90,215 2
Milledge A. Hart, III............................. 83,656 2
All executive officers and directors as a group (7
persons)......................................... 2,044,600 38
</TABLE>
- --------
(1) The address of all executive officers and directors is c/o Image Sciences,
5910 N. Central Expressway, Suite 800, Dallas, TX 75206. The address of
Xerox Corporation is P.O. Box 1600, Stamford, CT 06904.
(2) Includes 1,046,400 shares issuable pursuant to outstanding options and
warrants exercisable within 60 days.
(3) Includes 1,963,433 shares of Image Sciences Preferred Stock and 148,500
shares of Image Sciences Common Stock.
(4) Includes beneficial ownership, of which 50,000 shares are held in a trust
which is not in Mr. Andereck's control. Mr. Andereck disclaims any
beneficial ownership as to such shares.
79
<PAGE>
PRINCIPAL STOCKHOLDERS OF FORMMAKER
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock of FormMaker as of the FormMaker Record Date by:
(i) each person known by FormMaker to own beneficially more than 5% of the
outstanding Common Stock; (ii) each director of FormMaker; (iii) each
executive officer of FormMaker; and (iv) all of FormMaker's executive officers
and directors as a group. Each of such stockholders has sole voting and
investment power as to the shares shown.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------
NAME (1) SHARES PERCENT
-------- --------------- -------------
<S> <C> <C>
Safeguard Delaware(2)(6)... 3,073,992 48
Technology Leaders II(2)(6)... 1,080,357 17
N.G. Wade Investment
Company(3)................ 435,000 7
John D. Loewenberg(5)...... 0 *
Samuel M. Wilkes III(6).... 1,049,030 17
Michael S. Rupe............ 18,750 *
R. Lee Morris.............. 157,250 3
Hsi-Ming Lin............... 164,844 3
Kerry LeCrone.............. 73,750 1
James Tebay................ 6,250 *
Randy Skinner.............. 98,000 2
Arthur R. Spector(4)....... 150,000 2
Bernard Morgan(4).......... 0 *
Robert E. Keith, Jr.(4).... 0 *
All executive officers and
directors as a group (11
persons).................. 1,717,874 26
</TABLE>
- --------
* Represents less than 1%.
(1) The address of Messrs. Loewenberg, Wilkes, Rupe, Morris, Lin, LeCrone,
Tebay and Skinner is c/o FormMaker Software, Inc., 2300 Windy Ridge
Parkway, Suite 400N, Atlanta, GA 30339. The address of Messrs. Spector,
Morgan and Keith and the address of Safeguard Delaware and Technology
Leaders II is c/o Safeguard Scientifics, Inc., The Safeguard Building, 435
Devon Park Drive, Wayne, Pennsylvania 19087. The address of N. G. Wade
Investment Company, its affiliate Wade Securities, Inc. and D. W. McArthur
is 569 Edgewood Avenue South, Jacksonville, Florida 32245.
(2) Technology Leaders II consists of Technology Leaders II L.P. and
Technology Leaders Offshore C.V. These entities are venture capital funds
that are required by their governing documents to make all investment,
voting and disposition actions in tandem. Technology Leaders II Management
L.P., the sole general partner of Technology Leaders L.P. and the co-
general partner of Technology Leaders II Offshore C.V., exercises through
its executive committee, sole investment and voting power with respect to
the shares owned by those entities.
(3) Includes 250,000 shares held by N. G. Wade Investment Company and 150,000
shares held by its affiliate, Wade Securities, Inc., and 35,000 shares
owned by D. W. McArthur, D. W. McArthur is an officer, director and
stockholder of both entities and may be deemed to be a beneficial owner of
the shares held by such entities.
(4) Mr. Keith is an officer and director of Safeguard Delaware. Mr. Keith is
one of the 11 voting members of the executive committee of Technology
Leaders II Management L.P., which has the sole authority and
responsibility for all investment, voting and disposition decisions for
Technology Leaders II. Messrs. Spector, Morgan and Keith disclaim any
beneficial ownership in the shares of the Company held by Safeguard
Delaware and Technology Leaders II.
(5) Under the terms of an employment agreement with FormMaker, FormMaker will
grant to Mr. Loewenberg options to purchase 41,964 shares of Common Stock
of FormMaker. Such options will be granted within the next 60 days;
however, it has not presently known when such options will become
exercisable. If exercisable within sixty 60 days such interest would
approximate 1%.
(6) Under the terms of a Stock Purchase Agreement dated January 15, 1997,
Technology Leaders II has agreed to purchase 502,640 shares of stock owned
by Mr. Wilkes. The contemplated purchase of Mr. Wilkes' stock is to occur
immediately prior to the consummation of the Merger.
80
<PAGE>
EXPERTS
The financial statements of Image Sciences, Inc. as of July 31, 1995 and
1996 and for each of the three years in the period ended July 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated balance sheets of FormMaker as of December 31, 1995 and
1996 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1996, included in this prospectus, have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania will render an
opinion with respect to the validity of the securities to be issued in
connection with the Merger. Steptoe & Johnson, Washington, D.C. will render an
opinion with respect to tax matters.
ADDITIONAL INFORMATION
DocuCorp has filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the DocuCorp Class A Common Stock and
DocuCorp Class B Common Stock offered hereby. This Joint Proxy
Statement/Prospectus does not contain all information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 as well as at the
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material can be obtained from the Commission by
mail at prescribed rates. Requests should be directed to the Commission's
Public Reference Branch located at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically by
means of the Commission's web site on the Internet (http://www.sec.gov).
Statements contained herein concerning the provisions of any documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement.
REPORTS TO SECURITY HOLDERS
DocuCorp intends to distribute to its stockholders annual reports containing
audited financial statements and will make available copies of quarterly
reports for the first three quarters of each fiscal year containing unaudited
interim financial information.
81
<PAGE>
INDEX TO FINANCIAL STATEMENTS
IMAGE SCIENCES, INC.
<TABLE>
<S> <C>
Report of Independent Accountants........................................ F-2
Statements of Operations for each of the three years ended July 31,
1996.................................................................... F-3
Balance Sheets as of July 31, 1995, 1996................................. F-4
Statements of Cash Flows for each of the three years ended July 31,
1996.................................................................... F-5
Statements of Changes in Stockholders' Equity for each of the three years
ended July 31, 1996..................................................... F-6
Notes to Financial Statements............................................ F-7
Statements of Operations (Unaudited) for the three months ended October
31, 1995 and 1996....................................................... F-14
Balance Sheet (Unaudited) as of October 31, 1996......................... F-15
Statements of Cash Flows (Unaudited) for the three months ended October
31, 1995 and 1996....................................................... F-16
Notes to Interim Financial Statements (Unaudited) for the three months
ended October 31,
1995 and 1996........................................................... F-17
FORMMAKER SOFTWARE, INC.
Report of Coopers & Lybrand L.L.P., Independent Accountants.............. F-18
Consolidated Balance Sheets at December 31, 1995 and 1996................ F-19
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996..................................................... F-20
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996........................................ F-21
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996..................................................... F-22
Notes to Consolidated Financial Statements............................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Image Sciences, Inc.
In our opinion, the accompanying statements of operations, balance sheets,
statements of cash flows and changes in stockholders' equity present fairly,
in all material respects, the financial position of Image Sciences, Inc. at
July 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1996, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
September 20, 1996, except as to Note 10,
which is as of January 15, 1997
F-2
<PAGE>
IMAGE SCIENCES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Professional services................... $ 548,700 $ 587,118 $ 819,034
License................................. 5,608,210 4,806,888 4,793,031
Maintenance............................. 4,717,450 5,419,945 5,858,256
----------- ----------- -----------
Total revenues........................ 10,874,360 10,813,951 11,470,321
----------- ----------- -----------
Expenses
Professional services................... 529,116 429,888 605,504
Product development and support......... 3,425,570 3,560,421 3,981,156
Selling and marketing................... 1,676,301 1,833,866 1,568,129
General and administrative.............. 1,697,034 1,832,004 1,899,156
----------- ----------- -----------
Total expenses........................ 7,328,021 7,656,179 8,053,945
----------- ----------- -----------
Operating income...................... 3,546,339 3,157,772 3,416,376
Other income (expense).................. (146,869) 28,148 239,904
----------- ----------- -----------
Income before income taxes............ 3,399,470 3,185,920 3,656,280
Provision for income taxes.............. 1,230,000 1,183,000 1,335,000
----------- ----------- -----------
Net income............................ $ 2,169,470 $ 2,002,920 $ 2,321,280
=========== =========== ===========
Net income per share of common stock...... $ 0.38 $ 0.35 $ 0.43
=========== =========== ===========
Weighted average number of shares of
common stock and common stock equivalents
used in calculating earnings per share... 5,728,461 5,741,572 5,468,941
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE>
IMAGE SCIENCES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................ $ 2,289,980 $ 1,909,016
Short-term investments............................... 3,000,000 5,308,806
Accounts receivable, net of allowance of $325,000 and
$350,000, respectively.............................. 4,108,521 4,105,652
Current portion of deferred taxes.................... 343,355 399,468
Income tax refund receivable......................... 222,033 --
Other current assets................................. 143,375 187,193
----------- -----------
Total current assets............................. 10,107,264 11,910,135
Fixed assets, net of accumulated depreciation of
$1,901,581 and $1,419,206, respectively............... 791,242 783,328
Software, net of amortization of $3,652,682 and
$4,466,514, respectively.............................. 2,221,862 1,941,679
Other assets........................................... 24,762 55,586
----------- -----------
$13,145,130 $14,690,728
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable..................................... $ 419,983 $ 323,044
Accrued liabilities
Accrued compensation............................... 545,791 700,050
Other.............................................. 361,415 278,857
Income taxes payable................................. 590,231 655,264
Current portion of subordinated debentures........... 255,737 --
Current portion of obligations under capital leases.. 56,390 45,967
Deferred revenue..................................... 3,828,272 4,267,113
----------- -----------
Total current liabilities........................ 6,057,819 6,270,295
Subordinated debentures................................ 1,278,693 --
Obligations under capital leases....................... 45,965 --
Deferred taxes......................................... 156,912 383,070
Stockholders' equity
Preferred stock--3,000,000 shares authorized at $.10
par value, $1.00 liquidation value, 1,963,433 shares
issued and outstanding.............................. 196,343 196,343
Common stock--20,000,000 shares authorized at $.01
par value, 2,015,771 and 2,335,082 shares issued and
outstanding, respectively........................... 20,158 23,351
Additional paid-in capital........................... 1,214,116 1,321,265
Retained earnings.................................... 4,175,124 6,496,404
----------- -----------
Total stockholders' equity....................... 5,605,741 8,037,363
----------- -----------
$13,145,130 $14,690,728
=========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
IMAGE SCIENCES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JULY 31
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................ $ 2,169,470 $ 2,002,920 $ 2,321,280
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 259,488 324,699 363,931
Amortization of capitalized
software........................... 706,277 736,224 813,832
Stock option compensation expense... 44,161 53,271 49,988
Increase in allowance for doubtful
accounts........................... 75,000 -- 25,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable......................... (1,591,857) 52,304 (22,131)
Decrease in notes receivable........ 136,422 48,052 --
(Increase) decrease in income tax
refund receivable.................. (396,500) 174,467 222,033
(Increase) decrease in deferred tax
assets............................. 495,000 121,390 (56,113)
(Increase) decrease in other
assets............................. 25,199 (49,667) (74,642)
Increase (decrease) in accounts
payable............................ 94,197 (91,648) (96,939)
Increase (decrease) in accrued
liabilities........................ 230,258 (370,201) 71,701
Increase (decrease) in income taxes
payable............................ (277,000) 440,231 65,033
Increase (decrease) in deferred
revenue............................ 692,013 (272,983) 438,841
Increase in deferred tax
liabilities........................ -- 156,912 226,158
----------- ----------- -----------
Total adjustments................. 492,658 1,323,051 2,026,692
----------- ----------- -----------
Net cash provided by operating
activities....................... 2,662,128 3,325,971 4,347,972
----------- ----------- -----------
Cash flows from investing activities
Purchase of short-term investments,
net of maturities.................... (1,500,000) (1,500,000) (2,308,806)
Purchase of fixed assets.............. (438,512) (333,073) (356,017)
Development of software............... (599,479) (667,924) (533,649)
----------- ----------- -----------
Net cash used in investing
activities....................... (2,537,991) (2,500,997) (3,198,472)
----------- ----------- -----------
Cash flows from financing activities
Repayment of notes payable............ (800,000) -- --
Repayment of subordinated debentures.. (256,176) (258,801) (1,534,430)
Principal payments under capital lease
obligations.......................... (115,717) (91,128) (56,388)
Purchase of tendered stock, warrants
and options.......................... -- (84,375) --
Proceeds from exercise of warrants and
options.............................. 5,133 89,369 45,432
Tax benefit related to exercise of
non-qualified stock options.......... -- -- 14,922
----------- ----------- -----------
Net cash used in financing
activities....................... (1,166,760) (344,935) (1,530,464)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (1,042,623) 480,039 (380,964)
Cash and cash equivalents at beginning
of year................................ 2,852,564 1,809,941 2,289,980
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,809,941 $ 2,289,980 $ 1,909,016
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
IMAGE SCIENCES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON TREASURY PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31,
1993................... $186,343 $16,859 $(281,602) $1,401,458 $ 2,734 $1,325,792
Exercise of warrants to
purchase 258,271
shares of common
stock................. 2,583 2,583
Exercise of stock
options to purchase
254,950 shares of
common stock.......... 2,550 2,550
Issuance of 100,000
shares of preferred
stock................. 10,000 (10,000) --
Compensation expense
related to non-
qualified stock
options............... 44,161 44,161
Net income............. 2,169,470 2,169,470
-------- ------- --------- ---------- ---------- ----------
Balance at July 31,
1994................... 196,343 21,992 (281,602) 1,435,619 2,172,204 3,544,556
Exercise of warrants to
purchase 13,901 shares
of common stock....... 139 139
Exercise of stock
options to purchase
272,500 shares of
common stock.......... 2,725 86,505 89,230
Purchase and retirement
of 67,500 shares of
common stock.......... (675) (83,700) (84,375)
Retirement of 402,288
shares of treasury
stock................. (4,023) 281,602 (277,579) --
Compensation expense
related to non-
qualified stock
options............... 53,271 53,271
Net income............. 2,002,920 2,002,920
-------- ------- --------- ---------- ---------- ----------
Balance at July 31,
1995................... 196,343 20,158 -- 1,214,116 4,175,124 5,605,741
Exercise of warrants to
purchase 190,211
shares of common
stock................. 1,902 1,902
Exercise of stock
options to purchase
129,100 shares of
common stock.......... 1,291 42,239 43,530
Compensation expense
related to non-
qualified stock
options............... 49,988 49,988
Tax benefit related to
exercise of non-
qualified stock
options............... 14,922 14,922
Net income............. 2,321,280 2,321,280
-------- ------- --------- ---------- ---------- ----------
Balance at July 31,
1996................... $196,343 $23,351 $ -- $1,321,265 $6,496,404 $8,037,363
======== ======= ========= ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Image Sciences, Inc. (the "Company") was incorporated in Texas in 1982. The
Company's business includes developing and marketing computer software
designed to automate the process of storing, managing, and printing business
forms and documents. The majority of the Company's business is derived from
companies in the insurance industry.
Revenue recognition
Revenue from licensing of standard software is recognized upon delivery of
the software. Service revenue is unbundled from license revenue and recognized
as services are performed.
Revenue from software licenses which include a cancellation clause is
recognized upon expiration of the cancellation period. Revenue derived from
the development and installation of software packages under long-term
contracts is recognized on a percentage-of-completion basis. Revenue related
to products still in the testing phase is deferred until formal acceptance of
the product by the purchaser. Anticipated losses, if any, on uncompleted
contracts are recognized in the period in which such losses are determined.
Revenue from maintenance contracts, and maintenance revenue that is packaged
with license fees, is recognized ratably over the term of the agreements. The
Company records deferred revenue for maintenance amounts invoiced prior to
revenue recognition.
Cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents, including
certificates of deposit, repurchase agreements and treasury bills. Cash
equivalents are stated at cost, which approximates fair market value.
Short-term investments
The Company has the intent and ability to hold short-term investments to
maturity; consequently, such investments are carried at cost which
approximates fair market value as determined by the stated interest rates. As
of July 31, 1996, all short-term investments consisted of commercial paper
investments and treasury bills with original terms of 180 days. Interest
income from such investments was $134,510 and $227,113 in 1995 and 1996,
respectively.
Accounts receivable
Included in accounts receivable at July 31, 1995 and 1996 are unbilled
amounts of $1,737,259 and $1,833,640, respectively. Such amounts have been
recognized as revenue under the percentage of completion method or upon
execution of the contract and shipment of the software, but prior to required
payment terms.
Fixed assets, depreciation, and amortization
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation and amortization are computed over the estimated service lives
using the straight line method for all assets. Amortization of assets recorded
under capital leases is included in depreciation expense. Estimated service
lives are as follows:
<TABLE>
<S> <C>
Computer equipment.......................................... 4-5 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... life of lease
Leased equipment under capital leases....................... 3-5 years
</TABLE>
F-7
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Repairs and maintenance are expensed as incurred. Major renewals and
betterments are capitalized and depreciated over the assets estimated service
life. Upon retirement or sale of an asset, the cost and accumulated
depreciation are removed from the accounts with any resulting gain or loss
included in income.
Software
Costs of internally developed software are capitalized after the
technological feasibility of the software has been established. The cost of
capitalized software is amortized on a straight-line basis over its estimated
useful life, generally five years for mainframe-based software and four years
for client/server-based software, or the ratio of current revenues to current
and anticipated revenues from the software, whichever provides the greater
amortization.
Income taxes
Income taxes are presented pursuant to Statement of Financial Accounting
Standard No. 109, "Accounting for Income Taxes" (see also Note 8).
Earnings per share
Earnings per share are computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
The earnings per share computation is based on the assumption that outstanding
options and warrants were exercised and the proceeds were used to repurchase
outstanding common stock.
Management Estimates
The preparation of the Company's financial statements, in accordance 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 July 31,
1995 and 1996, and the reported amounts of revenues and expenses for the
periods then ended. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial accounting and
reporting standards for stock-based compensation plans. Adoption of SFAS 123
is required for all fiscal years that begin after December 15, 1995.
Management does not believe the adoption will have a material effect on the
Company's financial position or results of operations.
NOTE 2--FIXED ASSETS
Fixed asset balances at July 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Computer equipment.................................... $ 2,421,640 $ 1,948,066
Furniture and fixtures................................ 241,569 179,619
Leasehold improvements................................ 29,614 74,849
----------- -----------
2,692,823 2,202,534
Less accumulated depreciation......................... (1,901,581) (1,419,206)
----------- -----------
$ 791,242 $ 783,328
=========== ===========
</TABLE>
F-8
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense on fixed assets for the years ended July 31, 1994,
1995, and 1996 totaled $259,488, $324,699, and $363,931, respectively.
NOTE 3--LEASE COMMITMENTS
The Company leases computer equipment under noncancelable leases which are
classified as capital leases and included in fixed assets at July 31, 1995 and
1996 as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Computer equipment........................................ $ 214,852 $ 214,852
Less accumulated depreciation............................. (136,536) (190,249)
--------- ---------
$ 78,316 $ 24,603
========= =========
</TABLE>
Certain other equipment leases and the Company's obligation under leases for
office space are treated as operating leases and the rentals are expensed as
incurred. Rent expense on these operating leases for the years ended July 31,
1994, 1995, and 1996 totaled $368,998, $343,010, and $383,438, respectively.
Generally, the Company's leases provide for renewals for various periods at
stipulated rates.
Future minimum lease obligations on leases in effect at July 31, 1996 are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
1997....................................................... $47,640 $ 334,295
1998....................................................... -- 334,339
1999....................................................... -- 334,339
2000....................................................... -- 333,541
2001....................................................... -- 331,945
Thereafter................................................. -- 1,244,795
------- ----------
Minimum lease payments..................................... 47,640 $2,913,254
==========
Less amount representing interest.......................... (1,673)
-------
Present value of minimum lease payments.................... $45,967
=======
</TABLE>
The future minimum lease obligations for operating leases assumes that the
Company does not exercise its option to terminate its office lease in 2000. If
the office lease is terminated in 2000, a penalty is due at that time and no
further obligations would exist after the year ended July 31, 2000.
There were no capital lease agreements executed during the years ended July
31, 1995 and 1996.
NOTE 4--NOTES PAYABLE
In 1993, a bank granted the Company a $1,000,000 irrevocable line of credit.
The line of credit was renewed in 1994 and is available to the Company until
it expires in November 1996. The line of credit is secured by the Company's
accounts receivable, software license agreements, maintenance agreements and
certain furniture and equipment. The line of credit bears interest at prime
rate plus 1%, or 9.75% and 9.25% at July 31, 1995 and 1996, respectively. The
line of credit is unused as of July 31, 1995 and 1996.
F-9
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--SUBORDINATED DEBENTURES
Subordinated debentures totaling $990,000 were issued to Xerox Corporation
("Xerox") in 1991 pursuant to a securities purchase agreement between Xerox
and the Company. $1,059,407 of subordinated debentures were also issued in
1991 to tendering stockholders pursuant to a tender offer to existing
stockholders.
The debentures paid interest at an annual rate of 10%. Principal payments
were due in eight equal annual installments. The third scheduled principal
payment was made in January 1996. The remaining five installments were due
annually on January 1, together with interest on the unpaid principal balance;
however, the Company repaid the subordinated debentures on March 1, 1996. The
debentures were unsecured obligations of the Company and were subordinated to
all senior debt. The Company made interest payments, primarily related to
subordinated debentures, totaling $259,087, $235,407, and $183,508 for the
years ended July 31, 1994, 1995, and 1996, respectively.
NOTE 6--STOCKHOLDERS' EQUITY
Holders of preferred stock are entitled to elect a number of directors of
the Company equal to the percentage of the total number of shares of Company
stock owned by the holders of preferred stock. Holders of preferred stock are
not entitled to vote in the election of other directors of the Company.
Holders of preferred stock are entitled to vote, together with the holders of
common stock, on all other matters. Preferred stock is convertible to common
stock on a one for one basis. In the event of liquidation, holders of
preferred stock are entitled to receive, prior to any distribution to the
holders of common stock, an amount equal to $1.00 per share plus any declared,
but unpaid dividends.
Warrants to purchase 191,715 shares of common stock were outstanding as of
July 31, 1995. During 1996, warrants to purchase 190,211 shares of common
stock were exercised, and the remaining warrants to purchase 1,504 shares of
common stock expired. These warrants were exercisable at $.01 per share of
common stock.
NOTE 7--STOCK OPTIONS
In 1983, the Company established an incentive stock option plan for certain
officers and key employees. Under this plan, 965,000 shares of common stock
were authorized for issuance. As of July 31, 1996, options to purchase 756,300
shares of common stock have been exercised and options to purchase 5,000
shares of common stock are outstanding. The remaining options to purchase
203,700 shares of common stock expired.
Stock option activity under the incentive stock option plan is summarized as
follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
SHARES SHARE AGGREGATE
UNDER UNDER EXERCISE
OPTION OPTION PRICE
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at July 31, 1993.................... 387,000 $198,175
Expired in 1994................................. (7,000) 1.25 (8,750)
-------- --------
Outstanding at July 31, 1994.................... 380,000 189,425
Exercised in 1995............................... (237,000) .375 (88,875)
Expired in 1995................................. (52,000) .50-1.25 (51,750)
-------- --------
Outstanding at July 31, 1995.................... 91,000 48,800
Exercised in 1996............................... (86,000) .50 (43,000)
-------- --------
Outstanding at July 31, 1996.................... 5,000 $ 5,800
======== ========
</TABLE>
F-10
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In the event of termination of employment, unexercised incentive stock
options expire three months from date of employment termination. All
outstanding options to purchase shares of common stock are fully vested as of
July 31, 1996. All options expire ten years from the date of grant.
The Company established a non-qualified stock option plan for all employees
and officers in 1991. Under the plan, the Board of Directors authorized the
issuance of options to purchase up to 2,000,000 shares of common stock. In
August 1994, the Board of Directors authorized the issuance of additional
options to purchase up to 150,000 shares of common stock. All such options
granted prior to July 31, 1994 are exercisable at $.01 per share. Non-
qualified options granted subsequent to July 31, 1994 are exercisable at
prices ranging from $1.00 to $1.50 per share. The exercise price of all non-
qualified options granted in the future will be determined by the Board of
Directors at the time of grant. Compensation expense related to granted non-
qualified stock options is the excess market price over the option price, and
is recognized ratably over the vesting period.
During 1996, non-qualified options to purchase 43,100 shares of common stock
were exercised, options to purchase 230,600 shares of common stock expired,
and options to purchase 194,000 shares of common stock were granted. As of
July 31, 1996, non-qualified options to purchase 521,500 shares of common
stock have been exercised, options to purchase 1,525,400 shares of common
stock are outstanding, and options to purchase 103,100 shares of common stock
are available for future grant. Non-qualified options to purchase 1,132,100
shares of common stock are fully vested as of July 31, 1996. The remaining
outstanding non-qualified options to purchase 393,300 shares of common stock
become exercisable at a rate of 20% per annum from the date of grant.
Non-qualified stock options to purchase 70,000 shares of common stock were
granted to each of the three outside members of the Company's Board of
Directors during 1993. The options are exercisable at $.70 per share and are
fully vested.
NOTE 8--INCOME TAXES
The provision for income taxes charged to operations was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense:
U.S. federal................................. $ 620,000 $ 778,000 $1,048,000
State, local & foreign....................... 115,000 75,000 125,000
---------- ---------- ----------
Total current.............................. 735,000 853,000 1,173,000
---------- ---------- ----------
Deferred tax expense:
U.S. federal................................. 495,000 330,000 162,000
State, local & foreign....................... 0 0 0
Total deferred............................. 495,000 330,000 162,000
---------- ---------- ----------
Total provision................................ $1,230,000 $1,183,000 $1,335,000
========== ========== ==========
</TABLE>
F-11
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets (liabilities) are comprised of the following at July 31:
<TABLE>
<CAPTION>
1994 1995 1996
---------- --------- ---------
<S> <C> <C> <C>
Gross deferred tax assets:
Deferred revenue............................ $ 511,163 $ 387,222 $ 261,500
Loss carryforwards.......................... 168,415 0 0
Tax credit carryforwards.................... 422,312 419,129 247,531
Accounts receivable allowance............... 110,500 110,500 119,000
Other....................................... 31,010 82,484 136,316
---------- --------- ---------
1,243,400 999,335 764,347
---------- --------- ---------
Gross deferred tax liabilities:
Capitalized software........................ (778,655) (755,433) (660,171)
Other....................................... 0 (57,459) (87,778)
---------- --------- ---------
(778,655) (812,892) (747,949)
---------- --------- ---------
$ 464,745 $ 186,443 $ 16,398
========== ========= =========
</TABLE>
The provision for income taxes differs from the amount of income taxes
determined by applying the applicable U.S. statutory federal income tax rate
to pre-tax income as a result of the following differences:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory U.S. tax rates.. $1,155,820 $1,083,213 $1,243,135
Increase (decrease) in
rates resulting from:
Nondeductible items..... 21,479 34,550 16,173
State, local and foreign
taxes (net)............ 76,000 49,500 82,500
Other................... (23,299) 15,737 (6,808)
---------- ---------- ----------
Effective tax rates..... $1,230,000 $1,183,000 $1,335,000
========== ========== ==========
</TABLE>
Income taxes currently payable for the years ended July 31, 1994, 1995, and
1996 were reduced by approximately $170,000 each year through the utilization
of loss and tax credit carryforwards.
The Company has approximately $247,000 of research and development tax
credit, investment tax credit, and alternative minimum tax credit
carryforwards which expire in various amounts from 1998 to 2011. As a result
of an ownership change in 1991, the Company's utilization of tax credits
generated in periods prior to the ownership change is limited to approximately
$170,000 annually.
The Company made estimated and regular income tax payments of $1,411,000,
$290,000, and $700,000 during the years ended July 31, 1994, 1995, and 1996,
respectively. Income taxes payable at July 31, 1996 consist of unpaid federal,
state and foreign taxes.
In September 1994, the Company received a favorable Internal Revenue Service
(IRS) tax ruling that allows it to defer software and maintenance revenues for
tax purposes in conformity with financial statement presentation. The Company
is required to recognize the retroactive effect of this ruling over a six year
period commencing with fiscal year 1993. The impact of the favorable tax
ruling resulted in a federal income tax refund receivable of $222,033 as of
July 31, 1995, which was received during the year ended July 31, 1996.
F-12
<PAGE>
IMAGE SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--RELATED PARTY TRANSACTIONS
Revenues aggregating $170,953, $122,340, and $160,150 in fiscal years 1994,
1995, and 1996, respectively, were earned from Xerox. These revenues relate
primarily to commissions earned for assisting in the marketing of Xerox
printers.
Included in accounts receivable at July 31, 1995 and 1996 are $19,676 and
$63,800, respectively, representing amounts due the Company from Xerox.
NOTE 10--SUBSEQUENT EVENT
On January 15, 1997, the Company entered into an Agreement and Plan of
Merger with FormMaker Software, Inc. ("FormMaker"), pursuant to which the
stockholders of the Company and FormMaker will exchange their shares for
common stock of a newly created holding company, DocuCorp, Inc. In addition,
the Company will distribute $8,000,000 concurrent with the closing of the
merger via (i) a tender offer to its common stock holders and certain holders
of options to purchase common stock, and (ii) a dividend to its preferred
stock holder. The merger is scheduled to be completed during the third quarter
of fiscal 1997 and is subject to approval by the stockholders of the Company
and FormMaker, and by certain governmental agencies and subject to other
customary conditions. The merger is expected to qualify as a tax-free
reorganization and to be accounted for as a purchase.
F-13
<PAGE>
IMAGE SCIENCES, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31
-----------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Revenues
Professional services......................... $ 154,071 $ 195,870
License....................................... 1,043,515 1,043,687
Maintenance................................... 1,383,337 1,591,460
-------------- --------------
Total revenues.............................. 2,580,923 2,831,017
-------------- --------------
Expenses
Professional services......................... 116,501 146,286
Product development and support............... 1,006,224 1,002,957
Selling and marketing......................... 359,214 405,240
General and administrative.................... 420,509 464,908
-------------- --------------
Total expenses.............................. 1,902,448 2,019,391
-------------- --------------
Operating income............................ 678,475 811,626
Other income (expense)........................ 46,405 95,314
-------------- --------------
Income before income taxes.................. 724,880 906,940
Provision for income taxes.................... 262,000 330,000
-------------- --------------
Net income.................................. $ 462,880 $ 576,940
============== ==============
Net income per share of common stock............ $ 0.09 $ 0.11
============== ==============
Weighted average number of shares of common
stock and common stock equivalents used in cal-
culating earnings per share.................... 5,642,303 5,421,481
============== ==============
</TABLE>
See accompanying notes to interim financial statements
F-14
<PAGE>
IMAGE SCIENCES, INC.
BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
OCTOBER 31
1996
-----------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents........................................ $ 3,091,121
Short-term investments........................................... 5,000,000
Accounts receivable, net of allowance of $350,000................ 3,744,794
Current portion of deferred taxes................................ 320,472
Other current assets............................................. 155,592
-----------
Total current assets......................................... 12,311,979
Fixed assets, net of accumulated depreciation of $1,520,095........ 787,099
Software, net of amortization of $4,664,830........................ 1,882,736
Other assets....................................................... 16,300
-----------
$14,998,114
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................. $ 221,972
Accrued liabilities
Accrued compensation........................................... 467,610
Other.......................................................... 320,121
Income taxes payable............................................. 376,516
Current portion of obligations under capital leases.............. 30,864
Deferred revenue................................................. 4,384,275
-----------
Total current liabilities.................................... 5,801,358
Deferred taxes..................................................... 570,074
Stockholders' equity
Preferred stock--3,000,000 shares authorized at $.10 par value,
$1.00 liquidation value,
1,963,433 shares issued and outstanding......................... 196,343
Common stock--20,000,000 shares authorized at $.01 par value,
2,335,082 shares issued and outstanding......................... 23,351
Additional paid-in capital....................................... 1,333,645
Retained earnings................................................ 7,073,343
-----------
Total stockholders' equity................................... 8,626,682
-----------
$14,998,114
===========
</TABLE>
See accompanying notes to interim financial statements
F-15
<PAGE>
IMAGE SCIENCES, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31
-------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income.................................. $ 462,880 $ 576,940
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 87,354 100,889
Amortization of capitalized software...... 211,573 198,315
Stock option compensation expense......... 13,053 12,380
Increase (decrease) in allowance for
doubtful accounts........................ (10,000) --
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................... 62,590 360,858
(Increase) decrease in income tax refund
receivable............................... 222,033 --
(Increase) decrease in deferred tax
assets................................... 57,081 78,996
(Increase) decrease in other assets....... (42,651) 70,887
Increase (decrease) in accounts payable... (69,687) (101,072)
Increase (decrease) in accrued
liabilities.............................. (113,897) (191,176)
Increase (decrease) in income taxes
payable.................................. (369,000) (278,748)
Increase (decrease) in deferred revenue... (309,390) 117,162
Increase in deferred tax liabilities...... 188,919 187,004
--------------- --------------
Total adjustments....................... (72,022) 555,495
--------------- --------------
Net cash provided by operating
activities............................. 390,858 1,132,435
--------------- --------------
Cash flows from investing activities
Purchase of short-term investments, net of
maturities................................. (862,550) 308,806
Purchase of fixed assets.................... (51,794) (104,660)
Development of software..................... (99,912) (139,373)
--------------- --------------
Net cash (used in) provided by investing
activities............................. (1,014,256) 64,773
--------------- --------------
Cash flows from financing activities
Principal payments under capital lease
obligations................................ (13,570) (15,103)
Proceeds from exercise of warrants and
options.................................... 155 --
--------------- --------------
Net cash used in financing activities... (13,415) (15,103)
--------------- --------------
Net increase (decrease) in cash and cash
equivalents.................................. (636,813) 1,182,105
Cash and cash equivalents at beginning of
year......................................... 2,289,980 1,909,016
--------------- --------------
Cash and cash equivalents at end of year...... $ 1,653,167 $ 3,091,121
=============== ==============
</TABLE>
See accompanying notes to interim financial statements
F-16
<PAGE>
IMAGE SCIENCES
NOTES TO INTERIM FINANCIAL STATEMENTS
THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996
UNAUDITED
NOTE 1--BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
financial statements reflect all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of the company's
financial condition at October 31, 1996 and for the three month periods ended
October 31, 1995 and 1996. These financial statements should be read in
conjunction with the audited financial statements of the company and notes
related thereto included elsewhere herein. The interim results presented
herein are not necessarily representative of the results that may be expected
for the fiscal year ended July 31, 1997 or for any future period.
NOTE 2--PROPOSED MERGER WITH FORMMAKER SOFTWARE, INC.
On January 15, 1997, the Company entered into an Agreement and Plan of
Merger with FormMaker Software, Inc. ("FormMaker"), pursuant to which the
stockholders of the Company and FormMaker will exchange their shares for
common stock of a newly created holding company, DocuCorp, Inc. In addition,
the Company will distribute $8,000,000 concurrent with the closing of the
merger via (i) a tender offer to its common stock holders and certain holders
of options to purchase common stock, and (ii) a dividend to its preferred
stock holder. The consummation of the proposed merger is subject to obtaining
stockholder approval and certain other conditions. Accordingly, there can be
no assurance that the merger will be completed.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of FormMaker Software, Inc.:
We have audited the accompanying consolidated balance sheets of FormMaker
Software, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of FormMaker
Software, Inc. as of December 31, 1995 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Coopers & Lybrand, L.L.P.
Atlanta, Georgia
January 30, 1997
F-18
<PAGE>
FORMMAKER SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,163,548 $ 4,925
Receivables, net................................... 2,678,508 4,935,067
Notes receivable................................... 66,591 85,864
Prepaid expenses................................... 119,743 302,584
Other current assets............................... 59,868 212,452
----------- -----------
Total current assets............................. 5,088,258 5,540,892
Property and equipment, net.......................... 2,174,891 2,599,439
Computer software development costs, net of
accumulated amortization
of $1,456,781 and $2,591,020 at December 31, 1995
and
1996, respectively.................................. 2,422,521 4,777,732
Deferred income tax asset............................ 420,000 420,000
Goodwill, net of accumulated amortization of
$282,445............................................ -- 4,282,281
Other assets......................................... 31,164 80,687
----------- -----------
Total assets..................................... $10,136,834 $17,701,031
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to a bank............................ $ -- $ 6,083,703
Current portion of notes payable to stockholder.... -- 225,000
Current portion of capital lease obligations....... 633,512 610,648
Accounts payable................................... 808,508 1,434,659
Other accrued liabilities.......................... 833,338 1,333,029
Accrued salaries................................... 165,234 770,983
Payable to customer................................ 2,100,000 89,989
Income taxes payable............................... -- 329,464
Deferred revenue................................... 293,308 895,006
----------- -----------
Total current liabilities........................ 4,833,900 11,772,481
Notes payable to stockholder, less current portion... -- 400,000
Capital lease obligations, less current portion...... 875,999 258,540
Other liabilities.................................... 403,044 506,708
----------- -----------
Total liabilities................................ 6,112,943 12,937,729
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
20,000,000 shares authorized, no shares issued and
outstanding at December 31, 1995 and 1996
Common stock, par value $.01 per share; 20,000,000
shares authorized, 5,499,795 and 6,229,511 shares
issued and outstanding at December 31, 1995 and
1996, respectively................................ 54,998 62,295
Common stock warrants.............................. 783,053 783,053
Additional paid-in capital......................... 4,307,322 6,529,463
Accumulated deficit................................ (1,050,307) (2,540,334)
Notes receivable--stockholders..................... (71,175) (71,175)
----------- -----------
Total stockholders' equity....................... 4,023,891 4,763,302
----------- -----------
Total liabilities and stockholders' equity....... $10,136,834 $17,701,031
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
FORMMAKER SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Software licenses..................... $ 1,699,718 $ 3,196,613 $ 4,533,276
Maintenance and other recurring....... 418,152 787,466 2,066,801
Processing services................... 3,039,177 4,645,420 4,555,189
Professional services and other....... 2,262,145 5,699,287 8,713,797
----------- ----------- -----------
Total revenues...................... 7,419,192 14,328,786 19,869,063
----------- ----------- -----------
Operating expenses:
Processing services................... 2,614,660 4,148,732 4,316,891
Professional services and other....... 1,580,199 4,222,986 7,247,600
Research and product development...... 549,531 1,253,833 2,238,897
Sales and marketing................... 843,046 1,578,304 3,294,496
General and administrative............ 924,062 3,485,702 3,560,405
Goodwill amortization................. 282,445
----------- ----------- -----------
Total operating expenses............ 6,511,498 14,689,557 20,940,734
----------- ----------- -----------
Operating income (loss)............. 907,694 (360,771) (1,071,671)
Interest expense, net................... (216,659) (324,726) (418,356)
----------- ----------- -----------
Income (loss) before income tax
benefit............................ 691,035 (685,497) (1,490,027)
Income tax benefit--deferred............ 160,000 260,000
----------- ----------- -----------
Net income (loss)................... $ 851,035 $ (425,497) $(1,490,027)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
FORMMAKER SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON
STOCK COMMON ADDITIONAL
-------------------- STOCK PAID-IN ACCUMULATED NOTES STOCKHOLDERS'
SHARES AMOUNT WARRANTS CAPITAL DEFICIT RECEIVABLE EQUITY
---------- -------- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 4,475,069 $ 44,751 $1,238,082 $(1,475,845) $ (193,012)
One-for-two reverse
common stock split, no
change in par value,
retroactively stated.. (2,237,534) (22,375) 22,375
Stock options
exercised............. 70,250 702 703 1,405
Net income............. 851,035 851,035
---------- -------- -------- ---------- ----------- --------- ----------
Balance, December 31,
1994................... 2,307,785 23,078 1,261,160 (624,810) 659,428
Stock options
exercised............. 575,619 5,756 249,992 255,748
Stock warrant
exercised............. 1,585,435 15,854 479,146 495,000
Common stock and common
stock warrants
issued................ 1,030,956 10,310 $783,053 2,317,024 3,110,387
Notes receivable issued
in conjunction with
common stock options
exercised............. $ (71,175) (71,175)
Net loss............... (425,497) (425,497)
---------- -------- -------- ---------- ----------- --------- ----------
Balance, December 31,
1995................... 5,499,795 54,998 783,053 4,307,322 (1,050,307) (71,175) 4,023,891
Stock options
exercised............. 40,836 408 3,988 4,396
Common stock issued.... 688,880 6,889 2,218,153 2,225,042
Net loss............... (1,490,027) (1,490,027)
---------- -------- -------- ---------- ----------- --------- ----------
Balance, December 31,
1996................... 6,229,511 $ 62,295 $783,053 $6,529,463 $(2,540,334) $ (71,175) $4,763,302
========== ======== ======== ========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
FORMMAKER SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.................... $ 851,035 $ (425,497) $ (1,490,027)
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Bad debt expense..................... 8,500 151,853
(Gain) loss on disposal of property
and equipment....................... (533) 2,030
Depreciation and amortization of
property and equipment.............. 221,822 505,876 924,208
Amortization of computer software
development costs................... 311,841 518,989 1,134,239
Deferred income taxes................ (160,000) (260,000)
Amortization of goodwill............. 282,444
Long-term deferred rent liability.... 398,908 79,240
Compensation expense associated with
common stock grant.................. 14,500
Changes in operating assets and
liabilities:
(Increase) in receivables............ (1,302,135) (1,150,855) (2,154,995)
(Increase) in prepaid expenses....... (44,524) (74,930) (26,793)
(Increase) decrease in other current
assets.............................. 2,215 (25,102) (219,030)
(Increase) decrease in other assets.. 29,550 (19,352) (49,523)
Increase in accounts payable......... 207,199 442,341 570,041
(Decrease) increase in other accrued
liabilities......................... 458,074 356,475 (384,827)
(Decrease) increase in accrued
salaries............................ (4,049) 95,623 605,749
(Decrease) increase in payable to
customer............................ 2,100,000 (2,010,011)
(Decrease) increase in deferred
revenue............................. 23,826 217,329 (12,351)
(Decrease) increase in other
liabilities......................... (4,512) 25,864
----------- ----------- ------------
Net cash (used in) provided by
operating activities............... 602,821 2,843,676 (2,725,772)
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from disposition of property
and equipment....................... 7,298 68,883
Expenditures for property and
equipment........................... (194,955) (428,781) (1,228,188)
Capitalization of computer software
development costs................... (813,478) (1,366,308) (2,413,788)
Acquisition of Micro Dynamics, Ltd.,
net of cash acquired................ (959,379)
----------- ----------- ------------
Net cash used in investing
activities......................... (1,001,135) (1,726,206) (4,601,355)
----------- ----------- ------------
Cash flows from financing activities:
Principal repayments of capital lease
obligations......................... (85,401) (490,023) (640,323)
Proceeds from borrowings on notes
payable to bank..................... 13,962,703
Principal repayments of notes payable
to a bank........................... (500,000) (8,139,000)
Proceeds from borrowings on note
payable to stockholder.............. 1,061,000 355,000
Principal repayments on note payable
to stockholder...................... (381,000) (2,348,011)
Advances to stockholders............. (172,000)
Principal repayments on note due from
stockholder......................... 274,000
Advances to employees................ (66,591) (19,273)
Issuance of common stock and
warrants............................ 1,405 3,638,003
Issuance of common stock under stock
option plans........................ 184,573 4,397
Repurchase of common stock........... (47,116)
----------- ----------- ------------
Net cash provided by financing
activities......................... 424,004 999,835 5,168,504
----------- ----------- ------------
(Decrease) increase in cash........... 25,690 2,117,305 (2,158,623)
Cash and cash equivalents at beginning
of the year.......................... 20,553 46,243 2,163,548
----------- ----------- ------------
Cash and cash equivalents at end of
the year............................. $ 46,243 $ 2,163,548 $ 4,925
=========== =========== ============
Supplemental disclosure of cash flow
information:
Cash paid for interest............... $ 84,622 $ 516,282 $ 406,293
Noncash investing activities:
Execution of capitalized leases...... $ 839,000 $ 1,131,507
Noncash financing activities:
Issuance of common stock to satisfy
an accrued expense obligation....... $ 125,000
Issuance of common stock for notes
receivable.......................... $ 71,175
Issuance of common stock relating to
the acquisition of Micro Dynamics,
Ltd................................. $ 1,893,800
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND:
FormMaker Software, Inc. (the "Company") is engaged in developing, marketing
and supporting multi-platform document automation and imaging software for use
in document intensive industries. The Company also provides third-party
processing and professional services.
The Company is headquartered, and also operates a processing facility, in
Atlanta, Georgia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of FormMaker
Software, Inc. and its majority owned subsidiary, Micro Dynamics, Ltd.
("MDL"). As further discussed in Note 3, the Company acquired MDL on May 17,
1996. All significant intercompany accounts and transactions have been
eliminated.
Revenue Recognition
The Company recognizes software licensing and maintenance revenue in
accordance with the American Institute of Certified Public Accountants
Statement of Position No. 91-1, "Software Revenue Recognition" ("SOP 91-1").
Under SOP 91-1, the Company recognizes software license revenue upon product
delivery and contract signing provided that no significant obligations remain
and collection of related receivables is determined by management to be
probable. Revenue from maintenance contracts and maintenance revenue that is
packaged with license fees is recognized ratably over the term of the
agreements. Revenue related to third-party processing and professional
services, such as training and consulting, is recognized as the services are
performed.
Capitalized Computer Software Development Costs
Research and product development expenditures, except as described below,
are charged to expense as incurred. Development costs of software to be sold
are charged to research and product development expense until technological
feasibility is established, after which, remaining computer software
development costs are capitalized and amortized in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" (SFAS 86). Management
periodically evaluates the recoverability of the computer software development
costs based on a comparison of undiscounted projected license revenues to the
capitalized computer software development costs, net of amortization. The
excess of capitalized costs, net of amortization, over undiscounted projected
license revenues are expensed at the time of determination by management.
Computer software development costs are amortized using the more rapid of the
straight-line method over four years or the ratio of current to future gross
revenues method as set forth in SFAS 86.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments
purchased with original maturities of three months or less.
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the assets. Property and equipment
under capital lease is recorded at the lower of present value of future
minimum lease payments or fair value at the inception of the lease and
amortized on a straight-line basis over
F-23
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the term of the lease or the asset's estimated useful life, whichever is
shorter. When property and equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and
any related gain or loss is recognized. Repairs and maintenance are expensed
as incurred. Major renewals and betterments are capitalized and depreciated
over the assets' estimated service life.
Goodwill
The excess of the purchase price of MDL over the fair value of identifiable
assets and liabilities, totaling $4,564,726, was assigned to goodwill.
Goodwill is being amortized on a straight-line basis over ten years. Goodwill
is evaluated for impairment based on the historic and estimated future
profitability of the business unit to which it relates.
Income Taxes
The benefit for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred tax
liabilities and assets are determined based on the temporary differences
between the tax bases of certain assets and liabilities and their carrying
amounts for financial reporting purposes.
Preferred Stock
At December 31, 1996, 20,000,000 shares of preferred stock are authorized
with no preferred shares outstanding. The Board of Directors of the Company is
authorized to issue preferred stock at any time, in one or more series and to
determine all of the designations, preferences, and rights of such stock.
Common Stock Split
In May 1996, a meeting of the stockholders was held authorizing a one-for-
two reverse common stock split. No changes in common stock par value or
authorized shares were effected as a result of this split. For all years
presented herein, all share and per share data, including stock options and
stock warrants, have been restated to reflect this stock split.
Financial Instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, notes payable and accounts payable at
December 31, 1996 approximate their fair value because of the short-term
maturity of the financial instruments or because of the variable interest
rates with respect to notes payable.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year's financial statement presentation.
Estimates
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.
3. SIGNIFICANT TRANSACTIONS:
Recapitalization of the Company
On December 20, 1995, the Company entered into a transaction with a group of
new stockholders: Safeguard Scientifics, Inc. ("SSI"), Technology Leaders II,
L.P. and Technology Leaders II Offshore C.V. (all
F-24
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
three entities referred to collectively herein as the "New Stockholders"). In
exchange for $3,333,333 of cash, 955,956 new shares of the Company's common
stock and seven-year common stock warrants allowing the holder to purchase an
additional 465,747 shares of the Company's common stock were issued. (See Note
13 for further information regarding the seven-year common stock warrants.) In
addition, the New Stockholders acquired 785,335 shares of the Company's common
stock from existing stockholders. The New Stockholders also purchased a common
stock warrant from an existing stockholder and immediately exercised the
warrant to receive 1,585,435 shares of the Company's common stock in exchange
for $495,000. At December 31, 1996, the New Stockholders owned 62% of the
Company's outstanding common stock. At December 31, 1996, SSI owned 46% of the
Company's outstanding common stock.
Acquisition of Micro Dynamics, Ltd.
On May 17, 1996, the Company acquired 99.89% of the outstanding shares of
common stock of Micro Dynamics, Ltd. ("MDL"). The Company issued 653,033
shares of common stock valued at $2.90 per share in exchange for 4,029,417
shares of MDL stock valued at $0.47 per share. The Company also paid cash of
$947,232 in exchange for 2,015,388 shares of MDL common stock. Also, in
connection with this transaction the Company issued options for 234,604 shares
of the Company's common stock to former MDL optionholders. This transaction
was accounted for under the purchase method of accounting. Accordingly, the
results of MDL's operations are included in the consolidated statements of
operations of the Company for the period from May 17, 1996 through December
31, 1996. Prior to this transaction, approximately 52% of the outstanding
capital stock of MDL was owned by SSI. SSI did not receive any cash in this
transaction, only shares.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and MDL as if the
acquisition had occurred on January 1 of each year presented.
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Revenues.......................................... $18,675,151 $ 20,704,698
Net loss.......................................... $ (658,145) $ (2,678,044)
</TABLE>
Such pro forma amounts are not necessarily indicative of what the actual
results might have been had the acquisition occurred at the beginning of each
year.
4. RECEIVABLES:
Receivables at December 31, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable............................ $2,755,929 $4,415,567
Unbilled receivables................................. 46,802 575,380
Other receivables.................................... 25,777 25,306
---------- ----------
2,828,508 5,016,253
Less allowance for doubtful accounts................. (150,000) (81,186)
---------- ----------
$2,678,508 $4,935,067
========== ==========
</TABLE>
Bad debt expense was $8,500, $151,853 and $0 for 1994, 1995 and 1996,
respectively.
F-25
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1995 and 1996, consists of the
following:
<TABLE>
<CAPTION>
DEPRECIABLE
1995 1996 LIVES IN YEARS
----------- ----------- --------------
<S> <C> <C> <C>
Computer equipment and purchased
software............................ $ 851,202 $ 1,634,816 3
Office furniture and equipment....... 304,084 869,226 7
Computer equipment under capital
lease............................... 1,638,388 1,638,388 3-5
Office furniture and equipment under
capital lease....................... 445,324 445,324 7
----------- -----------
3,238,998 4,587,754
Less accumulated depreciation and
amortization........................ (1,064,107) (1,988,315)
----------- -----------
$ 2,174,891 $ 2,599,439
=========== ===========
</TABLE>
The Company executed capital leases with values of $839,000, $1,131,507 and
$0 in 1994, 1995 and 1996, respectively, representing noncash financing
activities. Accumulated amortization on computer equipment under capital lease
was $483,776 and $988,701 at December 31, 1995 and 1996, respectively.
Accumulated amortization on office furniture and equipment under capital lease
was $31,809 and $95,426 at December 31, 1995 and 1996, respectively.
Substantially all of the Company's property and equipment is pledged as
collateral under various borrowing arrangements.
Depreciation and amortization expense for 1994, 1995 and 1996, including
amortization on property and equipment under capital lease, was $221,822,
$505,876 and $924,208, respectively.
As of December 1, 1995, the Company reevaluated its computer equipment and
purchased software and changed their estimated useful lives to approximately
three years from five years.
6. COMPUTER SOFTWARE DEVELOPMENT COSTS:
During 1994, 1995 and 1996, the Company charged to expense $311,841,
$518,989 and $1,134,239, respectively, relating to the amortization of
capitalized computer software development costs. Such amortization is included
in research and product development on the consolidated statements of
operations. As of December 1, 1995, the Company reevaluated its amortization
policy for capitalized computer software development costs and changed the
amortization period for these costs to four years from five years.
During 1994, 1995 and 1996, the Company charged to expense $57,037, $418,097
and $632,222, respectively, in research and development costs. Such expense is
included in research and product development on the consolidated statements of
operations.
7. NOTES PAYABLE TO A BANK:
On December 20, 1995, the Company entered into a new revolving credit
facility with a bank (the "Lender"). The maximum amount available under this
credit arrangement is $10,000,000. As of December 31, 1995 and 1996, $0 and
$6,083,703 of this credit arrangement was utilized, respectively. Amounts
outstanding under this credit arrangement bear interest at variable rates
determined by various provisions of the credit arrangement. These rates
generally approximate or equal the Lender's Prime Rate or the London Interbank
Rate (LIBOR). At December 31, 1996, the balance consisted of $4,083,703
outstanding on a line of credit bearing interest at 8.25% and two $1,000,000
LIBOR notes, each bearing interest at 7.50%. The weighted average interest
rate on the revolving credit facility was 8% at December 31, 1996.
F-26
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest is payable monthly. The revolver has a provision allowing for the
Company to convert the obligation as of December 20, 1997 into a term loan
provided that the Company has given the Lender thirty-days written notice, has
not defaulted, and has not experienced a material and adverse change to its
business and operations. The principal balance of the term loan shall be
repaid in twenty-four consecutive installments due the first day of each
month, beginning January 1, 1998. The first twenty-three such installments
shall each be in an amount equal to 1/36th of the initial principal balance of
the term loan and the final installment shall be equal to the remaining
principal balance of the term loan.
Amounts outstanding under this credit arrangement are collateralized by
substantially all of the Company's assets and repayment is guaranteed by the
New Stockholders.
8. NOTE PAYABLE TO STOCKHOLDER:
In connection with the acquisition of MDL, as discussed in Note 3, the
Company assumed notes payable to SSI in the amounts of $350,000 and $275,000.
At December 31, 1996, these notes bear interest at 9.25%. During 1996, the
Company incurred $37,475 in interest expense on these notes. These notes were
amended on January 10, 1997. Under the amended terms, an initial payment of
$50,000 was made in January 1997. Monthly principal payments of approximately
$16,000 plus accrued interest are due for thirty-six months commencing
February 1, 1997. These notes bear interest at prime plus 1%.
9. INCOME TAXES:
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................. $1,415,009 $ 2,603,766
Research and development credit carryforward.... 160,802 212,102
Other........................................... 244,357 255,095
---------- -----------
Total deferred tax assets..................... 1,820,168 3,070,963
---------- -----------
Deferred tax liabilities:
Capitalized computer software costs............. 920,558 1,424,954
Property and equipment depreciation
differences.................................... 57,075 39,949
---------- -----------
Total deferred tax liabilities................ 977,633 1,464,903
---------- -----------
Net deferred tax assets, before valuation
allowance........................................ 842,535 1,606,060
Less: valuation allowance......................... (422,535) (1,186,060)
---------- -----------
Net deferred tax asset............................ $ 420,000 $ 420,000
========== ===========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards for
U.S. tax purposes of approximately $6,350,000. The net operating loss
carryforwards generally expire in the years ending 2000 through 2011. At
December 31, 1996, the Company had Research and Development (R&D) credit
carryforwards of approximately $212,000. The R&D credit carryforwards will
generally expire in the years ending 2006 through 2011. Due to ownership
changes, a portion of the Company's net operating loss carryforwards and R&D
credit is subject to an annual cumulative limitation with respect to the
amount which may be utilized in any one year. The Company believes realization
of the net deferred tax asset to be more likely than not.
During 1994, the Company recognized an income tax benefit of $160,000 on
income before income tax benefit of $691,035. This benefit resulted from the
recognition of net operating loss carryforwards.
F-27
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DEFINED CONTRIBUTION PENSION PLAN:
The Company sponsors a defined contribution 401(k) pension plan covering
substantially all employees of the Company. Employees can contribute a maximum
of 15% of their salary to the plan. Employer matches are made at the Company's
discretion. The Company recognized expense under the 401(k) plan of
approximately $0, $19,754 and $59,027 during 1994, 1995 and 1996,
respectively.
11. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under noncancelable capital
and operating lease agreements. The aggregate minimum noncancelable lease
payments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ------------
<S> <C> <C>
1997............................................ $ 675,890 $ 2,006,000
1998............................................ 263,313 2,089,000
1999............................................ 2,185,000
2000............................................ 1,865,000
2001............................................ 1,291,000
Thereafter...................................... 1,191,000
--------- ------------
Total minimum lease payments.................... 939,203 $ 10,627,000
============
Less amount representing interest............... 70,015
---------
Present value of net minimum capital lease
payments....................................... 869,188
Less current portion of capital lease
obligations.................................... 610,648
---------
Noncurrent portion of capital lease
obligations.................................... $ 258,540
=========
</TABLE>
The capital leases principally carry a weighted-average imputed interest
rate of 10.50%. Rent expense for the years ended December 31, 1994, 1995 and
1996 was $216,844, $891,502 and $940,799, respectively.
12. COMMON STOCK OPTIONS:
The Company has adopted two non-qualified common stock option plans and one
incentive stock option plan: FormMaker Software, Inc. 1989 Non-Qualified Stock
Option Plan for Key Employees (the "1989 Plan"), FormMaker Software, Inc. 1990
Non-Qualified Stock Option Plan for Non-Employee Directors ("the 1990 Plan"),
and the FormMaker Software, Inc. 1996 Equity Compensation Plan ("the 1996
Plan") for the benefit of certain employees and directors of the Company.
Options are granted at the discretion of the Board of Directors, its
committee or the plan administrator as stated in the plan documents. Each
option granted under the Plans entitles the optionee to purchase one share of
the Company's common stock.
FormMaker Software, Inc. 1989 Non-Qualified Stock Option Plan for Key
Employees
The 1989 Plan authorized the issuance, pursuant to the exercise of options
granted, of up to 750,000 shares of common stock. Options granted under the
1989 Plan vested equally over the three year period following the date of
grant. At the date of issuance, the options' exercise price equaled or
exceeded the estimated fair value of the Company's common shares. A total of
583,750 options granted under the 1989 Plan have been exercised. At December
31, 1996, 166,250 options were outstanding under the 1989 Plan. The maximum
term of options granted under this plan is 10 years.
F-28
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FormMaker Software, Inc. 1990 Non-Qualified Stock Option Plan for Non-
Employee Directors
The 1990 Plan authorized the issuance, pursuant to the exercise of options
granted, of up to 250,000 shares of common stock. Options granted under the
1990 plan were fully vested at the time of grant. At the date of issuance, the
options' exercise price equaled or exceeded the estimated fair value of the
Company's common shares. A total of 105,000 options granted under the 1990
Plan have been exercised. At December 31, 1996, no options were outstanding
under the 1990 Plan.
FormMaker Software, Inc. 1996 Equity Compensation Plan
The 1996 Plan authorized the issuance, pursuant to the exercise of options
granted, of up to 1,066,206 shares of common stock. The options issued under
the 1996 Plan generally vest equally over a four year period. At the date of
issuance, the options' exercise price equaled or exceeded the estimated fair
value of the Company's common shares, except for 141,649 options issued to
former MDL optionholders in connection with the Company's acquisition of MDL.
The exercise price of options issued under the 1996 Plan ranged from $0.62 to
$4.63. At December 31, 1996, 755,189 options were outstanding under the 1996
Plan; 141,664 of which were exercisable. The maximum term of options granted
under this plan is 10 years.
Other outstanding options
The company issued an additional 92,955 stock options during 1996 in
connection with the Micro Dynamics, Ltd. acquisition that are not covered
under the existing stock option plans. All of these options are fully vested
and have an exercise price ranging from $2.47 to $6.17. In addition, 5,000
stock options are outstanding that were issued in connection with a 1988
business acquisition. These options are fully vested and have an exercise
price of $0.20 per share and do not expire.
At December 31, 1996, the Company has three stock-based compensation plans,
as described above. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. No compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for the
Company's stock-based plans been determined based on the fair value at the
grant dates, consistent with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss would have been increased by a pro forma
amount of $0 and $75,647 in 1995 and 1996, respectively, to a net loss of
$425,497 and $1,565,674, respectively. For purposes of computing these pro
forma amounts, the Black-Scholes option-pricing model was used with a risk-
free interest rate assumption of 5.2% for 1995 and 6.2% to 6.5% for 1996, and
an estimated option life assumption of five years for both 1995 and 1996.
F-29
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of the status of the Company's three fixed stock option plans as
of December 31, 1994, 1995 and 1996 and changes during the years ending on
those dates is presented below.
<TABLE>
<CAPTION>
1996 PLAN 1990 PLAN 1989 PLAN
------------------- ------------------ -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December
31, 1993............... 95,000 $0.02 564,334 $0.51
Granted................ 10,000 $0.02
Exercised.............. (70,000) $0.02
Forfeited or expired... (108,334) $0.51
------- --------
Outstanding at December
31, 1994............... 35,000 $0.02 456,000 $0.51
Granted................ 163,000 $3.48
Exercised.............. (448,750) $0.51
Forfeited or expired... (2,500) $0.50
------- --------
Outstanding at December
31, 1995............... 35,000 $0.02 167,750 $3.41
Granted................ 967,383 $3.20
Exercised.............. (35,000) $0.02 (1,500) $0.50
Forfeited or expired... (212,194) $3.26
-------- ------- --------
Outstanding at December
31, 1996............... 755,189 $3.18 -- $ -- 166,250 $3.42
======== ======= ========
Options Exercisable at
December 31, 1996...... 141,664 166,250
</TABLE>
The weighted-average grant-date fair value of options granted was $0 and
$0.71 for the years ended December 31, 1995 and 1996, respectively.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ---------------------
WEIGHTED-
AVERAGE WEIGHTED- NUMBER WEIGHTED-
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE 12/31/96 PRICE
- --------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1996 Plan
$0.62................ 86,706 9.38 $0.62 86,706 $0.62
$3.48................ 648,871 9.17 $3.48 47,371 $3.48
$4.63................ 19,612 9.38 $4.63 7,587 $4.63
------- -------
755,189 141,664
======= =======
1989 Plan
$0.50................ 3,250 5.27 $0.50 3,250 $0.50
$3.48................ 163,000 8.98 $3.48 163,000 $3.48
------- -------
166,250 166,250
======= =======
</TABLE>
13. COMMON STOCK WARRANTS:
In June 1991, the Company issued a Warrant to Purchase Common Stock (the
"Warrant") to a stockholder in connection with the stockholder's pledge of
securities to collateralize a revolving credit facility with a bank. The
Warrant entitled the stockholder to acquire, for $495,000, the number of
shares of common stock, which, when combined with the shares of common stock
previously issued to the stockholder, would equal immediately following the
exercise in full of the Warrant a 40% interest in the common stock of the
Company pursuant to the terms and conditions set forth in the Warrant
document.
F-30
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 20, 1995, the Warrant was sold to SSI. The Warrant was
immediately exercised and SSI received 1,585,435 of the Company's common stock
in exchange for $495,000.
Under the terms of the Company's recapitalization, the Company issued seven-
year warrants to the New Stockholders. These warrants originally allowed the
New Stockholders to purchase an aggregate of 372,823 shares of common stock,
exercisable at a purchase price of $.01 per share. Subsequent to December 31,
1995, a portion of the warrants allowing the New Stockholders to purchase
57,076 shares of common stock were exchanged for new warrants allowing the New
Stockholders to purchase 150,000 shares of common stock at a purchase price of
$3.48 per share. This transaction was effective as of the date of the
recapitalization and has been given retroactive treatment in the 1995
financial statements.
14. RELATED PARTY TRANSACTIONS:
The Company maintains a service agreement with SSI whereby the Company
receives various administrative and consulting services in exchange for a fee.
During 1996, the Company paid a total of $74,661 to SSI for these services. At
December 31, 1996, the Company had $11,430 in accounts receivable and $253,396
in accounts payable and accrued expenses with respect to SSI. Other related
party transactions are also described elsewhere in the Notes to these
consolidated financial statements.
15. RISK CONCENTRATIONS:
The Company has entered into various agreements with a major customer
("Policy Management Systems Corporation" or "PMSC") to provide certain third-
party processing services and to grant PMSC certain rights to market the
Company's proprietary software. Revenue for 1994, 1995 and 1996 includes
$3,039,117, $4,645,420 and $4,555,189, respectively, from providing third-
party processing services to PMSC. Additionally, revenue of $3,233,233,
$5,630,735 and $8,357,216 has been recognized by the Company in 1994, 1995 and
1996, respectively, as a result of sublicensing by PMSC of the Company's
proprietary software and related implementation services. At December 31, 1995
and 1996, $2,096,000 and $1,438,247, respectively, due from PMSC was included
in trade accounts receivable. At December 31, 1995 and 1996, $2,100,000 and
$89,989, respectively, due to PMSC was included in payable to customer.
In January 1997, the Company and PMSC amended their marketing agreement,
whereby, beginning January 1, 1998, PMSC can unilaterally terminate the
marketing agreement for any reason whatsoever by providing 90 days' prior
written notice to the Company. In addition, PMSC may terminate the agreement
as a result of the merger transaction expected to close in April 1997 (see
Note 16) by providing 10 days' prior written notice to the Company. Unless
renewed or terminated at an earlier date, the marketing agreement will
terminate on December 31, 1999.
On October 13, 1995, the Company and PMSC entered into an amendment to their
marketing agreement, whereby, PMSC purchased software licenses for inventory
and prospective sublicensing to end users in the amount of $2 million. Under
this Amendment PMSC was to receive credit in the amount of $2.6 million
against amounts which would otherwise have been due the Company on future
licenses. The Company recorded $2 million in license fee revenue with respect
to this transaction.
On December 31, 1995, the Company and PMSC agreed to further amend their
marketing agreement generally to provide for (a) the return of $1 million in
inventory purchased as the result of the October 13, 1995 amendment and the
elimination of the related $600,000 credit, (b) the elimination of PMSC's
"exclusive" right to market and sublicense the Company's software within a
particular segment of an industry and (c) the elimination of $750,000 in
credits which were to be applied against future service billings. As a result
of this amendment the Company paid $2.1 million to PMSC on January 3, 1996.
The Company recorded, in its 1995
F-31
<PAGE>
FORMMAKER SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
financial statements, the $1 million in returned inventory as a reduction in
revenue and a charge to general and administrative expense in the amount of
$1.1 million as a result of this latter amendment.
For the foreseeable future, it is anticipated that a significant portion of
the Company's revenues will be derived from the licensing and maintaining of
its software products. Certain of the Company's document automation
competitors may have greater financial, technical, marketing and other
resources than the Company. The Company believes that its line of products
currently have distinctive features which make these products competitive.
However, the Company's failure to compete effectively could have a material
adverse effect on its financial condition and results of operations.
The Company's software development is largely dependent upon certain key
employees. Loss of services of these key employees could have a material
adverse effect on the Company's business and prospects.
Substantially all of the end users of the Company's software and services
are in the insurance industry.
16. SUBSEQUENT EVENT:
On January 15, 1997, the Company and Image Sciences, Inc. ("ISI") entered
into an Agreement and Plan of Merger ("Merger Agreement"). The Merger
Agreement contemplates the merger of the Company and ISI into a newly formed
holding company, DocuCorp, Inc. ("DocuCorp") via a stock-for-stock
transaction. Under the merger, ISI stockholders would receive approximately
52% of DocuCorp's shares and the Company's stockholders would receive the
remaining 48% of DocuCorp's shares. Completion of the merger is subject to
certain conditions and is expected to close in April 1997. The merger would be
recorded under the purchase method of accounting, and ISI would be treated as
the accounting acquiror.
F-32
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
DOCUCORP, INC.
(A DELAWARE CORPORATION),
ISI MERGER CORP.
(A TEXAS CORPORATION),
FORMMAKER ACQUISITION CORP.
(A GEORGIA CORPORATION),
IMAGE SCIENCES, INC.
(A TEXAS CORPORATION)
AND
FORMMAKER SOFTWARE, INC.
(A GEORGIA CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <C> <S> <C>
1. Definitions......................................................... A-2
2. Plan of Merger...................................................... A-9
2.1 Surviving Corporation......................................... A-9
2.2 Effective Time................................................ A-9
2.3 Effects of the Merger......................................... A-9
2.4 Name of the Surviving Texas Corporation and the Surviving
Georgia Corporation;
Articles of Incorporation and Bylaws.......................... A-9
2.5 Directors and Officers........................................ A-9
2.6 Conversion of Image Sciences Securities....................... A-9
2.7 Conversion of FormMaker Securities............................ A-10
2.8 Capital Stock of Texas Sub and Georgia Sub.................... A-11
2.9 Approval by Shareholders...................................... A-11
2.10 Merger Closing................................................ A-12
2.11 Dissenting Shares............................................. A-12
2.12 Exchange of Converted Shares, Image Sciences Options,
FormMaker Options and FormMaker Warrants...................... A-12
2.13 No Further Transfer of Shares................................. A-13
3. Closing............................................................. A-13
3.1 Location, Date................................................ A-13
3.2 Deliveries.................................................... A-13
4. Representations and Warranties of Image Sciences.................... A-14
4.1 Corporate Status.............................................. A-14
4.2 Authorization................................................. A-14
4.3 Consents and Approvals........................................ A-14
4.4 Capitalization and Stock Ownership............................ A-14
4.5 Financial Statements.......................................... A-14
4.6 Title to Assets and Related Matters........................... A-15
4.7 Real Property................................................. A-15
4.8 Certain Personal Property..................................... A-15
4.9 Non-Real Estate Leases........................................ A-16
4.10 Accounts Receivable........................................... A-16
4.11 Inventory..................................................... A-16
4.12 Liabilities................................................... A-16
4.13 Taxes......................................................... A-16
4.14 Subsidiaries.................................................. A-16
4.15 Legal Proceedings and Compliance with Law..................... A-16
4.16 Contracts..................................................... A-17
4.17 Insurance..................................................... A-18
4.18 Intellectual Property and Software Products................... A-18
4.19 Employee Relations............................................ A-19
4.20 ERISA......................................................... A-19
4.21 Corporate Records............................................. A-21
4.22 Absence of Certain Changes.................................... A-21
4.23 Previous Sales; Warranties.................................... A-21
4.24 Customers..................................................... A-21
4.25 Finder's Fees................................................. A-21
4.26 Additional Information........................................ A-21
4.27 Accuracy of Information....................................... A-22
4.28 Hart-Scott-Rodino Act......................................... A-22
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <C> <S> <C>
5. Representations and Warranties of FormMaker......................... A-22
5.1 Corporate Status.............................................. A-22
5.2 Authorization................................................. A-22
5.3 Consents and Approvals........................................ A-22
5.4 Capitalization and Stock Ownership............................ A-23
5.5 Financial Statements.......................................... A-24
5.6 No Company, Texas Sub or Georgia Sub Assets, Liabilities or
Business...................................................... A-24
5.7 Title to Assets and Related Matters........................... A-24
5.8 Real Property................................................. A-24
5.9 Certain Personal Property..................................... A-25
5.10 Non-Real Estate Leases........................................ A-25
5.11 Accounts Receivable........................................... A-25
5.12 Inventory..................................................... A-25
5.13 Liabilities................................................... A-25
5.14 Taxes......................................................... A-25
5.15 Subsidiaries.................................................. A-26
5.16 Legal Proceedings and Compliance with Law..................... A-26
5.17 Contracts..................................................... A-26
5.18 Insurance..................................................... A-27
5.19 Intellectual Property and Software Products................... A-27
5.20 Employee Relations............................................ A-28
5.21 ERISA......................................................... A-29
5.22 Corporate Records............................................. A-30
5.23 Absence of Certain Changes.................................... A-30
5.24 Previous Sales; Warranties.................................... A-30
5.25 Customers..................................................... A-31
5.26 Finder's Fees................................................. A-31
5.27 Additional Information........................................ A-31
5.28 Accuracy of Information....................................... A-31
5.29 Hart-Scott-Rodino Act......................................... A-31
6. Joint Covenants..................................................... A-31
6.1 Registration Statement........................................ A-31
6.2 Financial Statements.......................................... A-32
6.3 Due Diligence................................................. A-32
7. Covenants of FormMaker and the Company.............................. A-32
7.1 Fulfillment of Closing Conditions............................. A-32
7.2 Conduct of the Business....................................... A-33
7.3 Access to Information......................................... A-33
7.4 No Solicitation............................................... A-33
7.5 The FormMaker Special Meeting................................. A-33
7.6 Rule 145 Affiliates........................................... A-33
7.7 Stock Option Plan............................................. A-34
7.8 Expenses...................................................... A-34
7.9 Indemnification............................................... A-34
7.10 New Bank Loan................................................. A-34
7.11 Related Parties............................................... A-34
8. Covenants of Image Sciences......................................... A-34
8.1 Fulfillment of Closing Conditions............................. A-34
8.2 Conduct of the Business....................................... A-35
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<C> <C> <S> <C>
8.3 Access to Information........................................... A-35
8.4 No Solicitation................................................. A-35
8.5 Image Sciences Special Meeting.................................. A-35
8.6 Rule 145 Affiliates............................................. A-35
8.7 Expenses........................................................ A-35
8.8 Image Sciences Closing Transactions............................. A-36
9. Conditions Precedent to Obligations of All Parties.................... A-36
9.1 Legality........................................................ A-36
9.2 Registration Statement.......................................... A-36
9.3 Merger.......................................................... A-36
9.4 Approval by Shareholders........................................ A-36
9.5 Appointment of Directors and Officers........................... A-36
9.6 Administrative Services Agreements.............................. A-36
10. Conditions Precedent to Obligations of Image Sciences................. A-36
10.1 Representations and Warranties.................................. A-36
10.2 Agreements, Conditions and Covenants............................ A-37
10.3 Certificates.................................................... A-37
10.4 Financial Performance........................................... A-37
10.5 Required Consents............................................... A-37
10.6 Ancillary Documents............................................. A-37
10.7 Legal Opinion................................................... A-37
11. Conditions Precedent to Obligations of FormMaker...................... A-37
11.1 Representations and Warranties.................................. A-37
11.2 Agreements, Conditions and Covenants............................ A-37
11.3 Certificates.................................................... A-37
11.4 Financial Performance........................................... A-37
11.5 Required Consents............................................... A-37
11.6 Ancillary Documents............................................. A-37
11.7 Legal Opinion................................................... A-38
12. Termination........................................................... A-38
13. Survival of Representations, Warranties and Covenants................. A-39
14. Public Announcements.................................................. A-39
15. Contents of Agreement................................................. A-39
16. Amendment, Parties in Interest, Assignment, Etc....................... A-39
17. Interpretation........................................................ A-39
18. Notices............................................................... A-40
19. Governing Law; Venue.................................................. A-40
20. Counterparts.......................................................... A-40
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of January 15, 1997 by and
among DocuCorp, Inc., a Delaware corporation (the "Company"), ISI Merger
Corp., a Texas corporation and a wholly-owned subsidiary of the Company (the
"Texas Sub"), FormMaker Acquisition Corp., a Georgia corporation and a wholly-
owned subsidiary of the Company (the "Georgia Sub"), Image Sciences, Inc., a
Texas corporation ("Image Sciences"), and FormMaker Software, Inc., a Georgia
corporation ("FormMaker"). Certain other terms are used herein as defined
below in Section 1 or elsewhere in this Agreement.
BACKGROUND
This Agreement sets forth the terms and conditions under which (a) the Texas
Sub will merge with and into Image Sciences and (b) the Georgia Sub will merge
with and into FormMaker (collectively, the "Merger").
The Parties intend that, upon completion of the Transactions (defined
below), (a) Image Sciences will be a wholly-owned subsidiary of the Company,
(b) FormMaker will be a wholly-owned subsidiary of the Company and (c) for
federal income tax purposes, the Merger shall constitute a tax-free
transaction under the Internal Revenue Code of 1986, as amended (the "Code"),
with respect to the conversion of shares of capital stock of FormMaker and
Image Sciences into shares of stock of the Company.
Contemporaneously with the execution of this Agreement, Xerox Corporation, a
New York corporation ("Xerox"), Michael D. Andereck, an individual, Joe A.
Rose, an individual, Samuel M. Wilkes, an individual, Arthur R. Spector, an
individual, Safeguard Scientifics (Delaware), Inc., a Delaware corporation
("Safeguard Delaware"), Technology Leaders II L.P., a Delaware limited
partnership ("TL II"), and Technology Leaders II Offshore C.V., a Netherlands
Antilles limited partnership ("TL Offshore," and together with Safeguard
Delaware and TL II, the "SG/TL Stockholders"), shall have entered into Voting
and Lockup Agreements with respect to shares they hold in Image Sciences or
FormMaker, as the case may be, providing for, among other things, the voting
of such shares in favor of the Merger (the "Voting Agreements").
Contemporaneously with the execution of this Agreement, Safeguard
Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), the SG/TL
Stockholders and the Company are entering into an agreement (the "Liquidity
Agreement") in which (i) Safeguard covenants to use commercially reasonable
efforts to conduct a Qualified Rights Offering (defined below) by September
30, 1997, (ii) the SG/TL Stockholders agree to purchase a certain number of
shares of Company Class A Common Stock (defined below) and to guarantee the
New Bank Loan of the Company or to continue to guarantee an existing line of
credit of FormMaker and (iii) the Company grants to the SG/TL Stockholders
certain warrants to purchase securities of the Company. A "Qualified Rights
Offering" means a bona fide, stand-by commitment for an underwritten public
offering by JP Morgan & Co. or Hambrecht & Quist LLC, or a nationally
recognized investment bank of similar stature, or Tucker Anthony Incorporated
if such first named investment banks are not available, of Company Rights
(defined below) in which the managing underwriter values the equity of the
Company immediately prior to the offering, at $62.1 million or more (subject
to increase based upon equity issuances by the Company other than as
contemplated hereby or by the Liquidity Agreement).
Contemporaneously with the execution of this Agreement, the Company has
entered into employment agreements with Michael D. Andereck and Samuel M.
Wilkes (the "Employment Agreements").
A-1
<PAGE>
WITNESSETH
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the Parties hereto agree as
follows:
1. DEFINITIONS.
For convenience, certain terms used in more than one part of this Agreement
are listed in alphabetical order and defined or referred to below (such terms
as well as any other terms defined elsewhere in this Agreement shall be
equally applicable to both the singular and plural forms of the terms
defined).
"Accounts Receivable" mean as of any date any trade accounts receivable,
notes receivable, bid or performance deposits, employee advances and other
miscellaneous receivables included in the Assets of Image Sciences or
FormMaker, as indicated by the context in which used.
"Affiliates" means, with respect to a particular Party, persons or entities
controlling, controlled by or under common control with that Party, as well as
any officers, directors and majority-owned entities of that Party and of its
other Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall
be deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Disclosure Schedules
hereto.
"Acquisition Proposal" is defined in Section 7.4.
"Articles of Merger" is defined in Section 2.2.
"Assets" means with respect to a particular Party all of the assets,
properties, goodwill and rights of every kind and description, real and
personal, tangible and intangible, wherever situated and whether or not
reflected in such Party's most recent Financial Statements, that are owned or
possessed by such Party.
"Balance Sheet Date" is defined in Section 4.5.
"Benefit Plan" means (i) as to employees employed in the US, any (y)
"employee benefit plan" as defined in Section 3(3) of ERISA, and (z)
supplemental retirement, bonus, deferred compensation, severance, incentive
plan, program or arrangement or other employee fringe benefit plan, program or
arrangement; and (ii) as to employees employed outside the US, all employee
benefit, health, welfare, supplemental unemployment benefit, bonus, pension,
profit sharing, deferred compensation, stock compensation, stock purchase,
retirement, hospitalization insurance, medical, dental, legal, disability and
similar plans or arrangements or practices, but any such plan, program or
arrangement specified in clauses (i) or (ii) shall be included in this
definition only to the extent that it shall have existed, or any employee
shall have had any rights thereunder, within the three years immediately prior
to the date hereof.
"Business" means with respect to a particular Party its entire business,
operations and facilities.
"Certificates" is defined in Section 2.12.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement,
certificate of limited partnership, joint venture agreement or similar
document governing the entity.
"Closing" is defined in Section 3.1.
"Closing Common Shares" means the shares of Company Class A Common Stock to
be issued pursuant to Section 2 to the FormMaker Shareholders and the shares
of Company Class B Common Stock to be issued pursuant to Section 2 to the
Image Sciences Shareholders.
A-2
<PAGE>
"Closing Date" is defined in Section 3.1.
"Code" is defined above in the Background.
"Common Controlled Entity" is defined in Section 4.20(d).
"Common Stock Dividend" means the cash dividend to holders of Image Sciences
Common Stock as part of the Image Sciences Closing Transactions.
"Company" is defined above in the preamble.
"Company Certificate of Incorporation" means the certificate of
incorporation of DocuCorp, Inc.
"Company Class A Common Stock" means the Class A Common Stock, par value
$0.01 per share, of the Company.
"Company Class B Common Stock" means the Class B Common Stock, par value
$0.01 per share, of the Company.
"Company Options" means options to purchase Company Class A Common Stock or
Company Class B Common Stock, as the case may be.
"Company Rights" means rights to purchase not more than 3,000,000 but not
less than 2,000,000 shares of Company Class A Common Stock pursuant to a
Qualified Rights Offering.
"Company Securities" means the Company Class A Common Stock, the Company
Class B Common Stock, the Company Warrants and the Company Options.
"Company Warrants" means warrants to purchase Company Class A Common Stock.
"Confidential Information" means any confidential information or trade
secrets of Image Sciences or FormMaker, as indicated by the context in which
used, including personnel information, know-how and other technical
information, customer lists, customer information and supplier information.
"Confidentiality Agreement" is defined in Section 4.18(e).
"Contract" means any written or oral contract, agreement, lease, instrument,
or other commitment that is binding on any person or its property under
applicable law.
"Converted Shares" is defined in Section 2.6(a).
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Corporate Party" is defined in Section 6.1(a).
"Court Order" means any judgment, decree, injunction, order or ruling of any
federal, state, local or foreign court or governmental or regulatory body or
authority that is binding on any person or its property under applicable law.
"Default" means (a) a breach, default or violation, (b) the occurrence of an
event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to
any Contract, the occurrence of an event that with or without the passage of
time or the giving of notice, or both, would give rise to a right of
termination, renegotiation or acceleration or a payment obligation for
material damages, penalties or otherwise.
A-3
<PAGE>
"Disclosure Schedules" means the Image Sciences Disclosure Schedule and the
FormMaker Disclosure Schedule, as indicated by the context in which used.
"Dissenting Shares" is defined in Section 2.11.
"Distributor Licenses" is defined in Section 4.18.
"Effective Time" is defined in Section 2.2.
"Employment Agreements" is defined above in the Background.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest,
except for Permitted Encumbrances.
"End-User Licenses" is defined in Section 4.18.
"Environmental Law" means all Laws and Court Orders relating to Hazardous
Substances, pollution or protection of the environment as well as any
principles of common law under which a Party may be held liable for the
release or discharge of any materials into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FormMaker" is defined above in the preamble.
"FormMaker Balance Sheet" is defined in Section 5.5.
"FormMaker Common Stock" means the common stock, par value $0.01 per share,
of FormMaker.
"FormMaker Companies" means FormMaker and MicroDynamics.
"FormMaker Companies Assets" means the Assets of FormMaker and
MicroDynamics.
"FormMaker Companies Business" means the Business of FormMaker and
MicroDynamics.
"FormMaker Companies Environmental Condition" is defined in Section 5.16(b).
"FormMaker Companies Non-Real Estate Leases" is defined in Section 5.10.
"FormMaker Companies Real Estate Leases" is defined in Section 5.8.
"FormMaker Companies Real Property" is defined in Section 5.8.
"FormMaker Companies Software Products" is defined in Section 5.19.
"FormMaker Disclosure Schedule" means the Disclosure Schedule containing
information relating to FormMaker pursuant to Section 5 and other provisions
hereof that has been provided to the other Parties on the date hereof.
"FormMaker Financial Statements" is defined in Section 5.5.
"FormMaker's knowledge" or "knowledge of FormMaker" means the actual
knowledge of any director or officer of FormMaker.
A-4
<PAGE>
"FormMaker Optionholder" means a holder of FormMaker Options.
"FormMaker Options" means any options to acquire shares of FormMaker Common
Stock that are outstanding, whether or not then exercisable, immediately prior
to the Closing.
"FormMaker Representative" is defined in Section 8.3.
"FormMaker Required Consents" is defined in Section 5.3.
"FormMaker Securities" means the FormMaker Common Stock, the FormMaker
Options and the FormMaker Warrants.
"FormMaker Shareholder" means a holder of FormMaker Common Stock.
"FormMaker Special Meeting" is defined in Section 2.9(b).
"FormMaker Warrants" means any warrants to purchase FormMaker Common Stock
that are outstanding and exercisable immediately prior to the Closing.
"Form S-4 Registration Statement" is defined in Section 6.1(a).
"GAAP" means U.S. generally accepted accounting principles.
"GBCC" means the Georgia Business Corporation Code, as amended.
"Georgia Sub" is defined above in the preamble.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Hazardous Substances" means any gaseous, liquid or solid material or waste
that may or could pose a hazard to the environment or human health or safety
including (i) any "hazardous substances" as defined by the federal
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. (S)(S) 9601 et seq., (ii) any "extremely hazardous substance,"
"hazardous chemical," or "toxic chemical" as those terms are defined by the
federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S)
11001 et seq., (iii) any "hazardous waste," as defined under the federal Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act,
42 U.S.C. (S)(S) 6901 et seq., (iv) any "pollutant," as defined under the
federal Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq., as any of
such laws in clauses (i) through (iv) may be amended from time to time, and
(v) any regulated substance or waste under any Laws or Court Orders that
currently exist or that may be enacted, promulgated or issued in the future by
any federal, state or local governmental authorities concerning protection of
the environment.
"Holders" is defined in Section 2.12(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
"Image Sciences" is defined above in the preamble.
"Image Sciences Assets" means the Assets of Image Sciences.
"Image Sciences Balance Sheet" is defined in Section 4.5.
"Image Sciences Business" means the Business of Image Sciences.
"Image Sciences Closing Transactions" means the Tender Offer, the Preferred
Stock Dividend and the Common Stock Dividend.
A-5
<PAGE>
"Image Sciences Common Stock" means the common stock, par value $0.01 per
share, of Image Sciences.
"Image Sciences Disclosure Schedule" means the Disclosure Schedule
containing information relating to Image Sciences pursuant to Section 4 and
other provisions hereof that has been provided to the other Parties on the
date hereof.
"Image Sciences Environmental Condition" is defined in Section 4.15(b).
"Image Sciences Financial Statements" is defined in Section 4.5.
"Image Sciences' knowledge" or "knowledge of Image Sciences" means the
actual knowledge of any director or officer of Image Sciences.
"Image Sciences Non-Real Estate Leases" is defined in Section 4.9.
"Image Sciences Optionholder" means a holder of Image Sciences Options.
"Image Sciences Options" means any options to acquire shares of Image
Sciences Common Stock that are outstanding, whether or not then exercisable,
immediately prior to the Closing.
"Image Sciences Preferred Stock" means the convertible preferred stock, par
value $0.10 per share, of Image Sciences.
"Image Sciences Real Estate Leases" is defined in Section 4.7.
"Image Sciences Real Property" is defined in Section 4.7.
"Image Sciences Representative" is defined in Section 7.3.
"Image Sciences Required Consents" is defined in Section 4.3.
"Image Sciences Securities" means the Image Sciences Common Stock, the Image
Sciences Preferred Stock and the Image Sciences Options.
"Image Sciences Shareholder" means a holder of Image Sciences Common Stock
or Image Sciences Preferred Stock.
"Image Sciences Software Products" is defined in Section 4.18.
"Image Sciences Special Meeting" is defined in Section 2.9(a).
"Immaterial Lease" is defined in Section 4.9.
"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, any Software Products (including any related
source or object codes therefore or documentation relating thereto), trade
secrets, franchises, know-how, inventions and other intellectual property.
"Inventory" means all inventory, including raw materials, supplies, work in
process and finished goods.
"Law" means any statute, law, ordinance, regulation, order or rule of any
federal, state, local, foreign or other governmental agency or body or of any
other type of regulatory body, including those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Letter of Transmittal" is defined in Section 2.12(a).
A-6
<PAGE>
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement
of or by any person, absolute or contingent, accrued or unaccrued, due or to
become due, liquidated or unliquidated.
"Liquidity Agreement" is defined above in the Background.
"Litigation" means any lawsuit, action, arbitration, administrative or other
proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business of
Image Sciences, FormMaker or the Company, as indicated by the context in which
used, including the Assets, financial condition, results of operations,
liquidity, products, competitive position, customers and customer relations
thereof, and when used with respect to representations, warranties or
conditions, means the individual effect of the situation to which it relates
and also the aggregate effect of all similar situations unless the context
indicates otherwise.
"Merger" is defined above in Background.
"Merger Consideration" is defined in Section 2.6(a).
"MicroDynamics" means MicroDynamics, Ltd., a Delaware corporation and
majority-owned subsidiary of FormMaker.
"MicroDynamics Financial Statements" is defined in Section 5.5.
"Minor Contract" means any Contract that has terminated or is terminable by
a party on not more than 30 days' notice without any Liability and any
Contract under which the executory obligation of a party involves an amount of
less than $10,000.
"Nasdaq National Market" means the Nasdaq National Market of The Nasdaq
Stock Market, Inc.
"New Bank Loan" is defined in Section 7.10.
"New Companies" means the Company, the Texas Sub and the Georgia Sub.
"New Option Plan" is defined in Section 7.7.
"Ordinary course" or "ordinary course of business" means the ordinary course
of business that is consistent with past practices.
"Party" means each of FormMaker, Image Sciences, the Company, the Texas Sub
and the Georgia Sub.
"Patents" means all patents and patent applications.
"PBGC" is defined in Section 4.20(e).
"Permitted Encumbrance" means, with respect to tangible or intangible
property other than capital stock or other securities of FormMaker or Image
Sciences, (i) any Encumbrance for Taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, (ii) any statutory Encumbrance
arising in the ordinary course of business by operation of Law with respect to
a Liability that is not yet due or delinquent and (iii) any minor imperfection
of title or similar Encumbrance that individually or in the aggregate with
other such Encumbrances could not reasonably be expected to materially
adversely affect the Business of the applicable Party.
"Person" means any natural person, corporation, partnership, proprietorship,
association, trust or other legal entity.
A-7
<PAGE>
"Plan of Merger" is defined in Section 2.1.
"Preferred Stock Dividend" means the cash dividend by Image Sciences to the
holder of Image Sciences Preferred Stock as part of the Image Sciences Closing
Transactions.
"Prime Rate" means the prime lending rate as announced from time to time in
The Wall Street Journal.
"Qualified Rights Offering" is defined above in the Background.
"Registered Securities" is defined in Section 6.1.
"Registration Statement" is defined in Section 6.1(a).
"Safeguard" is defined above in the Background.
"Safeguard Delaware" is defined above in the Background.
"SEC" means the Securities and Exchange Commission.
"Second Stage Due Diligence Materials" is defined in Section 6.3.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Act Affiliates" is defined in Section 7.6.
"Securityholder Documents" is defined in Section 2.12(a).
"SG/TL Stockholders" is defined above in the Background.
"Software Products" means the Image Sciences Software Products or the
FormMaker Software Products, as indicated by the context in which used.
"Stockholders' Agreement" means the Stockholders' Agreement among the
Company, the SG/TL Stockholders and Xerox, in the form agreed to by such
parties as of the date hereof.
"Surviving Georgia Corporation" is defined in Section 2.1.
"Surviving Texas Corporation" is defined in Section 2.1.
"Taxes" means all taxes, duties, charges, fees, levies or other assessments
imposed by any taxing authority including, without limitation, income, gross
receipts, value-added, excise, withholding, personal property, real estate,
sale, use, ad valorem, license, lease, service, severance, stamp, transfer,
payroll, employment, customs, duties, alternative, add-on minimum, estimated
and franchise taxes (including any interest, penalties or additions
attributable to or imposed on or with respect to any such assessment).
"TBCA" means the Texas Business Corporation Act, as amended.
"Tender Offer" means the offer to purchase by Image Sciences to holders of
Image Sciences Common Stock and Image Sciences Options as part of the Image
Sciences Closing Transactions.
"Termination Date" is defined in Section 12.1.
"Texas Sub" is defined above in the preamble.
"TL II" is defined above in the Background.
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"TL II Offshore" is defined above in the Background.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and
service marks.
"Transaction Documents" means this Agreement, the Employment Agreements, the
Voting Agreements, the Liquidity Agreement and the Stockholders' Agreement.
"Transactions" means the Merger, the exchange of the Image Sciences Options
for Company Options, the exchange of FormMaker Warrants and FormMaker Options
for Company Warrants and Company Options, respectively, and the other
transactions contemplated by the Transaction Documents.
"US" means the United States of America.
"Voting Agreements" is defined above in the Background.
"Welfare Plan" is defined in Section 4.20(g).
2. PLAN OF MERGER.
2.1 Surviving Corporation. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the TBCA and the
GBCC, the Texas Sub shall be merged with and into Image Sciences and the
Georgia Sub shall be merged with and into FormMaker in accordance with the
Plan of Merger set forth in this Section 2 (the "Plan of Merger") as soon as
practicable, but in any event within three business days following the
satisfaction or waiver of the conditions set forth in Sections 9, 10 and 11.
Following the Merger, Image Sciences shall continue as the surviving Texas
corporation (the "Surviving Texas Corporation") and shall continue its
existence under the laws of the State of Texas, and the separate corporate
existence of the Texas Sub shall cease, and FormMaker shall continue as the
surviving Georgia Corporation (the "Surviving Georgia Corporation") and shall
continue its existence under the laws of the State of Georgia, and the
separate corporate existence of the Georgia Sub shall cease.
2.2 Effective Time. The Merger shall be consummated by filing with the
Secretary of State of the State of Georgia and with the Secretary of State of
the State of Texas articles of merger (the "Articles of Merger") that set
forth the Plan of Merger and are otherwise in such form as may be required
under, and are executed in accordance with, the relevant provisions of the
TBCA and the GBCC. The Merger shall be effective at the time of such filing in
the State of Georgia and as of the issuance of a certificate of merger by the
Secretary of State of the State of Texas (but in no event prior to the Image
Sciences Closing Transactions), the later of which times is referred to herein
as the "Effective Time."
2.3 Effects of the Merger. The Merger shall have the effects set forth in
Section 5.06 of the TBCA and Section 14-2-1106 of the GBCC.
2.4 Name of the Surviving Texas Corporation and the Surviving Georgia
Corporation; Articles of Incorporation and Bylaws. At the Effective Time, the
name of the Surviving Texas Corporation shall remain Image Sciences, Inc. and
the name of the Surviving Georgia Corporation shall remain FormMaker Software,
Inc. The Articles of Incorporation of Image Sciences and FormMaker shall be
the Articles of Incorporation of the Surviving Texas Corporation and the
Surviving Georgia Corporation, respectively. The Bylaws of Image Sciences and
FormMaker shall be the Bylaws of the Surviving Texas Corporation and the
Surviving Georgia Corporation, respectively.
2.5 Directors and Officers. Schedule 2.5 sets forth the names of the Persons
who shall be the directors and officers of the Surviving Texas Corporation and
the Surviving Georgia Corporation at the Effective Time.
2.6 Conversion of Image Sciences Securities.
(a) Each share of Image Sciences Common Stock issued and outstanding
immediately prior to the Effective Time (but after giving effect to the Tender
Offer) shall, by virtue of the Merger and without any action on the
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part of the Holder thereof, be converted into the right to receive that number
of shares of Company Class B Common Stock (rounded to the nearest whole share)
determined in accordance with Section 2.6(d). Any shares of Image Sciences
Common Stock held in the treasury of Image Sciences shall be cancelled. The
securities to be issued pursuant to this Section 2.6 and Section 2.7 are
referred to as the "Merger Consideration," and shares of Image Sciences Common
Stock, Image Sciences Preferred Stock and FormMaker Common Stock that are
issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares, as defined in Section 2.11) are referred to herein
collectively as the "Converted Shares."
(b) Each share of Image Sciences Preferred Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the Holder thereof, be converted into the
right to receive 1.029 shares of Company Class B Common Stock (rounded to the
nearest whole share). Any shares of Image Sciences Preferred Stock held in the
treasury of Image Sciences shall be cancelled.
(c) Each vested Image Sciences Option that is outstanding immediately prior
to the Effective Time (but after giving effect to the Tender Offer and the
acceleration of a portion of the vesting schedule for certain Image Sciences
Options) shall, by virtue of the Merger and with the consent of the Holder
thereof, be converted into a Company Option under which the Holder will have
the right to purchase that number of shares of Company Class B Common Stock
(rounded to the nearest whole share) determined in accordance with Section
2.6(d) for each share of Image Sciences Common Stock issuable under the Image
Sciences Option being converted at an exercise price that is proportionally
equivalent to the exercise price under the related Image Sciences Option. Each
unvested Image Sciences Option that is outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and with the consent of the
Holder thereof, be converted into a Company Option under which the Holder will
have the right to purchase that number of shares of Company Class A Common
Stock (rounded to the nearest whole share) determined in accordance with
Section 2.6(d) at an exercise price that is proportionally equivalent to the
exercise price under the related Image Sciences Option.
(d) The number of shares of Company Class B Common Stock or Company Class A
Common Stock, as the case may be, to be issued under this Section 2.6 for each
share of Image Sciences Common Stock, and the number of shares of Company
Class B Common Stock or Company Class A Common Stock, as the case may be, to
be issued under this Section 2.6 for each share of Image Sciences Common Stock
issuable upon exercise of an Image Sciences Option, shall be equal to the
quotient obtained by dividing (i) 4,350,943 by (ii) the total number of shares
of Image Sciences Common Stock issued and outstanding immediately prior to the
Effective Time (but after giving effect to the Tender Offer) plus the total
number of shares of Image Sciences Common Stock issuable upon exercise of all
the Image Sciences Options (but after giving effect to the Tender Offer)
issued and outstanding immediately prior to the Effective Time.
(e) The Surviving Texas Corporation shall deliver the Merger Consideration
specified in this Section 2.6 upon the surrender of the certificates and other
documentation specified in Section 2.12.
(f) The Company shall take all steps necessary to provide the Surviving
Texas Corporation with the Company Securities, as of the Effective Time, in an
amount sufficient to issue all of the securities contemplated by this Section
2.6 at the Effective Time in accordance with Section 2.12.
2.7 Conversion of FormMaker Securities.
(a) Each share of FormMaker Common Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and without any
action on the part of the Holder thereof, be converted into the right to
receive that number of shares of Company Class A Common Stock (rounded to the
nearest whole share) determined in accordance with Section 2.7(d). Any shares
of FormMaker Common Stock held in the treasury of FormMaker shall be
cancelled.
(b) Each FormMaker Warrant that is outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and pursuant to the terms
thereof, be converted into a Company Warrant under which the holder
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will have the right to purchase that number of shares of Company Class A
Common Stock (rounded to the nearest whole share) determined in accordance
with Section 2.7(d) for each share of FormMaker Common Stock issuable under
the FormMaker Warrant being converted at an exercise price that is
proportionally equivalent to the exercise price under the related FormMaker
Warrant.
(c) Each FormMaker Option that is outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and pursuant to the terms
thereof, be converted into a Company Option under which the holder will have
the right to purchase that number of shares of Company Class A Common Stock
(rounded to the nearest whole share) determined in accordance with Section
2.7(d) for each share of FormMaker Common Stock issuable under the FormMaker
Option being converted at an exercise price that is proportionally equivalent
to the exercise price under the related FormMaker Option.
(d) The number of shares of Company Class A Common Stock to be issued under
this Section 2.7 for each share of FormMaker Common Stock, and the number of
shares of Company Class A Common Stock to be issued under this Section 2.7 for
each share of FormMaker Common Stock issuable upon exercise of a FormMaker
Option or a FormMaker Warrant, shall be equal to the quotient obtained by
dividing (i) 5,598,684 shares of Company Class A Common Stock by (ii) the
total number of shares of FormMaker Common Stock issued and outstanding
immediately prior to the Effective Time plus the total number of shares of
FormMaker Common Stock issuable upon (A) the exercise of all the FormMaker
Options issued and outstanding immediately prior to the Effective Time and (B)
the exercise of all the FormMaker Warrants issued and outstanding immediately
prior to the Effective Time.
(e) The Surviving Georgia Corporation shall deliver the Merger Consideration
specified in this Section 2.7 upon the surrender of the certificates and other
documentation specified in Section 2.12.
(f) The Company shall take all steps necessary to provide the Surviving
Georgia Corporation with the Company Securities as of the Effective Time, in
an amount sufficient to issue all of the securities contemplated by this
Section 2.7 at the Effective Time in accordance with Section 2.12.
2.8 Capital Stock of Texas Sub and Georgia Sub. Each share of capital stock
of the Texas Sub and Georgia Sub issued and outstanding immediately prior to
the Effective Time shall be converted into a share of Image Sciences Common
Stock and FormMaker Common Stock, respectively.
2.9 Approval by Shareholders.
(a) Consistent with applicable law, Image Sciences shall cause a meeting of
its shareholders to be duly called and held as soon as reasonably practicable
for the purpose of considering and taking action upon the Merger (the "Image
Sciences Special Meeting"). If the Board of Directors of Image Sciences so
desires, it may present the Merger to its shareholders for consideration by
soliciting their written consent in accordance with applicable requirements of
the TBCA. If such a consent is solicited, the references herein to the "Image
Sciences Special Meeting" shall be deemed to be the process of soliciting such
consent unless the context indicates otherwise. The Board of Directors of
Image Sciences will recommend that its shareholders approve the Merger.
(b) Consistent with applicable law, FormMaker shall cause a meeting of its
shareholders to be duly called and held as soon as reasonably practicable for
the purpose of considering and taking action upon the Merger (the "FormMaker
Special Meeting"). If the Board of Directors of FormMaker so desires, it may
present the Merger to its shareholders for consideration by soliciting their
written consent in accordance with applicable requirements of the GBCC. If
such a consent is solicited, the references herein to the "FormMaker Special
Meeting" shall be deemed to be the process of soliciting such consent unless
the context indicates otherwise. The Board of Directors of FormMaker will
recommend that its shareholders approve the Merger.
(c) The shareholder vote required for the adoption of this Agreement and the
Merger by Image Sciences and the Texas Sub shall be the vote required by the
TBCA, and the vote required for the adoption of this Agreement and the Merger
by FormMaker and the Georgia Sub shall be the vote required by the GBCC.
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2.10 Merger Closing. At the Closing, (a) the Texas Sub, the Georgia Sub,
Image Sciences and FormMaker shall deliver to the Secretary of State of each
of the State of Texas and the State of Georgia a duly executed and verified
copy of the Articles of Merger, as required by the TBCA and the GBCC, and (b)
the Parties shall take all such other and further actions as may be required
by the TBCA and the GBCC and any other applicable Law to make the Merger
effective upon the terms and subject to the conditions hereof. In addition, at
the Closing, the Surviving Texas Corporation or the Surviving Georgia
Corporation shall deliver the Merger Consideration to those Holders who shall
have delivered the appropriate documents under Section 2.12.
2.11 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Image Sciences Common Stock, Image Sciences Preferred
Stock or FormMaker Common Stock as the case may be, that are issued and
outstanding immediately prior to the Effective Time and that are held by a
shareholder who did not vote in favor of the Merger and who complies with all
of the relevant provisions of Section 5.12 of the TBCA or Sections 14-2-1321
and 14-2-1323 of the GBCC, respectively (the "Dissenting Shares"), shall not
be converted into the right to receive the Merger Consideration, unless and
until such Holder shall have failed to perfect or shall have effectively
withdrawn or lost such Holder's rights to appraisal under the TBCA or the
GBCC; and any such Holder shall have only such rights in respect of the
Dissenting Shares owned by such Holder as are provided by Sections 5.11 and
5.12 of the TBCA or Sections 14-2-1321 and 14-2-1323 of the GBCC, as the case
may be. If any such Holder shall have failed to perfect or shall have
effectively withdrawn or lost such rights, such Holder's Dissenting Shares
shall thereupon be deemed to have been converted into and to have become
exchangeable, as of the Effective Time, for the right to receive the Merger
Consideration without any interest thereon, pursuant to the terms of Section
2.6 or Section 2.7, as the case may be.
2.12 Exchange of Converted Shares, Image Sciences Options, FormMaker Options
and FormMaker Warrants.
(a) At and after the Effective Time, the Surviving Texas Corporation or the
Surviving Georgia Corporation shall issue to each record holder (a "Holder"),
as of the Effective Time, of (i) an outstanding certificate or certificates
that immediately prior to the Effective Time represented Converted Shares (the
"Certificates"), (ii) a FormMaker Warrant, (iii) a FormMaker Option or (iv) an
Image Sciences Option, upon the Holder's delivery of the Securityholder
Documents, the respective Merger Consideration specified for such Holder under
Section 2.6 or Section 2.7. The documents to be delivered by Holders of
Converted Shares, Image Sciences Options, FormMaker Options or FormMaker
Warrants by and after the Effective Time (the "Securityholder Documents")
shall be (x) in the case of Converted Shares, the Certificates representing
the Converted Shares and a duly executed Letter of Transmittal in the form
provided by the Company (the "Letter of Transmittal"), (y) in the case of the
FormMaker Options and Image Sciences Options, the document constituting the
FormMaker Option and the Image Sciences Option and the Letter of Transmittal,
and (z) in the case of the FormMaker Warrants, the document constituting
FormMaker Warrants and the Letter of Transmittal. Image Sciences and FormMaker
shall respectively send the Letter of Transmittal to the owners of the Image
Sciences Securities or the FormMaker Securities along with the notice of the
Image Sciences or FormMaker Special Meeting and shall request the return of an
executed Letter of Transmittal from each such securityholder at the time of
the Image Sciences Special Meeting or FormMaker Special Meeting. All
surrendered Certificates, Image Sciences Options, FormMaker Options, and
FormMaker Warrants shall be cancelled upon their delivery. Except as provided
in Section 2.12(c), the Surviving Texas Corporation and the Surviving Georgia
Corporation shall pay any applicable transfer or similar taxes required by
reason of the exchange of Converted Shares, Image Sciences Options, FormMaker
Options and FormMaker Warrants.
(b) With respect to each Certificate not so surrendered at the Closing, the
Surviving Texas Corporation with respect to Holders of Image Sciences
Securities, or the Surviving Georgia Corporation with respect to Holders of
FormMaker Securities, shall promptly thereafter mail to the Holder thereof a
Letter of Transmittal (which shall specify that delivery shall be effected,
and risk of loss of title to such Certificate shall pass, only upon proper
delivery of the Certificate and such Letter of Transmittal to the Surviving
Texas Corporation or the Surviving Georgia Corporation, as the case may be)
and instructions for delivering such Certificate in exchange for delivery of
the Merger Consideration. Upon delivery to the Surviving Texas Corporation or
the Surviving Georgia
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Corporation of such Certificate, together with such Letter of Transmittal, the
Company, the Surviving Texas Corporation or the Surviving Georgia Corporation
shall deliver to the Holder of the Certificate in exchange therefor the Merger
Consideration to which such Holder is entitled hereunder, and such Certificate
shall then be cancelled. The Company, the Surviving Texas Corporation and the
Surviving Georgia Corporation shall follow a similar procedure with respect to
any Image Sciences Option, FormMaker Option or FormMaker Warrants to the
extent that the respective Securityholder Documents shall not have been
delivered at the Effective Time.
(c) No interest will be paid or accrued on the Merger Consideration to be
delivered upon the surrender of the Securityholder Documents. If delivery is
to be made to a Person other than the Person in whose name a Certificate,
FormMaker Warrant, Image Sciences Option or FormMaker Option surrendered is
registered, it shall be a condition of payment that the Certificate, Image
Sciences Option, FormMaker Option or FormMaker Warrant so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the Person
requesting such payment shall pay any transfer or similar taxes required by
reason of the payment to a Person other than the Holder of the Certificate,
Image Sciences Option, FormMaker Option or FormMaker Warrant surrendered or
shall establish to the satisfaction of the Surviving Texas Corporation or the
Surviving Georgia Corporation, as the case may be, that such tax has been paid
or is not applicable. Until surrendered in accordance with the provisions of
this Section 2.12, each Certificate (other than Certificates evidencing
Dissenting Shares), Image Sciences Option, FormMaker Option and FormMaker
Warrant shall represent for all purposes solely the right to receive the
respective Merger Consideration specified in Section 2.6 or Section 2.7 with
respect to such Converted Shares, Image Sciences Options, FormMaker Options or
FormMaker Warrants.
(d) The Company, the Surviving Texas Corporation or the Surviving Georgia
Corporation, as the case may be, shall not be liable to any Holder of
Converted Shares, Image Sciences Options, FormMaker Options or FormMaker
Warrants for any Merger Consideration delivered by the Company, the Surviving
Texas Corporation or the Surviving Georgia Corporation in good faith to a
public official pursuant to an applicable abandoned property, escheat or
similar law.
2.13 No Further Transfer of Shares. After the Effective Time, there shall be
no transfers of Converted Shares that were outstanding immediately prior to
the Effective Time on the stock transfer books of the Surviving Texas
Corporation or the Surviving Georgia Corporation. If, after the Effective
Time, Certificates are presented to the Surviving Texas Corporation or the
Surviving Georgia Corporation for transfer, they shall be cancelled and
exchanged for the respective Merger Consideration specified in Section 2.6 or
Section 2.7. At the Effective Time, the stock ledgers of Image Sciences and
FormMaker shall be closed.
3. CLOSING.
3.1 Location, Date. The closing for the Transactions (the "Closing") shall
be held at Morgan, Lewis & Bockius LLP in Philadelphia as promptly as
practicable (and in any event within three business days) after satisfaction
or waiver of the conditions to the consummation of the Transactions set forth
in Sections 9, 10 and 11 hereof, unless the Parties hereto agree in writing to
another date or place. The date on which the Closing occurs is referred to
herein as the "Closing Date."
3.2 Deliveries. At the Closing,
(a) the Surviving Texas Corporation and the Surviving Georgia Corporation
shall deliver or mail the respective Merger Consideration to the Holders who
have complied with Section 2.12, with such Merger Consideration all registered
in the names of the respective Holders or their designees, and in due and
proper form;
(b) the Texas Sub, the Georgia Sub, Image Sciences and FormMaker shall
consummate the Merger as provided in Section 2.10; and
(c) the Parties shall also deliver to each other the respective agreements,
legal opinions and other documents and instruments specified with respect to
them in Sections 9, 10 and 11 and such other items as may be reasonably
requested.
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4. REPRESENTATIONS AND WARRANTIES OF IMAGE SCIENCES.
Image Sciences hereby represents and warrants to FormMaker, except as
otherwise set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE or the updated
IMAGE SCIENCES DISCLOSURE SCHEDULE to be delivered pursuant to Section 6.3, as
follows:
4.1 Corporate Status. Image Sciences is a corporation duly organized,
validly existing and in good standing under the Laws under which it was
organized and is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified except where the failure
to so qualify would not have a Material Adverse Effect. The Charter Documents
and bylaws of Image Sciences that have been delivered to FormMaker as of the
date hereof are effective under applicable Laws and are current, correct and
complete.
4.2 Authorization. Image Sciences has the requisite power and authority to
own its Assets and to carry on its Business. Image Sciences has the requisite
power and authority to execute and deliver the Transaction Documents to which
it is a party and to perform the Transactions performed or to be performed by
it. Such execution, delivery and performance by Image Sciences has been duly
authorized by all necessary corporate action, other than approval by the
shareholders of Image Sciences. Each Transaction Document executed and
delivered by Image Sciences has been duly executed and delivered by, and
constitutes a valid and binding obligation of Image Sciences, enforceable
against Image Sciences in accordance with its terms.
4.3 Consents and Approvals. Except for (a) any consents specified in the
IMAGE SCIENCES DISCLOSURE SCHEDULE (the "Image Sciences Required Consents"),
(b) the approval of the Merger by the shareholders of Image Sciences, (c) the
filing of the Articles of Merger in accordance with Section 2 and (d) any
approvals or filings required by the SEC and by state securities law agencies
in connection with the Registration Statement, neither the execution and
delivery by Image Sciences of the Transaction Documents to which it is a
party, nor the performance of the Transactions performed or to be performed by
Image Sciences, require any filing, consent or approval or constitute a
Default under (i) any Law or Court Order to which Image Sciences is subject,
(ii) the Charter Documents or bylaws of Image Sciences or (iii) any Contract,
Governmental Permit or other document to which Image Sciences is a party or by
which the properties or other assets of Image Sciences may be subject.
4.4 Capitalization and Stock Ownership. The total authorized capital stock
of Image Sciences consists of (a) 20,000,000 shares of Image Sciences Common
Stock, of which (i) 2,335,082 shares are issued and outstanding and (ii)
3,687,433 shares of Image Sciences Common Stock are reserved for issuance upon
conversion of the issued and outstanding shares of Image Sciences Preferred
Stock and upon exercise of the issued and outstanding Image Sciences Options,
and (b) 3,000,000 shares of Image Sciences Preferred Stock, of which 1,963,433
shares are issued and outstanding. Except for the rights under the Image
Sciences Preferred Stock and the Image Sciences Options listed in the IMAGE
SCIENCES DISCLOSURE SCHEDULE, there are no existing options, warrants, calls,
commitments or other rights of any character (including conversion or
preemptive rights) relating to the acquisition of any issued or unissued
capital stock or other securities of Image Sciences. All of the shares of
Image Sciences Common Stock and Image Sciences Preferred Stock are, and all of
the shares of Image Sciences Common Stock issuable upon conversion or exercise
of the Image Sciences Preferred Stock and the Image Sciences Options in
accordance with the terms thereof will be, duly and validly authorized and
issued, fully paid and non-assessable. The IMAGE SCIENCES DISCLOSURE SCHEDULE
lists all of the record owners of the Image Sciences Common Stock, the Image
Sciences Preferred Stock and the Image Sciences Options. Image Sciences has
delivered to FormMaker correct and complete copies of the forms of the Image
Sciences Option agreements.
4.5 Financial Statements. Image Sciences has delivered to FormMaker correct
and complete copies of unaudited monthly financial statements for Image
Sciences consisting of a balance sheet as of the end of each month from August
1996 through November 30, 1996 and the related statements of income, changes
to shareholders' equity and cash flows for the periods then ended. Image
Sciences has also delivered to FormMaker correct and complete copies of
financial statements consisting of a balance sheet of Image Sciences as of
July 31, 1994, 1995 and 1996 and the related statements of income for the
fiscal years then ended, which were audited
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by the firm of Price Waterhouse LLP. All such unaudited and audited financial
statements are referred to herein collectively as the "Image Sciences Pre-
Signing Financial Statements." The unaudited financial statements of Image
Sciences to be delivered in connection with the Registration Statements are
referred to herein as the "Image Sciences Post-Signing Financial Statements,"
and, together with the Image Sciences Pre-Signing Financial Statements, as the
"Image Sciences Financial Statements." The Image Sciences Pre-Signing
Financial Statements are, and the Image Sciences Post-Signing Financial
Statements will be, consistent in all material respects with the books and
records of Image Sciences, and there have not been and will not be any
material transactions that have not been or will not be recorded in the
accounting records underlying such Financial Statements. Except as disclosed
in the IMAGE SCIENCES DISCLOSURE SCHEDULE, the Image Sciences Pre-Signing
Financial Statements have been, and the Image Sciences Post-Signing Financial
Statements will be, prepared in accordance with GAAP consistently applied, and
the Image Sciences Pre-Signing Financial Statements present, and the Image
Sciences Post-Signing Financial Statements will present, fairly the financial
position and assets and liabilities of Image Sciences as of the dates thereof,
and the results of its operations for the periods then ended, subject to
normal recurring year-end adjustments and the absence of notes in the case of
unaudited Financial Statements. The balance sheet of Image Sciences as of
November 30, 1996 that is included in the Financial Statements is referred to
herein as the "Image Sciences Balance Sheet," and the date thereof is referred
to as the "Balance Sheet Date."
4.6 Title to Assets and Related Matters. Image Sciences has good and
marketable title to, valid leasehold interests in or valid licenses to use,
all of the material Image Sciences Assets, free from any Encumbrances except
those specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE. The use of the
Image Sciences Assets is not subject to any Encumbrances (other than those
specified in the preceding sentence), and such use does not materially
encroach on the property or rights of anyone else. All Image Sciences Real
Property and tangible personal property (other than Inventory) included in the
Image Sciences Assets are suitable for the purposes for which they are used,
in good working condition, reasonable wear and tear excepted, and are free
from any known defects, except such minor defects that would not have a
Material Adverse Effect.
4.7 Real Property. The IMAGE SCIENCES DISCLOSURE SCHEDULE describes all real
estate used in the operation of the Image Sciences Business as well as any
other real estate that is in the possession of or leased by Image Sciences and
the improvements (including buildings and other structures) located on such
real estate (collectively, the "Image Sciences Real Property"), and lists any
leases under which any such Image Sciences Real Property is possessed (the
"Image Sciences Real Estate Leases"). Image Sciences does not have any
ownership interest in any real property. The IMAGE SCIENCES DISCLOSURE
SCHEDULE also describes any other real estate previously owned, leased or
otherwise operated by Image Sciences or any predecessor thereof and the time
periods of any such ownership, lease or operation. All of the Image Sciences
Real Property (a) is usable in the ordinary course of business and (b)
conforms in all material respects with any applicable Laws relating to its
construction, use and operation. The Image Sciences Real Property complies
with applicable zoning Laws. To the knowledge of Image Sciences, Image
Sciences or the landlord of any Image Sciences Real Property leased by Image
Sciences has obtained all licenses and rights-of-way from governmental
entities or private parties that are necessary to ensure vehicular and
pedestrian ingress and egress to and from the Image Sciences Real Property.
4.8 Certain Personal Property. The IMAGE SCIENCES DISCLOSURE SCHEDULE
describes all items of tangible personal property that were included in the
Image Sciences Balance Sheet at a carrying value of at least $50,000. Except
as specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, since the Balance
Sheet Date, Image Sciences has not acquired any items of tangible personal
property that have a carrying value in excess of $50,000, or an aggregate
carrying value of $300,000. All of such personal property included in the
Image Sciences Disclosure Schedule is, and any such personal property acquired
after the date hereof in accordance with Section 8.2 will be, usable in the
ordinary course of business, and all such personal property included in the
IMAGE SCIENCES DISCLOSURE SCHEDULE conforms, and all of such personal property
acquired after the date hereof will conform, in all material respects with any
applicable Laws relating to its construction, use and operation. Except for
those items subject to the Image Sciences Non-Real Estate Leases or the
Immaterial Leases or those items listed in the
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IMAGE SCIENCES DISCLOSURE SCHEDULE, no Person other than Image Sciences owns
any vehicles, equipment or other tangible assets located on the Image Sciences
Real Property that have been used in the Image Sciences Business or that are
necessary for the operation of the Image Sciences Business.
4.9 Non-Real Estate Leases. The IMAGE SCIENCES DISCLOSURE SCHEDULE lists all
assets and property (other than Image Sciences Real Property) that are
possessed by Image Sciences under an existing lease, including all trucks,
automobiles, forklifts, machinery, equipment, furniture and computers, except
for any lease under which the aggregate annual payments are less than $25,000
(each, an "Immaterial Lease"). The IMAGE SCIENCES DISCLOSURE SCHEDULE also
lists the leases under which such assets and property listed in the IMAGE
SCIENCES DISCLOSURE SCHEDULE are possessed. All of such leases (excluding
Immaterial Leases) are referred to herein as the "Image Sciences Non-Real
Estate Leases."
4.10 Accounts Receivable. The Accounts Receivable included in the Image
Sciences Assets are bona fide Accounts Receivable created in the ordinary
course of business. Except for Accounts Receivable for which reserves have
been established, all of the Accounts Receivable included in the Image
Sciences Assets are collectible in the ordinary course of business. Image
Sciences does not know of any facts or circumstances (other than general
economic conditions) that are likely to result in any material increase in the
uncollectability of such Accounts Receivable in excess of any reserves
therefor set forth in the Image Sciences Balance Sheet.
4.11 Inventory. The Inventory included in the Image Sciences Assets consists
of items of good, usable and merchantable quality in all material respects and
does not include obsolete or discontinued items. Such Inventory is recorded in
the Image Sciences Financial Statements at the lower of average cost or market
value determined in accordance with GAAP.
4.12 Liabilities. Image Sciences does not have any Liabilities, except (a)
as specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, (b) as contemplated by
the Image Sciences Balance Sheet (except as heretofore paid or discharged),
(c) Liabilities incurred in the ordinary course since the Balance Sheet Date,
or (d) Liabilities under any Contracts included in the Image Sciences Assets
that are specifically disclosed in the IMAGE SCIENCES DISCLOSURE SCHEDULE (or
not required to be disclosed because of the term or amount involved) that were
not required under GAAP to have been specifically disclosed or reserved for on
the Image Sciences Balance Sheet.
4.13 Taxes. Except as set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE,
Image Sciences has duly filed all returns for Taxes that are required to be
filed and has paid all material Taxes shown as being due pursuant to such
returns or pursuant to any assessment received. All Taxes that Image Sciences
has been required by Law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental authorities or
are properly held by Image Sciences for such payment. There are no proceedings
or other actions, nor is there any basis for any proceedings or other actions,
for the assessment and collection of additional Taxes of any kind with respect
to Image Sciences for any period for which returns have or should have been
filed.
4.14 Subsidiaries. Image Sciences does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation,
partnership, limited liability company, trust, joint venture or other legal
entity.
4.15 Legal Proceedings and Compliance with Law.
(a) Except as set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE, there is
no Litigation that is pending or, to Image Sciences's knowledge, threatened
against Image Sciences. There has been no Default under any Laws applicable to
Image Sciences, including Laws relating to pollution or protection of the
environment, except for any Defaults that would not have a Material Adverse
Effect, and Image Sciences has not received any notices from any governmental
entity regarding any alleged Defaults under any Laws. There has been no
Default with respect to any Court Order applicable to Image Sciences.
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(b) Without limiting the generality of Section 4.15(a), there has not been
any Image Sciences Environmental Condition (i) at the premises at which the
Image Sciences Business has been conducted, (ii) at any property owned, leased
or operated at any time by Image Sciences, any Person controlled by Image
Sciences or any predecessor of any of them, or (iii) at any property at which
wastes have been released, deposited or disposed by or at the behest or
direction of any of the foregoing, nor has Image Sciences received written
notice of any such Image Sciences Environmental Condition. "Image Sciences
Environmental Condition" means any condition or circumstance, including the
presence or release of Hazardous Substances, whether created by Image Sciences
or any third party, at or relating to any such property or premises that (i)
requires investigation, monitoring, abatement or correction under an
Environmental Law, (ii) gives rise to any civil or criminal liability on the
part of Image Sciences under an Environmental Law, or (iii) has created a
public or private nuisance.
(c) Image Sciences has delivered to FormMaker complete copies of any written
reports, studies or assessments in the possession or control of Image Sciences
that relate to any Image Sciences Environmental Condition and to the Image
Sciences Business or any Image Sciences Assets.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) Image Sciences has obtained and is in full compliance with
all Governmental Permits, all of which are listed in the IMAGE SCIENCES
DISCLOSURE SCHEDULE along with their respective expiration dates, that are
required for the complete operation of the Image Sciences Business as
currently operated, (ii) all of such Governmental Permits are currently valid
and in full force and (iii) Image Sciences has filed such timely and complete
renewal applications as may be required with respect to its Governmental
Permits. To Image Sciences' knowledge, no revocation, cancellation or
withdrawal thereof has been threatened.
4.16 Contracts.
(a) The IMAGE SCIENCES DISCLOSURE SCHEDULE lists all Contracts of the
following types to which Image Sciences is a party or by which it is bound,
except for Minor Contracts:
(i) Contracts with any present or former shareholder, director, officer,
employee, partner or consultant of Image Sciences or any Affiliate thereof.
(ii) Contracts for the future purchase of, or payment for, supplies or
products, or for the lease of any Asset from or the performance of services
by a third party, in excess of $150,000 in any individual case, or any
Contracts for the sale of products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to perform services that
involve an amount in excess of $250,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any asset
that involve an amount in excess of $150,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale agreements, equipment
trust agreements, letter of credit agreements, reimbursement agreements,
loan agreements or other Contracts for the borrowing or lending of money
(including loans to or from officers, directors, partners, shareholders or
Affiliates of Image Sciences or any members of their immediate families),
agreements or arrangements for a line of credit or for a guarantee of, or
other undertaking in connection with, the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than Minor Contracts and those described
in any of (i) through (vi) above) not made in the ordinary course of
business.
(b) The Contracts listed in the IMAGE SCIENCES DISCLOSURE SCHEDULE and the
Contracts excluded from the IMAGE SCIENCES DISCLOSURE SCHEDULE based on the
term or amount thereof are referred to herein as the "Image Sciences
Contracts." Image Sciences is not in Default under any Image Sciences
Contracts (including any Image Sciences Real Estate Leases and Image Sciences
Non-Real Estate Leases), which Default could result in a Liability on the part
of Image Sciences in excess of $25,000 in any individual case, and the
aggregate Liabilities
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that could result from all such Defaults do not exceed $50,000. Image Sciences
has not received any communication from, or given any communication to, any
other party indicating that Image Sciences or such other party, as the case
may be, is in Default under any Image Sciences Contract where such Default
could have a Material Adverse Effect. To the knowledge of Image Sciences, none
of the other parties in any such Image Sciences Contract is in Default
thereunder.
4.17 Insurance. The IMAGE SCIENCES DISCLOSURE SCHEDULE lists all policies or
binders of insurance held by or on behalf of Image Sciences, specifying with
respect to each policy the insurer, the amount of the coverage, the type of
insurance, the risks insured, the expiration date, the policy number and any
pending claims thereunder. There is no Default with respect to any such policy
or binder, nor has there been any failure to give any notice or present any
claim under any such policy or binder in a timely fashion or in the manner or
detail required by the policy or binder, except for any of the foregoing that
would not have a Material Adverse Effect. There is no notice of nonrenewal or
cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by Image Sciences, except for any of
the foregoing that would not have a Material Adverse Effect.
4.18 Intellectual Property and Software Products.
(a) Image Sciences does not currently use nor has it previously used in the
development, production or marketing of its products and services any
Copyrights, Patents or Trademarks except for those listed in the IMAGE
SCIENCES DISCLOSURE SCHEDULE. Image Sciences owns or has the lawful right to
use all material Intellectual Property that is used in the operation of the
Business in the ordinary course or otherwise. All of the Intellectual Property
listed in the IMAGE SCIENCES DISCLOSURE SCHEDULE is owned by Image Sciences
free and clear of any Encumbrances, or used pursuant to an agreement that is
described in the IMAGE SCIENCES DISCLOSURE SCHEDULE. Except in such cases that
would not have a Material Adverse Effect, Image Sciences does not infringe
upon or unlawfully or wrongfully use any Intellectual Property rights owned or
claimed by another Person, and Image Sciences is not in Default, and has not
received any notice of any claim of infringement or any other claim or
proceeding, with respect to any such Intellectual Property. Except for any
rights under written licenses or other written Contracts, no current or former
employee of Image Sciences and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
(b) The IMAGE SCIENCES DISCLOSURE SCHEDULE contains a complete list of all
of the computer software products sold, licensed, distributed, marketed, used
or under development by Image Sciences (the "Image Sciences Software
Products"). Each of the Image Sciences Software Products performs
substantially in accordance with the specifications, documentation and other
written material used in connection with the sale, license, distribution,
marketing or use thereof and is free of defects in programming and operation
except such defects as would not materially and adversely affect the use of
the respective Image Sciences Software Products for their intended purposes.
(c) Except as specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, all
right, title and interest in and to the Image Sciences Software Products is
owned by Image Sciences, free and clear of all Encumbrances. No government
funding was utilized in the development of any of the Image Sciences Software
Products. Except for such violations that would not have a Material Adverse
Effect, the sale, license, distribution, marketing or use of the Image
Sciences Software Products by Image Sciences does not violate any rights of
any other Person, and Image Sciences has not received any communication
alleging such a violation. Except as specified in the IMAGE SCIENCES
DISCLOSURE SCHEDULE, Image Sciences does not have any obligation to compensate
any Person for the sale, license, distribution, marketing or use of the Image
Sciences Software Products. Other than as set forth in the IMAGE SCIENCES
DISCLOSURE SCHEDULE, Image Sciences has not granted to any other Person any
license, option or other right in or to any of the Image Sciences Software
Products, except for non-exclusive, royalty-bearing, end-user licenses (the
"End-User Licenses") and distributor licenses under which the distributor has
a right to relicense ("Distributor Licenses") granted by Image Sciences
pursuant to license agreements.
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(d) Except as specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, Image
Sciences does not have any obligation owing to any Person to maintain, modify,
improve or upgrade any of the Image Sciences Software Products, except for any
such obligation set forth in an End-User License, a Distributor License or
under a customer-specific services agreement and such other obligations as
would not have a Material Adverse Effect.
(e) All employees and consultants of Image Sciences who are involved in the
design, review, evaluation or development of Intellectual Property have
executed a nondisclosure and assignment of inventions agreement (a
"Confidentiality Agreement"). To Image Sciences' knowledge, (i) none of the
Confidential Information has been used, divulged or appropriated (A) for the
benefit of any Person other than Image Sciences or a customer thereof or (B)
otherwise to the detriment of Image Sciences, (ii) except as specified in the
IMAGE SCIENCES DISCLOSURE SCHEDULE, none of such employees or consultants of
Image Sciences is subject to any contractual or legal restrictions that might
interfere with the use of his or her best efforts to promote the interests of
Image Sciences, (iii) no employee or consultant of Image Sciences has used any
other Persons' trade secrets or other information that is confidential in the
course of his or her work for Image Sciences, and (iv) no employee or
consultant of Image Sciences is, or is currently expected to be, in Default
under any term of any employment contract, agreement or arrangement relating
to the Intellectual Property, or any Confidentiality Agreement or any other
Contract or any restrictive covenant relating to the Intellectual Property, or
the development or exploitation thereof.
(f) Image Sciences has kept secret and has not disclosed the source codes
for the Image Sciences Software Products to any Person other than to those
Persons identified in the Image Sciences Disclosure Schedule and to certain
employees of Image Sciences.
4.19 Employee Relations. Image Sciences is not (a) except as specified in
the IMAGE SCIENCES DISCLOSURE SCHEDULE, a party to, involved in or, to Image
Sciences's knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement. Image Sciences has not experienced during the last three years any
work stoppage. Image Sciences has delivered to FormMaker a complete and
correct list of the names and salaries, bonus and other cash compensation of
all employees (including officers) of Image Sciences whose cash compensation
was for 1995 or is expected to be for 1996 at least $80,000.
4.20 ERISA.
(a) The IMAGE SCIENCES DISCLOSURE SCHEDULE contains a complete list of all
Benefit Plans sponsored or maintained by Image Sciences or under which Image
Sciences is obligated. Image Sciences has delivered to FormMaker (i) accurate
and complete copies of all such Benefit Plan documents and all other material
documents relating thereto, including (if applicable) all summary plan
descriptions, summary annual reports and insurance contracts, (ii) accurate
and complete detailed summaries of all unwritten Benefit Plans, (iii) accurate
and complete copies of the most recent financial statements and actuarial
reports with respect to all such Benefit Plans for which financial statements
or actuarial reports are required or have been prepared and (iv) accurate and
complete copies of all annual reports for all such Benefit Plans (for which
annual reports are required) prepared within the last three years. Each such
Benefit Plan providing benefits that are funded through a policy of insurance
is indicated by the word "insured" placed by the listing of the Benefit Plan
in the IMAGE SCIENCES DISCLOSURE SCHEDULE.
(b) All such Benefit Plans conform (and at all times have conformed) in all
material respects to, and are being administered and operated (and have at all
times been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all such Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject Image Sciences to any material penalty or tax
imposed under the Code or ERISA.
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(c) Except as is set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE, any
such Benefit Plan that is intended to be qualified under Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code has been determined
by the Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any
application that is pending, Image Sciences has no reason to suspect that such
application for determination will be denied. Nothing has occurred since the
date of any such determination, or if there has been no such determination,
there is no occurrence that is reasonably likely to affect adversely the
qualification or the tax exempt status of the plan and the related trust, or
result in the imposition of excise taxes or income taxes on unrelated business
income under the Code or ERISA with respect to any such Benefit Plan.
(d) Neither Image Sciences nor any person or entity that, together with
Image Sciences, is treated as a single employer under Section 414(b), (c), (m)
or (o) of the Code or Section 4001(a)(14) or 4001(b) of ERISA (a "Common
Controlled Entity"), sponsors a defined benefit plan subject to Title IV of
ERISA, or has a current or contingent obligation to contribute to any multi
employer plan (as defined in Section 3(37) of ERISA) and neither they nor
their predecessor have ever contributed to a multiemployer plan. Image
Sciences does not have any liability with respect to any employee benefit plan
(as defined in Section 3(3) of ERISA) other than with respect to such Benefit
Plans.
(e) There are no pending or, to the knowledge of Image Sciences, threatened
claims by or on behalf of any such Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any such Benefit Plans, alleging
any breach of fiduciary duty on the part of Image Sciences or any of its
officers, directors or employees under ERISA or any other applicable
regulations, or claiming benefit payments (other than those made in the
ordinary operation of such plans), nor is there, to the knowledge of Image
Sciences, any basis for such claim. The Benefit Plans are not the subject of
any pending (or to the knowledge of Image Sciences, any threatened)
investigation or audit by the Internal Revenue Service, the Department of
Labor or the Pension Benefit Guaranty Corporation ("PBGC").
(f) Image Sciences has timely made all required contributions under such
Benefit Plans including the payment of any premiums payable to the PBGC and
other insurance premiums.
(g) With respect to any such Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan")
and except as specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, (i) each
Welfare Plan for which contributions are claimed by Image Sciences as
deductions under any provision of the Code is in material compliance with all
applicable requirements pertaining to such deduction, (ii) with respect to any
welfare benefit fund (within the meaning of Section 419 of the Code) related
to a Welfare Plan, there is no disqualified benefit (within the meaning of
Section 4976(b) of the Code) that would result in the imposition of a tax
under Section 4976(a) of the Code, (iii) any Benefit Plan that is a group
health plan (within the meaning of Section 4980B(g)(2) of the Code) complies,
and in each and every case has complied, with all of the applicable material
requirements of Section 4980B of the Code, ERISA, Title XXII of the Public
Health Service Act and the Social Security Act, and (iv) all Welfare Plans may
be amended or terminated at any time on or after the Closing Date. Except as
specified in the Image Sciences Disclosure Schedule, no Benefit Plan provides
any health, life or other welfare coverage to employees of Image Sciences
beyond termination of their employment with Image Sciences by reason of
retirement or otherwise, other than coverage as may be required under Section
4980B of the Code or Part 6 of ERISA, or under the continuation of coverage
provisions of the laws of any state or locality.
(h) Except as otherwise set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (i) result in any payment to be made
by Image Sciences or a Common Controlled Entity (including, without
limitation, severance, unemployment compensation, golden parachute (as defined
in Code Section 280G or otherwise)) becoming due to any employee or former
employee, officer or director, or (ii) increase or vest any benefits payable
under any Benefit Plan.
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(i) Except as otherwise set forth in the IMAGE SCIENCES DISCLOSURE SCHEDULE,
any amount that could be received (whether in cash or property or the vesting
of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of Image Sciences or any of its
subsidiaries who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280(b)(1) of the Code).
4.21 Corporate Records. The minute books of Image Sciences contain complete,
correct and current copies of its Charter Documents and bylaws and of all
minutes of meetings, resolutions and other proceedings of its Board of
Directors and shareholders. The stock record books of Image Sciences are
complete, correct and current.
4.22 Absence of Certain Changes. Except as contemplated by this Agreement,
since the Balance Sheet Date, Image Sciences has conducted the Image Sciences
Business in the ordinary course and there has not been with respect to the
Image Sciences Business:
(a) any change that has had or is reasonably likely to have a Material
Adverse Effect;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise except for the Image Sciences Closing Transactions;
(c) any increase in the compensation payable or to become payable to any
director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in
any employment or consulting arrangement;
(d) any sale, assignment or transfer of material Assets, or any additions
to or transactions involving any Assets, other than those made in the
ordinary course of business;
(e) other than in the ordinary course of business, any waiver or release
of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of Image Sciences, except as specified
in the IMAGE SCIENCES DISCLOSURE SCHEDULE.
4.23 Previous Sales; Warranties. Image Sciences has not breached any express
or implied warranties in connection with the sale or distribution of goods or
the performance of services, except for breaches that would not have a
Material Adverse Effect.
4.24 Customers. Image Sciences has used its reasonable business efforts to
maintain and currently maintains, good working relationships with all of its
customers. The IMAGE SCIENCES DISCLOSURE SCHEDULE contains with respect to
each of the fiscal years ended July 31, 1994, 1995, 1996 and the four month
period ended November 30, 1996, a list of the ten customers (with names
omitted) that were the largest dollar volume customers of products or
services, or both, sold by Image Sciences for each such fiscal year. Except as
specified in the IMAGE SCIENCES DISCLOSURE SCHEDULE, none of such customers
has given Image Sciences notice terminating, canceling or threatening to
terminate or cancel any Contract or relationship with Image Sciences.
4.25 Finder's Fees. No Person retained by Image Sciences is or will be
entitled to any commission or finder's or similar fee in connection with the
Transactions.
4.26 Additional Information. The IMAGE SCIENCES DISCLOSURE SCHEDULE
accurately lists the following:
(a) the names of all officers and directors of Image Sciences;
(b) the names and addresses of every bank or other financial institution
in which Image Sciences maintains an account (whether checking, saving or
otherwise), lock box or safe deposit box, and the account numbers and names
of Persons having signing authority or other access thereto;
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(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of Image Sciences;
(d) the names of any Persons holding powers of attorney from Image
Sciences and a summary statement of the terms thereof; and
(e) all names under which Image Sciences has conducted any part of its
Business or which it has otherwise used at any time during the past five
years.
4.27 Accuracy of Information. No representation or warranty by Image
Sciences in any Transaction Document, and no information contained herein or
therein or otherwise delivered by or on behalf of Image Sciences to FormMaker
in connection with the Transactions, including the Image Sciences Financial
Statements, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein
or therein not misleading in light of the circumstances under which such
statements were made.
4.28 Hart-Scott-Rodino Act. Neither (i) Image Sciences nor (ii) any Person
that may be considered an "ultimate parent" of Image Sciences has (x) annual
net sales exceeding $100 million as of the last annual statement of income and
expense, or (y) total assets exceeding $100 million in value as stated on the
last regularly prepared balance sheet.
5. REPRESENTATIONS AND WARRANTIES OF FORMMAKER.
FormMaker hereby represents and warrants to Image Sciences, except as set
forth in the FORMMAKER DISCLOSURE SCHEDULE or the updated FORMMAKER DISCLOSURE
SCHEDULE to be delivered pursuant to Section 6.3, as follows:
5.1 Corporate Status. Each of the FormMaker Companies and the New Companies
is a corporation duly organized, validly existing and in good standing under
the Laws of the jurisdiction of its organization, and is qualified to do
business as a foreign corporation in any jurisdiction where it is required to
be so qualified except where the failure to so qualify would not have a
Material Adverse Effect. The Charter Documents and bylaws of each of the
FormMaker Companies and each of the New Companies that have been delivered to
Image Sciences as of the date hereof are effective under applicable Laws and
are current, correct and complete.
5.2 Authorization. Each of the FormMaker Companies and the New Companies has
the requisite power and authority to own its Assets and to carry on its
Business. Each of FormMaker and the New Companies has the requisite power and
authority to execute and deliver the Transaction Documents to which it is a
party and to perform the Transactions performed or to be performed by it. Such
execution, delivery and performance by FormMaker or any New Company has been
duly authorized by all necessary corporate action, other than approval by the
shareholders of FormMaker. Each Transaction Document executed and delivered by
FormMaker and any New Company has been duly executed and delivered by such
Party and constitutes a valid and binding obligation of such Party,
enforceable against such Party in accordance with its terms.
5.3 Consents and Approvals. Except for (a) any consents specified in the
FORMMAKER DISCLOSURE SCHEDULE (the "FormMaker Required Consents"), (b) the
approval of the Merger by the FormMaker shareholders, (c) the filing of the
Articles of Merger in accordance with Section 2 and (d) any approvals or
filings required by the SEC and by state securities laws or agencies in
connection with the Registration Statement, neither the execution and delivery
by FormMaker or any New Company of the Transaction Documents to which it is a
party, nor the performance of the Transactions performed or to be performed by
it, require any filing, consent or approval or constitute a Default under (i)
any Law or Court Order to which the FormMaker Companies or any new Company is
subject, (ii) the Charter Documents or bylaws of FormMaker or MicroDynamics or
(iii) any Contract, Governmental Permit or other document to which FormMaker
or any New Company is a party or by which the properties or other assets of
such Party may be subject.
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5.4 Capitalization and Stock Ownership.
(a) The total authorized capital stock of FormMaker consists of 20,000,000
shares of FormMaker Common Stock, of which (i) 6,229,511 shares are issued and
outstanding and (ii) 1,602,157 shares of FormMaker Common Stock are reserved
for issuance upon exercise of the issued and outstanding FormMaker Options and
FormMaker Warrants. Except for the rights under the FormMaker Options and
FormMaker Warrants listed in the FORMMAKER DISCLOSURE SCHEDULE, there are no
existing options, warrants, calls, commitments or other rights of any
character (including conversion or preemptive rights) relating to the
acquisition of any issued or unissued capital stock or other securities of
FormMaker. All of the shares of FormMaker Common Stock are, and all of the
shares of FormMaker Common Stock issuable upon exercise of the FormMaker
Options and the FormMaker Warrants in accordance with the terms thereof will
be, duly and validly authorized and issued, fully paid and non-assessable. The
FORMMAKER DISCLOSURE SCHEDULE lists all of the record owners of the FormMaker
Common Stock, the FormMaker Options and the FormMaker Warrants. FormMaker has
delivered to Image Sciences correct and complete copies of the forms of the
FormMaker Option agreements and the FormMaker Warrant agreements.
(b) The total authorized capital stock of the Company consists of (i)
20,000,000 shares of Company Class A Common Stock, 7,000,000 shares of Company
Class B Common Stock and 1,000,000 shares of Company Preferred Stock, par
value $0.01 per share, of which (a) no shares are issued and outstanding on
the date hereof and also as of immediately prior to the Effective Time and (b)
as of the consummation of the Closing and the issuance of the Closing Common
Shares, the total number of shares issued and outstanding plus the total
number of shares issuable upon the exercise of issued and outstanding Company
Options and Company Warrants shall not exceed 12,580,000 shares of Company
Class A Common Stock and Company Class B Common Stock. Except for the rights
under the Company Options and the Company Warrants to be issued at the
Closing, there are no existing options, warrants, calls, commitments or other
rights of any character (including conversion or preemptive rights) relating
to the acquisition of any issued or unissued capital stock or other securities
of the Company. All of the Closing Common Shares that will be issued and
outstanding immediately following consummation of the Merger, and all of the
shares of Company Class A Common Stock or Company Class B Common Stock
issuable upon exercise of the Company Options and the Company Warrants upon
issuance in accordance with the terms thereof, will be duly and validly
authorized and issued, fully paid and non-assessable. As of the Effective
Time, the Form S-4 Registration Statement will be effective in accordance with
the Securities Act with respect to the Closing Common Shares, and such
securities will be issued in compliance with the Securities Act and the rules
and regulations thereunder.
(c) The total authorized capital stock of the Texas Sub consists of 1,000
shares of Common Stock, par value $0.01 per share, of which 100 shares are
issued and outstanding on the date hereof and will be issued and outstanding
as of the Closing. There are no existing options, warrants, calls, commitments
or other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Texas Sub. All of such shares are duly and validly
authorized and issued, fully paid and non-assessable. The Company owns all of
such shares of the Texas Sub.
(d) The total authorized capital stock of the Georgia Sub consists of 1,000
shares of Common Stock, par value $0.01 per share, of which 100 shares are
issued and outstanding on the date hereof and will be issued and outstanding
as of the Closing. There are no existing options, warrants, calls, commitments
or other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Georgia Sub. All of such shares are duly and validly
authorized and issued, fully paid and non-assessable. The Company owns all of
such shares of the Georgia Sub.
(e) The total authorized capital stock of MicroDynamics consists of
8,000,000 shares of Common Stock, par value $0.01 per share, of which
6,051,305 shares are issued and outstanding on the date hereof, and 1,600,000
shares of Preferred Stock, par value $0.01 per share, of which no shares are
issued and outstanding on the date hereof. All shares of MicroDynamics Common
Stock are duly and validly authorized and issued, fully paid and non-
assessable. FormMaker owns 6,044,805 shares of MicroDynamics Common Stock free
and clear of all Encumbrances.
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5.5 Financial Statements. FormMaker has delivered to Image Sciences correct
and complete copies of unaudited monthly financial statements for FormMaker
consisting of a balance sheet as of the end of each month from January 1996
through November 30, 1996 and the related statements of income, changes to
shareholders' equity and cash flows for the periods then ended. FormMaker has
also delivered to Image Sciences correct and complete copies of financial
statements consisting of a balance sheet of FormMaker as of December 31, 1993,
1994 and 1995 and the related statements of income for the years then ended,
the financial statements for the two most recent years were audited by the
firm of Coopers & Lybrand LLP. All such unaudited and audited financial
statements are referred to herein collectively as the "FormMaker Pre-Signing
Financial Statements." The unaudited financial statements of FormMaker to be
delivered in connection with the Registration Statements are referred to
herein as the "FormMaker Post-Signing Financial Statements," and, together
with the Pre-Signing Financial Statements, as the "FormMaker Financial
Statements." The FormMaker Pre-Signing Financial Statements are, and the
FormMaker Post-Signing Financial Statements will be, consistent in all
material respects with the books and records of FormMaker, and there have not
been and will not be any material transactions that have not been or will not
be recorded in the accounting records underlying such Financial Statements.
The FormMaker Pre-Signing Financial Statements have been, and the FormMaker
Post-Signing Financial Statements will be, prepared in accordance with GAAP
consistently applied, and the FormMaker Pre-Signing Financial Statements
present, and the FormMaker Post-Signing Financial Statements will present,
fairly the financial position and assets and liabilities of FormMaker as of
the dates thereof, and the results of its operations for the periods then
ended, subject to normal recurring year-end adjustments and the absence of
notes in the case of unaudited Financial Statements. The balance sheet of
FormMaker as of November 30, 1996 that is included in the Financial Statements
is referred to herein as the "FormMaker Balance Sheet." FormMaker has also
delivered to Image Sciences correct and complete copies of financial
statements consisting of a balance sheet of MicroDynamics as of December 1993,
1994 and 1995 and the related statements of income for the years then ended
and unaudited monthly financial statements for MicroDynamics consisting of a
balance sheet as of the end of each month from January 1996 through November
30, 1996 and the related statements of income, changes to shareholders equity
and cash flow for the periods then ended (the "MicroDynamics Financial
Statements"). The MicroDynamics Financial Statements are consistent in all
material respects with the books and records of MicroDynamics, and there have
not been and will not be any material transaction that have not been recorded
in the accounting records underlying such MicroDynamics Financial Statements.
5.6 No Company, Texas Sub or Georgia Sub Assets, Liabilities or
Business. Except for any rights and Liabilities that the Company, the Texas
Sub and the Georgia Sub may have with respect to this Agreement and the
Company's ownership of the capital stock of the Texas Sub and the Georgia Sub,
neither the Company, the Texas Sub or the Georgia Sub has any Assets or
Liabilities, nor has either the Company, the Texas Sub or the Georgia Sub
conducted any Business other than in connection with the Transactions.
5.7 Title to Assets and Related Matters. Each of the FormMaker Companies has
good and marketable title to, valid leasehold interests in or valid licenses
to use, all of its material FormMaker Companies Assets, free from any
Encumbrances except those specified in the FORMMAKER DISCLOSURE SCHEDULE. The
use of the FormMaker Companies Assets are not subject to any Encumbrances
(other than those specified in the preceding sentence), and such use does not
materially encroach on the property or rights of anyone else. All FormMaker
Companies Real Property and tangible personal property (other than Inventory)
included in the FormMaker Companies Assets are suitable for the purposes for
which they are used, in good working condition, reasonable wear and tear
excepted, and are free from any known defects, except such minor defects that
would not have a Material Adverse Effect.
5.8 Real Property. The FORMMAKER DISCLOSURE SCHEDULE describes all real
estate used in the operation of the FormMaker Companies Business as well as
any other real estate that is in the possession of or leased by the FormMaker
Companies and the improvements (including buildings and other structures)
located on such real estate (collectively, the "FormMaker Companies Real
Property"), and lists any leases under which any such FormMaker Companies Real
Property is possessed (the "FormMaker Companies Real Estate Leases").
FormMaker does not have any ownership interest in any real property. The
FORMMAKER DISCLOSURE SCHEDULE
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also describes any other real estate previously owned, leased or otherwise
operated by the FormMaker Companies or any predecessor thereof and the time
periods of any such ownership, lease or operation. All of the FormMaker
Companies Real Property (a) is usable in the ordinary course of business and
(b) conforms in all material respects with any applicable Laws relating to its
construction, use and operation. The FormMaker Companies Real Property
complies with applicable zoning Laws. To the knowledge of FormMaker, the
FormMaker Companies or the landlord of any FormMaker Companies Real Property
leased by the FormMaker Companies has obtained all licenses and rights-of-way
from governmental entities or private parties that are necessary to ensure
vehicular and pedestrian ingress and egress to and from the FormMaker
Companies Real Property.
5.9 Certain Personal Property. The FORMMAKER DISCLOSURE SCHEDULE describes
all items of tangible personal property that were included in the FormMaker
Balance Sheet at a carrying value of at least $50,000. Except as specified in
the FORMMAKER DISCLOSURE SCHEDULE, since the Balance Sheet Date, FormMaker has
not acquired any items of tangible personal property that have a carrying
value in excess of $50,000, or an aggregate carrying value of $300,000. All of
such personal property included in the FORMMAKER DISCLOSURE SCHEDULE is, and
any such personal property acquired after the date hereof in accordance with
Section 7.2 will be, usable in the ordinary course of business, and all such
personal property included in the FORMMAKER DISCLOSURE SCHEDULE conforms, and
all of such personal property acquired after the date hereof will conform, in
all material respects with any applicable Laws relating to its construction,
use and operation. Except for those items subject to the FormMaker Companies
Non-Real Estate Leases or the Immaterial Leases or those items listed in the
FORMMAKER DISCLOSURE SCHEDULE, no Person other than the FormMaker Companies
owns any vehicles, equipment or other tangible assets located on the FormMaker
Real Property that have been used in the FormMaker Companies Business or that
are necessary for the operation of the FormMaker Companies Business.
5.10 Non-Real Estate Leases. The FORMMAKER DISCLOSURE SCHEDULE lists all
assets and property (other than FormMaker Real Property) that are possessed by
the FormMaker Companies under an existing lease, including all trucks,
automobiles, forklifts, machinery, equipment, furniture and computers, except
for Immaterial Leases. The FORMMAKER DISCLOSURE SCHEDULE also lists the leases
under which such assets and property listed in the FORMMAKER DISCLOSURE
SCHEDULE are possessed. All of such leases (excluding Immaterial Leases) are
referred to herein as the "FormMaker Companies Non-Real Estate Leases."
5.11 Accounts Receivable. The Accounts Receivable included in the FormMaker
Companies Assets are bona fide Accounts Receivable created in the ordinary
course of business. Except for Accounts Receivable for which reserves have
been established, all of the Accounts Receivable included in the FormMaker
Companies Assets are collectible in the ordinary course of business. FormMaker
does not know of any facts or circumstances (other than general economic
conditions) that are likely to result in any material increase in the
uncollectability of such Accounts Receivable in excess of any reserves
therefor set forth in the FormMaker Balance Sheet.
5.12 Inventory. The Inventory included in the FormMaker Companies Assets
consists of items of good, usable and merchantable quality in all material
respects and does not include obsolete or discontinued items. Such Inventory
is recorded in the FormMaker Financial Statements at the lower of cost or
market value determined in accordance with GAAP.
5.13 Liabilities. The FormMaker Companies do not have any Liabilities,
except (a) as specified in the FORMMAKER DISCLOSURE SCHEDULE, (b) as
contemplated by the FormMaker Balance Sheet (except as heretofore paid or
discharged), (c) Liabilities incurred in the ordinary course since the Balance
Sheet Date, or (d) Liabilities under any Contracts included in the FormMaker
Companies Assets that are specifically disclosed in the FORMMAKER DISCLOSURE
SCHEDULE (or not required to be disclosed because of the term or amount
involved) that were not required under GAAP to have been specifically
disclosed or reserved for on the FormMaker Balance Sheet.
5.14 Taxes. The FormMaker Companies have duly filed all returns for Taxes
that are required to be filed and has paid all material Taxes shown as being
due pursuant to such returns or pursuant to any assessment
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received. All Taxes that the FormMaker Companies have been required by Law to
withhold or to collect have been duly withheld and collected and have been
paid over to the proper governmental authorities or are properly held by the
FormMaker Companies for such payment. There are no proceedings or other
actions, nor is there any basis for any proceedings or other actions, for the
assessment and collection of additional Taxes of any kind with respect to the
FormMaker Companies for any period for which returns have or should have been
filed.
5.15 Subsidiaries. FormMaker does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation,
partnership, limited liability company, trust, joint venture or other legal
entity, except for its investment in MicroDynamics and the New Companies.
5.16 Legal Proceedings and Compliance with Law.
(a) Except as set forth in the FORMMAKER DISCLOSURE SCHEDULE, there is no
Litigation that is pending or, to FormMaker's knowledge, threatened against
the FormMaker Companies. There has been no Default under any Laws applicable
to the FormMaker Companies, including Laws relating to pollution or protection
of the environment, except for any Defaults that would not have a Material
Adverse Effect, and the FormMaker Companies have not received any notices from
any governmental entity regarding any alleged Defaults under any Laws. There
has been no Default with respect to any Court Order applicable to the
FormMaker Companies.
(b) Without limiting the generality of Section 5.16(a), there has not been
any FormMaker Environmental Condition (i) at the premises at which the
FormMaker Companies Business has been conducted, (ii) at any property owned,
leased or operated at any time by the FormMaker Companies, any Person
controlled by the FormMaker Companies or any predecessor of any of them, or
(iii) at any property at which wastes have been released, deposited or
disposed by or at the behest or direction of any of the foregoing, nor have
the FormMaker Companies received written notice of any such FormMaker
Companies Environmental Condition. "FormMaker Environmental Condition" means
any condition or circumstance, including the presence or release of Hazardous
Substances, whether created by the FormMaker Companies or any third party, at
or relating to any such property or premises that (i) requires investigation,
monitoring, abatement or correction under an Environmental Law, (ii) gives
rise to any civil or criminal liability on the part of the FormMaker Companies
under an Environmental Law, or (iii) has created a public or private nuisance.
(c) FormMaker has delivered to Image Sciences complete copies of any written
reports, studies or assessments in the possession or control of the FormMaker
Companies that relate to any the FormMaker Companies Environmental Condition
and to the FormMaker Business or any FormMaker Assets.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) the FormMaker Companies have obtained and are in full
compliance with all Governmental Permits, all of which are listed in the
FORMMAKER DISCLOSURE SCHEDULE along with their respective expiration dates,
that are required for the complete operation of the FormMaker Companies
Business as currently operated, (ii) all of such Governmental Permits are
currently valid and in full force and (iii) the FormMaker Companies have filed
such timely and complete renewal applications as may be required with respect
to its Governmental Permits. To FormMaker's knowledge, no revocation,
cancellation or withdrawal thereof has been threatened.
5.17 Contracts.
(a) The FORMMAKER DISCLOSURE SCHEDULE lists all Contracts of the following
types to which the FormMaker Companies are a party or by which it is bound,
except for Minor Contracts:
(i) Contracts with any present or former shareholder, director, officer,
employee, partner or consultant of FormMaker or any Affiliate thereof.
(ii) Contracts for the future purchase of, or payment for, supplies or
products, or for the lease of any Asset from or the performance of services
by a third party, in excess of $150,000 in any individual case, or any
Contracts for the sale of products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
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(iii) Contracts to sell or supply products or to perform services that
involve an amount in excess of $250,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any asset
that involve an amount in excess of $150,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale agreements, equipment
trust agreements, letter of credit agreements, reimbursement agreements,
loan agreements or other Contracts for the borrowing or lending of money
(including loans to or from officers, directors, partners, shareholders or
Affiliates of FormMaker or any members of their immediate families),
agreements or arrangements for a line of credit or for a guarantee of, or
other undertaking in connection with, the indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than Minor Contracts and those described
in any of (i) through (vi) above) not made in the ordinary course of
business.
(b) The Contracts listed in the FORMMAKER DISCLOSURE SCHEDULE and the
Contracts excluded from the FORMMAKER DISCLOSURE SCHEDULE based on the term or
amount thereof are referred to herein as the "FormMaker Companies Contracts."
FormMaker Companies are not in Default under any FormMaker Companies Contracts
(including any FormMaker Companies Real Estate Leases and FormMaker Companies
Non-Real Estate Leases), which Default could result in a Liability on the part
of the FormMaker Companies in excess of $25,000 in any individual case, and
the aggregate Liabilities that could result from all such Defaults do not
exceed $50,000. The FormMaker Companies have not received any communication
from, or given any communication to, any other party indicating that the
FormMaker Companies or such other party, as the case may be, is in Default
under any the FormMaker Companies Contract where such Default could have a
Material Adverse Effect. To the knowledge of FormMaker, none of the other
parties in any such FormMaker Companies Contract is in Default thereunder.
5.18 Insurance. The FORMMAKER DISCLOSURE SCHEDULE lists all policies or
binders of insurance held by or on behalf of the FormMaker Companies,
specifying with respect to each policy the insurer, the amount of the
coverage, the type of insurance, the risks insured, the expiration date, the
policy number and any pending claims thereunder. There is no Default with
respect to any such policy or binder, nor has there been any failure to give
any notice or present any claim under any such policy or binder in a timely
fashion or in the manner or detail required by the policy or binder, except
for any of the foregoing that would not have a Material Adverse Effect. There
is no notice of nonrenewal or cancellation with respect to, or disallowance of
any claim under, any such policy or binder that has been received by the
FormMaker Companies, except for any of the foregoing that would not have a
Material Adverse Effect.
5.19 Intellectual Property and Software Products.
(a) The FormMaker Companies do not currently use nor have they previously
used in the development, production or marketing of their products and
services any Copyrights, Patents or Trademarks except for those listed in the
FORMMAKER DISCLOSURE SCHEDULE. The FormMaker Companies own or have the lawful
right to use all material Intellectual Property that is used in the operation
of the Business in the ordinary course or otherwise. All of the Intellectual
Property listed in the FORMMAKER DISCLOSURE SCHEDULE is owned by the FormMaker
Companies free and clear of any Encumbrances, or used pursuant to an agreement
that is described in the FORMMAKER DISCLOSURE SCHEDULE. Except in such cases
that would not have a Material Adverse Effect, the FormMaker Companies do not
infringe upon or unlawfully or wrongfully use any Intellectual Property rights
owned or claimed by another Person, and the FormMaker Companies are not in
Default, and have not received any notice of any claim of infringement or any
other claim or proceeding, with respect to any such Intellectual Property.
Except for any rights under written licenses or other written Contracts, no
current or former employee of the FormMaker Companies and no other Person owns
or has any proprietary, financial or other interest, direct or indirect, in
whole or in part, and including any right to royalties or other compensation,
in any of the Intellectual Property, or in any application therefor.
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(b) The FORMMAKER DISCLOSURE SCHEDULE contains a complete list of all of the
computer software products sold, licensed, distributed, marketed, used or
under development by the FormMaker Companies (the "FormMaker Companies
Software Products"). Each of the FormMaker Companies Software Products
performs substantially in accordance with the specifications, documentation
and other written material used in connection with the sale, license,
distribution, marketing or use thereof and is free of defects in programming
and operation except such defects as would not materially and adversely affect
the use of the respective FormMaker Companies Software Products for their
intended purposes.
(c) Except as specified in the FORMMAKER DISCLOSURE SCHEDULE, all right,
title and interest in and to the FormMaker Companies Software Products is
owned by the FormMaker Companies, free and clear of all Encumbrances. No
government funding was utilized in the development of any of the FormMaker
Companies Software Products. Except for such violations that would not have a
Material Adverse Effect, the sale, license, distribution, marketing or use of
the FormMaker Companies Software Products by the FormMaker Companies do not
violate any rights of any other Person, and the FormMaker Companies have not
received any communication alleging such a violation. Except as specified in
the FORMMAKER DISCLOSURE SCHEDULE, the FormMaker Companies do not have any
obligation to compensate any Person for the sale, license, distribution,
marketing or use of the FormMaker Companies Software Products. Other than as
set forth in the FORMMAKER DISCLOSURE SCHEDULE, the FormMaker Companies have
not granted to any other Person any license, option or other right in or to
any of the FormMaker Companies Software Products, except for End-User Licenses
and Distributor Licenses granted by the FormMaker Companies pursuant to
license agreements. Correct and complete copies of such Distributor Licenses
have been or will be delivered to Image Sciences in Second Stage Due
Diligence.
(d) Except as specified in the FORMMAKER DISCLOSURE SCHEDULE, the FormMaker
Companies do not have any obligation owing to any Person to maintain, modify,
improve or upgrade any of the FormMaker Software Products, except for any such
obligation set forth in an End-User License, a Distributor License or under a
customer-specific services agreement and such other obligations as would not
have a Material Adverse Effect.
(e) All employees and consultants of the FormMaker Companies who are
involved in the design, review, evaluation or development of Intellectual
Property have executed a Confidentiality Agreement. To FormMaker's knowledge,
(i) none of the Confidential Information has been used, divulged or
appropriated (A) for the benefit of any Person other than the FormMaker
Companies or a customer thereof or (B) otherwise to the detriment of the
FormMaker Companies, (ii) except as specified in the FORMMAKER DISCLOSURE
SCHEDULE, none of such employees or consultants of the FormMaker Companies are
subject to any contractual or legal restrictions that might interfere with the
use of his or her best efforts to promote the interests of the FormMaker
Companies, (iii) no employee or consultant of FormMaker has used any other
Persons' trade secrets or other information that is confidential in the course
of his or her work for FormMaker, and (iv) no employee or consultant of the
FormMaker Companies are, or are currently expected to be, in Default under any
term of any employment contract, agreement or arrangement relating to the
Intellectual Property, or any Confidentiality Agreement or any other Contract
or any restrictive covenant relating to the Intellectual Property, or the
development or exploitation thereof.
(f) The FormMaker Companies have kept secret and has not disclosed the
source codes for the FormMaker Companies Software Products to any Person other
than to those Persons identified in the FORMMAKER DISCLOSURE SCHEDULE and to
certain employees of the FormMaker Companies.
5.20 Employee Relations. The FormMaker Companies are not (a) except as
specified in the FORMMAKER DISCLOSURE SCHEDULE, a party to, involved in or, to
FormMaker's knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement. The FormMaker Companies have not experienced during the last three
years any work stoppage. FormMaker has delivered to Image Sciences a complete
and correct list of the names and salaries, bonus and other cash compensation
of all employees (including officers) of the FormMaker Companies whose cash
compensation was for 1995 or is expected to be for 1996 at least $80,000.
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5.21 ERISA.
(a) The FORMMAKER DISCLOSURE SCHEDULE contains a complete list of all
Benefit Plans sponsored or maintained by the FormMaker Companies or under
which the FormMaker Companies are obligated. FormMaker has delivered to Image
Sciences (i) accurate and complete copies of all such Benefit Plan documents
and all other material documents relating thereto, including (if applicable)
all summary plan descriptions, summary annual reports and insurance contracts,
(ii) accurate and complete detailed summaries of all unwritten Benefit Plans,
(iii) accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all such Benefit Plans for which financial
statements or actuarial reports are required or have been prepared and (iv)
accurate and complete copies of all annual reports for all such Benefit Plans
(for which annual reports are required) prepared within the last three years.
Each such Benefit Plan providing benefits that are funded through a policy of
insurance is indicated by the word "insured" placed by the listing of the
Benefit Plan in the FORMMAKER DISCLOSURE SCHEDULE.
(b) All such Benefit Plans conform (and at all times have conformed) in all
material respects to, and are being administered and operated (and have at all
times been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all such Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject FormMaker to any material penalty or tax imposed
under the Code or ERISA.
(c) Except as is set forth in the FORMMAKER DISCLOSURE SCHEDULE, any such
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
and exempt from tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained
remains in effect and has not been revoked, and with respect to any
application that is pending, the Company has no reason to suspect that such
application for determination will be denied. Nothing has occurred since the
date of any such determination, or if there has been no such determination,
there is no occurrence that is reasonably likely to affect adversely such
qualification or the tax exempt status of the plan and the related trust, or
result in the imposition of excise taxes or income taxes on unrelated business
income under the Code or ERISA with respect to any such Benefit Plan.
(d) Neither the FormMaker Companies nor any person or entity that, together
with the FormMaker Companies, is treated as a Common Controlled Entity,
sponsors a defined benefit plan subject to Title IV of ERISA, or has a current
or contingent obligation to contribute to any multiemployer plan (as defined
in Section 3(37) of ERISA) and neither they nor their predecessors have ever
contributed to a multiemployer plan. The FormMaker Companies do not have any
liability with respect to any employee benefit plan (as defined in Section
3(3) of ERISA) other than with respect to such Benefit Plans.
(e) There are no pending or, to the knowledge of FormMaker, threatened
claims by or on behalf of any such Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any such Benefit Plans, alleging
any breach of fiduciary duty on the part of the FormMaker Companies or any of
their officers, directors or employees under ERISA or any other applicable
regulations, or claiming benefit payments (other than those made in the
ordinary operation of such plans), nor is there, to the knowledge of
FormMaker, any basis for such claim. The Benefit Plans are not the subject of
any pending (or to the knowledge of FormMaker, any threatened) investigation
or audit by the Internal Revenue Service, the Department of Labor or the PBGC.
(f) The FormMaker Companies have timely made all required contributions
under such Benefit Plans including the payment of any premiums payable to the
PBGC and other insurance premiums.
(g) With respect to any such Benefit Plan that is a Welfare Plan and except
as specified in the FORMMAKER DISCLOSURE SCHEDULE, (i) each Welfare Plan for
which contributions are claimed by the FormMaker Companies as deductions under
any provision of the Code is in material compliance with all applicable
requirements
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pertaining to such deduction, (ii) with respect to any welfare benefit fund
(within the meaning of Section 419 of the Code) related to a Welfare Plan,
there is no disqualified benefit (within the meaning of Section 4976(b) of the
Code) that would result in the imposition of a tax under Section 4976(a) of
the Code, (iii) any Benefit Plan that is a group health plan (within the
meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
Social Security Act, and (iv) all Welfare Plans may be amended or terminated
at any time on or after the Closing Date. Except as specified in the FORMMAKER
DISCLOSURE SCHEDULE, no Benefit Plan provides any health, life or other
welfare coverage to employees of the FormMaker Companies beyond termination of
their employment with the FormMaker Companies by reason of retirement or
otherwise, other than coverage as may be required under Section 4980B of the
Code or Part 6 of ERISA, or under the continuation of coverage provisions of
the laws of any state or locality.
(h) Except as otherwise set forth in the FORMMAKER DISCLOSURE SCHEDULE,
neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated hereby will (i) result in any payment to be made
by the FormMaker Companies or a Common Controlled Entity (including, without
limitation, severance, unemployment compensation, golden parachute (as defined
in Code Section 280G or otherwise)) becoming due to any employee or former
employee, officer or director, or (ii) increase or vest any benefits payable
under any Benefit Plan.
(i) Except as otherwise set forth in the FORMMAKER DISCLOSURE SCHEDULE, any
amount that could be received (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the FormMaker Companies or
any of its subsidiaries who is a "disqualified individual" (as such term is
defined in proposed Treasury Regulation Section 1.280G-1) under any
employment, severance or termination agreement, other compensation arrangement
or Benefit Plan currently in effect would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280(b)(1) of the Code).
5.22 Corporate Records. The minute books of each of the FormMaker Companies
contain complete, correct and current copies of its Charter Documents and
bylaws and of all minutes of meetings, resolutions and other proceedings of
its Board of Directors and shareholders. The stock record books of the
FormMaker Companies are complete, correct and current.
5.23 Absence of Certain Changes. Except as contemplated by this Agreement,
since the Balance Sheet Date, the FormMaker Companies have conducted the
FormMaker Companies Business in the ordinary course and there has not been
with respect to the FormMaker Companies Business:
(a) any change that has had or is reasonably likely to have a Material
Adverse Effect;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise;
(c) any increase in the compensation payable or to become payable to any
director, officer, employee or agent, except for increases for non-officer
employees made in the ordinary course of business, nor any other change in
any employment or consulting arrangement;
(d) any sale, assignment or transfer of material Assets, or any additions
to or transactions involving any Assets, other than those made in the
ordinary course of business;
(e) other than in the ordinary course of business, any waiver or release
of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of the FormMaker Companies, except as
specified in the FORMMAKER DISCLOSURE SCHEDULE.
5.24 Previous Sales; Warranties. The FormMaker Companies have not breached
any express or implied warranties in connection with the sale or distribution
of goods or the performance of services, except for breaches that,
individually and in the aggregate, would not have a Material Adverse Effect.
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5.25 Customers. The FormMaker Companies have used their reasonable business
efforts to maintain and currently maintains, good working relationships with
all of their customers. The FORMMAKER DISCLOSURE SCHEDULE contains with
respect to each of the years ended December 31, 1993, 1994, 1995 and the
eleven month period ended November 30, 1996 a list of the ten customers (with
names omitted) that were the largest dollar volume customers of products or
services, or both, sold by the FormMaker Companies for each such year. Except
as specified in the FORMMAKER DISCLOSURE SCHEDULE, none of such customers has
given the FormMaker Companies notice terminating, canceling or threatening to
terminate or cancel any Contract or relationship with the FormMaker Companies.
5.26 Finder's Fees. No Person retained by FormMaker is or will be entitled
to any commission or finder's or similar fee in connection with the
Transactions.
5.27 Additional Information. The FORMMAKER DISCLOSURE SCHEDULE accurately
lists the following:
(a) the names of all officers and directors of FormMaker;
(b) the names and addresses of every bank or other financial institution
in which FormMaker maintains an account (whether checking, saving or
otherwise), lock box or safe deposit box, and the account numbers and names
of Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of FormMaker;
(d) the names of any Persons holding powers of attorney from FormMaker
and a summary statement of the terms thereof; and
(e) all names under which FormMaker has conducted any part of its
Business or which it has otherwise used at any time during the past five
years.
5.28 Accuracy of Information. No representation or warranty by FormMaker in
any Transaction Document, and no information contained therein or otherwise
delivered by or on behalf of FormMaker to Image Sciences in connection with
the Transactions, including the FormMaker Financial Statements, contains any
untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which such statements were
made.
5.29 Hart-Scott-Rodino Act. Neither (i) FormMaker nor (ii) any Person that
may be considered an "ultimate parent" of FormMaker for purposes of the HSR
Act, has (x) annual net sales exceeding $100 million as of the last annual
statement of income and expense, or (y) total assets exceeding $100 million in
value as stated on the last regularly prepared balance sheet.
6. JOINT COVENANTS.
6.1 Registration Statement.
(a) The Company shall prepare and file with the SEC as soon as reasonably
practicable after the date hereof (i) a registration statement on Form S-4
under the Securities Act for purposes of registering the Closing Common Shares
and the shares of Company Class A Common Stock and Company Class B Common
Stock issuable upon exercise of the Company Options and the Company Warrants
received by Holders in the Merger (the "Registered Securities") and (ii) a
joint proxy statement to be distributed by Image Sciences and FormMaker in
connection with the Image Sciences Special Meeting and the FormMaker Special
Meeting (the "Joint Proxy Statement"). Such registration statement on Form S-4
and any amendments or supplements thereto are referred to herein as the "Form
S-4 Registration Statement" or the "Registration Statement." The Company will
use commercially reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing, and Image Sciences and FormMaker shall use commercially
reasonable efforts to cooperate with the Company to cause the Registration
Statement to be declared effective. The Company, FormMaker, Image Sciences,
the Texas Sub, the Georgia Sub and Image Sciences (the "Corporate
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Parties") shall also take such action as may be reasonably required to cause
the Registered Securities to be registered or to obtain an exemption from
registration under applicable state "blue sky" or securities laws. In
connection with the foregoing, Image Sciences and FormMaker will furnish to
the Company all information concerning Image Sciences and FormMaker as the
Company or its counsel may reasonably request for inclusion in the
Registration Statement.
(b) The Company covenants that the Registration Statement (i) will comply in
all material respects with the applicable provisions of the Securities Act and
the rules and regulations promulgated thereunder and (ii) will not at the time
such document is filed with the SEC and at all times after it becomes
effective under the Securities Act and until the Closing contain any untrue
statement of any material fact or omit to state any 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, or
necessary to correct any statement in any earlier filing with the SEC of the
Registration Statement; provided, however, that no representation, covenant or
agreement is made by the Company with respect to information supplied by or on
behalf of Image Sciences for inclusion in the Registration Statement.
(c) Each of Image Sciences and FormMaker covenants that the Registration
Statement as it relates to them (i) will comply in all material respects with
the applicable provisions of the Securities Act and the rules and regulations
promulgated thereunder and (ii) will not at the time such document is filed
with the SEC and at all times after it becomes effective under the Securities
Act and until the Closing, contain any untrue statement of any material fact
or omit to state any 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, or necessary to correct any statement in
any earlier filing with the SEC of the Registration Statement.
6.2 Financial Statements. Each of FormMaker and Image Sciences shall deliver
to the other party financial statements prepared in accordance with GAAP
consistently applied for the twelve-month period ending December 31, 1996.
6.3 Due Diligence. Each of FormMaker and Image Sciences shall deliver to the
other party all the information listed in Schedule 6.3 not previously provided
to such other party (the "Second Stage Due Diligence Materials") on the day
following the date of this Agreement and shall deliver an updated Disclosure
Schedule incorporating information from such Second Stage Due Diligence
Materials. If either FormMaker or Image Sciences believes in good faith that
any information contained in such Second Stage Due Diligence Materials reveals
matters which could have a Material Adverse Effect on the combined entity
following the Merger, then such party shall have the right to terminate this
Agreement as provided in Section 12.1(d).
7. COVENANTS OF FORMMAKER AND THE COMPANY.
7.1 Fulfillment of Closing Conditions. At and prior to the Closing,
FormMaker shall use commercially reasonable efforts to fulfill, and to cause
the Company to fulfill, the conditions specified in Sections 9 and 10 to the
extent that the fulfillment of such conditions is within its control, except
that FormMaker shall not be required to pay or expend any material amount of
funds that may be necessary to correct any Default under the representations
and warranties of the Company or FormMaker or to fulfill any of such
conditions. In connection with the foregoing, FormMaker will, and will cause
the Company to, (a) refrain from any actions that would cause any of its
representations and warranties to be inaccurate in any material respect as of
the Closing, (b) execute and deliver the agreements and other documents
referred to in Section 10, (c) comply in all material respects with all
applicable Laws in connection with its execution, delivery and performance of
this Agreement and the Transactions, (d) use commercially reasonable efforts
to obtain in a timely manner all necessary waivers, consents and approvals
required under any Laws, Contracts or otherwise, including any FormMaker
Required Consents, and (e) use commercially reasonable efforts to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things reasonably necessary, proper or advisable to consummate and make
effective as promptly as practicable the Transactions. FormMaker shall give
Image Sciences prompt written notice of any event or development that occurs
or fails to occur (and that is known to FormMaker) that gives FormMaker
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reason to believe that the conditions set forth in Sections 9 and 10 will not
be satisfied prior to the Termination Date.
7.2 Conduct of the Business. Except as disclosed in the FormMaker Disclosure
Schedule, FormMaker shall not, and shall cause the Company, not to, do any of
the following prior to the Closing unless waived by Image Sciences in writing:
amend its Charter Documents or bylaws; merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire any business of, any
corporation, partnership or other business organization or business division
thereof; split, combine or reclassify its outstanding capital stock or issue
any additional capital stock (except for capital stock issuable upon
conversion or exercise of currently outstanding securities, or options,
warrants or other rights to purchase capital stock, or securities convertible
into capital stock; pay any dividends or redeem any of its outstanding capital
stock; enter into any Contract or otherwise incur any Liability outside the
ordinary course of business unless the executory obligation on the part of
FormMaker in any such individual case is less than $100,000; incur any
additional indebtedness for borrowed money outside the ordinary course of
business; discharge or satisfy any Encumbrance or pay or satisfy any material
Liability except pursuant to the terms thereof; compromise, settle or
otherwise adjust any material claim or litigation unless such compromise,
settlement or adjustment involves a sum of not more than $100,000 in excess of
reserves; make capital expenditures of more than $100,000 in the aggregate; or
modify existing benefit plans or enter into new employment agreements. Nothing
contained in this Agreement shall give Image Sciences, directly or indirectly,
the right to control or direct FormMaker's operations prior to the Effective
Time.
7.3 Access to Information. FormMaker shall, and shall cause the Company to,
give Image Sciences and its representatives (including Image Sciences'
accountants, counsel and employees, each, an "Image Sciences Representative"),
upon reasonable notice and during normal business hours, full access to the
properties, contracts, books, records and affairs of FormMaker and the
Company. FormMaker shall cause its officers and employees, and the officers
and employees of the Company, to furnish to Image Sciences all documents,
records and information as Image Sciences may reasonably request.
7.4 No Solicitation. From and after the date hereof, FormMaker, without the
prior written consent of Image Sciences, will not, and will not authorize or
permit any of the FormMaker Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal. FormMaker
shall notify Image Sciences orally and in writing of any such inquiries,
offers or proposals (including the terms and conditions of any such proposal
and the identity of the person making it), within 24 hours of the receipt
thereof, shall keep Image Sciences informed of the status and details of any
such inquiry, offer or proposal. As used herein, "Acquisition Proposal" means
a proposal or offer (other than pursuant to this Agreement) for a tender or
exchange offer, merger, consolidation or other business combination involving,
or any proposal to acquire in any manner a substantial equity interest in, or
all or substantially all of the assets of, (i) FormMaker, in the case of this
Section 7.4, and (ii) Image Sciences, in the case of Section 8.4.
7.5 The FormMaker Special Meeting. In connection with the FormMaker Special
Meeting, FormMaker shall (a) deliver to its shareholders as promptly as
practicable the Joint Proxy Statement and all other materials for such
meeting, (b) use all reasonable efforts to obtain the necessary approvals of
its shareholders for the Merger and this Agreement and (c) otherwise comply
with all legal requirements applicable to such meeting.
7.6 Rule 145 Affiliates. Prior to the Closing, FormMaker shall identify in a
letter to the Company all Persons who might, at the time of the FormMaker
Special Meeting, be deemed to be "affiliates" of the Company for the purposes
of Rule 145 under the Securities Act (the "Securities Act Affiliates").
FormMaker shall use commercially reasonable efforts to cause each Person who
is identified as a possible Securities Act Affiliate to enter into prior to
the Effective Time an agreement in form and substance reasonably acceptable to
the Company pursuant to which each such Person acknowledges such Person's
responsibilities as a Securities Act Affiliate.
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7.7 Stock Option Plan. The Company will adopt an employee stock option plan
(the "New Option Plan") substantially identical to the stock option plan that
was approved by the Parties on the date hereof covering 400,000 shares of
Company Class A Common Stock. The Company will file a Registration Statement
on Form S-8 under the Securities Act for purposes of registering shares of
Company Class A Common Stock issuable upon exercise of Company Options as
promptly as practicable following consummation of the Qualified Rights
Offering.
7.8 Expenses. FormMaker (or the Company if the Merger becomes effective)
shall pay all of the legal, accounting and other expenses incurred by
FormMaker and the New Companies in connection with the Transactions, including
the following: fees and other costs payable with respect to the Registration
Statement (including printing); fees and expenses of Price Waterhouse LLP for
work related to FormMaker and the New Companies; any fees and expenses of
legal counsel to FormMaker and the New Companies; and fees of the Company's
transfer agent (if any).
7.9 Indemnification. For a period of 5 years from the Effective Date, the
Company shall maintain in effect Image Sciences' and FormMaker's current
directors' and officers' liability insurance covering those officers and
directors who are currently covered on the date of this Agreement by such
policies; provided, however, that the Company may substitute, for such Image
Sciences or FormMaker policies, policies with at least the same coverage
containing terms and conditions which are no less advantageous to the officers
and directors and provided that said substitution does not result in any gaps
or lapses in coverage with respect to matters occurring prior to the Effective
Date. For a period of 5 years, the Company shall not amend any provision of
FormMaker's or Image Sciences' Charter Documents providing for indemnification
of officers of directors and shall also assume the indemnification obligations
of Image Sciences and FormMaker with respect to such matters. The provisions
of this Section 7.9 are intended to be for the benefit of, and shall be
enforceable by, each officer and director and his or her heirs and
representatives.
7.10 New Bank Loan. The Company shall use commercially reasonable efforts to
obtain a line of credit from a bank for $10 million (the "New Bank Loan") on
terms substantially similar to the existing FormMaker line of credit with
NationsBank of Georgia, National Association. If the Company cannot obtain the
New Bank Loan on such terms, FormMaker shall use commercially reasonable
efforts to amend its line of credit, or obtain appropriate waivers, to permit
the Transactions and to allow the Company to draw on the entire line of credit
for working capital purposes.
7.11 Related Parties. FormMaker shall cause the Company to perform its
obligations hereunder and under any other Transaction Document.
8. COVENANTS OF IMAGE SCIENCES.
8.1 Fulfillment of Closing Conditions. At and prior to the Closing, Image
Sciences shall use commercially reasonable efforts to fulfill the conditions
specified in Sections 9 and 11 to the extent that the fulfillment of such
conditions is within its control, except that Image Sciences shall not be
required to pay or expend any material amount of funds that may be necessary
to correct any Default under the representations and warranties of Image
Sciences or to fulfill any of such conditions. In connection with the
foregoing, Image Sciences will (a) refrain from any actions that would cause
any of its representations and warranties to be inaccurate in any material
respect as of the Closing, (b) execute and deliver the agreements and other
documents referred to in Section 11, (c) comply in all material respects with
all applicable Laws in connection with its execution, delivery and performance
of this Agreement and the Transactions, (d) use commercially reasonable
efforts to obtain in a timely manner all necessary waivers, consents and
approvals required under any Laws, Contracts or otherwise, including any Image
Sciences Required Consents, and (e) use commercially reasonable efforts to
take, or cause to be taken, all other actions and to do, or cause to be done,
all other things reasonably necessary, proper or advisable to consummate and
make effective as promptly as practicable the Transactions. Image Sciences
shall give FormMaker prompt written notice of any event or development that
occurs or fails to occur (and that is known to Image Sciences) that gives
Image Sciences reason to believe that the conditions set forth in Sections 9
and 11 will not be satisfied prior to the Termination Date.
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8.2 Conduct of the Business. Except as disclosed in the Image Sciences
Disclosure Schedule, Image Sciences shall not do any of the following prior to
the Closing unless waived by FormMaker in writing: amend its Charter Documents
or bylaws; merge or consolidate with, or purchase substantially all of the
assets of, or otherwise acquire any business of, any corporation, partnership
or other business organization or business division thereof; split, combine or
reclassify its outstanding capital stock or issue any additional capital stock
(except for capital stock issuable upon conversion or exercise of currently
outstanding securities) or options, warrants or other rights to purchase
capital stock or securities convertible into capital stock; pay any dividends
or redeem any of its outstanding capital stock; enter into any Contract or
otherwise incur any Liability outside the ordinary course of business unless
the executory obligation on the part of Image Sciences in any such individual
case is less than $100,000; incur any additional indebtedness for borrowed
money outside the normal course of business; discharge or satisfy any
Encumbrance or pay or satisfy any material Liability except pursuant to the
terms thereof; compromise, settle or otherwise adjust any material claim or
litigation unless such compromise, settlement or adjustment involves a sum of
not more than $100,000 in excess of reserves; or make any capital expenditures
of more than $100,000 in the aggregate; or modify existing benefit plans or
enter into new employment agreements. Nothing contained in this Agreement
shall give FormMaker, directly or indirectly, the right to control or direct
Image Sciences' operations prior to the Effective Time.
8.3 Access to Information. Image Sciences shall give FormMaker and its
representatives (including FormMaker's accountants, counsel and employees,
each, a "FormMaker Representative"), upon reasonable notice and during normal
business hours, full access to the properties, contracts, books, records and
affairs of Image Sciences. Image Sciences shall cause its officers and
employees to furnish to FormMaker all documents, records and information as
FormMaker may reasonably request.
8.4 No Solicitation. From and after the date hereof, Image Sciences, without
the prior written consent of FormMaker, will not, and will not authorize or
permit any of the Image Sciences Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal. Image
Sciences shall notify FormMaker orally and in writing of any such inquiries,
offers or proposals (including the terms and conditions of any such proposal
and the identity of the person making it), within 24 hours of the receipt
thereof, shall keep FormMaker informed of the status and details of any such
inquiry, offer or proposal, and shall give FormMaker five days' advance notice
of any agreement to be entered into with, or any information to be supplied
to, any Person making such inquiry, offer or proposal.
8.5 Image Sciences Special Meeting. In connection with the Image Sciences
Special Meeting, Image Sciences shall (a) deliver to its shareholders as
promptly as practicable the Joint Proxy Statement and all other materials
required for such meeting, (b) use all reasonable efforts to obtain the
necessary approvals by its shareholders of the Merger and this Agreement and
(c) otherwise comply with all legal requirements applicable to such meeting.
8.6 Rule 145 Affiliates. Prior to the Closing, Image Sciences shall identify
in a letter to the Company all Persons who might, at the time of the Image
Sciences Special Meeting, be deemed to be Securities Act Affiliates. Image
Sciences shall use its commercially reasonable efforts to cause each Person
who is identified as a possible Securities Act Affiliate to enter into prior
to the Effective Time an agreement in form and substance reasonably acceptable
to the Company pursuant to which each such Person acknowledges such Person's
responsibilities as a Securities Act Affiliate.
8.7 Expenses. Image Sciences, or the Company if the Merger becomes
effective, shall pay all of the legal, accounting and other expenses incurred
by Image Sciences in connection with the Transactions, including the
following: fees and other costs payable with respect to providing information
for inclusion in the Registration Statement; fees and expenses of Price
Waterhouse LLP for work related to Image Sciences; and fees and expenses of
legal counsel to Image Sciences.
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8.8 Image Sciences Closing Transactions. Image Sciences shall not distribute
to its stockholders and option holders more than $8,000,000 in connection with
the Image Sciences Closing Transactions.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES.
All obligations of the Parties to consummate the Transactions are subject to
the satisfaction of each of the following conditions:
9.1 Legality. No Law or Court Order shall have been enacted, entered,
promulgated or enforced by any court or governmental authority that is in
effect and has the effect of (a) making the Merger illegal or otherwise
prohibiting the consummation of the Merger or (b) creating a Material Adverse
Effect on Image Sciences or FormMaker.
9.2 Registration Statement. The Registration Statement shall have become
effective, no stop order suspending the effectiveness of the Registration
Statement shall then be in effect, and no proceedings for that purpose shall
then be threatened by the SEC or shall have been initiated by the SEC and not
concluded or withdrawn. All state securities or blue sky permits or approvals
required to carry out the Transactions shall have been received.
9.3 Merger. The Merger shall be effective in the States of Texas and
Georgia.
9.4 Approval by Shareholders.
(a) The Merger shall have been approved by the Image Sciences Shareholders
in accordance with the TBCA and Dissenting Shares shall not represent more
than 8% of the total Image Sciences Common Stock outstanding immediately prior
to the Effective Time.
(b) The Merger shall have been approved by the FormMaker Shareholders in
accordance with the GBCC and Dissenting Shares shall not represent more than
8% of the total FormMaker Common Stock outstanding immediately prior to the
Effective Time.
9.5 Appointment of Directors and Officers. The Company, FormMaker and Image
Sciences shall each have (a) caused its Board of Directors to consist of a
total of seven members, (b) obtained any necessary resignations of incumbent
directors or officers, (c) elected the following persons to the respective
Boards of Directors of the Company, FormMaker and Image Sciences: three
persons designated by Image Sciences, three persons designated by the SG/TL
Stockholders, and one independent person designated mutually by Image Sciences
and the SG/TL Stockholders; and (d) appointed the following persons to the
following offices: Michael D. Andereck--President and Chief Executive Officer,
Arthur R. Spector--Chairman of the Board.
9.6 Administrative Services Agreements. The administrative services
agreements between Safeguard and FormMaker and Safeguard and MicroDynamics
shall have been terminated.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF IMAGE SCIENCES.
All obligations of Image Sciences to consummate the Transactions are subject
to the satisfaction (or waiver by Image Sciences) prior thereto of each of the
following conditions:
10.1 Representations and Warranties. The representations and warranties of
FormMaker contained in this Agreement shall be true and correct on the date
hereof and (except to the extent such representations and warranties speak as
of an earlier date) shall also be true and correct on and as of the Closing
Date, except for changes permitted under Section 7.2 hereof or otherwise
contemplated by this Agreement, with the same force and effect as if made on
and as of the Closing Date; provided, however, that for purposes of this
Section 10.1 only, such representations and warranties shall be deemed to be
true and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality qualifiers
contained therein) results or would reasonably be expected to result in a
Material Adverse Effect on the Company.
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10.2 Agreements, Conditions and Covenants. FormMaker shall have performed or
complied in all material respects with all agreements, conditions and
covenants required by this Agreement to be performed or complied with by it on
or before the Effective Time.
10.3 Certificates. Image Sciences shall have received a certificate of an
executive officer of FormMaker to the effect set forth in Sections 10.1 and
10.2.
10.4 Financial Performance. FormMaker shall have delivered to Image Sciences
an income statement in accordance with Section 6.2 that shows for the period
covered thereby before income taxes a loss of not more than $1,251,000 and
revenues of not less than $20,000,000.
10.5 Required Consents. FormMaker shall have obtained the FormMaker Required
Consents unless the failure to have obtained any such consent would not result
or reasonably be expected to result in a Material Adverse Effect on the
Company.
10.6 Ancillary Documents. FormMaker and the New Companies shall have
tendered executed copies of the respective Transaction Documents to which they
are intended to be parties. The Company and the SG/TL Stockholders shall have
tendered executed copies of the Stockholders' Agreement.
10.7 Legal Opinion. FormMaker shall have tendered a legal opinion of Morgan,
Lewis & Bockius LLP, counsel to FormMaker, in the form of that agreed to as of
the date hereof.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF FORMMAKER.
All obligations of FormMaker to consummate the Transactions are subject to
the satisfaction (or waiver by FormMaker) prior thereto of each of the
following conditions:
11.1 Representations and Warranties. The representations and warranties of
Image Sciences contained in this Agreement shall be true and correct on the
date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date, except for changes permitted under Section 8.2 hereof or
otherwise contemplated by this Agreement, with the same force and effect as if
made on and as of the Closing Date; provided, however, that for purposes of
this Section 11.1 only, such representations and warranties shall be deemed to
be true and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality qualifiers
contained therein) results or would reasonably be expected to result in a
Material Adverse Effect on the Company.
11.2 Agreements, Conditions and Covenants. Image Sciences shall have
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by
them on or before the Effective Time.
11.3 Certificates. FormMaker shall have received a certificate of an
executive officer of Image Sciences to the effect set forth in Sections 11.1
and 11.2 with respect to Image Sciences.
11.4 Financial Performance. Image Sciences shall have delivered to FormMaker
an income statement in accordance with Section 6.2 that shows for the period
covered thereby before income taxes income of not less than $3,200,000 and
revenues of not less than $11,000,000.
11.5 Required Consents. Image Sciences shall have obtained, without any
modification that FormMaker deems unacceptable, the Image Sciences Required
Consents unless the failure to have obtained any such consent would not result
or reasonably be expected to result in a Material Adverse Change on the
Company.
11.6 Ancillary Documents. Image Sciences shall have tendered executed copies
of the Transaction Documents to which it is intended to be a party. Xerox
shall have tendered an executed copy of the Stockholders' Agreement.
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11.7 Legal Opinion. Image Sciences shall have tendered a legal opinion of
Crouch & Hallett, counsel to Image Sciences, in the form of that agreed to as
of the date hereof.
12. TERMINATION.
12.1 Grounds for Termination. This Agreement may be terminated at any time
before the Effective Time, in each case as authorized by the respective Board
of Directors of Image Sciences and FormMaker:
(a) By mutual written consent of each of Image Sciences and FormMaker;
(b) By either Image Sciences or FormMaker if the Merger shall not have
been consummated on or before June 30, 1997 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 12.1(b) shall not be available to any Party whose failure to
fulfill any obligation under this Agreement has been the substantial cause
of, or substantially resulted in, the failure of the Effective Time to
occur on or before the Termination Date;
(c) By either Image Sciences or FormMaker if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued a Court Order (which Court Order the Parties
shall use commercially reasonable efforts to lift) that permanently
restrains, enjoins or otherwise prohibits the Transactions, and such Court
Order shall have become final and nonappealable;
(d) By either Image Sciences or FormMaker upon notice in writing to the
other party prior to the tenth business day following delivery to such
other party of the Second Stage Due Diligence Materials that such materials
have revealed matters which could have a Material Adverse Effect on the
combined entity as provided in Section 6.3.
(e) By Image Sciences if FormMaker or any New Company shall have
breached, or failed to comply with, any of its obligations under this
Agreement or any representation or warranty made by FormMaker shall have
been incorrect when made, and such breach, failure or misrepresentation is
not cured within 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations result or would reasonably be
expected to result in a Material Adverse Effect on the Company;
(f) By FormMaker if Image Sciences shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or warranty made by it shall have been
incorrect in any material respect when made, and such breach, failure or
misrepresentation is not cured within 20 days after notice thereof, and in
either case, any such breaches, failures or misrepresentations result or
would reasonably be expected to result in a Material Adverse Effect on the
Company.
12.2 Effect of Termination.
(a) If this Agreement is terminated under Section 12.1 hereof, and
subject to the provisions of Section 12.1, this Agreement shall become void
and there shall be no Liability on the part of any of the Parties, except
as set forth in this Section 12.2.
(b) If this Agreement is terminated by Image Sciences under Section
12.1(e) as a result of any breach by FormMaker or any New Company,
FormMaker shall pay to Image Sciences an amount equal to all of the
expenses incurred by Image Sciences in connection with the Transactions up
to a maximum of $100,000, except in the case of a termination due to a
wilful breach by FormMaker, FormMaker shall pay to Image Sciences $500,000.
(c) If this Agreement is terminated by FormMaker under Section 12.1(f) as
a result of any breach by Image Sciences, Image Sciences shall pay to
FormMaker an amount equal to all of the expenses incurred by FormMaker in
connection with the Transactions up to a maximum of $100,000, except in the
case of a termination due to a wilful breach by Image Sciences, Image
Sciences shall pay to FormMaker $500,000.
(d) If this Agreement is terminated by Image Sciences or FormMaker under
Section 12.1(b) as a result of the failure of Image Sciences to obtain all
required approvals for the Merger by its shareholders, Image
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Sciences shall pay to FormMaker an amount equal to all of the expenses
incurred by FormMaker in connection with the Transactions up to a maximum
of $100,000.
(e) If this Agreement is terminated by Image Sciences or FormMaker under
Section 12.1(b) as a result of the failure of FormMaker to obtain all
required approvals for the Merger by its shareholders, FormMaker shall pay
to Image Sciences an amount equal to all of the expenses incurred by Image
Sciences in connection with the Transactions up to a maximum of $100,000.
(f) The agreements contained in Sections 12.2(b), (c), (d) and (e) are an
integral part of the Transactions and constitute liquidated damages and not
a penalty. If one Party fails to promptly pay to the other any amounts due
under such Sections 12.2(b), (c), (d) and (e), the defaulting Party shall
pay the costs and expenses (including reasonable legal fees and expenses)
in connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the Prime Rate from the date such fee was
required to be paid.
13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Except for any agreements to be performed at least in part after the
Effective Time, the representations, warranties, covenants and other
agreements contained herein and in any certificate delivered pursuant hereto
shall not survive the Effective Time.
14. PUBLIC ANNOUNCEMENTS.
The Parties hereto will consult with each other before issuing any press
release or making any public statement with respect to this Agreement and the
Transactions and, except as may be required by applicable law or any stock
exchange regulations, no Party shall issue any such press release or make any
such public statement without the consent of the other parties hereto.
15. CONTENTS OF AGREEMENT.
This Agreement, together with the other Transaction Documents, sets forth
the entire understanding of the Parties hereto with respect to the
Transactions and supersedes all prior agreements or understandings among the
Parties regarding those matters.
16. AMENDMENT, PARTIES IN INTEREST, ASSIGNMENT, ETC.
This Agreement may be amended, modified or supplemented only by a written
instrument duly executed by each of the Parties hereto. If any provision of
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never
been contained herein. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, legal representatives,
successors and permitted assigns of the parties hereto. No Party hereto shall
assign this Agreement or any right, benefit or obligation hereunder. Any term
or provision of this Agreement may be waived at any time by the Party entitled
to the benefit thereof by a written instrument duly executed by such Party.
The parties hereto shall execute and deliver any and all documents and take
any and all other actions that may be deemed reasonably necessary by their
respective counsel to complete the Transactions.
17. INTERPRETATION.
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the
part the whole, (b) references to any gender include all genders, (c) "or" has
the inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase
"but not limited to" and (e) references to "hereunder" or "herein" relate to
this Agreement. The section and other headings contained in this Agreement are
for reference purposes only and shall not control or affect the construction
of this Agreement or the interpretation thereof in any respect. Section,
subsection, Schedule, Disclosure Schedule and Exhibit references are to this
Agreement
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unless otherwise specified. Each accounting term used herein that is not
specifically defined herein shall have the meaning given to it under GAAP.
18. NOTICES.
All notices that are required or permitted hereunder shall be in writing and
shall be sufficient if personally delivered or sent by mail, facsimile message
or Federal Express or other delivery service. Any notices shall be deemed
given upon the earlier of the date when received at, or the third day after
the date when sent by registered or certified mail or the day after the date
when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other Party
hereto:
If to Image Sciences:
Image Sciences, Inc.
5910 North Central Expressway
Suite 800
Dallas, Texas 75206
FAX: (214) 891-6678
Attention: Michael D. Andereck, President
with a required copy to:
Crouch & Hallett
717 No. Harwood, Suite 1400
Dallas, TX 75201
FAX: 214-922-4129
Attention: Bruce Hallett, Esquire
If to FormMaker:
2300 Windy Ridge Parkway
Suite 400 North
Atlanta, GA 30339
FAX: 770-859-0216
Attention: Arthur Spector, Chairman
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
FAX: 215-963-5299
Attention: Thomas J. Sharbaugh, Esquire
19. GOVERNING LAW; VENUE.
This Agreement shall be construed and interpreted in accordance with the
laws of the State of Delaware without regard to its provisions concerning
conflict of laws. Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of any court of competent jurisdiction in the State of
Delaware and the United States District Court for the District of Delaware and
any other court of the State of Delaware and the United States with
jurisdiction to hear appeals from any such courts.
20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be binding as of the date first written above, and all of which shall
constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
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<PAGE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as
of the day and year first written above.
DocuCorp, Inc.
/s/ Michael D. Andereck
By:__________________________________
Title: President
ISI Merger Corp.
/s/ Arthur R. Spector
By:__________________________________
Title: Chairman of the Board of
Directors
FormMaker Acquisition Corp.
/s/ Arthur R. Spector
By:__________________________________
Title: Chairman of the Board of
Directors
Image Sciences, Inc.
/s/ Michael D. Andereck
By:__________________________________
Title: President
FormMaker Software, Inc.
/s/ Arthur R. Spector
By:__________________________________
Title: Chairman of the Board of
Directors
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<PAGE>
APPENDIX B
TEXAS BUSINESS CORPORATION ACT
ARTICLES 5.11, 5.12 AND 5.13 RELATING TO DISSENTERS' RIGHTS
5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN CORPORATE
ACTIONS.
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation
requiring the special authorization of the shareholders as provided by this
Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1) the shares held by the shareholder are part
of a class shares of which are listed on a national securities exchange, or
are held of record by not less than 2,000 holders, on the record date fixed to
determine the shareholders entitled to vote on the plan of merger or the plan
of exchange, and (2) the shareholder is not required by the terms of the plan
of merger or the plan of exchange to accept for his shares any consideration
other than (a) shares of a corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares of
which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not
less than 2,000 holders, and (b) cash in lieu of fractional shares otherwise
entitled to be received.
5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTION.
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised
if the action is effective and giving the shareholder's address, to
which notice thereof shall be delivered or mailed in that event. If the
action is effected and the shareholder shall not have voted in favor of
the action, the corporation, in the case of action other than a merger,
or the surviving or new corporation (foreign or domestic) or other
entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the action
is effected, deliver or mail to the shareholder written notice that the
action has been effected, and the shareholder may, within ten (10) days
from the delivery or mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the day immediately preceding the meeting, excluding any
appreciation or depreciation in anticipation of the proposed action.
The demand shall state the number and class of the shares owned by the
shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10)
day period shall be bound by the action.
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(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in
the case of action other than a merger, and the surviving or new
corporation (foreign or domestic) or other entity that is liable to
discharge the shareholder's right of dissent, in the case of a merger,
shall, within ten (10) days after the date the action is effected, mail
to each shareholder of record as of the effective date of the action
notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice
shall be accompanied by a copy of this Article and any articles or
documents filed by the corporation with the Secretary of State to
effect the action. If the shareholder shall not have consented to the
taking of the action, the shareholder may, within twenty (20) days
after the mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as
the case may be, for payment of the fair value of the shareholder's
shares. The fair value of the shares shall be the value thereof as of
the date the written consent authorizing the action was delivered to
the corporation pursuant to Section A of Article 9.10 of this Act,
excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by
the dissenting shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand
within the twenty (20) day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty
(60) day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved
by the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
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C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled
to payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to
payment. The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only
upon, and simultaneously with, the surrender to the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of
duly endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as
court costs, and all court costs, shall be allotted between the parties in the
manner that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of
the agreed value of the shares or pursuant to payment of the judgment entered
for the value of the shares, as in this Article provided, shall, in the case
of a merger, be treated as provided in the plan of merger and, in all other
cases, may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article,
any shareholder who fails to comply with the requirements of this Article
shall not be entitled to bring suit for the recovery of the value of his
shares or money damages to the shareholder with respect to the action.
5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS.
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles
and the right to maintain an appropriate action to obtain relief on the ground
that the corporate action would be or was fraudulent, and the respective
shares for which payment has been demanded shall not thereafter be considered
outstanding for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his
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shares in accordance with either Article 5.12 or 5.16 of this Act, each holder
of certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good
and sufficient cause shown shall otherwise direct. If uncertificated shares
for which payment has been demanded or shares represented by a certificate on
which notation has been so made shall be transferred, any new certificate
issued therefor shall bear similar notation together with the name of the
original dissenting holder of such shares and a transferee of such shares
shall acquire by such transfer no rights in the corporation other than those
which the original dissenting shareholder had after making demand for payment
of the fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section
B of this Article the corporation shall terminate the shareholder's rights
under Article 5.12 or 5.16 of this Act, as the case may be, or if no petition
asking for a finding and determination of fair value of such shares by a court
shall have been filed within the time provided in Article 5.12 or 5.16 of this
Act, as the case may be, or if after the hearing of a petition filed pursuant
to Article 5.12 or 5.16, the court shall determine that such shareholder is
not entitled to the relief provided by those articles, then, in any such case,
such shareholder and all persons claiming under him shall be conclusively
presumed to have approved and ratified the corporate action from which he
dissented and shall be bound thereby, the right of such shareholder to be paid
the fair value of his shares shall cease, and his status as a shareholder
shall be restored without prejudice to any corporate proceedings which may
have been taken during the interim, and such shareholder shall be entitled to
receive any dividends or other distributions made to shareholders in the
interim.
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APPENDIX C
GEORGIA BUSINESS CORPORATION CODE
14-2-1302 RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholders is entitled to vote on the merger;
or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale
or exchange pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Code Section 14-2-604; or
(F) Cancels redeems, or repurchases all or part of the shares of the
class;
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirement of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporation action
was obtained by fraudulent and deceptive means, regardless of weather the
shareholder have exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale of exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except share of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for script or cash payments in lieu of fractional
shares; or
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(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise. (Last amended by
Act 567, L'89, eff.7-1-89.)
14-2-1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
14-2-1320 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section 14-2-
1302 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in Code Section 14-2-
1322 no later than ten days after the corporate action was taken. (Last
amended by Act 526, L. 93, eff. 7-1-93.)
14-2-1321 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' right under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied
the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 or more than 60 days after the date the
notice required in subsection (a) of this Code section is delivered; and
(4) Be accompanied by a copy of this article.
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14-2-1323 DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demand payment and deposits his shares under
subsection (a) of this Code section retains all other right of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this article.
14-2-1324 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertified shares form the
date of the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
14-2-1325 OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year ending
not more than 16 months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment
for his or her shares shall be made within 60 days after the making of the
offer or the taking of the proposed corporate action, whichever is later.
(Last amended by Act 526, L. "93, eff. 7-1-93.)
14-2-1326 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure. (Last amended by Act 965, L. "90, eff. 3-22-90.)
14-2-1327 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
C-3
<PAGE>
(1) The dissenter believes that the amount offered under Code Section 14-
2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment
of his estimate of the fair value of his shares and interest due. (Last
amended by Act 526, L. '93, eff. 7-1-93.)
14-2-1330 COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares were acquired
by the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment. (Last amended by ct 526, L. '93, eff. 7-1-
93.)
C-4
<PAGE>
14-2-1331 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-2-
1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against all or some of the dissenters, in
amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
14-2-1332 LIMITATION OF ACTIONS.
No actions by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner the person reasonably believed
to be in or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. In the case of an action by or in
the right of the corporation, no indemnification may be made with respect to
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the court of
chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees) actually or reasonably incurred by such person in connection
therewith.
B. As permitted by the Delaware General Corporation Law, DocuCorp has
included a provision in its Certificate of Incorporation (Exhibit 3.1 hereto)
that, subject to certain limitations, eliminates the ability of DocuCorp and
its stockholders to recover monetary damages from a director of DocuCorp for
breach of fiduciary duty as a director. Article VII of DocuCorp's Bylaws
(Exhibit 3.2 hereto) provides for indemnification of DocuCorp's directors and
officers and advancement of expenses to the extent permitted by Section 145.
C. As authorized by Section 145 of the Delaware General Corporation Law and
Article VII of DocuCorp's Bylaws, DocuCorp intends to apply for, on behalf of
its directors and officers, insurance protection against certain liabilities
arising out of the discharge of their duties, as well as insurance covering
DocuCorp for indemnification payments made to its directors and officers for
certain liabilities, to be effective contemporaneously with the consummation
of the Merger. The premiums for such insurance are to be paid by DocuCorp.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of January 15, 1997, among the
Registrant, Image Sciences, Inc., FormMaker Software, Inc., ISI
Merger Corp. and FormMaker Acquisition Corp. is Appendix A to the
Joint Proxy Statement/Prospectus included in Part I and is
incorporated herein by reference.
3.1* Certificate of Incorporation.
3.2* Bylaws.
5** Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of DocuCorp Common Stock being registered.
8** Opinion of Steptoe & Johnson, Special Tax Counsel, regarding tax
matters.
10.1** Marketing Agreement between FormMaker Software, Inc. and Policy
Management Systems Corporation effective January 1, 1997.
10.2* Cooperative Marketing Agreement between Image Sciences, Inc. and Xerox
Corporation August 16, 1994.
10.3* Liquidity Agreement among the Registrant, Safeguard Scientifics
(Delaware), Inc., Safeguard Scientifics, Inc., Technology Leaders II
L.P. and Technology Leaders II Offshore C.V. dated January 15, 1997.
10.4* Voting and Lockup Agreement among Xerox Corporation, Michael D.
Andereck, Safeguard Scientifics (Delaware), Inc., Safeguard
Scientifics, Inc., Technology Leaders II L.P., Technology Leaders II
Offshore C.V., Joe A. Rose, Samuel M. Wilkes and Arthur R. Spector
dated January 15, 1997.
10.5* Form of Stockholders' Agreement.
10.6* Director Designation Agreement between Michael D. Andereck and Xerox
Corporation dated January 15, 1997.
10.7* Co-Sale Agreement among Safeguard Scientifics (Delaware), Inc.,
Technology Leaders II L.P., Technology Leaders II Offshore C.V. and
Samuel M. Wilkes dated January 15, 1997.
10.8+* Employment Agreement between Michael D. Andereck and the Registrant.
10.9+* Employment Agreement between Samuel M. Wilkes and the Registrant.
10.10* Credit Agreement between FormMaker Software, Inc. and NationsBank of
Georgia, National Association, dated as of December 20, 1995.
11* Statement re: Computation of Per Share Earnings.
21* Subsidiaries of the Registrant.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3** Consent of Morgan, Lewis & Bockius LLP (included in its opinion filed
as Exhibit 5 hereto).
23.4** Consent of Steptoe & Johnson (included in its opinion filed as Exhibit
8 hereto).
24.1* Power of Attorney (included on signature page to this Registration
Statement).
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ Compensation plans and arrangements for executives and others.
II-2
<PAGE>
(b) Financial Statement Schedules.
The following financial statement schedules not included in the prospectus
appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
PAGE SCHEDULE
---- --------
<S> <C>
S-1 Schedule II - Valuation and Qualifying Accounts of Image Sciences, Inc.
S-2 Report of Coopers & Lybrand L.L.P., Independent Accountants
S-3 Schedule II-Valuation and Qualifying Accounts of FormMaker Software, Inc.
</TABLE>
All other schedules are omitted as the required information is included in
the Image Sciences or FormMaker consolidated financial statements or the
related notes or such schedules are not applicable.
ITEM 22. UNDERTAKINGS.
A. (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through the
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
D. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when in became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN DALLAS, TEXAS ON
FEBRUARY 21, 1997.
DocuCorp, Inc.
/s/ Michael D. Andereck
By __________________________________
MICHAEL D. ANDERECK
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
EACH PERSON IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS MICHAEL D.
ANDERECK AND ARTHUR R. SPECTOR, AND EACH OF THEM ACTING ALONE, HIS OR HER TRUE
AND LAWFUL ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND
CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, ANY AND ALL AMENDMENTS
AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND
CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS OR HER SUBSTITUTE OR
SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
NAME CAPACITY DATE
/s/ Michael D. Andereck Chief Executive February 21, 1997
- -------------------------------------
MICHAEL D. ANDERECK Officer and
President
(principal
executive officer)
and Director
/s/ Todd A. Rognes Senior Vice February 21, 1997
- -------------------------------------
TODD A. ROGNES President of
Finance (principal
financial and
accounting officer)
/s/ Arthur R. Spector Chairman of the February 21, 1997
- -------------------------------------
ARTHUR R. SPECTOR Board of Directors
/s/ Milledge A. Hart, III Director February 21, 1997
- -------------------------------------
MILLEDGE A. HART, III
<PAGE>
NAME CAPACITY DATE
/s/ John D. Loewenberg Director February 21, 1997
- -------------------------------------
JOHN D. LOEWENBERG
/s/ Warren V. Musser Director February 21, 1997
- -------------------------------------
WARREN V. MUSSER
<PAGE>
IMAGE SCIENCES, INC
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JULY 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND CHARGED TO OTHER BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS (A) DEDUCTIONS OF PERIOD
- ----------- ------------ ---------- ---------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Reserve for bad debts-
accounts:
1994.................. $250,000 $277,000 $(202,000) $ -- $325,000
1995.................. 325,000 271,000 (271,000) -- 325,000
1996.................. 325,000 350,131 (325,131) -- 350,000
</TABLE>
- --------
(a) Such amounts relate to the utilization of the valuation and qualifying
accounts to specific items for which they were established in the accounts
receivable accounts.
S-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of FormMaker Software, Inc.:
In connection with our audits of the consolidated financial statements of
FormMaker Software, Inc. as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, which financial statements
are included in this Registration Statement on Form S-4, we have also audited
the financial statement schedules listed in Item 21(b) herein.
In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included herein.
Coopers & Lybrand L.L.P.
Atlanta, Georgia January 30, 1997
S-2
<PAGE>
FORMMAKER SOFTWARE, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER DEDUCTIONS AT END
CLASSIFICATION OF YEAR EXPENSES ACCOUNTS (A) OF YEAR
-------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996
Allowances reducing the
assets in the balance
sheet:
Doubtful accounts
receivable.............. $150,000 $ -- $ -- $ (68,814) $ 81,186
Deferred tax assets...... 422,535 -- 763,525 -- 1,186,060
-------- -------- -------- --------- ----------
Total................... $572,535 $ -- $763,525 $ (68,814) $1,267,246
======== ======== ======== ========= ==========
1995
Allowances reducing the
assets in the balance
sheet:
Doubtful accounts
receivable.............. $ 16,000 $151,853 $ -- $ (17,853) $ 150,000
Deferred tax assets...... 180,000 -- 242,535 -- 422,535
-------- -------- -------- --------- ----------
Total................... $196,000 $151,853 $242,535 $ (17,853) $ 572,535
======== ======== ======== ========= ==========
1994
Allowances reducing the
assets in the balance
sheet:
Doubtful accounts
receivable.............. $ 7,500 $ 8,500 $ -- $ -- $ 16,000
Deferred tax assets...... 486,000 -- -- (306,000) 180,000
-------- -------- -------- --------- ----------
Total................... $493,500 $ 8,500 $ -- $(306,000) $ 196,000
======== ======== ======== ========= ==========
</TABLE>
- --------
(a) The reductions in the allowance for doubtful accounts receivable relate
principally to charges for which reserves were provided, net of
recoveries. The reduction in the valuation allowance for deferred tax
assets represents the reduction of a valuation allowance on deferred tax
net operating loss carryforward assets for which realization became more
likely than not during 1994.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
---------- ----------- -----------
<C> <S> <C>
2.1* Agreement and Plan of Merger, dated as of January 15,
1997, among the Registrant, Image Sciences, Inc.,
FormMaker Software, Inc., ISI Merger Corp. and
FormMaker Acquisition Corp. is Appendix A to the
Joint Proxy Statement/Prospectus included in Part I
and is incorporated herein by reference.
3.1* Certificate of Incorporation.
3.2* Bylaws.
5** Opinion of Morgan, Lewis & Bockius LLP regarding
legality of the shares of DocuCorp Common Stock
being registered.
8** Opinion of Steptoe & Johnson, Special Tax Counsel,
regarding tax matters.
10.1** Marketing Agreement between FormMaker Software, Inc.
and Policy Management Systems Corporation effective
January 1, 1997.
10.2* Cooperative Marketing Agreement between Image
Sciences, Inc. and Xerox Corporation August 16,
1994.
10.3* Liquidity Agreement among the Registrant, Safeguard
Scientifics (Delaware), Inc., Safeguard Scientifics,
Inc., Technology Leaders II L.P. and Technology
Leaders II Offshore C.V. dated January 15, 1997.
10.4* Voting and Lockup Agreement among Xerox Corporation,
Michael D. Andereck, Safeguard Scientifics
(Delaware), Inc., Safeguard Scientifics, Inc.,
Technology Leaders II L.P., Technology Leaders II
Offshore C.V., Joe A. Rose, Samuel M. Wilkes and
Arthur R. Spector dated January 15, 1997.
10.5* Form of Stockholders' Agreement.
10.6* Director Designation Agreement between Michael D.
Andereck and Xerox Corporation dated January 15,
1997.
10.7* Co-Sale Agreement among Safeguard Scientifics
(Delaware), Inc., Technology Leaders II L.P.,
Technology Leaders II Offshore C.V. and Samuel M.
Wilkes dated January 15, 1997.
10.8+* Employment Agreement between Michael D. Andereck and
the Registrant dated January 15, 1997.
10.9+* Employment Agreement between Samuel M. Wilkes and the
Registrant dated January 15, 1997.
10.10* Credit Agreement between FormMaker Software, Inc. and
NationsBank of Georgia, National Association dated
as of December 20, 1995.
11* Statement re: Computation of Per Share Earnings.
21* Subsidiaries of the Registrant.
23.1* Consent of Price Waterhouse LLP.
23.2* Consent of Coopers & Lybrand L.L.P.
23.3** Consent of Morgan, Lewis & Bockius LLP (included in
its opinion filed as Exhibit 5 hereto).
23.4** Consent of Steptoe & Johnson, Special Tax Counsel
(included in its opinion filed as Exhibit 8 hereto).
24.1* Power of Attorney (included on signature page to this
Registration Statement).
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ Compensation plans and arrangements for executives and others.
<PAGE>
PROXY PROXY
IMAGE SCIENCES, INC.
Special Meeting of Shareholders to be Held ____________, 1997
This Proxy is solicited on behalf of the Board of Directors. The
undersigned hereby appoints _________________ and ____________ or either of them
acting alone in the absence of the other, the attorneys, agents and proxies of
the undersigned, with full powers of substitution (the "Proxies"), to attend and
act as proxy or proxies of the undersigned at the Special Meeting of
Shareholders (the "Special Meeting") of Image Sciences, Inc. (the "Company") to
be held at _____________________, on ___________, 1997 at _____ a.m. or any
adjournment thereof, and to vote as specified herein the number of shares which
the undersigned, if personally present, would be entitled to vote.
1. Approval of Agreement and Plan of Merger. Approval of the Agreement and
Plan of Merger dated January 15, 1997 among DocuCorp, Inc., the
Company, FormMaker Software, Inc., ISI Merger Corp. and FormMaker
Acquisition Corp.
FOR [_] AGAINST [_] ABSTAIN [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
2. Other Business. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the Special
Meeting.
IMPORTANT - PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
This Proxy when properly executed will be voted as specified. If no
instruction is specified with respect to the matter to be acted upon, the shares
represented by the Proxy will be voted "FOR" the approval of the Agreement and
Plan of Merger. If any other business is presented at the Special Meeting, this
Proxy confers authority to and shall be voted in accordance with the
recommendations of the Board of Directors. This Proxy is solicited on behalf of
the Board of Directors, and may be revoked prior to its exercise by filing with
the Secretary of the Company a duly executed proxy bearing a later date or an
instrument revoking this Proxy, or by attending the meeting and electing to vote
in person.
Please sign exactly as name or names appear on this Proxy. If stock is
held jointly, each holder should sign. If signing as attorney, trustee,
executor, administrator, custodian or corporate officer, please give full title.
DATE , 1996
----------------------------------
--------------------------------------------
SIGNATURE
--------------------------------------------
SIGNATURE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
PROXY PROXY
FORMMAKER SOFTWARE, INC.
Special Meeting of Shareholders to be Held ____________, 1997
This Proxy is solicited on behalf of the Board of Directors. The undersigned
hereby appoints _________________ and ____________ or either of them acting
alone in the absence of the other, the attorneys, agents and proxies of the
undersigned, with full powers of substitution (the "Proxies"), to attend and act
as proxy or proxies of the undersigned at the Special Meeting of Shareholders
(the "Special Meeting") of FormMaker Software, Inc. (the "Company") to be held
at _____________________, on ___________, 1997 at _____ a.m. or any
adjournment thereof, and to vote as specified herein the number of shares
which the undersigned, if personally present, would be entitled to vote.
1.Approval of Agreement and Plan of Merger. Approval of the Agreement and Plan
of Merger dated January 15, 1997 among DocuCorp, Inc., Image Sciences, Inc.,
the Company, ISI Merger Corp. and FormMaker Acquisition Corp.
FOR [_] AGAINST [_] ABSTAIN [_]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
2.Other Business. In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the Special Meeting.
IMPORTANT - PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
This Proxy when properly executed will be voted as specified. If no instruction
is specified with respect to the matter to be acted upon, the shares represented
by the Proxy will be voted "FOR" the approval of the Agreement and Plan of
Merger. If any other business is presented at the Special Meeting, this Proxy
confers authority to and shall be voted in accordance with the recommendations
of the Board of Directors. This Proxy is solicited on behalf of the Board of
Directors, and may be revoked prior to its exercise by filing with the Secretary
of the Company a duly executed proxy bearing a later date or an instrument
revoking this Proxy, or by attending the meeting and electing to vote in person.
Please sign exactly as name or names appear on this Proxy. If stock is held
jointly, each holder should sign. If signing as attorney, trustee, executor,
administrator, custodian or corporate officer, please give full title.
DATE , 1996
----------------------------------
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SIGNATURE
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SIGNATURE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
among
DOCUCORP, INC.
(a Delaware corporation),
ISI MERGER CORP.
(a Texas corporation),
FORMMAKER ACQUISITION CORP.
(a Georgia corporation),
IMAGE SCIENCES, INC.
(a Texas corporation)
and
FORMMAKER SOFTWARE, INC.
(a Georgia corporation)
================================================================================
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Section Page
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<C> <S> <C>
1. Definitions............................................................ 2
2. Plan of Merger........................................................ 12
2.1 Surviving Corporation........................................... 12
2.2 Effective Time.................................................. 13
2.3 Effects of the Merger........................................... 13
2.4 Name of the Surviving Texas Corporation and the Surviving
Georgia Corporation; Articles of Incorporation and Bylaws....... 13
2.5 Directors and Officers.......................................... 13
2.6 Conversion of Image Sciences Securities......................... 13
2.7 Conversion of FormMaker Securities.............................. 14
2.8 Capital Stock of Texas Sub and Georgia Sub...................... 16
2.9 Approval by Shareholders........................................ 16
2.10 Merger Closing.................................................. 16
2.11 Dissenting Shares............................................... 16
2.12 Exchange of Converted Shares, Image Sciences Options, FormMaker
Options and FormMaker Warrants.................................. 17
2.13 No Further Transfer of Shares................................... 18
3. Closing............................................................... 19
3.1 Location, Date.................................................. 19
3.2 Deliveries...................................................... 19
4. Representations and Warranties of Image Sciences...................... 19
4.1 Corporate Status................................................ 19
4.2 Authorization................................................... 19
4.3 Consents and Approvals.......................................... 20
4.4 Capitalization and Stock Ownership.............................. 20
4.5 Financial Statements............................................ 20
4.6 Title to Assets and Related Matters............................. 21
4.7 Real Property................................................... 21
4.8 Certain Personal Property....................................... 22
4.9 Non-Real Estate Leases.......................................... 22
4.10 Accounts Receivable............................................. 22
4.11 Inventory....................................................... 22
4.12 Liabilities..................................................... 23
4.13 Taxes........................................................... 23
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
4.14 Subsidiaries.................................................... 23
4.15 Legal Proceedings and Compliance with Law....................... 23
4.16 Contracts....................................................... 24
4.17 Insurance....................................................... 25
4.18 Intellectual Property and Software Products..................... 25
4.19 Employee Relations.............................................. 27
4.20 ERISA........................................................... 27
4.21 Corporate Records............................................... 29
4.22 Absence of Certain Changes...................................... 29
4.23 Previous Sales; Warranties...................................... 30
4.24 Customers....................................................... 30
4.25 Finder's Fees................................................... 30
4.26 Additional Information.......................................... 30
4.27 Accuracy of Information......................................... 31
4.28 Hart-Scott-Rodino Act........................................... 31
5. Representations and Warranties of FormMaker........................... 31
5.1 Corporate Status................................................ 31
5.2 Authorization................................................... 31
5.3 Consents and Approvals.......................................... 32
5.4 Capitalization and Stock Ownership.............................. 32
5.5 Financial Statements............................................ 33
5.6 No Company, Texas Sub or Georgia Sub Assets, Liabilities or
Business........................................................ 34
5.7 Title to Assets and Related Matters............................. 34
5.8 Real Property................................................... 35
5.9 Certain Personal Property....................................... 35
5.10 Non-Real Estate Leases.......................................... 35
5.11 Accounts Receivable............................................. 36
5.12 Inventory....................................................... 36
5.13 Liabilities..................................................... 36
5.14 Taxes........................................................... 36
5.15 Subsidiaries.................................................... 36
5.16 Legal Proceedings and Compliance with Law....................... 37
5.18 Insurance....................................................... 39
5.19 Intellectual Property and Software Products..................... 39
5.20 Employee Relations.............................................. 40
5.21 ERISA........................................................... 41
5.22 Corporate Records............................................... 43
5.23 Absence of Certain Changes...................................... 43
5.24 Previous Sales; Warranties...................................... 44
5.25 Customers....................................................... 44
</TABLE>
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<TABLE>
<C> <S> <C>
5.26 Finder's Fees................................................... 44
5.27 Additional Information.......................................... 44
5.28 Accuracy of Information......................................... 44
5.29 Hart-Scott-Rodino Act........................................... 45
6. Joint Covenants....................................................... 45
6.1 Registration Statement.......................................... 45
6.2 Financial Statements............................................ 46
6.3 Due Diligence................................................... 46
7. Covenants of FormMaker and the Company................................ 46
7.1 Fulfillment of Closing Conditions............................... 46
7.2 Conduct of the Business......................................... 47
7.3 Access to Information........................................... 47
7.4 No Solicitation................................................. 47
7.5 The FormMaker Special Meeting................................... 48
7.6 Rule 145 Affiliates............................................. 48
7.7 Stock Option Plan............................................... 48
7.8 Expenses........................................................ 48
7.9 Indemnification................................................. 48
7.10 New Bank Loan................................................... 49
7.11 Related Parties................................................. 49
8. Covenants of Image Sciences........................................... 49
8.1 Fulfillment of Closing Conditions................................ 49
8.2 Conduct of the Business.......................................... 49
8.3 Access to Information............................................ 50
8.4 No Solicitation.................................................. 50
8.5 Image Sciences Special Meeting................................... 50
8.6 Rule 145 Affiliates.............................................. 50
8.7 Expenses......................................................... 51
8.8 Image Sciences Closing Transactions.............................. 51
9. Conditions Precedent to Obligations of All Parties.................... 51
9.1 Legality......................................................... 51
9.2 Registration Statement........................................... 51
9.3 Merger........................................................... 51
9.4 Approval by Shareholders......................................... 51
9.5 Appointment of Directors and Officers............................ 52
9.6 Administrative Services Agreements............................... 52
</TABLE>
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<TABLE>
<C> <S> <C>
10. Conditions Precedent to Obligations of Image Sciences................. 52
10.1 Representations and Warranties.................................. 52
10.2 Agreements, Conditions and Covenants............................ 52
10.3 Certificates.................................................... 52
10.4 Financial Performance........................................... 52
10.5 Required Consents............................................... 52
10.6 Ancillary Documents............................................. 53
10.7 Legal Opinion................................................... 53
11. Conditions Precedent to Obligations of FormMaker...................... 53
11.1 Representations and Warranties.................................. 53
11.2 Agreements, Conditions and Covenants............................ 53
11.3 Certificates.................................................... 53
11.4 Financial Performance........................................... 53
11.5 Required Consents............................................... 53
11.6 Ancillary Documents............................................. 53
11.7 Legal Opinion................................................... 54
12. Termination........................................................... 54
13. Survival of Representations, Warranties and Covenants................. 56
14. Public Announcements.................................................. 56
15. Contents of Agreement................................................. 56
16. Amendment, Parties in Interest, Assignment, Etc....................... 56
17. Interpretation........................................................ 56
18. Notices............................................................... 57
19. Governing Law; Venue.................................................. 58
20. Counterparts.......................................................... 58
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of January 15, 1997 by and
among DocuCorp, Inc., a Delaware corporation (the "Company"), ISI Merger Corp.,
a Texas corporation and a wholly-owned subsidiary of the Company (the "Texas
Sub"), FormMaker Acquisition Corp., a Georgia corporation and a wholly-owned
subsidiary of the Company (the "Georgia Sub"), Image Sciences, Inc., a Texas
corporation ("Image Sciences"), and FormMaker Software, Inc., a Georgia
corporation ("FormMaker"). Certain other terms are used herein as defined below
in Section 1 or elsewhere in this Agreement.
Background
----------
This Agreement sets forth the terms and conditions under which (a) the
Texas Sub will merge with and into Image Sciences and (b) the Georgia Sub will
merge with and into FormMaker (collectively, the "Merger").
The Parties intend that, upon completion of the Transactions (defined
below), (a) Image Sciences will be a wholly-owned subsidiary of the Company, (b)
FormMaker will be a wholly-owned subsidiary of the Company and (c) for federal
income tax purposes, the Merger shall constitute a tax-free transaction under
the Internal Revenue Code of 1986, as amended (the "Code"), with respect to the
conversion of shares of capital stock of FormMaker and Image Sciences into
shares of stock of the Company.
Contemporaneously with the execution of this Agreement, Xerox Corporation,
a New York corporation ("Xerox"), Michael D. Andereck, an individual, Joe A.
Rose, an individual, Samuel M. Wilkes, an individual, Arthur R. Spector, an
individual, Safeguard Scientifics (Delaware), Inc., a Delaware corporation
("Safeguard Delaware"), Technology Leaders II L.P., a Delaware limited
partnership ("TL II"), and Technology Leaders II Offshore C.V., a Netherlands
Antilles limited partnership ("TL Offshore," and together with Safeguard
Delaware and TL II, the "SG/TL Stockholders"), shall have entered into Voting
and Lockup Agreements with respect to shares they hold in Image Sciences or
FormMaker, as the case may be, providing for, among other things, the voting of
such shares in favor of the Merger (the "Voting Agreements").
Contemporaneously with the execution of this Agreement, Safeguard
Scientifics, Inc., a Pennsylvania corporation ("Safeguard"), the SG/TL
Stockholders and the Company are entering into an agreement (the "Liquidity
Agreement") in which (i) Safeguard covenants to use commercially reasonable
efforts to conduct a Qualified Rights Offering (defined below) by September 30,
1997, (ii) the SG/TL Stockholders agree to purchase a certain number of shares
of Company Class A Common Stock (defined below) and to guarantee the New Bank
Loan of the Company or to continue to guarantee an existing line of credit of
FormMaker and (iii) the Company grants to the SG/TL
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Stockholders certain warrants to purchase securities of the Company. A
"Qualified Rights Offering" means a bona fide, stand-by commitment for an
underwritten public offering by JP Morgan & Co. or Hambrecht & Quist LLC, or a
nationally recognized investment bank of similar stature, or Tucker Anthony
Incorporated if such first named investment banks are not available, of Company
Rights (defined below) in which the managing underwriter values the equity of
the Company immediately prior to the offering, at $62.1 million or more (subject
to increase based upon equity issuances by the Company other than as
contemplated hereby or by the Liquidity Agreement).
Contemporaneously with the execution of this Agreement, the Company has
entered into employment agreements with Michael D. Andereck and Samuel M. Wilkes
(the "Employment Agreements").
Witnesseth
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the Parties hereto agree as
follows:
1. Definitions
-----------
For convenience, certain terms used in more than one part of this
Agreement are listed in alphabetical order and defined or referred to below
(such terms as well as any other terms defined elsewhere in this Agreement shall
be equally applicable to both the singular and plural forms of the terms
defined).
"Accounts Receivable" mean as of any date any trade accounts receivable,
notes receivable, bid or performance deposits, employee advances and other
miscellaneous receivables included in the Assets of Image Sciences or FormMaker,
as indicated by the context in which used.
"Affiliates" means, with respect to a particular Party, persons or entities
controlling, controlled by or under common control with that Party, as well as
any officers, directors and majority-owned entities of that Party and of its
other Affiliates. For the purposes of the foregoing, ownership, directly or
indirectly, of 20% or more of the voting stock or other equity interest shall be
deemed to constitute control.
"Agreement" means this Agreement and the Exhibits and Disclosure Schedules
hereto.
"Acquisition Proposal" is defined in Section 7.4.
"Articles of Merger" is defined in Section 2.2.
"Assets" means with respect to a particular Party all of the assets,
properties, goodwill and rights of every kind and description, real and
personal, tangible and intangible, wherever situated
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and whether or not reflected in such Party's most recent Financial Statements,
that are owned or possessed by such Party.
"Balance Sheet Date" is defined in Section 4.5.
"Benefit Plan" means (i) as to employees employed in the US, any (y)
"employee benefit plan" as defined in Section 3(3) of ERISA, and (z)
supplemental retirement, bonus, deferred compensation, severance, incentive
plan, program or arrangement or other employee fringe benefit plan, program or
arrangement; and (ii) as to employees employed outside the US, all employee
benefit, health, welfare, supplemental unemployment benefit, bonus, pension,
profit sharing, deferred compensation, stock compensation, stock purchase,
retirement, hospitalization insurance, medical, dental, legal, disability and
similar plans or arrangements or practices, but any such plan, program or
arrangement specified in clauses (i) or (ii) shall be included in this
definition only to the extent that it shall have existed, or any employee shall
have had any rights thereunder, within the three years immediately prior to the
date hereof.
"Business" means with respect to a particular Party its entire business,
operations and facilities.
"Certificates" is defined in Section 2.12.
"Charter Documents" means an entity's certificate or articles of
incorporation, certificate defining the rights and preferences of securities,
articles of organization, general or limited partnership agreement, certificate
of limited partnership, joint venture agreement or similar document governing
the entity.
"Closing" is defined in Section 3.1.
"Closing Common Shares" means the shares of Company Class A Common Stock to
be issued pursuant to Section 2 to the FormMaker Shareholders and the shares of
Company Class B Common Stock to be issued pursuant to Section 2 to the Image
Sciences Shareholders.
"Closing Date" is defined in Section 3.1.
"Code" is defined above in the Background.
"Common Controlled Entity" is defined in Section 4.20(d).
"Common Stock Dividend" means the cash dividend to holders of Image
Sciences Common Stock as part of the Image Sciences Closing Transactions.
"Company" is defined above in the preamble.
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<PAGE>
"Company Certificate of Incorporation" means the certificate of
incorporation of DocuCorp, Inc.
"Company Class A Common Stock" means the Class A Common Stock, par value
$0.01 per share, of the Company.
"Company Class B Common Stock" means the Class B Common Stock, par value
$0.01 per share, of the Company.
"Company Options" means options to purchase Company Class A Common Stock or
Company Class B Common Stock, as the case may be.
"Company Rights" means rights to purchase not more than 3,000,000 but
not less than 2,000,000 shares of Company Class A Common Stock pursuant to a
Qualified Rights Offering.
"Company Securities" means the Company Class A Common Stock, the
Company Class B Common Stock, the Company Warrants and the Company Options.
"Company Warrants" means warrants to purchase Company Class A Common Stock.
"Confidential Information" means any confidential information or trade
secrets of Image Sciences or FormMaker, as indicated by the context in which
used, including personnel information, know-how and other technical information,
customer lists, customer information and supplier information.
"Confidentiality Agreement" is defined in Section 4.18(e).
"Contract" means any written or oral contract, agreement, lease,
instrument, or other commitment that is binding on any person or its property
under applicable law.
"Converted Shares" is defined in Section 2.6(a).
"Copyrights" means registered copyrights, copyright applications and
unregistered copyrights.
"Corporate Party" is defined in Section 6.1(a).
"Court Order" means any judgment, decree, injunction, order or ruling
of any federal, state, local or foreign court or governmental or regulatory body
or authority that is binding on any person or its property under applicable law.
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<PAGE>
"Default" means (a) a breach, default or violation, (b) the occurrence
of an event that with or without the passage of time or the giving of notice, or
both, would constitute a breach, default or violation or (c) with respect to any
Contract, the occurrence of an event that with or without the passage of time or
the giving of notice, or both, would give rise to a right of termination,
renegotiation or acceleration or a payment obligation for material damages,
penalties or otherwise.
"Disclosure Schedules" means the Image Sciences Disclosure Schedule and the
FormMaker Disclosure Schedule, as indicated by the context in which used.
"Dissenting Shares" is defined in Section 2.11.
"Distributor Licenses" is defined in Section 4.18.
"Effective Time" is defined in Section 2.2.
"Employment Agreements" is defined above in the Background.
"Encumbrances" means any lien, mortgage, security interest, pledge,
restriction on transferability, defect of title or other claim, charge or
encumbrance of any nature whatsoever on any property or property interest,
except for Permitted Encumbrances.
"End-User Licenses" is defined in Section 4.18.
"Environmental Law" means all Laws and Court Orders relating to
Hazardous Substances, pollution or protection of the environment as well as any
principles of common law under which a Party may be held liable for the release
or discharge of any materials into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"FormMaker" is defined above in the preamble.
"FormMaker Balance Sheet" is defined in Section 5.5.
"FormMaker Common Stock" means the common stock, par value $0.01 per share,
of FormMaker.
"FormMaker Companies" means FormMaker and MicroDynamics.
"FormMaker Companies Assets" means the Assets of FormMaker and
MicroDynamics.
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"FormMaker Companies Business" means the Business of FormMaker and
MicroDynamics.
"FormMaker Companies Environmental Condition" is defined in Section
5.16(b).
"FormMaker Companies Non-Real Estate Leases" is defined in Section 5.10.
"FormMaker Companies Real Estate Leases" is defined in Section 5.8.
"FormMaker Companies Real Property" is defined in Section 5.8.
"FormMaker Companies Software Products" is defined in Section 5.19.
"FormMaker Disclosure Schedule" means the Disclosure Schedule containing
information relating to FormMaker pursuant to Section 5 and other provisions
hereof that has been provided to the other Parties on the date hereof.
"FormMaker Financial Statements" is defined in Section 5.5.
"FormMaker's knowledge" or "knowledge of FormMaker" means the actual
knowledge of any director or officer of FormMaker.
"FormMaker Optionholder" means a holder of FormMaker Options.
"FormMaker Options" means any options to acquire shares of FormMaker
Common Stock that are outstanding, whether or not then exercisable, immediately
prior to the Closing.
"FormMaker Representative" is defined in Section 8.3.
"FormMaker Required Consents" is defined in Section 5.3.
"FormMaker Securities" means the FormMaker Common Stock, the FormMaker
Options and the FormMaker Warrants.
"FormMaker Shareholder" means a holder of FormMaker Common Stock.
"FormMaker Special Meeting" is defined in Section 2.9(b).
"FormMaker Warrants" means any warrants to purchase FormMaker Common
Stock that are outstanding and exercisable immediately prior to the Closing.
"Form S-4 Registration Statement" is defined in Section 6.1(a).
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"GAAP" means U.S. generally accepted accounting principles.
"GBCC" means the Georgia Business Corporation Code, as amended.
"Georgia Sub" is defined above in the preamble.
"Governmental Permits" means all governmental permits, licenses,
registrations, certificates of occupancy, approvals and other governmental
authorizations.
"Hazardous Substances" means any gaseous, liquid or solid material or
waste that may or could pose a hazard to the environment or human health or
safety including (i) any "hazardous substances" as defined by the federal
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S)(S) 9601 et seq., (ii) any "extremely hazardous substance," "hazardous
-- ----
chemical," or "toxic chemical" as those terms are defined by the federal
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S) 11001 et
--
seq., (iii) any "hazardous waste," as defined under the federal Solid Waste
- ----
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. (S)(S) 6901 et seq., (iv) any "pollutant," as defined under the federal
-- ----
Water Pollution Control Act, 33 U.S.C. (S)(S) 1251 et seq., as any of such laws
-- ----
in clauses (i) through (iv) may be amended from time to time, and (v) any
regulated substance or waste under any Laws or Court Orders that currently exist
or that may be enacted, promulgated or issued in the future by any federal,
state or local governmental authorities concerning protection of the
environment.
"Holders" is defined in Section 2.12(a).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Image Sciences" is defined above in the preamble.
"Image Sciences Assets" means the Assets of Image Sciences.
"Image Sciences Balance Sheet" is defined in Section 4.5.
"Image Sciences Business" means the Business of Image Sciences.
"Image Sciences Closing Transactions" means the Tender Offer, the
Preferred Stock Dividend and the Common Stock Dividend.
"Image Sciences Common Stock" means the common stock, par value $0.01 per
share, of Image Sciences.
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"Image Sciences Disclosure Schedule" means the Disclosure Schedule
containing information relating to Image Sciences pursuant to Section 4 and
other provisions hereof that has been provided to the other Parties on the date
hereof.
"Image Sciences Environmental Condition" is defined in Section 4.15(b).
"Image Sciences Financial Statements" is defined in Section 4.5.
"Image Sciences' knowledge" or "knowledge of Image Sciences" means the
actual knowledge of any director or officer of Image Sciences.
"Image Sciences Non-Real Estate Leases" is defined in Section 4.9.
"Image Sciences Optionholder" means a holder of Image Sciences Options.
"Image Sciences Options" means any options to acquire shares of Image
Sciences Common Stock that are outstanding, whether or not then exercisable,
immediately prior to the Closing.
"Image Sciences Preferred Stock" means the convertible preferred stock, par
value $0.10 per share, of Image Sciences.
"Image Sciences Real Estate Leases" is defined in Section 4.7.
"Image Sciences Real Property" is defined in Section 4.7.
"Image Sciences Representative" is defined in Section 7.3.
"Image Sciences Required Consents" is defined in Section 4.3.
"Image Sciences Securities" means the Image Sciences Common Stock, the
Image Sciences Preferred Stock and the Image Sciences Options.
"Image Sciences Shareholder" means a holder of Image Sciences Common Stock
or Image Sciences Preferred Stock.
"Image Sciences Software Products" is defined in Section 4.18.
"Image Sciences Special Meeting" is defined in Section 2.9(a).
"Immaterial Lease" is defined in Section 4.9.
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"Intellectual Property" means any Copyrights, Patents, Trademarks,
technology rights and licenses, any Software Products (including any related
source or object codes therefore or documentation relating thereto), trade
secrets, franchises, know-how, inventions and other intellectual property.
"Inventory" means all inventory, including raw materials, supplies, work in
process and finished goods.
"Law" means any statute, law, ordinance, regulation, order or rule of
any federal, state, local, foreign or other governmental agency or body or of
any other type of regulatory body, including those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage control
matters.
"Letter of Transmittal" is defined in Section 2.12(a).
"Liability" means any direct or indirect liability, indebtedness,
obligation, expense, claim, loss, damage, deficiency, guaranty or endorsement of
or by any person, absolute or contingent, accrued or unaccrued, due or to become
due, liquidated or unliquidated.
"Liquidity Agreement" is defined above in the Background.
"Litigation" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or inquiry.
"Material Adverse Effect" means a material adverse effect on the Business
of Image Sciences, FormMaker or the Company, as indicated by the context in
which used, including the Assets, financial condition, results of operations,
liquidity, products, competitive position, customers and customer relations
thereof, and when used with respect to representations, warranties or
conditions, means the individual effect of the situation to which it relates and
also the aggregate effect of all similar situations unless the context indicates
otherwise.
"Merger" is defined above in Background.
"Merger Consideration" is defined in Section 2.6(a).
"MicroDynamics" means MicroDynamics, Ltd., a Delaware corporation and
majority-owned subsidiary of FormMaker.
"MicroDynamics Financial Statements" is defined in Section 5.5.
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"Minor Contract" means any Contract that has terminated or is
terminable by a party on not more than 30 days' notice without any Liability and
any Contract under which the executory obligation of a party involves an amount
of less than $10,000.
"Nasdaq National Market" means the Nasdaq National Market of The Nasdaq
Stock Market, Inc.
"New Bank Loan" is defined in Section 7.10.
"New Companies" means the Company, the Texas Sub and the Georgia Sub.
"New Option Plan" is defined in Section 7.7.
"Ordinary course" or "ordinary course of business" means the ordinary
course of business that is consistent with past practices.
"Party" means each of FormMaker, Image Sciences, the Company, the Texas Sub
and the Georgia Sub.
"Patents" means all patents and patent applications.
"PBGC" is defined in Section 4.20(e).
"Permitted Encumbrance" means, with respect to tangible or intangible
property other than capital stock or other securities of FormMaker or Image
Sciences, (i) any Encumbrance for Taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, (ii) any statutory Encumbrance
arising in the ordinary course of business by operation of Law with respect to a
Liability that is not yet due or delinquent and (iii) any minor imperfection of
title or similar Encumbrance that individually or in the aggregate with other
such Encumbrances could not reasonably be expected to materially adversely
affect the Business of the applicable Party.
"Person" means any natural person, corporation, partnership,
proprietorship, association, trust or other legal entity.
"Plan of Merger" is defined in Section 2.1.
"Preferred Stock Dividend" means the cash dividend by Image Sciences
to the holder of Image Sciences Preferred Stock as part of the Image Sciences
Closing Transactions.
"Prime Rate" means the prime lending rate as announced from time to time in
The Wall Street Journal.
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"Qualified Rights Offering" is defined above in the Background.
"Registered Securities" is defined in Section 6.1.
"Registration Statement" is defined in Section 6.1(a).
"Safeguard" is defined above in the Background.
"Safeguard Delaware" is defined above in the Background.
"SEC" means the Securities and Exchange Commission.
"Second Stage Due Diligence Materials" is defined in Section 6.3.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Act Affiliates" is defined in Section 7.6.
"Securityholder Documents" is defined in Section 2.12(a).
"SG/TL Stockholders" is defined above in the Background.
"Software Products" means the Image Sciences Software Products or the
FormMaker Software Products, as indicated by the context in which used.
"Stockholders' Agreement" means the Stockholders' Agreement among the
Company, the SG/TL Stockholders and Xerox, in the form agreed to by such parties
as of the date hereof.
"Surviving Georgia Corporation" is defined in Section 2.1.
"Surviving Texas Corporation" is defined in Section 2.1.
"Taxes" means all taxes, duties, charges, fees, levies or other
assessments imposed by any taxing authority including, without limitation,
income, gross receipts, value-added, excise, withholding, personal property,
real estate, sale, use, ad valorem, license, lease, service, severance, stamp,
transfer, payroll, employment, customs, duties, alternative, add-on minimum,
estimated and franchise taxes (including any interest, penalties or additions
attributable to or imposed on or with respect to any such assessment).
"TBCA" means the Texas Business Corporation Act, as amended.
-11-
<PAGE>
"Tender Offer" means the offer to purchase by Image Sciences to holders of
Image Sciences Common Stock and Image Sciences Options as part of the Image
Sciences Closing Transactions.
"Termination Date" is defined in Section 12.1.
"Texas Sub" is defined above in the preamble.
"TL II" is defined above in the Background.
"TL II Offshore" is defined above in the Background.
"Trademarks" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Documents" means this Agreement, the Employment Agreements,
the Voting Agreements, the Liquidity Agreement and the Stockholders' Agreement.
"Transactions" means the Merger, the exchange of the Image Sciences
Options for Company Options, the exchange of FormMaker Warrants and FormMaker
Options for Company Warrants and Company Options, respectively, and the other
transactions contemplated by the Transaction Documents.
"US" means the United States of America.
"Voting Agreements" is defined above in the Background.
"Welfare Plan" is defined in Section 4.20(g).
2. Plan of Merger.
--------------
2.1 Surviving Corporation. Upon the terms and subject to the conditions
---------------------
hereof, and in accordance with the relevant provisions of the TBCA and the GBCC,
the Texas Sub shall be merged with and into Image Sciences and the Georgia Sub
shall be merged with and into FormMaker in accordance with the Plan of Merger
set forth in this Section 2 (the "Plan of Merger") as soon as practicable, but
in any event within three business days following the satisfaction or waiver of
the conditions set forth in Sections 9, 10 and 11. Following the Merger, Image
Sciences shall continue as the surviving Texas corporation (the "Surviving Texas
Corporation") and shall continue its existence under the laws of the State of
Texas, and the separate corporate existence of the Texas Sub shall cease, and
FormMaker shall continue as the surviving Georgia Corporation (the "Surviving
Georgia Corporation") and shall continue its existence under the laws of the
State of Georgia, and the separate corporate existence of the Georgia Sub shall
cease.
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<PAGE>
2.2 Effective Time. The Merger shall be consummated by filing with the
--------------
Secretary of State of the State of Georgia and with the Secretary of State of
the State of Texas articles of merger (the "Articles of Merger") that set forth
the Plan of Merger and are otherwise in such form as may be required under, and
are executed in accordance with, the relevant provisions of the TBCA and the
GBCC. The Merger shall be effective at the time of such filing in the State of
Georgia and as of the issuance of a certificate of merger by the Secretary of
State of the State of Texas (but in no event prior to the Image Sciences Closing
Transactions), the later of which times is referred to herein as the "Effective
Time."
2.3 Effects of the Merger. The Merger shall have the effects set forth
---------------------
in Section 5.06 of the TBCA and Section 14-2-1106 of the GBCC.
2.4 Name of the Surviving Texas Corporation and the Surviving Georgia
-----------------------------------------------------------------
Corporation; Articles of Incorporation and Bylaws. At the Effective Time, the
- -------------------------------------------------
name of the Surviving Texas Corporation shall remain Image Sciences, Inc. and
the name of the Surviving Georgia Corporation shall remain FormMaker Software,
Inc. The Articles of Incorporation of Image Sciences and FormMaker shall be the
Articles of Incorporation of the Surviving Texas Corporation and the Surviving
Georgia Corporation, respectively. The Bylaws of Image Sciences and FormMaker
shall be the Bylaws of the Surviving Texas Corporation and the Surviving Georgia
Corporation, respectively.
2.5 Directors and Officers. Schedule 2.5 sets forth the names of the
----------------------
Persons who shall be the directors and officers of the Surviving Texas
Corporation and the Surviving Georgia Corporation at the Effective Time.
2.6 Conversion of Image Sciences Securities.
---------------------------------------
(a) Each share of Image Sciences Common Stock issued and
outstanding immediately prior to the Effective Time (but after giving effect to
the Tender Offer) shall, by virtue of the Merger and without any action on the
part of the Holder thereof, be converted into the right to receive that number
of shares of Company Class B Common Stock (rounded to the nearest whole share)
determined in accordance with Section 2.6(d). Any shares of Image Sciences
Common Stock held in the treasury of Image Sciences shall be cancelled. The
securities to be issued pursuant to this Section 2.6 and Section 2.7 are
referred to as the "Merger Consideration," and shares of Image Sciences Common
Stock, Image Sciences Preferred Stock and FormMaker Common Stock that are issued
and outstanding immediately prior to the Effective Time (other than Dissenting
Shares, as defined in Section 2.11) are referred to herein collectively as the
"Converted Shares."
(b) Each share of Image Sciences Preferred Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the Holder thereof, be converted
into the right to receive 1.029 shares of Company Class B
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<PAGE>
Common Stock (rounded to the nearest whole share). Any shares of Image Sciences
Preferred Stock held in the treasury of Image Sciences shall be cancelled.
(c) Each vested Image Sciences Option that is outstanding
immediately prior to the Effective Time (but after giving effect to the Tender
Offer and the acceleration of a portion of the vesting schedule for certain
Image Sciences Options) shall, by virtue of the Merger and with the consent of
the Holder thereof, be converted into a Company Option under which the Holder
will have the right to purchase that number of shares of Company Class B Common
Stock (rounded to the nearest whole share) determined in accordance with
Section 2.6(d) for each share of Image Sciences Common Stock issuable under the
Image Sciences Option being converted at an exercise price that is
proportionally equivalent to the exercise price under the related Image Sciences
Option. Each unvested Image Sciences Option that is outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and with the consent
of the Holder thereof, be converted into a Company Option under which the Holder
will have the right to purchase that number of shares of Company Class A Common
Stock (rounded to the nearest whole share) determined in accordance with Section
2.6(d) at an exercise price that is proportionally equivalent to the exercise
price under the related Image Sciences Option.
(d) The number of shares of Company Class B Common Stock or
Company Class A Common Stock, as the case may be, to be issued under this
Section 2.6 for each share of Image Sciences Common Stock, and the number of
shares of Company Class B Common Stock or Company Class A Common Stock, as the
case may be, to be issued under this Section 2.6 for each share of Image
Sciences Common Stock issuable upon exercise of an Image Sciences Option, shall
be equal to the quotient obtained by dividing (i) 4,350,943 by (ii) the total
number of shares of Image Sciences Common Stock issued and outstanding
immediately prior to the Effective Time (but after giving effect to the Tender
Offer) plus the total number of shares of Image Sciences Common Stock issuable
upon exercise of all the Image Sciences Options (but after giving effect to the
Tender Offer) issued and outstanding immediately prior to the Effective Time.
(e) The Surviving Texas Corporation shall deliver the Merger
Consideration specified in this Section 2.6 upon the surrender of the
certificates and other documentation specified in Section 2.12.
(f) The Company shall take all steps necessary to provide the
Surviving Texas Corporation with the Company Securities, as of the Effective
Time, in an amount sufficient to issue all of the securities contemplated by
this Section 2.6 at the Effective Time in accordance with Section 2.12.
2.7 Conversion of FormMaker Securities.
----------------------------------
(a) Each share of FormMaker Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the
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<PAGE>
part of the Holder thereof, be converted into the right to receive that number
of shares of Company Class A Common Stock (rounded to the nearest whole share)
determined in accordance with Section 2.7(d). Any shares of FormMaker Common
Stock held in the treasury of FormMaker shall be cancelled.
(b) Each FormMaker Warrant that is outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and pursuant to the terms
thereof, be converted into a Company Warrant under which the holder will have
the right to purchase that number of shares of Company Class A Common Stock
(rounded to the nearest whole share) determined in accordance with
Section 2.7(d) for each share of FormMaker Common Stock issuable under the
FormMaker Warrant being converted at an exercise price that is proportionally
equivalent to the exercise price under the related FormMaker Warrant.
(c) Each FormMaker Option that is outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and pursuant to the terms
thereof, be converted into a Company Option under which the holder will have the
right to purchase that number of shares of Company Class A Common Stock (rounded
to the nearest whole share) determined in accordance with Section 2.7(d) for
each share of FormMaker Common Stock issuable under the FormMaker Option being
converted at an exercise price that is proportionally equivalent to the exercise
price under the related FormMaker Option.
(d) The number of shares of Company Class A Common Stock to be
issued under this Section 2.7 for each share of FormMaker Common Stock, and the
number of shares of Company Class A Common Stock to be issued under this
Section 2.7 for each share of FormMaker Common Stock issuable upon exercise of a
FormMaker Option or a FormMaker Warrant, shall be equal to the quotient obtained
by dividing (i) 5,598,684 shares of Company Class A Common Stock by (ii) the
total number of shares of FormMaker Common Stock issued and outstanding
immediately prior to the Effective Time plus the total number of shares of
FormMaker Common Stock issuable upon (A) the exercise of all the FormMaker
Options issued and outstanding immediately prior to the Effective Time and
(B) the exercise of all the FormMaker Warrants issued and outstanding
immediately prior to the Effective Time.
(e) The Surviving Georgia Corporation shall deliver the Merger
Consideration specified in this Section 2.7 upon the surrender of the
certificates and other documentation specified in Section 2.12.
(f) The Company shall take all steps necessary to provide the
Surviving Georgia Corporation with the Company Securities as of the Effective
Time, in an amount sufficient to issue all of the securities contemplated by
this Section 2.7 at the Effective Time in accordance with Section 2.12.
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<PAGE>
2.8 Capital Stock of Texas Sub and Georgia Sub. Each share of capital
------------------------------------------
stock of the Texas Sub and Georgia Sub issued and outstanding immediately prior
to the Effective Time shall be converted into a share of Image Sciences Common
Stock and FormMaker Common Stock, respectively.
2.9 Approval by Shareholders.
------------------------
(a) Consistent with applicable law, Image Sciences shall cause a
meeting of its shareholders to be duly called and held as soon as reasonably
practicable for the purpose of considering and taking action upon the Merger
(the "Image Sciences Special Meeting"). If the Board of Directors of Image
Sciences so desires, it may present the Merger to its shareholders for
consideration by soliciting their written consent in accordance with applicable
requirements of the TBCA. If such a consent is solicited, the references herein
to the "Image Sciences Special Meeting" shall be deemed to be the process of
soliciting such consent unless the context indicates otherwise. The Board of
Directors of Image Sciences will recommend that its shareholders approve the
Merger.
(b) Consistent with applicable law, FormMaker shall cause a
meeting of its shareholders to be duly called and held as soon as reasonably
practicable for the purpose of considering and taking action upon the Merger
(the "FormMaker Special Meeting"). If the Board of Directors of FormMaker so
desires, it may present the Merger to its shareholders for consideration by
soliciting their written consent in accordance with applicable requirements of
the GBCC. If such a consent is solicited, the references herein to the
"FormMaker Special Meeting" shall be deemed to be the process of soliciting such
consent unless the context indicates otherwise. The Board of Directors of
FormMaker will recommend that its shareholders approve the Merger.
(c) The shareholder vote required for the adoption of this
Agreement and the Merger by Image Sciences and the Texas Sub shall be the vote
required by the TBCA, and the vote required for the adoption of this Agreement
and the Merger by FormMaker and the Georgia Sub shall be the vote required by
the GBCC.
2.10 Merger Closing. At the Closing, (a) the Texas Sub, the Georgia Sub,
--------------
Image Sciences and FormMaker shall deliver to the Secretary of State of each of
the State of Texas and the State of Georgia a duly executed and verified copy of
the Articles of Merger, as required by the TBCA and the GBCC, and (b) the
Parties shall take all such other and further actions as may be required by the
TBCA and the GBCC and any other applicable Law to make the Merger effective upon
the terms and subject to the conditions hereof. In addition, at the Closing, the
Surviving Texas Corporation or the Surviving Georgia Corporation shall deliver
the Merger Consideration to those Holders who shall have delivered the
appropriate documents under Section 2.12.
2.11 Dissenting Shares. Notwithstanding anything in this Agreement to the
-----------------
contrary, shares of Image Sciences Common Stock, Image Sciences Preferred Stock
or FormMaker Common Stock as the case may be, that are issued and outstanding
immediately prior to the Effective Time
-16-
<PAGE>
and that are held by a shareholder who did not vote in favor of the Merger and
who complies with all of the relevant provisions of Section 5.12 of the TBCA or
Sections 14-2-1321 and 14-2-1323 of the GBCC, respectively (the "Dissenting
Shares"), shall not be converted into the right to receive the Merger
Consideration, unless and until such Holder shall have failed to perfect or
shall have effectively withdrawn or lost such Holder's rights to appraisal under
the TBCA or the GBCC; and any such Holder shall have only such rights in respect
of the Dissenting Shares owned by such Holder as are provided by Sections 5.11
and 5.12 of the TBCA or Sections 14-2-1321 and 14-2-1323 of the GBCC, as the
case may be. If any such Holder shall have failed to perfect or shall have
effectively withdrawn or lost such rights, such Holder's Dissenting Shares shall
thereupon be deemed to have been converted into and to have become exchangeable,
as of the Effective Time, for the right to receive the Merger Consideration
without any interest thereon, pursuant to the terms of Section 2.6 or
Section 2.7, as the case may be.
2.12 Exchange of Converted Shares, Image Sciences Options, FormMaker
---------------------------------------------------------------
Options and FormMaker Warrants.
- ------------------------------
(a) At and after the Effective Time, the Surviving Texas
Corporation or the Surviving Georgia Corporation shall issue to each record
holder (a "Holder"), as of the Effective Time, of (i) an outstanding certificate
or certificates that immediately prior to the Effective Time represented
Converted Shares (the "Certificates"), (ii) a FormMaker Warrant, (iii) a
FormMaker Option or (iv) an Image Sciences Option, upon the Holder's delivery of
the Securityholder Documents, the respective Merger Consideration specified for
such Holder under Section 2.6 or Section 2.7. The documents to be delivered by
Holders of Converted Shares, Image Sciences Options, FormMaker Options or
FormMaker Warrants by and after the Effective Time (the "Securityholder
Documents") shall be (x) in the case of Converted Shares, the Certificates
representing the Converted Shares and a duly executed Letter of Transmittal in
the form provided by the Company (the "Letter of Transmittal"), (y) in the case
of the FormMaker Options and Image Sciences Options, the document constituting
the FormMaker Option and the Image Sciences Option and the Letter of
Transmittal, and (z) in the case of the FormMaker Warrants, the document
constituting FormMaker Warrants and the Letter of Transmittal. Image Sciences
and FormMaker shall respectively send the Letter of Transmittal to the owners of
the Image Sciences Securities or the FormMaker Securities along with the notice
of the Image Sciences or FormMaker Special Meeting and shall request the return
of an executed Letter of Transmittal from each such securityholder at the time
of the Image Sciences Special Meeting or FormMaker Special Meeting. All
surrendered Certificates, Image Sciences Options, FormMaker Options, and
FormMaker Warrants shall be cancelled upon their delivery. Except as provided in
Section 2.12(c), the Surviving Texas Corporation and the Surviving Georgia
Corporation shall pay any applicable transfer or similar taxes required by
reason of the exchange of Converted Shares, Image Sciences Options, FormMaker
Options and FormMaker Warrants.
(b) With respect to each Certificate not so surrendered at the
Closing, the Surviving Texas Corporation with respect to Holders of Image
Sciences Securities, or the Surviving
-17-
<PAGE>
Georgia Corporation with respect to Holders of FormMaker Securities, shall
promptly thereafter mail to the Holder thereof a Letter of Transmittal (which
shall specify that delivery shall be effected, and risk of loss of title to such
Certificate shall pass, only upon proper delivery of the Certificate and such
Letter of Transmittal to the Surviving Texas Corporation or the Surviving
Georgia Corporation, as the case may be) and instructions for delivering such
Certificate in exchange for delivery of the Merger Consideration. Upon delivery
to the Surviving Texas Corporation or the Surviving Georgia Corporation of such
Certificate, together with such Letter of Transmittal, the Company, the
Surviving Texas Corporation or the Surviving Georgia Corporation shall deliver
to the Holder of the Certificate in exchange therefor the Merger Consideration
to which such Holder is entitled hereunder, and such Certificate shall then be
cancelled. The Company, the Surviving Texas Corporation and the Surviving
Georgia Corporation shall follow a similar procedure with respect to any Image
Sciences Option, FormMaker Option or FormMaker Warrants to the extent that the
respective Securityholder Documents shall not have been delivered at the
Effective Time.
(c) No interest will be paid or accrued on the Merger
Consideration to be delivered upon the surrender of the Securityholder
Documents. If delivery is to be made to a Person other than the Person in whose
name a Certificate, FormMaker Warrant, Image Sciences Option or FormMaker Option
surrendered is registered, it shall be a condition of payment that the
Certificate, Image Sciences Option, FormMaker Option or FormMaker Warrant so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the Person requesting such payment shall pay any transfer or similar
taxes required by reason of the payment to a Person other than the Holder of the
Certificate, Image Sciences Option, FormMaker Option or FormMaker Warrant
surrendered or shall establish to the satisfaction of the Surviving Texas
Corporation or the Surviving Georgia Corporation, as the case may be, that such
tax has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.12, each Certificate (other than Certificates
evidencing Dissenting Shares), Image Sciences Option, FormMaker Option and
FormMaker Warrant shall represent for all purposes solely the right to receive
the respective Merger Consideration specified in Section 2.6 or Section 2.7 with
respect to such Converted Shares, Image Sciences Options, FormMaker Options or
FormMaker Warrants.
(d) The Company, the Surviving Texas Corporation or the Surviving
Georgia Corporation, as the case may be, shall not be liable to any Holder of
Converted Shares, Image Sciences Options, FormMaker Options or FormMaker
Warrants for any Merger Consideration delivered by the Company, the Surviving
Texas Corporation or the Surviving Georgia Corporation in good faith to a public
official pursuant to an applicable abandoned property, escheat or similar law.
2.13 No Further Transfer of Shares. After the Effective Time, there shall
-----------------------------
be no transfers of Converted Shares that were outstanding immediately prior to
the Effective Time on the stock transfer books of the Surviving Texas
Corporation or the Surviving Georgia Corporation. If, after the Effective Time,
Certificates are presented to the Surviving Texas Corporation or the Surviving
Georgia Corporation for transfer, they shall be cancelled and exchanged for the
respective Merger
-18-
<PAGE>
Consideration specified in Section 2.6 or Section 2.7. At the Effective Time,
the stock ledgers of Image Sciences and FormMaker shall be closed.
3. Closing.
-------
3.1 Location, Date. The closing for the Transactions (the "Closing")
--------------
shall be held at Morgan, Lewis & Bockius LLP in Philadelphia as promptly as
practicable (and in any event within three business days) after satisfaction or
waiver of the conditions to the consummation of the Transactions set forth in
Sections 9, 10 and 11 hereof, unless the Parties hereto agree in writing to
another date or place. The date on which the Closing occurs is referred to
herein as the "Closing Date."
3.2 Deliveries. At the Closing,
----------
(a) the Surviving Texas Corporation and the Surviving Georgia
Corporation shall deliver or mail the respective Merger Consideration to
the Holders who have complied with Section 2.12, with such Merger
Consideration all registered in the names of the respective Holders or
their designees, and in due and proper form;
(b) the Texas Sub, the Georgia Sub, Image Sciences and FormMaker
shall consummate the Merger as provided in Section 2.10; and
(c) the Parties shall also deliver to each other the respective
agreements, legal opinions and other documents and instruments specified
with respect to them in Sections 9, 10 and 11 and such other items as may
be reasonably requested.
4. Representations and Warranties of Image Sciences
------------------------------------------------
Image Sciences hereby represents and warrants to FormMaker, except as
otherwise set forth in the Image Sciences Disclosure Schedule or the updated
Image Sciences Disclosure Schedule to be delivered pursuant to Section 6.3, as
follows:
4.1 Corporate Status. Image Sciences is a corporation duly organized,
----------------
validly existing and in good standing under the Laws under which it was
organized and is qualified to do business as a foreign corporation in any
jurisdiction where it is required to be so qualified except where the failure to
so qualify would not have a Material Adverse Effect. The Charter Documents and
bylaws of Image Sciences that have been delivered to FormMaker as of the date
hereof are effective under applicable Laws and are current, correct and
complete.
4.2 Authorization. Image Sciences has the requisite power and authority
-------------
to own its Assets and to carry on its Business. Image Sciences has the requisite
power and authority to execute and deliver the Transaction Documents to which it
is a party and to perform the Transactions
-19-
<PAGE>
performed or to be performed by it. Such execution, delivery and performance by
Image Sciences has been duly authorized by all necessary corporate action, other
than approval by the shareholders of Image Sciences. Each Transaction Document
executed and delivered by Image Sciences has been duly executed and delivered
by, and constitutes a valid and binding obligation of Image Sciences,
enforceable against Image Sciences in accordance with its terms.
4.3 Consents and Approvals. Except for (a) any consents specified in the
----------------------
Image Sciences Disclosure Schedule (the "Image Sciences Required Consents"),
(b) the approval of the Merger by the shareholders of Image Sciences, (c) the
filing of the Articles of Merger in accordance with Section 2 and (d) any
approvals or filings required by the SEC and by state securities law agencies in
connection with the Registration Statement, neither the execution and delivery
by Image Sciences of the Transaction Documents to which it is a party, nor the
performance of the Transactions performed or to be performed by Image Sciences,
require any filing, consent or approval or constitute a Default under (i) any
Law or Court Order to which Image Sciences is subject, (ii) the Charter
Documents or bylaws of Image Sciences or (iii) any Contract, Governmental Permit
or other document to which Image Sciences is a party or by which the properties
or other assets of Image Sciences may be subject.
4.4 Capitalization and Stock Ownership. The total authorized capital
----------------------------------
stock of Image Sciences consists of (a) 20,000,000 shares of Image Sciences
Common Stock, of which (i) 2,335,082 shares are issued and outstanding and
(ii) 3,687,433 shares of Image Sciences Common Stock are reserved for issuance
upon conversion of the issued and outstanding shares of Image Sciences Preferred
Stock and upon exercise of the issued and outstanding Image Sciences Options,
and (b) 3,000,000 shares of Image Sciences Preferred Stock, of which 1,963,433
shares are issued and outstanding. Except for the rights under the Image
Sciences Preferred Stock and the Image Sciences Options listed in the Image
Sciences Disclosure Schedule, there are no existing options, warrants, calls,
commitments or other rights of any character (including conversion or preemptive
rights) relating to the acquisition of any issued or unissued capital stock or
other securities of Image Sciences. All of the shares of Image Sciences Common
Stock and Image Sciences Preferred Stock are, and all of the shares of Image
Sciences Common Stock issuable upon conversion or exercise of the Image Sciences
Preferred Stock and the Image Sciences Options in accordance with the terms
thereof will be, duly and validly authorized and issued, fully paid and non-
assessable. The Image Sciences Disclosure Schedule lists all of the record
owners of the Image Sciences Common Stock, the Image Sciences Preferred Stock
and the Image Sciences Options. Image Sciences has delivered to FormMaker
correct and complete copies of the forms of the Image Sciences Option
agreements.
4.5 Financial Statements. Image Sciences has delivered to FormMaker
--------------------
correct and complete copies of unaudited monthly financial statements for Image
Sciences consisting of a balance sheet as of the end of each month from August
1996 through November 30, 1996 and the related statements of income, changes to
shareholders' equity and cash flows for the periods then ended. Image Sciences
has also delivered to FormMaker correct and complete copies of financial
statements consisting of a balance sheet of Image Sciences as of July 31, 1994,
1995 and 1996 and
-20-
<PAGE>
the related statements of income for the fiscal years then ended, which were
audited by the firm of Price Waterhouse LLP. All such unaudited and audited
financial statements are referred to herein collectively as the "Image Sciences
Pre-Signing Financial Statements." The unaudited financial statements of Image
Sciences to be delivered in connection with the Registration Statements are
referred to herein as the "Image Sciences Post-Signing Financial Statements,"
and, together with the Image Sciences Pre-Signing Financial Statements, as the
"Image Sciences Financial Statements." The Image Sciences Pre-Signing Financial
Statements are, and the Image Sciences Post-Signing Financial Statements will
be, consistent in all material respects with the books and records of Image
Sciences, and there have not been and will not be any material transactions that
have not been or will not be recorded in the accounting records underlying such
Financial Statements. Except as disclosed in the Image Sciences Disclosure
Schedule, the Image Sciences Pre-Signing Financial Statements have been, and the
Image Sciences Post-Signing Financial Statements will be, prepared in accordance
with GAAP consistently applied, and the Image Sciences Pre-Signing Financial
Statements present, and the Image Sciences Post-Signing Financial Statements
will present, fairly the financial position and assets and liabilities of Image
Sciences as of the dates thereof, and the results of its operations for the
periods then ended, subject to normal recurring year-end adjustments and the
absence of notes in the case of unaudited Financial Statements. The balance
sheet of Image Sciences as of November 30, 1996 that is included in the
Financial Statements is referred to herein as the "Image Sciences Balance
Sheet," and the date thereof is referred to as the "Balance Sheet Date."
4.6 Title to Assets and Related Matters. Image Sciences has good and
-----------------------------------
marketable title to, valid leasehold interests in or valid licenses to use, all
of the material Image Sciences Assets, free from any Encumbrances except those
specified in the Image Sciences Disclosure Schedule. The use of the Image
Sciences Assets is not subject to any Encumbrances (other than those specified
in the preceding sentence), and such use does not materially encroach on the
property or rights of anyone else. All Image Sciences Real Property and tangible
personal property (other than Inventory) included in the Image Sciences Assets
are suitable for the purposes for which they are used, in good working
condition, reasonable wear and tear excepted, and are free from any known
defects, except such minor defects that would not have a Material Adverse
Effect.
4.7 Real Property. The Image Sciences Disclosure Schedule describes all
-------------
real estate used in the operation of the Image Sciences Business as well as any
other real estate that is in the possession of or leased by Image Sciences and
the improvements (including buildings and other structures) located on such real
estate (collectively, the "Image Sciences Real Property"), and lists any leases
under which any such Image Sciences Real Property is possessed (the "Image
Sciences Real Estate Leases"). Image Sciences does not have any ownership
interest in any real property. The Image Sciences Disclosure Schedule also
describes any other real estate previously owned, leased or otherwise operated
by Image Sciences or any predecessor thereof and the time periods of any such
ownership, lease or operation. All of the Image Sciences Real Property (a) is
usable in the ordinary course of business and (b) conforms in all material
respects with any applicable Laws relating to its construction, use and
operation. The Image Sciences Real Property complies with
-21-
<PAGE>
applicable zoning Laws. To the knowledge of Image Sciences, Image Sciences or
the landlord of any Image Sciences Real Property leased by Image Sciences has
obtained all licenses and rights-of-way from governmental entities or private
parties that are necessary to ensure vehicular and pedestrian ingress and egress
to and from the Image Sciences Real Property.
4.8 Certain Personal Property. The Image Sciences Disclosure Schedule
-------------------------
describes all items of tangible personal property that were included in the
Image Sciences Balance Sheet at a carrying value of at least $50,000. Except as
specified in the Image Sciences Disclosure Schedule, since the Balance Sheet
Date, Image Sciences has not acquired any items of tangible personal property
that have a carrying value in excess of $50,000, or an aggregate carrying value
of $300,000. All of such personal property included in the Image Sciences
Disclosure Schedule is, and any such personal property acquired after the date
hereof in accordance with Section 8.2 will be, usable in the ordinary course of
business, and all such personal property included in the Image Sciences
Disclosure Schedule conforms, and all of such personal property acquired after
the date hereof will conform, in all material respects with any applicable Laws
relating to its construction, use and operation. Except for those items subject
to the Image Sciences Non-Real Estate Leases or the Immaterial Leases or those
items listed in the Image Sciences Disclosure Schedule, no Person other than
Image Sciences owns any vehicles, equipment or other tangible assets located on
the Image Sciences Real Property that have been used in the Image Sciences
Business or that are necessary for the operation of the Image Sciences Business.
4.9 Non-Real Estate Leases. The Image Sciences Disclosure Schedule lists
----------------------
all assets and property (other than Image Sciences Real Property) that are
possessed by Image Sciences under an existing lease, including all trucks,
automobiles, forklifts, machinery, equipment, furniture and computers, except
for any lease under which the aggregate annual payments are less than $25,000
(each, an "Immaterial Lease"). The Image Sciences Disclosure Schedule also lists
the leases under which such assets and property listed in the Image Sciences
Disclosure Schedule are possessed. All of such leases (excluding Immaterial
Leases) are referred to herein as the "Image Sciences Non-Real Estate Leases."
4.10 Accounts Receivable. The Accounts Receivable included in the Image
-------------------
Sciences Assets are bona fide Accounts Receivable created in the ordinary course
of business. Except for Accounts Receivable for which reserves have been
established, all of the Accounts Receivable included in the Image Sciences
Assets are collectible in the ordinary course of business. Image Sciences does
not know of any facts or circumstances (other than general economic conditions)
that are likely to result in any material increase in the uncollectability of
such Accounts Receivable in excess of any reserves therefor set forth in the
Image Sciences Balance Sheet.
4.11 Inventory. The Inventory included in the Image Sciences Assets
---------
consists of items of good, usable and merchantable quality in all material
respects and does not include obsolete or discontinued items. Such Inventory is
recorded in the Image Sciences Financial Statements at the lower of average cost
or market value determined in accordance with GAAP.
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4.12 Liabilities. Image Sciences does not have any Liabilities, except
-----------
(a) as specified in the Image Sciences Disclosure Schedule, (b) as contemplated
by the Image Sciences Balance Sheet (except as heretofore paid or discharged),
(c) Liabilities incurred in the ordinary course since the Balance Sheet Date, or
(d) Liabilities under any Contracts included in the Image Sciences Assets that
are specifically disclosed in the Image Sciences Disclosure Schedule (or not
required to be disclosed because of the term or amount involved) that were not
required under GAAP to have been specifically disclosed or reserved for on the
Image Sciences Balance Sheet.
4.13 Taxes. Except as set forth in the Image Sciences Disclosure
-----
Schedule, Image Sciences has duly filed all returns for Taxes that are required
to be filed and has paid all material Taxes shown as being due pursuant to such
returns or pursuant to any assessment received. All Taxes that Image Sciences
has been required by Law to withhold or to collect have been duly withheld and
collected and have been paid over to the proper governmental authorities or are
properly held by Image Sciences for such payment. There are no proceedings or
other actions, nor is there any basis for any proceedings or other actions, for
the assessment and collection of additional Taxes of any kind with respect to
Image Sciences for any period for which returns have or should have been filed.
4.14 Subsidiaries. Image Sciences does not own, directly or indirectly,
------------
any interest or investment (whether equity or debt) in any corporation,
partnership, limited liability company, trust, joint venture or other legal
entity.
4.15 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as set forth in the Image Sciences Disclosure Schedule, there
is no Litigation that is pending or, to Image Sciences's knowledge, threatened
against Image Sciences. There has been no Default under any Laws applicable to
Image Sciences, including Laws relating to pollution or protection of the
environment, except for any Defaults that would not have a Material Adverse
Effect, and Image Sciences has not received any notices from any governmental
entity regarding any alleged Defaults under any Laws. There has been no Default
with respect to any Court Order applicable to Image Sciences.
(b) Without limiting the generality of Section 4.15(a), there has not
been any Image Sciences Environmental Condition (i) at the premises at which the
Image Sciences Business has been conducted, (ii) at any property owned, leased
or operated at any time by Image Sciences, any Person controlled by Image
Sciences or any predecessor of any of them, or (iii) at any property at which
wastes have been released, deposited or disposed by or at the behest or
direction of any of the foregoing, nor has Image Sciences received written
notice of any such Image Sciences Environmental Condition. "Image Sciences
Environmental Condition" means any condition or circumstance, including the
presence or release of Hazardous Substances, whether created by Image Sciences
or any third party, at or relating to any such property or premises that
(i) requires investigation, monitoring, abatement or correction under an
Environmental Law, (ii) gives rise to
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any civil or criminal liability on the part of Image Sciences under an
Environmental Law, or (iii) has created a public or private nuisance.
(c) Image Sciences has delivered to FormMaker complete copies of any
written reports, studies or assessments in the possession or control of Image
Sciences that relate to any Image Sciences Environmental Condition and to the
Image Sciences Business or any Image Sciences Assets.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) Image Sciences has obtained and is in full compliance with
all Governmental Permits, all of which are listed in the Image Sciences
Disclosure Schedule along with their respective expiration dates, that are
required for the complete operation of the Image Sciences Business as currently
operated, (ii) all of such Governmental Permits are currently valid and in full
force and (iii) Image Sciences has filed such timely and complete renewal
applications as may be required with respect to its Governmental Permits. To
Image Sciences' knowledge, no revocation, cancellation or withdrawal thereof has
been threatened.
4.16 Contracts.
---------
(a) The Image Sciences Disclosure Schedule lists all Contracts of the
following types to which Image Sciences is a party or by which it is bound,
except for Minor Contracts:
(i) Contracts with any present or former shareholder,
director, officer, employee, partner or consultant of Image Sciences
or any Affiliate thereof.
(ii) Contracts for the future purchase of, or payment for,
supplies or products, or for the lease of any Asset from or the
performance of services by a third party, in excess of $150,000 in
any individual case, or any Contracts for the sale of products that
involve an amount in excess of $25,000 with respect to any one
supplier or other party;
(iii) Contracts to sell or supply products or to perform
services that involve an amount in excess of $250,000 in any
individual case;
(iv) Contracts to lease to or to operate for any other
party any asset that involve an amount in excess of $150,000 in any
individual case;
(v) Any notes, debentures, bonds, conditional sale
agreements, equipment trust agreements, letter of credit agreements,
reimbursement agreements, loan agreements or other Contracts for the
borrowing or lending of money (including loans to or from officers,
directors, partners,
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shareholders or Affiliates of Image Sciences or any members of their
immediate families), agreements or arrangements for a line of credit
or for a guarantee of, or other undertaking in connection with, the
indebtedness of any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than Minor Contracts and
those described in any of (i) through (vi) above) not made in the
ordinary course of business.
(b) The Contracts listed in the Image Sciences Disclosure Schedule and
the Contracts excluded from the Image Sciences Disclosure Schedule based on the
term or amount thereof are referred to herein as the "Image Sciences Contracts."
Image Sciences is not in Default under any Image Sciences Contracts (including
any Image Sciences Real Estate Leases and Image Sciences Non-Real Estate
Leases), which Default could result in a Liability on the part of Image Sciences
in excess of $25,000 in any individual case, and the aggregate Liabilities that
could result from all such Defaults do not exceed $50,000. Image Sciences has
not received any communication from, or given any communication to, any other
party indicating that Image Sciences or such other party, as the case may be, is
in Default under any Image Sciences Contract where such Default could have a
Material Adverse Effect. To the knowledge of Image Sciences, none of the other
parties in any such Image Sciences Contract is in Default thereunder.
4.17 Insurance. The Image Sciences Disclosure Schedule lists all
---------
policies or binders of insurance held by or on behalf of Image Sciences,
specifying with respect to each policy the insurer, the amount of the coverage,
the type of insurance, the risks insured, the expiration date, the policy number
and any pending claims thereunder. There is no Default with respect to any such
policy or binder, nor has there been any failure to give any notice or present
any claim under any such policy or binder in a timely fashion or in the manner
or detail required by the policy or binder, except for any of the foregoing that
would not have a Material Adverse Effect. There is no notice of non renewal or
cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by Image Sciences, except for any of the
foregoing that would not have a Material Adverse Effect.
4.18 Intellectual Property and Software Products.
-------------------------------------------
(a) Image Sciences does not currently use nor has it previously used in
the development, production or marketing of its products and services any
Copyrights, Patents or Trademarks except for those listed in the Image Sciences
Disclosure Schedule. Image Sciences owns or has the lawful right to use all
material Intellectual Property that is used in the operation of the Business in
the ordinary course or otherwise. All of the Intellectual Property listed in the
Image Sciences Disclosure Schedule is owned by Image Sciences free and clear of
any Encumbrances, or used pursuant to an
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<PAGE>
agreement that is described in the Image Sciences Disclosure Schedule. Except
in such cases that would not have a Material Adverse Effect, Image Sciences does
not infringe upon or unlawfully or wrongfully use any Intellectual Property
rights owned or claimed by another Person, and Image Sciences is not in Default,
and has not received any notice of any claim of infringement or any other claim
or proceeding, with respect to any such Intellectual Property. Except for any
rights under written licenses or other written Contracts, no current or former
employee of Image Sciences and no other Person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, and
including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
(b) The Image Sciences Disclosure Schedule contains a complete list of all
of the computer software products sold, licensed, distributed, marketed, used or
under development by Image Sciences (the "Image Sciences Software Products").
Each of the Image Sciences Software Products performs substantially in
accordance with the specifications, documentation and other written material
used in connection with the sale, license, distribution, marketing or use
thereof and is free of defects in programming and operation except such defects
as would not materially and adversely affect the use of the respective Image
Sciences Software Products for their intended purposes.
(c) Except as specified in the Image Sciences Disclosure Schedule, all
right, title and interest in and to the Image Sciences Software Products is
owned by Image Sciences, free and clear of all Encumbrances. No government
funding was utilized in the development of any of the Image Sciences Software
Products. Except for such violations that would not have a Material Adverse
Effect, the sale, license, distribution, marketing or use of the Image Sciences
Software Products by Image Sciences does not violate any rights of any other
Person, and Image Sciences has not received any communication alleging such a
violation. Except as specified in the Image Sciences Disclosure Schedule, Image
Sciences does not have any obligation to compensate any Person for the sale,
license, distribution, marketing or use of the Image Sciences Software Products.
Other than as set forth in the Image Sciences Disclosure Schedule, Image
Sciences has not granted to any other Person any license, option or other right
in or to any of the Image Sciences Software Products, except for non-exclusive,
royalty-bearing, end-user licenses (the "End-User Licenses") and distributor
licenses under which the distributor has a right to relicense ("Distributor
Licenses") granted by Image Sciences pursuant to license agreements.
(d) Except as specified in the Image Sciences Disclosure Schedule, Image
Sciences does not have any obligation owing to any Person to maintain, modify,
improve or upgrade any of the Image Sciences Software Products, except for any
such obligation set forth in an End-User License, a Distributor License or under
a customer-specific services agreement and such other obligations as would not
have a Material Adverse Effect.
(e) All employees and consultants of Image Sciences who are involved in the
design, review, evaluation or development of Intellectual Property have executed
a nondisclosure and
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<PAGE>
assignment of inventions agreement (a "Confidentiality Agreement"). To Image
Sciences' knowledge, (i) none of the Confidential Information has been used,
divulged or appropriated (A) for the benefit of any Person other than Image
Sciences or a customer thereof or (B) otherwise to the detriment of Image
Sciences, (ii) except as specified in the Image Sciences Disclosure Schedule,
none of such employees or consultants of Image Sciences is subject to any
contractual or legal restrictions that might interfere with the use of his or
her best efforts to promote the interests of Image Sciences, (iii) no employee
or consultant of Image Sciences has used any other Persons' trade secrets or
other information that is confidential in the course of his or her work for
Image Sciences, and (iv) no employee or consultant of Image Sciences is, or is
currently expected to be, in Default under any term of any employment contract,
agreement or arrangement relating to the Intellectual Property, or any
Confidentiality Agreement or any other Contract or any restrictive covenant
relating to the Intellectual Property, or the development or exploitation
thereof.
(f) Image Sciences has kept secret and has not disclosed the source codes
for the Image Sciences Software Products to any Person other than to those
Persons identified in the Image Sciences Disclosure Schedule and to certain
employees of Image Sciences.
4.19 Employee Relations. Image Sciences is not (a) except as
------------------
specified in the Image Sciences Disclosure Schedule, a party to, involved in or,
to Image Sciences's knowledge, threatened by, any labor dispute or unfair labor
practice charge, or (b) currently negotiating any collective bargaining
agreement. Image Sciences has not experienced during the last three years any
work stoppage. Image Sciences has delivered to FormMaker a complete and correct
list of the names and salaries, bonus and other cash compensation of all
employees (including officers) of Image Sciences whose cash compensation was for
1995 or is expected to be for 1996 at least $80,000.
4.20 ERISA.
-----
(a) The Image Sciences Disclosure Schedule contains a complete list of all
Benefit Plans sponsored or maintained by Image Sciences or under which Image
Sciences is obligated. Image Sciences has delivered to FormMaker (i) accurate
and complete copies of all such Benefit Plan documents and all other material
documents relating thereto, including (if applicable) all summary plan
descriptions, summary annual reports and insurance contracts, (ii) accurate and
complete detailed summaries of all unwritten Benefit Plans, (iii) accurate and
complete copies of the most recent financial statements and actuarial reports
with respect to all such Benefit Plans for which financial statements or
actuarial reports are required or have been prepared and (iv) accurate and
complete copies of all annual reports for all such Benefit Plans (for which
annual reports are required) prepared within the last three years. Each such
Benefit Plan providing benefits that are funded through a policy of insurance is
indicated by the word "insured" placed by the listing of the Benefit Plan in the
Image Sciences Disclosure Schedule.
(b) All such Benefit Plans conform (and at all times have conformed) in
all material respects to, and are being administered and operated (and have at
all times been administered and
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<PAGE>
operated) in material compliance with, the requirements of ERISA, the Code and
all other applicable Laws. All returns, reports and disclosure statements
required to be made under ERISA and the Code with respect to all such Benefit
Plans have been timely filed or delivered. There have not been any "prohibited
transactions," as such term is defined in Section 4975 of the Code or Section
406 of ERISA involving any of the Benefit Plans, that could subject Image
Sciences to any material penalty or tax imposed under the Code or ERISA.
(c) Except as is set forth in the Image Sciences Disclosure Schedule, any
such Benefit Plan that is intended to be qualified under Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained remains
in effect and has not been revoked, and with respect to any application that is
pending, Image Sciences has no reason to suspect that such application for
determination will be denied. Nothing has occurred since the date of any such
determination, or if there has been no such determination, there is no
occurrence that is reasonably likely to affect adversely the qualification or
the tax exempt status of the plan and the related trust, or result in the
imposition of excise taxes or income taxes on unrelated business income under
the Code or ERISA with respect to any such Benefit Plan.
(d) Neither Image Sciences nor any person or entity that, together with
Image Sciences, is treated as a single employer under Section 414(b), (c), (m)
or (o) of the Code or Section 4001(a)(14) or 4001(b) of ERISA (a "Common
Controlled Entity"), sponsors a defined benefit plan subject to Title IV of
ERISA, or has a current or contingent obligation to contribute to any multi
employer plan (as defined in Section 3(37) of ERISA) and neither they nor their
predecessor have ever contributed to a multiemployer plan. Image Sciences does
not have any liability with respect to any employee benefit plan (as defined in
Section 3(3) of ERISA) other than with respect to such Benefit Plans.
(e) There are no pending or, to the knowledge of Image Sciences, threatened
claims by or on behalf of any such Benefit Plans, or by or on behalf of any
individual participants or beneficiaries of any such Benefit Plans, alleging any
breach of fiduciary duty on the part of Image Sciences or any of its officers,
directors or employees under ERISA or any other applicable regulations, or
claiming benefit payments (other than those made in the ordinary operation of
such plans), nor is there, to the knowledge of Image Sciences, any basis for
such claim. The Benefit Plans are not the subject of any pending (or to the
knowledge of Image Sciences, any threatened) investigation or audit by the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC").
(f) Image Sciences has timely made all required contributions under such
Benefit Plans including the payment of any premiums payable to the PBGC and
other insurance premiums.
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<PAGE>
(g) With respect to any such Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (a "Welfare Plan")
and except as specified in the Image Sciences Disclosure Schedule, (i) each
Welfare Plan for which contributions are claimed by Image Sciences as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
Social Security Act, and (iv) all Welfare Plans may be amended or terminated at
any time on or after the Closing Date. Except as specified in the Image
Sciences Disclosure Schedule, no Benefit Plan provides any health, life or other
welfare coverage to employees of Image Sciences beyond termination of their
employment with Image Sciences by reason of retirement or otherwise, other than
coverage as may be required under Section 4980B of the Code or Part 6 of ERISA,
or under the continuation of coverage provisions of the laws of any state or
locality.
(h) Except as otherwise set forth in the Image Sciences Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment to be made by Image Sciences or a Common Controlled Entity (including,
without limitation, severance, unemployment compensation, golden parachute (as
defined in Code Section 280G or otherwise)) becoming due to any employee or
former employee, officer or director, or (ii) increase or vest any benefits
payable under any Benefit Plan.
(i) Except as otherwise set forth in the Image Sciences Disclosure
Schedule, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of Image Sciences or any of its
subsidiaries who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or Benefit Plan
currently in effect would not be characterized as an "excess parachute payment"
(as such term is defined in Section 280(b)(1) of the Code).
4.21 Corporate Records. The minute books of Image Sciences contain
-----------------
complete, correct and current copies of its Charter Documents and bylaws and of
all minutes of meetings, resolutions and other proceedings of its Board of
Directors and shareholders. The stock record books of Image Sciences are
complete, correct and current.
4.22 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement, since the Balance Sheet Date, Image Sciences has conducted the Image
Sciences Business in the ordinary course and there has not been with respect to
the Image Sciences Business:
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(a) any change that has had or is reasonably likely to have a Material
Adverse Effect;
(b) any distribution or payment declared or made in respect of its
capital stock by way of dividends, purchase or redemption of shares or
otherwise except for the Image Sciences Closing Transactions;
(c) any increase in the compensation payable or to become payable to
any director, officer, employee or agent, except for increases for non-
officer employees made in the ordinary course of business, nor any other
change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of material Assets, or any
additions to or transactions involving any Assets, other than those made in
the ordinary course of business;
(e) other than in the ordinary course of business, any waiver or
release of any claim or right or cancellation of any debt held; or
(f) any payments to any Affiliate of Image Sciences, except as
specified in the Image Sciences Disclosure Schedule.
4.23 Previous Sales; Warranties. Image Sciences has not breached any
--------------------------
express or implied warranties in connection with the sale or distribution of
goods or the performance of services, except for breaches that would not have a
Material Adverse Effect.
4.24 Customers. Image Sciences has used its reasonable business efforts
---------
to maintain and currently maintains, good working relationships with all
of its customers. The Image Sciences Disclosure Schedule contains with respect
to each of the fiscal years ended July 31, 1994, 1995, 1996 and the four month
period ended November 30, 1996, a list of the ten customers (with names omitted)
that were the largest dollar volume customers of products or services, or both,
sold by Image Sciences for each such fiscal year. Except as specified in the
Image Sciences Disclosure Schedule, none of such customers has given Image
Sciences notice terminating, canceling or threatening to terminate or cancel any
Contract or relationship with Image Sciences.
4.25 Finder's Fees. No Person retained by Image Sciences is or will be
-------------
entitled to any commission or finder's or similar fee in connection with the
Transactions.
4.26 Additional Information. The Image Sciences Disclosure Schedule
----------------------
accurately lists the following:
(a) the names of all officers and directors of Image Sciences;
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(b) the names and addresses of every bank or other financial
institution in which Image Sciences maintains an account (whether checking,
saving or otherwise), lock box or safe deposit box, and the account numbers
and names of Persons having signing authority or other access thereto;
(c) the names of all Persons authorized to borrow money or incur or
guarantee indebtedness on behalf of Image Sciences;
(d) the names of any Persons holding powers of attorney from Image
Sciences and a summary statement of the terms thereof; and
(e) all names under which Image Sciences has conducted any part of its
Business or which it has otherwise used at any time during the past five
years.
4.27 Accuracy of Information. No representation or warranty by Image
-----------------------
Sciences in any Transaction Document, and no information contained herein or
therein or otherwise delivered by or on behalf of Image Sciences to FormMaker in
connection with the Transactions, including the Image Sciences Financial
Statements, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which such statements
were made.
4.28 Hart-Scott-Rodino Act. Neither (i) Image Sciences nor (ii) any
---------------------
Person that may be considered an "ultimate parent" of Image Sciences has (x)
annual net sales exceeding $100 million as of the last annual statement of
income and expense, or (y) total assets exceeding $100 million in value as
stated on the last regularly prepared balance sheet.
5. Representations and Warranties of FormMaker.
-------------------------------------------
FormMaker hereby represents and warrants to Image Sciences, except as set
forth in the FormMaker Disclosure Schedule or the updated FormMaker Disclosure
Schedule to be delivered pursuant to Section 6.3, as follows:
5.1 Corporate Status. Each of the FormMaker Companies and the New
----------------
Companies is a corporation duly organized, validly existing and in good standing
under the Laws of the jurisdiction of its organization, and is qualified to do
business as a foreign corporation in any jurisdiction where it is required to be
so qualified except where the failure to so qualify would not have a Material
Adverse Effect. The Charter Documents and bylaws of each of the FormMaker
Companies and each of the New Companies that have been delivered to Image
Sciences as of the date hereof are effective under applicable Laws and are
current, correct and complete.
5.2 Authorization. Each of the FormMaker Companies and the New Companies
-------------
has the requisite power and authority to own its Assets and to carry on its
Business. Each of FormMaker
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and the New Companies has the requisite power and authority to execute and
deliver the Transaction Documents to which it is a party and to perform the
Transactions performed or to be performed by it. Such execution, delivery and
performance by FormMaker or any New Company has been duly authorized by all
necessary corporate action, other than approval by the shareholders of
FormMaker. Each Transaction Document executed and delivered by FormMaker and any
New Company has been duly executed and delivered by such Party and constitutes a
valid and binding obligation of such Party, enforceable against such Party in
accordance with its terms.
5.3 Consents and Approvals. Except for (a) any consents specified in the
----------------------
FormMaker Disclosure Schedule (the "FormMaker Required Consents"), (b) the
approval of the Merger by the FormMaker shareholders, (c) the filing of the
Articles of Merger in accordance with Section 2 and (d) any approvals or filings
required by the SEC and by state securities laws or agencies in connection with
the Registration Statement, neither the execution and delivery by FormMaker or
any New Company of the Transaction Documents to which it is a party, nor the
performance of the Transactions performed or to be performed by it, require any
filing, consent or approval or constitute a Default under (i) any Law or Court
Order to which the FormMaker Companies or any new Company is subject, (ii) the
Charter Documents or bylaws of FormMaker or MicroDynamics or (iii) any Contract,
Governmental Permit or other document to which FormMaker or any New Company is a
party or by which the properties or other assets of such Party may be subject.
5.4 Capitalization and Stock Ownership.
----------------------------------
(a) The total authorized capital stock of FormMaker consists of
20,000,000 shares of FormMaker Common Stock, of which (i) 6,229,511 shares are
issued and outstanding and (ii) 1,602,157 shares of FormMaker Common Stock are
reserved for issuance upon exercise of the issued and outstanding FormMaker
Options and FormMaker Warrants. Except for the rights under the FormMaker
Options and FormMaker Warrants listed in the FormMaker Disclosure Schedule,
there are no existing options, warrants, calls, commitments or other rights of
any character (including conversion or preemptive rights) relating to the
acquisition of any issued or unissued capital stock or other securities of
FormMaker. All of the shares of FormMaker Common Stock are, and all of the
shares of FormMaker Common Stock issuable upon exercise of the FormMaker Options
and the FormMaker Warrants in accordance with the terms thereof will be, duly
and validly authorized and issued, fully paid and non-assessable. The FormMaker
Disclosure Schedule lists all of the record owners of the FormMaker Common
Stock, the FormMaker Options and the FormMaker Warrants. FormMaker has delivered
to Image Sciences correct and complete copies of the forms of the FormMaker
Option agreements and the FormMaker Warrant agreements.
(b) The total authorized capital stock of the Company consists of (i)
20,000,000 shares of Company Class A Common Stock, 7,000,000 shares of Company
Class B Common Stock and 1,000,000 shares of Company Preferred Stock, par value
$0.01 per share, of which (a) no shares are issued and outstanding on the date
hereof and also as of immediately prior to the Effective Time and (b) as of the
consummation of the Closing and the issuance of the Closing Common Shares, the
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total number of shares issued and outstanding plus the total number of shares
issuable upon the exercise of issued and outstanding Company Options and Company
Warrants shall not exceed 12,580,000 shares of Company Class A Common Stock and
Company Class B Common Stock. Except for the rights under the Company Options
and the Company Warrants to be issued at the Closing, there are no existing
options, warrants, calls, commitments or other rights of any character
(including conversion or preemptive rights) relating to the acquisition of any
issued or unissued capital stock or other securities of the Company. All of the
Closing Common Shares that will be issued and outstanding immediately following
consummation of the Merger, and all of the shares of Company Class A Common
Stock or Company Class B Common Stock issuable upon exercise of the Company
Options and the Company Warrants upon issuance in accordance with the terms
thereof, will be duly and validly authorized and issued, fully paid and non-
assessable. As of the Effective Time, the Form S-4 Registration Statement will
be effective in accordance with the Securities Act with respect to the Closing
Common Shares, and such securities will be issued in compliance with the
Securities Act and the rules and regulations thereunder.
(c) The total authorized capital stock of the Texas Sub consists of
1,000 shares of Common Stock, par value $0.01 per share, of which 100 shares are
issued and outstanding on the date hereof and will be issued and outstanding as
of the Closing. There are no existing options, warrants, calls, commitments or
other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Texas Sub. All of such shares are duly and validly authorized
and issued, fully paid and non-assessable. The Company owns all of such shares
of the Texas Sub.
(d) The total authorized capital stock of the Georgia Sub consists of
1,000 shares of Common Stock, par value $0.01 per share, of which 100 shares are
issued and outstanding on the date hereof and will be issued and outstanding as
of the Closing. There are no existing options, warrants, calls, commitments or
other rights of any character (including conversion or preemptive rights)
relating to the acquisition of any issued or unissued capital stock or other
securities of the Georgia Sub. All of such shares are duly and validly
authorized and issued, fully paid and non-assessable. The Company owns all of
such shares of the Georgia Sub.
(e) The total authorized capital stock of MicroDynamics consists of
8,000,000 shares of Common Stock, par value $0.01 per share, of which 6,051,305
shares are issued and outstanding on the date hereof, and 1,600,000 shares of
Preferred Stock, par value $0.01 per share, of which no shares are issued and
outstanding on the date hereof. All shares of MicroDynamics Common Stock are
duly and validly authorized and issued, fully paid and non-assessable.
FormMaker owns 6,044,805 shares of MicroDynamics Common Stock free and clear of
all Encumbrances.
5.5 Financial Statements. FormMaker has delivered to Image Sciences
--------------------
correct and complete copies of unaudited monthly financial statements for
FormMaker consisting of a balance sheet as of the end of each month from January
1996 through November 30, 1996 and the related statements of income, changes to
shareholders' equity and cash flows for the periods then ended.
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FormMaker has also delivered to Image Sciences correct and complete copies of
financial statements consisting of a balance sheet of FormMaker as of December
31, 1993, 1994 and 1995 and the related statements of income for the years then
ended, the financial statements for the two most recent years were audited by
the firm of Coopers & Lybrand LLP. All such unaudited and audited financial
statements are referred to herein collectively as the "FormMaker Pre-Signing
Financial Statements." The unaudited financial statements of FormMaker to be
delivered in connection with the Registration Statements are referred to herein
as the "FormMaker Post-Signing Financial Statements," and, together with the
Pre-Signing Financial Statements, as the "FormMaker Financial Statements." The
FormMaker Pre-Signing Financial Statements are, and the FormMaker Post-Signing
Financial Statements will be, consistent in all material respects with the books
and records of FormMaker, and there have not been and will not be any material
transactions that have not been or will not be recorded in the accounting
records underlying such Financial Statements. The FormMaker Pre-Signing
Financial Statements have been, and the FormMaker Post-Signing Financial
Statements will be, prepared in accordance with GAAP consistently applied, and
the FormMaker Pre-Signing Financial Statements present, and the FormMaker Post-
Signing Financial Statements will present, fairly the financial position and
assets and liabilities of FormMaker as of the dates thereof, and the results of
its operations for the periods then ended, subject to normal recurring year-end
adjustments and the absence of notes in the case of unaudited Financial
Statements. The balance sheet of FormMaker as of November 30, 1996 that is
included in the Financial Statements is referred to herein as the "FormMaker
Balance Sheet." FormMaker has also delivered to Image Sciences correct and
complete copies of financial statements consisting of a balance sheet of
MicroDynamics as of December 1993, 1994 and 1995 and the related statements of
income for the years then ended and unaudited monthly financial statements for
MicroDynamics consisting of a balance sheet as of the end of each month from
January 1996 through November 30, 1996 and the related statements of income,
changes to shareholders equity and cash flow for the periods then ended (the
"MicroDynamics Financial Statements"). The MicroDynamics Financial Statements
are consistent in all material respects with the books and records of
MicroDynamics, and there have not been and will not be any material transaction
that have not been recorded in the accounting records underlying such
MicroDynamics Financial Statements.
5.6 No Company, Texas Sub or Georgia Sub Assets, Liabilities or Business.
--------------------------------------------------------------------
Except for any rights and Liabilities that the Company, the Texas Sub and the
Georgia Sub may have with respect to this Agreement and the Company's ownership
of the capital stock of the Texas Sub and the Georgia Sub, neither the Company,
the Texas Sub or the Georgia Sub has any Assets or Liabilities, nor has either
the Company, the Texas Sub or the Georgia Sub conducted any Business other than
in connection with the Transactions.
5.7 Title to Assets and Related Matters. Each of the FormMaker
-----------------------------------
Companies has good and marketable title to, valid leasehold interests in or
valid licenses to use, all of its material FormMaker Companies Assets, free from
any Encumbrances except those specified in the FormMaker Disclosure Schedule.
The use of the FormMaker Companies Assets are not subject to any Encumbrances
(other than those specified in the preceding sentence), and such use does not
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materially encroach on the property or rights of anyone else. All FormMaker
Companies Real Property and tangible personal property (other than Inventory)
included in the FormMaker Companies Assets are suitable for the purposes for
which they are used, in good working condition, reasonable wear and tear
excepted, and are free from any known defects, except such minor defects that
would not have a Material Adverse Effect.
5.8 Real Property. The FormMaker Disclosure Schedule describes all real
-------------
estate used in the operation of the FormMaker Companies Business as well as any
other real estate that is in the possession of or leased by the FormMaker
Companies and the improvements (including buildings and other structures)
located on such real estate (collectively, the "FormMaker Companies Real
Property"), and lists any leases under which any such FormMaker Companies Real
Property is possessed (the "FormMaker Companies Real Estate Leases"). FormMaker
does not have any ownership interest in any real property. The FormMaker
Disclosure Schedule also describes any other real estate previously owned,
leased or otherwise operated by the FormMaker Companies or any predecessor
thereof and the time periods of any such ownership, lease or operation. All of
the FormMaker Companies Real Property (a) is usable in the ordinary course of
business and (b) conforms in all material respects with any applicable Laws
relating to its construction, use and operation. The FormMaker Companies Real
Property complies with applicable zoning Laws. To the knowledge of FormMaker,
the FormMaker Companies or the landlord of any FormMaker Companies Real Property
leased by the FormMaker Companies has obtained all licenses and rights-of-way
from governmental entities or private parties that are necessary to ensure
vehicular and pedestrian ingress and egress to and from the FormMaker Companies
Real Property.
5.9 Certain Personal Property. The FormMaker Disclosure Schedule
-------------------------
describes all items of tangible personal property that were included in the
FormMaker Balance Sheet at a carrying value of at least $50,000. Except as
specified in the FormMaker Disclosure Schedule, since the Balance Sheet Date,
FormMaker has not acquired any items of tangible personal property that have a
carrying value in excess of $50,000, or an aggregate carrying value of $300,000.
All of such personal property included in the FormMaker Disclosure Schedule is,
and any such personal property acquired after the date hereof in accordance with
Section 7.2 will be, usable in the ordinary course of business, and all such
personal property included in the FormMaker Disclosure Schedule conforms, and
all of such personal property acquired after the date hereof will conform, in
all material respects with any applicable Laws relating to its construction, use
and operation. Except for those items subject to the FormMaker Companies Non-
Real Estate Leases or the Immaterial Leases or those items listed in the
FormMaker Disclosure Schedule, no Person other than the FormMaker Companies owns
any vehicles, equipment or other tangible assets located on the FormMaker Real
Property that have been used in the FormMaker Companies Business or that are
necessary for the operation of the FormMaker Companies Business.
5.10 Non-Real Estate Leases. The FormMaker Disclosure Schedule lists
----------------------
all assets and property (other than FormMaker Real Property) that are possessed
by the FormMaker Companies under an existing lease, including all trucks,
automobiles, forklifts, machinery, equipment, furniture
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and computers, except for Immaterial Leases. The FormMaker Disclosure Schedule
also lists the leases under which such assets and property listed in the
FormMaker Disclosure Schedule are possessed. All of such leases (excluding
Immaterial Leases) are referred to herein as the "FormMaker Companies Non-Real
Estate Leases."
5.11 Accounts Receivable. The Accounts Receivable included in the
-------------------
FormMaker Companies Assets are bona fide Accounts Receivable created in the
ordinary course of business. Except for Accounts Receivable for which reserves
have been established, all of the Accounts Receivable included in the FormMaker
Companies Assets are collectible in the ordinary course of business. FormMaker
does not know of any facts or circumstances (other than general economic
conditions) that are likely to result in any material increase in the
uncollectability of such Accounts Receivable in excess of any reserves therefor
set forth in the FormMaker Balance Sheet.
5.12 Inventory. The Inventory included in the FormMaker Companies
---------
Assets consists of items of good, usable and merchantable quality in all
material respects and does not include obsolete or discontinued items. Such
Inventory is recorded in the FormMaker Financial Statements at the lower of cost
or market value determined in accordance with GAAP.
5.13 Liabilities. The FormMaker Companies do not have any
-----------
Liabilities, except (a) as specified in the FormMaker Disclosure Schedule, (b)
as contemplated by the FormMaker Balance Sheet (except as heretofore paid or
discharged), (c) Liabilities incurred in the ordinary course since the Balance
Sheet Date, or (d) Liabilities under any Contracts included in the FormMaker
Companies Assets that are specifically disclosed in the FormMaker Disclosure
Schedule (or not required to be disclosed because of the term or amount
involved) that were not required under GAAP to have been specifically disclosed
or reserved for on the FormMaker Balance Sheet.
5.14 Taxes. The FormMaker Companies have duly filed all returns for
-----
Taxes that are required to be filed and has paid all material Taxes shown as
being due pursuant to such returns or pursuant to any assessment received. All
Taxes that the FormMaker Companies have been required by Law to withhold or to
collect have been duly withheld and collected and have been paid over to the
proper governmental authorities or are properly held by the FormMaker Companies
for such payment. There are no proceedings or other actions, nor is there any
basis for any proceedings or other actions, for the assessment and collection of
additional Taxes of any kind with respect to the FormMaker Companies for any
period for which returns have or should have been filed.
5.15 Subsidiaries. FormMaker does not own, directly or indirectly,
------------
any interest or investment (whether equity or debt) in any corporation,
partnership, limited liability company, trust, joint venture or other legal
entity, except for its investment in MicroDynamics and the New Companies.
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5.16 Legal Proceedings and Compliance with Law.
-----------------------------------------
(a) Except as set forth in the FormMaker Disclosure Schedule, there is no
Litigation that is pending or, to FormMaker's knowledge, threatened against the
FormMaker Companies. There has been no Default under any Laws applicable to the
FormMaker Companies, including Laws relating to pollution or protection of the
environment, except for any Defaults that would not have a Material Adverse
Effect, and the FormMaker Companies have not received any notices from any
governmental entity regarding any alleged Defaults under any Laws. There has
been no Default with respect to any Court Order applicable to the FormMaker
Companies.
(b) Without limiting the generality of Section 5.16(a), there has not been
any FormMaker Environmental Condition (i) at the premises at which the FormMaker
Companies Business has been conducted, (ii) at any property owned, leased or
operated at any time by the FormMaker Companies, any Person controlled by the
FormMaker Companies or any predecessor of any of them, or (iii) at any property
at which wastes have been released, deposited or disposed by or at the behest or
direction of any of the foregoing, nor have the FormMaker Companies received
written notice of any such FormMaker Companies Environmental Condition.
"FormMaker Environmental Condition" means any condition or circumstance,
including the presence or release of Hazardous Substances, whether created by
the FormMaker Companies or any third party, at or relating to any such property
or premises that (i) requires investigation, monitoring, abatement or correction
under an Environmental Law, (ii) gives rise to any civil or criminal liability
on the part of the FormMaker Companies under an Environmental Law, or (iii) has
created a public or private nuisance.
(c) FormMaker has delivered to Image Sciences complete copies of any
written reports, studies or assessments in the possession or control of the
FormMaker Companies that relate to any the FormMaker Companies Environmental
Condition and to the FormMaker Business or any FormMaker Assets.
(d) Except in those cases where the failure would not have a Material
Adverse Effect, (i) the FormMaker Companies have obtained and are in full
compliance with all Governmental Permits, all of which are listed in the
FormMaker Disclosure Schedule along with their respective expiration dates, that
are required for the complete operation of the FormMaker Companies Business as
currently operated, (ii) all of such Governmental Permits are currently valid
and in full force and (iii) the FormMaker Companies have filed such timely and
complete renewal applications as may be required with respect to its
Governmental Permits. To FormMaker's knowledge, no revocation, cancellation or
withdrawal thereof has been threatened.
5.17 Contracts.
---------
(a) The FormMaker Disclosure Schedule lists all Contracts of the following
types to which the FormMaker Companies are a party or by which it is bound,
except for Minor Contracts:
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(i) Contracts with any present or former shareholder, director,
officer, employee, partner or consultant of FormMaker or any Affiliate
thereof.
(ii) Contracts for the future purchase of, or payment for, supplies
or products, or for the lease of any Asset from or the performance of
services by a third party, in excess of $150,000 in any individual case, or
any Contracts for the sale of products that involve an amount in excess of
$25,000 with respect to any one supplier or other party;
(iii) Contracts to sell or supply products or to perform services
that involve an amount in excess of $250,000 in any individual case;
(iv) Contracts to lease to or to operate for any other party any
asset that involve an amount in excess of $150,000 in any individual case;
(v) Any notes, debentures, bonds, conditional sale agreements,
equipment trust agreements, letter of credit agreements, reimbursement
agreements, loan agreements or other Contracts for the borrowing or lending
of money (including loans to or from officers, directors, partners,
shareholders or Affiliates of FormMaker or any members of their immediate
families), agreements or arrangements for a line of credit or for a
guarantee of, or other undertaking in connection with, the indebtedness of
any other Person;
(vi) Any Contracts under which any Encumbrances exist; and
(vii) Any other Contracts (other than Minor Contracts and those
described in any of (i) through (vi) above) not made in the ordinary course
of business.
(b) The Contracts listed in the FormMaker Disclosure Schedule and the
Contracts excluded from the FormMaker Disclosure Schedule based on the term or
amount thereof are referred to herein as the "FormMaker Companies Contracts."
FormMaker Companies are not in Default under any FormMaker Companies Contracts
(including any FormMaker Companies Real Estate Leases and FormMaker Companies
Non-Real Estate Leases), which Default could result in a Liability on the part
of the FormMaker Companies in excess of $25,000 in any individual case, and the
aggregate Liabilities that could result from all such Defaults do not exceed
$50,000. The FormMaker Companies have not received any communication from, or
given any communication to, any other party indicating that the FormMaker
Companies or such other party, as the case may be, is in Default under any the
FormMaker Companies Contract where such Default could have a Material Adverse
Effect. To the knowledge of FormMaker, none of the other parties in any such
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<PAGE>
FormMaker Companies Contract is in Default thereunder.
5.18 Insurance. The FormMaker Disclosure Schedule lists all policies
---------
or binders of insurance held by or on behalf of the FormMaker Companies,
specifying with respect to each policy the insurer, the amount of the coverage,
the type of insurance, the risks insured, the expiration date, the policy number
and any pending claims thereunder. There is no Default with respect to any such
policy or binder, nor has there been any failure to give any notice or present
any claim under any such policy or binder in a timely fashion or in the manner
or detail required by the policy or binder, except for any of the foregoing that
would not have a Material Adverse Effect. There is no notice of nonrenewal or
cancellation with respect to, or disallowance of any claim under, any such
policy or binder that has been received by the FormMaker Companies, except for
any of the foregoing that would not have a Material Adverse Effect.
5.19 Intellectual Property and Software Products.
-------------------------------------------
(a) The FormMaker Companies do not currently use nor have they previously
used in the development, production or marketing of their products and services
any Copyrights, Patents or Trademarks except for those listed in the FormMaker
Disclosure Schedule. The FormMaker Companies own or have the lawful right to
use all material Intellectual Property that is used in the operation of the
Business in the ordinary course or otherwise. All of the Intellectual Property
listed in the FormMaker Disclosure Schedule is owned by the FormMaker Companies
free and clear of any Encumbrances, or used pursuant to an agreement that is
described in the FormMaker Disclosure Schedule. Except in such cases that would
not have a Material Adverse Effect, the FormMaker Companies do not infringe upon
or unlawfully or wrongfully use any Intellectual Property rights owned or
claimed by another Person, and the FormMaker Companies are not in Default, and
have not received any notice of any claim of infringement or any other claim or
proceeding, with respect to any such Intellectual Property. Except for any
rights under written licenses or other written Contracts, no current or former
employee of the FormMaker Companies and no other Person owns or has any
proprietary, financial or other interest, direct or indirect, in whole or in
part, and including any right to royalties or other compensation, in any of the
Intellectual Property, or in any application therefor.
(b) The FormMaker Disclosure Schedule contains a complete list of all of
the computer software products sold, licensed, distributed, marketed, used or
under development by the FormMaker Companies (the "FormMaker Companies Software
Products"). Each of the FormMaker Companies Software Products performs
substantially in accordance with the specifications, documentation and other
written material used in connection with the sale, license, distribution,
marketing or use thereof and is free of defects in programming and operation
except such defects as would not materially and adversely affect the use of the
respective FormMaker Companies Software Products for their intended purposes.
(c) Except as specified in the FormMaker Disclosure Schedule, all right,
title and
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<PAGE>
interest in and to the FormMaker Companies Software Products is owned by the
FormMaker Companies, free and clear of all Encumbrances. No government funding
was utilized in the development of any of the FormMaker Companies Software
Products. Except for such violations that would not have a Material Adverse
Effect, the sale, license, distribution, marketing or use of the FormMaker
Companies Software Products by the FormMaker Companies do not violate any rights
of any other Person, and the FormMaker Companies have not received any
communication alleging such a violation. Except as specified in the FormMaker
Disclosure Schedule, the FormMaker Companies do not have any obligation to
compensate any Person for the sale, license, distribution, marketing or use of
the FormMaker Companies Software Products. Other than as set forth in the
FormMaker Disclosure Schedule, the FormMaker Companies have not granted to any
other Person any license, option or other right in or to any of the FormMaker
Companies Software Products, except for End-User Licenses and Distributor
Licenses granted by the FormMaker Companies pursuant to license agreements.
Correct and complete copies of such Distributor Licenses have been or will be
delivered to Image Sciences in Second Stage Due Diligence.
(d) Except as specified in the FormMaker Disclosure Schedule, the FormMaker
Companies do not have any obligation owing to any Person to maintain, modify,
improve or upgrade any of the FormMaker Software Products, except for any such
obligation set forth in an End-User License, a Distributor License or under a
customer-specific services agreement and such other obligations as would not
have a Material Adverse Effect.
(e) All employees and consultants of the FormMaker Companies who are
involved in the design, review, evaluation or development of Intellectual
Property have executed a Confidentiality Agreement. To FormMaker's knowledge,
(i) none of the Confidential Information has been used, divulged or appropriated
(A) for the benefit of any Person other than the FormMaker Companies or a
customer thereof or (B) otherwise to the detriment of the FormMaker Companies,
(ii) except as specified in the FormMaker Disclosure Schedule, none of such
employees or consultants of the FormMaker Companies are subject to any
contractual or legal restrictions that might interfere with the use of his or
her best efforts to promote the interests of the FormMaker Companies, (iii) no
employee or consultant of FormMaker has used any other Persons' trade secrets or
other information that is confidential in the course of his or her work for
FormMaker, and (iv) no employee or consultant of the FormMaker Companies are, or
are currently expected to be, in Default under any term of any employment
contract, agreement or arrangement relating to the Intellectual Property, or any
Confidentiality Agreement or any other Contract or any restrictive covenant
relating to the Intellectual Property, or the development or exploitation
thereof.
(f) The FormMaker Companies have kept secret and has not disclosed the
source codes for the FormMaker Companies Software Products to any Person other
than to those Persons identified in the FormMaker Disclosure Schedule and to
certain employees of the FormMaker Companies.
5.20 Employee Relations. The FormMaker Companies are not (a) except
------------------
as specified in
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<PAGE>
the FormMaker Disclosure Schedule, a party to, involved in or, to FormMaker's
knowledge, threatened by, any labor dispute or unfair labor practice charge, or
(b) currently negotiating any collective bargaining agreement. The FormMaker
Companies have not experienced during the last three years any work stoppage.
FormMaker has delivered to Image Sciences a complete and correct list of the
names and salaries, bonus and other cash compensation of all employees
(including officers) of the FormMaker Companies whose cash compensation was for
1995 or is expected to be for 1996 at least $80,000.
5.21 ERISA.
-----
(a) The FormMaker Disclosure Schedule contains a complete list of
all Benefit Plans sponsored or maintained by the FormMaker Companies or under
which the FormMaker Companies are obligated. FormMaker has delivered to Image
Sciences (i) accurate and complete copies of all such Benefit Plan documents and
all other material documents relating thereto, including (if applicable) all
summary plan descriptions, summary annual reports and insurance contracts, (ii)
accurate and complete detailed summaries of all unwritten Benefit Plans, (iii)
accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all such Benefit Plans for which financial
statements or actuarial reports are required or have been prepared and (iv)
accurate and complete copies of all annual reports for all such Benefit Plans
(for which annual reports are required) prepared within the last three years.
Each such Benefit Plan providing benefits that are funded through a policy of
insurance is indicated by the word "insured" placed by the listing of the
Benefit Plan in the FormMaker Disclosure Schedule.
(b) All such Benefit Plans conform (and at all times have conformed)
in all material respects to, and are being administered and operated (and have
at all times been administered and operated) in material compliance with, the
requirements of ERISA, the Code and all other applicable Laws. All returns,
reports and disclosure statements required to be made under ERISA and the Code
with respect to all such Benefit Plans have been timely filed or delivered.
There have not been any "prohibited transactions," as such term is defined in
Section 4975 of the Code or Section 406 of ERISA involving any of the Benefit
Plans, that could subject FormMaker to any material penalty or tax imposed under
the Code or ERISA .
(c) Except as is set forth in the FormMaker Disclosure Schedule, any
such Benefit Plan that is intended to be qualified under Section 401(a) of the
Code and exempt from tax under Section 501(a) of the Code has been determined by
the Internal Revenue Service to be so qualified or an application for such
determination is pending. Any such determination that has been obtained remains
in effect and has not been revoked, and with respect to any application that is
pending, the Company has no reason to suspect that such application for
determination will be denied. Nothing has occurred since the date of any such
determination, or if there has been no such determination, there is no
occurrence that is reasonably likely to affect adversely such qualification or
the tax exempt status of the plan and the related trust, or result in the
imposition of excise taxes or income taxes on unrelated business income under
the Code or ERISA with respect to any such Benefit Plan.
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<PAGE>
(d) Neither the FormMaker Companies nor any person or entity that,
together with the FormMaker Companies, is treated as a Common Controlled Entity,
sponsors a defined benefit plan subject to Title IV of ERISA, or has a current
or contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA) and neither they nor their predecessors have ever
contributed to a multiemployer plan. The FormMaker Companies do not have any
liability with respect to any employee benefit plan (as defined in Section 3(3)
of ERISA) other than with respect to such Benefit Plans.
(e) There are no pending or, to the knowledge of FormMaker,
threatened claims by or on behalf of any such Benefit Plans, or by or on behalf
of any individual participants or beneficiaries of any such Benefit Plans,
alleging any breach of fiduciary duty on the part of the FormMaker Companies or
any of their officers, directors or employees under ERISA or any other
applicable regulations, or claiming benefit payments (other than those made in
the ordinary operation of such plans), nor is there, to the knowledge of
FormMaker, any basis for such claim. The Benefit Plans are not the subject of
any pending (or to the knowledge of FormMaker, any threatened) investigation or
audit by the Internal Revenue Service, the Department of Labor or the PBGC.
(f) The FormMaker Companies have timely made all required
contributions under such Benefit Plans including the payment of any premiums
payable to the PBGC and other insurance premiums.
(g) With respect to any such Benefit Plan that is a Welfare Plan and
except as specified in the FormMaker Disclosure Schedule, (i) each Welfare Plan
for which contributions are claimed by the FormMaker Companies as deductions
under any provision of the Code is in material compliance with all applicable
requirements pertaining to such deduction, (ii) with respect to any welfare
benefit fund (within the meaning of Section 419 of the Code) related to a
Welfare Plan, there is no disqualified benefit (within the meaning of Section
4976(b) of the Code) that would result in the imposition of a tax under Section
4976(a) of the Code, (iii) any Benefit Plan that is a group health plan (within
the meaning of Section 4980B(g)(2) of the Code) complies, and in each and every
case has complied, with all of the applicable material requirements of Section
4980B of the Code, ERISA, Title XXII of the Public Health Service Act and the
Social Security Act, and (iv) all Welfare Plans may be amended or terminated at
any time on or after the Closing Date. Except as specified in the FormMaker
Disclosure Schedule, no Benefit Plan provides any health, life or other welfare
coverage to employees of the FormMaker Companies beyond termination of their
employment with the FormMaker Companies by reason of retirement or otherwise,
other than coverage as may be required under Section 4980B of the Code or Part 6
of ERISA, or under the continuation of coverage provisions of the laws of any
state or locality.
(h) Except as otherwise set forth in the FormMaker Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment to be made by the FormMaker Companies or a Common
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<PAGE>
Controlled Entity (including, without limitation, severance, unemployment
compensation, golden parachute (as defined in Code Section 280G or otherwise))
becoming due to any employee or former employee, officer or director, or (ii)
increase or vest any benefits payable under any Benefit Plan.
(i) Except as otherwise set forth in the FormMaker Disclosure
Schedule, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the FormMaker Companies or any
of its subsidiaries who is a "disqualified individual" (as such term is defined
in proposed Treasury Regulation Section 1.280G-1) under any employment,
severance or termination agreement, other compensation arrangement or Benefit
Plan currently in effect would not be characterized as an "excess parachute
payment" (as such term is defined in Section 280(b)(1) of the Code).
5.22 Corporate Records. The minute books of each of the FormMaker
-----------------
Companies contain complete, correct and current copies of its Charter Documents
and bylaws and of all minutes of meetings, resolutions and other proceedings of
its Board of Directors and shareholders. The stock record books of the FormMaker
Companies are complete, correct and current.
5.23 Absence of Certain Changes. Except as contemplated by this
--------------------------
Agreement, since the Balance Sheet Date, the FormMaker Companies have conducted
the FormMaker Companies Business in the ordinary course and there has not been
with respect to the FormMaker Companies Business:
(a) any change that has had or is reasonably likely to have a
Material Adverse Effect;
(b) any distribution or payment declared or made in respect of
its capital stock by way of dividends, purchase or redemption of shares
or otherwise;
(c) any increase in the compensation payable or to become
payable to any director, officer, employee or agent, except for increases
for non-officer employees made in the ordinary course of business, nor
any other change in any employment or consulting arrangement;
(d) any sale, assignment or transfer of material Assets, or
any additions to or transactions involving any Assets, other than those
made in the ordinary course of business;
(e) other than in the ordinary course of business, any waiver
or release of any claim or right or cancellation of any debt held; or
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(f) any payments to any Affiliate of the FormMaker Companies,
except as specified in the FormMaker Disclosure Schedule.
5.24 Previous Sales; Warranties. The FormMaker Companies have not
--------------------------
breached any express or implied warranties in connection with the sale or
distribution of goods or the performance of services, except for breaches that,
individually and in the aggregate, would not have a Material Adverse Effect.
5.25 Customers. The FormMaker Companies have used their reasonable
---------
business efforts to maintain and currently maintains, good working relationships
with all of their customers. The FormMaker Disclosure Schedule contains with
respect to each of the years ended December 31, 1993, 1994, 1995 and the eleven
month period ended November 30, 1996 a list of the ten customers (with names
omitted) that were the largest dollar volume customers of products or services,
or both, sold by the FormMaker Companies for each such year. Except as specified
in the FormMaker Disclosure Schedule, none of such customers has given the
FormMaker Companies notice terminating, canceling or threatening to terminate or
cancel any Contract or relationship with the FormMaker Companies.
5.26 Finder's Fees. No Person retained by FormMaker is or will be
-------------
entitled to any commission or finder's or similar fee in connection with the
Transactions.
5.27 Additional Information. The FormMaker Disclosure Schedule
----------------------
accurately lists the following:
(a) the names of all officers and directors of FormMaker;
(b) the names and addresses of every bank or other financial
institution in which FormMaker maintains an account (whether checking,
saving or otherwise), lock box or safe deposit box, and the account
numbers and names of Persons having signing authority or other access
thereto;
(c) the names of all Persons authorized to borrow money or
incur or guarantee indebtedness on behalf of FormMaker;
(d) the names of any Persons holding powers of attorney from
FormMaker and a summary statement of the terms thereof; and
(e) all names under which FormMaker has conducted any part of
its Business or which it has otherwise used at any time during the past
five years.
5.28 Accuracy of Information. No representation or warranty by
-----------------------
FormMaker in any Transaction Document, and no information contained therein or
otherwise delivered by or on behalf
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of FormMaker to Image Sciences in connection with the Transactions, including
the FormMaker Financial Statements, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which such statements were made.
5.29 Hart-Scott-Rodino Act. Neither (i) FormMaker nor (ii) any
---------------------
Person that may be considered an "ultimate parent" of FormMaker for purposes of
the HSR Act, has (x) annual net sales exceeding $100 million as of the last
annual statement of income and expense, or (y) total assets exceeding $100
million in value as stated on the last regularly prepared balance sheet.
6. Joint Covenants.
---------------
6.1 Registration Statement.
----------------------
(a) The Company shall prepare and file with the SEC as soon as
reasonably practicable after the date hereof (i) a registration statement on
Form S-4 under the Securities Act for purposes of registering the Closing Common
Shares and the shares of Company Class A Common Stock and Company Class B Common
Stock issuable upon exercise of the Company Options and the Company Warrants
received by Holders in the Merger (the "Registered Securities") and (ii) a joint
proxy statement to be distributed by Image Sciences and FormMaker in connection
with the Image Sciences Special Meeting and the FormMaker Special Meeting (the
"Joint Proxy Statement"). Such registration statement on Form S-4 and any
amendments or supplements thereto are referred to herein as the "Form S-4
Registration Statement" or the "Registration Statement." The Company will use
commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing,
and Image Sciences and FormMaker shall use commercially reasonable efforts to
cooperate with the Company to cause the Registration Statement to be declared
effective. The Company, FormMaker, Image Sciences, the Texas Sub, the Georgia
Sub and Image Sciences (the "Corporate Parties") shall also take such action as
may be reasonably required to cause the Registered Securities to be registered
or to obtain an exemption from registration under applicable state "blue sky" or
securities laws. In connection with the foregoing, Image Sciences and FormMaker
will furnish to the Company all information concerning Image Sciences and
FormMaker as the Company or its counsel may reasonably request for inclusion in
the Registration Statement.
(b) The Company covenants that the Registration Statement (i) will
comply in all material respects with the applicable provisions of the Securities
Act and the rules and regulations promulgated thereunder and (ii) will not at
the time such document is filed with the SEC and at all times after it becomes
effective under the Securities Act and until the Closing contain any untrue
statement of any material fact or omit to state any 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, or necessary to
correct any statement in any earlier filing with the SEC of the Registration
Statement; provided, however, that no representation, covenant or agreement is
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made by the Company with respect to information supplied by or on behalf of
Image Sciences for inclusion in the Registration Statement.
(c) Each of Image Sciences and FormMaker covenants that the
Registration Statement as it relates to them (i) will comply in all material
respects with the applicable provisions of the Securities Act and the rules and
regulations promulgated thereunder and (ii) will not at the time such document
is filed with the SEC and at all times after it becomes effective under the
Securities Act and until the Closing, contain any untrue statement of any
material fact or omit to state any 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, or necessary to
correct any statement in any earlier filing with the SEC of the Registration
Statement.
6.2 Financial Statements. Each of FormMaker and Image Sciences shall
--------------------
deliver to the other party financial statements prepared in accordance with GAAP
consistently applied for the twelve-month period ending December 31, 1996.
6.3 Due Diligence. Each of FormMaker and Image Sciences shall deliver
to the other party all the information listed in Schedule 6.3 not previously
provided to such other party (the "Second Stage Due Diligence Materials") on the
day following the date of this Agreement and shall deliver an updated Disclosure
Schedule incorporating information from such Second Stage Due Diligence
Materials. If either FormMaker or Image Sciences believes in good faith that any
information contained in such Second Stage Due Diligence Materials reveals
matters which could have a Material Adverse Effect on the combined entity
following the Merger, then such party shall have the right to terminate this
Agreement as provided in Section 12.1(d).
7. Covenants of FormMaker and the Company.
--------------------------------------
7.1 Fulfillment of Closing Conditions. At and prior to the Closing,
---------------------------------
FormMaker shall use commercially reasonable efforts to fulfill, and to cause the
Company to fulfill, the conditions specified in Sections 9 and 10 to the extent
that the fulfillment of such conditions is within its control, except that
FormMaker shall not be required to pay or expend any material amount of funds
that may be necessary to correct any Default under the representations and
warranties of the Company or FormMaker or to fulfill any of such conditions. In
connection with the foregoing, FormMaker will, and will cause the Company to,
(a) refrain from any actions that would cause any of its representations and
warranties to be inaccurate in any material respect as of the Closing, (b)
execute and deliver the agreements and other documents referred to in Section
10, (c) comply in all material respects with all applicable Laws in connection
with its execution, delivery and performance of this Agreement and the
Transactions, (d) use commercially reasonable efforts to obtain in a timely
manner all necessary waivers, consents and approvals required under any Laws,
Contracts or otherwise, including any FormMaker Required Consents, and (e) use
commercially reasonable efforts to take, or cause to be taken, all other actions
and to do, or cause to be done, all other things reasonably necessary, proper or
advisable to consummate and make effective as
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<PAGE>
promptly as practicable the Transactions. FormMaker shall give Image Sciences
prompt written notice of any event or development that occurs or fails to occur
(and that is known to FormMaker) that gives FormMaker reason to believe that the
conditions set forth in Sections 9 and 10 will not be satisfied prior to the
Termination Date.
7.2 Conduct of the Business. Except as disclosed in the FormMaker
-----------------------
Disclosure Schedule, FormMaker shall not, and shall cause the Company, not to,
do any of the following prior to the Closing unless waived by Image Sciences in
writing: amend its Charter Documents or bylaws; merge or consolidate with, or
purchase substantially all of the assets of, or otherwise acquire any business
of, any corporation, partnership or other business organization or business
division thereof; split, combine or reclassify its outstanding capital stock or
issue any additional capital stock (except for capital stock issuable upon
conversion or exercise of currently outstanding securities, or options, warrants
or other rights to purchase capital stock, or securities convertible into
capital stock; pay any dividends or redeem any of its outstanding capital stock;
enter into any Contract or otherwise incur any Liability outside the ordinary
course of business unless the executory obligation on the part of FormMaker in
any such individual case is less than $100,000; incur any additional
indebtedness for borrowed money outside the ordinary course of business;
discharge or satisfy any Encumbrance or pay or satisfy any material Liability
except pursuant to the terms thereof; compromise, settle or otherwise adjust any
material claim or litigation unless such compromise, settlement or adjustment
involves a sum of not more than $100,000 in excess of reserves; make capital
expenditures of more than $100,000 in the aggregate; or modify existing benefit
plans or enter into new employment agreements. Nothing contained in this
Agreement shall give Image Sciences, directly or indirectly, the right to
control or direct FormMaker's operations prior to the Effective Time.
7.3 Access to Information. FormMaker shall, and shall cause the
---------------------
Company to, give Image Sciences and its representatives (including Image
Sciences' accountants, counsel and employees, each, an "Image Sciences
Representative"), upon reasonable notice and during normal business hours, full
access to the properties, contracts, books, records and affairs of FormMaker and
the Company. FormMaker shall cause its officers and employees, and the officers
and employees of the Company, to furnish to Image Sciences all documents,
records and information as Image Sciences may reasonably request.
7.4 No Solicitation. From and after the date hereof, FormMaker,
---------------
without the prior written consent of Image Sciences, will not, and will not
authorize or permit any of the FormMaker Representatives to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
information) or take any other action to facilitate knowingly any inquiries or
the making of any proposal that constitutes or may reasonably be expected to
lead to an Acquisition Proposal from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal. FormMaker
shall notify Image Sciences orally and in writing of any such inquiries, offers
or proposals (including the terms and conditions of any such proposal and the
identity of the person making it), within 24 hours of the receipt thereof, shall
keep Image Sciences informed of the status and details of any such inquiry,
offer or proposal. As used herein,
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"Acquisition Proposal" means a proposal or offer (other than pursuant to this
Agreement) for a tender or exchange offer, merger, consolidation or other
business combination involving, or any proposal to acquire in any manner a
substantial equity interest in, or all or substantially all of the assets of,
(i) FormMaker, in the case of this Section 7.4, and (ii) Image Sciences, in the
case of Section 8.4.
7.5 The FormMaker Special Meeting. In connection with the FormMaker
-----------------------------
Special Meeting, FormMaker shall (a) deliver to its shareholders as promptly as
practicable the Joint Proxy Statement and all other materials for such meeting,
(b) use all reasonable efforts to obtain the necessary approvals of its
shareholders for the Merger and this Agreement and (c) otherwise comply with all
legal requirements applicable to such meeting.
7.6 Rule 145 Affiliates. Prior to the Closing, FormMaker shall
-------------------
identify in a letter to the Company all Persons who might, at the time of the
FormMaker Special Meeting, be deemed to be "affiliates" of the Company for the
purposes of Rule 145 under the Securities Act (the "Securities Act Affiliates").
FormMaker shall use commercially reasonable efforts to cause each Person who is
identified as a possible Securities Act Affiliate to enter into prior to the
Effective Time an agreement in form and substance reasonably acceptable to the
Company pursuant to which each such Person acknowledges such Person's
responsibilities as a Securities Act Affiliate.
7.7 Stock Option Plan. The Company will adopt an employee stock option
-----------------
plan (the "New Option Plan") substantially identical to the stock option plan
that was approved by the Parties on the date hereof covering 400,000 shares of
Company Class A Common Stock. The Company will file a Registration Statement on
Form S-8 under the Securities Act for purposes of registering shares of Company
Class A Common Stock issuable upon exercise of Company Options as promptly as
practicable following consummation of the Qualified Rights Offering.
7.8 Expenses. FormMaker (or the Company if the Merger becomes
--------
effective) shall pay all of the legal, accounting and other expenses incurred by
FormMaker and the New Companies in connection with the Transactions, including
the following: fees and other costs payable with respect to the Registration
Statement (including printing); fees and expenses of Price Waterhouse LLP for
work related to FormMaker and the New Companies; any fees and expenses of legal
counsel to FormMaker and the New Companies; and fees of the Company's transfer
agent (if any).
7.9 Indemnification. For a period of 5 years from the Effective Date,
---------------
the Company shall maintain in effect Image Sciences' and FormMaker's current
directors' and officers' liability insurance covering those officers and
directors who are currently covered on the date of this Agreement by such
policies; provided, however, that the Company may substitute, for such Image
-------- -------
Sciences or FormMaker policies, policies with at least the same coverage
containing terms and conditions which are no less advantageous to the officers
and directors and provided that said substitution does not result in any gaps or
lapses in coverage with respect to matters occurring prior to the Effective
Date. For a period of 5 years, the Company shall not amend any provision of
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FormMaker's or Image Sciences' Charter Documents providing for indemnification
of officers of directors and shall also assume the indemnification obligations
of Image Sciences and FormMaker with respect to such matters. The provisions of
this Section 7.9 are intended to be for the benefit of, and shall be enforceable
by, each officer and director and his or her heirs and representatives.
7.10 New Bank Loan. The Company shall use commercially reasonable
-------------
efforts to obtain a line of credit from a bank for $10 million (the "New Bank
Loan") on terms substantially similar to the existing FormMaker line of credit
with NationsBank of Georgia, National Association. If the Company cannot obtain
the New Bank Loan on such terms, FormMaker shall use commercially reasonable
efforts to amend its line of credit, or obtain appropriate waivers, to permit
the Transactions and to allow the Company to draw on the entire line of credit
for working capital purposes.
7.11 Related Parties. FormMaker shall cause the Company to perform
---------------
its obligations hereunder and under any other Transaction Document.
8. Covenants of Image Sciences.
---------------------------
8.1 Fulfillment of Closing Conditions. At and prior to the Closing,
---------------------------------
Image Sciences shall use commercially reasonable efforts to fulfill the
conditions specified in Sections 9 and 11 to the extent that the fulfillment of
such conditions is within its control, except that Image Sciences shall not be
required to pay or expend any material amount of funds that may be necessary to
correct any Default under the representations and warranties of Image Sciences
or to fulfill any of such conditions. In connection with the foregoing, Image
Sciences will (a) refrain from any actions that would cause any of its
representations and warranties to be inaccurate in any material respect as of
the Closing, (b) execute and deliver the agreements and other documents referred
to in Section 11, (c) comply in all material respects with all applicable Laws
in connection with its execution, delivery and performance of this Agreement and
the Transactions, (d) use commercially reasonable efforts to obtain in a timely
manner all necessary waivers, consents and approvals required under any Laws,
Contracts or otherwise, including any Image Sciences Required Consents, and
(e) use commercially reasonable efforts to take, or cause to be taken, all other
actions and to do, or cause to be done, all other things reasonably necessary,
proper or advisable to consummate and make effective as promptly as practicable
the Transactions. Image Sciences shall give FormMaker prompt written notice of
any event or development that occurs or fails to occur (and that is known to
Image Sciences) that gives Image Sciences reason to believe that the conditions
set forth in Sections 9 and 11 will not be satisfied prior to the Termination
Date.
8.2 Conduct of the Business. Except as disclosed in the Image Sciences
-----------------------
Disclosure Schedule, Image Sciences shall not do any of the following prior to
the Closing unless waived by FormMaker in writing: amend its Charter Documents
or bylaws; merge or consolidate with, or purchase substantially all of the
assets of, or otherwise acquire any business of, any corporation, partnership or
other business organization or business division thereof; split, combine or
reclassify
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its outstanding capital stock or issue any additional capital stock (except for
capital stock issuable upon conversion or exercise of currently outstanding
securities) or options, warrants or other rights to purchase capital stock or
securities convertible into capital stock; pay any dividends or redeem any of
its outstanding capital stock; enter into any Contract or otherwise incur any
Liability outside the ordinary course of business unless the executory
obligation on the part of Image Sciences in any such individual case is less
than $100,000; incur any additional indebtedness for borrowed money outside the
normal course of business; discharge or satisfy any Encumbrance or pay or
satisfy any material Liability except pursuant to the terms thereof; compromise,
settle or otherwise adjust any material claim or litigation unless such
compromise, settlement or adjustment involves a sum of not more than $100,000 in
excess of reserves; or make any capital expenditures of more than $100,000 in
the aggregate; or modify existing benefit plans or enter into new employment
agreements. Nothing contained in this Agreement shall give FormMaker, directly
or indirectly, the right to control or direct Image Sciences' operations prior
to the Effective Time.
8.3 Access to Information. Image Sciences shall give FormMaker and its
---------------------
representatives (including FormMaker's accountants, counsel and employees, each,
a "FormMaker Representative"), upon reasonable notice and during normal business
hours, full access to the properties, contracts, books, records and affairs of
Image Sciences. Image Sciences shall cause its officers and employees to
furnish to FormMaker all documents, records and information as FormMaker may
reasonably request.
8.4 No Solicitation. From and after the date hereof, Image Sciences,
---------------
without the prior written consent of FormMaker, will not, and will not authorize
or permit any of the Image Sciences Representatives to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information) or
take any other action to facilitate knowingly any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to an
Acquisition Proposal from any Person, or engage in any discussion or
negotiations relating thereto or accept any Acquisition Proposal. Image
Sciences shall notify FormMaker orally and in writing of any such inquiries,
offers or proposals (including the terms and conditions of any such proposal and
the identity of the person making it), within 24 hours of the receipt thereof,
shall keep FormMaker informed of the status and details of any such inquiry,
offer or proposal, and shall give FormMaker five days' advance notice of any
agreement to be entered into with, or any information to be supplied to, any
Person making such inquiry, offer or proposal.
8.5 Image Sciences Special Meeting. In connection with the Image
------------------------------
Sciences Special Meeting, Image Sciences shall (a) deliver to its shareholders
as promptly as practicable the Joint Proxy Statement and all other materials
required for such meeting, (b) use all reasonable efforts to obtain the
necessary approvals by its shareholders of the Merger and this Agreement and
(c) otherwise comply with all legal requirements applicable to such meeting.
8.6 Rule 145 Affiliates. Prior to the Closing, Image Sciences shall
-------------------
identify in a letter to the Company all Persons who might, at the time of the
Image Sciences Special Meeting, be deemed
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to be Securities Act Affiliates. Image Sciences shall use its commercially
reasonable efforts to cause each Person who is identified as a possible
Securities Act Affiliate to enter into prior to the Effective Time an agreement
in form and substance reasonably acceptable to the Company pursuant to which
each such Person acknowledges such Person's responsibilities as a Securities Act
Affiliate.
8.7 Expenses. Image Sciences, or the Company if the Merger becomes
--------
effective, shall pay all of the legal, accounting and other expenses incurred by
Image Sciences in connection with the Transactions, including the following:
fees and other costs payable with respect to providing information for inclusion
in the Registration Statement; fees and expenses of Price Waterhouse LLP for
work related to Image Sciences; and fees and expenses of legal counsel to Image
Sciences.
8.8 Image Sciences Closing Transactions. Image Sciences shall not
-----------------------------------
distribute to its stockholders and option holders more than $8,000,000 in
connection with the Image Sciences Closing Transactions.
9. Conditions Precedent to Obligations of All Parties.
--------------------------------------------------
All obligations of the Parties to consummate the Transactions are subject
to the satisfaction of each of the following conditions:
9.1 Legality. No Law or Court Order shall have been enacted, entered,
--------
promulgated or enforced by any court or governmental authority that is in effect
and has the effect of (a) making the Merger illegal or otherwise prohibiting the
consummation of the Merger or (b) creating a Material Adverse Effect on Image
Sciences or FormMaker.
9.2 Registration Statement. The Registration Statement shall have become
----------------------
effective, no stop order suspending the effectiveness of the Registration
Statement shall then be in effect, and no proceedings for that purpose shall
then be threatened by the SEC or shall have been initiated by the SEC and not
concluded or withdrawn. All state securities or blue sky permits or approvals
required to carry out the Transactions shall have been received.
9.3 Merger. The Merger shall be effective in the States of Texas and
------
Georgia.
9.4 Approval by Shareholders.
------------------------
(a) The Merger shall have been approved by the Image Sciences Shareholders
in accordance with the TBCA and Dissenting Shares shall not represent more than
8% of the total Image Sciences Common Stock outstanding immediately prior to the
Effective Time.
(b) The Merger shall have been approved by the FormMaker Shareholders in
accordance with the GBCC and Dissenting Shares shall not represent more than 8%
of the total FormMaker Common Stock outstanding immediately prior to the
Effective Time.
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9.5 Appointment of Directors and Officers. The Company, FormMaker and
-------------------------------------
Image Sciences shall each have (a) caused its Board of Directors to consist of a
total of seven members, (b) obtained any necessary resignations of incumbent
directors or officers, (c) elected the following persons to the respective
Boards of Directors of the Company, FormMaker and Image Sciences: three persons
designated by Image Sciences, three persons designated by the SG/TL
Stockholders, and one independent person designated mutually by Image Sciences
and the SG/TL Stockholders; and (d) appointed the following persons to the
following offices: Michael D. Andereck - President and Chief Executive Officer,
Arthur R. Spector - Chairman of the Board.
9.6 Administrative Services Agreements. The administrative services
----------------------------------
agreements between Safeguard and FormMaker and Safeguard and MicroDynamics shall
have been terminated.
10. Conditions Precedent to Obligations of Image Sciences.
-----------------------------------------------------
All obligations of Image Sciences to consummate the Transactions are
subject to the satisfaction (or waiver by Image Sciences) prior thereto of each
of the following conditions:
10.1 Representations and Warranties. The representations and
------------------------------
warranties of FormMaker contained in this Agreement shall be true and correct on
the date hereof and (except to the extent such representations and warranties
speak as of an earlier date) shall also be true and correct on and as of the
Closing Date, except for changes permitted under Section 7.2 hereof or otherwise
contemplated by this Agreement, with the same force and effect as if made on and
as of the Closing Date; provided, however, that for purposes of this Section
10.1 only, such representations and warranties shall be deemed to be true and
correct unless the failure or failures of such representations and warranties to
be so true and correct (without regard to materiality qualifiers contained
therein) results or would reasonably be expected to result in a Material Adverse
Effect on the Company.
10.2 Agreements, Conditions and Covenants. FormMaker shall have
------------------------------------
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by it
on or before the Effective Time.
10.3 Certificates. Image Sciences shall have received a certificate
------------
of an executive officer of FormMaker to the effect set forth in Sections 10.1
and 10.2.
10.4 Financial Performance. FormMaker shall have delivered to Image
---------------------
Sciences an income statement in accordance with Section 6.2 that shows for the
period covered thereby before income taxes a loss of not more than $1,251,000
and revenues of not less than $20,000,000.
10.5 Required Consents. FormMaker shall have obtained the FormMaker
-----------------
Required Consents unless the failure to have obtained any such consent would not
result or reasonably be expected to result in a Material Adverse Effect on the
Company.
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10.6 Ancillary Documents. FormMaker and the New Companies shall have
-------------------
tendered executed copies of the respective Transaction Documents to which they
are intended to be parties. The Company and the SG/TL Stockholders shall have
tendered executed copies of the Stockholders' Agreement.
10.7 Legal Opinion. FormMaker shall have tendered a legal opinion of
-------------
Morgan, Lewis & Bockius LLP, counsel to FormMaker, in the form of that agreed to
as of the date hereof.
11. Conditions Precedent to Obligations of FormMaker.
------------------------------------------------
All obligations of FormMaker to consummate the Transactions are subject to
the satisfaction (or waiver by FormMaker) prior thereto of each of the following
conditions:
11.1 Representations and Warranties. The representations and
------------------------------
warranties of Image Sciences contained in this Agreement shall be true and
correct on the date hereof and (except to the extent such representations and
warranties speak as of an earlier date) shall also be true and correct on and as
of the Closing Date, except for changes permitted under Section 8.2 hereof or
otherwise contemplated by this Agreement, with the same force and effect as if
made on and as of the Closing Date; provided, however, that for purposes of this
Section 11.1 only, such representations and warranties shall be deemed to be
true and correct unless the failure or failures of such representations and
warranties to be so true and correct (without regard to materiality qualifiers
contained therein) results or would reasonably be expected to result in a
Material Adverse Effect on the Company.
11.2 Agreements, Conditions and Covenants. Image Sciences shall have
------------------------------------
performed or complied in all material respects with all agreements, conditions
and covenants required by this Agreement to be performed or complied with by
them on or before the Effective Time.
11.3 Certificates. FormMaker shall have received a certificate of an
------------
executive officer of Image Sciences to the effect set forth in Sections 11.1 and
11.2 with respect to Image Sciences.
11.4 Financial Performance. Image Sciences shall have delivered to
---------------------
FormMaker an income statement in accordance with Section 6.2 that shows for the
period covered thereby before income taxes income of not less than $3,200,000
and revenues of not less than $11,000,000.
11.5 Required Consents. Image Sciences shall have obtained, without
-----------------
any modification that FormMaker deems unacceptable, the Image Sciences Required
Consents unless the failure to have obtained any such consent would not result
or reasonably be expected to result in a Material Adverse Change on the Company.
11.6 Ancillary Documents. Image Sciences shall have tendered executed
-------------------
copies of the Transaction Documents to which it is intended to be a party.
Xerox shall have tendered an executed copy of the Stockholders' Agreement.
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11.7 Legal Opinion. Image Sciences shall have tendered a legal opinion
-------------
of Crouch & Hallett, counsel to Image Sciences, in the form of that agreed to as
of the date hereof.
12. Termination.
-----------
12.1 Grounds for Termination. This Agreement may be terminated at any
-----------------------
time before the Effective Time, in each case as authorized by the respective
Board of Directors of Image Sciences and FormMaker:
(a) By mutual written consent of each of Image Sciences and
FormMaker;
(b) By either Image Sciences or FormMaker if the Merger shall not
have been consummated on or before June 30, 1997 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this Section
12.1(b) shall not be available to any Party whose failure to fulfill any
obligation under this Agreement has been the substantial cause of, or
substantially resulted in, the failure of the Effective Time to occur on or
before the Termination Date;
(c) By either Image Sciences or FormMaker if a court of competent
jurisdiction or governmental, regulatory or administrative agency or commission
shall have issued a Court Order (which Court Order the Parties shall use
commercially reasonable efforts to lift) that permanently restrains, enjoins or
otherwise prohibits the Transactions, and such Court Order shall have become
final and nonappealable;
(d) By either Image Sciences or FormMaker upon notice in writing to
the other party prior to the tenth business day following delivery to such other
party of the Second Stage Due Diligence Materials that such materials have
revealed matters which could have a Material Adverse Effect on the combined
entity as provided in Section 6.3.
(e) By Image Sciences if FormMaker or any New Company shall have
breached, or failed to comply with, any of its obligations under this Agreement
or any representation or warranty made by FormMaker shall have been incorrect
when made, and such breach, failure or misrepresentation is not cured within 20
days after notice thereof, and in either case, any such breaches, failures or
misrepresentations result or would reasonably be expected to result in a
Material Adverse Effect on the Company;
(f) By FormMaker if Image Sciences shall have breached, or failed to
comply with, in any material respect, any of its obligations under this
Agreement or any representation or warranty made by it shall have been incorrect
in any material respect when made, and such breach, failure or misrepresentation
is not cured within 20 days after notice thereof, and in either case, any such
breaches, failures or misrepresentations result or would reasonably be expected
to result in a Material Adverse Effect on the Company.
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12.2 Effect of Termination.
---------------------
(a) If this Agreement is terminated under Section 12.1 hereof, and
subject to the provisions of Section 12.1, this Agreement shall become void and
there shall be no Liability on the part of any of the Parties, except as set
forth in this Section 12.2.
(b) If this Agreement is terminated by Image Sciences under Section
12.1(e) as a result of any breach by FormMaker or any New Company, FormMaker
shall pay to Image Sciences an amount equal to all of the expenses incurred by
Image Sciences in connection with the Transactions up to a maximum of $100,000,
except in the case of a termination due to a wilful breach by FormMaker,
FormMaker shall pay to Image Sciences $500,000.
(c) If this Agreement is terminated by FormMaker under Section
12.1(f) as a result of any breach by Image Sciences, Image Sciences shall pay to
FormMaker an amount equal to all of the expenses incurred by FormMaker in
connection with the Transactions up to a maximum of $100,000, except in the case
of a termination due to a wilful breach by Image Sciences, Image Sciences shall
pay to FormMaker $500,000.
(d) If this Agreement is terminated by Image Sciences or FormMaker
under Section 12.1(b) as a result of the failure of Image Sciences to obtain all
required approvals for the Merger by its shareholders, Image Sciences shall pay
to FormMaker an amount equal to all of the expenses incurred by FormMaker in
connection with the Transactions up to a maximum of $100,000.
(e) If this Agreement is terminated by Image Sciences or FormMaker
under Section 12.1(b) as a result of the failure of FormMaker to obtain all
required approvals for the Merger by its shareholders, FormMaker shall pay to
Image Sciences an amount equal to all of the expenses incurred by Image Sciences
in connection with the Transactions up to a maximum of $100,000.
(f) The agreements contained in Sections 12.2(b), (c), (d) and (e)
are an integral part of the Transactions and constitute liquidated damages and
not a penalty. If one Party fails to promptly pay to the other any amounts due
under such Sections 12.2(b), (c), (d) and (e), the defaulting Party shall pay
the costs and expenses (including reasonable legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee at the Prime Rate from the date such fee was required to be paid.
-55-
<PAGE>
13. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
Except for any agreements to be performed at least in part after the
Effective Time, the representations, warranties, covenants and other agreements
contained herein and in any certificate delivered pursuant hereto shall not
survive the Effective Time.
14. Public Announcements.
--------------------
The Parties hereto will consult with each other before issuing any press
release or making any public statement with respect to this Agreement and the
Transactions and, except as may be required by applicable law or any stock
exchange regulations, no Party shall issue any such press release or make any
such public statement without the consent of the other parties hereto.
15. Contents of Agreement.
---------------------
This Agreement, together with the other Transaction Documents, sets forth
the entire understanding of the Parties hereto with respect to the Transactions
and supersedes all prior agreements or understandings among the Parties
regarding those matters.
16. Amendment, Parties in Interest, Assignment, Etc.
-----------------------------------------------
This Agreement may be amended, modified or supplemented only by a written
instrument duly executed by each of the Parties hereto. If any provision of
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No Party hereto shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision
of this Agreement may be waived at any time by the Party entitled to the benefit
thereof by a written instrument duly executed by such Party. The parties hereto
shall execute and deliver any and all documents and take any and all other
actions that may be deemed reasonably necessary by their respective counsel to
complete the Transactions.
17. Interpretation.
--------------
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to any gender include all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder" or "herein" relate to this
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the
-56-
<PAGE>
construction of this Agreement or the interpretation thereof in any respect.
Section, subsection, Schedule, Disclosure Schedule and Exhibit references are
to this Agreement unless otherwise specified. Each accounting term used herein
that is not specifically defined herein shall have the meaning given to it under
GAAP.
18. Notices.
-------
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, or the third day
after the date when sent by registered or certified mail or the day after the
date when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other Party
hereto:
If to Image Sciences:
Image Sciences, Inc.
5910 North Central Expressway
Suite 800
Dallas, Texas 75206
FAX: (214) 891-6678
Attention: Michael D. Andereck, President
with a required copy to:
Crouch & Hallett
717 No. Harwood, Suite 1400
Dallas, TX 75201
FAX: 214-922-4129
Attention: Bruce Hallett, Esquire
If to FormMaker:
2300 Windy Ridge Parkway
Suite 400 North
Atlanta, GA 30339
FAX: 770-859-0216
Attention: Arthur Spector, Chairman
-57-
<PAGE>
with a required copy to:
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103-6993
FAX: 215-963-5299
Attention: Thomas J. Sharbaugh, Esquire
19. Governing Law; Venue. This Agreement shall be construed and interpreted
--------------------
in accordance with the laws of the State of Delaware without regard to its
provisions concerning conflict of laws. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of any court of competent jurisdiction in
the State of Delaware and the United States District Court for the District of
Delaware and any other court of the State of Delaware and the United States with
jurisdiction to hear appeals from any such courts.
20. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of which
shall be binding as of the date first written above, and all of which shall
constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
-58-
<PAGE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
DOCUCORP, INC.
By:
-------------------------------
Title:
ISI MERGER CORP.
By:
-------------------------------
Title:
FORMMAKER ACQUISITION CORP.
By:
-------------------------------
Title:
IMAGE SCIENCES, INC.
By:
-------------------------------
Title:
FORMMAKER SOFTWARE, INC.
By:
-------------------------------
Title:
-59-
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DOCUCORP, INC.
FIRST. Name. The name of the corporation is DocuCorp, Inc. (the
----
"Corporation").
SECOND. Purpose and Powers. The purpose for which the Corporation is
------------------
organized is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
THIRD. Capitalization. The total number of shares of stock that the
--------------
Corporation shall have authority to issue is 28,000,000 shares of Common Stock,
consisting of 20,000,000 shares of Class A Common Stock, par value $0.01 per
share (the "Class A Common Stock"), 7,000,000 shares of Class B Common Stock,
par value $0.01 per share (the "Class B Common Stock"), and 1,000,000 shares of
Preferred Stock, par value $0.01 per share (the "Preferred Stock"). The Class A
Common Stock and the Class B Common Stock are referred to herein collectively as
the "Common Shares." Upon the conversion in accordance with the provisions of
Section A(4) hereof or the redemption in accordance with the provisions of
Section A(5) hereof of all issued and outstanding shares of Class B Common
Stock, the Class A Common Stock shall thereafter be referred to as the "Common
Stock," and all references herein to the Class A Common Stock shall be deemed to
be so amended.
The voting powers, designations, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions of the classes of stock of the Corporation are as follows:
A. Common Shares. All Common Shares shall be identical and shall entitle
-------------
the holders thereof to the same rights and privileges, except as otherwise
provided herein.
(1) Voting Rights. Except as set forth herein or as otherwise required by
-------------
law, the holders of Common Shares shall be entitled to one vote per share on
each matter on which the stockholders of the Corporation shall be entitled to
vote. Any amendment of this Article Third shall require the approval of a
majority of the holders of the Class A Common Stock and 75% of the holders of
the Class B Common Stock, voting as separate classes.
<PAGE>
(2) Dividends. The Board of Directors of the Corporation may cause
---------
dividends or other distributions to be paid to the holders of Common Shares out
of funds legally available for the payment of dividends by declaring an amount
per share as a dividend or other distribution. When and as dividends or other
distributions are declared on any class of Common Shares, whether payable in
cash, property or shares of stock of the Corporation, the holders of Common
Shares shall be entitled to share ratably, share for share, in such dividends;
provided, however, that if dividends are declared that are payable in Common
Shares, or options, warrants or rights to acquire Common Shares or securities
convertible into or exchangeable for Common Shares, the shares, options,
warrants, rights or securities so payable shall be payable in shares of, or
options, warrants or rights to acquire, or securities convertible into or
exchangeable for, Common Shares of the same class upon which the dividend is
paid.
(3) Liquidation Rights.
------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation and after payment
shall have been made to the holders of shares of Preferred Stock of the full
amount to which they may be entitled, the holders of Common Shares shall be
entitled to share ratably according to the number of Common Shares held by them
in all assets of the Corporation available for distribution to its stockholders.
(b) Neither a consolidation or merger of the Corporation with or into
any other corporation, nor a merger of any other corporation into the
Corporation, nor a reorganization of the Corporation, nor the purchase or
redemption of all or part of the outstanding shares of any class or classes of
the Corporation, nor a sale or transfer of all or any part of its assets shall
be considered a liquidation, dissolution or winding up of the Corporation within
the meaning of this Section A(3).
(4) Conversion of Class B Common Stock.
----------------------------------
(a) Automatic Conversion. If, at any time prior to the Redemption
--------------------
Claim Period Expiration Date (as defined below), the Corporation consummates an
underwritten public offering of securities of the Corporation in which the
managing underwriter values the equity of the Corporation at $62.1 million or
more as of the pricing of the offering and without taking into account any
proceeds to be received from such offering (subject to increase based upon
equity issuances by the Corporation other than as contemplated by the Agreement
and Plan of Merger among the Corporation, FormMaker Software, Inc. ("FSI"),
Image Sciences, Inc. ("ISI"), FormMaker Acquisition Corp. and ISI Merger Corp.
(the "Merger Agreement") and the Liquidity Agreement among the Corporation,
Safeguard Scientifics (Delaware), Inc. ("Safeguard"), Technology Leaders II L.P.
("TL II") and Technology Leaders II Offshore C.V. ("TL II Offshore") (the
"Liquidity Agreement"))(a "Qualified Public Offering"), each share of Class B
Common Stock issued and outstanding as of immediately prior to the sale of such
equity securities pursuant to the Qualified Public Offering (the "Conversion
Date") shall, ipso facto, automatically and without any action on the part of
---- -----
the holder thereof, be changed, converted and reclassified into a share of Class
A Common Stock and all obligations on the part of the Company to redeem shares
of Class B Common
2
<PAGE>
Stock shall cease (a "Conversion Event"). Upon the occurrence of an Automatic
Conversion, all outstanding rights to acquire Class B Common Stock shall convert
into rights to acquire Class A Common Stock.
(b) Reservation of Shares. The Corporation shall at all times reserve
---------------------
and keep available out of its authorized but unissued shares of Class A Common
Stock or its treasury shares, solely for the purpose of effecting a Conversion
Event, such number of shares of Class A Common Stock as shall then be equal to
the number of issued and outstanding shares of Class B Common Stock plus the
number of shares of Class B Common Stock issuable upon the exercise, conversion
or exchange of any outstanding rights to acquire shares of Class B Common Stock.
(c) No Reissuance of Shares. Shares of Class B Common Stock that are
-----------------------
converted into shares of Class A Common Stock pursuant to Section A(4)(a) may
not be reissued.
(d) Delivery of New Certificates. Upon the occurrence of a Conversion
----------------------------
Event, each holder of certificates representing shares of Class B Common Stock
shall deliver and surrender all of such certificates to the Corporation for
cancellation after the Conversion Date, and shall receive upon such delivery,
surrender and cancellation, or as soon thereafter as is practicable, in place
thereof a certificate or certificates for such number of shares of Class A
Common Stock into which such holder's shares of Class B Common Stock were
converted on the Conversion Date. After the Conversion Date, no dividend or
distribution shall be paid upon, and no voting rights shall be exercisable with
respect to, any shares of Class A Common Stock issuable upon the conversion of
any shares of Class B Common Stock that were formerly represented by a
certificate or certificates that have not been surrendered to the Corporation in
exchange for certificates representing shares of Class A Common Stock as
contemplated by this Section A(4)(d); but any such dividends or distributions
shall be payable to the holders of any such unsurrendered certificates, without
interest, upon the surrender of their outstanding certificates.
(e) Interim Rights. Until surrendered as provided in Section A(4)(d),
--------------
as of the Conversion Date, certificates formerly representing shares of Class B
Common Stock shall be treated for all corporate purposes as representing solely
the right to receive the shares of Class A Common Stock into which such shares
of Class B Common Stock were converted on the Conversion Date, and any
dividends, distributions or sale proceeds to which the holders of such
unsurrendered certificates may be entitled under Section A(4)(d) and Section
A(4)(f), all upon surrender of such certificates.
(f) Sale of Stock. If any stockholders of the Corporation shall fail,
-------------
within two years after the Conversion Date, to surrender certificates formerly
representing shares of Class B Common Stock held by the stockholders prior to
the Conversion Date, the shares of Class A Common Stock issued upon the
occurrence of a Conversion Event shall be sold by the Corporation, and the net
proceeds of the sale shall be held for the holders of the outstanding
certificates formerly representing shares of Class B Common Stock, and be paid
to them upon the surrender of their outstanding certificates. From and after
such sale, the sole right of the holders of the unsurrendered
3
<PAGE>
outstanding certificates formerly representing shares of Class B Common Stock
shall be the right to collect the net sales proceeds held for their account,
without interest, together with the amounts, if any, payable under Section
A(4)(d).
(g) Stock Splits; Adjustments.
-------------------------
(i) If the Corporation shall in any manner subdivide (by stock
split, stock dividend or otherwise) or combine (by reverse stock split or
otherwise) the outstanding shares of Class A Common Stock or the Class B Common
Stock, the outstanding shares of the other class of Common Shares shall be
proportionately subdivided or combined and effective provision shall be made for
the protection of all conversion and redemption rights hereunder.
(ii) In case of any reorganization, reclassification or change of
Class A Common Stock (other than a change in par value as a result of a
subdivision or combination, or a change from par value to no par value), or in
case of any consolidation of the Corporation with one or more other corporations
or a merger of the Corporation with another corporation (other than a merger in
which the Corporation is the continuing corporation and which does not result in
any reclassification or change of outstanding shares of Class A Common Stock),
or in case of any sale, lease or other disposition to another corporation (other
than a wholly-owned subsidiary of the Corporation) of all or substantially all
the assets of the Corporation, each holder of shares of Class B Common Stock
shall have the right at any time thereafter, if and so long as the conversion
right hereunder with respect to such shares of Class B Common Stock would exist
had such event not occurred, to convert such shares of Class B Common Stock into
the kind and amount of shares of stock and other securities and property
(including cash) receivable upon such reorganization, reclassification, change,
consolidation, merger, sale, lease or other disposition by a holder of the
number of shares of Class A Common Stock into which such shares of Class B
Common Stock could have been converted had such reorganization,
reclassification, change, consolidation, merger, sale, lease or other
disposition not occurred. In the event of such a reorganization,
reclassification, change, consolidation, merger, sale, lease or other
disposition, effective provision shall be made in the certificate or articles of
incorporation of the resulting or surviving corporation, as the case may be, or
otherwise for the protection of the conversion rights of the shares of Class B
Common Stock, as nearly as reasonably may be, into any such other shares of
stock and other securities and property deliverable upon conversion, exchange or
other disposition of the shares of Class A Common Stock into which such shares
of Class B Common Stock could have been converted had such event not occurred.
In the case of any of the actions specified in this Section A(4)(g), the holders
of 75% of the shares of the Class B Common Stock may approve a treatment of such
class in connection with any such action that differs from the treatment
specified in this Section A(4)(g), and such differing treatment, if otherwise
approved by all other classes of stockholders that may be required to take
action thereon pursuant to law or the applicable certificate or articles of
incorporation, as the case may be, shall be binding upon all holders of the
shares of the Class B Common Stock as so approved by the affirmative vote of
holders of 75% of the Class B Common Stock.
4
<PAGE>
(5) Redemption of Class B Common Stock.
----------------------------------
(a) Notice of Redemption Rights. If a Qualified Public Offering is
---------------------------
not consummated by the Corporation on or before January 31, 1998 (the "Offering
Period Termination Date"), within five business days of the Offering Period
Termination Date, the Corporation shall mail to all holders of issued and
outstanding shares of Class B Common Stock as of the close of business on the
Offering Period Termination Date, by first class mail, postage prepaid, to the
last address for each such holder as indicated in the stock register of the
Corporation, a notice (the "Redemption Notice") stating:
(i) that the Corporation shall redeem any issued and outstanding
shares of Class B Common Stock for which a redemption claim (a "Redemption
Claim") complying with the provisions of Section A(5)(d) is made by the holder
thereof (the "Redemption Shares") during the period of time (the "Redemption
Claim Period") beginning on the first day after the Offering Period Termination
Date and ending on February 1, 1999 (the "Redemption Claim Period Expiration
Date"), provided that a Conversion Event has not occurred,
(ii) the Redemption Price (as defined below), and
(iii) the Redemption Claim Period Expiration Date.
(b) Redemption Price.
----------------
(i) The Corporation shall pay the "Redemption Price" (as defined
below) for each Redemption Share for which a Redemption Claim has been received
during the Redemption Claim Period that complies with Section A(5)(d). The
Redemption Price shall be mailed by the Corporation to the holders of Redemption
Shares, by first class mail, postage prepaid, no later than 60 days after
receiving a Redemption Claim complying with Section A(5)(d). The Corporation
shall issue shares of Class A Common Stock under the Liquidity Agreement for
cash in order to fund its obligation to pay the Redemption Price. In no event
shall the Corporation amend or terminate the Liquidity Agreement in any manner
which would adversely affect the right of the holders of Class B Common Stock to
receive the Redemption Price, without the prior consent of the holders of 75%
of the Class B Common Stock. Upon any issuance of Class A Common Stock for cash
pursuant to the Liquidity Agreement, the Corporation shall segregate the cash
proceeds therefrom and shall hold the same in trust solely for the payment of
the Redemption Price (it being acknowledged that the holders of the Class B
Common Stock shall have, and are hereby granted, a security interest in such
proceeds to secure the performance of the Corporation's obligation to timely pay
the Redemption Price).
(ii) As used herein, "Redemption Price" shall mean the sum of
$3.45 per share in cash; provided, however, that if the increase of pro forma
combined revenues of ISI and consolidated FSI for the 12 month period ending
July 31, 1997 over pro forma combined revenues
5
<PAGE>
of ISI and consolidated FSI for the 12 month period ending July 31, 1996 exceeds
20%, then the Redemption Price shall be increased to $4.08 per share in cash.
(iii) Notwithstanding any other provision of this Certificate
of Incorporation, (A) the Corporation's maximum redemption obligation hereunder
shall not exceed the result of (1) 6,100,000 (the "Maximum B Shares"),
multiplied by (2) $3.45 or $4.08, whichever is applicable under subparagraph
(ii) of this Section A(5)(b) (such result is referred to herein as the "Maximum
Redemption Obligation"), and (B) if as of the close of business on the Offering
Period Termination Date, the sum of the number of shares of Class B Common Stock
outstanding and the total number of shares of Class B Common Stock that are
issuable pursuant to outstanding rights exceeds the Maximum B Shares, the
Redemption Price for each share of Class B Common Stock shall be reduced to the
extent necessary so that it does not exceed the quotient of the Maximum
Redemption Obligation divided by the Maximum B Shares. If the Corporation shall
in any manner subdivide (by stock split, stock dividend or otherwise) or combine
(by reverse stock split or otherwise) the outstanding shares of Class B Common
Stock, the Redemption Price shall be appropriately adjusted to account for the
change in the number of shares.
(c) Effect of Non-Redemption. Subject to the last paragraph of
------------------------
Section A(5)(d), in the event that a holder of shares of Class B Common Stock
does not prior to the Redemption Claim Period Expiration Date redeem such
shares, redeems only a portion of such shares prior to the Redemption Claim
Period Expiration Date or fails to comply with the provisions of Section A(5)(d)
with respect to Redemption Claims, all shares of Class B Common Stock held by
such holder as of the Redemption Claim Expiration Date shall be automatically
converted into shares of Class A Common Stock in accordance with the provisions
of Section A(4).
(d) Redemption Claims. The Corporation shall not be obligated to
-----------------
redeem issued and outstanding shares of Class B Common Stock during the
Redemption Claim Period unless the holder thereof submits to the Corporation a
written Redemption Claim containing the information specified below, accompanied
by the certificate or certificates, or an affidavit of loss if such certificate
or certificates have been lost or destroyed, evidencing the Redemption Shares,
by means of first class mail, overnight delivery service or hand delivery, which
Redemption Claim must be received by the Corporation at its principal executive
office by no later than 5:00 p.m., Eastern time, on the Redemption Claim
Expiration Date. The Redemption Claim shall provide the following information:
(i) notice to the Corporation that the holder intends to redeem
all or a portion of the shares of Class B Common Stock owned of record by such
holder,
(ii) the number of shares of Class B Common Stock owned of record
by such holder,
6
<PAGE>
(iii) if less than all the shares of Class B Common Stock owned of
record by such holder are to be redeemed, the number of shares and the
certificate numbers thereof which are to be redeemed,
(iv) if less than all the shares of Class B Common Stock owned of
record by such holder are to be redeemed, if applicable, the name in which a
certificate for the remaining shares of Class B Common Stock not being redeemed
shall be issued and an acknowledgment that the holder of record of such shares
shall be responsible for all transfer taxes with respect to such transfer,
(v) the name of the person and address to which the Redemption
Price for the Redemption Shares shall be mailed by the Corporation, and if such
person is not the record holder of the Redemption Shares, authorization to the
Corporation to pay the Redemption Price to such person, and
(vi) the federal tax identification number for the person
receiving the Redemption Price for tax reporting purposes.
If the Redemption Claim is defective in any material respect, the
Corporation shall set aside an amount in cash equal to the Redemption Price
multiplied by the number of Redemption Shares represented by the certificate or
certificates, or affidavit of loss, submitted with the Redemption Claim until
such time as the defect in the notice is cured.
(e) Effect of Redemption. On and after the redemption of Redemption
--------------------
Shares pursuant to Section A(5), all rights, privileges and preferences with
respect to the Redemption Shares, except the right to receive the Redemption
Price for the Redemption Shares as provided in Section A(5), shall cease, and
such shares shall no longer be deemed to be outstanding, on the condition that
the Corporation mails or irrevocably deposits or sets aside cash in an amount
equal to the Redemption Price for the Redemption Shares. Notwithstanding
anything herein to the contrary, the Corporation shall not be obligated to
redeem any Redemption Shares during the Redemption Claim Period to the extent
that the redemption thereof would violate any law, statute, rule, regulation,
policy or guideline promulgated by any federal, state, local or foreign
governmental authority applicable to the Corporation, provided that the
Corporation shall redeem such shares as soon as permitted by applicable laws,
statutes, rules, regulations, policies and guidelines.
(f) No Reissuance. Shares of Class B Common Stock redeemed by the
-------------
Corporation shall be canceled, and shall not be reissued by the Corporation.
(g) No Issuance During Redemption Claim Period. Notwithstanding any
-------------------------------------------
other provision of this Certificate of Incorporation, during the Redemption
Claim Period, except pursuant to securities, stock options or other rights that
are outstanding at the beginning of the Redemption Claim Period, the Corporation
shall not issue any shares of Class B Common Stock nor any securities, stock
options or other rights that are convertible into or exercisable or exchangeable
for
7
<PAGE>
any shares of Class B Common Stock, nor shall the Corporation take any other
action that may result in the issuance of any shares of Class B Common Stock in
connection with a stock dividend, stock split or otherwise.
B. Preferred Stock. The Board of Directors of the Corporation shall have
---------------
the full authority permitted by law to fix by resolution full, limited or no
voting powers and such designations, preference and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
of any series of Preferred Stock that may be desired.
FOURTH. Pre-emptive Rights. No holder of securities of the Corporation
------------------
shall be entitled as a matter of right, preemptive or otherwise, to subscribe
for or purchase any securities of the Corporation now or hereafter authorized to
be issued or securities held in the treasury of the Corporation whether issued
or sold for cash or other consideration or as a dividend or otherwise. Any such
securities may be issued or disposed of by the Board of Directors to such
persons and on such terms as the Board of Directors deems advisable.
FIFTH. Elections by Ballot. Elections of directors need not be by
-------------------
written ballot.
SIXTH. Amendment of Bylaws. Subject to the Stockholders' Agreement
-------------------
among the Corporation, Safeguard, TL II, TL II Offshore and Xerox Corporation,
the Board of Directors shall have the power, in addition to the stockholders, to
make, alter or repeal the bylaws of the Corporation.
SEVENTH. Limit on Liability.
------------------
A. Liability. To the full extent that the General Corporation Law of the
---------
State of Delaware, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of directors, a director
of the Corporation shall not be liable to the Corporation or its stockholders
for monetary damages.
B. Indemnification. To the full extent permitted by the General
---------------
Corporation Law of the State of Delaware, as it exists on the date hereof or may
hereafter be amended, and any other applicable law, the Corporation shall
indemnify a director of the Corporation who is or was a party to any proceeding
by reason of the fact that he is or was such a director or is or was serving at
the request of the Corporation as a director of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Board of Directors is hereby empowered to contract in advance to indemnify
any director.
EIGHTH. Amendment of Certificate of Incorporation. The Corporation
-----------------------------------------
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders are granted subject to this
reservation; provided, however, any vote required of holders of Class B Common
Stock to amend, alter, change or repeal any provision contained in this
Certificate of
8
<PAGE>
Incorporation shall require the affirmative vote of holders of 75% of the shares
of Class B Common Stock.
NINTH. Registered Office. The registered office of the corporation is
-----------------
to be located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the County of New Castle, in the State of Delaware. The name of
its registered agent at that address is The Corporation Trust Company.
TENTH. The name and mailing address of the incorporator are as follows:
Name Address
---- -------
Guy W. Winters, Jr. 2000 One Logan Square
Philadelphia, Pennsylvania 19103
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and that the facts herein stated are true, and
accordingly have hereunto set my hand and seal this 13th day of January, 1997.
______________________________
Guy W. Winters, Jr.
Incorporator
9
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
DOCUCORP, INC.
(a Delaware Corporation)
ARTICLE I
OFFICES AND FISCAL YEAR
-----------------------
SECTION 1.01. Registered Office. The registered office of DocuCorp,
-----------------
Inc. (the "Corporation") shall be in the City of Wilmington, County of New
Castle, State of Delaware until otherwise established by a vote of a majority of
the board of directors in office, and a statement of such change is filed in the
manner provided by statute.
SECTION 1.02. Other Offices. The Corporation may also have offices
-------------
at such other places within or without the State of Delaware as the board of
directors may from time to time determine or the business of the Corporation
requires.
SECTION 1.03. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on the 31st of July in each year unless the board of directors determines
otherwise.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Place of Meeting. All meetings of the stockholders of
----------------
the Corporation shall be held at the registered office of the Corporation, or at
such other place within or without the State of Delaware as shall be designated
by the board of directors in the notice of such meeting.
SECTION 2.02. Annual Meeting. The board of directors shall fix the
--------------
date and time of the annual meeting of the stockholders, and at said meeting the
stockholders then entitled to vote shall elect directors and shall transact such
other business as may properly be brought before the meeting.
SECTION 2.03. Special Meetings. Special meetings of the stockholders
----------------
of the Corporation for any purpose or purposes for which meetings may lawfully
be called, may be
<PAGE>
called at any time by the chairman of the board, a majority of the board of
directors, the president, or at the request, in writing, of stockholders owning
a majority of the amount of the entire capital stock of the Corporation issued
and outstanding and entitled to vote. At any time, upon written request of any
person or persons who have duly called a special meeting, which written request
shall state the purpose or purposes of the meeting, it shall be the duty of the
secretary to fix the date of the meeting to be held at such date and time as the
secretary may fix, not less than ten nor more than sixty days after the receipt
of the request, and to give due notice thereof. If the secretary shall neglect
or refuse to fix the time and date of such meeting and give notice thereof, the
person or persons calling the meeting may do so.
SECTION 2.04. Notice of Meetings. Written notice of the place, date
------------------
and hour of every meeting of the stockholders, whether annual or special, shall
be given to each stockholder of record entitled to vote at the meeting not less
than ten nor more than sixty days before the date of the meeting. Every notice
of a special meeting shall state the purpose or purposes thereof.
SECTION 2.05. Quorum, Manner of Acting and Adjournment. The holders
----------------------------------------
of a majority of the stock issued and outstanding (not including treasury stock)
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute, by the certificate of
incorporation or by these bylaws. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At any such
adjourned meeting, at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. When a quorum is present at any meeting, the
vote of the holders of the majority of the stock having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of the
applicable statute, the certificate of incorporation or these bylaws, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Except upon those questions governed by
the aforesaid express provisions, the stockholders present in person or by proxy
at a duly organized meeting can continue to do business until adjournment,
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Organization. At every meeting of the stockholders,
------------
the chairman of the board, if there be one, or in the case of a vacancy in the
office or absence of the chairman of the board, one of the following persons
present in the order stated: the vice chairman, if one
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<PAGE>
has been appointed, the president, the vice presidents in their order or rank, a
chairman designated by the board of directors or a chairman chosen by the
stockholders entitled to cast a majority of the votes which all stockholders
present in person or by proxy are entitled to cast, shall act as chairman, and
the secretary, or, in his absence, an assistant secretary, or in the absence of
the secretary and the assistant secretaries, a person appointed by the chairman,
shall act as secretary.
SECTION 2.07. Voting. Each stockholder shall at every meeting of the
------
stockholders be entitled to one vote in person or by proxy for each share of
capital stock having voting power held by such stockholder. No proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period. Every proxy shall be executed in writing by the
stockholder or by his duly authorized attorney-in-fact and filed with the
secretary of the Corporation. A proxy, unless coupled with an interest, shall
be revocable at will, notwithstanding any other agreement or any provision in
the proxy to the contrary, but the revocation of a proxy shall not be effective
until notice thereof has been given to the secretary of the Corporation. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally. A proxy shall not be revoked by the
death or incapacity of the maker unless, before the vote is counted or the
authority is exercised, written notice of such death or incapacity is given to
the secretary of the Corporation.
SECTION 2.08. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required above to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
SECTION 2.09. Voting Lists. The officer who has charge of the stock
------------
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders,
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<PAGE>
a complete list of the stockholders entitled to vote at the meeting. The list
shall be arranged in alphabetical order showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.10. Inspectors of Election. All elections of directors
----------------------
shall be by written ballot, unless otherwise provided in the certificate of
incorporation; the vote upon any other matter need not be by ballot. In advance
of any meeting of stockholders the board of directors may appoint inspectors of
election, who need not be stockholders, to act at such meeting or any
adjournment thereof. If inspectors of election are not so appointed, the
chairman of any such meeting may, and upon the demand of any stockholder or his
proxy at the meeting and before voting begins shall, appoint inspectors of
election. The number of inspectors shall be either one or three, as determined,
in the case of judges appointed upon demand of a stockholder, by stockholders
present entitled to cast a majority of the votes which all stockholders present
are entitled to cast thereon. No person who is a candidate for office shall act
as an inspector. In case any person appointed as an inspector fails to appear
or fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting, or at the meeting
by the chairman of the meeting.
If inspectors of election are appointed as aforesaid, they shall
determine the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear and determine all
challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result, and do such acts as
may be proper to conduct the election or vote with fairness to all stockholders.
If there be three inspectors of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
On request of the chairman of the meeting or of any stockholder or his
proxy, the inspectors shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them.
ARTICLE III
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<PAGE>
BOARD OF DIRECTORS
------------------
SECTION 3.01. Powers. The board of directors shall have full power
------
to manage the business and affairs of the Corporation; and all powers of the
Corporation, except those specifically reserved or granted to the stockholders
by statute, the certificate of incorporation or these bylaws, are hereby granted
to and vested in the board of directors.
SECTION 3.02 Qualifications and Selection of Directors.
-----------------------------------------
(a) Qualifications. Each director of the Corporation shall be a
natural person of full age who need not be a resident of the State of Delaware
or a stockholder of the Corporation.
(b) Power to Select Directors. The stockholders shall elect the
directors of the Corporation, except that the stockholders shall elect directors
in accordance with Section 1(a) of the Stockholders' Agreement (as defined in
Section 3.15) until the earliest date when the covenants contained in such
Section 1(a) terminate (the "Termination Date").
SECTION 3.03. Number and Term of Office. The board of directors
-------------------------
shall consist of such number of directors, not less than one nor more than
twelve, as may be determined from time to time by resolution of the board of
directors. Each director shall serve until the next annual meeting of the
stockholders and until his successor shall have been elected and qualified,
except in the event of his death, resignation or removal. All directors of the
Corporation shall be natural persons, but need not be residents of Delaware or
stockholders of the Corporation.
SECTION 3.04. Vacancies. Vacancies in the board of directors,
---------
including vacancies resulting from an increase in the number of directors, may
be filled by a majority vote of the remaining members of the board, though less
than a quorum, or by a sole remaining director, and each person so selected
shall be a director to serve until the next election of directors, and until a
successor has been elected and qualified or until his or her earlier death,
resignation or removal; provided, however, that until the Termination Date, the
directors shall fill any such vacancies in a manner that is consistent with
Section 1(b) of the Stockholders' Agreement.
SECTION 3.05. Resignations. Any director of the Corporation may
------------
resign at any time by giving written notice to the president or the secretary of
the Corporation. Such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
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<PAGE>
SECTION 3.06 Removal of Directors. The entire board of directors,
--------------------
or any individual director, may be removed from office by a vote of the
stockholders entitled to vote thereon without assigning any cause; provided,
however, that until the Termination Date, the stockholders shall accomplish any
such removal in a manner that is consistent with the provisions of Section 1(b)
of the Stockholders' Agreement. If the board or any one or more directors are
removed, new directors may be elected at the same meeting; provided, however,
that until the Termination Date, any replacement directors shall be elected in a
manner consistent with the provisions of Section 1(b) of the Stockholders'
Agreement.
SECTION 3.07. Organization. At every meeting of the board of
------------
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a chairman chosen by a majority of the directors present, shall
preside, and the secretary, or, in his absence, an assistant secretary, or in
the absence of the secretary and the assistant secretaries, any person appointed
by the chairman of the meeting, shall act as secretary.
SECTION 3.08. Place of Meeting. The board of directors may hold its
----------------
meetings, both regular and special, at such place or places within or without
the State of Delaware as the board of directors may from time to time appoint,
or as may be designated in the notice calling the meeting.
SECTION 3.09. Organization Meeting. The first meeting of each newly
--------------------
elected board of directors shall be held at such time and place as shall be
fixed by the newly elected board of directors and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present.
SECTION 3.10. Regular Meetings. Regular meetings of the board of
----------------
directors may be held without notice at such time and place as shall be
designated from time to time by resolution of the board of directors. If the
date fixed for any such regular meeting be a legal holiday under the laws of the
State where such meeting is to be held, then the same shall be held on the next
succeeding business day, not a Saturday, or at such other time as may be
determined by resolution of the board of directors. At such meetings, the
directors shall transact such business as may properly be brought before the
meeting.
SECTION 3.11. Special Meetings. Special meetings of the board of
----------------
directors shall be held whenever called by the chairman of the board, the chief
executive officer or by two or more of the directors. Notice of each such
meeting shall be given to each director by telephone or in writing, including by
facsimile message, to such telephone number or address as a director may
designate from time to time at least 24 hours (in the case of notice by
telephone or facsimile
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<PAGE>
message) or 48 hours (in the case of notice by overnight delivery service) or
three days (in the case of notice by mail) before the time at which the meeting
is to be held. Each such notice shall state the time and place of the meeting
to be so held. Any notice by telephone shall be deemed effective if a message
regarding the substance of the notice is given on a director's behalf to the
director's secretary or assistant or to a member of the director's family.
SECTION 3.12. Quorum, Manner of Acting and Adjournment. At all
----------------------------------------
meetings of the board a majority of the directors shall constitute a quorum for
the transaction of business; provided, however, that until the Termination Date,
a quorum must include at least one SG/TL Designee (as defined in Section 3.15)
and one Xerox Designee (as defined in Section 3.15). The act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation or by these bylaws. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Unless otherwise restricted by the certificate of incorporation or
these bylaws, any action required or permitted to be taken at any meeting of the
board of directors or of any committee thereof may be taken without a meeting,
if all members of the board consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board.
SECTION 3.13. Compensation of Directors. Unless otherwise restricted
-------------------------
by the certificate of incorporation, the board of directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 3.14. Conference Telephone Meetings. One or more directors
-----------------------------
may participate in a meeting of the board, or of a committee of the board, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
SECTION 3.15. Definitions. The following terms are used in these
-----------
bylaws with the respective definitions specified below:
"Closing Date" means the date of the closing under the Merger
Agreement.
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<PAGE>
"Merger" means the merger contemplated by the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger among the
Corporation, two of its Subsidiaries, Image Sciences, Inc. (a Texas corporation)
and FormMaker Software, Inc. (a Georgia corporation), dated on or about the date
of the adoption of these bylaws.
"Safeguard" means Safeguard Scientifics (Delaware), Inc., a Delaware
corporation.
"SG/TL Stockholders" means Safeguard, TL II and TL II Offshore.
"SG/TL Designee" means a member of the board of directors of the
Corporation elected pursuant to the designation of the SG/TL Stockholders as
contemplated by the Stockholders' Agreement.
"Stockholders' Agreement" means the Stockholders' Agreement among the
Corporation, Safeguard, TL II, TL II Offshore and Xerox.
"TL II" means Technology Leaders II L.P., a Delaware limited
partnership.
"TL II Offshore" means Technology Leaders II Offshore C.V., a
Netherlands Antilles limited partnership.
"Xerox" means Xerox Corporation, a New York corporation.
"Xerox Designee" means a member of the board of directors of the
Corporation elected pursuant to Xerox's designation as contemplated by the
Stockholders' Agreement.
ARTICLE IV
NOTICE - WAIVERS
----------------
SECTION 4.01. Notice, What Constitutes. Whenever, under the
------------------------
provisions of the statutes of Delaware or the certificate of incorporation or of
these bylaws, notice is required to be given to any director or stockholder, it
shall not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
accordance with Section 3.09 of Article III hereof.
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<PAGE>
SECTION 4.02. Waivers of Notice. Whenever any written notice is
-----------------
required to be given under the provisions of the certificate of incorporation,
these bylaws, or by statute, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a special meeting of stockholders, neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice of such meeting.
Attendance of a person, either in person or by proxy, at any meeting,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
SECTION 4.03. Exception to Requirements of Notice. Whenever notice
-----------------------------------
is required to be given, under any provision of the DGCL or of the certificate
of incorporation or these bylaws, to any person with whom communication is
unlawful, the giving of such notice to such person shall not be required and
there shall be no duty to apply to any governmental authority or agency for a
license or permit to give such notice to such person. Any action or meeting
which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the Corporation is
such as to require the filing of a certificate under any section of the DGCL,
the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
Whenever notice is required to be given, under any provision of the
DGCL or the certificate of incorporation or these bylaws, to any stockholder to
whom (i) notice of two consecutive annual meetings, and all notices of meetings
or of the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all, and
at least two, payments (if sent by first class mail) of dividends or interest on
securities during a 12 month period, have been mailed addressed to such person
at his address as shown on the records of the Corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such person
shall have the same force and effect as if such notice had been duly given. If
any such person shall deliver to the Corporation a written notice setting forth
his then current address, the requirement that notice be given to such person
shall be reinstated. In the event that the action taken by the Corporation is
such as to require the filing of a certificate under any section of the DGCL,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this section.
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<PAGE>
ARTICLE V
OFFICERS
--------
SECTION 5.01. Number, Qualifications and Designation. The officers
--------------------------------------
of the Corporation shall be chosen by the board of directors and shall be a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers as may be elected in accordance with the provisions of Section 5.03 of
this Article. One person may hold more than one office. Officers may be, but
need not be, directors or stockholders of the Corporation. The board of
directors may elect from among the members of the board a chairman of the board
and a vice chairman of the board who shall be officers of the Corporation.
SECTION 5.02. Election and Term of Office. The officers of the
---------------------------
Corporation, except those elected by delegated authority pursuant to Section
5.03 of this Article, shall be elected by the board of directors from time to
time, and each such officer shall hold his office until his successor shall have
been elected and qualified, or until his earlier resignation or removal. Any
officer may resign at any time upon written notice to the Corporation.
SECTION 5.03. Additional Officers, Committees and Agents. The board
------------------------------------------
of directors may from time to time elect such other officers and appoint such
committees, employees or other agents as it deems necessary, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as are provided in these bylaws, or as the board of directors may from
time to time determine. The board of directors may delegate to any officer the
power to elect subordinate officers and to retain or appoint employees or other
agents, or committees thereof, and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.
SECTION 5.04. The Chairman and Vice Chairman of the Board. The
-------------------------------------------
chairman of the board or in his absence, the vice chairman of the board, shall
preside at all meetings of the stockholders and of the board of directors, and
shall perform such other duties as may from time to time be assigned to them by
the board of directors.
SECTION 5.05. The Chief Executive Officer. The chief executive
---------------------------
officer shall, in general, perform all duties incident to the office of chief
executive officer, and shall perform all duties as may from time to time be
assigned by the Board of Directors.
SECTION 5.06. The President. The president shall have general
-------------
supervision over the business and operations of the Corporation, subject,
however, to the control of the board of directors. He shall sign, execute, and
acknowledge, in the name of the Corporation, deeds, mortgages, bonds, contracts
or other instruments, authorized by the board of directors, except in
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<PAGE>
cases where the signing and execution thereof shall be expressly delegated by
the board of directors, or by these bylaws, to some other officer or agent of
the Corporation; and, in general, shall perform all duties incident to the
office of president, and such other duties as from time to time may be assigned
to him by the board of directors.
SECTION 5.07. The Vice Presidents. The vice presidents shall perform
-------------------
the duties of the president in his absence and such other duties as may from
time to time be assigned to them by the board of directors or by the president.
SECTION 5.08. The Secretary. The secretary, or an assistant
-------------
secretary, shall attend all meetings of the stockholders and of the board of
directors and shall record the proceedings of the stockholders and of the
directors and of committees of the board in a book or books to be kept for that
purpose; see that notices are given and records and reports properly kept and
filed by the Corporation as required by law; be the custodian of the seal of the
Corporation and see that it is affixed to all documents to be executed on behalf
of the Corporation under its seal; and, in general, perform all duties incident
to the office of secretary, and such other duties as may from time to time be
assigned to him by the board of directors or the president.
SECTION 5.09. The Treasurer. The treasurer, or an assistant
-------------
treasurer, shall have or provide for the custody of the funds or other property
of the Corporation and shall keep a separate book account of the same to his
credit as treasurer; collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
Corporation; deposit all funds in his custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; whenever so required by the board of directors, render an account
showing his transactions as treasurer and the financial condition of the
Corporation; and, in general, discharge such other duties as may from time to
time be assigned to him by the board of directors or the president.
SECTION 5.10. Officers' Bonds. No officer of the Corporation need
---------------
provide a bond to guarantee the faithful discharge of his duties unless the
board of directors shall by resolution so require a bond in which event such
officer shall give the Corporation a bond (which shall be renewed if and as
required) in such sum and with such surety or sureties as shall be satisfactory
to the board of directors for the faithful performance of the duties of his
office.
SECTION 5.11. Salaries. The salaries of the officers and agents of
--------
the Corporation elected by the board of directors shall be fixed from time to
time by the board of directors.
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<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK, TRANSFER, ETC.
-------------------------------------
SECTION 6.01. Issuance. Each stockholder shall be entitled to a
--------
certificate or certificates for shares of stock of the Corporation owned by him
upon his request therefor. The stock certificates of the Corporation shall be
numbered and registered in the stock ledger and transfer books of the
Corporation as they are issued. They shall be signed by the chairman of the
board, the president or a vice president and by the secretary or an assistant
secretary or the treasurer. It shall not be necessary for any such certificate
to bear the corporate seal unless required by law. Any of or all the signatures
upon such certificate may be a facsimile, engraved or printed. In case any
officer, transfer agent or registrar who has signed, or whose facsimile
signature has been placed upon, any share certificate shall have ceased to be
such officer, transfer agent or registrar, before the certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent or
registrar at the date of its issue.
SECTION 6.02. Transfer. Upon surrender to the Corporation or the
--------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. No transfer shall be made which would be
inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform
Commercial Code-Investment Securities.
SECTION 6.03. Stock Certificates. Stock certificates of the
------------------
Corporation shall be in such form as provided by statute and approved by the
board of directors or by such committee or officer authorized by the board of
directors to approve the form of certificate. The stock record books and the
blank stock certificates books shall be kept by the secretary or by any agency
designated by the board of directors for that purpose.
SECTION 6.04. Lost, Stolen, Destroyed or Mutilated Certificates. The
-------------------------------------------------
board of directors may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the Corporation
alleged to have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the person claiming the certificate of stock to be lost, stolen
or destroyed. When authorizing such issue of a new certificate or certificates,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
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<PAGE>
SECTION 6.05. Record Holder of Shares. The Corporation shall be
-----------------------
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
SECTION 6.06. Determination of Stockholders of Record. In order that
---------------------------------------
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board
of directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by the DGCL, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in Delaware, its principal
place of business, or an officer or agent of the Corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by the DGCL, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the board of directors adopts the
resolution taking such prior action.
-13-
<PAGE>
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights of the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
------------------------------------------
SECTION 7.01. Indemnification of Authorized Representatives in Third
------------------------------------------------------
Party Proceedings. The Corporation shall indemnify any person who was or is an
- -----------------
authorized representative of the Corporation, and who was or is a party, or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the Corporation,
against expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal third party proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
third party proceeding by judgment, order, settlement, indictment, conviction or
upon a plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to, the
best interests of the Corporation, and, with respect to any criminal third party
proceeding, had reasonable cause to believe that such conduct was unlawful.
SECTION 7.02. Indemnification of Authorized Representatives in
------------------------------------------------
Corporate Proceedings. The Corporation shall indemnify any person who was or is
- ---------------------
an authorized representative of the Corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding, by reason of the fact
that such person was or is an authorized representative of the Corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and
-14-
<PAGE>
only to the extent that the Court of Chancery or the court in which such
corporate proceeding was pending shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such authorized representative is fairly and reasonably entitled to indemnity
for such expenses which the Court of Chancery or such other court shall deem
proper.
SECTION 7.03. Mandatory Indemnification of Authorized
---------------------------------------
Representatives. To the extent that an authorized representative of the
- ---------------
Corporation has been successful on the merits or otherwise in defense of any
third party or corporate proceeding or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses actually and
reasonably incurred by such person in connection therewith.
SECTION 7.04. Determination of Entitlement to Indemnification. Any
-----------------------------------------------
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall
be made:
(1) By the board of directors by a majority of a quorum consisting of
directors who were not parties to such third party or corporate proceeding,
or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such a quorum so directs, by independent legal counsel in
a written opinion, or
(3) By the stockholders.
SECTION 7.05. Advancing Expenses.
------------------
(1) Expenses actually and reasonably incurred in defending a third
party or corporate proceeding shall be paid on behalf of a director or
other authorized representative by the Corporation in advance of the final
disposition of such third party or corporate proceeding upon receipt of an
undertaking by or on behalf of the director or other authorized
representative to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation as
authorized in this Article.
-15-
<PAGE>
(2) The financial ability of any director or other authorized
representative to make a repayment contemplated by this Section shall not
be a prerequisite to the making of an advance.
SECTION 7.06. Definitions. For purposes of this Article:
-----------
(1) "authorized representative" shall mean a director or officer of
the Corporation, or a person serving at the request of the Corporation as a
director, officer, or trustee, of another corporation, partnership, joint
venture, trust or other enterprise;
(2) "Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify
its directors, officers, employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor or investigative proceeding by the Corporation;
(4) "criminal third party proceeding" shall include any action or
investigation which could or does lead to a criminal third party
proceeding;
(5) "expenses" shall include reasonable attorneys' fees and
disbursements;
(6) "fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan;
(7) "not opposed to the best interests of the Corporation" shall
include actions taken in good faith and in a manner the authorized
representative reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan;
-16-
<PAGE>
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the Corporation" shall include any
service as a director, officer or employee of the Corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants, or beneficiaries;
and
(11) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right
of the Corporation.
SECTION 7.07. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.
SECTION 7.08. Scope of Article. The indemnification of authorized
----------------
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in another
capacity. The indemnification and advancement of expenses provided by or
granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. Reliance on Provisions. Each person who shall act as
----------------------
an authorized representative of the Corporation shall be deemed to be doing so
in reliance upon rights of indemnification provided by this Article, with the
same effect as if such person and the Corporation entered into a binding
contract under which the Corporation agreed to provide the indemnification
provided by this Article.
-17-
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
------------------
SECTION 8.01. Dividends. Dividends upon the capital stock of the
---------
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock of the Corporation, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 8.02. Annual Statements. The board of directors shall
-----------------
present at each annual meeting, and at any special meeting of the stockholders
when called for by vote of the stockholders, a full and clear statement of the
business and condition of the Corporation.
SECTION 8.03. Contracts. Except as otherwise provided in these
---------
bylaws, the board of directors may authorize any officer or officers including
the chairman and vice chairman of the board of directors, or any agent or
agents, to enter into any contract or to execute or deliver any instrument on
behalf of the Corporation and such authority may be general or confined to
specific instances.
SECTION 8.04. Checks. All checks, notes, bills of exchange or other
------
orders in writing shall be signed by the president, any vice president, the
treasurer and such other person or persons as the board of directors may from
time to time designate.
SECTION 8.05. Corporate Seal. The corporate seal shall have
--------------
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
SECTION 8.06. Deposits. All funds of the Corporation shall be
--------
deposited from time to time to the credit of the Corporation in such banks,
trust companies, or other depositories as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees as the board of directors shall from time to
time determine.
-18-
<PAGE>
SECTION 8.07. Corporate Records. Every stockholder shall, upon
-----------------
written demand under oath stating the purpose thereof, have a right to examine,
in person or by agent or attorney, during the usual hours for business, for any
proper purpose, the stock ledger, books or records of account, and records of
the proceedings of the stockholders and directors, and make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the Corporation at its
registered office in Delaware or at its principal place of business. Where the
stockholder seeks to inspect the books and records of the Corporation, other
than its stock ledger or list of stockholders, the stockholder shall first
establish (1) compliance with the provisions of this section respecting the form
and manner of making demand for inspection of such document; and (2) that the
inspection sought is for a proper purpose. Where the stockholder seeks to
inspect the stock ledger or list of stockholders of the Corporation and has
complied with the provisions of this section respecting the form and manner of
making demand for inspection of such documents, the burden of proof shall be
upon the Corporation to establish that the inspection sought is for an improper
purpose.
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his position as a director. The court may summarily order
the Corporation to permit the director to inspect any and all books and records,
the stock ledger and the stock list and to make copies or extracts therefrom.
The court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the court
may deem just and proper.
SECTION 8.08. Amendment of Bylaws. Subject to Section 1(c) of the
-------------------
Stockholders' Agreement, these bylaws may be altered, amended or repealed or new
bylaws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be contained in the notice of such special meeting.
-19-
<PAGE>
EXHIBIT 10.2
COOPERATIVE MARKETING AGREEMENT
Whereas Image Sciences, Inc. "You," may provide various value added skills,
such as systems management, systems integration, networking, image management,
and have insight concerning the identity of prospects in the Territory, and have
knowledge concerning the applicability of Xerox Products to the business of such
prospects; Whereas Xerox Corporation, "Xerox" may provide various value added
skills, such as systems management, systems integration, networking, image
management, and have insight concerning the identify of prospects in the
Territory, and have knowledge concerning the applicability of Your Products to
the business of such prospects. Whereas You and Xerox each wish to engage the
other as a non-exclusive, Cooperative Marketing Associate within the Territory;
and Whereas each of Xerox and You is willing to accept such appointment by the
other, and to undertake to provide such services pursuant to the terms of this
Agreement. Now, therefore You and Xerox agree as follows:
TABLE OF CONTENTS
-----------------
Article Title
- ------- -----
ARTICLE I DEFINITIONS
ARTICLE II TERM
ARTICLE III RESPONSIBILITIES OF THE PARTIES
ARTICLE IV PRODUCT TESTING AND DEMONSTRATION
ARTICLE V CUSTOMER SUPPORT
ARTICLE VI TRAINING
ARTICLE VII CONFIDENTIAL INFORMATION
ARTICLE VIII TRADEMARKS AND LOGOS
ARTICLE IX INDEMNIFICATION
ARTICLE X RIGHTS OF PARTIES UNDER DEVELOPED
INTELLECTUAL PROPERTY RIGHTS
ARTICLE XI TERMINATION
ARTICLE XII GENERAL PROVISIONS
Image Sciences and Xerox agree that the terms and conditions of this Agreement
will govern Your participation and marketing activities under their mutual
Cooperative Marketing Program. This Cooperative Marketing Agreement is entered
into by and between You and Xerox, as of ______________, 1994.
I. DEFINITIONS
1.01 Confidential Information. All confidential and proprietary
------------------------
information which in any way relates to the function, description, or operation
of Xerox Products or Your Products,
<PAGE>
including, without limitation, data, designs, processes, specifications,
drawings, schematics, software in both source and object code and trade secrets,
together with non-public information such as that relating to suppliers,
manufacturing techniques, service information, know how, product program
schedules, project plans, financial projections, business correspondence, and
such other similar non-public information.
1.02 Customer. An end-user customer in the Territory who purchases,
--------
leases or licenses Xerox Products or Your Products for its own use and not for
remarketing and who is neither a U.S. government agency, nor a prime contractor
or subcontractor with a U.S. government agency where such purchase, lease and/or
license relates to goods or services to be provided to such agency.
1.03 Effective Date. The date first above written.
--------------
1.04 Products. As the context requires, Xerox Products and/or Your
--------
Products.
1.05 Program. Xerox/Image Sciences Alliance Program.
-------
1.06 Territory. Jurisdictions set forth in Exhibit A.
---------
1.07 You. Image Sciences, Inc.
---
1.08 Your Products. Products and/or services identified in Schedule 1.
-------------
1.09 Xerox. Xerox Corporation, a New York corporation.
-----
1.10 Xerox Products. Xerox Products identified in Schedule 2 and/or
--------------
Exhibit B.
II. TERM
2.01 Term. Subject to earlier termination as provided in Article XI, the
----
term of this Agreement will commence on the Effective Date and will be for a
period of two years, subject to automatic successive annual one-year renewal
periods.
III. RESPONSIBILITIES OF THE PARTIES
3.01 Your Responsibilities. If Image Sciences intends to refer Xerox
---------------------
Products or jointly market with Xerox to a Customer in conjunction with Your
Products, you will notify the Xerox Sales Representative responsible for that
Customer of such marketing opportunity as soon as practicable.
3.02 Xerox Responsibilities. If Xerox intends to refer Your Products or
----------------------
jointly market with you to a Customer in conjunction with Xerox Products, Xerox
will notify Your Sales
2
<PAGE>
Representative responsible for that Customer of such marketing opportunity as
soon as practicable.
3.03 Joint Responsibilities. (a) Xerox and You will each appoint a
----------------------
manager to oversee the Program. These managers will be responsible for
resolving issues that may from time to time arise, will meet at least twice per
calendar year, and will be responsible for planning and developing a marketing
program plan to facilitate the promotion of Products.
(b) Xerox will supplement Schedule 2 and / or Exhibit B and You will
supplemental Schedule 1 to add respective products which each desires to be
subject to this Agreement. If either party discontinues marketing any Products
listed on the Schedules or Exhibits hereto, that party will notify the other of
such fact, and that within at least 120 days from that date of notice, such
Product will be deleted from the applicable Schedule or Exhibit.
(c) Xerox and You each will
(i) independently set prices for Products;
(ii) except as otherwise agreed independently market Products to
Customers in the Territory; and
(iii) be responsible for installing and maintaining respective
Products as well as providing Customer training with
respect to such Products;
(d) Xerox and You will honor the other's reasonable requests for
consultations and visits to each other's facilities for purposes of fulfilling
the intent of or performing our respective obligations under this Agreement;
(e) Xerox and You may develop Customer demonstrations and proposals,
and may conduct joint sales calls and Customer briefings;
(f) Xerox and You may incorporate the other's marketing proposals into
marketing proposals for the respective Products;
(g) Xerox and You may act as the other's prime contractor or
subcontractor as required by the Customer.
IV. PRODUCT TESTING AND DEMONSTRATION
4.01 Xerox and You agree that each party will be responsible for the
technical and administrative support of its own Products, and that Program
Managers will jointly develop procedures to facilitate the resolution of mutual
technical issues and problems regarding our Products.
3
<PAGE>
V. CUSTOMER SUPPORT
5.01 Xerox and You agree that each party will be responsible for the
technical and administrative support of its own Products and that both parties
will jointly develop procedures to facilitate resolution of technical problems
affecting Products.
VI. TRAINING
6.01 Your Product Training. You will provide to Xerox, on terms to be
---------------------
agreed upon by You and Xerox, product training sufficient to provide a
reasonable number of Xerox sales representatives and analysts with a working
knowledge of Your Products.
6.02 Xerox Product Training. Xerox will provide, on terms to be agreed
----------------------
upon by You and Xerox, product training sufficient to provide a reasonable
number of Your sales representatives and analysts with a working knowledge of
Xerox Products.
6.03 Documentation. The parties will provide to each other one set of
-------------
sales representative training documentation and will grant the other the
restricted right to reproduce such documents solely for Customer demonstrations
and training of our respective sales representatives and sales management
relative to Products.
VII. CONFIDENTIAL INFORMATION
7.01 We agree that it may be necessary from time to time to exchange
Confidential Information.
7.02 We agree to safeguard all Confidential Information received or to be
received from each other and will not disclose such information to any third
party without the prior authorization from the other, and will further restrict
circulation of Confidential Information within our own organization except of
this Agreement. All Confidential Information will remain the property of the
disclosing party.
7.03 In order to be subject to the provisions of this Article VII,
Confidential Information which is to be disclosed after the Effective Date must
be disclosed either
(i) by written or electronic communication which is appropriately
labeled so as to give reasonable notice to anyone reading the
communication that the contents thereof are confidential and
proprietary or
(ii) by oral disclosure, in which case the party making the
disclosure must, at the time the disclosure is made, state to
the recipient thereof that the contents of the disclosure are
confidential and proprietary, and must
4
<PAGE>
further reduce the confidential and proprietary contents of
the disclosure to a written or electronic communication,
appropriately labeled as required by clause (i) above, which
is delivered to said recipients within ten (10) days after the
oral disclosure or execution of this Agreement, whichever is
later.
7.04 The receiving party will be released from the obligations of Section
7.02 with respect to any particular portion of Confidential Information when:
(a) the receiving party can document that:
(i) it was in the public domain at the time of the disclosing
party's communication thereof to the receiving party;
(ii) it entered the public domain through no fault of the
receiving party subsequent to the time of the disclosing
party's communication thereof to the receiving party.
(iii) it was in the receiving party's possession free of any
obligation of confidence at the time of the disclosing
party's communication thereof to the receiving party.
(iv) it was rightfully communicated to the receiving party
free of any obligation of confidence subsequent to the
time of the disclosing party's communication thereof to
the receiving party, or
(v) it was independently developed by the receiving party
without reference to the Confidence Information of the
disclosing party; or
(b) it was communicated by the disclosing party to a third party free
of any obligation of confidence; or
(c) It is after three (3) years after the disclosing party's
communication thereof to the receiving party.
7.05 All materials including, without limitation, documents, drawings,
models, apparatus, sketches, designs, and lists furnished to one party by
another and which are designated in writing to be the property of such party
will remain the property of such party and will be returned to such party
promptly at its request with all copies made thereof.
5
<PAGE>
VIII. TRADEMARKS AND LOGOS
8.01 The trademarks and trade names under which each party markets
Products will remain the exclusive property of such party. This Agreement gives
the other party no rights therein except that during the term of this Agreement
each party grants to the other a restricted license to reproduce such trademarks
and trade names in publications and under written terms and conditions as may
hereafter be approved by the granting party.
IX. INDEMNIFICATION
9.01 Intellectual Property. Each party represents and warrants to the
---------------------
other that it has sufficient right, title and interest in and to the Products to
enter into this Agreement and further warrants that it is not aware that its
Products infringe any patent, copyright or other proprietary right of a third
party of a possibility that its Products might infringe any patent, copyright or
other proprietary right of a third party.
9.02 General. Each party (the "indemnifying Party") will defend and hold
-------
harmless the other party (the "indemnified Party") from, and pay any amount due,
any claim, action or other proceeding brought against the Indemnified Party
arising from the use and marketing of the Indemnifying Party's Product,
providing that the Indemnified Party promptly notified the Indemnifying Party in
writing of any action or claim, allows the Indemnifying Party at its expense, to
direct the defense, gives the Indemnifying Party sufficient information in the
Indemnified Party's possession and reasonable assistance required to defend such
suit, claim or proceeding, but at no out-of-pocket expense to the Indemnified
Party, and allows the Indemnifying Party to pay any judgment, provided further
that the Indemnifying Party will have no liability for any claim, action or
other proceeding based upon acts or omissions by the Indemnified or for
settlements or costs incurred without the knowledge of the Indemnifying Party.
To avoid infringement the Indemnifying Party may, at the Indemnifying Party's
option, and at no charge to the Indemnified Party, obtain a license, or modify
the Indemnifying Party's Products so that they no longer infringe, but only if
the modification is still an equivalent of the Indemnifying Party's Products, or
substitute an equivalent of the Indemnifying Party's Products.
X. RIGHTS OF PARTIES UNDER
DEVELOPED INTELLECTUAL PROPERTY RIGHTS
10.01 Unless otherwise agreed on writing by the parties, ownership of any
writings, discoveries, inventions or innovations ("Improvements") arising out of
the cooperation of the parties pursuant to this Agreement will reside with the
party whose employee(s) or agent(s)
(i) first conceived the Improvements, in the case of patentable
Improvements, and
6
<PAGE>
(ii) in the case of copyrightable improvements, first fix the
Improvement in any tangible medium of expression, now known
or later developed, from which it can be perceived, either
directly or with the aid of a machine or device.
10.02 Each party who is an owner of an Improvement will be responsible in
its sole discretion for conducting its own plans and programs relative to filing
for and maintaining patent rights, trade secretes, mask works, copyrights or
other registerable or applied for intellectual property rights in one or more
countries of the world.
XI. TERMINATION
11.01 Termination for Cause.
---------------------
(a) Either party may terminate this Agreement upon written notice of
termination to the other party in any of the following events:
(i) the other party materially breaches this Agreement and
such breach remains uncured for thirty (30) days
following written notice of breach by the terminating
party; provided, however, that in the case of a repeat
of a material breach earlier cured, the new cure period
will be ten (10) days; or
(ii) causes beyond the reasonable control of the other party
delay its performance for more than thirty (30) days;
provided, however, that in the case of a repeated force
majeure delay earlier cured, the new cure period will be
ten (10) days; or
(iii) a petition for relief under any bankruptcy legislation
is filed by or against the other party, or the other
party makes an assignment for the benefit of creditors,
or a receiver is appointed for all or a substantial
party of the other party's assets, and such petition,
assignment or appointment is not dismissed or vacated
within thirty (30) days; or
(iv) change in majority ownership or change of control of the
other party.
(b) Either party may terminate this Agreement without cause, upon
ninety days written notice of termination to the other party.
11.02 Survival. The provisions of this Agreement will, to the extent
--------
applicable, survive the expiration or any termination hereof.
7
<PAGE>
XII. GENERAL PROVISIONS
12.01 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH HEREIN, NEITHER PARTY
----------------------- -----------------------------------------
WIll BE LIABLE TO THE OTHER FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR
- -----------------------------------------------------------------------
INCIDENTAL DAMAGES, WHETHER ARISING IN CONTRACT OR IN TORT (INCLUDING BUT NOT
- ------------------------------------------------------------------------------
LIMITED TO NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- -------------------------------------------------------------------
12.02 Relationship of the Parties.
---------------------------
(a) We agree that we are independent parties and neither of us is
authorized to make any commitment or representation on the other's behalf.
(b) During the term of this Agreement should the term "partnership",
"partner" or "marketing partner" be used to describe the Cooperative Marketing
relationship, we agree to make it clear to third parties that these terms refer
only to the spirit of cooperation between us and do not describe or expressly or
implied create the legal status of partners or joint venturers.
12.03 Governmental Compliance. Each party will comply fully with all
-----------------------
federal, state and local laws and regulations relating to its obligations under
this Agreement.
12.04 Ethical Standards. Each party agrees that, with respect to its
-----------------
performance under this Agreement including any interaction with any employee of
the other party pursuant to this Agreement, such party will not:
(a) give or offer to give any gift or benefit to said employees,
(b) solicit or accept any information, data services, equipment, or
commitment from said employee unless same is
(i) required or permitted to be solicited or accepted under
a contract or other arrangement between Xerox and You,
or
(ii) made pursuant to a written disclosure agreement between
Xerox and You, or
(iii) specifically authorized in writing by the employee's
management,
(c) solicit or accept favoritism from said employee, or
(d) enter into any outside business relationship with said employee
without full disclosure to, and prior approval of, the employee's management.
As used herein,
8
<PAGE>
"employee" includes members of the employee's immediate family and household,
plus any other person who is attempting to benefit from his or her relationship
to the employee. A "party" in this context includes all employees and agents of
the party. "Gift or benefit" includes money, goods, services, discounts, favors
and the like in any form but excluding low value advertising items such as pens,
pencils and calendars. "Favoritism" means partiality in promoting the interest
of a party over that of other vendors. Such activity by either party will
constitute breach of this Agreement by that party.
12.05 Force Majeure. Except as otherwise provided herein, neither party
-------------
will be liable to the other for its failure to perform any of its obligations
hereunder during any period in which such performance is delayed by
circumstances beyond its reasonable control, provided that the party
experiencing such delay promptly notifies the other party of the delay. In the
event that such a delay by a party continues for more than sixty (60) days, the
other party may, at its sole options, and in addition to its other rights and
remedies under this Agreement or at law or in equity, suspend its obligations
under this Agreement during the period of delay.
12.06 Headings. The headings and titles of the Articles of this Agreement
--------
are inserted for convenience only and will not affect the construction or
interpretation of any provision.
12.07 Amendment. This Agreement may be amended only by a written
---------
agreement duly signed by authorized representatives of both parties.
12.08 Assignment. Neither party will assign this Agreement or any rights
----------
and obligations thereunder to any third party without the express written
permission of the other party, except that each party may assign this Agreement
to an entity directly or indirectly controlling, controlled by, or under common
control with Xerox.
12.09 Severability. If any provision of this Agreement is held invalid by
------------
any law, rule, order or regulation of any government, or by the final
determination of any state or federal court, such invalidity will not affect the
enforceability of any other provisions not held to be invalid.
12.10 Waiver. Any delay by either party to exercise any right or remedy
------
under this Agreement will not be construed to be a waiver of any other right or
remedy hereunder. All of the rights of either party under this Agreement will
be cumulative and may be exercised separately or concurrently.
12.11 Alternate Dispute Resolution. The parties will attempt to resolve
----------------------------
any dispute, controversy or claim arising under this Agreement in a non-judicial
manner and forum. Any such dispute, controversy, or claim hereunder will be
initially referred for resolution to the respective parties' Program Managers
appointed pursuant to this Agreement. If such individuals cannot resolve the
matter within sixty (60) days after the matter in dispute has been submitted to
them for resolution, then the matter will be referred to one Vice-President of
each of the parties for resolution within a subsequent sixty day period.
9
<PAGE>
12.12 Publicity. Neither party will publicly disclose any information
---------
concerning this Agreement without the prior written consent of the other party.
12.13 Controlling Law. This Agreement will be governed by a construed in
---------------
all respects in accordance with the laws of the State of Texas.
12.14 Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties as to the subject matter hereof and supersedes any all prior oral
or written memoranda, understandings and agreements as to such subject matter.
12.15 Notices. Any notice which may be or is required to be given under
-------
this Agreement will be written. Any written notices will be sent by registered
mail or certified mail, postage prepaid, return receipt requested.
All such notices will be deemed to have been given when received, properly
addressed pursuant to the addresses below:
Xerox Corporation
100 Clinton Ave
- ------------------------------------------
Rochester, NY 14644
- ------------------------------------------
(716) 423-5789
- ------------------------------------------
Attention: Darryl Dobin
------------------------------
Images Sciences, Inc.
5910 North Central Expressway, Suite 800
- ------------------------------------------
Dallas, TX 75206
- ------------------------------------------
(214) 891-6500
- ------------------------------------------
Attention: James Morton
-------------------------------
10
<PAGE>
Cooperative Marketing Agreement
EXHIBIT A
JOINT ENGAGEMENT FEE SCHEDULE
for the United States of America
July 1, 1994
Image Sciences, Inc. and Xerox Corporation agree that the terms and conditions
of this Exhibit A, an attachment to the Cooperative Marketing Agreement, will
govern their participation and marketing activities within the Territory defined
below.
I. DEFINITIONS
1.1 Qualified Image Science Joint Engagement. The effort undertaken by
----------------------------------------
You in marketing Xerox Products to a Customer where, at a minimum, You will: (i)
establish contact with the Customer; (ii) provide information regarding Xerox
Products; (iii) maintain contact with the Customer throughout the sales cycle;
(iv) offer to provide complementary products and or services to support Xerox
Products, and [v] provide Xerox with the prospect name as reflected on Schedule
3, "JOINT ENGAGEMENT TEAMING AGREEMENT," which will be mutually agreed to, and
which shall be duly signed by Your authorized representative and the authorized
Xerox representative.
1.2 Qualified Xerox Joint Engagement. The effort undertaken by Xerox in
--------------------------------
marketing Your Products to a Customer where, at a minimum, Xerox will: (i)
establish contact with the Customer; (ii) provide information regarding Your
Products; (iii) maintain contact with the Customer throughout the sales cycle;
(iv) offer to provide complementary products and or services to support Your
Products, and [v] provide You with a prospect name as reflected on Schedule 3,
"JOINT ENGAGEMENT TEAMING AGREEMENT", which will be mutually agreed to, and
which shall be duly signed by Xerox' authorized representative and the
authorized Image Sciences representative.
1.3 Disclosed Other Qualified Participants. The non-Xerox, non-Image
--------------------------------------
Sciences parties for a joint engagement commission and disclosed on Schedule 3,
"JOINT ENGAGEMENT TEAMING AGREEMENT".
1.4 Territory. The jurisdiction of the United States of America, and its
---------
territories and possessions.
1.5 You. Image Sciences, Inc.
---
1.6 Your Products. Those products and/or services identified in
-------------
Schedule 1.
1.7 Products. As the context requires, Xerox Products and/or Your
--------
Products.
11
<PAGE>
1.8 Xerox. Within the context of this Exhibit A, means Xerox Corporation
-----
operations within the United States of America, and its territories and
possessions.
1.9 Xerox Products. Those Xerox Products identified in Schedule 2.
--------------
II. COMMISSIONS
2.1 Commissions.
-----------
(a) If You participate in a Qualified Image Sciences Joint
Engagement with a Customer in the Territory and Xerox either sells, licenses to
or leases (with an initial term of one year) or licenses to such Customer one or
more newly installed Xerox Products where the Customer's purchase, lease or
license of such Xerox Products was based upon a Qualified Approved Joint
Engagement and there are no Disclosed Other Qualified Participants, Xerox will
either pay a commission equal to a percentage of the price invoiced to the
Customer for such purchase, lease or license net of any assessed taxes, duties,
freight and insurance charges; or a fixed dollar fee, in each case as set forth
in Section 2.4 below. Amounts set forth in Section 2.4 below shall be reduced in
an equitable manner as determined by Xerox when there are disclosed other
qualified participants.
(b) If Xerox makes a qualified Xerox referral to a Customer in the
Territory and Image Sciences either sells, licenses to or leases (with an
initial term of one year) to such Customer one or more newly installed Image
Science Products where the Customer's purchase, lease or license of such Your
Products was based upon a Qualified Xerox Referral and there are no Disclosed
Other Qualified Participants, You will either pay a commission equal to a
percentage of the price invoiced to the Customer for such purchase, lease or
license net of any assessed taxes, duties, freight and insurance charges; or a
fixed dollar fee, in each case as set forth in Section 2.5 below. Amounts set
forth in Section 2.5 below shall be reduced in an equitable manner as determined
by Image Sciences when there are disclosed other qualified referrals.
(c) Either party may, at any time during the term hereof and upon
written notice to the other, amend this Exhibit A to change the commission
percentage or fixed dollar amount for any of the party's Products; provided,
however, that any such change shall be applicable only as to commissions earned
after the effective date of the change.
2.2 Payment. Each party's obligation to pay fees shall accrue upon
-------
installation and acceptance of its Products by the Customer. Each party will
use reasonable efforts to pay such fees to the other within thirty (30) days
after the end of each calendar quarter during which the installation and
acceptance of the party's Product occurred. Each party shall provide to the
other within 30 days of the end of each calendar quarter an installation report
reflecting the number of units of Products installed as the result of a
Qualified Engagement by the other, the amount of
12
<PAGE>
fees payable for each Product, and the Customer name an the installation address
of the Products for which a fee is payable.
2.3 Reversal. In the event that either party for any reason reverses a
--------
sale, lease and/or license transaction of any Product as to which a commission
has been paid under this Agreement, and such reversal occurs within six (6)
months of the date the Customer accepted such Product following its
installation, then the party shall debit the amount of such commission against
the next quarterly payment to be made by that party under Section 2.1.
2.4 (A) Commission Schedule for Xerox Products When Sold or Leased
-------------------
<TABLE>
<CAPTION>
Product Model/Name Single
------------------ ------
Unit Sale
---------
Fee
---
<S> <C>
4136 Production Laser Printing System $9,900
4135 DDS Prod Laser Printing System 6,100
4890 Laser Printing System 7,300
9790 MICR Printer 5,000
4850 HighlightColor Laser Printing System 4,500
4450 Laser Printing System 4,500
4050 Laser Printing System 4,500
4050 Budget Lease Laser Printing Sys 2,750
4235 Laser Printing System 2,500
4220 MRP 800
4219 MRP 360
4215 MRP 240
4197 MICR Printer 250
DocuTech Production Publisher 135 11,700
DocuTech Network Publisher 135 (upgrade)* 3,500
DocuTech Network Publisher 135 12,600
DocuTech Production Publisher 90 8,100
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
DocuTech Network Publisher 90 (upgrade)* 3,500
DocuTech Network Publisher 90 7,800
DocuTech Network Server 1,800
DocuTech Media Server 1,500
DocuTech Extended Storage 2,400
DocuTech Signature Booklet Maker 3,600
DocuPrint 390 8,400
DocuPrint 350 Highlight Color 7,500
DocuPrint 390 Highlight Color 12,000
5775 Digital Color Copier/Printer 2,100
5775 Digital Color Copier/Printer (upgrade)* 3,500
EFI FIERY Controller 150 1,800
EFI FIERY Controller 200 2,200
4700 Color Laser Printing System 2,500
</TABLE>
- -------------------------------------
* Upgrade fees are for connectivity with or without server(s) - no fees are
paid for servers with upgrades.
14
<PAGE>
2.4 (B) Commission Schedule for Xerox Products Which Qualify Under the
-------------------
Xerox Trade-In Program (XTI)**
<TABLE>
<CAPTION>
Model Number/Product Name Single Unit
------------------------- -----------
Trade-in Fee
------------
(XTI)
-----
<S> <C>
4135 Production Laser Printing System $6,500
4890 Laser Printing System 5,600
4850 Color Laser Printing System 3,500
4450 Professional Printing System 3,500
4050 Laser Printing System 3,500
4235 Laser Printing System 1,500
4220 MRP 675
4219 MRP 300
4215 MRP 240
4197 MICR Printer 180
DocuTech Production Publisher 135 3,000
DocuTech Network Publisher 135 3,500
DocuTech Production Publisher 90 2,000
DocuTech Network Publisher 90 2,500
5775 Digital Color Copier/Printer 1,500
4700 Color Laser Printing System 1,500
</TABLE>
- ---------------------------------
**No fees are paid for trades from Xerox 5090s or Xerox 5390s.
15
<PAGE>
2.5. Commission Schedule for Image Sciences Products:
-------------------
<TABLE>
<CAPTION>
Single Unit
Product Name Sale Fee
------------ --------
<S> <C>
PrintCommander $ 400.00
PrintCommander (Corporate) 1,500.00
TagCommander 200.00
GrafxCommander 90.00
Rule Commander 135.00
DocuSolve 400.00
DocuSolve (Corporate) 6,000.00
ViewCommander 350.00
ViewCommander (Corporate) 3,000.00
DocuMerge/Windows (Meta) 1,000.00
DocuMerge 0S/2 1,000.00
DocuMerge UNIX 1,500.00
DocuMerge (Corporate) 8,250.00
IRIS/2 1,000.00
IRIS/UNIX 1,200.00
IRIS/(site) 6,000.00
DocuMerge (MVS) 4,000.00
DocuMerge (VSE) 4,000.00
IRIS/MVS 2,700.00
Template Technology 540.00
DynaComp 450.00
DCF/Plus 800.00
C.A.P.P 25,000.00
</TABLE>
16
<PAGE>
XEROX
Cooperative Marketing Agreement
EXHIBIT A
SCHEDULE 1
Image Sciences Products
July 1, 1994
Image Sciences Products. Those products and/or services listed below:
- -----------------------
<TABLE>
<CAPTION>
PRODUCTS PRODUCT CODES
-------- -------------
<S> <C>
PrintCommander 422230
PrintCommander (Corporate) 421730
TagCommander 460230
GrafxCommander 521130
Rule Commander 451130
DocuSolve 401230
DocuSolve (Corporate) 401730
ViewCommander 411230
ViewCommander (Corporate) 411730
DocuMerge/Windows (Meta) 431230
DocuMerge OS/2 431240
DocuMerge UNIX 431250
DocuMerge (Corporate) 431750
IRIS/2 481250
IRIS/UNIX 481290
IRIS/(site) 481750
DocuMerge (MVS) 001310
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PRODUCTS PRODUCT CODES
-------- -------------
<S> <C>
DocuMerge (VSE) 001320
IRIS/MVS 121310
Template Technology 151310
DynaComp 152310
DCF/Plus 170300
C.A.P.P. 890000
</TABLE>
18
<PAGE>
XEROX
Cooperative Marketing Agreement
EXHIBIT A
SCHEDULE 1
Image Sciences Products
July 1, 1994
Xerox Products. The list of Xerox products is provided below:
- --------------
Product Model/Name
- ------------------
4135 Production Laser Printing System
4135 DDS Production Laser Printing System
9790 Laser Printing System
4890 Laser Printing System
4850 Highlight Color Laser Printing System
4450 Laser Printing System
4050 Laser Printing System
4235 Laser Printing System
4220 MRP
4219 MRP
4215 MRP
4197 MICR Printer
DocuTech Production Publisher 135
DocuTech Production Publisher 90
DocuTech Network Publisher 135
DocuTech Network Publisher 90
DocuTech Network Server
DocuTech Media Server
DocuTech Extended Storage
DocuTech Signature Booklet Maker
Docuprint 350 Highlight Color
Docuprint 390 Highlight Color
5775 Digital Color Copier/Printer
EFI FIERY Controller 150
EFI FIERY Controller 200
4700 Color Laser Printing System
- -------------------------------------
19
<PAGE>
IMAGE SCIENCES/XEROX
EXHIBIT A
SCHEDULE 3 JOINT ENGAGEMENT TEAMING AGREEMENT
<TABLE>
<S> <C>
I. CUSTOMER INFORMATION New Xerox Customer Yes____ No____
Company Name:________________________________ Products already installed________________________
Site Address:________________________________ New Image Sciences Customer Yes____ No____
_____________________________________________
Xerox Customer Number________________________ Products Already Installed_______________________
Xerox Product Opportunity___________________ Image Sciences Product Opportunity_______________
Xerox Disclosure of Non-Image Sciences Marketing Partner Involvement: Company___________ Date______
Signature of the sales persons creating this teaming agreement indicate their intent to pursue a joint selling opportunity
with the above named customer. If the sale of a qualified product occurs Image Sciences will be entitled to the applicable
fee.
Xerox Corporation: Image Sciences, Inc.:
- ------------------ ---------------------
Sales Rep Name___________________________________ Sales Rep Name______________________________________
District_________________________________________ District____________________________________________
Telephone________________________________________ Telephone___________________________________________
Signature__________________ Date____________ Signature_____________________ Date____________
II. XEROX AND IMAGE SCIENCES PRODUCT ORDERS TAKEN
New Xerox Products Ordered: New Image Sciences Products Ordered:
- --------------------------- ------------------------------------
Product Quantity Order Date XRX Order # Product Quantity Order Date Application
________ ____ __________ ____________ _________ ____ __________ ____________
________ ____ __________ ____________ _________ ____ __________ ____________
NET NEW____ TRADE____
</TABLE>
Validation:
The individuals below have verified that the above listed customer is qualified
as specified in the Xerox/Image Sciences Cooperative Marketing Agreement in that
the Image Sciences Representative has undertaken the following marketing/sales
activities to forward the Customer's decision to order the Xerox product listed
above: (a) established direct contact with the customer; (b) provided the
Customer with relevant information regarding Xerox products; (c) maintained
contact with the Customer; (d) actively assisted the Xerox Sales Representative
in the sale, lease and/or license of such Xerox products; (e) actively
cooperated with Xerox in insuring that such Xerox Products function together
with applicable Image Sciences products in a manner acceptable to the Customer.
<TABLE>
Xerox Approvals: Image Sciences Approvals:
- ---------------- -------------------------
<S> <C>
Manager's Name________________________________ Manager's Name__________________________________
Signature_____________________________________ Signature_______________________________________
Title____________________ Date ____________ Title____________________ Date ______________
Telephone_____________________________________ Telephone_______________________________________
III. XEROX EQUIPMENT INSTALLATION COMPLETE
Product serial number_________________________ Date Installed________NET NEW_____ TRADE_______
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
<TABLE>
<S> <C>
Xerox Headquarters Approval:
- ---------------------------
Name______________________________________ Signature_____________________________________
Title_______________________________________ Telephone____________________ Date____________
</TABLE>
21
<PAGE>
XEROX
Cooperative Marketing Agreement
EXHIBIT B
REFERRAL FEE SCHEDULE
for the United States of America
July 1, 1994
Image Sciences, Inc. and Xerox Corporation agree that the terms and conditions
of this Exhibit B, an attachment to the Cooperative Marketing Agreement, will
govern their participation and marketing activities within the Territory defined
below.
I. DEFINITIONS
1.1 Qualified Image Sciences Referral. The effort undertaken by You in
---------------------------------
marketing Xerox Products to a Customer where, at a minimum, You will: (i)
establish contact with the Customer; (ii) provide information regarding Xerox
Products; (iii) introduce Xerox representatives to key decision makers; (iv)
provide Xerox with a prospect name as reflected on the "QUALIFIED REFERRAL
FORM," which will be mutually agreed to and which shall be duly signed by Your
authorized representative and the authorized Xerox representative.
1.2 Disclosure Other Qualified Referrals. The non-Xerox, non-Image
------------------------------------
Sciences parties eligible for a qualified referral commission and disclosed on
the "QUALIFIED REFERRAL FORM."
1.3 Territory. The jurisdictions of the United States of America, and its
---------
territories and possessions.
1.4 You. Image Sciences, Inc.
---
1.5 Products. As the context requires, Xerox Products.
--------
1.6 Xerox. Within the context of this Exhibit B, means Xerox Corporation
-----
operations within the United States of America, and its territories and
possessions.
22
<PAGE>
II. COMMISSIONS
2.1 Commissions.
-----------
(a) If you make a Qualified Image Sciences Referral to a Customer
in the Territory and Xerox either sells, licenses to or leases (with an initial
term of one year) or licenses to such Customer one or more newly installed Xerox
Products where the Customer's purchase, lease or license of such Xerox Products
was based upon a Qualified Referral and there are no Disclosed Other Qualified
Referrals, Xerox will either pay a commission equal to a percentage of the price
invoiced to the Customer for such purchase, lease or license or license net of
any assessed taxes, duties, freight and insurance charges; or a fixed dollar
fee, in each case as set forth in Section 2.4 below. Amounts set forth in
Section 2.4 below shall be reduced in an equitable manner as determined by Xerox
when there are Disclosed Other Qualified Referrals.
(b) Xerox may, at any time during the term hereof and upon written
notice to Image Sciences, amend this Exhibit B to change the commission
percentage or fixed dollar amount for any Products; provided, however, that any
such change shall be applicable only as to commissions earned after the
effective date of the change.
2.2 Payment. Xerox's obligation to pay fees shall accrue upon
-------
installation and acceptance of its Products by the Customer. Xerox will use
reasonable efforts to pay such fees to the other within thirty (30) days after
the end of each calendar quarter during which the installation and acceptance of
the Product occurred. Xerox will provide to you within 30 days of the end of
each calendar quarter an installation report reflecting the number of units of
Products installed as the result of a Qualified Referral by you, the amount of
fees payable for each Product, and the Customer name and the installation
address of the Products for which a fee is payable.
2.3 Reversal. In the event that Xerox for any reason reverses a sale,
--------
lease and/or license transaction of any Product as to which a commission has
been paid under this Agreement, and such reversal occurs within six (6) months
of the date the Customer accepted such Product following its installation, then
Xerox shall debit the amount of such commission against the next quarterly
payment to be made under Section 2.1.
2.4(A) Commission Schedule for Document Production Systems Products When
-------------------
Sold or Leased
<TABLE>
<CAPTION>
Model Number/Product Name Single Unit Sale Fee
- ------------------------- --------------------
<S> <C>
DocuTech Production Publisher 135 7,800
DocuTech Network Publisher135 8,400
DocuTech Production Publisher 90 5,400
DocuTech Network Publisher 90 5,200
DocuPrint 390 5,600
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DocuPrint 350 Highlight Color 5,000
DocuPrint 390 Highlight Color 8,000
5775 Digital Color Copier/Printer 1,400
EFI FIERY Controller 150 1,200
EFI FIERY Controller 200 1,500
</TABLE>
- --------------------------------------------------------------------------------
2.4(B) Commission Schedule for Document Production Systems Products Which
Qualify Under the Xerox Trade-In Program (XTI)
<TABLE>
<CAPTION>
Single Unit
Model Number/Product Name Trade-in Fee (XTI)
- ------------------------- ------------------
<S> <C>
DocuTech Production Publisher 135 2,000
DocuTech Network Publisher 135 2,500
DocuTech Production Publisher 90 1,000
DocuTech Network Publisher 90 1,500
5775 Digital Color Copier/Printer 1,000
</TABLE>
24
<PAGE>
IMAGE SCIENCES/XEROX
EXHIBIT B QUALIFIED REFERRAL FORM
I. CUSTOMER INFORMATION
<TABLE>
<S> <C>
Company Name:__________________________________________ New Xerox Customer Yes_______ No________
Site Address:__________________________________________ Xerox Products already installed______________________________________
_______________________________________________________ ______________________________________________________________________
Xerox Customer number__________________________________
Xerox Product Opportunity______________________________
Xerox Corporation: Image Sciences, Inc.:
- ----------------- ____________________
Sales Rep Name_________________________________________ Sales Rep Name_________________________________________________________
District_______________________________________________ District_______________________________________________________________
Telephone______________________________________________ Telephone______________________________________________________________
Signature________________ Date________________________ Signature_____________________ Date__________________________________
II. XEROX PRODUCT ORDERS TAKEN
New Xerox Products Ordered:
- --------------------------
Product Quantity Order Date XRX ORDER #
_________ ______ ________ ___________
_________ ______ ________ ___________
NET NEW _____ TRADE _____
</TABLE>
Validation:
The individuals below have verified that the above listed customer is a
Qualified Referral as specified in the Xerox/Image Sciences Cooperative
Marketing Agreement in that the Image Sciences Representative has undertaken the
following marketing/sales activities to forward the Customer's decision to order
the Xerox product listed above: (a) established direct contact with the
customer, (b) provided the Customer with relevant information regarding Xerox
products; (c) introduced Xerox representatives to key decision makers; (d)
provided Xerox with a prospect name as reflected above.
<TABLE>
<CAPTION>
Xerox Approvals: Image Sciences Approvals:
- --------------- ------------------------
<S> <C>
Manager's Name_________________________________________ Manager's Name_________________________________________________________
Signature______________________________________________ Signature______________________________________________________________
Title_____________________________ Date_______________ Title_______________________________ Date_____________________________
Telephone_________________________ Telephone___________________________
III. XEROX EQUIPMENT INSTALLATION COMPLETE
Product serial number__________________________________ Date Installed__________________ NET NEW __________ TRADE ________
Xerox Headquarters Approval:
- ---------------------------
Name___________________________________________________ Signature______________________________________________________________
Title__________________________________________________ Telephone___________________________ Date_____________________________
</TABLE>
25
<PAGE>
EXHIBIT 10.3
LIQUIDITY AGREEMENT
-------------------
THIS LIQUIDITY AGREEMENT (the "Agreement") is made as of January 15, 1997
by and among DocuCorp, Inc., a Delaware corporation (the "Company"), Safeguard
Scientifics (Delaware), Inc., a Delaware corporation ("Safeguard Delaware"),
Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"),
Technology Leaders II L.P., a Delaware limited partnership ("TL II"), and
Technology Leaders II Offshore C.V., a Netherlands Antilles limited partnership
("TL II Offshore," and together with Safeguard Delaware and TL II, the
"Stockholders").
Background
----------
This Agreement is being entered into in connection with an Agreement and
Plan of Merger, dated January 15, 1997, by and among the Company, ISI Merger
Corp., a Texas corporation, FormMaker Acquisition Corp., a Georgia corporation,
Image Sciences, Inc., a Texas corporation ("Image Sciences") and FormMaker
Software, Inc., a Georgia corporation ("FormMaker") (the "Merger Agreement").
Terms are used as defined in the Merger Agreement unless otherwise defined
herein. Any such terms and any other terms defined herein are equally
applicable to both the singular and plural forms of the terms defined.
The parties hereto are entering into this Agreement as contemplated by and
as a condition to the execution and delivery of the Merger Agreement.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the respective covenants contained
herein and intending to be legally bound hereby, the parties hereto agree as
follows, subject to the understanding that none of the parties shall have any
obligation to perform any of the obligations hereunder until the closing shall
have occurred under the Merger Agreement (the "Closing"):
1. Qualified Rights Offering.
-------------------------
Safeguard shall use commercially reasonable efforts to conduct and
consummate a Qualified Rights Offering by September 30, 1997, but Safeguard
shall have the discretion to consider such factors as it customarily considers
in determining whether a Qualified Rights Offering is appropriate at any
particular time, including market conditions and the financial condition and
projected performance of the Company. The Qualified Rights Offering shall be
conducted in accordance with the procedures set forth in Section 7.
<PAGE>
2. Purchase of Shares.
------------------
Each Stockholder shall purchase such shares of Class A Common Stock ("Class
A Shares") as the Company may request on the first business day of each month
during the period beginning January 31, 1998 and ending March 1, 1999 (the
"Purchase Period") at the Redemption Price (as defined below); provided,
however, that (a) no Stockholder shall be obligated to purchase a number of
Class A Shares that exceeds such Stockholder's Subscription Percentage (defined
below) of the total number of Class A Shares that the Company shall sell
hereunder from time to time, (b) the total number of Class A Shares that the
Company sells hereunder shall not exceed 6,100,000 shares, (c) the number of
Class A Shares that the Company sells hereunder shall not at any time exceed the
total number of shares of Class B Common Stock, par value $0.01 per share, of
the Company ("Class B Shares," and together with the Class A Shares, the "Common
Shares") that the Company shall be required to redeem in accordance with the
redemption provisions of the Company's Certificate of Incorporation and (d) the
obligations of the Stockholders to purchase Class A Shares under this Section 2
shall terminate automatically upon the consummation of a Qualified Rights
Offering or a Qualified Public Offering (as defined in the Company's Certificate
of Incorporation). The Company shall give the Stockholders notice that the
Stockholders are required to purchase Class A Shares under this Section 2 during
the Purchase Period along with a certification from the Chief Executive Officer
of the Company (i) that the Company intends to redeem contemporaneously with
the closing required under this Section 2 a certain number of Class B Shares and
(ii) that the representations and warranties of the Company set forth in Section
6 hereof are true and correct and will be true and correct as of the issuance of
the Class A Shares to the Stockholders except for any breaches thereof that are
not reasonably expected to have a material adverse effect on the value of the
Class A Shares. The Company and the Stockholders shall hold a closing for the
sale and purchase of Class A Shares hereunder on a mutually convenient date not
later than 45 days after the latest date on which the Company shall have given
notice of the sale to any Stockholder. At such closing, the Company shall
deliver to the Stockholders certificates for the respective Class A Shares to be
purchased by them, free and clear of any encumbrances, except that none of such
Class A Shares may be transferred unless they are registered under the
Securities Act or an exemption therefrom is available. Each Stockholder shall
deliver in return for such certificates the purchase price by a wire transfer of
funds to an account designated by the Company. The Stockholders shall be
severally, and not jointly, obligated for their obligations hereunder. The
Subscription Percentages for the Stockholders are as follows: Safeguard -
74.30%; TL II - 11.38%; and TL Offshore -14.32%. Safeguard hereby guarantees
the obligations of Safeguard Delaware under this Section 2. As used herein,
"Redemption Price" shall mean the sum of $3.45 per share in cash; provided,
however, that (i) if the increase of pro forma combined revenues of Image
Sciences and consolidated FormMaker for the 12 month period ending July 31, 1997
over pro forma combined revenues of Image Sciences and consolidated FormMaker
for the 12 month period ending July 31, 1996 exceeds 20%, then the Redemption
Price shall be increased to $4.08 per share in cash; and (ii) the Redemption
Price shall be adjusted as provided in the Company's Certificate of
Incorporation.
-2-
<PAGE>
3. Company Warrant.
---------------
In consideration for the Stockholders obligations under Section 2 and upon
payment of $6,100, the Company shall issue to the Stockholders, or to TL
Ventures Third Corp. in the case of TL II Offshore, at the Closing warrants
substantially in the form of Exhibit "A" (the "Warrants") for the purchase of
up to a total of 610,000 Class A Shares (the "Warrant Shares") allocated among
the Stockholders in accordance with their Subscription Percentages.
4. Stockholders' Debt Guarantee.
----------------------------
In connection with the New Bank Loan, Safeguard, on behalf of Safeguard
Delaware, and TL II and TL II Offshore shall use commercially reasonable efforts
to deliver to the Company at the Closing executed guarantees (the "Guarantees")
in favor of the lender under the New Bank Loan but only to the extent required
by such lender; provided, however, that (a) the terms of such Guarantees shall
be no more favorable to the lender than the terms of the Guaranty dated as of
December 20, 1995 delivered by Safeguard in favor of NationsBank of Georgia,
National Association, (b) no Stockholder's liability under a Guarantee shall
exceed $10,000,000 multiplied by such Stockholder's Subscription Percentage and
(c) the Guarantees will terminate on the earlier of (i) the expiration of the
New Bank Loan or (ii) the consummation of a public offering under the Securities
Act with net proceeds to the Company of $10,000,000. If the New Bank Loan is
not entered into, the Stockholders shall use commercially reasonable efforts to
guarantee, on terms at least as favorable to the Stockholders as the terms of
the guarantees now in place, the FormMaker line of credit, amended as
contemplated by the Merger Agreement.
5. Representations and Warranties of the Stockholders and Safeguard.
----------------------------------------------------------------
Each Stockholder or Safeguard, as indicated in the particular section, with
respect to itself only, hereby represents and warrants to the Company as
follows:
5.1 Authorization. Such Representing Party (the term "Representing Party"
-------------
refers to each Stockholder and Safeguard) has the requisite power and authority
to execute and deliver this Agreement and, if applicable, the Guarantee and to
perform the transactions performed or to be performed by it hereunder or
thereunder. Such execution, delivery and performance by such Representing Party
has been duly authorized by all necessary corporate or partnership action. This
Agreement has been, and upon its delivery by such Representing Party, if
applicable, the Guarantee of such Representing Party will be, duly executed and
delivered by such Representing Party. This Agreement constitutes, and, if
applicable, the Guarantee upon its delivery by such Representing Party will
constitute, valid and binding obligations of such Representing Party,
enforceable against such Representing Party in accordance with their terms.
5.2 Consents and Approvals. Neither the execution and delivery by such
----------------------
Representing Party of this Agreement or, if applicable, the Guarantee, nor the
performance of the transactions performed or to be performed by such
Representing Party hereunder or thereunder, require any
-3-
<PAGE>
filing, consent or approval or constitute a Default under (i) any Law or Court
Order to which such Representing Party is subject, (ii) the Charter Documents or
bylaws of such Representing Party or (iii) any Contract, Governmental Permit or
other document to which such Representing Party is a party or by which the
properties or other assets of such Representing Party may be subject.
5.3 Financial Statements of Safeguard. The financial statements of
---------------------------------
Safeguard included in Safeguard's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q that were filed with the Securities and Exchange Commission
since January 1, 1996 were prepared in accordance with GAAP and fairly presented
in all material respects the financial position and assets and liabilities of
Safeguard as of the dates thereof. Since January 1, 1996, there has been no
material adverse change in the financial position of Safeguard.
5.4 Financial Statements of TL II and TL II Offshore. TL II and TL II
------------------------------------------------
Offshore have delivered to the Company correct and complete copies of unaudited
quarterly financial statements for TL II and TL II Offshore consisting of a
combined balance sheet as of the end of each calendar quarter from January 1,
1996 to September 30, 1996 and the related combined statements of income,
combined statements of changes to partners' equity and combined statements of
cash flows for the period then ended. TL II and TL II Offshore have also
delivered to the Company correct and complete copies of financial statements
consisting of a combined balance sheet of TL II and TL II Offshore as of
December 31, 1994 and 1995 and the related combined statements of income for the
year then ended audited by the firm of KPMG Peat Marwick. The financial
statements so delivered by TL II and TL II Offshore have been prepared in
accordance with GAAP consistently applied and present fairly in all material
respects the financial position and assets and liabilities of TL II and TL II
Offshore as of the dates thereof, and the results of operations for the periods
then ended. Since September 30, 1996, there has been no material adverse change
in the financial position of TL II or TL II Offshore.
6. Representations and Warranties of the Company
---------------------------------------------
6.1 Authorization. The Company has the requisite power and authority to
-------------
execute and deliver this Agreement and the Warrants to which it is a party and
to perform the transactions performed or to be performed by it hereunder or
thereunder. Such execution, delivery and performance by the Company have been
duly authorized by all necessary corporate action. This Agreement has been,
and upon their delivery by the Company, the Warrants will be, duly executed and
delivered by the Company. This Agreement constitutes and each Warrant upon its
delivery by the Company will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with their terms.
6.2 Consents and Approvals. Neither the execution and delivery by the
----------------------
Company of this Agreement nor of the Warrants, nor the performance of the
transactions performed or to be performed by the Company hereunder or
thereunder, require any filing, consent or approval or constitute a Default
under (i) any Law or Court Order to which the Company is subject, (ii) the
Charter Documents or bylaws of the Company or (iii) any Contract, Governmental
Permit or other
-4-
<PAGE>
document to which the Company is a party or by which the properties or other
assets of the Company may be subject.
6.3 Issuance of Class A Shares. Upon their issuance in accordance with
--------------------------
Section 2, the Class A Shares so issued will be duly issued, fully paid and
nonassessable, free and clear of any Encumbrances.
6.4 Issuance of Warrant Shares. Upon exercise of the Warrant and payment
--------------------------
of the Warrant Price (as defined therein) by a Stockholder, the Warrant Shares
will be duly issued, fully paid and nonassessable shares of Class A Common
Stock, free and clear of any Encumbrances, except for Encumbrances contemplated
by the Merger Agreement.
7. Qualified Rights Offering Procedures.
------------------------------------
7.1 Rights.
------
(a) The Company shall, upon receipt of the Rights Offering Notice (as
defined below), grant to the holders of the common stock of Safeguard rights
(the "Rights") to purchase from the Company such number of Class A Shares as
determined by Safeguard up to a maximum of 3,000,000 but not less than 2,000,000
Class A Shares. The Rights shall be issued in a Qualified Rights Offering
pursuant to a registration statement on Form S-1 under the Securities Act (a
"Registration Statement"), shall be exercisable for a period of no greater than
45 days after the commencement of the Qualified Rights Offering and shall be
transferable by the holder thereof during that period. The Company shall engage
JP Morgan & Co., Hambrecht & Quist LLC, or a nationally recognized investment
bank of similar stature, or Tucker Anthony, Inc. if such first named banks are
not available. Such engaged firm shall underwrite, on a standby, firm
commitment basis, any portion of the offered Class A Shares not purchased
through the exercise of Rights. The Company shall also engage legal counsel
selected by Safeguard, subject to the reasonable approval of a majority of the
Board of Directors of the Company, which counsel shall represent the Company in
connection with the conduct of the Qualified Rights Offering. The exercise
price of the Rights shall be determined by negotiation among the Company, any
selling stockholders and the underwriters.
(b) Safeguard may initiate the Qualified Rights Offering by giving
written notice to the Company (a "Rights Offering Notice") at any time during
the Rights Exclusivity Period (defined below). The obligations of the Company
pursuant to this Section 7.1(b) shall commence on the date hereof and expire on
December 31, 1997 (such period, the "Rights Exclusivity Period") unless a
Registration Statement relating to the Qualified Rights Offering has been filed
with the Commission by such date, in which case the Rights shall not expire
until 150 days after the date such filing was made.
(c) The Company shall not undertake any registration of any of its
securities (except pursuant to the Form S-4 Registration Statement for the
Merger under the Merger
-5-
<PAGE>
Agreement), under the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than pursuant to this Section 7 prior to the
earlier of the expiration of the Rights Exclusivity Period or the completion of
a Qualified Rights Offering, except with the consent of Safeguard.
7.2 Registration Statement. Upon notice by Safeguard to the Company of
----------------------
its intention to commence the Qualified Rights Offering, the Company shall
promptly prepare the Registration Statement to register under the Securities
Act, the Rights and the shares of Class A Common Stock to be acquired upon
exercise of the Rights (the "Rights Shares"). The Company covenants that such
Registration Statement and the prospectus included therein shall be in form
reasonably satisfactory to Safeguard, shall comply in all respects with the
Securities Act and the rules and regulations of the SEC promulgated thereunder,
and shall not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
7.3 Registration Process. The Company shall use commercially reasonable
--------------------
efforts to cause the Registration Statement to be filed with the Commission and
to become effective as promptly as practicable. The Company shall prepare and
file with the Commission, promptly upon Safeguard's request, any amendments or
supplements to the Registration Statement or prospectus that, in Safeguard's
opinion, may be necessary or advisable in connection with the Qualified Rights
Offering, subject to the reasonable approval of the Board of Directors of the
Company. The Company shall not file any amendment or supplement to the
Registration Statement or prospectus unless (A) it has furnished Safeguard with
a copy of such amendment or supplement a reasonable time prior to filing and (B)
Safeguard has not reasonably objected to such amendment or supplement by notice
to the Company. The Company shall not issue any advertisement, press release,
mailing or other solicitation material during the time period from when
Safeguard announces its intention to commence a Qualified Rights Offering until
the Rights issued thereunder are no longer exercisable or the Rights Offering is
terminated, if Safeguard reasonably disapproves of any such item by prompt
written notice to the Company after receiving reasonable notice thereof. The
Company shall comply with the Securities Act and the rules and regulations
thereunder in connection with the Qualified Rights Offering and, until the
termination of the Qualified Rights Offering, the Company shall use commercially
reasonable efforts to qualify the Rights Shares under the securities laws of all
jurisdictions in which qualification is required and there are holders of
Safeguard common stock and to continue such qualifications in effect during the
exercise period of the Rights. At the time of mailing the prospectus relating
to the Qualified Rights Offering and at the time of the closing of the Qualified
Rights Offering, Safeguard shall be entitled to receive (A) from the Company
such certificates and documents evidencing compliance with such representations
and warranties of the Company as Safeguard shall reasonably request, and (B)
from the Company's counsel and independent accountants such opinions and
documents as Safeguard may reasonably request thereof as if it were applicable
to the Qualified Rights Offering.
-6-
<PAGE>
7.4 Registration Services.
---------------------
(a) Services. Safeguard shall diligently and in a timely fashion
--------
assist the Company in structuring the Qualified Rights Offering, in preparing
the necessary registration statement and related disclosure documentation, in
clearing the Rights Offering with the SEC and applicable state securities
commissions and shall provide such other services and assistance in connection
with the Qualified Rights Offering as the Company shall reasonably request;
provided, however, that nothing contained herein shall require Safeguard to
provide to the Company any services or assistance which, if rendered by
Safeguard, would require Safeguard to register as a broker-dealer under Section
15 of the Exchange Act, or as an investment adviser under the Investment Advisor
Act of 1940, as amended.
(b) Working Group. The Company shall cause its counsel and auditors
-------------
and the Company's employees to render such assistance in consummating the
Qualified Rights Offering, at the Company's expense, as is customary in the
consummation by a company of its initial public offering. In addition, in
rendering services under this subsection 7.4(b), Safeguard may engage rights
agents, registrar agents, escrow agents, transfer agents and valuation
consultants in connection with the Qualified Rights Offering, the expenses of
which shall be paid by the Company and which are not included in the
reimbursement described in Section 7.4(c) below. In addition, Safeguard may
require the Company to engage a registered broker-dealer of Safeguard's
designation, subject to the reasonable approval of the Company, to provide such
services in connection with the Qualified Rights Offering as Safeguard may deem
reasonably necessary or desirable, including to effect or underwrite the
offering of the Rights or the Rights Shares in states in which applicable state
laws require that a registered broker-dealer effect such offering.
(c) Expenses. The Company shall bear all reasonable costs and
--------
expenses of the Rights Offering, including the Company's printing, legal and
accounting fees and expenses, Securities and Exchange Commission and National
Association of Securities Dealers filing fees and "Blue Sky" fees and expenses.
7.5 Indemnification.
---------------
(a) The Company shall indemnify and hold harmless Safeguard, its
executive officers, directors and controlling persons (within the meaning of the
Securities Act) and each person who participates as an underwriter or
controlling person of an underwriter (within the meaning of the Securities Act)
with respect to the Qualified Rights Offering against any loss, claims, damages
or liabilities to which any of them may become subject under the Securities Act
or otherwise insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement with respect to the Qualified Rights Offering, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged
-7-
<PAGE>
violation by the Company of the Securities Act, the Exchange Act or any other
federal securities laws or state securities laws or any rule or regulation
promulgated under the Securities Act, the Exchange Act or such other federal
securities law or state securities law, and will reimburse any of them for any
reasonable legal or other expenses reasonably incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided that the Company shall not be liable hereunder in
any such case to the extent any such loss, claim, damage or liability arises out
of or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in the Registration Statement, prospectus or amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company for such purpose by Safeguard or any of its
agents.
(b) Safeguard shall indemnify and hold harmless the Company, its
executive officers, directors and controlling persons (within the meaning of the
Securities Act) and each person who participates as an underwriter or
controlling person of an underwriter (within the meaning of the Securities Act)
with respect to the Registration Statement and the Qualified Rights Offering
against any losses, claims, damages or liabilities (or actions in respect
thereof) which arise out of or are based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in the Registration
Statement, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by Safeguard or its agents, and
will reimburse any of them for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, that Safeguard's obligations hereunder
shall be limited to an amount equal to the proceeds received by Safeguard
pursuant to such Rights Offering.
(c) Promptly after receipt by an indemnified party under this Section
7.5 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party, notify
the indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate therein and to assume the
defense thereof with counsel mutually satisfactory to the parties. The failure
to notify any indemnifying party promptly of the commencement of any such
action, if prejudicial to the ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
7.5, but the omission to so notify the indemnifying party will not relieve such
party of any liability that such party may have to any indemnified party other
than under this Section 7.5.
In order to provide for just and equitable contribution to joint liability
under the Securities Act, in any case in which the Company exercising its rights
under this Section 7.5 makes a claim for indemnification pursuant to this
Section, but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding that this Section provides for
indemnification, then, in such case, the Company or Safeguard will contribute to
the aggregate losses, claims, damages or liabilities to which they may
-8-
<PAGE>
be subject (after contribution from others) in such proportion as is appropriate
to reflect the relative fault of the Company on the one hand and of Safeguard on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of
Safeguard on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or by Safeguard on the other, and each party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided that, in any such case, (1) Safeguard will
not be required to contribute any amount in excess of the gross public offering
price of all such Shares offered by such holder pursuant to the Registration
Statement; and (2) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
8. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
The representations, warranties, covenants and other agreements contained
herein shall survive the Closing.
9. Contents of Agreement.
---------------------
This Agreement, together with the Warrants, sets forth the entire
understanding of the Parties hereto with respect to the transactions
contemplated hereunder and thereunder and supersedes all prior agreements or
understandings between the Parties regarding those matters.
10. Amendment, Parties in Interest, Assignment, Etc.
-----------------------------------------------
This Agreement may be amended, modified or supplemented only by a written
instrument duly executed by each of the Parties hereto. If any provision of
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein. This Agreement shall be binding upon and inure to the benefit
of and be enforceable by the respective heirs, legal representatives, successors
and permitted assigns of the parties hereto. No Party hereto shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision
of this Agreement may be waived at any time by the Party entitled to the benefit
thereof by a written instrument duly executed by such Party. The parties hereto
shall execute and deliver any and all documents and take any and all other
actions that may be deemed reasonably necessary by their respective counsel to
complete the Transactions.
-9-
<PAGE>
11. Interpretation.
--------------
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to any gender include all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder" or "herein" relate to this
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection and
Exhibit references are to this Agreement unless otherwise specified.
12. Notices.
-------
All notices that are required or permitted hereunder shall be in writing
and shall be sufficient if personally delivered or sent by mail, facsimile
message or Federal Express or other delivery service. Any notices shall be
deemed given upon the earlier of the date when received at, the third day after
the date when sent by registered or certified mail or the day after the date
when sent by Federal Express to, the address or fax number set forth below,
unless such address or fax number is changed by notice to the other Parties
hereto:
If to the Company:
DocuCorp, Inc.
5910 North Central Expressway
Suite 800
Dallas, Texas 75206
FAX: (214) 891-6678
Attention: Michael D. Andereck, Chief Executive Officer
If to Safeguard or Safeguard Delaware:
Safeguard Scientifics, Inc.
Building 800
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-293-0601
Attention: General Counsel
-10-
<PAGE>
If to TL II or TL II Offshore:
Technology Leaders II L.P.
Technology Leaders II Offshore C.V.
Building 800
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-293-0601
Attention: Robert Keith
13. Governing Law.
-------------
This Agreement shall be construed and interpreted in accordance with the
laws of the State of Delaware without regard to its provisions concerning
conflict of laws.
14. Dispute Resolution.
------------------
14.1 Good-Faith Negotiations. If after the Closing any dispute arises
-----------------------
under this Agreement that is not settled promptly in the ordinary course of
business, the parties shall seek to resolve any such dispute between them,
first, by negotiating promptly with each other in good faith in face-to-face
negotiations. These face-to-face negotiations shall be conducted by the
respective designated senior management representative of each party. If the
parties are unable to resolve the dispute between them within 20 business days
(or such period as the parties shall otherwise agree) through these face-to-face
negotiations, then any such disputes shall be resolved in the manner set forth
in this Section 14.
14.2 Resolution of Disputes.
----------------------
(a) Any action, suit or proceeding where the amount in controversy
as to at least one party, exclusive of interest and costs, exceeds $1,000,000 (a
"Summary Proceeding"), arising out of or relating to this Agreement or the
Warrants or the breach, termination or validity hereof or thereof, shall be
litigated exclusively in the Superior Court of the State of Delaware (the
"Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of
the Delaware Superior Court, or any successor rules (the "Summary Proceeding
Rules"). Each of the parties hereto hereby irrevocably and unconditionally (A)
submits to the jurisdiction of the Delaware Superior Court for any Summary
Proceeding, (B) agrees not to commence any Summary Proceeding except in the
Delaware Superior Court, (C) waives, and agrees not to plead or to make, any
objection to the venue of any Summary Proceeding in the Delaware Superior Court,
(D) waives, and agrees not to plead or to make, any claim that any Summary
Proceeding brought in the Delaware Superior Court has been brought in an
improper or otherwise inconvenient forum, (E) waives, and agrees not to plead or
to make, any claim that the Delaware Superior Court lacks personal jurisdiction
over it and (F) waives its right to remove any Summary Proceeding to the Federal
courts except where such courts
-11-
<PAGE>
are vested with sole and exclusive jurisdiction by statute.
(b) If any action, suit or proceeding where the amount in controversy
as to at least one party, exclusive of interest and costs, does not exceed
$1,000,000 (a "Proceeding"), arising out of or relating to this Agreement or the
Warrants or the breach, termination or validity hereof or thereof is brought,
the parties to such Proceeding agree to make application to the Delaware
Superior Court to proceed under the Summary Proceeding Rules. Until such time
as such application is rejected, such Proceeding shall be treated as a Summary
Proceeding and all of the foregoing provisions of this Section relating to
Summary Proceedings shall apply to such Proceeding.
(c) If a Summary Proceeding is not available to resolve any dispute
hereunder, the controversy or claim shall be settled by arbitration conducted on
a confidential basis, under the U.S. Arbitration Act, if applicable, and the
then current Commercial Arbitration Rules of the American Arbitration
Association (the "Association") strictly in accordance with the terms of this
Agreement and the substantive law of the State of Delaware. The arbitration
shall be conducted at the Association's regional office located in Dallas, Texas
by three arbitrators, at least one of whom shall be an attorney and one of whom
shall be a member of a "Big Six" accounting firm (excluding Price Waterhouse
LLP). Judgment upon the arbitrators' award may be entered and enforced in any
court of competent jurisdiction. Neither party shall institute a proceeding
hereunder unless at least 60 days prior thereto such party shall have given
written notice to the other party of its intent to do so.
14.3 Neither party shall be precluded hereby from securing equitable
remedies in courts of any jurisdiction, including temporary restraining orders
and preliminary injunctions to protect its rights and interests, but neither
party shall seek any such equitable remedies as a means to avoid or stay
arbitration or Summary Proceeding.
15. Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of which
shall be binding as of the date first written above, and all of which shall
constitute one and the same instrument. Each such copy shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
16. Termination.
-----------
This Agreement and all of the rights and obligations of the parties
hereunder will terminate automatically upon any termination of the Merger
Agreement.
17. Share Adjustments.
-----------------
All share and per share amounts herein shall be appropriately adjusted to
account for any subdivision or combination of the Common Shares.
-12-
<PAGE>
[SIGNATURE PAGE TO LIQUIDITY AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written above.
DOCUCORP, INC.
By:______________________________________
Name:
Title:
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By:______________________________________
Name:
Title:
SAFEGUARD SCIENTIFICS, INC.
By:______________________________________
Name:
Title:
TECHNOLOGY LEADERS II L.P.
By:______________________________________
Name:
Title:
TECHNOLOGY LEADERS II OFFSHORE, C.V.
By:______________________________________
Name:
Title:
-13-
<PAGE>
Exhibit A
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
Warrant to Purchase
________ Shares of Common Stock
Date: _______, 1997
WARRANT
TO PURCHASE COMMON STOCK OF
DOCUCORP, INC.
THIS CERTIFIES that ___________________________ (the "Holder") is entitled
to purchase from DocuCorp, Inc. , a corporation organized and existing under the
laws of Delaware (the "Company"), at any time after the date hereof and until
5:00 P.M. (Eastern Time) on the Expiration Date (as defined below), _______
fully paid and nonassessable shares (the "Warrant Shares") of Class A Common
Stock of the Company, $0.01 par value per share (the "Common Stock"), subject to
adjustment as provided herein, at a purchase price of $5.00 per share (the
"Warrant Price").
1. Definitions. As used in this Warrant, the following terms have the
respective meanings set forth below:
"Appraised Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the value attributable to such share of Common Stock
if all of the assets of the Company and its subsidiaries were sold for the
appraised value thereof as of the last day of a fiscal month to end within 60
days prior to such date specified, and thereafter liquidated in accordance with
the terms of the Company's Certificate of Incorporation, as determined in good
faith by the Board of Directors of the Company.
"Book Value" shall mean, in respect of any share of Common Stock on any
date herein specified, the value attributable to such share of Common Stock if
all of the assets of the Company and its subsidiaries were sold for the
consolidated book value thereof as of the last day of any month immediately
preceding such date, and thereafter liquidated in accordance with the Company's
Certificate of Incorporation, as determined in accordance with generally
accepted accounting principles in the United States.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
A-1
<PAGE>
"Current Market Price" shall mean, in respect of the Common Stock on any
date herein specified, the higher of (a) the Book Value per share of Common
Stock at such date and (b) the Appraised Value per share of Common Stock as at
such date, or if there shall then be a public market for the Common Stock, the
higher of (x) the amount set forth in clause (a) above and (y) the average of
the daily market prices for 30 consecutive Business Days commencing 45 days
before such date. The daily market price for each such Business Day shall be (i)
the last sale price on such date on the principal stock exchange on which the
Common Stock is then listed or admitted to trading, (ii) if no sale takes place
on such day on any such exchange, the average of the last reported closing bid
and asked prices on such day as officially quoted on any such exchange, (iii) if
the Common Stock is not then listed or admitted to trading on any stock
exchange, the average of the last reported closing bid and asked prices on such
day in the over-the-counter market, as furnished by the National Association of
Securities Dealers Automatic Quotation System or the national Quotation Bureau,
Inc., (iv) if neither such corporation at the time is engaged in the business of
reporting such prices, as furnished by any similar firm then engaged in such
business, or (v) if there is no such firm, as furnished by any member of the
National Association of Securities Dealers, Inc. ("NASD") selected by the
Company.
"Expiration Date" shall mean the third anniversary of the date of this
Warrant.
"Outstanding" shall mean, when used with reference to Common Stock or any
class thereof, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock or of the relevant class, except
shares then owned or held by or for the account of the Company or any subsidiary
thereof, and shall include all shares issuable in respect of outstanding scrip
or any certificates representing fractional interests in shares of Common Stock
or of the relevant class.
2. Exercise of Warrant. This Warrant shall be exercisable at any time
-------------------
after the date hereof until the expiration of the Warrant as provided in Section
3 hereof, in the manner set forth in Section 4 hereof; provided, however, that
-------- -------
the Warrant shall not be exercisable during any time that the Holder is in
material default of its obligations under Section 2 of the Liquidity Agreement,
dated as of the date hereof, among the Holder, the Company and certain other
parties.
3. Expiration of Warrant. This Warrant, to the extent not exercised,
---------------------
shall expire and cease to be of force and effect at 5:00 P.M. (Eastern Time) on
the Expiration Date.
4. Method of Exercise. This Warrant may be exercised in whole or in part
------------------
(but not as to fractional shares) by the surrender of the Warrant, with the
Purchase Agreement attached hereto as Annex A properly completed and duly
executed, at the principal office of the Company at 5910 North Central
Expressway, Suite 800, Dallas, Texas 75206 Attention: Michael D. Andereck,
President, or such other location which at that time shall be the principal
office of the Company (the "Principal Office"), and upon payment to it of the
Warrant Price for each Warrant Share to be purchased upon such exercise (the
aggregate of the Warrant Price for all shares to be exercised being referred to
herein as the "Purchase Price"). The Purchase Price shall be paid by delivering
a certified
A-2
<PAGE>
check, bank draft or wire transfer of immediately available funds to the order
of the Company. The purchaser shall be treated for all purposes as the holder
of the Warrant Shares as of the close of business on the date of exercise, and
certificates for the Warrant Shares so purchased shall be delivered to the
person so entitled within a reasonable time, not exceeding thirty (30) days,
after such exercise. Unless this Warrant shall have expired, a new Warrant of
like tenor and for such number of Warrant Shares as the Holder shall direct,
representing in the aggregate the right to purchase that number of Warrant
Shares with respect to which this Warrant shall not have been exercised, shall
also be issued to the Holder within such time.
5. Certain Covenants of the Company. The Company shall cause all Warrant
--------------------------------
Shares, upon issuance, to be listed on each national securities exchange or
securities quotation system, if any, on which the other outstanding shares of
Common Stock of the Company are then listed or quoted. During the period within
which this Warrant may be exercised, the Company will at all times have
authorized and reserved for the purpose of issuance upon exercise of this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of this Warrant.
6. Adjustment of Purchase Price and Number of Shares. The number of
-------------------------------------------------
shares of Common Stock purchasable upon the exercise of this Warrant shall be
subject to adjustment from time to time upon the happening of certain events as
follows:
6.1 Stock Dividends, Subdivisions or Combinations. If the Company at
---------------------------------------------
any time while the Warrant remains outstanding and unexpired shall:
(a) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock,
(b) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or
(c) pay a dividend or make a distribution in shares of its Common
Stock,
then the number of shares of Common Stock purchasable upon the exercise of
this Warrant immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock that a record holder
of the same number of shares of Common Stock represented by this Warrant
immediately prior to the occurrence of such event would own or be entitled
to receive after the happening of such event.
6.2 Certain Other Distributions. If at any time the Company shall
---------------------------
take a record of the holders of its Common Stock for the purpose of
entitling them to receive any dividend or other distribution of:
(a) cash (other than a cash distribution or dividend payable out
of
A-3
<PAGE>
earnings or earned surplus legally available for the payment of dividends
under the laws of the jurisdiction of incorporation of the Company),
(b) any evidences of its indebtedness, any shares of its stock or any
other securities or property of any nature whatsoever (other than cash), or
(c) any warrants or other rights (except for rights issued pursuant to
a Qualified Rights Offering) to subscribe for or purchase any evidences of
its indebtedness, any shares of its stock or any other securities or
property of any nature whatsoever (other than cash).
then the number of shares of Common Stock issuable upon exercise of this Warrant
shall be adjusted to equal the product of the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such adjustment by a
fraction (i) the numerator of which shall be the Current Market Price per share
of Common Stock at the date of taking such record and (ii) the denominator of
which shall be such Current Market Price per share of Common Stock minus the
amount allocable to one share of Common Stock of any such cash so distributable
and of the fair value (as determined in good faith by the Board of Directors of
the Company) of any and all such evidences of indebtedness, shares of stock,
other securities or property or warrants or other subscription or purchase
rights so distributable. A reclassification of the Common Stock (other than a
change in par value, or from par value to no par value or from no par value to
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by the Company to the holders of its Common Stock
of such shares of such other class of stock within the meaning of this Section
6.2 and, if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 6.1.
6.3 Reclassification, Consolidation or Merger. At any time while this
-----------------------------------------
Warrant remains outstanding and unexpired, in case of any reclassification or
change of outstanding securities issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value or as a result of an event described in Sections 6.1(A) or
(B) above) or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value), or in the case of any sale
or transfer to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company, or such successor or purchasing
corporation, as the case may be, shall, without payment of any additional
consideration therefor, execute a new Warrant providing that the Holder shall
have the right to exercise such new Warrant (upon terms not less favorable to
the Holder than
A-4
<PAGE>
those then applicable to this Warrant) and to receive upon such exercise, in
lieu of each share of Common Stock of the Company theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, sale or transfer by the Holder of one share of Common
Stock issuable upon exercise of this Warrant had this Warrant been exercised
immediately prior to such reclassification, change, consolidation, merger, sale
or transfer. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 6. The provisions of this Section 6.3 shall similarly apply to
successive reclassification, changes, consolidations, mergers, sales and
transfers.
6.4 Liquidating Dividends, Etc. If the Company at any time while this
---------------------------
Warrant remains outstanding and unexpired makes a distribution of its assets to
the holders of its Common Stock as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances otherwise provided for in this
Section 6), the holder of this Warrant shall be entitled to receive upon the
exercise hereof, in addition to the shares of Common Stock receivable upon such
exercise, and without payment of any consideration other than the Warrant Price,
an amount in cash equal to the value of such distribution per share of Common
Stock multiplied by the number of shares of Common Stock which, on the record
date for such distribution, are issuable upon exercise of this Warrant (with no
further adjustment being made following any event which causes a subsequent
adjustment in the number of shares of Common Stock issuable upon the exercise
hereof), and an appropriate provision therefor should be made a part of any such
distribution. The value of a distribution which is paid in other than cash
shall be determined in good faith by the Board of Directors.
6.5 Other Action Affecting Common Stock. If after the date hereof the
-----------------------------------
Company shall take any action affecting the outstanding number of shares of
Common Stock, other than an action described in any of the foregoing subsections
of Section 6 hereof or the issuance of any shares of Common Stock by the Company
(including pursuant to stock options granted under the stock option plan adopted
by the Company in 1997 covering 400,000 shares of Common Stock or pursuant to
Section 2 hereof), that would have a materially adverse effect upon the rights
of the Holder, the Warrant Price shall be adjusted in such manner and at such
time as the Board of Directors on the advice of the Company's independent public
accountants may in good faith determine to be equitable in the circumstances.
6.6 Other Provisions Applicable to Adjustment under this Section. The
------------------------------------------------------------
following provisions shall be applicable to the making of adjustment of the
number of shares of Common Stock issuable upon exercise of this Warrant provided
for in this Section 6:
A-5
<PAGE>
(a) When Adjustments to Be Made. The adjustments required by
---------------------------
this Section 6 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the
number of shares of Common Stock issuable upon exercise of the Warrant that
would otherwise be required may be postponed (except in the case of a
subdivision or combination of shares of the Common Stock, as provided for
in Section 6.1) up to, but not beyond the date of exercise if such
adjustment either by itself or with other adjustments not previously made
adds or subtracts less than 1% of the shares of Common Stock issuable upon
exercise of the Warrant immediately prior to the making of such adjustment.
Any adjustment representing a change less than such minimum amount (except
as aforesaid) which is postponed shall be carried forward and made as soon
as such adjustment, together with other adjustments required by this
Section 6 and not previously made, would result in a minimum adjustment or
on the date of exercise. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date
of its occurrence.
(b) Fractional Interest. In computing adjustments under this
-------------------
Section 6, fractional interests in Common Stock shall be taken into account
to the nearest 1/10th of a share.
(c) When Adjustment Not Required. If the Company shall take a
----------------------------
record of the holders of its Common Stock for the purpose of entitling them
to receive a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend, distribution,
subscription or purchase rights, then thereafter no adjustment shall be
required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) Escrow of Warrant Stock. If after any property becomes
-----------------------
distributable pursuant to this Section 6 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of the
event for which such record is taken, and the Holder exercises this
Warrant, any additional shares of Common Stock issuable upon exercise by
reason of such adjustment shall be deemed the last shares of Common Stock
for which this Warrant is exercised (notwithstanding any other provision to
the contrary herein) and such shares or other property shall be held in
escrow for the Holder by the Company to be issued to the Holder upon and to
the extent that the event actually takes place, upon payment of the Warrant
Price. Notwithstanding any other provision to the contrary herein, if the
event for which such record was taken fails to occurred or is rescinded,
then such
A-6
<PAGE>
escrowed shares shall be canceled by the Company and escrowed property
returned.
7. Notice of Adjustments. Whenever the number of shares of Common Stock
---------------------
issuable upon exercise of this Warrant shall be adjusted pursuant to Section 6
hereof, the Company shall promptly notify the Holder in writing of such
adjustment, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the number of shares
of Common Stock issuable upon exercise of this Warrant after giving effect to
such adjustment. Such notice shall be mailed (by first class and postage
prepaid) to the Holder.
8. Fractional Shares. No fractional shares of the Company's Common Stock
-----------------
will be issued in connection with any purchase hereunder but in lieu of such
fractional shares, the Company shall make a cash refund therefor equal in amount
to the product of the applicable fraction multiplied by the Warrant Price paid
by the Holder for its Warrant Shares upon such exercise.
9. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Holder as follows:
(a) This Warrant has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed by a duly
authorized officer of the Company and constitutes a valid and binding obligation
of the Company.
(b) Neither the execution and delivery of this Warrant, nor the
consummation of the transactions contemplated hereby, will violate or result in
any violation of or be in conflict with or constitute a default under any term
of the charter or bylaws of the Company or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
the Company.
(c) Upon exercise of this Warrant and payment of the Warrant Price by
the Holder, the Warrant Shares will be duly issued, fully paid and nonassessable
shares of Common Stock and free from all taxes, liens and charges with respect
to the issuance thereof.
10. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company
--------------------------------------
of evidence reasonably satisfactory to it that this Warrant has been mutilated,
destroyed, lost or stolen, and in the case of any destroyed, lost or stolen
Warrant, a bond of indemnity reasonably satisfactory to the Company, or in the
case of a mutilated Warrant, upon surrender and cancellation thereof, the
Company will execute and deliver in the Holder's name, in exchange and
substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
11. Successors and Assigns. This Warrant and the rights evidenced hereby
----------------------
shall inure
A-7
<PAGE>
to the benefit of and be binding upon the successors of the Company and the
Holder.
12. Amendment. This Warrant may be modified with the written consent of
---------
the Company and the Holder.
13. Transferability. This Warrant, and any Warrant Shares issued upon
---------------
exercise of this Warrant, may be sold, pledged or otherwise transferred or
encumbered by the Holder.
14. Headings. The descriptive headings of the several sections of this
--------
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.
15. Governing Law. This Warrant shall be governed by the laws of the
-------------
State of Delaware without regard to the provisions thereof relating to conflict
of laws.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer, attested by its duly authorized officer, on the date of
this Warrant.
DOCUCORP, INC.
By: ______________________________________
Name:
Title:
Attest:_____________________________________
A-8
<PAGE>
Annex A
-------
PURCHASE AGREEMENT
------------------
Date: __________________________
TO: DOCUCORP, INC.
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase _____________ shares of Class A Common Stock
covered by such Warrant, and makes payment herewith in full therefor at the
price per share of $ _______ provided by this Warrant.
Signature:_______________________________
Address:
<PAGE>
EXHIBIT 10.4
VOTING AND LOCKUP AGREEMENT
---------------------------
THIS VOTING AGREEMENT (this "Agreement") is made as of January 15, 1997 by
and among Xerox Corporation, a New York corporation ("Xerox"), Michael D.
Andereck, an individual residing in Texas ("Andereck", and together with Xerox,
the "ISI Stockholders"), Safeguard Scientifics (Delaware), Inc., a Delaware
corporation ("Safeguard"), Technology Leaders II L.P., a Delaware limited
partnership ("TL II"), and Technology Leaders II Offshore C.V., a Netherlands
Antilles limited partnership ("TL II Offshore"), Joe A. Rose, an individual
residing in Georgia ("Rose"), Samuel M. Wilkes, an individual residing in
Georgia ("Wilkes") and Arthur R. Spector, an individual residing in Pennsylvania
("Spector," and together with Rose, Wilkes, Safeguard, TL II and TL II Offshore,
the "FormMaker Stockholders"). The parties to this Agreement are sometimes
collectively referred to herein as the "Stockholders." Any defined terms shall
be equally applicable to both the singular and plural forms of the terms
defined.
Background
----------
DocuCorp, Inc., a Delaware corporation (the "Company"), ISI Merger Corp., a
Texas corporation ("Texas Sub"), FormMaker Acquisition Corp., a Georgia
corporation ("Georgia Sub"), FormMaker Software, Inc., a Georgia corporation
("FormMaker"), and Image Sciences, a Texas corporation ("Image Sciences"), have
entered into an Agreement and Plan of Merger, dated the date hereof (the "Merger
Agreement"), that provides for (i) the merger of the Georgia Sub with and into
FormMaker and (ii) the merger of the Texas Sub with and into Image Sciences
(collectively, the "Merger"). The Stockholders are entering into this Agreement
as contemplated by and as a condition to the parties execution and delivery of
the Merger Agreement.
As used herein, the term "Shares" means all of the shares of voting stock
of Image Sciences or FormMaker, as the case may be, owned by the Stockholders
from time to time, together with all additional or replacement shares of stock
issued with respect thereto by reason of recapitalizations and any other capital
event, and the term "Corporate Party" means any of the Company, Image Sciences
or FormMaker.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto, intending to be
legally bound hereby, have agreed and do hereby agree with each other as
follows:
1. Agreement to Vote. Each Stockholder shall present all Shares owned by
-----------------
such Stockholder in person or by proxy at each applicable stockholder meeting or
meetings of Image Sciences and FormMaker, as the case may be, that may be held
to consider and to vote upon the Merger Agreement or any matters related
thereto, or any adjournment thereof, and to vote such Shares (i) in favor of
the approval of the Merger Agreement or any proposal relating to any action
necessary to or consistent with the consummation of the Merger Agreement, at
each such
<PAGE>
stockholder meeting and (ii) against the approval of any proposal relating to
any action that is inconsistent with the consummation of the Merger Agreement.
If Image Sciences or FormMaker chooses to solicit the consent of its
stockholders rather than hold a stockholder meeting in order to consider and
vote upon the Merger Agreement or any matters related thereto, each Stockholder
shall include all Shares owned by such Stockholder in the consent solicited by
Image Sciences or FormMaker, as the case may be, and vote such Shares in
accordance with clauses (i) and (ii) of the immediately preceding sentence.
.
2. Irrevocable Proxy. In furtherance of the purposes of this Agreement,
-----------------
each ISI Stockholder does hereby appoint Michael D. Andereck as true and lawful
attorney-in-fact and proxy (the "Image Sciences Proxy Holder") of such ISI
Stockholder, and each FormMaker Stockholder does hereby appoint Arthur R.
Spector as true and lawful attorney-in-fact and proxy (the "FormMaker Proxy
Holder," and together with the Image Sciences Proxy Holder, the "Proxy
Holders"), in each Stockholder's name, place and stead, with full power of
substitution, to take any and all actions in the role of a stockholder of Image
Sciences or FormMaker, as the case may be, that the Proxy Holder may deem
appropriate in order to consummate the transactions contemplated by the Merger
Agreement, to the same extent and with the same effect as if such Stockholder
were acting on its own behalf, including (a) calling and attending meetings of
the stockholders as the holder of the Shares and voting the Shares at any and
all such meetings or any adjournments thereof on any and all matters, proposals
and questions, whether benefitting the Proxy Holder or not, that may be lawfully
considered thereat, including a proposal to approve the Merger Agreement, (b)
executing any written consents of such Stockholder as the record owner of the
Shares, (c) executing and delivering on behalf of such Stockholder any necessary
document for the consummation of the Merger Agreement, (d) taking any other
actions that the Stockholder may be entitled to take, in the role of a
stockholder, under any applicable law, charter provision or bylaw provision.
Each Stockholder hereby revokes all proxies heretofore made by it, and confirms
that the rights granted hereby are irrevocable and coupled with an interest.
None of the Stockholders shall take any action that would have the effect of
limiting this proxy in any respect.
3. Transfer Restrictions. Except for a Permitted Transfer (defined
---------------------
below), a Stockholder shall not transfer, sell, offer for sale, contract to
sell, or otherwise dispose of (collectively, a "Transfer") (a) any of such
Stockholder's Shares, until the earlier of (i) the date of a closing under the
Merger Agreement (the "Merger Closing Date") in accordance with the Merger
Agreement or (ii) June 30, 1997 or (b) any of the shares of common stock of any
class of the Company that the Stockholder may acquire pursuant to the Merger
Agreement until January 31, 1998. The term "Permitted Transfer" means (i) at any
time, a Transfer by a Stockholder to an affiliate or subsidiary of such
Stockholder or to another Stockholder, (ii) during the period prior to the
Merger Closing Date, (A) a Transfer as to which Image Sciences shall have
consented in writing, in the case of a transfer by a FormMaker Stockholder and
(B) a Transfer as to which FormMaker shall have consented in writing, in the
case of a transfer by an Image Sciences Stockholder and (iii) during the period
after the Merger Closing Date, a Transfer by any Stockholder as to which the
Company shall have consented in writing. Any proposed Transfer that is approved
as a Permitted Transfer shall not be effective unless and until the proposed
transferee executes and delivers to the consenting
-2-
<PAGE>
Corporate Party such documentation as such consenting Corporate Party may
request to require the proposed transferee to become a party to this Agreement.
None of the Corporate Parties hereto shall recognize or record in the stock
records of such Corporate Party any purported action that violates the
restrictions hereof. The Stockholders hereby authorize the Corporate Parties to
execute whatever documents may be necessary to add a transferee in a Permitted
Transfer as a party to this Agreement, and upon any such addition, the
Transferee shall be deemed a "Stockholder" for all purposes hereunder.
4. Termination. The obligations of the Stockholders under Section 1 and
-----------
the proxy granted under Section 2 shall terminate upon the earlier of the Merger
Closing Date or June 30, 1997. The transfer restrictions under Section 3 shall
terminate on the applicable termination date specified in Section 3.
5. Termination of Previous Agreements; Amendment of Bylaws. The
-------------------------------------------------------
FormMaker Stockholders hereby consent to the termination immediately prior to
the effectiveness of the Merger of the Stockholders' Agreement among FormMaker,
the FormMaker Stockholders and certain other parties, dated as of December 20,
1995. The FormMaker Stockholders also hereby approve the termination immediately
prior to the effectiveness of the Merger of the Registration Rights Agreement
among FormMaker, the FormMaker Stockholders and certain other parties, as of
December 20, 1995. The FormMaker Stockholders also hereby approve an amendment
to the FormMaker Bylaws immediately prior to the effectiveness of the Merger to
eliminate provisions in the FormMaker Bylaws applicable to such Stockholders'
Agreement.
6. Notices. Any notice, authorization, request or demand required or
-------
permitted to be given hereunder shall be deemed to be given upon the earlier of
the business day when received at, or the third day (or if later, the next
following business day) after the date when sent by certified or registered mail
or the next following business day when sent by Federal Express or other
overnight delivery service to, the address of the principal executive offices of
a Corporate Party in the case of any notice to such Corporate Party, and until
changed by notice to the other parties hereto, the respective addresses of the
Stockholders on file with FormMaker and Image Sciences in the case of any notice
to the Stockholders.
7. Specific Performance. The rights of the Corporate Parties and the
--------------------
Stockholders under this Agreement are unique and, accordingly, the Corporate
Parties and the Stockholders shall, in addition to such other remedies as may be
available at law or in equity, have the right to enforce their respective rights
hereunder by actions for specific performance to the extent permitted by law.
8. Amendments.
----------
Except as otherwise expressly provided herein, this Agreement may not
be amended, and any provision of this Agreement may not be waived, except by an
instrument in writing executed by the parties hereto.
-3-
<PAGE>
9. Third-Party Beneficiaries.
-------------------------
The parties hereto acknowledge that the Company, Image Sciences and
FormMaker are all third-party beneficiaries of this Agreement and that any of
such corporations shall be entitled to enforce the provisions of this Agreement
against any of the parties hereto to the same extent as if such corporations
were parties hereto.
10. General.
-------
(a) This Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of any court of competent jurisdiction in
the State of Delaware and the United States District Court for the District of
Delaware and any other court of the State of Delaware and the United States with
jurisdiction to hear appeals from any such courts.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.
(c) This Agreement, the Merger Agreement and the documents specified
therein contain the entire agreement among the parties hereto regarding the
subject matter thereof.
(d) This Agreement may be executed in two or more counterparts, each
of which shall be binding as of the date hereof. Each such copy shall be deemed
an original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
(e) If any one or more of the provisions contained in this Agreement
shall for any reason be held invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement and such invalid, illegal and unenforceable
provision shall be reformed and construed to be valid, legal, and enforceable to
the maximum extent permitted by law.
(f) Unless the context of this Agreement clearly requires otherwise,
(i) references to the plural include the singular, and the singular the plural,
(ii) references to one gender include all genders, (iii) "or" has the inclusive
meaning frequently identified with the phrase "and/or," (iv) "including" has the
inclusive meaning frequently identified with the phrase "but not limited to" and
(v) "hereunder" or "herein" refer to the entire Agreement. The section and
other headings contained in this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section and subsection references are to
this Agreement unless otherwise specified.
-4-
<PAGE>
[SIGNATURE PAGE TO VOTING AND LOCKUP AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
SAFEGUARD SCIENTIFICS
(DELAWARE), INC.
By:
------------------------------
Name:
Title:
TECHNOLOGY LEADERS II L.P.
By:
------------------------------
Name:
Title:
TECHNOLOGY LEADERS II
OFFSHORE C.V.
By:
------------------------------
Name:
Title:
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<PAGE>
[SIGNATURE PAGE TO VOTING AND LOCKUP AGREEMENT]
XEROX CORPORATION
By:
------------------------------
Name:
Title:
------------------------------------
Michael D. Andereck
------------------------------------
Samuel M. Wilkes
------------------------------------
Arthur R. Spector
------------------------------------
Joe A. Rose
-6-
<PAGE>
EXHIBIT 10.5
STOCKHOLDERS' AGREEMENT
-----------------------
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of __________,
1997 by and among DocuCorp., Inc., a Delaware corporation (the "Company"),
Safeguard Scientifics (Delaware), Inc., a Delaware corporation ("Safeguard"),
Technology Leaders II L.P., a Delaware limited partnership ("TL II"), Technology
Leaders II Offshore C.V., a Netherlands Antilles limited partnership ("TL II
Offshore," and together with Safeguard and TL II, the "SG/TL Stockholders"), and
Xerox Corporation, a New York corporation ("Xerox"). The parties to this
Agreement other than the Company are sometimes collectively referred to herein
as the "Stockholders."
Background
----------
The Company, FormMaker Software, Inc., a Georgia corporation
("FormMaker"), Image Sciences, Inc., a Texas corporation ("Image Sciences"), and
two newly-formed subsidiaries of the Company have entered into an Agreement and
Plan of Merger (the "Merger Agreement") dated January 15, 1997 pursuant to which
the stockholders of FormMaker and Image Sciences will receive, in the case of
FormMaker stockholders, shares of Class A Common Stock, par value $0.01 per
share ("Class A Common Stock"), and in the case of Image Sciences stockholders,
shares of Class B Common Stock of the Company, par value $0.01 per share ("Class
B Common Stock," and together with the Class A Common Stock, "Common Stock").
The parties are entering into this Agreement as contemplated by the Merger
Agreement, and the Agreement will be effective upon the effectiveness of the
Merger contemplated by the Merger Agreement. Terms are used herein as defined in
the Merger Agreement unless otherwise defined herein.
Witnesseth:
-----------
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the parties, intending to be legally
bound, hereby agree as follows:
1. Board of Directors and Bylaws.
-----------------------------
(a) The Stockholders shall vote their respective shares of Common
Stock and any other shares of voting securities of the Company now owned or
hereafter acquired or controlled by them that have the right to vote generally
in election of directors of the Company (collectively, "Voting Stock"), and
otherwise use commercially reasonable efforts as stockholders of the Company, at
all times until the Termination Date (as hereinafter defined) to cause and
maintain the election to the Board of Directors of (i) a total of three
designees of the SG/TL Stockholders, (ii) a total of three designees of Xerox
and (iii) one designee unaffiliated with any of the SG/TL Stockholders or Xerox
who is mutually agreed upon by the other six designees.
<PAGE>
(b) Until the Termination Date, (i) the SG/TL Stockholders, as a
group acting by a majority in interest, and Xerox shall each have the right to
remove any of their respective designees to the Board and (ii) in the event of
any vacancy on the Board, the Board shall promptly fill such vacancy, and if
necessary to fill the vacancy promptly, each Stockholder shall vote to fill such
vacancy, in all cases in such a manner as to maintain the number of designees of
each party listed in subparagraph (a) above.
(c) Until the Termination Date, the Company shall not amend its
bylaws, and the Stockholders shall vote their respective Voting Stock and
otherwise use commercially reasonable efforts as stockholders of the Company to
prevent any amendment of the bylaws, unless such amendment shall have been
approved in writing by the SG/TL Stockholders, as a group acting by a majority
in interest, and Xerox.
2. Inspection. The Company shall permit any of the Stockholders, at
----------
such Stockholder's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such reasonable times as may be
requested by such Stockholder.
3. Termination.
-----------
This Agreement, and the respective rights and obligations of the
Stockholders hereto, shall terminate on the date (the "Termination Date") that
is the earlier of (a) the consummation of a Qualified Rights Offering or a
Qualified Public Offering (as defined in the Company's Certificate of
Incorporation), or (b) the 10th anniversary of this Agreement.
4. Notices.
-------
Any notice, authorization, request or demand required or permitted
to be given hereunder shall be deemed to be given upon the earlier of the
business day when received at, or the third day (or if later, the next following
business day) after the date when sent by certified or registered mail or the
next following business day when sent by Federal Express or other overnight
delivery service to, the address of the Company's principal executive offices in
the case of any notice to the Company, and until changed by notice to the
Company, the respective addresses of the Stockholders on file with the Company
in the case of any notice to the Stockholders.
5. Specific Performance.
--------------------
The rights of the Company and the Stockholders under this Agreement
are unique and, accordingly, the Company and the Stockholders shall, in addition
to such other remedies as may be available at law or in equity, have the right
to enforce their respective rights hereunder by actions for specific performance
to the extent permitted by law.
-2-
<PAGE>
6. Amendments.
----------
Except as otherwise expressly provided herein, this Agreement may
not be amended, and any provision of this Agreement may not be waived, except by
an instrument in writing executed by the parties hereto. The Company shall
provide each Shareholder with written notice of any amendment or waiver of this
Agreement.
7. Legends. The certificates representing the Voting Stock subject to
-------
this Agreement shall bear on their face a legend indicating the restrictions
imposed hereby.
8. General.
-------
(a) This Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware. Each of the parties hereto irrevocably
submits to the exclusive jurisdiction of any court of competent jurisdiction in
the State of Delaware and the United States District Court for the District of
Delaware and any other court of the State of Delaware and the United States with
jurisdiction to hear appeals from any such court.
(b) The Stockholders and the Company shall execute such documents
and take such further actions, including voting their Voting Stock and, in the
case of the SG/TL Stockholders and Xerox, causing their respective director
designees to vote as members of the Board of Directors or committees thereof as
may be reasonably required or desirable to carry out the provisions hereof and
the transactions contemplated hereby, including taking actions as stockholders
of the Company to cause the Company to comply with the obligations imposed on
the Company under this Agreement.
(c) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, as well as
any assignee of the Stockholders' shares of Voting Stock. If any Stockholder
assigns less than all of its Voting Stock, such Stockholder and its assignees
shall have the rights and obligations of the Stockholder hereunder, which rights
and obligations shall be exercised and fulfilled by them in accordance with the
decision of the holders of a majority of interest among the Stockholder and such
assignees, except that in the case of any of the SG/TL Stockholders, such rights
shall be exercised in accordance with the decision of the holders of a majority
in interest among the SG/TL Stockholders and their respective assignees as one
group.
(d) This Agreement, the Merger Agreement and the documents
specified therein contain the entire agreement among the parties hereto
regarding the subject matter thereof, and there are no agreements,
representations or warranties that are not set forth therein. All prior
negotiations, agreements and understandings are superseded hereby.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be binding as of the date hereof. Each such copy shall be
deemed an original, and it
-3-
<PAGE>
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
(f) If any one or more of the provisions contained in this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement and such invalid, illegal and unenforceable
provision shall be reformed and construed to be valid, legal, and enforceable to
the maximum extent permitted by law.
(g) Unless the context of this Agreement clearly requires
otherwise, (i) references to the plural include the singular, and the singular
the plural, (ii) references to one gender include all genders, (iii) "or" has
the inclusive meaning frequently identified with the phrase "and/or,"
(iv) "including" has the inclusive meaning frequently identified with the phrase
"but not limited to" and (v) "hereunder" or "herein" refer to the entire
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section and subsection
references are to this Agreement unless otherwise specified.
-4-
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS' AGREEMENT]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
DOCUCORP, INC.
By:
------------------------------------
Name:
Title:
SAFEGUARD SCIENTIFICS
(DELAWARE), INC.
By:
------------------------------------
Name:
Title:
TECHNOLOGY LEADERS II L.P.
By:
------------------------------------
Name:
Title:
TECHNOLOGY LEADERS II OFFSHORE C.V.
By:
------------------------------------
Name:
Title:
XEROX CORPORATION
By:
------------------------------------
Name:
Title:
-5-
<PAGE>
EXHIBIT 10.6
DIRECTOR DESIGNATION AGREEMENT
This Director Designation Agreement, dated as of January 15, 1996, is by
and between Michael D. Andereck, a resident of Texas ("Andereck"), and Xerox
Corporation, a New York corporation ("Xerox"), (Andereck and Xerox being
collectively referred to herein as the "Stockholders").
WITNESSETH:
WHEREAS, the Stockholders own shares of capital stock and/or options to
purchase capital stock (collectively "ISI Stock") of Image Sciences, Inc.
("ISI"); and
WHEREAS, ISI is a party to an Agreement and Plan of Merger, of even date
herewith (the "Merger Agreement"), which contemplates that, pursuant to the
merger described therein (the "Merger"), shares of ISI Stock will be converted
into shares and/or options to purchase shares of capital stock ("Company Stock')
of DocuCorp, Inc., a Delaware corporation (the "Company"); and
WHEREAS, Xerox and certain other parties who will become stockholders of
the Company upon consummation of the Merger have entered into a Stockholders'
Agreement of even date herewith (the 'Stockholders' Agreement"), pursuant to
which Xerox is entitled to designate three members to the Board of Directors
("Board") of the Company; and
WHEREAS, Andereck and Xerox are parties to a Voting and Lockup Agreement,
of even date herewith, pursuant to which each has agreed to vote in favor of the
Merger, based upon the parties entering into this Agreement;
NOW, THEREFORE, in consideration of the representations, covenants and
agreements contained herein, and certain other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. The Stockholders shall vote their respective shares of Company Stock
and any other shares of voting securities of the Company acquired or controlled
by them that they have the right to vote generally in the election of directors
of the Company (collectively "Voting Stock") and otherwise use commercially
reasonable efforts as stockholders of the Company, at all times until the
Termination Date (as defined in the Stockholders' Agreement), to cause and
maintain the election to the Board of the following persons as the three
designees of Xerox under the Stockholders' Agreement: (i) one designee of
Andereck (who shall initially be Michael D. Andereck), one designee of Xerox
(who shall initially be Frank Papson) and (iii) one designee (the "Third
Designee") who is mutually acceptable to Andereck and Xerox. In the event that
Andereck and Xerox are unable to mutually agree upon the Third Designee, they
shall promptly select an independent arbitrator to select an independent person
with expertise in corporate governance and in the software industry, whose
determination shall be binding and whose arbitration action shall be conducted
in accordance with the rules of the American Arbitration Association. Each of
the Stockholders will thereafter vote his shares of Voting Stock in accordance
with the results of the arbitration.
2. Notwithstanding the Stockholders' Agreement, Xerox shall not have the
right to remove the designee of Andereck without the prior written consent of
Andereck. Neither Andereck nor Xerox will remove the Third Designee without the
prior written consent of the other. If Andereck designates someone other than
himself to serve as his designee, Andereck shall have the right to remove such
person as a director at any time without the consent or vote of any other party
being required, and Xerox will take all such actions necessary and appropriate
to cause such director to be removed.
3. If any vacancy occurs in the Board for any reason, including but not
limited to the death, disability, resignation, retirement or removal of a
director designated in accordance with this Agreement, the Stockholder or
Stockholders who designated the person creating such vacancy shall nominate a
successor, Xerox shall promptly designate such nominee pursuant to the terms of
the Stockholders' Agreement, and all Stockholders shall vote their
<PAGE>
Voting Stock in favor of the election of such successor to the Board. Any
vacancy that occurs shall be filled as promptly as possible upon the request of
the Stockholder having the right to nominate a person to fill such vacancy.
4. No Stockholder shall vote his Voting Stock in favor of an amendment or
repeal of the Company's Bylaws or Certificate of Incorporation or for the
adoption of new Bylaws or Certificate of Incorporation by the Company if such
amendment or repeal of or new Bylaws or Certificate of Incorporation would
adversely affect the rights granted to any Stockholder hereunder. Further,
Xerox shall in no event amend, terminate, modify or waive any right under the
Stockholders' Agreement, if such action would adversely affect the rights
granted to Andereck hereunder.
5. No Stockholder shall give any proxy or power of attorney to any person
or entity that permits the holder thereof to vote in his discretion on any
matter that may be submitted to the Company's stockholders, as the case may be,
for their consideration and approval, unless such proxy or power of attorney is
made expressly subject to and is exercised in conformity with the provisions of
this Agreement.
6. The parties hereto recognize that the Company Stock cannot be readily
purchased or sold on the open market and that it is to the benefit of the
Company and the parties to this Agreement for the terms and provisions hereof to
be carried out; and for those and other reasons, the parties hereto would be
irreparably damaged if this Agreement is not specifically enforced in the event
of a breach hereof. If any controversy concerning the rights or obligations to
purchase, sell or vote any of the Company Stock arises, or if this Agreement is
breached, the parties hereto hereby agree that remedies at law might be
inadequate and that, therefore, such rights and obligations, and this Agreement,
shall be enforceable by specific performance. The remedy of specific
performance shall not be an exclusive remedy, but shall be cumulative of all
other rights and remedies of the parties hereto at law, in equity or under this
Agreement.
7. The parties hereto shall cause any transferee of any Company Stock
owned by a Stockholder to execute an agreement to be bound by the terms and
conditions of the Agreement.
8. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, together with their respective executors, administrators,
successors, personal representatives, heirs and assigns.
9. This Agreement shall become effective upon, and shall be conditioned
upon the occurrence of, the Merger. Once effective, this Agreement shall
continue until, and shall terminate immediately upon the occurrence of the
Termination Date (as defined in the Stockholders' Agreement).
10. Any notice required or permitted to be given hereunder shall be deemed
to be given upon the earlier of the business day when received at (by hand
delivery or fascimile transmission), or the third day after the date when sent
by certified or registered mail or the next following business day when sent by
Federal Express or similar overnight delivery service to the respective
addresses or fascimile numbers (as the case may be) of the Stockholders set
forth opposite their signatures below.
11. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.
12. This Agreement may be amended, modified or supplemented only by a
written instrument executed by all of the parties hereto.
13. This Agreement shall be deemed to have been made in and shall be
governed by, and interpreted in accordance with, the laws of the state of
Delaware. Venue in connection with the resolution of any disputes arising
hereunder shall lie exclusively in the courts of the state of Delaware.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
-----------------------------
Michael D. Andereck
Address:
5910 North Central Expressway
Suite 800
Dallas, Texas 75206
Fax: (214) 891-6678
XEROX CORPORATION
By:
--------------------------
Address:
P.O. Box 1600
Attention:
Stamford, Connecticut 06904-1 600
Fax: (203) 968-3493
<PAGE>
EXHIBIT 10.7
CO-SALE AGREEMENT
-----------------
THIS CO-SALE AGREEMENT, is made as of January 15, 1997 by and among
Safeguard Scientifics (Delaware), Inc., a Delaware corporation ("Safeguard"),
Technology Leaders II L.P., a Delaware limited partnership ("TL II"), Technology
Leaders II Offshore C.V., a Netherlands Antilles limited partnership ("TL II
Offshore" and, together with Safeguard and TL II, the "SG/TL Stockholders"), and
Samuel M. Wilkes, an individual residing in Georgia, (the "FormMaker
Stockholder"). The parties to this Agreement are sometimes collectively
referred to herein as the "Stockholders."
Background
----------
DocuCorp, Inc., a Delaware corporation (the "Company"), FormMaker Software,
Inc., a Georgia corporation, Image Sciences, Inc., a Texas corporation, and two
newly-formed subsidiaries of the Company have entered into an Agreement and Plan
of Merger dated January 13, 1997 (the "Merger Agreement") pursuant to which the
Stockholders shall receive shares of Company Class A Common Stock, par value
$0.01 per share ("Common Stock").
The parties are entering into this Agreement to provide the FormMaker
Stockholder with certain rights in the event of sales of Common Stock by the
SG/TL Stockholders.
W I T N E S S E T H :
- - - - - - - - - - -
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE I.
RIGHT OF PARTICIPATION IN SALES
1.1 Co-Sale Right.
-------------
a. If any SG/TL Stockholder (a "Selling Stockholder") desires to sell
to any proposed transferee (the "Tag-Along Transferee") a number of the shares
of Common Stock that when taken together with any other shares of Common Stock
sold by such Selling Stockholder during the most recent 12 months preceding such
time (the "12-Month Period") would constitute more than 50% of the shares of
Common Stock collectively owned by the SG/TL Stockholders at the beginning of
the 12-Month Period (the "50% Threshold"), the Selling Stockholder shall give
notice of the proposed transfer to the FormMaker Stockholder, specifying in such
notice the price and other terms of such sale and any other sales during the
12-Month Period. The use of the term "Sale Percentage" herein means the
percentage that the sum of such shares of Common Stock proposed to be sold by
any Selling Stockholders plus any such shares of Common Stock sold
<PAGE>
during the 12-Month Period represents of the total number of shares of Common
Stock that were owned by such Selling Stockholder at the beginning of the
12-Month Period and that are issuable to the Selling Stockholders at the time of
the proposed sale upon the exercise or conversion of any other securities owned
of record by them. Any Selling Stockholder shall make effective arrangement
(which shall be a condition to any sale to a Tag-Along Transferee) so that the
FormMaker Stockholder, if he desires to do so, shall have the right to sell to
the Tag-Along Transferee or to any another transferees arranged by such Selling
Stockholder, which transferees may include any SG/TL Stockholder, at the same
price or prices per share and other terms and conditions as involved in such
sale or sales by such Selling Stockholder, up to such number of shares of Common
Stock then owned by the FormMaker Stockholder that is equal to the number of
shares of Common Stock that are owned of record by such FormMaker Stockholder
and that are then issuable to the FormMaker Stockholder upon the exercise or
conversion of any other securities of the Company, multiplied by the Sale
Percentage. The tag-along rights granted to the FormMaker Stockholder in this
Section 1.1(a) shall not apply to any transfer by a Selling Stockholder to
another SG/TL Stockholder or to any of their Affiliates (a "Permitted Transfer")
provided that any such transferee that is not then a party hereto shall agree in
writing to become a party to and be bound as a "SG/TL Stockholder" under this
Section 1.1(a) by executing a copy of this Agreement and delivering the same to
the Secretary of the Company. The determination of whether the 50% Threshold has
been reached shall exclude any Permitted Transfers. For purposes of determining
whether and the extent to which any SG/TL Stockholder has sold shares of Common
Stock during the 12-Month Period, any shares that are the subject of a binding
agreement to sell (but not sold) during the 12-Month Period shall be included in
the determination.
b. If the FormMaker Stockholder desires to participate in any sale to
a Tag-Along Transferee under this Section 1.1, he shall give the Selling
Stockholders notice of such intention within 15 days after the date on which the
Selling Stockholders shall have given him notice of the proposed sale under
Section 1.1(a). If the Tag-Along Transferee is not willing to purchase all of
the shares of Common Stock represented by the amount proposed for sale by the
Selling Stockholders plus the amounts proposed for sale by the FormMaker
Stockholder hereunder, the amounts to be sold by the Selling Stockholders and
the FormMaker Stockholder shall be reduced proportionately, on the basis of the
respective shares of Common Stock owned by them.
c. The Selling Stockholders and the FormMaker Stockholder shall sell
to the Tag-Along Transferee all of the shares proposed to be sold by them at the
price and upon other terms and conditions specified in the notice described in
Section 2.1(a) at the closing with the Tag-Along Transferee, which shall be held
on a date selected by the Selling Stockholders and the Tag-Along Transferee.
-2-
<PAGE>
ARTICLE II.
MISCELLANEOUS
2.1 Duration of Agreement. The rights and obligations of the Company
---------------------
and each Stockholder under this Agreement shall terminate immediately prior to
the earliest to occur of the following: (a) the consummation of the first public
offering by the Company under the Securities Act of 1933, as amended (the
"Securities Act"), of any of its equity securities (including any rights
offering but not including the offering of securities pursuant to the
Registration Statement on Form S-4 under the Securities Act contemplated by the
Merger Agreement) or (b) the consummation or sale of all, or substantially all,
of the Company's assets or capital stock either through a direct sale, merger,
reorganization, consolidation or other form of business combination in which
control of the Company is being transferred. In addition, the rights and
obligations of the Company and each Stockholder under this Agreement shall
terminate upon the written consent to such termination by all of the SG/TL
Stockholders and the FormMaker Stockholder.
2.2 Further Actions. Each party hereto shall vote all of the shares
---------------
of Common Stock owned or otherwise held by him or it, or take all actions by
written consent in lieu of a meeting, and take all other actions within his or
its power that may be necessary in order to ensure that the terms of this
Agreement shall be implemented.
2.3 Contents of Agreement. This Agreement sets forth the entire
---------------------
understanding of the parties hereto with respect to the matters contained herein
and supersedes all prior agreements or understandings among the parties
regarding those matters.
2.4 Amendment, Parties in Interest, Assignment, Etc. This Agreement
-----------------------------------------------
may be amended, modified or supplemented only by a written instrument duly
executed by each of the parties hereto. If any provision of this Agreement
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, legal representatives, successors and
permitted assigns of the parties hereto. No party hereto shall assign this
Agreement or any right, benefit or obligation hereunder. Any term or provision
of this Agreement may be waived at any time by the party entitled to the benefit
thereof by a written instrument duly executed by such party.
2.5 Interpretation. Unless the context of this Agreement clearly
--------------
requires otherwise, (a) references to the plural include the singular, the
singular the plural, the part the whole, (b) "or" has the inclusive meaning
frequently identified with the phrase "and/or," (c) "including" has the
inclusive meaning frequently identified with the phrase "but not limited to,"
(d) references to "hereunder" or "herein" relate to this Agreement and (e)
definitions apply equally to
-3-
<PAGE>
both the singular and plural forms of the terms defined. The section and other
headings contained in this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section and subsection references are to this Agreement
unless otherwise specified.
2.6 Notices. All notices that are required or permitted hereunder
-------
shall be in writing and shall be sufficient if personally delivered or sent by
mail, facsimile message or Federal Express or other delivery service. Any
notices shall be deemed given upon the earlier of the date when received at, or
the third day after the date when sent by registered or certified mail or the
day after the date when sent by Federal Express to, the address or fax number
set forth below, unless such address or fax number is changed by notice to the
other party hereto:
If to the SG/TL Stockholders:
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-293-0601
Attention: Arthur R. Spector
with a required copy at the same address to:
James A. Ounsworth, Esquire
Technology Leaders II L.P.
Technology Leaders II Offshore C.V.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
FAX: 610-975-9330
Attention: Mark J. DeNino
If to Wilkes:
Samuel M. Wilkes
218 West Paces Ferry Road
Atlanta, GA 30305
with a required copy to:
Jeffrey L. Raney
1218 Brookhaven Park Place
-4-
<PAGE>
Atlanta, GA 30319
FAX: 404-705-2906
2.7 Severability; Governing Law. If any provisions of this Agreement
---------------------------
shall be determined to be illegal or unenforceable by any court of law, the
remaining provisions shall be severable and enforceable to the maximum extent
possible in accordance with their terms. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Delaware, without regard
to its provisions concerning conflict of laws. Each of the parties hereto
hereby irrevocably and unconditionally (a) submits to the jurisdiction of the
Superior Court of the State of Delaware (the "Delaware Superior Court") for any
proceeding based upon or arising out of or otherwise related to this Agreement
or any of the Transactions (a "Proceeding"), (b) waives, and agrees not to plead
or to make, any objection to the venue of any Proceeding in the Delaware
Superior Court, (c) waives, and agrees not to plead or to make, any claim that
any Proceeding brought in the Delaware Superior Court has been brought in an
improper or otherwise inconvenient forum, (d) waives, and agrees not to plead or
to make, any claim that the Delaware Superior Court lacks personal jurisdiction
over it, (e) waives its right to remove any Proceeding to the federal courts
except where such courts are vested with sole and exclusive jurisdiction by
statute, and (f) understands and agrees that it shall not seek a jury trial or
punitive damages in any Proceeding and waives any and all rights to any such
jury trial or to seek punitive damages. Each of the parties hereto hereby
irrevocably designates and appoints CT Corporation (the "Service Agent") with
offices on the date hereof at 1209 Orange Street, Wilmington, Delaware, as its
agent to receive service of process in any Proceeding. Each of the parties
hereto further covenants and agrees that, so long as this Agreement shall be in
effect, each such party shall maintain a duly appointed agent for the service of
summonses and other legal processes in the State of Delaware and will notify the
other parties hereto of the name and address of such agent if it is no longer
the Service Agent.
2.8 Injunctive Relief. It is acknowledged that it will be impossible
-----------------
to measure the damages that would be suffered by a party if another party fails
to comply with the provisions of this Agreement and that in the event of any
such failure, each non-breaching party will not have an adequate remedy at law.
Therefore, any party shall be entitled to obtain specific performance of another
party's obligations hereunder and to obtain injunctive relief. No party shall
argue, as a defense to any proceeding for such specific performance or
injunctive relief, that another party has an adequate remedy at law.
2.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument. Each such copy
shall be deemed an original, and it shall not be neces sary in making proof of
this Agreement to produce or account for more than one such counterpart.
2.10 Early Termination. This Agreement shall terminate and have no
-----------------
effect if the Merger Agreement terminates prior to the effectiveness of the
Merger Agreement.
-5-
<PAGE>
[SIGNATURE PAGE TO CO-SALE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Co-Sale
Agreement to be executed as of the date first above written.
-----------------------------------
SAMUEL M. WILKES
SAFEGUARD SCIENTIFICS (DELAWARE), INC.
By:
--------------------------------
Name:
Title:
TECHNOLOGY LEADERS II L.P.
By: Technology Leaders II Management L.P.,
its General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:
-------------------------
Name:
Title:
TECHNOLOGY LEADERS II OFFSHORE C.V.
By: Technology Leaders II Management L.P.,
a General Partner
By: Technology Leaders Management,
Inc., a General Partner
By:
-------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 15th day of January, 1997 between
DocuCorp, Inc., a Delaware corporation (the "Company"), and Michael D. Andereck
(the "Employee").
RECITALS
--------
The Employee is currently employed as an executive officer of Image
Sciences, Inc. ("ISI"), which is becoming a wholly-owned subsidiary of the
Company on the effective date of a merger of another wholly-owned subsidiary of
the Company into ISI (the "Merger"). The Company desires to continue the
employment of the Employee, and the Employee desires to continue to provide
services to the Company, upon the terms and conditions hereinafter set forth.
This Agreement is being entered into contemporaneously with the Agreement
and Plan of Merger between and among the Company, FormMaker Software, Inc.
("FSI"), ISI and two wholly-owned subsidiaries of the Company.
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
Effective upon the Merger, the Company hereby employs the Employee as the
President and Chief Executive Officer of the Company, and the Employee hereby
accepts such employment. During the term of the Employee's employment under this
Agreement (the "Employment Term"), the Employee shall perform such duties as are
assigned by the Board of Directors of the Company (the "Board") with respect to
the business of the Company and of any of its controlled or majority-owned
subsidiaries which are consistent with his position as the President and Chief
Executive Officer of the Company.
2. Performance.
-----------
The Employee shall devote substantially all of his business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
devote reasonable periods of time to charitable and community activities and to
personal investment activities so long as they do not interfere with the
performance of his duties hereunder.
<PAGE>
3. Term.
----
The Employment Term shall begin on the effective date of the Merger and
shall continue indefinitely until terminated in accordance with Sections 5 or 6.
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his
employment services to the Company during the Employment Term shall be $225,000
(such amount, as adjusted in accordance with this Section 4, is referred to
herein as the "Salary"), which the Company shall pay to the Employee in equal
installments in accordance with the normal payroll policies of the Company. The
Salary may be adjusted upward on an annual basis as the Board may approve, in
its sole discretion, but the Salary shall not be decreased. In connection with
the annual review of the Salary, the Board shall consider changes in the cost of
living, the Employee's own performance, the Company's performance and such other
factors as the Board may deem appropriate. The Board may delegate to a
Compensation Committee of the Board any review or other action to be performed
by the Board under this Agreement.
(b) The Employee shall participate in any incentive compensation plan that
the Company may maintain for its top-level executives, including any bonus plan,
as the same may be in effect from time to time during the Employment Term.
(c) During the Employment Term, the Company shall provide the Employee
with fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
5. Termination Without Compensation.
--------------------------------
(a) Death. If the Employee dies, this Employment Agreement shall terminate
-----
on the date of death, and thereafter the Company shall not have any further
liability or obligation to the Employee or to his executors, administrators,
heirs, assigns or any other person claiming under or through him (each, a "Legal
Representative") except that the Employee's estate shall receive any unpaid
Salary and Fringe Benefits that have accrued through the date of termination
(including any earned bonus payable under any bonus plan instituted by the
Company), without prejudice to any other rights or benefits to which the
Employee's estate may be entitled as a consequence of the Employee's death, such
as the proceeds from any life insurance policies that may be maintained for the
Employee's benefit from time to time.
(b) Cause. The Company may terminate the Employment Term for "cause" by
-----
giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company
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<PAGE>
shall not have any further liability or obligation to the Employee, except that
the Employee shall receive any unpaid Salary and Fringe Benefits that have
accrued through the date of termination, net of any liabilities that the
Employee may have to the Company. For purposes of this Agreement, "cause" shall
mean, exclusively, (i) a material failure of the Employee to observe or perform
(other than by reason of illness, injury or incapacity) any of the material
terms or provisions of this Agreement, (ii) the conviction of the Employee of a
felony or other criminal act involving moral turpitude, or (iii) conduct by the
Employee in his office with the Company that is grossly inappropriate, including
dishonesty and misappropriation of funds, in each case as determined by the
Board acting reasonably and in good faith. In the case of a termination for
"cause," the notice of termination shall specify the basis for the Company's
determination of "cause"; provided, however, that in the case of conduct
described in clause (i) above, such conduct shall not constitute "cause" for the
purposes of this paragraph (c) unless (A) the Board shall have given the
Employee notice setting forth with specificity (1) the conduct deemed to
constitute "cause," (2) reasonable action that would remedy the objectionable
conduct, and (3) a reasonable time (not less than 30 days) within which the
Employee may take such remedial action, and (B) the Employee shall not have
taken such specified remedial action within such specified reasonable time.
6. Termination With Compensation.
-----------------------------
(a) Without Cause. The Company shall have the right to terminate the
-------------
Employment Term without cause at any time by giving the Employee 30 days' notice
of the termination date. Under such circumstances, the Company shall pay to the
Employee each month for a period of 12 months from the date of termination an
amount equal to one-twelfth of the Salary in effect immediately prior to the
notice of termination (the "Termination Payment"). As of such termination date,
the Company shall not have any further liability or obligation to the Employee
other than to pay the Termination Payment and to provide the Employee with (i)
any unpaid Salary and Fringe Benefits that have accrued through the date of
termination (including any earned bonus payable under any bonus plan instituted
by the Company); and (ii) continuation of medical and life insurance coverage
for a period of 6 months from the date of termination. Notwithstanding the
foregoing, the Company shall not be obligated to pay the Termination Payment
unless the Employee delivers a Release in the form attached hereto as Exhibit B.
(b) Termination for Good Reason. The Employee may terminate the Employment
---------------------------
Term at any time for "good reason" by giving the Company 30 days' notice of the
termination date. For purposes of this Agreement, "good reason" shall mean,
exclusively, a material failure of the Company to observe or perform any of the
material terms or provisions of this Agreement, including, for example, any
reduction in the Salary, the exclusion of the Employee from participation in any
new compensation or benefit arrangement generally offered to similarly situated
employees of the Company, or a reduction in the Employee's level of
responsibility, position (including office, title or reporting relationships),
authority or duties (including changes resulting from the assignment
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<PAGE>
to the Employee of any duties inconsistent with his positions, duties or
responsibilities as in effect on the date of this Agreement), in each case as
determined by the Employee acting reasonably and in good faith. The Employee's
notice of termination hereunder shall specify the basis for the Employee's
determination of "good reason"; provided, however, that the Company's conduct
shall not constitute "good reason" for the purposes of this paragraph (b) unless
(i) the Employee shall have given the Board notice setting forth with
specificity (A) the conduct deemed to constitute "good reason," (B) reasonable
action that would remedy the objectionable conduct, and (C) a reasonable time
(not less than 30 days) within which the Company may take such remedial action,
and (ii) the Company shall not have taken such specified remedial action within
such specified reasonable time. In the case of a termination for "good reason,"
the Company shall pay to the Employee each month for a period of 12 months from
the date of termination an amount equal to one-twelfth of the Salary in effect
immediately prior to the notice of termination (the "Termination Payment"). As
of such termination date, the Company shall not have any further liability or
obligation to the Employee other than to pay the Termination Payment and to
provide with the Employee (i) any unpaid Salary and Fringe Benefits that have
accrued through the date of termination (including any earned bonus payable
under any bonus plan instituted by the Company); and (ii) continuation of
medical and life insurance coverage for a period of 6 months from the date of
termination. Notwithstanding the foregoing, the Company shall not be obligated
to pay the Termination Payment unless the Employee delivers a Release in the
form attached hereto as Exhibit B.
(c) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee.
Under such circumstances, the Company shall pay the Employee for a period of 12
months from the date of termination an amount equal to one-twelfth of the Salary
in effect immediately prior to the notice of termination (the "Disability
Payment"). Notwithstanding the foregoing, the Company shall not be obligated to
pay the Disability Payment unless the Employee delivers a Release in the form
attached hereto as Exhibit B. As of such termination date, the Company shall
have no further liability or obligation to the Employee hereunder except to pay
the Disability Payment and to provide the Employee with (i) any unpaid Salary
and Fringe Benefits that have accrued through the date of termination (including
any earned bonus payable under any bonus plan instituted by the Company); (ii)
whatever benefits that he may be entitled to receive under any then existing
disability benefit plans of the Company, including any such plans included in
the Fringe Benefits; and (iii) continuation of medical and life insurance
coverage for a period of 6 months from the date of termination. For the purposes
hereof, the Employee shall be deemed to be "totally disabled" if the Employee is
considered totally disabled under any group disability plan maintained by the
Company and in effect at that time, or in the absence of any such plan, under
applicable Social Security regulations. In the event of any dispute under this
Section 5(a), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
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<PAGE>
(d) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time for any reason or no reason by giving the Company 60
days' notice of the termination date. Under such circumstances, the Company
shall pay to the Employee each month for a period of twelve months from the date
of termination an amount equal to one-twelfth of the Salary in effect
immediately prior to the notice of termination (the "Resignation Payment"). As
of such termination date, the Company shall not have any further liability or
obligation to the Employee other than to pay the Resignation Payment and to
provide the Employee with (i) any unpaid Salary and Fringe Benefits that have
accrued through the date of termination (including any earned bonuses under any
bonus plan instituted by the Company); and (ii) continuation of medical and life
insurance coverage for a period of 6 months from the date of termination.
Notwithstanding the foregoing, the Company shall not be obligated to pay the
Resignation Payment unless the Employee delivers a Release in the form attached
hereto as Exhibit B.
7. Agreement Not to Compete.
------------------------
During the Non-Competition Period (defined below), the Employee shall not,
within those States of the United States in which the Company sells its products
or services, or offers its products or services for sale, engage, directly or
indirectly, in any supervisory, managerial or other executive-level capacity, in
any business that shall be competitive with any of those business activities in
which the Company is engaged as of the date of this Agreement, which business
activities consist of the development, marketing, licensing, maintenance and
support of software products or systems used in document automation, nor shall
the Employee hire any employee of the Company or its subsidiaries or any former
employee of the Company or its subsidiaries during the six (6) month period
immediately following such former employee's termination or solicit any employee
for the purpose of inducing the employee to terminate his or her employment with
the Company or its subsidiaries. In addition, during the Non-Competition Period,
the Employee shall not within those States of the United States in which the
Company sells its products or services, or offers its products or services for
sale, engage, directly or indirectly, in, or have any interest on behalf of
himself or others in, any person, firm, corporation or business (whether as a
director, agent, security holder, creditor, partner, joint venturer, beneficiary
under a trust, investor, consultant or otherwise) that shall be competitive with
any of those business activities in which the Company is engaged as of the date
of this Agreement, which business activities consist of the development,
marketing, licensing, maintenance and support of software products or systems
used in document automation. In addition, during that part of any Non-
Competition Period for which the Employee shall no longer be employed by the
Company, the Employee shall not solicit any customer of the Company with which
he had contact during the Employment Term. If a court determines that the
foregoing restrictions are too broad or otherwise unreasonable under applicable
law, including with respect to time or territory, the court is hereby requested
and authorized by the parties hereto to revise the foregoing restriction to
include the maximum restrictions allowable under applicable law. The term "Non-
Competition Period" means the period during which the Employee is employed by
the Company
-5-
<PAGE>
plus one year. On each anniversary of the date hereof, the parties shall attempt
in good faith to agree on a new description of the Company's business that
reflects the business in which the Company is then engaged. If the parties agree
on any such new description, such new description shall be attached hereto as
Exhibit "C" and be substituted for the description specified above in the first
sentence of this Section 7 or for such other description as may have been
previously agreed upon and attached as Exhibit "C." If the parties do not agree
upon a new description, the most recently agreed-upon description shall govern
until the parties agree upon a subsequent new description. The parties
acknowledge that the covenants not to compete and not to hire in this Section 7
is ancillary to the Merger and not ancillary to the Employee's employment by the
Company. The Employee further acknowledges that he is receiving significant
benefits as a result of the Merger.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer
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<PAGE>
or product information or technical or business information of the Company. All
such information, other than any information that is in the public domain
through no act or omission of the Employee or which he is authorized to
disclose, is referred to collectively as the "Company Information." The Employee
shall not (i) use or exploit in any manner the Company Information for himself
or any person, partnership, association, corporation or other entity other than
the Company, (ii) remove any Company Information, or any reproduction thereof,
from the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner, in each such case (A) during the
Employment Term and indefinitely thereafter with respect to any Company
Information that constitutes a "trade secret" under the Uniform Trade Secrets
Act and (B) during the Employment Term and for a period of two years thereafter
in the case of other Company Information.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
(a) The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7, 8 or 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to paragraph (b) of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
(b) Except as set forth in paragraph (a) of this Section 10 with respect
to a breach of Section 7, 8 or 9, any claim or controversy arising out of or
relating to this Agreement, or any breach thereof, or otherwise relating to
Employee's employment, compensation and benefits with the Company, or the
termination thereof, excluding unemployment and workers' compensation, shall be
settled by arbitration in Dallas, Texas, in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA") then in
effect to the extent provided herein, and except as modified herein; provided,
however, that (i) the "panel" of arbitrators as used in the AAA Rules shall
consist of a single arbitrator; (ii) the arbitrator shall be an attorney
licensed to practice law in Texas who has experience in employment matters;
(iii) the arbitrator shall be prohibited from disregarding, adding to or
modifying the terms of this Agreement; (iv) the arbitrator
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<PAGE>
shall be required to follow established principles of substantive law and the
law governing burdens of proof; (v) only legally protected rights may be
enforced in arbitration; (vi) any award must be supported by substantial record
evidence and (vii) any demand for arbitration must be filed and served, if at
all, within 180 days of the occurrence of the act or omission complained of. Any
claim or controversy not submitted to arbitration in accordance with this
Section 10(b) shall be considered waived and, thereafter, no arbitrator or
tribunal or court shall have the power to rule or make any award on any such
claim or controversy. The award rendered in any arbitration proceeding held
under this Section 10(b) shall be final and binding, and judgment upon the award
may be entered in any court having jurisdiction thereof, provided it conforms to
established principles of law and is supported by substantial record evidence.
11. Indemnification.
---------------
The Company shall indemnify the Employee (and legal representatives or
other successors) to the fullest extent permitted (including payment of expenses
in advance of final disposition of a proceeding) by the laws of the State of
Delaware, as in effect at the time of the subject act or omission, and the
Employee shall be entitled to the protection of any insurance policies the
Company may elect to maintain generally for the benefit of its directors and
officers, against all costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives at the time such costs, charges
and expenses are incurred or sustained, in connection with any action, suit or
proceeding to which he (or his legal representatives or other successors) may be
made a party by reason of his being or having been a director, officer or
employee of the Company or any subsidiary, or his serving or having served any
other enterprise as a director, officer or employee at the request of the
Company.
12. Subsequent Employment.
---------------------
The Employee's right to receive benefits under this Agreement shall not be
reduced by reason of his employment with any other employer after termination of
the Employment Term. Any compensation for services rendered or consulting fees
earned after the date of termination shall not diminish the Employee's right to
receive all amounts due hereunder. Upon termination of his employment, the
Employee shall not be obligated to provide advisory and consulting services to
the Company or its successor.
13. General.
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(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the State of Texas.
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<PAGE>
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include ISI, FSI and MicroDynamics, Ltd.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors (including any successor as a
result of a merger or similar reorganization) and assigns of the parties hereto,
except that the duties and responsibilities of the Employee hereunder are of a
personal nature and shall not be assignable in whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall
-------
be in writing and shall be deemed to have been given when personally delivered
or when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO EMPLOYEE:
Mr. Michael D. Andereck
9149 Stone Creek Place
Dallas, TX 75243
TO THE COMPANY:
DocuCorp, Inc.
5910 North Central Expressway
Suite 800
Dallas, TX 75206
Fax: (214) 891-6678
Attn.: Michael D. Andereck, President
(e) Entire Agreement; Modification. This Agreement constitutes the entire
------------------------------
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term and
--------
of the Employee's employment by the Company, this Agreement shall continue to
bind the parties for so long as any obligations remain under the terms of this
Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
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<PAGE>
(h) Severability. If any provision of this Agreement or application
-------------
thereof to anyone under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision in any other jurisdiction.
(i) Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (i) references to the plural include the singular, the singular the
plural, the part the whole, (ii) "or" has the inclusive meaning frequently
identified with the phrase "and/or," (iii) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to" and (iv) references
to "hereunder" or "herein" relate to this Agreement. The section and other
headings contained in this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection and paragraph references are to this
Agreement unless otherwise specified.
(j) Prior ISI Agreements. Any employment agreements or arrangements
--------------------
between ISI and the Employee shall terminate on the effective date of the
Merger.
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<PAGE>
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
hereunto duly executed this Agreement as of the day and year first written
above.
DOCUCORP, INC.
By:__________________________
Name:
Title:
_____________________________
MICHAEL D. ANDERECK
Agreement only as to Section 13(j)
IMAGE SCIENCES, INC.
By:__________________________
Name:
Title:
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<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health and disability insurance for the Employee, with the same
benefits generally provided to the Company's most senior executive employees
from time to time during the Employment Term.
(b) Key Man Life Insurance for the Employee in the amount of $1,000,000.
(c) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(d) Eligibility to participate in any employee stock option plan
maintained by the Company during the Employment Term.
(e) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties, including the monthly fee of a mobile telephone and
charges for any business telephone calls.
(f) Paid holidays in accordance with the Company's policies.
(g) Paid vacation of four weeks per year.
A-1
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
This Release is granted effective as of the ____ day of _______, 199_ by
Michael D. Andereck (the "Employee") in favor of DocuCorp, Inc. (the "Company").
This is the Release referred to in Section 6 of that certain Employment
Agreement dated as of January __, 1997 by and between the Company and the
Employee (the "Employment Agreement").
In consideration of the Company's promises and covenants as recited in the
Employment Agreement, with respect to which this Release is an integral part,
the Employee, for himself, his successors and assigns, now and forever, hereby
releases and discharges the Company and its officers, directors, stockholders,
employees, agents, subsidiaries, affiliates, successors, assigns, and attorneys
from any and all causes of action, suits, debts, claims, demands or liabilities,
in law or in equity, whether known or unknown or suspected to exist by the
Employee, which the Employee ever had or may now have, from the beginning of
time to the date of this Release arising from the employment relation between
the parties, including without limitations, any causes of action, suits, debts,
claims, demands or liabilities (i) in connection with any privacy right, civil
rights claim, claim for emotional and mental distress; the Employee's employment
with the Company; or the termination or that employment; or (ii) pursuant to any
federal, state, or local employment laws, regulations, executive orders, or
other requirements, including without limitation those that may relate to sex,
race or other forms of discrimination, including the Age Discrimination in
Employment Act; provided, however, that this Release covers only claims that the
Employee may have under the Age Discrimination in Employment Act as of the
effective date of this Release, but excluding from such release and discharge
any right or interest of the Employee or obligations of the Company due under or
described in the Employment Agreement pertaining to Termination, Disability or
Resignation Payments, stock options or other benefits that are contemplated
under the Employment Agreement to survive the Employment Term. Furthermore,
nothing in this Release shall modify, impair or otherwise affect any of the
Employee's rights as a stockholder or option holder of the Company.
The Employee agrees that he has carefully read this Release and is signing
it voluntarily. The Employee acknowledges that he has had twenty-one (21) days
from receipt of this Release to review it prior to signing. The Employee has the
right to revoke this release within seven (7) days from the date of its
execution by him. However, if the Employee fails to execute this Release or
revokes this Release within such seven (7) day period, no Termination Payment or
Resignation Payment, as the case may be (as such terms are defined in the
Employment Agreement), will be payable to him and he shall return to the payor
any payments thus received prior to that date.
B-1
<PAGE>
THE EMPLOYEE HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT
CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE
COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. THE EMPLOYEE
ACKNOWLEDGES THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR
OTHER ADVISOR OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT
HE IS SIGNING THIS RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE
COMPANY FROM ALL SUCH CLAIMS.
B-2
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 15th day of January, 1997 between DocuCorp,
Inc., a Delaware corporation (the "Company"), and Samuel M. Wilkes (the
"Employee").
RECITALS
--------
The Employee is currently employed as an executive officer of FormMaker
Software, Inc. ("FSI"), which is becoming a wholly-owned subsidiary of the
Company on the effective date of a merger of another wholly-owned subsidiary of
the Company into FSI (the "Merger"). The Company desires to continue the
employment of the Employee, and the Employee desires to continue to provide
services to the Company, upon the terms and conditions hereinafter set forth.
This Agreement is being entered into contemporaneously with the execution of
an Agreement and Plan of Merger between and among the Company, FSI, Image
Sciences, Inc. ("ISI"), and two wholly-owned subsidiaries of the Company (the
"Merger Agreement").
WITNESSETH:
----------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment.
----------
Effective upon the Merger, the Company hereby employs the Employee as Senior
Vice President of the Company, and the Employee hereby accepts such employment.
During the term of the Employee's employment under this Agreement (the
"Employment Term"), the Employee shall perform such duties as are assigned by
the Board of Directors of the Company (the "Board") or by the Chief Executive
Officer of the Company with respect to the business of the Company and of any of
its controlled or majority-owned subsidiaries which are consistent with his
position as Senior Vice President of the Company.
2. Performance.
-----------
The Employee shall devote substantially all of his business efforts to the
performance of his duties hereunder; provided, however, that the Employee may
devote reasonable periods of time to charitable and community activities and to
personal business and investment activities so long as they do not interfere
with the performance of his duties hereunder. Employee's place of work shall be
Atlanta, Georgia, unless otherwise agreed by him.
3. Term.
----
The Employment Term shall begin on the effective date of the Merger and
shall continue indefinitely until terminated in accordance with Sections 5 or
6.
<PAGE>
4. Compensation for Employment.
---------------------------
(a) The basic annual rate of compensation of the Employee for his employment
services to the Company during the Employment Term shall be the same amount (up
to $157,500) on an annualized basis as Employee was entitled to under the
Employment Agreement between FSI and Employee, dated December 20, 1995
immediately prior to the Merger (such amount, as adjusted in accordance with
this Section 4, is referred to herein as the "Salary"), which the Company shall
pay to the Employee in equal installments in accordance with the normal payroll
policies of the Company. The Salary may be adjusted upward on an annual basis as
the Board may approve, in its sole discretion, but the Salary shall not be
decreased. In connection with the annual review of the Salary, the Board shall
consider changes in the cost of living, the Employee's own performance, the
Company's performance and such other factors as the Board may deem appropriate.
The Board may delegate to a Compensation Committee of the Board any review or
other action to be performed by the Board under this Agreement.
(b) The Employee shall participate in any incentive compensation plan that
the Company may maintain for its top-level executives, including any bonus plan,
as the same may be in effect from time to time during the Employment Term.
(c) During the Employment Term, the Company shall provide the Employee with
fringe benefits that are substantially equivalent to the fringe benefits
specified on Exhibit "A" (the "Fringe Benefits").
(d) Pursuant to a Non-Qualified Stock Option Grant Letter dated September
30, 1996 from FSI to the Employee (the "Grant Letter"), the Employee received
options to purchase 175,000 shares of FSI's Common Stock. The Merger Agreement
provides that in exchange for these FSI options the Employee will receive
options to purchase certain shares of the Company's Class A Common Stock
("Company Options") at an exercise price that is proportionally equivalent to
the exercise price under the related FSI options. The Company shall cause the
Company Options that will be received by the Employee pursuant to the Merger
Agreement to vest at the same time and in the same manner as provided in the
Grant Letter; provided, however, that if the Employment Term continues until
October 1, 1997 or if the Employment Term is terminated by the Company without
cause prior to that date, then the Company Options that would otherwise vest and
become exercisable on January 1, 1998 pursuant to the operation of the preceding
sentence shall vest and become exercisable on October 1, 1997. The stock option
agreement between the Employee and the Company shall be no less favorable to the
Employee than the Grant Letter and shall, in any event, provide for a 2 year
exercise period for such Company Options following the termination of the
Employment Term.
-2-
<PAGE>
5. Termination Without Compensation.
--------------------------------
(a) Total Disability. If the Employee becomes totally disabled (as defined
----------------
below), the Company may terminate the Employment Term by notice to the Employee,
and as of the termination date, the Company shall have no further liability or
obligation to the Employee hereunder except as follows: the Employee shall
receive (i) any unpaid Salary and Fringe Benefits that have accrued through the
date of termination; and (ii) whatever benefits that he may be entitled to
receive under any then existing disability benefit plans of the Company,
including any such plans included in the Fringe Benefits. For the purposes
hereof, the Employee shall be deemed to be "totally disabled" if the Employee is
considered totally disabled under any group disability plan maintained by the
Company and in effect at that time, or in the absence of any such plan, under
applicable Social Security regulations. In the event of any dispute under this
Section 5(a), the Employee shall submit to a physical examination by a licensed
physician mutually satisfactory to the Company and the Employee, the cost of
such examination to be paid by the Company, and the determination of such
physician shall be determinative.
(b) Death. If the Employee dies, this Employment Agreement shall
-----
terminate on the date of death, and thereafter the Company shall not have any
further liability or obligation to the Employee or to his executors,
administrators, heirs, assigns or any other person claiming under or through him
(each, a "Legal Representative") except that the Employee's estate shall receive
any unpaid Salary and Fringe Benefits that have accrued through the date of
termination, without prejudice to any other rights or benefits to which the
Employee's estate may be entitled as a consequence of the Employee's death, such
as the proceeds from any life insurance policies that may be maintained for the
Employee's benefit from time to time.
(c) Cause. The Company may terminate the Employment Term for "cause"
-----
by giving the Employee 30 days' notice of the termination date, and as of the
termination date, the Company shall not have any further liability or obligation
to the Employee, except that the Employee shall receive any unpaid Salary and
Fringe Benefits that have accrued through the date of termination, net of any
liabilities that the Employee may have to the Company. For purposes of this
Agreement, "cause" shall mean, exclusively, (i) a material failure of the
Employee to observe or perform (other than by reason of illness, injury or
incapacity) any of the material terms or provisions of this Agreement, (ii) the
conviction of the Employee of a felony or other criminal act involving moral
turpitude, or (iii) conduct by the Employee in his office with the Company that
is grossly inappropriate, including dishonesty and misappropriation of funds, in
each case as determined by the Board acting reasonably and in good faith. In
the case of a termination for "cause," the notice of termination shall specify
the basis for the Company's determination of "cause"; provided, however, that in
the case of conduct described in clause (i) above, such conduct shall not
constitute "cause" for the purposes of this paragraph (c) unless (A) the Board
shall have given the Employee notice setting forth with specificity (1) the
conduct deemed to constitute "cause," (2) reasonable action that would remedy
the objectionable conduct, and (3) a reasonable time (not less than 30 days)
-3-
<PAGE>
within which the Employee may take such remedial action, and (B) the Employee
shall not have taken such specified remedial action within such specified
reasonable time.
6. Termination With Compensation.
-----------------------------
(a) Without Cause. The Company shall have the right to terminate the
-------------
Employment Term without cause at any time by giving the Employee 30 days' notice
of the termination date. Under such circumstances, the Company shall pay to the
Employee each month for a period of 12 months from the date of termination an
amount equal to one-twelfth of the Salary in effect immediately prior to the
notice of termination (the "Termination Payment"). As of such termination date,
the Company shall not have any further liability or obligation to the Employee
other than to pay the Termination Payment and to provide the Employee with any
unpaid Salary and Fringe Benefits that have accrued through the date of
termination. Notwithstanding the foregoing, the Company shall not be obligated
to pay the Termination Payment unless the Employee delivers a Release in the
form attached hereto as Exhibit "B."
(b) Termination for Good Reason. The Employee may terminate the Employment
---------------------------
Term at any time for "good reason" by giving the Company 30 days' notice of the
termination date. For purposes of this Agreement, "good reason" shall mean,
exclusively, a material failure of the Company to observe or perform any of the
material terms or provisions of this Agreement, including, for example, any
reduction in the Salary, the exclusion of the Employee from participation in any
new compensation or benefit arrangement generally offered to similarly situated
employees of the Company, or a reduction in the Employee's level of
responsibility, position (including office, title or reporting relationships),
authority or duties (including changes resulting from the assignment to the
Employee of any duties inconsistent with his positions, duties or
responsibilities as in effect on the date of this Agreement), in each case as
determined by the Employee acting reasonably and in good faith. The Employee's
notice of termination hereunder shall specify the basis for the Employee's
determination of "good reason"; provided, however, that the Company's conduct
shall not constitute "good reason" for the purposes of this paragraph (b) unless
(i) the Employee shall have given the Board notice setting forth with
specificity (A) the conduct deemed to constitute "good reason," (B) reasonable
action that would remedy the objectionable conduct, and (C) a reasonable time
(not less than 30 days) within which the Company may take such remedial action,
and (ii) the Company shall not have taken such specified remedial action within
such specified reasonable time. In the case of a termination for "good reason,"
the Company shall pay to the Employee each month for a period of 12 months from
the date of termination an amount equal to one-twelfth of the Salary in effect
immediately prior to the notice of termination (the "Termination Payment"). As
of such termination date, the Company shall not have any further liability or
obligation to the Employee other than to pay the Termination Payment and to
provide with the Employee with any unpaid Salary and Fringe Benefits that have
accrued through the date of termination. Notwithstanding the foregoing, the
Company shall not be obligated to pay the Termination Payment unless the
Employee delivers a Release in the form attached hereto as Exhibit "B."
-4-
<PAGE>
(c) Resignation. The Employee shall have the right to terminate the
-----------
Employment Term at any time for any reason or no reason by giving the Company 60
days' notice of the termination date. Under such circumstances, the Company
shall pay to the Employee each month for a period of six months from the date of
termination an amount equal to one-sixth of the Salary in effect immediately
prior to the notice of termination (the "Resignation Payment"). As of such
termination date, the Company shall not have any further liability or obligation
to the Employee other than to pay the Resignation Payment and to provide the
Employee with any unpaid Salary and Fringe Benefits that have accrued through
the date of termination. Notwithstanding the foregoing, the Company shall not
be obligated to pay the Resignation Payment unless the Employee delivers a
Release in the form attached hereto as Exhibit "B."
7. Agreement Not to Compete.
------------------------
During the Non-Competition Period (defined below), the Employee shall not,
within those States of the United States in which the Company conducts its
business, sells its products or services, or offers its products or services for
sale, engage, directly or indirectly, in any supervisory, managerial or other
executive-level capacity, in any business that shall be competitive with any of
those business activities in which the Company is engaged as of the date of this
Agreement, which business activities consist of the development, marketing,
licensing, maintenance, print outsourcing and support of software products or
systems used in document automation, nor shall the Employee hire any employee of
the Company or its subsidiaries or any former employee of the Company or its
subsidiaries during the six (6) months period immediately following such former
employee's termination or solicit any employee for the purpose of inducing the
employee to terminate his or her employment with the Company or its
subsidiaries. In addition, during the Non-Competition Period, the Employee shall
not within those States of the United States in which the Company conducts its
business, sells its products or services, or offers its services or products for
sale, engage, directly or indirectly, in, or have any interest on behalf of
himself or others in, any person, firm, corporation or business (whether as a
director, agent, security holder, creditor, partner, joint venturer, beneficiary
under a trust, investor, consultant or otherwise) that shall be competitive with
any of those business activities in which the Company is engaged as of the date
of this Agreement, which business activities consist of the development,
marketing, licensing, maintenance and support of software products or systems
used in document automation; provided, however, that notwithstanding the
foregoing, this provision shall not be construed to prohibit the ownership of
not more than a 5% equity interest in any entity which is engaged in any of the
foregoing business activities. The document automation business conducted by
Policy Management Systems Corporation as of the date hereof shall be deemed to
be competitive with the business activities of the Company for the purposes of
this Section 7. In addition, during that part of any Non-Competition Period for
which the Employee shall no longer be employed by the Company, the Employee
shall not solicit any customer of the Company with which he had contact during
the Employment Term. If a court determines that the foregoing restrictions are
too broad or otherwise unreasonable under applicable law, including with respect
to time or territory, the court is hereby requested and authorized by the
parties hereto to revise the foregoing restriction to include the maximum
restrictions allowable under
-5-
<PAGE>
applicable law. The term "Non-Competition Period" means the period during which
the Employee is employed by the Company plus one year. On each anniversary of
the date hereof, the parties shall attempt in good faith to agree on a new
description of the Company's business that reflects the business in which the
Company is then engaged. If the parties agree on any such new description, such
new description shall be attached hereto as Exhibit "C" and be substituted for
the description specified above in the first sentence of this Section 7 or for
such other description as may have been previously agreed upon and attached as
Exhibit "C." If the parties do not agree upon a new description, the most
recently agreed-upon description shall govern until the parties agree upon a
subsequent new description. The parties acknowledge that the covenants not to
compete and not to hire in this Section 7 is ancillary to the Merger and not
ancillary to the Employee's employment by the Company. The Employee further
acknowledges that he is receiving significant benefits as a result of the
Merger.
8. Inventions, Designs and Product Developments.
--------------------------------------------
All inventions, innovations, designs, ideas and product developments,
developed or conceived by the Employee, solely or jointly with others, whether
or not patentable or copyrightable, at any time during the Employment Term or
during his employment by the Company prior to the commencement of the Employment
Term and that relate to the actual or planned business activities of the Company
(collectively, the "Developments") and all of the Employee's right, title and
interest therein, shall be the exclusive property of the Company. The Employee
hereby assigns, transfers and conveys to the Company all of his right, title and
interest in and to any and all such Developments. The Employee shall disclose
fully, as soon as practicable and in writing, all Developments to the Board. At
any time and from time to time, upon the request of the Company, the Employee
shall execute and deliver to the Company any and all instruments, documents and
papers, give evidence and do any and all other acts that, in the opinion of
counsel for the Company, are or may be necessary or desirable to document such
transfer or to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce any and all patents, trademark registrations or
copyrights under United States or foreign law with respect to any such
Developments or to obtain any extension, validation, re-issue, continuance or
renewal of any such patent, trademark or copyright. The Company will be
responsible for the preparation of any such instruments, documents and papers
and for the prosecution of any such proceedings and will reimburse the Employee
for all reasonable expenses incurred by him in compliance with the provisions of
this Section 8.
9. Confidential Information.
------------------------
(a) The Employee has had and will have possession of or access to
confidential information relating to the business of the Company, including
writings, equipment, processes, drawings, reports, manuals, invention records,
financial information, business plans, customer lists, the identity of or other
facts relating to prospective customers, inventory lists, arrangements with
suppliers and customers, computer programs, or other material embodying trade
secrets, customer
-6-
<PAGE>
or product information or technical or business information of the Company. All
such information, other than any information that is in the public domain
through no act or omission of the Employee or which he is authorized to
disclose, is referred to collectively as the "Company Information." The Employee
shall not (i) use or exploit in any manner the Company Information for himself
or any person, partnership, association, corporation or other entity other than
the Company, (ii) remove any Company Information, or any reproduction thereof,
from the possession or control of the Company or (iii) treat Company Information
otherwise than in a confidential manner, in each such case (A) during the
Employment Term and indefinitely thereafter with respect to any Company
Information that constitutes a "trade secret" under the Georgia Trade Secrets
Act and (B) during the Employment Term and for a period of two years thereafter
in the case of other Company Information.
(b) All Company Information developed, created or maintained by the
Employee, alone or with others while employed by the Company, and all Company
Information maintained by the Employee thereafter, shall remain at all times the
exclusive property of the Company. The Employee shall return to the Company all
Company Information, and reproductions thereof, whether prepared by him or
others, that are in his possession immediately upon request and in any event
upon the completion of his employment by the Company.
10. Remedies.
--------
(a) The Employee expressly acknowledges that the remedy at law for any
breach of Sections 7, 8 or 9 will be inadequate and that upon any such breach or
threatened breach, the Company shall be entitled as a matter of right to
injunctive relief in any court of competent jurisdiction, in equity or
otherwise, and to enforce the specific performance of the Employee's obligations
under these provisions without the necessity of proving the actual damage to the
Company or the inadequacy of a legal remedy. Subject to paragraph (b) of this
Section 10, the rights conferred upon the Company by the preceding sentence
shall not be exclusive of, but shall be in addition to, any other rights or
remedies which the Company may have at law, in equity or otherwise.
(b) Except as set forth in paragraph (a) of this Section 10 with respect to
a breach of Section 7, 8 or 9, any claim or controversy arising out of or
relating to this Agreement, or any breach thereof, or otherwise relating to
Employee's employment, compensation and benefits with the Company, or the
termination thereof, excluding unemployment and workers' compensation, shall be
settled by arbitration in Atlanta, Georgia, in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association ("AAA") then in
effect to the extent provided herein, and except as modified herein; provided,
however, that (i) the "panel" of arbitrators as used in the AAA Rules shall
consist of a single arbitrator; (ii) the arbitrator shall be an attorney
licensed to practice law in Georgia who has experience in employment matters;
(iii) the arbitrator shall be prohibited from disregarding, adding to or
modifying the terms of this Agreement; (iv) the arbitrator shall be required to
follow established principles of substantive law and the law governing burdens
of proof; (v) only legally protected rights may be enforced in arbitration; (vi)
any award must be
-7-
<PAGE>
supported by substantial record evidence and (vii) any demand for arbitration
must be filed and served, if at all, within 180 days of the occurrence of the
act or omission complained of. Any claim or controversy not submitted to
arbitration in accordance with this Section 10(b) shall be considered waived
and, thereafter, no arbitrator or tribunal or court shall have the power to rule
or make any award on any such claim or controversy. The award rendered in any
arbitration proceeding held under this Section 10(b) shall be final and binding,
and judgment upon the award may be entered in any court having jurisdiction
thereof, provided it conforms to established principles of law and is supported
by substantial record evidence.
11. Indemnification.
---------------
The Company shall indemnify the Employee (and legal representatives or other
successors) to the fullest extent permitted (including payment of expenses in
advance of final disposition of a proceeding) by the laws of the State of
Delaware, as in effect at the time of the subject act or omission, and the
Employee shall be entitled to the protection of any insurance policies the
Company may elect to maintain generally for the benefit of its directors and
officers, against all costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives at the time such costs, charges
and expenses are incurred or sustained, in connection with any action, suit or
proceeding to which he (or his legal representatives or other successors) may be
made a party by reason of his being or having been a director, officer or
employee of the Company or any subsidiary, or his serving or having served any
other enterprise as a director, officer or employee at the request of the
Company.
12. Subsequent Employment.
---------------------
The Employee's right to receive benefits under this Agreement shall not be
reduced by reason of his employment with any other employer after termination of
the Employment Term. Any compensation for services rendered or consulting fees
earned after the date of termination shall not diminish the Employee's right to
receive all amounts due hereunder. Upon termination of his employment, the
Employee shall not be obligated to provide advisory and consulting services to
the Company or its successor.
13. General.
-------
(a) Governing Law. The terms of this Agreement shall be governed by the
-------------
laws of the State of Georgia.
(b) Company. For purposes of Sections 7, 8, 9 and 10, the term "Company"
-------
shall be deemed to include FSI, MicroDynamics, Ltd. and ISI.
(c) Binding Effect. All of the terms and provisions of this Agreement
--------------
shall be binding upon and inure to the benefit and be enforceable by the
respective heirs, representatives, successors
-8-
<PAGE>
(including any successor as a result of a merger or similar reorganization) and
assigns of the parties hereto, except that the duties and responsibilities of
the Employee hereunder are of a personal nature and shall not be assignable in
whole or in part by the Employee.
(d) Notices. All notices required to be given under this Agreement shall be
-------
in writing and shall be deemed to have been given when personally delivered or
when mailed by registered or certified mail, postage prepaid, return receipt
requested, or when sent by Federal Express or other overnight delivery service,
addressed as follows:
TO EMPLOYEE:
Mr. Samuel M. Wilkes
218 West Paces Ferry Road
Atlanta, GA 30305
TO THE COMPANY:
DocuCorp, Inc.
5910 North Central Expressway
Suite 800
Dallas, TX 75206
FAX: (214) 891-6678
Attention: Michael D. Andereck, President
(e) Entire Agreement; Modification. This Agreement constitutes the
------------------------------
entire agreement of the parties hereto with respect to the subject matter hereof
and may not be modified or amended in any way except in writing by the parties
hereto.
(f) Duration. Notwithstanding the termination of the Employment Term
--------
and of the Employee's employment by the Company, this Agreement shall continue
to bind the parties for so long as any obligations remain under the terms of
this Agreement.
(g) Waiver. No waiver of any breach of this Agreement shall be construed
------
to be a waiver as to succeeding breaches.
(h) Severability. If any provision of this Agreement or application thereof
-------------
to anyone under any circumstances is adjudicated to be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect any
other provisions or applications of this Agreement which can be given effect
without the invalid or unenforceable provision or application and shall not
invalidate or render unenforceable such provision in any other jurisdiction.
-9-
<PAGE>
(i) Interpretation. Unless the context of this Agreement clearly requires
--------------
otherwise, (i) references to the plural include the singular, the singular the
plural, the part the whole, (ii) "or" has the inclusive meaning frequently
identified with the phrase "and/or," (iii) "including" has the inclusive meaning
frequently identified with the phrase "but not limited to" and (iv) references
to "hereunder" or "herein" relate to this Agreement. The section and other
headings contained in this Agreement are for reference purposes only and shall
not control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection and paragraph references are to this
Agreement unless otherwise specified.
(j) Prior FSI Agreements. The Employment Agreement between FSI and the
--------------------
Employee, dated December 20, 1995, and any other employment agreements or
arrangements between FSI and the Employee shall terminate on the effective date
of the Merger.
-10-
<PAGE>
[SIGNATURE PAGE TO EMPLOYMENT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto duly executed this Agreement as of the day and year first written
above.
DOCUCORP, INC.
By:
-------------------------
Name:
Title:
----------------------------
SAMUEL M. WILKES
Agreement only as to Section 13(j)
FORMMAKER SOFTWARE, INC.
By:
------------------------------
Name:
Title:
-11-
<PAGE>
EXHIBIT A
FRINGE BENEFITS
---------------
(a) Health insurance for the Employee, with the same benefits generally
provided to the Company's most senior executive employees from time to time
during the Employment Term.
(b) Eligibility to participate in any 401(k) savings plans maintained by
the Company during the Employment Term.
(c) Automobile allowance of $540 per month.
(d) Term life insurance in an amount equal to $150,000.
(e) Eligibility to participate in any employee stock option plan maintained
by the Company during the Employment Term.
(f) Reimbursement, in accordance with the Company's policies, upon proper
accounting, of reasonable expenses and disbursements incurred by the Employee in
the course of his duties, including the monthly fee of a mobile telephone and
charges for any business telephone calls.
(g) Reimbursement of club membership dues of up to $175 per month.
(h) Paid holidays in accordance with the Company's policies.
(i) Paid vacation of three weeks per year.
(j) Disability insurance substantially similar to that in place on the date
hereof.
A-1
<PAGE>
EXHIBIT B
FORM OF RELEASE
---------------
This Release is granted effective as of the ____ day of _______, 199_ by
Samuel M. Wilkes (the "Employee") in favor of DocuCorp, Inc. (the "Company").
This is the Release referred to in Section 6 of that certain Employment
Agreement dated as of January __, 1997 by and between the Company and the
Employee (the "Employment Agreement").
In consideration of the Company's promises and covenants as recited in the
Employment Agreement, with respect to which this Release is an integral part,
the Employee, for himself, his successors and assigns, now and forever, hereby
releases and discharges the Company and its officers, directors, stockholders,
employees, agents, subsidiaries, affiliates, successors, assigns, and attorneys
from any and all causes of action, suits, debts, claims, demands or liabilities,
in law or in equity, whether known or unknown or suspected to exist by the
Employee, which the Employee ever had or may now have, from the beginning of
time to the date of this Release arising from the employment relation between
the parties, including without limitations, any causes of action, suits, debts,
claims, demands or liabilities (i) in connection with any privacy right, civil
rights claim, claim for emotional and mental distress; the Employee's employment
with the Company; or the termination or that employment; or (ii) pursuant to any
federal, state, or local employment laws, regulations, executive orders, or
other requirements, including without limitation those that may relate to sex,
race or other forms of discrimination, including the Age Discrimination in
Employment Act; provided, however, that this Release covers only claims that the
Employee may have under the Age Discrimination in Employment Act as of the
effective date of this Release, but excluding from such release and discharge
any right or interest of Employee or obligations of the Company due under or
described in the Employment Agreement pertaining to Termination or Resignation
Payments, Stock Options or other benefits that are contemplated under the
Employment Agreement to survive the employment term. Furthermore, nothing in
this Release shall modify, impair or otherwise affect any of the Employee's
rights as a shareholder or option holder of the Company.
The Employee agrees that he has carefully read this Release and is signing
it voluntarily. The Employee acknowledges that he has had twenty-one (21) days
from receipt of this Release to review it prior to signing. The Employee has
the right to revoke this release within seven (7) days from the date of its
execution by him. However, if the Employee fails to execute this Release or
revokes this Release within such seven (7) day period, no Termination Payment or
Resignation Payment, as the case may be (as such terms are defined in the
Employment Agreement), will be payable to him and he shall return to the payor
any payments thus received prior to that date.
A-2
<PAGE>
THE EMPLOYEE HAS CAREFULLY READ THIS RELEASE AND ACKNOWLEDGES THAT IT
CONSTITUTES A GENERAL RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE
COMPANY UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT. THE EMPLOYEE
ACKNOWLEDGES THAT HE HAS HAD A FULL OPPORTUNITY TO CONSULT WITH AN ATTORNEY OR
OTHER ADVISOR OF HIS CHOOSING CONCERNING HIS EXECUTION OF THIS RELEASE AND THAT
HE IS SIGNING THIS RELEASE VOLUNTARILY AND WITH THE FULL INTENT OF RELEASING THE
COMPANY FROM ALL SUCH CLAIMS.
A-3
<PAGE>
EXHIBIT 10.10
CREDIT AGREEMENT
Dated as of December 20, 1995
By and Between
FormMaker Software, Inc.
and
NationsBank of Georgia, National Association
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
1. DEFINITIONS AND ACCOUNTING MATTERS........................................1
1.1 Certain Defined Terms...............................................1
1.2 Accounting Terms and Determinations................................14
2. LOANS....................................................................15
2.1 Amount of Loans....................................................15
2.2 Borrowings.........................................................15
2.3 Repayment of Loans.................................................16
2.4 Interest...........................................................16
2.5 Voluntary Reductions of Commitment.................................19
2.6 Continuation and Conversion of Loans...............................19
2.7 Minimum Amounts....................................................20
2.8 Fees...............................................................20
2.9 Note...............................................................20
2.10 Optional Prepayments...............................................21
2.11 Mandatory Prepayments of Loans.....................................21
2.12 Conversion to Term Loan............................................21
2.13 Use of Proceeds....................................................22
3. PAYMENTS; COMPUTATIONS; TAXES; ETC.......................................22
3.1 Payments...........................................................22
3.2 Computations.......................................................22
3.3 Certain Notices....................................................22
3.4 Taxes..............................................................23
3.5 Additional Costs...................................................24
3.6 Limitation on Types of Loans.......................................26
3.7 Illegality.........................................................26
3.8 Treatment of Affected Loans........................................26
3.9 Compensation.......................................................27
4. CONDITIONS PRECEDENT.....................................................27
4.1 Initial Loans......................................................27
4.3. Conditions to Acquisitions.........................................32
4.4 Closing Documents for Non-Significant Acquisitions.................34
5. REPRESENTATIONS AND WARRANTIES...........................................36
5.1 Corporate Existence................................................36
5.2 Authorization; No Conflict.........................................36
5.3 Enforceability.....................................................37
5.4 Approvals..........................................................37
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
5.5 Financial Condition................................................37
5.6 Litigation.........................................................38
5.7 Federal Reserve Regulations........................................38
5.8 ERISA..............................................................38
5.9 Taxes..............................................................39
5.10 Investment Company Act.............................................39
5.11 Public Utility Holding Company Act.................................40
5.12 Material Agreements................................................40
5.13 Environmental and Safety Matters...................................40
5.14 Subsidiaries.......................................................41
5.15 Compliance with Law................................................41
5.16 Capitalization.....................................................41
5.17 Title to Properties................................................41
5.18 Solvency...........................................................41
5.19 Conduct of Business................................................41
5.20 Representations and Warranties in Acquisition Documents
and Investment.....................................................42
5.21 Performance of Contracts, Etc......................................42
5.22 Disclosure.........................................................42
5.23 Representations Regarding Acquisitions.............................42
6. AFFIRMATIVE COVENANTS....................................................43
6.1 Financial Statements and Other Information.........................43
6.2 Litigation.........................................................46
6.3 Corporate Existence, Etc...........................................46
6.4 Insurance..........................................................47
6.5 Obligations and Taxes..............................................47
6.6 Maintaining Records; Access to Properties and Inspections..........47
6.7 Environmental and Safety Matters...................................48
6.8 Additional Security................................................48
6.9 Deposit Accounts/Cash Management Service...........................48
6.10 Change in Management Group.........................................49
6.11 Enforcement of Remedies under Acquisition Documents................49
7. NEGATIVE COVENANTS.......................................................49
7.1 Prohibition of Fundamental Changes.................................49
7.2 Limitation on Liens................................................50
7.3 Indebtedness and Guarantees........................................50
7.4 Investments........................................................50
7.5 Restricted Payments................................................50
7.6 Accounting.........................................................50
7.7 Amendment of Certain Documents.....................................50
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
8. EVENTS OF DEFAULT........................................................51
8.1 Payments under Credit Documents....................................51
8.2 Other Indebtedness.................................................51
8.3 Representations and Warranties.....................................51
8.4 Other Obligations..................................................51
8.5 Ability to Pay Debts...............................................52
8.6 Voluntary Proceedings..............................................52
8.7 Involuntary Proceedings............................................52
8.8 Judgments..........................................................52
8.9 ERISA Event........................................................53
8.10 Change in Control..................................................53
8.11 Interest Expense Coverage..........................................54
8.12 Certain Actions by Guarantors......................................54
8.13 Guarantor Credit Agreement.........................................54
9. MISCELLANEOUS............................................................55
9.1 Waiver.............................................................55
9.2 Notices............................................................55
9.3 Expenses, Etc......................................................56
9.4 Amendments, Etc....................................................57
9.5 Successors and Assigns.............................................57
9.6 Assignments and Participations.....................................57
9.7 Survival...........................................................58
9.8 Table of Contents: Descriptive Headings............................58
9.9 Counterparts.......................................................58
9.10 Governing Law......................................................58
9.11 Arbitration........................................................58
9.12 Acknowledgments....................................................59
9.13 Confidentiality....................................................59
9.14 Obligations with Respect to Loan Parties...........................60
</TABLE>
EXHIBITS:
Exhibit A Form of Guaranty
Exhibit B Form of Security Agreement
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Notice of Continuation
Exhibit E Form of Notice of Conversion
Exhibit F Form of Acquisition Note
Exhibit G Form of Opinion of Counsel to Company
Exhibit H Form of Opinion of Counsel to Guarantor
-iii-
<PAGE>
SCHEDULES:
Schedule 5.1. Corporate Existence
Schedule 5.6. Litigation
Schedule 5.8. ERISA
Schedule 5.9. Taxes
Schedule 5.12. Material Agreements
Schedule 5.16. Capitalization
Schedule 5.17. Title to Properties
Schedule 7.3. Indebtedness
-iv-
<PAGE>
CREDIT AGREEMENT (this "Agreement") dated as of December 20, 1995 by and
between FORMMAKER SOFTWARE, INC., a Georgia corporation (the "Company") and
NATIONSBANK OF GEORGIA, NATIONAL ASSOCIATION (the "Lender").
The Company has requested that the Lender make certain loans to the
Company in an aggregate principal amount up to but not exceeding $10,000,000 at
any one time outstanding, and the Lender is willing to make such loans upon the
terms hereof and subject to the conditions contained herein.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
1. DEFINITIONS AND ACCOUNTING MATTERS
1.1 Certain Defined Terms
As used herein, the following terms shall have the following meanings (all
terms defined in this Section or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and vice versa):
"Acquisition" shall mean, with respect to a Seller, the acquisition by the
-----------
Company directly, or indirectly through any of its Subsidiaries, of
substantially all of the assets of, assets constituting a distinct operating
division of, or the outstanding capital stock of, such Seller as contemplated by
the applicable Acquisition Documents.
"Acquisition Commitment" shall mean the obligation of the Lender to make
----------------------
Acquisition Loans in an aggregate principal amount at any one time outstanding
up to but not exceeding $10,000,000, as the same may be reduced from time to
time pursuant to the terms hereof.
"Acquisition Documents" shall mean, with respect to an Acquisition,
---------------------
collectively, the Purchase Agreement for such Seller and all related agreements
and conveyance instruments executed in connection therewith or pursuant thereto.
"Adjusted LIBO Rate" shall mean, with respect to each Interest Period for
------------------
any LIBOR Loan, the rate obtained by dividing (a) LIBOR for such Interest Period
by (b) a percentage equal to I minus the stated maximum rate (stated as a
decimal) of all reserves, if any, required to be maintained against
"Eurocurrency liabilities" as specified in Regulation D of the Board of
Governors of the Federal Reserve System (or against any other category of
liabilities which includes deposits by reference to which the interest rate on
LIBOR Loans is determined or any category of extensions of credit or other
assets which includes loans by an office of the Lender outside of the United
States of America to residents of the United States of America).
"Affiliate" shall mean, as to any Person, any other Person which directly
---------
or indirectly
<PAGE>
controls, or is under common control with, or is controlled by, such Person and,
if such Person is an individual, any member of the immediate family (including
parents, spouse and children) of such individual, any trust whose principal
beneficiary is such individual or one or more members of such individual's
immediate family and any Person who is controlled by any such member or trust.
As used in this definition, "control" (including, with its correlative meanings,
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
management or policies of the subject Person (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise); provided that, in any event, any Person which owns directly or
--------
indirectly 5% or more of the securities having ordinary voting power for the
election of directors or other governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed an Affiliate of such
corporation or other Person. The term "Affiliate" shall include Policy
Management Systems Corp. only if it is such by virtue of the immediately
preceding proviso.
"Applicable Law" shall mean all applicable provisions of constitutions,
--------------
statutes, rules, regulations and orders of all governmental bodies and all
orders, rulings and decrees of all courts and arbitrators.
"Applicable Lending Office" shall mean, for the Lender, 600 Peachtree
-------------------------
Street, 19th Floor, Atlanta, Georgia 30308 or such other office of the Lender
(or of an affiliate of the Lender) in the United States of America as the Lender
may from time to time specify in writing to the Company as the office by which
the Loans are to be made and maintained.
"Assignment of Acquisition Documents" shall mean each assignment of fights
-----------------------------------
under Acquisition Documents executed by any Loan Party in favor of the Lender
after the Closing Date pursuant to Section 4.3., each such assignment to be in
form and substance satisfactory to the Lender.
"Bankruptcy Code" means the United States Bankruptcy Code of 1978, as
---------------
amended from time to time, or any successor federal statute.
"Base Rate" shall mean, for any day, the higher of (a) the Federal Funds
---------
Rate for such day plus 1/2 of 1% per annum and (b) the Prime Rate for such day.
Each change in any interest rate provided for herein resulting from a change in
the Base Rate shall take effect at the time of such change in the Base Rate. If
for any reason the Lender shall have determined that it is unable to ascertain
the Federal Funds Rate for such day, including, without limitation, the
inability or failure of the Lender to obtain sufficient bids or publications as
contemplated by the definition of the Federal Funds Rate, the Base Rate for such
day shall be the Prime Rate,
"Base Rate Loan" shall mean a Loan which bears interest at a rate based on
--------------
the Base Rate.
-2-
<PAGE>
"Business Day" shall mean (a) any day other than a Saturday, Sunday or
------------
other day on which commercial banks are authorized or required to close in
Atlanta, Georgia and (b) with reference to a LIBOR Loan, any such day that is
also a day on which dealings in Dollar deposits are carried out in the London
interbank market.
"Capitalized Lease Obligation" means Indebtedness represented by
----------------------------
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with such principles.
"Closing Date" shall mean the date upon which the conditions precedent to
------------
the initial extension of credit hereunder set forth in Article 4. have been
satisfied and the initial extension of credit hereunder made, but in no event
later than December 29, 1995.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time, or any successor statute.
"Collateral" means any collateral security hereafter pledged by any Loan
---------
Party to secure the Obligations or any portion thereof.
"Commitment" means the Lender's obligation, subject to the terms hereof,
----------
to make Acquisition Loans pursuant to Section 2.1. in an amount up to, but not
exceeding, the amount of the Acquisition Commitment.
"Consolidated Subsidiary" shall mean, as to any Person, each Subsidiary of
-----------------------
such Person (whether now existing or hereafter created or acquired) the
financial statements of which are required to be consolidated with the financial
statements of such Person in accordance with GAAP.
"Continue", "Continuation" and "Continued" each refers to the continuation
-------- ------------ ---------
of a LIBOR Loan from one Interest Period to the next Interest Period pursuant to
Section 2.6.(a).
"Control Group" shall mean the Guarantors.
-------------
"Convert", "Conversion" and "Converted" each refers to the conversion of a
------- ---------- ---------
Loan of one Type into a Loan of another Type pursuant to Section 2.6.(b).
"Credit Documents" shall mean, collectively, this Agreement, the Note, the
----------------
Guaranty, the Security Documents, and any other documents and instruments
executed and delivered by any Loan Party or any Guarantor in connection with
this Agreement or any of the foregoing documents.
"Credit Facility" shall mean the credit facility for Loans extended by the
---------------
Lender to the
-3-
<PAGE>
Company under this Agreement,
"Default" shall mean an Event of Default or an event which with notice or
-------
lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"Employee Benefit Plan" shall mean any employee benefit plan within the
---------------------
meaning of Section 3(3) of ERISA maintained or contributed to by any Loan Party
or any of its ERISA Affiliates, other than a Multi-employer Plan.
"Environmental Claim" shall mean, with respect to any Person, any notice,
-------------------
claim, demand or other communication (whether written or oral) alleging or
asserting such Person's liability for investigatory costs, cleanup costs,
governmental response costs, damages to natural resources or other property,
personal injuries, fines or penalties arising out of, based on or resulting from
(a) the presence, handling, generation, treatment, storage, disposal, Release or
threatened Release into the environment of any Hazardous Material at any
location, whether or not owned by such Person, or (b) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" shall mean any and all federal, state, local and
------------------
foreign statutes, laws, regulations, ordinances and similar provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and common law concerning public
health or safety, worker health or safety or pollution or protection of the
environment, including without limitation those relating to any emissions,
discharges or Releases of Hazardous Materials to ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, control, clean-up or
handling of Hazardous Materials.
"Equity Investment" means the investment in the Company by the Guarantors
-----------------
contemplated by the Investment Documents.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, or any successor statute.
"ERISA Affiliate" of any Person shall mean any corporation or trade or
---------------
business which is a member of the same controlled group of corporations (within
the meaning of Section 414(b) of the Code) as such Person or which is under
common control (within the meaning of Section 414(c) of the Code) with such
Person.
"ERISA Event" with respect to any Person shall mean (a) the occurrence of
-----------
a reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Plan of such Person or any of its ERISA Affiliates, unless the 30-day notice
requirement with respect to such event has
-4-
<PAGE>
been waived by the PBGC; (b) the provision by the administrator of any Plan of
such Person or any of its ERISA Affiliates of a notice of intent to terminate
such Plan pursuant to Section 4041 (a)(2) of ERISA (including any such notice
with respect to a plan amendment referred to in Section 4041(a)(2) of ERISA);
(c) the cessation of operations at a facility of such Person or any of its ERISA
Affiliates in the circumstances described in Section 4062(e) of ERISA with
respect to a Plan; (d) the withdrawal by such Person or any of its ERISA
Affiliates from a Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by such
Person or any of its ERISA Affiliates to make a payment to a Plan required under
Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of such
Person or any of its ERISA Affiliates requiring the provision of security to
such Plan pursuant to Section 307 of ERISA; or (g) the institution by the PBGC
of proceedings to terminate a Plan of such Person or any of its ERISA Affiliates
pursuant to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that could constitute grounds for the
termination of, or the appointment of a trustee to administer, such Plan.
"Federal Funds Rate" shall mean, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest 1/16 of 1%) equal to the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such
day, provided that (i) if the day for which such rate is to be determined is not
a Business Day, the Federal Funds Rate for such day shall be the Federal Funds
Rate for the immediately preceding Business Day, and (ii) if such rate is not so
published for any Business Day, the Federal Funds Rate for such day shall be the
average rate charged by three federal funds brokers of recognized standing
selected by the Lender on such day for such transactions as determined by the
Lender.
"GAAP" shall mean generally accepted accounting principles applied in the
----
United States of America and practices which are recognized as such by the
American Institute of Certified Public Accountants, applied on a basis
consistent with those which, in accordance with Section 1.2.(a), are to be used
in making the calculations for purposes of determining compliance with the terms
of this Agreement.
"Governmental Approvals" shall mean all authorizations, consents,
----------------------
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all Governmental Authorities.
"Governmental Authority" shall mean any federal, state, local or foreign
----------------------
court or governmental agency, authority, instrumentality or regulatory body.
"Guarantee" shall mean a guarantee, an endorsement, a contingent agreement
---------
to purchase or to furnish funds for the payment or maintenance of, or otherwise
to be or become contingently liable under or with respect to, any Indebtedness
or other obligations, net worth, working capital or earnings of any Person, or a
guarantee of the payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell or lease (as
lessee or
-5-
<PAGE>
lessor) property, products, materials, supplies or services primarily for the
purpose of enabling a debtor to make payment of its obligations or an agreement
to assure a creditor against loss, and including, without limitation, causing a
bank to issue a letter of credit for the benefit of another Person, but
excluding endorsements for collection or deposit in the ordinary course of
business. Usage of the term "Guarantee" as a verb shall have a corresponding
meaning.
"Guarantor" shall mean each of (a) Safeguard Scientifics (Delaware), Inc.,
---------
a Delaware corporation; (b) Technology Leaders II L.P., a Delaware limited
partnership and (c) Technology Leaders II OFFSHORE C.V., a Netherlands Antilles
limited partnership.
"Guarantor Credit Agreement" shall mean that certain Second Amended and
--------------------------
Restated Credit Agreement dated as of February 1, 1995, as amended as of
August __, 1995, by and among the Safeguard Scientific, Inc., Safeguard
Scientific (Delaware), Inc. and Midlantic Bank, N.A.
"Guaranty" shall mean each of (a) the Guaranty substantially in the form
--------
of Exhibit A executed by a Guarantor in favor of the Lender and (b) a guaranty
executed by a Loan Party in favor of the Lender after the Closing Date pursuant
to Section 4.3. by which such Loan Party Guarantees payment and performance of
all of the Obligations, such guaranty to be in form and substance satisfactory
to the Lender.
"Hazardous Materials" shall mean all or any of the following: (a)
-------------------
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Environmental Laws as "hazardous substances" "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "TLCP" toxicity, "EP toxicity"; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; and (d) asbestos in any form or (e) electrical equipment which
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million.
"Indebtedness" shall mean, without duplication, as to any Person (a)
------------
indebtedness created, issued or incurred by such Person for borrowed money
(whether by loan or the issuance or sale of debt securities) whether or not
recourse is limited to specific assets of such Person; (b) obligations of such
Person to pay the deferred purchase or acquisition price of property or
services, other than trade accounts payable arising in the ordinary course of
business so long as such trade accounts payable are not for borrowed money;
(c) Indebtedness of others secured by a Lien on the property of such Person,
whether or not the Indebtedness so secured has been assumed by such Person;
(d) reimbursement obligations of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for the account of such Person; (e) Capitalized Lease Obligations of such
Person; and (f) Indebtedness
-6-
<PAGE>
of others Guaranteed by such Person.
"Insufficiency" shall mean, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"Interest Expense" shall mean for any period of computation thereof, cash
----------------
interest expense attributable to Indebtedness for money borrowed (including
without limitation, Capitalized Lease Obligations) of the Company and its
Consolidated Subsidiaries actually paid during such period.
"Interest Period" shall mean with respect to any LIBOR Loan, the period
---------------
commencing on the date of the borrowing, Conversion or Continuation of such Loan
and ending on the last day of the period selected by the Company pursuant to the
provisions below. The duration of each Interest Period shall be one, two or
three months, in each case as the Company may, in an appropriate Notice of
Borrowing, Notice of Continuation or Notice of Conversion, select. In no event
shall an Interest Period of a Loan extend beyond the Termination Date. Whenever
the last day of any Interest Period would otherwise occur on a day other than a
Business Day, the last day of such Interest Period shall be extended to occur on
the next succeeding Business Day; provided, however, that if such extension
-------- -------
would cause the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the next
preceding Business Day.
"Inventory" shall mean (a) all inventory of the Company and all goods
---------
intended for sale or lease by the Company, (b) all work-in-process, (c) all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, packing, shipping,
selling or furnishing of such goods or otherwise used or consumed in the
business of the Company, and (d) all documents relating to any of the foregoing.
"Investment" in any Person shall mean (a) the acquisition (whether for
----------
cash, property, services or securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of, or any contribution to the capital of, such Person(b) any deposit with, or
advance, loan or other extension of credit to, such Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person (other than any such deposit, advance, loan, extension of credit or
commitment representing (i) the purchase price of inventory or supplies sold in
the ordinary course of business or (ii) a deposit for, or prepayment of, rents
or utilities made in the ordinary course of business); or (c) any Guarantee of,
or other contingent obligation with respect to, Indebtedness or other liability
of such Person.
"Investment Documents" means (a) the Stock Purchase Agreement and (b) the
--------------------
other Transaction Documents (as defined in such Stock Purchase Agreement).
"LIBOR" shall mean, with respect to any Interest Period and a LIBOR Loan,
-----
the offered
-7-
<PAGE>
rate per annum in the London interbank market for deposits in Dollars of amounts
equal or comparable to the principal amount of such LIBOR Loan offered for a
term comparable to such Interest Period, as currently shown on the Reuters
Screen LIBOR page as of 11:00 a.m., Greenwich Mean Time, two Business Days
prior to the first day of such Interest Period; provided, however, that (a) if
--------
more than one offered rate as described above appears on the Reuters Screen
LIBOR page, the rate used to determine LIBOR will be the arithmetic average
(rounded upward, if necessary, to the next higher 1/16 of 1%) of such offered
rates, or (b) if no such offered rates appear, the rate used for such Interest
Period will be the arithmetic average (rounded upward, if necessary, to the next
higher 1/16 of 1 %) of rates quoted by the Lender at approximately 10: 00 a.m.,
New York time, two Business Days prior to the first day of such Interest Period
for deposits in Dollars offered to leading European banks for a period
comparable to such Interest Period in an amount comparable to the principal
amount of such LIBOR Loan. If the Lender ceases to use the Reuters Screen LIBOR
page for determining interest rates based on eurodollar deposit rates, a
comparable internationally recognized interest rate reporting service shall be
used to determine such offered rates.
"LIBOR Loan" shall mean a Loan bearing interest at a rate based on LIBOR.
----------
"Lien" shall mean, as applied to the property of any Person, (a) any
----
security interest, encumbrance, mortgage, deed to secure debt, deed of trust,
pledge, lien, charge or lease constituting a Capitalized Lease Obligation,
conditional sale or other title retention agreement, or other security title or
encumbrance of any kind in respect of any property of such Person, or upon the
income or profits therefrom; (b) any arrangement, express or implied, under
which any property of such Person is transferred, sequestered or otherwise
identified for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to the payment of the
general, unsecured creditors of such Person; and (c) the filing of, or any
agreement to give, any financing statement under the Uniform Commercial Code or
its equivalent in any jurisdiction.
"Loan Party" means each of the Company, its Subsidiaries and each Person
----------
(other than the Guarantors) who Guarantees all or a portion of the Obligations
and/or who grants a Lien in any of the Collateral to secure all or a portion of
the Obligations. The term "Loan Party" shall not include the Guarantors.
"Loans" shall mean, collectively, the Acquisition Loans and the
-----
Acquisition Term Loan.
"Management Group" shall mean Samuel M. Wilkes, Joe A. Rose, Hsi-Ming Lin
----------------
and R. Lee Morris.
"Material Adverse Effect" shall mean any event, circumstance or condition
-----------------------
that, individually or when aggregated with all other similar events,
circumstances or conditions, could reasonably be expected to have a material
adverse effect on (a) the business, property, assets, liabilities, condition
(financial or otherwise), operations, results of operations or prospects of (i)
-8-
<PAGE>
the Company and its Subsidiaries taken as a whole or (ii) any Guarantor; (b) the
ability of the Company, any other Loan Party or any Guarantor to perform its
obligations under any of the Credit Documents to which it is a party; (c) the
validity or enforceability of any of the Credit Documents; or (d) the rights and
remedies of the Lender under any of the Credit Documents.
"Material Contract" shall mean, with respect to the Company and the other
-----------------
Loan Parties, any, contract, agreement or binding understanding or arrangement
(whether or not in written form) the termination or loss of which could
reasonably be expected to have a Material Adverse Effect.
"Mid-Size Acquisition" shall mean any Acquisition in which the aggregate
--------------------
amount of consideration payable by the Company and its Subsidiaries in
connection therewith is less than $3,000,000 but greater than or equal to
$1,000,000. For purposes of this definition, such consideration shall include,
but not be limited to, the types of consideration described in the definition of
"Significant Acquisition".
"Multiemployer Plan" of any Person shall mean a multiemployer plan defined
------------------
as such in Section 3(37) of ERISA to which contributions have been made by such
Person or any ERISA Affiliate of such Person and which is covered by Title IV of
ERISA.
"New Subsidiary" means, with respect to an Acquisition, any Subsidiary of
--------------
the Company formed in connection with, and for the purpose of effecting, such
Acquisition. If all of the outstanding capital stock of a Seller is being
acquired by the Company or any of its Subsidiaries in connection with an
Acquisition, then such Seller shall also constitute a New Subsidiary.
"Note" shall mean the Acquisition Note.
----
"Operating Account" shall mean account number 325-164-1140 maintained by
-----------------
the Company with the Lender, or such other account as the Company and the Lender
may designate as the "Operating Account."
"Obligations" shall mean, individually and collectively:
-----------
(a) the Acquisition Loans and the Acquisition Term Loan;
(b) all other obligations and indebtedness of the Company owing to the
Lender of every kind, nature and description, under or with respect to this
Agreement, the Note or any of the other Credit Documents, whether direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any note;
(c) all other obligations and indebtedness owing by the Company to the
Lender and all future advances made to the Company by the Lender, however and
whenever created, arising or evidenced, whether direct or indirect, through
assignment from third parties, whether absolute
-9-
<PAGE>
or contingent, or otherwise, now or hereafter existing, or due or to become due,
including, without limitation, obligations under all guaranties, letters of
credit and overdrafts- and
(d) any and all renewals, modifications, extensions and supplements to
any of the foregoing.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Investments" of any Person shall mean: (a) direct obligations
---------------------
of the United States of America or of any agency thereof, or obligations
guaranteed as to principal and interest by the United States of America or of
any agency thereof, in either case maturing not more than 90 days from the date
of acquisition thereof by such Person; (b) time deposits or certificates of
deposit issued by any bank or trust company organized under the laws of the
United States of America or any state thereof and having capital, surplus and
undivided profits of at least $200,000,000, maturing not more than 90 days from
the date of acquisition thereof by such Person; and (c) commercial paper having
the highest rating from Standard & Poor's Rating Group, a division of McGraw-
Hill, Inc. or Moody's Investors Services, Inc. maturing not more than 90 days
from the date of acquisition thereof by such Person.
"Permitted Liens" shall mean:
---------------
(a) Liens created pursuant to the Security Documents;
(b) Liens imposed by any Governmental Authority for taxes, assessments
or charges not yet due or which are being contested in accordance with
Section 6.5.;
(c) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business not yet delinquent
or which are being contested in accordance with Section 6.5.;
(d) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(e) deposits to secure the performance of bids, trade contracts (other
than a trade contract which constitutes Indebtedness), leases (other than
Capitalized Lease Obligations), statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) easements, rights-of-way, zoning restrictions and other similar
encumbrances of record on real property incurred in the ordinary course of
business which, in the aggregate, are not material in dollar amount, and which
do not in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
-10-
<PAGE>
Company or any of the other Loan Parties;
(g) Liens existing on the date hereof and disclosed on Schedule 5.17.
hereto; and
(h) Purchase Money Liens securing Indebtedness of the Company permitted
under Section 7.3.(c).
"Person" shall mean an individual, corporation, partnership, limited
------
liability company, association, trust or unincorporated organization, or a
government or any agency or political subdivision thereof
"Plan" of the Company or any of the other Loan Parties shall mean an
----
employee benefit or other plan established or maintained by such Person or any
ERISA Affiliate of such Person and which is covered by Title IV of ERISA, other
than a Multiemployer Plan of such Person.
"Pledge Agreement" shall mean each pledge agreement entered into between a
----------------
Loan Party and the Lender after the Closing Date pursuant to Section 4.3. by
which such Loan Party grants to the Lender a Lien in all capital stock of each
Subsidiary directly owned by such Loan Party, such pledge agreement to be in
form and substance satisfactory to the Lender.
"Prime Rate" shall mean the rate of interest from time to time announced by
----------
the Lender in Atlanta, Georgia as its prime commercial lending rate. The Prime
Rate is not necessarily intended to be the lowest rate of interest determined by
the Lender in connection with extensions of credit.
"Purchase Agreement" shall mean, with respect to an Acquisition, the asset
------------------
purchase agreement, stock purchase agreement or other primary agreement to which
the Company and/or one or more of its Subsidiaries is a party and pursuant to
which the Company or such Subsidiary or Subsidiaries is acquiring substantially
all of the assets, assets constituting a distinct operating division, or the
outstanding capital stock, of the Seller that is the target of such Acquisition.
"Purchase Money Lien" shall mean a Lien on any fixed asset or equipment
-------------------
(and any intangible assets associated therewith) acquired after the date hereof,
provided, however, that: (a) such Lien attaches only to the property being
- -------- -------
acquired; (b) the Indebtedness incurred in connection with such acquisition
shall not exceed the purchase price of such property and (c) such Lien shall
secure only such Indebtedness.
"Regulations D, G, T, U and X" shall mean, respectively, Regulations D, G,
----------------------------
T, U and X of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to the Lender, any change
-----------------
enacted or adopted after the date of this Agreement in United States Federal,
state or foreign law or
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<PAGE>
regulations (including, without limitation, Regulation D) or the adoption or
publication after the date of this Agreement of any interpretations, directives
or requests (whether or not having the force of law) applying to a class of
banks including the Lender of or under any United States Federal, state or
foreign law or regulations by any court or governmental or monetary authority
charged with the interpretation or administration thereof
"Release" shall mean any "release" as such term is defined in 42 U.S.C.
-------
(S)9601(22), or any successor federal statute or analogous state law.
"Restricted Payment" shall mean (a) dividends by or on behalf of a Loan
------------------
Party on, or other payments or distributions on account of or with respect to,
or the setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of capital stock of such Loan Party, or (b) any prepayment by a Loan Party
of principal, optional redemption, purchase, retirement prior to stated
maturity, defeasance, or similar optional prepayment with respect to any
Indebtedness for borrowed money other than the Loans.
"Revolving Termination Date" shall mean December 20, 1997.
--------------------------
"Security Documents" shall mean (a) the Security Agreement dated as of the
------------------
date hereof by and between the Company and the Lender and (b) each security
agreement entered into between a Loan Party and the Lender after the Closing
Date pursuant to Section 4.3., in each case, substantially in the form of
Exhibit B.
"Security Documents" shall mean, collectively, the Security Agreements, the
------------------
Pledge Agreements, the Assignments of Acquisition Documents, each of the UCC
financing statements naming a Loan Party as debtor and the Lender as secured
party and covering the Collateral, and any other security documents executed and
delivered to the Lender. by a Loan Party.
"Seller" shall mean the Person being acquired in an Acquisition.
------
"Significant Acquisition" shall mean any Acquisition in which the aggregate
-----------------------
amount of consideration payable by the Company and its Subsidiaries in
connection therewith equals or exceeds $3,000,000. For purposes of this
definition, such consideration shall include (without duplication), but shall
not be limited to, the following: (a) the amount of cash paid, together with
the fair market value of all other assets (excluding assets of the type
described in the following clause (b)) conveyed, by the Company and its
Subsidiaries in consideration for such Acquisition; (b) the fair market value of
all capital stock, warrants and options to acquire capital stock, of the Company
conveyed by the Company in consideration for such Acquisition; (c) the aggregate
amount of Indebtedness acquired, incurred or assumed by the Company and its
Subsidiaries in connection with such Acquisition; (d) all amounts paid or to be
paid by the Company and its Subsidiaries in respect of any covenant not to
compete granted in connection with such Acquisition and accruing to the benefit
of any New Subsidiary or other Loan Party; (e) the
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<PAGE>
aggregate capitalized amount of consulting or other similar fees or payments to
be paid by such New Subsidiary or other Loan Party to a Seller or any Affiliate
of such Seller in connection with, or as a result of, such Acquisition; (f) the
aggregate amount of earn-out payments, similar payments or other contingent
obligations required to be made by the Company and its Subsidiaries in
connection with such Acquisition and which payments or other obligations are to
be capitalized by the Company and its Subsidiaries and (g) the amount of all
transaction fees and expenses (including, without limitation, legal, accounting
and brokers' fees and expenses) incurred by the Company and its Subsidiaries in
connection with such Acquisition.
"Small Acquisition" shall mean any Acquisition that is not a Significant
-----------------
Acquisition nor a Mid-Size Acquisition.
"Solvent" shall mean, when used with respect to any Person, that (a) the
-------
fair value and the fair salable value of its assets (excluding any Indebtedness
due from any Affiliate of such Person) are each in excess of the fair valuation
of its total liabilities (including all contingent liabilities)and (b) such
Person is able to pay its debts or other obligations in the ordinary course as
they mature and (c) the Person has capital not unreasonably small to carry on
its business and all business in which it proposes to be engaged.
"Stock Purchase Agreement" shall mean that certain Stock Purchase Agreement
------------------------
dated as of November 15, 1995 by and among Safeguard Scientifics (Delaware),
Inc., Technology Leaders II L.P., Technology Leaders II OFFSHORE C.V., the
Company and certain stockholders of the Company.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership, association or other business entity of which more than 50% of the
total voting power of shares of stock (or equivalent ownership or controlling
interest) entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or any combination thereof
"Termination Date" shall mean December 20, 1999.
----------------
"Transactions" shall mean (a) the making of the Loans hereunder, (b) any
------------
Acquisition, (c) the Equity Investment, (d) the execution and delivery of each
of the Credit Documents, the Investment Documents and the Acquisition Documents
and (e) the consummation of all of the other transactions contemplated by the
Credit Documents, the Investment Documents and the Acquisition Documents.
"Type" with respect to a Loan, refers to whether such Loan is a LIBOR Loan
or a Base Rate Loan.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time
---
in the
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<PAGE>
State of Georgia.
"Wholly-Owned Subsidiary" of a Person shall mean any corporation,
-----------------------
association or other business entity of which 100% of the outstanding shares of
all classes of capital stock or other ownership interests is at the time owned
directly or indirectly by, such Person or one or more of the other Wholly-Owned
Subsidiaries of such Person or a combination thereof.
In addition to the above definitions, the following terms are defined in
this Agreement on the indicated pages:
<TABLE>
<CAPTION>
<S> <C>
Acquisition Date................................................ 29
Acquisition Historical Financial Statements..................... 29
Acquisition Loans............................................... 14
Acquisition Note................................................ 18
Acquisition Projected Financial Statements...................... 30
Acquisition Term Loan........................................... 19
Additional Costs................................................ 22
Change in Control............................................... 49
Default Rate.................................................... 16
Event of Default................................................ 46
General Partner................................................. 26
Historical Financial Statements................................. 27
Margin Stock.................................................... 35
Notice of Borrowing............................................. 14
Notice of Continuation.......................................... 17
Notice of Conversion............................................ 17
Other Taxes..................................................... 21
Pro Forma Opening Balance Sheet................................. 27
Projected Financial Statements.................................. 42
SSD............................................................. 26
Taxes........................................................... 21
TL Offshore..................................................... 26
TLII............................................................ 26
TLIIM........................................................... 26
</TABLE>
1.2 Accounting Terms and Determinations
(a) Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, all calculations for purposes of determining
compliance with the terms of this Agreement shall be made, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lender hereunder shall be prepared in accordance with GAAP
applied for all periods to the extent practicable on a basis consistent with
that used in the preparation of the Historical Financial Statements, so as to
present fairly the
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<PAGE>
financial condition and the results of operations of the applicable Person. In
the event of a change in GAAP that is applicable to the Company, compliance with
the financial covenants contained herein shall continue to be determined in
accordance with GAAP as in effect prior to such change; provided, however, that
the Company and the Lender will thereafter negotiate in good faith to revise
such covenants to the extent necessary to conform such covenants to GAAP as then
in effect.
(b) To enable the ready and consistent determination of compliance with
the covenants set forth in Article 7. and Article 8., the Company will not,
without the prior written consent of the Lender, change the last day of its
fiscal year from December 31 of each year or the last days of the first three
fiscal quarters in each of its fiscal years from the last day in March, June and
September of each year, respectively.
(c) All terms defined in the UCC and not otherwise defined herein are used
herein as defined in the UCC. References in this Agreement to "Sections",
"Articles", "Exhibits" and "Schedules" are to sections, articles, exhibits and
schedules herein and hereto unless otherwise indicated. References in this
Agreement to any document, instrument or agreement (i) shall include all
exhibits, schedules and other attachments thereto, (ii) shall include all
documents, instruments or agreements issued or executed in replacement thereof,
and (iii) shall mean such document, instrument or agreement, or replacement or
predecessor thereto, as amended, modified or supplemented from time to time and
in effect at any given time.
2. LOANS
2.1 Amount of Loans
The Lender agrees, on the terms and subject to the conditions contained
herein, to make loans to the Company during the period from and including the
Closing Date to but excluding the Revolving Termination Date in an aggregate
principal amount at any one time outstanding of up to but not exceeding the
Acquisition Commitment (such Loans being herein called "Acquisition Loans").
During the period from and including the Closing Date to but excluding the
Revolving Termination Date and subject to the terms contained herein, the
Company may borrow, repay and reborrow the Acquisition Loans.
2.2 Borrowings
(a) The Company shall give the Lender notice of each borrowing of a Loan
hereunder as provided in Section 3.3., which notice when given shall be
irrevocable. Each notice of borrowing (which shall be in the form of Exhibit C,
each a "Notice of Borrowing") shall specify:(a) the requested amount of such
Loan; (b) the proposed use of the proceeds of such Loan; (c) the date such Loan
is to be made; and (d) in the case of a Loan which is initially to be a LIBOR
Loan, the initial Interest Period therefor. Not later than 2:00 p.m. (Atlanta,
Georgia time) on the date specified for each borrowing hereunder, the Lender
shall make the amount of the
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<PAGE>
Loan available to the Company by depositing the same, in immediately available
funds, in an account of the Company maintained at the Applicable Lending Office.
(b) At 5:00 p.m. on each Business Day the Company shall be deemed to have
requested that the Lender make to the Company an Acquisition Loan in an amount
equal to the amount by which drafts against the Operating Account exceed the
available balance contained therein at such time. The Lender shall make the
proceeds of each such Loan available to the Company by depositing such proceeds
into the Operating Account. Loans advance to the Company under this subsection
may initially be only Base Rate Loans. The provisions of this subsection and of
Section 2.1 I.(b) shall not become effective until the Company has executed and
delivered the Lender's customary documentation relating to its "Auto Borrow" and
"Auto Sweep" programs.
2.3 Repayment of Loans
(a) Acquisition Loans. On the Revolving Termination Date, the aggregate
-----------------
principal amount of all Acquisition Loans then outstanding and that has not been
converted into the Acquisition Term Loan pursuant to Section 2.12. shall be due
and payable in full.
(b) Acquisition Term Loan. The principal balance of the Acquisition Term
---------------------
Loan shall be repaid in 24 consecutive monthly installments due and payable on
the first day of each calendar month commencing with the first such day
following the Revolving Termination Date. The first 23 such installments shall
each be in an amount equal to 1/36th of the initial principal balance of the
Acquisition Term Loan and the final installment shall be equal to the remaining
principal balance of the Acquisition Term Loan. Notwithstanding the foregoing,
on the Termination Date, the principal amount of the Acquisition Term Loan then
outstanding shall be due and payable in full. The Company may request the
Lender to extend the initial maturity date of the Acquisition Term Loan for an
additional twelve-month period by delivering to the Lender at least 120 days but
no more than 150 days prior to the Termination Date, a written request for such
extension. The Company acknowledges that the Lender has not promised (either
expressly or impliedly), nor does the Lender have any obligation or commitment
whatsoever, to extend the maturity date of the Acquisition Term Loan. If the
Lender, in its sole and absolute discretion, consents to such an extension, the
Lender shall evidence such consent and the extension of the maturity date of the
Acquisition Term Loan by delivering to the Company, no later than the date 60
days prior to the Termination Date, a letter evidencing such extension. If the
Lender does not deliver such written direction in accordance with the preceding
sentence, such failure shall be deemed a denial of the Company's request for
such extension.
2.4 Interest
(a) The Company agrees to pay to the Lender in accordance with Section
3.2. interest on the unpaid principal amount of each Loan for the period from
and including the date of such Loan to but excluding the date such Loan shall be
paid in full, at the following per annum rates:
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<PAGE>
(i) during the periods that such Loan is a Base Rate Loan, at the
Base Rate (as in effect from time to time);
(ii) during the periods that such Loan is a LIBOR Loan, for each
Interest Period relating thereto, at the Adjusted LIBO Rate for such Loan
for such Interest Period plus two percent (2.0%); and
(iii) in the case of the Acquisition Term Loan if the Company has
given the Lender written notice (which notice shall be irrevocable once
given) that the Company has elected that the Acquisition Term Loan bear
interest at a fixed rate, at a fixed per annum rate equal to the prevailing
yield reported in the Wall Street Journal as of the date of receipt by the
Lender of such notice, as the yield, based on the "bid" price, for actively
traded United States Treasury securities with a maturity comparable in
duration to the period from the date of receipt by the Lender of such
notice to the Termination Date plus (B) two and one-half of one percent
----
(2.5%). Once the Company has elected that the Acquisition Term Loan bear
interest at the fixed rate provided under this clause (iii), such Loan may
not bear interest as provided in the preceding clauses (i) and (ii).
Accrued interest on each Loan shall be payable (i) in the case of a Base
Rate Loan or the Acquisition Term Loan, monthly in arrears on the last Business
Day of each calendar month; (ii) in the case of a LIBOR Loan, on the last day of
each Interest Period thereof, (iii) in the case of each Loan, upon the payment
or prepayment thereof or the Conversion of such Loan to a Loan of another Type
(but only on the principal amount so paid, prepaid or Converted) and (iv) in the
case of each Loan, on the Revolving Termination Date and on the Termination
Date.
(b) If an Event of Default shall have occurred and be continuing, the
Company agrees to pay to the Lender interest, for the period such Event of
Default is continuing, on the unpaid principal amount of each Loan (and, to the
extent permitted by law, on the unpaid amount of all interest, fees and other
amounts payable hereunder or under the Credit Documents that is not paid when
due) at a rate per annum (the "Default Rate") equal at all times to 3% per annum
above the rate per annum required to be paid on such Loans pursuant to Section
2.4.(a).
(c) In no event shall the amount of interest due or payable on the Loans
exceed the maximum rate of interest allowed by Applicable Law and, in the event
any such payment is paid by the Company or received by the Lender, then such
excess sum shall be credited as a payment of principal, unless the Company shall
notify the Lender in writing that the Company elects to have such excess sum
returned to it forthwith. It is the express intent of the parties hereto that
the Company not pay and the Lender not receive, directly or indirectly, in any
manner whatsoever, interest in excess of that which may be lawfully paid by the
Company under Applicable Law.
(d) THE PARTIES HERETO HEREBY AGREE AND STIPULATE THAT TEE ONLY CHARGE
IMPOSED UPON THE COMPANY FOR THE USE OF MONEY IN
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<PAGE>
CONNECTION WITH THIS AGREEMENT IS AND SHALL BE THE INTEREST DESCRIBED IN SECTION
2.4. (a) THE PARTIES HERETO FURTHER AGREE AND STIPULATE THAT ALL OTHER CHARGES
IMPOSED BY THE LENDER ON THE COMPANY IN CONNECTION WITH THIS AGREEMENT,
INCLUDING ALL COMMITMENT FEES, FACILITY FEES, UNDERWRITING FEES, DEFAULT
CHARGES, LATE CHARGES, ATTORNEYS' FEES AND REIMBURSEMENT FOR COSTS AND EXPENSES
PAID BY THE LENDER TO THIRD PARTIES OR FOR DAMAGES INCURRED BY THE LENDER, ARE
CHARGES MADE TO COMPENSATE THE LENDER FOR UNDERWRITING OR ADMINISTRATIVE
SERVICES AND COSTS OR LOSSES PERFORMED OR INCURRED, AND TO BE PERFORMED OR
INCURRED, BY THE LENDER IN CONNECTION WITH THIS AGREEMENT AND SHALL UNDER NO
CIRCUMSTANCES BE DEEMED TO BE CHARGES FOR THE USE OF MONEY PURSUANT TO OFFICIAL
CODE OF GEORGIA ANNOTATED SECTION 7-4-2 AND 7-4-18. ALL CHARGES OTHER THAN
CHARGES FOR THE USE OF MONEY SHALL BE FULLY EARNED AND NONREFUNDABLE WHEN DUE.
2.5 Voluntary Reductions of Commitment
The Company shall have the right to terminate or reduce the amount of the
Acquisition Commitment at any time or from time to time; provided that: (i) the
Company shall give notice of each such termination or reduction as provided in
Section 3.3., which notice when given shall be irrevocable and (ii) each partial
reduction shall be in an aggregate amount at least equal to $100,000 or an
integral multiple of $100,000 in excess thereof. The Acquisition Commitment
once terminated or reduced may not be reinstated or increased.
2.6 Continuation and Conversion of Loans
(a) So long as no Default or Event of Default shall have occurred and be
continuing, the Company may on any Business Day, with respect to any LIBOR Loan,
elect to maintain such LIBOR Loan or any portion thereof as a LIBOR Loan by
selecting a new Interest Period for such LIBOR Loan or portion. Each new
Interest Period selected under this Section shall commence on the last day of
the immediately preceding Interest Period. Each selection of a new Interest
Period shall be made by the Company's giving of a notice in the form of Exhibit
D (a "Notice of Continuation") within the time prescribed by Section 3.3. Such
notice by the Company of a Continuation shall specify (a) the effective date of
such Continuation, (b) the LIBOR Loan and portion thereof subject to such
Continuation and (c) the duration of the selected Interest Period, all of which
shall be specified in such manner as is necessary to comply with all limitations
on Loans outstanding hereunder. If the Company shall fail to select in a timely
manner a new Interest Period for any LIBOR Loan in accordance with this Section,
such Loan will automatically, on the last day of the current Interest Period
therefor, Convert into a Base Rate Loan notwithstanding failure of the Company
to comply with the immediately following subsection (b).
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<PAGE>
(b) So long as no Default or Event of Default shall have occurred and be
continuing, the Company may on any Business Day, upon the Company's giving of a
notice in the form of Exhibit E (a "Notice of Conversion"), Convert all or a
portion of a Loan of one Type into a Loan of another Type. In connection with
any Conversion of a LIBOR Loan into a Base Rate Loan on a day other than the
last day of an Interest Period for such LIBOR Loan the Company as a condition to
such Conversion shall pay all amounts contemplated by Section 3.9. Each such
Notice of Conversion shall be given within the time prescribed by Section 3.3.
Subject to the restrictions specified above, each Notice of Conversion shall
specify (a) the requested date of such Conversion, (b) the Type of Loan to be
Converted, (c) the portion of such Type of Loan to be Converted, (d) the Type of
Loan such Loan is to be Converted into and (e) if such Conversion is into a
LIBOR Loan, the requested duration of the initial Interest Period of such Loan.
(c) No more than six separate Interest Periods in respect of LIBOR Loans
may be outstanding at any one time.
2.7 Minimum Amounts
Except for Conversions or prepayments made pursuant to Section 3.8., (a)
each borrowing of LIBOR Loans (including a Continuation of, or Conversion into,
LIBOR Loans) shall be in an amount at least equal to $1,000,000 and integral
multiples of $500,000 in excess thereof, (b) each borrowing of Base Rate Loans
(including a Continuation of, or Conversion into, Base Rate Loans) shall be in
an amount at least equal to $250,000 and integral multiples of $5,000 in excess
thereof, and (c) each voluntary prepayment of Loans shall be in an amount at
least equal to $100,000 and integral multiples thereof (borrowings, prepayments
or Conversions of Loans into Loans of different Types or, in the case of LIBOR
Loans, having different Interest Periods, shall be deemed to be separate
borrowings, prepayments or Conversions for purposes of the foregoing, one for
each Type or Interest Period).
2.8 Fees
(a) The Company shall pay to the Lender on January 2, 1996 a fee on the
Commitment in the amount of $25,000, representing one-quarter of one percent
(0.25%) of the Commitment.
(b) If during any calendar month the daily average unused amount of the
Acquisition Commitment for such month shall be less than an amount equal to 35%
of the Acquisition Commitment, then the Company shall pay to the Lender, during
the period beginning of the first day of the following month through the last
day of the month in which the daily average unused amount of the Acquisition
Commitment for such month shall first equal or exceed such amount, a fee on the
daily average unused amount of the Acquisition Commitment at a per annum rate,
computed in accordance with Section 3.2., equal to three-eighths of one percent
(0.375%). Accrued unused commitment fees shall be payable monthly in arrears on
the first Business Day of each month.
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<PAGE>
(c) All fees shall be fully earned and non-refundable upon receipt.
2.9 Note
(a) The Acquisition Loans and the Acquisition Term Loan shall be evidenced
by a single promissory note (the "Acquisition Note") to be executed by the
----------------
Company in substantially the form of Exhibit F, dated the date hereof, payable
to the Lender in a principal amount equal to the amount of the Acquisition
Commitment as originally in effect and otherwise duly completed.
(b) The date and amount of each Loan made by the Lender to the Company,
and each payment made on account of the principal thereof, shall be recorded by
the Lender on its books and, prior to any transfer of the Note evidencing such
Loans held by it, endorsed by the Lender on the schedule attached to the Note or
any continuation thereof, provided that the failure of the Lender to make any
such recordation or endorsement shall not affect the obligations of the Company
to make a payment when due of any amount owing under the Note. Any such
recordations or endorsements made by the Lender on its books or the Note shall
be conclusive and binding. on the Company absent manifest error.
2.10 Optional Prepayments
The Company shall have the right to prepay Loans in whole or in part at any
time or from time to time, without premium or penalty, except that in connection
with any prepayment of LIBOR Loans on a day other than the last day of the
Interest Period applicable thereto or the prepayment of the Acquisition Term
Loan while it bears interest at a fixed rate as provided in Section 2.4.(a)(iii)
on a day other than the Termination Date, the Company as a condition to such
prepayment shall pay all amounts contemplated by Section 3.9. in connection with
such prepayment. Optional prepayments of the Acquisition Term Loan shall be
applied to reduce scheduled repayments of such Loan in inverse order of
maturity.
2.11 Mandatory Prepayments of Loans
(a) Loans in Excess of Commitment. If at any time the aggregate amount of
-----------------------------
Loans outstanding shall exceed the amount of the Acquisition Commitment in
effect at such time, the Company shall, within one Business Day, prepay the
Loans in such amounts as shall be necessary to eliminate such excess.
(b) Sweep of Operating Account. At 5:00 p.m. of each Business Day, the
--------------------------
Company shall repay a principal amount of Acquisition Loans by an amount equal
to the positive balance, if any, of available funds on deposit in the Operating
Account as determined by the Lender at such time. The Company hereby authorizes
the Lender to deduct such amount from the Operating Account without notice to
the Company, and to apply such amount in repayment of the then outstanding
principal balance of Loans. Neither the provisions of Section 2.7. nor 3.3.
shall apply to repayments made pursuant to this subsection.
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<PAGE>
2.12 Conversion to Term Loan
Subject to the terms and conditions of this Agreement, the Company may
elect to convert the aggregate principal amount of Acquisition Loans outstanding
on the Revolving Termination Date into a single term loan (the "Acquisition Term
Loan") provided (a) the Company has given the Lender thirty-days' prior notice
of the Company's intention to so convert the Acquisition Loans and (b) the
conditions set forth in Section 4.2. have been satisfied as of the date such
conversion.
2.13 Use of Proceeds
The Company may use the proceeds of Acquisition Loans to finance
Acquisitions, for working capital purposes and for other general corporate
purposes.
3. PAYMENTS; COMPUTATIONS; TAXES; ETC.
3.1 Payments
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement and the Note and, except to the extent otherwise provided therein, all
payments to be made by the Company under any other Credit Document, shall be
made in Dollars, in immediately available funds, without deduction, setoff or
counterclaim, to the Lender at its Applicable Lending Office, not later than
12:00 noon Atlanta time on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding Business Day).
(b) The Company shall, at the time of making each payment under this
Agreement or the Note, specify to the Lender the Loans or other Obligations to
which such payment is to be applied (and in the event that it fails to so
specify, or if an Event of Default has occurred and is continuing, the Lender
may apply such payment to the Loans in such manner as it may determine to be
appropriate).
(c) If the due date of any payment under this Agreement or the Note would
otherwise fall on a day which is not a Business Day, such date shall be extended
to the next succeeding Business Day and interest shall be payable for any
principal so extended for the period of such extension.
3.2 Computations
Interest on Loans and commitment fees shall be computed on the basis of a
year of 360 days comprised of twelve thirty-day months for the actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which such amounts are payable.
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3.3 Certain Notices
Notwithstanding anything contained in Section 9.2. to the contrary, Notices
of Borrowings, of optional terminations or reductions of the Acquisition
Commitment, optional prepayments of Loans, Notices of Conversion and Notices of
Continuations shall be irrevocable and shall be effective only if received by
the Lender in writing not later than 12:00 noon Atlanta, Georgia time on the
number of Business Days prior to the date of the relevant optional termination,
reduction, borrowing, Continuation, Conversion or prepayment specified below:
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Initial Borrowing on Closing Date 1
Subsequent Borrowing of Base Rate Loans Same Day
Subsequent Borrowing of LIBOR Loans 3
Notice of Conversion to a LIBOR Loan 3
Notice of Conversion to a Base Rate Loan 1
Notice of Continuation 3
Termination or reduction of Commitment 2
Prepayment of Loans 1
</TABLE>
Subject to Section 2.5., each such notice of optional termination or
reduction of the Acquisition Commitment shall specify the amount of the
Acquisition Commitment to be terminated or reduced. Each notice of borrowing,
Conversion or optional prepayment shall specify the Type of Loans to be
borrowed, Converted or prepaid and the amount of each Loan to be borrowed,
Converted or prepaid and the date thereof (which shall be a Business Day).
3.4 Taxes
(a) Any and all payments by the Company hereunder shall be paid (except to
the extent required by law) free and clear of and without deduction for any and
all present or future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto, excluding franchise
taxes and taxes based on net income imposed on the Lender by the United States
(or any political subdivision thereof) in which the Lender has its Applicable
Lending Office (all such nonexcluded taxes, levies, imposts, deductions,
charges, withholdings and
-22-
<PAGE>
liabilities being hereinafter referred to as "Taxes"). If the Company shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Lender (i) the sum payable by the Company shall be increased by
the amount necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 3.4.) the
Lender shall receive an amount equal to the sum it would have received had no
such deductions been made, (ii) the Company shall make such deductions, and
(iii) the Company shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with Applicable Law.
(b) In addition, the Company agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Credit Document (hereinafter referred to as "Other Taxes").
(c) The Company will indemnify the Lender for the full amount of Taxes and
Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 3.4.) paid by the Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Such indemnification shall be made within five Business Days after
the date of receipt of a written demand therefor from the Lender.
(d) Within 30 days after the date of any payment of Taxes or Other Taxes
withheld by the Company in respect of any payment to the Lender, the Company
will furnish to the Lender, at its address referred to in Section 9.2., the
original or a certified copy of a receipt evidencing payment thereof.
(e) If the Lender claims any additional amounts payable pursuant to this
Section, the Lender shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document reasonably
requested by the Company if the making of such a filing would avoid the need for
or reduce the amount of any such additional amounts which may thereafter accrue
and would not, in the sole determination of the Lender, be otherwise
disadvantageous to the Lender.
3.5 Additional Costs
(a) Events Entitling the Lender to Receive Compensation. The Company
---------------------------------------------------
shall pay directly to the Lender from time to time such amounts as the Lender
may determine in good faith to be necessary to compensate it for any costs which
it determines are attributable to its making or maintaining any Loans or its
obligation to make any Loans hereunder, or any reduction in any amount
receivable by the Lender hereunder in respect of any of such Loans or such
obligation (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs") resulting from any Regulatory Change which:
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<PAGE>
(i) changes the basis of taxation of any amounts payable to the
Lender under this Agreement or its Note in respect of any of such Loans
(other than taxes imposed on or measured by the overall net income of the
Lender or of its Applicable Lending Office for any of such Loans by the
jurisdiction in which the Lender has its Applicable Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, the Lender (including any of
such Loans or any deposits referred to in the definition of "LIBOR" in
Section 1.1.), or any commitment of the Lender (including the Commitment)
hereunder.
(b) Determination of Amount of Compensation. Without limiting the effect
---------------------------------------
of the foregoing provisions of this Section 3.5. (but without duplication), the
Company shall pay directly to the Lender from time to time on request such
amounts as the Lender may determine to be necessary to compensate the Lender
(or, without duplication, the bank holding company of which the Lender is a
subsidiary) for any increased costs which it determines in good faith are
attributable to the maintenance by the Lender (or any Applicable Lending Office
or such bank holding company) of capital in respect of the Commitment or Loans
pursuant to any law or regulation or any interpretation, directive or request
(whether or not having the force of law) of any court or governmental or
monetary authority (i) following any Regulatory Change or (ii) implementing any
risk-based capital guideline or requirement (whether or not having the force of
law and whether or not the failure to comply therewith would be unlawful)
hereafter issued by any government or governmental or supervisory authority
implementing at the national level the Base Accord (including, without
limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of
the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225,
Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the
Comptroller of the Currency (12 CFR Part 3, Appendix A)), such compensation to
include, without limitation, an amount equal to any reduction of the rate of
return on assets or equity of the Lender (or any Applicable Lending Office or
such bank holding company) to a level below that which the Lender (or any
Applicable Lending Office or such bank holding company) could have achieved but
for such law, regulation, interpretation, directive or request. For purposes of
this Section 3.5.(b), "Base Accord" shall mean the proposals for risk-based
capital framework described by the Base Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
(c) Notice of the Occurrence of an Event Entitling Lender to Compensation.
---------------------------------------------------------------------
The Lender shall notify the Company of any event occurring after the date of
this Agreement that will entitle the Lender to compensation under Section
3.5.(a) or (b) as promptly as practicable and shall furnish to the Company a
certificate setting forth the basis and amount of each request by the Lender for
compensation, together with calculations in reasonable detail of such amount.
Determinations and allocations by the Lender for purposes of this Section 3.5.
of the effect of
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<PAGE>
any Regulatory Change pursuant to Section 3.5.(a), of the effect of capital
maintained pursuant to Section 3.5.(b) on its costs or rate of return of
maintaining Loans or its obligation to make Loans or on amounts receivable by it
in respect of Loans, and of the amounts required to compensate the Lender under
this Section, shall be made in a manner consistent with that applied by the
Lender in similar contexts and shall be conclusive in the absence of manifest
error.
3.6 Limitation on Types of Loans
Anything herein to the contrary notwithstanding, if on or prior to the
determination of LIBOR for any Interest Period the Lender determines (which
determination shall be conclusive) that:
(a) quotations of interest rates for the relevant deposits referred to
in the definition of "LIBOR" are not being provided in the relevant amounts
or for the relevant maturities for purposes of determining rates of
interest for LIBOR Loans as provided herein; or
(b) the relevant rates of interest referred to in the definition of
LIBOR in this Agreement upon the basis of which the rate of interest for
LIBOR Loans for such Interest Period is to be determined are not likely to
adequately cover the cost to the Lender of making or maintaining LIBOR
Loans for such Interest Period;
then the Lender shall give the Company notice thereof, and so long as such
condition remains in effect, the Lender shall be under no obligation to make
additional LIBOR Loans, to Continue LIBOR Loans or to Convert Base Rate Loans
into LIBOR Loans, and the Company shall, on the last day(s) of the then-current
Interest Period(s) for the outstanding LIBOR Loans, either prepay such Loans or
Convert such Loans into Base Rate Loans in accordance with Section 2.6.
3.7 Illegality
Notwithstanding any other provision of this Agreement, if it becomes
unlawful for the Lender to honor its obligation to make or maintain LIBOR Loans
hereunder, then the Lender shall promptly notify the Company thereof and the
Lender's obligation to make or Continue, or to Convert Base Rate Loans into,
LIBOR Loans shall be suspended until such time as the Lender may again make and
maintain LIBOR Loans.
3.8 Treatment of Affected Loans
If the obligation of the Lender to make, Continue or Convert Base Rate
Loans into LIBOR Loans shall be suspended pursuant to either of the immediately
preceding Sections, all outstanding LIBOR Loans shall be automatically Converted
into Base Rate Loans on the last day(s) of the current Interest Period(s) for
such LIBOR Loans (or, in the case of a Conversion required by Sections 3.6. or
3.7., on such earlier date as the Lender may specify to the Company)
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<PAGE>
and, unless and until the Lender gives notice as provided below that the
circumstances specified in Sections 3.6. or 3.7. which gave rise to such
Conversion no longer exist:
(a) to the extent that any LIBOR Loans have been so Converted, all
payments and prepayments of principal which would otherwise be applied to
such LIBOR Loans shall be applied instead to the Base Rate Loans; and
(b) all Loans which would otherwise be made or Continued as LIBOR Loans
shall be made or Continued instead as Base Rate Loans and all Base Rate
Loans which would otherwise be Converted into LIBOR Loans shall remain as
Base Rate Loans.
If the Lender gives notice to the Company that the circumstances specified
in Sections 3.6. or 3.7. which gave rise to the Conversion of LIBOR Loans
pursuant to this Section no longer exist at a time when LIBOR Loans are
outstanding, the Lender's Base Rate Loans shall be automatically Converted, at
the option of the Company.
3.9 Compensation
The Company shall pay the Lender such amount or amounts as shall be
sufficient to compensate the Lender for any loss, cost, or expense which the
Lender determines in good faith is attributable to: (a) any payment, prepayment
or Conversion of a LIBOR Loan for any reason (including, without limitation, the
acceleration of the Loans pursuant to Article 8.) on a date other than the last
day of the Interest Period for such Loan; (b) any prepayment of the Acquisition
Term Loan while it bears interest at a fixed rate as provided in Section
2.4.(a)(iii) for any reason (including, without limitation, the acceleration of
the Loans pursuant to Article 8.) on a date other than the Termination Date; or
(c) any failure by the Company for any reason, including without limitation, the
failure of any of the conditions precedent specified in Article 4. to be
satisfied, to (i) borrow a LIBOR Loan from the Lender on the date for such
borrowing specified in the relevant Notice of Borrowing given pursuant to
Section 2.2.(a) or (ii) to convert the Acquisition Loans into the Acquisition
Term Loan pursuant to Section 2.12. after giving the Lender notice of such
conversion. Without limiting the effect of the preceding sentence, such
compensation shall include with respect to a LIBOR Loan an amount equal to the
excess, if any, of (i) the amount of interest which otherwise would have accrued
on the principal amount so paid, prepaid or Converted or not borrowed for the
period from the date of such payment, prepayment, Conversion or failure to
borrow to the last day of the then-current Interest Period for such Loan (or, in
the case of a failure to borrow, the Interest Period for such Loan which would
have commenced on the date specified for such borrowing) at the applicable rate
of interest for such Loan provided for herein over (ii) the amount of interest
which would otherwise have accrued on such principal amount at a rate per annum
equal to the sum of (x) the Adjusted LIBO Rate which would apply to a LIBOR Loan
having a principal amount equal to or comparable to such principal amount and
with maturities comparable to such period (as determined in good faith by the
Lender) plus (y) two percent (2.0%).
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<PAGE>
4. CONDITIONS PRECEDENT
4.1 Initial Loans
The obligation of the Lender to make the initial Loans hereunder on the
Closing Date is subject to the following conditions:
(a) Corporate Documents. The Lender shall have received the following
-------------------
documents, each certified as indicated below:
(i) a copy of the charter, as amended, of the Company, certified as
of a recent date by the Secretary of State of the jurisdiction of its
formation, and a certificate as of a recent date from such Secretary of
State as to the good standing of the Company;
(ii) a certificate as of a recent date from the Secretary of State of
each state in which the Company is required to qualify to do business as a
foreign corporation to the effect that the Company is so qualified;
(iii) a certificate of the secretary of the Company, dated the Closing
Date and certifying (A) that attached thereto is a true and complete copy
of such Loan Party's by laws as in effect on the date of such certificate,
(B) that attached thereto is a true and complete copy of resolutions duly
adopted by such Loan Party's board of directors authorizing the execution,
delivery and performance of each of the Credit Documents to which such Loan
Party is a party, and that such resolutions have not been modified,
rescinded or amended and are in full force and effect, (C) that such Loan
Party's charter has not been amended since the date of the certification
thereto furnished pursuant to subsection (i) above, and (D) as to the
incumbency and specimen signature of each of such Loan Party's officers
executing each of the Credit Documents to which the Company is a party (and
the Lender may conclusively rely on such certificate until the Lender
receives notice in writing from such Loan Party, to the contrary);
(iv) a certificate of another officer of such Loan Party as to the
incumbency and specimen signature of the secretary of such Loan Party;
(v) a copy of the charter, as amended, of Safeguard Scientifics
(Delaware), Inc. ("SSD") certified as of a recent date by the Secretary of
State of the jurisdiction of its formation, and a certificate as of a
recent date from such Secretary of State as to the good standing of SSD;
(vi) a certificate of the secretary of SSD, dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of SSD's
by-laws as in effect on the date of such certificate, (B) that attached
thereto is a true and complete copy of resolutions duly adopted by SSD's
board of directors authorizing the execution, delivery and performance of
each of the
-27-
<PAGE>
Credit Documents to which SSD is a party, and that such resolutions have not
been modified, rescinded or amended and are in full force and effect, (C) that
SSD's charter has not been amended since the date of the certification thereto
furnished pursuant to subsection (v) above, and (D) as to the incumbency and
specimen signature of each of SSD's officers executing each of the Credit
Documents to which SSD is a party (and the Lender may conclusively rely on such
certificate until the Lender receives notice in writing from SSD, to the
contrary);
(vii) a certificate of another officer of SSD as to the incumbency and
specimen signature of the secretary of SSD;
(viii) a copy of the certificate of limited partnership (or other
analogous public document), as amended, of each of Technology Leaders II
L.P. ("TLII"), Technology Leaders II OFFSHORE C.V. ("TL Offshore") and
Technology Leaders 11 Management L.P. ("TLIIM"), certified as of a recent
date by the appropriate Governmental Authority;
(ix) a copy of the partnership agreement, as amended, of each of
TLII, TL Offshore and TLIIM, certified as true, correct and complete by the
secretary of Technology Leaders Management, Inc. (the "General Partner");
(x) a copy of the charter, as amended, of the General Partner
certified as of a recent date by the Secretary of State of the jurisdiction
of its formation, and a certificate as of a recent date from such Secretary
of State as to the good standing of the General Partner;
(xi) a certificate of the secretary of the General Partner, dated the
Closing Date and certifying (A) that attached thereto is a true and
complete copy of the General Partner's by-laws as in effect on the date of
such certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by the General Partner's board of directors
authorizing the execution, delivery and performance by the General Partner
on behalf of TLII, TL Offshore or TLIIM of each of the Credit Documents to
which TLII, TL Offshore or TLIIM is a party, and that such resolutions have
not been modified, rescinded or amended and are in full force and effect,
(C) that the General Partner's charter has not been amended since the date
of the certification thereto furnished pursuant to subsection (x) above,
and (D) as to the incumbency and specimen signature of each of the General
Partner's officers executing on behalf of TLII, TL Offshore or TLIIM each
of such Credit Documents (and the Lender may conclusively rely on such
certificate until the Lender receives notice in writing from the General
Partner, to the contrary);
(xii) a certificate of another officer of the General Partner as to
the incumbency and specimen signature of the secretary of the General
Partner;
(b) Note. The Lender shall have received the Acquisition Note, duly
----
completed and executed by the Company.
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<PAGE>
(c) Opinions of Counsel. The Lender shall have received the opinion of
-------------------
(i) Arnall, Golden & Gregory, counsel to the Company, substantially in the form
of Exhibit G and (ii) Morgan, Lewis & Bockius, counsel to the Guarantors,
substantially in the form of Exhibit H.
(d) Insurance. The Lender shall have received certificates of insurance
---------
evidencing the existence of all insurance required to be maintained by each Loan
Party pursuant to the Credit Documents to which it is a party and Section 6.4.
hereof, together with loss payable clauses as required by such Credit Documents.
In addition, the Company shall have delivered a certificate of the chief
financial officer of the Company stating that such insurance is in full force
and effect and that all premiums then due and payable thereon have been paid.
(e) Historical Financial Statements. The Lender shall have received the
-------------------------------
following in form and substance satisfactory to the Lender: (i) the respective
audited consolidated balance sheets and statements of operations and cash flows
of the Company and of each Guarantor for the fiscal year ended December 31, 1994
and (ii) the respective unaudited consolidated balance sheets and statements of
operations and cash flows of the Company and each Guarantor for the nine (9)
month period ending September 30, 1995 (collectively, the "Historical Financial
Statements").
(f) Pro Forma Statements. The Lender shall have received a pro forma
--------------------
balance sheet of the Company as of the Closing Date in form and substance
satisfactory to the Lender and reflecting the consummation of the Equity
Investment (the "Pro Forma Opening Balance Sheet").
(g) Investment. On the Closing Date: (i) the Lender shall have received
----------
fully executed copies of all of the Investment Documents and any amendments
thereto; (ii) the Investment Documents shall be in full force and effect and no
material term or condition thereof shall have been amended, modified or waived
after the execution thereof except with the prior written consent of the Lender;
(iii) none of the parties to the Investment Documents shall have failed to
perform any material obligation or covenant required thereunder to be performed
or complied with by it on or before the Closing Date; and (iv) the Lender shall
have received a certificate from the Company's chief executive or chief
financial officer to the effect set forth in the immediately preceding clauses
(i) through (iii).
(h) Fees, Expenses and Other Consideration. The Lender shall have received
--------------------------------------
all amounts payable by the Company in respect of fees and expenses, including
the fees required by Section 2.8.(a), (b) and (d) and attorney's fees, to the
extent due and payable on or prior to the making of the initial Loans hereunder.
(i) Lien Searches. The Lender shall have received favorable UCC, tax,
-------------
judgment and lien search reports (including without limitation, searches of the
records of the United States Patent and Trademark Office) with respect to the
Company in all necessary or appropriate jurisdictions and under all legal and
appropriate trade names indicating that there are no prior liens on any of the
Collateral other than Permitted Liens.
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<PAGE>
(j) Repayment of Existing Indebtedness. The Lender shall have received
----------------------------------
evidence that all Indebtedness of the Company (other than Indebtedness to be
incurred hereunder and the Indebtedness permitted under Section 7.3.) in
existence on the Closing Date shall have been repaid in full as of the Closing
Date and that any Liens on the assets of the Company (other than Permitted
Liens) shall have been released; and the Lender shall have received Such UCC
termination statements and other instruments, in each case in proper form for
recording, as the Lender shall have requested to release and terminate of record
all Liens on any such assets (or arrangements for such release and termination
satisfactory to the Lender shall have been made).
(k) Guaranty. The Lender shall have received each Guaranty, duly executed
--------
and delivered by a Guarantor.
(l) Security Agreement and Financing Statements. The Lender shall have
-------------------------------------------
received the Security Agreement to be executed by the Company, duly executed and
delivered by the Company. In addition, the Company shall delivered to the
Lender appropriately completed and duly executed copies of UCC financing
statements as the Lender may request in order to perfect the security interests
created pursuant to the Security Agreement.
(m) Guarantor Credit Agreement. The Lender shall have received a true,
--------------------------
correct and complete copy of the Guarantor Credit Agreement, including all
exhibits and schedules attached thereto.
(n) Other Documents. The Lender shall have received such other documents,
---------------
instruments, agreements and certifications as the Lender or counsel to the
Lender may reasonably request in connection with this Agreement.
4.2. Initial and Subsequent Extensions of Credit
The obligation of the Lender to make any Loan hereunder (including the
initial Loans), and the Company's right to convert Acquisition Loans into the
Acquisition Term Loan pursuant to Section 2. 12., are each subject to the
further condition precedent that, both immediately prior to the making of such
Loan, or the conversion of such Loans, and also after giving effect thereto:
(a) no Default or Event of Default shall have occurred and be continuing,
(b) the representations and warranties made or deemed made by the Company
in Article 5. and by the Company and the other Loan Parties in each of the other
Credit Documents shall be true, complete and correct in all material respects on
and as of the date of the making of such extension of credit with the same force
and effect as if made on and as of such date (or, in the case of any such
representation and warranty made only as of a particular date, as of such
particular date);
(c) no change that is material and adverse shall have occurred in the
business,
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<PAGE>
property, assets, liabilities, condition (financial or otherwise), operations,
results of operations or prospects of the Company, or any Guarantor and its
Subsidiaries taken as a whole, since December 31, 1994; and
(d) the Lender shall have timely received (1) in the case of a borrowing
of a Loan, a duly executed Notice of Borrowing and (ii) in the case of the
conversion of Acquisition Loans under Section 2.12., the applicable notice
required under such Section.
Each Notice of Borrowing hereunder, and any notice given under Section
2.12., shall constitute a certification by the Company to the effect set forth
in subsections (a) through (d) above (both as of the date of such notice and as
of the date of such extension of credit).
4.3. Conditions to Acquisitions
The ability of the Company to consummate an Acquisition of a Seller without
violating Section 7. I., and the obligation of the Lender to make any
Acquisition Loan hereunder, the proceeds of which will be used to finance such
Acquisition, are subject to the condition precedent that on or prior to the date
(the "Acquisition Date") such Acquisition Loan is to be made or such Acquisition
is to be consummated (or such earlier date as may be provided below):
(a) Description of Transaction. The Lender shall have received not less
--------------------------
than 30 days prior to the Acquisition Date (or in the case of a Small
Acquisition, on or prior to the Acquisition Date), (x) a written description of
the Acquisition in detail reasonably satisfactory to the Lender, such
description to include a description of (i) the purchase price of such
Acquisition, (ii) the method and structure of payment thereof and (iii) the
Seller and (y) in the case of a Significant Acquisition, the current draft of
the Purchase Agreement
(b) Historical Financial Statements. If such Acquisition is a Significant
-------------------------------
Acquisition or a Md-Size Acquisition, the Lender shall have received not less
than 15 days prior to the Acquisition Date (or in the case of a Mid-Size
Acquisition, on or prior to the Acquisition Date), the following: (1) an audited
(or unaudited if audited statements are not available) balance sheet, statement
of operations and statement of cash flows for such Seller for the two fiscal
years most recently ended and (ii) if then available, an unaudited balance
sheet, statement of operations and statement of cash flows for such Seller for
the fiscal quarter most recently ending prior to the Acquisition Date
(collectively, the "Acquisition Historical Financial Statements").
(c) Pro Forma Financial Statements. If such Acquisition is a Significant
------------------------------
Acquisition or a Mid-Size Acquisition, the Lender shall have received not less
than 15 days prior to the Acquisition Date (or in the case of a Mid-Size
Acquisition, on or prior to the Acquisition Date), pro forma projected financial
statements in form reasonably satisfactory to the Lender reflecting the forecast
financial condition and results of operations of such Seller, the Company and
its Consolidated Subsidiaries on a monthly basis for the next fiscal year (the
"Acquisition Projected Financial Statements").
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<PAGE>
(d) Corporate Documents. If such Acquisition is a Significant Acquisition
-------------------
and involves any New Subsidiaries, the Lender shall have received the following
documents, each certified as indicated below:
(i) a copy of the charter of each such New Subsidiary, certified as
of a recent date by the Secretary of State of the jurisdiction of its
formation, and a certificate as of a recent date from such Secretary of
State as to the good standing of such New Subsidiary;
(ii) a certificate as of a recent date from the Secretary of State of
each state in which each such New Subsidiary is required to qualify to do
business as a foreign corporation to the effect that such New Subsidiary is
so qualified, or, if unavailable, evidence satisfactory to the Lender that
each such New Subsidiary has taken appropriate steps to so qualify,
(iii) a certificate of the secretary of each such New Subsidiary, dated
the Acquisition Date and certifying (A) that attached thereto is a true and
complete copy of such New Subsidiary's by-laws as in effect on the date of
such certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by such New Subsidiary's board of directors
authorizing the execution, delivery and performance of each of the Credit
Documents to which such New Subsidiary is or is to be a party, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that such New Subsidiary's charter has not been
amended since the date of the certification thereto furnished pursuant to
subsection (i) above, and (D) as to the incumbency and specimen signature
of each of such New Subsidiary's officers executing each of such Credit
Documents (and the Lender may conclusively rely on such certificate until
the Lender receives notice in writing from such New Subsidiary, to the
contrary); and
(iv) a certificate of another officer of such New Subsidiary as to the
incumbency and specimen signature of the secretary of such New Subsidiary.
(e) Acquisition Documents. In the case of a Significant Acquisition, on
---------------------
the Acquisition Date: (i) the Lender shall have received fully executed copies
of all of the Acquisition Documents and any amendments thereto, (ii) the
applicable Purchase Agreement shall be in full force and effect and (iii) the
Lender shall have received a certificate from the Company's chief executive or
chief financial officer to the effect set forth in the immediately preceding
clauses (i) and (ii).
(f) Assignment of Acquisition Documents. In the case of a Significant
-----------------------------------
Acquisition, the Lender shall have received an Assignment of Acquisition
Documents duly executed by any New Subsidiary or any other existing Loan Party
having rights under such Purchase Agreement or any of the other Acquisition
Documents being executed in connection with such Purchase Agreement. In
addition, the Lender shall have received the acknowledgment respect to the
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<PAGE>
Assignment of Acquisition Documents, in the form attached thereto.
(g) Lien Searches. In the case of a Significant Acquisition, the Lender
-------------
shall have received UCC, tax, judgment and lien search reports in form and
substance satisfactory to the Lender with respect to the Seller and each New
Subsidiary in all necessary or appropriate jurisdictions and under all legal and
appropriate trade names indicating that there are no prior liens on any of the
Collateral other than Permitted Liens or Liens to be released prior to or at the
time of the consummation of such Significant Acquisition.
(h) Security Agreements. In the case of a Significant Acquisition, the
-------------------
Lender shall have received a Security Agreement from each such New Subsidiary.
In addition, each such New Subsidiary shall have filed appropriately completed
and duly executed copies of UCC financing statements, and taken such other
action, as the Lender shall have reasonably requested in order to perfect the
security interests created pursuant to such Security Agreement.
(i) Pledge Agreements. In the case of a Significant Acquisition, the
-----------------
Lender shall have received from each Loan Party owning any issued and
outstanding capital stock of each such New Subsidiary, (i) if such Loan Party
has previously executed and delivered a Pledge Agreement, an amendment (in form
and substance satisfactory to the Lender) to such Pledge Agreement subjecting to
the Lien thereof such capital stock or (ii) if such Loan Party not has
previously executed and delivered a Pledge Agreement, a Pledge Agreement
granting to the Lender a Lien in such capital stock. In addition, the Lender
shall have received each of the following: (x) all stock certificates
representing all of such capital stock, and (y) stock powers duly endorsed in
blank by the applicable Loan Parties relating to all such stock certificates.
(j) Guaranties. In the case of a Significant Acquisition, the Lender shall
----------
have received a Guaranty from each such New Subsidiary
(k) Opinions of Counsel. In the case of a Significant Acquisition, the
-------------------
Lender shall have received an opinion counsel to the Loan Parties regarding (i)
the due organization of each such New Subsidiary; (ii) the corporate authority
of any New Subsidiary or other Loan Party delivering a Credit Document pursuant
to this Section; (iii) the execution, delivery and enforceability of such Credit
Documents; (iv) noncontravention of Applicable Law by such Acquisition or by the
execution, delivery and performance by such New Subsidiary and such Loan Parties
of such Credit Documents; (v) validity and perfection of any security interests
granted under any Security Document delivered under this Section and (vi) such
other matters as the Lender or its counsel may reasonably request.
(l) Other Documents. The Lender shall have received such other documents,
---------------
instruments, agreements and certifications as the Lender or its counsel may
reasonably request.
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4.4 Closing Documents for Non-Significant Acquisitions
Within 15 days after the date of consummation of an Acquisition that is not
a Significant Acquisition, the Company shall deliver to the Lender, each of the
following in form and substance satisfactory to the Lender-.
(a) Corporate Documents. If such Acquisition involved any New
-------------------
Subsidiaries, the following documents, each certified as indicated below:
(i) a copy of the charter of each such New Subsidiary, certified as
of a recent date by the Secretary of State of the Jurisdiction of its
formation, and a certificate as of a recent date from such Secretary of
State as to the good standing of such New Subsidiary;
(ii) a certificate as of a recent date from the Secretary of State of
each state in which each such New Subsidiary is required to qualify to do
business as a foreign corporation to the effect that such New Subsidiary is
so qualified;
(iii) a certificate of the secretary of each such New Subsidiary, dated
the Acquisition Date and certifying (A) that attached thereto is a true and
complete copy of such New Subsidiary's by-laws as in effect on the date of
such certificate, (B) that attached thereto is a true and complete copy of
resolutions duly adopted by such New Subsidiary's board of directors
authorizing the execution, delivery and performance of each of the Credit
Documents to which such New Subsidiary is or is to be a party, and that
such resolutions have not been modified, rescinded or amended and are in
full force and effect, (C) that such New Subsidiary's charter has not been
amended since the date of the certification thereto furnished pursuant to
subsection (i) above, and (D) as to the incumbency and specimen signature
of each of such New Subsidiary's officers executing each of such Credit
Documents (and the Lender may conclusively rely on such certificate until
the Lender receives notice in writing from such New Subsidiary, to the
contrary); and
(iv) a certificate of another officer of such New Subsidiary as to the
incumbency and specimen signature of the secretary of such New Subsidiary.
(b) Acquisition Documents. (i) the Lender shall have received fully
---------------------
executed copies of all of the Acquisition Documents and any amendments thereto
and (ii) the Lender shall have received a certificate from the Company's chief
executive or chief financial officer to the effect set forth in the immediately
preceding clause (i) and also stating that the applicable Purchase Agreement is
in full force and effect.
(c) Lien Searches. The Lender shall have received UCC, tax, judgment and
-------------
lien search reports in form and substance satisfactory to the Lender with
respect to the Seller and each
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New Subsidiary in all necessary or appropriate jurisdictions and under all legal
and appropriate trade names indicating that there are no prior liens on any of
the Collateral other than Permitted Liens or Liens that were released prior to
or in connection with such Significant Acquisition (together with evidence of
such release).
(d) Security Agreements. The Lender shall have received a Security
-------------------
Agreement from each such New Subsidiary. In addition, each such New Subsidiary
shall have filed appropriately completed and duly executed copies of UCC
financing statements, and taken such other action, as the Lender shall have
reasonably requested in order to perfect the security interests created pursuant
to such Security Agreement.
(e) Pledge Agreements. The Lender shall have received from each Loan Party
-----------------
owning any issued and outstanding capital stock of each such New Subsidiary, (i)
if such Loan Party has previously executed and delivered a Pledge Agreement, an
amendment (in form and substance satisfactory to the Lender) to such Pledge
Agreement subjecting to the Lien thereof such capital stock or (ii) if such Loan
Party not has previously executed and delivered a Pledge Agreement, a Pledge
Agreement granting to the Lender a Lien in such capital stock. In addition, the
Lender shall have received each of the following: (x) all stock certificates
representing all of such capital stock, and (y) stock powers duly endorsed in
blank by the applicable Loan Parties relating to all such stock certificates.
(f) Guaranties. The Lender shall have received a Guaranty from each such
----------
New Subsidiary.
(g) Other Documents. The Lender shall have received such other documents,
---------------
instruments, agreements and certifications as the Lender or its counsel may
reasonably request.
5. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lender that the following
statements are, and after giving effect to the Transactions, will be, true and
correct:
5.1 Corporate Existence
Each of the Company and the other Loan Parties (a) is a corporation duly
organized and validly existing and in good standing under the laws of the
jurisdiction of its organization; (b) has all requisite corporate power, and has
all Governmental Approvals, necessary to own its assets and carry on its
business as now being or as proposed to be conducted and to consummate the
Transactions- and (c) is qualified to do business in all jurisdictions in which
the nature of the business conducted by it makes such qualification necessary,
except where failure so to qualify would not have a Material Adverse Effect, all
of which such jurisdictions are set forth on Schedule 5.1.
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5.2 Authorization; No Conflict
The execution, delivery and performance by the Company and the other Loan
Parties of each of the Credit Documents, the Investment Documents and the
Acquisition Documents to which any is a party and the consummation of the
Transactions (a) have been duly authorized by all requisite corporate and, if
required, stockholder action on the part of the Company and each such Loan Party
and (b) will not (i) violate any provision of Applicable Law, or any order of
any Governmental Authority or any provision of the charter or by-laws of the
Company or any other Loan Party, (ii) violate, conflict with, result in a breach
of or constitute (alone or with notice or lapse of time or both) a default or an
event of default under any Material Contract to which the Company or any other
Loan Party is a party or by which the Company or any other Loan Party or any of
its property is or may be bound, or (iii) result in the creation or imposition
of any Lien upon any property or assets of the Company or any other Loan Party
(except pursuant to the Security Documents).
5.3 Enforceability
This Agreement, each other Credit Document, and each Investment Document
have been duly executed and delivered by the Company and each of the other Loan
Parties (to the extent it is a party thereto) and constitute the legal, valid
and binding obligations of the Company and the other Loan Parties enforceable
against the Company and the other Loan Parties in accordance with their
respective terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other laws affecting
generally the enforcement of creditors' rights and by general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
5.4 Approvals
No Governmental Approvals are necessary for the execution, delivery or
performance by the Company and the other Loan Parties of the Credit Documents,
the Acquisition Documents and the Investment Documents to which any of them is a
party or for the validity or enforceability thereof, except for filings and
recordings in respect of the Liens created pursuant to the Security Documents.
5.5 Financial Condition
(a) The Historical Financial Statements of the Company are complete and
correct in all material respects and fairly present the financial condition and
results of operations of the Company as of and for the periods covered thereby.
Since December 31, 1994, there has been no material adverse change in the
business, property, assets, liabilities, condition (financial or otherwise),
operations, results of operations or prospects of the Company.
(b) The Pro Forma Opening Balance Sheet fairly present the pro forma
financial
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condition of the Company as of the Closing Date. The Projected Financial
Statements, when delivered to the Lender, will be based on the assumptions set
forth therein and will constitute, in the good faith judgment of the Company,
reasonable estimations of future performance of the Company.
(c) With respect to a given Significant Acquisition or Mid-Size
Acquisition, to the Company's actual knowledge (i) the Acquisition historical
Financial Statements of the Seller fairly present the financial condition and
results of operations of the Seller as of and for the periods covered thereby;
and (ii) the Acquisition Projected Financial Statements are based on the
assumptions set forth therein and constitute, in the good faith judgment of the
Company, reasonable estimations of future performance of the Company, its
Consolidated Subsidiaries and the applicable Seller.
5.6 Litigation
Except as set forth on Schedule 5.6., there are no actions, suits or
proceedings at law or in equity by or before any Governmental Authority now
pending or, to the Company's knowledge, threatened against the Company or any
other Loan Party or their respective business, property or rights (i) which
involve any Credit Document, any Acquisition Document, any Investment Document
or any Transaction or (ii) which, if adversely determined could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
There exists no judgment, order, injunction or other restraint issued or filed
which is material to the Company or any other Loan Party, or any of their
respective businesses, properties or rights, or which prohibits or adversely
affects any of the Transactions.
5.7 Federal Reserve Regulations
Neither the Company nor any of the other Loan Parties is engaged in the
business of extending credit for the purpose, whether immediate, incidental or
ultimate, of buying or carrying Margin Stock. No part of the proceeds of any
extension of credit hereunder, whether directly or indirectly, and whether
immediately, incidentally or ultimately, will be used (i) to purchase or carry
Margin Stock or to extend credit to others for the purpose of purchasing or
carrying Margin Stock or to refund indebtedness originally incurred for such
purpose, or (ii) for any purpose which entails a violation of, or which is
inconsistent with, the provisions of the Regulations of the Board of Governors
of the Federal Reserve System, including Regulations G, T, U or X. As used
herein, the term "Margin Stock" shall mean margin stock within the meaning of
Regulations G, T, U and X.
5.8 ERISA
(a) Neither the Company nor any other Loan Party maintains or contributes
to any Employee Benefit Plan or Multi-employer Plan other than those identified
on Schedule 5.8.
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(b) The Company and each other Loan Party are in compliance in all
material respects with all applicable provisions of ERISA and the Code with
respect to all Employee Benefit Plans. Each Employee Benefit Plan that is
intended to be qualified under Section 401 (a) of the Code has been determined
by the Internal Revenue Service to be so qualified, and each trust related to
such Plan has been determined to be exempt from federal income tax under Section
5 01 (a) of the Code. The actuarial present value of all accumulated benefit
obligations under each Plan, as disclosed in the most recent actuarial report
with respect to such Plan, does not exceed the fair market value of the assets
of such Plan. No material liability has been incurred by the Company or any
other Loan Party or any of their ERISA Affiliates which remains unsatisfied for
any taxes, penalties or other amount (other than contributions in the ordinary
course) with respect to any Employee Benefit Plan or any Multi-employer Plan,
and to the Company's actual knowledge no such material liability is expected to
be incurred.
(c) Neither the Company nor any other Loan Party has: (i) engaged in a
nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code; (ii) incurred any liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium payments
which are due and unpaid; (iii) failed to make a required contribution or
payment to a Multi-employer Plan; or (iv) failed to make a required installment
or other required payment under Section 412 of the Code.
(d) No ERISA Event has occurred or is reasonably expected to occur with
respect to any Plan or Multi-employer Plan maintained or contributed to by the
Company or any other Loan Party which could have a Material Adverse Effect.
(e) No proceeding, claim (other than routine claims for benefits), lawsuit
and/or investigation is existing or, to the Company's actual knowledge,
threatened concerning or involving any Employee Benefit Plan or Multi-employer
Plan maintained or contributed to by the Company or any other Loan Party.
5.9 Taxes
Except as set forth on Schedule 5.9., each of the Company and the other
Loan Parties has filed all federal income tax returns and all other tax returns
and reports, domestic and foreign, required to be filed by it and has paid all
taxes, assessments, fees and other governmental charges shown to be due and
payable by it on such returns or reports. All such returns are true and correct
in all material respects. Except as set forth on such Schedule, each of the
Company and the other Loan Parties has paid or, in the case of taxes which are
not yet due and payable or are being contested in good faith, has provided
adequate reserves for the payment of, all federal, state and foreign taxes
applicable for all prior fiscal years and for the current fiscal year to the
date hereof To the Company's actual knowledge, there is no proposed tax
assessment against the Company or any other Loan Party.
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<PAGE>
5.10 Investment Company Act
Neither the Company nor any other Loan Party is an "investment company" nor
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.11 Public Utility Holding Company Act
Neither the Company nor any other Loan Party is a "holding company" nor an
"affiliate" of a "holding company" or a "subsidiary company" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 193 5,
as amended.
5.12 Material Agreements
Other than this Agreement, the other Credit Documents, the Acquisition
Documents and except as set forth on Schedule 5.12., neither the Company nor any
other Loan Party is a party to or otherwise bound or affected by (a) except as
otherwise permitted by Sections 7.3. and 7.4., any credit agreement, loan
agreement, indenture, guarantee or other arrangement providing for or otherwise
relating to any Indebtedness or any extension of credit (or commitment for any
extension of credit) to, or Guarantee by, the Company or any other Loan Party,
or (b) any collective bargaining agreement, management agreement, employment
agreement or consulting agreement. Neither the Company nor any other Loan Party
is a party to any agreement or instrument or subject to any corporate
restriction that has resulted or could reasonably be expected to result in a
Material Adverse Effect. The representations and warranties in subsection (b)
of the first sentence of this Section are made as of the Closing Date only.
5.13 Environmental and Safety Matters
The Company and each of the other Loan Parties has obtained all
Governmental Approvals which are required under Environmental Laws and is in
compliance with all terms and conditions of such Governmental Approvals the
failure with which to be in compliance would have a Materially Adverse Effect.
Each of the Company and each other Loan Party is also in material compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables contained in the
Environmental Laws. The Company is not aware of, and has not received notice
of, any past, present, or future events, conditions, circumstances, activities,
practices, incidents, actions, or plans which, with respect to the Company or
any of the other Loan Parties, may interfere with or prevent compliance or
continued compliance with Environmental Laws, or may give rise to any common-law
or legal liability, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, study, or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling or the emission, discharge, release or threatened release
into the environment, of any pollutant, containment, chemical, or industrial,
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toxic, or other Hazardous Material; and there is no civil, criminal, or
administrative action, suit, demand, claim, hearing, notice, or demand letter,
notice or violation, investigation, or proceeding pending or, to the Company's
knowledge, threatened, against the Company or any of the other Loan Parties
relating in any way to Environmental Laws.
5.14 Subsidiaries
Except as set forth on Schedule 5.16., the Company has no Subsidiaries, and
except as set forth on such Schedule, all such Subsidiaries are Wholly-Owned
Subsidiaries of the Company.
5.15 Compliance with Law
The Company and each of the other Loan Parties are in compliance with all
Applicable Laws of, and all applicable restrictions imposed by, all Governmental
Authorities in respect of the conduct of their respective business and the
ownership of their respective property, except such noncompliance as could not
reasonably be expected to individually or in the aggregate, have a Material
Adverse Effect.
5.16 Capitalization
All of the outstanding capital stock of the Company is validly issued,
fully paid and non assessable and, after giving effect to the Equity Investment,
owned, beneficially and of record, by the Persons set forth on Schedule 5.16.
Schedule 5.16. correctly sets forth the corporate structure and ownership
interests of each of the Loan Parties, including the correct legal name of each
such Loan Parties, and the shareholders or other Persons holding equity
interests in the such Loan Parties and their percentage equity or voting
interest. Except as set forth on Schedule 5.16., there are no outstanding
securities convertible into or exchangeable for any capital stock (collectively,
"capital stock equivalents") of the Company or any other Loan Party or any
outstanding subscriptions, options, warrants, calls, rights (including without
limitation, preemptive fights) or other agreements or commitments of any nature
relating to or exercisable for capital stock or capital stock equivalents of the
Company or any other Loan Party.
5.17 Title to Properties
Except as set forth on Schedule 5.17, each of the Company and the other
Loan Parties have good, indefeasible and insurable title to, or valid leasehold
interests in, all its real properties and good title to its other assets, free
and clear of all Liens other than Permitted Liens.
5.18 Solvency.
After giving effect to the Transactions, the Company and each other Loan
Party will be Solvent.
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5.19 Conduct of Business.
The Company and its Subsidiaries are engaged in the business of developing
and marketing document automation software and providing both related and
complementary services. The Company's software is primarily for use in forms
intensive industries such as insurance, financial services, health care and
government. The services provided generally include consulting, software
support and implementation, print processing and postal zip-sort mail
processing.
5.20 Representations and Warranties in Acquisition Documents and Investment
Documents.
Each representation and warranty made or deemed made by the Company or any
other Loan Party in any of the other Credit Documents, the Acquisition Documents
and the Investment Documents is hereby deemed made to and for the benefit of the
Lender as if the same were set forth herein in full.
5.21 Performance of Contracts, Etc.
Neither the Company nor any of the other Loan Parties is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any contract, agreement, indenture, mortgage, lease or
other binding understanding or arrangement of any such Person, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, in each case, that could have a Material Adverse
Effect.
5.22 Disclosure
No representation or warranty of the Company or any other Loan Party made
or deemed made in this Agreement, any other Credit Document, any Acquisition
Document, any Investment Documents, the financial statements referred to in
Section 4.1.(e) and (f), or any other document, certificate or written statement
furnished to the Lender by or on behalf of any such Person for use in connection
with any of the Transactions, contained, as of the date made or deemed made or
as of the date thereof, any untrue statement of a material fact or omitted,
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances in which the same were made. There is no material fact known to
the Company that has had or will have a Material Adverse Effect and that has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Lender for use in connection with the transactions contemplated
hereby.
5.23 Representations Regarding Acquisitions
To the extent any representation or warranty contained in this Article 5.
relates to an Acquisition and the Transactions relating thereto, such
representation or warranty shall be
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deemed made only on and as of the (a) the date such Acquisition has been
consummated and (b) the date of the making of the Loan any of the proceeds of
which are used in whole or in part to finance such Acquisition.
6. AFFIRMATIVE COVENANTS
The Company covenants and agrees that, so long as the Credit Facility is in
effect or the principal or interest on any Loan or any Obligation shall remain
unpaid, the Company will, and (as applicable) will cause each of the other Loan
Parties to:
6.1 Financial Statements and Other Information
Deliver to the Lender:
(a) as soon as available and in any event within 120 days after the end of
each fiscal year of the Company, audited consolidated statements of income,
retained earnings and cash flow of the Company and its Consolidated Subsidiaries
for such fiscal year and the related audited consolidated balance sheet as of
the end of such fiscal year, accompanied by an unqualified report of the
Company's independent auditors (who shall be of nationally recognized standing),
stating that such financial statements fairly present the consolidated financial
condition and results of operations of the Company and its Consolidated
Subsidiaries in accordance with GAAP;
(b) as soon as available and in any event within 45 days after the end of
each fiscal quarter of each fiscal year of the Company, a consolidated
statements of income, retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for such fiscal quarter and for the period from the
beginning of the current fiscal year to the end of such fiscal quarter, and the
related consolidated balance sheet as of the end of such period, accompanied by
a certificate of the chief financial officer of the Company, which certificate
shall state that such consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Company and
its Consolidated Subsidiaries in accordance with GAAP (subject to normal year-
end adjustments and absence of full footnote disclosures);
(c) simultaneously with the delivery of the annual financial statements
referred to in Section 6.1.(a), a report addressed to the Company by the
independent auditors who audited such statements (i) stating that, in connection
with their audit of such statements (and without conducting any procedures other
than those customarily conducted in a year-end audit), such auditors have
obtained no knowledge of any condition or event which constitutes a Default or
Event of Default as at the end of such fiscal year of the Company, or if such
auditors shall have obtained knowledge of any such condition or event,
specifying in such report each such condition or event of which they have
knowledge and the nature and status thereof and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Company is in
compliance with the covenants contained in Sections 7.3. and 7.4.;
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(d) simultaneously with the delivery of the quarterly financial statements
pursuant to Section 6.1.(b), a certificate of the chief financial officer of the
Company (i) to the effect that no Default or Event of Default has occurred and
is continuing (or, if any Default or Event of Default has occurred and is
continuing, describing the same in reasonable detail and describing the action
that the Company (or such other Person, as appropriate) has taken and proposes
to take with respect thereto) and (ii) setting forth in reasonable detail the
computations necessary to determine whether the Company is in compliance with
the covenants contained in Sections 7.3. and 7.4., in each case as of the end of
the period for which such financial statements are delivered;
(e) promptly upon the receipt thereof, copies of all "management letters"
received by the Company or any other Loan Party from its independent
accountants;
(f) as soon as possible, and in any event within thirty days after the
Company or any other Loan Party knows or has reason to know that any of the
events or conditions specified below have occurred or exist, a statement signed
by the chief financial officer of the Company setting forth details respecting
such event or condition and the action, if any, which the Company, any other
Loan Party or its ERISA Affiliates proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to the PBGC by
the Company or any other Loan Party or any of its ERISA Affiliates as of such
date with respect to such event or condition);
(i) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued thereunder, with respect to a Plan of the Company or
any other Loan Party or any of its ERISA Affiliates, as to which the PBGC
has not by regulation waived the requirement of Section 4043 (a) of ERISA
that it be notified within 30 days of the occurrence of such event
(provided that a failure to meet the minimum funding standard of Section
412 of the Code or Section 302 of ERISA shall be a reportable event
regardless of the issuance of any waivers in accordance with Section 412(d)
of the Code);
(ii) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan of the Company or any other Loan Party or any of its
ERISA Affiliates or the termination of any such Plan;
(iii) the institution by the PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan of the Company or any other Loan Party or any of its
ERISA Affiliates, or the receipt by the Company or any other Loan Party or
any of its ERISA Affiliates of a notice from a Multi-employer Plan of the
Company or any other Loan Party or any of its ERISA Affiliates that such
action has been taken by the PBGC with respect to such Multi-employer Plan;
(iv) the complete or partial withdrawal by the Company or any other
Loan Party or any of its ERISA Affiliates under Section 4201 or 4204 of
ERISA from a Multi-employer Plan, or the receipt by the Company or any
other Loan Party or any such
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ERISA Affiliate of notice from such a Multi-employer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or
that it intends to terminate or has terminated under Section 4041A of
ERISA, which in any such case could reasonably be expected to result in the
imposition of withdrawal liability upon the Company or any other Loan Party
or any of its ERISA Affiliates;
(v) the institution of a proceeding by a fiduciary of any Multi-
employer Plan against the Company or any other Loan Party or any of its
ERISA Affiliates to enforce Section 515 of ERISA, which proceeding is not
dismissed within 30 days; and
(vi) the fair market value of the assets of any Plan does not equal or
exceed the accumulated benefit obligations with respect to such Plan, as
disclosed on the most recent actuarial report with respect to such Plan.
(g) promptly after the Company obtains knowledge of the occurrence of any
Default or Event of Default, a notice of such Default or Event of Default
describing the same in reasonable detail together with a description of the
action that the Company (or such other appropriate party, as the case may be)
has taken and proposes to take with respect thereto;
(h) promptly after receipt of written request from the Lender, such other
information regarding the business, affairs or financial condition of the
Company or any other Loan Party as the Lender may reasonably request;
(i) as soon as possible, and in any event within ten Business Days after
the Company receives notice or otherwise has knowledge that any of the following
events have occurred or exist, a statement signed by the chief financial officer
of the Company setting forth details regarding such event or condition and the
action, if any, which the Company proposes to take with respect thereto (along
with all relevant documentations (A) any violation by the Company or any other
Loan Party of any Environmental Laws which could reasonably be expected to have
a Material Adverse Effect; (B) any request for information or notice of
potential responsibility under Environmental Laws with respect to cleanup of any
property or facility of the Company or any other Loan Party or any offsite
location; (C) the imposition of any Lien on any assets of the Company or any
other Loan Party under Environmental Laws; (D) the commencement of any
litigation, enforcement action or investigation with respect to the Company or
any other Loan Party under Environmental Laws; or (E) any Release or threatened
Release of any Hazardous Material at or from any property or facility of the
Company or any other Loan Party;
(j) promptly upon their becoming available, copies of any statements,
reports and other communications, if any, which the Company or any other Loan
Party shall have provided to its stockholders or filed with the Securities and
Exchange Commission (or any governmental agency substituted therefor), any
national securities exchange or the National Association of Securities Dealers,
Inc.;
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(k) as promptly as possible but in any event no later than January 31,
1996, pro forma projected financial statements reflecting the forecasted
financial condition and results of operations of the Company on a quarterly
basis for the period from January 1, 1996 through December 31,1996 (the
"Projected Financial Statements");
(l) promptly upon receipt thereof, copies of any notification or other
communication regarding any claim or potential claim for indemnification under
any Acquisition Documents relating to any Significant Acquisition;
(m) prompt notice of the terms of any proposed amendment to, or
modification or waiver of any of the material terms of any of the Acquisition
Documents relating to any Significant Acquisition; and
(n) simultaneously with the delivery of the annual financial statements
referred to in Section 6.1., capital and operating expense budgets, projections
of sources and applications of funds and profit and loss projections for the
Company (and each of its Consolidated Subsidiaries) on a consolidated basis for
each month of the next succeeding fiscal year, all itemized in reasonable detail
and prepared by the Company. Any material revisions made in such budgets or
projects shall be furnished promptly to the Lender.
6.2 Litigation
Promptly (and in any event within three Business Days of receipt) give to
the Lender notice of the filing or commencement of, or any written notice of
intention of any Person to file or commence, any action, suit or proceeding
affecting the Company or any of the other Loan Parties, whether at law or in
equity by or before any Governmental Authority which if adversely determined
could reasonably be expected to result in liability to the Company or any of the
other Loan Parties in an amount equal to or exceeding $250,000 (including the
amount of any deductible paid or required to be paid by the Company or any other
Loan Party under the terms of its insurance policies, but net of any amounts
---
acknowledged in writing by the applicable insurer(s) to be fully covered by
insurance) or would otherwise have a Material Adverse Effect, and of any adverse
development in respect of such legal or other proceedings.
6.3 Corporate Existence, Etc.
Except as expressly permitted by this Agreement: preserve and maintain its
corporate existence, and all of its material rights, privileges and franchises;
comply in all material respects with the requirements of all Applicable Laws,
rules, regulations and orders of all Governmental Authorities; maintain all of
its material properties used in its business in sufficient working order and
condition so as to permit such Loan Party to conduct its business; and preserve
and enforce its rights (including fights to indemnification) under any Material
Contracts, except where the failure to do so would not have a Material Adverse
Effect in the reasonable judgment of the Lender.
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6.4 Insurance
Keep insured by financially sound and reputable insurers all property of a
character usually insured by entities engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such businesses and carry such other insurance as
is usually carried by such businesses. Without limiting the obligations of the
Company and the other Loan Parties under the foregoing provisions of this
Section, in the event the Company or any of the other Loan Parties shall fail to
maintain in full force and effect insurance as required by the foregoing
provisions of this Section or any of the other Credit Documents, then the Lender
may upon notice to the Company or such other Loan Party, but shall have no
obligation to, procure insurance covering the interests of the Lender in such
amounts and against such risks as the Lender shall deem appropriate, and the
Company shall reimburse the Lender in respect of any premiums paid by the Lender
as provided in Section 9.3.(c).
6.5 Obligations and Taxes
Pay its Indebtedness and other obligations in accordance with their terms
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or profits or in respect of its
property, and in any event before the same shall become delinquent or in
default, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might give rise to a Lien upon such properties or
any part thereof, provided however. that such payment and discharge shall not be
--------
required so long as the validity or amount thereof shall be contested in good
faith by appropriate proceedings which effectively stay the execution of any
such Lien and the Company shall (or shall cause the applicable Loan Party to)
set aside on its books adequate reserves in accordance with GAAP with respect
thereto.
6.6 Maintaining Records; Access to Properties and Inspections
Maintain all financial records in accordance with GAAP and permit any
representatives designated by the Lender upon reasonable notice to visit and
inspect the properties of the Company or any of the other Loan Parties and to
inspect their financial and business records and make extracts therefrom and
copies thereof, all at reasonable times during normal business hours and in a
manner so as not to unreasonably disrupt the operations of the Company or the
other Loan Parties and as often as reasonably requested, and permit the Lender
or any representatives designated by the Lender upon reasonable notice to
discuss the affairs, finances and condition of the Company or any of the other
Loan Parties with the officers thereof and, after prior notice to the Company
(so long as no Event of Default has occurred and is continuing), independent
accountants therefor.
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6.7 Environmental and Safety Matters
For the purposes of protecting the Lender's security interest in the
Collateral and preserving the Company's ability to satisfy its Obligations:
(a) Comply with all Environmental Laws applicable to it or any of its
property or facilities in all material respects.
(b) Keep its properties and facilities free from any Liens which could
reasonably be expected to have a Material Adverse Effect arising under any
Environmental Laws.
(c) Respond promptly to any Release or threatened Release of any Hazardous
Materials in a manner which complies in all material respects with all
Environmental Laws and mitigates any associated risk to human health or the
environment to the maximum extent commercially practicable.
(d) If the Lender at any time has reason to believe that any property or
facility owned or operated by the Company or any other Loan Party has been or
may be either (i) operated in violation of any Environmental Laws; (ii)
contaminated with any Hazardous Materials; or (iii) subject to any government-
imposed obligation to conduct any environmental investigation or clean-up, any
of which, in the good faith judgment of the Lender may impair in any material
respect the value of the Collateral or the ability of the Company or any of the
other Loan Parties to satisfy any of their respective Obligations, the Company
shall, upon the written request of the Lender, at the Company's sole cost and
expense, conduct such investigation or study, through retention of a consulting
firm reasonably satisfactory to the Lender, as is necessary in the good faith
judgment of the Lender to demonstrate that no such impairment could reasonably
be expected to have a Material Adverse Effect.
6.8 Additional Security
If and to the extent requested by the Lender from time to time, execute and
deliver such additional documents and take such other action as may be necessary
or desirable in the reasonable opinion of the Lender in order to assure and
confirm that all Obligations are secured in a manner acceptable to the Lender by
a first priority Lien on substantially all present and future assets of the
Company and the other Loan Parties subject only to Permitted Liens.
6.9 Deposit Accounts/Cash Management Service
For the purpose of protecting the Lender's security interest in the
Collateral and enabling the Lender to monitor the proceeds of Collateral and the
uses of cash by the Company and the other Loan Parties, maintain all of its
primary operating accounts and cash management service relationships with the
Lender.
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6.10 Change in Management Group
Immediately notify the Lender if any member of the Management Group shall
terminate their employment with the Company or otherwise cease to be employed by
the Company in a senior management position.
6.11 Enforcement of Remedies under Acquisition Documents
If the Company becomes aware of or otherwise has knowledge of any facts
that could give rise to any material claim for indemnification from any party
under any Acquisition Document, assert or cause the assertion of such claim
against such party before the date on which such claim may no longer be made
under such Acquisition Document, and in asserting any such claim shall comply
with all requirements for asserting such claims under the Acquisition Documents.
7. NEGATIVE COVENANTS
The Company covenants and agrees that, so long as the Credit Facility is in
effect or the principal or interest on any Loan or any Obligation shall remain
unpaid, the Company will not, nor will it permit any of the Loan Parties to:
7.1 Prohibition of Fundamental Changes
Effect any of the following: (i) any transaction of merger, consolidation,
recapitalization, reorganization, liquidation or dissolution (other than the
merger of a Subsidiary of the Company with and into (x) the Company pursuant to
which the Company is the surviving corporation, (y) any Wholly-Owned Subsidiary
of the Company pursuant to which such Wholly-Owned Subsidiary is the surviving
corporation or (z) another Person which Person becomes a Wholly Owned Subsidiary
after giving effect to such merger); or (ii) the sale, transfer, lease,
contribution or other conveyance, or the granting of options, warrants or other
rights (excluding options, warrants or other rights with respect to the
Company's stock) with respect to, any of its assets to any Person other than
sales of assets in the ordinary course of business; or (iii) engage in any line
of business other than those engaged in or similar to those engaged in by the
Company or such other Loan Party, as applicable, on the Closing Date; or (iv)
any Acquisition or any other transaction of acquisition of another Person, or of
substantially all of the assets of another Person, or of a distinct operating
division of another Person, unless (A) at the time of such transaction, such
other Person is engaged in, or such assets are to be used in, the same or
similar line(s) of business as those described in Section 5.19., (B) no Default
or Event of Default has occurred and is continuing or would occur after giving
effect to such transaction, and (C) the applicable conditions precedent
contained in Section 4.3. have been satisfied.
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7.2 Limitation on Liens
Without the Lender's prior written consent, create, incur, assume or suffer
to exist any Lien upon any of its property, assets or revenues, whether now
owned or hereafter acquired, except Permitted Liens.
7.3 Indebtedness and Guarantees
Without the Lender's prior written consent (which will not be unreasonably
withheld), create, incur or suffer to exist any Indebtedness or Guarantees
except (a) Indebtedness to the Lender created hereunder and under any of the
Credit Documents; (b) Indebtedness existing on the Closing Date and described on
attached Schedule 7.3.; (c) Indebtedness in an aggregate amount not to exceed
$500,000.00 during any fiscal year of the Company, (d) Indebtedness otherwise
permitted by Section 7.4. and (e) loans and advances to employees of the Company
for moving, entertainment, travel and other similar expenses in the ordinary
course of business consistent with past practices.
7.4 Investments
Make or permit to remain outstanding any Investments except (i) Permitted
Investments, (ii) the ownership of the capital stock of Subsidiaries by the
Company or its Subsidiaries, the acquisition of which is permitted by Section
7.1. (iv), and (iii) loans or advances to the Company by one or more of its
Subsidiaries, provided that (a) any such loans or advances are evidenced by a
promissory note and (b) the repayment of any such loans or advances are
subordinated in writing in a manner satisfactory to the Lender to the prior
satisfaction in full of the Obligations.
7.5 Restricted Payments
Make any Restricted Payment; provided, however, that Subsidiaries of the
-------- -------
Company may make dividends, payments or other distributions to the Company or to
any Wholly-Owned Subsidiary of the Company.
7.6 Accounting
Change its accounting methods or practices (except as required to confirm
to changes in GAAP or permitted by GAAP) or, without the prior written consent
of the Lender, which consent shall not be unreasonably withheld, change its
fiscal year end from December 31.
7.7 Amendment of Certain Documents
Enter into any amendment, modification or waiver of any of the terms of any
of the Acquisition Documents which amendment, modification or waiver would have
a Material
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Adverse Effect in the reasonable judgment of the Lender.
8. EVENTS OF DEFAULT
If one or more of the following events (herein collectively called "Events
of Default" and singularly called an "Event of Default") shall occur and be
continuing:
8.1 Payments under Credit Documents
The Company or any Guarantor shall default in the payment when due of any
principal of any Loan. The Company shall default in the payment when due of any
interest on any Loan or any fee or any other Obligations payable by it hereunder
or under any other Credit Document, or any other Loan Party or any Guarantor
shall default in the payment when due of any other amount payable by it under
any Credit Document to which such Loan Party is a party and such default shall
continue unremedied for a period of five days after the Company, such other Loan
Party or such Guarantor receives notice of such default.
8.2 Other Indebtedness
The Company or any other Loan Party shall default in the payment when due
of any principal of or interest on any Indebtedness, having a principal amount
outstanding, individually or in the aggregate, equal to or exceeding $250,000.00
(other than the Obligations) and such default shall continue unremedied beyond
any applicable grace or cure periods- or any event specified in any note,
agreement, indenture or other document evidencing or relating to any
Indebtedness of the Company or any other Loan Party shall occur if the effect of
such event is to cause, or to permit the holder thereof to cause (with the
giving of notice or lapse of time or both), such Indebtedness to become due or
to be required to be prepaid (whether by redemption, purchase or otherwise)
prior to its stated maturity, and such event shall remain unremedied beyond any
applicable grace or cure periods.
8.3 Representations and Warranties
Any representation, warranty or certification made or deemed to be made in
any Credit Document by the Company, any other Loan Party or any Guarantor or any
certificate, financial statement or other information furnished in writing to
the Lender pursuant to the provisions hereof or thereof, shall prove to have
been false or misleading in any material respect as of the time made or deemed
to be made.
8.4 Other Obligations
(i) The Company shall default in the performance of any of its obligations
under Section 2.13., Section 6.1. (which default shall continue for ten Business
Days) or Article 7.; (ii) the Company shall default in the performance of any of
its other obligations in this Agreement
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and such default shall continue unremedied for a period of 30 days after the
Company receives notice or otherwise has actual knowledge thereof, (iii) an
"Event of Default" as defined in any other Credit Document shall have occurred
and be continuing; (iv) any Guarantor shall fail to comply with any of its other
obligations under its Guaranty and such failure shall continue unremedied for a
period of 30 days after such Guarantor receives notice or otherwise has actual
knowledge thereof or (v) an "Event of Default" under and as defined in the
Guarantor Credit Agreement shall have occurred and be continuing.
8.5 Ability to Pay Debts
The Company, any other Loan Party, any Guarantor, TLII, TL Offshore, TLIIM
or the General Partner shall admit in writing its inability to, or be generally
unable to, pay its debts as such debts become due.
8.6 Voluntary Proceedings
The Company, any other Loan Party, the Guarantor, TLII, TL Offshore, TLIIM
or the General Partner shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code, or (vi) take
any corporate action for the purpose of effecting any of the foregoing.
8.7 Involuntary Proceedings
A proceeding or case shall be commenced against the Company, any other Loan
Party, the Guarantor, TLII, TL Offshore, TLIIM or the General Partner, without
its application or consent, in any court of competent jurisdiction, seeking (i)
its liquidation, reorganization, dissolution or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of all or any substantial part of its assets,
or (iii) similar relief under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for relief
against the Company, any other Loan Party, the Guarantor, TLII, TL Offshore,
TLIIM or the General Partner shall be entered in an involuntary case under the
Bankruptcy Code.
8.8 Judgments
A judgment or judgments for the payment of money in excess of $250,000.00
in the
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aggregate (exclusive of judgment amounts to the extent covered by insurance
where the Company has submitted a claim and the insurer has not contested
liability in respect of such judgment) shall be rendered by a court or courts
against the Company or any other Loan Party and the same shall not be vacated,
bonded or discharged (or provision shall not be made for such discharge), or a
stay of execution thereof shall not be procured, within 60 days from the date of
entry thereof.
8.9 ERISA Event
(a) Any ERISA Event shall have occurred with respect to the Company or any
other Loan Party and the sum of the Insufficiency of such Plan (determined as of
the date of occurrence of such ERISA Event) and the Insufficiency of any and all
other Plans (determined as of the date of occurrence of such ERISA Event) of the
Company or any other Loan Party with respect to which an ERISA Event shall have
occurred (or the liability of the Company or any other Loan Party or its ERISA
Affiliates related to such ERISA Event) exceeds $250,000, or (b) the Company or
any other Loan Party or any of its ERISA Affiliates shall have been notified by
a Multi-employer Plan that it has incurred withdrawal liability to such Multi-
employer Plan and the imposition of such liability is reasonably likely to be
incurred in an amount that, when aggregated with all other amounts required to
be paid to Multi-employer Plans by the Company or any other Loan Party and its
ERISA Affiliates as withdrawal liability (determined as of the date of such
notification indemnification), requires payments exceeding $250,000 per annum or
$250,000 in the aggregate; or (c) the Company or any other Loan Party or any of
its ERISA Affiliates shall have been notified by a Multi-employer Plan that such
Multi-employer Plan is in reorganization or is being terminated within the
meaning of Title IV of ERISA, and as a result of such reorganization or
termination the aggregate annual contributions of such Person and its ERISA
Affiliates to all Multi-employer Plans that are then in reorganization or being
terminated have been or will be increased over the amounts contributed to such
Multi-employer Plans for the plan years of such Multi-employer Plans immediately
preceding the plan year in which such reorganization or termination occurs by an
amount exceeding $250,000.
8.10 Change in Control
A Change in Control shall have occurred without the prior written consent
of the Lender. As used in this Section the term "Change in Control" shall mean
any of the following: (i) the Control Group shall fail to own, on a fully-
diluted basis, at least 5 1 % prior to a registered public offering of capital
stock of the Company; (ii) if after any such offering any Person or two or more
Persons (other than the members of the Control Group) acting in concert, shall
acquire "beneficial ownership" within the meaning of Rule 13d-3 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), directly
or indirectly, of capital stock or securities of the Company representing 20% or
more of the aggregate voting power of all classes of capital stock and
securities of the Company; or (iii) if, (x) in any twelve-month period, any
member of the Management Group shall terminate his employment with the Company
or otherwise cease to be employed by the Company in a senior management position
and (y) within 120 days after
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such member shall terminate his employment or shall otherwise cease to be so
employed, the Company shall fail to replace such member with an individual
having comparable industry experience.
8.11 Interest Expense Coverage
If at any time the amount by which the Acquisition Commitment exceeds the
outstanding principal balance of Acquisition Loans shall be less than the
Interest Expense reasonably estimated to be incurred by the Company in the
immediately following two fiscal quarters.
8.12 Certain Actions by Guarantors
Any Guarantor shall (a) merge or consolidate with any Person (other than a
merger or consolidation with a Subsidiary of Safeguard Scientifics, Inc.
pursuant to which the Guarantor is the surviving entity), (b) dissolve,
liquidate or cease to exist, or shall take any action authorizing any of the
foregoing or (c) sell, lease, transfer or otherwise dispose of, in one
transaction or a series of transactions, all or substantially all of its assets.
8.13 Guarantor Credit Agreement
If at any time both: (i) the amount of Revolving Loans (as defined in the
Guarantor Credit Agreement) which S SD could then borrow under the Guarantor
Credit Agreement shall be less than $7,034,000 and (ii) the value of all
Qualifying Securities (as defined below) minus twice the amount of Indebtedness
-----
then owing under the Guarantor Credit Agreement plus all cash and cash
----
equivalents then held by SSD shall be less than $14,068,000. For purposes of
this Section, the term "Qualifying Security" means any common stock owned by SSD
in a Subsidiary whose common stock (A) is listed on the New York Stock Exchange,
the American Stock Exchange or some other principal national securities exchange
or has price quotations in the over-the-counter market reported by the National
Association of Securities Dealers Automated Quotation System; (B) is not subject
to any instrument, document or agreement which in any way prohibits the sale of
such common stock by SSD for any specified period of time or otherwise; and (C)
the offer and sale of which by SSD would not then be subject to any registration
requirements or other restrictions under the Securities Act of 1933, as amended
(the "Securities Act"), or other Applicable Law, including without limitation,
volume limitations imposed under Rule 144 of the Securities Act.
THEREUPON: (1) In the case of an Event of Default, other than an Event of
Default referred to in Section 8.6. or Section 8.7., the Lender may, by notice
to the Company, terminate its Commitment, cancel the Credit Facility and/or
declare the then-outstanding principal amount of, and the accrued interest on,
the Loans and all other Obligations payable by the Company hereunder and under
the Note (including, without limitation, any amounts payable under Section
9.3.), whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the
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Company; (2) in the case of the occurrence of an Event of Default referred to in
Section 8.6. or Section 8.7. above, the Commitment and the Credit Facility shall
automatically be canceled and the then-outstanding principal amount of, and the
accrued interest on, the Loans and all other Obligations payable by the Company
hereunder and under the Note (including, without limitation, any amounts payable
under Section 9.3.) shall automatically become immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company; and (3) in the case of any
Event of Default, may exercise any and all remedies available under the Security
Documents or under Applicable Law.
9. MISCELLANEOUS
9.1 Waiver
No failure on the part of the Lender to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power or
privilege under this Agreement or the Note or other Credit Document shall
operate as a waiver thereof, nor shall any single or partial exercise of any
fight, power or privilege under this Agreement or any other Credit Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
9.2 Notices
All notices, demands or other communications to be given or delivered under
or by reason of the provisions of this Agreement shall be in writing and
delivered personally, mailed by certified or registered mail, return receipt
requested and postage prepaid, sent via a nationally recognized overnight
courier, or sent via facsimile. Such notices, demands and other communications
will be sent to the address indicated below:
To the Company:
FormMaker Software, Inc.
2300 Windy Ridge Parkway
Suite 400 North
Atlanta, Georgia 30339
Attention: President
Telephone No.: (770) 858-2246
Telecopy No.: (770) 953-0217
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To the Lender:
NationsBank of Georgia, National Association
600 Peachtree Street, 19th Floor
Atlanta, Georgia 30308
Attention: Chris Jones
Telephone No.: (404) 607-5862
Telecopy No.: (404) 607-6338
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party;
provided, however, that the failure to deliver copies of notices as indicated
above shall not affect the validity of any notice. Any such communication shall
be deemed to have been received (i) when delivered, if personally delivered, or
sent by nationally-recognized overnight courier or sent via facsimile or (ii) on
the third Business Day following the date on which the piece of mail containing
such communication is posted if sent by certified or registered mail.
9.3 Expenses, Etc.
(a) Agreement to Pay and Reimburse. The Company agrees to pay or reimburse
------------------------------
the Lender for the following as incurred by Lender: (i) all out-of pocket costs
and expenses (including, without limitation, the reasonable fees and expenses of
Alston & Bird, counsel to the Lender) in connection with (A) the negotiation,
preparation, execution and delivery of this Agreement and the other Credit
Documents and the extension of credit hereunder and (B) any amendment,
modification or waiver of any of the terms of this Agreement or any of the other
Credit Documents; (ii) all costs and expenses of the Lender (including
reasonable counsel's fees and expenses) in connection with (A) any Default and
any enforcement or collection proceedings resulting therefrom and (B) the
enforcement of this Section; and (iii) all transfer, stamp, documentary or other
similar taxes, assessments or charges levied by any governmental or revenue
authority in respect of this Agreement or any of the other Credit Documents or
any other document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
this Agreement or any other Credit Document or any other document referred to
herein or therein.
(b) Indemnity. The Company agrees to indemnify the Lender and its
---------
directors, officers, employees and agents for, and hold each of them harmless
against, any and all losses, liabilities, claims (including Environmental
Claims), damages or expenses incurred by any of them arising out of or by reason
of any investigation or litigation or other proceedings (including any
threatened investigation or litigation or other proceedings) relating to the
extensions of credit hereunder or any actual or proposed use by the Company or
any Loan Party of the proceeds of any of the extensions of credit hereunder or
the past, present or future business activities of the Company or any Loan Party
including, without limitation, the reasonable fees and disbursements
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of counsel incurred in connection with any such investigation or litigation or
other proceedings (but excluding any such losses, liabilities, claims, damages
or expenses that are determined pursuant to a final, non-appealable order of a
court of competent jurisdiction to have resulted solely from the gross
negligence or willful misconduct of the Person to be indemnified).
(c) Expenses Paid On Behalf of the Company. If the Company fails to pay
--------------------------------------
when due any costs, expenses or other amounts payable by it under any Credit
Document, including, without limitation, fees and expenses of counsel,
indemnities and insurance premiums, such amount may be paid on behalf of the
Company by the Lender, in its sole discretion. Any such payment by the Lender
shall constitute for all purposes of this Agreement the making by the Lender of
a Loan, which shall bear interest at the Base Rate, in the amount of such
payment (but without any requirement for compliance with the conditions set
forth in Article 4.). In the event that such payment is not reimbursed by the
Company by 12:00 noon Atlanta time on the first Business Day after such payment,
the Lender shall be deemed to have made a Loan to the Company in such amount,
which Loan shall be deemed to bear interest at the Default Rate with respect to
Base Rate Loans from the date such Loan is made until the same is repaid.
9.4 Amendments, Etc.
Any term, covenant, agreement or condition of this Agreement or any of the
other Credit Documents may be amended or waived and any departure therefrom may
be consented to if, but only if, such amendment, waiver or consent is in writing
signed by the Lender and, in the case of an amendment, by the Company. Unless
otherwise specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given.
9.5 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9.6 Assignments and Participations
The Company may not assign its rights or obligations hereunder or under the
other Credit Documents without the prior consent of the Lender. The Lender may
assign to one or more Persons, or sell participations to one or more Persons in,
all or a portion of its fights and obligations hereunder, under the Note and the
other Credit Documents. The Lender may, in connection with any assignment or
proposed assignment or sale or proposed sale of participation, disclose to the
assignee or proposed assignee or participant or proposed participant any
information relating to the Company furnished to the Lender by or on behalf of
the Company.
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9.7 Survival
The obligations of the Company and its Subsidiaries under Sections 3.4. and
9.3. shall survive the repayment of the Loans and the termination of the Credit
Facility.
9.8 Table of Contents: Descriptive Headings
The table of contents and captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
9.9 Counterparts
This Agreement may be executed in any number of counterparts, each of which
need not contain the signature of more than one party and all of which taken
together shall constitute one and the same original instrument.
9.10 Governing Law
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Georgia, without giving effect to any choice of law or
conflict of law provision or rule.
9.11 Arbitration
ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT
NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY CREDIT
DOCUMENT, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT
(OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND
MEDIATION SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW.
IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT
UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE
-------------
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<PAGE>
CITY OF THE COMPANY'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND
ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE
OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WELL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL
ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
---------------------
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF
AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION,
TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
9.12 Acknowledgments
The Company hereby acknowledges that (a) it has been advised by counsel in
the negotiation, execution and delivery of this Agreement and the other Credit
Documents to which it is a party; (b) the Lender has no fiduciary relationship
with or fiduciary duty to the Company or any of the other Loan Parties, and the
relationship between the Lender on one hand, and the Company on the other hand,
is solely that of debtor and creditor; and (c) no joint venture exists between
the Lender on one hand, and the Company on the other hand.
9.13 Confidentiality
Except as otherwise provided by Applicable Law, the Lender shall utilize
all non-public
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information obtained pursuant to the requirements of this Agreement which has
been identified as confidential or proprietary by the Company in accordance with
the Lender's customary procedure for handling confidential information of this
nature and in accordance with safe and sound banking practices but in any event
may make disclosure: (a) to any of its Affiliates (provided they shall agree to
keep such information confidential in accordance with the terms of this
Section); (b) as a reasonably required by any bona fide transferee or
participant in connection with the contemplated transfer of any of the Loans or
the Lender's commitments hereunder, or participations therein, as permitted
hereunder; (c) as required by any Governmental Authority or representative
thereof or pursuant to legal process; (d) to the Lender's independent auditors
and other professional advisors (provided they shall be notified of the
confidential nature of the information), and (e) after the happening and during
the continuance of an Event of Default, to any other Person, in connection with
the exercise of the Lender's rights hereunder or under any of the other Credit
Documents.
9.14 Obligations with Respect to Loan Parties.
The obligations of the Company to direct or prohibit the taking of certain
actions by the other Loan Parties as specified herein and in the other Credit
Documents shall be absolute and not subject to any defense the Company may have
that the Company does not control such Loan Parties.
[Signatures on Next Page]
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be duly executed as of the day and year first above written.
FORMMAKER SOFTWARE, INC.
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
NATIONSBANK OF GEORGIA, NATIONAL
ASSOCIATION
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
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EXHIBIT 11
IMAGE SCIENCES, INC.
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JULY 31, OCTOBER 31,
-------------------- -------------------
1994 1995 1996 1995 1996
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Net earnings......................... $2,169 $2,003 $2,321 $ 463 $ 577
====== ====== ====== ========= =========
Average common shares outstanding.... 3,760 3,979 4,299 3,995 4,299
Average common share equivalents:
Options and warrants............... 1,968 1,763 1,170 1,647 1,122
------ ------ ------ --------- ---------
Average number of common shares and
common share equivalents
outstanding......................... 5,728 5,742 5,469 5,642 5,421
====== ====== ====== ========= =========
Earnings per common share............ $0.38 $0.35 $0.43 $0.09 $0.11
====== ====== ====== ========= =========
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
Image Sciences, Inc. Texas
FormMaker Software, Inc. Georgia
Micro Dynamics, Ltd. (majority- Delaware
owned subsidiary of FormMaker
Software, Inc.)
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of DocuCorp, Inc. of our report dated
September 20, 1996, relating to the financial statements of Image Sciences,
Inc., which appear in such Prospectus. We also consent to the application of
such report to the Financial Statement Schedule for the three years ended July
31, 1996 listed under Item 21(b) of this Registration Statement when such
schedule is read in conjunction with the financial statements referred to in
our report. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
Dallas, Texas
February 21, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4,
dated February 21, 1997, of our reports dated January 30, 1997, on our audits
of the consolidated financial statements and financial statement schedules of
FormMaker Software, Inc. We also consent to the reference to our firm under
the caption "Experts."
Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 21, 1997
