<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 7373 31-1451577
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
SUITE 250
4350 GLENDALE-MILFORD ROAD
CINCINNATI, OHIO 45241
(513) 786-8350
FAX: (513) 786-8363
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
TERRY L. THEYE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SUITE 700
8044 MONTGOMERY ROAD
CINCINNATI, OHIO 45336
(513) 792-2930
FAX: (513) 792-2932
(NAME, ADDRESS, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
CHARLES F. HERTLEIN, JR., ESQ. TIMOTHY E. HOBERG, ESQ.
DINSMORE & SHOHL LLP TAFT, STETTINIUS & HOLLISTER
1900 CHEMED CENTER 1800 STAR BANK CENTER
255 EAST FIFTH STREET 425 WALNUT STREET
CINCINNATI, OHIO 45202 CINCINNATI, OHIO 45202-3957
TELEPHONE: (513) 977-8315 TELEPHONE: (513) 357-9308
FAX: (513) 977-8141 FAX: (513) 381-0205
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Common Stock, without par value........... 2,990,000(1) $13.00(2) $38,870,000(2) $11,779
==================================================================================================================
</TABLE>
(1) Includes 390,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee.
------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION, DATED OCTOBER 10, 1997
PROSPECTUS
2,600,000 SHARES
[LOGO]
SYNERGIS TECHNOLOGIES, INC.*
COMMON STOCK
------------------------
Of the 2,600,000 shares of common stock without par value (the "Common
Stock") offered hereby (the "Offering"), 1,850,000 shares are being sold by
Synergis Technologies, Inc. (the "Company" or "Synergis") and 750,000 shares are
being sold by MedPlus, Inc., a shareholder of the Company (the "Selling
Shareholder" or "MedPlus"). See "Principal and Selling Shareholders." The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock by the Selling Shareholder. See "Use of Proceeds."
Prior to this offering there has been no public market for the Common
Stock. It is currently estimated that the initial offering price will be between
$11.00 and $13.00 per share. See "Underwriting" for more information relating to
the factors considered in determining the initial public offering price.
Application has been made to qualify the Common Stock for trading on the Nasdaq
National Market under the symbol "SNRG."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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==================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) PROCEEDS TO
SELLING
SHAREHOLDER
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- --------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
==================================================================================================
</TABLE>
(1) For information regarding discounts, commissions and indemnification of the
Underwriters, see "Underwriting."
(2) Before deducting expenses of the Offering estimated at $1,500,000, which
will be borne proportionately by the Company and the Selling Shareholder
based upon the number of shares to be sold by each with up to a maximum of
$432,692 to be payable by the Selling Shareholder. All expenses of the
Offering in excess of $1,500,000 will be borne by the Company.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of 390,000
additional shares of Common Stock solely to cover over-allotments, if any,
on the same terms and conditions as the shares offered hereby. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholder will be $ , $ ,$ , and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to prior sale, when, as and if received and accepted by
them, subject to their right to reject orders in whole or in part or withdraw,
cancel or modify the offer without notice, and to certain other conditions. It
is expected that delivery of the certificates representing the shares of Common
Stock will be made on or about , 1997.
THE ROBINSON-HUMPHREY MCDONALD & COMPANY
COMPANY SECURITIES, INC.
, 1997
* The registrant intends to change its name from Universal Document Management
Systems, Inc. to Synergis Technologies, Inc. immediately prior to the
effectiveness of the Registration Statement of which this Prospectus is a
part.
<PAGE> 3
[MAP OF UNITED STATES SHOWING COMPANY LOCATIONS
AND AREAS SERVICED BY THE COMPANY]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SYNDICATE SHORT-COVERING TRANSACTIONS
AND THE IMPOSITION OF A PENALTY BID. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
Simultaneously with, and as a condition to, the closing of the Offering
made by this Prospectus, the Company will acquire, in separate transactions (the
"Acquisitions") in exchange for cash and shares of its Common Stock, nine design
automation and document management businesses (each a "Founding Company" and
collectively, along with the Company, the "Founding Companies"). Until
, 1997, the Company's name was Universal Document Management Systems,
Inc. ("UDMS") which itself has operated a document management work flow and
application software business. Unless the context otherwise indicates, all
references herein to the "Company" include all of the Founding Companies, and
references herein to "UDMS" shall mean Universal Document Management Systems,
Inc. prior to the effectiveness of the Acquisitions. The following summary is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information appearing elsewhere in this Prospectus, including the
information set forth under "Risk Factors" and in the financial statements,
including the notes thereto. Unless otherwise indicated, all share, per share
and financial information set forth herein: (i) has been adjusted to give effect
to the Acquisitions and a 8,334.92-for-1 stock split to be effected immediately
prior to the Offering and a contribution to the capital of the Company by
MedPlus of 59,012 shares of the Company's Common Stock; (ii) assumes an initial
public offering price of $12.00 per share which is the midpoint of the range of
the anticipated public offering prices set forth on the cover page of this
Prospectus; and (iii) assumes no exercise of the Underwriters' over-allotment
option. In addition, all references to years, unless otherwise noted, refer to
the Company's fiscal year, which ends on December 31 of each year.
The Company believes it will be the largest independent value added
reseller of design automation products and services in the United States.
Simultaneously with the closing of this Offering, the Company will acquire nine
established design automation and document management businesses with 18 offices
in 12 states. The Company will employ approximately 325 individuals, including
approximately 90 highly skilled technical personnel, will offer hardware and
software products from approximately 55 manufacturers, and will have access to
an installed customer base of approximately 34,000 businesses. On a pro forma
basis, the Company had revenues for the year ended December 31, 1996 and the six
months ended June 30, 1997 of $48.9 million and $24.1 million, respectively.
Through the acquisition and integration of the Founding Companies, the Company
expects to expand geographic penetration of the existing businesses, to
capitalize on substantial cross-selling opportunities, to provide design
automation products and services on both a local and national basis, and to
establish a national customer service and support program.
The design automation industry consists of six market segments:
architecture, engineering and construction ("AEC"), mechanical design,
geographic information systems ("GIS"), process and power, facilities
management, and multi-media. Industry sources estimate that the market for
design automation integration services (including computer aided design,
computer aided manufacturing and computer aided engineering ("CAD/CAM/CAE")
licenses and services) will be approximately $7.5 billion in 1997. Local and
regional value added resellers have entered the industry in response to end
users who want to obtain all available products as well as receive related
support and services from a single source. In general, however, a value added
reseller only will provide certain CAD/CAM/CAE and document management products
within one or a limited number of these market segments, as the needs of each
differ and each requires specialized products and services. This has contributed
to a high level of fragmentation within the design automation channel.
The Company will offer a wide range of design automation products and
services including third-party software, proprietary software, professional
services, hardware and software maintenance, complementary document management
solutions and hardware. The Company's design automation software offerings will
provide CAD/CAM/CAE solutions primarily in the mechanical design, AEC and GIS
market segments, and secondarily in the other three design automation market
segments. The Company's professional services will include systems integration,
customization, installation, design engineering, training, process
re-engineering and call center and help desk support. For document management
applications, the Company will provide business process evaluation, workflow
analysis, implementation, planning and execution. On-site and in-house training,
technical support and service will also be offered. The Company's hardware
offerings will provide its customers with PCs, work stations and servers. The
Company believes that these integrated design products and services offerings
will enable the Company to become a single source provider for its customers on
a national basis.
3
<PAGE> 5
The Company expects to target two primary market segments: (1) corporate,
government and educational users of design automation products requiring
professional services to meet their enterprise needs, and to a lesser extent (2)
third-party channels that resell or license the Company's proprietary software
products. Key elements of the Company's business strategy are to:
- OFFER A SINGLE SOURCE FOR COMPLETE, INTEGRATED SOLUTIONS. The Company
intends to be a leading nationwide provider of a full range of design
automation products and services.
- ENHANCE HIGHER MARGIN PROFESSIONAL SERVICES AND SALES OF PROPRIETARY
SOFTWARE. While the Company intends to continue to offer a full range of
products and services, it expects to emphasize and expand its offerings
of professional services and proprietary software, which generally carry
higher margins than other product sales.
- FOCUS ON LARGE CLIENTS; EXPAND GEOGRAPHICALLY IN MAJOR METROPOLITAN
AREAS. The combined resources, technical expertise and geographic
diversity of the Founding Companies will enable the Company to focus
marketing efforts on a growing number of clients requiring national sales
and service capabilities. The Company intends to expand into selected
major metropolitan areas as national account relationships develop,
through both internal development and acquisitions of local and regional
resellers.
- CAPITALIZE UPON AND LEVERAGE SPECIFIC TECHNICAL EXPERTISE AND PRODUCT
OFFERINGS. The Company plans to leverage its diverse products and
services to expand its existing client relationships as well as target
new sales opportunities.
- ACHIEVE COST SAVINGS THROUGH CENTRALIZATION OF CERTAIN FUNCTIONS. The
Company believes that it will achieve significant economies of scale
through centralizing a number of general and administrative functions at
the corporate level and by reducing or eliminating redundant functions
and facilities at the Founding Companies.
- OPERATE WITH DECENTRALIZED, LOCAL MANAGEMENT. The Company believes the
experienced local management teams that exist at the Founding Companies,
with over 125 years combined experience in design automation and document
management, have a valuable understanding of their respective markets and
customers and that it can best capitalize upon these strengths through a
decentralized management strategy.
4
<PAGE> 6
THE OFFERING
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<S> <C>
COMMON STOCK OFFERED:
By the Company............................................. 1,850,000 shares
By the Selling Shareholder................................. 750,000 shares
Total Offering (1)......................................... 2,600,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THE OFFERING (2) (3).... 3,499,988 shares
</TABLE>
USE OF PROCEEDS..................... In connection with the Acquisitions of
the Founding Companies, the Company or
the Founding Companies will make
payment of approximately $21.7 million,
consisting of $15.6 million
representing the cash portion of the
purchase price, $3.6 million to repay
indebtedness of the Founding Companies,
$1.5 million to retire preferred stock
of one of the Founding Companies, $0.5
million to repay AAA Notes and Accounts
of the Founding Companies and $0.5 of
expenses of the Acquisitions. The net
proceeds of the Offering will provide
$19.6 million for these purposes. The
balance of the cash needs will be met
from an estimated $2.5 million expected
to be on hand after the Acquisitions,
after giving effect to $0.3 million in
prepaid Offering and Acquisition costs.
See "Use of Proceeds," "Dividend
Policy" and "Certain Transactions."
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<S> <C>
NASDAQ NATIONAL MARKET SYMBOL................................ "SNRG"
</TABLE>
(1) Assumes that the Underwriters' over-allotment option for up to 390,000
shares of Common Stock is not exercised. See "Underwriting."
(2) Includes 774,480 shares issued and outstanding immediately prior to the
effectiveness of the Registration Statement of which this Prospectus forms a
part, 750,000 of which will be sold by the Selling Shareholder as part of
the Offering, 875,508 shares to be issued as consideration in the
Acquisitions, and 1,850,000 shares being offered by the Company. Excludes
additional shares of Common Stock which may be issued pursuant to earn-out
arrangements with certain owners of the Founding Companies. See "Certain
Transactions -- The Acquisitions."
(3) Excludes 513,432 shares of Common Stock issuable upon the exercise of stock
options and warrants to be outstanding on the date of this Prospectus and
288,000 additional shares reserved for future issuance under the Company's
1997 Long-Term Incentive Plan. See "Certain Transactions" and
"Management -- Employment Agreements; Executive Compensation,"
"-- Directors' Compensation," and "-- Stock Options."
5
<PAGE> 7
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
The Company will acquire the Founding Companies simultaneously with and as
a condition to the consummation of this Offering. UDMS, one of the Founding
Companies, has been identified as the accounting acquiror for financial
statement presentation purposes. The Acquisitions will be recorded using the
purchase method of accounting. The Summary Pro Forma Combined Financial Data
assume the consummation of the Acquisitions and the completion of the Offering.
See "Certain Transactions -- The Acquisitions" as well as the financial
statements and the notes thereto included elsewhere in this Prospectus.
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA(1):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------
Dollars in thousands, except per share data 1996 1996 1997
------------ ------- -------
<S> <C> <C> <C>
Total revenues....................................... $ 48,905 $26,525 $24,133
Costs of revenues.................................... 32,741 16,851 17,093
Selling, general and administrative expenses(2)...... 16,256 8,131 7,327
Amortization of goodwill and other identifiable
intangibles(3)..................................... 914 457 457
------- ------- -------
Operating income (loss)............................ (1,006) 1,086 (744)
Interest income, net(4).............................. 124 87 33
Other income (expense), net.......................... 85 (9) 26
------- ------- -------
Income (loss) before income taxes.................... (797) 1,164 (685)
Income tax expense (benefit)(5)...................... (342) 380 (220)
------- ------- -------
Net income (loss)............................... $ (455) $ 784 $ (465)
======= ======= =======
Pro forma net loss per share(6)...................... $ (0.13) $ (0.13)
======= =======
Shares used in computing pro forma net loss per
share(6)........................................... 3,559,000 3,559,000
============ =======
</TABLE>
PRO FORMA COMBINED BALANCE SHEET DATA(1):
<TABLE>
<CAPTION>
AT JUNE 30, 1997
------------------------------
UDMS PRO FORMA,
Dollars in thousands HISTORICAL AS ADJUSTED(7)
----------- --------------
<S> <C> <C>
Cash and cash equivalents........................................... $ 11 $ 390
Working capital (deficit)........................................... (1,342) 1,485
Goodwill and other identifiable intangibles, net.................... 914 23,919
Total assets........................................................ 1,979 35,506
Short-term debt and current maturities of long-term obligations..... 1,256 159
Long-term obligations less current maturities....................... -- 558
Shareholders' equity................................................ 347 26,755
</TABLE>
- ---------------
(1) The pro forma combined statement of operations data and the pro forma
combined balance sheet data assume that the Acquisitions and Offering
occurred on January 1, 1996, in the case of the pro forma statement of
operations data, and as of June 30, 1997, in the case of the pro forma
combined balance sheet data. The pro forma combined financial data are based
on preliminary estimates, available information and certain assumptions that
management deems appropriate. The pro forma combined financial data
presented herein are not necessarily indicative of the results the Company
would have obtained had such events actually occurred at the beginning of
the period or of the future results of the Company. The pro forma combined
financial data should be read in conjunction with the financial statements
and notes thereto included elsewhere in this Prospectus. The total estimated
purchase price for the Acquisitions is $22.9 million, which consists of: (i)
$15.6 million of cash to be paid to the owners
6
<PAGE> 8
of the Founding Companies upon the consummation of the Offering; (ii) the
$6.8 million estimated fair value of 875,508 shares of Common Stock to be
issued to the owners of the Founding Companies; and (iii) estimated
acquisition costs of $0.5 million. The estimated purchase price for the
Acquisitions is subject to purchase price adjustments related to earn-out
arrangements. See "Certain Transactions -- The Acquisitions."
(2) Includes pro forma reductions in compensation to the owners of the Founding
Companies, to which they have agreed prospectively in the amounts of
approximately $0.4 million for the year ended December 31, 1996 and $0.2
million in each of the six months periods ended June 30, 1996 and 1997.
Excludes annual compensation of $0.5 million based upon employment
agreements with the Company's executive management and other costs
associated with being a public company. See "Management--Employment
Agreements; Executive Compensation."
(3) Includes a pro forma adjustment to amortization expense related to the
goodwill and other identifiable intangible assets recorded in connection
with the Acquisitions which was computed on the basis described in Note 5(g)
to the Pro Forma Combined Financial Statements.
(4) Includes a pro forma adjustment to reflect the elimination of interest
expense in connection with the repayment of interest-bearing debt of the
Founding Companies from the estimated net proceeds of the Offering which was
computed on the basis described in Note 5(i) to the Pro Forma Combined
Financial Statements.
(5) Includes pro forma adjustments to reflect the provisions for income taxes on
the pro forma combined results at effective tax rates of 42.9%, 32.7% and
32.1% for the year ended December 31, 1996, and the six months ended June
30, 1996 and 1997, respectively, before considering the non-deductibility of
approximately $0.5 million of annual goodwill amortization.
(6) Computed on the basis described in Note 5(l) to the Pro Forma Combined
Financial Statements in which the shares used in computing pro forma net
income per share reflect options and warrants assumed outstanding under
Securities and Exchange Commission Staff Accounting Bulletin No. 83.
(7) Represents the pro forma combined balance sheet at June 30, 1997 after
giving effect to both the Acquisitions and the Offering, including the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
7
<PAGE> 9
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the factors listed below in
evaluating an investment in the shares of Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY; OPERATING LOSSES
Although each of the Founding Companies (including UDMS) has an individual,
independent operating history, they have not previously been operated as a
combined entity, and there can be no assurance that the Company will be able to
integrate successfully these businesses on an operational or other basis. In
connection with the Acquisitions, certain executives of the Founding Companies
will receive earn-outs and bonuses based upon the performance of such
executive's Founding Company. Such provisions may delay the integration by the
Company of the Founding Companies and, therefore, may adversely impact the
Company's business, financial condition, and results of operations. Also, the
Company's management group has been assembled only recently and there can be no
assurance that the management group will be able to oversee the combined entity
and effectively implement the Company's operating or growth strategies. In
addition, unfavorable economic conditions, including downturns in the economy
resulting in decreased sales by the Company, could adversely affect the
Company's future operating results. See "Management's Discussion and Analysis of
Pro Forma Financial Condition and Pro Forma Results of Operations" and
"-- Organization," "Management," and "Certain Transactions -- The Acquisitions."
For the year ended December 31, 1996 and for the six months ended June 30,
1997, the Company had operating losses on a pro forma basis of approximately
$1.0 million and $0.7 million, respectively. While the Company anticipates
operating income for the six months ended December 31, 1997, it also will incur
certain one-time expenses in connection with the Acquisitions and the
integration of the Founding Companies. There can be no assurance that the
Company will report a profit for the full 1997 fiscal year or that the Company
will operate profitably in the future. See "Management's Discussion and Analysis
of Pro Forma Financial Condition and Pro Forma Results of Operations."
POTENTIAL INABILITY TO MANAGE INTEGRATION AND GROWTH
Certain of the Founding Companies have expanded significantly in the past
several years. In addition, the Founding Companies have not operated previously
as an integrated company. Each of these factors will place demands on the
Company's administrative, operational and financial resources. Any continued
growth of the Company's customer base and its services could place an additional
strain on the capacity, management and operations of the Company. The Company's
future performance and profitability will depend in part on its ability to
successfully integrate the Founding Companies, implement improved financial and
management systems, add capacity as and when needed and hire qualified personnel
to respond to changes in its business. The failure to integrate the Founding
Companies, implement such systems, add any capacity or hire such qualified
personnel may have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of Operations."
DEPENDENCE ON AUTODESK
The Company is certified as a value added reseller of numerous products,
including those of Autodesk, Inc. ("Autodesk"). For the six months ended June
30, 1997, a majority of the Company's pro forma revenue was from sales of
Autodesk products and related services and hardware. There can be no assurance
that the Company will continue to be certified as a value added reseller for
Autodesk, that the products of Autodesk will continue to be accepted by the
marketplace, or that Autodesk will not significantly alter the costs to the
Company of reselling its products. Furthermore, Autodesk may revoke the
Company's certification as a value added reseller of Autodesk products with or
without cause upon 30 to 90 days notice or immediately upon the occurrence of
certain events. See "Business -- Products and Services" and
"Business -- Suppliers."
8
<PAGE> 10
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
A component of the Company's business strategy is to increase its revenues,
earnings and market share through the acquisition of additional companies with
similar or complementary businesses. However, the Company has not as yet entered
into negotiations for any such acquisitions, and there can be no assurance that
it will successfully be able to identify attractive acquisition candidates or to
negotiate acquisition transactions on economically acceptable terms with any
candidates which may be identified.
Acquisitions may involve a number of special risks, including adverse
short-term effects on the Company's operating results, including potential
dilution, diversion of management's attention to the assimilation of the
operations and personnel of the acquired companies, the potential inability to
integrate financial and management reporting systems, dependence on retention,
hiring and training of key personnel, risks associated with unanticipated
problems or legal liabilities and amortization of acquired intangible assets,
any or all of which could have a material adverse effect on the Company's
operations and financial performance. To the extent acquisitions are
consummated, there can be no assurance that they will ultimately be beneficial
to the Company's operations or that they will contribute to its growth.
Likewise, there can be no assurance that any completed acquisitions will produce
returns to the Company that will justify the Company's investment. See "Risk
Factors -- Possible Need for Additional Financing" and "Business -- Acquisition
Program."
DEPENDENCE ON TECHNICAL PERSONNEL
The Company's business involves the sale of computer software, hardware and
related services. Therefore, its success is dependent on its ability to recruit
and retain highly skilled technical personnel, including personnel trained in
software and hardware applications within a specialized industry. The computer
software industry is characterized by a high level of employee mobility, and the
market for such individuals in certain regions can be extremely competitive. If
the Company were unable to recruit and retain a sufficient number of skilled
technical employees, it could be forced to limit its growth or possibly curtail
its operations, which could result in a material adverse effect on the operating
results of the Company.
RISKS RELATED TO INTANGIBLE ASSETS
The Acquisitions will result in a significant increase in intangible
assets. Approximately $23.9 million, or 67.4%, of the Company's pro forma total
assets as of June 30, 1997 consisted of intangible assets arising from the
Acquisitions, of which approximately $19.5 million represents goodwill, which
will be amortized using an estimated life of 25 years, and approximately $1.4
million represents other intangible assets, which will be amortized over a
period of 10 years. Goodwill is an intangible asset that represents the excess
of the aggregate purchase price of the Founding Companies over the fair value of
net assets acquired. The amount of goodwill amortized in a particular period
constitutes a non-cash expense that reduces the Company's net income in that
period. The reduction in net income resulting from the amortization of goodwill
may have an adverse impact upon the market price of shares of the Company's
Common Stock. Additionally, there can be no assurance that the value of its
intangible assets will ever be realized by the Company. See "Management's
Discussion and Analysis of Pro Forma Financial Condition and Pro Forma Results
of Operations."
PORTIONS OF OFFERING PROCEEDS PAYABLE TO AFFILIATES
Approximately $15.6 million, or 79.6%, of the estimated net proceeds of the
Offering, will be used to pay the cash portion of the purchase price for the
Founding Companies. Approximately $1.3 million, or 6.6% of the estimated net
proceeds, of such amount will be paid to the Selling Shareholder related to
interest-bearing debt owed to the Selling Shareholder, which will own
approximately 2.3% of the Company's Common Stock following consummation of the
Acquisitions and the Offering. Of the approximately $15.6 million payable to the
shareholders of the Founding Companies, approximately $3,500,000, or 17.9% of
the estimated net proceeds of the Offering will be paid to Daniel B. Dolan,
Divisional President of the Company, related to the Company's acquisition of
DTI, of which Mr. Dolan is the sole shareholder.
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<PAGE> 11
Simultaneously with the consummation of the Acquisitions, the Company will
repay interest-bearing debt of the Founding Companies of approximately $3.6
million (including the $1.3 million to the Selling Shareholder referred to
above), based upon indebtedness outstanding at June 30, 1997. In addition, the
Company will repay from its available balance of cash and cash equivalents
approximately $0.4 million in Accumulated Adjustment Account ("AAA Account")
promissory notes ("AAA Notes") previously distributed to shareholders of certain
of the Founding Companies in connection with termination of the Subchapter S
status of those Founding Companies and $0.1 million in amounts related to
personal taxes payable by the shareholders of another of the Founding Companies
on their AAA Accounts. Numerous shareholders of the Founding Companies will
benefit indirectly from such repayments in the form of releases from personal
guarantees of portions of such indebtedness. Further, the Company has entered
into earn-out arrangements with certain shareholders of the Founding Companies,
pursuant to which such shareholders may receive payments based upon the
performance of their respective Founding Company. See "Certain Transactions --
The Acquisitions" and "Principal and Selling Shareholders."
COMPETITION
The design automation and document management businesses are extremely
competitive. Although the Company believes that only Rand Technology Corporation
("Rand") competes with a similar mix of services, many companies offer one or
more of the products and services offered by the Company. Some of these
competitors may be able to offer certain products or services at a lower price
than the Company. In addition, many potential customers of the Company may use
more than one supplier for design automation and document management products
and services. The Company may not be able to compete effectively against its
current competitors, and the Company cannot assure that additional competitors
with greater resources than the Company will not enter the industry and compete
effectively against the Company. To the extent that the Company is unable to
compete successfully against its existing and future competitors, its business,
operating results and financial condition will be materially adversely affected.
See "Business -- Competition."
POSSIBLE NEED FOR ADDITIONAL FINANCING
After application of the estimated net proceeds from the Offering and
making payments related to the Acquisitions, the Company expects that it will
have cash on hand, after giving effect to the prepaid Offering and costs of the
Acquisitions, of approximately $0.4 million. The Company believes this cash,
together with cash that will be generated from operations and available under a
credit facility which the Company plans to obtain ("Credit Facility"), will be
sufficient to support its current operations through 1998. The Company may need
to seek additional capital, however, if its expenses are higher than anticipated
or if less cash is generated from operations than is expected.
The Company intends to finance future acquisitions by using cash from
operations, by issuing shares of Common Stock and through borrowings under the
Credit Facility. The Company believes that its cash position after the Offering,
its cash flow from operations and its contemplated Credit Facility will be
sufficient to fund acquisition activity for approximately 12 months following
the Offering. However, no assurance can be given that such financing sources
will be adequate to fund such acquisition activity, or that the Company will not
need additional debt or equity financing to implement successfully its
acquisition strategy. There can be no assurance that the Company will be able to
obtain such financing if and when it is needed or that, if available, such
financing will be available on terms the Company deems acceptable. If the
Company does not have sufficient cash resources or availability under the Credit
Facility or if the Common Stock does not maintain sufficient value or potential
acquisition candidates are unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company will be unable to
implement successfully its acquisition strategy. See "Use of Proceeds" and
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations."
Prior to consummation of the Offering, the Company intends to enter into
the Credit Facility to assist in the funding of future acquisitions and
operating activities. There can be no assurance as to the terms, timing or
ability of the Company to obtain such a credit facility. The Company may
substantially increase its level of indebtedness in the future to finance its
acquisition program. The degree to which the Company is financially
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<PAGE> 12
leveraged following such borrowings and the terms of the Company's indebtedness
could have important consequences to shareholders, including that (i) the
Company's ability to obtain additional financing in the future for working
capital and general corporate purposes, to make acquisitions, to fund capital
expenditures and to pay dividends may be impaired, (ii) a substantial portion of
the Company's cash flow from operations may have to be dedicated to the payment
of the principal of and interest on its indebtedness, (iii) certain of the
Company's borrowings may be at variable rates of interest, which will expose the
Company to the risk of increased interest rates, (iv) the Credit Facility will
contain certain financial and restrictive covenants which could limit the
ability of the Company to effect future debt or equity financings and may
otherwise restrict corporate activities, and (v) the Company may be more highly
leveraged than many of its competitors, which may place the Company at a
competitive disadvantage. See "Management's Discussion and Analysis of Pro Forma
Financial Condition and Pro Forma Results of Operations -- Liquidity and Capital
Resources" and "Business -- Acquisition Program."
ANTICIPATED DECLINE IN SOFTWARE PRICES AND MARGINS
Both the Company's licensed and proprietary software products will be
subject to price pressures over their life cycles which may result in price
declines and reductions in profit margins.
RAPID TECHNOLOGICAL CHANGE
The design automation and document management markets are characterized by
rapid technological change, changing customer needs, frequent new software and
hardware product introductions and evolving industry standards. The Company
believes that its future success will depend upon its ability to obtain
enhancements to its licensed software and hardware product lines and to
introduce new proprietary software product lines that keep pace with
technological developments and emerging industry standards. The introduction of
competing products embodying new technologies and the emergence of new industry
standards could render the Company's existing licensed and proprietary product
lines obsolete and unmarketable. Accordingly, the Company anticipates that
significant amounts of future revenue will need to be derived from products and
product enhancements which either do not exist today or have not been sold in
large enough quantities to ensure market acceptance. If the Company is unable to
obtain and introduce product enhancements and new products in a timely and
cost-effective manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially and adversely affected. In addition, it is possible that some
customers may defer purchases of existing products in anticipation of new
product releases.
PRODUCT DEFECTS
The Company's proprietary software products are highly complex and
sophisticated and could, from time to time, contain design defects or software
errors that are difficult to detect and correct. Any such defects, errors or
difficulties may cause delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or impair customer satisfaction with the Company's products.
PROTECTION OF INTELLECTUAL PROPERTY
The Company's products include or may include in the future certain
proprietary hardware and software. The Company has no patents and only one
copyright with respect to its proprietary products. For the most part, the
Company relies on the law of trade secrets, nondisclosure agreements with
employees and others, and restrictions incorporated into agreements with
customers to protect its proprietary products and information. Notwithstanding
these safeguards, it could be possible for competitors to obtain or imitate the
Company's proprietary software and hardware, and there is no assurance that the
Company could detect such violations or deter future violations. Furthermore,
enforcement of the Company's proprietary rights to its hardware and software may
be costly, time consuming or, in some situations, impossible. There can be no
assurance that the Company will be able to protect its proprietary information
adequately and to the extent that the Company has copyrighted software, that
competitors will not be able to develop similar technology independently.
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<PAGE> 13
PROPRIETARY TECHNOLOGY INFRINGEMENT
In the future, the Company may receive notices claiming that it is
infringing the proprietary rights of third parties and may become the subject of
infringement claims or legal proceedings by third parties with respect to
current or future products. Any such claim could be time consuming, result in
costly litigation, cause product shipment delays or force the Company to enter
into royalty or license agreements rather than dispute the merits of such claims
and have a material adverse effect on the Company's business, operating results
and financial condition.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following this Offering. Such sales also could make it more difficult for
the Company to issue or sell equity or equity-related securities in the future
at a time and price that it deems appropriate. The shares being sold in this
Offering will be freely tradable unless acquired by affiliates of the Company.
Simultaneously with the closing of this Offering, security holders of the
Founding Companies will receive, in the aggregate, approximately 875,508 shares
of Common Stock as a portion of the consideration for the Founding Companies.
The Selling Shareholder will hold, in the aggregate, an additional 24,480 shares
of Common Stock after giving effect to the 750,000 shares sold by the Selling
Shareholder in the Offering. None of these shares have been acquired in
transactions registered under the Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, may not be sold except in transactions
registered under the Securities Act or pursuant to an exemption from
registration. In addition, shareholders of the Founding Companies have agreed
not to sell any shares of Common Stock owned by them at the time of consummation
of the Acquisitions for a period of one year following this Offering. After the
expiration of such one year period, all of such shares may be sold in accordance
with Rule 144 under the Securities Act, subject to the applicable volume,
holding period and other limitations of Rule 144. In addition, shareholders of
the Founding Companies have the right to demand registration of up to 50% of
their shares of Common Stock after one year, and up to 100% of their shares of
Common Stock after two years, subject to certain limitations. See "Description
of Capital Stock -- Registration Rights."
The Company, its directors and officers, the controlling shareholders of
each of the Founding Companies, the Selling Shareholder and Madison Financial
Group Ltd. (which has the right to acquire 3,672 shares of Common Stock from the
Selling Shareholder), have agreed not to offer or sell any shares of Common
Stock of the Company for a period of 180 days (the "Lockup Period") following
the date of this Prospectus without the prior written consent of The
Robinson-Humphrey Company, LLC, except that the Company may issue Common Stock
in connection with future acquisitions or pursuant to earn-out arrangements with
certain Founding Company shareholders and may offer and sell shares of Common
Stock pursuant to the Company's 1997 Long-Term Incentive Plan (the "Plan"). See
"Certain Transactions."
Prior to the consummation of this Offering, the Company will have
outstanding under the Plan options to purchase 136,000 shares of Common Stock,
and at or shortly following consummation of the Offering the Company anticipates
that it will issue options to purchase up to 296,000 additional shares of its
Common Stock under the Plan. The Company intends to register the shares issuable
upon exercise of options granted under the Plan and, therefore, such shares will
be eligible for immediate resale in the public market. See "Shares Eligible for
Future Sale" and "Management -- Stock Options."
Additionally, at the time of consummation of the Offering, the Company will
have issued warrants to purchase an aggregate of 81,432 shares of Common Stock.
The shares issuable upon exercise of these warrants will not be registered under
the Securities Act and, therefore, if and when issued upon warrant exercise, may
not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration. See "Certain Transactions -- Other
Transactions."
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<PAGE> 14
CONTROL BY EXISTING SHAREHOLDERS
Following the completion of this Offering, members of the Board of
Directors, the shareholders of the Founding Companies, and MedPlus will
beneficially own approximately 29.0% of the outstanding shares of Common Stock
of the Company. The Company's Amended and Restated Articles of Incorporation
provide that there will be no cumulative voting. Although such directors and
other persons do not have any arrangements or understandings among themselves
with respect to the voting of the shares of Common Stock beneficially owned by
them, following the completion of the Offering, such persons may effectively be
able to control the affairs of the Company. See "Principal and Selling
Shareholders."
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Founding Companies have in the past experienced, and the Company may
experience in the future, quarterly variations in revenues, operating income and
cash flow as a result of many factors, including anticipation of new technology
releases, the timing of customer orders, additional selling, general and
administrative expenses to acquire and support new business, the timing and
magnitude of required capital expenditures and changes in the revenue mix among
the Company's various product and service offerings or in the relative
contributions of the several Founding Companies. Additionally, certain types of
customer contracts may require the Company to incur costs in periods prior to
recognizing revenues under those contracts. Further, the Company must plan its
operating expenditures based on revenue forecasts, and a revenue shortfall below
such forecasts in any quarter would likely adversely affect the Company's
operating results for that quarter. In addition, because the anticipated
financial benefits of the combination of the Founding Companies may not be
generated immediately, the Company's initial results as a combined company may
reflect corporate overhead that exceeds the realized benefits. As a result of
the foregoing and other factors, the Company may experience material
fluctuations in its results of operations on a quarterly basis, which may
contribute to volatility in the price of the Common Stock. Given the possibility
of such fluctuations, the Company believes that quarterly comparisons of the
results of its operations during any fiscal year may not be meaningful and that
results for any one fiscal quarter may not be indicative of future performance.
Furthermore, the Company will incur a non-recurring charge related to an
estimated non-cash charge of approximately $2.1 million for acquired in-process
research and development related to Synergis-PA's NFM(4) product in the fourth
quarter immediately after the completion of the Acquisitions and closing of the
Offering. Future results of operations could be adversely affected by similar
charges related to the write-off of in-process research and development in
conjunction with future acquisitions, to the extent that any in-process research
and development exists. See "Management's Discussion and Analysis of Pro Forma
Financial Condition and Pro Forma Results of Operations -- Financial Trends."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and of the Ohio Revised Code (the "ORC"), together or separately,
could discourage potential acquisition proposals, delay or prevent a change in
control of the Company and limit the price that certain investors might be
willing to pay in the future for the Common Stock.
The Company's Amended and Restated Articles of Incorporation provide for
"blank check" Preferred Stock, which may be issued without shareholder approval
and may also inhibit a change in control of the Company.
In addition, Sections 1701.01 and 1701.831 of the ORC contain provisions
that require shareholder approval of any proposed "control share acquisition" of
any Ohio corporation at any of three ownership thresholds: 20%, 33 1/3%, and
50%; and Chapter 1704 of the ORC contains provisions that restrict certain
business combinations and other transactions between an Ohio corporation and
interested shareholders. See "Description of Capital Stock."
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<PAGE> 15
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Company's
Common Stock. The initial public offering price was determined by negotiations
among the Company, the Selling Shareholder and the representatives of the
Underwriters, and may not be indicative of the market price for the Common Stock
after this Offering. See "Underwriting" for factors considered in determining
the initial public offering price. From time to time after this Offering, there
may be significant changes in general conditions in the economy or the
technology sector, or other developments affecting the Company or its
competitors, which could cause the market price of the Common Stock to fluctuate
substantially. The equity markets have, on occasion, experienced significant
price and volume fluctuations that have affected the market prices for many
companies' securities and that have often been unrelated to the operating
performance of those companies. Any such fluctuations that occur following
completion of this Offering may adversely affect the market price of the Common
Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $11.20 per share. See "Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking statements" which include
statements regarding the intent, belief or current expectations of the Company,
its directors or its executive officers with respect to, among other things: (i)
trends affecting the Company's financial condition or results of operations;
(ii) the Company's business and growth strategies; (iii) the use of the proceeds
to the Company of this Offering. Prospective investors are cautioned that any
such forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those projected in the forward-looking statements as a result of various
factors. Important factors that could cause such differences are identified
under "Risk Factors" above.
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<PAGE> 16
THE COMPANY
UDMS is both a Founding Company and the entity which is making the
Acquisitions of the other nine Founding Companies. Immediately prior to
effectiveness of the Registration Statement of which this Prospectus is a part,
UDMS changed its name to Synergis Technologies, Inc., a name previously used by
another of the Founding Companies, which is referred to in this Prospectus as
"Synergis-PA."
Throughout this Prospectus, reference is made to certain of the customers
and suppliers of the Company or the Founding Companies. For convenience
purposes, the following customers or suppliers are referred to as follows:
"Autodesk" refers to Autodesk, Inc.; "Bentley" refers to Bentley Systems, Inc.;
"Sun Microsystems" refers to Sun Microsystems, Inc.; "Tri-Star" refers to
Tri-Star Computer Comp any; "SDRC" refers to Structural Dynamics Research
Corporation; "Softdesk" refers to the Softdesk line of products sold by
Autodesk; "Microsoft" refers to Microsoft Corp.; "Hewlett-Packard" refers to
Hewlett-Packard Corporation; "Intergraph" refers to Intergraph Corporation; and
"Intel" refers to Intel Corporation.
The Company believes it will be the largest independent value-added
reseller of design automation products and services in the United States.
Simultaneously with the closing of this Offering, the Company will acquire nine
established design automation and document management businesses with 18 offices
located in the following states: California, Colorado, Georgia, Kentucky,
Michigan, Missouri, New Hampshire, New Mexico, North Carolina, Ohio,
Pennsylvania, and Virginia. The Company will employ approximately 325
individuals, including approximately 90 highly skilled technical personnel, will
offer hardware and software products from approximately 55 manufacturers, and
will have access to an installed customer base of approximately 34,000
businesses. On a pro forma basis, the Company had revenues for the year ended
December 31, 1996 and the six months ended June 30, 1997 of $48.9 million and
$24.1 million, respectively. Through the acquisition and integration of the
Founding Companies, the Company expects to expand geographic penetration of the
existing businesses, to capitalize on substantial cross-selling opportunities,
to provide design automation products and services on both a local and national
basis and to establish a national customer service and support program.
The Company will provide its customers with licensed and proprietary
CAD/CAM/CAE and related document management solutions. The Company will
complement those offerings with a wide range of sophisticated customer support
and consulting services including systems integration, customization, training,
process re-engineering and call center and help desk support. As a result, the
Company will offer the comprehensive products, professional services, support,
and training necessary for customers to implement and maintain complete,
state-of-the-art design automation systems and for the Company to become an
integral part of its customers' technology teams.
The design automation reseller industry has experienced rapid change from
direct selling by manufacturers to its present configuration of numerous local
and regional value added resellers. In 1990, ten geographically diverse local
and regional resellers formed G-10, Inc. ("G-10"). Originally formed as a
vehicle to achieve combined buying economies, G-10 evolved into a means of
sharing best practices and keeping abreast of industry trends. Periodically,
certain members would discuss combining their companies into a larger entity;
however, as a result of the lack of capital and the inability to find outside
management capable of leading a combined organization, most G-10 members today
remain independent businesses. Five of the Founding Companies are members of
this industry group.
In late 1996, certain G-10 members commenced discussions with UDMS and its
parent company, MedPlus, to facilitate the organization of a number of local and
regional resellers into a single business entity. During early 1997, Terry L.
Theye, former Chairman and Chief Executive Officer of The Future Now, Inc., a
national reseller of computer and consulting products, agreed to lead these
organizational efforts, which resulted in the formation of the Company.
The Company believes that by uniting value added resellers in diverse
geographic regions with an experienced management team, it will create a single
entity with the national presence, capital, human resources and name recognition
required to serve more and larger organizations while maintaining local focus
and management. Additionally, the Company believes that its ability to integrate
certain document manage-
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<PAGE> 17
ment solutions with more traditional design automation tools, as well as its
ability to offer access to certain proprietary software, will be viewed
positively by the growing number of large and diverse users of these products.
Upon consummation of this Offering, the ten established businesses
described below will be combined to form the Company. For a description of the
transactions pursuant to which these businesses will be combined, see "Certain
Transactions -- The Acquisitions."
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC. Headquartered in Cincinnati,
Ohio, UDMS' primary focus is the development, marketing and support of document
management software, including Step2000, a leading object oriented document
management and workflow application. Founded in 1990, UDMS was acquired by
MedPlus in December 1995. UDMS' proprietary software is sold nationwide.
APPLIED SOFTWARE TECHNOLOGY, INC. ("Applied"). Headquartered in Atlanta,
Georgia, and with an office in Greensboro, North Carolina, Applied's primary
focus is the sale of design automation software solutions. From 1985 through
1996, Applied received Autodesk's award for Outstanding Achievement in Sales
from 1993 through 1996 it received Autodesk's award for Outstanding Achievement
in Education (Southeastern Region). Applied is an authorized Autodesk System
Center for mechanical design and AEC, and is Autodesk's exclusive representative
to the educational market in the states of Georgia and North Carolina. Applied
also is certified as a Microsoft Solutions Provider, participates with Sun
Microsystems in the Sun Competency 2000 program, and is an authorized Tri-Star
reseller. Applied markets a workflow enabled and electronic document management
system private-labeled from UDMS. Applied is an authorized reseller of SDRC
products. Applied was founded in 1982 and serves the southeastern region.
ACCESS CORPORATION ("ACCESS"). Headquartered in Cincinnati, Ohio, and with
facilities in Hebron, Kentucky and Irvine, California, ACCESS' primary focus is
nationwide service of hardware and software for its installed base of customers
and third parties. ACCESS develops and markets document management software and
is the sole North American distributor of the Cimage product line, a leading
document management software product. ACCESS also sells certain peripheral
products including plotters, scanners and printers. ACCESS was founded in 1963
and markets its services and products nationwide.
DTI TECHNOLOGIES, INC. ("DTI"). Headquartered in Bedford, New Hampshire,
DTI's primary focus is the sale of Autodesk design automation software and
related services. DTI is one of the leading New England providers of Autodesk
software, related technologies and services to that region's mechanical design,
AEC, GIS, and educational markets. DTI is an authorized Autodesk System Center
for mechanical design, AEC, GIS, data management and plant design, and is
Autodesk's exclusive representative to the educational market in the states of
Massachusetts, New Hampshire and Vermont. DTI has been a Top Dealer for Autodesk
for the past twelve years and was awarded the Autodesk Best Customer Service and
Support Award in 1996. Services offered by DTI include system installation,
software and hardware support, software development and customization, and
network installation, support and training. DTI is a certified Bentley reseller
and an authorized Tri-Star reseller. DTI was founded in 1984 and serves New
England and New York.
TECHNICAL SOFTWARE, INC. ("Technical Software"). Headquartered near
Cleveland, Ohio, Technical Software's primary focus is the sale of software,
hardware and related services for CAD, solid modeling, mapping, document
management, networking and scanning. Technical Software has been an Autodesk Top
Dealer for the last twelve years and a Softdesk Top Dealer for the last six
years and was awarded the Autodesk Best Customer Service and Support Award in
1991 and 1995. Technical Software is an authorized Autodesk System Center for
GIS and is Autodesk's exclusive representative to the educational market in the
state of Ohio. Technical Software is also a certified Bentley reseller. Founded
in 1982, Technical Software primarily serves Ohio.
SYNERGIS TECHNOLOGIES, INC. ("Synergis-PA"). Headquartered in Quakertown,
Pennsylvania, and with offices in Blue Bell and York, Pennsylvania,
Synergis-PA's primary focus is the sale of design automation software, including
Autodesk products and NFM(3), its own proprietary document management software
developed for design automation. Synergis-PA also offers systems integration,
networking services, custom programming and training. Synergis-PA has been an
Autodesk Top Dealer from 1986 through 1996 and was
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<PAGE> 18
awarded the Autodesk Best Customer Service and Support Award in 1992.
Synergis-PA is an authorized Autodesk System Center for both mechanical design
and data management, and is Autodesk's exclusive representative to the
educational market in the states of Pennsylvania and New Jersey. Synergis-PA was
founded in 1985 and serves the Mid-Atlantic region.
MID-WEST CAD, INC. ("Mid-West CAD"). Headquartered in Lee's Summit,
Missouri, Mid-West CAD's primary focus is the sale of software, services and
hardware to AEC firms. Mid-West CAD is an authorized Autodesk System Center for
AEC and mechanical design. In 1996, Autodesk awarded Mid-West CAD the Ten Years
of Excellence Award for ten consecutive years of receiving Autodesk's Top Dealer
Award. Mid-West CAD also sells Bentley design automation software and is an
authorized reseller of Tri-Star, Hewlett-Packard and Intergraph hardware and
peripherals. Mid-West CAD was founded in 1985 and primarily serves Kansas and
Missouri.
CADD MICROSYSTEMS, INC. ("CADD Microsystems"). Headquartered in
Alexandria, Virginia, CADD Microsystems' primary focus is the sale of mechanical
design and AEC software and services. CADD Microsystems has been the top selling
Autodesk reseller to the federal government since 1991 and is an authorized
Autodesk System Center for AEC. From 1990 through 1996 CADD Microsystems
received Autodesk's Top Dealer Award and, in 1993, was awarded Autodesk's Best
Customer Service and Support Award. CADD Microsystems also offers systems
integration, project management and training. CADD Microsystems was founded in
1985 and primarily serves the Washington, D.C. metropolitan area, including
Virginia and Maryland.
DEVTRON, RUSSELL INC. ("Devtron Russell"). Headquartered in Gladwin,
Michigan, and with offices in Grand Rapids and Traverse City, Michigan, Devtron
Russell's primary focus is the sale of Autodesk products and related services.
In 1995, Autodesk awarded Devtron Russell the Ten Years of Excellence Award for
ten consecutive years of receiving Autodesk's annual Top Dealer Award. It is an
authorized Autodesk System Center for mechanical design. Founded in 1969,
Devtron Russell primarily serves Michigan.
COMPUTERS FOR DESIGN, INC. ("Computers for Design"). Headquartered near
Denver, Colorado, and with an office in Albuquerque, New Mexico, Computers for
Design's primary focus is the sale of CAD systems hardware, software and related
services to government and commercial customers primarily in the GIS market
segment. Computers for Design has received Autodesk's award for Outstanding
Sales and Service to Government. In 1996, Computers for Design was named to the
Bentley's Winner's Circle. Computers for Design commenced business in 1984 and
primarily serves the Rocky Mountain region.
The Company is an Ohio corporation. Its principal offices will be located
at 4350 Glendale-Milford Road, Cincinnati, Ohio 45241 and its telephone number
will be (513) 786-8350.
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USE OF PROCEEDS
In connection with the Acquisitions, the Company or the Founding Companies
will make the following payments totalling approximately $21.7 million:
<TABLE>
<S> <C>
Cash portion of the purchase price of the Founding Companies........... $ 15.6 million
Payment of indebtedness of the Founding Companies (including $1.3
million to be paid to the Selling Shareholder)....................... 3.6 million
Retirement of preferred stock of ACCESS................................ 1.5 million
Payment of AAA Notes and related Accounts.............................. 0.5 million
Payment of the expenses of the Acquisitions............................ 0.5 million
-------------
Total........................................................ $ 21.7 million
=============
</TABLE>
The net proceeds from the sale by the Company of 1,850,000 shares of Common
Stock offered hereby are estimated to be approximately $19.6 million, based upon
an assumed initial public offering price of $12.00 per share, after deducting
the estimated underwriting discount and offering expenses payable by the Company
($23.9 million if the Underwriters' over-allotment option is exercised in full).
The Company expects to have approximately $2.5 million of cash and prepaid
Offering and Acquisition costs after giving effect to the Acquisitions and
before receipt of the net proceeds of the Offering. This will result in total
available cash and prepaid Offering and Acquisition costs of approximately $22.1
million. Of this total, the $21.7 million referred to above will be paid in
connection with the Acquisitions, leaving approximately $0.4 million available
for working capital and general corporate purposes, which are expected to
include future acquisitions of companies operating in the technology sector. As
of the date of this Prospectus, the Company currently has no definitive
agreements with respect to any acquisitions other than of the Founding
Companies. See "Risk Factors -- Risk Generally Associated with Acquisitions."
Pending such uses, the Company intends to invest the net proceeds of the
Offering in short-term, investment-grade, interest-bearing instruments. The
Company intends to enter into the Credit Facility to assist in the funding of
future acquisitions and operating activities. The Company also may utilize
Common Stock to fund future acquisitions. There can be no assurance that the
Credit Facility or the Common Stock will be sufficient to fund the Company's
needs. See "Management's Discussion and Analysis of Pro Forma Financial
Condition and Pro Forma Results of Operations -- Liquidity and Capital
Resources."
Details of the expenses related to the Acquisitions are provided below:
Consummation of Acquisitions
The Company intends to use approximately $15.6 million of the estimated net
proceeds of the Offering to pay the cash portion of the purchase price for the
Founding Companies, all of which will be paid to former shareholders of the
Founding Companies. See "Certain Transactions -- Other Transactions."
Repayment of Indebtedness
In addition, approximately $3.6 million of the estimated net proceeds of
the Offering will be used to repay certain outstanding interest-bearing debt of
the Founding Companies, based on indebtedness outstanding as of
18
<PAGE> 20
June 30, 1997. See "Certain Transactions -- The Acquisitions." The following
table describes the outstanding indebtedness to be repaid as of June 30, 1997
and the purpose for which such indebtedness was incurred:
<TABLE>
<CAPTION>
PURPOSE OF
DEBT
PRINCIPAL AS OF JUNE 30, 1997 JUNE 30, 1997 INCURRED INCURRED
------------------------------- INTEREST SINCE SINCE
Dollars in thousands SHORT TERM LONG TERM TOTAL RATE MATURITY OCTOBER 1, 1996 OCTOBER 1, 1996
---------- --------- ------ ------------- --------- --------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
UDMS
Due to MedPlus....... $ 956 $ -- $ 956 9.50% 1997 $662 Working capital
Convertible
debentures to
MedPlus............ 300 -- 300 10.00 Demand -- Not Applicable
------ ------ ------
Total.......... $ 956 $ -- $1,256
DTI
Line of Credit....... $ 40 $ -- $ 40 10.50% Demand $40 Working capital
Note Payable......... -- 378 378 6.50 1998 378 Inventory
Notes Payable........ 347 41 388 10.50-10.75 1999-2003 318 Working capital
------ ------ ------
Total.......... $ 387 $ 419 $ 806
TECHNICAL SOFTWARE
Notes Payable........ $ 74 $ 130 $ 204 9.00-9.50% 1998-2000 $204 Working capital
MID-WEST CAD
Notes Payable........ $ 13 $ 10 $ 23 7.50-11.00% 1997-1999 -- Not Applicable
CADD MICROSYSTEMS
Line of Credit....... $ 40 $ -- $ 40 10.75% 2002 -- Not Applicable
Notes Payable........ 40 130 170 9.75 Demand -- Not Applicable
------ ------ ------
Total.......... $ 80 $ 130 $ 210
COMPUTERS FOR DESIGN
Line of Credit....... $ 150 $ -- $ 150 9.50% 1998 -- Not Applicable
Note Payable......... 11 -- 11 10.50 Demand $11 Capital expenditures
------ ------ ------
Total.......... $ 161 $ -- $ 161
APPLIED
Note Payable......... $ 88 $ 97 $ 185 10.00% 1997-1999 -- Not Applicable
Line of Credit....... 500 -- 500 9.50 1998 -- Not Applicable
------ ------ ------
Total.......... $ 588 $ 97 $ 685
SYNERGIS -- PA
Note Payable......... $ 13 $ 87 $ 100 10.00% 2002 -- Not Applicable
Note Payable......... 6 3 9 7.95 1999 $9 Capital expenditures
------ ------ ------
Total.......... $ 19 $ 90 $ 109
DEVTRON RUSSELL
Note Payable......... $ -- $ 54 $ 54 Variable 1998 -- Not Applicable
rate
mortgage
Note Payable......... 16 13 29 8.70-10.75% 1998-1999 -- Not Applicable
Note Payable......... 7 -- 7 10.00 Indefinite -- Not Applicable
Line of Credit....... 75 -- 75 10.00 Demand $75 Working capital
------ ------ ------
Total.......... $ 98 $ 67 $ 165
------ ------ ------
Grand Total.... $2,676 $ 943 $3,619
====== ====== ======
</TABLE>
Repayment of AAA Note
Prior to consummation of the Acquisitions, certain of the Founding
Companies had elected to be treated as S Corporations under the Internal Revenue
Code of 1986, as amended. These elections will be terminated as a result of the
Acquisitions, and approximately $0.5 million will be used to pay AAA Notes
issued in connection with that termination and AAA Accounts outstanding at June
30, 1997. See "Management Discussion and Analysis of Pro Forma Financial
Condition and Results of Operations -- S Corporation Elections."
Expenses of the Acquisitions
The total expenses of the Acquisitions are expected to be approximately
$0.5 million, all of which will be paid by the Company.
19
<PAGE> 21
DIVIDEND POLICY
The Company has never paid cash dividends. For the foreseeable future, the
Company anticipates that any earnings will be retained for the operation and
expansion of its business, for additional acquisitions, and for general
corporate purposes and that it will not pay cash dividends. In addition, the
Company anticipates that any credit facility to which it becomes a party will
include restrictions on the ability of the Company to pay dividends without the
lender's consent.
Prior to consummation of the Acquisitions, certain of the Founding
Companies had elected to be treated as S Corporations under the Internal Revenue
Code of 1986, as amended (the "Code"). In general, an S Corporation is not
treated as a separate taxable entity, and an S Corporation's gains, income,
losses and separately stated tax items are taxed to its shareholders on a pro
rata basis. Certain of the Founding Companies have made periodic distributions
to their shareholders. The balance of taxed or taxable accumulated earnings
which have not been distributed is reflected in the AAA Account for each such
Founding Company. In connection with the Acquisitions, the S Corporation status
of those Founding Companies will terminate and, therefore, those Founding
Companies have made a distribution to their existing shareholders of the AAA
Notes in an aggregate principal amount estimated to equal approximately $0.4
million at the time of the Offering. The aggregate principal amount of the AAA
Notes will be approximately equal to the undistributed earnings in the AAA
Accounts on which such shareholders either have paid or will be required to pay
income taxes. The amount of the AAA Notes includes an estimate of taxable income
through the anticipated effective date of the Offering. The AAA Notes will
become obligations of the Company at the time of the closing of the Offering and
will be repaid from the Company's available balance of cash and cash equivalents
immediately thereafter. Following the Acquisitions, the Company will be subject
to federal and state income taxes.
In addition, approximately $0.1 million will be distributed to the
shareholders of Synergis-PA in the form of AAA Notes related to the taxes
payable by such shareholders on the amounts included in the AAA Account for
Synergis-PA as of June 30, 1997.
20
<PAGE> 22
CAPITALIZATION
The following table sets forth the Company's (i) short-term debt, including
current maturities of long-term obligations and notes payable to shareholders;
(ii) long-term obligations and notes payable to shareholders, less current
maturities; and (iii) capitalization at June 30, 1997 on a pro forma combined
basis after giving effect to: (a) the 8,334.92-for-1 stock split to be effected
immediately prior to Offering and a contribution to the capital of the Company
by MedPlus of 59,012 shares of the Company's Common Stock; (b) the consummation
of the Acquisitions and the issuance of 875,508 shares of Common Stock in
connection therewith and as further adjusted to effect the issuance and sale of
the 1,850,000 shares of Common Stock offered hereby and the application of the
estimated net proceeds therefrom, based on an initial public offering price of
$12.00 per share. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Pro Forma Financial
Condition and Pro Forma Results of Operations" and the Pro Forma Combined
Financial Statements of the Company and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
UDMS COMBINED
Dollars in thousands HISTORICAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Short-term debt and current maturities of long-term obligations...... $ 1,256(1) $ 159(2)
======= ========
Long-term obligations less current maturities........................ -- 558(3)
Shareholders' equity:
Preferred stock, 100,000 shares authorized and none issued and
outstanding, pro forma combined as adjusted..................... --
Common stock, no par value, 850 shares authorized and 100 shares
issued and outstanding on a historical basis, and 10,000,000
shares authorized and 3,499,988 shares issued and outstanding,
pro forma combined as adjusted(4)(5)............................ -- --
Additional paid-in capital......................................... 2,194 28,602
Accumulated deficit................................................ (1,822) (1,822)
Treasury stock..................................................... -- --
Unearned compensation.............................................. (25) (25)
------- --------
Total shareholders' equity................................. 347 26,755
------- --------
Total capitalization................................................. $ 347 $27,313
======= ========
</TABLE>
- ---------------
(1) Includes: (i) $956,000 payable to MedPlus under the Reimbursement Agreement
dated May 28, 1997 and (ii) $300,000 related to the debenture to MedPlus.
See "Use of Proceeds" and "Certain Transactions -- Other Transactions."
(2) Includes the current portion of capital leases and other long-term
obligations not being repaid from the proceeds of the Offering at June 30,
1997.
(3) Includes the long-term portion of capital leases and other long-term
obligations not being repaid from the proceeds of the Offering at June 30,
1997.
(4) Includes 875,508 shares to be issued to the owners of the Founding
Companies.
(5) Excludes 513,432 shares of Common Stock issuable upon the exercise of stock
options and warrants to be outstanding on the date of this Prospectus and
288,000 additional shares reserved for future issuance under the Company's
1997 Long-Term Incentive Plan. See "Certain Transactions" and
"Management -- Employment Agreements; Executive Compensation,"
"-- Director's Compensation," and "-- Stock Options."
21
<PAGE> 23
DILUTION
The deficit in pro forma net tangible book value of the Company as of June
30, 1997 was approximately $16.6 million, or $10.06 per share of Common Stock,
after giving effect to the Acquisitions. The deficit in net tangible book value
per share represents the amount of total tangible assets of the Company reduced
by the amount of total liabilities and divided by the number of shares of Common
Stock issued and outstanding after giving effect to the Acquisitions. Net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering. After giving effect to the sale of 1,850,000
shares of Common Stock by the Company and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds," the pro forma net
tangible book value of the Company as of June 30, 1997 would have been
approximately $2.8 million, or $0.80 per share. This represents an immediate
increase in pro forma net tangible book value of $10.86 per share as of June 30,
1997 to shareholders and an immediate dilution in pro forma net tangible book
value of $11.20 per share to new investors purchasing Common Stock in the
Offering. The following table illustrates this dilution per share to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................ $12.00
Pro forma deficit in net tangible book value per share at June 30, 1997
after the Acquisitions and before the Offering........................... (10.06)
Increase per share attributable to sale of Common Stock in the Offering.... 10.86
--------
Pro forma net tangible book value per share after the Offering............. 0.80
Dilution per share to new investors...................................... $11.20
</TABLE>
The following table sets forth, on a pro forma basis, giving effect to the
Acquisitions and the related transactions, the average price per share paid by
the existing shareholders and the new investors adjusted to give effect to the
sale by the Company of 1,850,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $12.00 per share, and before deducting
the estimated underwriting discount and offering expenses payable by the
Company:
<TABLE>
<CAPTION>
TOTAL SHARES PURCHASED CONSIDERATION PAID
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)........... 1,649,988 47.1% $ 8,807,000 28.4% $ 5.34
New investors...................... 1,850,000 52.9% 22,200,000 71.6% 12.00
------ ----- ------ -----
Total.................... 3,499,988 100.0% $31,007,000 100.0%
====== ===== ====== =====
</TABLE>
- ---------------
(1) Total consideration paid by the existing shareholders represents: (i)
approximately $2.0 million paid by MedPlus related to its acquisition of
UDMS in December, 1995, including contingent consideration paid since the
date of acquisition of approximately $0.3 million; and (ii) the fair value
of 875,508 shares of Common Stock issued to the shareholders of the Founding
Companies in the Acquisitions, which were valued at a 35% discount from the
initial offering price, or $7.80 per share, based upon the fact that
substantially all of the holders of these shares will not have the right to
demand registration of these shares by the Company until one year after the
consummation of the Offering and, in such case, may only demand that the
Company register up to 50% of the shares. Beginning two years after the
consummation of the Offering, the holders of these shares may demand that
the Company register 100% of these shares.
The foregoing computations assume no exercise of outstanding stock options
and warrants. Upon consummation of the Offering, there will be outstanding
options to purchase 296,000 shares of Common Stock at the initial public
offering price, options to purchase 136,000 shares of Common Stock at an
exercise price of $9.60 and warrants to purchase 45,842 shares of Common Stock
at a weighted-average exercise price of $3.67. In addition a further warrant was
issued to purchase 35,590 shares of Common Stock at the initial public offering
price. To the extent the holders exercise such options and warrants, there will
be further dilution to new investors. See "Management -- Stock Options."
22
<PAGE> 24
SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following Selected Pro Forma Combined Financial Data for the year ended
December 31, 1996 and the six months ended June 30, 1996 and 1997 gives effect
to the Acquisitions and the consummation of this Offering and the application of
the estimated net proceeds therefrom as if these transactions had occurred as of
January 1, 1996. The Company will acquire the Founding Companies simultaneously
with and as a condition to the consummation of this Offering. UDMS, one of the
Founding Companies, has been identified as the accounting acquirer for financial
statement presentation purposes. The Acquisitions will be recorded using the
purchase method of accounting. See "Selected Financial Data," "Management's
Discussion and Analysis of Pro Forma Financial Condition and Pro Forma Results
of Operations," "Certain Transactions" and the Pro Forma Combined Financial
Statements and the notes thereto included elsewhere in this Prospectus.
The Selected Pro Forma Combined Financial Data has been prepared by the
Company based, in part, on the historical financial statements of the Founding
Companies, which financial statements are included elsewhere in the Prospectus,
and adjusted for purposes of the Pro Forma Combined Financial Statements,
whereby the statement of operations information for the Founding Companies has
been presented for the year ended December 31, 1996 and for the six months ended
June 30, 1996 and 1997 even though certain of the Founding Companies possessed
fiscal year-ends other than December 31, 1996. The pro forma adjustments are
based upon preliminary estimates, currently available information and certain
assumptions that management deems appropriate. The preliminary estimates
regarding allocation of the purchase price is subject to uncertainties
including, among others, the final Offering proceeds and the corresponding
number of shares issued to the Founding Company shareholders, as well as the
final determination of the fair value of the net assets acquired. In
management's opinion, the preliminary estimates regarding allocation of the
purchase price of the Founding Companies are not expected to materially differ
from the final allocation. The purchase price allocation will be finalized after
the closing of the Acquisitions. The Selected Pro Forma Combined Financial Data
presented herein are not necessarily indicative of the results the Company would
have obtained had such events occurred at the beginning of the period, as
assumed, or of the future results of the Company, as a combined entity.
23
<PAGE> 25
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA(a)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED 30,
DECEMBER 31, -----------------------
Dollars in thousands, except per share data 1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
Total revenues.......................................... $ 48,905 $ 26,525 $ 24,133
Costs of revenues....................................... 32,741 16,851 17,093
Selling, general and administrative expenses............ 16,256 8,131 7,327
Amortization of goodwill and other identifiable
intangibles........................................... 914 457 457
---------- ---------- ----------
Operating income (loss)................................. (1,006) 1,086 (744)
Interest income, net.................................... 124 87 33
Other income (expense), net............................. 85 (9) 26
---------- ---------- ----------
Income (loss) before income taxes....................... (797) 1,164 (685)
Income tax expense (benefit)............................ (342) 380 (220)
---------- ---------- ----------
Net income (loss)....................................... (455) $ 784 $ (465)
========== ========== ==========
Pro forma net loss per share............................ $ (0.13) $ (0.13)
========== ==========
Shares used in computing pro forma net loss per share... 3,559,000 3,559,000
========== ==========
</TABLE>
PRO FORMA COMBINED BALANCE SHEET DATA(a)
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------------------------------------------------
ADJUSTMENTS
UDMS PRO FORMA ------------------------ PRO FORMA
Dollars in thousands HISTORICAL COMBINED ACQUISITION OFFERING AS ADJUSTED
----------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................... $ 11 $ 2,224 $(17,994) $ 16,160 $ 390
Working capital(deficit).................... (1,342) 755 (18,256) 18,986 1,485
Goodwill and other identifiable intangibles,
net....................................... 914 1,797 22,122 -- 23,919
Total assets................................ 1,979 16,149 3,397 15,960 35,506
Short-term debt and current maturities of
long-term obligations..................... 1,256 2,835 -- (2,676) 159
Long-term obligations less current
maturities................................ -- 1,501 -- (943) 558
Shareholders' equity (deficit).............. 347 2,279 19,579 4,897 26,755
</TABLE>
See accompanying notes to pro forma combined financial data.
24
<PAGE> 26
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(a)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------
ACQUISITION OFFERING PRO FORMA,
Dollars in thousands, except per share data HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:
Hardware.................................... $ 9,793 $ 982(f) $ -- $10,775
Software.................................... 22,249 2,055(f) -- 24,304
Services, consulting and other.............. 13,459 367(f) -- 13,826
--------- ------ --------- -----
Total revenues....................... 45,501 3,404 -- 48,905
Costs and expenses:
Hardware.................................... 7,547 816(f) -- 8,363
Software.................................... 15,103 1,332(f) -- 16,435
Services, consulting and other.............. 7,943 -- -- 7,943
Selling and marketing....................... 7,027 408(f) -- 7,435
Amortization of goodwill and other
identifiable intangibles.................. 34 880(b) -- 914
General and administrative.................. 8,385 436(c),(f) -- 8,821
--------- ------ --------- -----
Total costs and expenses............. 46,039 3,872 -- 49,911
--------- ------ --------- -----
Operating loss................................ (538) (468) -- (1,006)
Other income (expense), net:
Interest.................................... (106) (20)(f) 250(d) 124
Other....................................... 85 -- -- 85
--------- ------ --------- -----
Income (loss) before income taxes............. (559) (488) 250 (797)
Income tax expense (benefit).................. 100 (542)(e) 100(e) (342)
--------- ------ --------- -----
Net income (loss)............................. $ (659) $ 54 $ 150 $(455)
========= ====== ========= =====
Supplemental pro forma data:
Pro forma net loss per share................ $ (0.13)
========
Pro forma weighted average shares
outstanding(g)............................ 3,559,000
=====
</TABLE>
See accompanying notes to pro forma combined financial data.
25
<PAGE> 27
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(a), CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------
ACQUISITION OFFERING PRO FORMA,
Dollars in thousands HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:
Hardware................................... $ 5,030 $ 982 (f) $ -- $ 6,012
Software................................... 11,140 2,055 (f) -- 13,195
Services, consulting and other............. 6,951 367 (f) -- 7,318
------- ------ ---- -------
Total revenues..................... 23,121 3,404 -- 26,525
Costs and expenses:
Hardware................................... 4,020 816 (f) -- 4,836
Software................................... 6,778 1,332 (f) -- 8,110
Services, consulting and other............. 3,905 -- -- 3,905
Selling and marketing...................... 3,468 408 (f) -- 3,876
Amortization of goodwill and other
identifiable intangibles................ -- 457 (b) -- 457
General and administrative................. 3,607 648 (c),(f) -- 4,255
------- ------ ---- -------
Total costs and expenses........... 21,778 3,661 -- 25,439
------- ------ ---- -------
Operating income (loss)...................... 1,343 (257) -- 1,086
Other income (expense) net:
Interest................................... (4) (20) (f) 111(d) 87
Other...................................... (9) -- -- (9)
------- ------ ---- -------
Income (loss) before income taxes............ 1,330 (277) 111 1,164
Income tax expense........................... 223 113 (e) 44(e) 380
------- ------ ---- -------
Net income (loss)............................ $ 1,107 $ (390) $ 67 $ 784
======= ====== ==== =======
</TABLE>
See accompanying notes to pro forma combined financial data.
26
<PAGE> 28
PRO FORMA COMBINED STATEMENTS OF OPERATIONS(a), CONTINUED
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------
ACQUISITION OFFERING PRO FORMA,
Dollars in thousands, except per share data HISTORICAL ADJUSTMENTS ADJUSTMENTS AS ADJUSTED
---------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues:
Hardware......................................... $ 4,580 $ -- $ -- $ 4,580
Software......................................... 12,587 -- -- 12,587
Services, consulting and other................... 6,966 -- -- 6,966
------- ----- ---- ---------
Total revenues............................ 24,133 -- -- 24,133
Costs and expenses:
Hardware......................................... 3,774 -- -- 3,774
Software......................................... 8,539 -- -- 8,539
Services, consulting and other................... 4,780 -- -- 4,780
Selling and marketing............................ 3,472 -- -- 3,472
Amortization of goodwill and other identifiable
intangibles.................................... 41 416 (b) -- 457
General and administrative....................... 4,067 (212) (c) -- 3,855
------- ----- ---- ---------
Total costs and expenses.................. 24,673 204 -- 24,877
------- ----- ---- ---------
Operating loss..................................... (540) (204) -- (744)
Other income (expense), net:
Interest......................................... (109) -- 142(d) 33
Other............................................ 26 -- -- 26
------- ----- ---- ---------
Income (loss) before income taxes.................. (623) (204) 142 (685)
Income tax expense (benefit)....................... 25 (302) (e) 57(e) (220)
------- ----- ---- ---------
Net income (loss).................................. $ (648) $ 98 $ 85 $ (465)
======= ===== ==== =========
Supplemental pro forma data:
Pro forma net loss per share..................... $ (0.13)
=========
Pro forma weighted average shares
outstanding(g)................................. 3,559,000
=========
</TABLE>
See accompanying notes to pro forma combined financial data.
27
<PAGE> 29
NOTES TO PRO FORMA COMBINED FINANCIAL DATA
(a) Includes the effects of: (i) the sale of 1,850,000 shares of Common Stock at
an assumed initial public offering price of $12.00 per share, net of
expenses and underwriting discount, and after giving effect to $0.2 million
of prepaid Offering expenses for net proceeds of $19.8 million (ii) the use
of $15.6 million of the estimated net proceeds of the Offering to pay the
cash portion of the purchase price of the Founding Companies payable at
closing; (iii) the issuance of 875,508 shares of Common Stock to the
shareholders of the Founding Companies; (iv) estimated costs of the
Acquisitions of $0.5 million; (v) the elimination of common stock,
additional paid-in capital, retained earnings and treasury stock of the
Founding Companies (exclusive of UDMS) as a result of the Acquisitions; (vi)
the use of a portion of the estimated net proceeds of the Offering to pay
approximately $3.6 million in interest-bearing debt originally incurred by
the Founding Companies and outstanding at June 30, 1997; (vii) the use of
$1.5 million in cash and cash equivalents to repay the holders of ACCESS'
preferred stock in conjunction with the acquisition of ACCESS by UDMS;
(viii) the repayment of the AAA Notes issued to the shareholders of
Technical Software related to approximately $0.4 million in the
shareholders' AAA Accounts as of June 30, 1997, and (ix) the distribution to
the shareholders of Synergis-PA of approximately $0.1 million related to the
taxes payable by the shareholders on amounts included in their AAA Accounts
as of June 30, 1997.
(b) Includes additional amortization expense for the goodwill and other
identifiable intangible assets recorded in connection with the Acquisitions
as if they all occurred as of January 1, 1996. The goodwill is being
amortized on a straight-line basis over an estimated life of 25 years and
the identifiable intangible assets are being amortized over an estimated
life of 10 years. The amortization period for goodwill was determined by the
Company with consideration given to the reputation of each Founding Company,
the length of each Founding Company's operating history and the potential
market in which the Founding Company operates.
(c) Includes pro forma reductions in compensation to the owners of the Founding
Companies, to which they have agreed prospectively, in the amounts of
approximately $0.4 million for the year ended December 31, 1996 and $0.2
million in each of the six months periods ended June 30, 1996 and 1997.
Excludes annual compensation of $0.5 million based upon employment
agreements with the Company's executive management and other costs
associated with being a public company. See "Management--Employment
Agreements; Executive Compensation."
(d) Includes a pro forma adjustment to reflect the elimination of interest
expense in connection with the repayment of interest-bearing debt of the
Founding Companies from the net estimated proceeds of the Offering as
described under "Use of Proceeds," as if the Acquisitions and Offering had
occurred as of January 1, 1996.
(e) Includes pro forma adjustments to reflect the provisions for income taxes
related on the pro forma combined results at effective tax rates of 42.9%,
32.7% and 32.1% before considering the non-deductibility of approximately
$0.5 million of annual goodwill amortization.
(f) Includes an adjustment to revenues, cost of revenues, selling, general and
administrative expenses, and interest expense related to DTI's acquisition
of ComputerSmith, Inc. ("ComputerSmith") on July 1, 1996, the effect of
which is to reflect DTI's results of operations as if such acquisition
occurred on January 1, 1996.
(g) The weighted average shares outstanding used to calculate pro forma net
income per share is based upon the estimated average number of shares of
Common Stock and common stock equivalents outstanding during the period
calculated as follows:
<TABLE>
<S> <C>
Shares issued in the formation of UDMS (adjusted for
8,334.92-for-1 stock split and the contribution to capital of
59,012 shares by the Selling Shareholder)....................... 774,480
Shares issued to the shareholders of the Founding Companies....... 875,508
Shares issued in the Offering..................................... 1,850,000
SAB No. 83 adjustment............................................. 59,012
---------
3,559,000
=========
</TABLE>
28
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PRO FORMA FINANCIAL CONDITION
AND PRO FORMA RESULTS OF OPERATIONS
SUMMARY
The Company believes it will be the largest independent value added
reseller of design automation products and services in the United States.
Simultaneously with the closing of this Offering, the Company will acquire nine
established design automation and document management businesses with 18 offices
in 12 states. The Company will employ approximately 325 individuals including
technical services engineers and consultants, will offer hardware and software
products from approximately 55 manufacturers, and will have access to an
installed customer base of approximately 34,000 businesses. On a pro forma
basis, the Company had revenues on a year ended December 31, 1996 and six months
ended June 30, 1997 of $48.9 million and $24.1 million, respectively.
Through the acquisition and integration of the Founding Companies, the
Company expects to expand geographic penetration of the existing businesses, to
capitalize on substantial cross-selling opportunities, to provide design
automation products and services on both a local and national basis and to
establish a national customer service and support program. The Founding
Companies have been operating independently. The Company intends to integrate
these businesses, their operations and administrative functions over a period of
time. Such integration may present opportunities to reduce costs through the
elimination of duplicate functions and through economies of scale, particularly
in obtaining greater volume discounts from suppliers, but may necessitate
additional costs and expenditures for corporate management and administration,
corporate expenses related to being a public company, systems integration,
employee relocation and potential facilities expansion. These various costs and
possible cost-savings may make comparison of future operating results with
historical results difficult. See "Management -- Employment Agreements;
Executive Compensation."
ORGANIZATION
Simultaneously with the closing of this Offering, UDMS will acquire the
other nine Founding Companies. The aggregate consideration to be paid by UDMS
for the Founding Companies is $22.9 million which consists of: (i) $15.6 million
of cash to be paid to the shareholders of the Founding Companies (or to ACCESS);
(ii) the $6.8 million estimated fair market value of 875,508 shares of Common
Stock to be issued to the shareholders of the Founding Companies; and (iii)
estimated costs of the Acquisitions of $0.5 million. The estimated purchase
price for the Founding Companies is subject to certain purchase price
adjustments at closing and earn-out arrangements. See "Certain
Transactions -- The Acquisitions."
The consummation of each of the Acquisitions is subject to customary
conditions, including the continuing accuracy as of the closing date of the
representations and warranties of the Founding Companies and UDMS, the
performance by each of them of all covenants in the agreements relating to the
Acquisitions and the nonexistence of a material adverse charge in the results of
operations, financial condition or business of each Founding Company.
OPERATIONS
Revenue and Cost Recognition
The Company recognizes revenues on the sale of third party hardware and
software products when the product is shipped or upon customer acceptance in
instances where the software and computer hardware is to be installed at the
customer location. Revenues from proprietary software license sales are
recognized when the product is shipped. Revenues from consulting, training or
other services are recognized as the related services are performed. Revenues
from prepaid customer support agreements are generally recognized ratably over
the life of the support agreement or, to a lesser extent, based upon contractual
hour utilization by the customer under the support agreement. Generally, the
Company does not bundle hardware and software sales whereby customer acceptance
of either the hardware of software components is conditioned upon the acceptance
of the total product solution. While to date the Founding Companies have not
experienced a
29
<PAGE> 31
significant amount of returned hardware or software products from their
customers that resulted in a material unfavorable financial impact, the Company
does, intend to record an appropriate accrual for such product returns at the
end of each financial period.
The Company's cost of revenues primarily includes the cost of hardware and
software products as well as compensation-related costs associated with
consulting and other services. The costs associated with hardware and software
sales are recorded at the time the sale is recorded. The costs associated with
consulting, training and other services are recorded as the services are
performed. The costs associated with customer support services are recorded as
incurred. The Company does not generally enter into long-term fixed-price
contracts. In addition, the Company does not provide product warranties beyond
the warranties provided by the manufacturers or computer software developers.
Capitalized Software Development Costs
With respect to the Company's proprietary products, it accounts for
software development costs in accordance with the provisions of Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed. Costs incurred in designing
and developing computer software products are expensed as research and
development until technological feasibility has been established. Technological
feasibility is established upon completion of a detail program design or, in its
absence, completion of a working model. Upon the achievement of technological
feasibility, software development costs are capitalized and subsequently
reported at the lower of unamortized cost or net realizable value. Annual
amortization expense is the greater of the amount computed, using the ratio of
the current year's revenues to the total of current and anticipated future
revenues, or the straight-line method over the remaining economic life of the
software, which does not exceed five years.
The Pro Forma Results of Operations include an acceleration of the
amortization of the remaining unamortized software development costs relative to
ACCESS' AS/400 EDMS software product, as ACCESS has determined that the future
revenues of this product reduced by the estimated future costs, including
maintenance and support, are not likely to be sufficient to absorb the
amortization of the software development costs previously capitalized. The Pro
Forma Results of Operations include amortization and write-offs of $1.3 million
related to this product in the year ended December 31, 1996.
Acquisition, Offering and Internal Costs
The Company expects to incur substantial costs associated with the
Acquisitions, the Offering and other internal costs prior to the Offering. The
incremental direct costs associated with the Acquisitions, which include
primarily fees paid to outside consultants for accounting, legal, and due
diligence services, will be included in the cost of acquiring the Founding
Companies. The incremental direct costs associated with registering and issuing
equity securities, which also primarily include fees paid to outside consultants
for accounting and legal services and other direct costs, will be deducted from
the otherwise determinable fair value of the securities at the date of the
Offering. The incremental direct costs incurred by the Company associated with
the Acquisitions and the Offering are expected to approximate $0.5 million and
$1.1 million, respectively. Internal costs incurred prior to and associated with
the Acquisitions and the Offering, which represent indirect and general
expenses, have been deducted as incurred in determining net income or loss of
the period.
S Corporation Elections
Prior to consummation of the Acquisitions, certain of the Founding
Companies had elected to be treated as S Corporations under the Internal Revenue
Code of 1986, as amended (the "Code"). In general, an S Corporation is not
treated as a separate taxable entity, and an S Corporation's gains, income,
losses and separately stated tax items are taxed to its shareholders on a pro
rata basis. Certain of the Founding Companies have made periodic distributions
to their shareholders. The balance of taxed or taxable accumulated earnings
which have not been distributed is reflected in the AAA Account for each such
Founding Company. In connection with the Acquisitions, the S Corporation status
of those Founding
30
<PAGE> 32
Companies will terminate and, therefore, those Founding Companies have made a
distribution to their existing shareholders of the AAA Notes in an aggregate
principal amount estimated to equal approximately $0.4 million at the time of
the Offering. The aggregate principal amount of the AAA Notes will be
approximately equal to the undistributed earnings in the AAA Accounts, on which
such shareholders either have paid or will be required to pay income taxes. The
amount of the AAA Notes includes an estimate of taxable income through the
anticipated effective date of the Offering. The AAA Notes will become
obligations of the Company at the time of the closing of the Offering and will
be repaid from the Company's available balance of cash and cash equivalents
immediately thereafter. Following the Acquisitions, the Company will be subject
to federal and state income taxes.
In addition, approximately $0.1 million will be distributed to the
shareholders of Synergis-PA related to the taxes payable by such shareholders on
the amounts included in their AAA Account as of June 30, 1997.
Net Operating Loss Carryforwards
As of the date of the Acquisitions and Offering, the Company had net
operating loss carryforwards for federal income tax purposes relative only to
UDMS. These net operating loss carryforwards, which are available to offset
future federal taxable income through 2009, approximated $640,000 at June 30,
1997.
Financial Trends
While each of the Founding Companies has operated its respective business
independently, the following significant financial trends have either been
incurred by one or more of the Founding Companies during the 12 months ended
June 30, 1997 or are expected to affect the Founding Companies' results of
operations over the next three to six month period:
- Release 13 of Autodesk's AutoCad product -- Several of the Founding
Companies' revenues and results of operations have been adversely
affected by the marketplace foregoing the purchase of Release 13 of
Autodesk's AutoCad product in anticipation of Release 14, which occurred
in June 1997. The Founding Companies expect improvement in revenues and
results of operations as a result of the favorable market acceptance of
Release 14 during the remainder of 1997 and into fiscal 1998.
- Competitive industry environment -- In part as a result of the decreased
revenues associated with Release 13, many of the Founding Companies faced
a more competitive environment with respect to the number of sales
opportunities available in the marketplace during the 12 months ended
June 30, 1997 and therefore with respect to the prices which could be
charged for their products. In addition, as a result of the decreased
number of software sales opportunities, the associated services and
consulting revenues were also adversely affected during the period. As a
result of the favorable market acceptance of Release 14, many of the
Founding Companies anticipate a greater number of sales opportunities and
a greater per unit sales price subsequent to June 30, 1997.
- Software Vendor Discounts -- In light of the increasing competition faced
by many software developers, including Autodesk, several of the Founding
Companies have experienced a decrease in the available software vendor
discounts, and accordingly, their revenues and results of operations have
been adversely affected.
PRO FORMA RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the "Selected
Pro Forma Combined Financial Data," the "Selected Financial Data of the Founding
Companies" and the financial statements and related notes appearing elsewhere in
this Prospectus.
31
<PAGE> 33
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------
YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996 JUNE 30, 1997
Dollars in thousands, except per ------------------ ------------------ ------------------
share data AMOUNT % AMOUNT % AMOUNT %
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Total revenues...................... $48,905 100.0% $26,525 100.0% $24,133 100.0%
Costs of revenues................... 32,741 66.9 16,851 63.5 17,093 70.8
Selling, general and administrative
expenses.......................... 16,256 33.2 8,131 30.7 7,327 30.4
Amortization of goodwill and other
identifiable intangibles.......... 914 1.9 457 1.7 457 1.9
---------- ----- ---------- ----- ---------- -----
Operating income (loss)............. (1,006) (2.1) 1,086 4.1 (744) (3.1)
Interest income, net................ 124 0.3 87 0.3 33 0.2
Other income (expense), net......... 85 0.2 (9) 0.0 26 0.1
---------- ----- ---------- ----- ---------- -----
Income (loss) before income taxes... (797) (1.6) 1,164 4.4 (685) (2.8)
Income tax expense (benefit)........ (342) (0.7) 380 1.4 (220) (0.9)
---------- ----- ---------- ----- ---------- -----
Net income (loss)................... $(455) (0.9)% $ 784 3.0% $(465) (1.9)%
========== ===== ========== ===== ========== =====
Pro forma net loss per share........ $ (0.13) $ (0.13)
========== ==========
Shares used in computing pro forma
net loss per share................ 3,559,000 3,559,000
========== ==========
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased to $24.1 million in the six months ended June
30, 1997 from $26.5 million in the six months ended June 30, 1996 primarily as a
result of lower system sales from ACCESS' Electronic Document Management Systems
software and as a result of lower service revenues related to hardware and
software support to ACCESS' installed base of customers and third party
maintenance contracts. Furthermore, lower software, services and consulting
revenues resulted from the Company's customers foregoing initial and upgrade
software purchases in the six months ended June 30, 1997 based on the
anticipated availability of Release 14 of Autodesk's AutoCAD product. In
addition, lower revenues were experienced by Applied in the six months ended
June 30, 1997 as compared to the same period of the prior year as a result of
fewer sales persons.
Costs of revenues. Costs of revenues increased to $17.1 million in the six
months ended June 30, 1997 from $16.9 million in the six months ended June 30,
1996, an increase of $0.2 million, or 1.2%. This increase resulted primarily
from an increase in the cost of products sold due to lower vendor discounts. In
addition, as a percentage of revenues, costs of revenues were greater in the six
months ended June 30, 1997 as compared to the same period of the prior year as a
result of competitive pricing conditions and under-utilization of certain of the
Founding Companies service and support personnel.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $7.3 million in the six months ended June
30, 1997 from $8.1 million in the six months ended June 30, 1996, a decrease of
$0.8 million, or 9.9%. The decrease was primarily attributable to a general
decline in the amount spent by ACCESS with respect to its infrastructure costs
during the six months ended June 30, 1997. In addition, certain efficiencies
were realized in the six months ended June 30, 1997 related to DTI's
administrative and infrastructure expenses associated with its acquisition of
ComputerSmith in July 1996. As a percentage of revenues, selling, general and
administrative expenses declined to 30.4% in the six months ended June 30, 1997
as compared to 30.7% in the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
After application of the estimated net proceeds from the Offering and
making payments related to the Acquisitions, the Company expects that it will
have cash on hand, after giving effect to the prepaid Offering and Acquisition
costs, of approximately $0.4 million. The Company expects to enter into a new
Credit Facility
32
<PAGE> 34
which will provide for increased borrowing levels and which may be used for
general corporate purposes, including the financing of acquisitions. The Company
believes its available cash, together with cash that will be generated from
operations and available under the new Credit Facility, will be sufficient to
support its current operations, potential obligations relating to the earn-out
arrangements and planned ordinary capital expenditures and acquisitions through
1998. In the longer term, the Company may require additional sources of
liquidity to fund future growth or acquisitions. Such sources of liquidity may
include additional offerings or debt financing.
Effective May 28, 1997, UDMS entered into a Reimbursement Agreement with
MedPlus ("Reimbursement Agreement") under which MedPlus agreed to continue to
provide operational and administrative assistance to UDMS and to provide the
funds necessary to conduct the Acquisitions, the Offering and related
transactions. The Reimbursement Agreement provides for interest to accrue
monthly at a rate equal to the prime rate plus 1%. UDMS has agreed to reimburse
MedPlus for the amounts funded under the Reimbursement Agreement plus accrued
interest within thirty days following the Offering or in the event the Offering
is not completed, if UDMS receives other third party financing.
INFLATION
The Company does not believe that inflation has had a material effect on
the operating results of the Founding Companies. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Founding Companies have in the past experienced, and the Company could
in the future experience, quarterly variations in revenues, operating income and
cash flow as a result of many factors, including the anticipation of an
introduction of new technology, the timing and magnitude of clients' purchases
of design automation solutions, the loss of a major client, additional selling,
general and administrative expenses to acquire and support new business, the
timing and magnitude of capital expenditures and changes in the revenue mix
among the Company's various design automation solution offerings or in the
relative contribution of the several Founding Companies. The Company must plan
its operating expenditures based on revenue forecasts, and a revenue shortfall
below such forecasts in any quarter would likely adversely affect the Company's
operating results for that quarter.
SEASONALITY
Many of the Founding Companies experience seasonality with respect to
revenues, cost of revenues, operating income and cash flow. Specifically,
certain of the Founding Companies experience greater revenues in the three
months ended December 31 of each year in conjunction with various Autodesk
promotions during this period related to Autodesk's fiscal year-end.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 is designed to simplify the existing computational guidelines for computing
earnings per share and provides for the elimination of primary Earnings Per
Share ("EPS") and replacing it with basic EPS, with the principal difference of
common stock equivalents not being considered in computing basic EPS. SFAS No.
128 is effective for the Company for the year ending December 31, 1997. The
effect of the adoption of this statement would not have a material effect on the
Company's pro forma loss per share.
33
<PAGE> 35
SELECTED FINANCIAL DATA OF THE FOUNDING COMPANIES
The selected financial data of the Founding Companies are derived in part
from the more detailed financial statements and notes thereto included elsewhere
in this Prospectus. The balance sheet data as of December 31, 1995 and 1996, and
the statement of operations data for each of the years in the three-year period
ended December 31, 1996, for UDMS, DTI, Technical Software, Mid-West CAD, CADD
Microsystems and Computers for Design have been derived from the audited
financial statements included elsewhere herein. The balance sheet data as of
September 30, 1995 and 1996, and the statements of operations data for each of
the years in the three-year period ended September 30, 1996, for Applied,
Synergis-PA and Devtron Russell have been derived from the audited financial
statements included elsewhere herein. The balance sheet data as of April 30,
1996 and 1997, and the statement of operations data for each of the years in the
three-year period ended April 30, 1997, for ACCESS have been derived from the
audited financial statements included elsewhere herein.
The selected interim period financial data for the six months ended June
30, 1996 and 1997 for UDMS, DTI, Technical Software, Mid-West CAD, CADD
Microsystems and Computers for Design have been derived from the unaudited
financial statements included elsewhere herein. The selected interim period
financial data for the nine months ended June 30, 1996 and 1997 for Applied,
Synergis-PA and Devtron Russell have been derived from the unaudited financial
statements included elsewhere herein. The selected interim period financial data
for the three months ended July 31, 1996 and 1997 for ACCESS have been derived
from the unaudited financial statements included elsewhere herein. Such selected
financial data are not necessarily indicative of the results to be expected for
the full fiscal year.
In the opinion of the Company, the unaudited interim period financial
statements of the Founding Companies reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position and results of operations of the Founding Companies for those periods
in accordance with generally accepted accounting principles. The Selected
Financial Data of the Founding Companies should be read in conjunction with the
financial statements of notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus. All Founding Companies have fiscal years ending December 31, with
the exception of Applied, Synergis-PA, and Devtron Russell, whose year ends are
September 30, and ACCESS, whose year end is April 30.
STATEMENTS OF OPERATIONS DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
Dollars in thousands 1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
UDMS
Revenues...................... $ 214 $ 86 $ 487 $ 629 $ 1,100 $ 532 $ 428
Costs of software and
services................... -- -- -- 6 350 123 173
Selling, general and
administrative expenses.... 201 278 455 2,113 860 357 598
Operating income (loss)....... 13 (192) 32 (1,490) (110) 52 (343)
Income (loss) before income
taxes...................... 9 (207) (13) (1,511) (141) 36 (362)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- ------------------
Dollars in thousands 1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
DTI
Revenues................................... $ 2,224 $ 2,982 $ 5,751 $ 1,691 4,856
Costs of hardware and software............. 1,305 1,552 3,142 797 3,054
Selling, general and administrative
expenses................................ 944 1,192 2,726 730 1,850
Operating income (loss).................... (25) 238 (117) 164 (48)
Income (loss) before income taxes.......... (51) 217 (119) 164 (101)
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- ------------------
Dollars in thousands 1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
TECHNICAL SOFTWARE
Revenues................................... $ 6,752 $ 7,368 $ 5,689 $ 3,026 $ 2,763
Costs of hardware and software............. 3,009 3,160 2,161 1,068 1,231
Selling, general and administrative
expenses................................ 3,702 3,963 3,594 1,821 1,652
Operating income (loss).................... 41 245 (66) 137 (120)
Income (loss) before income taxes.......... 89 237 (35) 147 (110)
MID-WEST CAD
Revenues................................... $ 2,607 $ 3,384 $ 3,366 $ 1,491 $ 1,564
Costs of revenues.......................... 1,975 2,336 2,398 1,056 1,090
Selling, general and administrative
expenses................................ 654 945 964 380 432
Operating income (loss).................... (22) 103 4 55 42
Income (loss) before income taxes.......... (22) 105 2 54 42
CADD MICROSYSTEMS
Revenues................................... $ 2,879 $ 3,113 $ 3,094 $ 1,584 $ 1,396
Costs of revenues.......................... 1,874 1,690 1,925 850 895
Selling, general and administrative
expenses................................ 1,276 1,247 1,176 631 459
Operating income (loss).................... (271) 176 (7) 103 42
Income (loss) before income taxes.......... (288) 145 (45) 86 22
COMPUTERS FOR DESIGN
Revenues................................... $ 1,926 $ 2,057 $ 2,142 $ 1,292 $ 12
Costs of revenues.......................... 1,309 1,379 1,349 848 529
Selling, general and administrative
expenses................................ 599 692 745 365 352
Operating income (loss).................... 18 (14) 48 79 31
Income (loss) before income taxes.......... 21 (22) 41 75 19
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------------- ------------------
Dollars in thousands 1994 1995 1996 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
APPLIED
Revenues................................... $10,555 $ 8,114 $ 7,797 $ 5,840 $ 5,408
Costs of revenues.......................... 8,268 6,143 5,655 4,302 4,278
Selling, general and administrative
expenses................................ 2,110 1,989 1,927 1,386 1,523
Operating income (loss).................... 177 (18) 215 152 (393)
Income (loss) before income taxes.......... 156 (86) 167 113 (424)
SYNERGIS-PA
Revenues................................... $ 4,751 $ 3,189 $ 4,899 $ 3,579 $ 4,377
Costs of hardware and software............. 3,411 2,052 3,195 2,269 3,097
Selling, general and administrative
expenses................................ 1,238 1,026 1,547 1,084 971
Operating income........................... 102 111 157 226 309
Income before income taxes................. 73 109 158 227 307
DEVTRON RUSSELL
Revenues................................... $ 1,538 $ 1,622 $ 2,781 $ 2,175 $ 2,387
Costs of hardware and software............. 1,037 1,136 2,010 1,559 1,642
Selling, general and administrative
expenses................................ 473 463 630 456 541
Operating income........................... 28 23 141 160 204
Income before income taxes................. 22 18 131 152 195
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
APRIL 30, JULY 31,
----------------------------- ------------------
Dollars in thousands 1995 1996 1997 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ACCESS
Revenues................................... $ 6,042 $ 8,704 $ 6,929 $ 1,675 $ 2,713
Costs of revenues.......................... 3,689 5,394 5,433 1,163 1,971
Selling, general and administrative
expenses................................ 2,121 3,045 2,634 672 648
Operating income (loss).................... 232 265 (1,138) (160) 94
Income (loss) before income taxes.......... 197 311 (1,051) (140) 106
</TABLE>
36
<PAGE> 38
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT FISCAL YEAR END
DECEMBER 31,
------------------- AT JUNE 30,
Dollars in thousands 1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
UDMS
Cash and cash equivalents.................................. $ 124 $ -- $ 11
Working capital (deficit).................................. (129) (621) (1,342)
Total assets............................................... 1,664 1,786 1,979
Long-term debt, including capital lease obligations, less
current portion......................................... 300 300 300
Shareholder's equity (deficit)............................. (774) 674 347
DTI
Cash and cash equivalents.................................. $ 22 $ 111 $ 68
Working capital (deficit).................................. 119 (107) 125
Total assets............................................... 1,346 2,990 2,887
Long-term debt, including capital lease obligations, less
current portion......................................... 185 390 942
Shareholder's equity (deficit)............................. 123 28 (60)
TECHNICAL SOFTWARE
Cash and cash equivalents.................................. $ 304 $ 301 $ 101
Working capital............................................ 316 84 126
Total assets............................................... 1,837 1,511 1,134
Long-term debt, including capital lease obligations, less
current portion......................................... -- -- 130
Shareholder's equity....................................... 687 441 331
MID-WEST CAD
Cash and cash equivalents.................................. $ 128 $ 48 $ 77
Working capital............................................ 178 99 143
Total assets............................................... 899 659 642
Long-term debt, including capital lease obligations, less
current portion......................................... 11 16 10
Shareholders' equity....................................... 270 269 303
CADD MICROSYSTEMS
Cash and cash equivalents.................................. $ 42 $ 75 $ 34
Working capital (deficit).................................. (174) (130) (126)
Total assets............................................... 1,068 738 618
Long-term debt, including capital lease obligations, less
current portion......................................... 42 201 159
Shareholders' (deficit).................................... (83) (128) (106)
COMPUTERS FOR DESIGN
Cash and cash equivalents.................................. $ 4 $ 1 $ 2
Working capital (deficit).................................. (160) (154) (148)
Total assets............................................... 411 366 381
Long-term debt, including capital lease obligations, less
current portion......................................... -- -- --
Shareholders' (deficit).................................... (61) (38) (50)
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
AT FISCAL YEAR END
SEPTEMBER 30,
------------------- AT JUNE 30,
Dollars in thousands 1995 1996 1997
------- ------- -----------
<S> <C> <C> <C>
APPLIED
Cash and cash equivalents (deficit)........................ $ 90 $ 83 $ (35)
Working capital (deficit).................................. (184) (204) (506)
Total assets............................................... 1,875 1,705 1,762
Long-term debt, including capital lease obligations, less
current portion......................................... 225 159 103
Shareholders' (deficit).................................... (258) (188) (626)
SYNERGIS-PA
Cash and cash equivalents.................................. $ 333 $ 282 $ 290
Working capital............................................ 392 486 419
Total assets............................................... 1,241 1,394 1,790
Long-term debt, including capital lease obligations, less
current portion......................................... 110 104 90
Shareholders' equity....................................... 449 561 868
DEVTRON RUSSELL
Cash and cash equivalents.................................. $ -- $ -- $ 22
Working capital............................................ 17 120 234
Total assets............................................... 408 536 670
Long-term debt, including capital lease obligations, less
current portion......................................... 71 72 67
Shareholder's equity (deficit)............................. (1) 109 244
</TABLE>
<TABLE>
<CAPTION>
AT FISCAL YEAR END
APRIL 30,
------------------- AT JULY 31,
Dollars in thousands 1996 1997 1997
------- ------- -----------
<S> <C> <C> <C>
ACCESS
Cash and cash equivalents.................................. $ 2,072 $ 1,405 $ 1,241
Working capital............................................ 2,925 2,664 2,622
Total assets............................................... 6,242 5,018 5,168
Redeemable preferred stock................................. 1,500 1,500 1,500
Shareholders' equity....................................... 2,586 1,535 1,603
</TABLE>
38
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussions should be read in conjunction with the Selected
Financial Data of the Founding Companies and the Financial Statements and
related notes appearing elsewhere in this Prospectus.
UDMS
Founded in 1990, UDMS was acquired by MedPlus in December 1995. UDMS
provides document management, workflow and application software and related
consulting services to customers in a variety of industries. The Company's
proprietary software, Step2000, is marketed nationwide.
Results of Operations
The following table sets forth certain financial data of, and such data as
a percentage of, revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ------------------------------
Dollars in Thousands 1994 1995 1996 1996 1997
------------ ---------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $487 100.0% $629 100.0% $1,100 100.0% $532 100.0% $428 100.0%
Costs of software and
services............... -- -- 6 1.0 350 31.8 123 23.1 173 40.4
Selling, general and
administrative
expenses............... 455 93.4 2,113 335.9 860 78.2 357 67.1 598 139.7
---- ------- ------ ---- -----
Total operating
expenses...... 455 93.4 2,119 336.9 1,210 110.0 480 90.2 771 180.1
Operating income
(loss)................. 32 6.5 (1,490) (236.9) (110) (10.0) 52 9.8 (343) (80.1)
Interest expense, net.... 45 9.2 61 9.7 31 2.8 16 3.0 19 4.5
Other expense (income),
net.................... -- -- (40) (6.4) -- -- -- -- -- --
---- ------- ------ ---- -----
Income (loss) before
income taxes........... $(13) (2.7)% $(1,511) (240.2)% $(141) (12.8)% $36 6.8% $(362) (84.6)%
==== ======= ====== ==== =====
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased to $0.4 million in the six months ended June
30, 1997 from $0.5 million in the six months ended June 30, 1996, a decrease of
$0.1 million, or 19.5%. The decrease in revenue was primarily from a postponed
consulting project resulting in under-utilization of UDMS' consultants.
Cost of software and services. Cost of software and services increased to
$0.2 million in the six months ended June 30, 1997 from $0.1 million in the six
months ended June 30, 1996, an increase of $0.1 million, or 40.7%. As a
percentage of revenues, cost of revenues increased to 40.4% in the six months
ended June 30, 1997 from 23.1% in the six months ended June 30, 1996. The
percentage increase was primarily the result of under-utilization of consultants
and competitive industry pricing pressures related to UDMS' software product and
consulting services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $0.6 million in the six months ended June
30, 1997 from $0.4 million in the six months ended June 30, 1996, an increase of
$0.2 million, or 67.5%. This increase primarily resulted from: (1) modification
in its sales force compensation structure from commission-based to a
salary-based plan (2) and other increases in salaries and related benefits due
to additional general and administrative personnel during the period. As a
percentage of revenues, selling, general and administrative expenses increased
to 139.7% in the six months ended June 30, 1997 from 67.1% in the six months
ended June 30, 1996.
39
<PAGE> 41
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues increased to $1.1 million in 1996 from $0.6 million in
1995 and $0.5 in 1994. The increase in revenues over the three year period was
primarily due to growth in customer consulting services including three
substantial customers as well as continued market acceptance of UDMS'
proprietary software, Step2000.
Cost of software and services and selling, general and administrative
expenses. As a result of UDMS' method of accounting and reporting related
operating expenses during 1995 and 1994, separate classification of cost of
software and services and selling, general and administrative expense was not
feasible during these years. On a combined basis, these expenses decreased to
$1.2 million in 1996 from $2.1 million in 1995 and increased from $0.5 million
in 1994. The substantial increase in 1995 relates to a charge of $1.5 million
related to the write-off of acquired in-process technology at the date that
MedPlus acquired UDMS. Excluding this charge, these expenses increased in
proportion to the overall growth of UDMS over the three year period resulting
primarily from increased consulting and general and administrative expenses. As
a percentage of revenues, these expenses, excluding the charge related to the
write-off of acquired in-process technology, increased as a percent of revenue
during the three-year period due to increases in UDMS' cost of revenues and
infrastructure-related expenses associated with UDMS' growth.
Liquidity and Capital Resources
Since December 1995, UDMS' principal source of liquidity has been through
its relationship with UDMS' parent, MedPlus. The following table sets forth
selected information from UDMS' statements of cash flows for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
Dollars in thousands 1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $(299) $319 $(49) $(174) $25
Net cash used in investing activities.... (60) (44) (214) (95) (448)
Net cash provided by (used in) financing
activities............................. 367 (48) 139 169 434
</TABLE>
From January 1, 1994 through June 30, 1997, UDMS used $0.2 million in net
cash from operating activities. During this period, net losses were adjusted to
exclude the effects of non-cash charges related to the write-off of acquired
in-process technology in 1995. Net cash provided by operating activities during
fiscal year 1995 was primarily the result of timing of collections of trade
accounts receivable as well UDMS extending its accounts payable during the year.
Cash used in investing activities was attributable to amounts expended for
property and equipment to support UDMS' growth. Cash used for investing
activities also included charges related to the capitalization of software
development costs attributed to the UDMS' proprietary software product. The six
month period ended June 30, 1997 includes $0.3 million in capitalized costs
associated with the Acquisitions in conjunction with the proposed Offering.
Since December 1995, UDMS' financing has been provided by MedPlus. UDMS has
also arranged for funding of its operations through various other borrowing
arrangements. International Business Machines, Inc. ("IBM") advanced UDMS $0.2
million in funds under an IBM Assistance Agreement dated July 12, 1992
("Assistance Agreement") which was recorded as a liability. Under the terms of
this Assistance Agreement, the advances are to be repaid through revenue
participation whereby IBM receives 25% of all quarterly gross revenue exceeding
$0.1 million for product sales, standard licenses and maintenance fees on
certain hardware platforms as defined in the Assistance Agreement. The
outstanding obligation of $0.2 million has been included in accrued expenses and
other liabilities.
During the year ended December 31, 1994, UDMS issued convertible debentures
totaling $0.4 to MedPlus and an individual investor. The debentures, with an
interest rate of 10% per annum payable at
40
<PAGE> 42
maturity, were unsecured obligations which were scheduled to mature on December
31, 1995. The debentures were convertible into shares of common stock of UDMS at
a stated price per share, and could be converted in entirety or in portion from
time to time until maturity. In connection with the UDMS' acquisition by MedPlus
in December 1995, $0.1 million of convertible debentures, which were held by the
individual investor, and interest accrued thereon were repaid. The remaining
$0.3 million debenture held by MedPlus was extended indefinitely by MedPlus and
continues to accrue interest at 10% per annum.
MedPlus provides UDMS with various services including finance, human
resources, insurance administration, legal, marketing and office administration
as well as office space. MedPlus has also from time to time advanced funds to
UDMS for use in its operations. UDMS has paid to MedPlus or accrued a liability
for these costs based either on the separate identification of such costs or, to
the extent that the direct costs of services provided by MedPlus could not be
separately identified, on UDMS' allocable portion of the total cost to MedPlus
for such services using such objective factors and methodologies as are
available to UDMS and MedPlus.
Effective May 28, 1997, UDMS entered into a Reimbursement Agreement with
MedPlus under which MedPlus agreed to continue to provide operational and
administrative assistance to UDMS and to provide the funds necessary to conduct
the Acquisitions, the Offering and related transactions. The Reimbursement
Agreement provides for interest to accrue monthly at a rate equal to the prime
rate plus 1%. UDMS has agreed to reimburse MedPlus for the amounts funded under
the Reimbursement Agreement plus accrued interest within thirty days following
the Offering or in the event the Offering is not completed, if UDMS receives
other third party financing.
Effective September 9, 1997, UDMS and MedPlus entered into a line of credit
agreement with a bank for working capital and to fund the costs associated with
the Acquisitions and the Offering. The line of credit agreement allows for
borrowings of up to $1.5 million subject to a combined limit with MedPlus under
its separate $16.0 million revolving line of credit agreement. Borrowings under
the line of credit agreement bear interest at the bank's prime rate and mature
upon the earlier of March 31, 1998 or the completion of the Offering. The line
of credit agreement contains various restrictive and financial covenants and is
secured by all the tangible and intangible assets of UDMS.
DTI
Founded in 1984, DTI's primary focus is the sale of Autodesk design
automation software and related services primarily to the manufacturing industry
and educational institutions. DTI also provides other services including system
installation, software and hardware support, software development and
customization, network installation, support and training. DTI primarily serves
the New England region.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ---------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
- ------------------------ -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $2,224 100.0% $2,982 100.0% $5,751 100.0% $1,691 100.0% $4,856 100.0%
Costs of hardware and
software.............. 1,305 58.7 1,552 52.0 3,142 54.6 797 47.1 3,054 62.9
Selling, general and
administrative
expenses.............. 944 42.4 1,192 40.0 2,726 47.4 730 43.2 1,850 38.1
------ ------ ------ ------ ------
Total operating
expenses..... 2,249 101.1 2,744 92.0 5,868 102.0 1,527 90.3 4,904 101.0
Operating income
(loss)................ (25) (1.1) 238 8.0 (117) (2.0) 164 9.7 (48) (1.0)
Interest expense, net... 26 1.2 30 1.0 67 1.2 13 0.8 66 1.4
Other expense (income),
net................... -- -- (9) (0.3) (65) (1.1) (13) (0.8) (13) (0.3)
------ ------ ------ ------ ------
Income (loss) before
income taxes.......... $(51) (2.3)% $217 7.3% $(119) (2.1)% $164 9.7% $(101) (2.1)%
====== ====== ====== ====== ======
</TABLE>
41
<PAGE> 43
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues increased to $4.9 million in the six months ended June
30, 1997 from $1.7 million in the six months ended June 30, 1996, an increase of
$3.2 million, or 187.2%. The increase in revenues resulted primarily from the
acquisition of ComputerSmith, Inc. ("ComputerSmith") in July 1996, and increases
related to industry growth.
Cost of hardware and software. Cost of hardware and software increased to
$3.0 million in the six months ended June 30, 1997 from $0.8 million in the six
months ended June 30, 1996, an increase of $2.2 million, or 283.2%. As a
percentage of revenues, cost of hardware and software increased to 62.9% in the
six months ended June 30, 1997 from 47.1% in the six months ended June 30, 1996.
The percentage increase resulted from an increase in the cost of products as
well as overall lower product sales prices due to competitive industry pricing
pressures.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.9 million in the six months ended June
30, 1997 from $0.7 million in the six months ended June 30, 1996, an increase of
$1.2 million, or 153.4%. This increase primarily resulted from the additional
personnel associated with ComputerSmith and additional administrative and
infrastructure expenses associated with DTI's growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 38.1% in the
six months ended June 30, 1997 from 43.2% in the six months ended June 30, 1996,
primarily the result of increased revenues during the period.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues increased to $5.8 million in 1996 from $3.0 million in
1995 and $2.2 million in 1994. The increase in revenues over the three year
period was a result of the acquisition of ComputerSmith and increases related to
industry growth.
Cost of hardware and software. Cost of hardware and software increased to
$3.1 million in 1996 from $1.6 million in 1995 and $1.3 million in 1994,
reflecting the ComputerSmith acquisition and DTI's year-to-year growth in
revenues. As a percentage of revenues, cost of hardware and software increased
to 54.6% in 1996 from 52.0% in 1995, primarily due to an increase in cost of
products as well as overall lower product sales prices due to competitive
industry pricing pressures. As a percentage of revenues, cost of hardware and
software decreased to 52.0% in 1995 from 58.7% in 1994, primarily as a result of
more favorable vendor discounts.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $2.7 million in 1996 from $1.2 million in
1995 and $0.9 million in 1994, reflecting the acquisition of ComputerSmith and
cost of additional administrative and infrastructure expenses associated with
DTI's growth. As a percentage of revenues, selling, general and administrative
expenses increased to 47.4% in 1996 from 40.0% in 1995 primarily the result of
increased administrative and infrastructure expenses associated with the
acquisition of ComputerSmith. As a percentage of revenues, selling, general and
administrative expenses decreased to 40.0% in 1995 from 42.4% in 1994, as a
result of increased revenues in 1995.
Liquidity and Capital Resources
DTI's principal source of liquidity has been borrowings under credit
facilities and capital leases. The following table sets forth selected
information from DTI's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
--------------------- ------------
Dollars in thousands 1994 1995 1996 1996 1997
------------------------------------------------- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities........ $96 $109 $269 $142 $66
Net cash used in investing activities............ (6) (64) (69) (86) (55)
Net cash used in financing activities............ (53) (78) (111) (51) (54)
</TABLE>
From January 1, 1994 through June 30, 1997, DTI generated $0.5 million in
net cash from operating activities. During this period, $0.2 million of cash was
generated from net losses adjusted for non-cash charges
42
<PAGE> 44
with the remaining cash being generated from reductions in inventory net of cash
outflows related to reductions in accounts payable and accrued expenses.
Cash used in investing activities was attributable to purchases of property
and equipment partially reduced by cash acquired in the ComputerSmith
acquisition.
Financing activities primarily have included borrowings under various long
term debt arrangements and DTI's line of credit. In 1994, 1996 and the six
months ended June 30, 1997, the proceeds from the issuance of long-term debt and
borrowings under the line of credit were offset by the combination of repayments
of previously issued long-term debt and principal payments on capital lease
obligations.
In August 1996, DTI entered into a $0.2 million revolving line of credit
agreement and a $0.3 million term loan with a bank. As of June 30, 1997, an
aggregate total of $325,000 was outstanding under these agreements. Interest
accrues at the prime rate plus 2%. The line of credit is secured by
substantially all of DTI's assets and the personal guarantee of DTI's sole
stockholder. In July 1997, the bank increased the line of credit borrowing limit
to $0.3 million.
Prior to the line of credit agreement noted above, DTI entered into various
long term debt arrangements in the form of notes payable to a bank requiring
monthly principal payments and maturing at different periods from September 1996
through August 2003. Interest on the notes payable ranged from prime plus 2% to
prime plus 2.25%.
In January 1997, DTI converted certain accounts payable to their
significant supplier to a note payable in the amount of $0.4 million. The note
bears interest of 6.5% and is payable in eighteen monthly installments
commencing on June 30, 1997.
TECHNICAL SOFTWARE
Founded in 1983, Technical Software's primary focus is the sale of software
and hardware solutions for CAD, solid modeling, mapping, document management,
networking and scanning. Services offered by Technical Software include
installation, customization, systems integration, productivity audits, training
and telephone support. Technical Software primarily serves Ohio.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------------- ----------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $6,752 100.0% $7,368 100.0% $5,689 100.0% $3,026 100.0% $2,763 100.0%
Costs of hardware and
software............... 3,009 44.6 3,160 42.9 2,161 38.0 1,068 35.3 1,231 44.5
Selling, general and
administrative
expenses............... 3,702 54.8 3,963 53.8 3,594 63.2 1,821 60.2 1,652 59.8
------ ------ ------ ------ ------
Total operating
expenses........... 6,711 99.4 7,123 96.7 5,755 101.2 2,889 95.5 2,883 104.3
Operating income(loss)... 41 0.6 245 3.3 (66) (1.2) 137 4.5 (120) (4.3)
Interest expense, net.... 17 0.2 14 0.2 28 0.5 13 0.4 9 0.3
Other expense (income),
net.................... (65) (0.9) (6) (0.1) (59) (1.1) (23) (0.8) (19) (0.6)
------ ------ ------ ------ ------
Income (loss) before
income taxes........... $89 1.3% $237 3.2% $(35) (0.6)% $147 4.9% $(110) (4.0)%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased to $2.8 million in the six months ended June
30, 1997 from $3.0 million in the six months ended June 30, 1996, a decrease of
$0.2 million, or 8.7%. The decrease in revenues resulted
43
<PAGE> 45
primarily from the marketplace foregoing purchase of Release 13 of Autodesk's
AutoCad product in anticipation of Release 14, which also decreased associated
revenue relating to training and phone support services.
Cost of hardware and software. Cost of hardware and software increased to
$1.2 million in the six months ended June 30, 1997 from $1.1 million in the six
months ended June 30, 1996, an increase of $0.1 million, or 15.3%. As a
percentage of revenues, cost of hardware and software increased to 44.5% in the
six months ended June 30, 1997 from 35.3% in the six months ended June 30, 1996.
The percentage increase was primarily attributed to higher product costs
resulting from industry pricing pressures.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $1.7 million in the six months ended June
30, 1997 from $1.8 million in the six months ended June 30, 1996, a decrease of
$0.1 million, or 9.3%. This decrease primarily resulted from reduction in
administrative personnel. As a percentage of revenues, selling, general and
administrative expenses remained relatively constant at 59.8% for the six months
ended June 30, 1997 as compared to 60.2% for the six months ended June 30, 1996.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues decreased to $5.7 million in 1996 from $7.4 million in
1995 and $6.8 million in 1994. Revenue reached a high point in 1995 due to
Release 13 of Autodesk's AutoCad product in late fiscal year 1994 which provided
a full year of strong sales volume in 1995. The decrease in revenues from 1995
to 1996 was primarily due to Technical Software's discontinuance of one day
traveling seminars and many of its lower margin products.
Cost of hardware and software. Cost of hardware and software decreased to
$2.2 million in 1996 from $3.2 million in 1995 and $3.0 million in 1994,
reflective of the trend in revenues noted above. As a percentage of revenues,
cost of hardware and software decreased from 42.9% in 1995 to 38.0% in 1996,
primarily due to the Company's discontinuance of lower margin products. Cost of
hardware and software decreased to 42.9% in 1995 from 44.6% in 1994, primarily
due to Autodesk's Release 13 in 1995, facilitating higher sales prices and more
favorable vendor discounts.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $3.6 million in 1996 from $4.0 million in
1995 and $3.7 million in 1994, reflecting the trend in revenues noted above. As
a percentage of revenues, selling, general and administrative expenses increased
to 63.2% in 1996 from 53.8% in 1995, primarily the result of these increased
expenses as compared to decreased revenues. As a percentage of revenues,
selling, general and administrative expenses decreased to 53.8% in 1995 from
54.8% in 1994, primarily the result of increased revenues.
Liquidity and Capital Resources
Technical Software's principal source of liquidity has been available
borrowings under credit facilities. The following table sets forth selected
information from Technical Software's statements of cash flows for the periods
indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------
Dollars in thousands 1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................. $82 $126 $325 $294 $(139)
Net cash provided by (used in)
investing activities................. 38 (228) (44) (58) (20)
Net cash provided by (used in)
financing activities................. (154) 108 (285) (240) (41)
</TABLE>
From January 1, 1994 through June 30, 1997, Technical Software generated
$0.4 million in net cash from operating activities primarily from net income
adjusted for non-cash charges related to depreciation and amortization.
44
<PAGE> 46
Cash used in investing activities was attributable to purchases of
property, equipment and investment securities, net of the proceeds from the sale
of investment securities.
Financing activities have included distributions paid to the Company's sole
shareholder and borrowing activity related to Technical Software's lines of
credit. Net borrowings exceeded repayments of the lines of credit in 1995 to
fund: (i) additional working capital required by the revenue growth of that
fiscal year; (ii) purchases of property and equipment; and (iii) distributions
to Technical Software's sole shareholder.
At fiscal year end 1996, Technical Software had two revolving lines of
credit with banks that enabled it to borrow up to $0.9 million at interest rates
ranging from 1.5% above the banks' short term investment rate to 0.5% above
prime, subject to certain restrictions and borrowing levels as defined in the
agreements. Subsequent to year-end, Technical Software's existing lines of
credit matured and Technical Software secured a new $0.3 million line of credit
with interest at 0.5% plus prime which is not guaranteed by Technical Software's
sole shareholder. Technical Software also borrowed an additional $0.2 million to
repay the previous lines of credit and to purchase equipment under various
long-term debt arrangements.
MID-WEST CAD
Founded in 1985, Mid-West CAD's primary focus is to provide software,
services and hardware to AEC firms. MidWest CAD services offered include
training, systems installation, technical support and consulting. Mid-West CAD
primarily serves Kansas and Missouri.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ---------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $2,607 100.0% $3,384 100.0% $3,365 100.0% $1,491 100.0% $1,564 100.0%
Costs of revenues....... 1,975 75.7 2,336 69.0 2,397 71.2 1,056 70.8 1,090 69.7
Selling, general and
administrative
expenses.............. 654 25.1 945 28.0 964 28.7 380 25.5 432 27.6
------ ------ ------ ------ ------
Total operating
expenses..... 2,629 100.8 3,281 97.0 3,361 99.9 1,436 96.3 1,522 97.3
Operating income
(loss)................ (22) (0.8) 103 3.0 4 0.1 55 3.7 42 2.7
Interest expense, net... 1 -- -- -- 4 0.1 1 0.1 -- --
Other income, net....... (1) -- (2) (0.1) (2) -- -- -- -- --
------ ------ ------ ------ ------
Income (loss) before
income taxes.......... $(22) (0.8)% $105 3.1% $2 -- $54 3.6% $42 2.7%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues increased to $1.6 million in the six months ended June
30, 1997 from $1.5 million in the six months ended June 30, 1996, an increase of
$0.1 million, or 4.9%. The increase in revenues resulted primarily from a
successful marketing program during the six month period ended June 30, 1997,
which focused on an increase in software sales.
Cost of revenues. Cost of revenues, which primarily consists of costs of
hardware, software, and support related expenses, remained constant at $1.1
million for the six months ended June 30, 1997 and the six months ended June 30,
1996. As a percentage of revenues, cost of revenues decreased to 69.7% in the
six months ended June 30, 1997 from 70.8% in the six months ended June 30, 1996.
The percentage decrease was primarily the result of improved vendor discounts.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained constant at $0.4 million for both the six
months ended June 30, 1997 and the six months ended June 30, 1996.
45
<PAGE> 47
As a percentage of revenues, selling, general and administrative expenses
increased to 27.6% in the six months ended June 30, 1997 from 25.5% in the six
months ended June 30, 1996, primarily the result of these expenses increasing at
a higher rate than the increase in revenue.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues remained constant at $3.4 million in 1996 and in 1995
and increased from $2.6 million in 1994. The fluctuations in revenues over the
three year period were primarily due to Mid-West CAD's addition of new customers
as a result of a new sales representative.
Cost of revenues. Cost of revenues increased to $2.4 million in 1996 from
$2.3 million in 1995 and $2.0 million in 1994, reflective of the trend in
revenues noted above. As a percentage of revenues, cost of revenues increased to
71.2% in 1996 from 69.0% in 1995. As a percentage of revenues, cost of revenues
decreased to 69.0% in 1995 from 75.7% in 1994, primarily due to improved vendor
discounts.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.0 million in 1996 from $0.9 million in
1995 and $0.7 million in 1994, reflecting increased salaries and bonuses and
additional infrastructure expenses associated with Mid-West Cad's growth. As a
percentage of revenues, selling, general and administrative expenses increased
to 28.7% in 1996 from 28.0% in 1995 and 25.1% in 1994.
Liquidity and Capital Resources
Mid-West CAD's principal source of liquidity has been cash flows from
operating activities and limited long term debt arrangements. The following
table sets forth selected information from Mid-West CAD's statements of cash
flows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
---------------------- -------------
Dollars in thousands 1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................. $15 $167 $55 $(68) $50
Net cash used in investing
activities.................................. (44) (65) (142) (84) (12)
Net cash provided by (used in) financing
activities.................................. 12 8 8 34 (8)
</TABLE>
From January 1, 1994 through June 30, 1997, Mid-West CAD generated $0.3
million in net cash from operating activities. During this period, cash was
generated primarily from net income adjusted for the effects of non-cash charges
related to depreciation and amortization. The increase in operating cash
provided in 1995 versus other periods was primarily the result of increased net
income.
Cash used in investing activities was attributable to purchases of property
and equipment while financing activities have included activity related to the
proceeds from issuance of long-term debt, net of the associated principal
payments thereunder.
Mid-West CAD has entered into long-term debt arrangements which include
notes payable with different maturities and interest rates. Each note payable is
secured by certain office equipment and is payable in monthly installments with
maturity dates between the period of July 1997 and September 1999.
CADD MICROSYSTEMS
Founded in 1985, CADD Microsystems' primary focus is the sale of CAD and
AEC software and services including the Autodesk and Softdesk product lines.
CADD Microsystems has been the top selling Autodesk reseller to the federal
government since 1991. CADD Microsystems primarily serves the Washington D.C.
area including Virginia and Maryland.
46
<PAGE> 48
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------- ----------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. $2,879 100.0% $3,113 100.0% $3,094 100.0% $1,584 100.0% $1,396 100.0%
Costs of revenues..... 1,874 65.1 1,690 54.3 1,925 62.2 850 53.7 895 64.1
Selling, general and
administrative
expenses............ 1,276 44.3 1,247 40.0 1,176 38.0 631 39.8 459 32.9
------ ------ ------ ------ ------
Total
operating
expenses... 3,150 109.4 2,937 94.3 3,101 100.2 1,481 93.5 1,354 97.0
Operating income
(loss).............. (271) (9.4) 176 5.7 (7) (0.2) 103 6.5 42 3.0
Interest expense,
net................. 17 0.6 31 1.0 38 1.2 17 1.1 20 1.4
Other expense, net.... -- -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------
Income (loss) before
income taxes........ $(288) (10.0)% $145 4.7% $(45) (1.4)% $86 5.4% $22 1.6%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased to $1.4 million in the six months ended June
30, 1997 from $1.6 million in the six months ended June 30, 1996, a decrease of
$0.2 million, or 11.9%. The decrease in revenues resulted primarily from the
nonrenewal of a contract with a significant customer.
Cost of revenues. Cost of revenues, which primarily consists of costs of
hardware, software, and support related expenses, remained constant at $0.9
million for the six months ended June 30, 1997 and for the six months ended June
30, 1996. As a percentage of revenues, cost of revenues increased to 64.1% in
the six months ended June 30, 1997 from 53.7% in the six months ended June 30,
1996. The percentage increase was primarily the result of competitive industry
pricing pressures.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $0.5 million in the six months ended June
30, 1997 from $0.6 million in the six months ended June 30, 1996, a decrease of
$0.1 million, or 27.3%. This decrease primarily resulted from a decrease in
sales and administrative personnel-related expenses. As a percentage of
revenues, selling, general and administrative expenses decreased to 32.9% in the
six months ended June 30, 1997 from 39.8% in the six months ended June 30, 1996,
primarily the result of further cost reduction efforts during the six months
ended June 30, 1997.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues remained constant at $3.1 million in 1996 and 1995 and
increased from $2.9 million in 1994. The increase in revenue from 1994 to 1995
was the result of successful joint marketing programs with vendors as well as
the demand for Release 13 of Autodesk's AutoCad product. Revenues remained
constant between 1996 and 1995 due to CADD Microsystems' continued effort to
limit hardware sales and thereby improve profit margins.
Cost of revenues. Cost of revenues increased to $1.9 million in 1996 from
$1.7 million in 1995 after decreasing from $1.9 million in 1994. As a percentage
of revenues, cost of revenues increased to 62.2% in 1996 from 54.3% in 1995,
primarily due to the result of competitive industry pricing pressures and less
favorable vendor discounts. As a percentage of revenues, cost of revenues
decreased to 54.3% in 1995 from 65.1% in 1994, primarily due to CADD
Microsystems' de-emphasis on selling lower margin hardware and an increase in
software sales driven by industry demand.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained constant at $1.2 million in 1996 and in 1995
and decreased from $1.3 million in 1994. As a percentage of
47
<PAGE> 49
revenues, selling, general and administrative expenses decreased to 38.0% in
1996 from 40.0% in 1995 and 44.3% in 1994, primarily the result of reduction in
administrative personnel-related and other infrastructure expenses during the
three-year period.
Liquidity and Capital Resources
CADD Microsystems' principal source of liquidity has been available
borrowings under credit facilities, various long-term debt arrangements, and
capital leases. The following table sets forth selected information from CADD
Microsystems' statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
Dollars in thousands 1994 1995 1996 1996 1997
---- ---- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................ $(53) $87 $(37) $14 $11
Net cash used in investing
activities................................ (70) (8) (29) (9) --
Net cash provided by (used in) financing
activities................................ (43) (45) 99 (47) (52)
</TABLE>
From January 1, 1994 through June 30, 1997, CADD Microsystems neither
generated nor used net cash from operating activities. The increase in operating
cash provided in 1995 versus other periods was primarily the result of increased
net income during the period.
Cash used in investing activities was attributable to purchases of property
and equipment.
Financing activities have included long-term debt arrangements, repayments
related to capital leases, and a dividend paid to shareholders. The increase in
net cash provided by financing activities in 1996 versus other periods was
primarily the result of CADD Microsystems' receiving the proceeds of a new
credit agreement with a financial institution.
In August 1996, CADD Microsystems entered into a credit agreement with a
financial institution which provides for (i) a five year term loan in the amount
of approximately $0.2 million with principal and interest payments due monthly,
and (ii) a revolving line of credit due upon demand in an amount of up to $0.1
million. The term loan bears interest at prime plus 2.25%, adjusted annually,
while the borrowings under the line of credit bear interest at prime plus 1.25%,
adjusted daily. The credit agreement contains covenants concerning the
maintenance of certain ratios including current ratio, net worth ratio, and debt
service coverage ratio. The credit agreement is collateralized by substantially
all of the assets of CADD Microsystems.
COMPUTERS FOR DESIGN
Computers for Design's primary focus is on sales of design automation
software and services including software customization, training, and network
implementation and the sale of CAD systems to governmental and commercial
customers. Computers for Design primarily serves the Rocky Mountain region.
48
<PAGE> 50
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- ------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $1,926 100.0% $2,057 100.0% $2,142 100.0% $1,292 100.0% $912 100.0%
Costs of revenues.......... 1,309 68.0 1,379 67.0 1,349 63.0 848 65.6 529 58.0
Selling, general and
administrative
expenses................. 599 31.1 692 33.7 745 34.8 365 28.3 352 38.6
------ ------ ------ ------ -----
Total operating
expenses........ 1,908 99.1 2,071 100.7 2,094 97.8 1,213 93.9 881 96.6
Operating income (loss).... 18 0.9 (14) (0.7) 48 2.2 79 6.1 31 3.4
Interest expense, net...... 9 0.5 12 0.6 11 0.5 4 0.3 7 0.8
Other expense (income),
net...................... (12) (0.6) (4) (0.2) (4) (0.2) -- -- 5 0.5
------ ------ ------ ------ -----
Income (loss) before income
taxes.................... $21 1.0% $(22) (1.1)% $41 1.9% $75 5.8% $19 2.1%
====== ====== ====== ====== ======
</TABLE>
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues decreased to $0.9 million in the six months ended June
30, 1997 from $1.3 million in the six months ended June 30, 1996, a decrease of
$0.4 million, or 29.4%. The decrease in revenues resulted primarily from a
combination of limiting high dollar low margin hardware from its product mix and
anticipation of Release 14 of Autodesk's AutoCad product.
Cost of revenues. Cost of revenues, which primarily consists of costs of
hardware, software, and support related expenses, decreased to $0.5 million in
the six months ended June 30, 1997 from $0.8 million in the six months ended
June 30, 1996, a decrease of $0.3 million, or 37.6%. As a percentage of
revenues, cost of revenues decreased to 58.0% in the six months ended June 30,
1997 from 65.6% in the six months ended June 30, 1996. The percentage decrease
was primarily the result of curtailing sales of high dollar low margin hardware
and replacing them with higher margin support and service revenues.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained relatively constant at $0.4 million for the six
months ended June 30, 1997 and for the six months ended June 30, 1996. As a
percentage of revenues, selling, general and administrative expenses increased
to 38.6% in the six months ended June 30, 1997 from 28.3% in the six months
ended June 30, 1996, primarily the result of lower revenues for the six months
ended June 30, 1997.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues were $2.1 million in 1996 and in 1995 and $1.9 million
in 1994. The increase in revenues from 1994 to 1995 was primarily due to the
introduction of high dollar hardware products.
Cost of revenues. Cost of revenues decreased to $1.3 million in 1996 from
$1.4 million in 1995 and remained constant at $1.3 million compared with 1994.
As a percentage of revenues, cost of revenues decreased to 63.0% in 1996 from
67.0% in 1995, primarily due to increased sales of high margin support and
service projects. As a percentage of revenues, cost of revenues decreased to
67.0% in 1995 from 68.0% in 1994.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained constant at $0.7 million in 1996 and in 1995
and increased from $0.6 million in 1994, reflecting an increase in
hardware-related sales personnel in 1995. As a percentage of revenues, selling,
general and administrative expenses increased to 34.8% in 1996 from 33.7% in
1995 and from 31.1% in 1994, primarily the result of increases in the cost of
infrastructure expenses associated with Computers for Design's growth.
49
<PAGE> 51
Liquidity and Capital Resources
Computers for Design's principal source of liquidity has been cash flow
from operating activities and borrowings under credit facilities. The following
table sets forth selected information from Computers for Design's statements of
cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
---------------------- -------------
Dollars in thousands 1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities..... $45 $33 $8 $69 $31
Net cash provided by (used in) investing
activities.................................. (16) (77) (7) 5 8
Net cash provided by (used in) financing
activities.................................. (12) 29 (5) (50) (37)
</TABLE>
From October 1, 1993 through June 30, 1997, Computers for Design generated
$0.1 million in cash from operating activities. During this period, operating
cash was generated primarily from net income adjusted for the effects of
non-cash charges related to depreciation and amortization.
Cash used in investing activities was attributable to the purchase of
equipment and the repayment of an advance to a related party in 1995.
Financing activities primarily related to borrowings and repayments
associated with the revolving line of credit and capital lease obligations.
Computers for Design has a revolving line of credit with a bank which
provides for borrowings of $0.2 million, is due June 1, 1998, has interest
payable monthly at 1% over the prime rate, and is collateralized by accounts
receivable, inventory, equipment and a general assignment of all assets.
APPLIED
Founded in 1982, Applied's primary focus is the sale of design automation
software solutions. Applied also has developed and marketed proprietary software
products, including a computerized level/flow analysis model of municipal use.
Applied primarily serves the southeastern region.
The following Results of Operations and Liquidity and Capital Resources
reflect the historical consolidated financial statements of Applied as restated
to remove Applied's investment in an unconsolidated investee subsidiary and
certain capitalized software development costs. See the consolidated financial
statements and related notes thereto of Applied included elsewhere in this
Prospectus.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
---------------------------------------------------- --------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $10,555 100.0% $8,114 100.0% $7,797 100.0% $5,840 100.0% $5,408 100.0%
Costs of revenues.......... 8,268 78.3 6,144 75.7 5,654 72.5 4,302 73.7 4,278 79.1
Selling, general and
administrative
expenses................. 2,111 20.0 1,988 24.5 1,928 24.7 1,387 23.7 1,523 28.2
------- ------ ------ ------ ------
Total operating
expenses........ 10,379 98.3 8,132 100.2 7,582 97.2 5,689 97.4 5,801 107.3
Operating income (loss).... 176 1.7 (18) (0.2) 215 2.8 151 2.6 (393) (7.3)
Interest expense, net...... 20 0.2 62 0.8 52 0.7 40 0.7 31 0.5
Other expense (income),
net...................... -- -- 6 0.1 (4) -- (2) -- -- --
------- ------ ------ ------ ------
Income (loss) before income
taxes.................... $156 1.5% $(86) (1.1)% $167 2.1% $113 1.9% $(424) (7.8)%
======= ====== ====== ====== ======
</TABLE>
50
<PAGE> 52
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Revenues. Revenues decreased to $5.4 million in the nine months ended June
30, 1997 from $5.8 million in the nine months ended June 30, 1996, a decrease of
$0.4 million, or 7.4%. The decrease in revenues resulted primarily from the loss
of several industry-experienced sales personnel during the period ended June 30,
1997.
Cost of revenues. Cost of revenues, which primarily consists of costs of
hardware, software, and support related expenses, remained constant at $4.3
million in the nine months ended June 30, 1997 and 1996. As a percentage of
revenues, cost of revenues increased to 79.1% in the nine months ended June 30,
1997 from 73.7% in the nine months ended June 30, 1996. The percentage increase
was primarily the result of less favorable vendor discounts combined with
industry pricing pressures.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.5 million in the nine months ended June
30, 1997 from $1.4 million in the nine months ended June 30, 1996, an increase
of $0.1 million, or 9.9%. This increase primarily resulted from Applied's
efforts to establish marketing programs in an effort to regain market share. As
a percentage of revenues, selling, general and administrative expenses increased
to 28.2% in the nine months ended June 30, 1997 from 23.7% in the nine months
ended June 30, 1996, primarily the result of these increased expenses.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues decreased to $7.8 million in 1996 from $8.1 million in
1995 and $10.6 million in 1994. The decrease in revenues over the three year
period was primarily due to two consecutive years of fewer customers coupled
with the deterioration of an industry-experienced sales staff.
Cost of revenues. Cost of revenues decreased to $5.7 million in 1996 from
$6.1 million in 1995 and $8.3 million in 1994, reflecting Applied's year-to-year
decline in revenues. As a percentage of revenues, cost of revenues decreased to
72.5% in 1996 from 75.7% in 1995 and 78.3% in 1994, primarily due to less
hardware sales which carry a higher cost of sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $1.9 million in 1996 from $2.0 million in
1995 and $2.1 million in 1994, reflecting lower revenues associated with
Applied's loss of customer base and sales personnel. As a percentage of
revenues, selling, general and administrative expenses remained relatively
constant at 24.7% in 1996 as compared to 24.5% in 1995. As a percentage of
revenues, selling, general and administrative expenses increased to 24.5% in
1995 from 20.0% in 1994, primarily the result of decreased revenues in 1995.
Liquidity and Capital Resources
Applied's principal source of liquidity has been available borrowings under
credit facilities. The following table sets forth selected information from
Applied's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ ---------------
Dollars in thousands 1994 1995 1996 1996 1997
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities...................................... $456 $443 $109 $362 $(130)
Net cash used in investing activities............. (9) (21) (75) (68) (9)
Net cash provided by (used in) financing
activities...................................... (484) (347) (40) (76) 91
</TABLE>
From October 1, 1993 through June 30, 1997, Applied generated $0.9 million
in net cash from operating activities. During this period, $0.2 million of cash
was used primarily as a result of the effect of net losses adjusted for $0.3
million related to non-cash charges of depreciation and amortization. The
remaining cash generated over the period was generated primarily from cash
collections of trade accounts receivable net of cash outflows related to
reductions in accounts payable and accrued expenses.
Cash used in investing activities was attributable to purchases of property
and equipment.
51
<PAGE> 53
Financing activities have included repurchase of common stock and the
associated agreed upon annual distribution to a former shareholder, as well as
the borrowing activity related to Applied's line of credit. Net cash used by
financing activities also includes payments made related to the non-Reseller and
Integration portion of Applied which is not being acquired by UDMS. Payments not
related to the Reseller and Integration Business amounted to $0.8 million over
the three year period.
Applied has a line of credit agreement with a financial institution which
permits it to borrow up to $0.5 million. Borrowings under the line bear interest
at the prime rate plus 1%, payable monthly. The line is secured by accounts
receivable and a personal guarantee of the shareholders and matures January 15,
1998. Applied's line of credit agreement contains restrictive covenants which
include the maintenance of minimum tangible net worth, as defined, and certain
financial ratios.
Applied has the ability to finance up to $0.5 million of its eligible
inventory under a financing agreement. The terms are interest free for the first
30 to 45 days, depending on vendor, and interest is charged thereafter at the
rate of prime plus 6%, plus an administrative fee. The specific inventory
financed is collateral under the financing agreement and the liability is
personally guaranteed by the shareholders. This inventory financing agreement
contains restrictive covenants which include the maintenance of minimum tangible
net worth, as defined, and certain financial ratios. As of September 30, 1996,
Applied was not in compliance with certain of these covenants.
SYNERGIS-PA
Founded in 1985, Synergis-PA's primary focus is the sale of design
automation software, including Autodesk products and its own proprietary
document management software developed for design automation. Synergis-PA also
offers systems integration, networking services, custom programming and
training. Synergis-PA primarily serves the Mid-Atlantic region.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
--------------------------------------------------- ----------------------------------
Dollars in thousands 1994 1995 1996 1996 1997
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $4,751 100.0% $3,189 100.0% $4,899 100.0% $3,579 100.0% $4,377 100.0%
Costs of hardware and
software............... 3,411 71.8 2,052 64.3 3,195 65.2 2,269 63.4 3,097 70.7
Selling, general and
administrative
expenses............... 1,238 26.1 1,026 32.2 1,547 31.6 1,084 30.3 1,185 27.1
------ ------ ------ ------ ------
Total operating
expenses............. 4,649 97.9 3,078 96.5 4,742 96.8 3,353 93.7 4,282 97.8
Operating income......... 102 2.1 111 3.5 157 3.2 226 6.3 95 2.2
Interest expense, net.... 33 0.7 21 0.7 8 0.2 8 0.2 8 0.2
Other income, net........ (4) (0.1) (19) (0.6) (9) (0.2) (9) (0.2) (6) (0.1)
------ ------ ------ ------ ------
Net income............... $73 1.5% $109 3.4% $158 3.2% $227 6.3% $93 2.1%
====== ====== ====== ====== ======
</TABLE>
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Revenues. Revenues increased to $4.4 million in the nine months ended June
30, 1997 from $3.6 million in the nine months ended June 30, 1996, an increase
of $0.8 million, or 22.3%. The increase in revenues resulted primarily from the
realignment of Synergis-PA's sales force to focus on software, service and
support coupled with an aggressive marketing campaign.
Cost of hardware and software. Cost of hardware and software increased to
$3.1 million in the nine months ended June 30, 1997 from $2.3 million in the
nine months ended June 30, 1996, an increase of $0.8 million, or 36.5%. As a
percentage of revenues, cost of hardware and software increased to 70.7% in the
nine months ended June 30, 1997 from 63.4% in the nine months ended June 30,
1996. The percentage increase
52
<PAGE> 54
was primarily the result of competitive industry pricing pressures as well as
Synergis-PA's own reduction of sales prices in an effort to gain market share.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $1.2 million in the nine months ended June
30, 1997 from $1.1 million in the nine months ended June 30, 1996, an increase
of $0.1 million, or 10.4%. This increase primarily resulted from the timing of
marketing activities in an effort to expand customer base as well as the
addition of service and support personnel necessary to support growth in the
prior year six month period. As a percentage of revenues, selling, general and
administrative expenses decreased to 27.1% in the nine months ended June 30,
1997 from 30.3% in the nine months ended June 30, 1996, primarily as a result of
increased revenues in the nine months ended June 30, 1997.
Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues increased to $4.9 million in 1996 from $3.2 million in
1995 and $4.8 million in 1994. The decrease in revenues between 1995 and 1994
was primarily due to Synergis-PA's initiative to de-emphasize its hardware
business and shift its product mix to emphasize software, service and support.
The benefits of the Synergis-PA's realignment were realized in fiscal 1996
through increased software, services and support sales.
Cost of hardware and software. Cost of hardware and software increased to
$3.2 million in 1996 from $2.1 million in 1995 and $3.4 million, reflective of
the trend in revenues noted above. As a percentage of revenues, cost of hardware
and software increased slightly between 1995 and 1996 from 64.3% to 65.2%,
respectively, while decreasing more substantially from 71.8% in 1994. The
decrease from the 1994 percentage was primarily related to Synergis-PA's shift
in product mix from lower margin hardware to higher margin software, service and
support.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $1.5 million in 1996 from $1.0 million in
1995 and $1.2 million in 1994. Selling, general and administrative expenses
decreased between 1994 and 1995 due to Synergis' reduction in headcount driven
by an effort to limit the amount of hardware service employees. Cost increased
in 1996 from the 1995 level due to the company increasing the number of sales
and support employees responsible for Synergis-PA's growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 31.6% in
1996 from 32.2% in 1995, primarily the result of offsetting increased expenses
over increased revenues. As a percentage of revenues, selling, general and
administrative expenses increased to 32.2% in 1995 from 26.1% in 1994, primarily
the result of lower revenues in 1995.
Liquidity and Capital Resources
Synergis-PA's principal source of liquidity has been available borrowings
under credit facilities and a note payable to a principal shareholder. The
following table sets forth selected information from Synergis-PA's statements of
cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
---------------------- -------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................. $198 $513 $102 $(83) $90
Net cash used in investing
activities.................................. (27) (50) (92) (60) (28)
Net cash provided by (used in) financing
activities.................................. (198) (201) (61) (8) (54)
</TABLE>
From October 1, 1993 through June 30, 1997, Synergis-PA generated $1.0
million in net cash from operating activities. During this period, cash was
generated primarily from net income adjusted for the effects of non-cash charges
related to depreciation and amortization. The increase in operating cash
provided in 1995
53
<PAGE> 55
versus other periods was primarily the result of increased cash collections on
trade receivables combined with increased accounts payable and accrued expense
net of the cash used to fund increased inventory purchases.
Cash used in investing activities was attributable to purchases of property
and equipment.
Financing activities have included repayments related to Synergis-PA's
revolving line of credit, principal payments under long term debt arrangements,
principal payments on capital leases, and dividends paid to shareholders.
Synergis-PA has available a $0.4 million working capital line of credit
bearing interest at prime plus 1/2%. In addition to the line of credit
agreement noted above, Synergis-PA's has entered into a long term debt
arrangement in the form of a 10% unsecured notes payable to a principal
shareholder due September 30, 2002. The note to the principal shareholder is
repayable immediately and in full in the of a change in control of the Company.
DEVTRON RUSSELL
Founded in 1969, Devtron Russell's primary focus is the sale of Autodesk
products and related services. In 1995 Devtron Russell received a top dealer
award from Autodesk for being a top dealer for ten consecutive years. Devtron
Russell primarily serves Michigan.
Results of Operations
The following table sets forth certain financial data and such data as a
percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------
1994 1995 1996 NINE MONTHS ENDED JUNE 30,
Dollars in thousands -------------- -------------- -------------- --------------------------------
1996 1997
-------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $1,538 100.0% $1,622 100.0% $2,782 100.0% $2,175 100.0% $2,387 100.0%
Costs of hardware and
software.................. 1,037 67.4 1,136 70.0 2,010 72.3 1,559 71.6 1,642 68.8
Selling, general and
administrative expenses... 473 30.8 463 28.5 630 22.6 456 21.0 541 22.6
------ ------ ------ ------ ------
Total operating
expenses......... 1,510 98.2 1,599 98.5 2,640 94.9 2,015 92.6 2,183 91.4
Operating income............ 28 1.8 23 1.5 142 5.1 160 7.4 204 8.6
Interest expense, net....... 6 0.4 9 0.6 10 0.4 8 0.4 9 0.4
Other income, net........... -- -- (4) (0.2) -- -- -- -- -- --
------ ------ ------ ------ ------
Income before income
taxes..................... $22 1.4% $18 1.1% $132 4.7% $152 7.0% $195 8.2%
====== ====== ====== ====== ======
</TABLE>
Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996
Revenues. Revenues increased to $2.4 million in the nine months ended June
30, 1997 from $2.2 million in the nine months ended June 30, 1996, a increase of
$0.2 million, or 9.7%. The increase in revenues resulted primarily from growth
in the design automation market.
Cost of hardware and software. Cost of hardware and software remained
constant at $1.6 million in the nine months ended June 30, 1997 and in the nine
months ended June 30, 1996. As a percentage of revenues, cost of hardware and
software decreased to 68.8% in the nine months ended June 30, 1997 from 71.6% in
the nine months ended June 30, 1996. The percentage decrease was primarily the
result of competitive industry pricing pressures in the previous year.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained relatively constant at approximately $0.5
million in the nine months ended June 30, 1997 and in the nine months ended June
30, 1996. As a percentage of revenues, selling, general and administrative
expenses increased to 22.6% in the nine months ended June 30, 1997 from 21.0% in
the nine months ended June 30, 1996, primarily the result of greater
personnel-related expenses in response to anticipated market growth.
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Comparison of 1996, 1995, and 1994 Results of Operations
Revenues. Revenues increased to $2.8 million in 1996 from $1.6 million in
1995 and $1.5 million in 1994. The increase in revenues over the three year
period was primarily the result of a recovery from Michigan's economic cycle
downturn period.
Cost of hardware and software. Cost of hardware and software increased to
$2.0 million in 1996 from $1.1 million in 1995 and $1.0 million in 1994,
reflecting the year-to-year revenue growth. As a percentage of revenues, cost of
hardware and software increased to 72.3% in 1996 from 70.0% in 1995 and from
67.4% in 1994, primarily due to less favorable vendor discounts and competitive
industry pricing pressures.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $0.6 million in 1996 from $0.5 million in
1995 and in 1994. As a percentage of revenues, selling, general and
administrative expenses decreased to 22.6% in 1996 from 28.5% in 1995 and 30.8%
in 1994, primarily the result of Devtron Russell's revenue growth.
Liquidity and Capital Resources
Devtron Russell's principal source of liquidity has been cash flows from
operating activities, borrowings under credit facilities, and various long-term
debt arrangements. The following table sets forth selected information from
Devtron Russell's statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER ENDED JUNE
30, 30,
---------------------- -------------
Dollars in thousands 1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities.................................. $21 $34 $(34) $26 $(24)
Net cash used in investing
activities.................................. (1) (17) (27) (24) (26)
Net cash provided by (used in) financing
activities.................................. (2) 33 (7) (1) 72
</TABLE>
From October 1, 1993 through June 30, 1997, Devtron Russell generated
limited positive cash flow for the period. During this period, operating cash
was generated primarily from net income adjusted for the effects of non-cash
charges related to depreciation and amortization and was offset by cash used to
fund growth in working capital.
Cash used in investing activities was attributable to the purchase of
property and equipment.
Financing activities have included approximately $0.1 million in proceeds
from the issuance of long-term debt, net of principal repayments under this
facility throughout the periods.
Devtron Russell has a $75,000 line of credit at June 30, 1997, which bears
interest at the prime rate plus 1.5% per annum and is secured by all the assets
of Devtron Russell. In addition to the line of credit, Devtron Russell has
certain long-term debt arrangements with different interest rates, each secured
by specific assets, including a building and vehicles, and payable in monthly
installments with maturity dates between May 1998 and October 1999.
ACCESS
Founded in 1963, ACCESS' primary focus is the service of hardware and
software for its installed base of customers and third parties. ACCESS also
develops and markets document management software and is the sole North American
distributor of the Cimage product line, a leading document management product
line. Additionally, ACCESS sells certain peripheral products including plotters,
scanners and printers. ACCESS markets its products and services nationwide.
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<PAGE> 57
Results of Operations
The following table sets forth certain selected financial data and such
data as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, THREE MONTHS ENDED JULY 31,
--------------------------------------------------- --------------------------------
Dollars in thousands 1995 1996 1997 1996 1997
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................... $6,042 100.0% $8,704 100.0% $6,929 100.0% $1,675 100.0% $2,713 100.0%
Costs of revenues.......... 3,689 61.1 5,394 62.0 5,433 78.4 1,163 69.4 1,971 72.6
Selling, general and
administrative
expenses................. 2,121 35.1 3,045 35.0 2,634 38.0 672 40.1 648 23.9
------ ------ ------ ------ ------
Total operating
expenses........ 5,810 96.2 8,439 97.0 8,067 116.4 1,835 109.5 2,619 96.5
Operating income (loss).... 232 3.8 265 3.0 (1,138) (16.4) (160) (9.5) 94 3.5
Interest expense, net...... 31 0.5 9 -- 5 0.1 1 0.1 -- --
Other expense (income),
net...................... 4 -- (55) (0.6) (92) (1.3) (21) (1.2) (12) (0.4)
------ ------ ------ ------ ------
Income (loss) before income
taxes.................... $197 3.3% $311 3.6% $(1,051) (15.2)% $(140) (8.4)% $106 3.9%
====== ====== ====== ====== ======
</TABLE>
Three Months Ended July 31, 1997 Compared to Three Months Ended July 31, 1996
Revenues. Revenues increased to $2.7 million in the three months ended
July 31, 1997 from $1.7 million in the three months ended July 31, 1996, an
increase of $1.0 million, or 62.0%. The increase in revenues resulted primarily
from a substantial sale to one customer related to ACCESS' Electronic Document
Management Systems (EDMS) software. ACCESS also recorded additional revenues as
a result of the April 1997 acquisition of the assets of Graphic Systems
Technology, Incorporated (GST), a company providing third party maintenance to
the prepress industry.
Cost of revenues. Cost of revenues, which primarily consists of costs of
software and support-related expenses, increased to $2.0 million in the three
months ended July 31, 1997 from $1.2 million in the three months ended July 31,
1996, an increase of $0.8 million, or 69.5%. As a percentage of revenues, cost
of revenues increased to 72.7% in the three months ended July 31, 1997 from
69.4% in the three months ended July 31, 1996. The percentage increase was
primarily the result of decreased service margins resulting from ACCESS'
expansion of the number of field service representatives related to the
acquisition of the assets of GST offset by the absence of capitalized software
amortization, as the remaining balance had been written off in the third quarter
of 1997. During the quarter ended July 31, 1997, the additional capacity was
under-utilized.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $0.6 million in the three months ended July
31, 1997 from $0.7 million in the three months ended July 31, 1996, a decrease
of $0.1 million, or 3.6%. This decrease primarily resulted from management's
control of its cost structure. As a percentage of revenues, selling, general and
administrative expenses decreased to 23.9% in the three months ended July 31,
1997 from 40.1% in the three months ended July 31, 1996, primarily the result of
decreased expenses and an increase in revenues.
Comparison of 1997, 1996, and 1995 Results of Operations
Revenues. Revenues decreased to $6.9 million in 1997 from $8.7 million in
1996 and increased from $6.0 million in 1995. The fluctuations in ACCESS'
revenues over the three year period were primarily due to the results of
revenues associated with EDMS software. System sales from EDMS operations were
$2.9 million, $3.8 million, and $1.3 million in fiscal years 1997, 1996 and
1995, respectively. The decrease between 1997 and 1996 was the result of a major
customer ordering a substantial non cancelable software license in 1996. ACCESS
did not have a similar major EDMS order in fiscal 1997. In addition, revenues
decreased in 1997 as compared to 1996 as a result of lower service sales related
to hardware and software support to ACCESS' installed base of customers and
third-party maintenance contracts. Service sales were $4.0 million, $4.9 million
and $4.8 million in 1997, 1996 and 1995, respectively.
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<PAGE> 58
Cost of revenues. Cost of revenues remained constant at $5.4 million in
1997 and 1996 and increased from $3.7 million in 1995, reflective of the trend
in revenues noted above. In addition, in 1997 ACCESS accelerated and expensed
the remaining unamortized capitalized software balance of $0.7 million in the
third quarter of 1997. Accordingly, total amortization and write-off of
unamortized capitalized software balances was $0.7 million in 1994 and 1995 as
compared to $1.1 million in 1997. As a percentage of revenues, cost of revenues
increased to 78.4% in 1997 from 62.0% in 1996 and 61.1% in 1995, primarily due
to a change in the ACCESS' product mix from higher margin micrographic hardware
services to lower margin third party services and as a result of the write-off
of unamortized capitalized software in 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased to $2.6 million in 1997 from $3.0 million in
1996 and increased from $2.1 million in 1995. Lower research and development
expenses which were associated with Cimage Enterprise Systems, Ltd., providing
the software development services in fiscal year 1997, facilitated the
improvement. As a percentage of revenues, selling, general and administrative
expenses increased to 38.0% in 1997 from 34.9% in 1996, primarily the result of
decreased revenues in 1997. As a percentage of revenues, selling, general and
administrative expenses decreased slightly to 34.9% in 1996 from 35.1% in 1995.
Liquidity and Capital Resources
ACCESS' principal source of liquidity has been cash flows from operating
activities. The following table sets forth selected information from ACCESS'
statements of cash flows for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED APRIL 30, ENDED JULY 31,
------------------------- --------------
Dollars in thousands 1995 1996 1997 1996 1997
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities................................ $1,047 $1,621 $(110) $(257) $(150)
Net cash used in investing
activities................................ (21) (308) (435) (33) (14)
Net cash used in financing activities....... (147) (125) (122) (8) --
</TABLE>
From May 1, 1994 through July 31, 1997, ACCESS generated $2.4 million in
net cash from operating activities. During this period, operating cash was
generated from income adjusted for non-cash charges such as depreciation,
amortization of capitalized software, deferred income taxes, and prepaid
maintenance contracts. Net cash used by operating activities from May 1, 1996
through July 31, 1997 was adversely effected by the changes in operating assets
resulting from cash payments of accrued liabilities, recognition of advances
from customers, and an increase in accounts receivable, all net of non-cash
charges related to depreciation, amortization and prepaid maintenance contracts.
Cash used in investing activities was attributable to purchases of property
and equipment and cash expended for the acquisitions of businesses in both
fiscal years 1997 and 1996. ACCESS acquired the assets of GST in April 1997 and
acquired CimSoft Incorporated in July 1995.
Financing activities have included dividends on the company's Class One
Preferred Stock, repayments on a bank line of credit, and payments related to
capital leases.
ACCESS' current line of credit of $0.4 million extends through April 7,
1998. Borrowings under the agreement bear interest at one percent over the prime
rate. Maximum availability is based upon levels (as set forth in the loan
agreement) of eligible accounts receivable. To secure any borrowing, ACCESS has
pledged accounts receivable, inventories, fixed assets, and general intangibles.
The agreement contains restrictive and other covenants which require ACCESS to
maintain certain levels of indebtedness to net worth, current ratio and cash
flow from operations. It also restricts new borrowings, capital expenditures,
and dividends on ACCESS' capital stock.
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<PAGE> 59
BUSINESS
The Company believes it will be the largest independent value added
reseller of design automation products and services in the United States. The
Company will provide its customers with licensed and proprietary CAD/CAM/CAE and
complementary document management solutions. The Company will also offer a wide
range of sophisticated customer support and consulting services including
systems integration, customization, training, process re-engineering and call
center and help desk support.
As a single source provider, the Company will offer comprehensive
professional services, products, support, and training necessary to implement
and maintain complete, state-of-the-art design automation systems. The Company
also expects to expand its product portfolio by licensing or purchasing
additional and complementary products for resale to its customers. The Company
intends to provide its customers with the latest technology and services and to
become an integral part of the customer's technology team.
INDUSTRY OVERVIEW
The design automation industry consists of six market segments: mechanical
design, AEC, GIS, process and power, facilities management, and multi-media.
Based on industry sources, it is estimated that the design automation market
(including CAD/CAM/CAE licenses and services) was $6.8 billion for 1996 and will
be approximately $7.5 billion in 1997. Estimated 1997 revenues for document
management software products are $1.4 billion. These estimates do not include
expenditures for other related software products such as applications for
viewing, scanning, conversion, and computer output to laser disk. The design
automation services industry has experienced solid growth historically. In
particular, the mechanical software market has grown during the period 1994
through 1996 at an approximate 16.7% compound annual growth rate, and it is
estimated that this compound annual growth rate will continue through 2000. The
Company believes the design automation services industry will continue to record
solid growth over the next several years due to the strength of CAD/CAM/CAE
software sales, the emergence of Windows NT as an implementation platform and
the emergence of mid-range platforms, among other reasons. More specifically,
the Company believes that the revenues of design automation value-added
resellers as a whole have been growing slower than the overall design automation
industry, while the larger value added resellers have been growing more rapidly
due to customer preferences favoring more integrated full-service solution
providers.
Originally, developers and most manufacturers sold their CAD/CAM/CAE
products directly to end users. More recently, design automation and document
management tools have become more complex, more developers have placed products
into the market, and demand for support and services has increased. Local and
regional value added resellers have entered the industry in response to end
users who wanted to obtain products and related support and services from a
single source. However, value added resellers generally provide CAD/CAM/CAE
products within limited geographic markets serving one or a limited number of
design automation market segments as the needs of these segments differ and each
requires specialized products and services. This has contributed to a high level
of fragmentation within the design automation channel. There are over 1,000
design automation value added resellers (including over 700 authorized to resell
Autodesk products) in North America. Additionally, there are more than 200
independent document management or client-server system integrators.
Recently, these local and regional resellers of design automation product
and service solutions have faced an increasingly difficult array of challenges.
First, these local and regional resellers are not authorized to offer the full
range of design automation solutions. This challenge is further complicated by
the industry trend towards an increase in the number of and competition among
design automation solutions. Second, the demand of customers for integration of
disparate technologies and multiple computing platforms, and for customization
and integration of available software solutions, has led to a heightened
challenge in assembling the qualified personnel with the highly technical skills
needed to provide these sophisticated professional services. Third, external
economic factors are causing larger organizations to focus on core competencies
and outsource various technological services, resulting in a further burden on
the local and regional reseller. Fourth, local and regional resellers have
limited access to capital and lack the national presence to serve clients who
need vendors that can provide a broad range of products and services in all of
their market segments and locations. These limitations have made it more
difficult for these local and regional resellers to
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<PAGE> 60
expand their businesses beyond their current geographic area and market segment
specialization, as well as to fully serve larger organizations.
Due to the fragmentation of the marketplace, large corporate users of
design automation products with needs in one or more market segments are forced
to use many disparate integrators to satisfy their product and support needs. As
a result, the quality of support the large corporate user receives and the price
it pays may vary dramatically from region to region depending upon the
integrator. Additionally, design automation users create and rely on large
volumes of documents which they need to manage effectively. The Company believes
that larger corporate clients would benefit by the consolidation of design
automation and document management hardware, software, support and services into
one national entity. Furthermore, the Company believes that its ability to offer
integrated document management solutions with security protocols will be of
significant value to corporate clients.
In response to these market conditions, the Company believes that by
uniting value added resellers in diverse geographic regions, it will create a
single entity with the national presence, capital, experienced executive team,
name recognition and products and services required to serve larger
organizations while maintaining local focus and management. Additionally, the
Company believes that its ability to integrate certain document management
solutions with more traditional design automation tools and certain proprietary
software will uniquely fulfill the needs of the growing number of large and
diverse users of these products.
BUSINESS STRATEGY
The Company believes it will be the largest independent value added
reseller of design automation products and services in the United States. The
Company expects to target two primary market segments: (1) corporate, government
and educational users of design automation products requiring professional
services to meet their enterprise needs, and, to a lesser extent, (2)
third-party channels that resell or license the Company's proprietary software
products. Key elements of the Company's business strategy are to:
Offer a Single Source for Complete, Integrated Solutions. The Company
intends to be a leading nationwide provider of a full range of design automation
products and services. The Company will supply the professional services,
products, support, and training necessary to implement and maintain complete,
state-of-the-art design automation systems. The Company is committed to
providing customers with the finest software and hardware products and services
on the market. As an authorized provider of many leading products in the
industry, including those manufactured by Autodesk, Bentley, SDRC, and
Intergraph, the Company will keep its customers in touch with the latest
technology and expects to become an integral part of the customer's technology
team. Moreover, the Company will provide products and professional services
tailored to its customers' needs by drawing upon the diverse resources of the
Founding Companies. The Company will also continue to acquire additional local
and regional companies to continue to build its national presence.
Enhance Higher Margin Professional Services and Sales of Proprietary
Software. As a technological leader in the design automation market, the
Company will be uniquely equipped with the resources and experience necessary to
provide state-of-the-art products and services on an enterprise wide basis to a
full range of corporate customers. For the six months ended June 30, 1997, 52.1%
of the Company's revenues on a pro forma basis were from software sales, 28.9%
were from services, and 19.0% were from hardware sales. While the Company
intends to continue to offer a full range of products and services, it expects
to broaden its offerings of professional services and proprietary software,
which typically generate higher margins. Additionally, the Company expects to
form strategic alliances with other developers of proprietary software and offer
this proprietary software to its customers. As the only reseller able to offer
such developers national distribution, the Company expects to be able to
negotiate favorable terms for these rights.
Focus on Large Clients; Expand Geographically in Major Metropolitan
Areas. The combined resources, technical expertise and geographic diversity of
the Founding Companies will enable the Company to focus its marketing efforts on
clients requiring national sales and service capabilities. The Company intends
to expand into selected major metropolitan areas as national account
relationships develop, through both internal development and acquisitions of
local and regional resellers. The Company believes this expansion to new
59
<PAGE> 61
major metropolitan areas, as well as its intended expansion in those
metropolitan areas it now serves, will complement the Company's dual emphasis on
maintaining current local and regional customers as well as building its
national customer base. The Company will establish and implement national sales
and service policies, procedures and methodologies to maintain consistent
product and service offerings across the Company.
Capitalize Upon and Leverage Specific Technical Expertise and Product
Offerings. The Company plans to leverage its diverse products and services to
expand its existing client relationships as well as target new sales
opportunities. The Company also intends to leverage the expertise of certain of
the Founding Companies by creating teams to train both internal groups as well
as current and targeted customers. The Company expects that the breadth and
quality of products and services it can offer, coupled with the goodwill derived
from existing client relationships, will provide it with significant advantages
in marketing additional product and service solutions to such customers.
Additionally, the corporate coordination of the call center and help desk and
development and management of proprietary software will facilitate the ability
of each Founding Company to offer its customers the benefits of the best
products and practices of the other Founding Companies.
Achieve Cost Savings Through Centralization of Certain Functions. The
Company believes that it will achieve significant economies of scale through
centralizing a number of general and administrative functions at the corporate
level and by reducing or eliminating redundant functions and facilities at the
Founding Companies. Centralization of functions such as marketing, purchasing,
accounting and inventory control, together with Company-wide management
information systems and centralized development of product and services pricing
and methodologies, are expected to yield significant cost structure improvements
and efficiencies. The Company also expects to implement and administer
Company-wide employee benefits programs and insurance plans which it believes
will be more advantageous for employees than those currently in place at the
Founding Companies. These programs and plans will be designed to attract and
retain a talented work force as the Company continues to grow.
Operate With Decentralized, Local Management. The Company believes the
experienced local management teams with over 125 years of combined experience in
design automation and document management that exist at the Founding Companies
have a valuable understanding of their respective markets and customers and that
it can best capitalize upon these strengths through a decentralized management
strategy. Accordingly, the Founding Companies will retain responsibility for the
operations and profitability of their locations and will make most of the
day-to-day operating decisions within the policy guidelines established by the
Company. The performance of each local management team will, however, be
measured by clearly defined goals and expectations that will be tied directly to
incentive compensation. The Company believes this balance of local operational
autonomy with the centralization of certain general and administrative functions
will maintain the continued successful management of the branches, facilitate
direct contact with the customer at the branch level, and allow minimal staffing
at the corporate level.
OPERATIONS
Upon consummation of the Acquisitions, the Company intends to implement its
business strategy by supporting the successful, entrepreneurial culture of the
Founding Companies while simultaneously centralizing and maintaining certain
marketing, professional service, administrative support and planning activities.
The Company believes this approach will augment the branch managers' ability to
build local operations. Moreover, this structure will enhance potential cross
selling opportunities by allowing the Company to capitalize on the product,
service and customer expertise of each branch manager.
The Company intends to structure its operations into eight regions, which
will implement corporate strategy in the branches within their respective
regions. The Company expects this structure to maximize the dissemination of
best practices and product and service expertise across the Founding Companies.
Each of the regions will be responsible for selling design automation and
complementary document management software solutions and proprietary software,
and for providing professional services including systems integration,
consulting services, training, custom deployment, process re-engineering
support, and strategic hardware
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<PAGE> 62
platforms support required for enterprise-wide operations. The Company
anticipates that there will be a national product manager in each of the
mechanical design, AEC and GIS market segments of design automation responsible
for sales of CAD/CAM/CAE solutions to that market segment. Furthermore, the
Company expects to have a national document management product manager. The
Company believes this approach will allow local management to focus on customer
sales and support while providing operations support and strategic vision at the
corporate level.
The Company expects to standardize and integrate the information systems of
the Founding Companies. A state-of-the-art distributed client-server based
system will be utilized to provide the Company with an integrated marketing,
sales and support management system. An initial customer database will be
developed by merging existing local office customer databases into the new
system. The Company's integrated marketing, sales and support management system
will also enable the telemarketing personnel in the call center to leverage
fully the Company's national marketing programs and strategy. Marketing and
telemarketing, and operations and services, will be coordinated and supported on
a national basis by the Senior Vice President of Business Development and
Marketing and the Senior Vice President of Operations and Service, respectively,
each of whom will report to the Chief Executive Officer.
PRODUCTS AND SERVICES
Historically, local and regional value added resellers specialized in
particular products or product lines. The Company will have the ability to offer
a wide range of design automation products and services including software,
professional services, proprietary software, hardware and software maintenance,
complementary document management solutions and hardware. This will enable the
Company to become a single source provider for its customers on a national
basis. Although many of the Company's products and services can be sold
separately, the Company anticipates an acceleration of the trend the Founding
Companies are experiencing in which customers are increasingly demanding an
integrated mix of services, software and hardware.
Software. The Company will offer a wide range of design automation
software that provides CAD/CAM/CAE solutions in the design automation market
segments. Among the leading design automation families of products are those
manufactured by Autodesk. Each of the Founding Companies, except ACCESS and
UDMS, is an authorized Autodesk reseller and each, except ACCESS, UDMS and
Computers for Design, is an Authorized Systems Center ("ASC") for one or more of
Autodesk's mechanical design, AEC, GIS, data management or plant design product
groups. To obtain this authorization a reseller must, among other things,
maintain a certain number of trained sales representatives and technicians and a
minimum sales volume. To be eligible for this authorization, the Founding
Company also must already have been designated as an Authorized Premier Support
Center in its particular market segment. Designated ASCs are published and
promoted by Autodesk through its support referral program. In addition, four of
the Founding Companies have been designated as educational authorized resellers,
which affords them the exclusive right to market and distribute Autodesk's
software to educational institutions within their territories, which currently
includes nine states.
The Company will continue to offer a full suite of design automation
products manufactured by Bentley, Intergraph, SDRC and others. These offerings
will further distinguish the Company in the marketplace from those resellers
that are limited in the number of products they offer. The Company will also
institute a program of evaluating potential additional product offerings as well
as re-evaluating current product offerings.
For the six months ended June 30, 1997, software sales excluding sales of
proprietary software represented approximately 45.9% of the Company's total
revenues on a pro forma basis.
Professional Services. The Company intends to deliver effective solutions
for all its customers, from those with minimal needs to complex, large scale
computing environments for corporations, engineers, manufacturers, utilities,
government and educational institutions. The Company will be a multi-faceted
solutions integrator, will provide its clients with a wide range of
sophisticated customer support and consulting services, and will focus on
delivering high levels of customer satisfaction. Professional services will
include systems integration, customization, installation, design engineering,
training, process re-engineering and call
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center and help desk support. The Company also expects to provide these services
to its clients in technology intensive environments, such as architecture,
engineering, 2-D and 3-D modeling, GIS, facilities management, civil
engineering, process and power and scanning.
To complement these traditional service offerings, the Company will offer a
host of other expertises. These other offerings will include services such as
application, system and network analysis, evaluation and design. For
post-installation services, on-site and in-house training, technical support and
service will also be offered. For document management applications, the Company
will offer business process evaluation, workflow analysis, implementation,
planning and execution.
The Company will maintain a national call center and help desk by combining
the existing help desks, dispatch centers and telephone support of the Founding
Companies. The Company will build upon these established functions through
development of an integrated automated support system. Customers will be given a
single number to call and will then be routed through menu selection to the
appropriate Founding Company that has the necessary expertise to respond to the
customer's needs from application assistance and product support to dispatch of
maintenance technicians. The call center and help desk personnel will have both
the application and technical skills required to provide quality support to the
Company's installed customer base and to facilitate additional sales of products
and services. This service will be made available to customers under maintenance
and support contracts which include access to the call center and help desk, as
well as to non-contracting customers who will be charged on a per call basis.
For the six months ended June 30, 1997, professional services represented
28.9% of the Company's total revenues on a pro forma basis.
Proprietary Software. The Company will also sell and support these
document management software products including Step2000, developed by UDMS, and
Network File Manager(3)("NFM(3)"), developed by Synergis, as well as Cimage, a
document management software product currently distributed solely by ACCESS in
North America.
Cimage is a premier enterprise-wide document management, distribution and
retrieval system with security and access control, revision handling, storage
management, document structuring, document check-in and check-out, and audit
trail. This allows customers to reduce time for product introduction, improve
effectiveness, comply with statutory regulations and better manage product and
project life cycles.
Step2000 is a point and click object oriented document management and
workflow application builder which enables the automation of business processes
without programming. Step2000 is an open, distributed, client-server based
system which is highly scalable and effective for all sizes of installations,
from small work groups to multi-site, multidepartmental organizations.
NFM(3) is a document management solution allowing CAD work groups to
manage, track, view and secure engineering drawings and related documents.
NFM(3) is network independent, runs on most personal computers and provides a
streamlined, intuitive interface which gives the user both high functionality
and ease of use.
The Company believes these document management products will enable the
Company to offer customized document management solutions to clients of any
size. Furthermore, these offerings are capable of stand-alone use as well as
fully integrated use with a client's design automation systems.
For the six months ended June 30, 1997, sales of proprietary software
represented 6.2% of the Company's revenue on a pro forma basis.
Hardware. The Company will continue to provide its customers with PCs,
work stations, and servers primarily through sales of Sun Microsystems,
Hewlett-Packard and multiple Intel-based products. The Company also expects to
continue to sell certain peripheral products such as scanners, plotters and
printers as part of an integrated customer solution. Although the Company
intends to expand sales of high end hardware throughout the Company, it expects
that hardware sales will usually be packaged with sales of software and
services.
For the six months ended June 30, 1997, sales of hardware represented 19.0%
of the Company's revenue on a pro forma basis.
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SALES AND MARKETING
The Company's sales and marketing staff initially will consist of
approximately 70 persons including management personnel with sales
responsibilities and experience. The sales staff has significant experience in
the sale of information technology products and services and a high level of
technical proficiency. The Company believes an emphasis on expanding and
developing its direct sales force will lead to better account penetration and
management, long term customer relationships and opportunities for additional
sales to its existing clients. It is expected that the Company's senior
engineers will often participate with the sales staff in pre-sale activities as
well as implementation of the customized solution. It is the Company's belief
that such participation will facilitate customized technology solutions for the
customer as well as more targeted sales presentations focusing on the customer's
return on investment.
In addition to supporting a direct sales force, the Company intends to
provide technical support and telemarketing services through a centralized call
center staffed with trained personnel on a 7-day a week 24-hour a day basis. The
Company believes that providing technical support services and focusing on
customer service will enhance its client relationships as well as generate
incremental sales.
The Company's marketing organization will develop the overall marketing
strategy including strategic product plans, public relations, sales material,
sales presentations, catalogue sales, and lead generation and fulfillment. They
also will be responsible for the Company's Internet strategy and will assist in
the cross-utilization throughout the Company of successful strategies developed
by one or more of the Founding Companies.
The Company expects to generate sales leads directly from manufacturers and
product and service suppliers, to be a team participant with other large systems
integrators on major projects for larger customers, and to develop alternate
channels to resell or license the Company's proprietary products and tools.
CUSTOMERS
The Company's clients represent a diverse range of businesses in terms of
both size and industry concentration. During 1996, the Founding Companies
provided products and/or services to over 12,000 customers nationwide.
Additionally, due to their reputations for delivering quality products and
services in their local markets, the Founding Companies have established client
relationships with over 34,000 customers during the history of their respective
organizations. Such clients represent primarily medium to larger sized
businesses and include Fortune 1000 corporations and professional firms as well
as government and educational institutions. The following is a partial
representative list of the Company's clients:
Allen Bradley
Allergan
Amoco Pipeline
Arco
Ashland Chemical
AT&T
Center for Design Control
Charles Schwab
Chrysler Technology Ctr.
Coca-Cola
Delta Airlines
Detroit Diesel
Digital Equipment Corp.
Dupont Merck
Ford Motor Company
Fujitsu
General Electric
Georgia Power
GTE
Hallmark Cards
Harvard University
IBM
Kimberly Clark
Komatsu
Los Alamos Labs
M & M Mars
Marathon Oil
M.I.T. Lincoln Labs
Mobil Oil
Northwest Airlines
Panasonic
Polaroid Corporation
Pratt & Whitney
Raytheon
Siemens
Sony
Sprint
Sun Microsystems
The Gillette Company
United Technologies
University of Georgia
University of North Carolina
Unocal
United Parcel Service
W.R. Grace Co.
To date, the Founding Companies have worked with such clients in a limited
capacity and have at times been constrained from delivering a complete
multi-location design automation solution which includes hardware and software
as well as related integration and consulting services. The Company believes
that,
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following the consummation of the Acquisitions and this Offering, it will be
well positioned to respond to the full design automation needs of both its
current clients and prospective clients on a national basis. The Company intends
to combine strong, local management with an understanding of the dynamics of the
local market, and a national corporate infrastructure to deliver the most
comprehensive product and service offering to its clients.
SUPPLIERS
The Company expects to continue to purchase design automation software as
well as hardware and other related products directly from the approximately 55
manufacturers whose products the Founding Companies currently resell. In
general, a reseller must be authorized by a manufacturer to sell that
manufacturer's products. Each Founding Company has entered into separate
authorization agreements with certain of these manufacturers. Typically, these
authorizations provide that the Founding Company has been appointed, on a
non-exclusive basis, as an authorized dealer of specified products of the
manufacturer. Most of the authorization agreements, including those with
Autodesk, Bentley and Hewlett-Packard, provide that the manufacturer may
terminate the agreement with or without cause upon 30 to 90 days notice or
immediately upon the occurrence of certain events. The Founding Companies'
current arrangements with these major hardware manufacturers generally provide
protection against declines in the list price. Additionally, manufacturers of
hardware, software and related products permit resellers to pass through to
customers all warranties applicable to the manufacturers' products.
The two primary manufacturers of design automation software which the
Company resells are Autodesk, the leader in design automation software for the
workstation, and Bentley. Autodesk recently acquired Softdesk, a leading
developer of software enhancements for the AEC market. Each of the Founding
Companies, except for ACCESS and UDMS, is an authorized Autodesk reseller and,
except for ACCESS, UDMS and Computers for Design, each of the Founding Companies
has qualified as an Autodesk Authorized Systems Center ("ASC") for one or more
of Autodesk's product groups. Four of the Founding Companies are authorized
Bentley resellers.
The Autodesk ASC authorization is the highest level of recognition afforded
by Autodesk to a reseller and requires, among other things, that a reseller
maintain minimum volume requirements as well as a certain number of trained
sales representatives and technicians. Additionally, to achieve this
authorization, the Founding Company must already have been designated by
Autodesk as an Authorized Premier Support Center in the particular market
segment. These designated ASCs are published and promoted by Autodesk through
its support referral program.
The Company and Autodesk have entered into a letter agreement pursuant to
which Autodesk has consented to the assumption by the Company of all agreements
between each of the Founding Companies and Autodesk upon the consummation of the
Acquisitions. The Company anticipates entering into similar agreements with both
Cimage and Bentley. The Company also expects to enter into negotiations with
each of these suppliers upon the consummation of the Acquisitions and the
Offering concerning the ongoing relationship between the two companies.
The Company will also continue to resell certain hardware and peripheral
products, primarily those manufactured by Sun Microsystems, Hewlett-Packard and
Tri-Star. Sun Microsystems manufactures one of the leading UNIX-based
client-server platforms in design automation. Hewlett-Packard is the leading
manufacturer of printers and plotters for design automation and is expected to
continue to be one of the Company's primary suppliers of these peripheral
products. The Company also expects to continue to resell Tri-Star workstations
which are designed for the Intel-based high-end design automation user.
Autodesk, Bentley and Sun Microsystems recognize leading resellers through
various awards and award programs. Most of the Founding Companies have been
recognized by one or more of these suppliers as leading resellers through awards
for meeting certain volume levels as well as excellence in customer support and
service.
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INFORMATION SYSTEMS
Each of the Founding Companies currently has information technology systems
in place which the Company intends to maintain as it implements its two part
information system strategy upon consummation of the Acquisitions.
The first part of the strategy relates to the procedures governing the
combined entity immediately following the Acquisitions. Because two of the
Founding Companies, representing approximately 35% of the Company's revenue,
already use the same accounting and finance system, the Company will immediately
combine the accounting systems of those companies. Over the next three quarters,
the Company will consolidate the accounting systems of the Founding Companies
for reporting and control purposes. This will insure that the Company will have
accurate and complete accounting information and maintain essential accounting
controls. Furthermore, the Company will immediately centralize the cash
management function.
As part of the second stage of its strategy, the Company is reviewing the
existing sales information, marketing, communications services and other systems
at each of the Founding Companies. The expectation is to implement an overall
technology strategy which is cost effective, complements the Company's sales and
marketing strategies and is capable of supporting future growth. This overall
strategy will be characterized by an umbrella architecture, including uniform
platforms and operating systems. The Company intends to implement this longer
term strategy over the next six to twelve months, balancing the need for
enterprise wide consistent systems with the need to minimize and manage the
level of disruption of day-to-day operations.
ACQUISITION PROGRAM
The Company believes that, after the closing of the Offering, there will
remain significant opportunities to benefit from the ongoing industry
consolidation through additional acquisitions of other independent design
automation and document management businesses. As part of its strategic plan,
the Company expects to implement an active acquisition program designed to enter
additional markets, gain market share, and acquire additional products and
capabilities within existing markets, although the Company is not at this time a
party to any agreements to make any particular acquisitions. See "Risk
Factors -- Risks Generally Associated with Acquisitions."
Geographic Expansion Acquisitions. The Company generally expects to pursue
acquisitions based on a two tiered primary and supplementary acquisition
strategy, determined by the Company's existing presence in a particular
geographic market. A primary acquisition will be one which will create a
significant presence for the Company in the geographic market in which the
acquisition candidate is located. A supplementary acquisition will be one in
which the candidate is located in a market where the Company already has a
significant presence.
The Company intends to make primary acquisitions in targeted areas by
acquiring established local companies with strong market positions. In analyzing
potential primary acquisition candidates, the Company will look for experienced
and high quality management, a strong customer base and a history of
profitability. It is expected that potential primary acquisition candidates will
be similar in product and service offerings, as well as market position, to the
Founding Companies and will be located in major metropolitan areas. These
acquisitions will enable the Company to benefit from the operating leverage of
its existing businesses by acquiring additional market share and revenue in new
markets.
The second part of the Company's geographic expansion acquisition strategy,
supplemental acquisitions, will involve the acquisition of design automation and
document management companies that will either increase the Company's product
and service offerings in a particular geographic region or increase its share of
the market for those products and services it already offers in that region. In
making such acquisitions, the Company will evaluate the needs of the market and
focus on local companies which can bring the desired additional sales and
services capabilities. In general, these acquisitions are expected to be smaller
than a primary acquisition.
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Proprietary Software Acquisitions. To increase its proprietary product
offerings, margins and profitability, the Company expects to acquire, on a
limited basis, existing proprietary software through the acquisition of
complementary software companies or the acquisition or licensing of
complementary software products.
The Company believes it will be well received by other design automation
and document management product and services companies because of its strategy
of retaining the owners and management of acquired companies, its intent to
improve acquired companies' profitability by keeping day-to-day operational
decision making at the local level while achieving economies of scale through
centralization of general and administrative functions, its expected ability to
provide them with access to the additional capital and its ability to offer
owners of potential acquisition candidates a combination of cash for their
businesses as well as equity stakes in the Company.
COMPETITION
The design automation and document management reseller industry is highly
competitive, fragmented and served by numerous firms, many of which serve only
their respective local markets. Although the Company believes that only Rand
provides a similar mix of the Company's services, competition will also come
from participants in a variety of market segments, including systems consulting
and integration firms, professional service divisions of computer equipment
companies and software development and marketing companies.
The Company expects its competitors will vary depending on the geographic
region. As there is no other company in both the design automation and document
management channel with national coverage with the exception of Rand, the
majority of the Company's competition is expected to come primarily from smaller
regional and local companies with a strong presence in their respective local
markets. The Company believes that its ability to compete effectively will
greatly depend on attracting and retaining the highest level of sales, service
and systems integration personnel. See "Risk Factors -- Competition."
PROPERTY AND FACILITIES
The Company has principal offices in various locations around the United
States, as set forth in the following table, all of which it considers to be
well-suited to its present and currently anticipated future requirements:
<TABLE>
<CAPTION>
LOCATION LEASED/OWNED FOUNDING COMPANY
----------------------------------------------- ------------ ---------------------
<S> <C> <C>
Irvine, CA..................................... Leased ACCESS
Englewood, CO.................................. Leased Computers for Design
Atlanta, GA.................................... Leased Applied
Hebron, KY..................................... Leased ACCESS
Gladwin, MI.................................... Owned Devtron Russell
Grand Rapids, MI............................... Leased Devtron Russell
Traverse City, MI.............................. Leased Devtron Russell
Lee's Summit, MO............................... Leased Mid-West CAD
Bedford, NH.................................... Leased DTI
Albuquerque, NM................................ Leased Computers for Design
Greensboro, NC................................. Leased Applied
Beachwood, OH.................................. Leased Technical Software
Cincinnati, OH................................. Leased ACCESS
Leased UDMS
Blue Bell, PA.................................. Leased Synergis-PA
Quakertown, PA................................. Leased Synergis-PA
York, PA....................................... Leased Synergis-PA
Alexandria, VA................................. Leased CADD Microsystems
</TABLE>
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LICENSES AND PROPRIETARY RIGHTS
To a significant degree, the Company's products consist of third party
software and hardware integrated with some proprietary software of the Company.
The Company does not hold any patents and holds only one copyright with respect
to its products. To the extent possible, the Company attempts to protect its use
of third party software and hardware with contractual exclusivity and
nondisclosure provisions. To protect its proprietary product components, the
Company relies upon the law of trade secrets, nondisclosure agreements with
employees and others and restrictions incorporated into agreements with
customers. The Company has federal trademark protection covering the names of a
number of the Founding Companies and software packages and has copyright
protection covering a systems integration proposal and network file management
software. In general, unauthorized use of any of these names or systems
constitutes a violation of the Company's trademarks, trade names or copyrights.
See "Risk Factors -- Protection of Intellectual Property."
The trademarks, trade names and copyrights owned by the Company are
summarized below:
<TABLE>
<CAPTION>
MARK, NAME, PROCESS OR LOGO FOUNDING COMPANY TYPE(1)
---------------------------------------------------- ------------------ -----------
<S> <C> <C>
"ACCESS"............................................ ACCESS trademark
"Applied Software".................................. Applied trademark
"ACADemic".......................................... Applied trademark
"ACADALOG"(2)....................................... Applied trademark
"CDMS".............................................. Applied trademark
"CDView"............................................ Applied trademark
9-block logo........................................ Applied trademark
"ComputerSmith"..................................... DTI trade name
"Synergis".......................................... Synergis-PA trademark
"Synergis Network File Manager"..................... Synergis-PA trademark
Network file manager software....................... Synergis-PA copyright
"The Supply Shop"................................... Technical Software trademark
"Software Helpline"................................. Technical Software trade name
Step2000(2)......................................... UDMS trademark
</TABLE>
- ---------------
(1) All registered trademarks are registered with the Federal Patent and
Trademark Office. "Software Helpline" is a trade name registered with the
State of Ohio. "ComputerSmith" is a trade name registered with the State of
New Hampshire.
(2) An application covering this mark is pending with the Federal Patent and
Trademark Office.
PERSONNEL
As of August 1, 1997, the Company employed approximately 325 persons on a
combined pro forma basis, approximately 305 of whom were employed on a full-time
basis (30 hours a week or more), including approximately 45 management
personnel. Additionally, the Company considers approximately 90 of its employees
to be highly skilled technical personnel. The Company's continued success will
depend on its ability to attract and retain qualified management personnel and
highly trained technical personnel. None of the Company's employees is covered
by a collective bargaining agreement. The Company considers its employee
relations to be good.
LITIGATION
There are no material legal proceedings pending or, to the best of
management's knowledge, threatened against the Company or any of the Founding
Companies.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of October 1, 1997
concerning each of the Company's directors and executive officers, including
persons who will become directors or executive officers following consummation
of this Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Terry L. Theye........................ 53 Chairman of the Board, Chief Executive
Officer and President
Thomas R. McLean...................... 45 Senior Vice President of Business
Development and Marketing
Scott D. Watkins...................... 48 Senior Vice President of Operations
and Services
Daniel B. Dolan....................... 51 Divisional President
Bonnie L. Johnson..................... 49 Vice President, Secretary and General
Counsel
Jeffrey A. Pakrosnis.................. 34 Vice President and Chief Financial
Officer
Michael D. Theye...................... 30 Vice President of Corporate
Integration
Vincent Rinaldi(1)(2)................. 48 Director
Norma Skoog(1)(3)..................... 47 Director
</TABLE>
- ---------------
(1) Will become a director upon the closing of the Offering.
(2) Will become a member of the Audit Committee effective upon the closing of
the Offering.
(3) Will become a member of the Compensation Committee effective upon the
closing of the Offering.
Terry L. Theye has served as the Chief Executive Officer and President of
the Company since August 1997 and Chairman of the Board since October 1997. He
also serves as Chairman of Growth Management Advisors, Inc., a Cincinnati-based
consulting firm, which he founded in 1996. Prior to his positions with these
companies, Mr. Terry Theye was the Chairman and Chief Executive Officer of The
Future Now, Inc., a Cincinnati-based national computer sales and consulting
company which he founded in 1978. The Future Now, Inc. was publicly traded from
1991 until its sale in August 1995. Mr. Theye is the father of Michael D. Theye.
Thomas R. McLean joined the Company as its Senior Vice President of
Business Development and Marketing in August 1997. From July to August 1997 he
was a consultant to UDMS through his position with Growth Management Advisors,
Inc. Prior to that he was Vice President -- Sales and Marketing of LanVision,
Inc., a Cincinnati-based provider of health information systems, beginning in
March 1996. From 1975 to March 1996, Mr. McLean served in various management
positions with Cincom Systems, Inc., a Cincinnati based software development
company, where he was Vice President -- Marketing, Product and Corporate
Planning beginning in 1989.
Scott D. Watkins will be the Senior Vice President of Operations and
Services of the Company. Mr. Watkins is the President, Chief Executive Officer
and Chief Operating Officer of ACCESS Corporation, one of the Founding
Companies. He has held these positions since 1989.
Daniel B. Dolan will be the Divisional President of the Company. Mr. Dolan
has been President of DTI Technologies, Inc., one of the Founding Companies,
since he founded it in 1984.
Bonnie L. Johnson joined the Company as its Vice President, Secretary and
General Counsel in October 1997. From 1995 to September 1997 she was Vice
President, General Counsel and Corporate Secretary of DAP Products, Inc., an
Ohio-based manufacturer of caulks, sealants and adhesives which is a wholly
owned subsidiary of Wassal PLC, a British holding company. Prior to that Ms.
Johnson served as Associate General Counsel for The United States Shoe
Corporation, a Cincinnati based manufacturer of footwear, a position she
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held from 1993 to 1995. From 1990 to 1992 she was Managing Attorney for
Lenscrafters, Inc., a subsidiary of The United States Shoe Corporation.
Jeffrey A. Pakrosnis joined the Company as its Vice President and Chief
Financial Officer in August 1997. From May to August 1997 he was a consultant to
UDMS through his position with Growth Management Advisors, Inc. From 1986 to May
1997 he was with the certified public accounting firm KPMG Peat Marwick LLP,
serving as senior manager in that firm's Information, Communications and
Entertainment practice from 1992 to 1997. Mr. Pakrosnis is a certified public
accountant.
Michael D. Theye joined the Company as its Vice President of Corporate
Integration in August 1997. From June to August 1997 he was a consultant to UDMS
through his position with Growth Management Advisors, Inc. Prior to that Mr.
Michael Theye was General Manager of Queen City Vending, Inc., a
Cincinnati-based provider of food vending services, from 1995 to June 1997. From
1991 to 1995, Mr. Michael Theye served in various management positions with The
Future Now, Inc., including two years as Director of Operations. Mr. Michael
Theye is the son of Terry L. Theye.
Vincent Rinaldi is the President of Information Leasing Corporation and
Procurement Alternatives Corporation, both equipment leasing companies and
wholly owned subsidiaries of Provident Financial Group Inc. Prior to the
acquisition of these two companies by Provident Financial Group Inc. in 1996,
Mr. Rinaldi served as Chief Executive Officer and Chairman of each from 1984 to
1996. Mr. Rinaldi is also currently a director of Thrucom, Inc., Qsys
International Inc. and Infinet Inc.
Norma Skoog founded Growth Management Advisors, Inc. in 1996 and serves as
its President. From 1992 to 1995, she was Vice President, Secretary and General
Counsel of The Future Now, Inc. Prior to that Ms. Skoog served as Vice President
and Secretary of The Kroger Co., a Cincinnati-based national supermarket
company, a position she held from 1989 to 1992.
EMPLOYMENT AGREEMENTS; EXECUTIVE COMPENSATION
Messrs. Terry Theye, McLean, Watkins, Dolan, Pakrosnis, and Michael Theye
and Ms. Johnson have each entered into an employment agreement with the Company,
effective as of the date of the Offering. The provisions of each of the
agreements are substantially similar. The salary and incentive compensation of
each position do, however, vary. Annual salaries for Messrs. Terry Theye,
McLean, Watkins, Dolan, Pakrosnis, and Michael Theye and Ms. Johnson are
$120,000, $120,000, $170,000, $150,000, $90,000 and $90,000, and $150,000,
respectively. Annual incentive compensation may also be paid to each of the
officers in amounts of up to $120,000, $120,000, $60,000, $100,000, $30,000 and
$30,000, and $20,000, respectively. The terms of the incentive compensation will
be based on achievement of profitability objectives for the Company, except that
the bonus for Mr. Dolan will be based on achievement of profitability objectives
for the divisional operations of the Company. Additionally, $30,000 of Mr.
McLean's incentive compensation through July 6, 1998 is guaranteed. Furthermore,
Mr. McLean has been granted a warrant (the "McLean Warrant") to purchase 4,167
shares of the Company's Common Stock at $2.40 per share. The warrant is first
exercisable on the closing date of the Offering and expires on the fifth
anniversary of the closing.
Mr. Dolan's and Ms. Johnson's agreements are each for a three year term,
Messrs. Watkins and Pakrosnis' agreements are each for a two year term and each
of the other agreements is for a one year term. Each of the agreements provides
for severance pay in the event the agreement is terminated by the Company
without cause or by the officer with cause, as defined in the agreement. The
amount of the severance pay is one year of salary except that Messrs. Dolan and
Pakrosnis and Ms. Johnson will receive severance pay in such an instance for the
greater of the remaining term of the employment agreement or one year. The
agreements may also be terminated by the Company with cause, as defined in the
agreement, or by the officer without cause. In such cases, no severance will be
paid to the officer. Each of the agreements also includes an agreement by the
officer not to compete with the Company for one year after termination of the
agreement, except that Messrs. Dolan and Pakrosnis' and Ms. Johnson's agreements
provide, in general, that the non-compete extends for the greater of the
remaining term of the employment agreement or one year in the event the officer
is entitled to severance pay and for one year if the officer is not entitled to
severance pay.
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Mr. Terry Theye's agreement also provides that he may continue to hold the
position of Chairman of Growth Management Advisors, Inc.
Additionally, Mr. Watkins had entered into an Executive Retention Agreement
with ACCESS which among other things, provided for certain benefits for Mr.
Watkins upon a change of control which resulted in the termination of his
employment or a decrease in his compensation or responsibilities. Mr. Watkins'
employment agreement with the Company specifically recognizes that the
acquisition of ACCESS is such a change of control and the Company has assumed
these obligations insofar as the acquisition of ACCESS and as to any subsequent
change of control for the two year term of the employment agreement. The
benefits that would be payable to Mr. Watkins upon such an occurrence would, in
general, include payment of his compensation and continuation of his benefits
for two years.
DIRECTORS' COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual retainer of $12,000. All such non-employee
directors also receive a fee of $750 for each board meeting attended and $300
for each committee meeting attended, except that chairs of committees receive
$600 for each committee meeting attended. Directors of the Company are
reimbursed for expenses incurred in attending meetings of the Board of Directors
or committees and for other expenses incurred in their capacity as directors of
the Company. Each non-employee director receives an option to purchase 5,000
shares of Common Stock upon election to the Board of Directors and thereafter
will receive an annual grant of an option to purchase 3,000 shares of Common
Stock. One half of each such option vests six months after the date of grant and
the remaining half vests on the first anniversary date of the date of grant.
STOCK OPTIONS
In August 1997, the Board of Directors and the shareholder of the UDMS
adopted the Company's 1997 Long-Term Incentive Plan. The purpose of the Plan is
to provide directors, officers and employees with additional incentives by
increasing their ownership interests in the Company. Awards under the Plan may
include both non-qualified stock options and restricted stock ("Stock Awards").
The Compensation Committee of the Board of Directors administers the Plan.
This committee has discretion to determine the terms of a Stock Award, including
the number of shares subject to option, the post-termination exercise period,
the number of shares of restricted stock, the term and the vesting schedule of a
Stock Award. However, pursuant to the terms of the Plan and without any action
on the part of the Compensation Committee, directors who are not otherwise
employed by the Company automatically receive annual option grants in an amount
and subject to such terms as are specified in the Plan. See "Management --
Directors' Compensation."
The maximum number of shares of Common Stock of the Company that may be
issued under the Plan is 720,000. The Plan will remain in effect until
terminated by the Board of Directors. The Plan may be amended by the Board of
Directors without the consent of the shareholders of the Company, except that
any amendment, although effective when made, will be subject to shareholder
approval if required by any federal or state law or regulation or by the rules
of any stock exchange or automated quotation system on which the Common Stock of
the Company may then be listed or quoted.
In August 1997, the Company granted options to purchase a total of 136,000
shares of Common Stock at an exercise price of $9.60 per share, which was
determined to be the fair market value of the Common Stock as of the date of
grant. Each such option is a non-qualified option and these options were granted
to certain of the officers of the Company. One half of each such option vests
six months after the date of grant or on the first business day following the
date of the Offering, whichever is later, and the remaining half vests on the
first anniversary date thereof. These options are exercisable for a period of
ten years from the date of grant.
Effective on the date of the Offering, the Company intends to grant options
to its executive officers who were not granted options in August 1997, all at an
exercise price equal to the initial public offering price per
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share. One half of these options will vest six months after the date of grant
and the remaining half will vest one year thereafter.
Options outstanding prior to the date of this Prospectus include grants to
executive officers, as follows: Mr. Terry Theye, 72,000 shares; Mr. McLean,
28,000 shares; Mr. Pakrosnis, 18,000 shares; and Mr. Michael Theye, 18,000
shares. The exercise price for all options previously granted is $9.60. Options
to be granted on the date of this Prospectus, at the initial public offering
price, to executive officers and directors, are as follows: Mr. Watkins, 28,000
shares; Mr. Dolan, 28,000 shares; Ms. Johnson, 5,400 shares; Mr. Rinaldi, 5,000
shares; and Ms. Skoog, 5,000 shares. Additional options to be granted on the
date of this Prospectus, at the initial public offering price, to other
employees of the Company, equal 224,600 shares in the aggregate.
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CERTAIN TRANSACTIONS
THE ACQUISITIONS
Each of the Founding Companies has entered into a separate definitive
agreement to be acquired by the Company simultaneously with the closing of the
Offering. Of the nine Acquisitions, eight are structured as statutory mergers
pursuant to which the Founding Company will be merged into the Company and the
shareholders of the Founding Company will receive consideration in the form of a
combination of cash and Common Stock of the Company valued at the Offering
price. The remaining Acquisition, involving ACCESS, is structured as a purchase
of assets and assumption of liabilities with the consideration payable to the
seller consisting solely of cash. Except in the case of Synergis-PA, all Common
Stock issued in the Acquisitions will be issued on a "tax free" basis under
Section 368(c) of the Internal Revenue Code of 1986.
All of the acquisition agreements contain customary representations and
warranties, conditions to closing and other terms and conditions. All of the
transactions are conditioned upon the closing of the Offering, and the Company's
obligation to close with each Founding Company is conditioned both upon the
closing of the Offering and the closing of all of the Acquisitions or, if less
than all, such number of Acquisitions as to be sufficient for purposes of the
Offering in the judgment of the Company and the Underwriters. In addition, the
Company's obligation to consummate the Acquisitions is in each case subject to
the Company's completion and reasonable satisfaction with the results of due
diligence reviews of the Founding Companies.
The representations and warranties in the acquisition agreements are in
each case subject to a one year survival period, and specified former
shareholders of the Founding Companies (except ACCESS, a publicly held
corporation) will be subject to certain indemnification obligations in the event
of breaches of the representations and warranties. The indemnification
obligations of those shareholders of the Founding Companies subject to
indemnification obligations are, in general, limited to 50% of the consideration
paid by the Company.
To the extent the former shareholders of the Founding Companies receive
shares of the Company's Common Stock as a result of the Acquisitions, their
shares will be subject both to certain limitations on resale and to a
Registration Rights Agreement. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."
The following table summarizes certain features of each of the
Acquisitions:
<TABLE>
<CAPTION>
COMMON STOCK COMPONENT OF
CONSIDERATION(2)
-----------------------------
VALUATION
TOTAL ACQUISITION CASH COMPONENT AT $12.00
FOUNDING COMPANY CONSIDERATION(1) OF CONSIDERATION PER SHARE NO. OF SHARES
- ----------------------------------- ----------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
ACCESS............................. $ 3,000,000 $ 3,000,000 $ -- --
Applied............................ 4,550,000 2,275,000 2,275,000 189,583
CADD Microsystems.................. 750,000 225,000 525,000 43,750
Computers for Design............... 630,000 302,400 327,600 27,300
DTI................................ 7,000,000 3,500,000 3,500,000 291,667
Synergis-PA........................ 5,000,000 4,000,000 1,000,000 83,333
Technical Software................. 1,497,000 748,500 748,500 62,375
Mid-West CAD....................... 2,300,000 1,150,000 1,150,000 95,833
Devtron Russell.................... 1,400,000 420,000 980,000 81,667
----------- ----------- ----------- ---------
Total.................... $26,127,000 $ 15,620,900 $10,506,100 875,508
=========== =========== =========== =========
</TABLE>
- ---------------
(1) Table does not include "earn-outs" or other contingent consideration payable
after the Acquisitions close which are based on future performance.
(2) In each case the number of shares is based on the total dollar portion of
the consideration payable in stock divided by the Offering price. The
numbers of shares in this table are based upon the mid-point of the
estimated price range of the Offering, or $12.00 per share. The actual
numbers of shares will not be determinable until final pricing of the
Offering occurs.
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<PAGE> 74
In addition, several of the Acquisitions contain contingent future
consideration features, as follows:
ACCESS. ACCESS is eligible to receive additional consideration based on
the performance of its hardware services business for the 12 month period ending
April 30, 1998. Its performance will be measured based on the gross profit of
that business. The following describes the additional consideration based on
varying levels of gross profit of the hardware services business:
<TABLE>
<CAPTION>
GROSS PROFIT ADDITIONAL CASH CONSIDERATION
---------------------------------------------------- -----------------------------
<S> <C>
Greater than $2,000,000............................. $ 1,000,000
$1,950,000 to $1,999,000............................ 800,000
$1,900,000 to $1,949,999............................ 600,000
$1,850,000 to $1,899,999............................ 400,000
$1,800,000 to $1,849,999............................ 200,000
Less than $1,800,000................................ --
</TABLE>
DTI. The sole shareholder of DTI, Daniel Dolan, is eligible to receive
additional shares of Common Stock based on a formula which depends on such
factors as: (i) DTI's actual revenue for its fiscal year ending December 31,
1997; (ii) DTI's initial total consideration of $7.0 million, which includes
shares of Common Stock at $12.00 per share; (iii) the initial public offering
price; (iv) the pro forma combined actual revenues of the Company for the year
ended December 31, 1997; and (v) the number of shares of the Company outstanding
immediately after the closing of the Offering. The formula essentially provides
that the higher the ratio of the initial public offering price as compared to
the quotient of the Company's consolidated pro forma revenues for the year
ending December 31, 1997 divided by the number of shares outstanding as of the
closing of the Offering and/or the lower the ratio of DTI's initial total
consideration as compared to DTI's actual revenue for its fiscal year ending
December 31, 1997, the higher the additional consideration to be received by
Daniel Dolan.
Technical Software. The sole shareholder of Technical Software, Greg
Malkin, is eligible to receive additional shares of Common Stock based on
Technical Software's results for each of the years ending December 31, 1997 and
December 31, 1998. Mr. Malkin will receive additional shares having a value
equal to five times Technical Software's earnings before income taxes less the
initial consideration paid in connection with the merger of Technical Software
into the Company.
Synergis-PA. The shareholders of Synergis-PA are eligible to receive
additional consideration in cash based on revenues generated by sales of its
NFM(3) document management software. Such additional consideration shall be paid
as follows:
<TABLE>
<CAPTION>
ADDITIONAL CASH CONSIDERATION
REVENUES AS A PERCENTAGE OF REVENUES
---------------------------------------------------- -----------------------------
<S> <C>
$1 to $3,200,000.................................... 33.3%
$3,200,001 to $8,200,000............................ 20.0
Over $8,200,000..................................... 10.0
</TABLE>
CADD Microsystems. The shareholders of CADD Microsystems are eligible to
receive additional consideration to the extent that the operating income of CADD
Microsystems as of March 31, 1998 for the preceding one-year period multiplied
by a factor of five exceeds $750,000. The potential additional consideration
will be payable 30% in cash and 70% in the form of Common Stock valued at the
Offering price. In the event that the actual operating income multiplied by a
factor of five is less than $750,000, the shareholders of CADD Microsystems will
be required to refund the entire amount of the deficit in either cash or
surrender of Common Stock.
In the case of all Founding Companies, certain of the individuals currently
managing the Founding Companies will, as a condition to the Acquisitions, enter
into employment agreements with the Company, having terms ranging from one to
three years. Each employment agreement contains a non-competition provision
prohibiting the employee from competing during the term of the employment
agreement and at least one year thereafter. Additionally, each employment
agreement provides for severance pay unless the employee is terminated for cause
or the employee terminates the agreement without cause.
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<PAGE> 75
OTHER TRANSACTIONS
Growth Management Advisors, Inc. ("GMA"), a Cincinnati-based consulting
firm, has acted as an advisor to UDMS and the Company in connection with the
Offering and the Acquisitions. Two consulting agreements, each dated February
19, 1997, cover the services of the principals of GMA, Mr. Terry Theye and Ms.
Skoog. Mr. Terry Theye's agreement expired on August 1, 1997, at which time he
became an employee of the Company. Ms. Skoog's agreement expires at the closing
of the Offering. See "Management -- Employment Agreements; Executive
Compensation."
For services rendered by Mr. Terry Theye pursuant to his consulting
agreement prior to August 1997, he received $10,000 a month (which aggregated
$53,571 as of August 1, 1997) plus reimbursement of out-of-pocket expenses and
was granted a warrant to purchase 41,675 shares of Common Stock from the Company
at $3.80 per share (the "Theye Warrant"). The warrant is first exercisable on
the day prior to the closing date of the Offering and expires on the fifth
anniversary of the closing. Additionally, Mr. Terry Theye and MedPlus entered
into an agreement pursuant to which MedPlus will pay Mr. Terry Theye $500,000 if
the Offering is completed on or before March 31, 1998. The Company will not be
required to reimburse MedPlus for such payment.
For services rendered by Ms. Skoog pursuant to her consulting agreement
with UDMS, she received $5,000 a month for the months of February through June
1997 and $10,000 a month thereafter (which aggregated $51,785 as of September
30, 1997). Ms. Skoog also is entitled to be reimbursed for expenses and was
granted a warrant (the "Skoog Warrant") to purchase 35,590 shares of the
Company's Common Stock from the Company at a price per share equal to the
initial public offering price. The warrant is first exercisable on the closing
date of the Offering and expires on the fifth anniversary of the closing. In the
event the over-allotment option is exercised by the Underwriters, the Company
will issue an additional warrant to Ms. Skoog to purchase a number of shares of
Common Stock equal to 1% of the number of shares purchased under the
over-allotment option. Such warrant will otherwise have the same terms and
conditions as the Skoog Warrant. Additionally, Ms. Skoog and the Company entered
into an agreement pursuant to which Ms. Skoog will be paid $60,000 by the
Company if the Offering is completed on or before March 31, 1998.
Additionally, GMA and UDMS entered into consulting agreements covering the
services of certain GMA employees, Messrs. McLean, Pakrosnis and Michael Theye,
dated July 7, May 26 and June 1, 1997, respectively. Under these agreements, GMA
received consulting fees with respect to services rendered by Messrs. McLean,
Pakrosnis and Michael Theye in the amounts of $12,500, $7,500 and $7,500 a
month, respectively, and was reimbursed for out-of-pocket expenses. The total
amount of such payments to GMA as of August 1, was $44,532. These agreements
covered services in connection with the Offering and the Acquisitions and
expired on August 1, 1997. See "Management -- Employment Agreements; Executive
Compensation."
Immediately after the 8,334.92-for-1 stock split to be effected immediately
prior to the Offering, but prior to the Offering itself, MedPlus will contribute
to the capital of the Company 59,012 shares of its Common Stock. This
contribution offsets the dilution associated with options and warrants
outstanding as of the date of this Prospectus to purchase shares of Common Stock
of the Company. MedPlus will not receive any consideration in connection with
this contribution.
Madison Financial Group Ltd. ("Madison") has acted as an advisor to MedPlus
and the Company in connection with the Acquisitions and the Offering. In
exchange for Madison's services, MedPlus originally granted Madison a warrant
(the "Madison Warrant") to purchase up to 125,024 shares of the Company's Common
Stock from MedPlus for $3.72 per share. Subsequently, MedPlus, the Company and
Madison modified this arrangement to provide for the payment by MedPlus to
Madison of a sum equal to the net value of the Madison Warrant, and the number
of shares subject to the Madison Warrant was reduced to 3,672. The President of
MedPlus, Richard A. Mahoney, is a principal of Madison.
In June 1994, prior to its acquisition of UDMS, MedPlus purchased from UDMS
a debenture in the principal amount of $299,500 with interest at 10% per annum,
which became due December 31, 1995 but has never been repaid and remains
outstanding in its entirety. As of June 30, 1997, a total of $89,645 had accrued
74
<PAGE> 76
as interest expense under the debenture, none of which has been paid. All
outstanding principal and interest under the debenture is expected to be repaid
out of proceeds of the Offering. MedPlus has informed the Company that it will
not convert the debenture. See "Use of Proceeds."
UDMS was acquired and became a wholly-owned subsidiary of MedPlus in
December 1995, for a purchase price of $1,700,000 which consisted of cash of
$831,000 and 99,274 shares of MedPlus common stock valued at $869,000, plus
contingent consideration of $278,000 in cash, all of which has been paid by
MedPlus. MedPlus has financially supported UDMS since that time. As a
wholly-owned subsidiary of MedPlus, UDMS incurred various operational
intercompany payment obligations to its parent corporation which are reflected
in UDMS's financial statements. As of June 30, 1997, the total amount of such
inter-company payables was $599,852. All such inter-company payables are
expected to be repaid out of the proceeds of the Offering. See "Use of
Proceeds."
MedPlus also has advanced substantial funds to or for the benefit of the
Company in connection with the Acquisitions and the Offering to cover legal,
accounting and other transactional costs, as well as personnel and consulting
costs related to the Offering, such as the payments to GMA and Mr. Terry Theye
and Ms. Skoog described above. MedPlus and UDMS are parties to a Reimbursement
Agreement dated May 28, 1997 pursuant to which UDMS was obligated to reimburse
all such amounts to MedPlus upon completion of the Offering. In October 1997 the
Reimbursement Agreement was amended to provide that MedPlus would itself bear a
proportion of the costs of this Offering equal to the number of shares to be
sold by MedPlus in the Offering as a percentage of the total shares sold in the
Offering, exclusive of the Underwriters' over-allotment option and not to exceed
$432,692. All expenses of the Offering in excess of $1,500,000 will be borne by
the Company. As of June 30, 1997 the total amount payable under the
Reimbursement Agreement, after giving effect to the amendment obligating MedPlus
to bear a proportion of the Offering and Acquisition expenses, was approximately
$0.8 million.
Shortly after UDMS was acquired by MedPlus in December 1995, UDMS purchased
all of the outstanding shares of another entity, HWB, Inc. ("HWB"), which had
been owned by the same individuals who had previously owned UDMS. HWB was the
owner of UDMS' principal software product, Step2000. The consideration payable
by UDMS for the HWB shares consisted entirely of certain contingent payment
obligations based on UDMS' financial performance over a three year period ending
December 31, 1998. In August 1997, in order to facilitate the Offering, the HWB
stock purchase agreement was amended by agreement of the parties thereto and
MedPlus. Among other terms, UDMS agreed to make a $390,000 cash payment to the
former HWB shareholders on or before January 1, 1998, and MedPlus agreed to make
a $390,000 capital contribution to UDMS in order to fund such payment. UDMS is
not and will not be obligated to reimburse MedPlus any portion of such amount.
Additionally, the amended agreement provides for (i) an extension of the period
during which additional consideration contingent on UDMS's future revenue could
be earned from the year ending December 31, 1998 to the year ended December 31,
2000, (ii) a reduction of the maximum future contingent consideration payable
from $3,000,000 to $2,610,000 and (iii) UDMS Common Stock to be issued as part
of the contingent consideration rather than MedPlus common stock.
As a subsidiary of MedPlus, UDMS provided its Step2000 software to MedPlus
which incorporated the product into certain of its healthcare-related products.
MedPlus expects to continue using Step2000 in its healthcare products after the
Offering. Accordingly, on August 28, 1997, UDMS and MedPlus entered into a
Reseller's Software License Agreement pursuant to which MedPlus may use and
resell Step2000 on a non-exclusive basis for healthcare related applications.
The agreement has a perpetual term and requires MedPlus to pay license fees in
accordance with UDMS' standard fee schedule. Other terms of the agreement are
similar to UDMS' standard reseller agreement.
Two of the Founding Companies will exclude certain assets from the effect
of the merger into the Company. Applied is distributing its ownership interest
in Rastarex International, a.s. and its Workflow Engine Code Base to its
shareholders. Similarly, Devtron Russell is distributing its Devbar software to
its shareholders.
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<PAGE> 77
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock as of October 8, 1997, and after giving
effect to the Acquisitions and the Offering, by (i) all persons known to the
Company to be the beneficial owner of 5% or more thereof, (ii) each director and
nominee for director, (iii) each executive officer and (iv) all executive
officers, directors and director nominees as a group. The table also includes
shares subject to options outstanding as of the date of the Offering, whether or
not fully exercisable.
<TABLE>
<CAPTION>
PRIOR TO OFFERING AFTER OFFERING
-------------------------- ------------------------
SHARES SHARES
BENEFICIALLY SHARES TO BENEFICIALLY
NAME OWNED(1) PERCENT BE SOLD OWNED(1) PERCENT
- --------------------------------- ------------ ------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Daniel B. Dolan(2)(3)............ -- -- -- 319,667 9.1%
Bonnie L. Johnson................ -- -- -- 5,400 0.2
MedPlus, Inc.(4)(5).............. 774,480(4) 100.0% 750,000 24,480 0.7
Thomas R. McLean................. 32,167(6) -- 32,167(6) 0.9
Jeffrey A. Pakrosnis............. 18,000(7) -- 18,000(7) 0.5
Vincent Rinaldi.................. -- -- 5,000(7) 0.1
Norma Skoog...................... -- -- 40,590(8) 1.1
Michael D. Theye................. 18,000(7) -- 18,000(7) 0.5
Terry L. Theye................... 113,675(9) -- 113,675(9) 3.1
Scott D. Watkins................. -- -- 28,000(7) 0.8
All directors, nominees and
executive officers as a group
(9 persons).................... 181,842(10) 580,499 15.3
</TABLE>
- ---------------
(1) The persons named have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable and the information contained in
other footnotes to this table.
(2) Consists of 291,667 shares to be received by Mr. Dolan as a result of the
Acquisitions and 28,000 shares he has the right to acquire under an option
granted to him under the Company's 1997 Long-Term Incentive Plan.
(3) Mr. Dolan's address is 10 Commerce Park North, Bedford, New Hampshire 03102
(4) Includes 3,672 shares which Madison has the right to acquire from MedPlus
under the Madison Warrant.
(5) MedPlus' address is 8805 Governor's Hill Drive, Cincinnati, Ohio 45249.
(6) Consists of 4,167 shares Mr. McLean has the right to purchase from the
Company under the McLean Warrant and 28,000 shares he has the right to
acquire under an option granted to him under the Company's 1997 Long-Term
Incentive Plan.
(7) Consists entirely of shares which may be acquired pursuant to options
outstanding under the Company's 1997 Long-Term Incentive Plan.
(8) Consists of 35,590 shares Ms. Skoog has the right to purchase from the
Company under the Skoog Warrant and 5,000 shares she has the right to
acquire under an option granted to her under the Company's 1997 Long-Term
Incentive Plan. Does not include the shares, if any, which Ms. Skoog will
have the right to purchase under an additional warrant which will be issued
to Ms. Skoog if the over-allotment option is exercised.
(9) Consists of 41,675 shares Mr. Terry Theye has the right to acquire from the
Company under the Theye Warrant and 72,000 shares he has the right to
acquire under an option granted to him under the Company's 1997 Long-Term
Incentive Plan.
(10) Consists solely of shares which may be acquired upon the exercise of
various warrants and options.
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<PAGE> 78
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Amended and Restated Articles of Incorporation of the Company provide
for one class of 10,000,000 shares of Common Stock without par value. The
holders of shares of Common Stock have one vote per share. None of the shares
has preemptive or cumulative voting rights, is subject to mandatory redemption,
or is liable for assessments or further calls. None of the shares has any
conversion rights.
The holders of shares of Common Stock are entitled to dividends if, when
and as declared by the Board of Directors from funds legally available therefor
and, upon liquidation, to share pro rata in any distribution to shareholders.
The Company does not anticipate declaring or paying any cash dividends for the
foreseeable future.
PREFERRED STOCK
The Amended and Restated Articles of Incorporation authorize 100,000 shares
of preferred stock, none of which is issued or outstanding. Following
consummation of the Offering, all of the authorized shares of preferred stock
will be available for issue from time to time in series having such
designations, preferences and rights, qualifications, and limitations as the
Board of Directors may determine without any approval of shareholders. Preferred
stock could be given rights, including voting and/or conversion rights, which
would adversely affect the voting power and equity of holders of Common Stock
and could have preference over Common Stock with respect to dividend and
liquidation rights. Issuance of preferred stock could have the effect of acting
as an anti-takeover device to prevent a change of control of the Company.
INDEMNIFICATION AND PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The Company's Code of Regulations provides that each person who is made a
party to or is otherwise involved in any action, suit or proceeding by reason of
the fact that he is or was a director or officer of the Company shall be
indemnified and held harmless by the Company to the fullest extent authorized by
Ohio law against all expenses, liabilities and losses, including attorneys'
fees.
REGISTRATION RIGHTS
In connection with the Acquisitions, the Company will issue approximately
875,508 shares of its Common Stock to the shareholders of certain of the
Founding Companies in private placement transactions exempt from registration
under the Securities Act. Such shares will constitute "restricted shares" within
the meaning of the Securities Act. The Company and such shareholders will enter
into a registration rights agreement pursuant to which such shareholders will
have the right to demand, at the Company's expense, registration of 50% of such
shares under the Securities Act commencing one year after the closing of the
Offering and 100% of such shares commencing two years after the closing of the
Offering for purposes of permitting their resale into the market. See "Shares
Eligible for Future Sale."
CERTAIN STATUTORY PROVISIONS AFFECTING BUSINESS COMBINATIONS
Section 1701.831 of the Ohio Revised Code generally provides that certain
"control share acquisitions" of shares of an "issuing public corporation" may be
made only with the prior authorization of the shareholders of the corporation,
unless the articles or code of regulations of the corporation otherwise provide.
In addition, Chapter 1704 of the Ohio Revised Code may be viewed as having an
anti-takeover effect. This statute, in general, prohibits an "issuing public
corporation" (the definition of which would include the Company) from entering
into a "Chapter 1704 Transaction" with the beneficial owner (or affiliates of
such beneficial owner) of 10% or more of the outstanding shares of the
corporation (an "interested shareholder") for at least three years following the
date on which the interested shareholder attains such 10% ownership, unless the
board of directors of the corporation approves, prior to such person becoming an
interested shareholder, either the transaction or the acquisition of shares
resulting in a 10% or more ownership position. A "Chapter 1704 Transaction" is
broadly defined to include, among other things, a merger or consolidation with,
sale of
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<PAGE> 79
substantial assets to, or the receipt of a loan, guaranty or other financial
benefit (which is not proportionately received by all shareholders) by the
interested shareholder. Following the expiration of the three-year period, a
Chapter 1704 Transaction with the interested shareholder is permitted only if
either (i) the transaction is approved by the holders of at least two-thirds of
the voting power of the corporation (or such different proportion as is set
forth in the corporation's articles of incorporation), including a majority of
the outstanding shares excluding those owned by the interested shareholder, or
(ii) the business combination results in the shareholders other than the
interested shareholder receiving a prescribed "fair price" for their shares. One
significant effect of Chapter 1704 is to cause an interested shareholder to
negotiate with the board of directors of a corporation prior to becoming an
interested shareholder.
In addition, Section 1703.43 of the Ohio Revised Code requires a person or
entity that makes a proposal to acquire the control of a corporation to repay to
that corporation any profits made from trades in the corporation's stock within
18 months after making the control proposal.
TRANSFER AGENT
The Fifth Third Bank, Cincinnati, Ohio, will serve as transfer agent for
the Common Stock.
QUOTATION ON NASDAQ
The Company has filed an application for quotation of its Common Stock on
the Nasdaq National Market upon completion of this Offering under the symbol
"SNRG".
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the public market. Upon
consummation of the Offering, 3,499,988 shares of Common Stock will be issued
and outstanding. All of the 2,600,000 shares sold in the Offering, except for
shares acquired by affiliates of the Company, will be freely tradeable. None of
the remaining 899,988 shares was issued in a transaction registered under the
Securities Act and, accordingly, such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemption contained in Rule 144 under the
Securities Act.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from the Company or from any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock, or the average
weekly trading volume of Common Stock on the Nasdaq National Market during the
four calendar weeks preceding the date on which notice of the proposed sale is
sent to the Commission. Sales under Rule 144 are also subject to certain manner
of sale provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements. Of the 899,988
shares referred to above, 24,480 would be eligible for resale under Rule 144
ninety days after the date of this Prospectus without regard to the volume
limitations, manner of sale provisions or notice requirements and the remaining
shares would be eligible for resale under Rule 144 one year after the date of
this Prospectus in compliance with the volume limitations, manner of sale
provisions and notice requirements.
The Company, its directors and officers, the controlling shareholders of
each of the Founding Companies, the Selling Shareholder and Madison Financial
Group Ltd. have agreed not to, directly or indirectly, offer, issue, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable for or convertible or exchangeable into Common Stock (the
"Securities") for a period of 180 days after the date of this Prospectus (the
"Lockup Period") without the prior written consent of The Robinson-Humphrey
78
<PAGE> 80
Company, LLC except, that the Company may issue Common Stock in connection with
future acquisitions and in connection with the Founding Company Acquisitions and
may offer and sell shares of Common Stock pursuant to earn out arrangements with
certain Founding Company shareholders and its 1997 Long-Term Incentive Plan (the
"Plan"). Essentially all of the 899,988 shares referred to in the previous
paragraph are subject to the Lockup Period. In addition, the owners of the
Founding Companies have agreed, subject to certain limited exceptions for
transfers to related parties, not to, directly or indirectly, offer, sell,
contract to sell or otherwise dispose of any securities of the Company for a
period of one year after the date of this Prospectus. After such period, all of
such shares will be eligible for sale in accordance with Rule 144 promulgated
under the Securities Act, subject to the volume, holding period and other
limitations of Rule 144. See "Underwriting."
The Company has authorized the issuance of shares of Common Stock in
accordance with the terms of the Plan. The maximum number of shares of Common
Stock that may be awarded pursuant to the Plan may not exceed 20% of the
aggregate number of shares of Common Stock outstanding at the time of
determination (which maximum will be 720,000 shares upon consummation of the
Offering). Options to purchase 432,000 shares will be outstanding under the Plan
after the Offering. Additionally, at the time of consummation of the Offering,
the Company will have issued warrants to purchase an aggregate of 81,432 shares
of Common Stock. The shares issuable upon exercise of these warrants will not be
registered under the Securities Act and, therefore if and when issued upon
warrant exercise, may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration. See "Certain
Transactions -- Other Transactions."
The former shareholders of the Founding Companies, who will hold in the
aggregate 875,508 shares of Common Stock upon consummation of the Offering, have
certain demand registration rights with respect to their shares of Common Stock,
commencing one year after the Offering. See "Description of Capital Stock --
Registration Rights."
Prior to the Offering, there has been no established trading market for
Common Stock, and no predictions can be made as to the effect that sales of
Common Stock under Rule 144, pursuant to a registration statement or otherwise,
or the availability of shares of Common Stock for sale, will have on the market
price prevailing from time to time. Sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
depress the prevailing market price. Such sales may also make it more difficult
for the Company to issue or sell equity securities or equity-related securities
in the future at a time and price that it deems appropriate. See "Risk
Factors -- Shares Eligible for Future Sale."
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<PAGE> 81
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below (the "Underwriters")
have, severally and not jointly, agreed, through The Robinson-Humphrey Company,
LLC and, the Representatives of the Underwriters (the "Representatives"), to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the aggregate number of shares of Common Stock set forth opposite
their respective names:
<TABLE>
<CAPTION>
NAME OF UNDERWRITERS NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
The Robinson-Humphrey Company, LLC ..................................
McDonald & Company Securities, Inc. .................................
---------
Total................................................................ 2,600,000
=========
</TABLE>
The Underwriters are committed to take and pay for all of the shares of
Common Stock offered hereby (other than those covered by the over-allotment
option described below), if any are purchased.
The Underwriters have advised the Company that they propose to offer all or
part of the Common Stock offered hereby directly to the public initially at the
price to the public set forth on the cover page of this Prospectus, that they
may offer shares to certain dealers at a price which represents a concession of
not more than $ per share, and that they may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After the commencement of this Offering, the price to the public and
the concessions may be changed.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
390,000 shares of Common Stock at the initial public offering price. The
Underwriters may exercise this option only to cover over-allotments, if any. To
the extent the Underwriters exercise this option, each of the Underwriters will
have a firm commitment, subject to certain conditions, to purchase the same
percentage thereof as the percentage of the initial 2,600,000 shares to be
purchased by that Underwriter.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
MedPlus, the Company and its officers and directors, the controlling
shareholders of each of the Founding Companies, and Madison Financial Group Ltd.
have agreed not to, directly or indirectly, offer, issue, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities exercisable
for or convertible into or exchangeable into Common Stock (the "Securities"),
for a period of 180 days after the date of this Prospectus without the prior
written consent of The Robinson-Humphrey Company, LLC except for the grant and
exercise of employee stock options under the Plan and except that the Company
may issue shares of Common Stock in connection with the Acquisitions. In
addition, the owners of the Founding Companies have agreed not to, directly or
indirectly, offer, sell, contract to sell or otherwise dispose of any Securities
for a period of one year after the date of this Prospectus; after such period,
all of such shares will be eligible for sale in accordance with Rule 144 subject
to the volume, holding period and other limitations of Rule 144.
Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price has been determined by negotiations
between the Company and the Representatives. Among the factors considered in
such negotiations were the Company's pro forma results of operations and
financial condition, prospects for the Company and for the industry in which the
Company operates, the Company's capital
80
<PAGE> 82
structure and the general condition of the securities market. The estimated
offering price set forth on the cover of this Prospectus is subject to change as
a result of market conditions and other factors. See "Risk Factors -- No Prior
Public Market; Possible Volatility of Stock Price."
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed 5% of the total number of
shares offered hereby and that the Underwriters do not intend to confirm sales
of shares to any accounts over which they exercise discretionary authority.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales of Common Stock in excess of the offering size, which creates a syndicate
short position. Stabilizing transactions permit bids to purchase the Common
Stock so long as the stabilizing bids do not exceed a specified maximum.
Syndicate covering transactions involve purchases of Common Stock in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the Underwriters to reclaim a selling
concession from a syndicate member when the shares of Common Stock originally
sold by such syndicate member are purchased in a syndicate covering transaction
to cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
None of the transactions described in this paragraph is required, and, if they
are undertaken, they may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock being offered
hereby will be passed upon for the Company by Dinsmore & Shohl LLP, 1900 Chemed
Center, 255 East Fifth Street, Cincinnati, Ohio 45202. Certain legal matters
will be passed upon for the Underwriters by Taft, Stettinius & Hollister, 1800
Star Bank Center, 425 Walnut Street, Cincinnati, OH 45202-3957.
EXPERTS
The financial statements included in this Prospectus related to UDMS as of
December 31, 1995 and 1996, and for the period from December 14, 1995 through
December 31, 1995 and for the year ended December 31, 1996, have been included
herein and in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
in this Prospectus, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements included in this Prospectus related to UDMS as of
December 31, 1993 and 1994 and December 31, 1995 and for the years ended
December 31, 1993 and 1994 and for the period from January 1, 1995 through
December 13, 1995, have been included herein and in the registration statement
in reliance upon the report of Clark, Schaefer, Hackett & Co., independent
certified public accountants, appearing elsewhere in this Prospectus, and upon
the authority of said firm as experts in accounting and auditing.
The financial statements included in this Prospectus related to Applied as
of September 30, 1995 and 1996, and for each of the years in the three-year
period ended September 30, 1996, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere in this
Prospectus, and upon the authority of said firm as experts in accounting and
auditing.
The financial statements of ACCESS as of April 30, 1996 and 1997, and for
each of the years in the three-year period ended April 30, 1997, included in
this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements included in this Prospectus related to DTI as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996, have been included herein and in
81
<PAGE> 83
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation........................................................... F-4
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997.................. F-5
Unaudited Pro Forma Combined Statement of Operations for the Year Ended December
31, 1996....................................................................... F-6
Unaudited Pro Forma Combined Statement of Operations for the Six Months Ended
June 30, 1996.................................................................. F-7
Unaudited Pro Forma Combined Statement of Operations for the Six Months Ended
June 30, 1997.................................................................. F-8
Notes to Pro Forma Combined Financial Statements................................ F-9
HISTORICAL FINANCIAL STATEMENTS:
UDMS
Independent Auditors' Report.................................................... F-15
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-16
Statements of Operations for the Period from December 14, 1995 to December 31,
1995, Year Ended December 31, 1996, and Six Months Ended June 30, 1996 and
1997........................................................................... F-17
Statements of Stockholder's Equity for the Period from December 14, 1995 to
December 31, 1995, Year Ended December 31, 1996, and Six Months Ended June 30,
1997........................................................................... F-18
Statements of Cash Flows for the Period from December 14, 1995 to December 31,
1995, Year Ended December 31, 1996, and Six Months Ended June 30, 1996 and
1997........................................................................... F-19
Notes to Financial Statements................................................... F-20
UDMS
Independent Auditors' Report.................................................... F-31
Balance Sheets as of December 31, 1993 and 1994 and December 13, 1995........... F-32
Statements of Operations for the Years Ended December 31, 1993 and 1994 and for
the Period from January 1, 1995 to December 13, 1995........................... F-33
Statements of Stockholders' Deficit for the Years ended December 31, 1993 and
1994 and for the Period from January 1, 1995 to December 13, 1995.............. F-34
Statements of Cash Flows for the Years Ended December 31, 1993 and 1994 and for
the Period from January 1, 1995 to December 13, 1995........................... F-35
Notes to Financial Statements................................................... F-36
APPLIED
Independent Auditors' Report.................................................... F-41
Consolidated Balance Sheets (Restated) as of September 30, 1995 and 1996 and
June 30, 1997.................................................................. F-42
Consolidated Statements of Operations (Restated) for the Years Ended September
30, 1994, 1995 and 1996, and Nine Months Ended June 30, 1996 and 1997.......... F-43
Consolidated Statements of Stockholders' Equity (Deficit) (Restated) for the
Years ended September 30, 1994, 1995 and 1996 and Nine Months Ended June 30,
1997........................................................................... F-44
Consolidated Statements of Cash Flows (Restated) for the Years Ended September
30, 1994, 1995 and 1996, and Nine Months Ended June 30, 1996 and 1997.......... F-45
Notes to Financial Statements (Restated)........................................ F-46
ACCESS
Independent Auditors' Report.................................................... F-51
Balance Sheets as of April 30, 1996 and 1997, and July 31, 1997................. F-52
Statements of Operations for the Years Ended April 30, 1995, 1996 and 1997, and
Three Months Ended July 31, 1996 and 1997...................................... F-53
</TABLE>
F-1
<PAGE> 84
<TABLE>
<S> <C>
Statements of Capital Stock and Other Stockholders' Equity for the Years ended
April 30, 1995, 1996 and 1997, and Three Months Ended July 31, 1997............ F-54
Statements of Cash Flows for the Years Ended April 30, 1995, 1996 and 1997, and
Three Months Ended July 31, 1996 and 1997...................................... F-55
Notes to Financial Statements................................................... F-56
DTI
Independent Auditors' Report.................................................... F-63
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-64
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-65
Statements of Stockholder's Equity for the Years ended December 31, 1994, 1995
and 1996, and Six Months Ended June 30, 1997................................... F-66
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-67
Notes to Financial Statements................................................... F-68
TECHNICAL SOFTWARE
Independent Auditors' Report.................................................... F-74
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-75
Statements of Earnings and Retained Earnings for the Years Ended December 31,
1994, 1995 and 1996, and Six Months Ended June 30, 1996 and 1997............... F-76
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-77
Notes to Financial Statements................................................... F-78
SYNERGIS-PA
Independent Auditors' Report.................................................... F-82
Balance Sheets as of September 30, 1995 and 1996, and June 30, 1997............. F-83
Statements of Operations for the Years Ended September 30, 1994, 1995 and 1996,
and Nine Months Ended June 30, 1996 and 1997................................... F-84
Statements of Shareholders' Equity for the Years ended September 30, 1994, 1995
and 1996, and Nine Months Ended June 30, 1997.................................. F-85
Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996,
and Nine Months Ended June 30, 1996 and 1997................................... F-86
Notes to Financial Statements...................................................... F-87
MID-WEST CAD
Independent Auditors' Report.................................................... F-92
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-93
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-94
Statements of Stockholders' Equity for the Years ended December 31, 1994, 1995
and 1996, and Six Months Ended June 30, 1997................................... F-95
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-96
Notes to Financial Statements................................................... F-97
CADD MICROSYSTEMS
Independent Auditors' Report.................................................... F-101
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-102
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-103
Statements of Stockholders' Equity (Deficit) for the Years ended December 31,
1994, 1995 and 1996, and Six Months Ended June 30, 1997........................ F-104
</TABLE>
F-2
<PAGE> 85
<TABLE>
<S> <C>
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-105
Notes to Financial Statements................................................... F-106
DEVTRON, RUSSELL
Independent Auditors' Report.................................................... F-110
Balance Sheets as of September 30, 1995 and 1996, and June 30, 1997............. F-111
Statements of Operations for the Years Ended September 30, 1994, 1995 and 1996,
and Nine Months Ended June 30, 1996 and 1997................................... F-112
Statements of Stockholders' Equity for the Years ended September 30, 1994, 1995
and 1996, and Nine Months Ended June 30, 1997.................................. F-113
Statements of Cash Flows for the Years Ended September 30, 1994, 1995 and 1996,
and Nine Months Ended June 30, 1996 and 1997................................... F-114
Notes to Financial Statements................................................... F-115
COMPUTERS FOR DESIGN
Independent Auditors' Report.................................................... F-119
Balance Sheets as of December 31, 1995 and 1996, and June 30, 1997.............. F-120
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-121
Statements of Stockholders' Deficit for the Years ended December 31, 1994, 1995
and 1996, and Six Months Ended June 30, 1997................................... F-122
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
and Six Months Ended June 30, 1996 and 1997.................................... F-123
Notes to Financial Statements................................................... F-124
</TABLE>
F-3
<PAGE> 86
SYNERGIS TECHNOLOGIES, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by UDMS, a Founding Company, of (i) DTI, (ii) ACCESS, (iii)
Applied, (iv) Technical Software, (v) Devtron Russell, (vi) Synergis-PA, (vii)
Mid-West CAD, (viii) CADD Microsystems, and (ix) Computers For Design. The
Acquisitions will occur simultaneously with the closing of the Offering and will
be accounted for using the purchase method. The unaudited pro forma combined
financial statements also give effect to the issuance of Common Stock by UDMS to
shareholders of the Founding Companies upon the effectiveness of the Offering.
These statements are based on the historical financial statements of UDMS and
the Founding Companies included elsewhere in this Prospectus and the estimates
and assumptions set forth below and in the notes to the unaudited pro forma
combined financial statements.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they occurred on January 1, 1996.
The pro forma adjustments are based upon preliminary estimates, currently
available information and certain assumptions that management deems appropriate.
In management's opinion, the preliminary estimates regarding allocation of the
purchase price of the Founding Companies are not expected to materially differ
from the final allocation. The purchase price allocation will be finalized after
the closing of the Acquisitions. The unaudited pro forma combined financial data
presented herein are not necessarily indicative of the results that UDMS and the
other Founding Companies, as a combined entity, would have obtained had such
events occurred at the beginning of the period, as assumed, or of the future
results of the Company. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Prospectus.
F-4
<PAGE> 87
SYNERGIS TECHNOLOGIES, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOUNDING COMPANIES -- HISTORICAL
-----------------------------------------------------
TECHNICAL DEVTRON
Dollars in thousands UDMS DTI ACCESS APPLIED SOFTWARE RUSSELL
- -------------------------------------------------------------------- ------- ------ ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 11 $ 68 $1,584 $ 35 $ 101 $ 22
Receivables, net of allowances..................................... 231 1,323 1,373 1,298 507 383
Inventories, net of allowances..................................... -- 251 226 152 191 169
Deferred income taxes.............................................. -- 162 112 -- -- 15
Other current assets............................................... 42 76 101 134 -- 4
------- ------ ------- ------ ------ ----
Total Current Assets......................................... 284 1,880 3,396 1,619 799 593
Fixed assets, net................................................... 106 370 225 135 322 77
Capitalized software development, net............................... 372 -- -- -- -- --
Goodwill and other identifiable intangible assets................... 914 623 260 -- -- --
Deferred income taxes............................................... -- -- 549 -- -- --
Other assets........................................................ 303 14 -- 8 13 --
------- ------ ------- ------ ------ ----
Total Assets........................................................ $ 1,979 $2,887 $4,430 $1,762 $ 1,134 $ 670
======= ====== ======= ====== ====== ====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Lines of credit.................................................... $ -- $ 40 $ -- $ 500 $ -- $ 75
Long-term debt, current portion.................................... -- 386 -- 88 74 23
Capital leases, current portion.................................... -- 51 -- 15 -- --
Trade accounts payable............................................. 95 1,179 243 1,337 427 209
Taxes payable...................................................... -- -- 5 -- -- 34
Due to affiliate................................................... 956 -- -- -- -- --
Accrued expenses................................................... 184 274 673 174 83 18
Deferred revenue................................................... 91 75 195 171 89 --
Debenture payable to affiliate..................................... 300 -- -- -- -- --
Other current liabilities.......................................... -- -- -- -- -- --
------- ------ ------- ------ ------ ----
Total Current Liabilities.................................... 1,626 2,005 1,116 2,285 673 359
Long-term debt...................................................... -- 922 -- 97 130 67
Capital leases...................................................... -- 20 -- 6 -- --
Deferred revenue.................................................... 6 -- 602 -- -- --
Other long-term liabilities......................................... -- -- -- -- -- --
------- ------ ------- ------ ------ ----
Total Liabilities............................................ 1,632 2,947 1,718 2,388 803 426
------- ------ ------- ------ ------ ----
Manditorily redeemable preferred stock.............................. -- -- 1,500 -- -- --
------- ------ ------- ------ ------ ----
Shareholders' Equity (Deficit):
Common stock....................................................... -- 14 488 37 1 2
Additional paid-in capital......................................... 2,194 26 10,658 25 -- --
Retained earnings (accumulated deficit)............................ (1,822) (93) (9,919) (281) 330 242
Treasury stock, at cost............................................ -- (7) (15) (407) -- --
Unearned compensation.............................................. (25) -- -- -- -- --
------- ------ ------- ------ ------ ----
Total Shareholders' Equity (Deficit)......................... 347 (60) 1,212 (626) 331 244
------- ------ ------- ------ ------ ----
Total Liabilities and Stockholder's Equity.......................... $ 1,979 $2,887 $4,430 $1,762 $ 1,134 $ 670
======= ====== ======= ====== ====== ====
<CAPTION>
MID-WEST CADD COMPUTERS
Dollars in thousands SYNERGIS-PA CAD MICROSYSTEMS FOR DESIGN COMBINED
- -------------------------------------------------------------------- ----------- -------- ------------ ---------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ 290 $ 77 $ 34 $ 2 $ 2,224
Receivables, net of allowances..................................... 797 199 304 256 6,671
Inventories, net of allowances..................................... 131 159 88 17 1,384
Deferred income taxes.............................................. -- -- -- -- 289
Other current assets............................................... 33 15 13 8 426
------ ---- ----- ---- --------
Total Current Assets......................................... 1,251 450 439 283 10,994
Fixed assets, net................................................... 145 180 177 50 1,787
Capitalized software development, net............................... 240 -- -- -- 612
Goodwill and other identifiable intangible assets................... -- -- -- -- 1,797
Deferred income taxes............................................... -- -- -- -- 549
Other assets........................................................ 10 12 2 48 410
------ ---- ----- ---- --------
Total Assets........................................................ $ 1,646 $642 $ 618 $381 $16,149
====== ==== ===== ==== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Lines of credit.................................................... $ -- $ -- $ 40 $150 $ 805
Long-term debt, current portion.................................... 19 13 40 11 654
Capital leases, current portion.................................... -- -- 43 11 120
Trade accounts payable............................................. 745 132 312 216 4,895
Taxes payable...................................................... -- 8 -- 1 48
Due to affiliate................................................... -- -- -- -- 956
Accrued expenses................................................... -- 51 51 37 1,584
Deferred revenue................................................... 108 103 79 -- 911
Debenture payable to affiliate..................................... -- -- -- -- 300
Other current liabilities.......................................... -- -- -- 5 5
------ ---- ----- ---- --------
Total Current Liabilities.................................... 872 307 565 431 10,239
Long-term debt...................................................... 90 10 130 -- 1,446
Capital leases...................................................... -- -- 29 -- 55
Deferred revenue.................................................... -- -- -- -- 608
Other long-term liabilities......................................... -- 22 -- -- 22
------ ---- ----- ---- --------
Total Liabilities............................................ 962 339 724 431 12,370
------ ---- ----- ---- --------
Manditorily redeemable preferred stock.............................. -- -- -- -- 1,500
------ ---- ----- ---- --------
Shareholders' Equity (Deficit):
Common stock....................................................... 1 10 14 -- 567
Additional paid-in capital......................................... 39 34 -- -- 12,976
Retained earnings (accumulated deficit)............................ 644 259 (120) (50) (10,810)
Treasury stock, at cost............................................ -- -- -- -- (429)
Unearned compensation.............................................. -- -- -- -- (25)
------ ---- ----- ---- --------
Total Shareholders' Equity (Deficit)......................... 684 303 (106) (50) 2,279
------ ---- ----- ---- --------
Total Liabilities and Stockholder's Equity.......................... $ 1,646 $642 $ 618 $381 $16,149
====== ==== ===== ==== ========
<CAPTION>
PRO FORMA
ACQUISITIONS PRO
AND OFFERING FORMA
Dollars in thousands ADJUSTMENTS SYNERGIS
- -------------------------------------------------------------------- ------------ --------
ASSETS
Current Assets:
Cash and cash equivalents.......................................... $ (1,834)(a)(b)(d)(e)(f) $ 390
Receivables, net of allowances..................................... -- 6,671
Inventories, net of allowances..................................... -- 1,384
Deferred income taxes.............................................. (112)(b) 177
Other current assets............................................... -- 426
------- -------
Total Current Assets......................................... (1,946) 9,048
Fixed assets, net................................................... -- 1,787
Capitalized software development, net............................... -- 612
Goodwill and other identifiable intangible assets................... 22,122(b) 23,919
Deferred income taxes............................................... (469)(b) 80
Other assets........................................................ (350)(a) 60
------- -------
Total Assets........................................................ $ 19,357 $35,506
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Lines of credit.................................................... $ (805)(d) $ --
Long-term debt, current portion.................................... (615)(d) 39
Capital leases, current portion.................................... -- 120
Trade accounts payable............................................. -- 4,895
Taxes payable...................................................... -- 48
Due to affiliate................................................... (956)(d) --
Accrued expenses................................................... -- 1,545
Deferred revenue................................................... -- 911
Debenture payable to affiliate..................................... (300)(d) --
Other current liabilities.......................................... -- 5
------- -------
Total Current Liabilities.................................... (2,676) 7,563
Long-term debt...................................................... (943)(d) 503
Capital leases...................................................... -- 55
Deferred revenue.................................................... -- 608
Other long-term liabilities......................................... -- 22
------- -------
Total Liabilities............................................ (3,619) 8,751
------- -------
Manditorily redeemable preferred stock.............................. (1,500)(e) --
------- -------
Shareholders' Equity (Deficit):
Common stock....................................................... (567)(c) --
Additional paid-in capital......................................... 15,626(a)(b)(c) 28,602
Retained earnings (accumulated deficit)............................ 8,988( b)(c)(f) (1,822)
Treasury stock, at cost............................................ 429(c) --
Unearned compensation.............................................. -- (25)
------- -------
Total Shareholders' Equity (Deficit)......................... 24,476 26,755
------- -------
Total Liabilities and Stockholder's Equity.......................... $ 19,357 $35,506
======= =======
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-5
<PAGE> 88
SYNERGIS TECHNOLOGIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOUNDING COMPANIES -- HISTORICAL
---------------------------------------------------------------------------------
TECHNICAL DEVTRON MID-WEST
Dollars in Thousands UDMS DTI ACCESS APPLIED SOFTWARE RUSSELL SYNERGIS-PA CAD
- ----------------------------------------------- ------ ------ ------ ------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Hardware..................................... $ -- $1,241 $ 123 $3,293 $ 481 $1,534 $ 978 $1,215
Software..................................... 398 3,805 2,819 3,333 3,094 1,345 3,439 1,282
Services, consulting and other............... 702 705 5,067 1,300 2,114 212 916 869
----- ------ ----- ----- ----- ----- ----- -----
Total revenues......................... 1,100 5,751 8,009 7,926 5,689 3,091 5,333 3,366
Cost and expenses:
Hardware..................................... -- 799 90 2,664 277 1,217 810 1,005
Software..................................... 57 2,343 2,818 2,079 1,884 1,030 2,034 878
Services, consulting andother................ 293 444 3,033 1,015 1,254 100 680 515
Selling and marketing........................ 260 903 1,528 872 1,044 214 614 712
General and administrative................... 600 1,379 1,470 1,072 1,296 342 967 252
----- ------ ----- ----- ----- ----- ----- -----
Total costs and expenses............... 1,210 5,868 8,939 7,702 5,755 2,903 5,105 3,362
----- ------ ----- ----- ----- ----- ----- -----
Operating income (loss)........................ (110) (117) (930) 224 (66) 188 228 4
Other income (expense), net:
Interest..................................... (31) (67) 124 (50) (12) (9) (8) (4)
Other........................................ -- 65 (42) 4 43 -- 9 2
----- ------ ----- ----- ----- ----- ----- -----
Income (loss) before income taxes.............. (141) (119) (848) 178 (35) 179 229 2
Income tax expense (benefit)................... -- (24) 94 -- -- 20 -- 4
----- ------ ----- ----- ----- ----- ----- -----
Net income (loss).............................. $(141) $ (95) $(942) $ 178 $ (35) $ 159 $ 229 $ (2)
===== ====== ===== ===== ===== ===== ===== =====
Pro forma net loss per share...................
Pro forma weighted average shares
outstanding(l)...............................
<CAPTION>
PRO FORMA
ACQUISITIONS
CADD COMPUTERS AND OFFERING PRO FORMA
Dollars in Thousands MICROSYSTEMS FOR DESIGN COMBINED ADJUSTMENTS SYNERGIS
- ----------------------------------------------- ------------ ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware..................................... $ 298 $ 630 $ 9,793 $ 982(k) $10,775
Software..................................... 1,663 1,071 22,249 2,055(k) 24,304
Services, consulting and other............... 1,133 441 13,459 367(k) 13,826
----- ----- ------- ------- ------
Total revenues......................... 3,094 2,142 45,501 3,404 48,905
Cost and expenses:
Hardware..................................... 144 541 7,547 816(k) 8,363
Software..................................... 1,270 710 15,103 1,332(k) 16,435
Services, consulting andother................ 511 98 7,943 -- 7,943
Selling and marketing........................ 632 248 7,027 408(k) 7,435
General and administrative................... 544 497 8,419 1,316(g)(h)(k) 9,735
----- ----- ------- ------- ------
Total costs and expenses............... 3,101 2,094 46,039 3,872 49,911
----- ----- ------- ------- ------
Operating income (loss)........................ (7) 48 (538) (468) (1,006)
Other income (expense), net:
Interest..................................... (38) (11) (106) 230(i)(k) 124
Other........................................ -- 4 85 -- 85
----- ----- ------- ------- ------
Income (loss) before income taxes.............. (45) 41 (559) (238) (797)
Income tax expense (benefit)................... -- 6 100 (442) (g)(h)(i)(j) (342)
----- ----- ------- ------- ------
Net income (loss).............................. $ (45) $ 35 $ (659) $ 204 $ (455)
===== ===== ======= ======= ======
Pro forma net loss per share................... $ (0.13)
=======
Pro forma weighted average shares
outstanding(l)............................... 3,559,000
=========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-6
<PAGE> 89
SYNERGIS TECHNOLOGIES, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
FOUNDING COMPANIES -- HISTORICAL
-------------------------------------------------------------------------------
TECHNICAL DEVTRON MID-WEST
Dollars in Thousands UDMS DTI ACCESS APPLIED SOFTWARE RUSSELL SYNERGIS-PA CAD
- ------------------------------------------------- ---- ------ ------ ------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Hardware....................................... $-- $ 370 $ 33 $1,893 $ 252 $ 764 $ 528 $ 536
Software....................................... 286 1,113 1,982 1,904 1,620 823 1,546 538
Services, consulting and other................. 246 208 2,816 659 1,154 61 496 417
--- ----- ----- ----- ----- ----- ----- -----
Total revenues........................... 532 1,691 4,831 4,456 3,026 1,648 2,570 1,491
Costs and expenses:
Hardware....................................... -- 203 25 1,578 144 676 437 436
Software....................................... 27 594 1,397 1,227 924 516 891 374
Service, consulting andother................... 96 131 1,575 496 704 29 279 246
Selling and marketing.......................... 79 494 830 396 548 88 291 255
General and administrative..................... 278 105 843 486 569 187 505 125
--- ----- ----- ----- ----- ----- ----- -----
Total costs and expenses................. 480 1,527 4,670 4,183 2,889 1,496 2,403 1,436
--- ----- ----- ----- ----- ----- ----- -----
Operating income (loss).......................... 52 164 161 273 137 152 167 55
Other income (expense), net:
Interest....................................... (16) (13) 87 (26) (4) (5) (5) (1)
Other.......................................... -- 13 (47) 2 14 -- 9 --
--- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes................ 36 164 201 249 147 147 171 54
Income tax expense............................... -- 73 91 -- -- 43 -- 10
--- ----- ----- ----- ----- ----- ----- -----
Net income (loss)................................ $36 $ 91 $ 110 $ 249 $ 147 $ 104 $ 171 $ 44
=== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
PRO FORMA
ACQUISITIONS
CADD COMPUTERS AND OFFERING PRO FORMA
Dollars in Thousands MICROSYSTEMS FOR DESIGN COMBINED ADJUSTMENTS SYNERGIS
- ------------------------------------------------- ------------ ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware....................................... $ 105 $ 549 $ 5,030 $ 982(k) $ 6,012
Software....................................... 816 512 11,140 2,055(k) 13,195
Services, consulting and other................. 663 231 6,951 367(k) 7,318
----- ----- ------ ------ ------
Total revenues........................... 1,584 1,292 23,121 3,404 26,525
Costs and expenses:
Hardware....................................... 56 465 4,020 816(k) 4,836
Software....................................... 495 333 6,778 1,332(k) 8,110
Service, consulting andother................... 299 50 3,905 -- 3,905
Selling and marketing.......................... 365 122 3,468 408(k) 3,876
General and administrative..................... 266 243 3,607 1,105(g)(h)(k) 4,712
----- ----- ------ ------ ------
Total costs and expenses................. 1,481 1,213 21,778 3,661 25,439
----- ----- ------ ------ ------
Operating income (loss).......................... 103 79 1,343 (257) 1,086
Other income (expense), net:
Interest....................................... (17) (4) (4) 91(i)(k) 87
Other.......................................... -- -- (9) -- (9)
----- ----- ------ ------ ------
Income (loss) before income taxes................ 86 75 1,330 (166) 1,164
Income tax expense............................... -- 6 223 157(g)(h)(i)(j) 380
----- ----- ------ ------ ------
Net income (loss)................................ $ 86 $ 69 $ 1,107 $ (323) $ 784
===== ===== ====== ====== ======
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-7
<PAGE> 90
SYNERGIS TECHNOLOGIES, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOUNDING COMPANIES -- HISTORICAL
--------------------------------------------------------------------------------
TECHNICAL DEVTRON MID-WEST
Dollars in Thousands UDMS DTI ACCESS APPLIED SOFTWARE RUSSELL SYNERGIS-PA CAD
- ------------------------------------------------- ----- ------ ------ ------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Hardware....................................... $ -- $1,006 $ 83 $1,622 $ 243 $ 683 $ 444 $ 352
Software....................................... 186 3,086 1,119 1,731 1,561 762 2,017 744
Services, consulting and other................. 242 764 2,633 542 959 105 473 468
---- ----- ----- ----- ----- ----- ----- -----
Total revenues........................... 428 4,856 3,835 3,895 2,763 1,550 2,934 1,564
Costs and expenses:
Hardware....................................... -- 767 57 1,444 158 567 368 284
Software....................................... 40 2,249 543 1,303 1,073 471 1,302 537
Services, consulting and other................. 133 484 2,141 425 569 49 436 269
Selling and marketing.......................... 217 581 729 450 464 116 296 304
General and administrative..................... 381 823 556 553 619 199 353 128
---- ----- ----- ----- ----- ----- ----- -----
Total costs and expenses................. 771 4,904 4,026 4,175 2,883 1,402 2,755 1,522
---- ----- ----- ----- ----- ----- ----- -----
Operating income (loss).......................... (343) (48) (191) (280) (120) 148 179 42
Other income (expense), net:
Interest....................................... (19) (66) 33 (19) -- (6) (5) --
Other.......................................... -- 13 2 -- 10 -- 6 --
---- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes................ (362) (101) (156) (299) (110) 142 180 42
Income tax expense (benefit)..................... -- (13) -- -- -- 28 -- 8
---- ----- ----- ----- ----- ----- ----- -----
Net income (loss)................................ $(362) $ (88) $(156) $ (299) $ (110) $ 114 $ 180 $ 34
==== ===== ===== ===== ===== ===== ===== =====
Pro forma net loss per share.....................
Pro forma weighted average shares
outstanding(l).................................
<CAPTION>
PRO FORMA
ACQUISITIONS
CADD COMPUTERS AND OFFERING PRO FORMA
Dollars in Thousands MICROSYSTEMS FOR DESIGN COMBINED ADJUSTMENTS SYNERGIS
- ------------------------------------------------- ------------ ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware....................................... $ 82 $ 65 $ 4,580 $ -- $ 4,580
Software....................................... 795 586 12,587 -- 12,587
Services, consulting and other................. 519 261 6,966 -- 6,966
----- --- ------ ---- ------
Total revenues........................... 1,396 912 24,133 -- 24,133
Costs and expenses:
Hardware....................................... 68 61 3,774 -- 3,774
Software....................................... 593 428 8,539 -- 8,539
Services, consulting and other................. 234 40 4,780 -- 4,780
Selling and marketing.......................... 203 112 3,472 -- 3,472
General and administrative..................... 256 240 4,108 204(g)(h) 4,312
----- --- ------ ---- ------
Total costs and expenses................. 1,354 881 24,673 204 24,877
----- --- ------ ---- ------
Operating income (loss).......................... 42 31 (540) (204) (744)
Other income (expense), net:
Interest....................................... (20) (7) (109) 142(i) 33
Other.......................................... -- (5) 26 -- 26
----- --- ------ ---- ------
Income (loss) before income taxes................ 22 19 (623) (62) (685)
Income tax expense (benefit)..................... -- 2 25 (245)(g)(h)(i)(j) (220)
----- --- ------ ---- ------
Net income (loss)................................ $ 22 $ 17 $ (648) $ 183 $ (465)
===== === ====== ==== ======
Pro forma net loss per share..................... $ (0.13)
=======
Pro forma weighted average shares
outstanding(l)................................. 3,559,000
=========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-8
<PAGE> 91
SYNERGIS TECHNOLOGIES, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. UDMS AND FOUNDING COMPANIES BACKGROUND
UDMS has been a wholly-owned subsidiary of MedPlus since its acquisition by
MedPlus in December 1995. UDMS intends to change its name to Synergis
Technologies, Inc. immediately prior to the effectiveness of the Registration
Statement of which this Prospectus is a part. The Company was formed to be the
largest independent value added reseller of design automation and document
management products and services in the United States. Simultaneously with, and
as a condition to, the closing of the offering made by this Prospectus, UDMS
will acquire, in separate transactions in exchange for cash and shares of its
Common Stock, nine design automation and document management businesses. Each of
the Founding Companies and UDMS have had individual, independent operating
histories since their respective formations. See "Risk Factors," "Certain
Transactions" and page F-4 for additional information.
2. HISTORICAL FINANCIAL STATEMENTS
The historical financial statements represent the financial position and
results of operations for the Founding Companies and were derived from the
respective financial statements where indicated. All Founding Companies have
December 31 year ends, except for Applied, Synergis-PA, Devtron Russell and
ACCESS. Applied, Synergis-PA and Devtron Russell have September 30 year ends
while ACCESS has an April 30 year end. However, for purposes of the Pro Forma
Combined Financial Statements, the balance sheet and statements of operations
information for ACCESS, Applied, Synergis-PA and Devtron Russell are as of June
30, 1997 and for the year ended December 31, 1996 and the six months ended June
30, 1996 and 1997. At June 30, 1997, UDMS' balance sheet included $0.3 million
of other assets which consists of $0.1 million and $0.2 million of deferred
acquisition costs and deferred public offering costs, respectively. See the UDMS
historical financial statements contained elsewhere herein.
3. ACQUISITION OF OPERATING BUSINESSES
Simultaneously with the closing of the Offering, UDMS will acquire by
merger all of the Founding Companies other than ACCESS and will acquire the net
assets of ACCESS. The Acquisitions will be accounted for using the purchase
method of accounting with UDMS treated as the accounting acquiror. The total
estimated purchase price is $22.9 million, which consists of: (i) $15.6 million
of cash to be paid to the shareholders of the Founding Companies upon
consummation of the Offering; (ii) the $6.8 million estimated fair value of
875,508 shares of Common Stock to be issued to the shareholders of the Founding
Companies; and (iii) estimated acquisition costs of $0.5 million. The estimated
purchase price for the Acquisitions is subject to certain earn-out arrangements.
See "Certain Relationships and Related Party Transactions."
The 875,508 shares of the Company's Common Stock to be issued to the
shareholders of the Founding Companies were valued at a 35% discount for the
initial offering price, or $7.80 per share. This discount was based upon the
fact that substantially all of the holders of these shares will not have the
right to demand registration of these shares by the Company until one year after
the consummation of the Offering and, in such case, may only demand that the
Company register up to 50% of the registrable common shares. Beginning two years
after the consummation of the Offering, the holders of these shares may demand
that the Company register 100% of these registrable common shares. In addition,
each holder agrees in connection with any registration of any of the Company's
securities that, upon the request of the Company or the underwriters managing
any underwritten offering of the Company's securities, he, she or it will not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any securities of the Company (other than the securities
included in the registration) without the prior written consent of the Company
or such underwriters for such a period of time not to exceed 180 days from the
effective date of such registration.
The estimated total purchase price of $22.9 million of the Acquisitions has
been allocated to the assets acquired and liabilities assumed. Based upon
management's preliminary analysis, it is anticipated that the
F-9
<PAGE> 92
historical carrying value of the Founding Companies' assets and liabilities will
approximate fair value. While the Founding Companies have no long-term client
contracts and client relationships can be cancelled by the clients upon
relatively short notice, and while most of the Company's employees are not
subject to employment agreements or otherwise prohibited from seeking employment
elsewhere in industry, management has allocated approximately $1.3 million of
the purchase price to identifiable intangible assets of the Founding Companies
based on the length of time the Founding Companies have been in business and in
light of the significant number of customers that the Founding Companies
possess. In addition, approximately $2.1 million of in-process research and
development related to Synergis-PA's NFM(4) will be charged to expense upon the
consummation of the Acquisitions and has been excluded from the pro forma
combined statements of operations. The remaining excess purchase price of
approximately $19.5 million represents goodwill.
In addition to the purchase price discussed above, the ACCESS, CADD
Microsystems, DTI, and Technical Software acquisitions have certain earn-out
provisions based upon 1997 and/or 1998 profitability and revenue goals. The
earn-out provisions will be recorded in accordance with Emerging Issues Task
Force Bulletin No. 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Company." If these earn-out provisions are achieved
there will be additional purchase price allocated to goodwill. The pro forma
combined financial statements include no adjustments relating to the earn-out
provisions.
In addition, certain of the employment agreements related to certain
officers and key employees of the Company contain incentive compensation
arrangements based upon the attainment of financial or other objectives. Such
incentive compensation payments could be significant.
4. PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Represents the sale of 1,850,000 shares of Common Stock at an assumed
initial public offering price of $12.00 per share, net of expenses and
underwriting discount, for estimated net proceeds of $19.8 million,
after giving effect to the payment by MedPlus of $0.2 in
offering-related expenses, which is included in the amount Due to
Affiliate and Other Assets as of June 30, 1997.
(b) Represents a pro forma adjustment to reflect the Acquisitions,
including: (i) the use of $15.6 million of the estimated net proceeds
of the Offering to pay the cash portion of the purchase price of the
Founding Companies payable at closing; (ii) the issuance of 875,508
shares of Common Stock to the shareholders of the Founding Companies;
and (iii) estimated Acquisition costs of $0.5 million, after giving
effect to prepaid Acquisition costs of $0.2 million.
(c) Represents the elimination of common stock, additional paid-in capital,
retained earnings and treasury stock of the Founding Companies
(exclusive of UDMS) as a result of the Acquisitions.
(d) Represents the use of a portion of the estimated net proceeds of the
Offering to reduce approximately $3.6 million in interest-bearing debt
originally incurred by the Founding Companies and outstanding at June
30, 1997.
(e) Represents a pro forma adjustment to reflect the payment of $1.5
million by ACCESS to the holder of its preferred stock in connection
with the sale of assets and assumption of liabilities of ACCESS by the
Company and the liquidation and dissolution of ACCESS.
(f) Represents: (i) the repayment of the AAA Notes issued to the
shareholder of Technical Software related to approximately $0.4 million
in Technical Software's accumulated adjustment account as of June 30,
1997, and (ii) the distribution to the shareholders of Synergis-PA of
approximately $0.1 million related to the taxes payable by the
shareholders of amounts included in their accumulated adjustment
account as of June 30, 1997.
F-10
<PAGE> 93
A summary of the unaudited pro forma combined balance sheet adjustments
(a), (b), (c), (d), (e) and (f) is as follows:
<TABLE>
<CAPTION>
DEBIT (CREDIT)
--------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
--------------------------------------------------------------------
BALANCE SHEET ACCOUNTS (a) (b) (c) (d) (e) (f) TOTAL
- ----------------------------------------- -------- -------- ------- ------- ------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash..................................... $ 19,779 $(15,971) $ -- $(3,619) $(1,500) $(523) $ (1,834)
Deferred income taxes -- current......... -- (112) -- -- -- -- (112)
Goodwill and other identifiable
intangible assets...................... -- 22,122 -- -- -- -- 22,122
Deferred income taxes -- noncurrent...... -- (469) -- -- -- -- (469)
Other assets............................. (200) (150) -- -- -- -- (350)
Lines of credit.......................... -- -- -- 805 -- -- 805
Current long-term debt................... -- -- -- 615 -- -- 615
Due to affiliate......................... -- -- -- 956 -- -- 956
Debenture payable to affiliate........... -- -- -- 300 -- -- 300
Long-term debt........................... -- -- -- 943 -- -- 943
Preferred stock.......................... -- -- -- -- 1,500 -- 1,500
Common stock............................. -- -- 567 -- -- -- 567
Additional paid-in capital............... (19,579) (6,829) 10,782 -- -- -- (15,626)
Retained earnings........................ -- (523) (8,988) -- -- 523 (8,988)
Treasury stock, at cost.................. -- -- (429) -- -- -- (429)
------- ------- ------ ------ ---- ------ ----
$ -- $ (1,932) $ 1,932 $ -- $ -- $ -- $ --
======= ======= ====== ====== ==== ====== ====
</TABLE>
5. PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(g) Includes additional amortization expense related to identifiable
intangible assets and goodwill recorded in connection with the
Acquisitions as if the Acquisitions all occurred as of January 1, 1996.
The goodwill is being amortized on a straight-line basis over an
estimated life of 25 years. The identifiable intangible assets are
being amortized on a straight-line basis over an estimated life of 10
years. The amortization periods were determined by the Company with
consideration given to the reputation of each Founding Company, the
length of each Founding Company's operating history and the potential
market in which the Founding Company operates. Excludes a non-recurring
charge for acquired in-process research and development of
approximately $2.1 million related to Synergis-PA's NFM(4) product.
(h) Includes a pro forma reduction in compensation to the owners of the
Founding Companies to which they have agreed prospectively in the
amounts of approximately $0.4 million for the year ended December 31,
1996 and $0.2 million in each of the six months periods ended June 30,
1996 and 1997. Excludes compensation of $0.5 million annually based
upon employment agreements with the Company's executive management and
other costs associated with being a public Company. See
"Management--Employment Agreements; Executive Compensation."
(i) Includes a pro forma adjustment to reflect the elimination of interest
expense in connection with the payment of interest-bearing debt of the
Founding Companies from the net estimated proceeds of the Offering (see
adjustment (d)) as described under "Use of Proceeds," as if the
Acquisitions and Offering had occurred as of January 1, 1996.
(j) Includes a pro forma adjustment to reflect the provision for income
taxes on the pro forma combined results at effective tax rates of
42.9%, 32.7% and 32.1% for the year ended December 31, 1996, and the
six months ended June 30, 1996 and 1997, respectively, before
considering the non-deductibility of approximately $0.5 million of
annual goodwill amortization.
(k) Includes an adjustment to revenues, cost of revenues, selling, general
and administrative expenses, and interest expense related to DTI's
acquisition of ComputerSmith on July 1, 1996, the effect of which is to
reflect DTI's results of operations as if such acquisitions occurred on
January 1, 1996.
F-11
<PAGE> 94
The historical results of DTI for all periods presented subsequent to July 1,
1996 include the results of operations related to Computersmith.
(l) The weighted average shares outstanding used to calculate pro forma net
income per share is based upon the estimated average number of shares
of Common Stock and common stock equivalents outstanding during the
period calculated as follows:
<TABLE>
<S> <C>
Shares issued in the formation of UDMS (adjusted for
8,334.92-for-1 stock split and the contribution to capital of
59,012 shares by the Selling Shareholder)....................... 774,480
Shares issued to the shareholders of the Founding Companies....... 875,508
Shares issued in the Offering..................................... 1,850,000
SAB No. 83 adjustment............................................. 59,012
---------
3,559,000
=========
</TABLE>
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, warrants and options for Common Stock issued during twelve months
immediately preceding the Offering date (using the treasury stock method and an
assumed initial public offering price per share of $12.00) have been included in
the calculation of Common Stock as if they were outstanding for the entire
period presented.
The Company has entered into employment agreements with certain of its
officers which provide for total minimum annual compensation, including
guaranteed incentive compensation amounts, of $0.5 million. This amount has been
excluded from pro forma adjustment 5(h).
In addition, UDMS is in the process of hiring other corporate staff. Also,
certain corporate expenses will be incurred in 1997 and thereafter related to
operating as a public company, and in managing the Founding Companies, which to
this date have operated as autonomous businesses. These additional expenses
(which will be significant) have not been reflected in the accompanying pro
forma statements of income. The effect of these additional expenses and related
benefits is not currently estimable as the Acquisitions have not been
consummated and the expected synergies of combining the Founding Companies are
not specifically quantifiable at this time. See "Management -- Employment
Agreements; Executive Compensation."
A summary of the unaudited pro forma Combined Statements of Operations
adjustments (g), (h), (i), (j), (k) and (l) for the year ended December 31, 1996
and six months ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
DEBIT (CREDIT)
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996 PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
- ------------------------------------------- -----------------------------------------------------------------
STATEMENT OF OPERATIONS ACCOUNTS (G) (H) (I) (J) (K) TOTAL
- ------------------------------------------- ------ ------ ------ ------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Hardware revenues.......................... $ -- $ -- $ -- $ -- $ (982) $ (982)
Software revenues.......................... -- -- -- (2,055) (2,055)
Services, consulting and other revenues.... -- -- -- -- (367) (367)
Hardware costs............................. -- -- -- -- 816 816
Software costs............................. -- -- -- -- 1,332 1,332
Services, consulting and other costs....... -- -- -- -- -- --
Selling and marketing...................... -- -- -- -- 408 408
General and administrative................. 880 (424) -- -- 860 1,316
Interest expense, net...................... -- -- (250) -- 20 (230)
Other expense, net......................... -- -- -- -- -- --
Income tax expense (benefit)............... (160) 170 100 (552) -- (442)
------ ------ ------ ------ ------- ------
$ 720 $ (254) $ (150) $ (552) $ 32 $ (204)
====== ====== ====== ====== ======= ======
</TABLE>
F-12
<PAGE> 95
<TABLE>
<CAPTION>
DEBIT (CREDIT)
----------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1996 PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
- ------------------------------------------- ----------------------------------------------------------------
STATEMENT OF OPERATIONS ACCOUNTS (g) (h) (i) (j) (k) TOTAL
- ------------------------------------------- ----- ------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Hardware revenues.......................... $ -- $ -- $ -- $ -- $ (982) $ (982)
Software revenues.......................... -- -- -- -- (2,055) (2,055)
Services, consulting and other revenues.... -- -- -- -- (367) (367)
Hardware costs............................. -- -- -- -- 816 816
Software costs............................. -- -- -- -- 1,332 1,332
Services, consulting and other costs....... -- -- -- -- -- --
Selling and marketing...................... -- -- -- -- 408 408
General and administrative................. 457 (212) -- -- 860 1,105
Interest expense, net...................... -- -- (111) -- 20 (91)
Other expense, net......................... -- -- -- -- -- --
Income tax expense (benefit)............... (80) 85 44 108 -- 157
------ ------ ------ ------ ------ -------
$ 377 $ (127) $ (67) $ 108 $ 32 $ 323
====== ====== ====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
DEBIT (CREDIT)
---------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997 PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS
- ------------------------------------------- ---------------------------------------------------------------
STATEMENT OF OPERATIONS ACCOUNTS (g) (h) (i) (j) (k) TOTAL
- ------------------------------------------- ---- ------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Hardware revenues.......................... $ -- $ -- $ -- $ -- $ -- $ --
Software revenues.......................... -- -- -- -- -- --
Services, consulting and other revenues.... -- -- -- -- -- --
Hardware costs............................. -- -- -- -- -- --
Software costs............................. -- -- -- -- -- --
Services, consulting and other costs....... -- -- -- -- -- --
Selling and marketing...................... -- -- -- -- -- --
General and administrative................. 416 (212) -- -- -- 204
Interest expense, net...................... -- -- (142) -- -- (142)
Other expense, net......................... -- -- -- -- -- --
Income tax expense (benefit)............... (80) 85 57 (307) -- (245)
-----
-
------ ------ ------ ------ -------
$336 $ (127) $ (85) $ (307) $ -- $ (183)
====== ====== ====== ====== ====== =======
</TABLE>
6. PRO FORMA COMBINED STATEMENTS OF OPERATIONS SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies have been reflected in the
Company's pro forma combined statements of operations:
Revenue and Cost Recognition
The Company recognizes revenues on the sale of third party hardware and
software products when the product is shipped or upon customer acceptance in
instances where the software and computer hardware is to be installed at the
customer location. Revenues from proprietary software license sales are
recognized when the product is shipped. Revenues from consulting, training or
other services are recognized as the related services are performed. Revenues
from prepaid customer support agreements are generally recognized ratably over
the life of the support agreement or, to a lesser extent, based upon contractual
hour utilization by the customer under the support agreement. Generally, the
Company does not bundle hardware and software sales whereby customer acceptance
of either the hardware of software components is conditioned upon the acceptance
of the total product solution. While the Company does not experience a
significant amount of returned hardware or software products from its customers
that would result in a material unfavorable
F-13
<PAGE> 96
financial impact, it does record an appropriate accrual for such product returns
at the end of each financial period.
The Company's cost of revenues primarily includes the cost of hardware and
software products as well as compensation-related costs associated with
consulting and other services. The costs associated with hardware and software
sales are recorded at the time the sale is recorded. The costs associated with
consulting, training and other services are recorded as the services are
performed. The costs associated with customer support services are recorded as
incurred. The Company does not generally enter into long-term fixed-price
contracts. In addition, the Company does not provide product warranties beyond
the warranties provided by the manufacturers or computer software developers.
Concentration of Credit Risk
No customer represented more than 5% of the Company's pro forma revenues in
any period presented.
Inventories
Inventories, which consist of purchased software and computer hardware, are
generally stated at the lower of cost or market and cost is determined by the
first-in, first-out (FIFO) method.
Capitalized Software Development Costs
With respect to the Company's proprietary products, it accounts for
software development costs in accordance with the provisions of Statement of
Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed. Costs incurred in designing
and developing computer software products are expensed as research and
development until technological feasibility has been established. Technological
feasibility is established upon completion of a detail program design or, in its
absence, completion of a working model. Upon the achievement of technological
feasibility, software development costs are capitalized and subsequently
reported at the lower of unamortized cost or net realizable value. Annual
amortization expense is the greater of the amount computed, using the ratio of
the current year's revenues to the total of current and anticipated future
revenues, or the straight-line method over the remaining economic life of the
software, which does not exceed five years.
The pro forma results of operations include an acceleration of the
amortization of the remaining unamortized software development costs relative to
ACCESS' AS/400 EDMS software product as ACCESS did not believe that the future
revenues of this product reduced by the estimated future costs, including
maintenance and support, were sufficient to absorb the amortization of the
software development costs previously capitalized. The pro forma results of
operations includes amortization and write-offs of $1.3 million related to this
product in the year ended December 31, 1996.
Property and Equipment
Property and equipment are stated at cost. Depreciation on office equipment
and furniture and fixtures is calculated on the straight-line method over the
estimated useful lives of the assets, which range from 3-10 years. Leasehold
improvements are amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
F-14
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Universal Document Management Systems, Inc.:
We have audited the accompanying balance sheets of Universal Document
Management Systems, Inc. (a wholly-owned subsidiary of MedPlus, Inc.) as of
December 31, 1995 and 1996, and the related statements of operations,
stockholder's equity, and cash flows for the period December 14, 1995 to
December 31, 1995 and the year 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 financial statements referred to above present fairly,
in all material respects, the financial position of Universal Document
Management Systems, Inc. as of December 31, 1995 and 1996, and the results of
its operations and its cash flows for the period December 14, 1995 to December
31, 1995 and the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Cincinnati, Ohio
July 31, 1997, except for notes 3 and 16
which are dated as of October 7, 1997
F-15
<PAGE> 98
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 124 $ -- $ 11
Trade accounts receivable, net of allowance for doubtful
accounts............................................... 296 453 231
Prepaid expenses and other current assets................. 11 17 42
------- ------- -------
Total current assets.............................. 431 470 284
Excess of cost over fair value of net assets acquired, net
of accumulated amortization............................... 1,036 968 914
Capitalized software development costs, net of accumulated
amortization.............................................. 159 262 372
Property and equipment, net of accumulated depreciation..... 33 79 106
Other assets................................................ 5 7 303
------- ------- -------
$ 1,664 $ 1,786 $ 1,979
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 51 $ 62 $ 95
Payable to MedPlus, Inc................................... 99 400 956
Accrued expenses and other liabilities.................... 281 216 184
Deferred revenue.......................................... 129 113 91
Convertible debenture payable to MedPlus, Inc............. -- 300 300
------- ------- -------
Total current liabilities......................... 560 1,091 1,626
Deferred revenue............................................ 30 21 6
Convertible debenture payable to MedPlus, Inc............... 300 -- --
------- ------- -------
Total liabilities................................. 890 1,112 1,632
------- ------- -------
Stockholder's equity:
Common stock, no par value, authorized 850 shares; 100
issued and outstanding at June 30, 1997 and December
31, 1996, 1 issued and outstanding at December 31,
1995................................................... -- -- --
Additional paid-in capital................................ 2,093 2,134 2,194
Unearned stock warrants................................... -- -- (25)
Accumulated deficit....................................... (1,319) (1,460) (1,822)
------- ------- -------
Total stockholder's equity........................ 774 674 347
------- ------- -------
Commitments and contingencies...............................
------- ------- -------
$ 1,664 $ 1,786 $ 1,979
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE> 99
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM ENDED
DECEMBER 14 TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------
1995 1996 1996 1997
-------------- ------------ ---- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software license sales........................ $ 154 $ 398 $286 $ 186
Service and consulting revenues............... 28 702 246 242
------- ----- --- ----
Total revenues........................ 182 1,100 532 428
------- ----- --- ----
Costs and expenses:
Cost of software license sales................ 2 57 27 40
Cost of service and consulting revenues....... 4 293 96 133
Selling and marketing......................... 3 260 79 217
Research and development...................... 4 114 71 103
General and administrative.................... 9 486 207 278
Acquired in process technology................ 1,466 -- -- --
------- ----- --- ----
Total costs and expenses.............. 1,488 1,210 480 771
------- ----- --- ----
Operating income (loss)............... (1,306) (110) 52 (343)
------- ----- --- ----
Other income (expense).......................... 40 (31) (16) (19)
------- ----- --- ----
Income (loss) before income taxes..... (1,266) (141) 36 (362)
Income taxes.................................... 53 -- -- --
------- ----- --- ----
Net income (loss)..................... $ (1,319) $ (141) $ 36 $(362)
======= ===== === ====
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE> 100
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL UNEARNED TOTAL
---------------- PAID-IN STOCK ACCUMULATED STOCKHOLDER'S
SHARES AMOUNT CAPITAL WARRANTS DEFICIT EQUITY
------ ------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 14, 1995........ -- $ -- $ -- $ -- $ -- $ --
Capital contribution................. 1 -- 2,093 -- -- 2,093
Net loss............................. -- -- -- -- (1,319) (1,319)
--- ------- ----- --- ------ -------
Balances at December 31, 1995........ 1 -- 2,093 -- (1,319) 774
Capital contribution................. -- -- 41 -- -- 41
Stock dividend....................... 99 -- -- -- -- --
Net loss............................. -- -- -- -- (141) (141)
--- ------- ----- --- ------ -------
Balances at December 31, 1996........ 100 -- 2,134 -- (1,460) 674
Stock warrants issued to third party
service providers (unaudited)...... -- -- 60 (60) -- --
Amortization of unearned stock
warrants (unaudited)............... -- -- -- 35 -- 35
Net loss (unaudited)................. -- -- -- -- (362) (362)
--- ------- ----- --- ------ -------
Balances at June 30, 1997
(unaudited)........................ 100 $ -- $2,194 $(25) $(1,822) $ 347
=== ======= ===== === ====== =======
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE> 101
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD FROM ENDED
DECEMBER 14 TO YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ---------------
1995 1996 1996 1997
-------------- ------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ (1,319) $ (141) $ 36 $(362)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Acquired in process technology.......... 1,466 -- -- --
Amortization of excess of cost over fair
value of net assets acquired......... 6 109 52 54
Amortization of capitalized software
development costs.................... 2 54 27 39
Depreciation............................ -- 11 6 10
Provision for loss on doubtful
accounts............................. -- 39 -- 17
Changes in operating assets and
liabilities:
Trade accounts receivable............ (167) (196) (242) 205
Prepaid expenses and other assets.... (7) (8) (4) (25)
Accounts payable, accrued expenses
and other liabilities.............. (62) (55) (111) 2
Payable to MedPlus, Inc.............. 53 162 60 122
Deferred revenue..................... 45 (24) 2 (37)
------- ---- ---- ----
Net cash provided by (used in)
operating activities............ 17 (49) (174) 25
------- ---- ---- ----
Cash flows from investing activities:
Capitalization of software development
costs..................................... (5) (157) (67) (148)
Purchases of property and equipment.......... -- (57) (28) (38)
Cash acquired in Universal merger............ 112 -- -- --
Acquisitions and IPO transaction costs....... -- -- -- (262)
------- ---- ---- ----
Net cash provided by (used in)
investing activities............ 107 (214) (95) (448)
------- ---- ---- ----
Cash flows from financing
activities -- Advances from MedPlus, Inc..... -- 139 169 434
------- ---- ---- ----
Net cash provided by financing
activities...................... -- 139 169 434
------- ---- ---- ----
Net increase (decrease) in cash and cash
equivalents.................................. 124 (124) (100) 11
Cash, beginning of period...................... -- 124 124 --
------- ---- ---- ----
Cash, end of period............................ $ 124 $ -- $ 24 $ 11
======= ==== ==== ====
Cash paid during the period for interest....... $ -- $ 23 $ 21 $ 1
======= ==== ==== ====
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 102
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)
(ALL DOLLARS IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
1. DESCRIPTION OF BUSINESS
Universal Document Management Systems, Inc. (the "Company") provides
workflow, document management, and application software and related consulting
services to customers in a variety of industries. The Company is a wholly-owned
subsidiary of MedPlus, Inc. ("MedPlus") and maintains all of its operations,
including its headquarters, in Cincinnati, Ohio.
The Company relies on the financial support of MedPlus and also anticipates
increased revenues which, collectively, the Company believes will provide
sufficient resources to assure continuation of the Company's operations through
1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The Company, formerly known as MedPlus Acquisition Corp., was incorporated
in December 1995 and is the successor to Universal Document Management Systems,
Inc. ("Universal") and HWB, Inc. ("HWB") which began business in 1990. Universal
was a developer of document and work flow management software and HWB was the
owner and licensor of the principal software product of Universal. On December
14, 1995, Universal merged into the Company with the Company as the surviving
corporation, in a transaction accounted for by the purchase method for business
combinations. On the same date, in a separate transaction, the Company acquired
all of the outstanding shares of HWB. Subsequent to the acquisition, HWB was
liquidated and the Company changed its name. The accompanying financial
statements reflect the results of operations of the Company from December 14,
1995. Prior to that date, the Company had no operations.
(b) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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.
(c) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed. Costs incurred in designing and developing computer software products
are expensed as research and development until technological feasibility has
been established. Technological feasibility is established upon completion of a
detail program design or, in its absence, completion of a working model. Upon
the achievement of technological feasibility, software development costs are
capitalized and subsequently reported at the lower of unamortized cost or net
realizable value.
Annual amortization expense is the greater of the amount computed, using
the ratio of the current year's revenues to the total of current and anticipated
future revenues, or the straight-line method over the remaining economic life of
the software, which does not exceed five years.
F-20
<PAGE> 103
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated useful life of the asset. The estimated
useful lives are as follows:
<TABLE>
<S> <C>
Office equipment...................................... 5-7 years
Furniture and fixtures................................ 5 years
Leasehold improvements................................ 5-7 years
</TABLE>
(e) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of the cost over fair value of net assets acquired from business
acquisitions is being amortized on the straight-line method over the expected
periods to be benefited, which is ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the intangible balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operations. The amount
of the intangible impairment, if any, is measured based on the present value of
projected future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the recoverability of the
intangible asset will be impacted if projected future operating cash flows are
not achieved.
(f) INCOME TAXES
The provisions for income taxes are accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, as well as operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
(g) REVENUE RECOGNITION
Revenues from software license sales are recognized when the product is
shipped. Revenues from consulting are recognized as the related services are
performed. Revenues from prepaid customer support agreements or other service
agreements are recognized ratably over the lives of the agreements.
(h) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies.
Cash, trade accounts receivable and accounts payable -- The carrying
amounts of these items are a reasonable estimate of their fair value due to the
short-term maturity of these instruments.
Accrued expenses and other liabilities -- The IBM Assistance Agreement, the
primary component of accrued expenses and other liabilities, has a carrying
amount of $174 and a fair value of $147 as of December 31, 1996.
Convertible debenture -- The fair value of the convertible debenture is not
determinable. The convertible debenture is held by MedPlus, accrues interest at
10% per annum and does not have a definitive maturity date. As discussed in note
9, the Company expects to repay this debenture to MedPlus within twelve months
of the
F-21
<PAGE> 104
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
IPO date. However, given the lack of a definitive maturity date, it is not
practical to estimate the fair value of the convertible debenture.
(i) SUPPLEMENTAL CASH FLOW INFORMATION
The following are non-cash transactions and, accordingly, are not presented
in the Statements of Cash Flows:
In December 1995 and April 1996, MedPlus issued 99,274 and 14,249
shares of MedPlus common stock, valued at $869 and $161, respectively, and
cash of $831 and $117, respectively, to the shareholders of Universal in
connection with the merger of Universal. These distributions, along with
professional fees related to the merger of $115 and $41, comprised MedPlus'
capital contribution to the Company (note 4).
In December 1995, $40 was forgiven on the IBM Assistance Agreement
which is included in accrued expenses and other liabilities (note 8).
In 1997, the Company granted to the principals of a consulting firm
warrants to acquire a number of common shares of the Company up to an
amount equivalent to 5.5% of the common shares of the Company on the date
of grant. The fair market value of these warrants at the date of grant was
approximately $60 (note 12a).
The Company did not make any cash payments for income taxes in any of the
periods presented in accordance with the Company's tax-sharing arrangement with
MedPlus.
(j) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been
included. The results for the interim periods are not necessarily indicative of
the results to be achieved for the full fiscal year.
3. ACQUISITIONS AND INITIAL PUBLIC OFFERING
(a) SUMMARY OF TRANSACTIONS
In September and October 1997, the Company entered into definitive
acquisition agreements to acquire substantially all of the net assets of the
following companies, collectively referred to as the Founding Companies:
<TABLE>
<S> <C>
ACCESS Corporation DTI Technologies, Inc.
Applied Software Technology, Inc. Mid-West CAD, Inc.
CADD Microsystems, Inc. Synergis Technologies, Inc.
Computers for Design, Inc. Technical Software, Inc.
Devtron, Russell Inc.
</TABLE>
The acquisitions of the Founding Companies ("Acquisitions") will occur as
separate transactions simultaneously with the closing of the Company's initial
public offering ("IPO") and will be accounted for using the purchase method for
business combinations.
As of June 30, 1997, the Company has capitalized approximately $290 of
direct, incremental costs related to the Acquisitions for accountants',
attorneys' and consultants' fees (i.e., "transaction costs") that will become
part of the purchase price of the Founding Companies upon consummation of the
Acquisitions or
F-22
<PAGE> 105
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
charged against the proceeds of the IPO. In the event that any or all of the
Acquisitions are not consummated, then a portion or all of these costs will be
charged to expense in the period that decision is made.
(b) STOCK OPTIONS AND STOCK WARRANTS
In connection with the IPO, the Company adopted the 1997 Long-Term
Incentive Plan ("Plan"). The Plan provides for the grant of stock-based
incentives to directors, officers and employees in the form of non-qualified
stock options or restricted stock. The maximum number of shares that may be
issued under the Plan is 720,000 shares.
Under the terms of the Plan, options may not be granted at less than fair
market value on the date of grant. Options granted under the Plan are
exercisable in installments; however, no options are exercisable later than 10
years from the date of grant.
In August 1997, the Company granted to the Chief Executive Officer, Chief
Financial Officer and other members of management options to purchase 136,000
shares of common stock at $9.60 per share. Of the options granted, one half will
vest six months after the date of grant or on the first business day following
the IPO, whichever is later and the remaining half will vest one year
thereafter. Upon the effective date of the IPO, the Company expects to grant to
its other executive officers and directors options for 71,400 shares of common
stock at the IPO price.
In addition, upon the effective date of the IPO, the Company expects to
grant to other employees of the Company options to purchase 224,600 shares of
common stock at the IPO price. Of the options granted, one half will vest six
months after the date of grant and the remaining half will vest one year
thereafter.
4. UNIVERSAL AND HWB ACQUISITIONS
Total consideration for the acquisition of Universal was $1,700 which
consisted of cash of $831 and 99,274 shares of MedPlus common stock valued at
$869. The Universal acquisition agreement also provided for additional
consideration contingent upon future revenue performance of the Company for the
period from December 14, 1995 to December 31, 1995. The contingent consideration
earned during this period was $278 which was accounted for as an additional cost
of acquiring Universal.
The consideration for the acquisition of HWB consists of consideration
contingent upon the future revenue performance of the Company for the period
from December 14, 1995 to December 31, 1998, which, if earned, would be
accounted for as an additional cost of acquiring HWB. No contingent
consideration related to the acquisition of HWB was earned in 1995 or 1996.
Maximum future potential payments under the HWB acquisition agreement for the
remaining two year period ending December 31, 1998 total $3,000.
The consideration for the acquisitions of Universal and HWB was paid for by
MedPlus on behalf of the Company.
The purchase price for the acquired companies has been allocated to the
identifiable tangible and intangible assets acquired based on their estimated
fair values as determined by an independent third party. Acquired in-process
technology related to Universal and HWB has been expensed at the date of
acquisition. The excess of cost over fair value of net assets acquired is being
amortized on the straight-line method over ten years. To determine the fair
market value of the acquired in-process technology, the Company utilized the
income approach which focuses on the income-producing capability of the assets
acquired and best represents the present value of the future economic benefits
expected to be derived from these assets. Technological feasibility for the
acquired in-process technology had not been reached based on design and
development activities in place, requiring further refinement and testing. The
development activities required to complete
F-23
<PAGE> 106
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
the acquired in-process technology include validation, quality assurance
programs and beta test. The acquired technology represents unique and emerging
technology, the application of which is limited to the Company's workflow and
document management software strategy. Accordingly, the acquired technology has
no alternative future use. The total amount of acquired in-process technology
that was charged to the results of operations at the date of acquisition was
$1,466.
The following unaudited pro forma data presents the results of operations
as if the acquisitions of Universal and HWB had occurred at the beginning of
1995. This summary is provided for information purposes only. It does not
necessarily reflect the actual results that would have occurred had the
acquisitions been made as of that date or of results that may occur in the
future.
<TABLE>
<S> <C>
Revenues........................................................ $ 630
Net loss........................................................ (1,700)
</TABLE>
Amortization of excess of cost over fair value of net assets acquired
amounted to $6 for the period December 14, 1995 to December 31, 1995 and $109
for the year ended December 31, 1996. Accumulated amortization of excess of cost
over fair value of net assets acquired was $6 and $115 at December 31, 1995 and
1996, respectively.
5. ALLOWANCE FOR TRADE ACCOUNTS RECEIVABLE
The activity in the allowance for doubtful accounts for trade accounts
receivable for the period December 14, 1995 to December 31, 1995 and the year
ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Balance at beginning of period............................. $7 $ 7
Charged to expense......................................... 0 39
Charged to other accounts.................................. 0 0
Deductions/write-offs...................................... 0 (31)
--
----
Balance at end of period................................... $7 $ 15
== ====
</TABLE>
6. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Amortization of capitalized software development costs amounted to $2 for
the period December 14, 1995 to December 31, 1995 and $54 for the year ended
December 31, 1996. Accumulated amortization of capitalized software development
costs was $2 and $56 at December 31, 1995 and 1996, respectively.
7. PROPERTY AND EQUIPMENT
Net property and equipment is comprised of the following at December 31,
1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Office equipment........................................... $33 $ 65
Furniture and fixtures..................................... -- 20
Leasehold improvements..................................... -- 5
--- ----
Less: Accumulated depreciation............................. -- (11)
--- ----
$33 $ 79
=== ====
</TABLE>
F-24
<PAGE> 107
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. IBM ASSISTANCE AGREEMENT
IBM Corporation ("IBM") advanced Universal $200 in funds under the terms of
an IBM Assistance Agreement dated July 12, 1992 ("Assistance Agreement"). Under
the Assistance Agreement, Universal invoiced IBM established amounts as
specified milestones were achieved. The $200 received under the agreement was
recorded as a liability. The agreed upon pay back amount totaled $240. This
additional $40 had been accrued as interest expense through December 13, 1995.
Under the original terms of the Assistance Agreement, $240 was to be repaid
through revenue participation whereby IBM received: (a) 100% of worldwide gross
revenue received with respect to product for sale or standard licenses,
including maintenance fees, of quarterly revenue between $112 and $150 or annual
revenue of $450 to $600, whichever was greater; (b) thereafter 25% of all
worldwide gross revenue received until IBM had recovered $240. For periods
thereafter ten percent of all IBM generated worldwide gross revenue received
would be paid to IBM as a royalty.
The Company and IBM amended the Assistance Agreement in December 1995. In
connection with the amendment, $40 of the pay back amount was forgiven and
recorded by the Company as other income during the period December 14, 1995 to
December 31, 1995. Under the terms of the amended Assistance Agreement, $200 is
to be repaid through revenue participation whereby IBM receives 25% of all
quarterly gross revenue exceeding $100 for product sales, standard licenses and
maintenance fees on certain hardware platforms as defined in the Assistance
Agreement.
At December 31, 1995 and 1996, the Company's liability to IBM of $188 and
$174, respectively, was included with accrued expenses and other liabilities.
9. CONVERTIBLE DEBENTURE
During the year ended December 31, 1994, Universal issued convertible
debentures totaling $400 to MedPlus and an individual investor. The debentures,
with an interest rate of 10% per annum payable at maturity, were unsecured
obligations of the Company which were scheduled to mature on December 31, 1995.
The debentures were convertible into shares of common stock of Universal at a
stated price per share, and could be converted in entirety or in portion from
time to time until maturity.
In connection with the Company's acquisition of Universal on December 14,
1995, $100 of convertible debentures, which were held by the individual
investor, and interest accrued thereon were repaid. The remaining $300 debenture
held by MedPlus was extended indefinitely by MedPlus and continues to accrue
interest at 10% per annum. The Company expects to repay this debenture within
twelve months of the IPO date. Interest expense of $30 has been included in the
Statement of Operations for the year ended December 31, 1996.
10. INCOME TAXES
The provision for income taxes of the Company for Federal and state income
taxes has been calculated as if the Company were a stand-alone corporation
filing separate tax returns.
The Company has entered into a tax-sharing agreement with MedPlus to
provide for: i) the allocation of payments of taxes for periods during which the
Company and MedPlus are included in the same consolidated group for Federal
income tax purposes; ii) the allocation of responsibility for the filing of tax
returns; iii) the conduct of tax audits and the handling of tax controversies;
and iv) various related matters. For periods during which the Company is
included in aforementioned returns, the Company will be required to pay to
MedPlus its allocable portion of the consolidated Federal income tax and state
tax liability and will also be required to pay MedPlus for its allocable share
of any tax benefit attributable to the use of MedPlus' losses.
F-25
<PAGE> 108
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Income tax expense attributable to income from operations for the period
December 14, 1995 to December 31, 1995 and the year ended December 31, 1996 was
as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Federal:
Current................................................... $53 $--
Deferred.................................................. -- --
--- ---
53 --
--- ---
State and Local:
Current................................................... -- --
Deferred.................................................. -- --
--- ---
-- --
--- ---
$53 $--
=== ===
</TABLE>
Income tax expense (benefit) differs from the amounts computed by applying
the Federal statutory rate to income (loss) before income taxes for the period
December 14, 1995 to December 31, 1995 and the year ended December 31, 1996 as a
result of the following:
<TABLE>
<CAPTION>
1995 1996
----- ----
<S> <C> <C>
Computed "expected" tax (benefit)........................ $(430) $(45)
Acquired in-process technology........................... 498 --
Change in valuation allowance............................ (18) 5
Meals and entertainment.................................. -- 3
Amortization of excess of cost over fair value of
net assets acquired.................................... 2 34
Other.................................................... 1 3
------ ----
$ 53 $ --
====== ====
</TABLE>
The significant components of deferred income tax expense attributable to
income from operations for the period December 14, 1995 to December 31, 1995 and
the year ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax expense (benefit) (exclusive of the change in
valuation allowance)..................................... $ 18 $(6)
Increase in the beginning-of-the-period balance of the
valuation allowance for deferred taxes................... (18) 6
----- ---
$ -- $--
===== ===
</TABLE>
F-26
<PAGE> 109
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
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:
Accrued expenses........................................ $ 3 $ 5
Net operating loss carryforward......................... 20 116
Deferred revenue in excess of one year.................. -- 19
Other................................................... 55 35
----- -----
Total gross deferred tax assets...................... 78 175
Less: valuation allowance............................... (78) (83)
----- -----
Net deferred tax assets.............................. -- 92
----- -----
Deferred tax liabilities:
Capitalized software development costs.................. -- (88)
Property and equipment.................................. -- (4)
----- -----
Total gross deferred tax liabilities................. -- (92)
Net deferred income taxes................................. $ -- $ --
===== =====
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.
At December 31, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $322 which are available to offset
future Federal taxable income, if any, through 2009.
11. STOCKHOLDER'S EQUITY
Effective August 30, 1996, the Company's Board of Directors authorized a
stock dividend of 99 shares which were issued to MedPlus.
12. COMMITMENTS
(a) CONSULTING AGREEMENTS AND STOCK WARRANTS
The Company has entered into agreements with two consulting firms, Growth
Management Associates ("GMA") and Madison Financial Group, Ltd. ("Madison") to
assist it in the identification and recruitment of certain software resellers
and integrators that the Company may acquire or combine with, and to assist the
Company in an IPO of the combined companies. The acquisition of or combination
with these resellers and integrators would be concurrent with and contingent
upon a successful IPO. The consulting agreement, effective September 1, 1996,
with Madison provides for a consulting fee of $50 plus out of pocket expenses.
The consulting agreements with GMA, effective during various dates during 1997,
provide for monthly fees based on the GMA personnel involved plus reasonable
business expenses.
The consulting agreements also grant the principals of GMA warrants to
acquire a number of common shares of the Company up to an amount equivalent to
5.5% of the common shares of the Company outstanding prior to an IPO or private
offering of the Company stock. The GMA warrants expire five years from the date
of the IPO. The warrants will cease to be effective if the IPO is not completed.
The fair value of the GMA
F-27
<PAGE> 110
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
warrants of $60 is being capitalized as acquisition costs or expensed as
operating costs based on the services being provided. The warrants were recorded
at their fair value on their date of grant.
Another consulting agreement grants an additional principal of GMA a
warrant to acquire a number of common shares of the Company up to an amount
equivalent to 1% of the common shares of the Company outstanding after the IPO.
This warrant expires three years from the date of the IPO and has an exercise
price equivalent to the IPO price.
(b) EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with three employees
that generally provide annual salary and discretionary or performance bonuses.
These contracts were effective December 14, 1995 and expire December 31, 1998.
In 1996, MedPlus granted stock options to one of these employees and to two
other employees of the Company.
13. RELATED PARTY TRANSACTIONS
(a) REIMBURSEMENT AGREEMENT WITH MEDPLUS
In connection with the Company's efforts to acquire a number of CAD
resellers and/or other companies whose business may complement that of the
Company and conduct an IPO of the Company's common stock concurrently with the
Acquisitions, the Company entered into a Reimbursement Agreement with MedPlus
effective May 28, 1997 ("Reimbursement Agreement") under which MedPlus agreed to
continue to provide operational and administrative assistance ("Services") to
the Company and to provide the funds necessary ("Funding") to conduct the
Acquisitions, IPO and related transactions. The Reimbursement Agreement provides
for interest to accrue monthly at a rate equal to the prime rate plus 1% on the
Funding and the value of the Services. The Company agreed to reimburse MedPlus
for the amounts funded under the Reimbursement Agreement within thirty days
following an IPO of the Company's common stock or in the event the IPO is not
conducted, the Company's receipt of third party financing.
(b) OTHER TRANSACTIONS WITH MEDPLUS
MedPlus provides the Company with various services including finance, human
resources, insurance administration, legal, marketing and office administration
as well as office space. The Company has paid to MedPlus or recorded a liability
for the cost of these services and office space to MedPlus based either on the
separate identification of such costs, or, to the extent that the direct costs
of services provided by MedPlus could not be separately identified, on the
Company's allocable portion of the total cost to MedPlus for such services using
such objective factors and methodologies as are available to the Company and
MedPlus. The cost of such services and office space for the year ended December
31, 1996 was $134. No costs were allocated to the Company for the period
December 14, 1995 to December 31, 1995.
As noted above, MedPlus provides office space to the Company. As part of
this arrangement, MedPlus has required the Company to enter into a noncancelable
operating lease for a portion of the total space occupied by MedPlus and the
Company. This lease is with a third party lessor and is guaranteed by MedPlus.
The Company's commitments to the lessor under this agreement are as follows:
1997 -- $16; 1998 -- $64; 1999 -- $65; 2000 -- $66; and 2001 and thereafter
- -- $100.
MedPlus, however, currently makes the payments under the lease on behalf of
the Company and only allocates rent to the Company based on the portion of the
facilities used by the Company. Rent expense of $34 for the year ended December
31, 1996 is included in the allocations discussed in the first paragraph above.
The Company incurred no rent expense for the period December 14, 1995 to
December 31, 1995.
F-28
<PAGE> 111
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
In addition to providing the services and office space noted above, MedPlus
has also from time to time advanced funds to the Company for use in its
operations. At December 31, 1995 and 1996, the Company had a liability due to
MedPlus for the following:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Operating advances.................................................... $ -- $139
Services and office space............................................. -- 133
Accrued interest on the convertible debenture......................... 46 75
Tax sharing agreement................................................. 53 53
---- ---
$ 99 $400
==== ===
</TABLE>
The average quarterly balance of the payable to MedPlus during the period
of December 14, 1995 to December 31, 1995 and for the year ended December 31,
1996 was $73 and $246, respectively. MedPlus does not charge the Company
interest on these outstanding balances.
For the period December 14, 1995 and December 31, 1995, the Company
provided consulting services to MedPlus valued at $11. During the course of the
year ended December 31, 1996, the Company provided consulting services to
MedPlus valued at $35. Such services were billed to MedPlus at the Company's
standard consulting rates. At December 31, 1995 and 1996, the Company had a
receivable due from MedPlus for the consulting services noted above of $26 and
$6, respectively, which is included in trade accounts receivable.
The two key employees of the Company, including the chief operating
officer, were the majority stockholders of Universal and HWB. The chief
operating officer is also a stockholder and director of MedPlus.
MedPlus is also a party to the consulting agreement with Madison described
in note 12(a). Under this agreement, MedPlus has granted Madison a warrant to
purchase 15% of the Company's stock owned by MedPlus as of the date of the
agreement.
14. RETIREMENT SAVINGS AND INVESTMENT PLAN
MedPlus has a Retirement Savings and Investment Plan (401(k) Plan) in which
the Company's employees may participate by contributing specified percentages of
qualified compensation subject to Internal Revenue Service limitations. MedPlus
may make discretionary contributions up to a maximum of 100% of each
participant's contribution. There were no expenses recorded related to this Plan
in 1995 and 1996.
15. SIGNIFICANT CUSTOMERS
For the period December 14, 1995 to December 31, 1995, two customers
accounted for approximately 67% and 13% of total revenues. These customers
accounted for 67% of trade accounts receivable at December 31, 1995. For the
year ended December 31, 1996, two customers accounted for approximately 42% and
14% of total revenues. These customers accounted for 35% of trade accounts
receivable while two other customers accounted for 34% of trade accounts
receivable at December 31, 1996.
F-29
<PAGE> 112
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MEDPLUS, INC.)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
16. SUBSEQUENT EVENTS
(a) HWB STOCK PURCHASE AGREEMENT
On August 14, 1997, the Company and the former stockholders of HWB amended
the HWB Stock Purchase Agreement dated December 29, 1995. The amended agreement,
which becomes effective only if the IPO occurs, provides for the following:
(i) a $390 payment due January 1, 1998 to the former stockholders;
(ii) extension of the period during which additional consideration
contingent on the future revenue performance of the Company could
be earned from the year ending December 31, 1998 to the year
ending December 31, 2000;
(iii) reduction of the maximum future potential payments for contingent
consideration from $3,000 to $2,610;
(iv) allowing the Company's common stock to be issued as part of the
contingent consideration payments rather than MedPlus common
stock; and
(v) defining the audited net revenues used to measure the contingent
consideration payable.
The $390 payment due January 1, 1998 will be funded by a capital
contribution from MedPlus either in the form of cash or a short-term note
receivable.
(b) LINE OF CREDIT AGREEMENT
On September 9, 1997, the Company and MedPlus entered into a line of credit
agreement with a bank for working capital and to fund the costs associated with
the Company's acquisition of the Founding companies and the IPO discussed in
Note 3. The line of credit agreement allows for borrowings of up to $1,500
subject to a combined limit with MedPlus under its separate $10,000 revolving
line of credit agreement. Borrowings under the line of credit agreement bear
interest at the bank's prime rate and mature upon the earlier of March 31, 1998
or the completion of the IPO. The line of credit agreement contains various
restrictive and financial covenants and is secured by all the tangible and
intangible assets of the Company.
On September 8, 1997, the Company and MedPlus entered into an intercompany
agreement under which MedPlus agreed to act as co-borrower under the line of
credit agreement and the Company agreed to repay outstanding borrowings under
the line of credit as soon as possible following the IPO.
F-30
<PAGE> 113
INDEPENDENT AUDITORS' REPORT
Stockholders
Universal Document Management Systems, Inc.:
We have audited the accompanying balance sheets of Universal Document
Management Systems, Inc. as of December 13, 1995 and December 31, 1994 and 1993
and the related statements of operations, stockholders' deficit and cash flows
for the period and years then ended. 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
As discussed in Note 11, our report dated December 29, 1993 on the balance
sheet at November 30, 1993 and report dated February 18, 1995 on the balance
sheet at December 31, 1994 and related statements of operations, stockholders'
deficit, and cash flows for the year then ended, have been restated to reflect
the reclassification of advances under an agreement with IBM Corporation as a
liability and accrual of related interest.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal Document
Management Systems, Inc. as of December 13, 1995 and December 31, 1994 and 1993
and the results of its operations and cash flows for the period and years then
ended in conformity with generally accepted accounting principles.
On December 14, 1995, an agreement of merger was signed whereby all the
outstanding common stock of the Company was acquired by MedPlus, Inc.
/s/ Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
February 15, 1996
F-31
<PAGE> 114
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1994
AND DECEMBER 13, 1995
ASSETS
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current assets:
Cash.................................................. $ -- $ 8,317 $ 111,989
Accounts receivable:
Trade, net of allowances for doubtful accounts and
sales returns.................................... -- 326,274 104,185
Unbilled........................................... -- -- 24,307
Prepaid expenses...................................... 3,155 5,200 3,563
Deferred income taxes................................. -- -- 51,600
--------- --------- ---------
3,155 339,791 295,644
--------- --------- ---------
Property and equipment:
Computer equipment and fixtures....................... 89,021 105,933 125,021
Less accumulated depreciation......................... 51,490 71,327 91,915
--------- --------- ---------
37,531 34,606 33,106
--------- --------- ---------
Other assets:
Debt issue costs, net................................. -- 25,217 --
Computer software construction costs, net of
amortization....................................... -- 43,024 156,544
Deposits.............................................. 4,553 4,721 4,972
Deferred income taxes................................. -- -- 6,800
--------- --------- ---------
4,553 72,962 168,316
--------- --------- ---------
$ 45,239 $ 447,359 $ 497,066
========= ========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Cash overdraft........................................ $ 21,196 $ -- $ --
Accounts payable...................................... -- 1,950 --
Customer deposits..................................... 21,520 -- 50,000
Notes payable......................................... 10,000 -- --
Convertible debentures................................ -- 400,000 400,000
Accrued expenses:
Interest........................................... 11,005 48,859 106,363
Payroll and payroll taxes.......................... 10,487 -- 61,489
Other expenses..................................... -- 99 53,485
Current portion of obligation under capital lease..... 2,884 3,741 4,748
Current portion of unearned maintenance contract
fees............................................... -- -- 33,329
Accounts payable -- stockholder....................... 11,718 52,850 20,421
--------- --------- ---------
88,810 507,499 729,835
--------- --------- ---------
Other liabilities:
IBM Corporation assistance agreement.................. 200,000 200,000 188,200
Unearned maintenance contract fees, net of current
portion............................................ -- -- 30,391
Obligation under capital lease, net of current
portion............................................ 14,150 10,820 6,423
--------- --------- ---------
214,150 210,820 225,014
--------- --------- ---------
Stockholders' deficit:
Common stock, no par value, 4,500 shares authorized,
3,200, 500 and 500 shares issued and outstanding... 2,100 2,100 2,100
Accumulated deficit................................... (259,821) (273,060) (459,883)
--------- --------- ---------
(257,721) (270,960) (457,783)
--------- --------- ---------
$ 45,239 $ 447,359 $ 497,066
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE> 115
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD ENDED DECEMBER 13, 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenue:
Software licenses...................................... $ 57,123 $248,895 $ 187,739
Training and consulting................................ 28,552 221,014 220,883
Maintenance contracts.................................. 280 1,613 23,336
Custom programming and other fees...................... -- 15,666 19,020
Sales returns and allowances........................... -- -- (3,500)
--------- --------- ---------
85,955 487,188 447,478
--------- --------- ---------
Selling, general and administrative expenses:
Leased labor costs..................................... 226,719 284,035 328,336
Commissions............................................ -- -- 5,380
Promotion and marketing................................ 3,047 55,210 61,486
Travel and entertainment............................... 14,027 25,840 40,457
Convention booth rental................................ 320 4,835 7,961
Telephone.............................................. 5,182 10,497 11,878
Equipment rental....................................... -- 760 1,373
Software licensing costs............................... 820 3,403 557
Repairs and maintenance................................ 1,785 5,440 4,674
Office expenses........................................ 3,930 3,443 6,284
Shipping and postage................................... 1,318 2,247 1,480
Professional fees...................................... 4,453 23,535 61,417
Contributions.......................................... -- 300 --
Taxes.................................................. 585 1,157 1,063
Depreciation and amortization.......................... 15,663 34,620 63,948
Bad debt expense....................................... -- -- 35,322
--------- --------- ---------
277,849 455,322 631,616
--------- --------- ---------
Income (loss) from operations....................... (191,894) 31,866 (184,138)
--------- --------- ---------
Other income (expense):
Interest expense....................................... (16,493) (46,587) (62,707)
Interest income........................................ 1,368 1,482 1,622
--------- --------- ---------
(15,125) (45,105) (61,085)
--------- --------- ---------
Loss before provision for income taxes.............. (207,019) (13,239) (245,223)
Income tax benefit....................................... -- -- (58,400)
--------- --------- ---------
Net loss............................................ $(207,019) $(13,239) $(186,823)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE> 116
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD ENDED DECEMBER 13, 1995
<TABLE>
<CAPTION>
COMMON STOCK
OUTSTANDING
--------------------------------- TOTAL
STATED ACCUMULATED STOCKHOLDERS'
SHARES VALUE DEFICIT DEFICIT
------ ------ ----------- -------------
<S> <C> <C> <C> <C>
Balance
December 31, 1992.............................. 500 $2,100 $ (52,802) $ (50,702)
Net loss for year ended December 31, 1993...... -- -- (207,019) (207,019)
----- ------ -------- --------
Balance
December 31, 1993.............................. 500 2,100 (259,821) (257,721)
Net loss for year ended December 31, 1994...... -- -- (13,239) (13,239)
----- ------ -------- --------
Balance
December 31, 1994.............................. 500 2,100 (273,060) (270,960)
Effect of six for one common stock split....... 2,500 -- -- --
Issuance of 200 shares of common stock......... 200 -- -- --
Net loss for period ended December 13, 1995.... -- -- (186,823) (186,823)
----- ------ -------- --------
Balance
December 13, 1995.............................. 3,200 $2,100 $(459,883) $(457,783)
===== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE> 117
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994
AND PERIOD ENDED DECEMBER 13, 1995
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(207,019) $ (13,239) $(186,823)
Adjustments to reconcile net loss to cash provided
(used) by operating activities:
Depreciation and amortization.................... 15,663 34,620 63,948
Deferred income taxes............................ -- -- (58,400)
Effects of change in operating assets and
liabilities:
Accounts receivable -- trade.................. -- (326,274) 222,089
Accounts receivable -- unbilled............... -- -- (24,307)
Prepaid expenses.............................. (3,155) (2,045) 1,637
Deposits...................................... (4,405) (168) (251)
Accounts payable.............................. -- 1,950 (1,950)
Customer deposits............................. (9,880) (21,520) 50,000
Accrued expenses.............................. 19,359 27,466 172,379
Unearned maintenance contract fees............ -- -- 63,720
--------- --------- ---------
Net cash provided (used) by operating
activities............................... (189,437) (299,210) 302,042
--------- --------- ---------
Cash flows from investing activities:
Computer software construction costs.................. -- (43,024) (131,663)
Purchases of equipment................................ (17,279) (16,912) (19,088)
--------- --------- ---------
Net cash used by investing activities....... (17,279) (59,936) (150,751)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of convertible debentures...... -- 400,000 --
Debt issue costs...................................... -- (40,000) --
Proceeds from IBM assistance agreement................ 76,000 -- --
Payment of IBM assistance agreement................... -- -- (11,800)
Net change in stockholder accounts payable............ 31,114 41,132 (32,429)
Net change in short term note payable................. 10,000 (10,000) --
Net change in cash overdraft.......................... 21,196 (21,196) --
Payment of capitalized lease obligation............... -- (2,473) (3,390)
--------- --------- ---------
Net cash provided (used) by financing
activities............................... 138,310 367,463 (47,619)
--------- --------- ---------
Increase (decrease) in cash............................. (68,406) 8,317 103,672
Cash -- beginning of year............................... 68,406 -- 8,317
--------- --------- ---------
Cash -- end of year..................................... $ -- $ 8,317 $ 111,989
========= ========= =========
Supplemental disclosures:
Income taxes paid during the year..................... $ -- $ -- $ --
========= ========= =========
Interest paid during the year......................... $ 5,488 $ 8,733 $ 5,203
========= ========= =========
</TABLE>
In 1993 a capital lease obligation of $19,756 was incurred when the Company
entered into a lease agreement for a new computer.
See accompanying notes to financial statements.
F-35
<PAGE> 118
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting principles and practices of the Company are set
forth to facilitate the understanding of data presented in the financial
statements.
Organization
The Company designs, develops and markets computer software, selling its
product worldwide to global and regional companies in diversified business
lines. Consulting, training, custom programming, and maintenance contracts are
also offered in conjunction with software sales. A significant portion of
revenues are derived from sales of software licenses and reseller agreements.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations of credit risk
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts. Management believes it is not exposed to any significant
credit risk on cash.
Credit is granted to customers based upon management's evaluation and does
not require collateral. The Company maintains allowances for potential credit
losses which management estimates to be adequate in the circumstances.
Allowance for Sales Returns
A reserve has been established for consulting fee adjustments. The reserve
may be reduced against future consulting engagements. Management does not
anticipate customer return of software products in the near term.
Property, equipment and depreciation
Property and equipment is recorded at cost. Depreciation is computed using
accelerated methods over the estimated useful lives of the assets.
Computer software construction costs
Costs related to the construction of computer software are capitalized and
amortized using straight-line methods over the useful lives of such software,
which are estimated to be no more than three years. Amortization of costs begins
upon marketing of completed software.
Revenue recognition
The use of software programs are licensed through the Company's direct
sales force and by specific arrangements with certain vendors and distributors.
Revenue generated from licenses is recognized when the following criteria have
been met: (a) an order for the unconditional license of software has been
received, (b) the Company has delivered the product and performed substantially
all services for which it was committed, (c) the customer is obligated to pay
and (d) collectability is probable.
F-36
<PAGE> 119
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Consulting, training and customer programming fees are billed upon
completion. Historically, consulting, training and programming engagements are
of a short duration with remote risk of loss. Unbilled receivables represent
completed engagements or projects not yet delivered to the customer as of the
balance sheet date. Customer deposits represent advance payments received for
consulting, training, and custom programming engagements which have not yet
begun.
Maintenance contract fees are recorded as unearned revenue and are included
in income over the life of the respective contracts.
Leased labor
The Company has no employees and leases all its labor from an employee
leasing company. Accordingly, all payroll taxes are borne by the leasing
company. All leased labor work from their own residences with no occupancy cost
to the Company.
Income taxes
The Company changed its tax status from an "S" corporation to a "C"
corporation effective January 1, 1994. After this date, the financial statements
provide for the income tax effect of earnings reported. The tax provision
includes taxes currently due and taxes deferred due to generally accepted
accounting principles being used for financial reporting and cash basis
accounting methods being used for income tax reporting and due to a net
operating loss carryforward. Prior to the change in tax status, earnings and
losses were included in the personal tax returns of the stockholders under the
sub chapter "S" provisions and the Company did not record an income tax
provision.
2. ACCOUNTS RECEIVABLE, TRADE
Accounts receivable, trade are reported net of the following allowances at
December 31, 1993, 1994 and December 13, 1995.
<TABLE>
<CAPTION>
1993 1994 1995
---- -------- --------
<S> <C> <C> <C>
Accounts receivable, trade..................... $ -- $326,274 $111,200
Allowance for doubtful accounts................ -- -- (3,515)
Allowance for sales returns.................... -- -- (3,500)
---- -------- --------
$ -- $326,274 $104,185
==== ======== ========
</TABLE>
3. COMPUTER SOFTWARE CONSTRUCTION COSTS
Computer software construction costs are reported net of accumulated
amortization at December 31, 1993, 1994 and December 13, 1995 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------- --------
<S> <C> <C> <C>
Computer software construction costs............ $ -- $43,024 $174,687
Accumulated amortization........................ -- -- (18,143)
---- ------- --------
$ -- $43,024 $156,544
======== ======= ========
</TABLE>
Amortization expense of $18,143 has been included in the statement of
operations for the period ended December 13, 1995. Amortization was computed on
an estimated three year life from the release date of the related software.
Management believes it is more likely than not the software related to these
capitalized costs will be marketable for the entire three year period. The net
value of the capitalized costs could be reduced in the near term if the
estimated life of the related software is reduced.
F-37
<PAGE> 120
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT ISSUE COSTS
Financing costs incurred during 1994 of $40,000 are amortized through
December 31, 1995, the maturity date of the related debt. Amortization expense
of $14,783 and $25,217 has been included in the statement of operations for the
year ended December 31, 1994 and the period ended December 13, 1995,
respectively.
5. CAPITAL LEASES
The Company is the lessee of computer equipment under a capital lease
agreement expiring in 1997 with a cost of $19,756. Depreciation expense on this
equipment was $3,951, $6,322 and $3,793 for the years ended December 31, 1993
and 1994, and for the period ended December 13, 1995, respectively. Net book
value of this equipment was $5,690, $9,483 and $15,805 at December 31, 1993,
1994 and December 13, 1995.
The following is a schedule by periods of future minimum lease payments
under the capital lease together with the present value of the minimum lease
payments as of December 13, 1995.
<TABLE>
<S> <C>
Period Ending December 31,
1996............................................................. $ 7,735
1997............................................................. 6,808
-------
Total future minimum lease payments................................ 14,543
Less amount representing interest.................................. 3,372
-------
Present value of future minimum lease payments..................... 11,171
Less current portion............................................... 4,748
-------
Long-term portion................................................ $ 6,423
=======
</TABLE>
6. NOTES PAYABLE
On December 29, 1993, the Company obtained an unsecured demand note for
$10,000 for short term working capital. The note was paid off in early 1994 with
no interest charge to the Company.
7. CONVERTIBLE DEBENTURES
During the year ended December 31, 1994 the Company issued convertible
debentures totaling $400,000. The debentures are unsecured obligations of the
Company maturing on December 31, 1995, and bear interest at 10% per annum,
payable at maturity. The debentures are convertible into shares of common stock
of the Company at a stated price per share, and may be converted in entirety or
in portion from time to time until maturity.
On December 31, 1995 $100,500 of these debentures were repaid, including
interest at 10%. The remaining $299,500 of debentures to MedPlus, Inc. were
extended indefinitely by the holder. (Note 13)
Interest expense related with these obligations of $24,394 and $42,397 has
been included in the statements of operations for the year ended December 31,
1994 and the period ended December 13, 1995, respectively.
8. RELATED PARTY ACCOUNTS PAYABLE
A stockholder advanced the Company funds throughout the periods to be used
as working capital. Interest of $749, $1,207 and $2,049 was paid on these
advances during the years ended December 31, 1993 and 1994 and the period ended
December 13, 1995. Interest was computed at a rate which approximates the prime
rate during the periods.
F-38
<PAGE> 121
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. IBM CORPORATION ASSISTANCE AGREEMENT
IBM Corporation (IBM) has provided the Company funds under terms of an
assistance agreement. Under this agreement the Company invoiced IBM established
amounts as specified milestones were achieved.
The $200,000 received under the agreement has been recorded as a liability,
with an agreed upon pay back amount of $240,000. Imputed interest of $40,000
under the agreement has been accrued through December 13, 1995. Imputed interest
expense included in the statement of operations for the years ended December 31,
1993 and 1994 and the period ended December 13, 1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Interest expense.............................. $11,005 $13,460 $15,535
======= ======= =======
</TABLE>
These funds are to be repaid through revenue participation whereby IBM
receives: (a) 100% of worldwide gross revenue received with respect to product
for sale or standard licenses, including maintenance fees, of quarterly revenue
between $112,500 and $150,000 or annual revenue of $450,000 to $600,000,
whichever is greater; (b) thereafter 25% of all worldwide gross revenue received
until IBM has recovered $240,000. For periods thereafter ten percent of all IBM
generated worldwide gross revenue received will be paid to IBM as a royalty.
10. INCOME TAXES
The income tax benefit consists entirely of deferred taxes as follows for
the year ended December 31, 1994 and the period ended December 13, 1995:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Deferred taxes, current in nature:
Assets............................................... $ 69,000 $ 81,300
Liabilities.......................................... (69,000) (29,700)
-------- -------
Net deferred tax asset....................... $ -- $ 51,600
======== =======
Deferred taxes, long term in nature:
Assets............................................... $ -- $ 6,800
Liabilities.......................................... -- --
-------- -------
Net deferred tax asset....................... $ -- $ 6,800
======== =======
</TABLE>
The Company has recorded a current deferred tax asset of $12,800 reflecting
the benefit of $56,847 in loss carryforwards, which expire in 2009. Realization
depends on generating sufficient taxable income before expiration of the loss
carryforwards. Although realization is not assured, management believes it is
more likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced. All net deferred tax assets are based on an
anticipated average tax rate for future taxable income.
11. RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
The report dated December 29, 1993 on the balance sheet at November 30,
1993 and report dated February 18, 1995 on the balance sheet at December 31,
1994 and related statements of operations, accumulated deficit, and cash flows
for the year then ended have been restated to reflect funds received from IBM
Corporation as a liability rather than revenue.
F-39
<PAGE> 122
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effect of this restatement has the following effects:
<TABLE>
<CAPTION>
LIABILITY FOR
-----------------------
IBM
STOCKHOLDERS' ASSISTANCE ACCRUED
DEFICIT AGREEMENT INTEREST
------------- ---------- --------
<S> <C> <C> <C>
Balance -- November 30, 1993 as originally
stated.................................. $ (32,279) $ -- $ --
Restatement............................... (209,920) 200,000 9,920
--------- ------- ------
Balance -- November 30, 1993 as
restated................................ $(242,199) $ 200,000 $ 9,920
========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
LIABILITY FOR
-----------------------
NET IBM
INCOME STOCKHOLDERS' ASSISTANCE ACCRUED
(LOSS) DEFICIT AGREEMENT INTEREST
-------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Balance -- December 31, 1994 as
originally stated............ $ 221 $ (48,595) $ -- $ 24,394
Restatement.................... (13,460) (224,465) 200,000 24,465
-------- --------- ------- ------
Balance -- December 31, 1994 as
restated..................... $(13,239) $(273,060) $ 200,000 $ 48,859
======== ========= ======= ======
</TABLE>
12. SALES TO MAJOR CUSTOMERS
During the years ended December 31, 1993 and 1994 and the period ended
December 13, 1995 sales to the two largest customers comprised a significant
percentage of total sales. These sales and percentages are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Major customer sales........................ $23,300 $252,000 $267,600
% of total sales............................ 27% 52% 60%
</TABLE>
Of the above sales the following amounts were included in accounts
receivable trade at December 31, 1994 and 1993 and December 13, 1995:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
<S> <C> <C> <C>
Major customer accounts receivable.......... $ -- $230,800 $110,500
% of total accounts receivable.............. -- 71% 76%
</TABLE>
13. TRANSFER OF OWNERSHIP
On December 14, 1995 an agreement of merger was signed whereby all
outstanding common stock of the Company was acquired by Med Plus, Inc. Pursuant
to the transfer agreement employment contracts with key members of the Company
have been executed.
14. ISSUANCE OF ADDITIONAL SHARES
In September 1993, the Company entered into a consulting agreement with an
investment banker. The agreement provided for the performance of consulting
services in exchange for 5% ownership of the Company's stock. The consulting
agreement was terminated in 1994 and in December 1995, the Company issued 200
shares of common stock to the investment banker. These shares were substantially
acquired by MedPlus, Inc.
F-40
<PAGE> 123
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Applied Software Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Applied
Software Technology, Inc. and subsidiary (the "Company"), as restated, to remove
certain assets and results of operations as discussed in Note 1 as of September
30, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended September 30, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance 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.
As discussed in Note 8, the Company has signed a letter of intent to be
acquired by an unaffiliated third party. Pursuant to the letter of intent,
certain assets of the Company will not be sold. As discussed in note 1, these
financial statements are not intended to be a complete presentation of the
financial position, results of operations, stockholders' equity (deficit), and
cash flows of the Company but are instead a presentation of the assets to be
sold and liabilities to be assumed, and the related results of operations and
cash flows.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the restated financial position of
Applied Software Technology, Inc. and subsidiary at September 30, 1995 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended September 30, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
July 25, 1997
Atlanta, Georgia
F-41
<PAGE> 124
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(RESTATED -- SEE NOTE 1)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 89,619 $ 83,338 $ 35,116
Accounts receivable (note 3):
Trade, less allowance for doubtful accounts of
$65,000, $55,000, and $55,000 in 1995, 1996, and
1997, respectively.............................. 1,395,500 1,063,360 1,259,222
Other............................................. 25,302 29,094 38,532
Inventories (note 3)................................. 146,419 254,117 151,723
Prepaid expenses..................................... 66,965 99,666 134,645
---------- ---------- ----------
Total current assets......................... 1,723,805 1,529,575 1,619,238
---------- ---------- ----------
Property and equipment (note 2)........................ 383,001 501,226 510,283
Less accumulated depreciation and amortization....... (259,386) (326,179) (375,633)
---------- ---------- ----------
Net property and equipment................... 123,615 175,047 134,650
---------- ---------- ----------
Other assets........................................... 27,329 150 8,359
---------- ---------- ----------
$1,874,749 $1,704,772 $ 1,762,247
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit (note 3(a))........................... $ 200,000 $ 344,974 $ 500,000
Current portion of capital leases.................... -- 13,590 15,220
Current installments of note payable to former
stockholder (note 4).............................. 75,753 83,517 87,693
Accounts payable (note 3(b))......................... 1,211,890 938,362 1,337,138
Accrued expenses and other liabilities............... 232,573 210,646 174,606
Deferred income...................................... 187,367 142,630 170,741
---------- ---------- ----------
Total current liabilities.................... 1,907,583 1,733,719 2,285,398
Noncurrent liabilities:
Capital leases, less current portion................. -- 17,684 6,067
Note payable to former stockholder, less current
installments (note 4)............................. 225,116 141,599 96,682
---------- ---------- ----------
Total liabilities............................ 2,132,699 1,893,002 2,388,147
---------- ---------- ----------
Stockholders' equity (deficit) -- (notes 3, 4, 5, and
8):
Common stock, $.10 par value, 1,000,000 shares
authorized; 371,200 shares issued and 232,000
shares outstanding................................ 37,120 37,120 37,120
Additional paid-in capital........................... 25,217 25,217 25,217
Retained earnings.................................... 82,978 156,698 (280,972)
---------- ---------- ----------
145,315 219,035 (218,635)
Less 139,200 shares of treasury stock, at cost....... (403,265) (407,265) (407,265)
---------- ---------- ----------
Total stockholders' deficit.................. (257,950) (188,230) (625,900)
Commitments and contingencies (notes 3, 4, 5, 6, and
8)...................................................
---------- ---------- ----------
$1,874,749 $1,704,772 $ 1,762,247
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 125
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(RESTATED -- SEE NOTE 1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
----------------------------------------- -------------------------
1994 1995 1996 1996 1997
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Hardware.................. $ 6,445,261 $4,166,559 $3,076,918 $2,365,143 $2,328,075
Software.................. 2,957,701 2,818,800 3,463,043 2,640,188 2,219,658
Other..................... 1,152,234 1,128,512 1,257,342 834,530 860,212
----------- ---------- ---------- ---------- ----------
Total revenues.... 10,555,196 8,113,871 7,797,303 5,839,861 5,407,945
----------- ---------- ---------- ---------- ----------
Cost of revenues:
Hardware.................. 5,139,334 3,247,875 2,546,990 1,972,025 1,955,165
Software.................. 2,312,626 1,970,603 2,210,549 1,702,248 1,647,292
Other..................... 815,747 924,904 897,351 627,990 675,393
----------- ---------- ---------- ---------- ----------
Total cost of
revenues........ 8,267,707 6,143,382 5,654,890 4,302,263 4,277,850
----------- ---------- ---------- ---------- ----------
Gross profit...... 2,287,489 1,970,489 2,142,413 1,537,598 1,130,095
Selling, general, and
administrative expenses... 2,026,793 1,968,168 1,927,732 1,386,293 1,523,451
Research and development
expenses.................. 83,715 20,113 -- -- --
----------- ---------- ---------- ---------- ----------
Operating income
(loss).......... 176,981 (17,792) 214,681 151,305 (393,356)
Other income (expense):
Interest expense.......... (20,075) (62,089) (51,538) (39,973) (30,953)
Other income (expense).... (413) (6,557) 3,906 1,742 --
----------- ---------- ---------- ---------- ----------
Net income
(loss).......... $ 156,493 $ (86,438) $ 167,049 $ 113,074 $ (424,309)
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 126
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(RESTATED -- SEE NOTE 1)
YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996 AND
THE NINE MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------------ PAID-IN RETAINED TREASURY EQUITY
SHARES AMOUNT CAPITAL EARNINGS STOCK (DEFICIT)
-------- ------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993.... 371,200 $37,120 $ 25,217 $ 692,481 $ -- $ 754,818
Net income....................... -- -- -- 156,493 -- 156,493
Distributions in the form of net
payments related to the
Excluded Assets................ -- -- -- (200,864) -- (200,864)
Repurchase of 139,200 shares of
common stock as treasury stock
(note 4)....................... -- -- -- -- (403,265) (403,265)
------- ------- ------ -------- -------- --------
Balance at September 30, 1994.... 371,200 37,120 25,217 648,110 (403,265) 307,182
Net loss......................... -- -- -- (86,438) -- (86,438)
Distributions in the form of net
payments related to the
Excluded Assets................ -- -- -- (478,694) -- (478,694)
------- ------- ------ -------- -------- --------
Balance at September 30, 1995.... 371,200 37,120 25,217 82,978 (403,265) (257,950)
Net income....................... -- -- -- 167,049 -- 167,049
Distributions in the form of net
payments related to the
Excluded Assets................ -- -- -- (93,329) -- (93,329)
Additional payment related to
purchase of treasury stock..... -- -- -- -- (4,000) (4,000)
------- ------- ------ -------- -------- --------
Balance at September 30, 1996.... 371,200 37,120 25,217 156,698 (407,265) (188,230)
Net loss (unaudited)............. -- -- -- (424,309) -- (424,309)
Distributions in the form of net
payments related to the
Excluded Assets (unaudited).... -- -- -- (13,361) -- (13,361)
------- ------- ------ -------- -------- --------
Balance at June 30, 1997
(unaudited).................... 371,200 $37,120 $ 25,217 $(280,972) $(407,265) $(625,900)
======= ======= ====== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 127
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(RESTATED -- SEE NOTE 1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 156,493 $ (86,438) $ 167,049 $ 113,074 $(424,309)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 47,236 91,583 69,649 39,998 49,454
Loss on sale of property and equipment..... 920 4,200 -- -- --
(Increase) decrease in:
Trade accounts receivable............... (682,849) 848,854 332,140 418,273 (195,862)
Other accounts receivable............... (4,500) 33,843 (3,792) (3,505) (9,438)
Inventories............................. 78,698 22,541 (107,698) (691,568) 102,394
Prepaid expenses........................ (19,259) (28,460) (32,701) 20,679 (34,979)
Other assets............................ (32,625) 31,667 24,323 9,049 (8,209)
Increase (decrease) in:
Accounts payable........................ 616,425 (384,337) (273,528) 485,583 398,776
Accrued expenses and other
liabilities........................... 60,694 (43,000) (21,927) 15,769 (36,040)
Deferred income......................... 234,846 (47,479) (44,737) (45,668) 28,111
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities................ 456,079 442,974 108,778 361,684 (130,102)
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment............ (8,775) (20,797) (75,040) (68,077) (9,057)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable to former
stockholder.................................. (56,796) (68,710) (75,753) (36,953) (40,741)
Net borrowings (repayments) on line of
credit....................................... (175,000) 200,000 144,974 50,000 155,026
Repurchase of common stock..................... (51,765) -- (4,000) (4,000) --
Payments on capital leases..................... -- -- (11,911) (7,919) (9,987)
Distributions in the form of net payments
related to the Excluded Assets............... (200,864) (478,694) (93,329) (76,840) (13,361)
--------- --------- --------- --------- ---------
Net cash (used in) provided by
financing activities................ (484,425) (347,404) (40,019) (75,712) 90,937
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and
cash equivalents.................... (37,121) 74,773 (6,281) 217,895 (48,222)
Cash and cash equivalents at beginning of
period......................................... 51,967 14,846 89,619 89,619 83,338
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period....... $ 14,846 $ 89,619 $ 83,338 $ 307,514 $ 35,116
========= ========= ========= ========= =========
Cash paid during the period for interest......... $ 20,075 $ 55,487 $ 52,200 $ 34,335 $ 27,578
========= ========= ========= ========= =========
Supplemental noncash transactions:
Note payable issued for repurchase of 139,200
shares of common stock and related noncompete
agreement.................................... $ 401,500 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
Capital lease obligations incurred for purchase
of equipment................................. $ -- $ -- $ 43,185 $ 43,185 $ --
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-45
<PAGE> 128
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(RESTATED -- SEE NOTE 1)
SEPTEMBER 30, 1995 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
Subsequent to September 30, 1996, Applied Software Technology, Inc. (the
"Company") has signed a letter of intent with Universal Document Management
Systems, Inc. ("UDMS") (the "Buyer") (see note 8) under which, on the
contractually designated closing date, the Buyer will acquire all assets and
liabilities of the Company, except the Company's investment in an unconsolidated
investee subsidiary and certain capitalized software development costs (the
"Excluded Assets").
The accompanying consolidated financial statements represent the historical
consolidated financial statements of the Company and subsidiary as restated to
remove the Excluded Assets and related results of operations for all periods
presented.
These restated financial statements present the historical financial
position and results of operations for the Company and subsidiary, net of
Excluded Assets of $178,271, $657,691, and $730,507 at September 30, 1994, 1995,
and 1996, respectively, and related net expenses (revenues) of $22,593, $(726),
and $20,513, for the years ended September 30, 1994, 1995, and 1996,
respectively. The allocation of revenues and expenses to the Excluded Assets was
based on management's identification of the specific revenue and expense
accounts which relate to the Excluded Assets. In the opinion of management, the
allocations of revenues and expenses to the Excluded Assets are reasonable, and
all revenues and expenses related to the Excluded Assets have been properly
excluded from the accompanying consolidated financial statements.
In the presentation of cash flows and stockholders' equity (deficit), any
payments made which were related to the Excluded Assets have been classified as
"Distributions in the form of net payments related to the Excluded Assets."
These consolidated financial statements are not intended to be a complete
presentation of the financial position, results of operations, stockholders'
equity (deficit), and cash flows of the Company, but are instead a presentation
of the assets to be sold and liabilities to be assumed, and the related results
of operations and cash flows.
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.
(b) Description of Business
The Company is primarily involved in the selling of design automation
systems, document management systems, and commercial systems integration to the
manufacturing, corporate engineering, education, design, and consulting markets.
The Company was incorporated under the laws of the State of Georgia during
September 1982. The Company owns a 98% interest in ACADemic LC, a Georgia
limited liability company organized on September 1, 1995 by the Company and its
stockholders. ACADemic LC is in the business of selling design automation
systems to education markets.
(c) Principles of Consolidation
The consolidated financial statements include the accounts (exclusive of
the Excluded Assets) of the Company and ACADemic LC. All significant
intercompany balances and transactions have been eliminated in consolidation.
F-46
<PAGE> 129
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Revenue Recognition
Revenues from software and computer hardware sales are recognized when the
product is shipped. Revenues from consulting, installation, training, and
support are recognized as the related services are performed.
Deferred income represents advance payments to the Company by customers for
products and services which have not yet been delivered.
(e) Inventories
Inventories consist of computer hardware, component parts, and software
products and are stated at the lower of first-in, first-out (FIFO) cost or
market (net realizable value).
(f) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment.................................. 5 years
Furniture........................................... 5 years
</TABLE>
(g) Income Taxes
For Federal and state income tax purposes, the stockholders of the Company
have elected that the income of the Company be taxed under the S Corporation
provisions of the Internal Revenue Code. As a result of this election, the
Company has not provided for Federal or state income tax expense as income is
passed through to, and the related income tax liabilities become the individual
responsibility of, the stockholders of the Company.
(h) Research and Development Expenses and Software Development Costs
Research and development costs related to software development that has not
reached technological feasibility are expensed as incurred. Capitalization of
software development costs begins when technological feasibility of the product
or enhancement has been established. The establishment of technological
feasibility and the ongoing assessment of recoverability of capitalized software
development costs require considerable judgment by management with respect to
certain external factors, including, but not limited to, anticipated future
revenues, estimated economic life, and changes in software and hardware
technologies.
Capitalized software development costs are amortized using the
straight-line method on a product-by-product basis over a period of five years
beginning when the product is available for general release to customers.
Amortization of capitalized software development costs was approximately
$38,000, $42,000, and $3,000 for the years ended September 30, 1994, 1995, and
1996, respectively.
The Company performs a net realizability evaluation of its software
products and recognized a $19,700 write-off of software in 1995 as a result of
the evaluation. This expense is included in the amortization of capitalized
software development costs for the year ended September 30, 1995. No write-offs
due to impairment of net realizable value were required in 1994 or 1996.
(i) Cash Equivalents
The Company considers cash equivalents to include all highly liquid
investments purchased with an original maturity of three months or less.
F-47
<PAGE> 130
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this Statement did not have a material impact on the Company's
financial position or results of operations.
(k) Interim Financial Statements
In the Company's opinion, all adjustments (consisting only of normal,
recurring adjustments) which the Company considers necessary for a fair
presentation of the unaudited balance sheet as of June 30, 1997 and results of
operations for the nine months ended June 30, 1996 and 1997 are included. The
results of operations for the nine months ended June 30, 1997 are not
necessarily indicative of the results of operations to be expected for the full
year.
(2) PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1995 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Computers and related equipment........................ $205,549 $323,774
Furniture and fixtures................................. 114,215 114,215
Vehicles............................................... 56,945 56,945
Leasehold improvements................................. 6,292 6,292
-------- -------
383,001 501,226
Less accumulated depreciation and amortization......... 259,386 326,179
-------- -------
Net property and equipment........................ $123,615 $175,047
======== =======
</TABLE>
(3) LINE OF CREDIT AND OTHER SHORT-TERM FINANCING
(a) Line of Credit
The Company has available a line of credit agreement with a financial
institution which permits it to borrow up to $500,000. Borrowings under the line
bear interest at the prime rate plus 1%, payable monthly. The line is secured by
accounts receivable and a personal guarantee of the stockholders and at maturity
on January 15, 1997, was renewed until January 15, 1998. At September 30, 1996,
the line of credit had a balance of $344,974.
The Company's line of credit agreement contains restrictive covenants which
include the maintenance of minimum tangible net worth, as defined, and certain
financial ratios. As of September 30, 1996, the Company was not in compliance
with certain of these covenants, and all obligations due under the agreement
have been reported as current liabilities.
F-48
<PAGE> 131
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Short-Term Financing
The Company has the ability to finance up to $500,000 of its eligible
inventory under a financing agreement. As of September 30, 1996, the terms are
interest-free for the first 30 to 45 days, depending on vendor, and interest is
charged thereafter at the rate of prime plus 6%, plus an administrative fee. The
specific inventory financed is collateral under the financing agreement, and the
liability is personally guaranteed by the stockholders. Included in accounts
payable at September 30, 1995 and 1996 are liabilities of $239,730 and $108,945,
respectively, relating to such inventory purchases.
The Company's inventory financing agreement contains restrictive covenants
which include the maintenance of minimum tangible net worth, as defined, and
certain financial ratios. As of September 30, 1996, the Company was not in
compliance with certain of these covenants.
(4) NOTE PAYABLE TO FORMER STOCKHOLDER
In January 1994, the Company repurchased as treasury stock 139,200 common
shares for $403,265, representing all of the shares held by a former
stockholder. In connection with the repurchase, the Company also entered into a
two-year noncompete agreement with the former stockholder for $50,000. To
fulfill the agreements, the Company paid $51,765 in cash and issued a note
payable of $401,500. Under the terms of the note, the entire amount of unpaid
principal and interest payments due through the maturity date of the note must
be paid in full in the event of a change in control, as defined.
The note payable to former stockholder is summarized as follows at
September 30:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Subordinated note payable to former stockholder bearing
interest at 10%, payable in ten equal semi-annual
installments of $51,996 on July 13 and January 13
each year through January 13, 1999, secured by
treasury stock of the Company........................ $300,869 $225,116
Less current installments.............................. 75,753 83,517
-------- --------
Note payable to former stockholder, less current
installments...................................... $225,116 $141,599
======== ========
</TABLE>
Required principal repayments over the next three fiscal years are as
follows:
<TABLE>
<S> <C>
September 30,
1997............................................................ $ 83,517
1998............................................................ 92,078
1999............................................................ 49,521
--------
$225,116
========
</TABLE>
(5) STOCKHOLDERS' EQUITY -- STOCKHOLDERS' AGREEMENT
The Company has a stockholders' agreement to which all the stockholders are
a party. This agreement requires a stockholder to offer to sell their stock to
the Company upon retirement, resignation, disability, and certain other
triggering events. The purchase price of the common stock shall be equal to the
total par value of all capital stock issued and outstanding, plus additional
paid-in capital and retained earnings as determined on the most recent year-end
financial statements.
(6) EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) savings and retirement plan effective January
1, 1992. The plan covers all employees who are 21 years of age or older and are
scheduled to complete 1,000 hours of service during any
F-49
<PAGE> 132
APPLIED SOFTWARE TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consecutive 12-month period. The plan permits eligible employees to make
voluntary pretax contributions of up to 15% of compensation and allows for
employer matching and profit sharing contributions. Employer contributions are
discretionary and are set each year by the Board of Directors. During the years
ended September 30, 1994, 1995, and 1996, the Company made no such
contributions.
(7) LEASES
The Company does not have any significant operating leases with remaining
terms longer than one year. Rent expense for the years ended September 30, 1994,
1995, and 1996 was approximately $87,000, 80,000, and $73,000, respectively.
(8) SUBSEQUENT EVENTS
Subsequent to year-end, the Company signed a letter of intent to be
acquired by a company, with the business combination to be consummated
simultaneously with the acquiring company's initial public offering.
F-50
<PAGE> 133
INDEPENDENT AUDITORS' REPORT
Stockholders and Board of Directors:
We have audited the accompanying balance sheets of ACCESS Corporation as of
April 30, 1997 and 1996, and the related statements of operations, of capital
stock and other stockholders' equity and of cash flows for each of the three
years in the period ended April 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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 financial statements referred to above present fairly,
in all material respects, the financial position of ACCESS Corporation as of
April 30, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended April 30, 1997, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Cincinnati, Ohio
May 29, 1997
F-51
<PAGE> 134
ACCESS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
--------------------------- JULY 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................... $ 2,071,772 $ 1,404,708 $ 1,240,778
Accounts receivable, less allowance for doubtful accounts of
$189,685 in 1996 and $12,000 in 1997 (Note 2).............. 1,890,673 2,151,829 2,567,389
Inventories (Note 2):
Raw materials and purchased parts.......................... 64,553 96,673 82,597
Work-in-process............................................ 102,900 56,401 49,866
Finished goods............................................. 21,057 13,551 12,987
----------- ----------- -----------
Total inventories.......................................... 188,510 166,625 145,450
Prepaid expenses........................................... 106,283 135,362 107,921
Deferred income tax, net of valuation allowance of $300,000
(Note 6)................................................. 112,000 112,000 73,800
----------- ----------- -----------
TOTAL CURRENT ASSETS........................................... 4,369,238 3,970,524 4,133,338
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (NOTE 2):
Computer hardware and software............................... 1,449,310 1,533,592 1,544,785
Machinery and equipment...................................... 503,337 503,337 503,337
Office and service equipment................................. 364,492 380,248 382,755
Leasehold improvements....................................... 13,405 13,405 14,130
Tools, dies and fixtures..................................... 115,013 97,832 97,832
----------- ----------- -----------
Total...................................................... 2,445,557 2,528,414 2,542,839
Less accumulated depreciation................................ 2,187,785 2,289,920 2,318,352
----------- ----------- -----------
Net........................................................ 257,772 238,494 224,487
COMPUTER SOFTWARE COSTS, NET OF ACCUMULATED AMORTIZATION OF
$2,299,595 IN 1996 AND $3,368,518 IN 1997.................... 1,068,923 -- --
GOODWILL (NOTE 10)............................................. 259,691 259,691
DEFERRED INCOME TAX BENEFIT, NET OF VALUATION ALLOWANCE OF
$2,134,000 IN 1996 AND $2,649,018 IN 1997 (NOTE 6)........... 545,700 548,882 548,882
----------- ----------- -----------
Total................................................. $ 6,241,633 $ 5,017,591 $ 5,168,398
=========== =========== ===========
LIABILITIES AND CAPITAL STOCK AND OTHER STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................. $ 285,703 $ 291,339 $ 425,132
Accrued salaries, wages and commissions...................... 367,282 216,232 64,262
Accrued royalty.............................................. 291,192 519,916 667,177
Accrued taxes................................................ 22,400 4,198 9,305
Accrued warranty expense..................................... -- 11,018 11,018
Other accrued liabilities.................................... 49,385 69,206 49,691
Advances from customers...................................... 408,460 195,145 286,525
Capital leases............................................... 19,599 -- --
----------- ----------- -----------
Total current liabilities............................. 1,444,021 1,307,054 1,513,110
PREPAID MAINTENANCE CONTRACTS.................................. 609,078 675,245 552,241
MANDATORILY REDEEMABLE CLASS ONE PREFERRED STOCK (NOTE 3)...... 1,500,000 1,500,000 1,500,000
Preferred Dividends -- Accrued............................... 102,510 -- --
CAPITAL STOCK AND OTHER STOCKHOLDERS' EQUITY (NOTES 2, 4):
Capital Stock:
Common Stock, no par value, authorized 8,000,000 shares;
issued and outstanding 4,881,829 in 1996 and 1997........ 488,183 488,183 488,183
Additional paid-in capital................................. 10,657,652 10,657,652 10,657,652
Deficit from April 1, 1985................................. (8,544,428) (9,595,160) (9,527,405)
16,270 Common Stock shares in treasury, at cost............ (15,383) (15,383) (15,383)
----------- ----------- -----------
Total capital stock and other stockholders' equity.... 2,586,024 1,535,292 1,603,047
----------- ----------- -----------
Total................................................. $ 6,241,633 $ 5,017,591 $ 5,168,398
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-52
<PAGE> 135
ACCESS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED APRIL 30, JULY 31,
------------------------------------- -----------------------
1995 1996 1997 1996 1997
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
System Sales...................... $1,274,996 $3,800,795 $ 2,894,566 $ 593,969 $1,333,744
Service........................... 4,766,786 4,903,657 4,034,787 1,081,382 1,379,006
----------- ---------- ---------- ---------- ----------
Total..................... 6,041,782 8,704,452 6,929,353 1,675,351 2,712,750
COST:
System sales, exclusive of
amortization shown separately
below.......................... 729,965 2,052,266 1,633,974 323,411 776,319
Service........................... 2,285,363 2,668,424 2,730,175 670,838 1,194,494
----------- ---------- ---------- ---------- ----------
Total..................... 3,015,328 4,720,690 4,364,149 994,249 1,970,813
GROSS PROFIT BEFORE AMORTIZATION.... 3,026,454 3,983,762 2,565,204 681,102 741,937
AMORTIZATION OF COMPUTER SOFTWARE
COST (NOTE 1)..................... 673,704 673,704 1,068,922 168,426 --
----------- ---------- ---------- ---------- ----------
GROSS PROFIT........................ 2,352,750 3,310,058 1,496,282 512,676 741,937
OPERATING EXPENSES:
Selling, general and
administrative................. 1,528,460 2,433,376 2,368,804 612,725 647,864
Engineering, research and
development.................... 592,504 611,295 265,129 60,315
----------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)............. 231,786 265,387 (1,137,651) (160,364) 94,073
OTHER INCOME (EXPENSE).............. (3,805) 54,612 91,844 21,739 12,200
INTEREST EXPENSE.................... (31,911) (9,378) (4,925) (1,032) (318)
----------- ---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME
TAXES............................. 196,070 310,621 (1,050,732) (139,657) 105,955
INCOME TAXES (NOTE 6)............... 66,700 105,600 -- -- 38,200
----------- ---------- ---------- ---------- ----------
NET EARNINGS (LOSS)................. 129,370 205,021 (1,050,732) (139,657) 67,755
PREFERRED DIVIDEND.................. 64,685 102,510 -- -- --
----------- ---------- ---------- ---------- ----------
INCOME (LOSS) APPLICABLE TO COMMON
SHARES............................ $ 64,685 $ 102,511 $(1,050,732) $ (139,657) $ 67,755
=========== ========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING................ 4,865,559 4,865,559 4,865,559 4,865,559 4,865,559
PER COMMON SHARE AND COMMON SHARE
EQUIVALENT (NOTE 4):
Net earnings (loss)............... $ 0.01 $ 0.02 $ (0.22) $ (0.03) $ 0.01
=========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-53
<PAGE> 136
ACCESS CORPORATION
STATEMENTS OF CAPITAL STOCK AND OTHER STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1995, 1996 AND 1997 AND THREE MONTHS ENDED JULY
31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
TREASURY COMMON CLASS A COMMON ADDITIONAL RETAINED
------------------ --------------------- ----------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------- -------- ---------- -------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, April 30, 1994... 16,270 $(15,383) 3,453,257 $345,326 1,428,572 $ 142,857 $10,824,847 $(8,878,819)
Class One Preferred Stock
dividends............... (64,685)
Net earnings.............. 129,370
------ -------- --------- -------- --------- -------- ----------- -----------
BALANCE, April 30, 1995... 16,270 (15,383) 3,453,257 345,326 1,428,572 142,857 10,760,162 (8,749,449)
Class One Preferred Stock
dividends............... (102,510)
Conversion of Class A
Common Stock to Common
Stock................... 1,428,572 142,857 (1,428,572) (142,857)
Net earnings.............. 205,021
------ -------- --------- -------- --------- -------- ----------- -----------
BALANCE, April 30, 1996... 16,270 (15,383) 4,881,829 488,183 -- -- 10,657,652 (8,544,428)
Net loss.................. (1,050,732)
------ -------- --------- -------- --------- -------- ----------- -----------
BALANCE, April 30, 1997... 16,270 $(15,383) 4,881,829 $488,183 -- $ -- $10,657,652 $(9,595,160)
------ -------- --------- -------- --------- -------- ----------- -----------
Net income (unaudited).... 67,755
------ -------- --------- -------- --------- -------- ----------- -----------
BALANCE, July 31, 1997
(unaudited)............. 16,270 $(15,383) 4,881,829 $488,183 -- $ -- $10,657,652 $(9,527,405)
====== ======== ========= ======== ========= ======== =========== ===========
</TABLE>
See notes to financial statements.
F-54
<PAGE> 137
ACCESS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
YEAR ENDED APRIL 30, 31,
---------------------------------------- ------------------------
1995 1996 1997 1996 1997
----------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)............................... $ 129,370 $ 205,021 $(1,050,732) $ (139,657) $ 67,755
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:
Amortization.................................... 673,704 673,704 1,068,922 168,426 --
Depreciation.................................... 139,819 143,027 131,755 31,742 28,432
Deferred income taxes........................... 66,700 105,600 (3,182) -- 38,200
Loss (gain) on disposal of fixed assets......... 7,028 1,111 (1,357) -- --
Prepaid maintenance contracts................... 100,606 294,324 66,167 5,169 (123,004)
Change in assets and liabilities:
Accounts receivable........................... (124,211) 162,968 (120,675) (56,880) (415,562)
Inventories................................... 103,163 224,355 74,548 18,205 21,175
Prepaid expenses.............................. 37,672 (37,293) (16,520) (27,457) 27,442
Accounts payable.............................. (62,481) 86,215 5,656 (72,194) 133,793
Accrued liabilities........................... (54,023) 244,716 (279,702) (173,977) (166,377)
Accrued royalties............................. -- (33,299) 228,724 97,528 147,261
Advances from customers....................... 30,151 (448,994) (213,314) (108,060) 91,380
----------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities.............................. 1,047,498 1,621,455 (109,710) (257,155) (149,505)
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash received..... -- (148,629) (324,128) -- --
Capital additions................................. (22,779) (166,010) (124,515) (33,203) (14,425)
Proceeds from disposal of fixed assets............ 2,156 6,267 13,397 -- --
----------- ---------- ---------- ---------- ----------
Net cash used in investing activities..... (20,623) (308,372) (435,246) (33,203) (14,425)
----------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on bank line of credit................. (71,807) -- -- -- --
Dividends on Class One Preferred Stock............ -- (64,685) (102,510) -- --
Payments on capital leases........................ (75,081) (60,112) (19,599) (7,699) --
----------- ---------- ---------- ---------- ----------
Net cash used in financing activities..... (146,888) (124,797) (122,109) (7,699) --
----------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 879,987 1,188,286 (667,065) (298,057) (163,930)
CASH AND CASH EQUIVALENTS, Beginning of year........ 3,500 883,487 2,071,773 2,071,772 1,404,708
----------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS, End of year.............. $ 883,487 $2,071,773 $ 1,404,708 $1,773,715 $1,240,778
=========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 31,900 $ 9,400 $ 3,400 -- --
Dividends declared but unpaid on Class One
Preferred Stock totaled $64,685 (1995) and
$102,510 (1996).................................
</TABLE>
See notes to financial statements.
F-55
<PAGE> 138
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1995, 1996 AND 1997
NOTE 1: A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company services hardware and software for its installed base of
customers and third parties. It also markets software for the electronic
storage, control and processing of technical documentation.
Revenue Recognition
Revenues from the sale of new systems are recognized upon shipment. If
there are services performed, revenue is recognized at the time of customer
acceptance.
Revenue from prepaid maintenance agreements is recognized ratably over the
life of the maintenance contracts.
Inventories
Inventories comprised of material, labor, and related overhead expenses are
stated at the lower of cost (first-in, first-out method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and depreciated
over their estimated useful lives using the straight-line method. Computer
software purchased for internal use is depreciated over two years or its useful
life, whichever is less.
Computer Software Development Costs
Computer software development costs are recorded in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Costs incurred up to
the point of establishing technological feasibility are expensed currently.
Costs incurred after establishment of technological feasibility were
capitalized. Amortization of these capitalized costs began in March 1993 when
the products were released to customers and were amortized over a period not to
exceed five years. Amortization expense was $673,704 and $673,704 for fiscal
years 1995 and 1996, respectively.
While the Company continues to maintain and support its AS/400 EDMS
software product, it does not believe that future revenues of this product
reduced by the estimated future costs, including maintenance and support, are
sufficient to absorb the amortization of the software costs previously
capitalized. Therefore, the Company accelerated the amortization of the
remaining unamortized cost. In fiscal year 1997 the Company wrote off
$1,068,922, which was the total that remained unamortized.
Use of Estimates
The preparation of the 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 amounts could differ from those estimates.
F-56
<PAGE> 139
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Cash Flows
Cash and cash equivalents consist of cash on hand, cash on deposit, and
short-term investments with original maturities less than ninety days.
Product Warranties
Under its product warranty policy, the Company has agreed to replace
certain parts or provide remedial service during the designated warranty period.
Costs associated with these programs are determined on the basis of estimated
net future costs.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No.
123 -- Accounting for Stock-Based Compensation in 1997. The standard defines a
fair-value based method of accounting for stock-based compensation but permits
compensation expense to continue to be measured using the intrinsic value-based
method previously used. The Company continues to measure compensation expense
using the intrinsic value-based method.
Goodwill
In April 1997, the Company established Goodwill with the purchase of the
assets of Graphic Systems Technology, Inc. The Company will amortize this cost
over a ten year period.
NOTE 2: BANK LINE OF CREDIT
The Company's current line of credit agreement ($400,000 as of April 30,
1997) extends through April 7, 1998. Borrowings under the agreement bear
interest at one percent over the prime rate, 8 1/2% at April 30, 1997. Maximum
availability is based upon the levels (as set forth in the loan agreement) of
eligible accounts receivable. To secure any borrowing, the Company has pledged
accounts receivable, inventories, fixed assets, and general intangibles. The
agreement contains restrictive and other covenants which require the Company to
maintain certain levels of indebtedness to net worth, current ratio and cash
flow from operations. It also restricts new borrowings, capital expenditures,
and dividends on its capital stock.
<TABLE>
<CAPTION>
1995 1996 1997
-------- ---- ----
<S> <C> <C> <C>
Maximum borrowings during the year............... $127,354 $-0- $-0-
Average outstanding balance during the year...... $ 27,956 $-0- $-0-
Weighted average interest rate (determined on a
monthly basis)................................. 9.1%
</TABLE>
NOTE 3: MANDATORILY REDEEMABLE PREFERRED STOCK AND NOTES PAYABLE
On October 28, 1991, the Company entered into a Note Purchase Agreement
with Oce N.V. ("Oce"), which provided for borrowing by the Company of up to $1.5
million to fund a major software development project. On August 26, 1992,
$1,000,000 of then outstanding notes were redeemed in exchange for 10,000 shares
of mandatorily redeemable Class One Preferred Stock. In April 1993, the Company
issued to Oce an additional 5,000 shares of mandatorily redeemable Class One
Preferred Stock for $500,000.
The Class One Preferred Stock is divided into three series: 10,000 shares
of 7% Class One Preferred Stock ($1,000,000); 2,500 shares of 9% Class One
Preferred Stock ($250,000), and 2,500 shares of variable rate Class One
Preferred Stock ($250,000). The variable rate Class One Preferred Stock was
issued at the rate of 9%. Dividends on the Class One Preferred Stock for any
fiscal year are cumulative only to the extent of 50% of the Company's net
after-tax earnings, as defined, for such year.
F-57
<PAGE> 140
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Annually, beginning in 1995, the Company is required to redeem the Class
One Preferred Stock at $100 per share plus accumulated dividends in an amount
equal to a specified portion of after-tax earnings, as defined. Unless dividends
on the Class One Preferred Stock are current, the Company may not declare a
dividend on its common shares or redeem or purchase any of its common shares.
Under the Note Purchase Agreement, Oce agreed to limitations on the voting and
transfer of the Company's stock (including the transfer of such stock to a
voting trust, the trustees of which are four of the Company's directors) and Oce
was released from its obligation under certain circumstances to make a tender
offer for the Company's common stock. As of April 30, 1997, the Company had
authorized and issued a total of 15,000 shares of Class One Preferred Stock. The
Company was not required to and has not redeemed any Class One Preferred Stock
in fiscal year 1997 or previously.
NOTE 4: CAPITAL STOCK
In 1992 the Company entered into a Voting Trust Agreement with Oce. The
Voting Trust Agreement required Oce to place the certificates for 1,904,763
shares of the Company's Common Stock, less 100 shares, into a voting trust. The
trustees of the trust are four directors of the Company. Pursuant to the Voting
Trust Agreement, the shares will be voted for matters related to the election of
directors in the discretion of the voting trustees (except that such shares will
be voted for up to two director nominees designated by Oce) and on all other
matters by Oce pursuant to a proxy to be granted to it by the voting trustees.
The Voting Trust Agreement is irrevocable for a period of ten years and may
be renewed, at the option of Oce, for additional periods of not more than ten
years each. The Voting Trust Agreement will automatically terminate:
- with respect to any such shares sold to a party unrelated to Oce
- upon the closing of any underwritten public offering of Common Stock
which results in not less than $10,000,000 in aggregate sales price of
Common Stock having been sold.
- upon the acquisition by any person of beneficial ownership of as many or
more shares of Common Stock as are owned by Oce.
Further, the Voting Trust Agreement may be terminated by notice by Oce to
the voting trustees at anytime after October 3, 1995.
If the Voting Trust Agreement is terminated by notice or is not renewed on
its tenth anniversary, Oce is required to make a tender offer for any and all of
the shares of Common Stock at a price per share not less than that defined in
the Note Purchase Agreement (Note 3) and calculated using the Company's audited
financial statements. If the calculated price per share is less than zero, Oce
is not required to make a tender offer.
If the Voting Trust Agreement is terminated by notice to the voting
trustees, the tender offer is required not later than six months after the end
of the fiscal year in which the first anniversary of the notice affected the
termination. If the agreement is not renewed, the tender offer is required not
later than six months after the end of that fiscal year end.
Common Shares
Holders of Common Stock, including the voting trustees, have one vote per
share. Actions by a majority of voting trustees constitute the act of the voting
trust. In fiscal year 1996, the Company's Class A Common Stock was converted to
Common Stock.
F-58
<PAGE> 141
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
The earnings (loss) per share computations are based on the weighted
average number of common shares outstanding during the year adjusted for the
effect of common share equivalents where dilutive. Fully diluted earnings (loss)
per share are not presented as the effect of the dilution is less than 3% or is
anti-dilutive for the years 1995 -- 1997. The Company is required to implement
SFAS 128 Earnings Per Share, which was issued February 1997, effective the third
quarter of fiscal 1998. The effect of implementing SFAS 128 is not expected to
be material.
Stock Option Plans
During the year ended April 30, 1994, the Company adopted the 1993
incentive stock option plan covering 500,000 shares of its Common Stock. The
Company also amended the 1983, 1985 and 1991 plans to add provisions providing
that all outstanding stock options will become exercisable upon the occurrence
of a change of control or similar event.
Options may be granted under the 1991 and 1993 plans to officers and key
employees of the Company. Additionally, directors of the Company and other
persons in business relationships with the Company, such as independent
contractors and consultants, may be granted non-qualified options under the 1991
plan. No further options may be granted under the 1983 and 1985 plans. Incentive
stock options may be granted only to Company employees.
The option price under the plans may not be less than the fair market value
of the Common Stock at the date of grant, as determined by the Board of
Directors, which administers the plans. All options granted under the 1985 plan
and any incentive stock options granted under the 1983, 1991 and 1993 plans may
not be exercised prior to one year from date of grant and expire ten years from
the date of grant.
Changes in stock options were as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF SHARES AVERAGE
------------------ EXERCISE
RESERVED GRANTED PRICE
-------- ------- --------
<S> <C> <C> <C>
Balance, April 30, 1995........................... 785,300 362,400 $ .72
Issued.......................................... 350,000 .15
Canceled........................................ (2,400) (2,400) (5.25)
------- ------- ------
Balance, April 30, 1996 & 1997.................... 779,900 710,000 $ .42
</TABLE>
Options Outstanding and Exercisable at April 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OF OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (MONTHS) PRICE EXERCISABLE PRICE
- ------------------------------------------ ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.15 - $.50............................... 575,000 70 $ .28 341,666 $ .38
$.51 - $1.00.............................. 135,000 36 $ 1.00 135,000 $ 1.00
------- -- ------ ------- ------
710,000 476,666
</TABLE>
Had compensation cost for the Company's stock options been determined based
on the fair value at the grant dates for awards under the plan consistent with
the method of SFAS 123, the Company's net income (loss) and earnings per share
for 1997 and 1996 would have been the pro forma amounts indicated below.
F-59
<PAGE> 142
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997
-------- -----------
<S> <C> <C>
Pro Forma Net Income and Net Income Per Share
Net income (loss)
As reported....................................... $102,511 $(1,050,732)
Pro forma......................................... $ 87,491 $(1,050,732)
---------- -----------
Net income (loss) per share
As reported....................................... $ .02 $ (.22)
Pro forma......................................... $ .02 $ (.22)
---------- -----------
</TABLE>
The fair value of the options was calculated utilizing the Black-Scholes
option-pricing model and the following key assumptions:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Assumptions:
Risk-free interest rate...................................... 6.4 % 6.4 %
Dividend growth.............................................. 0 % 0 %
Volatility................................................... 0 % 0 %
Expected Life (months)....................................... 70 70
</TABLE>
NOTE 5: ENGINEERING, RESEARCH AND DEVELOPMENT
Engineering, research and development costs for the years ended April 30,
1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- -------- --------
<S> <C> <C> <C>
Charged to specific customer orders....... $ 495,887 $380,741 $312,068
Charged directly to engineering, research
and development......................... 592,504 611,295 265,129
-------- -------- ----------
Total cost of engineering, research and
development efforts..................... $1,088,391 $922,036 $577,197
======== ======== ==========
</TABLE>
NOTE 6: INCOME TAXES
The provision for income taxes (benefit) includes the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Federal:
Deferred............................... $ 66,700 $ 105,600 $(415,682)
Currently payable (Refundable)......... 66,700 164,000 3,182
Tax benefit of net operating loss
carryforward........................... (66,700) (164,000)
Valuation Allowance...................... 412,500
--------- --------- --------
Total.......................... $ 66,700 $ 105,600 $ 0
========= ========= ========
</TABLE>
Deferred income taxes reflect the net income tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
F-60
<PAGE> 143
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
purposes, and (b) net operating loss carryforwards. The income tax effects of
significant items comprising the Company's net deferred income tax asset as of
April 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net operating loss carryforwards
Federal......................................... $ 2,826,600 $ 3,173,700
State........................................... 75,800 217,400
Temporary differences:
Customer Deposits............................... 67,500 -0-
Inventory capitalization........................ 96,400 96,400
Other........................................... 131,100 122,400
----------- -----------
Total............................................. $ 3,197,400 $ 3,609,900
Less Valuation Allowance........................ (2,539,700) (2,949,000)
----------- -----------
Net deferred income tax asset..................... $ 657,700 $ 660,900
=========== ===========
</TABLE>
The amounts and expiration dates for the Company's net operating loss
carryforwards for income tax return purposes are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30 FEDERAL
------------------------------------------------- ----------
<S> <C>
2002............................................. $1,301,400
2004............................................. 2,762,000
2005............................................. 3,027,000
2008............................................. 459,000
2009............................................. 803,000
2012............................................. 982,000
----------
Total.................................. $9,334,400
==========
</TABLE>
NOTE 7: REVENUES TO MAJOR CUSTOMERS
On a continuing basis, no single customer accounts for a significant
percentage of the Company's net sales. However, net revenues to customers in
selected industries as a percent of total revenues are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal Government..................................... 18.4% 10.9% 5.7%
Aerospace.............................................. 18.8% 14.9% 22.0%
Petroleum.............................................. 4.9% 4.5% 9.3%
Computer............................................... 10.5% 10.5% 10.9%
Medical................................................ 7.2% 8.6% 2.9%
Manufacturing.......................................... 12.4% 1.5% 17.4%
Utilities.............................................. 4.6% 33.4% 12.4%
</TABLE>
Accounts receivable from these customers at April 30, 1996 and April 30,
1997 were $1,100,800 and $1,689,800, respectively.
NOTE 8: LEASE COMMITMENTS
The Company leases office facilities and equipment under operating leases.
Rent expense was $223,977 (1995), $244,718 (1996) and $351,259 (1997) of which
$60,281 (1995), $64,313 (1996) and $111,485 (1997), were under short-term
cancelable leases.
F-61
<PAGE> 144
ACCESS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of April 30, 1997, minimum annual payments under all non-cancelable
long-term operating lease agreements are: $211,740 (1998), $178,440 (1999), and
$170,950 (2000).
NOTE 9: CIMSOFT ACQUISITION
On July 31, 1995, the Company acquired CimSoft Incorporated, which started
business in June 1995, for $257,500 in a business combination which was
accounted for using the purchase method. The results of operations of the
company include CimSoft from the date of acquisition. Pro forma results of
operations of CimSoft are not material. CimSoft was a distributor of Cimage
software and a Cimage service provider in North America.
NOTE 10: GRAPHIC SYSTEMS TECHNOLOGY ASSET PURCHASE
On April 11, 1997, the Company purchased certain assets of Graphic Systems
Technology, Inc. from Star Bank for $463,000. The Company simultaneously sold
the assets related to the Chameleon product line to Fong Brothers Printing for
$138,900, resulting in a cash purchase price of $324,100. The Company also
incurred liabilities of approximately $130,000. The purchase price was assigned
to the assets purchased and liabilities incurred based on an estimated fair
value, which included goodwill of approximately $259,691, which was recorded as
part of the transaction. The fair value of assets purchased is based on
information currently available and is subject to adjustment as additional
information, principally accounts receivable, is finalized. Pro forma results of
operations of Graphic Systems Technology, Inc. are not meaningful. Graphic
Systems Technology, Inc. was a third party service provider in the prepress
industry.
NOTE 11: SUBSEQUENT EVENT
On May 9, 1997 the Company executed a letter of intent to join Universal
Document Management Systems, Inc. ("UDMS") a Cincinnati-based venture that
intends to acquire and operate companies in the design automation, document
management and technical services fields throughout the United States. The UDMS
venture is contingent upon successful due diligence of 10 companies, each of the
10 companies, including ACCESS, reaching binding definitive agreements and the
successful completion of an initial public offering by UDMS.
F-62
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
The Board of Directors
DTI Technologies, Inc.:
We have audited the accompanying balance sheets of DTI Technologies, Inc.
as of December 31, 1995 and 1996, and the related statements of operations,
stockholder's equity, and cash flows for each of the years in the three-year
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 financial statements referred to above present fairly,
in all material respects, the financial position of DTI Technologies, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
July 25, 1997
Boston, Massachusetts
F-63
<PAGE> 146
DTI TECHNOLOGIES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997
----------------- ----------
1995 1996
------ ------ (UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTES 4 AND 5)
Current assets:
Cash and cash equivalents.................................... $ 22 $ 111 $ 68
Trade accounts receivable, net of allowance for doubtful
accounts of $18, $65 and $60, respectively................ 466 1,056 1,270
Other receivables............................................ 7 17 53
Inventories.................................................. 545 552 251
Prepaid expenses and other current assets.................... 32 57 76
Net deferred income tax assets (note 7)...................... 85 149 162
------ ------ ----------
Total current assets................................. 1,157 1,942 1,880
Property and equipment, net of accumulated amortization and
depreciation (note 2)........................................ 171 361 370
Excess of cost over fair value of net assets acquired, net of
accumulated amortization (note 3)............................ -- 658 623
Other assets................................................... 18 29 14
------ ------ ----------
$1,346 $2,990 $2,887
====== ====== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Line of credit (notes 4 and 10).............................. $ -- $ -- $ 40
Current installments of obligations under consulting
agreement (note 3)........................................ -- 37 39
Current installments of obligations under capital leases
(note 6).................................................. 31 48 51
Current installments of long-term debt (note 5).............. 55 75 347
Accounts payable (note 9).................................... 690 1,497 1,179
Accrued expenses............................................. 247 270 274
Deferred revenue............................................. 15 122 75
------ ------ ----------
Total current liabilities............................ 1,038 2,049 2,005
Obligations under consulting agreement, excluding current
installments (note 3)........................................ -- 523 503
Obligations under capital leases, excluding current
installments (note 6)........................................ 71 48 20
Long-term debt, excluding current installments (note 5)........ 114 342 419
------ ------ ----------
Total liabilities.................................... 1,223 2,962 2,947
------ ------ ----------
Commitments and contingencies (note 6, 8, and 10)
Stockholder's equity (deficit):
Common stock, no par value, authorized and issued 100 shares,
50 shares outstanding..................................... 14 14 14
Additional paid-in capital................................... 26 26 26
Retained earnings (accumulated deficit)...................... 90 (5) (93)
Less: Treasury stock, 50 shares, at cost..................... (7) (7) (7)
------ ------ ----------
Total stockholder's equity (deficit)................. 123 28 (60)
------ ------ ----------
$1,346 $2,990 $2,887
====== ====== ========
</TABLE>
See accompanying notes to financial statements.
F-64
<PAGE> 147
DTI TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems sales................................... $2,100 $2,721 $5,046 $1,483 $4,242
Service, consulting, training and other
revenues..................................... 124 261 705 208 614
------ ------ ------ ------ ------
Total revenues.......................... 2,224 2,982 5,751 1,691 4,856
------ ------ ------ ------ ------
Costs and expenses:
Cost of revenues................................ 1,305 1,552 3,142 797 3,054
Selling and marketing........................... 599 795 903 494 581
General and administrative...................... 345 397 1,823 236 1,269
------ ------ ------ ------ ------
Total costs and expenses................ 2,249 2,744 5,868 1,527 4,904
------ ------ ------ ------ ------
Operating income (loss)................. (25) 238 (117) 164 (48)
------ ------ ------ ------ ------
Other income (expense):
Interest expense, net........................... (26) (30) (67) (13) (66)
Other income, net............................... -- 9 65 13 13
------ ------ ------ ------ ------
(26) (21) (2) -- (53)
------ ------ ------ ------ ------
Income (loss) before income taxes....... (51) 217 (119) 164 (101)
Income tax (expense) benefit (note 7)............. 14 (97) 24 (73) 13
------ ------ ------ ------ ------
Net income (loss)................................. $ (37) $ 120 $ (95) $ 91 $ (88)
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE> 148
DTI TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
---------------- PAID-IN (ACCUMULATED TREASURY STOCKHOLDER'S
SHARES AMOUNT CAPITAL DEFICIT) STOCK EQUITY
------ ------ ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994...... 50 $ 14 $ 26 $ 7 $ (7) $ 40
Net loss......................... -- -- -- (37) -- (37)
-- ------ --- ------ --- ------
Balances at December 31, 1994.... 50 14 26 (30) (7) 3
Net income....................... -- -- -- 120 -- 120
-- ------ --- ------ --- ------
Balances at December 31, 1995.... 50 14 26 90 (7) 123
Net loss......................... -- -- -- (95) -- (95)
-- ------ --- ------ --- ------
Balances at December 31, 1996.... 50 $ 14 $ 26 $ (5) $ (7) $ 28
===== ====== ======= ========== ====== =========
</TABLE>
See accompanying notes to financial statements.
F-66
<PAGE> 149
DTI TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER ENDED
31, JUNE 30,
-------------------- ------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(37) $120 $(95) $ 91 $(88)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 33 44 128 40 81
Provision for loss on doubtful accounts............ -- 12 41 -- (5)
Changes in operating assets and liabilities:
Trade accounts receivable....................... 151 (199) (60) 38 (209)
Other receivables............................... (7) 46 (1) (2) (36)
Net deferred income tax assets.................. (30) -- (64) -- (13)
Inventories..................................... (32) (412) 1,053 (488) 301
Prepaid expenses and other assets............... (14) (4) (6) (1) (4)
Accounts payable and accrued expenses........... 27 502 (780) 468 86
Deferred revenue................................ 5 -- 53 (4) (47)
---- ---- ---- ---- ----
Net cash provided by operating activities..... 96 109 269 142 66
---- ---- ---- ---- ----
Cash flows from investing activities:
Purchases of property and equipment..................... (6) (64) (150) (86) (55)
Cash acquired from purchase of Computersmith, Inc....... -- -- 81 -- --
---- ---- ---- ---- ----
Net cash used in investing activities......... (6) (64) (69) (86) (55)
---- ---- ---- ---- ----
Cash flows from financing activities:
Borrowings under line of credit......................... -- -- -- -- 40
Proceeds from issuance of long-term debt................ 50 -- 305 -- --
Principal repayments of long-term debt.................. (93) (52) (355) (28) (51)
Principal payments on capital lease obligations......... (10) (26) (41) (23) (25)
Principal payments of consulting obligation............. -- -- (20) -- (18)
---- ---- ---- ---- ----
Net cash used in financing activities......... (53) (78) (111) (51) (54)
---- ---- ---- ---- ----
Net increase (decrease) in cash and cash equivalents...... 37 (33) 89 5 (43)
Cash and cash equivalents, beginning of period............ 18 55 22 22 111
---- ---- ---- ---- ----
Cash and cash equivalents, end of period.................. $ 55 $ 22 $111 $ 27 $ 68
==== ==== ==== ==== ====
Supplemental disclosure of cash flow information:
Cash paid during period for interest.................... $ 23 $ 22 $ 28 $ 14 $ 28
==== ==== ==== ==== ====
Cash paid during period for income taxes................ $ 17 $ 9 $105 $ 21 $ 6
==== ==== ==== ==== ====
Noncash financing activities:
Conversion of accounts payable to promissory note....... -- -- -- -- 400
==== ==== ==== ==== ====
Capital lease obligation entered into................... $ 41 $ 94 $ 35 $ 35 $ --
==== ==== ==== ==== ====
Cash acquired from purchase of Computersmith, Inc. (note
3):
Property and equipment acquired......................... $100
Working capital acquired, net of cash................... 5
Goodwill................................................ 692
Note payable assumed.................................... (298)
Consulting agreement obligation incurred................ (580)
----
Cash acquired........................................ $(81)
----
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE> 150
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS
DTI Technologies, Inc. (the "Company") sells, installs and services CAD-CAM
software systems primarily to the manufacturing industry and educational
institutions. The Company also provides training services and re-sells computer
hardware. The Company's operations are located in Bedford, New Hampshire, with
training facilities located in Massachusetts, New York and Connecticut.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain 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 reported
periods. Actual results could differ from those estimates.
(b) Revenue Recognition
Revenues from software system sales are recognized when the product is
shipped or upon customer acceptance in instances where the software and computer
hardware is to be installed at the customer location. Revenues from consulting,
training or other services are recognized as the related services are performed.
Revenues from prepaid customer support agreements are recognized ratably
over the life of the support agreement.
(c) Cash and Cash Equivalents
The carrying value of cash and cash equivalents approximates fair value.
For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and equipment held under capital leases are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Equipment........................................... 3 years
Furniture and fixtures.............................. 7 years
Automobiles......................................... 7 years
Leasehold improvements.............................. 5 years
</TABLE>
F-68
<PAGE> 151
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(f) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over fair value of net assets acquired is being
amortized on the straight-line method over ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the intangible balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of the impairment, if any, is measured based on projected discounted future cash
flows using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of the intangible asset will be impacted if
estimated future operating cash flows are not achieved.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Interim Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1997 and 1996 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been
included. The results for the interim periods are not necessarily indicative of
the results to be achieved for the full fiscal year.
(2) PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Equipment................................................... $ 329 $ 498
Equipment held under capital leases......................... 134 169
Furniture and fixtures...................................... 51 51
Automobiles................................................. 12 12
Leasehold improvements...................................... 5 85
----- -----
531 815
Less: Accumulated depreciation and amortization............. (360) (454)
----- -----
$ 171 $ 361
===== =====
</TABLE>
Accumulated amortization for equipment under capital leases was $36,000 and
$79,000 for the years ended December 31, 1995 and 1996, respectively.
(3) EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Effective July 1, 1996, the Company purchased all of the assets of
Computersmith, Inc. and assumed certain liabilities. Under the terms of the
purchase agreement, the Company entered into a 10-year consulting agreement with
the former owners of Computersmith, Inc. The consulting agreement contains a
covenant not to compete and provides for annual payments of $93,000 per year
including principal and interest at
F-69
<PAGE> 152
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10.25% per annum. The consulting agreement was accounted for as consideration
for the assets acquired net of the liabilities assumed. In addition, the Company
entered into two-year employment agreements with the former owners of
Computersmith, Inc. The employment agreements contain covenants not to compete
and provide for annual compensation of $46,000 per year to each of the two
former owners. There was no other consideration paid.
The following summarizes the assets acquired and liabilities assumed (in
thousands):
<TABLE>
<S> <C>
Assets acquired:
Property and equipment.............................................. $100
Working capital..................................................... 86
Excess of cost over fair value of assets............................ 692
----
$878
====
Liabilities assumed:
Note payable........................................................ $298
Consulting agreement obligation..................................... 580
----
$878
====
</TABLE>
Excess of cost over fair value of net assets acquired is comprised of the
following at December 31, 1996 (in thousands):
<TABLE>
<S> <C>
Excess of cost over fair value of net assets acquired................. $692
Less: Accumulated amortization........................................ (34)
----
$658
====
</TABLE>
(4) REVOLVING LINE OF CREDIT
In August 1996, the Company entered into a $180,000 revolving line of
credit agreement with a bank. As of December 31, 1996, no borrowings were
outstanding under this agreement. Interest accrues at the prime rate plus 2%.
The line of credit is secured by substantially all of the Company's assets and
by the personal guarantee of the Company's sole stockholder.
F-70
<PAGE> 153
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Note payable to bank. Monthly payments of principal and
interest required through August 2003. Interest at prime
plus 2.00% (10.25% at December 31, 1996). Note secured by
substantially all of the Company's assets and the personal
guarantee of the sole stockholder and his wife............ $ -- $300
Note payable to bank. Monthly payments of principal and
interest required through August 1999. Interest at prime
plus 2.25% (10.5% at December 31, 1996). Note secured by
substantially all of the Company's assets and the personal
guarantee of the sole stockholder......................... 39 30
Note payable to bank. Monthly payments of principal and
interest required through May 1999. Interest at prime plus
2.25% (10.5% at December 31, 1996). Note secured by
substantially all of the Company's assets and the personal
guarantee of the sole stockholder......................... 115 87
Note payable to bank. Monthly payments of principal and
interest required through September 1996. Interest at
prime plus 2.25%. Note balance paid off during 1996....... 15 --
---- ----
169 417
Less current installments................................... (55) (75)
---- ----
$114 $342
==== ====
</TABLE>
Long-term debt at December 31, 1996 is scheduled to be repaid as follows:
<TABLE>
<S> <C>
Year ended December 31:
1997................................................ $ 75
1998................................................ 82
1999................................................ 66
2000................................................ 43
2001................................................ 48
Thereafter.......................................... 103
----
$417
====
</TABLE>
(6) LEASES
The Company is obligated under various capital equipment leases that expire
at various dates during the next four years.
The Company has entered into noncancelable operating leases covering its
office facilities and certain equipment which expire through 2002. Rent expense
amounted to $4,000, $137,000 and $182,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
F-71
<PAGE> 154
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future net minimum obligations under capital and operating leases are as
follows at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31:
1997.................................................... $ 55 $ 167
1998.................................................... 37 134
1999.................................................... 13 311
2000.................................................... 2 60
2001.................................................... -- 43
Thereafter.............................................. -- 25
------- ---------
Total minimum lease payments.................... 107 $ 740
=======
Less amount representing interest....................... 11
-------
Present value of net minimum capital lease
payments........................................ 96
Less current installments of obligations under capital
leases............................................... 48
-------
Obligations under capital leases, excluding current
installments.................................... $ 48
=====
</TABLE>
(7) INCOME TAXES
Income tax expense (benefit) attributable to income (loss) from operations
for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current............................................. $(12) $(74) $(31)
Deferred............................................ 23 -- 49
---- ---- ----
11 (74) 18
---- ---- ----
State and local:
Current............................................. (4) (23) (9)
Deferred............................................ 7 -- 15
---- ---- ----
3 (23) 6
---- ---- ----
Total tax (expense) benefit................. $ 14 $(97) $ 24
==== ==== ====
</TABLE>
Income tax (expense) benefit differs from the amounts computed by applying
the federal statutory rate to pre-tax income (loss) for the years ended December
31 as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax (expense) benefit............. $ 17 $(73) $ 40
State and local income tax (expense) benefit, net of
federal tax benefit................................. 2 (15) 4
Nondeductible expenses................................ (5) (9) (20)
---- ---- ----
Total tax (expense) benefit................. $ 14 $(97) $ 24
==== ==== ====
</TABLE>
F-72
<PAGE> 155
DTI TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
---- (IN ----
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses............................................ $ 2 $ 4
Allowance for doubtful accounts............................. 7 26
Deferred revenue............................................ -- 25
Inventories................................................. 79 97
---- ----
Total gross deferred tax assets..................... 88 152
Deferred tax liability:
Property and equipment, due to differences in
depreciation............................................. 3 3
---- ----
Total gross deferred tax liability.................. 3 3
---- ----
Net deferred income tax assets................................ $85 $149
==== ====
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.
(8) RELATED PARTY TRANSACTIONS
The Company leases office space from the stockholder of the Company. The
lease is for a three-year term expiring in August 1998 and has been classified
as an operating lease (see Note 6). Total rent expense under this lease for the
years ended December 31, 1994, 1995 and 1996 was $0, $15,000 and $35,000,
respectively.
(9) SIGNIFICANT SUPPLIER
For the years ended December 31, 1994, 1995 and 1996, one supplier
accounted for approximately 70%, 62% and 49% of total purchases, respectively.
This supplier accounted for 79% and 64% of trade accounts payable at December
31, 1995 and 1996, respectively.
(10) SUBSEQUENT EVENTS
(a) Line of Credit
As of June 30, 1997, $40,000 was outstanding under the bank revolving line
of credit agreement (see Note 4). In July 1997, the bank increased the line of
credit borrowing to $300,000.
(b) Long-Term Debt
In January 1997, the Company converted certain accounts payable to their
significant supplier to a note payable in the amount of $400,000. The note bears
interest of 6.5% and is payable in eighteen monthly installments commencing on
June 30, 1997.
(c) Merger Agreement
Subsequent to year end, the Company entered into a letter of intent with
Universal Document Management Systems, Inc. ("UDMS") whereby UDMS will acquire
the outstanding common stock of the Company in conjunction with a proposed
initial public offering of common stock of UDMS.
F-73
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Technical Software, Inc.:
We have audited the accompanying balance sheets of Technical Software, Inc.
as of December 31, 1995 and 1996, and the related statements of earnings and
retained earnings, and cash flows for each of the years in the three-year 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 financial statements referred to above present fairly,
in all material respects, the financial position of Technical Software, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
July 21, 1997
Columbus, Ohio
F-74
<PAGE> 157
TECHNICAL SOFTWARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 304,185 $ 300,633 $ 100,628
Trade accounts receivable.............................. 715,627 587,054 501,008
Other receivables...................................... 24,488 19,828 6,252
Inventories............................................ 421,985 246,285 190,624
---------- ---------- -----------
Total current assets........................... 1,466,285 1,153,800 798,512
Property and equipment, net of accumulated
depreciation........................................... 357,478 344,275 322,387
Other assets............................................. 12,760 12,760 12,570
---------- ---------- -----------
Total assets................................... $1,836,523 $1,510,835 $ 1,133,469
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of notes payable to banks.............. $ -- $ -- $ 73,700
Revolving lines of credit.............................. 320,000 245,000 --
Accounts payable....................................... 557,697 545,345 426,684
Accrued compensation and related benefits.............. 132,845 92,676 46,013
Other accrued expenses................................. 41,990 56,943 36,814
Deferred revenue on training and support contracts..... 97,331 129,745 89,225
---------- ---------- -----------
Total current liabilities...................... 1,149,863 1,069,709 672,436
Notes payable to banks, excluding current portion........ -- -- 130,126
---------- ---------- -----------
Total liabilities.............................. 1,149,863 1,069,709 802,562
---------- ---------- -----------
Stockholder's equity:
Common stock; no par value; 750 shares authorized; 100
shares issued and outstanding at stated value....... 500 500 500
Retained earnings...................................... 686,160 440,626 330,407
---------- ---------- -----------
Total stockholder's equity..................... 686,660 441,126 330,907
---------- ---------- -----------
Commitments (Note 6 and 8)
Total liabilities and stockholder's equity..... $1,836,523 $1,510,835 $ 1,133,469
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE> 158
TECHNICAL SOFTWARE, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software and hardware sales..... $4,786,378 $5,426,822 $3,575,230 $1,872,333 $1,803,586
Support revenues................ 543,059 579,438 690,271 412,788 275,268
Commission revenues............. 361,006 450,603 547,869 292,831 222,504
Training revenues............... 717,299 480,897 453,187 236,647 269,311
Installation, consulting and
other revenues............... 343,856 430,771 421,995 211,804 192,547
---------- ---------- ---------- ---------- ----------
Total revenues.......... 6,751,598 7,368,531 5,688,552 3,026,403 2,763,216
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Software and hardware........... 3,009,258 3,159,819 2,161,294 1,067,880 1,231,200
Selling and marketing........... 1,694,267 1,624,503 1,043,695 547,926 463,586
General and administrative...... 2,007,588 2,338,845 2,550,405 1,273,306 1,188,479
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.............. 6,711,113 7,123,167 5,755,394 2,889,112 2,883,265
---------- ---------- ---------- ---------- ----------
Earnings (loss) from
operations............ 40,485 245,364 (66,842) 137,291 (120,049)
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest income................. 13,874 17,429 16,404 8,792 8,143
Interest expense................ (17,413) (13,954) (28,333) (12,869) (8,723)
Other, net...................... 51,709 (11,892) 43,237 13,528 10,410
---------- ---------- ---------- ---------- ----------
48,170 (8,417) 31,308 9,451 9,830
---------- ---------- ---------- ---------- ----------
Net earnings (loss)..... 88,655 236,947 (35,534) 146,742 (110,219)
Distributions paid................ (118,500) (77,000) (210,000) (165,000) --
Retained earnings:
Beginning of period............. 556,058 526,213 686,160 686,160 440,626
---------- ---------- ---------- ---------- ----------
End of period................... $ 526,213 $ 686,160 $ 440,626 $ 667,902 $ 330,407
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE> 159
TECHNICAL SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- --------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss).............. $ 88,655 $ 236,947 $ (35,534) $ 146,742 $ (110,219)
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation and
amortization............. 65,014 78,113 80,837 40,150 40,690
Loss on sale of property and
equipment................ -- 19,308 10,498 -- 759
Gain on sale of investment
securities
available-for-sale....... (50,287) -- (34,110) (12,556) --
Change in operating assets
and liabilities:
Trade accounts
receivable............. (97,990) (172,321) 128,573 177,041 86,046
Other receivables........ (76,881) 52,393 4,660 (15,172) 13,576
Inventories.............. (109,833) (66,998) 175,700 11,561 55,661
Other assets............. (10,179) 11,179 -- -- 190
Accounts payable......... 174,522 (131,186) (12,352) (31,538) (118,661)
Accrued compensation and
related benefits....... 21,566 55,053 (40,169) (36,555) (46,663)
Other accrued expenses... 9,800 14,298 14,953 (4,034) (20,129)
Deferred revenue......... 68,074 29,257 32,414 19,014 (40,520)
--------- --------- --------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... 82,461 126,043 325,470 294,653 (139,270)
--------- --------- --------- ----------- -----------
Cash flows from investing
activities:
Purchases of property and
equipment..................... (110,642) (228,429) (78,132) (70,832) (19,561)
Proceeds from sale of investment
securities
available-for-sale............ 149,037 -- 233,360 101,806 --
Purchases of investment
securities
available-for-sale............ -- -- (199,250) (89,250) --
--------- --------- --------- ----------- -----------
Net cash provided by
(used in) investing
activities.......... 38,395 (228,429) (44,022) (58,276) (19,561)
--------- --------- --------- ----------- -----------
Cash flows from financing
activities:
Proceeds from notes payable to
banks......................... -- -- -- -- 226,498
Repayments on notes payable to
banks......................... -- -- -- -- (22,672)
Net borrowings (repayments) under
revolving lines of credit..... (35,000) 185,000 (75,000) (75,000) (245,000)
Distributions paid............... (118,500) (77,000) (210,000) (165,000) --
--------- --------- --------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... (153,500) 108,000 (285,000) (240,000) (41,174)
--------- --------- --------- ----------- -----------
Increase (decrease) in cash and
cash equivalents................. (32,644) 5,614 (3,552) (3,623) (200,005)
Cash and cash
equivalents -- beginning of
period........................... 331,215 298,571 304,185 304,185 300,633
--------- --------- --------- ----------- -----------
Cash and cash equivalents -- end of
period........................... $ 298,571 $ 304,185 $ 300,633 $ 300,562 $ 100,628
========= ========= ========= ========= =========
Supplemental disclosures of cash
flow information:
Cash paid for interest........... $ 17,413 $ 13,954 $ 28,333 $ 8,792 $ 8,723
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-77
<PAGE> 160
TECHNICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 AND JUNE 30, 1997
INFORMATION PERTAINING TO THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS
UNAUDITED.
(1) DESCRIPTION OF BUSINESS
Technical Software, Inc. (the Company) provides computer-aided engineering
software, training, support, and consulting services. The Company serves various
customers including manufacturers, architects, consulting engineers and
designers. In addition, the Company works with schools to provide teachers with
the tools to teach computer-aided design.
The Company is an S corporation that was incorporated in the state of Ohio
in 1983. It is headquartered in Cleveland, Ohio.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Unaudited Interim Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited; however, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial statements for the interim periods have been
included. The results for the interim periods are not necessarily indicative of
results to be achieved for the full fiscal year.
(b) Cash and Cash Equivalents
Cash equivalents of approximately $300,000 at December 31, 1995 and 1996
consist of money market funds and a certificate of deposit with an initial term
of less than three months. Use of the Company's cash equivalents is restricted
under the Company's lines of credit (see Note 4). For purposes of the statements
of cash flows, the Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
(c) Inventories
Inventories, which consist of purchased software and computer hardware, are
stated at the lower of cost or market, and cost is determined by the first-in,
first-out (FIFO) method.
(d) Investment Securities
The Company classifies its investment securities as available-for-sale and
records them at fair value. At December 31, 1995 and 1996, the Company held no
investment securities. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification basis.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation on office equipment
and furniture and fixtures is calculated on the straight-line method over the
estimated useful lives of the assets which range from 5 to 15 years. Leasehold
improvements are amortized on the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
(f) Income Taxes
The Company has elected by consent of its stockholder to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those provisions,
the Company does not pay federal or state income taxes on its taxable income.
Instead, the stockholder is liable for federal and state income taxes on the
F-78
<PAGE> 161
TECHNICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's taxable income. Accordingly, these financial statements do not contain
a provision for income taxes.
(g) Revenue Recognition
Revenue from software and computer hardware sales is recognized when the
product is shipped or upon customer acceptance in instances where the software
or computer hardware is to be installed at the customer location. The Company
allows its customers to return product for exchange or credit subject to certain
limitations.
Commission revenues are recognized when earned, and revenues from training,
installation, consulting and other services are recognized when the related
services are performed. Revenues from prepaid customer support agreements are
recognized ratably over the life of the support agreement.
(h) Product Rebates and Marketing Funds
Primary suppliers of the Company provide various incentives for promoting
and marketing their product offerings. The funds received are based on the
purchases or sales of the suppliers' products or upon performance of certain
advertising and other market development activities. Rebates are recorded as a
reduction of the cost of software and hardware when received. Marketing funds
are recorded as a reduction of selling and marketing expenses when earned.
(i) Fair Value of Financial Instruments
The carrying value of the Company's financial instruments approximates fair
value due to the short maturity of those instruments.
(j) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Net property and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Office equipment..................................... $ 385,773 $ 389,663
Furniture and fixtures............................... 62,667 62,667
Leasehold improvements............................... 48,044 58,797
--------- ---------
496,484 511,127
Less accumulated depreciation and amortization....... (139,006) (166,852)
--------- ---------
$ 357,478 $ 344,275
========= =========
</TABLE>
(4) REVOLVING LINES OF CREDIT
The Company has two revolving lines of credit with banks that enable it to
borrow up to $850,000 at interest rates ranging from 1.5% above the banks'
short-term investment rate to 0.5% above prime, subject to certain restrictions
and borrowing levels as defined in the agreements. The weighted-average interest
rate charged on both lines of credit at December 31, 1995 and 1996 was 6.6%. At
December 31, 1996, the
F-79
<PAGE> 162
TECHNICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company had additional borrowing availability under the lines of credit of
$605,000. The lines of credit, which are payable on demand, are secured by the
Company's cash equivalents and guaranteed by the Company's president and
stockholder.
Subsequent to year-end, the Company's existing lines of credit matured and
the Company secured a new $340,000 line of credit with interest at 0.5% plus
prime which is not guaranteed by the Company's president and stockholder. The
Company also borrowed an additional $203,000, net of $23,000 in repayments,
under various long-term debt arrangements during the period from January 1, 1997
to June 30, 1997.
(5) EMPLOYEE RETIREMENT BENEFIT PLAN
The Company has a 401(k) plan that covers all employees having attained six
months of service and being at least 20 1/2 years old, with an annual entry date
on January 1. Employees are eligible to make voluntary contributions to the plan
of up to 15% of their earnings. The Company matches 10% of the employee
contributions. For 1994, 1995 and 1996, the Company's match was $13,733, $11,540
and $16,801, respectively.
The Plan also has a discretionary flat-dollar contribution which is at the
discretion of the Board of Directors. There were no discretionary flat-dollar
contributions in 1994, 1995 or 1996.
(6) COMMITMENTS
The Company has entered into noncancelable operating leases covering its
office and warehouse facilities and certain equipment. The Company's office and
warehouse facilities lease, which is guaranteed by the Company's president and
stockholder, has an original term expiring February 28, 2003. During July 1997,
the Company exercised a cancellation provision in the lease agreement.
Minimum future annual rental payments under noncancelable operating leases
having original terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997............................................... $90,208
1998............................................... 2,996
-------
$93,204
=======
</TABLE>
Total rental expense under operating leases approximated $171,000, $159,000
and $170,000 in 1994, 1995 and 1996, respectively.
(7) MAJOR SUPPLIERS AND CUSTOMERS
The Company's business is dependent in large measure upon its relationship
with key suppliers since a substantial portion of the Company's revenue is
derived from the sales of the products of such key suppliers. Approximately 70%,
59% and 50% of the Company's software and hardware sales for 1994, 1995 and
1996, respectively, were derived from products supplied by the Company's two
largest suppliers. Although the Company does not anticipate any contractual
changes with its suppliers, termination of or a material change to the Company's
agreements with these suppliers, or an insufficient or interrupted supply of
suppliers' products would have a material adverse effect on the Company's
business.
The Company sells its products to a large base of corporate customers
throughout the United States. The concentration of credit risk with respect to
the Company's unsecured trade receivables is considered to be limited because
the Company closely monitors the credit worthiness of its customers. For the
years ended December 31, 1994, 1995 and 1996, one customer accounted for
approximately 9%, 13% and 10% of total
F-80
<PAGE> 163
TECHNICAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
revenues, respectively. This customer accounts for 7% and 17% of trade accounts
receivable at December 31, 1995 and 1996, respectively.
(8) SUBSEQUENT EVENT
On May 5, 1997, the Company entered into letter of intent with Universal
Document Management Systems, Inc. ("UDMS") whereby UDMS will acquire the
outstanding common stock of the Company in conjunction with a proposed initial
public offering of common stock of UDMS. The Company has committed to give a
bonus to certain employees of the Company having an aggregate value of $100,000
upon consummation of the acquisition. Final terms have yet to be determined.
F-81
<PAGE> 164
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Synergis Technologies, Inc.:
We have audited the accompanying balance sheets of Synergis Technologies,
Inc. as of September 30, 1995 and 1996, and the related statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Synergis Technologies, Inc.
as of September 30, 1995 and 1996, and the results of its operations and its
cash flows for each of the years in the three-year period ended September 30,
1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Philadelphia, PA
July 31, 1997, except as to the second
paragraph of note 10, as to which
the date is August 26, 1997.
F-82
<PAGE> 165
SYNERGIS TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1995 1996 JUNE 30, 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 333,000 $ 282,000 $ 290,000
Trade accounts receivable, net of allowances of $0,
$20,000, and $20,000 at 1995, 1996 and 1997...... 272,000 545,000 779,000
Other receivables................................... 1,000 4,000 18,000
Inventories......................................... 453,000 360,000 131,000
Prepaid expenses and other current assets........... 15,000 24,000 33,000
---------- ---------- ----------
Total current assets........................ 1,074,000 1,215,000 1,251,000
Capitalized software development costs, net of
accumulated amortization............................ 25,000 -- 170,000
Property and equipment, net of accumulated
depreciation........................................ 137,000 170,000 145,000
Other assets.......................................... 5,000 9,000 10,000
---------- ---------- ----------
Total assets................................ $1,241,000 $1,394,000 $ 1,576,000
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current installments................ $ 13,000 $ 19,000 $ 19,000
Accounts payable and accrued expenses............... 487,000 513,000 745,000
Customer deposits................................... 105,000 68,000 --
Deferred revenue.................................... 77,000 129,000 108,000
---------- ---------- ----------
Total current liabilities............................. 682,000 729,000 872,000
Long-term debt, excluding current installments........ 110,000 104,000 90,000
---------- ---------- ----------
Total liabilities........................... 792,000 833,000 962,000
Commitments (note 7)
Shareholders' equity:
Common stock, .01 par value, authorized 200,000
shares; 90,000 issued and outstanding at
September 30, 1995 and 1996 and June 30, 1997.... 1,000 1,000 1,000
Additional paid-in capital.......................... 39,000 39,000 39,000
Retained earnings................................... 409,000 521,000 574,000
---------- ---------- ----------
Total shareholders' equity.................. 449,000 561,000 614,000
---------- ---------- ----------
Total liabilities and shareholders'
equity.................................... $1,241,000 $1,394,000 $ 1,576,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-83
<PAGE> 166
SYNERGIS TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTH PERIODS
SEPTEMBER 30, ENDED JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems, hardware and installation
sales........................... $1,964,000 $ 697,000 $ 857,000 $ 634,000 $ 671,000
Software sales..................... 1,935,000 1,593,000 3,229,000 2,198,000 2,879,000
Service, consulting, and other
revenues........................ 852,000 899,000 813,000 747,000 827,000
---------- ---------- ---------- ---------- ----------
Total revenues............. 4,751,000 3,189,000 4,899,000 3,579,000 4,377,000
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Hardware and software.............. 3,411,000 2,052,000 3,195,000 2,269,000 3,097,000
Selling and marketing.............. 514,000 383,000 581,000 376,000 558,000
Research and development........... 80,000 33,000 237,000 169,000 70,000
General and administrative......... 644,000 610,000 729,000 539,000 557,000
---------- ---------- ---------- ---------- ----------
Total costs and expenses............. 4,649,000 3,078,000 4,742,000 3,353,000 4,282,000
---------- ---------- ---------- ---------- ----------
Operating income..................... 102,000 111,000 157,000 226,000 95,000
---------- ---------- ---------- ---------- ----------
Other income (expense):
Interest expense, net.............. (33,000) (21,000) (8,000) (8,000) (8,000)
Other, net......................... 4,000 19,000 9,000 9,000 6,000
---------- ---------- ---------- ---------- ----------
(29,000) (2,000) 1,000 1,000 (2,000)
---------- ---------- ---------- ---------- ----------
Net income........................... $ 73,000 $ 109,000 $ 158,000 $ 227,000 $ 93,000
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-84
<PAGE> 167
SYNERGIS TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at October 1, 1993.................... 90,000 $1,000 $ 39,000 $274,000 $ 314,000
Dividends...................................... -- -- -- (13,000) (13,000)
Net income..................................... -- -- -- 73,000 73,000
------ ----- ------- -------- --------
Balances at September 30, 1994................. 90,000 1,000 39,000 334,000 374,000
Dividends...................................... -- -- -- (34,000) (34,000)
Net income..................................... -- -- -- 109,000 109,000
------ ----- ------- -------- --------
Balances at September 30, 1995................. 90,000 1,000 39,000 409,000 449,000
Dividends...................................... -- -- -- (46,000) (46,000)
Net income..................................... -- -- -- 158,000 158,000
------ ----- ------- -------- --------
Balances at September 30, 1996................. 90,000 1,000 39,000 521,000 561,000
Dividends (unaudited).......................... -- -- -- (40,000) (40,000)
Net income (unaudited)......................... -- -- -- 93,000 93,000
------ ----- ------- -------- --------
Balances at June 30, 1997 (unaudited).......... 90,000 $1,000 $ 39,000 $574,000 $ 614,000
====== ===== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-85
<PAGE> 168
SYNERGIS TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTH PERIODS
SEPTEMBER 30, ENDED JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 73,000 $ 109,000 $ 158,000 $ 227,000 $ 93,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization..... 125,000 149,000 116,000 83,000 53,000
Loss on disposition of property
and equipment................... 4,000 4,000 -- -- --
Changes in operating assets and
liabilities:
Trade accounts receivable....... (144,000) 273,000 (273,000) (182,000) (234,000)
Other receivables............... 1,000 (1,000) (3,000) (3,000) (14,000)
Inventories..................... 119,000 (315,000) 76,000 (85,000) 229,000
Prepaid expenses and other
assets....................... (3,000) 8,000 (13,000) (7,000) (180,000)
Accounts payable and accrued
expenses..................... 55,000 189,000 26,000 33,000 232,000
Deferred revenue................ (18,000) 12,000 52,000 (44,000) (21,000)
Customer deposits............... (14,000) 85,000 (37,000) (105,000) (68,000)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating activities... 198,000 513,000 102,000 (83,000) 90,000
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Purchases of property and
equipment......................... (27,000) (50,000) (92,000) (60,000) (28,000)
--------- --------- --------- --------- ---------
Net cash used in investing
activities................. (27,000) (50,000) (92,000) (60,000) (28,000)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Repayments under revolving line of
credit............................ (155,000) (105,000) -- -- --
Principal repayments of long-term
debt.............................. (19,000) (60,000) (15,000) (10,000) (14,000)
Proceeds from borrowings............. -- -- -- 15,000 --
Principal payments on capital lease
obligations....................... (11,000) (2,000) -- -- --
Dividends............................ (13,000) (34,000) (46,000) (13,000) (40,000)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing activities... (198,000) (201,000) (61,000) (8,000) (54,000)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents..................... (27,000) 262,000 (51,000) (151,000) 8,000
Cash and cash equivalents, beginning of
period............................... 98,000 71,000 333,000 333,000 282,000
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of
period............................... $ 71,000 $ 333,000 $ 282,000 $ 182,000 $ 290,000
========= ========= ========= ========= =========
Cash paid during the period for
interest............................. $ 34,000 $ 21,000 $ 12,000 $ 9,000 $ 8,000
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-86
<PAGE> 169
SYNERGIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTH PERIODS
ENDED JUNE 30, 1997 AND 1996, RESPECTIVELY, IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
Synergis Technologies, Inc. is a provider of AutoCAD-based integrated
systems and document management software and solutions primarily through
Autodesk software products. The Company also provides maintenance support and
customer training for its installed products.
Synergis is headquartered in Quakertown, PA and has offices and training
centers in Blue Bell and York, PA to supplement its selling efforts primarily to
customers in the Mid-Atlantic region.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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 reported
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months or less
to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, and cost is
determined by the average cost method which approximates first-in, first-out
(FIFO) method. Vendor rebates are recorded as a reduction in the cost of the
related software products and are allocated to cost of sales when the related
product is sold.
Capitalized Software Development Costs
The Company accounts for software development costs in accordance with the
provisions of Statement of Accounting Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed. Costs
incurred in designing and developing computer software products are expensed as
research and development until technological feasibility has been established.
Technological feasibility is established upon completion of a working model.
Upon the achievement of technological feasibility, software development costs
are capitalized and subsequently reported at the lower of unamortized cost or
net realizable value.
Annual amortization expense is the greater of the amount computed, using
the ratio of the current year's revenues to the total of current and anticipated
future revenues, or the straight-line method over the remaining economic life of
the software, which does not exceed three years.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line or accelerated method over the estimated useful lives of the
assets. Leasehold improvements and equipment held under
F-87
<PAGE> 170
SYNERGIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
capital leases are amortized using the straight-line method over the shorter of
the lease term or estimated useful life of the asset. The estimated useful lives
are as follows:
<TABLE>
<S> <C>
Computer equipment.................................. 3 years
Furniture and fixtures.............................. 5 years
Automobiles......................................... 5 years
Equipment held under capital leases................. 5 years
</TABLE>
Income Taxes
The Company has elected by consent of its shareholders to be taxed under
the provisions of Subchapter S for federal and state income tax purposes. Under
those provisions, the Company does not pay corporate income taxes on its taxable
income. Instead, the shareholders are liable for individual income taxes on the
Company's taxable income. Accordingly, these financial statements do not contain
a provision for income taxes.
Revenue Recognition
Revenues from software and computer hardware sales are recognized when the
product is shipped or upon customer acceptance in instances where the software
and computer hardware is to be installed at the customer location. Revenues from
consulting, training or other services are recognized as the related services
are performed.
Revenues from prepaid customer support agreements are deferred and
recognized based upon contractual hour utilization by the customer under the
support agreement. The Company offered hardware maintenance contracts prior to
1995, which were generally for a one-year period with revenue recognized ratably
over the life of the agreement.
Supplemental Cash Flow Information
Inventory of $17,000 and $56,000 on hand at September 30, 1995 and 1994 was
capitalized as computer equipment and peripherals in 1996 and 1995,
respectively. In 1996, the Company acquired assets valued at $15,000 under an
installment purchase agreement.
Interim Financial Information
The financial statements as of June 30, 1997 and for the nine months ended
June 30, 1996 and 1997 are unaudited; however, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial statements for the interim periods have been
included. The results for the interim periods are not necessarily indicative of
the results to be achieved for the full fiscal year.
Product Warranties
The Company does not provide product warranties beyond the warranties
provided by the manufacturers. Accordingly, there is no warranty expense or
reserve reflected in the accompanying financial statements.
Advertising and Marketing Costs
The Company expenses all advertising and marketing costs as incurred. Total
expenses incurred net of supplier co-op advertising credits, were $5,000,
$3,000, and $38,000 for the years ended September 30, 1994, 1995, and 1996,
respectively, and $19,000 and $165,000 for the nine month periods ended June 30,
1996 and 1997, respectively.
F-88
<PAGE> 171
SYNERGIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Amortization of capitalized software development costs amounted to $25,000
for the years ended September 30, 1994, 1995, and 1996, respectively.
Capitalized software development costs were fully amortized at September 30,
1996. In January 1997, the Company determined that technological feasibility had
been reached for a document management software project, NFM(3), and accordingly
began capitalizing development costs totaling $170,000 through June 1997.
Amortization has not commenced as of June 30, 1997.
(4) PROPERTY AND EQUIPMENT
Net property and equipment is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment.......................... $328,000 $410,000 $ 423,000
Furniture and fixtures...................... 142,000 149,000 149,000
Automobiles................................. 26,000 29,000 29,000
Leasehold improvements...................... 2,000 2,000 22,000
-------- -------- --------
498,000 590,000 623,000
Less: accumulated depreciation and
amortization.............................. 361,000 420,000 478,000
-------- -------- --------
$137,000 $170,000 $ 145,000
======== ======== ========
</TABLE>
(5) LONG-TERM DEBT
The Company has available a $350,000 working capital line of credit bearing
interest at prime plus 1/2% (8.75% at September 30, 1996), which is renewable
annually and expires on March 1, 1998. No borrowings were outstanding at
September 30, 1996 or June 30, 1997.
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997
1995 1996 -----------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
10% unsecured note payable to principal
shareholder, due September 30, 2002....... $123,000 $110,000 $ 100,000
7.95% transportation equipment note payable
in monthly installments of principal and
interest of $465 through April 1999....... -- 13,000 9,000
-------- -------- -----------
123,000 123,000 109,000
Less current portion........................ 13,000 19,000 19,000
-------- -------- -----------
$110,000 $104,000 $ 90,000
======== ======== =========
</TABLE>
Interest expense on all debt was $33,000, $21,000 and $12,000 for the years
ended September 30, 1994, 1995 and 1996 respectively, including $19,000, $17,000
and $12,000 to the Company's principal shareholder. Interest expense was $8,000
for each of the nine month periods ended June 30, 1996 and 1997 and was paid to
the Company's principal shareholder. The note to the principal shareholder is
repayable immediately and in full in the event of a change of control of the
Company.
F-89
<PAGE> 172
SYNERGIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
Tax Escrow
The Company has elected to retain a September 30 year end rather than
change to a calendar year end. Pursuant to Internal Revenue Code regulations,
the Company is required to make tax escrow payments in amounts necessary to
compensate for the deferral of income recognition. Escrow payments totaling
$10,000 at September 30, 1996 are classified as deposits and are refundable upon
change to a calendar year end or conversion to a C corporation.
Built-in Gains Tax
The Company may be subject to a "built-in" gains tax on the unrealized
appreciation of its C corporation assets at the time of its S corporation
election (effective February 1, 1990). This tax, at the maximum C corporation
rate, is invoked if the Company sells or distributes such assets within the
first ten years of its election.
(7) COMMITMENTS
The Company has entered into noncancelable operating leases covering its
office and training facilities and certain equipment. Rent expense amounted to
$129,000, $67,000, and $73,000 for the years ended September 30, 1994, 1995, and
1996, respectively and $56,000 and $78,000 for the nine-month period ended June
30, 1996 and 1997, respectively. Future minimum payments under the leases at
September 30, 1996 are as follows:
<TABLE>
<S> <C>
Years ending September 30:
1997............................................ $ 95,000
1998............................................ 96,000
1999............................................ 104,000
2000............................................ 102,000
2001 and thereafter............................. 64,000
--------
Total minimum lease payments............ $461,000
========
</TABLE>
(8) SIGNIFICANT CUSTOMERS AND SUPPLIERS
For the year ended September 30, 1994, one customer accounted for
approximately 11% of total revenues. For the years ended September 30, 1995 and
1996, and the nine months ended June 30, 1997 no customers accounted for greater
than 10% of total revenues.
In 1994, 1995 and 1996, the Company purchased approximately $1,298,000,
$1,649,000, and $1,616,000, respectively, from a principal software supplier,
net of rebates of $53,000 in 1995 and $412,000 in 1996 of which $0 and $181,000
remains allocated as a reduction of inventory at September 30, 1995 and 1996,
respectively. For the nine month period ended June 30, 1996 and 1997, the
Company purchased approximately $1,199,000 and $1,163,000, respectively, from
the principal software supplier, net of rebates of $330,000 and $96,000 of which
$270,000 and $57,000 remained as a reduction of inventory at June 30, 1996 and
1997, respectively. This vendor accounted for approximately 69% and 51% of
accounts payable and accrued expenses at September 30, 1995 and 1996,
respectively, and approximately 64% at June 30, 1997.
The Company has entered into a licensing agreement with a software
developer for the use of licensed software in one of its products. Royalty
expense was $10,000, $3,000 and $6,000 for the years ended September 30, 1994,
1995 and 1996, respectively, and $2,000 for each of the nine month periods ended
June 30, 1996 and 1997.
F-90
<PAGE> 173
SYNERGIS TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan for its eligible employees who
have completed 12 months of service. Under the plan, the Company matches 20% of
the employee's first $4,000 contribution. Company contributions amounted to
$14,000, $9,000 and $6,000 for the years ended September 30, 1994, 1995 and
1996, respectively and $8,000 for the nine-month period ended June 30, 1997. Any
additional contributions to the profit sharing plan are based solely on the
discretion of the Board of Directors. There were no discretionary profit sharing
contributions for the years ended September 30, 1994, 1995 and 1996, or the
nine-month period ended June 30, 1997.
(10) SUBSEQUENT EVENT
On May 9, 1997, the Company entered into a letter of intent with Universal
Document Management Systems, Inc.("UDMS") whereby UDMS will acquire the
outstanding common stock of the Company in conjunction with a proposed initial
public offering of common stock of UDMS.
On August 26, 1997, Synergis signed a letter of intent for the Company or
its shareholders to acquire all the outstanding shares of Configured Systems,
Inc., a provider of AutoCAD-based integrated systems solutions and hardware
reseller, for approximately $450,000.
F-91
<PAGE> 174
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Mid-West CAD, Inc.:
We have audited the accompanying balance sheets of Mid-West CAD, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
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 audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of Mid-West CAD, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
July 25, 1997
Kansas City, Missouri
F-92
<PAGE> 175
MID-WEST CAD, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND (UNAUDITED) JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $127,712 $ 47,631 $ 77,117
Trade accounts receivable............................... 265,131 216,137 152,650
Other receivables....................................... 17,002 25,353 45,749
Income tax receivable................................... -- 6,748 3,540
Inventories............................................. 370,309 147,140 159,293
Prepaid expenses and other.............................. 3,987 7,668 11,109
-------- -------- -----------
Total current assets............................ 784,141 450,677 449,458
Property and equipment, net of accumulated depreciation... 104,301 197,090 180,271
Other assets.............................................. 10,528 11,577 12,397
-------- -------- -----------
$898,970 $659,344 $ 642,126
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current installments..................... $ 11,950 $ 14,798 $ 12,453
Accounts payable........................................ 371,350 129,346 132,182
Accrued expenses........................................ 124,326 124,695 51,243
Accrued income taxes payable............................ 18,571 -- 7,976
Deferred revenue on support contracts................... 79,576 82,796 102,535
-------- -------- -----------
Total current liabilities....................... 605,773 351,635 306,389
Deferred income taxes..................................... 11,972 22,131 22,131
Notes payable, excluding current installments............. 11,489 16,183 10,138
-------- -------- -----------
Total liabilities............................... 629,234 389,949 338,658
-------- -------- -----------
Stockholders' equity:
Common stock, $1.00 par value; authorized 30,000 shares,
9,945 issued and outstanding at December 31, 1995 and
1996 and 10,161 at June 30, 1997..................... 9,945 9,945 10,161
Additional paid-in capital.............................. 32,202 34,149 33,933
Retained earnings....................................... 227,589 225,301 259,374
-------- -------- -----------
Total stockholders' equity...................... 269,736 269,395 303,468
Commitments and contingencies
-------- -------- -----------
$898,970 $659,344 $ 642,126
======== ======== =========
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE> 176
MID-WEST CAD, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems sales...................... $1,153,324 $1,380,233 $1,214,688 $ 535,918 $ 351,683
Software sales..................... 880,408 1,294,005 1,282,148 538,132 744,454
Support, consulting and other
revenues........................ 573,359 709,763 868,562 416,802 468,197
---------- ---------- ---------- ---------- ----------
Total revenues............. 2,607,091 3,384,001 3,365,398 1,490,852 1,564,334
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Hardware and software.............. 1,617,674 1,893,032 1,883,029 809,693 821,828
Other client services.............. 356,585 442,929 514,608 246,158 268,970
Selling and marketing.............. 424,166 726,115 711,566 254,819 303,571
General and administrative......... 230,302 218,557 251,881 125,284 127,600
---------- ---------- ---------- ---------- ----------
Total costs and expenses... 2,628,727 3,280,633 3,361,084 1,435,954 1,521,969
---------- ---------- ---------- ---------- ----------
Operating income (loss).... (21,636) 103,368 4,314 54,898 42,365
---------- ---------- ---------- ---------- ----------
Other income (expense), net:
Interest income.................... 797 1,177 876 350 709
Interest expense................... (1,019) (1,596) (5,756) (860) (1,025)
Gain on sale of equipment.......... 298 2,000 2,472 -- --
---------- ---------- ---------- ---------- ----------
Total other income
(expense), net........... 76 1,581 (2,408) (510) (316)
---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes.................... (21,560) 104,949 1,906 54,388 42,049
Income tax expense (benefit)......... (5,642) 31,613 4,194 10,212 7,976
---------- ---------- ---------- ---------- ----------
Net income (loss).......... $ (15,918) $ 73,336 $ (2,288) $ 44,176 $ 34,073
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-94
<PAGE> 177
MID-WEST CAD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994................... 9,811 $ 9,811 $ 27,973 $170,171 $ 207,955
Net loss...................................... -- -- -- (15,918) (15,918)
------ ------- ---------- -------- -------------
Balances at December 31, 1994................. 9,811 9,811 27,973 154,253 192,037
Issuances of common stock..................... 134 134 2,282 -- 2,416
Compensation expense for employee stock
award....................................... -- -- 1,947 -- 1,947
Net income.................................... -- -- -- 73,336 73,336
------ ------- ---------- -------- -------------
Balances at December 31, 1995................. 9,945 9,945 32,202 227,589 269,736
Compensation expense for employee stock
award....................................... -- -- 1,947 -- 1,947
Net loss...................................... -- -- -- (2,288) (2,288)
------ ------- ---------- -------- -------------
Balances at December 31, 1996................. 9,945 9,945 34,149 225,301 269,395
Issuances of common stock (unaudited)......... 216 216 (216) -- --
Net income (unaudited)........................ -- -- -- 34,073 34,073
------ ------- ---------- -------- -------------
Balances at June 30, 1997 (unaudited)......... 10,161 $10,161 $ 33,933 $259,374 $ 303,468
====== ======= ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
F-95
<PAGE> 178
MID-WEST CAD, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ (15,918) $ 73,336 $ (2,288) $ 44,176 $ 34,073
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization.... 48,564 44,615 52,047 23,138 29,105
Gain on sale of equipment........ (298) (2,000) (2,472) -- --
Deferred income taxes............ 588 5,293 10,159 -- --
Compensation expense from
issuance of common stock and
employee stock award.......... -- 4,363 1,947 974 --
Increase in cash surrender
value......................... (993) (1,022) (1,049) (525) (820)
Changes in assets and
liabilities:
Trade accounts receivable..... 91,251 26,453 48,994 (27,558) 63,487
Other receivables............. (3,865) 16,138 (8,351) (23,854) 20,396)
Inventories................... 54,262 (228,784) 223,169 289,843 12,153)
Prepaid expenses and other.... 612 (1,882) (3,681) (7,336) (3,441)
Income taxes receivable
(payable)................... (9,772) 28,343 (25,319) (1,022) 11,184
Accounts payable and accrued
expenses.................... (151,278) 208,706 (241,635) (362,561) (70,616)
Deferred revenue on support
contracts................... 1,707 (6,688) 3,220 (3,316) 19,739
----------- ----------- ----------- ----------- --------
Net cash from operating
activities............... 14,860 166,871 54,741 (68,041) 50,162
----------- ----------- ----------- ----------- --------
Cash flows from investing activities:
Purchases of property and equipment... (44,242) (66,780) (145,276) (84,326) (12,286)
Proceeds from sales of property and
equipment.......................... -- 2,000 2,912 -- --
----------- ----------- ----------- ----------- --------
Net cash from investing
activities............... (44,242) (64,780) (142,364) (84,326) (12,286)
----------- ----------- ----------- ----------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt............................... 20,000 16,632 61,666 40,000 --
Principal repayments of long-term
debt............................... (8,371) (8,193) (54,124) (5,922) (8,390)
----------- ----------- ----------- ----------- --------
Net cash from financing
activities............... 11,629 8,439 7,542 34,078 (8,390)
----------- ----------- ----------- ----------- --------
Net increase (decrease) in
cash and cash
equivalents.............. (17,753) 110,530 (80,081) (118,289) 29,486
Cash and cash equivalents, beginning of
period................................ 34,935 17,182 127,712 127,712 47,631
----------- ----------- ----------- ----------- --------
Cash and cash equivalents, end of
period................................ $ 17,182 $ 127,712 $ 47,631 $ 9,423 $ 77,117
========= ========= ========= ========= ========
Cash paid during the period for
interest.............................. $ 1,019 $ 1,596 $ 5,756 $ 860 $ 1,025
========= ========= ========= ========= ========
Cash paid (received) for income taxes,
net of refunds........................ $ 3,542 $ (1,121) $ 18,125 $ 10,574 $ 1,770
========= ========= ========= ========= ========
</TABLE>
See accompanying notes to financial statements.
F-96
<PAGE> 179
MID-WEST CAD, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 AND
(UNAUDITED) JUNE 30, 1996 AND 1997
(1) DESCRIPTION OF BUSINESS
Mid-West CAD, Inc. (the Company) principally purchases and sells
computer-aided design (CAD) system software as well as related component
hardware and parts. The Company is an Autodesk value-added reseller, mainly
serving the state of Missouri and certain areas of Kansas and focusing primarily
upon mid-size companies in the manufacturing and engineering sector. The Company
also provides consulting, training and maintenance support.
(2) INTERIM FINANCIAL STATEMENT PRESENTATION
The financial statements as of June 30, 1997 included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the financial statements and the notes thereto for the year
ended December 31, 1996 included herein.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at June 30, 1997
and the results of operations and cash flows for the period presented. The
results of the interim period are not necessarily indicative of the operating
results for the entire year.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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 reported
period. Actual results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market and cost is
determined by the average cost method.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or estimated useful life of the asset. The estimated
useful lives are as follows:
<TABLE>
<S> <C>
Office equipment....................... 5 - 7 years
Furniture and fixtures................. 5 years
Leasehold improvements................. 5 - 10 years
</TABLE>
(d) Income Taxes
The provisions for income taxes are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the asset and liability method of SFAS
F-97
<PAGE> 180
MID-WEST CAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, as well as operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.
(e) Revenue Recognition
Revenues from software and computer hardware sales are recognized when the
product is shipped. Revenues from consulting, training or other services are
recognized as the related services are performed.
Revenues from customer support agreements are recognized ratably over the
life of the support agreement.
(4) PROPERTY AND EQUIPMENT
Net property and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Office equipment................................. $200,824 $333,902
Furniture and fixtures........................... 47,962 59,181
Leasehold improvements........................... 8,247 8,247
-------- --------
257,033 401,330
Less: Accumulated depreciation and
amortization................................... 152,732 204,240
-------- --------
$104,301 $197,090
======== ========
</TABLE>
(5) NOTES PAYABLE
A summary of notes payable at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Note payable, secured by certain office equipment,
payable in monthly installments of $556
principal plus interest at prime plus 2 1/2%
(8.75% and 9.50% at December 31, 1996 and 1995,
respectively) through March 1997................ $ 8,889 $ 2,222
Note payable, secured by certain office equipment,
bearing interest at 7.92%, payable in monthly
installments of principal and interest of $521
through July 1998............................... 14,550 9,267
Note payable, secured by certain office equipment,
bearing interest at 7.50%, payable in monthly
installments of principal and interest of $674
through September 1999.......................... -- 19,492
------- ------
Total notes payable..................... 23,439 30,981
Less current installments......................... 11,950 14,798
------- ------
Notes payable, excluding current installments... $11,489 $16,183
======= ======
</TABLE>
F-98
<PAGE> 181
MID-WEST CAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1996, aggregate annual maturities of notes payable are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
-------------------------------------------- -------
<S> <C>
1997........................................ $14,798
1998........................................ 10,940
1999........................................ 5,243
-------
$30,981
=======
</TABLE>
(6) INCOME TAXES
Income tax expense (benefit) for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal:
Current................................. $(5,730) $19,823 $(4,543)
Deferred................................ 513 4,626 8,856
------- ------- -------
(5,217) 24,449 4,313
------- ------- -------
State and Local:
Current................................. (500) 6,497 (1,422)
Deferred................................ 75 667 1,303
------- ------- -------
(425) 7,164 (119)
------- ------- -------
$(5,642) $31,613 $ 4,194
======= ======= =======
</TABLE>
Income tax expense (benefit) differs from the amounts computed by applying
the federal statutory rate to pretax income as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)... $(7,330) $35,683 $ 648
State and local taxes (net of federal income
taxes).................................... (281) 4,729 393
Surtax exemption............................ (261) (11,727) (26)
Meals and entertainment..................... 859 1,073 1,186
Officer's life insurance.................... 1,141 1,188 1,241
Other....................................... 230 667 752
------- ------- ------
$(5,642) $31,613 $4,194
======= ======= ======
</TABLE>
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 liabilities -- property and equipment... $11,972 $22,131
======= =======
</TABLE>
F-99
<PAGE> 182
MID-WEST CAD, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS
The Company has entered into noncancelable operating leases covering its
office facilities and certain equipment. Rent expense amounted to $43,418,
$54,178 and $54,178 for the years ended December 31, 1994, 1995 and 1996,
respectively. Future minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
--------------------------------------------
<S> <C>
1997........................................ $ 56,667
1998........................................ 64,484
1999........................................ 72,996
2000........................................ 81,492
2001 and thereafter......................... 58,104
--------
Total minimum lease payments................ $333,743
========
</TABLE>
(8) PENSION PLAN
Effective January 1, 1996, the Company established a trusteed, defined
contribution plan covering substantially all employees under which the Company
contributes 25% of employee contributions up to 6% of compensation. The Board of
Directors of the Company also approved a discretionary contribution to the plan
for the year ended December 31, 1996, to be paid in 1997, in the amount of
$21,757. The expense for this plan, including this discretionary contribution,
for the year ended December 31, 1996 was $31,810.
(9) SUBSEQUENT EVENT
In May 1997, the Company signed a letter of intent to be acquired by
Universal Document Management Systems, Inc. ("UDMS"), with the business
combination to be consummated simultaneous with UDMS' initial public offering.
F-100
<PAGE> 183
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
CADD Microsystems, Inc.:
We have audited the accompanying balance sheets of CADD Microsystems, Inc.
as of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year 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 financial statements referred to above present fairly,
in all material respects, the financial position of CADD Microsystems, Inc. as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
July 25, 1997
McLean, VA
F-101
<PAGE> 184
CADD MICROSYSTEMS, INC.
BALANCE SHEETS
(ALL DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------ ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 42 $ 75 $ 34
Trade accounts receivable, net of allowance for doubtful
accounts................................................ 499 287 304
Inventories................................................ 385 165 88
Prepaid expenses and other current assets.................. 9 8 13
------ ------ ------
Total current assets............................... 935 535 439
Property and equipment, net of accumulated depreciation and
amortization............................................... 133 200 177
Other........................................................ -- 3 2
------ ------ ------
$1,068 $ 738 $ 618
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of obligations under capital leases... $ 10 $ 43 $ 43
Long-term debt, current installments....................... 50 90 80
Shareholder and officer notes payable...................... 36 -- --
Accounts payable........................................... 651 412 312
Accrued expenses........................................... 89 62 51
Deferred revenue on support contracts...................... 273 58 79
------ ------ ------
Total current liabilities.......................... 1,109 665 565
Obligations under capital leases, excluding current
installments............................................... 18 51 29
Long-term debt, excluding current installments............... 24 150 130
------ ------ ------
Total liabilities.................................. 1,151 866 724
------ ------ ------
Stockholders' equity (deficit):
Common stock, $.01 par value, 10,000 shares authorized,
issued and outstanding at December 31, 1995 and 1996.... -- -- --
Additional paid-in capital................................. 14 14 14
Accumulated deficit........................................ (97) (142) (120)
------ ------ ------
Total stockholders' equity (deficit)............... (83) (128) (106)
------ ------ ------
Commitments and contingencies
$1,068 $ 738 $ 618
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-102
<PAGE> 185
CADD MICROSYSTEMS, INC.
STATEMENTS OF OPERATIONS
(ALL DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems sales............................. $ 205 $ 292 $ 298 $ 105 $ 82
Software sales............................ 1,972 1,944 1,663 816 795
Service, consulting, and commission
fees................................... 702 877 1,133 663 519
------- ------- ------- ------- -------
Total revenues......................... 2,879 3,113 3,094 1,584 1,396
------- ------- ------- ------- -------
Costs and expenses:
Hardware, software and service............ 1,874 1,690 1,925 850 895
Selling and marketing..................... 862 863 632 365 203
General and administrative................ 414 384 544 266 256
------- ------- ------- ------- -------
Total costs and expenses............... 3,150 2,937 3,101 1,481 1,354
------- ------- ------- ------- -------
Operating income (loss)..................... (271) 176 (7) 103 42
Interest expense, net....................... (17) (31) (38) (17) (20)
------- ------- ------- ------- -------
Net income (loss)........................... $ (288) $ 145 $ (45) $ 86 $ 22
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-103
<PAGE> 186
CADD MICROSYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(ALL DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL RETAINED STOCKHOLDERS'
--------------- PAID-IN EARNINGS EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) (DEFICIT)
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994...................... 10,000 $-- $ 14 $ 139 $ 153
Dividend distribution............................ -- -- -- (93) (93)
Net loss......................................... -- -- -- (288) (288)
------ ------ ---- -- ------ ------
Balances at December 31, 1994.................... 10,000 -- 14 (242) (228)
Net income....................................... -- -- -- 145 145
------ ------ ---- -- ------ ------
Balances at December 31, 1995.................... 10,000 -- 14 (97) (83)
Net loss......................................... -- -- -- (45) (45)
------ ------ ---- -- ------ ------
Balances at December 31, 1996.................... 10,000 -- 14 (142) (128)
Net Income (unaudited)........................... -- -- -- 22 22
------ ------ ---- -- ------ ------
Balances at June 30, 1997 (unaudited)............ 10,000 $-- $ 14 $ (120) $(106)
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-104
<PAGE> 187
CADD MICROSYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(ALL DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $(288) $ 145 $ (45) $ 86 $ 22
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization............. 49 52 59 24 23
Provision for loss on doubtful accounts... 32 2 13 13 --
Changes in operating assets and
liabilities:
Trade accounts receivable.............. 267 (273) 199 (45) (17)
Inventories............................ 5 (302) 220 (189) 77
Prepaid expenses and other assets...... 6 17 (2) (63) (4)
Accounts payable and accrued
expenses............................. (124) 217 (266) 236 (111)
Deferred revenue on support
contracts............................ -- 229 (215) (48) 21
------ ------ ------ ------ ------
Net cash provided by (used in)
operating activities.............. (53) 87 (37) 14 11
------ ------ ------ ------ ------
Cash flows from investing activities -- Purchases
of property and equipment...................... (70) (8) (29) (9) --
------ ------ ------ ------ ------
Cash flows from financing activities:
Borrowings (repayments) of shareholder and
officer notes payable....................... -- 14 (36) -- --
Proceeds from issuance of long-term debt....... 97 -- 240 13 --
Principal payments of long-term debt........... (44) (52) (74) (44) (30)
Principal repayments of capital lease
obligations................................. (3) (7) (31) (16) (22)
Distribution of dividend....................... (93) -- -- -- --
------ ------ ------ ------ ------
Net cash provided by (used in)
financing activities.............. (43) (45) 99 (47) (52)
------ ------ ------ ------ ------
Net (decrease) increase in cash.................. (166) 34 33 (42) (41)
------ ------ ------ ------ ------
Cash, beginning of year.......................... 174 8 42 42 75
------ ------ ------ ------ ------
Cash, end of year................................ $ 8 $ 42 $ 75 $ -- $ 34
====== ====== ====== ====== ======
Supplementary Information:
Cash paid during the period for interest....... $ 18 $ 31 $ 38 $ 17 $ 20
====== ====== ====== ====== ======
Non-cash borrowings on capital lease
obligations................................. $ -- $ 33 $ 97 $ 91 $ --
====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-105
<PAGE> 188
CADD MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL DOLLARS IN THOUSANDS)
(1) DESCRIPTION OF BUSINESS
CADD Microsystems, Inc. (the "Company") was formed in 1985 and is in the
business of providing computer-aided design software and hardware, as well as
integration, training, and consulting for selected applications in the design
and mapping industry. The Company derived approximately 68%, 68%, and 56%
percent of its revenue from the sale of AutoDesk, Inc. software applications and
related commissions in 1994, 1995 and 1996, respectively.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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 reported
period. Actual results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market, and cost is
determined by the specific identification method.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and equipment held under capital leases are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset. The estimated useful lives are as follows:
<TABLE>
<S> <C>
Office equipment........................ 5 years
Furniture and fixtures.................. 5 - 10 years
Software................................ 5 years
Leasehold improvements.................. Life of Lease
Equipment held under capital leases..... Life of Lease
</TABLE>
(d) Income Taxes
The Company has elected, by consent of its stockholders, to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay corporate income taxes on its taxable
income. Instead, the stockholders are liable for individual income taxes on the
Company's taxable income. Accordingly, these financial statements do not contain
a provision for income taxes.
(e) Revenue Recognition
Revenues from software, commissions and computer hardware sales are
recognized when the product is shipped or upon customer acceptance in instances
where the software and computer hardware is to be installed at the customer
location. Revenues from consulting, training or other services are recognized as
the related services are performed.
F-106
<PAGE> 189
CADD MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from prepaid customer support agreements are recognized ratably
over the life of the support agreement.
(f) Interim Financial Information
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997, are unaudited; however, in the opinion of management,
all adjustments necessary for a fair presentation of the financial statements
for the interim periods have been included. The results for the interim periods
are not necessarily indicative of the results to be achieved for the full year.
(3) ALLOWANCE FOR TRADE ACCOUNTS RECEIVABLE
The activity in the allowance for doubtful accounts for trade accounts
receivable for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year........................ $ -- $ 19 $ 18
Charged to expense.................................. 32 2 13
Charged to returns & allowances..................... -- 18 50
Deductions/write-offs............................... (13) (21) (13)
---- ---- ----
Balance at end of year.............................. $ 19 $ 18 $ 68
==== ==== ====
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Office equipment.......................................... $ 256 $ 278
Furniture and fixtures.................................... 31 33
Software.................................................. 27 30
Leasehold improvements.................................... 4 6
Equipment held under capital leases....................... 34 130
----- -----
352 477
Less: Accumulated depreciation and amortization........... (219) (277)
----- -----
$ 133 $ 200
===== =====
</TABLE>
F-107
<PAGE> 190
CADD MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Credit Agreement:
Line of credit.......................................... $ -- $ 50
Term loan............................................... -- 190
8% Term note, $98 face, due April 1996.................... 10 --
8% Term note, $50 face, due April 1997.................... 21 --
11% Term note, $50 face, due September 1997............... 43 --
------ ------
74 240
Less: current installments................................ (50) (90)
------ ------
$ 24 $ 150
====== ======
</TABLE>
Credit Agreement
In August 1996, the Company entered into a credit agreement with a
financial institution which provides for (i) a five year term loan in the amount
of approximately $200 with principle and interest payments due monthly, and (ii)
a revolving line of credit due upon demand in an amount of up to $125. The
credit agreement is collateralized by substantially all of the assets of the
Company.
The term loan bears interest of prime plus 2.25%, adjusted annually.
Borrowings under the line of credit bear interest of prime plus 1.25%, adjusted
daily. At December 31, 1996, the interest rates on the term loan and the line of
credit were 10.5% and 11.5%, respectively. At December 31, 1996, approximately
$75 of the line of credit was unused and available. The Company obtained a
waiver from the financial institution at December 31, 1996 for non-compliance
with covenants concerning the maintenance of certain ratios, as defined by the
credit agreement.
Term Notes
During 1995, the Company's long-term debt consisted of term notes bearing
interest of between 8% and 11% with various maturity dates. The outstanding
amounts of these notes were paid in full with the proceeds of the credit
agreement.
Scheduled maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------------------------
<S> <C>
1997......................................... $ 90
1998......................................... 40
1999......................................... 40
2000......................................... 40
2001......................................... 30
-----
Total maturities........................ $240
=====
</TABLE>
F-108
<PAGE> 191
CADD MICROSYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) OBLIGATIONS UNDER CAPITAL LEASES
At December 31, the future minimum lease payments under capital leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------------------------
<S> <C>
1997......................................... $ 56
1998......................................... 48
1999......................................... 10
2000 and thereafter.......................... --
-----
Total minimum lease payments................. 114
Less: Amounts representing interest and
executory costs............................ (20)
-----
Net present value............................ 94
Less: current installments................... (43)
-----
$ 51
=====
</TABLE>
(7) RELATED PARTY TRANSACTIONS
Shareholder and Officer Notes Payable
The Company periodically receives short-term loans from certain officers
and shareholders. These borrowings are due upon demand and are non-interest
bearing. During 1996 and 1995, such borrowings totaled $173 and $70,
respectively. At December 31, 1995, outstanding shareholder and officer notes
payable totaled approximately $36.
Related Party Lease
The Company leases certain office space from a principle shareholder under
an agreement which expires in April 2000. Rent expense under the lease totaled
$43 in 1996, 1995 and 1994, respectively.
(8) COMMITMENTS
The Company has entered into noncancelable operating leases covering its
office facilities and certain equipment. Rent expense amounted to $81, $91 and
$90 for the years ended December 31, 1994, 1995 and 1996, respectively. Future
minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------------------------
<S> <C>
1997......................................... $ 88
1998......................................... 43
1999......................................... 43
2000......................................... 14
2001 and thereafter.......................... --
-----
Total minimum lease payments................. $188
=====
</TABLE>
(9) SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Company signed a letter of intent to
be acquired by a company, with the business combination to be consummated
simultaneously with the acquiring company's initial public offering.
F-109
<PAGE> 192
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Devtron, Russell Inc.:
We have audited the accompanying balance sheets of Devtron, Russell Inc. as
of September 30, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 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 financial statements referred to above present fairly,
in all material respects, the financial position of Devtron, Russell Inc. as of
September 30, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended September 30, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
Detroit, Michigan
July 11, 1997
F-110
<PAGE> 193
DEVTRON, RUSSELL INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ -- $ 2 $ 21,502
Trade accounts receivable, net.......................... 217,928 216,481 382,633
Other receivables....................................... -- -- 100
Inventories............................................. 130,005 239,963 169,445
Prepaid expenses and other current assets............... 3,684 3,802 4,500
Deferred tax asset (note 6)............................. 3,567 14,719 14,719
-------- -------- --------
Total current assets............................ 355,184 474,967 592,899
Property and equipment, net of accumulated depreciation
(note 3)................................................ 52,848 61,434 77,277
-------- -------- --------
$408,032 $536,401 $ 670,176
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.......................................... $ 43,480 $ -- $ --
Revolving line of credit (note 4)....................... 2,000 -- 75,000
Long-term debt, current installments (note 5)........... 22,986 17,125 22,933
Accounts payable........................................ 251,392 281,746 208,463
Accrued expenses........................................ 11,755 24,351 18,236
Income tax payable (note 6)............................. 3,567 27,540 34,047
Deferred revenue on support contracts................... 3,051 4,730 --
-------- -------- --------
Total current liabilities....................... 338,231 355,492 358,679
Long-term debt, excluding current installments............ 71,066 71,522 66,800
-------- -------- --------
Total liabilities............................... 409,297 427,014 425,479
-------- -------- --------
Stockholders' equity (deficit):
Common stock, no par value, authorized 50,000 shares;
2,000 shares issued and outstanding at September 30,
1995 and 1996........................................ 2,000 2,000 2,000
Retained earnings (deficit)............................. (3,265) 107,387 242,697
-------- -------- --------
Total stockholders' equity (deficit)............ (1,265) 109,387 244,697
Commitments (note 8)......................................
-------- -------- --------
$408,032 $536,401 $ 670,176
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-111
<PAGE> 194
DEVTRON, RUSSELL INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
-----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Systems sales................ $ 599,835 $ 726,630 $1,361,739 $1,001,250 $1,092,064
Software sales............... 838,319 755,850 1,220,146 1,064,908 1,129,184
Service, consulting, and
other revenues............ 100,023 139,697 199,647 108,832 166,184
-------- -------- ---------- ---------- ----------
Total revenues....... 1,538,177 1,622,177 2,781,532 2,174,990 2,387,432
Costs and expenses:
Hardware..................... 678,821 646,046 1,097,916 886,840 897,276
Software..................... 357,864 489,761 912,183 672,302 745,484
Selling, general and
administrative............ 473,355 462,921 630,154 455,815 541,246
-------- -------- ---------- ---------- ----------
Total costs and
expenses........... 1,510,040 1,598,728 2,640,253 2,014,957 2,184,006
-------- -------- ---------- ---------- ----------
Operating income............... 28,137 23,449 141,279 160,033 203,426
-------- -------- ---------- ---------- ----------
Other (income) expense, net:
Interest..................... 5,783 9,370 10,341 8,040 8,616
Other income................. -- (3,824) (102) (102) --
-------- -------- ---------- ---------- ----------
5,783 5,546 10,239 7,938 8,616
-------- -------- ---------- ---------- ----------
Income before income
taxes.............. 22,354 17,903 131,040 152,095 194,810
Income taxes (note 6).......... -- -- (20,388) (28,300) (59,500)
-------- -------- ---------- ---------- ----------
Net income........... $ 22,354 $ 17,903 $ 110,652 $ 123,795 $ 135,310
======== ======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-112
<PAGE> 195
DEVTRON, RUSSELL INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
Balances at October 1, 1993....................... 2,000 $2,000 $ (43,522) $ (41,522)
Net income........................................ -- -- 22,354 22,354
----- ------ -------- --------
Balances at September 30, 1994.................... 2,000 2,000 (21,168) (19,168)
Net income........................................ -- -- 17,903 17,903
----- ------ -------- --------
Balances at September 30, 1995.................... 2,000 2,000 (3,265) (1,265)
Net income........................................ -- -- 110,652 110,652
----- ------ -------- --------
Balances at September 30, 1996.................... 2,000 2,000 107,387 109,387
Net income for the nine months (unaudited)........ -- -- 135,310 135,310
----- ------ -------- --------
Balances at June 30, 1997 (unaudited)............. 2,000 $2,000 $ 242,697 $ 244,697
===== ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-113
<PAGE> 196
DEVTRON, RUSSELL INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
--------------------
1994 1995 1996 1996 1997
-------- --------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 22,354 $ 17,903 $ 110,652 $123,795 $ 135,310
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization...... 17,251 18,900 18,186 13,500 10,500
Gain on sale of property and
equipment....................... -- 3,400 -- -- --
Changes in operating assets and
liabilities:
Trade accounts receivable....... 88,701 (168,783) 1,447 25,682 (166,252)
Inventories..................... (9,575) (70,397) (109,958) (77,916) 70,517
Prepaid expenses and other
assets........................ (2,608) (1,394) (11,269) 3,684 3,801
Accounts payable and accrued
expenses...................... (98,589) 166,038 23,442 (60,108) (72,891)
Deferred revenue on support
contracts..................... 3,088 (37) 1,679 (3,050) (4,730)
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities....... 20,622 (34,370) 34,179 25,587 (23,745)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment..... (138) (20,265) (26,772) (24,301) (26,341)
Proceeds from sales of property and
equipment............................ -- 3,400 -- -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities................. (138) (16,865) (26,772) (24,301) (26,341)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net borrowings (repayment) on line of
credit............................... -- 2,000 (2,000) -- 75,000
Proceeds from issuance of long-term
debt................................. -- 79,528 19,514 19,514 18,985
Principal repayments of long-term
debt................................. (2,264) (48,513) (24,919) (20,800) (17,899)
Loan advance to shareholder............. -- -- -- -- (4,500)
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities....... (2,264) 33,015 (7,405) (1,286) 71,586
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................. 18,220 (18,220) 2 -- 21,500
Cash and cash equivalents, beginning of
period.................................. -- 18,220 -- -- 2
-------- -------- -------- -------- --------
Cash and cash equivalents, end of
period.................................. $ 18,220 $ -- $ 2 $ -- $ 21,502
======== ======== ======== ======== ========
Cash paid during the period for
interest................................ $ 5,907 $ 9,379 $ 10,341 $ 8,039 $ 8,619
======== ======== ======== ======== ========
Cash paid during the period for income
taxes................................... $ 20,633 $ -- $ 7,567 $ 6,567 $ 52,993
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-114
<PAGE> 197
DEVTRON, RUSSELL INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1996
(1) DESCRIPTION OF BUSINESS
Devtron, Russell Inc. (the "Company") began operations in 1969 as a
software/hardware distributor and service provider. The Company's major supplier
is Autodesk, from which Devtron purchases its main product, Auto CAD, a CAD/CAM
software applicable for use in the engineering field. The Company also sells
various other design-related software and hardware products, as well as provides
customer support, including training and, more recently, maintenance to a wide
customer base (250-mile radius) in the mid-Michigan area. Devtron is
headquartered in Gladwin, Michigan, and has satellite offices in Grand Rapids
and Traverse City.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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 reported
period. Actual results could differ from those estimates.
(b) Inventories
Inventories are stated at the lower of cost or market, and cost is
determined by the first-in, first-out (FIFO) method. Inventory consists
primarily of hardware and pre-packaged software.
(c) Building and Equipment
Building and equipment are stated at cost. Depreciation is computed over
the useful lives of the assets using accelerated methods. The estimated useful
lives are as follows:
<TABLE>
<S> <C>
Office equipment and fixtures.................... 5 - 7 years
Vehicles......................................... 5 years
Building improvements............................ 39 years
Building......................................... 31.5 years
</TABLE>
(d) Income Taxes
The provisions for income taxes are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, as well as
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
(e) Revenue Recognition
Revenue from software and computer hardware sales are recognized when the
product is shipped, or upon customer acceptance in instances where the software
and computer hardware is to be installed at the customer location. Revenues from
consulting, training, or other services are recognized as the related services
are performed.
F-115
<PAGE> 198
DEVTRON, RUSSELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Revenues from prepaid customer support agreements and hardware support are
recognized ratably over the life of the support agreement.
(3) PROPERTY AND EQUIPMENT
Net property and equipment is comprised of the following at September 30:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Buildings............................................ $ 53,342 $ 53,342
Equipment............................................ 149,956 157,215
Vehicles............................................. 48,323 67,837
Building improvements................................ 177 177
--------- ---------
251,798 278,571
Less: Accumulated depreciation....................... (198,950) (217,137)
--------- ---------
$ 52,848 $ 61,434
========= =========
</TABLE>
(4) REVOLVING LINE OF CREDIT
The Company has a $75,000 line of credit which bears interest at the prime
rate plus 1.5 percent per annum (9.5 percent at September 30, 1996) and is
secured by all assets of the Company. The Company has borrowed $2,000 and $0 as
of September 30, 1995 and 1996, respectively.
(5) LONG-TERM DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Note payable -- variable-rate mortgage (9.73% at
September 30, 1996), due in monthly installments of
$746.14, including interest, with remaining unpaid
balance of principal and accrued interest due May 1,
1998, secured by a building............................ $66,728 $57,807
8.7% secured notes payable in monthly installments of
$479.47, including interest, maturing on October 13,
1999, secured by a vehicle............................. -- 15,581
10.75% secured notes payable in monthly installments of
$361.42, including interest, maturing on May 26, 1998,
secured by a vehicle................................... 12,799 9,959
Loans from shareholder, interest term 10%, unsecured,
with no specific repayment term (note 7)............... 14,525 5,300
------- -------
Total long-term debt........................... 94,052 88,647
Less current installments................................ 22,986 17,125
------- -------
Long-term debt, excluding current
installments................................. $71,066 $71,522
======= =======
</TABLE>
The aggregate maturities of long-term debt for each of the five years
subsequent to September 30, 1996, are as follows: 1997, $17,125; 1998, $63,214;
1999, $7,832; and 2000, $476.
(6) INCOME TAXES
The Company adopted SFAS No. 109 effective October 1, 1993, on a
prospective basis. This change had no net impact on years prior to September 30,
1994, and accordingly, no cumulative effect of the change in accounting method
has been reported in the financial statements.
F-116
<PAGE> 199
DEVTRON, RUSSELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Current...................................... $ -- $ 3,567 $ 31,540
Deferred..................................... -- (3,567) (11,152)
------- ------- --------
$ -- $ -- $ 20,388
======= ======= ========
</TABLE>
Income tax expense differs from the amounts computed by applying the
federal statutory rate of 34 percent to pretax income for the years ended
September 30 as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Computed expected tax expense................ $ 7,600 $ 6,087 $ 44,554
Change in valuation allowance................ (3,358) (2,808) (6,557)
Change in effective rate for deferred tax
assets..................................... -- -- (6,750)
Meals and entertainment...................... 10 284 476
Other........................................ (4,252) (3,563) (11,335)
------- ------- --------
$ -- $ -- $ 20,388
======= ======= ========
</TABLE>
The significant components of deferred income tax benefit attributable to
income from operations for the years ended September 30 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Deferred tax expense (benefit), exclusive of
the effects of other component listed
below...................................... $ 3,358 $ (759) $ (4,595)
Decrease in the beginning-of-the-year balance
of the valuation allowance for deferred
taxes...................................... (3,358) (2,808) (6,557)
------- ------- --------
$ -- $(3,567) $(11,152)
======= ======= ========
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
asset at September 30, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Net accrued expenses................................... $10,124 $14,719
------- -------
Total gross deferred tax assets................ 10,124 14,719
Less: Valuation allowance................................ 6,557 --
------- -------
Net deferred tax asset......................... $ 3,567 $14,719
======= =======
</TABLE>
A valuation allowance for net deferred tax assets of $12,723 was recognized
as of October 1, 1993, because the net operating loss carryforward and deferred
tax assets could only be realized if income was received in subsequent years. At
October 1, 1995, the valuation allowance was $6,557 and was reduced to $0 during
the year ended September 30, 1996, due to the current income position of the
Company.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. SFAS No. 109 requires
that a valuation allowance be recorded against tax assets which are not likely
to be realized.
F-117
<PAGE> 200
DEVTRON, RUSSELL INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) RELATED PARTY TRANSACTIONS
In November 1993, the Company entered into a related party transaction with
its president and shareholder for a loan in the amount of $16,500 at a stated
rate of interest of 10 percent. No formal repayment schedule is in existence,
and the principal balance at September 30, 1995 and 1996, is $14,525 and $5,300,
respectively.
(8) COMMITMENTS
The Company has entered into noncancelable operating leases covering its
office facilities and certain equipment. Rent expense amounted to $7,150,
$8,798, and $10,564 for the years ended September 30, 1994, 1995, and 1996,
respectively. Future minimum payments under the leases as of September 30, 1996,
were as follows:
<TABLE>
<S> <C>
1997................................................ $3,488
1998................................................ 2,732
1999................................................ 624
2000................................................ 624
2001 and thereafter................................. 52
------
Total minimum lease payments.............. $7,520
======
</TABLE>
(9) SIGNIFICANT CUSTOMER
For the years ended September 30, 1995 and 1996, two customers, HMS and
APX, each represented more than 10 percent of total revenues. HMS accounted for
14 percent and 18 percent of trade accounts receivable at September 30, 1995 and
1996, respectively. APX accounted for 12 percent and 6 percent of trade accounts
receivable at September 30, 1995 and 1996, respectively.
(10) INTERIM FINANCIAL INFORMATION
The financial statements as of June 30, 1996 and June 30, 1997 and for the
nine months ended June 30, 1996 and June 30, 1997 are unaudited; however, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
the interim periods have been included. The results for the interim periods are
not necessarily indicative of the results to be achieved for the full fiscal.
(11) SUBSEQUENT EVENT
Subsequent to September 30, 1996, the Company signed a letter of intent to
be acquired by Universal Document Management Systems, Inc. ("UDMS") with the
business combination to be consummated simultaneously with UDMS' initial public
offering.
F-118
<PAGE> 201
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Computers for Design, Inc.:
We have audited the accompanying balance sheets of Computers for Design,
Inc. as of December 31, 1995 and 1996 and the related statements of operations,
stockholders' deficit and cash flows for each of the years in the three-year
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 financial statements referred to above present fairly,
in all material respects, the financial position of Computers for Design, Inc.
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
July 18, 1997
Denver, Colorado
F-119
<PAGE> 202
COMPUTERS FOR DESIGN, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 4,068 $ 505 $ 2,384
Trade accounts receivable, net of allowance for doubtful
accounts of $2,000.................................... 153,858 158,044 162,197
Inventories.............................................. 89,571 18,076 17,269
Commissions receivable................................... 33,553 62,985 93,699
Current portion of notes receivable -- related parties... 28,312 -- --
Prepaid expenses and other............................... 2,746 10,104 7,594
-------- -------- --------
Total current assets............................. 312,108 249,714 283,143
-------- -------- --------
Notes receivable -- related parties, net of current
portion............................................... 39,495 39,495 33,906
Accrued interest receivable -- related parties........... 12,060 13,652 9,632
Equipment, net of accumulated depreciation............... 42,643 51,069 49,920
Other assets............................................. 4,391 11,904 4,392
-------- -------- --------
Total assets..................................... $410,697 $365,834 $380,993
======== ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Revolving line of credit................................. $150,000 $150,000 $150,000
Obligation under capital leases.......................... -- 6,588 10,749
Accounts payable......................................... 283,747 149,807 216,909
Accrued expenses and other liabilities................... 38,254 41,092 37,248
Note payable to shareholder.............................. -- 12,500 10,970
Income taxes payable..................................... -- 2,856 535
Advance payments from customers.......................... -- 38,311 --
Deferred income taxes.................................... -- 3,000 4,500
-------- -------- --------
Total current liabilities........................ 472,001 404,154 430,911
Stockholders' deficit:
Common stock, $.01 par value, 10,000 shares authorized,
10,000, 9,375 and 8,125 shares outstanding at December
31, 1995 and 1996 and June 30, 1997................... 100 94 81
Additional paid-in capital............................... 16,663 4,169 --
Accumulated deficit...................................... (78,067) (42,583) (49,999)
-------- -------- --------
Total stockholders' deficit...................... (61,304) (38,320) (49,918)
-------- -------- --------
Commitments
Total liabilities and stockholders' deficit...... $410,697 $365,834 $380,993
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-120
<PAGE> 203
COMPUTERS FOR DESIGN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Hardware sales.............. $ 630,227 $ 683,238 $ 630,485 $ 549,194 $ 65,423
Software sales.............. 916,767 1,085,107 1,070,797 512,642 586,156
Service, consulting, and
other.................... 379,449 289,329 440,501 230,504 261,258
---------- ---------- ---------- ---------- ----------
Total revenue....... 1,926,443 2,057,674 2,141,783 1,292,340 912,837
Costs and expenses:
Hardware sales.............. 520,108 514,294 540,514 464,800 61,301
Software sales.............. 672,077 792,521 709,986 333,315 428,009
Selling and marketing....... 164,872 204,789 248,154 122,309 112,472
Service, consulting and
other costs.............. 117,328 72,169 98,115 49,801 40,172
General and
administrative........... 434,226 488,054 497,002 242,995 239,797
---------- ---------- ---------- ---------- ----------
Total costs and
expenses.......... 1,908,611 2,071,827 2,093,771 1,213,220 881,751
---------- ---------- ---------- ---------- ----------
Operating income
(loss)............ 17,832 (14,153) 48,012 79,120 31,086
---------- ---------- ---------- ---------- ----------
Other income (expense), net:
Interest expense............ (10,649) (14,374) (12,331) (4,351) (7,880)
Interest income -- related
parties.................. 1,425 2,372 1,604 -- 1,123
Other, net.................. 11,943 3,866 4,055 (30) (5,559)
---------- ---------- ---------- ---------- ----------
2,719 (8,136) (6,672) (4,381) (12,316)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 20,551 (22,289) 41,340 74,739 18,770
Income tax expense:
Current..................... (3,061) -- (2,856) (2,856) (535)
Deferred.................... -- -- (3,000) (3,000) (1,500)
---------- ---------- ---------- ---------- ----------
(3,061) -- (5,856) (5,856) (2,035)
---------- ---------- ---------- ---------- ----------
Net income (loss)........ $ 17,490 $ (22,289) $ 35,484 $ 68,883 $ 16,735
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-121
<PAGE> 204
COMPUTERS FOR DESIGN, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994.......... 10,000 $100 $ 16,663 $ (73,268) $ (56,505)
Net income........................... -- -- -- 17,490 17,490
------ ---- ------ ------- -------
Balances at December 31, 1994........ 10,000 100 16,663 (55,778) (39,015)
Net loss............................. -- -- -- (22,289) (22,289)
------ ---- ------ ------- -------
Balances at December 31, 1995........ 10,000 100 16,663 (78,067) (61,304)
Purchase and retirement of treasury
stock.............................. (625) (6) (12,494) -- (12,500)
Net income........................... -- -- -- 35,484 35,484
------ ---- ------ ------- -------
Balances at December 31, 1996........ 9,375 94 4,169 (42,583) (38,320)
Purchase and retirement of treasury
stock.............................. (1,250) (13) (4,169) (24,151) (28,333)
Net income........................... -- -- -- 16,735 16,735
------ ---- ------ ------- -------
Balances at June 30, 1997
(unaudited)........................ 8,125 $ 81 $ -- $ (49,999) $ (49,918)
====== ==== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-122
<PAGE> 205
COMPUTERS FOR DESIGN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income(loss)......................... $ 17,490 $(22,289) $ 35,484 $ 68,883 $ 16,735
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization....... 17,982 21,150 25,371 9,609 11,952
Services charged against note
receivable from related
parties.......................... -- -- 5,581 -- --
Forgiveness of note receivable and
accrued interest receivable...... -- -- -- -- 9,609
Deferred income tax expense......... -- -- 3,000 3,000 1,500
Loss (gain) on sale of equipment.... 2,057 (779) -- -- --
Changes in operating assets and
liabilities:
Trade accounts receivable........ (76,496) 143,203 (4,186) 26,694 (4,153)
Inventories...................... 5,037 (82,845) 71,495 (33,340) 807
Commissions receivable........... (19,865) (13,688) (29,432) (6,158) (30,714)
Prepaid expenses and other....... 156 (225) (7,359) -- 2,510
Accrued interest
receivable -- related
parties........................ (1,425) (1,592) (1,592) -- --
Accounts payable................. 87,773 28,260 (133,940) (5,192) 67,102
Accrued expenses and other
liabilities.................... 26,740 (11,842) 2,838 2,401 (3,844)
Income taxes payable............. 3,061 (3,061) 2,856 2,856 (2,321)
Advance payments from
customers...................... (17,242) (23,786) 38,311 -- (38,311)
-------- -------- --------- -------- --------
Net cash provided by operating
activities.................. 45,268 32,506 8,427 68,753 30,872
-------- -------- --------- -------- --------
Cash flows from investing activities:
Advances to related parties.............. -- (51,044) -- -- --
Payments on note receivable from related
parties............................... -- -- 22,731 21,891 --
Purchase of equipment.................... (16,052) (30,782) (22,297) (16,506) --
Proceeds from sale of equipment.......... -- 4,925 -- -- --
Restricted cash escrow account........... -- -- (7,512) -- 7,512
-------- -------- --------- -------- --------
Net cash provided (used) by
investing activities........ (16,052) (76,901) (7,078) 5,385 7,512
-------- -------- --------- -------- --------
Cash flows from financing activities:
Borrowings under revolving line of
credit................................ 115,748 34,252 275,000 150,000 60,000
Repayments under revolving line of
credit................................ (126,450) -- (275,000) (200,000) (60,000)
Borrowing from shareholders.............. -- 12,500 -- --
Repayment of note payable to
shareholder........................... -- -- -- -- (1,530)
Repayments of capital lease
obligations........................... (1,542) (5,285) (4,912) -- (6,642)
Purchase and retirement of treasury
stock................................. -- -- (12,500) -- (28,333)
-------- -------- --------- -------- --------
Net cash provided (used) by
financing activities........ (12,244) 28,967 (4,912) (50,000) (36,505)
-------- -------- --------- -------- --------
Net increase (decrease) in cash............ 16,972 (15,428) (3,563) 24,138 1,879
Cash, beginning of period.................. 2,524 19,496 4,068 4,068 505
-------- -------- --------- -------- --------
Cash, end of period........................ $ 19,496 $ 4,068 $ 505 $ 28,206 $ 2,384
======== ======== ========= ======== ========
Supplemental disclosure:
Cash paid for interest................... $ 10,001 $ 13,226 $ 13,859 $ -- $ 6,575
======== ======== ========= ======== ========
Cash paid for income taxes............... $ -- $ 3,061 $ -- $ -- $ 2,856
======== ======== ========= ======== ========
Equipment acquired through capital lease
obligation............................ $ -- $ -- $ 11,900 $ 11,900 $ 10,800
======== ======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-123
<PAGE> 206
COMPUTERS FOR DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996 (INFORMATION AS OF JUNE 30, 1997 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
Computers for Design, Inc. (the Company) sells computer equipment, and
software, and provides technical training and support for computer aided
drafting and design systems, principally to the government and commercial
industries. The Company's operations are primarily in Colorado, New Mexico and
the western portion of the United States.
In 1995 and 1994, the Company was a majority owned subsidiary of McFall
Konkel & Kimball Consulting Engineers, Inc. (MKK). During 1996, MKK's ownership
interest was reduced to less than 50% (see note 6).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The balance sheet as of June 30, 1997, the statement of stockholders'
deficit for the six months ended June 30, 1997 and the statements of operations,
and cash flows for the six months ended June 30, 1996 and 1997 were prepared by
the Company without audit. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for the fair presentation
of the financial position, results of operations and cash flows of the Company
as of June 30, 1997 and for the six months ended June 30, 1996 and 1997 have
been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and use
assumptions that affect certain 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.
(b) Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
(c) Equipment
Equipment is stated at cost. Depreciation is computed using the
straight-line method for software and the double declining method for other
equipment over the estimated useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Office equipment................................. 5 - 7 years
Furniture and fixtures........................... 5 years
Software......................................... 3 years
Equipment held under capital leases.............. 5 years
</TABLE>
(d) Income Taxes
The Company filed separate income tax returns in 1996, 1995 and 1994.
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), Accounting for Income Taxes. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, as well as net operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
F-124
<PAGE> 207
COMPUTERS FOR DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company utilizes the modified accrual method of accounting for income
tax purposes, whereby sales and purchases of inventory to be sold are reported
using the accrual method and all other items are reported using the cash method.
(e) Revenue Recognition
Revenue from software and computer hardware sales are recognized when the
product is shipped or upon customer acceptance in instances where the software
and computer hardware is to be installed at the customer location. Revenue from
consulting, training or other services are recognized as the related services
are performed.
Revenue from prepaid customer support agreements are recognized ratably
over the term of the agreement.
(3) EQUIPMENT
Equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Office furniture and equipment.......... $ 18,827 $ 22,187 $ 22,361
Computer equipment...................... 98,483 119,573 119,187
Software................................ 27,338 33,357 33,572
Equipment held under capital leases..... 8,572 11,900 22,700
--------- --------- ---------
153,220 187,017 197,820
Less accumulated depreciation and
amortization.......................... (110,577) (135,948) (147,900)
--------- --------- ---------
Net equipment................. $ 42,643 $ 51,069 $ 49,920
========= ========= =========
</TABLE>
(4) REVOLVING LINE OF CREDIT
The Company has a revolving line of credit with a bank which provides for
maximum borrowings of $150,000 (limited to 70% of eligible receivables, as
defined), is due June 1, 1997, with interest payable monthly at 1% over the
prime rate (9 1/4% as of December 31, 1996), and collateralized by accounts
receivable, inventory, equipment and a general assignment of all of the
Company's assets. MKK is the guarantor on the revolving line of credit. MKK can
reduce its maximum guarantee on the revolving line of credit by one-third on May
31, 1997, May 31, 1998 and May 31, 1999. Due to certain circumstances, the
revolving line of credit was not reduced to $100,000 until July 1997. The new
revolving line of credit is due June 1, 1998.
F-125
<PAGE> 208
COMPUTERS FOR DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES
Income tax expense differs from the amounts computed by applying the
Federal graduated statutory tax rate of 15% to pre-tax income (loss) as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
------ ------- ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit)......................... $3,083 $(3,343) $6,201 $11,211 $2,816
Change in valuation allowance....... -- 3,343 -- -- --
Other, net, including state income
taxes............................. (22) -- (345) (5,355) (781)
------ ------- ------ ------- ------
Actual income tax
expense................. $3,061 $ -- $5,856 $ 5,856 $2,035
====== ======= ====== ======= ======
</TABLE>
The Company's deferred tax liability is comprised of net temporary
differences relating to the use of the modified accrual method of accounting for
income tax purposes, as described in note 1.
As of December 31, 1996, the Company has a net operating loss carryforward
for income tax purposes of approximately $8,200, which expires in various
amounts through 2002. The Company has recorded a valuation allowance equal to
the deferred tax asset relating to the net operating loss carryforward. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.
(6) STOCKHOLDERS' AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES
Common stock issued at inception of the Company in 1988 was recorded at the
historical cost basis of assets contributed to the Company of $16,763. At
inception, MKK owned 75% of the outstanding common stock. The remaining 25% of
the common stock outstanding was owned by an officer of the Company.
In June 1996, MKK sold 3,750 shares of common stock to various officers of
the Company, thereby reducing its ownership from 75% to 40%.
In addition, in June 1996, the Company and certain employees entered into
an agreement to purchase 7,500 shares of common stock from MKK. Under the terms
of the agreement, the Company and these employees guaranteed the purchase of
3,750 shares of common stock, and employees were to purchase the remaining 3,750
shares. Actual employee purchases for the year ended December 31, 1996 totaled
3,125 shares. The Company's president loaned the Company $12,500 for the
purchase of the remaining 625 shares, and such shares were purchased by the
Company in 1996. The note bears interest at the prime rate plus 2% (10 1/4% as
of December 31, 1996) and is due on demand.
The agreement also provides that the remaining 3,750 shares shall be
purchased by the Company in increments of 1,250 shares over a three year period.
Required payments total $85,000, payable in three equal annual installments of
$28,333 due May 31, 1997, May 31, 1998 and May 31, 1999. In addition, the
Company shall forgive an unsecured note receivable from MKK totaling $16,763 and
accrued interest of $13,652 over the three-year period. During the six months
ended June 30, 1997, 1,250 common shares were purchased for $28,333 and retired,
and a portion of the note receivable and accrued interest receivable in the
amount of $9,609 were forgiven. The Company also agreed to place $2,350 per
month into a "sinking fund escrow account" beginning in June 1996 to provide for
the required payments. At December 31, 1996 and June 30, 1997, the escrow
account totaled $7,512 and $0 and is included in other assets in the
accompanying financial
F-126
<PAGE> 209
COMPUTERS FOR DESIGN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
statements. If the Company defaults under its line of credit (see note 4), the
escrow account must be applied to repay any outstanding balance on the line of
credit.
During 1995, the Company advanced funds to TMA Guild, LLC, (TMA) a company
in which the Company's president and 25% shareholder owned a 50% interest. The
Company's president sold the interest in TMA in May 1996. The loan is evidenced
by an unsecured promissory note dated March 1, 1996, payable through 2000 and
bearing interest at 1 1/2% above the prime rate (9 3/4% at December 31, 1996).
In May 1996, TMA repaid $22,731 and $5,581 of services rendered by TMA were
charged against the balance of the note. The remaining balance of the note
receivable of $22,732 was assumed by the Company's president in 1996.
(7) COMMITMENTS
The Company has entered into noncancelable operating leases for its office
facilities and certain equipment. Rent expense amounted to $48,261, $52,234 and
$56,206 for the years ended December 31, 1994, 1995 and 1996, respectively and
was approximately $28,000 for the six months ended June 30, 1997. Future minimum
payments under the leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997............................................ $ 56,748
1998............................................ 56,748
1999............................................ 56,748
2000............................................ 56,748
--------
Total minimum lease payments............ $226,992
========
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
In January 1997, the Company adopted a defined contribution 401(k) Profit
Sharing Plan (the Plan) under section 401(k) of the Internal Revenue Code which
is available to full time employees who meet the Plan's eligibility
requirements. Employees may contribute up to the maximum limits allowed by the
Internal Revenue Code. The Company may make discretionary employer matching
contributions to the Plan.
(9) SUBSEQUENT EVENT
In May 1997, the Company entered into an agreement with Universal Document
Management Systems, Inc. ("UDMS") whereby UDMS will acquire the outstanding
common stock of the Company in conjunction with a proposed initial public
offering of common stock of UDMS.
F-127
<PAGE> 210
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING SHAREHOLDER, ANY OF THE UNDERWRITERS, OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER
TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK OFFERED, NOR DOES
IT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SHARES
OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Forward-Looking Statements............ 14
The Company........................... 15
Use of Proceeds....................... 18
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Pro Forma Combined Financial
Data................................ 23
Management's Discussion and Analysis
of Pro Forma Financial Condition and
Pro Forma Results of Operations..... 29
Selected Financial Data of the
Founding Companies.................. 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 39
Business.............................. 58
Management............................ 68
Certain Transactions.................. 72
Principal and Selling Shareholder..... 76
Description of Capital Stock.......... 77
Shares Eligible for Future Sale....... 78
Underwriting.......................... 80
Legal Matters......................... 81
Experts............................... 81
Additional Information................ 82
Index to Financial Statements......... F-1
</TABLE>
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Company's Common Stock offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
======================================================
======================================================
2,600,000 SHARES
[LOGO]
SYNERGIS TECHNOLOGIES, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
THE ROBINSON-HUMPHREY
COMPANY
MCDONALD & COMPANY
SECURITIES, INC.
, 1997
======================================================
<PAGE> 211
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13 -- OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized summary of expenses the Company estimates it
will incur in connection with the issuance and distribution of the Common Stock
being registered, other than underwriting discounts and commissions:
<TABLE>
<CAPTION>
EXPENSE AMOUNT
------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee..................................................... $11,779.00
NASD Fee................................................................. $ 4,387.00
Nasdaq Fee...............................................................
Printing.................................................................
Blue Sky Fees and Expenses...............................................
Legal Fees and Expenses..................................................
Accounting Fees and Expenses.............................................
Miscellaneous............................................................
-------
Total.................................................................... $1,500,000*
=======
</TABLE>
- ---------------
* Estimated
ITEM 14 -- INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Code of Regulations provides that each person who is made a
party to, or is otherwise involved in, any action, suit or proceeding, by reason
of the fact that he is or was a director or officer of the Company, or is or was
serving at the request of the Company as a director, officer, trustee, employee
or agent of another entity, shall be indemnified and held harmless by the
Company to the fullest extent authorized by the Ohio General Corporation Law
(the "OGCL") against all expenses, liability and loss, including attorneys'
fees. The OGCL permits indemnification in non-shareholder derivative actions for
expenses, judgments, fines and settlement amounts, if the director or officer
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe this conduct was
unlawful. In a shareholder derivative action, the OGCL permits indemnification
for expenses only, if the director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, unless the director or officer has been adjudged to be liable for
negligence or misconduct in the performance of his duties. The intent of the
Company's Code of Regulations is to make indemnification for directors and
officers mandatory rather than permissive. In addition, the Code of Regulations
requires the Company to pay a director's or officer's expenses incurred in
defending any such proceeding, in advance of the proceeding's final disposition,
provided that the director or officer delivers to the Company an undertaking to
repay all advanced amounts if it is ultimately determined that he is not
entitled to be indemnified under Ohio law. To the extent that an officer or
director is successful on the merits in any proceeding, Ohio law mandates
indemnification for expenses, including attorneys' fees. The Code of Regulations
also provides a procedure whereby a director or officer denied indemnification
may bring an action against the Company to recover the amount of his
indemnification claim, and the burden of proving that the director or officer
did not meet the applicable standard of conduct described in the OGCL is placed
on the Company. The Company's Code of Regulations also provides that the Company
may maintain insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Company against any expense, liability or
loss, whether or not the Company would have the power to indemnify such person
against such expense, liability or loss under the OGCL.
The Company currently maintains directors and officers liability insurance.
ITEM 15 -- RECENT SALES OF UNREGISTERED SECURITIES
The following information has been adjusted to reflect the 8,334.92-for-1
split effective , 1997.
II-1
<PAGE> 212
On August 1, 1997, the Company granted options to certain employees of the
Company under its 1997 Long-Term Incentive Plan. These grants were exempt
pursuant to (LOGO) 4(2) of the 1933 Act. The aggregate number of shares subject
to these options is 136,000, and each employee to whom options were granted can
exercise his options at an exercise price of $9.60 per share.
On February 19, 1997, the Company issued warrants to Terry L. Theye,
Chairman of the Board, President and Chief Executive Officer, to purchase up to
41,675 shares at a purchase price of $3.80 per share, and to Norma Skoog,
nominee for director, to purchase up to 35,590 shares at a purchase price equal
to the per share initial public offering price. Additionally, on July 7, 1997,
the Company issued a warrant to Thomas R. McLean, Senior Vice President of
Business Development and Marketing, to purchase up to 4,167 shares at a purchase
price of $2.40 per share. The issuance of each of these warrants was exempt
pursuant to (LOGO) 4(2) of the 1933 Act.
Simultaneous with the closing of the Offering, the Company will issue
875,508 shares to shareholders of the Founding Companies in connection with the
Acquisitions. Each of the shares to be issued in connection with the
Acquisitions is valued at an amount equal to the per share initial public
offering price. The Company is offering shares in connection with the
Acquisitions to less than 35 non-accredited investors in reliance on the
exemption from registration provided under Regulation D, Rule 506 of the 1933
Act.
ITEM 16 -- EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are hereby filed as part of the Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation
3.2 Form of Amended and Restated Code of Regulations
5.1 Opinion of Dinsmore & Shohl LLP*
10.1 Asset Purchase Agreement with ACCESS Corporation
10.2 Agreement and Plan of Merger and Reorganization with DTI Technologies, Inc.
10.3 Agreement and Plan of Merger and Reorganization with Applied Software Technology,
Inc.
10.4 Agreement and Plan of Merger and Reorganization with Technical Software, Inc.
10.5 Agreement and Plan of Merger and Reorganization with Synergis Technologies, Inc.
10.6 Agreement and Plan of Merger and Reorganization with CADD Microsystems, Inc.
10.7 Agreement and Plan of Merger and Reorganization with Mid-West CAD, Inc.
10.8 Agreement and Plan of Merger and Reorganization with Devtron, Russell Inc.
10.9 Agreement and Plan of Merger and Reorganization with Computers for Design, Inc.
10.10 Form of Registration Rights Agreement
10.11 Employment Agreement between Company and Terry L. Theye
10.12 Employment Agreement between Company and Thomas R. McLean
10.13 Employment Agreement between Company and Scott D. Watkins
10.14 Employment Agreement between Company and Daniel B. Dolan
10.15 Employment Agreement between Company and Bonnie L. Johnson
10.16 Employment Agreement between Company and Jeffrey A. Pakrosnis
10.17 Employment Agreement between Company and Michael D. Theye
10.18 1997 Long-Term Incentive Plan
10.19 Common Stock Warrant dated February 19, 1997 issued by UDMS to Terry L. Theye
10.20 Common Stock Warrant dated February 19, 1997 issued by UDMS to Norma Skoog
10.21 Reimbursement Agreement dated May 28, 1997 between MedPlus and UDMS
10.22 Reseller's Software License Agreement dated August 28, 1997 between MedPlus and
UDMS.
10.23 $299,500 Convertible Debenture dated June, 1994 issued by UDMS to MedPlus
10.24 Amendment to Stock Purchase Agreement, dated August 12, 1997 between MedPlus and
the prior shareholders of HWB, Inc.
10.25 Letter agreement between Autodesk, Inc. and the Company, dated September 25, 1997
10.26 Agreement between MedPlus and Terry L. Theye, dated July 10, 1997, providing for
payment of a $500,000 bonus
</TABLE>
II-2
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------------------------------------------------------------------
<C> <S>
10.27 Agreement between UDMS and Norma Skoog, dated September 1, 1997, providing for
payment of a $60,000 bonus
10.28 Common Stock Warrent dated July 7, 1997 issued by UDMS to Thomas R. McLean
11.1 Computation of Per Share Earnings
23.1 Consent of KPMG Peat Marwick LLP with regard to Universal Document Management
Systems, Inc.
23.2 Consent of Clark, Schaefer, Hackett & Co. with regard to Universal Document
Management Systems, Inc.
23.3 Consent of KPMG Peat Marwick LLP with regard to DTI Technologies, Inc.
23.4 Consent of Deloitte & Touche LLP with regard to ACCESS Corporation
23.5 Consent of KPMG Peat Marwick LLP with regard to Applied Software Technology, Inc.
23.6 Consent of KPMG Peat Marwick LLP with regard to Technical Software, Inc.
23.7 Consent of KPMG Peat Marwick LLP with regard to Synergis Technologies, Inc.
23.8 Consent of KPMG Peat Marwick LLP with regard to Mid-West CAD, Inc.
23.9 Consent of KPMG Peat Marwick LLP with regard to CADD Microsystems, Inc.
23.10 Consent of KPMG Peat Marwick LLP with regard to Devtron, Russell Inc.
23.11 Consent of KPMG Peat Marwick LLP with regard to Computers for Design, Inc.
23.12 Consent of Dinsmore & Shohl LLP*
24.1 Power of Attorney (Contained on signature page)
99.2 Consent of Vincent Rinaldi to be named as director
99.3 Consent of Norma Skoog to be named as director
</TABLE>
- ---------------
* To be provided by amendment.
(b) Financial Statement Schedules.
None
ITEM 17 -- UNDERTAKINGS
*(f) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
*(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 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 Act and will
be governed by the final adjudication of such issue.
*(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of Prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and in the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
- ---------------
* Paragraph references correspond to those of Regulation S-K, Item 512.
II-3
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cincinnati, State of
Ohio, on October 10, 1997.
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
By
----------------------------------------------
Terry L. Theye, Chairman of the Board,
President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Terry L. Theye, Jeffrey A.
Pakrosnis and Charles F. Hertlein, Jr., and each of them, jointly and severally,
as his or her true and lawful attorneys-in-fact and agents, each with full power
of substitution, and each with power to act alone, to sign and execute on behalf
of the undersigned any amendment or amendments to this Registration Statement on
Form S-1, and to perform any acts necessary to be done in order to file such
amendment with exhibits thereto and other documents in connection therewith with
the Securities and Exchange Commission, and each of the undersigned does hereby
ratify and confirm all that said attorneys-in-fact and agents, or their
substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -----------------
<C> <S> <C>
Chairman of the Board, October 10, 1997
- --------------------------------------------- President and Chief
Terry L. Theye Executive Officer
(Principal Executive
Officer)
Vice President and Chief October 10, 1997
- --------------------------------------------- Financial Officer
Jeffrey A. Pakrosnis (Principal Financial and
Accounting Officer)
</TABLE>
II-4
<PAGE> 1
Exhibit 1.1
SYNERGIS TECHNOLOGIES, INC.
COMMON STOCK
____________________
UNDERWRITING AGREEMENT
_________ , 1997
THE ROBINSON-HUMPHREY COMPANY, LLC
McDONALD & COMPANY SECURITIES, INC.
As Representatives of the several Underwriters named in Schedule I hereto
c/o The Robinson-Humphrey Company, LLC
3333 Peachtree Road, N.E.
Atlanta, Georgia 30326
Ladies and Gentlemen:
Synergis Technologies, Inc., an Ohio corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I (the "Underwriters") an aggregate of
1,850,000 shares of common stock, without par value ("Common Stock"), and
MedPlus, Inc. (the "Selling Shareholder"), proposes to sell to the Underwriters
an aggregate of 750,000 shares of Common Stock of the Company (together, the
"Firm Shares"), and at the election of the Underwriters, the Company proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters up to 390,000 additional shares of Common Stock (the "Optional
Shares") (the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof are collectively called the "Shares"). The
Company has entered into the Agreements identified on Exhibit A attached hereto
(the "Acquisition Agreements") with the companies identified on Exhibit A
(together, the "Acquired Companies") to acquire such companies or to purchase
substantially all of their assets simultaneous with the First Time of Delivery
(as hereinafter defined) (the "Acquisitions"). For the purposes of this
Agreement, unless the context expressly otherwise requires, references to the
Company shall include the Acquired Companies as if the Acquisitions have been
completed.
1. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and the
Selling Shareholder, jointly and severally, represent and warrant to, and agree
with, each of the Underwriters that:
<PAGE> 2
(i) A registration statement on Form S-1 (File No. 333-___) (the
"Initial Registration Statement") with respect to the Shares, including a
prospectus subject to completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), and one or more amendments to such
Initial Registration Statement have been so filed. After the execution of
this Agreement, the Company will file with the Commission either (A) if
such Initial Registration Statement, as it may have been amended, has
become effective under the Act and information has been omitted therefrom
in accordance with Rule 430A under the Act, a prospectus in the form most
recently included in an amendment to such Initial Registration Statement
with such changes or insertions as are required by Rule 430A or permitted
by Rule 424(b) under the Act and as have been provided to and approved by
the Representatives, or (B) if such Initial Registration Statement, as it
may have been amended, has not become effective under the Act, an
amendment to such Initial Registration Statement, including a form of
prospectus, a copy of which amendment has been provided to and approved by
the Representatives prior to the execution of this Agreement or (C) if
such Initial Registration Statement, as it may have been amended, has
become effective under the Act and the number of shares to be offered has
subsequently been increased, a registration statement (a "Rule 462(b)
Registration Statement"), filed pursuant to Rule 462(b) under the Act and
as has been provided to and approved by the Representatives. As used in
this Agreement, the term "Registration Statement" means such Initial
Registration Statement, as amended at the time when it was or is declared
effective, including all financial statement schedules and exhibits
thereto together with any Rule 462(b) Registration Statement and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion included in such
Initial Registration Statement or any amendment or post-effective
amendment thereto (including the prospectus subject to completion, if any,
included in the Registration Statement at the time it was or is declared
effective); and the term "Prospectus" means the prospectus first filed
with the Commission pursuant to Rule 424(b) under the Act or, if no
prospectus is required to be so filed, such term means the prospectus
included in the Registration Statement. For purposes of the following
representations and warranties, to the extent reference is made to the
Prospectus and at the relevant time the Prospectus is not yet in
existence, such reference shall be deemed to be to the most recent
Preliminary Prospectus.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued and no proceeding for that purpose has been
instituted or threatened by the Commission or the securities authority of
any state or other jurisdiction. If the Registration Statement has become
effective under the Act, no stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued and, to the
knowledge of the Company, no proceeding for that purpose has been
instituted or threatened or is contemplated by the Commission or the
securities authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the Commission
it (A) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (B) did not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the
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<PAGE> 3
circumstances under which they were made, not misleading. When the
Registration Statement or any amendment thereto was or is declared
effective, and at each Time of Delivery (as hereinafter defined), it (A)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with
the requirements of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or any
amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or
is declared effective) and at each Time of Delivery, the Prospectus, as
amended or supplemented at any such time, (A) contained or will contain
all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of,
the Act and the rules and regulations of the Commission thereunder and (B)
did not or will not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (iii) do not apply
to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by any Underwriter through
you specifically for use therein. The Company, the Selling Shareholder and
the Underwriters hereby acknowledge that the following constitutes the
only information furnished in writing to the Company by the Underwriters
specifically for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any such amendment or supplement: (i) the
statements in the last paragraph on the cover page of the Prospectus; (ii)
the statements with respect to stabilization in the paragraph at the
bottom of the inside front cover page of the Prospectus; and (iii) the
statements under the caption "Underwriting" in the Prospectus.
(iv) The descriptions in the Registration Statement and the
Prospectus of statutes, legal and governmental proceedings or contracts
and other documents are accurate and fairly present the information
required to be shown; and there are no statutes or legal or governmental
proceedings required to be described in the Registration Statement or the
Prospectus that are not described as required and no contracts or
documents of a character that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described and filed as required.
(v) The Company (and each of the Acquired Companies
immediately prior to the First Time of Delivery) has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has full power and
authority (corporate and other) to own or lease its properties and conduct
its business as described in the Prospectus. The Company has full power
and authority (corporate and other) to enter into this Agreement and to
perform its obligations hereunder. The Company (and each of the Acquired
Companies immediately prior to the First Time of Delivery) is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties, or conducts any business, so as to
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<PAGE> 4
require such qualification, except where the failure to so qualify would
not have a material adverse effect on the financial position, results of
operations or business of the Company.
(vi) The Company's authorized, issued and outstanding capital
stock is as disclosed in the Prospectus. All of the issued shares of
capital stock of the Company have been duly authorized and validly issued,
are fully paid and nonassessable and conform to the description of the
Common Stock contained in the Prospectus. None of the issued shares of
capital stock of the Company or its predecessors has been issued or is
owned or held in violation of any preemptive rights of shareholders, and
no person or entity (including any holder of outstanding shares of capital
stock of the Company) has any preemptive or other rights to subscribe for
any of the Shares.
(vii) The Company has no subsidiaries. The Company does not
own, directly or indirectly, any capital stock or other equity securities
of any corporation or any ownership interest in any partnership, joint
venture or other association.
(viii) Except as disclosed in the Registration Statement,
there are no outstanding (A) securities or obligations of the Company
convertible into or exchangeable for any capital stock of the Company, (B)
warrants, rights or options to subscribe for or purchase from the Company
any such capital stock or any such convertible or exchangeable securities
or obligations, or (C) obligations of the Company to issue any shares of
capital stock, any such convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(ix) Since the date of the most recent audited financial
statements included in the Prospectus, the Company has not sustained any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as disclosed in or contemplated by the Prospectus.
(x) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and other than as
disclosed in or contemplated by the Registration Statement and the
Prospectus, (A) the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, not
in the ordinary course of business, that are material to the Company, (B)
the Company has not purchased any of its outstanding capital stock or
declared, paid or otherwise made any dividend or distribution of any kind
on its capital stock, (C) there has not been any material change in the
capital stock, long-term debt or short-term debt of the Company, and (D)
there has not been any material adverse change, or any development that
the Company reasonably expects to result in a material adverse change, in
or affecting the financial position, results of operations or business of
the Company.
(xi) The Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; and the certificates evidencing the Shares comply with all
applicable requirements of Ohio law.
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<PAGE> 5
(xii) Except as disclosed in the Registration Statement, there are
no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company owned or to be owned by such person or to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement (or any such right has been effectively waived) or
in any securities being registered pursuant to any other registration
statement filed by the Company under the Act.
(xiii) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times duly registered under the Act
or exempt from the registration requirements of the Act by reason of
Sections 3(b), 4(2) or 4(6) thereof and were duly registered or the
subject of an available exemption from the registration requirements of
the applicable state securities or blue sky laws.
(xiv) The Company is not, nor with the giving of notice or passage
of time or both will it be, in violation of its Articles of Incorporation
or Code of Regulations or in default under any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument to which
the Company is a party or to which any of its properties or assets are
subject.
(xv) The issue and sale of the Shares to be issued and sold by the
Company and the performance of this Agreement and the consummation of the
transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Company is a party or
to which any of its properties or assets is subject, nor will such action
conflict with or violate any provision of the Articles of Incorporation or
Code of Regulations of the Company or any statute, rule or regulation or
any order, judgment or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its properties or assets.
(xvi) The Company has good and indefeasible title in fee simple to
all real property, if any, and good title to all personal property owned
by it, free and clear of all liens, security interests, pledges, charges,
encumbrances, mortgages and defects, except such as are disclosed in the
Prospectus or such as do not materially and adversely affect the value of
such property and do not interfere with the use made or proposed to be
made of such property by the Company; and any real property and buildings
held under lease by the Company are held under leases which are valid and
enforceable as to the Company and, to the Company's knowledge, as to
others, with such exceptions as are disclosed in the Prospectus or are not
material and do not interfere with the use made or proposed to be made of
such property and buildings by the Company.
(xvii) No consent, approval, authorization, order or declaration of
or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the sale of the Shares or the
consummation of the transactions contemplated by this Agreement, except
the registration of the Shares under the Act (which, if the Registration
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<PAGE> 6
Statement is not effective as of the time of execution hereof, shall be
obtained as provided in this Agreement) and such as may be required from
the National Association of Securities Dealers, Inc. (the "NASD") and
under state securities or blue sky laws in connection with the offer, sale
and distribution of the Shares by the Underwriters.
(xviii) There is no litigation, arbitration, claim, proceeding
(formal or informal) or investigation pending or, to the Company's
knowledge, threatened (or any basis therefor) in which the Company is a
party or of which any of its properties or assets are the subject which,
if determined adversely to the Company, would individually or in the
aggregate reasonably be expected to have a material adverse effect on the
financial position, results of operations or business of the Company. The
Company is not in violation of, or in default with respect to, any
statute, rule, regulation, order, judgment or decree, except such as do
not and will not individually or in the aggregate have a material adverse
effect on the financial position, results of operations or business of the
Company.
(xix) To the Company's knowledge, each of KPMG Peat Marwick
LLP, Clark, Schaefer, Hackett & Co. and Deloitte & Touche LLP, who have
certified certain financial statements of the Company and of the Acquired
Companies, are and were, during the periods covered by their reports
included in the Registration Statement and the Prospectus, independent
public accountants as required by the Act and the rules and regulations of
the Commission thereunder.
(xx) The pro forma combined financial statements of the
Company and the historical financial statements of the Company and the
Acquired Companies, and the related notes thereto, included in the
Registration Statement and the Prospectus present fairly in all material
respects the pro forma combined or historical financial position, as the
case may be, of the Company and the Acquired Companies, as the case may
be, as of the dates indicated and the results of their operations and
changes in their cash flows for the periods specified; and said historical
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, except as
may be set forth therein, and the supporting schedules included in the
Registration Statement present fairly in all material respects the
information required to be stated therein; and the pro forma combined
financial statements, and the related notes thereto, included in the
Registration Statement and the Prospectus have been prepared in accordance
with the applicable requirements of the Act and are based upon good faith
estimates and assumptions believed by the Company to be reasonable. The
selected financial data set forth under the captions "Selected Pro Forma
Combined Financial Data" and "Selected Financial Data of the Founding
Companies" in the Prospectus fairly present, on the basis stated in the
Prospectus, the information included therein.
(xxi) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms, subject, as to enforcement, to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws relating to or affecting
the enforcement of creditors' rights generally and to general equitable
principles.
-6-
<PAGE> 7
(xxii) Neither the Company nor any of its officers, directors
or other affiliates has (A) taken, directly or indirectly, any action
designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company to facilitate the sale or
resale of the Shares or (B) since the filing of the Registration Statement
(1) sold, bid for, purchased or paid anyone any compensation for
soliciting purchases of, the Shares or (2) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xxiii) The Company has obtained for the benefit of the
Company and the Underwriters from each of its directors and officers, the
Selling Shareholder, the controlling shareholder(s) of each of the
Acquired Companies and Madison Financial Group Ltd. a written agreement
that for a period of 180 days from the date of the Prospectus such person
will not, without your prior written consent, sell, offer to sell,
contract to sell, solicit an offer to buy, grant any option for the
purchase or sale of, assign, pledge, distribute or otherwise transfer,
dispose of or encumber (or make any announcement with respect to any of
the foregoing), directly or indirectly, any shares of Common Stock, or any
options, rights, warrants or other securities convertible into or
exercisable or exchangeable for Common Stock or evidencing any right to
purchase or subscribe for shares of Common Stock, whether or not
beneficially owned, except as provided in Section 2.
(xxiv) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the
Company has, directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political
parties or campaigns from corporate funds; violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment.
(xxv) The operations of the Company with respect to any real
property currently leased or owned or by any means controlled by the
Company (the "Real Property") are in compliance with all federal, state
and local laws, ordinances, rules and regulations relating to occupational
health and safety and the environment (collectively, "Laws"), and the
Company has all licenses, permits and authorizations necessary to operate
under all Laws and is in compliance with all terms and conditions of such
licenses, permits and authorizations; the Company has not authorized or
conducted and have no knowledge of the generation, transportation,
storage, use, treatment, disposal or release of any hazardous substance,
hazardous waste, hazardous material, hazardous constituent, toxic
substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any
environmental law on, in or under any Real Property; and there is no
pending or threatened claim, litigation or any administrative agency
proceeding, nor has the Company received any written or oral notice from
any governmental entity or third party, that: (A) alleges a violation of
any Laws by the Company; (B) alleges the Company is a liable party under
the Comprehensive Environmental Response, Compensation, and Liability Act,
42 U.S.C. Section 9601 et seq. or any state superfund law; (C) alleges
possible contamination of the environment by the Company; or (D) alleges
possible contamination of the Real Property.
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<PAGE> 8
(xxvi) The Company owns or possesses, or is licensed or
otherwise has the full legal right to utilize, any patents, patent rights,
licenses, inventions, copyrights, know-how, service marks, trade names and
other intangible property presently employed by it in connection with the
business now operated by it or which the Prospectus indicates the Company
proposes to operate, except where the failure to so own or possess such
legal right could not reasonable be expected to have a material adverse
effect on the business of the Company, and the Company has not received
any notice and is not otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any patent or proprietary
rights which, singularly or in the aggregate, if the subject of an
unfavorable final determination, could reasonable be expected to have a
material adverse effect on the business of the Company.
(xxvii) The Company has delivered or made available to you
prior to the date the Registration Statement was declared effective copies
of all pension, retirement, profit-sharing, deferred compensation, stock
option, employee stock ownership, severance pay, vacation, bonus or other
incentive plans, all other written employee programs, arrangements or
agreements, all medical, vision, dental or other health plans, all life
insurance plans and all other employee benefit plans or fringe benefit
plans, including, without limitation, "employee benefit plans" as that
term is defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), adopted, maintained, sponsored in whole
or in part or contributed to by the Company or its predecessors for the
benefit of employees, retirees, dependents, spouses, directors,
independent contractors or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors or other
beneficiaries are eligible to participate (collectively, the "Company
Benefit Plans").
The Company (and each of its predecessors that adopted or
contributed to a Company Benefit Plan) has maintained all Company Benefit
Plans (including filing all reports and returns required to be filed with
respect thereto) in accordance with their terms and in compliance with the
applicable terms of ERISA, the Internal Revenue Code and any other
applicable federal and state laws, except for any breach or violation
which would not have, individually or in the aggregate, a material adverse
effect on the financial position, results of operations or business of the
Company. Each Company Benefit Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code has either received a
favorable determination letter from the Internal Revenue Service or will
timely request such a letter prior to the expiration of any remedial
amendment period applicable without penalty to the Company Benefit Plan
under the Internal Revenue Code and has at all times been maintained in
accordance with Section 401 of the Internal Revenue Code, except where any
failure to so maintain such Company Benefit Plan would not have,
individually or in the aggregate, a material adverse effect on the
financial position, results of operations or business of the Company. The
Company has engaged in no transaction with respect to any Company Benefit
Plan that, assuming the taxable period of such transaction expired as of
the date hereof, would subject the Company to a tax or penalty imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in an amount which is reasonably likely to have, individually or in
the aggregate with any other such transactions, a material adverse effect
on the financial position, results of operations or business of the
Company.
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<PAGE> 9
The Company is not obligated to provide post-retirement medical
benefits or any other unfunded post-retirement welfare benefits (except,
under the Consolidated Omnibus Budget Reconciliation Act of 1986,
continuation coverage required to be provided by ERISA Section 601) which
would have, individually or in the aggregate, a material adverse effect on
the financial position, results of operations or business of the Company.
Neither the Company nor any member of a group of trades or businesses
under common control (as defined in ERISA Sections 4001(a)(14) and
4001(b)(1)) with the Company have at any time within the last six years
sponsored, contributed to or been obligated under Title I or IV of ERISA
to contribute to a "defined benefit plan" (as defined in ERISA Section
3(35)). Within the last six years, neither the Company nor any member of a
group of trades or businesses under common control (as defined in ERISA
Sections 4001(a)(14) and 4001(b)(1)) with Company have had an "obligation
to contribute" (as defined in ERISA Section 4212) to a "multiemployer
plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).
(xxviii) No labor dispute exists with the Company's employees,
or is imminent, which could materially adversely affect the financial
position, results of operations or business of the Company. The Company is
not aware of any existing or imminent labor disturbance by its employees
which could be expected to adversely affect the financial position,
results of operations or business of the Company.
(xxix) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as are customary in the businesses in which it is engaged; and the Company
has no knowledge of any facts or circumstances that would prevent the
renewal of its existing insurance coverage as and when such coverage
expires or that would prevent it from obtaining similar coverage from
similar insurers as may be necessary to continue its business at a
comparable cost, except as disclosed in the Prospectus.
(xxx) The Company makes and keeps accurate books and records
reflecting its assets and maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in
accordance with management's authorization, (B) transactions are recorded
as necessary to permit preparation of the Company's financial statements
in accordance with generally accepted accounting principles and to
maintain accountability for the assets of the Company, (C) access to the
assets of the Company is permitted only in accordance with management's
authorization, and (D) the recorded accountability for assets of the
Company is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxxi) The Company's software systems include design,
performance and functionality so that the Company does not reasonably
expect to experience invalid or incorrect results or abnormal software
operation related to calendar year 2000. The Company's software systems
include calendar year 2000 date conversion and compatibility capabilities,
including, but not limited to, date data century recognition, same century
and multiple century formula and date value calculations, and user
interface date data values that reflect the century.
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<PAGE> 10
(xxxii) The Company has filed all foreign, federal, state and
local tax returns that are required to be filed by it and has paid all
taxes shown as due on such returns as well as all other taxes, assessments
and governmental charges that are due and payable, and no deficiency with
respect to any such return has been assessed or proposed. All applicable
income and employment taxes have been withheld and paid for any
individuals who would be considered common law employees of the Company
for federal income and employment tax withholding purposes.
(xxxiii) The Company is not, will not become as a result of
the transactions contemplated hereby, and does not intend to conduct its
business in a manner that would cause it to become, an "investment
company" or a company "controlled" by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(xxxiv) Neither the Company nor any "affiliate" (as defined in
Florida Statutes, Section 517.021(1), for purposes of this paragraph only)
does business with the government of Cuba or with any person or affiliate
located in Cuba that would require disclosure under Florida Statutes,
Section 517.075.
(xxxv) Each of the Acquisition Agreements is in full force and
effect on the date hereof, and neither the Company, any of the Acquired
Companies or any of the other parties thereto is in breach of its, his or
her obligations thereunder.
(b) REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The
Selling Shareholder represents and warrants to, and agrees with, each of the
several Underwriters and the Company that:
(i) The Selling Shareholder has full right, power and
authority to enter into this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Shares to be sold by the Selling
Shareholder hereunder.
(ii) The Selling Shareholder has duly executed and delivered
this Agreement and this Agreement constitutes the valid and binding
agreement of the Selling Shareholder enforceable against the Selling
Shareholder in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization and moratorium laws and
other laws relating to or affecting the enforcement of creditors' rights
generally and to general equitable principles.
(iii) No consent, approval, authorization, order or
declaration of or from, or registration, qualification or filing with, any
court or governmental agency or body is required for the sale of the
Shares to be sold by the Selling Shareholder or the consummation of the
transactions contemplated by this Agreement, except the registration of
such Shares under the Act (which, if the Registration Statement is not
effective as of the time of execution hereof, shall be obtained as
provided in this Agreement) and such as may be required from the NASD and
under state securities or blue sky laws in connection with the offer, sale
and distribution of such Shares by the Underwriters.
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<PAGE> 11
(iv) The sale of the Shares to be sold by the Selling
Shareholder and the performance of this Agreement and the consummation of
the transactions herein contemplated will not conflict with, or (with or
without the giving of notice or the passage of time or both) result in a
breach of violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement,
lease or other agreement or instrument to which the Selling Shareholder or
any of its subsidiaries is a party or to which any of their respective
properties or assets is subject, nor will such action conflict with or
violate any provision of the Articles of Incorporation or Code of
Regulations (or similar governing document) of the Selling Shareholder or
any statute, rule or regulation or any order, judgment or decree of any
court or governmental agency or body having jurisdiction over the Selling
Shareholder or any of the Selling Shareholder's properties or assets.
(v) The Selling Shareholder has, and immediately prior to each
Time of Delivery (as defined in Section 4 hereof) will have, good and
valid title to the Shares to be sold by the Selling Shareholder hereunder,
free and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' voting trusts, equities or claims of
any nature whatsoever; and, upon delivery of such Shares against payment
therefor as provided herein, good and valid title to such Shares, free and
clear of all liens, security interests, pledges, charges, encumbrances,
defects, shareholders' agreements, voting trusts, equities or claims of
any nature whatsoever, will pass to the several Underwriters.
(vi) The Selling Shareholder has not (A) taken, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Shares or (B) since the filing of
the Registration Statement (1) sold, bid for, purchased or paid anyone any
compensation for soliciting purchases of the Shares or (2) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Company.
(vii) When any Preliminary Prospectus was filed with the
Commission it (A) contained all statements required to be stated therein
in accordance with, and complied in all material respects with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (B) did not include any untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, and at each Time of
Delivery (as hereinafter defined), it (A) contained or will contain all
statements required to be stated therein in accordance with, and complied
or will comply in all material respects with the requirements of the Act
and the rules and regulations of the Commission thereunder and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any amendment or supplement thereto is
filed with the Commission pursuant to Rule 424(b) (or, if the Prospectus
or such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective) and at each
Time of Delivery, the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements
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<PAGE> 12
required to be stated therein in accordance with, and complied or will
comply in all material respects with the requirements of the Act and the
rules and regulations of the Commission thereunder and (B) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (vii) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement
or any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you specifically for
use therein. The Selling Shareholder and the Underwriters hereby
acknowledge that the following constitutes the only information furnished
in writing to the Company by the Underwriters specifically for use in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or
any such amendment or supplement: (i) the statements in the last paragraph
on the cover page of the Prospectus; (ii) the statements with respect to
stabilization in the paragraph at the bottom of the inside front cover
page of the Prospectus; and (iii) the statements under the caption
"Underwriting" in the Prospectus.
In order to document the Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code of 1986, as amended, with
respect to the transactions herein contemplated, the Selling Shareholder agrees
to deliver to you prior to or at the First Time of Delivery (as hereinafter
defined) a properly completed and executed United States Treasury Department
Form W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
2. PURCHASE AND SALE OF SHARES. Subject to the terms and conditions herein
set forth, (a) each of the Company and the Selling Shareholder agrees to sell to
each of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company and the Selling Shareholder, pro rata in
the proportion that the number of Firm Shares to be sold by each of the Company
and the Selling Shareholder bears to the total number of Firm Shares, at a
purchase price of $______ per share, the number of Firm Shares (to be adjusted
by you so as to eliminate fractional shares) set forth opposite the name of such
Underwriter in Schedule I hereto and (b) in the event and to the extent that the
Underwriters shall exercise the election to purchase Optional Shares as provided
below, the Company agrees to issue and sell to each of the Underwriters and each
of the Underwriters agrees, severally and not jointly, to purchase from the
Company, at the purchase price per share set forth in clause (a) of this Section
2, that portion of the number of Optional Shares as to which such election shall
have been exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares that such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of the Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase, at
their election in whole or in part from time to time, up to 390,000 Optional
Shares, at the purchase price per share set forth in clause (a) in the paragraph
above, for the sole purpose of covering over-allotments in the sale of Firm
Shares. Any such election to purchase Optional Shares may be exercised by
written notice from
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<PAGE> 13
you to the Company, given from time to time within a period of 30 calendar days
after the date of this Agreement and setting forth the aggregate number of
Optional Shares to be purchased and the date on which such Optional Shares are
to be delivered, as determined by you but in no event earlier than the First
Time of Delivery (as hereinafter defined) or, unless you and the Company
otherwise agree in writing, earlier than two or later than ten business days
after the date of such notice. In the event you elect to purchase all or a
portion of the Optional Shares, the Company agrees to furnish or cause to be
furnished to you the certificates, letters and opinions, and to satisfy all
conditions, set forth in Section 7 hereof at each Subsequent Time of Delivery
(as hereinafter defined).
3. OFFERING BY THE UNDERWRITERS. Upon the authorization by you of the
release of the Shares, the several Underwriters propose to offer the Shares for
sale upon the terms and conditions disclosed in the Prospectus.
4. DELIVERY OF SHARES; CLOSING. Certificates in definitive form for the
Shares to be purchased by each Underwriter hereunder, and in such denominations
and registered in such names as The Robinson-Humphrey Company, LLC may request
upon at least 48 hours' prior notice to the Company, shall be delivered by or on
behalf of the Company and the Selling Shareholder to you for the account of such
Underwriter against payment by such Underwriter on its behalf of the purchase
price therefor by wire transfer or certified or official bank check or checks
drawn on an Atlanta, Georgia bank, payable to the order of the Company and the
Selling Shareholder, as their interests may appear, in clearing house funds. The
closing of the sale and purchase of the Shares shall be held at the offices of
Taft, Stettinius & Hollister, 425 Walnut Street, 1800 Star Bank Center,
Cincinnati, OH 45202-3957, or at such other location as you, the Company and the
Selling Shareholder may agree upon, except that physical delivery of such
certificates shall be made at the office of The Depository Trust Company, 55
Water Street, New York, New York 10041. The time and date of such delivery and
payment shall be, with respect to the Firm Shares, at 10:00 a.m., Atlanta time,
the third (or if the Firm Shares are priced, as contemplated by Rule 15c6-1(c)
promulgated pursuant to the Securities Act of 1934, as amended (the "Exchange
Act"), after 4:30 p.m., Washington, D.C. time, the fourth) full business day
after this Agreement is executed or at such other time and date not less than
the seventh full business day thereafter as you, the Company and the Selling
Shareholder may agree upon in writing, and, with respect to the Optional Shares,
at 10:00 a.m., Atlanta time, on the date specified by you in the written notice
given by you of the Underwriters' election to purchase all or part of such
Optional Shares, or at such other time and date as you and the Company may agree
upon. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery," such time and date for delivery of any Optional
Shares, if not the First Time of Delivery, is herein called a "Subsequent Time
of Delivery," and each such time and date for delivery is herein called a "Time
of Delivery." The Company will make such certificates available for checking and
packaging at least 24 hours prior to each Time of Delivery at the office of The
Depository Trust Company, 55 Water Street, New York, New York 10041 or at such
other location in New York, New York specified by you in writing at least 48
hours prior to such Time of Delivery.
5. (a) COVENANTS OF THE COMPANY. The Company covenants and agrees with
each of the Underwriters:
(i) If the Registration Statement has been declared effective prior
to the execution and delivery of this Agreement, the Company will file the
Prospectus with the
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<PAGE> 14
Commission pursuant to and in accordance with subparagraph (1) (or, if
applicable and if consented to by you, subparagraph (4)) of Rule 424(b)
not later than the earlier of (A) the second business day following the
execution and delivery of this Agreement or (B) the fifth business day
after the date on which the Registration Statement is declared effective.
The Company will advise you promptly of any such filing pursuant to Rule
424(b).
(ii) The Company will not file with the Commission the
prospectus or the amendment referred to in the second sentence of Section
1(a)(i) hereof, any amendment or supplement to the Prospectus or any
amendment to the Registration Statement unless you have received a
reasonable period of time to review any such proposed amendment or
supplement and consented to the filing thereof and will use its best
efforts to cause any such amendment to the Registration Statement to be
declared effective as promptly as possible. Upon the request of the
Representatives or counsel for the Underwriters, the Company will promptly
prepare and file with the Commission, in accordance with the rules and
regulations of the Commission, any amendments to the Registration
Statement or amendments or supplements to the Prospectus that may be
necessary or advisable in connection with the distribution of the Shares
by the several Underwriters and will use its best efforts to cause any
such amendment to the Registration Statement to be declared effective as
promptly as possible. If required, the Company will file any amendment or
supplement to the Prospectus with the Commission in the manner and within
the time period required by Rule 424(b) under the Act. The Company will
advise the Representatives, promptly after receiving notice thereof, of
the time when the Registration Statement or any amendment thereto has been
filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed and will provide evidence to the
Representatives of each such filing or effectiveness.
(iii) If the Company elects to rely upon Rule 462(b), the
Company shall file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) by 10:00 p.m., Washington, D.C.
time, on the date of this Agreement, and the Company shall at the time of
filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of
such fee pursuant to Rule 111(b) under the Act.
(iv) The Company will advise you promptly after receiving
notice or obtaining knowledge of (A) the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
any part thereof or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto or of the initiation or threatening of any proceeding for any such
purpose, (B) the suspension of the qualification of the Shares for offer
or sale in any jurisdiction or of the initiation or threatening of any
proceeding for any such purpose, or (C) any request made by the Commission
or any securities authority of any other jurisdiction for amending the
Registration Statement, for amending or supplementing the Prospectus or
for additional information. The Company will use its best efforts to
prevent the issuance of any such stop order and, if any such stop order is
issued, to obtain the withdrawal thereof as promptly as possible.
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<PAGE> 15
(v) If the delivery of a prospectus relating to the Shares is
required under the Act at any time prior to the expiration of nine months
after the date of the Prospectus and if at such time any events have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or if for any reason it is necessary during such same period
to amend or supplement the Prospectus to comply with the Act or the rules
and regulations thereunder, the Company will promptly notify you and upon
your request (but at the Company's expense) prepare and file with the
Commission an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance and will furnish without
charge to each Underwriter and to any dealer in securities as many copies
of such amended or supplemented Prospectus as you may from time to time
reasonably request. If the delivery of a prospectus relating to the Shares
is required under the Act at any time nine months or more after the date
of the Prospectus, upon your request but at the expense of such
Underwriter, the Company will prepare and deliver to such Underwriter as
many copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act. Neither your consent to, nor
the Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 7.
(vi) The Company promptly from time to time will take such
action as you may reasonably request to qualify the Shares for offering
and sale under the securities or blue sky laws of such jurisdictions as
you may request and will continue such qualifications in effect for as
long as may be necessary to complete the distribution of the Shares,
provided that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service
of process in any jurisdiction.
(vii) The Company will promptly provide you, without charge,
(A) two manually executed copies of the Registration Statement as
originally filed with the Commission and of each amendment thereto, (B)
for each other Underwriter a conformed copy of the Registration Statement
as originally filed and of each amendment thereto, without exhibits, and
(C) so long as a prospectus relating to the Shares is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as you may
reasonably request.
(viii) As soon as practicable, but in any event not later than
45 days after the end of the Company's fiscal quarter in which the first
anniversary of the effective date of the Registration Statement occurs,
the Company will make generally available to its security holders an
earnings statement of the Company and its subsidiaries, if any, covering a
period of at least 12 months beginning after the effective date of the
Registration Statement (which need not be audited) complying with Section
11(a) of the Act and the rules and regulations thereunder.
(ix) During the period beginning on the date hereof and
continuing to and including the date 180 days after the date of the
Prospectus (the "Lockup Period"), the Company will not, without your prior
written consent, offer, pledge, issue, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of (or announce any of the
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foregoing), directly or indirectly, any shares of Common Stock or
securities convertible into, exercisable or exchangeable for, shares of
Common Stock, except as provided in Section 2 and except that the Company
may (A) offer and sell shares of Common Stock pursuant to the Company's
1997 Long-Term Incentive Plan described in the Registration Statement, (B)
issue shares of Common Stock in connection with future acquisitions,
provided that such shares are subject to the Lockup Period, and (C) issue
shares of Common Stock to the former shareholders of the Acquired
Companies in accordance with the earn-out arrangements described in the
Registration Statement, provided that such shares are subject to the
Lockup Period.
(x) During a period of five years from the effective date of
the Registration Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, without charge, (A) copies of
all reports or other communications (financial or other) furnished to
shareholders, (B) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission, the NASD
or any national securities exchange, and (C) such additional information
concerning the business and financial condition of the Company and its
subsidiaries, if any, as you may reasonably request.
(xi) Neither the Company nor any of its officers, directors or
other affiliates will (A) take, directly or indirectly, prior to the
termination of the underwriting syndicate contemplated by this Agreement,
any action designed to cause or to result in, or that might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of any of the
Shares, (B) sell, bid for, purchase or pay anyone any compensation for
soliciting purchases of the Shares or (C) pay or agree to pay to any
person any compensation for soliciting another to purchase any other
securities of the Company.
(xii) The Company will apply the net proceeds from the
offering in the manner set forth under "Use of Proceeds" in the
Prospectus.
(xiii) The Company will cause the Shares to be listed on the
Nasdaq National Market at each Time of Delivery and for at least one year
from the date hereof.
(xiv) If at any time during the period beginning on the date
the Registration Statement becomes effective and ending on the later of
(A) the date 30 days after such effective date and (B) the date that is
the earlier of (1) the date on which the Company first files with the
Commission a Quarterly Report on Form 10-Q or an Annual Report on Form
10-K after such effective date and (2) the date on which the Company first
issues a quarterly or annual financial report to shareholders after such
effective date, any rumor, publication or event relating to or affecting
the Company shall occur as a result of which in your reasonable opinion
the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates an amendment of or supplement to the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
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(xv) The Company will comply with all of its covenants under
each of the Acquisition Agreements.
(b) COVENANTS OF THE SELLING SHAREHOLDER. The Selling Shareholder
covenants and agrees with each of the Underwriters:
(i) During the Lockup Period, the Selling Shareholder will
not, without your prior written consent, sell, offer to sell, contract to
sell, solicit an offer to buy, grant any option for the purchase or sale
of, assign, pledge, distribute or otherwise transfer, dispose of or
encumber (or make any announcement with respect to any of the foregoing),
directly or indirectly, any shares of Common Stock, or any options,
rights, warrants or other securities convertible into or exercisable or
exchangeable for Common Stock or evidencing any right to purchase or
subscribe for shares of Common Stock, whether or not beneficially owned by
the Selling Shareholder, except as provided in Section 2 and in Section
5(b)(iii) below.
(ii) The Selling Shareholder will not (A) take, directly or
indirectly, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to cause or to result
in, or that might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to facilitate
the sale or resale of any of the Shares, (B) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the Shares or (C)
pay to or agree to pay any person any compensation for soliciting another
to purchase any other securities of the Company.
(iii) Prior to the First Time of Delivery, the Selling
Shareholder will make that contribution, of shares of its Common Stock, to
the capital of the Company described under the caption "Certain
Transactions" in the Prospectus.
6. EXPENSES. The Company and the Selling Shareholder will pay all costs
and expenses incident to the performance of their obligations under this
Agreement, whether or not the transactions contemplated hereby are consummated
or this Agreement is terminated pursuant to Section 10 hereof, including,
without limitation, all costs and expenses incident to (i) the reasonable fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement (including all amendments thereto), any Preliminary
Prospectus, the Prospectus and, if applicable, any amendments and supplements
thereto, this Agreement and any blue sky memoranda; (ii) the delivery of copies
of the foregoing documents to the Underwriters; (iii) the filing fees of the
Commission and the NASD relating to the Shares and the related reasonable fees
and disbursements of counsel for the Underwriters in connection with filings
with the NASD; (iv) the preparation, issuance and delivery to the Underwriters
of any certificates evidencing the Shares, including transfer agent's and
registrar's fees; (v) any qualification of the Shares for offering and sale
under state securities and blue sky laws, including filing fees and reasonable
fees and disbursements of counsel for the Underwriters relating to blue sky law
compliance; (vi) listing of the Shares on the Nasdaq National Market and (vii)
any reasonable expenses for travel, lodging and meals incurred by the Company
and any of its officers, directors and employees in connection with any meetings
with prospective investors in the Shares. It is understood, however, that,
except as provided in this Section, Section 8 and Section 10 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses relating to the offer and sale of the Shares.
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<PAGE> 18
7. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder to purchase and pay for the Shares to be delivered at
each Time of Delivery shall be subject, in their discretion, to the accuracy of
the representations and warranties of the Company and the Selling Shareholder
contained herein as of the date hereof and as of such Time of Delivery, to the
accuracy of the statements of Company officers made pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholder of their
respective covenants and agreements hereunder, and to the following additional
conditions precedent:
(a) If the registration statement as amended to date has not become
effective prior to the execution of this Agreement, such registration statement
shall have been declared effective not later than 4:00 p.m., Atlanta time, on
the day following the date of this Agreement or such later date and/or time as
shall have been consented to by you in writing. The Prospectus and any amendment
or supplement thereto shall have been filed with the Commission pursuant to Rule
424(b) within the applicable time period prescribed for such filing and in
accordance with Section 5(a) of this Agreement; if the Company has elected to
rely upon Rule 462(b), the Rule 462(b) Registration Statement shall have become
effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement;
no stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceedings for that purpose shall
have been instituted, threatened or, to the knowledge of the Company and the
Representatives, contemplated by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with to your
reasonable satisfaction.
(b) Taft, Stettinius & Hollister, counsel for the Underwriters,
shall have furnished to you such opinion or opinions, dated such Time of
Delivery, with respect to the incorporation of the Company, the validity of the
Shares being delivered at such Time of Delivery, the Registration Statement, the
Prospectus, and other related matters as you may reasonably request, and the
Company shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters.
(c) You shall have received an opinion, dated such Time of Delivery,
of Dinsmore & Shohl LLP, counsel for the Company, in form and substance
reasonably satisfactory to you and your counsel, to the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State of
Ohio and has the corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus and to enter into this Agreement and perform
its obligations hereunder. The Company is duly qualified to transact
business as a foreign corporation and is in good standing under the laws
of each other jurisdiction in which it owns or leases property, or
conducts any business, except where the failure to so qualify would not
have a material adverse effect on the financial position, results of
operations or business of the Company.
(ii) The Company has no subsidiaries. The Company does not
own, directly or indirectly, any capital stock or other equity securities
of any other corporation or any ownership interest in any partnership,
joint venture or other association.
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<PAGE> 19
(iii) The Company's authorized, issued and outstanding capital stock
is as disclosed in the Prospectus. All of the issued shares of capital
stock of the Company (including the Shares to be sold by the Selling
Shareholder) have been duly authorized and validly issued, are fully paid
and nonassessable and conform to the description of the Common Stock
contained in the Prospectus. None of the issued shares of capital stock of
the Company, or its predecessors, has been issued or is owned or held in
violation of any statutory preemptive rights of shareholders, and no
person or entity (including any holder of outstanding shares of capital
stock of the Company) has any statutory preemptive or, to such counsel's
knowledge, other rights to subscribe for any of the Shares.
(iv) Except as described in the Registration Statement, to the
knowledge of such counsel, there are no outstanding (A) securities or
obligations of the Company convertible into or exchangeable for any
capital stock of the Company, (B) warrants, rights or options to subscribe
for or purchase from the Company any such capital stock or any such
convertible or exchangeable securities or obligations or (C) obligations
of the Company to issue any shares of capital stock, any such convertible
or exchangeable securities or obligations, or any such warrants, rights or
options.
(v) The Shares to be issued and sold by the Company have been duly
authorized and, when issued and delivered against payment therefor as
provided herein, will be validly issued and fully paid and nonassessable
and will conform to the description of the Common Stock contained in the
Prospectus; the form of certificate evidencing the Shares complies with
all applicable requirements of Ohio law; and the Shares have been approved
to be listed on the Nasdaq National Market.
(vi) Except as described in the Registration Statement, to the
knowledge of such counsel, there are no contracts, agreements or
understandings between the Company and any person granting such person the
right to require the Company to file a registration statement under the
Act with respect to any securities of the Company owned or to be owned by
such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement (or any such
right has been effectively waived) or in any securities being registered
pursuant to any other registration statement filed by the Company under
the Act.
(vii) All offers and sales of the Company's capital stock prior to
the date hereof were at all relevant times exempt from the registration
requirements of the Act by reason of Sections 3(b), 4(2) or 4(6) thereof
or if not exempt in compliance with the Act, any private rights of action
for rescission or damages arising from such failure to register any such
securities are time barred by applicable statutes of limitations or
equitable principles, including laches.
(viii) The Company is not, nor with the giving of notice or passage
of time or both will it be, in violation of its Articles of Incorporation
or Code of Regulations or in default under any indenture, mortgage, deed
of trust, loan agreement, lease or other agreement or instrument, known to
such counsel, to which the Company is a party or to which any of its
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properties or assets is subject and which is required to be included as an
exhibit to the Registration Statement.
(ix) The issue and sale of the Shares being issued at such
Time of Delivery and the performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict
with, or (with or without the giving of notice or the passage of time or
both) result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement, lease or other agreement or instrument, known to such
counsel, to which the Company is a party or to which any of its properties
or assets is subject nor will such action conflict with or violate any
provision of the Articles of Incorporation or Code of Regulations of the
Company or any statute, rule or regulation (assuming compliance with all
applicable state securities or blue sky laws, as to which such counsel
need express no opinion) or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its properties or assets.
(x) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares or the consummation of the transactions contemplated by this
Agreement, except the registration of the Shares under the Act and such as
may be required from the NASD or under state securities or blue sky laws
in connection with the offer, sale and distribution of the Shares by the
Underwriters.
(xi) The Company has good and indefeasible title in fee simple
to all real property owned by it, in each case free and clear of all
liens, security interests, pledges, charges, encumbrances, mortgages and
defects except such as are disclosed in the Prospectus or such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made of such property by the Company;
and any real property and buildings held by the Company under leases are
held under leases which are valid and enforceable as to the Company and,
to such counsel's knowledge, as to others, with such exceptions as are
disclosed in the Prospectus or are not material and do not interfere with
the use made of such property and buildings by the Company.
(xii) To such counsel's knowledge, there is no litigation,
arbitration, claim, proceeding (formal or informal) or investigation
pending or threatened in which the Company is a party or of which any of
its properties or assets is the subject which, if determined adversely to
the Company, individually or in the aggregate, reasonably would be
expected to have a material adverse effect on the financial position,
results of operations or business of the Company; and, to such counsel's
knowledge, the Company is not in violation of, or in default with respect
to, any statute, rule, regulation, order, judgment or decree, except such
as do not and will not individually or in the aggregate have a material
adverse effect on the financial position, results of operations or
business of the Company.
(xiii) The Company owns or has the right to use all patents,
patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets
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<PAGE> 21
(collectively, "Intangibles") presently employed by it in connection with
its business as presently conducted or as the Prospectus indicates the
Company proposes to conduct; to the knowledge of such counsel, the Company
has not infringed and is not infringing, and has not received notice of
infringement with respect to, asserted Intangibles of others; and, to the
knowledge of such counsel, there is no infringement by others of
Intangibles of the Company.
(xiv) The employment agreements in effect between the Company
and its employees are valid and enforceable; provided, however, that such
counsel need not render any opinion with regard to the validity and
enforceability of any non-compete provision contained therein; and
provided further, that the invalidity or unenforceability of any such
non-compete agreement shall not render the remainder of such agreement, or
any of the other provisions thereof, invalid or unenforceable.
(xv) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming that this Agreement is a valid and
binding agreement of the other parties hereto, constitutes the valid and
binding agreement of the Company enforceable against the Company in
accordance with its terms, subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization and moratorium laws and other laws
relating to or affecting the enforcement of creditors' rights generally,
to general equitable principles and to applicable securities laws or
principles of public policy underlying such laws with regard to rights to
indemnity and contribution.
(xvi) The Registration Statement and the Prospectus and each
amendment or supplement thereto (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion), as of their respective effective or issue dates, complied as to
form in all material respects with the requirements of the Act and the
rules and regulations thereunder. The descriptions in the Registration
Statement and the Prospectus of statutes, legal and governmental
proceedings or contracts and other documents are accurate in all material
respects and fairly present the information required to be shown; and such
counsel do not know of any contracts or documents of a character required
to be described in the Registration Statement or Prospectus or to be filed
as exhibits to the Registration Statement which are not described and
filed as required.
(xvii) The Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement
or any part thereof has been issued and no proceedings for that purpose
have been instituted or threatened or, to such counsel's knowledge, are
contemplated by the Commission.
(xviii) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an
"investment company," or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
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<PAGE> 22
(xix) All individuals participating in (or eligible to
participate in) any Company Benefit Plan maintained (or contributed to) by
the Company are common-law employees under the rationale set forth in
Professional and Executive Leasing, Inc., 89 TC 225 (1987).
(xx) The Acquisitions have been consummated pursuant to the
Acquisition Agreements and as described in the Registration Statement.
(xxi) The offer and sale of the shares of Stock in the
Acquisitions, and all other offers and sales of securities by the Company
on or prior to the First Date of Delivery, are exempt from the
registration requirements of Section 5 of the Securities Act and are
exempt from registration under all applicable state securities or blue sky
laws.
Such counsel shall also state that they have no reason to believe (i) that
the Registration Statement, or any further amendment thereto made prior to such
Time of Delivery, on its effective date and as of such Time of Delivery,
contained or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or (ii) that the Prospectus, or any
amendment or supplement thereto made prior to such Time of Delivery, as of its
issue date and as of such Time of Delivery, contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (provided that such counsel need
express no belief regarding the financial statements, notes and related
schedules and other financial or statistical data contained in the Registration
Statement, any amendment thereto, or the Prospectus, or any amendment or
supplement thereto).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
(d) You shall have received an opinion, dated such Time of Delivery,
of Dinsmore & Shohl LLP, counsel for the Selling Shareholder, in form and
substance reasonably satisfactory to you and your counsel, to the effect that:
(i) This Agreement has been duly executed and delivered by or
on behalf of the Selling Shareholder; the sale of the Shares to be sold by
the Selling Shareholder at such Time of Delivery and the performance of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with, or (with or without the giving of
notice or the passage of time or both) result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument, known to such counsel, to which the Selling
Shareholder is a party or to which any of its properties or assets is
subject, nor will such action conflict with or violate any statute, rule
or regulation or any order, judgment or decree of any court or
governmental agency or body having jurisdiction over the Selling
Shareholder or any of the Selling Shareholder's properties or assets.
(ii) No consent, approval, authorization, order or declaration
of or from, or registration, qualification or filing with, any court or
governmental agency or body is required for the issue and sale of the
Shares being sold by the Selling Shareholder or the consummation
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<PAGE> 23
of the transactions contemplated by this Agreement, except the
registration of such Shares under the Act and such as may be required
under state securities or blue sky laws in connection with the offer, sale
and distribution of such Shares by the Underwriters.
(iii) The Selling Shareholder has, and immediately prior to
such Time of Delivery the Selling Shareholder will have, good and valid
title to the Shares to be sold by the Selling Shareholder hereunder, free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, voting trusts, equities or claims of any nature
whatsoever; and, upon delivery of such Shares against payment therefor as
provided herein, good and valid title to such Shares, free and clear of
all liens, security interests, pledges, charges, encumbrances, defects,
shareholders' agreements, voting trusts, equities or claims of any nature
whatsoever, will pass to the several Underwriters.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company, the Selling Shareholder and public officials.
(e) You shall have received from each of KPMG Peat Marwick, Clark
Schaeffer and Hackett & Co. and Deloitte & Touche LLP, as appropriate, letters
dated, respectively, the date hereof and each Time of Delivery, in form and
substance satisfactory to you, stating that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable published rules and regulations thereunder, and to the effect that:
(i) In their opinion, the financial statements and schedules audited
by them and included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder with respect to
registration statements on Forms S-1. With respect to the interim periods
included in the Registration Statement, such accountants shall state that
they have performed the procedures specified by the American Institute of
Certified Public Accountants for a review of interim financial information
as described in SAS No.71, Interim Financial Information;
(ii) The unaudited summary and selected financial information
included in the Preliminary Prospectus and the Prospectus under the
captions "Prospectus Summary" and "Selected Financial Data of the Founding
Companies" agrees with the corresponding amounts in the audited financial
statements included in the Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest available unaudited
interim financial statements of the Company and the Acquired Companies, a
reading of the minute books of the Company and the Acquired Companies,
inquiries of officials of the Company and the Acquired Companies
responsible for financial and accounting matters and other specified
procedures, all of which have been agreed to by the Representatives,
nothing came to their attention that caused them to believe that:
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(A) the unaudited financial statements described in paragraph
(i) above and included in the Registration Statement do not comply
as to form in all material respects with the accounting requirements
of the Act and the related published rules and regulations
thereunder and any material modifications should be made to such
unaudited financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at a specified date not more than five days prior to the
date of delivery of such respective letter, there was any change in
the capital stock, decline in shareholders' equity or increase in
long-term debt of the Company or the Acquired Companies, or other
items specified by the Underwriters, in each case as compared with
amounts shown in the latest balance sheets included in the
Prospectus, except in each case for changes, decreases or increases
which the Prospectus discloses have occurred or may occur or which
are described in such letters; and
(C) for the period from the closing date of the latest
statements of revenues and expenses included in the Prospectus to a
specified date not more than five days prior to the date of delivery
of such respective letter, there were any decreases in net revenue
or net income of the Company or the Acquired Companies, or other
items specified by the Underwriters, or any increases in any items
specified by the Underwriters, in each case as compared with the
corresponding period of the preceding year, except in each case for
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter.
(iv) They have (a) read the unaudited pro forma combined balance
sheets of the Company as of December 31, 1996 and June 30, 1997, and the
unaudited pro forma combined statements of operations of the Company for
the year ended December 31, 1996 and the six-month periods ended June 30,
1996 and 1997, included in the Registration Statement, (b) inquired of
certain officials of the Company who have responsibility for financial and
accounting matters about the basis for their determination of the pro
forma adjustments, (c) reviewed whether the unaudited pro forma combined
financial statements referred to above comply as to form in all material
respects with the applicable accounting requirements of Regulation S-X,
and (d) proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the unaudited pro forma combined
financial statements, and based upon the foregoing, nothing came to their
attention as a result of the procedures specified above that caused them
to believe that the unaudited pro forma combined financial statements
referred to above included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting
requirements of Regulation S-X or that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
those statements.
(v) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages and
financial information specified by you which are derived from the general
accounting records of the Company and the Acquired Companies, which appear
in the Prospectus and have compared and agreed such amounts, percentages
and
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<PAGE> 25
financial information with the accounting records of the Company and the
Acquired Companies or to analyses and schedules prepared by the Company
from its detailed accounting records.
In the event that the letters to be delivered referred to above set
forth any such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that the Underwriters
shall have determined, after discussions with officers of the Company
responsible for financial and accounting matters and with such
accountants, that such changes, decreases or increases as are set forth in
such letters do not reflect a material adverse change in the shareholder's
equity or long-term debt of the Company and the Acquired Companies as
compared with the amounts shown in the latest balance sheets of the
Company and the Acquired Companies included in the Prospectus, or a
material adverse change in revenues or net income of the Company and the
Acquired Companies, in each case as compared with the corresponding period
of the prior year.
(f) Since the date of the latest audited financial statements
included in the Prospectus, the Company shall not have sustained (i) any loss or
interference with its business from fire, explosion, flood, hurricane or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as disclosed in or
contemplated by the Prospectus, or (ii) any change, or any development involving
a prospective change (including without limitation a change in management or
control of the Company), in or affecting the position (financial or otherwise),
results of operations, net worth or business prospects of the Company, otherwise
than as disclosed in or contemplated by the Prospectus, the effect of which, in
either such case, is in your reasonable judgment so material and adverse as to
make it impracticable or inadvisable to proceed with the purchase, sale and
delivery of the Shares being delivered at such Time of Delivery as contemplated
by the Registration Statement, as amended as of the date hereof.
(g) The Shares shall be listed on the Nasdaq National Market,
subject to notice of issuance.
(h) Subsequent to the date hereof there shall not have occurred any
of the following: (i) any suspension or limitation in trading in securities
generally on the New York Stock Exchange, or any setting of minimum prices for
trading on such exchange, or in the Common Stock by the Commission or the NASD
or the Nasdaq National Market; (ii) a moratorium on commercial banking
activities in New York declared by either federal or state authorities; (iii)
any outbreak or escalation of hostilities involving the United States,
declaration by the United States of a national emergency or war or any other
national or international calamity or emergency if the effect of any such event
specified in this clause (iii) in your reasonable judgment makes it
impracticable or inadvisable to proceed with the purchase, sale and delivery of
the Shares being delivered at such Time of Delivery as contemplated by the
Registration Statement, as amended as of the date hereof.
(i) The Company shall have furnished to you at such Time of Delivery
certificates of officers of the Company and certificates of the Selling
Shareholder, satisfactory to you, as to the accuracy of the representations and
warranties of the Company and the Selling Shareholder herein at and as of such
Time of Delivery, as to the performance by the Company and the Selling
Shareholder of all of their respective obligations hereunder to be performed at
or prior to such Time of Delivery and as to such other matters as you may
reasonably request, and the Company shall have furnished or
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<PAGE> 26
caused to be furnished certificates as to the matters set forth in subsections
(a) and (f) of this Section 7, and as to such other matters as you may
reasonably request.
(j) The Acquisitions shall have been consummated pursuant to each of
the Acquisition Agreements and as described in the Registration Statement.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement made by the Company in Section
1(a) of this Agreement; (ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any amendment
or supplement thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the securities or blue sky laws thereof or filed with
the Commission or any securities association or securities exchange (each an
"Application"); (iii) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or any Application a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (iv) any failure of the Company to perform its obligations
hereunder or under law, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through you expressly for use
therein. The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be sought
hereunder (whether or not such Underwriter is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of such Underwriter from all liability arising out of such
claim, action, suit or proceeding (or related cause of action or portion
thereof).
(b) The Selling Shareholder agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (i) any untrue statement or
alleged untrue statement made by such Selling Shareholder in Section 1(a) or
1(b) of this Agreement; (ii) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or any Application, or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading;
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<PAGE> 27
or (iii) any failure of such Selling Shareholder to perform its obligations
hereunder or under law, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided,
however, that the Selling Shareholder shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any amendment thereto,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto or any Application in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through you expressly
for use therein. The Selling Shareholder will not, without the prior written
consent of each Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding (or
related cause of action or portion thereof) in respect of which indemnification
may be sought hereunder (whether or not such Underwriter is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of such Underwriter from all liability
arising out of such claim, action, suit or proceeding (or related cause of
action or portion thereof).
(c) Each Underwriter, severally but not jointly, agrees to indemnify
and hold harmless the Company and the Selling Shareholder against any losses,
claims, damages or liabilities to which the Company or the Selling Shareholder
may become subject under the 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 or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or any Application 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, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through you expressly for use therein; and will reimburse the Company and the
Selling Shareholder for any legal or other expenses reasonably incurred by the
Company or such Selling Shareholder in connection with investigating or
defending any such loss, claim, damage, liability or action.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party); provided, however, that if the defendants in any such action include
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal defenses
available to it or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnified party shall have the right to select
separate counsel to defend such action on behalf of such indemnified party.
After such notice from the indemnifying party to such indemnified party of its
election so to assume
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the defense thereof and approval by such indemnified party of counsel appointed
to defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence or (ii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party. Nothing in this Section 8(d) shall preclude an
indemnified party from participating at its own expense in the defense of any
such action so assumed by the indemnifying party.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other from the offering of the Shares. If,
however, the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under subsection (d) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company and each Selling Shareholder on the one hand
and the Underwriters on the other in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Selling Shareholder on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Shareholder bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Selling Shareholder on the one hand or the Underwriters on the
other and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Shareholder and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (e) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (e). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (e), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise
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<PAGE> 29
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) The obligations of the Company and the Selling Shareholder under
this Section 8 shall be in addition to any liability which the Company or such
Selling Shareholder may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company and to the Selling Shareholder and to each
person, if any, who controls the Company within the meaning of the Act.
9. DEFAULT OF UNDERWRITERS. (a) If any Underwriter defaults in its
obligation to purchase Shares at a Time of Delivery, you may in your discretion
arrange for you or another party or other parties to purchase such Shares on the
terms contained herein. If within thirty-six (36) hours after such default by
any Underwriter you do not arrange for the purchase of such Shares, the Company
and the Selling Shareholder shall be entitled to a further period of thirty-six
(36) hours within which to procure another party or other parties satisfactory
to you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company and the Selling
Shareholder that you have so arranged for the purchase of such Shares, or the
Company and the Selling Shareholder notify you that they have so arranged for
the purchase of such Shares, you or the Company and the Selling Shareholder
shall have the right to postpone a Time of Delivery for a period of not more
than seven days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees to file promptly any
amendments to the Registration Statement or the Prospectus that in your opinion
may thereby be made necessary. The cost of preparing, printing and filing any
such amendments shall be paid for by the Underwriters. The term "Underwriter" as
used in this Agreement shall include any person substituted under this Section
with like effect as if such person had originally been a party to this Agreement
with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in subsection (a) above, the aggregate
number of such Shares which remains unpurchased does not exceed one-eleventh of
the aggregate number of Shares to be purchased at such Time of Delivery, then
the Company and the Selling Shareholder shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters for
which such arrangements have not been made, but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
-29-
<PAGE> 30
10. TERMINATION. (a) This Agreement may be terminated with respect to the
Firm Shares or any Optional Shares in the sole discretion of the Representatives
by notice to the Company given prior to the First Time of Delivery or any
Subsequent Time of Delivery, respectively, in the event that (i) any condition
to the obligations of the Underwriters set forth in Section 7 hereof has not
been satisfied in all material respects, or (ii) the Company or the Selling
Shareholder shall have failed, refused or been unable to deliver the Shares or
to perform all obligations and satisfy all conditions on their respective parts
to be performed or satisfied hereunder at or prior to such Time of Delivery, in
either case other than by reason of a default by any of the Underwriters. If
this Agreement is terminated pursuant to this Section 10(a), the Company and the
Selling Shareholder will reimburse the Underwriters severally upon demand for
all out-of-pocket expenses (including reasonable counsel fees and disbursements)
that shall have been incurred by them in connection with the proposed purchase
and sale of the Shares. Neither the Company nor the Selling Shareholder shall in
any event be liable to any of the Underwriters for the loss of anticipated
profits from the transactions covered by this Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the Company
and the Selling Shareholder as provided in Section 9(a), the aggregate number of
such Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of Shares to be purchased at such Time of Delivery, or if the Company and
the Selling Shareholder shall not exercise the right described in Section 9(b)
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to a
Subsequent Time of Delivery, the obligations of the Underwriters to purchase and
of the Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter, the Company or the
Selling Shareholder, except for the expenses to be borne by the Company, the
Selling Shareholder and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
11. SURVIVAL. The respective indemnities, agreements, representations,
warranties and other statements of the Company, its officers, the Selling
Shareholder and the several Underwriters, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person referred to in Section 8(e) or the Company, the Selling
Shareholder or any officer or director or controlling person of the Company or
the Selling Shareholder referred to in Section 8(e), and shall survive delivery
of and payment for the Shares. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6 and 8 hereof shall remain in frill
force and effect, regardless of any termination or cancellation of this
Agreement.
12. NOTICES. All communications hereunder shall be in writing and, if sent
to any of the Underwriters, shall be mailed, delivered or sent by facsimile
transmission and confirmed in writing to you in care of The Robinson-Humphrey
Company, LLC, 3333 Peachtree Road, N.E., Atlanta, Georgia 30326, Attention:
Corporate Finance Department (with a copy to Taft, Stettinius & Hollister, 1800
Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202-3957, Attention:
Timothy E. Hoberg); if sent to the Company, shall be mailed, delivered or sent
by facsimile transmission and confirmed in writing to the Company at Synergis
Technologies, Inc., 4350 Glendale-Milford Road,
-30-
<PAGE> 31
Cincinnati, OH 45241, Attention: President (with a copy to Dinsmore & Shohl LLP,
1900 Chemed Center, 255 East Fifth Street, Cincinnati, OH 45202, Attention:
Charles F. Hertlein, Jr.); and if sent to the Selling Shareholder, shall be
mailed, delivered or sent by facsimile transmission and confirmed in writing to
it, at Synergis Technologies, Inc., 4350 Glendale-Milford Road, Cincinnati, OH
45241, Attention: President (with a copy to Dinsmore & Shohl LLP, 1900 Chemed
Center, 255 East Fifth Street, Cincinnati, OH 45202, Attention: Charles F.
Hertlein, Jr.).
13. REPRESENTATIVES. You will act for the several Underwriters in
connection with the transactions contemplated by this Agreement, and any action
under this Agreement taken by you jointly or by The Robinson-Humphrey Company,
LLC will be binding upon all the Underwriters.
14. BINDING EFFECT. This Agreement shall be binding upon, and inure solely
to the benefit of, the Underwriters, the Company and the Selling Shareholder and
to the extent provided in Sections 8 and 10 hereof, the officers and directors
and controlling persons referred to therein and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Shares from any Underwriter shall be deemed a successor or assign by
reason merely of such purchase.
15. 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
provisions regarding conflicts of laws.
16. COUNTERPARTS. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one of the counterparts hereof, and upon
the acceptance hereof by The Robinson-Humphrey Company, LLC, on behalf of each
of the Underwriters, this letter will constitute a binding agreement among the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in the Master Agreement among Underwriters, a copy of which shall be
submitted to the Company for examination upon request, but without warranty on
your part as to the authority of the signers thereof.
Very truly yours,
SYNERGIS TECHNOLOGIES, INC.
By:____________________________________
Name:
Title: President and Chief
Executive Officer
SELLING SHAREHOLDER
-31-
<PAGE> 32
MEDPLUS, INC.
By:____________________________________
Name:
Title: President and Chief
Executive Officer
-32-
<PAGE> 33
The foregoing Agreement is
hereby confirmed and accepted
as of the date first written
above at Atlanta, Georgia.
THE ROBINSON-HUMPHREY COMPANY, LLC
McDONALD & COMPANY SECURITIES, INC.
By: The Robinson-Humphrey Company, LLC
By:________________________________
(Authorized Representative)
On behalf of each of the Underwriters
-33-
<PAGE> 34
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares to be Maximum Option
Purchased Exercised
--------------- --------------
Underwriter
-----------
The Robinson-Humphrey Company, LLC
McDonald & Company Securities, Inc.
Total
-34-
<PAGE> 35
EXHIBIT A
Acquisition Agreements
Asset Purchase Agreement with ACCESS Corporation
Agreement and Plan of Merger and Reorganization with DTI Technologies, Inc.
Agreement and Plan of Merger and Reorganization with Applied Software
Technology, Inc.
Agreement and Plan of Merger and Reorganization with Technical Software, Inc.
Agreement and Plan of Merger and Reorganization with Synergis
Technologies, Inc.
Agreement and Plan of Merger and Reorganization with CADD Microsystems, Inc.
Agreement and Plan of Merger and Reorganization with Mid-West CAD, Inc.
Agreement and Plan of Merger and Reorganization with Devtron, Russell Inc.
Agreement and Plan of Merger and Reorganization with Computers for Design, Inc.
-35-
<PAGE> 1
EXHIBIT 3.1
TEXT OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
FIRST: The name of the Corporation shall be Synergis Technologies,
Inc.
SECOND: The place in Ohio where its principal office is to be located
is the City of Cincinnati, County of Hamilton, State of Ohio.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be formed under Sections 1701.01 to
1701.98 of the Ohio Revised Code.
FOURTH: The maximum number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,100,000, divided into two
classes as follows:
A. 10,000,000 shares of Common Stock, without par value.
B. 100,000 shares of Undesignated Preferred Stock, without par
value (the "Preferred Stock"), with the following additional terms:
1. Except as otherwise provided either by this Article Fourth or by
amendment duly adopted by the Board of Directors pursuant to authority
expressly granted in paragraph B.2 below providing for the issuance of
any series of Preferred Stock, shares of Preferred Stock may be issued
at any time or from time to time, for such lawful consideration as
shall be fixed by the Board of Directors, as Preferred Stock of one or
more series, each of which shall be distinctively designated by letter
or descriptive words. Except as permitted by the provisions of B.2 of
this Article Fourth, all series of Preferred Stock shall rank equally
and be identical in all respects, and all shares of any one series of
Preferred Stock shall rank equally and be identical in all respects to
all other shares within such series of Preferred Stock.
2. The Board of Directors from time to time may adopt amendments to
these Amended and Restated Articles providing for issuance in one or
more series of any unissued or treasury shares of Preferred Stock. To
the fullest extent now or hereafter permitted by the laws of the State
of Ohio and notwithstanding the provisions of any other Article of
these Amended and Restated Articles, the Board of Directors may, when
adopting any such amendment, include provisions concerning (a) the
designation and number of shares of such series; (b) voting rights; (c)
the dividend rate or rates of such series (which may be an adjustable
or variable rate and which may be cumulative); (d) the dividend payment
date or dates of such series; (e) the
<PAGE> 2
price or prices at which shares of such series may be redeemed; (f) the
amount of the sinking fund, if any, to be applied to the purchase or
redemption of shares of such series and the manner of its application;
(g) the liquidation price or prices of such series; (h) whether or not
the shares of such series shall be made convertible into, or
exchangeable for, shares of any other class or classes or of any other
series of Preferred Stock, and if made so convertible or exchangeable,
the conversion price or prices, or the rate or rates of exchange, and
the adjustments, if any, of the price or rate at which such conversion
or exchange may be made; and, (i) whether or not the issue of any
additional shares of such series or any future series in addition to
such series shall be subject to any restrictions and, if so, the nature
of such restrictions. Any of the voting rights, dividend rate or rates,
dividend payment date or dates, redemption rights and price, sinking
fund requirements, conversion rights and restrictions on issuance of
shares of any series of Preferred Stock may, to the fullest extent now
or hereafter permitted by the laws of the State of Ohio, be made
dependent upon facts ascertainable outside these Amended and Restated
Articles or any amendment or amendments adopted pursuant to this
Section B.2. If the laws of the State of Ohio then applicable do not
permit the Board of Directors to fix the voting rights of shares of a
series of Preferred Stock, each holder of any shares of such series
shall be entitled to one vote per share held by such holder.
3. Before any dividends shall be declared or paid upon or set apart
for, or distribution made on, the Common Stock and before any sum shall
be paid or set apart for the purchase or redemption of Preferred Stock
of any series or for the purchase of Common Stock, the holders of
shares of Preferred Stock of each series shall be entitled to receive
dividends if and when declared by the Board of Directors, at the rate
or rates fixed for such series in accordance with the provisions of
this Article Fourth or any amendment or amendments adopted pursuant to
paragraph B.2, and no more, from the dividend payment date of or next
preceding the date of issue thereof, payable on the payment date or
dates fixed from time to time by the Board of Directors.
4. Upon at least 30 days previous notice given by mail to record
holders of shares of Preferred Stock sent to their respective addresses
as they appear on the books of the Corporation and by publication in a
newspaper of general circulation in the City of Cincinnati, Ohio, the
Corporation may, by action of its Board of Directors, redeem the whole
of the Preferred Stock or any series thereof or any part of any series
thereof by lot or pro rata, at any time or from time to time and at the
prices fixed for the redemption of such shares in accordance with the
provisions of this Article Fourth or any amendment or amendments
adopted pursuant to paragraph B.2 (the "Redemption Price"). If the
Corporation shall determine to redeem by lot less than all the shares
of any series of Preferred Stock, the selection by lot of the shares of
such series to be redeemed shall be conducted by an independent bank or
trust company. From and after the date fixed in such notice as the date
of
<PAGE> 3
redemption, unless the Corporation defaults in providing moneys at the
time and place specified for the payment of the Redemption Price
pursuant to such notice, or if the Corporation shall so elect, from and
after a date (which shall be prior to the date fixed as the date of
redemption) on which the Corporation shall provide moneys for the
payment of the Redemption Price by depositing the amount thereof in
trust for the account of the holders of the Preferred Stock called for
redemption with a bank or trust company doing business in the City of
Cincinnati, Ohio, pursuant to notice of such election included in the
notice of redemption specifying the date of which such deposit will be
made, all dividends on the shares of Preferred Stock called for
redemption shall cease to accrue and all rights of the holders thereof
as shareholders of the Corporation, except the right to receive the
Redemption Price upon presentation and surrender of the respective
certificates for the shares of Preferred Stock called for redemption,
shall cease and determine. The Corporation may, from time to time,
purchase the whole of the shares of Preferred Stock or any series
thereof, or any part of any series thereof, upon the best terms
reasonably obtainable. Preferred Stock of any series redeemed or
purchased may in the discretion of the Board of Directors be reissued
at any time or from time to time as stock of the same or of a different
series, or may be canceled and not reissued.
5. After full dividends upon the Preferred Stock of all series then
outstanding shall have been paid for all past dividend periods, and
after or concurrently with making payment of or provision for full
dividends on the Preferred Stock of all series then outstanding for the
current dividend period, then dividends may be declared upon the Common
Stock at such rate as the Board of Directors may determine and no
holders of shares of any series of the Preferred Stock shall be
entitled to share therein.
6. If, upon any dissolution, liquidation or winding up of the
Corporation or reduction of its capital stock, the assets so to be
distributed among the holders of shares of the Preferred Stock pursuant
to the provisions of this Article Fourth or any amendment or amendments
adopted pursuant to paragraph B.2 shall be insufficient to permit the
payment to such holders of the full preferential amounts aforesaid,
then the entire assets of the Corporation shall be distributed ratably
among the holders of shares of the Preferred Stock in proportion to the
full preferential amounts to which they are respectively entitled.
After payment to the holders of shares of the Preferred Stock of the
full preferential amounts, the holders of shares of the Preferred Stock
shall have no right or claim to any of the remaining assets of the
Corporation and the remaining assets to be distributed, if any, shall
be distributed to the holders of the Common Stock.
7. The term "accrued dividends", whenever used herein with respect to
Preferred Stock of any series, shall be deemed to mean that amount
which would have been paid as dividends on the Preferred Stock of such
series to date had full dividends
<PAGE> 4
been paid thereon at the rate fixed for such series in accordance with
the provisions of this Article Fourth, less in each case the amount of
all dividends paid upon the shares of such series and the dividends
deemed to have been paid as provided in paragraph B.2 of this Article
Fourth.
C. Upon the filing of this Amended and Restated Articles of
Incorporation with the Ohio Secretary of State (the "Effective Date"), the
Common Stock of the Corporation will be split on a ________-for-1 basis so that
each share of Common Stock issued and outstanding immediately prior to the
Effective Date shall automatically be converted into and reconstituted as
__________ shares of Common Stock.
D. As soon as practicable following the Effective Date,
certificates for the shares of Common Stock to be outstanding after the split
effected in paragraph C shall be issued pursuant to the procedures adopted by
the Corporation's Board of Directors and communicated to those who are to
receive new certificates.
FIFTH: No holder of any share or shares of any class issued by the
Corporation shall be entitled as such, as a matter of right, at any time, to
subscribe for or purchase (i) shares of any class issued by the Corporation, now
or hereafter authorized, (ii) securities of the Corporation convertible into or
exchangeable for shares of any class issued by the Corporation, now or hereafter
authorized, or (iii) securities of the Corporation to which shall be attached or
appertain to any rights or options whether by the terms of such securities or in
the contracts, warrants, or other instruments (whether transferable or
non-transferable or separable or inseparable from such securities) evidencing
such rights or options entitling the holders thereof to subscribe for or
purchase shares of any class issued by the Corporation, now or hereafter
authorized; it being the intent and is the effect of this Article Fifth to fully
eliminate any and all pre-emptive rights with respect to the shares of any class
issued by the Corporation now or hereafter authorized.
SIXTH: When authorized by the affirmative vote of a majority of the
Board of Directors, without the action or approval of the shareholders of the
Corporation, the Corporation may redeem, purchase, or contract to purchase, at
any time and from time to time, shares of any class issued by this Corporation
for such prices and upon and subject to such terms and conditions as the Board
of Directors may determine.
SEVENTH: Notwithstanding any provision of the laws of the State of Ohio
now or hereafter in effect, no shareholder shall have the right to cumulate
votes in the election of directors of the Corporation or in voting upon any
other matter permitted to be voted upon.
EIGHTH: The statutes of Ohio require that action on certain specified
matters at a shareholders' meeting shall be taken by the affirmative vote of the
holders of more than a majority of the shares entitled to vote thereon, unless
other provision is made in the articles of incorporation. On all of these
specified matters, action may be taken by the affirmative vote of a simple
majority of each class of stock entitled to vote thereon as a class.
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CODE OF REGULATIONS
OF
SYNERGIS TECHNOLOGIES, INC.
ARTICLE I
SHAREHOLDERS
Section 1. ANNUAL MEETINGS.
The Annual Meeting of the shareholders of this Corporation, for the
election of the Board of Directors and the transaction of such other business as
may properly be brought before such meeting, shall be held at the time, date and
place designated by the Board of Directors. If the Annual Meeting is not held or
if directors are not elected thereat, a Special Meeting may be called and held
for that purpose.
Section 2. SPECIAL MEETINGS.
Special meetings of the shareholders may be held on any business day
when called by the Chairman of the Board, the President, a majority of directors
or persons holding 50% of all voting power of the Corporation and entitled to
vote at such meeting.
Section 3. PLACE OF MEETING.
Any meeting of shareholders may be held at such place within or without
the State of Ohio as may be designated in the Notice of said meeting.
Section 4. NOTICE OF MEETING AND WAIVER-OF NOTICE.
4.1 NOTICE. Written notice of the time, place and purposes of
any meeting of shareholders shall be given to each shareholder entitled thereto
not less than seven days nor more than 60 days before the date fixed for the
meeting and as prescribed by law. Such notice shall be given either by personal
delivery or mail to the shareholders at their respective addresses as they
appear on the records of the Corporation. Notice shall be deemed to have been
given on the day mailed. If any meeting is adjourned to another time or place,
no notice as to such adjourned meeting need be given other than by announcement
at the meeting at which such an adjournment is taken. No business shall be
transacted at any such adjourned meeting except as might have been lawfully
transacted at the meeting at which such adjournment was taken.
4.2 NOTICE TO JOINT OWNER. All notices with respect to any
shares to which persons are entitled by joint or common ownership may be given
to that one of such persons who is named first upon the books of this
Corporation, and sufficient notice to all the notice so given shall be holders
of such shares.
<PAGE> 2
4.3 WAIVER. Notice of any meeting may be waived in writing by
any shareholder either before or after any meeting, or by attendance at such
meeting without protest to its commencement.
Section 5. SHAREHOLDERS ENTITLED TO NOTICE AND TO VOTE.
If a record date shall not be fixed, the record date for the
determination of shareholders entitled to notice of or to vote at any meeting of
shareholders shall be the date next preceding the day on which notice is given,
or the date next preceding the day on which the meeting is held, as the case may
be.
Section 6. QUORUM AND VOTING.
6.1 QUORUM. The holders of shares entitling them to exercise a
majority of the voting power of the Corporation, present in person or by proxy,
shall constitute a quorum for any meeting. The shareholders present in person or
by proxy, whether or not a quorum be present, may adjourn the meeting from time
to time without notice other than by announcement at the meeting.
6.2 VOTE REQUIRED. In any other matter brought before any
meeting of shareholders, the affirmative vote of the holders of shares
representing a majority of the votes actually cast shall be the act of the
shareholders provided, however, that no action required by law, the Articles, or
these Regulations to be authorized or taken by the holders of a designated
proportion of the shares of the Corporation may be authorized or taken by a
lesser proportion.
6.3 VOTING. Except as provided by statute or in the Articles
of Incorporation of the Corporation, as such may be amended or restated from
time-to-time ("Articles"), every shareholder entitled to vote shall be entitled
to cast one vote on each proposal submitted to the meeting for each share held
of record on the record date for the determination of the shareholders entitled
to vote at the meeting.
Section 7. ORGANIZATION OF MEETINGS.
7.1 PRESIDING OFFICER. The Chairman of the Board, or in the
Chairman of the Board's absence, the President or a person designated by the
Board of Directors, shall call all meetings of the shareholders to order and
shall act as Chairman thereof; if all such persons are absent, the shareholders
shall elect a Chairman.
7.2 MINUTES. The Secretary of the Corporation, or in the
Secretary's absence, an Assistant Secretary, or, in the absence of both, a
person appointed by the Chairman of the meeting, shall act as Secretary of the
meeting and shall keep and make a record of the proceedings thereat.
2
<PAGE> 3
Section 8. PROXIES.
A person who is entitled to attend a shareholders' meeting, to vote
thereat or to execute consents, waivers and releases, may be represented at such
meeting or vote thereat, and execute consents, waivers and releases and exercise
any of the person's rights, by proxy or proxies appointed by a writing signed by
such person, or by his duly authorized attorney which may be transmitted
physically or by facsimile.
Section 9. LIST OF SHAREHOLDERS.
At any meeting of shareholders a list of shareholders, alphabetically
arranged, showing the number and classes of shares held by each on the record
date applicable to such meeting, shall be produced upon the request of any
shareholder.
ARTICLE II
DIRECTORS
Section 1. GENERAL POWERS.
The authority of this Corporation shall be exercised by or under the
direction of the Board of Directors, except where the law, the Articles or these
Regulations require action to be authorized or taken by the shareholders.
Section 2. ELECTION, NUMBER AND QUALIFICATION OF DIRECTORS.
2.1 ELECTION. The directors shall be elected at the Annual
Meeting of the shareholders, or if not so elected, a Special Meeting of
shareholders. The only candidates who shall be eligible for election at such
meeting shall be those who have been nominated by or at the direction of the
Board of Directors (which nominations shall be either made at such meeting or
disclosed in a proxy statement, or supplement thereto, distributed to
shareholders for such meeting) and those who have been nominated at such meeting
by a shareholder who has complied with the procedures set forth in this Section
2. A shareholder may make a nomination at any such meeting for the office of
director only if such shareholder has first delivered or sent by certified mail
to the Secretary of the Corporation, return receipt requested, notice in writing
at least five and no more than 30 days prior to such meeting of shareholders,
which notice shall set forth or be accompanied by (a) the name and residence of
such shareholder; (b) a representation that such shareholder is a holder of
record of voting stock of the corporation and intends to appear in persons by
proxy at such meeting to nominate the person or persons specified in the notice;
(c) the name and residence of each such nominee; and (d) the consent of such
nominee to serve as director if so elected. The Chairman of the meeting may, if
the facts warrant, determine and declare to the meeting that a
3
<PAGE> 4
nomination was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
2.2 NUMBER. The number of directors, which shall not be less
than the lesser of three or the number of shareholders of record, may be fixed
or changed at a meeting of the shareholders called for the purpose of electing
directors at which a quorum is present, by the affirmative vote of the holders
of a majority of the shares represented at the meeting and entitled to vote on
such proposal. In addition, the number of directors may be fixed or changed by
action of the directors at any meeting of directors at which a quorum is present
by a majority vote of the directors present at the meeting. The directors then
in office may fill any director's office that is created by an increase in the
number of directors. The number of directors elected shall be deemed to be the
number of directors fixed unless otherwise fixed by resolution adopted at the
meeting at which such directors are elected.
2.3 QUALIFICATIONS. Directors need not be shareholders of the
Corporation.
Section 3. TERM OF OFFICE OF DIRECTORS.
3.1 TERM. Each director shall hold office until the next
Annual Meeting of the shareholders and until a director's successor has been
elected or until a director's earlier resignation, removal from office or death.
Directors shall be subject to removal as provided by statute or by other lawful
procedures and nothing herein shall be construed to prevent the removal of any
or all directors in accordance therewith.
3.2 RESIGNATION. A resignation from the Board of Directors
shall be deemed to take effect immediately upon its being received by any
incumbent corporate officer other than an officer who is also the resigning
director, unless some other time is specified therein.
3.3 VACANCY. In the event of any vacancy in the Board of
Directors for any reason, the remaining directors, though less than a majority
of the whole Board, may fill any such vacancy for the unexpired term, or in the
alternative, may reduce the number of directors constituting the Board of
Directors to the number of remaining directors, but not to less than three.
Section 4. MEETINGS OF DIRECTORS.
4.1 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held immediately following the adjournment of the meeting of
shareholders at which directors are elected. The holding of such shareholders'
meeting shall constitute notice of such directors' meeting and such meeting
shall be held without further notice. Other regular meetings of the Board of
Directors shall be held at such times and places as may be fixed by the
directors.
4.2 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time upon call of the Chairman of the Board, the
President or any two directors.
4
<PAGE> 5
4.3 PLACE OF MEETING. Any meeting of directors may be held at
such place within or without the State of Ohio as may be designated in the
notice of said meeting.
4.4 NOTICE OF MEETING AND WAIVER OF NOTICE. Notice of the time
and place of any regular or special meeting of the Board of Directors shall be
given to each director by personal delivery, telephone, facsimile transmission
or mail at least forty-eight hours before the meeting, which notice need not
specify the purpose of the meeting.
Section 5. QUORUM AND VOTING.
At any meeting of directors, not less than one-half of the authorized
number of directors is necessary to constitute a quorum for such meeting, except
that a majority of the remaining, directors in office shall constitute a quorum
for filling a vacancy in the Board. At any meeting at which a quorum is present,
all acts, questions and business which may come before the meeting shall be
determined by a majority of votes cast by the directors present at such meeting,
unless the vote of a greater number is required by the Articles or Regulations.
Section 6. COMMITTEES.
6.1 APPOINTMENTS. The Board of Directors may from to time to
time appoint certain of its members to act as a committee or committees in the
intervals between meetings of the Board and delegate to any such committee or
committees certain powers to be exercised under the control and direction of the
Board. Each committee shall be composed of at least three directors unless a
lesser number is allowed by law. Each such Committee and each member thereof
shall serve at the pleasure of the Board.
6.2 EXECUTIVE COMMITTEE. In particular, the Board of Directors
may create from its membership and define the powers and duties of an Executive
Committee. During the intervals between meetings of the Board of Directors, the
Executive Committee shall possess and may exercise all of the powers of the
Board of Directors in the management and control and the business of the
Corporation to the extent permitted by law. All action taken by the Executive
Committee shall be reported to the Board of Directors at its first meeting
thereafter.
6.3 COMMITTEE ACTION. Unless otherwise provided by the Board
of Directors, a majority of the members of any committee appointed by the Board
of Directors pursuant to this Section shall constitute a quorum at any meeting
thereof and the act of a majority of the members present at a meeting at which a
quorum is present shall be the act of such committee. Any such committee shall
prescribe its own rules for calling and holding meetings and its method of
procedure, subject to any rules prescribed by the Board of Directors, and shall
keep a written record of all action taken by it.
5
<PAGE> 6
Section 7. ACTION OF DIRECTORS WITHOUT A MEETING.
Any action which may be taken at a meeting of directors or any
committee thereof may be taken without a meeting if authorized by a writing or
writings signed by all the directors or all of the members of the particular
committee, which writing or writings shall be filed or entered upon the records
of the Corporation.
Section 8. COMPENSATION OF DIRECTORS.
The Board of Directors may allow compensation to directors or
performance of their duties and for attendance at meetings or any special
services, may allow compensation to members of any committee, and may reimburse
any director for the director's expenses in connection with attending any Board
or committee meeting.
Section 9. RELATIONSHIP WITH CORPORATION.
Directors shall not be barred from providing professional or other
services to the Corporation. No contract, action or transaction shall be void or
voidable with respect to the Corporation for the reason that it is between or
affects the Corporation and one or more of its directors, or between or affects
the Corporation and any other person in which one or more of its directors are
directors, trustees or officers or have a financial or personal interest, or for
the reason that one or more interested directors participate in or vote at the
meeting of the directors or committee thereof that authorizes such contract,
action or transaction, if in any such case any of the following apply:
(i) the material facts as to the director's relationship or
interest and as to the contract, action or transaction are disclosed or are
known to the directors or the committee and the directors or committee, in good
faith, reasonably justified by such facts, authorize the contract, action or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors constitute less than a
quorum;
(ii) the material facts as to the director's relationship or
interest and as to the contract, action or transaction are disclosed or are
known to the shareholders entitled to vote thereon and the contract, action or
transaction is specifically approved at a meeting of the shareholders held for
such purpose by the affirmative vote of the holders of shares entitling them to
exercise a majority of the voting power of the Corporation held by persons not
interested in the contract, action or transaction; or
(iii) the contract, action or transaction is fair as to the
Corporation as of the time it is authorized or approved by the directors, a
committee thereof or the shareholders.
6
<PAGE> 7
ARTICLE III
OFFICERS
Section 1. GENERAL PROVISIONS.
The Board of Directors shall elect a Chairman of the Board, a
President, a Secretary, a Treasurer, one or more Vice Presidents, and such other
officers and assistant officers as the Board may from time to time deem
necessary. The Chairman of the Board, if any, shall be a director, but none of
the other officers is required to be a director. Any two or more offices may be
held by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required to be
executed, acknowledged or verified by two or more officers.
Section 2. POWERS AND DUTIES.
All officers, as between themselves and the Corporation, shall
respectively have such authority and perform such duties as are customarily
incident to their respective offices, and as may be specified from time to time
by the Board of Directors regardless of whether such authority and duties are
customarily incident to such office. In the absence of any officer of the
corporation, or for any other reason the Board of Directors may deem sufficient,
any or all of the powers or duties of such officer may be delegated to any other
officer or to any director. The Board of Directors may from time to time
delegate to any officer authority to appoint and remove subordinate officers and
to prescribe their authority and duties.
Section 3. TERM OF OFFICE AND REMOVAL.
3.1 TERM. Each officer of the Corporation shall hold office at
the pleasure of the Board of Directors and, unless sooner removed by the Board
of Directors, until the meeting of the Board of Directors following the date of
election of directors and until his or her successor is elected and qualified.
3.2 REMOVAL. The Board of Directors may remove any officer at
any time with or without cause by the affirmative vote of a majority of
directors in office.
Section 4. COMPENSATION OF OFFICERS.
The directors shall establish the compensation of officers or may, to
the extent not prohibited by law, delegate such authority to one or more
officers or directors as they determine.
7
<PAGE> 8
ARTICLE IV
INDEMNIFICATION
Section 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved (including, without limitation, as a witness)
in any actual or threatened action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (hereinafter a "proceeding"), by
reason of the fact that such person is or was a director or officer of the
Corporation or that, being or having been such a director or officer of the
Corporation, such person is or was serving at the request of an executive
officer of the Corporation as a director, officer, partner, member, employee, or
agent of another corporation or of a partnership, joint venture, trust, limited
liability company, or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as such a director,
officer, partner, member, employee, or agent, shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by the General
Corporation Law of Ohio, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), or by other applicable law as then in effect, against all expense,
liability, and loss (including, without limitation, attorneys' fees, costs of
investigation, judgments, fines, excise taxes or penalties arising under the
Employee Retirement Income Security Act of 1974 ("ERISA") or other federal or
state acts) actually incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, partner, member, employee, or agent and shall
inure to the benefit of the indemnitee's heirs, executors, and administrators.
Except as provided in Section 2 with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such indemnitee
in connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized or ratified by the
Board of Directors of the Corporation.
The right to indemnification conferred in this Article IV shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"). An advancement of
expenses incurred by an indemnitee in such person's capacity as a director,
officer, partner, member, or employee (and not in any other capacity in which
service was or is rendered by such indemnitee including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such indemnitee to repay all
amounts so advanced if it is proved by clear and convincing evidence in a court
of competent jurisdiction that such indemnitee's omission or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation or undertaken with reckless disregard for the best interests of
the Corporation. An advancement of expenses shall not be made
8
<PAGE> 9
if the Corporation's Board of Directors makes a good faith determination that
such payment would violate applicable law or public policy.
Section 2. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be 20 days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall also be entitled to be paid the expense of
prosecuting or defending such suit. The indemnitee shall be presumed to be
entitled to indemnification under this Article IV upon submission of a written
claim (and, in an action brought to enforce a claim for an advancement of
expenses, where the required undertaking has been tendered to the Corporation),
and thereafter the Corporation shall have the burden of proof to overcome the
presumption that the indemnitee is not so entitled. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
shareholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its shareholders) that the indemnitee is not
entitled to indemnification shall be a defense to the suit or create a
presumption that the indemnitee is not so entitled.
Section 3. NONEXCLUSIVITY AND SURVIVAL OF RIGHTS.
The rights to indemnification and to the advancement of expenses
conferred in this Article IV shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provisions of the
Articles, these Regulations, agreement, vote of shareholders or disinterested
directors, or otherwise. Notwithstanding any amendment to or repeal of this
Article IV, or of any of the procedures established by the Board of Directors
pursuant to Section 7, any indemnitee shall be entitled to indemnification in
accordance with the provisions hereof and thereof with respect to any acts or
omissions of such indemnitee occurring prior to such amendment or repeal.
Without limiting the generality of the foregoing paragraph, the rights
to indemnification and to the advancement of expenses conferred in this Article
IV shall, notwithstanding any amendment to or repeal of this Article IV, inure
to the benefit of any person who otherwise may be entitled to be indemnified
pursuant to this Article IV (or the estate or personal representative of such
person) for a period of six years after the date such person's service to or on
behalf of the Corporation shall have terminated or for such longer period as may
be required in the event of a lengthening in the applicable statute of
limitations.
9
<PAGE> 10
Section 4. INSURANCE, CONTRACTS, AND FUNDING.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, partner, member, employee, or agent of the
Corporation or another corporation, partnership, joint venture, trust, limited
liability company, or other enterprise against any expense, liability, or loss,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability, or loss under the General Corporation Law of
Ohio. The Corporation may enter into contracts with any indemnitee in
furtherance of the provisions of this Article IV and may create a trust fund,
grant a security interest, or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be necessary to
effect indemnification as provided in this Article IV.
Section 5. PERSONS SERVING OTHER ENTITIES.
Any person who is or was a director, officer, or employee of the
Corporation who is or was serving (i) as a director or officer of another
corporation of which a majority of the shares entitled to vote in the election
of its directors is held by the Corporation or a wholly-owned subsidiary of the
Corporation, or (ii) in an executive or management capacity in a partnership
joint venture, trust, limited liability company or other enterprise of which the
Corporation or a wholly-owned subsidiary of the Corporation is a general partner
or member or has a majority ownership shall be deemed to be so serving at the
request of an executive officer of the Corporation and entitled to
indemnification and advancement of expenses under Section 1.
Section 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION.
The Corporation may, by action of its Board of Directors, authorize one
or more executive officers to grant rights to advancement of expenses to
employees or agents of the Corporation on such terms and conditions no less
stringent than provided in Section 1 hereof as such officer or officers deem
appropriate under the circumstances. The Corporation may, by action of its Board
of Directors, grant rights to indemnification and advancement of expenses to
employees or agents or groups of employees or agents of the Corporation with the
same scope and effect as the provisions of this Article IV with respect to the
indemnification and advancement of expenses of directors and officers of the
Corporation; provided, however, that an undertaking shall be made by an employee
or agent only if required by the Board of Directors.
Section 7. PROCEDURES FOR THE SUBMISSION OF CLAIMS.
The Board of Directors may establish reasonable procedures for the
submission of claims for indemnification pursuant to this Article IV,
determination of the entitlement of any person thereto, and review of any such
determination. Such procedure shall be set forth in an appendix to these
Regulations and shall be deemed for all purposes to be a part hereof.
10
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ARTICLE V
AMENDMENTS
These Regulations may be amended by the affirmative vote or the written
consent of the shareholders entitled to exercise a majority of the voting power
on such proposal. If an amendment is adopted by written consent the Secretary
shall mail a copy of such amendment to each shareholder who would be entitled to
vote thereon and did not participate in the adoption thereof. These Regulations
may also be amended by the affirmative vote of a majority of the directors to
the extent permitted by Ohio law at the time of such amendment.
11
<PAGE> 1
EXHIBIT 5.1
Charles F. Hertlein, Jr.
(513) 977-8315
____________, 1997
Universal Document Management Systems, Inc.
Suite 250
4350 Glendale-Milford Road
Cincinnati, Ohio 45241
Ladies and Gentlemen:
This opinion is rendered for use in connection with the Registration
Statement on Form S-1, prescribed pursuant to the Securities Act of 1933, to be
filed by MedPlus, Inc. (the "Company") with the Securities and Exchange
Commission on or about ____________1997, under which up to ____________ shares
of the Company's Common Stock without par value ("Common Stock") are to be
registered.
We hereby consent to the filing of this opinion as Exhibit ___ and ____ to
the Registration Statement and to the reference to our name in the Registration
Statement.
As counsel to the Company, we have examined and are familiar with originals
or copies, certified or otherwise identified to our satisfaction, of such
statutes, documents, corporate records, certificates of public officials, and
other instruments as we have deemed necessary for the purpose of this opinion,
including the Company's Amended Articles of Incorporation and Amended Code of
Regulations and the record of proceedings of the shareholders and directors of
the Company.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the State of Ohio.
2. When the Registration Statement shall have been declared effective by
order of the Securities and Exchange Commission and up to ____________ shares of
the Common Stock to be issued for sale to the public shall have been issued and
sold upon the terms set forth in the Registration Statement, such shares will be
legally and validly issued and outstanding, fully-paid and nonassessable.
Very truly yours,
DINSMORE & SHOHL LLP
/S/ Charles F. Hertlein, Jr.
Charles F. Hertlein, Jr.
Encl.
<PAGE> 1
EXHIBIT 10.1
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
by and among
ACCESS CORPORATION
as Seller
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
as Purchaser
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions............................................................ 1
Section 1.1 Certain General Definitions.......................... 1
ARTICLE II
Terms of Sale and Payment.............................................. 4
Section 2.1 Sale of Assets....................................... 4
2.1.1 The Assets.................................. 4
2.1.2 Excluded Assets............................. 5
2.1.3 Assumed Liabilities......................... 5
Section 2.2 Purchase Price....................................... 6
Section 2.4 The Closing.......................................... 6
ARTICLE III
Representations and Warranties of the Company and the Stockholders..... 6
Section 3.1 Organization and Good Standing; Qualification........ 6
Section 3.2 Corporate Records.................................... 7
Section 3.3 Authorization and Validity........................... 7
Section 3.4 No Violation......................................... 7
Section 3.5 Consents............................................. 7
Section 3.6 Financial Statements................................. 8
Section 3.7 Liabilities and Obligations.......................... 8
Section 3.8 Employee Matters..................................... 8
3.8.1 Cash Compensation........................... 8
3.8.2 Compensation Plans.......................... 8
3.8.3 Employment Agreements....................... 9
3.8.4 Employee Policies and Procedures............ 9
3.8.5 Unwritten Amendments........................ 9
3.8.6 Labor Compliance............................ 9
3.8.7 Unions...................................... 9
3.8.8 Aliens...................................... 9
Section 3.9 Employee Benefit Plans............................... 10
3.9.1 Identification.............................. 10
3.9.2 Administration.............................. 10
3.9.3 Examinations................................ 10
3.9.4 Prohibited Transactions..................... 10
3.9.5 Claims and Litigation....................... 10
3.9.6 Qualification............................... 10
3.9.7 Funding Status.............................. 11
3.9.8 Excise Taxes................................ 11
3.9.9 Multiemployer Plans......................... 11
3.9.10 PBGC........................................ 11
3.9.11 Retirees.................................... 11
Section 3.10 Absence of Certain Changes........................... 11
</TABLE>
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<TABLE>
<S> <C>
Section 3.11 Title; Leased Assets.......................................................... 13
3.11.1 Real Property........................................................ 13
3.11.2 Personal Property.................................................... 13
3.11.3 Leases............................................................... 13
Section 3.12 Commitments................................................................... 13
3.12.1 Commitments; Defaults................................................ 13
3.12.2 No Cancellation or Termination of Commitment......................... 15
Section 3.13 Insurance..................................................................... 15
Section 3.14 Proprietary Rights and Information............................................ 15
Section 3.15 Taxes......................................................................... 15
3.15.1 Filing of Tax Returns................................................ 15
3.15.2 Payment of Taxes..................................................... 16
3.15.3 No Pending Deficiencies, Delinquencies, Assessments or Audits........ 16
3.15.4 No Extension of Limitation Period.................................... 16
3.15.5 Withholding Requirements Satisfied................................... 16
3.15.6 Foreign Person....................................................... 16
3.15.7 Safe Harbor Lease.................................................... 16
3.15.8 Tax Exempt Entity.................................................... 16
3.15.9 Collapsible Corporation.............................................. 17
3.15.10 Boycotts............................................................. 17
3.15.11 Parachute Payments................................................... 17
3.15.12 S Corporation........................................................ 17
3.15.13 Personal Service Corporation......................................... 17
3.15.14 Personal Holding Company............................................. 17
Section 3.16 Compliance with Laws.......................................................... 17
Section 3.17 Finder's Fee.................................................................. 17
Section 3.18 Litigation.................................................................... 17
Section 3.19 Condition of Fixed Assets..................................................... 18
Section 3.20 Distributions and Repurchases................................................. 18
Section 3.21 Banking Relations............................................................. 18
Section 3.22 Ownership Interests of Interested Persons; Affiliations....................... 18
Section 3.23 Environmental Matters......................................................... 18
Section 3.24 Certain Payments.............................................................. 18
ARTICLE IV
Representations and Warranties of Purchaser..................................................... 19
Section 4.1 Organization and Good Standing................................................ 19
Section 4.2 Authorization and Validity.................................................... 19
Section 4.3 Finder's Fee.................................................................. 19
Section 4.4 Reserved...................................................................... 19
Section 4.5 Filings....................................................................... 19
ARTICLE V
Covenants of the Company........................................................................ 20
Section 5.1 Consummation of Agreement..................................................... 20
Section 5.2 Business Operations........................................................... 20
Section 5.3 Access........................................................................ 20
</TABLE>
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<TABLE>
<S> <C>
Section 5.4 Notification of Certain Matters.................................. 20
Section 5.5 Approvals of Third Parties....................................... 21
Section 5.6 Employee Matters................................................. 21
Section 5.7 Contracts........................................................ 21
Section 5.8 Capital Assets; Payments of Liabilities.......................... 22
Section 5.9 Mortgages, Liens and Guaranties.................................. 22
Section 5.10 Acquisition Proposals............................................ 22
5.10.1 Solicited Proposals..................................... 22
5.10.2 Other Potential Bidders................................. 22
Section 5.11 Distributions and Repurchases.................................... 23
ARTICLE VI
Covenants of Purchaser............................................................. 23
Section 6.1 Consummation of Agreement........................................ 23
Section 6.2 Requirements to Effect Acquisition............................... 23
Section 6.3 Access........................................................... 23
Section 6.4 Notification of Certain Matters.................................. 24
Section 6.5 Approvals of Third Parties....................................... 24
ARTICLE VII
Covenants of all Parties........................................................... 24
Section 7.1 Filings; Other Action............................................ 24
Section 7.2 Amendment of Schedules........................................... 25
Section 7.3 Executive Retention Agreements................................... 25
ARTICLE VIII
Conditions Precedent of Purchaser.................................................. 26
Section 8.1 Due Diligence.................................................... 26
Section 8.2 Representations and Warranties................................... 26
Section 8.3 Covenants........................................................ 26
Section 8.4 Legal Opinion.................................................... 26
Section 8.5 Proceedings...................................................... 26
Section 8.6 No Material Adverse Change....................................... 26
Section 8.7 Securities Approvals............................................. 26
Section 8.8 Simultaneous Closings............................................ 26
Section 8.9 Closing Deliveries............................................... 27
ARTICLE IX
Conditions Precedent of the Company................................................ 27
Section 9.1 Representations and Warranties................................... 27
Section 9.2 Covenants........................................................ 27
Section 9.3 Legal Opinions................................................... 27
Section 9.4 Proceedings...................................................... 27
Section 9.5 Government Approvals and Required Consents....................... 27
Section 9.6 Securities Approvals............................................. 27
Section 9.7 Closing Deliveries............................................... 28
Section 9.8 Stockholder Approval............................................. 28
</TABLE>
iii
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<TABLE>
<S> <C>
Section 9.9 Oce Transaction.................................................. 28
ARTICLE X
Closing Deliveries................................................................. 28
Section 10.1 Deliveries of the Company........................................ 28
Section 10.2 Deliveries of Purchaser.......................................... 29
ARTICLE XI
Post Closing Matters............................................................... 30
Section 11.1 Further Instruments of Transfer.................................. 30
ARTICLE XIV
Termination........................................................................ 30
Section 12.1 Termination...................................................... 30
Section 12.2 Effect of Termination............................................ 31
ARTICLE XIII
Nondisclosure of Confidential Information.......................................... 31
Section 13.1 Nondisclosure.................................................... 31
Section 13.2 Damages.......................................................... 32
Section 13.3 Survival......................................................... 32
ARTICLE XIV
Miscellaneous...................................................................... 32
Section 14.1 Amendment; Waivers............................................... 32
Section 14.2 Assignment....................................................... 32
Section 14.3 Parties In Interest; No Third Party Beneficiaries................ 32
Section 14.4 Entire Agreement................................................. 32
Section 14.5 Severability..................................................... 33
Section 14.6 Survival of Representations, Warranties and Covenants............ 33
Section 14.7 Governing Law.................................................... 33
Section 14.8 Captions......................................................... 33
Section 14.9 Gender and Number................................................ 33
Section 14.10 Reference to Agreement........................................... 33
Section 14.11 Confidentiality; Publicity and Disclosures....................... 33
Section 14.12 Notice........................................................... 34
Section 14.13 Choice of Forum.................................................. 35
Section 14.14 No Waiver; Remedies.............................................. 35
Section 14.15 Counterparts..................................................... 35
Section 14.16 Costs, Expenses and Legal Fees................................... 35
</TABLE>
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated as of August
19, 1997, is by and between ACCESS Corporation, an Ohio corporation (including
any trust successor thereto as contemplated by Section 14.2, the "Company"), and
Universal Document Management Systems, Inc., an Ohio corporation ("Purchaser").
WITNESSETH:
WHEREAS, the Company is engaged in the business of servicing hardware
and software for its installed base of customers and third parties, and
marketing software for the electronic storage, control and processing of
technical documentation, and
WHEREAS, the Company desires to sell to Purchaser and Purchaser desires
to purchase from the Company substantially all of the Company's assets (except
the Excluded Assets as defined below) and assume all of the Company's
liabilities as of the Closing Date (as defined herein) upon the terms and
conditions hereinafter set forth,
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
1.1.1 "actual knowledge", "have no actual knowledge of, "do
not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have no knowledge of", "do not know
of" or "to the knowledge of" and similar phrases shall mean (i) in the case of a
natural person, the particular fact was known, or not known, as the context
requires, to such person after reasonable investigation and inquiry by such
person, and (ii) in the case of an entity, the particular fact was known, or not
known,
<PAGE> 7
as the context requires, to any stockholder, director or executive officer of
such entity after reasonable investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital
stock of the Company, as set forth in the Company Disclosure Schedules, which
are authorized, issued and outstanding at any time on or after the date of this
Agreement to and including the Closing Date.
1.1.5 "Company Disclosure Schedules" shall mean the schedules
of exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company to Purchaser, as such may be amended or
supplemented from time to time pursuant to the provisions hereof. The
information contained in the Company Disclosure Schedules is labeled to
correspond with the principal Section numbers of this Agreement to which the
disclosure relates.
1.1.6 "Confidential Information" shall mean all trade secrets
and other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to the environment, as in effect on the date hereof and the Closing
Date, including without limitation (i) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. SectionSection9601 et seq.),
as amended (including without limitation as amended pursuant to the Superfund
Amendments and Reauthorization Act of 1986), and regulations promulgated
thereunder, (ii) the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
SectionSection6901 et seq., as amended), and regulations promulgated thereunder,
(iii) statutes, rules or regulations, whether federal, state or local,
applicable to the Company's assets or operations that relate to asbestos or
polychlorinated biphenyls, and (iv) the provisions contained in any similar
state statutes or regulations relating to environmental matters applicable to
the Company's assets or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Purchaser Common Stock contemplated by the
Registration Statement (as hereinafter defined).
1.1.11 [Reserved]
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1.1.12 "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's business, operations, condition (financial or otherwise)
or results of operations, taken as a whole, in consideration of all relevant
facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
transactions contemplated hereby, and the mergers and acquisitions of entities
and assets contemplated by the definitive acquisition agreements between
Purchaser and the other Target Companies.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules
and the Purchaser Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Purchaser intends to acquire simultaneously with its
acquisition of the Company.
1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter
in the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Purchaser Common Stock" shall mean the Common Stock,
par value $0.01 per share, of Purchaser.
1.1.25 "Purchaser Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Purchaser to the Company, as such may be amended or supplemented
from time to time pursuant to the provisions hereof. The information
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<PAGE> 9
contained in the Purchaser Disclosure Schedules is labeled to correspond with
the Section numbers of this Agreement to which the disclosure relates, if
applicable.
1.1.26 "Accountable Earnings" shall mean with respect to the
12-month period ending April 30, 1998 for which Accountable Earnings are to be
determined for the purposes hereof, the amount of the gross profit attributable
to the Company's hardware services business (and specifically excluding the
Company's EDMS software and professional services business), as an independent
company prior to the Closing and as a separate unit of the Purchaser after the
Closing on a combined basis (the "Hardware Services Business"), for such year,
with all expenses classified consistently between measurement periods, as
reported in the Company's and Purchaser's consolidated statements of income for
such 12-month period, determined in accordance with generally accepted
accounting principles, consistently applied and as reviewed by KPMG Peat Marwick
LLP.
1.1.27 "Stockholders(s)" shall mean the holder(s) of any
Company Capital Stock.
1.1.28 "Option Proceeds" shall mean any proceeds received by
the Company as a result of the exercise of stock options and/or stock
appreciation rights ("SARs") with respect to Company Capital Stock after the
Company Balance Sheet Date.
1.1.29 "Oce Agreement" shall mean the Agreement of even date
herewith between the Company and Oce N.V. providing, inter alia, for the payment
of $1,500,000 (plus accrued dividends if any) in cash to Oce upon the
liquidation of the Company.
1.1.30 "Oce Reserve Fund" shall mean $1,500,000 in cash to be
paid to Oce N.V. pursuant to the Oce Agreement.
1.1.31 "Oce Transaction" shall mean the payment of $1,500,000
(plus accrued dividends if any) to Oce pursuant to the Company's Plan of
Complete Liquidation and Dissolution in full satisfaction of Oce's equity
interest in the Company, all as contemplated by the Oce Agreement.
ARTICLE II
TERMS OF SALE AND PAYMENT
SECTION 2.1 SALE OF ASSETS.
2.1.1 THE ASSETS. The Company shall sell, assign, convey,
transfer and deliver to Purchaser and Purchaser shall purchase and pay for, on
the Closing Date, free and clear of all liens and encumbrances, all of the
assets, rights, properties, claims, contracts and business of the Company at the
Closing Date of every kind, nature, character and description, tangible and
intangible, real,
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personal or mixed, wherever located (excluding the Excluded Assets, the
"Assets"), including but not limited to, the following:
(i) Inventory. The Company's entire inventory of
finished goods, purchased parts, operating supplies, work-in-progress and
unshipped finished goods of the Company, including products or supplies on hand
or in transit ("Inventory");
(ii) Equipment. All vehicles, equipment, furniture,
fixtures, supplies, computers and computer equipment and other tangible personal
property, all material items of which are listed on Schedule 2.1.1(ii)
("Equipment");
(iii) Records. All pertinent records, financial and
non-financial, relating to the present and past operating history of the
Company's business;
(iv) Contracts. All outstanding contracts, leases,
licenses, obligations, commitments, agreements, customer orders, contracts for
goods, supplies, materials, equipment, machinery, for other items used in the
operation of the Company's business that are disclosed in writing to Purchaser
and are in existence on the Closing Date (the "Contracts");
(v) Leases of Real Property. The leasehold interests
in all of the real property leased by the Company, all of which are listed on
Schedule 2.1.1(v) hereto;
(vi) Intangible Assets. All intangible assets of the
Company relating to past, current and presently contemplated future products
including trademarks, trademark registrations, patents, patent registrations,
copyrights, copyright registrations, tradenames, other trade designations,
trademark applications, patent applications, copyright applications, inventions,
service marks, trade secrets, permits, licenses, royalties (including any rights
to sue for breach or past infringement) relating to such business, and
agreements relating to technology, know-how or processes the Company is licensed
or authorized to use by others, or which it licenses or authorizes others to
use, all of which, to the extent material to the business of the Company, are
listed on Schedule 2.1.1(vi) (the "Proprietary Rights") hereto;
(vii) Accounts Receivable. All accounts receivable of
the Company in existence on the Closing Date, including all notes, bonds and
other evidences of such receivables;
(viii) Cash/Prepaid Expenses. All cash on hand, cash
equivalents, deposits in transit and prepaid expenses as of the Closing Date,
excluding any Option Proceeds and the Class II Preferred Stock Reserve Fund; and
(ix) Permits and Licenses. All permits, licenses,
consents and any other forms of government approval as will be required for the
operation of the Company's business as of the Closing Date.
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<PAGE> 11
2.1.2 EXCLUDED ASSETS. The Excluded Assets shall consist of:
(i) The Option Proceeds;
(ii) The Oce Reserve Fund; and
(iii) The personal property, including office
furniture, owned by Company employees and listed on Schedule 2.1.2(iii) of the
Company Disclosure Schedules.
2.1.3 ASSUMED LIABILITIES. On the Closing Date, Purchaser will
assume and agree to pay and discharge all of the obligations and liabilities of
the Company in existence as of the Closing Date, whether or not accrued,
absolute, contingent, unasserted, unassessed or otherwise, including but not
limited to liabilities arising under any Environmental Laws with respect to any
of the Assets.
SECTION 2.2 PURCHASE PRICE. Purchaser shall pay the Company a purchase
price for the Assets as follows:
(i) At the Closing, $3 million in cash,
(ii) Any amounts payable pursuant to Section 2.4
(ii)(c); and
(iii) Additional consideration of up to $1 million
which shall be payable in cash. The additional consideration shall be based upon
Accountable Earnings as follows:
<TABLE>
<CAPTION>
If Accountable Earnings are: Additional Consideration will be:
<S> <C>
$2,000,000 or greater $1,000,000
$1,950,000 to $1,999,999.99 $800,000
$1,900,000 to $1,949,999.99 $600,000
$1,850,000 to $1,899,999.99 $400,000
$1,800,000 to $1,849,999.99 $200,000
Less than $1,800,000 -0-
</TABLE>
(iv) Within 90 days after April 30, 1998, Purchaser
shall deliver to the Company its calculation of the additional consideration
determined pursuant to Section 2.2(ii), showing in reasonable detail the
calculation thereof. The Company shall be entitled to access to the books,
records and personnel of Purchaser to review such calculation. If the Company
notifies Purchaser of its agreement with such calculation or does not object to
Purchaser's calculation of such additional consideration within 45 days after
the receipt thereof, such calculation shall be final, binding and conclusive for
all purposes. If the Company objects to such calculation, it shall notify
Purchaser within such 45-day period, setting forth in reasonable detail the
basis for its objection and its proposed adjustments to the calculation of such
additional consideration. Purchaser and the
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<PAGE> 12
Company shall seek in good faith to resolve any such dispute within 30 days
following receipt of notice of the Company's objection. If they are unable to
reach agreement within such 30-day period, then such accounting firm as shall be
agreed upon by the parties shall be engaged to review the calculations of
additional consideration prepared by Purchaser and the Company and shall make a
final, binding and conclusive determination of any matters in dispute. The fees
and expenses of such accounting firm shall be paid jointly by Purchaser and the
Company.
(v) Purchaser shall pay the additional consideration
calculated pursuant to Section 2.2.(ii) to the Company in cash within 30 days
after the final calculation thereof pursuant to Section 2.2(iii).
(vi) From the Closing until April 30, 1998, Purchaser
shall operate the Hardware Services Business in the ordinary course, consistent
with the Company's prior practice.
SECTION 2.3 ALLOCATION. Exhibit 2.3, to be agreed upon prior the
Closing and attached hereto, shall set forth an allocation of the Purchase
Price.
SECTION 2.4 ADJUSTMENT.
(a) If as of the Closing Date,
(i) the Company has at least $1,500,000 in cash, then the
Company shall consummate the Oce Transaction and pay to Oce all amounts payable
to it pursuant thereto out of the Company's cash on hand as of the Closing Date;
(ii) the Company has less than $1,500,000 in cash and the sum
of the Company's cash and accounts receivable equals or exceeds $3,200,000, then
(a) the Company will calculate its accounts receivable as of the Closing Date,
provided that at Purchaser's request, such calculation shall be subject to
review by and approval of Purchaser's accountants within five business days of
the Closing Date; (b) the Company shall consummate the Oce Transaction and pay
to Oce all amounts payable to it pursuant thereto first out of the Company's
cash on hand as of the Closing Date, with any remaining amount to be paid out of
the purchase price paid to the Company pursuant to Section 2.2(i); and (c)
Purchaser shall pay the Company (or its shareholders), as soon as practicable
after receipt by Purchaser, 50% of any payments actually received by Purchaser
thereafter with respect to the Company's accounts receivable identified in
clause (a) above until the total amount paid to the Company (or its
shareholders) from such accounts receivable equals the amount which the Company
deducted from the purchase price in connection with payment to Oce pursuant to
clause (b) above; or
(iii) the Company has less than $1,500,00 and the sum of the
Company's cash and accounts receivable is less than $3,200,000, then Purchaser
may, at its sole discretion, terminate this Agreement, which termination shall
have the effect described in Section 12.2.
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(b) If Section 2.4(a)(ii) above is applicable, Purchaser shall attempt
to collect such accounts receivable in the ordinary course, using efforts
consistent with Purchaser's collection of other accounts receivable of
Purchaser, and within 15 days of Purchaser's receipt of a request from the
Company, shall provide the Company with a report on Purchaser's collection of
such accounts receivable.
SECTION 2.5 THE CLOSING. The Closing shall take place at 10:00 a.m.,
Cincinnati time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Purchaser's acquisitions of the
Target Companies. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that, except as may be
set forth in the Company Disclosure Schedules, the following are true and
correct as of the date hereof:
SECTION 3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of organization, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is qualified and licensed to do
business in every jurisdiction in which such qualification and licensing is
required, except where the failure to be so licensed or qualified would not have
a Material Adverse Effect. Except for an office in Irvine, California and
warehouse facilities in Hebron, Kentucky, each of which is leased, the Company
does not have any offices in any state other than the state of its organization.
SECTION 3.2 CORPORATE RECORDS. The copies of the Articles of
Incorporation and Code of Regulations, and all amendments thereto, of the
Company that have been delivered or made available to Purchaser are true,
correct and complete copies thereof, as in effect on the date hereof. The minute
books of the Company, which have been made available to Purchaser, contain
accurate minutes of all meetings of, and accurate consents to all actions taken
without meetings by, the Board of Directors (and any committees thereof) and the
Stockholders since April 30, 1994.
SECTION 3.3 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Company of this Agreement, and the consummation of the
transactions contemplated hereby, have been or will be as of the Closing Date
duly authorized by the Board of Directors of the Company, but such consummation
is subject to the approval of the Stockholders. This Agreement has been duly
executed and delivered by the Company and constitutes and will as of the Closing
Date constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy,
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<PAGE> 14
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
SECTION 3.4 NO VIOLATION. Neither the execution, delivery or
performance of this Agreement nor the consummation of the transactions
contemplated hereby will (a) conflict with, or result in a violation or breach
of the terms, conditions or provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of the Company, (b) except as
would not, individually or in the aggregate, result in a Material Adverse
Effect, conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, any agreement,
indenture or other instrument under which the Company is bound or to which any
of the assets of the Company are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon any of the
assets of the Company or (c) except as would not, individually or in the
aggregate, result in a Material Adverse Effect, violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body.
SECTION 3.5 CONSENTS. Except as may have been obtained or as may be
required under the Exchange Act, the Securities Act, the Ohio General
Corporation Law and state securities laws, no consent, authorization, approval,
permit or license of, or filing with, any governmental or public body or
authority, any lender or lessor or any other person or entity is required to be
obtained by the Company to authorize, or is required to be obtained by the
Company in connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Company,
other than the approval of the Stockholders and such consents as to which the
failure to obtain would not, individually or in the aggregate, result in a
Material Adverse Effect.
SECTION 3.6 FINANCIAL STATEMENTS. The Company has furnished to
Purchaser its audited balance sheet dated as of April 30, 1997 (the "Company
Balance Sheet" and the date thereof shall be referred to as the "Company Balance
Sheet Date") and audited related statements of income, retained earnings and
cash flows for the two full fiscal years then ended (collectively, with the
related notes thereto, the "Financial Statements"), copies of which are included
in the Company Disclosure Schedules. The Financial Statements fairly present the
financial condition and results of operations of the Company as of the dates and
for the periods indicated and have been prepared in conformity with generally
accepted accounting principles (subject to normal year-end adjustments and the
absence of notes for any unaudited interim financial statement for any interim
periods presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements.
SECTION 3.7 LIABILITIES AND OBLIGATIONS. The Financial Statements
reflect all material liabilities of the Company, accrued, contingent or
otherwise that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business since the Company Balance Sheet Date. Except as set forth in
the Financial Statements, the Company is not liable upon or with respect to, or
obligated in any other way to provide funds
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<PAGE> 15
in respect of or to guarantee or assume in any manner, any debt, obligation or
dividend of any person, corporation, association, partnership, joint venture,
trust or other entity, and the Company does not know of any valid basis for the
assertion of any other material claims or liabilities.
SECTION 3.8 EMPLOYEE MATTERS.
3.8.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of the Company Balance Sheet Date, including without limitation
wages, salaries, bonuses (discretionary and formula) and other cash compensation
(the "Cash Compensation") of all employees of the Company. In addition, the
Company Disclosure Schedules contain a complete and accurate description of (i)
all increases in Cash Compensation of employees of the Company during the
current fiscal year and the immediately preceding fiscal year and (ii) any
promised increases in Cash Compensation of employees of the Company that have
not yet been effected.
3.8.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options. The Company has provided or made available to
Purchaser a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Each of the Compensation Plans can be
terminated or amended at will by the Company.
3.8.3 EMPLOYMENT AGREEMENTS. The Company is not a party to any
employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.8.4 EMPLOYEE POLICIES AND PROCEDURES. The Company has
provided to Purchaser a complete and accurate list of all employee manuals and
all material policies, procedures and work-related rules (the "Employee
Policies and Procedures") that apply to employees of the Company. The Company
has maintained and shall continue to maintain, and has given and shall continue
to give Purchaser reasonable access to, a copy of all written Employee Policies
and Procedures and a written description of all material unwritten Employee
Policies and Procedures.
3.8.5 UNWRITTEN AMENDMENTS. No material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans or Employee Policies and Procedures.
3.8.6 LABOR COMPLIANCE. The Company has been and is in
compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except for any such failures to be in
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<PAGE> 16
compliance that, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company is not liable for any arrears of wages
or penalties for failure to comply with any of the foregoing. The Company has
not engaged in any unfair labor practice or discriminated on the basis of race,
color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices that would, individually or in the aggregate,
result in a Material Adverse Effect. There are no (i) unfair labor practice
charges or complaints or racial, color, religious, sex, national origin, age,
disability or handicap discrimination charges or complaints pending or, to the
actual knowledge of the Company, threatened against the Company before any
federal, state or local court, board, department, commission or agency (nor, to
the knowledge of the Company, does any valid basis therefor exist) or (ii)
existing or, to the actual knowledge of the Company, threatened labor strikes,
disputes, grievances, controversies or other labor troubles affecting the
Company (nor, to the knowledge of the Company, does any valid basis therefor
exist).
3.8.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. No
employees of the Company are represented by any union, labor organization or
collective bargaining unit. To the actual knowledge of the Company, none of the
employees of the Company has threatened to organize or join a union, labor
organization or collective bargaining unit.
3.8.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
SECTION 3.9 EMPLOYEE BENEFIT PLANS.
3.9.1 IDENTIFICATION. The Company Disclosure Schedules contain
a complete and accurate list of all employee benefit plans (within the meaning
of Section 3(3) of ERISA) sponsored by the Company, or to which the Company has
contributed on behalf of its employees, within the three years preceding the
date hereof (the "Employee Benefit Plans"). The Company has provided or made
available to Purchaser copies of all plan documents, determination letters,
pending determination letter applications, trust instruments, insurance
contracts, administrative services contracts, annual reports, actuarial
valuations, summary plan descriptions, summaries of material modifications and
administrative forms that constitute a part of or are incident to the
administration of the Employee Benefit Plans. In addition, the Company has
provided or made available to Purchaser a written description of any other
existing practice engaged in by the Company that constitutes an Employee Benefit
Plan. Subject to the requirements of the Internal Revenue Code and ERISA, each
of the Employee Benefit Plans can be terminated or amended at will by the
Company. No unwritten amendment exists with respect to any Employee Benefit
Plan.
3.9.2 ADMINISTRATION. Each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect. The
Company and the Stockholders have made all necessary filings, reports and
disclosures pursuant
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<PAGE> 17
to and have complied with all requirements of the IRS Voluntary Compliance
Resolution Program with respect to all applicable Employee Benefit Plans.
3.9.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.9.4 PROHIBITED TRANSACTIONS. No prohibited transactions
(within the meaning of Section 4975 of the Internal Revenue Code or Sections 406
and 407 of ERISA) have occurred with respect to any Employee Benefit Plan.
3.9.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
3.9.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code (and for which the related trust is intended to be
tax-exempt within the meaning of Section 501 (a) of the Internal Revenue Code).
No proceedings exist or, to the actual knowledge of the Company, have been
threatened that could result in the revocation of any such favorable
determination letter or ruling.
3.9.7 FUNDING STATUS. No accumulated funding deficiency
(within the meaning of Section 412 of the Internal Revenue Code), whether or not
waived, exists with respect to any Employee Benefit Plan or any plan sponsored
by any member of a controlled group (within the meaning of Section 412(n)(6)(B)
of the Internal Revenue Code) in which the Company is a member (a "Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.9.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.9.9 MULTIEMPLOYER PLANS. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.9.10 PBGC. None of the Employee Benefit Plans is subject to
the requirements of Title IV of ERISA.
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3.9.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees after they retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Since the Company Balance
Sheet Date, the Company has not
3.10.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
3.10.2 contracted for the purchase of any capital asset having
a cost in excess of $35,000 or made any single capital expenditure in excess of
$35,000;
3.10.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
3.10.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.10.5 paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any claims or any debt in excess of $35,000, or
released or waived any rights or claims except in the ordinary course of
business;
3.10.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.10.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.10.8 acquired or disposed of any assets having an aggregate
value in excess of $35,000, except in the ordinary course of business;
3.10.9 written up or written down the carrying value of any
material assets, other than accounts receivable in the ordinary course of
business;
3.10.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
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3.10.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.10.12 increased the compensation of any director, officer or
consultant;
3.10.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $60,000;
3.10.14 made any payments (other than compensation) to or
loaned any money to any employee, officer, director or Stockholder, except as
contemplated by the Oce Transaction;
3.10.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
3.10.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any Company Capital
Stock or securities or any rights to acquire such Company Capital Stock or
securities, or agreed to change the terms and conditions of any such Company
Capital Stock, securities or rights except in connection with the exercise of
stock options or SARs granted prior to the date hereof;
3.10.17 entered into any agreement providing for total
payments by the Company in excess of $35,000 in any 12 month period with any
person or group, or modified or amended in any material respect the terms of any
such existing agreement, except in the ordinary course of business and except
for the Oce Transaction;
3.10.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or as required by law; or
3.10.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement, or otherwise has, individually or in the aggregate,
resulted in a Material Adverse Effect.
SECTION 3.11 TITLE; LEASED ASSETS.
3.11.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business as currently conducted.
3.11.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property
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referred to in Section 3.11.3 constitute the only tangible personal property
necessary for the conduct of the Company's business as currently conducted. Upon
consummation of the transactions contemplated hereby, such interest in the
Personal Property shall be free and clear of all security interests, liens,
claims and encumbrances, other than statutory liens arising in the ordinary
course of business or other liens that do not materially detract from the value
or interfere with the use of such properties or assets.
3.11.3 LEASES. All of the Company's leases which are listed
and described in the Company Disclosure Schedules are valid and, to the best
knowledge of the Company, enforceable in accordance with their respective terms
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
SECTION 3.12 COMMITMENTS.
3.12.1 COMMITMENTS; DEFAULTS. Any of the following as to which
the Company is a party or is bound by, or which the assets or the business of
the Company are bound by, whether or not in writing, are listed in the Company
Disclosure Schedules (collectively "Commitments"):
3.12.1.1 any partnership or joint venture agreement;
3.12.1.2 any guaranty or suretyship, indemnification
or contribution agreement or performance bond;
3.12.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.12.1.4 any contract to purchase real property;
3.12.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments by the Company within any 12 month
period in excess of $35,000 and which is not terminable on 30 days' notice or
without penalty;
3.12.1.6 any agreement relating to any material
matter or transaction in which an interest is held by a person or entity that is
an Affiliate of the Company or, to the best knowledge of the Company, any
Stockholder;
3.12.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory (other than in the ordinary course),
fixtures or other property involving more than $35,000 in the aggregate;
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3.12.1.8 any powers of attorney;
3.12.1.9 any contracts containing noncompetition
covenants material to the business of the Company;
3.12.1.10 any agreement providing for the purchase
from a supplier of all or substantially all of the requirements of the Company
of a particular product or service; or
3.12.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of the
Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Purchaser. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that would
have a Material Adverse Effect and, with the giving of notice or lapse of time
or both, would constitute defaults by the Company or, to the best knowledge of
the Company, any other party to a material Commitment, and no penalties have
been incurred nor are amendments pending, with respect to the material
Commitments. The Commitments are in full force and effect and are valid and
enforceable obligations of the Company and, to the best knowledge of the
Company, the other parties thereto in accordance with their respective terms,
and no defenses, offsets or counterclaims have been asserted or, to the best
knowledge of the Company, may be made by any party thereto (other than the
Company), nor has the Company waived any rights thereunder.
3.12.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. The
Company has not received notice of any plan or intention of any other party to
any Commitment to exercise any right to cancel or terminate any Commitment, and
the Company does not have actual knowledge of any fact that would justify the
exercise of such a right; and the Company does not currently contemplate, or
have reason to believe any other person currently contemplates, any amendment or
change to any Commitment.
SECTION 3.13 INSURANCE. The Company carries property, liability,
workers' compensation and other types of insurance pursuant to the insurance
policies listed and briefly described in the Company Disclosure Schedules (the
"Insurance Policies"). The Insurance Policies are all insurance polices relating
to the business of the Company. All of the Insurance Policies are, to the best
knowledge of the Company, valid and enforceable policies, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. All
Insurance Policies, or comparable replacement policies, shall be maintained in
force without interruption up to and including the Closing Date. True, complete
and correct copies of all Insurance Policies have been provided or made
available to Purchaser. The Company has not received any notice or other
communication from any issuer of any Insurance Policy canceling such policy,
materially increasing any deductibles or retained amounts thereunder, or
materially increasing the annual or other premiums payable thereunder, and to
the actual knowledge
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of the Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or premiums
owed against any Insurance Policy, or the Company has given all notices or has
presented all potential or actual claims under any Insurance Policy in due and
timely fashion. The Company Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $25,000 per occurrence filed by
the Company during the immediately preceding one-year period.
SECTION 3.14 PROPRIETARY RIGHTS AND INFORMATION. The Company owns or
has the legal right to use the Proprietary Rights, to the actual knowledge of
the Company, without conflicting, infringing or violating the rights of any
other person. No consent of any person will be required for the use thereof by
Purchaser upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or for infringement by the Company of the proprietary
right of any other person, and the Company does not have actual knowledge of any
valid basis for any such claim. The Company has the right to use, to the actual
knowledge of the Company, free and clear of any adverse claims or rights of
others all trade secrets, customer lists and proprietary information required
for the marketing of all merchandise and services formerly or presently sold or
marketed by it.
SECTION 3.15 TAXES.
3.15.1 FILING OF TAX RETURNS. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction, except
for any such subdivision or jurisdiction with respect to which the failure to so
file would not have a Material Adverse Effect. All such Tax Returns or reports
are complete and accurate in all material respects and properly reflect the
taxes of the Company for the periods covered thereby. True and correct copies of
such Tax Returns for the past five taxable years have heretofore been delivered
to Purchaser.
3.15.2 PAYMENT OF TAXES. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Company Disclosure Schedules, or which will not have
a Material Adverse Effect, (i) the Company has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due and (ii) to its best knowledge, the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
3.15.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. To the best knowledge of the
Company, there is no unpaid assessment, proposal for additional taxes,
deficiency or delinquency in the payment of any of the taxes of the Company that
could be asserted by any taxing authority. There is no taxing authority audit of
the
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Company pending, or to the actual knowledge of the Company, threatened, and the
results of any completed audits are properly reflected in the Financial
Statements. The Company has not violated any federal, state, local or foreign
tax law.
3.15.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.15.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
3.15.6 FOREIGN PERSON. The Company is not a foreign person, as
such term is referred to in Section 1445(f)(3) of the Internal Revenue Code.
3.15.7 SAFE HARBOR LEASE. To the best knowledge of the
Company, none of the assets of the Company constitutes property that the
Company, Purchaser, or any Affiliate of Purchaser, will be required to treat as
being owned by another person pursuant to the "Safe Harbor Lease" provisions of
Section 168(f)(8) of the Internal Revenue Code prior to repeal by the Tax Equity
and Fiscal Responsibility Act of 1982.
3.15.8 TAX EXEMPT ENTITY. None of the assets of the Company
and none of the Assets are subject to a lease to a "tax exempt entity" as such
term is defined in Section 168(h)(2) of the Internal Revenue Code.
3.15.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented to have the provisions of Section 341(f)(2) of the Internal
Revenue Code apply to it.
3.15.10 BOYCOTTS. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.15.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by the Company will be characterized as an "excess
parachute payment" within the meaning of Section 28OG(b)(1) of the Internal
Revenue Code.
3.15.12 S CORPORATION. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
3.15.13 PERSONAL SERVICE CORPORATION. The Company is not a
personal service corporation subject to the provisions of Section 269A of the
Internal Revenue Code.
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3.15.14 PERSONAL HOLDING COMPANY. The Company is not or has
not been a personal holding company within the meaning of Section 542 of the
Internal Revenue Code.
SECTION 3.16 COMPLIANCE WITH LAWS. The Company has complied with all
applicable laws, and regulations and has filed with the proper authorities all
necessary statements and reports except where the failure to so comply or file
would not, individually or in the aggregate, result in a Material Adverse
Effect. There are no existing violations by the Company of any federal, state or
local law or regulation that is reasonably likely, individually or in the
aggregate, to result in a Material Adverse Effect. The Company possesses all
necessary licenses, franchises, permits and governmental authorizations for the
conduct of the Company's business as now conducted, all of which are listed
(with expiration dates, if applicable) in the Company Disclosure Schedules. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government authorizations,
except for any such default, breach or violation that would not, individually or
in the aggregate, have a Material Adverse Effect. Since April 30, 1994, the
Company has not received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that its operations or any of
its properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except where
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 3.17 FINDER'S FEE. The Company has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.18 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of the
Company threatened, against the Company which (i) if successful are reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect or
(ii) could adversely affect the ability of the Company to effect the
transactions contemplated hereby. The Company is not (a) subject to any
continuing court or administrative order, judgment, writ, injunction or decree
applicable specifically to the Company or to its business, assets, operations or
employees or (b) in default with respect to any such order, judgment, writ,
injunction or decree. The Company has no actual knowledge of any valid basis for
any such action, proceeding or investigation. All claims made or threatened
against the Company in excess of its deductible are covered under its Insurance
Policies.
SECTION 3.19 CONDITION OF FIXED ASSETS. All of the material structures
and equipment reflected in the Financial Statements and used by the Company in
its business are in good condition and repair, subject to normal wear and tear,
and conform in all material respects with all applicable ordinances, regulations
and other laws, and the Company has no actual knowledge of any latent defects
therein.
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SECTION 3.20 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind has been declared or paid by the Company on any Company
Capital Stock since the Company Balance Sheet Date. No repurchase of any Company
Capital Stock has been approved, effected or is pending, or is contemplated by
the Board of Directors of the Company.
SECTION 3.21 BANKING RELATIONS. Set forth in the Company Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.) and
the person or persons authorized in respect thereof.
SECTION 3.22 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS.
To the best knowledge of the Company, no officer, supervisory employee or
director of the Company, or their respective spouses, children or Affiliates,
owns directly or indirectly, on an individual or joint basis, any interest in,
has a compensation or other financial arrangement with, or serves as an officer
or director of, any customer or supplier of the Company or any organization that
has a material contract or arrangement with the Company, except for ownership of
less than 5% of the stock of any public corporation.
SECTION 3.23 ENVIRONMENTAL MATTERS. To the best knowledge of the
Company, the Company is not currently in violation of, or subject to any
existing, pending or, to the actual knowledge of the Company, threatened
investigation or inquiry by any governmental authority or to any remedial
obligations under, any Environmental Laws, except for any such violations,
investigations or inquiries that would not, individually or in the aggregate,
result in a Material Adverse Effect.
SECTION 3.24 CERTAIN PAYMENTS. Neither the Company nor any director,
officer or employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company:
3.24.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.24.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company that, except as set
forth in the Purchaser Disclosure Schedules, the following are true and correct
as of the date hereof:
SECTION 4.1 ORGANIZATION AND GOOD STANDING. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to carry on the
business in which it is engaged, to own the properties it owns, to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
SECTION 4.2 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Purchaser of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by Purchaser. This Agreement and each other
agreement contemplated hereby to be executed by Purchaser have been or will be
as of the Closing Date duly executed and delivered by Purchaser and constitute
or will constitute legal, valid and binding obligations of Purchaser,
enforceable against Purchaser in accordance with their respective terms, except
as may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 4.3 FINDER'S FEE. Purchaser has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 4.4 RESERVED.
SECTION 4.5 FILINGS. To the best knowledge of Purchaser, the
information or documents to be included in the Registration Statement, by
exhibit or otherwise, except for such portions thereof as are based on the
information or documents supplied by the Company, shall not, at the time the
Registration Statement and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, to the best knowledge of Purchaser,
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 the light of the circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS OF THE COMPANY
The Company agrees that between the date hereof and the Closing:
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SECTION 5.1 CONSUMMATION OF AGREEMENT. The Company shall use its best
efforts to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions; provided, however, that this
covenant shall not require the Company to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
Accordingly, the Company shall call a meeting of the Stockholders, to be held
prior to the anticipated Closing Date, to consider the transactions contemplated
hereby and, subject to the limitations of fiduciary duty, shall make reasonable
efforts to solicit Stockholder approval of such transactions in accordance with
applicable law and the Company's Articles of Incorporation and Code of
Regulations.
SECTION 5.2 BUSINESS OPERATIONS. The Company shall operate its business
in the ordinary course. The Company shall use reasonable efforts to preserve the
business of the Company intact. The Company shall use reasonable efforts to
preserve intact its relationships with customers, suppliers, employees and
others having significant business relations with it, unless doing so would
impair its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its trade
payables in the ordinary course of business consistent with past practice.
SECTION 5.3 ACCESS. The Company shall, at reasonable times during
normal business hours and on reasonable notice, permit Purchaser and its
authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Purchaser and its authorized
representatives to inspect and, at Purchaser's sole cost and expense, make
copies of all documents, records and information with respect to the affairs of
the Company as Purchaser and its representatives may request, all for the sole
purpose of permitting Purchaser to become familiar with the business and assets
and liabilities of the Company. In the event this Agreement is terminated prior
to the Closing Date, Purchaser shall promptly return any such documents, records
and information or copies thereof in its possession and thereafter shall not use
such documents, records, information or copies for any purpose whatsoever.
SECTION 5.4 NOTIFICATION OF CERTAIN MATTERS. The Company shall promptly
inform Purchaser in writing of (a) any notice of or other communication relating
to, a default or event that, with notice or lapse of time or both, would become
a default, received by the Company subsequent to the date of this Agreement and
prior to the Closing Date under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or business
and to which it is subject; or (b) any material adverse change in the Company's
condition (financial or otherwise), operations, assets, liabilities or business.
SECTION 5.5 APPROVALS OF THIRD PARTIES. The Company shall use its best
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated hereby, including, without limitation, all necessary approvals and
consents required under any real property and personal property leases;
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provided, however, that this covenant shall not require the Company to make any
material expenditures that are not expressly set forth in this Agreement or
otherwise contemplated herein.
SECTION 5.6 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of Purchaser, except in the ordinary course of business, or as
required by law or as would not have a Material Adverse Effect:
5.6.1 increase the Cash Compensation of any Stockholder or
other employee of the Company (other than in the ordinary course of business and
consistent with past practice);
5.6.2 adopt, amend or terminate any Compensation Plan;
5.6.3 adopt, amend or terminate any Employment Agreement;
5.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
5.6.5 adopt, amend or terminate any Employee Benefit Plan;
5.6.6 take any action that could deplete the assets of any
Employee Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
5.6.7 fail to pay any premium or contribution due or with
respect to any Employee Benefit Plan;
5.6.8 fail to file any return or report with respect to any
Employee Benefit Plan;
5.6.9 institute, settle or dismiss any employment litigation
except as could not, individually or in the aggregate, result in a Material
Adverse Effect;
5.6.10 enter into, modify, amend or terminate any agreement
with any union, labor organization or collective bargaining unit; or
5.6.11 take or fail to take any action with respect to any
past or present employee of the Company that would, individually or in the
aggregate, result in a Material Adverse Effect.
SECTION 5.7 CONTRACTS. Except with Purchaser's prior written consent
(not to be withheld unreasonably) or in the ordinary course of business, the
Company shall not assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale that is material to the Company's
business, nor will it waive any material right or cancel any material contract,
debt or claim.
SECTION 5.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall
not, without the prior written approval of Purchaser (not to be withheld
unreasonably) (a) acquire or dispose of
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any capital asset having a fair market value of $35,000 or more, or acquire or
dispose of any capital asset outside of the ordinary course of business or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the Financial
Statements or (ii) current liabilities and obligations incurred in the usual and
ordinary course of business since the Company Balance Sheet Date and, in either
case (i) or (ii) above, only as required by the express terms of the agreement
or other instrument pursuant to which the liability or obligation was incurred.
SECTION 5.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not,
without the prior written approval of Purchaser (not to be withheld
unreasonably), enter into or assume any mortgage, pledge, conditional sale or
other title retention agreement, permit any security interest, lien, encumbrance
or claim of any kind to attach to any of its assets (other than statutory liens
arising in the ordinary course of business and other liens that do not
materially detract from the value or interfere with the use of such assets),
whether now owned or hereafter acquired, or guarantee or otherwise become
contingently liable for any obligation of another, except obligations arising by
reason of endorsement for collection and other similar transactions in the
ordinary course of business, or make any capital contribution or investment in
any person.
SECTION 5.10 ACQUISITION PROPOSALS.
5.10.1 SOLICITED PROPOSALS. The Company agrees that from and
after the date of this Agreement (a) neither the Company nor any of its officers
and directors shall, and the Company shall direct and use its best efforts to
cause the Company's employees, agents and representatives not to, initiate,
solicit or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its Stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) that the Company will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing and
each will take the necessary steps to inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 6.10; and (c) that the Company will notify Purchaser immediately if any
material inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Company.
5.10.2 OTHER POTENTIAL BIDDERS. Notwithstanding anything to
the contrary in Section 5.10.1 above, the Company may, directly or indirectly,
furnish information and access, in each case in response to requests therefor
which are not solicited by the Company nor any of its officers or directors or,
to the actual knowledge of the Company, the Company's employees, agents or
representatives (collectively for purposes of this Section 5.10.2, "Company
Contacts") after the date
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hereof (including any such request from any corporation, partnership, person, or
other entity or group contacted by the Company Contacts prior to the date
hereof), to any corporation, partnership, person, or other entity or group
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with such entity or group concerning any merger, sale
of assets, sale of shares of Company Capital Stock or similar transaction, if
the Company's Board of Directors determines in its good faith judgment that such
action is appropriate in furtherance of the best interests of the Stockholders.
In addition, the Company shall direct its officers and other appropriate
personnel to cooperate with and be reasonably available to consult with any such
entity or group.
SECTION 5.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind will be declared or paid by the Company in respect of
Company Capital Stock, nor will any repurchase of any Company Capital Stock be
approved or effected.
ARTICLE VI
COVENANTS OF PURCHASER
Purchaser agrees that between the date hereof and the Closing:
SECTION 6.1 CONSUMMATION OF AGREEMENT. Purchaser shall use its best
efforts to cause the consummation of the transactions contemplated hereby in
accordance with their terms and conditions and take all corporate and other
action necessary to approve the transactions contemplated hereby, including,
without limitation, the consummation of the Initial Public Offering and the
acquisition of all of the Target Companies; provided, however, that this
covenant shall not require Purchaser to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
Purchaser will provide the Company copies of all documents filed with the SEC in
connection with the Initial Public Offering when filed and copies of all
comments and other correspondence received from the SEC with respect thereto.
SECTION 6.2 REQUIREMENTS TO EFFECT ACQUISITION. Purchaser will use its
best efforts to take, or cause to be taken, all actions necessary to effect the
transactions contemplated hereby under applicable law, including, without
limitation, the consummation of the Initial Public Offering, the acquisition of
all of the Target Companies, the filing with the appropriate government
officials of the Registration Statement and responses to SEC comments thereon,
and all other documents necessary in connection with any of the foregoing in the
form approved by counsel for the parties to this Agreement.
SECTION 6.3 ACCESS. Purchaser shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company, and its authorized
representatives reasonable access to, and make available for inspection, all of
the assets and business of Purchaser, including its employees, and permit the
Company, and its authorized representatives to inspect and, at the Company's
sole expense, make copies of all documents, records and information with respect
to the
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affairs of Purchaser as the Company and its representatives may request
(including documents, records and information pertaining to or generated in
connection with any Target Company, except as may be prohibited by
confidentiality agreements to which Purchaser is a party), all for the sole
purpose of permitting the Company to become familiar with the business and
assets and liabilities of Purchaser.
SECTION 6.4 NOTIFICATION OF CERTAIN MATTERS. Purchaser shall promptly
inform the Company in writing of (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by Purchaser subsequent to the date of this
Agreement and prior to the Closing Date under any Purchaser Commitment material
to Purchaser's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; or (b) any material adverse
change in Purchaser's condition (financial or otherwise), operations, assets,
liabilities or business.
SECTION 6.5 APPROVALS OF THIRD PARTIES. Purchaser shall use its best
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated hereby.
SECTION 6.6 OFFERS OF EMPLOYMENT. The Purchaser shall make offers of
employment to all or substantially all of the employees on the Company's payroll
as of the Closing Date on terms and conditions substantially similar to the then
current terms and conditions of their employment with the Company, provided
however, that nothing herein shall be construed so as to provide any employee of
the Company any guaranty of continued employment or to impose any additional
obligation on the Purchaser with respect thereto.
SECTION 6.7 EXECUTIVE RETENTION AGREEMENTS. The Company has entered
into separate Executive Retention Agreements, each dated August 24, 1994 (the
"Company Retention Agreements"), with Scott D. Watkins and Newton D. Baker (each
a "Designated Employee"), which Company Retention Agreements are appended hereto
as Exhibit 7.3. At Closing, Purchaser shall assume all obligations of the
Company under the Company Retention Agreements, except as otherwise set forth in
those certain Employment Agreements between Purchaser and each of the Designated
Employees, and delivered pursuant to Section 10.1.10 hereof.
ARTICLE VII
COVENANTS OF ALL PARTIES
Purchaser and the Company agree as follows:
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SECTION 7.1 FILINGS; OTHER ACTION.
7.1.1 The Company shall cooperate with Purchaser by promptly
providing information reasonably requested and required by Purchaser in
connection with the preparation and filing by Purchaser with the SEC of the
Registration Statement on Form S-1 (or other appropriate Form) in connection
with its Initial Public Offering (including the prospectus constituting a part
thereof, the "Registration Statement"). Purchaser shall obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and the Company shall furnish
all information concerning the Company as may be reasonably requested in
connection with any such action.
7.1.2 None of the information or documents supplied or to be
supplied by each of the Company and Purchaser specifically for inclusion in the
Registration Statement, by exhibit or otherwise, will, at the time the
Registration Statement and each amendment and supplement thereto, if any,
becomes effective under the Securities Act, 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 the light of the circumstances
under which they were made, not misleading. The Company and Purchaser shall
agree as to the information and documents supplied by the Company for inclusion
in the Registration Statement and shall indicate such information and documents
in a letter to be delivered at Closing (the "Information Letter"). The Company
shall be entitled to review the Registration Statement and each amendment
thereto, if any, and any SEC comments thereon and Purchaser's responses thereto
prior to the time each becomes effective under the Securities Act.
7.1.3 The Company shall, upon request, furnish Purchaser with
all information concerning the Company, its subsidiaries, directors, officers,
partners and Stockholders and such other matters as may be reasonably requested
by Purchaser in connection with the preparation of the Registration Statement
and each amendment or supplement thereto, or any other statement, filing, notice
or application made by or on behalf of each such party or any of its
subsidiaries to any governmental entity in connection with the transactions
contemplated by this Agreement.
7.1.4 Purchaser hereby releases the Company from, agrees that
the Company shall not be liable for, and agrees to hold the Company harmless
against, any damages, costs, liability, expenses and claims that may be
occasioned by any cause whatsoever pertaining to and arising out of the
information or documents included in the Registration Statement, by exhibit or
otherwise, except for such portions thereof as are based on information or
documents supplied by the Company.
SECTION 7.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly (i) in the case of Purchaser, the Purchaser
Disclosure Schedules and (ii) in the case of the Company, the Company Disclosure
Schedules with respect to any matter that would have been or would be required
to be set forth or described in the Schedules in order to not materially breach
any representation, warranty or covenant of such party contained herein;
provided that, no amendment or supplement to a Schedule that
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constitutes or reflects a material adverse change to the Company may be made
unless Purchaser consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Purchaser may be made unless the Company consents to such amendment or
supplement. For all purposes of this Agreement, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.2. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.2 and Purchaser does not consent to such amendment or
supplement, or Purchaser seeks to amend or supplement a Schedule pursuant to
this Section 7.2 and the Company and the Stockholder do not consent, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1.1 hereof.
ARTICLE VIII
CONDITIONS PRECEDENT OF PURCHASER
Except as may be waived in writing by Purchaser, the obligations of
Purchaser hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 8.1 DUE DILIGENCE. Purchaser shall have completed its due
diligence review of the Company and shall be satisfied with the results thereof.
SECTION 8.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained herein shall have been true and correct in
all respects when initially made and shall be true and correct in all material
respects as of the Closing Date (except for changes arising in the ordinary
course of business which are not prohibited by this Agreement and which do not
have a Material Adverse Effect.
SECTION 8.3 COVENANTS. The Company shall have performed and complied in
all material respects with all covenants required by this Agreement to be
performed and complied with by the Company or the Stockholders prior to the
Closing Date.
SECTION 8.4 LEGAL OPINION. Counsel to the Company shall have delivered
to Purchaser its opinion, dated as of the Closing Date, in form and substance
reasonably satisfactory to Purchaser, to the effect set forth in Exhibit 8.4.
SECTION 8.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
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SECTION 8.6 NO MATERIAL ADVERSE CHANGE. No change with a Material
Adverse Effect shall have occurred since the Company Balance Sheet Date, whether
or not such change shall have been caused by the deliberate act or omission of
the Company.
SECTION 8.7 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Purchaser shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby. The Purchaser Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
SECTION 8.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Purchaser's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Purchaser and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the Closing.
SECTION 8.9 CLOSING DELIVERIES. Purchaser shall have received all
documents and agreements, duly executed and delivered in form satisfactory to
Purchaser, referred to in Section 10.1.
ARTICLE IX
CONDITIONS PRECEDENT OF THE COMPANY
Except as may be waived in writing by the Company, the obligations of
the Company hereunder are subject to fulfillment at or prior to the Closing Date
of each of the following conditions:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained herein shall be true and correct in all
respects when initially made and shall be true and correct in all respects as of
the Closing Date.
SECTION 9.2 COVENANTS. Purchaser shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed and complied with by it prior to the Closing Date.
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SECTION 9.3 LEGAL OPINION.
9.3.1 Counsel to Purchaser shall have delivered to the Company
its opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company, to the effect set forth in Exhibit 9.3.1.
SECTION 9.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 9.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company and
Purchaser shall have obtained all necessary government and other third party
approvals and consents.
SECTION 9.6 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Purchaser shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby. At or prior to the Closing Date, the Purchaser Common Stock
shall have been approved for listing on The Nasdaq National Market, subject only
to official notification of issuance.
SECTION 9.7 CLOSING DELIVERIES. The Company shall have received all
documents and agreements, duly executed and delivered in form satisfactory to
the Company, referred to in Section 10.2.
SECTION 9.8 STOCKHOLDER APPROVAL. The Stockholders shall have approved
all transactions contemplated under this Agreement to be carried out by the
Company.
SECTION 9.9 OCE TRANSACTION. The Oce Agreement shall be in full force
and effect and all actions shall have been taken so that the Oce Transaction can
be consummated promptly after the Closing.
ARTICLE X
CLOSING DELIVERIES
SECTION 10.1 DELIVERIES OF THE COMPANY. At or prior to the Closing
Date, the Company shall deliver to Purchaser c/o Dinsmore & Shohl LLP, counsel
to Purchaser, the following, all of which shall be in form and substance
satisfactory to Purchaser:
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10.1.1 a copy of resolutions of the Board of Directors and the
Stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the transactions contemplated hereby, each certified by the Secretary of the
Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
10.1.2 a certificate of the President of the Company, dated
the Closing Date, as to the truth and correctness in all material respects of
the representations and warranties of the Company contained herein on and as of
the Closing Date;
10.1.3 a certificate of the President of the Company, dated
the Closing Date, (i) as to the performance of and compliance in all material
respects by the Company with all covenants contained herein on and as of the
Closing Date and (ii) certifying that all conditions precedent of the Company to
the Closing have been satisfied;
10.1.4 a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of such
corporation and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of that corporation;
10.1.5 The Company shall execute, acknowledge and deliver the
following documents relating to title of the Assets:
(i) deeds, bills of sale and assignments sufficient
to convey to Purchaser good, valid and marketable fee simple to all Assets free
and clear of all liens, mortgages, pledges, encumbrances, security interests,
covenants, easements, right of way, equities, options, rights of first refusal
restrictions, special tax or governmental assessments, defects in title and
other burdens, except for exceptions permitted by Purchaser; and
(ii) an assignment and assumption agreement whereby
the Company shall convey and Purchaser shall assume and covenant to fully
perform and comply with the Assumed Liabilities, including but not limited to,
the assumption of the Retention Agreements.
10.1.6 an opinion of Taft, Stettinius & Hollister, counsel to
the Company, dated as of the Closing Date, pursuant to Section 8.4;
10.1.7 all necessary authorizations, consents, approvals,
permits and licenses, including without limitation, those necessary for the
assignment of the Company's real property leases and the Contracts;
10.1.8 the Information Letter required by Section 7.1.2;
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10.1.9 such other instrument or instruments of transfer
prepared by Purchaser as shall be necessary or appropriate, as Purchaser or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement; and
10.1.10 Employment Agreements between the Designated Employees
and Purchaser in substantially the form attached hereto as Exhibit 10.1.10.
SECTION 10.2 DELIVERIES OF PURCHASER. At or prior to the Closing Date,
Purchaser shall deliver to the Company c/o Dinsmore & Shohl LLP, counsel to
Purchaser, the following, all of which shall be in a form satisfactory to the
Company;
10.2.1 a copy of the resolutions of the Board of Directors of
Purchaser authorizing the execution, delivery and performance of this Agreement,
and all related documents and agreements, certified by Purchaser's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
10.2.2 a certificate of an officer of Purchaser dated the
Closing Date as to the truth and correctness of the representations and
warranties of Purchaser contained herein on and as of the Closing Date;
10.2.3 a certificate of an officer of Purchaser dated the
Closing Date, (i) as to the performance and compliance by Purchaser with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Purchaser to the Closing have been satisfied;
10.2.4 a certificate of the Secretary of Purchaser certifying
as to the incumbency of the officers of Purchaser who have executed documents
delivered at the Closing on behalf of Purchaser;
10.2.5 an assignment and assumption agreement whereby
Purchaser shall assume and covenant to fully perform and comply with the Assumed
Liabilities, including but not limited to, the assumption of the Retention
Agreements;
10.2.6 an opinion of Dinsmore & Shohl LLP, counsel to
Purchaser, dated as of the Closing Date, pursuant to Section 9.3.1:
10.2.7 the Purchase Price payable at Closing; and
10.2.8 such other instrument or instruments of transfer,
prepared by the Company as shall be necessary or appropriate, as the Company or
their counsel shall reasonably request, to carry out and effect the purpose and
intent of this Agreement.
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ARTICLE XI
POST CLOSING MATTERS
SECTION 11.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the reasonable request of Purchaser or of the Company, and in each case at
Purchaser's sole cost and expense, the Company or Purchaser, as the case may be,
shall deliver any further instruments of transfer and take all reasonable action
as may be necessary or appropriate to carry out the purpose and intent of this
Agreement.
ARTICLE XIV
TERMINATION
SECTION 12.1 TERMINATION. This Agreement may be terminated and the
transaction contemplated by this Agreement may be abandoned:
12.1.1 at any time prior to the Closing Date by mutual
agreement of all parties;
12.1.2 at any time prior to the Closing Date by Purchaser if
any representation or warranty of the Company contained in this Agreement or in
any certificate or other document executed and delivered by the Company pursuant
to this Agreement is or becomes untrue or breached in any material respect or if
the Company fails to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 20 days after receipt of
written notice thereof;
12.1.3 at any time prior to the Closing Date by the Company if
any representation or warranty of Purchaser contained in this Agreement or in
any certificate or other document executed and delivered by Purchaser pursuant
to this Agreement is or becomes untrue in any material respect or if Purchaser
fails to comply in any material respect with any covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 20 days after receipt of written notice thereof; and
12.1.4 by the Company if (i) its Board of Directors determines
in the exercise of its fiduciary duty that such action is appropriate in
furtherance of the best interests of the Stockholders in order to accept an
alternative proposal permitted by Section 5.10.2, and (ii) the Company pays
Purchaser a cash "break-up" fee of $250,000; and
12.1.5 by Purchaser or the Company if the Closing shall not
have been consummated by December 31, 1997.
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SECTION 12.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Section 2.4 by Purchaser at its election or due to the
intentional non-compliance with Sections 12.1.2 or 12.1.3 above, Purchaser or
the Company, as applicable, shall be entitled to pursue, exercise and enforce
any and all remedies, rights, powers and privileges available at law or in
equity against the non-complying party. In the event of a termination of this
Agreement under the provisions of this Article or Section 2.4, a party not then
in material breach of this Agreement shall stand fully released and discharged
of any and all obligations under this Agreement; provided, however, that if a
termination of this Agreement occurs pursuant to the last sentence of Section
7.2, the parties hereto shall stand fully released and discharged of any and all
obligations under this Agreement.
ARTICLE XIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 13.1 NONDISCLOSURE. The Company recognizes and acknowledges
that it had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of Purchaser that is valuable,
special and unique assets of Purchaser's business. Purchaser acknowledges that
it has had in the past, currently has, and in the future may possible have,
access to certain Confidential Information of the Company that is valuable,
special and unique assets of the Company's business. The Company and Purchaser
agree that they will not disclose such Confidential Information to any person,
firm, corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Purchaser and (b) to
counsel and other advisers to Purchaser, respectively, provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 13.1, unless (i) such information becomes available to or known by the
public generally through no fault of the Company, or Purchaser, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Company or Purchaser, as the case may be,
shall, if possible, give prior written notice thereof to the Company and
Purchaser and provide the Company or Purchaser with the opportunity to contest
such disclosure, (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, or (iv) the disclosing party is the sole and exclusive owner
of such Confidential Information as a result of the transaction or otherwise.
SECTION 13.2 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, the parties agree that, in the event of a breach by
either of them of the foregoing covenant, the covenant may be enforced against
either of them by injunctions and restraining orders.
SECTION 13.3 SURVIVAL. The obligations of the parties under this
Article XIII shall survive the termination of this Agreement.
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ARTICLE XIV
MISCELLANEOUS
SECTION 14.1 AMENDMENT; WAIVERS. This Agreement may be amended,
modified or supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be in
writing, and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any other
terms and conditions hereof.
SECTION 14.2 ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by Purchaser
to a wholly owned subsidiary of Purchaser (provided that any such assignment
shall not relieve Purchaser of its obligations hereunder) and except that after
the Closing the Company may assign its rights hereunder to its shareholders or a
trust for their benefit pursuant to the Company's Plan of Complete Liquidation
and Dissolution.
SECTION 14.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except
as otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 14.4 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 14.5 SEVERABILITY. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 14.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of the Company contained herein shall
not survive the Closing.
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SECTION 14.7 GOVERNING LAW. This agreement and the rights and
obligations of the parties hereto shall be governed by and construed and
enforced in accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
SECTION 14.8 CAPTIONS. The captions in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
SECTION 14.9 GENDER AND NUMBER. When the context requires, the gender
of all words used herein shall include the masculine, feminine and neuter and
the number of all words shall include the singular and plural.
SECTION 14.10 REFERENCE TO AGREEMENT. Use of the words "herein",
"hereof", "hereto" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular Article,
Section or provision of this Agreement, unless otherwise noted.
SECTION 14.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party
shall keep this Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that Purchaser or the
Company has determined in its good faith judgment to be required by federal
securities laws or the rules of the National Association of Securities Dealers,
(b) to attorneys, accountants, investment bankers or other agents of the parties
assisting the parties in connection with the transactions contemplated by this
Agreement and (c) by Purchaser in connection with the conduct of its Initial
Public Offering and conducting an examination of the operations and assets of
the Company; provided that Purchaser or the Company shall reasonably promptly
provide notice to the other of any release made under this Section 14.11. In the
event that the transactions contemplated hereby are not consummated for any
reason whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the other
parties, except for information that is required by law to be disclosed;
provided that should the transactions contemplated hereby not be consummated,
nothing contained in this Section shall be construed to prohibit the parties
hereto from operating businesses in competition with each other.
SECTION 14.12 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
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If to Purchaser: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company: ACCESS Corporation
4350 Glendale-Milford Road
Cincinnati, Ohio 45242
Fax No.: (513) 786-8363
Attn: Scott D. Watkins
with a copy to: Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202
Fax No.: (513) 381-0205
Attn: Gerald S. Greenberg, Esq.
SECTION 14.13 CHOICE OF FORUM. Each of the parties hereto shall be
subject to the in personam jurisdiction of any state or federal court located in
Hamilton County, State of Ohio.
SECTION 14.14 NO WAIVER; REMEDIES. No party hereto shall by any act
(except by written instrument pursuant to Section 14.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
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SECTION 14.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 14.16 COSTS, EXPENSES AND LEGAL FEES. If the transactions
contemplated hereby are not consummated, each party hereto shall bear its own
costs and expenses (including attorneys' fees) incurred in connection with the
transactions contemplated herein. Provided that the transactions contemplated
hereby are consummated, the Purchaser shall bear the Company's attorneys' fees,
not to exceed $50,000.
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
PURCHASER:
UNIVERSAL DOCUMENT
MANAGEMENT SYSTEMS, INC.
By: _________________________________
Terry L. Theye, President
COMPANY:
ACCESS CORPORATION
By: _________________________________
Scott D. Watkins, President
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ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.3 Allocation of the Purchase Price
Exhibit 7.3 Company Retention Agreements
Exhibit 8.4 Form of Opinion of Company Counsel
Exhibit 9.3.1 Form of Opinion of Purchaser Counsel
Exhibit 10.1.10 Form of Employment Agreements
***
Company Disclosure Schedules:
Schedule 2.1.1(v) Real Property and Leases
Schedule 2.1.1(vi) Intangible Assets
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Corporate Records
Schedule 3.3 Authorization and Validity
Schedule 3.4 No Violation
Schedule 3.5 Consents
Schedule 3.6 Financial Statements
Schedule 3.7 Liabilities and Obligations
Schedule 3.8 Employee Matters
Schedule 3.9 Employee Benefit Plans
Schedule 3.10 Absence of Certain Changes
Schedule 3.11 Title; Leased Assets
Schedule 3.12 Commitments
Schedule 3.13 Insurance
Schedule 3.14 Proprietary Rights and Information
Schedule 3.15 Taxes
Schedule 3.16 Compliance with Laws
Schedule 3.17 Finder's Fee
Schedule 3.18 Litigation
Schedule 3.19 Condition of Fixed Assets
Schedule 3.20 Distributions and Repurchases
Schedule 3.21 Banking Relations
Schedule 3.22 Ownership Interests of Interested Persons;
Affiliations
Schedule 3.23 Environmental Matters
Schedule 3.24 Certain Payments
Purchaser Disclosure Schedules:
Schedule 4.1 Organization and Good Standing
Schedule 4.2 Authorization and Validity
Schedule 4.3 Finder's Fee
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<PAGE> 1
Exhibit 10.2
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and between
DTI TECHNOLOGIES, INC.,
THE UNDERSIGNED STOCKHOLDER THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
Definitions................................................................................................ 1
Section 1.1 Certain General Definitions........................................................... 1
ARTICLE II
The Merger................................................................................................. 4
Section 2.1 The Merger............................................................................ 4
Section 2.2 The Closing........................................................................... 4
Section 2.3 Effective Time........................................................................ 4
Section 2.4 Articles of Incorporation of Surviving Corporation.................................... 5
Section 2.5 Code of Regulations of Surviving Corporation.......................................... 5
Section 2.6 Directors of the Surviving Corporation................................................ 5
Section 2.7 Officers of the Surviving Corporation................................................. 5
Section 2.8 Conversion of Company Capital Stock................................................... 5
Section 2.9 Exchange of Certificates Representing Shares of Company Common Stock.................. 5
Section 2.10 Fractional Shares..................................................................... 6
Section 2.11 Subsequent Actions.................................................................... 6
ARTICLE III
Representations and Warranties of the Company and the Stockholder.......................................... 7
Section 3.1 Organization and Good Standing; Qualification......................................... 7
Section 3.2 Capitalization........................................................................ 7
Section 3.3 Transactions in Capital Stock......................................................... 7
Section 3.4 Continuity of Business Enterprise..................................................... 7
Section 3.5 Corporate Records..................................................................... 7
Section 3.6 Authorization and Validity............................................................ 8
Section 3.7 No Violation.......................................................................... 8
Section 3.8 Consents.............................................................................. 8
Section 3.9 Financial Statements.................................................................. 8
Section 3.10 Liabilities and Obligations........................................................... 9
Section 3.11 Employee Matters...................................................................... 9
3.11.1 Cash Compensation............................................................ 9
3.11.2 Compensation Plans........................................................... 9
3.11.3 Employment Agreements........................................................ 9
3.11.4 Employee Policies and Procedures............................................. 10
3.11.5 Unwritten Amendments......................................................... 10
3.11.6 Labor Compliance............................................................. 10
3.11.7 Unions....................................................................... 10
3.11.8 Aliens....................................................................... 10
Section 3.12 Employee Benefit Plans................................................................ 10
3.12.1 Identification............................................................... 10
3.12.2 Administration............................................................... 11
3.12.3 Examinations................................................................. 11
</TABLE>
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<TABLE>
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3.12.4 Prohibited Transactions...................................................... 11
3.12.5 Claims and Litigation........................................................ 11
3.12.6 Qualification................................................................ 11
3.12.7 Funding Status............................................................... 11
3.12.8 Excise Taxes................................................................. 12
3.12.9 Multiemployer Plans.......................................................... 12
3.12.10 PBGC......................................................................... 12
3.12.11 Retirees..................................................................... 12
Section 3.13 Absence of Certain Changes............................................................ 12
Section 3.14 Title; Leased Assets.................................................................. 14
3.14.1 Real Property................................................................ 14
3.14.2 Personal Property............................................................ 14
3.14.3 Leases....................................................................... 14
Section 3.15 Commitments........................................................................... 14
3.15.1 Commitments; Defaults........................................................ 14
3.15.2 No Cancellation or Termination of Commitment................................. 15
Section 3.16 Insurance............................................................................. 16
Section 3.17 Proprietary Rights and Information.................................................... 16
Section 3.18 Taxes................................................................................. 17
3.18.1 Filing of Tax Returns........................................................ 17
3.18.2 Payment of Taxes............................................................. 17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 17
3.18.4 No Extension of Limitation Period............................................ 17
3.18.5 Withholding Requirements Satisfied........................................... 17
3.18.6 Foreign Person............................................................... 17
3.18.7 Safe Harbor Lease............................................................ 17
3.18.8 Tax Exempt Entity............................................................ 18
3.18.9 Collapsible Corporation...................................................... 18
3.18.10 Boycotts..................................................................... 18
3.18.11 Parachute Payments........................................................... 18
3.18.12 S Corporation................................................................ 18
3.18.13 Personal Service Corporation................................................. 18
3.18.14 Personal Holding Company..................................................... 18
Section 3.19 Compliance with Laws.................................................................. 18
Section 3.20 Finder's Fee.......................................................................... 19
Section 3.21 Litigation............................................................................ 19
Section 3.22 Condition of Fixed Assets............................................................. 19
Section 3.23 Distributions and Repurchases......................................................... 19
Section 3.24 Banking Relations..................................................................... 19
Section 3.25 Ownership Interests of Interested Persons; Affiliations............................... 19
Section 3.26 Investments in Competitors............................................................ 19
Section 3.27 Environmental Matters................................................................. 20
Section 3.28 Certain Payments...................................................................... 20
Section 3.29 No affiliation with NASD Member....................................................... 20
ARTICLE IV
Representations and Warranties of the Stockholder.......................................................... 20
</TABLE>
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Section 4.1 Validity; Stockholder Capacity........................................................ 20
Section 4.2 No Violation.......................................................................... 20
Section 4.3 Personal Holding Company; Control of Related Businesses............................... 21
Section 4.4 Transfers of the Company Capital Stock................................................ 21
Section 4.5 Consents.............................................................................. 21
Section 4.6 Certain Payments...................................................................... 21
Section 4.7 Finder's Fee.......................................................................... 21
Section 4.8 Ownership of Interested Persons; Affiliations......................................... 21
Section 4.9 Investments in Competitors............................................................ 22
Section 4.10 Disposition of Acquiror Shares........................................................ 22
ARTICLE V
Representations and Warranties of Acquiror................................................................. 22
Section 5.1 Organization and Good Standing........................................................ 22
Section 5.2 Capitalization........................................................................ 22
Section 5.3 Corporate Records..................................................................... 22
Section 5.4 Authorization and Validity............................................................ 23
Section 5.5 No Violation.......................................................................... 23
Section 5.6 Finder's Fee.......................................................................... 23
Section 5.7 Capital Stock......................................................................... 23
Section 5.8 Continuity of Business Enterprise..................................................... 23
Section 5.9 Consents.............................................................................. 23
Section 5.10 Proprietary Rights and Information.................................................... 24
Section 5.11 Taxes................................................................................. 24
5.11.1 Filing of Tax Returns........................................................ 24
5.11.2 Payment of Taxes............................................................. 24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 24
5.11.4 No Extension of Limitation Period............................................ 24
5.11.5 All Withholding Requirements Satisfied....................................... 24
5.11.6 Foreign Person............................................................... 24
5.11.7 Safe Harbor Lease............................................................ 25
5.11.8 Tax Exempt Entity............................................................ 25
5.11.9 Collapsible Corporation...................................................... 25
5.11.10 Boycotts..................................................................... 25
5.11.11 Parachute Payments........................................................... 25
5.11.12 S Corporation................................................................ 25
Section 5.12 Compliance with Laws......................................................... 25
Section 5.13 Litigation............................................................................ 25
Section 5.14 Ownership Interests of Interested Persons; Affiliations............................... 26
Section 5.15 Investments in Competitors............................................................ 26
Section 5.16 Certain Payments...................................................................... 26
Section 5.17 Commitments........................................................................... 26
5.17.1 Commitments; Defaults........................................................ 26
5.17.2 No Cancellation or Termination of Acquiror Commitment........................ 27
Section 5.18 Acquiror Financial Statements......................................................... 28
Section 5.19 Liabilities and Obligations........................................................... 28
Section 5.20 Employee Matters...................................................................... 28
</TABLE>
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ARTICLE VI
Covenants of the Company and the Stockholder............................................................... 28
Section 6.1 Consummation of Agreement............................................................. 28
Section 6.2 Business Operations................................................................... 28
Section 6.3 Access................................................................................ 29
Section 6.4 Notification of Certain Matters....................................................... 29
Section 6.5 Approvals of Third Parties............................................................ 29
Section 6.6 Employee Matters...................................................................... 29
Section 6.7 Contracts............................................................................. 30
Section 6.8 Capital Assets; Payments of Liabilities............................................... 30
Section 6.9 Mortgages, Liens and Guaranties....................................................... 30
Section 6.10 Acquisition Proposals................................................................. 31
Section 6.11 Distributions and Repurchases......................................................... 31
Section 6.12 Requirements to Effect the Merger..................................................... 31
Section 6.13 Lockup Agreements..................................................................... 31
ARTICLE VII
Covenants of Acquiror...................................................................................... 31
Section 7.1 Consummation of Agreement............................................................. 32
Section 7.2 Requirements to Effect Merger......................................................... 32
Section 7.3 Access................................................................................ 32
Section 7.4 Notification of Certain Matters....................................................... 32
Section 7.5 Approvals of Third Parties............................................................ 32
ARTICLE VIII
Covenants of all Parties................................................................................... 32
Section 8.1 Filings; Other Action................................................................. 32
Section 8.2 Amendment of Schedules................................................................ 33
Section 8.3 Stockholder Employment Agreements..................................................... 34
ARTICLE IX
Conditions Precedent of Acquiror........................................................................... 34
Section 9.1 Due Diligence......................................................................... 34
Section 9.2 Representations and Warranties........................................................ 34
Section 9.3 Covenants............................................................................. 34
Section 9.4 Legal Opinion......................................................................... 34
Section 9.5 Proceedings........................................................................... 34
Section 9.6 No Material Adverse Change............................................................ 34
Section 9.7 Securities Approvals.................................................................. 35
Section 9.8 Simultaneous Closings................................................................. 35
Section 9.9 Closing Deliveries.................................................................... 35
ARTICLE X
Conditions Precedent of the Company and the Stockholder.................................................... 35
Section 10.1 Representations and Warranties........................................................ 35
Section 10.2 Covenants............................................................................. 35
</TABLE>
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Section 10.3 Legal Opinions........................................................................ 35
Section 10.4 Proceedings........................................................................... 36
Section 10.5 Government Approvals and Required Consents............................................ 36
Section 10.6 Securities Approvals.................................................................. 36
Section 10.7 Closing Deliveries.................................................................... 36
Section 10.8 No Material Adverse Change............................................................ 36
ARTICLE XI
Closing Deliveries......................................................................................... 36
Section 11.1 Deliveries of the Company and the Stockholder......................................... 36
Section 11.2 Deliveries of Acquiror................................................................ 38
ARTICLE XII
Post Closing Matters....................................................................................... 39
Section 12.1 Further Instruments of Transfer....................................................... 39
Section 12.2 Preservation of Tax and Accounting Treatment.......................................... 39
Section 12.3 Merger Tax Covenants.................................................................. 40
ARTICLE XIII
Remedies................................................................................................... 41
Section 13.1 Indemnification by the Stockholder.................................................... 41
Section 13.2 Indemnification by Acquiror........................................................... 42
Section 13.3 Conditions of Indemnification......................................................... 42
Section 13.4 Remedies Not Exclusive................................................................ 44
Section 13.5 Indemnification Limitations........................................................... 45
Section 13.6 Tax Benefits; Insurance Proceeds...................................................... 45
Section 13.7 Payment of Indemnification Obligation................................................. 45
ARTICLE XIV
Termination................................................................................................ 45
Section 14.1 Termination........................................................................... 45
Section 14.2 Effect of Termination................................................................. 46
ARTICLE XV
Nondisclosure of Confidential Information.................................................................. 46
Section 15.1 Nondisclosure......................................................................... 47
Section 15.2 Damages............................................................................... 47
Section 15.3 Survival.............................................................................. 47
ARTICLE XVI
Transfer Restrictions...................................................................................... 47
Section 16.1 Transfer Restrictions................................................................. 47
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock...................................................................... 48
</TABLE>
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Section 17.1 Investment Representation............................................................. 48
Section 17.2 Compliance with Law................................................................... 48
Section 17.3 Economic Risk; Sophistication......................................................... 48
Section 17.4 Accredited Investor Status............................................................ 49
ARTICLE XVIII
Miscellaneous............................................................................................. 49
Section 18.1 Amendment; Waivers.................................................................... 49
Section 18.2 Assignment............................................................................ 49
Section 18.3 Parties In Interest; No Third Party Beneficiaries..................................... 49
Section 18.4 Entire Agreement...................................................................... 49
Section 18.5 Severability.......................................................................... 50
Section 18.6 Survival of Representations, Warranties and Covenants................................. 50
Section 18.7 Governing Law......................................................................... 50
Section 18.8 Captions.............................................................................. 50
Section 18.9 Gender and Number..................................................................... 50
Section 18.10 Reference to Agreement................................................................ 50
Section 18.11 Confidentiality; Publicity and Disclosures............................................ 50
Section 18.12 Notice................................................................................ 51
Section 18.13 Choice of Forum....................................................................... 52
Section 18.14 No Waiver; Remedies................................................................... 52
Section 18.15 Counterparts.......................................................................... 52
Section 18.16 Costs, Expenses and Legal Fees........................................................ 52
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of ________, 1997, is by and among DTI Technologies,
Inc., a New Hampshire corporation (the "Company"), Daniel B. Dolan, the sole
stockholder of the Company (the "Stockholder"), and Universal Document
Management Systems, Inc., an Ohio corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror
have determined that a business combination between the Company and Acquiror is
in the best interests of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic objectives and, accordingly, have agreed to effect the Merger (as
hereinafter defined) upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of", "do
not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no
knowledge of", "do not know of" or "to the knowledge of" and similar phrases
shall mean (i) in the case of a natural person, the particular fact was known,
or not known, as the context requires, to such person after diligent
investigation and inquiry by such person, and (ii) in the case of an entity, the
particular fact was known, or not known, as the context requires, to any
stockholder, director or executive officer of such entity after diligent
investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital
stock of the Company, as set forth in the Company Disclosure Schedules, which
are authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules
of exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholder to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets
and other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. SectionSection9601
et seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. SectionSection6901 et seq., as amended), and regulations promulgated
thereunder, (iii) statutes, rules or regulations, whether federal, state or
local, applicable to the Company's assets or operations that relate to asbestos
or polychlorinated
2
<PAGE> 10
biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company's assets
or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Acquiror Common Stock contemplated by the
Registration Statement.
1.1.11 "Initial Public Offering Price" shall mean the price
per share at which Acquiror Common Stock is offered for sale to the public in
the Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
Merger, and the mergers and acquisitions of entities and assets contemplated by
the Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules
and the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Acquiror intends to acquire simultaneously with its
acquisition of the Company.
3
<PAGE> 11
1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter
in the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock,
without par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Acquiror to the Company and/or the Stockholder, as such may be
amended or supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Acquiror
in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be
the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of Acquiror with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Ohio General Corporation Law and the New Hampshire
Business Corporation Act.
2.2 THE CLOSING. The Closing shall take place at 10:00 a.m., Cincinnati
time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of
the Target Companies. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Articles IX and X shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in
accordance with Article XIV, the parties hereto shall cause to be
properly executed and filed on the Closing Date Articles of Merger
meeting the requirements of Section 11.05 of the New Hampshire Business
Corporation Act and a Certificate of Merger meeting the requirements of
Section 1701.79 of the Ohio Revised Code. The Merger shall become
effective at the time of the filing of such document with the
Secretaries of State of
4
<PAGE> 12
New Hampshire and Ohio, in accordance with such laws or at such later
time which the parties hereto have theretofore agreed upon and
designated in such filings as the effective time of the Merger (the
"Effective Time").
2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Acquiror in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of Regulations
of Acquiror in effect immediately prior to the Effective Time shall be
the Code of Regulations of the Surviving Corporation until duly amended
in accordance with its terms.
2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are directors
of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation
and Code of Regulations.
2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are officers of
Acquiror immediately prior to the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation and
shall hold their same respective office(s) until their successors have
been duly elected or appointed and qualified or until their earlier
death, resignation or removal.
2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting shares of
the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the
Company's treasury at the Effective Time, by virtue of the Merger, shall cease
to be outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK.
5
<PAGE> 13
2.9.1 At or after the Effective Time and at Closing (i) the
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by the Stockholder and replaced by a certificate or
certificates representing Acquiror Common Stock, the certificate or certificates
for Company Capital Stock shall, for all purposes be deemed to evidence
ownership of the number of shares of Acquiror Common Stock determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto. All shares of
Acquiror Common Stock issuable to the Stockholder in the Merger shall be deemed
for all purposes to have been issued by Acquiror at the Effective Time.
2.9.2 The Stockholder shall deliver to Acquiror at Closing the
certificate or certificates representing Company Capital Stock owned by him,
duly endorsed in blank by such Stockholder, or accompanied by duly endorsed
stock powers in blank, and with all necessary transfer tax and other revenue
stamps, acquired at such Stockholder's expense, affixed and canceled. The
Stockholder agrees to cure any deficiencies with respect to the endorsement of
the certificates or other documents of conveyance with respect to such Company
Capital Stock or with respect to the stock powers accompanying any Company
Capital Stock. Upon such delivery, The Stockholder shall receive in exchange
therefor a certificate representing that number of shares of Acquiror Common
Stock and the amount of cash or other immediately available funds, if any, such
Stockholder is entitled to receive pursuant hereto.
2.10 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of
Acquiror Common Stock but for this Section 2.10 will be entitled to
receive a cash payment in lieu thereof reflecting such Stockholder's
proportionate interest in a share of Acquiror Common Stock multiplied
by the Initial Public Offering Price.
2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of any of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out
this Agreement, and to effect the cancellation of all outstanding
shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving
Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on
behalf of the Company, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on
behalf of the Company, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.
6
<PAGE> 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
The Company and the Stockholder, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its state of organization, with all requisite corporate
power and authority to carry on the business in which it is engaged, to
own the properties it owns, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The Company is not
duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state
other than the state of its organization.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
the Company is set forth in the Company Disclosure Schedules. The
Stockholder owns all of the issued and outstanding Company Capital
Stock, free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies and shareholders' agreements. Each
outstanding share of Company Capital Stock has been legally and validly
issued and is fully paid and nonassessable. No shares of Company
Capital Stock are owned by the Company in treasury. No shares of
Company Capital Stock have been issued or disposed of in violation of
the preemptive rights, rights of first refusal or similar rights of any
of the Company's stockholders. The Company has no bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or are convertible into or exercisable for securities having the right
to vote) with the Stockholder on any matter.
3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any Company
Capital Stock since January 1, 1993. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding
securities of the Company, and no option, warrant, call, conversion
right or commitment of any kind exists which obligates the Company to
issue any of its authorized but unissued capital stock. The Company has
no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein
or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been altered or changed in
contemplation of the Merger within the two years preceding the date of
this Agreement.
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3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any sale,
distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the
two years preceding the date of this Agreement.
3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation and
Bylaws, and all amendments thereto, of the Company that have been
delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of
the Company, copies of which have been delivered or made available to
Acquiror, contain accurate minutes of all meetings of, and accurate
consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the
Company since its formation.
3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
the Company of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The Company
has obtained, in accordance with applicable law and its Articles of
Incorporation and Bylaws, the approval of its stockholders necessary to
the consummation of the transactions contemplated hereby.
3.7 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the
Articles of Incorporation or Bylaws of the Company, (b) except as would
not, individually or in the aggregate, result in a Material Adverse
Effect, conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, any
agreement, indenture or other instrument under which the Company is
bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of the assets of the Company or (c) to
the knowledge of the Company, except as would not, individually or in
the aggregate, result in a Material Adverse Effect, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
3.8 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the New Hampshire Business
Corporation Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person or
entity is required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the
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Company, other than such consents as to which the failure to obtain
would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror its: (i)
audited balance sheet (the "Company Balance Sheet") as of December 31,
1996 (the "Company Balance Sheet Date") and 1995, and the related
audited statements of operations, stockholders' equity and cash flows
for its three full fiscal years ended December 31, 1996; and (ii)
unaudited balance sheet as of June 30, 1997 and related unaudited
statements of operations, stockholders' equity and cash flows for the
six months ended June 30, 1997 and 1996 (collectively, with the related
notes thereto, the "Financial Statements"), copies of all of which are
included in the Company Disclosure Schedules. The Financial Statements
fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated and have been
prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments and the absence of notes for
any unaudited interim financial statement for any interim periods
presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements.
3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect all
liabilities of the Company, accrued, contingent or otherwise that would
be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles. Except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in
any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any
amount.
3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of December 31, 1996, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
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ownership or stock options. The Company has provided or made available to
Acquiror a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Each of the Compensation Plans can be
terminated or amended at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to
any employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company
Disclosure Schedules contain a complete and accurate list of all employee
manuals and all material policies, procedures and work-related rules (the
"Employee Policies and Procedures") that apply to employees of the Company. The
Company has provided or made available to Acquiror a copy of all written
Employee Policies and Procedures and a written description of all material
unwritten Employee Policies and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. The
Company has not been advised by any employee that he or she is represented by
any union, labor organization or collective bargaining unit. To the actual
knowledge of the Company, none of the employees of the Company has threatened to
organize or join a union, labor organization or collective bargaining unit.
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3.11.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules
contain a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that to the
knowledge of the Company constitute Employee Benefit Plans. Subject to the
requirements of the Internal Revenue Code and ERISA, each of the Employee
Benefit Plans can be terminated or amended at will by the Company. No unwritten
amendment exists with respect to any Employee Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholder have made all necessary filings,
reports and disclosures pursuant to and have complied with all requirements of
the IRS Voluntary Compliance Resolution Program with respect to all applicable
Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the
Company, no prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the
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meaning of Section 401(a) of the Internal Revenue Code and/or tax-exempt within
the meaning of Section 501 (a) of the Internal Revenue Code. No proceedings
exist or, to the actual knowledge of the Company, have been threatened that
could result in the revocation of any such favorable determination letter or
ruling.
3.12.7 FUNDING STATUS. No accumulated funding deficiency
(within the meaning of Section 412 of the Internal Revenue Code), whether or not
waived, exists with respect to any Employee Benefit Plan or any plan sponsored
by any member of a controlled group (within the meaning of Section 412(n)(6)(B)
of the Internal Revenue Code) in which the Company is a member (a "Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the
Employee Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
3.13 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997, the Company has not
3.13.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any single capital asset
having a cost in excess of $25,000 or made any single capital expenditure in
excess of $25,000;
3.13.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
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3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due
date except for the purpose of taking advantage of prepayment discounts,
forgiven or cancelled any claims or any debt in excess of $5,000, or released or
waived any rights or claims except in the ordinary course of business;
3.13.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate
value in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of
its assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.13.12 except in the ordinary course of business consistent
with past practice, increased the compensation of any director, officer, key
employee or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation,
exclusive of commissions, of at least $50,000;
3.13.14 except in the ordinary course of business consistent
with past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
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3.13.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such capital stock,
securities or rights;
3.13.17 entered into any agreement providing for total
payments in excess of $5,000 in any 12 month period with any person or group, or
modified or amended in any material respect the terms of any such existing
agreement, except in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or the other agreements contemplated hereby;
or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.14.3 constitute the only personal property necessary for the
conduct of the Company's business. Upon consummation of the transactions
contemplated hereby, such interest in the Personal Property shall be free and
clear of all security interests, liens, claims and encumbrances, other than
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases
of real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
3.15 COMMITMENTS.
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3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to
which the Company is a party or is bound by, or which any of the shares of
Company Capital Stock are subject to, or which the assets or the business of the
Company are bound by, whether or not in writing, are listed in the Company
Disclosure Schedules (collectively "Commitments"):
3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification
or contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 days' notice or without
penalty;
3.15.1.6 any agreement relating to any material
matter or transaction in which an interest is held by a person or entity that is
an Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition
covenants;
3.15.1.10 any agreement providing for the purchase
from a supplier of all or substantially all of the requirements of the Company
of a particular product or service; or
3.15.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of the
Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
Company or, to the best knowledge of the Company, any other party to a material
Commitment, and
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no penalties have been incurred nor are amendments pending, with respect to the
material Commitments. The Commitments are in full force and effect and are valid
and enforceable obligations of the Company and, to the best knowledge of the
Company, the other parties thereto in accordance with their respective terms, in
each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of the Company, may be made by any party thereto (other than
the Company), nor has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither
the Company nor any Stockholder has received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described in the Company
Disclosure Schedules (the "Insurance Policies"). The Insurance Policies
are all of insurance polices relating to the business of the Company.
All of the Insurance Policies are issued by insurers of recognized
responsibility, and, to the best knowledge of the Company, are valid
and enforceable policies, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance
Policies, or replacement policies providing at least equivalent
coverage, shall be maintained in force without interruption up to and
including the Closing Date. True, complete and correct copies of all
Insurance Policies have been provided or made available to Acquiror.
Neither the Company nor the Stockholder has received any notice or
other communication from any issuer of any Insurance Policy canceling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums
payable thereunder, and to the actual knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is
threatened. There are no outstanding claims, settlements or premiums
owed against any Insurance Policy, or the Company has given all notices
or has presented all potential or actual claims under any Insurance
Policy in due and timely fashion. The Company Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of
$10,000 per occurrence filed by the Company during the immediately
preceding three-year period.
3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company Disclosure
Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents and applications
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therefor currently owned, in whole or in part, by the Company, and all licenses,
royalties, assignments and other similar agreements relating to the foregoing to
which the Company is a party (including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or
processes that the Company is licensed or authorized to use or sell by others,
or which it licenses or authorizes others to use or sell.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past three taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Company Disclosure Schedules, (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records for all of the same that have not yet become due and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
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3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company
are subject to a lease to a "tax exempt entity" as such term is defined in
Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented, and the Stockholder will not permit the Company to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
3.18.10 BOYCOTTS. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company,
no payment required or contemplated to be made by the Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the
Company, the Company is not or has not been a personal holding company within
the meaning of Section 542 of the Internal Revenue Code.
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3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company has
complied with all applicable laws, and regulations and has filed with
the proper authorities all necessary statements and reports except
where the failure to so comply or file would not, individually or in
the aggregate, result in a Material Adverse Effect. To the knowledge of
the Company, there are no existing violations by the Company of any
federal, state or local law or regulation that could, individually or
in the aggregate, result in a Material Adverse Effect. The Company
possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of the Company's business as now
conducted, all of which are listed (with expiration dates, if
applicable) in the Company Disclosure Schedules. The transactions
contemplated by this Agreement will not result in a default under or a
breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that
would not, individually or in the aggregate, have a Material Adverse
Effect. Since January 1, 1992, the Company has not received any notice
from any federal, state or other governmental authority or agency
having jurisdiction over its properties or activities, or any insurance
or inspection body, that its operations or any of its properties,
facilities, equipment, or business practices fail to comply with any
applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except
where failure to so comply would not, individually or in the aggregate,
have a Material Adverse Effect.
3.20 FINDER'S FEE. The Company has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
3.21 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of the Company
threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the
assets of the Company, or the operation, business, condition (financial
or otherwise), or results of operations of the Company which (i) if,
successful, could, individually or in the aggregate, have a Material
Adverse Effect or (ii) could adversely affect the ability of the
Company or the Stockholder to effect the transactions contemplated
hereby. Neither the Company nor the Stockholder is (a) subject to any
continuing court or administrative order, judgment, writ, injunction or
decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any
such order, judgment, writ, injunction or decree. The Company has no
knowledge of any valid basis for any such action, proceeding or
investigation. All claims made or, to the actual knowledge of the
Company, threatened against the Company in excess of its deductible are
covered under its Insurance Policies.
3.22 CONDITION OF FIXED ASSETS. All of the structures and equipment
reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and
tear, and conform in all material respects with all applicable
ordinances,
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regulations and other laws, and the Company has no actual knowledge of
any latent defects therein.
3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind has been declared or paid by the Company on any of its capital
stock since June 30, 1997. No repurchase of any of the Company's
capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
3.24 BANKING RELATIONS. Set forth in the Company Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements
that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement
maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect
thereof.
3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a
material contract or arrangement with the Company.
3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any Stockholder
owns directly or indirectly any interests or has any investment in any
person that is a competitor of the Company.
3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its assets are
currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations
under, any Environmental Laws as a result of any act or omission of the
Company or the Stockholder, except for any such violations,
investigations or inquiries that would not, individually or in the
aggregate, result in a Material Adverse Effect.
3.28 CERTAIN PAYMENTS. Neither the Company nor any director, officer or
employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with
the business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
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3.29 NO AFFILIATION WITH NASD MEMBER. Neither the Stockholder nor any of the
executive officers or directors of the Company has any affiliation or
association with a member of the National Association of Securities
Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to Acquiror that the following,
except as set forth in the Company Disclosure Schedules are true and correct as
of the date hereof and agrees as follows:
4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the Stockholder
Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will
be as of the Closing Date duly executed and delivered by the
Stockholder and constitute or will constitute legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The
Stockholder has legal capacity to enter into and perform this Agreement
and his Stockholder Employment Agreement.
4.2 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation
of the transactions contemplated hereby or thereby, will (a) conflict
with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture
or other instrument under which the Stockholder is bound or to which
any of his, her or its shares of Company Capital Stock are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of his shares of Company Capital Stock
or (b) to the actual knowledge of the Stockholder, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly
or indirectly, beneficially or of record, through a personal holding
company. The Stockholder does not control another business that is in
the same or similar line of business as the Company or that has or is
engaged in transactions with the Company except transactions in the
ordinary course of business.
4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the Company
Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since
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January 1, 1993. All transfers of Company Capital Stock by the
Stockholder have been made for valid business reasons and not in
anticipation or contemplation of the consummation of the transactions
contemplated by this Agreement.
4.5 CONSENTS. Except as may be required under the Exchange Act, the
Securities Act, the New Hampshire Business Corporation Act and state
securities laws, or otherwise disclosed pursuant to this Agreement, no
consent, authorization, approval, permit or license of, or filing with,
any governmental or public body or authority, or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Stockholder.
4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate
(other than from personal funds not reimbursed by the Company or as otherwise
permitted by applicable law).
4.7 FINDER'S FEE. The Stockholder has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the Stockholder
nor his spouse, children or Affiliates, owns directly or indirectly, on
an individual or joint basis, any interest in, has a compensation or
other financial arrangement with, or serves as an officer or director
of, any customer or supplier of the Company or any organization that
has a material contract or arrangement with the Company.
4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own directly or
indirectly any interests or have any investment in any person that is a
competitor of the Company.
4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not presently
intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or
agreement for the disposition of such shares of Acquiror Common Stock,
except this Agreement and the Registration Rights Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it
owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Acquiror is or shall be as of the
Closing duly qualified and licensed to do business in each jurisdiction
where the conduct of its business or the Target Companies' business and
assets may require qualification and/or licensing.
5.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not
have any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the shareholders of
Acquiror on any matter. There exist no options, warrants, subscriptions
or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of
Acquiror, and no option, warrant, call, conversion right or commitment
of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the
Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay a dividend or make any distribution
in respect thereof. To the best knowledge of Acquiror, no shareholder
of Acquiror has granted options or other rights to purchase any shares
of Acquiror Common Stock from such shareholder.
5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation and Code
of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholder are
true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror, copies of which have been
delivered or made available to the Company and the Stockholder, contain
accurate minutes of all meetings of, and accurate consents to all
actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of Acquiror, since its
formation.
5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Board of Directors and
shareholders of Acquiror. This Agreement and each other agreement
contemplated hereby to be executed by Acquiror have been or will be as
of the Closing Date
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duly executed and delivered by Acquiror and constitute or will
constitute as of the Closing Date legal, valid and binding obligations
of Acquiror, enforceable against Acquiror in accordance with their
respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
5.5 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of Acquiror or any
agreement, indenture or other instrument under which Acquiror is bound
or (b) to the knowledge of Acquiror, except as would not, individually
or in the aggregate, have a Material Adverse Effect on the business,
operations, condition (financial or otherwise) or results of operations
of Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the
properties or assets of Acquiror.
5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares of
Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights,
rights of first refusal or similar rights of any of Acquiror's
shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and
state securities laws.
5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Acquiror to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d).
5.9 CONSENTS. Except as have been obtained or as may be required by or
under the Exchange Act, the Ohio General Corporation Law, the
Securities Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Acquiror.
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5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or use any
trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any
agreement relating to the use of technology or know-how. Acquiror has
the right to use, free and clear of any claims or rights of others, all
trade secrets, customer lists and proprietary information required for
the marketing of all merchandise and services formerly or presently
sold or marketed by it.
5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
tax returns or reports are complete and accurate and properly reflect the taxes
of Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due. Acquiror is not delinquent in the
payment of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by Acquiror and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder
thereof is a foreign person, as such term is referred to in Section 1445(f)(3)
of the Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror
constitute property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by
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another person pursuant to the "Safe Harbor Lease" provisions of Section
168(f)(8) of the Internal Revenue Code prior to repeal by the Tax Equity and
Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by Acquiror will be characterized as an "excess
parachute payment" within the meaning of Section 28OG(b)(1) of the Internal
Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all applicable laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Acquiror of any federal, state or local law or regulation
that could, individually or in the aggregate, result in a Material
Adverse Effect. Acquiror possesses all necessary licenses, franchises,
permits and governmental authorizations for the conduct of its business
as now conducted. The transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses,
franchises, permits or government authorizations except for any
default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror has not received
any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any
insurance or inspection body, that its operations or any of its
properties, facilities, equipment, or business practices fail to comply
with any applicable law, ordinance, regulation, building or zoning law,
or requirement of any public or quasi-public authority or body.
5.13 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of Acquiror
threatened against or affecting Acquiror or which could affect the
outstanding shares of Acquiror Common Stock, any of the assets of
Acquiror, or the operations, business, condition (financial or
otherwise) or results of operations of Acquiror. Acquiror is not (a)
subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to it or to its business,
assets,
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operations or employees or (b) in default with respect to any such
order, writ, injunction or decree. Acquiror has no knowledge of any
valid basis for any such action, proceeding or investigation.
5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of Acquiror, any
organization or person which is directly or indirectly in competition
with Acquiror, or any organization that has a material contract or
arrangement with Acquiror, except Acquiror's corporate parent, MedPlus,
Inc.
5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any shareholder
thereof owns directly or indirectly any interests or has any investment
in any person that is a competitor of Acquiror or one of the Target
Companies.
5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder, director,
officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
5.17.1.4 contract to purchase real property;
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5.17.1.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 day's notice or without penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition
covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of
Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholder.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT.
Except as contemplated hereby, (i) Acquiror has not received notice of any plan
or intention of any other party to any Acquiror Commitment to exercise any right
to cancel or terminate any Acquiror Commitment, and Acquiror does not know of
any fact that would justify the exercise of such a right; and (ii)
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Acquiror does not currently contemplate, or have knowledge that any other person
currently contemplates, any amendment or change to any Acquiror Commitment.
5.18 ACQUIROR FINANCIAL STATEMENTS. The audited year end financial
statements for Acquiror for the two most recent fiscal years and
interim unaudited statements for the month ending prior to the date of
this Agreement are contained in the Acquiror Disclosure Schedules
(collectively, with the related notes thereto, the "Acquiror Financial
Statements"). The Acquiror Financial Statements fairly present the
financial condition and results of operations of Acquiror as of the
dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles (subject to
normal year-end adjustments) applied on a consistent basis with prior
periods, except as otherwise indicated in the Acquiror Financial
Statements.
5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial Statements reflect
all liabilities of Acquiror, accrued, contingent or otherwise, that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the
ordinary course of business since December 31, 1996. Acquiror is not
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner,
any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and
Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
5.20 EMPLOYEE MATTERS. Acquiror does not have any material arrangements,
agreements or plans with any person with respect to the employment by
Acquiror of such person or whereby such person is to serve as an
officer or director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDER
The Company and the Stockholder, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholder agrees to use his best efforts to cause the Company
to perform):
6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholder shall use
their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or
a Stockholder to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
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6.2 BUSINESS OPERATIONS. The Company shall operate its business in the
ordinary course. The Company and the Stockholder shall use their best
efforts to preserve the business of the Company intact. Neither the
Company nor any Stockholder shall take any action that would,
individually or in the aggregate, result in a Material Adverse Effect.
The Company shall use its best efforts to preserve intact its
relationships with customers, suppliers, employees and others having
significant business relations with it, unless doing so would impair
its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past
practice.
6.3 ACCESS. The Company and the Stockholder shall, at reasonable times
during normal business hours and on reasonable notice, permit Acquiror
and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of the
Company, including its employees, and permit Acquiror and its
authorized representatives to inspect and, at Acquiror's sole cost and
expense, make copies of all documents, records and information with
respect to the affairs of the Company as Acquiror and its
representatives may request, all for the sole purpose of permitting
Acquiror to become familiar with the business and assets and
liabilities of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the Stockholder shall
promptly inform Acquiror in writing of (a) any notice of or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company
or any Stockholder subsequent to the date of this Agreement and prior
to the Effective Time under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or
business and to which it is subject; or (b) any material adverse change
in the Company's condition (financial or otherwise), operations,
assets, liabilities or business.
6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholder shall use
their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under
any real property and personal property leases; provided, however, that
this covenant shall not require the Company or the Stockholder to make
any material expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
6.6 EMPLOYEE MATTERS. The Company shall not, without the prior written
approval of Acquiror, which approval shall not be unreasonably
withheld, other than in the ordinary course of business and consistent
with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder
or other employee of the Company;
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6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any Employee
Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with respect to
any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any Employee
Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation except
as could not, individually or in the aggregate, result in a Material Adverse
Effect;
6.6.10 enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any past or
present employee of the Company that would, individually or in the aggregate,
result in a Material Adverse Effect.
6.7 CONTRACTS. Except with Acquiror's prior written consent, the Company shall
not assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course
of business that is material to the Company's business, nor will it waive
any material right or cancel any material contract, debt or claim.
6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall not, without
the prior written approval of Acquiror (a) acquire or dispose of any
capital asset having a fair market value of $25,000 or more, or acquire or
dispose of any capital asset outside of the ordinary course of business or
(b) discharge or satisfy any lien or encumbrance or pay or perform any
obligation or liability other than (i) liabilities and obligations
reflected in the Financial Statements or (ii) current liabilities and
obligations incurred in the usual and ordinary course of business since
the Company Balance Sheet Date and, in either case (i) or (ii) above, only
as required by the express terms of the agreement or other instrument
pursuant to which the liability or obligation was incurred, provided,
however, nothing herein shall prohibit the Company from obtaining early
payment discounts or settling, resolving or terminating any litigation
(whether now or hereafter pending) as is reasonable and in the best
interests of the Company.
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6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not, without the prior
written approval of Acquiror, enter into or assume any mortgage, pledge,
conditional sale or other title retention agreement, permit any security
interest, lien, encumbrance or claim of any kind to attach to any of its
assets (other than statutory liens arising in the ordinary course of
business, other liens that do not materially detract from the value or
interfere with the use of such assets, and liens, guarantees and
encumbrances that are granted or created in the ordinary course of
business), whether now owned or hereafter acquired, or guarantee or
otherwise become contingently liable for any obligation of another, except
obligations arising by reason of endorsement for collection and other
similar transactions in the ordinary course of business, or make any
capital contribution or investment in any person.
6.10 ACQUISITION PROPOSALS. The Company and the Stockholder agree that from and
after the date of this Agreement (a) neither the Stockholder nor the
Company, nor any of its officers and directors shall, and the Stockholder
and the Company shall direct and use their best efforts to cause the
Company's employees, agents and representatives not to, initiate, solicit
or encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer with respect to a merger,
acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have
any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; (b) that the Stockholder and the Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing and each will take the necessary steps to
inform the individuals or entities referred to in the first sentence
hereof of the obligations undertaken in this Section 6.10; and (c) that
the Stockholder and the Company will notify Acquiror immediately if any
such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Company or the Stockholder.
6.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of any
kind will be declared or paid by the Company in respect of Company Capital
Stock, nor will any repurchase of any Company Capital Stock be approved or
effected.
6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the Stockholder shall
use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
6.13 LOCKUP AGREEMENTS. The Stockholder shall, upon request of the Underwriter
Representative, execute a customary "lockup" agreement in connection with
the Initial
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Public Offering, pursuant to which the Stockholder will be prohibited from
selling any Acquiror Common Stock owned by him for up to 180 days from the
closing of the Initial Public Offering.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts to cause
the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant
shall not require Acquiror to make any expenditures that are not expressly
set forth in this Agreement or otherwise contemplated herein.
7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best efforts to take,
or cause to be taken, all actions necessary to effect the Merger under
applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form approved
by counsel for the parties to this Agreement.
7.3 ACCESS. Acquiror shall, at reasonable times during normal business hours
and on reasonable notice, permit the Company, the Stockholder and their
authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of Acquiror, including its
employees, and permit the Company, the Stockholder, and their authorized
representatives to inspect and, at the Company's and the Stockholder's
sole expense, make copies of all documents, records and information with
respect to the affairs of Acquiror as the Company, the Stockholder and
their representatives may request (including documents, records and
information pertaining to or generated in connection with any Target
Company, except as may be prohibited by confidentiality agreements to
which Acquiror is a party), all for the sole purpose of permitting the
Company and the Stockholder to become familiar with the business and
assets and liabilities of Acquiror.
7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly inform the
Company and the Stockholder in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by Acquiror subsequent
to the date of this Agreement and prior to the Effective Time under any
Acquiror Commitment material to Acquiror's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in Acquiror's condition
(financial or otherwise), operations, assets, liabilities or business.
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7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best efforts to secure,
as soon as practicable after the date hereof, all necessary approvals and
consents of third parties to the consummation of the transactions
contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholder agree as follows (with respect
to the Company's covenants, the Stockholder agrees to use his best efforts to
cause the Company to perform):
8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholder shall cooperate, at
Acquiror's sole expense, to promptly prepare and file with the SEC the
Registration Statement on Form S-1 (or other appropriate Form) to be filed by
Acquiror in connection with its Initial Public Offering (including the
prospectus constituting a part thereof, the "Registration Statement"). Acquiror
shall obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement,
and the Company and the Stockholder shall furnish all information concerning the
Company and the Stockholder as may be reasonably requested in connection with
any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholder and Acquiror specifically for
inclusion in the Registration Statement, by exhibit or otherwise, will, at the
time the Registration Statement and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, 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 the light of the circumstances
under which they were made, not misleading. The Company, the Stockholder and
Acquiror shall agree as to the information and documents supplied by the Company
and the Stockholder for inclusion in the Registration Statement and shall
indicate such information and documents in a letter to be delivered at Closing
(the "Information Letter"). The Company and the Stockholder shall be entitled to
review the Registration Statement and each amendment thereto, if any, prior to
the time each becomes effective under the Securities Act.
8.1.3 The Stockholder and the Company shall, upon request, furnish
Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
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8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to the
representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to
supplement or amend promptly (i) in the case of Acquiror, the Acquiror
Disclosure Schedules and (ii) in the case of the Company or the
Stockholder, the Company Disclosure Schedules with respect to any matter
that would have been or would be required to be set forth or described in
the Schedules in order to not materially breach any representation,
warranty or covenant of such party contained herein; provided that, no
amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the Company may be made unless Acquiror
consents to such amendment or supplement, and no amendment or supplement
to a Schedule that constitutes or reflects a material adverse change to
Acquiror may be made unless the Company and the Stockholder consent to
such amendment or supplement. For all purposes of this Agreement, the
Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 8.2. In the event that the Company
seeks to amend or supplement a Schedule pursuant to this Section 8.2 and
Acquiror does not consent to such amendment or supplement, or Acquiror
seeks to amend or supplement a Schedule pursuant to this Section 11.2 and
the Company and the Stockholder do not consent, this Agreement shall be
deemed terminated by mutual consent as set forth in Section 14.1.1 hereof.
8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to Closing, the
Stockholder shall terminate his employment agreement, if any, with the
Company by mutual consent without any liability on the part of the Company
therefor, and shall enter into a Stockholder Employment Agreement in the
form appended hereto as Exhibit 8.3 with Acquiror (the "Stockholder
Employment Agreement").
ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence review of
the Company and shall be reasonably satisfied with the results thereof.
9.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of the
Company and the Stockholder contained herein shall have been true and
correct in all material respects when initially made and shall be true and
correct in all respects as of the Closing Date.
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9.3 COVENANTS. The Company and the Stockholder shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed and complied with by the Company or the
Stockholder prior to the Closing Date.
9.4 LEGAL OPINION. Counsel to the Company and the Stockholder shall have
delivered to Acquiror their opinions, dated as of the Closing Date, in
form and substance reasonably satisfactory to Acquiror, to the effect set
forth in Exhibit 9.4.
9.5 PROCEEDINGS. No action, proceeding or order by any court or governmental
body or agency shall have been threatened orally or in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business of
the Company shall have occurred since June 30, 1997, whether or not such
change shall have been caused by the deliberate act or omission of the
Company or the Stockholder.
9.7 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by
the SEC. At or prior to the Closing Date, Acquiror shall have received all
state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. The Acquiror Common Stock shall have
been approved for listing on the Nasdaq National Market, subject only to
official notification of issuance.
9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering)
shall all be closed and consummated simultaneously with the closing of the
Merger.
9.9 CLOSING DELIVERIES. Acquiror shall have received all documents and
agreements, duly executed and delivered in form satisfactory to Acquiror,
referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDER
Except as may be waived in writing by the Company and the Stockholder, the
obligations of the Company and the Stockholder hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
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10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquiror contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all respects
as of the Closing Date.
10.2 COVENANTS. Acquiror shall have performed and complied in all material
respects with all covenants and conditions required by this Agreement to
be performed and complied with by it prior to the Closing Date.
10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company and
the Stockholder their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholder, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to Acquiror their
opinion, dated as of the Closing Date, to the effect set forth in Exhibit 10.3.2
(the "Tax Opinion").
10.4 PROCEEDINGS. No action, proceeding or order by any court or governmental
body or agency shall have been threatened in writing, asserted, instituted
or entered to restrain or prohibit the carrying out of the transactions
contemplated hereby.
10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company, the Stockholder
and Acquiror shall have obtained all necessary government and other third
party approvals and consents.
10.6 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by
the SEC. At or prior to the Closing Date, Acquiror shall have received all
state securities and "Blue Sky" permits necessary to consummate the
transactions contemplated hereby. At or prior to the Closing Date, the
Acquiror Common Stock shall have been approved for listing on The Nasdaq
National Market, subject only to official notification of issuance.
10.7 CLOSING DELIVERIES. The Company shall have received all documents and
agreements, duly executed and delivered in form satisfactory to the
Company, referred to in Section 11.2.
10.8 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business of
Acquiror shall have occurred since December 31, 1996.
10.9 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the
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Underwriter Representative shall agree will be sufficient for purposes of
the Initial Public Offering) shall all be closed and consummated
simultaneously with the closing of the Merger.
10.10 RELEASE OF PERSONAL GUARANTEES. The Company shall have provided evidence
to the Stockholder to the effect that all personal guarantees given by the
Stockholder guaranteeing debt of the Company have been released by the
appropriate lending institution and the Stockholder is no longer
personally liable for any of the debts of the Company.
ARTICLE XI
CLOSING DELIVERIES
11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDER. At or prior to the Closing
Date, the Company and the Stockholder shall deliver to Acquiror c/o
Dinsmore & Shohl LLP, counsel to Acquiror, the following, all of which
shall be in a form reasonably satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholder, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholder contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and the
Stockholder, dated the Closing Date, (i) as to the performance of and compliance
in all material respects by the Company and the Stockholder with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of the Company and the Stockholder to the Closing have been
satisfied or waived;
11.1.4 a certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of the state of incorporation of the Company
establishing that such corporation is in
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existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good corporate standing to transact business in its state of
organization;
11.1.6 certificates, dated within ten days prior to the Closing
Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in corporate good standing as a foreign
corporation in each of such states;
11.1.7 an opinion of Peabody & Brown, counsel to the Company and the
Stockholder dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals, permits
and licenses;
11.1.9 the resignations of the directors and officers of the Company
as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between Acquiror
and the Stockholder in substantially the form attached hereto as Exhibit 11.1.11
(the "Registration Rights Agreement");
11.1.12 executed Articles of Merger and a Certificate of Merger
necessary to effect the Merger referred to in Section 2.1;
11.1.13 a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Internal Revenue Code, of the Stockholder, signed
under a penalty of perjury and dated as of the Closing Date, to the effect that
the Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing the Stockholder's United States taxpayer
identification number;
11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Peabody & Brown, the Company's legal
counsel, setting forth the aggregate legal fees incurred by the Company for
services rendered to the Company in connection with the Merger; and
11.1.16 such other instrument or instruments of transfer prepared by
Acquiror as shall be necessary or appropriate, as Acquiror or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
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11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date, Acquiror shall
deliver to the Company and the Stockholder, the following, all of which
shall be in a form satisfactory to the Company, the Stockholder and their
counsel:
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements and consummation of the
Merger, each certified by Acquiror's Secretary as being true and correct copies
of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the Closing
Date as to the truth and correctness of the representations and warranties of
Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the Closing
Date, (i) as to the performance and compliance by Acquiror with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Acquiror to the Closing have been satisfied or waived;
11.2.4 a certificate of the Secretary of Acquiror certifying as to
the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten days
prior to the Closing Date, of the Secretaries of State of the states in which
Acquiror is qualified to do business, to the effect that Acquiror is qualified
to do business and, if applicable, is in good standing as a foreign corporation
in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to Acquiror,
dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 executed Articles of Merger and a Certificate of Merger
necessary to effect the Merger referred to in Section 2.1;
11.2.11 an executed Stockholder Employment Agreement between
Acquiror and the Stockholder in substantially the form attached hereto as
Exhibit 8.3;
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11.2.12 the Merger Consideration; and
11.2.13 such other instrument or instruments of transfer, prepared
by the Company or the Stockholder as shall be necessary or appropriate, as the
Company, the Stockholder or their counsel shall reasonably request, to carry out
and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at the request of
Acquiror and at Acquiror's sole cost and expense, the Stockholder and the
Company shall deliver any further instruments of transfer and take all
reasonable action as may be necessary or appropriate to carry out the
purpose and intent of this Agreement.
12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Acquiror shall not and shall not permit any of its subsidiaries to:
12.2.1 retire or reacquire, directly or indirectly, all or part of
the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of the
Stockholder; or
12.2.3 dispose of a significant part of the assets of the Company
within the two years following the Closing Date except in the ordinary course of
business, to Affiliates of Acquiror or to eliminate duplicate services or excess
capacity.
12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholder as a result of the Merger will not exceed the
amount of any cash received by the Stockholder in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Closing Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the
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meaning of Section 6662(d)(2)(B)(i) of the Internal Revenue Code, to report the
Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
12.4 SKYLARK CONSULTING AGREEMENT. Acquiror hereby acknowledges the Company is
party to that certain Consulting Agreement, dated August 27, 1996, by and
between the Company, Skylark Enterprises, Inc., Dustin H. Smith and
Suzanne G. Smith (the "Consulting Agreement"). Acquiror further
acknowledges that pursuant to the Merger, it shall assume all obligations
of the Company pursuant the Consulting Agreement.
12.5 COOPERATION UNDER RULE 144. Subject to any provisions of this Agreement,
the Registration Rights Agreement, or any other contractual limitation to
which the Stockholder or the Company is a party, Acquiror agrees that
following the Closing, Acquiror shall take all action required as a
condition to the availability of Rule 144 under the Securities Act of 1933
or any successor exemptive rule hereafter in effect ("Rule 144") with
respect to all shares of Acquiror Common Stock issued to the Stockholder
hereunder. Acquiror shall furnish to the Stockholder upon request a copy
of the most recent annual or quarterly report of Acquiror filed with the
Securities and Exchange Commission ("Commission") and such other reports
and documents as the Stockholder may reasonably request in availing
himself of any rule or regulation of the Commission allowing the
Stockholder to sell any such shares of acquiror Common Stock without
registration. Acquiror shall take all further reasonable action to
facilitate and expedite transfers of shares of Acquiror Common Stock
issued to the Stockholder hereunder pursuant to Rule 144, including
without limitation, timely notice to Acquiror's transfer agent to expedite
transfers of such stock.
ARTICLE XIII
REMEDIES
13.1 INDEMNIFICATION BY THE STOCKHOLDER. Subject to the terms and conditions of
this Article XIII, the Stockholder agrees to indemnify, defend and hold
Acquiror, the Company, and their respective directors, officers, members,
managers, employees, agents, attorneys and affiliates harmless from and
against all losses, claims, obligations, demands, assessments, penalties,
liabilities, costs, damages, reasonable attorneys' fees and expenses
(collectively, "Damages") asserted against or incurred by such indemnities
arising out of or resulting from:
13.1.1 a material breach of the Company or the Stockholder of any
representation, warranty or covenant of the Company or the Stockholder contained
herein or in any Schedule or certificate delivered by them hereunder;
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13.1.2 any violation by the Stockholder, the Company and/or any of
their past or present directors, officers, members, managers, shareholders,
employees, agents, consultants and affiliates of state or federal laws occurring
on or before the Closing Date;
13.1.3 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Stockholder or the Company and provided in writing
to Acquiror or its counsel by the Company or the Stockholder, specifically for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission to state therein a material
fact relating to the Stockholder and/or the Company required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to Acquiror or its counsel by the Company or the Stockholder, provided,
however, that the Company, the Stockholder and their counsel are afforded a
reasonable opportunity to review and comment upon any preliminary prospectus,
the Registration Statement, or any part thereof, or any amendment thereof or
supplement thereto, and provided further that such indemnity shall not apply if
the Company or the Stockholder provides to Vision 21 or its counsel a written
request that any omission or untrue statement occurring in any preliminary
prospectus, registration statement or any prospectus forming a part thereof, or
any amendment thereof or supplement thereto be corrected and such requested
correction is not made; or
13.1.4 any filings, reports or disclosures made by the Company or
the Stockholder, as the case may be, pursuant to the IRS Voluntary Compliance
Resolution Program.
13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and conditions of this
Article XIII, Acquiror shall indemnify, defend and hold the Stockholder
harmless from and against all Damages asserted against or incurred by him
arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation, warranty
or covenant of Acquiror contained herein or in any Schedule or certificate
delivered by it hereunder; and
13.2.2 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Acquiror, contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
13.2.3 unless subject to indemnification under Section 13.1, any and
all liabilities or obligations of the Company (except liabilities or obligations
arising in connection with this Agreement and the transactions contemplated
hereby) known and unknown, fixed and contingent, whether now in existence or
incurred after the Closing Date.
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13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under this
Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (and, in any event, at least ten days prior
to the due date for any responsive pleadings, filings or other documents) (i)
notify the party from whom indemnification is sought (the "Indemnifying Party")
of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party claim.
13.3.2 If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the
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named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnified Party has
been advised by counsel that there may be one or more legal defenses available
to it that are different from or additional to those available to the
Indemnifying Party, then the Indemnified Party may employ separate counsel at
the expense of the Indemnifying Party, and upon written notification thereof,
the Indemnifying Party shall not have the right to assume the defense of such
action on behalf of the Indemnified Party; provided further that the
Indemnifying Party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the Indemnified Party, which firm shall be designated in writing by the
Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 13.3.2, or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 13.3.2 but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
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the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement shall not
be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions of Sections
13.1 and 13.2, (a) no party shall be required to indemnify another party
with respect to a breach of a representation, warranty or covenant unless
the claim for indemnification is brought within the time limit set forth
in Section 18.6, (b) no claim may be brought by any party entitled to
indemnification under this Article XIII unless and until the aggregate
cumulative amount to which such party is entitled equals or exceeds
$50,000, and (c) no party shall be obligated to make any indemnification
in excess of 50% of the value of the Merger Consideration.
13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds, and
such correlative insurance benefit shall be net of the insurance premium,
if any, that becomes due as a result of such claim.
13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the Stockholder
has an indemnification obligation to Acquiror hereunder, subject to
Acquiror's approval as set forth below, the Stockholder may satisfy such
obligation by transferring to Acquiror such number of shares of Acquiror
Common Stock owned by the Stockholder having an aggregate fair market
value (based on the last reported sale price of Acquiror Common Stock on
the Nasdaq National Market or other exchange on which the Acquiror Common
Stock is then listed or
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the last quoted ask price on any over-the-counter market through which the
Acquiror Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholder transfers shares of Acquiror
Common Stock to Acquiror hereunder) equal to the indemnification
obligation; provided that each of the following conditions are satisfied:
13.7.1 The Stockholder shall transfer to Acquiror good, valid and
marketable title to the shares of Acquiror Common Stock, free and clear of all
adverse claims, security interests, liens, claims, proxies, options,
stockholders' agreements and encumbrances;
13.7.2 The Stockholder shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
14.1 TERMINATION. This Agreement may be terminated and the Merger and the
Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual agreement of
all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if any
material representation or warranty of the Company or the Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or the Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or the Stockholder
fails to comply in any material respect with any covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 20 days after receipt by the Company and the
Stockholder of written notice thereof;
14.1.3 at any time prior to the Closing Date by the Company if any
material representation or warranty of Acquiror contained in this Agreement or
in any certificate or other document executed and delivered by Acquiror pursuant
to this Agreement is or becomes untrue or breached in any material respect or if
Acquiror fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by Acquiror of written
notice thereof; or
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14.1.4 by Acquiror or the Company if the Merger shall not have been
consummated by March 31, 1998.
14.2 EFFECT OF TERMINATION. In the event this Agreement is terminated pursuant
to Sections 14.1.2 or 14.1.3 above, Acquiror, and the Company and the
Stockholder, shall each be entitled to pursue, exercise and enforce any
and all remedies, rights, powers and privileges available at law or in
equity. In the event of a termination of this Agreement under the
provisions of this Article, a party not then in material breach of this
Agreement shall stand fully released and discharged of any and all
obligations under this Agreement; provided, however, that if a termination
of this Agreement occurs pursuant to the last sentence of Section 8.2, the
parties hereto shall stand fully released and discharged of any and all
obligations under this Agreement.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 NONDISCLOSURE. The Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future may possibly have, access to
certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's
respective businesses. Acquiror acknowledges that it has had in the past,
currently has, and in the future may possible have, access to certain
Confidential Information of the Company that is valuable, special and
unique assets of the Company's business. The Stockholder, the Company, and
Acquiror agree that they will not disclose such Confidential Information
to any person, firm, corporation, association or other entity for any
purpose or reason whatsoever, except (a) to authorized representatives of
Acquiror and the Company, respectively, and (b) to counsel and other
advisers to Acquiror, the Company and the Stockholder, respectively,
provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 15.1, unless (i) such
information becomes available to or known by the public generally through
no fault of the Stockholder, the Company, or Acquiror, as the case may be,
(ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), the Stockholder, the Company, or
Acquiror, as the case may be, shall, if possible, give prior written
notice thereof to the Stockholder, the Company, and Acquiror and provide
the Stockholder, the Company and Acquiror with the opportunity to contest
such disclosure, (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against
the disclosing party, or (iv) the disclosing party is the sole and
exclusive owner of such Confidential Information as a result of the Merger
or otherwise. In the event of a breach or threatened breach by Acquiror,
the Company or the Stockholder of the provisions of this Section 15.1,
Acquiror, the Company or the Stockholder, as the case may be, shall be
entitled to an injunction restraining the
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disclosing party from disclosing, in whole or in part, such Confidential
Information. Nothing herein shall be construed as prohibiting Acquiror,
the Stockholder and the Company from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
15.2 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would
have no other adequate remedy, Acquiror, the Company, and the Stockholder
agree that, in the event of a breach by any of them of the foregoing
covenant, the covenant may be enforced against them by injunctions and
restraining orders.
15.3 SURVIVAL. The obligations of the parties under this Article XV shall
survive the termination of this Agreement.
ARTICLE XVI
TRANSFER RESTRICTIONS
16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of one year from
the Closing or such other holding period as may be required under
applicable federal or state securities laws, the Stockholder shall not,
except pursuant to the Registration Rights Agreement and Section 13.7
hereof, voluntarily (a) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint, or otherwise dispose of (i) any shares of
Acquiror Common Stock received by such Stockholder in the Merger, or (ii)
any interest (including, without limitation, an option to buy or sell) in
any such shares of Acquiror Common Stock, in whole or in part, and no such
attempted transfer shall be treated as effective for any purpose or (b)
engage in any transaction, whether or not with respect to any shares of
Acquiror Common Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning shares of Acquiror Common Stock. The
certificates evidencing the Acquiror Common Stock delivered to the
Stockholder pursuant to this Agreement will bear a legend substantially in
the form set forth below and containing such other information as Acquiror
may reasonably deem necessary or appropriate:
Except pursuant to the terms of the Registration Rights Agreement and the
Agreement and Plan of Merger and Reorganization ("Merger Agreement")
between the issuer, the holder of this certificate and the other parties
thereto, the shares represented by this certificate may not be voluntarily
sold, assigned, exchanged, transferred, encumbered, pledged, distributed,
appointed or otherwise disposed of, and the issuer shall not be required
to give effect to any attempted voluntary sale, assignment, exchange,
transfer, encumbrance, pledge, distribution, appointment or other
disposition prior to [date that is one year after the Closing Date.] Upon
the written request of the holder of this certificate, the issuer agrees
to remove this
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restrictive legend (and any stop order placed with the transfer agent) after the
expiration of the period specified in the Merger Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that the shares
of Acquiror Common Stock to be delivered to such Stockholder pursuant to
this Agreement have not been and will not be registered under the
Securities Act and may not be resold without compliance with the
Securities Act. The Acquiror Common Stock to be acquired by such
Stockholder pursuant to this Agreement is being acquired solely for his,
her or its own account, for investment purposes only and with no present
intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and represents
that none of the shares of Acquiror Common Stock issued to such
Stockholder will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all
of the applicable provisions of the Securities Act and the rules and
regulations of the SEC and applicable state securities laws and
regulations. All certificates evidencing shares of Acquiror Common Stock
shall bear the following legend in addition to the legends under Article
XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in Acquiror Common Stock acquired pursuant
to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks
of the proposed investment and therefore have the capacity to protect his,
her or its own interests in connection with the acquisition of the
Acquiror Common Stock. Each Stockholder or its purchaser representatives
have had an adequate opportunity to ask questions and receive answers from
the officers of Acquiror concerning any and all matters relating to the
transactions described in the Registration Statement including, without
limitation, the background and experience of the officers and directors of
Acquiror, the plans for the operations of the business of Acquiror, and
any plans for additional acquisitions and the like.
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Each Stockholder or its purchaser representatives have asked any and all
questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17.4 ACCREDITED INVESTOR STATUS. Each Stockholder is an "accredited investor"
as defined in Rule 501(a) under the Securities Act. The Stockholder
recognizes that, as an accredited investor, Acquiror is not required to
provide the Stockholder with any particular information or disclosures as
a condition to relying upon the Rule 506 exemption from registration under
the Securities Act with respect to the issuance of Acquiror Common Stock
in the Merger. However, the Stockholder acknowledges that he, she or it
has received and had the opportunity to review the information about
Acquiror contained in the Acquiror Disclosure Schedules.
ARTICLE XVIII
MISCELLANEOUS
18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing,
and signed by the parties hereto. The waiver of any of the terms and
conditions of this Agreement shall not be construed as a waiver of any
other terms and conditions hereof.
18.2 ASSIGNMENT. Neither this Agreement nor any right created hereby or in any
agreement entered into in connection with the transactions contemplated
hereby shall be assignable by any party hereto, except by Acquiror to a
wholly owned subsidiary of Acquiror; provided that any such assignment
shall not relieve Acquiror of its obligations hereunder.
18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be deemed
to confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
18.4 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
18.5 SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during the
term hereof, such provision
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shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision never
comprised a part hereof; and the remaining provisions hereof shall remain
in full force and effect and shall not be affected by the illegal, invalid
or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision, there shall be
added automatically as part of this Agreement a provision as similar in
its terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including all
statements contained in any certificate, exhibit or other instrument
delivered pursuant to this Agreement by or on behalf of the Company, the
Stockholder, or Acquiror, as the case may be, shall survive the Closing
until the first anniversary of the Closing Date.
18.7 GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
18.8 CAPTIONS. The captions in this Agreement are for convenience of reference
only and shall not limit or otherwise affect any of the terms or
provisions hereof.
18.9 GENDER AND NUMBER. When the context requires, the gender of all words used
herein shall include the masculine, feminine and neuter and the number of
all words shall include the singular and plural.
18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto" and
the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement, unless otherwise noted.
18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall keep this
Agreement and its terms confidential, and shall make no press release or
public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of
the other parties hereto; provided that the foregoing shall not prohibit
any disclosure (a) by press release, filing or otherwise that Acquiror has
determined in its good faith judgment to be required by federal securities
laws or the rules of the National Association of Securities Dealers, (b)
to attorneys, accountants, investment bankers or other agents of the
parties assisting the parties in connection with the transactions
contemplated by this Agreement and (c) by Acquiror in connection with the
conduct of its Initial Public Offering and conducting an examination of
the operations and assets of the Company; provided that Acquiror shall
promptly provide prior written notice to the Company of any release made
under this Section 18.11. In the event that the transactions contemplated
hereby are not consummated for any reason whatsoever, the parties hereto
agree not to disclose or use any Confidential Information they may have
concerning the affairs of the
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other parties, except for information that is required by law to be
disclosed; provided that should the transactions contemplated hereby not
be consummated, nothing contained in this Section shall be construed to
prohibit the parties hereto from operating businesses in competition with
each other so long as no party discloses or uses any such Confidential
Information in connection therewith.
18.12 NOTICE. Whenever this Agreement requires or permits any notice, request,
or demand from one party to another, the notice, request, or demand must
be in writing to be effective and shall be deemed to be delivered and
received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom
notice is sent or (ii) if delivered by mail (whether actually received or
not), at the close of business on the third business day next following
the day when placed in the mail, postage prepaid, certified or registered,
addressed to the appropriate party or parties, at the address of such
party set forth below (or at such other address as such party may
designate by written notice to all other parties in accordance herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholder: DTI Technologies, Inc.
10 Commerce Park North, Unit 10
Bedford, NH 03110
Attn: Daniel B. Dolan
with a copy to: Peabody & Brown
889 Elm Street
Manchester, NH 03101
Fax No.: (603) 628-4040
Attn: James C. Hood
18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject to the in
personam jurisdiction of any state or federal court located in Hamilton
County, State of Ohio.
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18.14 NO WAIVER; REMEDIES. No party hereto shall by any act (except by written
instrument pursuant to Section 18.1 hereof), delay, indulgence, omission
or otherwise be deemed to have waived any right or remedy hereunder or to
have acquiesced in any default in or breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any
right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and
cumulative and may be exercised from time to time as often as occasion may
arise or as may be deemed expedient.
18.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its own
costs and expenses (including attorneys' fees) incurred in connection with
the transactions contemplated herein.
54
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By___________________________________
Terry L. Theye, President
COMPANY:
DTI TECHNOLOGIES, INC.
By___________________________________
Daniel B. Dolan, President
STOCKHOLDER:
_____________________________________
Daniel B. Dolan
55
<PAGE> 63
ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
56
<PAGE> 64
Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
57
<PAGE> 1
EXHIBIT 10.3
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and between
APPLIED SOFTWARE TECHNOLOGY, INC.
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I Definitions........................................................................................ 1
Section 1.1 Certain General Definitions.................................................. 1
ARTICLE II The Merger......................................................................................... 4
Section 2.1 The Merger................................................................... 4
Section 2.2 The Closing.................................................................. 4
Section 2.3 Effective Time............................................................... 4
Section 2.4 Articles of Incorporation of Surviving Corporation........................... 5
Section 2.5 Code of Regulations of Surviving Corporation................................. 5
Section 2.6 Directors of the Surviving Corporation....................................... 5
Section 2.7 Officers of the Surviving Corporation........................................ 5
Section 2.8 Conversion of Company Capital Stock.......................................... 5
Section 2.9 Exchange of Certificates Representing Shares of Company Common Stock......... 5
Section 2.10 Fractional Shares............................................................ 6
Section 2.11 Subsequent Actions........................................................... 6
ARTICLE III Representations and Warranties of the Company and the Stockholders................................. 7
Section 3.1 Organization and Good Standing; Qualification................................ 7
Section 3.2 Capitalization............................................................... 7
Section 3.3 Transactions in Capital Stock................................................ 7
Section 3.4 Continuity of Business Enterprise............................................ 7
Section 3.5 Corporate Records............................................................ 8
Section 3.6 Authorization and Validity................................................... 8
Section 3.7 No Violation................................................................. 8
Section 3.8 Consents..................................................................... 8
Section 3.9 Financial Statements......................................................... 8
Section 3.10 Liabilities and Obligations.................................................. 9
Section 3.11 Employee Matters............................................................. 9
3.11.1 Cash Compensation.................................................... 9
3.11.2 Compensation Plans................................................... 9
3.11.3 Employment Agreements................................................ 9
3.11.4 Employee Policies and Procedures..................................... 10
3.11.5 Unwritten Amendments................................................. 10
3.11.6 Labor Compliance..................................................... 10
3.11.7 Unions............................................................... 10
3.11.8 Aliens............................................................... 10
Section 3.12 Employee Benefit Plans....................................................... 10
3.12.1 Identification....................................................... 10
3.12.2 Administration....................................................... 11
3.12.3 Examinations......................................................... 11
3.12.4 Prohibited Transactions.............................................. 11
3.12.5 Claims and Litigation................................................ 11
3.12.6 Qualification........................................................ 11
</TABLE>
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<TABLE>
<S> <C>
3.12.7 Funding Status....................................................... 11
3.12.8 Excise Taxes......................................................... 12
3.12.9 Multiemployer Plans.................................................. 12
3.12.10 PBGC................................................................. 12
3.12.11 Retirees............................................................. 12
Section 3.13 Absence of Certain Changes................................................... 12
Section 3.14 Title; Leased Assets......................................................... 14
3.14.1 Real Property........................................................ 14
3.14.2 Personal Property.................................................... 14
3.14.3 Leases............................................................... 14
Section 3.15 Commitments.................................................................. 14
3.15.1 Commitments; Defaults................................................ 14
3.15.2 No Cancellation or Termination of Commitment......................... 15
Section 3.16 Insurance.................................................................... 16
Section 3.17 Proprietary Rights and Information........................................... 16
Section 3.18 Taxes........................................................................ 16
3.18.1 Filing of Tax Returns................................................ 17
3.18.2 Payment of Taxes..................................................... 17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments or Audits........ 17
3.18.4 No Extension of Limitation Period.................................... 17
3.18.5 Withholding Requirements Satisfied................................... 17
3.18.6 Foreign Person....................................................... 17
3.18.7 Safe Harbor Lease.................................................... 17
3.18.8 Tax Exempt Entity.................................................... 17
3.18.9 Collapsible Corporation.............................................. 18
3.18.10 Boycotts............................................................. 18
3.18.11 Parachute Payments................................................... 18
3.18.12 S Corporation........................................................ 18
3.18.13 Personal Service Corporation......................................... 18
3.18.14 Personal Holding Company............................................. 18
Section 3.19 Compliance with Laws......................................................... 18
Section 3.20 Finder's Fee................................................................. 19
Section 3.21 Litigation................................................................... 19
Section 3.22 Condition of Fixed Assets.................................................... 19
Section 3.23 Distributions and Repurchases................................................ 19
Section 3.24 Banking Relations............................................................ 19
Section 3.25 Ownership Interests of Interested Persons; Affiliations...................... 19
Section 3.26 Investments in Competitors................................................... 20
Section 3.27 Environmental Matters........................................................ 20
Section 3.28 Certain Payments............................................................. 20
Section 3.29 No affiliation with NASD Member.............................................. 20
ARTICLE IV Representations and Warranties of the Stockholders.................................................. 20
Section 4.1 Validity; Stockholder Capacity............................................... 20
Section 4.2 No Violation................................................................. 21
Section 4.3 Personal Holding Company; Control of Related Businesses...................... 21
Section 4.4 Transfers of the Company Capital Stock....................................... 21
</TABLE>
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<TABLE>
<S> <C>
Section 4.5 Consents..................................................................... 21
Section 4.6 Certain Payments............................................................. 21
Section 4.7 Finder's Fee................................................................. 21
Section 4.8 Ownership of Interested Persons; Affiliations................................ 22
Section 4.9 Investments in Competitors................................................... 22
Section 4.10 Disposition of Acquiror Shares............................................... 22
ARTICLE V Representations and Warranties of Acquiror........................................................... 22
Section 5.1 Organization and Good Standing............................................... 22
Section 5.2 Capitalization............................................................... 22
Section 5.3 Corporate Records............................................................ 22
Section 5.4 Authorization and Validity................................................... 23
Section 5.5 No Violation................................................................. 23
Section 5.6 Finder's Fee................................................................. 23
Section 5.7 Capital Stock................................................................ 23
Section 5.8 Continuity of Business Enterprise............................................ 24
Section 5.9 Consents..................................................................... 24
Section 5.10 Proprietary Rights and Information........................................... 24
Section 5.11 Taxes........................................................................ 24
5.11.1 Filing of Tax Returns................................................ 24
5.11.2 Payment of Taxes..................................................... 24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments or Audits........ 24
5.11.4 No Extension of Limitation Period.................................... 24
5.11.5 All Withholding Requirements Satisfied............................... 25
5.11.6 Foreign Person....................................................... 25
5.11.7 Safe Harbor Lease.................................................... 25
5.11.8 Tax Exempt Entity.................................................... 25
5.11.9 Collapsible Corporation.............................................. 25
5.11.10 Boycotts............................................................. 25
5.11.11 Parachute Payments................................................... 25
5.11.12 S Corporation........................................................ 25
Section 5.12 Compliance with Laws......................................................... 25
Section 5.13 Litigation................................................................... 26
Section 5.14 Ownership Interests of Interested Persons; Affiliations...................... 26
Section 5.15 Investments in Competitors................................................... 26
Section 5.16 Certain Payments............................................................. 26
Section 5.17 Commitments.................................................................. 26
5.17.1 Commitments; Defaults................................................ 26
5.17.2 No Cancellation or Termination of Acquiror Commitment................ 28
Section 5.18 Acquiror Financial Statements................................................ 28
Section 5.19 Liabilities and Obligations.................................................. 28
Section 5.20 Employee Matters............................................................. 28
ARTICLE VI Covenants of the Company and the Stockholders....................................................... 28
Section 6.1 Consummation of Agreement.................................................... 28
Section 6.2 Business Operations.......................................................... 29
Section 6.3 Access....................................................................... 29
</TABLE>
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<TABLE>
<S> <C>
Section 6.4 Notification of Certain Matters.............................................. 29
Section 6.5 Approvals of Third Parties................................................... 29
Section 6.6 Employee Matters............................................................. 29
Section 6.7 Contracts.................................................................... 30
Section 6.8 Capital Assets; Payments of Liabilities...................................... 30
Section 6.9 Mortgages, Liens and Guaranties.............................................. 30
Section 6.10 Acquisition Proposals........................................................ 31
Section 6.11 Distributions and Repurchases................................................ 31
Section 6.12 Requirements to Effect the Merger............................................ 31
Section 6.13 Lockup Agreements............................................................ 31
Section 6.14 Excluded Assets.............................................................. 32
ARTICLE VII Covenants of Acquiror.............................................................................. 32
Section 7.1 Consummation of Agreement.................................................... 32
Section 7.2 Requirements to Effect Merger................................................ 32
Section 7.3 Access....................................................................... 32
Section 7.4 Notification of Certain Matters.............................................. 32
Section 7.5 Approvals of Third Parties................................................... 33
ARTICLE VIII Covenants of all Parties........................................................................... 33
Section 8.1 Filings; Other Action........................................................ 33
Section 8.2 Amendment of Schedules....................................................... 34
Section 8.3 Stockholder Employment Agreements............................................ 34
ARTICLE IX Conditions Precedent of Acquiror................................................................... 34
Section 9.1 Due Diligence................................................................ 34
Section 9.2 Representations and Warranties............................................... 34
Section 9.3 Covenants.................................................................... 34
Section 9.4 Legal Opinion................................................................ 35
Section 9.5 Proceedings.................................................................. 35
Section 9.6 No Material Adverse Change................................................... 35
Section 9.7 Securities Approvals......................................................... 35
Section 9.8 Simultaneous Closings........................................................ 35
Section 9.9 Closing Deliveries........................................................... 35
ARTICLE X Conditions Precedent of the Company and the Stockholders........................................... 35
Section 10.1 Representations and Warranties............................................... 35
Section 10.2 Covenants.................................................................... 36
Section 10.3 Legal Opinions............................................................... 36
Section 10.4 Proceedings.................................................................. 36
Section 10.5 Government Approvals and Required Consents................................... 36
Section 10.6 Securities Approvals......................................................... 36
Section 10.7 Closing Deliveries........................................................... 36
Section 10.8 Release of Personal Guarantees............................................... 36
Section 10.9 Simultaneous Closings........................................................ 36
ARTICLE XI Closing Deliveries................................................................................. 37
</TABLE>
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<TABLE>
<S> <C>
Section 11.1 Deliveries of the Company and the Stockholders............................... 37
Section 11.2 Deliveries of Acquiror....................................................... 38
ARTICLE XII Post Closing Matters.............................................................................. 39
Section 12.1 Further Instruments of Transfer.............................................. 39
Section 12.2 Preservation of Tax and Accounting Treatment................................. 40
Section 12.3 Merger Tax Covenants......................................................... 40
ARTICLE XIII Remedies.......................................................................................... 40
Section 13.1 Indemnification by the Stockholders.......................................... 40
Section 13.2 Indemnification by Acquiror.................................................. 41
Section 13.3 Conditions of Indemnification................................................ 42
Section 13.4 Indemnification Exclusive Remedies........................................... 44
Section 13.5 Indemnification Limitations.................................................. 44
Section 13.6 Tax Benefits; Insurance Proceeds............................................. 44
Section 13.7 Payment of Indemnification Obligation........................................ 44
ARTICLE XIV Termination....................................................................................... 45
Section 14.1 Termination.................................................................. 45
Section 14.2 Effect of Termination........................................................ 46
ARTICLE XV Nondisclosure of Confidential Information......................................................... 46
Section 15.1 Nondisclosure................................................................ 46
Section 15.2 Damages...................................................................... 47
Section 15.3 Survival..................................................................... 47
ARTICLE XVI Transfer Restrictions............................................................................. 47
Section 16.1 Transfer Restrictions........................................................ 47
ARTICLE XVII Federal Securities Law Restrictions on Acquiror Common Stock...................................... 48
Section 17.1 Investment Representation.................................................... 48
Section 17.2 Compliance with Law.......................................................... 48
Section 17.3 Economic Risk; Sophistication................................................ 48
Section 17.4 Accredited Investor Status................................................... 49
ARTICLE XVIII Miscellaneous..................................................................................... 49
Section 18.1 Amendment; Waivers........................................................... 49
Section 18.2 Assignment................................................................... 49
Section 18.3 Parties In Interest; No Third Party Beneficiaries............................ 49
Section 18.4 Entire Agreement............................................................. 49
Section 18.5 Severability................................................................. 49
Section 18.6 Survival of Representations, Warranties and Covenants........................ 50
Section 18.7 Governing Law................................................................ 50
Section 18.8 Captions..................................................................... 50
Section 18.9 Gender and Number............................................................ 50
Section 18.10 Reference to Agreement....................................................... 50
Section 18.11 Confidentiality; Publicity and Disclosures................................... 50
</TABLE>
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<TABLE>
<S> <C>
Section 18.12 Notice....................................................................... 50
Section 18.13 Choice of Forum.............................................................. 51
Section 18.14 No Waiver; Remedies.......................................................... 51
Section 18.15 Counterparts................................................................. 52
Section 18.16 Costs, Expenses and Legal Fees............................................... 52
</TABLE>
<PAGE> 8
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of ________, 1997, is by and among Applied Software
Technology, Inc., a Georgia corporation (the "Company"), Richard B. Burroughs
III and James M. Moss, stockholders of the Company (collectively, the
"Stockholders"), and Universal Document Management Systems, Inc., an Ohio
corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror
have determined that a business combination between the Company and Acquiror is
in the best interests of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic objectives and, accordingly, have agreed to effect the Merger (as
hereinafter defined) upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the closings of the Initial Public Offering and
Acquiror's acquisitions of the Target Companies, Acquiror intends to change its
name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of", "do
not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any stockholder, director or executive officer of such entity. With
respect to the Company, the term "executive officer" means either of the
Stockholders, but does not refer to any other person.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no
knowledge of", "do not know of" or "to the knowledge of" and similar phrases
shall mean (i) in the case of a natural person, the particular fact was known,
or not known, as the context requires, to such person after diligent
investigation and inquiry by such person, and (ii) in the case of an entity, the
particular fact was known, or not known, as the context requires, to any
stockholder, director or executive officer of such entity after diligent
investigation and inquiry. With respect to the Company, the term "executive
officer" means either of the Stockholders, but does not refer to any other
person.
1.1.4 "Company Capital Stock" shall mean the shares of capital
stock of the Company, as set forth in the Company Disclosure Schedules, which
are authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules
of exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholders to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets
and other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et
seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Sections 6901 et seq., as amended), and
2
<PAGE> 10
regulations promulgated thereunder, (iii) statutes, rules or regulations,
whether federal, state or local, applicable to the Company's assets or
operations that relate to asbestos or polychlorinated biphenyls, and (iv) the
provisions contained in any similar state statutes or regulations relating to
environmental matters applicable to the Company's assets or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Acquiror Common Stock contemplated by the
Registration Statement.
1.1.11 "Initial Public Offering Price" shall mean the price
per share at which Acquiror Common Stock is offered for sale to the public in
the Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
Merger, and the mergers and acquisitions of entities and assets contemplated by
the Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules
and the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933,
as amended.
3
<PAGE> 11
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Acquiror intends to acquire simultaneously with its
acquisition of the Company.
1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter
in the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock,
without par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Acquiror to the Company and/or the Stockholders, as such may be
amended or supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Acquiror
in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be
the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of Acquiror with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Ohio General Corporation Law and Georgia Business
Corporation Code.
2.2 THE CLOSING. The Closing shall take place at 10:00 a.m., Cincinnati
time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of
the Target Companies. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Articles IX and X shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in
accordance with Article XIV, the parties hereto shall cause to be
properly executed and filed on the Closing Date a Certificate of Merger
meeting the requirements of
4
<PAGE> 12
Section 14-2-1105(b) of the Georgia Business Corporation Code and
Section 1701.79 of the Ohio Revised Code. The Merger shall become
effective at the time of the filing of such document with the
Secretaries of State of Georgia and Ohio, in accordance with such laws
or at such later time which the parties hereto have theretofore agreed
upon and designated in such filings as the effective time of the Merger
(the "Effective Time").
2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Acquiror in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of Regulations
of Acquiror in effect immediately prior to the Effective Time shall be
the Code of Regulations of the Surviving Corporation until duly amended
in accordance with its terms.
2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are directors
of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation
and Code of Regulations.
2.7 OFFICERS OF THE SURVIVING CORPORATION. Subject to the terms and
conditions of the Stockholder Employment Agreements (as defined in
Section 8.3), the persons who are officers of Acquiror immediately
prior to the Effective Time shall, from and after the Effective Time,
be the officers of the Surviving Corporation and shall hold their same
respective office(s) until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or
removal.
2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting shares of
the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the
Company's treasury at the Effective Time, by virtue of the Merger, shall cease
to be outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
5
<PAGE> 13
2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK.
2.9.1 At or after the Effective Time and at Closing (i) each
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by a Stockholder and replaced by a certificate or certificates
representing Acquiror Common Stock, the certificate or certificates for Company
Capital Stock shall, for all purposes be deemed to evidence ownership of the
number of shares of Acquiror Common Stock determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing
the certificate or certificates representing Company Capital Stock owned by him,
her or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, if any, such Stockholder is entitled to
receive pursuant hereto.
2.10 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of
Acquiror Common Stock but for this Section 2.10 will be entitled to
receive a cash payment in lieu thereof reflecting such Stockholder's
proportionate interest in a share of Acquiror Common Stock multiplied
by the Initial Public Offering Price.
2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or any of the assets of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out
this Agreement, and to effect the cancellation of all outstanding
shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving
Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on
behalf of the Company, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and
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on behalf of the Company, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its state of organization, with all requisite corporate
power and authority to carry on the business in which it is engaged, to
own the properties it owns, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The Company is not
duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state
other than the state of its organization.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital
Stock, free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies and shareholders' agreements. Each
outstanding share of Company Capital Stock has been legally and validly
issued and is fully paid and nonassessable. No shares of Company
Capital Stock are owned by the Company in treasury. No shares of
Company Capital Stock have been issued or disposed of in violation of
the preemptive rights, rights of first refusal or similar rights of any
of the Company's stockholders. The Company has no bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or are convertible into or exercisable for securities having the right
to vote) with the Stockholders on any matter.
3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any Company
Capital Stock since January 1, 1993. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding
securities of the Company, and no option, warrant, call, conversion
right or commitment of any kind exists which obligates the Company to
issue any of its authorized but unissued capital stock. The Company has
no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein
or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been
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altered or changed in contemplation of the Merger within the two years
preceding the date of this Agreement.
3.4 CONTINUITY OF BUSINESS ENTERPRISE. Except as contemplated by Section
6.14 hereof, there has not been any sale, distribution or spin-off of
significant assets of the Company or any of its Affiliates other than
in the ordinary course of business within the two years preceding the
date of this Agreement.
3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation and
Bylaws, and all amendments thereto, of the Company that have been
delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of
the Company, copies of which have been delivered or made available to
Acquiror, contain accurate minutes of all meetings of, and accurate
consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the
Company since its formation.
3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
the Company of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes or
will constitute as of the Closing Date the legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The Company has obtained, in
accordance with applicable law and its Articles of Incorporation and
Bylaws, the approval of its stockholders necessary to the consummation
of the transactions contemplated hereby.
3.7 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the
Articles of Incorporation or Bylaws of the Company, (b) except as would
not, individually or in the aggregate, result in a Material Adverse
Effect, conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, any
agreement, indenture or other instrument under which the Company is
bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of the assets of the Company or (c) to
the knowledge of the Company, except as would not, individually or in
the aggregate, result in a Material Adverse Effect, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
3.8 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the Georgia Business Corporation
Code and state securities laws, no
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consent, authorization, approval, permit or license of, or filing with,
any governmental or public body or authority, any lender or lessor or
any other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the
Company, other than such consents as to which the failure to obtain
would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror its: (i)
audited statements of assets acquired and liabilities assumed (the
"Company Balance Sheet") as of September 30, 1996 (the "Company Balance
Sheet Date") and 1995, and the related audited statements of
operations, stockholders' equity and cash flows for its three full
fiscal years ended September 30, 1996; and (ii) unaudited statements of
assets acquired and liabilities assumed as of June 30, 1997 and related
unaudited statements of operations, stockholders' equity and cash flows
for the six months ended March 31, 1997 and 1996 and for the nine
months ended June 30, 1997 and 1996 (collectively, with the related
notes thereto, the "Financial Statements"), copies of all of which are
included in the Company Disclosure Schedules. The Financial Statements
fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated and have been
prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments and the absence of notes for
any unaudited interim financial statement for any interim periods
presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements or pursuant to this
Agreement.
3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect all
liabilities of the Company, accrued, contingent or otherwise that would
be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles. Except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in
any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any
amount.
3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of December 31, 1996, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
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3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options. The Company has provided or made available to
Acquiror a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Subject to the requirements of the Internal
Revenue Code and of ERISA, each of the Compensation Plans can be terminated or
amended at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to
any employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company
Disclosure Schedules contain a complete and accurate list of all employee
manuals and all material policies, procedures and work-related rules (the
"Employee Policies and Procedures") that apply to employees of the Company. The
Company has provided or made available to Acquiror a copy of all written
Employee Policies and Procedures and a written description of all material
unwritten Employee Policies and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
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3.11.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. The
Company has not been advised by any employee that he or she is represented by
any union, labor organization or collective bargaining unit. To the actual
knowledge of the Company, none of the employees of the Company has threatened to
organize or join a union, labor organization or collective bargaining unit.
3.11.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules
contain a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. To their knowledge, the Company and the Stockholders have made
all necessary filings, reports and disclosures pursuant to and have complied
with all requirements of the IRS Voluntary Compliance Resolution Program with
respect to all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the
Company, no prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plan.
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3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of Section 501 (a) of
the Internal Revenue Code. No proceedings exist or, to the actual knowledge of
the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
3.12.7 FUNDING STATUS. To the knowledge of the Company, no
accumulated funding deficiency (within the meaning of Section 412 of the
Internal Revenue Code), whether or not waived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a controlled group
(within the meaning of Section 412(n)(6)(B) of the Internal Revenue Code) in
which the Company is a member (a "Controlled Group"). The Company does not
sponsor any Employee Benefit Plan described in Section 501(c)(9) of the Internal
Revenue Code. To the knowledge of the Company, none of the Employee Benefit
Plans are subject to actuarial assumptions.
3.12.8 EXCISE TAXES. To the knowledge of the Company, neither
the Company nor any member of a Controlled Group has any liability to pay excise
taxes with respect to any Employee Benefit Plan under applicable provisions of
the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. To the knowledge of the Company,
neither the Company nor any member of a Controlled Group is or ever has been
obligated to contribute to a multiemployer plan within the meaning of Section
3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the
Employee Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet Date, the
Company has not
3.13.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
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3.13.2 contracted for the purchase of any capital asset having
a cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
3.13.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any claims or any debt in excess of $5,000, or
released or waived any rights or claims except in the ordinary course of
business;
3.13.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 except as contemplated by Section 6.14, acquired or
disposed of any assets having an aggregate value in excess of $5,000, except in
the ordinary course of business;
3.13.9 written up or written down the carrying value of any of
its assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.13.12 except in the ordinary course of business consistent
with past practice, increased the compensation of any director, officer, key
employee or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $50,000;
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3.13.14 except in the ordinary course of business consistent
with past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
3.13.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such capital stock,
securities or rights;
3.13.17 entered into any agreement providing for total
payments in excess of $5,000 in any 12 month period with any person or group, or
modified or amended in any material respect the terms of any such existing
agreement, except in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or the other agreements contemplated hereby;
or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.14.3 constitute the only personal property necessary for the
conduct of the Company's business. Upon consummation of the transactions
contemplated hereby, such interest in the Personal Property shall be free and
clear of all security interests, liens, claims and encumbrances, other than
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases
of real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company,
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enforceable in accordance with their respective terms except as may be limited
by applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
3.15 COMMITMENTS.
3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which
the Company is a party or is bound by, or which any of the shares of Company
Capital Stock are subject to, or which the assets or the business of the Company
are bound by, whether or not in writing, are listed in the Company Disclosure
Schedules (collectively "Commitments"):
3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification
or contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 days' notice or without
penalty;
3.15.1.6 any agreement relating to any material
matter or transaction in which an interest is held by a person or entity that is
an Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition
covenants;
3.15.1.10 any agreement providing for the purchase
from a supplier of all or substantially all of the requirements of the Company
of a particular product or service; or
3.15.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of the
Company.
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True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. To the knowledge of the Company, there
are no existing or asserted defaults, events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute defaults by the Company or, to the best knowledge of the
Company, any other party to a material Commitment, and no penalties have been
incurred nor are amendments pending, with respect to the material Commitments.
The Commitments are in full force and effect and are valid and enforceable
obligations of the Company and, to the best knowledge of the Company, the other
parties thereto in accordance with their respective terms, in each case as may
be limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally or the availability of equitable remedies, and no
defenses, off-sets or counterclaims have been asserted or, to the best knowledge
of the Company, may be made by any party thereto (other than the Company), nor
has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither
the Company nor any Stockholder has received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described in the Company
Disclosure Schedules (the "Insurance Policies"). The Insurance Policies
are all of insurance polices relating to the business of the Company.
All of the Insurance Policies are issued by insurers of recognized
responsibility, and, to the best knowledge of the Company, are valid
and enforceable policies, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance
Policies, or replacement policies providing at least equivalent
coverage, shall be maintained in force without interruption up to and
including the Closing Date. True, complete and correct copies of all
Insurance Policies have been provided or made available to Acquiror.
Neither the Company nor any Stockholder has received any notice or
other communication from any issuer of any Insurance Policy canceling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums
payable thereunder, and to the actual knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is
threatened. There are no outstanding claims, settlements or premiums
owed against any Insurance Policy, or the Company has given all notices
or has presented all potential or actual claims under any Insurance
Policy in due and timely fashion. The Company Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of
$10,000 per occurrence filed by the Company during the immediately
preceding three-year period.
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3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company Disclosure
Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties, assignments and other
similar agreements relating to the foregoing to which the Company is a party
(including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or
processes that the Company is licensed or authorized to use by others, or which
it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable except as would not,
individually or in the aggregate, result in a Material Adverse Effect. No claim
has been asserted by any person to the ownership of or for infringement by the
Company of the proprietary right of any other person, and the Company does not
know of any valid basis for any such claim. The Company has the right to use,
free and clear of any adverse claims or rights of others all trade secrets,
customer lists and proprietary information required for the marketing of all
merchandise and services formerly or presently sold or marketed by it.
3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Company Disclosure Schedules, (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records for all of the same that have not yet become due and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted
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against the Company. There is no unpaid assessment, proposal for additional
taxes, deficiency or delinquency in the payment of any of the taxes of the
Company that reasonably could be expected to be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
3.18.4 NO EXTENSION OF LIMITATION PERIOD. To the knowledge of
the Company, the Company has not granted an extension to any taxing authority of
the limitation period during which any tax liability may be assessed or
collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company
and none of the Assets are subject to a lease to a "tax exempt entity" as such
term is defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented, and the Stockholders will not permit the Company to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
3.18.10 BOYCOTTS. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company,
no payment required or contemplated to be made by the Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
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3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the
Company, the Company is not or has not been a personal holding company within
the meaning of Section 542 of the Internal Revenue Code.
3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company has
complied with all applicable laws, and regulations and has filed with
the proper authorities all necessary statements and reports except
where the failure to so comply or file would not, individually or in
the aggregate, result in a Material Adverse Effect. To the knowledge of
the Company, there are no existing violations by the Company of any
federal, state or local law or regulation that could reasonably be
expected to, individually or in the aggregate, result in a Material
Adverse Effect. The Company possesses all necessary licenses,
franchises, permits and governmental authorizations for the conduct of
the Company's business as now conducted, all of which are listed (with
expiration dates, if applicable) in the Company Disclosure Schedules.
The transactions contemplated by this Agreement will not result in a
default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits
or government authorizations, except for any such default, breach or
violation that would not, individually or in the aggregate, have a
Material Adverse Effect. Since January 1, 1992, the Company has not
received any notice from any federal, state or other governmental
authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that its operations or
any of its properties, facilities, equipment, or business practices
fail to comply with any applicable law, ordinance, regulation, building
or zoning law, or requirement of any public or quasi-public authority
or body, except where failure to so comply would not, individually or
in the aggregate, have a Material Adverse Effect.
3.20 FINDER'S FEE. The Company has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
3.21 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of the Company
threatened, against the Company, affecting or that could reasonably be
expected to materially affect the outstanding shares of Company Capital
Stock, any of the assets of the Company, or the operation, business,
condition (financial or otherwise), or results of operations of the
Company which (i) if, successful, could, individually or in the
aggregate, have a Material Adverse Effect or (ii) could adversely
affect the ability of the Company or any Stockholder to effect the
transactions contemplated hereby. Neither the Company nor any
Stockholder is (a) subject to any continuing court or administrative
order, judgment, writ, injunction or decree applicable specifically to
the Company or to its business, assets, operations or employees or (b)
in default with respect to any such order, judgment, writ, injunction
or decree. The
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Company has no knowledge of any valid basis for any such action,
proceeding or investigation. All claims made or, to the actual
knowledge of the Company, threatened against the Company in excess of
its deductible are covered under its Insurance Policies.
3.22 CONDITION OF FIXED ASSETS. All of the structures and equipment
reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and
tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Company has no actual
knowledge of any latent defects therein.
3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind has been declared or paid by the Company on any of its capital
stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or
is contemplated by the Board of Directors of the Company.
3.24 BANKING RELATIONS. Set forth in the Company Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements
that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement
maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect
thereof.
3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a
material contract or arrangement with the Company.
3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any Stockholder
owns directly or indirectly any interests or has any investment in any
person that is a competitor of the Company.
3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its assets are
currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations
under, any Environmental Laws, except for any such violations,
investigations or inquiries that would not, individually or in the
aggregate, result in a Material Adverse Effect.
3.28 CERTAIN PAYMENTS. Neither the Company nor any director, officer or
employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with
the business of the Company:
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3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholders or officers
or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself or
itself only, represents and warrants to Acquiror that the following, except as
set forth in the Company Disclosure Schedules and only insofar as they relate to
an individual Stockholder (referred to in this Article IV as "the Stockholder")
and not to any other Stockholders, are true and correct as of the date hereof
and agrees as follows:
4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the Stockholder
Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will
be as of the Closing Date duly executed and delivered by the
Stockholder and constitute or will constitute legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The
Stockholder has legal capacity to enter into and perform this Agreement
and his or her Stockholder Employment Agreement.
4.2 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation
of the transactions contemplated hereby or thereby, will (a) conflict
with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture
or other instrument under which the Stockholder is bound or to which
any of his, her or its shares of Company Capital Stock are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of his shares of Company Capital Stock
or (b) to the actual knowledge of the Stockholder, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
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4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly
or indirectly, beneficially or of record, through a personal holding
company. The Stockholder does not control another business that is in
the same or similar line of business as the Company or that has or is
engaged in transactions with the Company except transactions in the
ordinary course of business.
4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the Company
Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All
transfers of Company Capital Stock by the Stockholder have been made
for valid business reasons and not in anticipation or contemplation of
the consummation of the transactions contemplated by this Agreement.
4.5 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the Georgia Business Corporation
Code and state securities laws, or otherwise disclosed pursuant to this
Agreement, no consent, authorization, approval, permit or license of,
or filing with, any governmental or public body or authority, or any
other person is required to authorize, or is required in connection
with, the execution, delivery and performance of this Agreement or the
agreements contemplated hereby on the part of the Stockholder.
4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate
(other than from personal funds not reimbursed by the Company or as otherwise
permitted by applicable law).
4.7 FINDER'S FEE. The Stockholder has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the Stockholder
nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the
Company.
4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own directly or
indirectly any interests or have any investment in any person that is a
competitor of the Company.
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4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not presently
intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or
agreement for the disposition of such shares of Acquiror Common Stock,
except this Agreement and the Registration Rights Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it
owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not
have any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the shareholders of
Acquiror on any matter. There exist no options, warrants, subscriptions
or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of
Acquiror, and no option, warrant, call, conversion right or commitment
of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the
Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay a dividend or make any distribution
in respect thereof. To the best knowledge of Acquiror, no shareholder
of Acquiror has granted options or other rights to purchase any shares
of Acquiror Common Stock from such shareholder.
5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation and Code
of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholders are
true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror, copies of which have been
delivered or made available to the Company and the Stockholders,
contain accurate minutes of all meetings of, and accurate consents to
all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of Acquiror, since its
formation.
5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the
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transactions contemplated hereby and thereby, have been duly authorized
by the Board of Directors and shareholders of Acquiror. This Agreement
and each other agreement contemplated hereby to be executed by Acquiror
have been or will be as of the Closing Date duly executed and delivered
by Acquiror and constitute or will constitute as of the Closing Date
legal, valid and binding obligations of Acquiror, enforceable against
Acquiror in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
5.5 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of Acquiror or any
agreement, indenture or other instrument under which Acquiror is bound
(b) except as would not, individually or in the aggregate, result in a
Material Adverse Effect, conflict with, or result in a violation or
breach of the terms, conditions or provisions of, or constitute a
default under, any agreement, indenture or other instrument under which
the Acquiror is bound or to which any of the assets of the Acquiror are
subject, or result in the creation or imposition of any security
interest, lien, charge or encumbrance upon any of the assets of the
Acquiror or (c) to the knowledge of Acquiror, except as would not,
individually or in the aggregate, have a Material Adverse Effect,
violate or conflict with any judgment, decree, order, statute, rule or
regulation of any court or any public, governmental or regulatory
agency or body having jurisdiction over Acquiror or the properties or
assets of Acquiror.
5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares of
Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights,
rights of first refusal or similar rights of any of Acquiror's
shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and
state securities laws.
5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Acquiror to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d).
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5.9 CONSENTS. Except as have been obtained or as may be required by or
under the Exchange Act, the Ohio General Corporation Law, the
Securities Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Acquiror.
5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or use any
trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any
agreement relating to the use of technology or know-how. Acquiror has
the right to use, free and clear of any claims or rights of others, all
trade secrets, customer lists and proprietary information required for
the marketing of all merchandise and services formerly or presently
sold or marketed by it.
5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
tax returns or reports are complete and accurate and properly reflect the taxes
of Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due. Acquiror is not delinquent in the
payment of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by Acquiror and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
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5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder
thereof is a foreign person, as such term is referred to in Section 1445(f)(3)
of the Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror
constitute property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by Acquiror will be characterized as an "excess
parachute payment" within the meaning of Section 28OG(b)(1) of the Internal
Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all applicable laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Acquiror of any federal, state or local law or regulation
that could materially adversely affect its property or business.
Acquiror possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of its business as now
conducted. The transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses,
franchises, permits or government authorizations except for any
default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror has not received
any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any
insurance or inspection body, that its operations or any of its
properties, facilities, equipment, or business practices fail to comply
with any applicable law, ordinance, regulation, building or zoning law,
or requirement of any public or quasi-public authority or body.
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5.13 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the
outstanding shares of Acquiror Common Stock, any of the assets of
Acquiror, or the operations, business, condition (financial or
otherwise) or results of operations of Acquiror. Acquiror is not (a)
subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to it or to its business,
assets, operations or employees or (b) in default with respect to any
such order, writ, injunction or decree. Acquiror has no knowledge of
any valid basis for any such action, proceeding or investigation.
5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of Acquiror or any
organization that has a material contract or arrangement with Acquiror,
except Acquiror's corporate parent, MedPlus, Inc.
5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any shareholder
thereof owns directly or indirectly any interests or has any investment
in any person that is a competitor of Acquiror or one of the Target
Companies.
5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder, director,
officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
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5.17.1.3 debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
5.17.1.4 contract to purchase real property;
5.17.1.5 agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 day's notice or without
penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition
covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of
Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
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5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT.
Except as contemplated hereby, (i) Acquiror has not received notice of any plan
or intention of any other party to any Acquiror Commitment to exercise any right
to cancel or terminate any Acquiror Commitment, and Acquiror does not know of
any fact that would justify the exercise of such a right; and (ii) Acquiror does
not currently contemplate, or have knowledge that any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
5.18 ACQUIROR FINANCIAL STATEMENTS. The audited year end financial
statements for Acquiror for the two most recent fiscal years and
interim unaudited statements for the month ending prior to the date of
this Agreement are contained in the Acquiror Disclosure Schedules
(collectively, with the related notes thereto, the "Acquiror Financial
Statements"). The Acquiror Financial Statements fairly present the
financial condition and results of operations of Acquiror as of the
dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles (subject to
normal year-end adjustments) applied on a consistent basis with prior
periods, except as otherwise indicated in the Acquiror Financial
Statements.
5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial Statements reflect
all liabilities of Acquiror, accrued, contingent or otherwise, that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the
ordinary course of business since December 31, 1996. Acquiror is not
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner,
any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and
Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
5.20 EMPLOYEE MATTERS. Acquiror does not have any material arrangements,
agreements or plans with any person with respect to the employment by
Acquiror of such person or whereby such person is to serve as an
officer or director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders shall use
their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the
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Company or a Stockholder to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
6.2 BUSINESS OPERATIONS. The Company shall operate its business in the
ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the Company intact. Neither the
Company nor any Stockholder knowingly shall take any action that would,
individually or in the aggregate, result in a Material Adverse Effect.
The Company shall use its best efforts to preserve intact its
relationships with customers, suppliers, employees and others having
significant business relations with it, unless doing so would impair
its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past
practice.
6.3 ACCESS. The Company and the Stockholders shall, at reasonable times
during normal business hours and on reasonable notice, permit Acquiror
and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of the
Company, including its employees, customers and suppliers, and permit
Acquiror and its authorized representatives to inspect and, at
Acquiror's sole cost and expense, make copies of all documents, records
and information with respect to the affairs of the Company as Acquiror
and its representatives may request, all for the sole purpose of
permitting Acquiror to become familiar with the business and assets and
liabilities of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the Stockholders shall
promptly inform Acquiror in writing of (a) any notice of or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company
or any Stockholder subsequent to the date of this Agreement and prior
to the Effective Time under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or
business and to which it is subject; or (b) any material adverse change
in the Company's condition (financial or otherwise), operations,
assets, liabilities or business.
6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders shall use
their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under
any real property and personal property leases; provided, however, that
this covenant shall not require the Company or the Stockholders to make
any material expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
6.6 EMPLOYEE MATTERS. The Company shall not, without the prior written
approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
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6.6.1 increase the Cash Compensation of any Stockholder or
other employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any
Employee Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with
respect to any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any
Employee Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation
except as could not, individually or in the aggregate, result in a Material
Adverse Effect;
6.6.10 enter into, modify, amend or terminate any agreement
with any union, labor organization or collective bargaining unit; or
6.6.11 knowingly take or fail to take any action with respect
to any past or present employee of the Company that would, individually or in
the aggregate, result in a Material Adverse Effect.
6.7 CONTRACTS. Except with Acquiror's prior written consent, or in
connection with this Agreement, the Company shall not assume or enter
into any contract, lease, license, obligation, indebtedness,
commitment, purchase or sale except in the ordinary course of business
that is material to the Company's business, nor will it waive any
material right or cancel any material contract, debt or claim.
6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall not, without
the prior written approval of Acquiror (a) acquire or dispose of any
capital asset having a fair market value of $25,000 or more, or acquire
or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or
perform any obligation or liability other than (i) liabilities and
obligations reflected in the Financial Statements or (ii) current
liabilities and obligations incurred in the usual and ordinary course
of business since the Company Balance Sheet Date and, in either case
(i) or (ii) above, only
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as required by the express terms of the agreement or other instrument
pursuant to which the liability or obligation was incurred.
6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not, without the
prior written approval of Acquiror, enter into or assume any mortgage,
pledge, conditional sale or other title retention agreement, permit any
security interest, lien, encumbrance or claim of any kind to attach to
any of its assets (other than statutory liens arising in the ordinary
course of business, other liens that do not materially detract from the
value or interfere with the use of such assets, and liens, guarantees
and encumbrances that are granted or created in the ordinary course of
business), whether now owned or hereafter acquired, or guarantee or
otherwise become contingently liable for any obligation of another,
except obligations arising by reason of endorsement for collection and
other similar transactions in the ordinary course of business, or make
any capital contribution or investment in any person.
6.10 ACQUISITION PROPOSALS. Except as may be necessary pursuant to Section
6.14, the Company and the Stockholders agree that from and after the
date of this Agreement (a) neither any Stockholder nor the Company, nor
any of its officers and directors shall, and the Stockholders and the
Company shall direct and use their best efforts to cause the Company's
employees, agents and representatives not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation,
any proposal or offer to its stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to
make or implement an Acquisition Proposal; (b) that the Stockholders
and the Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing and each will
take the necessary steps to inform the individuals or entities referred
to in the first sentence hereof of the obligations undertaken in this
Section 6.10; and (c) that the Stockholders and the Company will notify
Acquiror immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, the Company
or the Stockholders.
6.11 DISTRIBUTIONS AND REPURCHASES. Except as may be necessary pursuant to
Section 6.14, no distribution, payment or dividend of any kind will be
declared or paid by the Company in respect of Company Capital Stock,
nor will any repurchase of any Company Capital Stock be approved or
effected.
6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the Stockholders
shall use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under
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applicable law, including without limitation the filing with the
appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon request of the
Underwriter Representative, execute a customary "lockup" agreement in
connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any Acquiror Common Stock
owned by them for up to 180 days from the closing of the Initial Public
Offering.
6.14 EXCLUDED ASSETS. Notwithstanding anything to the contrary elsewhere in
this Agreement, the Company is not transferring its ownership interest
in Rasterex International, a.s. or Workflow Engine Code Base and
related components to Acquiror and shall have transferred such assets
out of the Company prior to Closing, so as to exclude them from the
Merger.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts to cause
the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant
shall not require Acquiror to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best efforts to
take, or cause to be taken, all actions necessary to effect the Merger
under applicable law, including without limitation the filing with the
appropriate government officials of all necessary documents in form
approved by counsel for the parties to this Agreement.
7.3 ACCESS. Acquiror shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of Acquiror,
including its employees, and permit the Company, the Stockholders, and
their authorized representatives to inspect and, at the Company's and
the Stockholders' sole expense, make copies of all documents, records
and information with respect to the affairs of Acquiror as the Company,
the Stockholders and their representatives may request (including
documents, records and information pertaining to or generated in
connection with any Target Company, except as may be prohibited by
confidentiality agreements to which Acquiror is a party), all
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for the sole purpose of permitting the Company and the Stockholders to
become familiar with the business and assets and liabilities of
Acquiror.
7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly inform the
Company and the Stockholders in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Acquiror
subsequent to the date of this Agreement and prior to the Effective
Time under any Acquiror Commitment material to Acquiror's condition
(financial or otherwise), operations, assets, liabilities or business
and to which it is subject; or (b) any material adverse change in
Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business.
7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best efforts to
secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with
respect to the Company's covenants, the Stockholders agree to use their best
efforts to cause the Company to perform):
8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall
cooperate to promptly prepare and file with the SEC the Registration Statement
on Form S-1 (or other appropriate Form) to be filed by Acquiror in connection
with its Initial Public Offering (including the prospectus constituting a part
thereof, the "Registration Statement"). Acquiror shall obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholders and Acquiror specifically for
inclusion in the Registration Statement, by exhibit or otherwise, will, at the
time the Registration Statement and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, 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 the light of the circumstances
under which they were made, not misleading. The Company, the Stockholders and
Acquiror shall agree as to the information and documents supplied by the Company
and the Stockholders for inclusion in the Registration Statement and shall
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indicate such information and documents in a letter to be delivered at Closing
(the "Information Letter"). The Company and the Stockholders shall be entitled
to review the Registration Statement and each amendment thereto, if any, prior
to the time each becomes effective under the Securities Act.
8.1.3 The Stockholders and the Company shall, upon request,
furnish Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly (i) in the case of Acquiror,
the Acquiror Disclosure Schedules and (ii) in the case of the Company
or the Stockholders, the Company Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein;
provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be
made unless Acquiror consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to Acquiror may be made unless the Company and
the Stockholders consent to such amendment or supplement. For all
purposes of this Agreement, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 8.2.
In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a
Schedule pursuant to this Section 8.2 and the Company and the
Stockholders do not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 14.1.1 hereof.
8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to Closing,
each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent
without any liability on the part of the Company therefor, and shall
enter into a Stockholder Employment Agreement in the form appended
hereto as Exhibit 8.3 with Acquiror (the "Stockholder Employment
Agreements").
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ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence review
of the Company and shall be reasonably satisfied with the results
thereof.
9.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company and the Stockholder contained herein shall have been true
and correct in all material respects when initially made and shall be
true and correct in all respects as of the Closing Date.
9.3 COVENANTS. The Company and the Stockholders shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
9.4 LEGAL OPINION. Counsel to the Company and the Stockholders shall have
delivered to Acquiror their opinions, dated as of the Closing Date, in
form and substance reasonably satisfactory to Acquiror, to the effect
set forth in Exhibit 9.4.
9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet
Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Stockholders.
9.7 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. The Acquiror Common
Stock shall have been approved for listing on the Nasdaq National
Market, subject only to official notification of issuance.
9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
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Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
9.9 CLOSING DELIVERIES. Acquiror shall have received all documents and
agreements, duly executed and delivered in form satisfactory to
Acquiror, referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquiror contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all
respects as of the Closing Date.
10.2 COVENANTS. Acquiror shall have performed and complied in all material
respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company
and the Stockholders their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholders, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the Company
their opinion, dated as of the Closing Date, to the effect set forth in Exhibit
10.3.2 (the "Tax Opinion").
10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company, Stockholders
and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
10.6 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or
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threatened by the SEC. At or prior to the Closing Date, Acquiror shall
have received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the
Closing Date, the Acquiror Common Stock shall have been approved for
listing on The Nasdaq National Market, subject only to official
notification of issuance.
10.7 CLOSING DELIVERIES. The Company shall have received all documents and
agreements, duly executed and delivered in form satisfactory to the
Company, referred to in Section 11.2.
10.8 RELEASE OF PERSONAL GUARANTEES. The Company shall have provided
evidence to the Stockholders to the effect that all personal guarantees
given by the Stockholders guaranteeing debt of the Company have been
released by the appropriate lending institution and the Stockholders
are no longer personally liable for any of the debts of the Company.
10.9 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
ARTICLE XI
CLOSING DELIVERIES
11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior to the
Closing Date, the Company and the Stockholders shall deliver to
Acquiror c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following,
all of which shall be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholders contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii)
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certifying that all conditions precedent of the Company and the Stockholders to
the Closing have been satisfied;
11.1.4 a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of such
corporation and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of the state of incorporation of the
Company establishing that such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in its state of organization;
11.1.6 certificates, dated within ten days prior to the
Closing Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Elrod & Thompson, counsel to the Company
and the Stockholders dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals,
permits and licenses;
11.1.9 the resignations of the directors and officers of the
Company as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between
Acquiror and the Stockholders in substantially the form attached hereto as
Exhibit 11.1.11 (the "Registration Rights Agreement");
11.1.12 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.4;
11.1.13 a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder,
signed under a penalty of perjury and dated as of the Closing Date, to the
effect that each Stockholder is a United States citizen or a resident alien (and
thus not a foreign person) and providing such Stockholders United States
taxpayer identification number;
11.1.14 the Information Letter required by Section 8.1.2;
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11.1.15 a copy of the bill from both Elrod & Thompson and
Kilpatrick Stockton, the Company's legal counsel, setting forth the aggregate
legal fees incurred by the Company for services rendered to the Company in
connection with the Merger; and
11.1.16 such other instrument or instruments of transfer
prepared by Acquiror as shall be necessary or appropriate, as Acquiror or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date, Acquiror shall
deliver to the Company and the Stockholders c/o Dinsmore & Shohl LLP,
counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholders;
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the
Closing Date as to the truth and correctness of the representations and
warranties of Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the
Closing Date, (i) as to the performance and compliance by Acquiror with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Acquiror to the Closing have been satisfied or
waived;
11.2.4 a certificate of the Secretary of Acquiror certifying
as to the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten
days prior to the Closing Date, of the Secretaries of State of the states in
which Acquiror is qualified to do business, to the effect that Acquiror is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to
Acquiror, dated as of the Closing Date, pursuant to Section 10.3.1:
11.2.8 the Tax Opinion, dated as of the Closing Date;
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11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.4;
11.2.11 executed Stockholder Employment Agreements in
substantially the form attached hereto as Exhibit 8.3
11.2.12 the Merger Consideration;
11.2.13 such other instrument or instruments of transfer,
prepared by the Company or the Stockholders as shall be necessary or
appropriate, as the Company, the Stockholders or their counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at the request
of Acquiror and at Acquiror's sole cost and expense, the Stockholders
and the Company shall deliver any further instruments of transfer and
take all reasonable action as may be necessary or appropriate to carry
out the purpose and intent of this Agreement.
12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Acquiror shall not and shall not permit any of its subsidiaries to:
12.2.1 retire or reacquire, directly or indirectly, all or
part of the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of
the Stockholders; or
12.2.3 dispose of a significant part of the assets of the
Company within the two years following the Closing Date except in the ordinary
course of business, to Affiliates of Acquiror or to eliminate duplicate services
or excess capacity.
12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize
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gain or loss, and pursuant to which any gain recognized by the Stockholders as a
result of the Merger will not exceed the amount of any cash received by the
Stockholders in the Merger (a "Reorganization").
12.3.2 Both prior to and after the Effective Time, all books
and records shall be maintained, and all Tax Returns and schedules thereto shall
be filed in a manner consistent with the Merger being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Internal Revenue Code, to report the Merger as a Reorganization and such opinion
either is furnished prior to the Effective Time or is based on facts or events
not known at the Effective Time. Each party shall provide to each other party
such tax information, reports, returns, or schedules as may be reasonably
required to assist such party in accounting for and reporting the Merger as a
Reorganization.
ARTICLE XIII
REMEDIES
13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify,
defend and hold Acquiror, the Company, the Surviving Corporation and
their respective directors, officers, members, managers, employees,
agents, attorneys and affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (collectively,
"Damages") asserted against or incurred by such indemnities arising out
of or resulting from:
13.1.1 a material breach of the Company or the Stockholders of
any representation, warranty or covenant of the Company or the Stockholders
contained herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation by Stockholders, the Company and/or any
of their past or present directors, officers, members, managers, shareholders,
employees, agents, consultants and affiliates of state or federal laws occurring
on or before the Closing Date;
13.1.3 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Stockholders, or the Company and provided in
writing to Acquiror or its counsel by the Company or the Stockholders,
specifically for inclusion in any preliminary prospectus, the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, arising out of or based upon any omission to state in such
writing a material fact relating to the Stockholders and/or the Company required
to
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be stated therein or necessary to make the statements therein not misleading,
and not provided to Acquiror or its counsel by the Company or the Stockholders,
provided, however, that such indemnity shall not inure to the benefit of
Acquiror and the Company to the extent that such untrue statement was made in,
or omission occurred in, any preliminary prospectus and Stockholder provided, in
writing, corrected information to Acquiror's counsel and to Acquiror for
inclusion in the final prospectus, and such information was not so included; and
13.1.4 any filings, reports or disclosures made by the Company
or the Stockholders, as the case may be, pursuant to the IRS Voluntary
Compliance Resolution Program.
13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and conditions of
this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or
incurred by them arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation,
warranty or covenant of Acquiror contained herein or in any Schedule or
certificate delivered by it hereunder; and
13.2.2 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to Acquiror, contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (and, in any event, at least ten days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole
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cost and expense of the Indemnifying Party, to defend the Indemnified Party
against such Third Party claim.
13.3.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel (reasonably satisfactory to the Indemnifying
Party) at the expense of the Indemnifying Party, and upon written notification
thereof, the Indemnifying Party shall not have the right to assume the defense
of such action on behalf of the Indemnified Party; provided further that the
Indemnifying Party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the Indemnified Party, which firm shall be designated in writing by the
Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 13.3.2, or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
13.3.2 but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the
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Indemnified Party to a final conclusion or settled. The Indemnified Party shall
have full control of such defense and proceedings, provided, however, that the
Indemnified Party may not enter into, without the Indemnifying Party's consent,
which shall not be unreasonably withheld, any compromise or settlement of such
Third Party Claim. Notwithstanding the foregoing, if the Indemnifying Party has
delivered a written notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume (reasonably satisfactory to the
Indemnifying Party) the defense of such action on behalf of the Indemnifying
Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
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13.4 INDEMNIFICATION EXCLUSIVE REMEDIES. Indemnification pursuant to and as
limited by the provisions of this Article XIII shall be the exclusive
remedy of any party for any misrepresentation or breach of any
warranty, representation, covenant or agreement contained herein or in
any schedule or certificate delivered hereunder or in any closing
document executed and delivered pursuant to the provisions hereof.
Notwithstanding the foregoing, the rights of any party to pursue the
remedy of specific performance, injunctive relief or other equitable
relief as a result of the breach of any covenant or agreement contained
herein or in any other document or agreement shall not be impaired or
otherwise affected in any manner.
13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions of Sections
13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or
covenant unless the claim for indemnification is brought within the
time limit set forth in Section 18.6, (b) no claim may be brought by
any party entitled to indemnification under this Article XIII unless
and until the aggregate cumulative amount to which such party is
entitled equals or exceeds $50,000, and (c) no party shall be obligated
to make any indemnification in excess of 50% of the value of the Merger
Consideration.
13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds, and
such correlative insurance benefit shall be net of the insurance
premium, if any, that becomes due as a result of such claim.
13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder,
the Stockholders may satisfy such obligation by transferring to
Acquiror such number of shares of Acquiror Common Stock owned by the
Stockholders having an aggregate fair market value (based on the last
reported sale price of Acquiror Common Stock on the Nasdaq National
Market or other exchange on which the Acquiror Common Stock is then
listed or the last quoted ask price on any over-the-counter market
through which the Acquiror Common Stock is then quoted on the last
trading day immediately preceding the day on which the Stockholder
transfers shares of Acquiror Common Stock to Acquiror hereunder) equal
to the indemnification obligation; provided that each of the following
conditions are satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good, valid
and marketable title to the shares of Acquiror Common Stock, free and clear of
all adverse claims, security interests, liens, claims, proxies, options,
stockholders' agreements and encumbrances;
13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
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13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, would not have a Material Adverse Effect on Acquiror
or its business.
ARTICLE XIV
TERMINATION
14.1 TERMINATION. This Agreement may be terminated and the Merger and the
Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual
agreement of all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if
any material representation or warranty of the Company or the Stockholders
contained in this Agreement or in any certificate or other document executed and
delivered by the Company or the Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or the
Stockholders fail to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 20 days after receipt by the
Company of written notice thereof; or
14.1.3 at any time prior to the Closing Date by the Company if
any representation or warranty of Acquiror contained in this Agreement or in any
certificate or other document executed and delivered by Acquiror pursuant to
this Agreement is or becomes untrue or breached in any material respect or if
Acquiror fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by Acquiror of written
notice thereof; or
14.1.4 by Acquiror or the Company if the Merger shall not have
been consummated by March 31, 1998.
14.2 EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the Company
and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available
at law or in equity. In the event of a termination of this Agreement
under the provisions of this Article, a party not then in material
breach of this Agreement shall stand fully released and discharged of
any and all obligations under this Agreement; provided, however, that
if a termination of this Agreement occurs pursuant to the last sentence
of Section 8.2, the parties hereto shall stand fully released and
discharged of any and all obligations under this Agreement.
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14.3 Upon the termination pursuant to Sections 14.1.1, 14.1.3 or 14.1.4,
Acquiror and the Company hereby agree that they shall negotiate in good
faith towards the entering of a mutually acceptable agreement for the
license for Acquiror's step2000, which agreement shall provide for a
10% royalty to Acquiror and contain such other usual and customary
terms and conditions with respect to Acquiror's license of such product
to other customers of Acquiror.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges that he or
she had in the past, currently has, and in the future may possibly
have, access to certain Confidential Information of the Company and
Acquiror that is valuable, special and unique assets of the Company's
and Acquiror's respective businesses. Acquiror acknowledges that it has
had in the past, currently has, and in the future may possible have,
access to certain Confidential Information of the Company that is
valuable, special and unique assets of the Company's business. Each
Stockholder, the Company, and Acquiror agree that they will not
disclose such Confidential Information to any person, firm,
corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Acquiror, the
Company and such Stockholder and (b) to counsel and other advisers to
Acquiror, respectively, provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 15.1,
unless (i) such information becomes available to or known by the public
generally through no fault of such Stockholder, the Company, or
Acquiror, as the case may be, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), such
Stockholder, the Company, or Acquiror, as the case may be, shall, if
possible, give prior written notice thereof to the Stockholder, the
Company, and Acquiror and provide such Stockholder, the Company,
Acquiror with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing
party, or (iv) the disclosing party is the sole and exclusive owner of
such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by a Stockholder of the
provisions of this Section 15.1, Acquiror and the Company shall be
entitled to an injunction restraining such Stockholder from disclosing,
in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting Acquiror, the Stockholder and the
Company from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
15.2 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they
would have no other adequate remedy, Acquiror, the Company, and
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the Stockholders agree that, in the event of a breach by any of them of
the foregoing covenant, the covenant may be enforced against them by
injunctions and restraining orders.
15.3 SURVIVAL. The obligations of the parties under this Article XV shall
survive the termination of this Agreement.
ARTICLE XVI
TRANSFER RESTRICTIONS
16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of one year
from the Closing or such other holding period as may be required under
applicable federal or state securities laws, the Stockholders shall
not, except pursuant to the Registration Rights Agreement and Section
13.7 hereof, voluntarily (a) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint, or otherwise dispose of (i) any
shares of Acquiror Common Stock received by such Stockholder in the
Merger, or (ii) any interest (including, without limitation, an option
to buy or sell) in any such shares of Acquiror Common Stock, in whole
or in part, and no such attempted transfer shall be treated as
effective for any purpose or (b) engage in any transaction, whether or
not with respect to any shares of Acquiror Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning
shares of Acquiror Common Stock. The certificates evidencing the
Acquiror Common Stock delivered to the Stockholder pursuant to this
Agreement will bear a legend substantially in the form set forth below
and containing such other information as Acquiror may reasonably deem
necessary or appropriate:
Except pursuant to the terms of the Registration Rights Agreement and
the Agreement and Plan of Merger and Reorganization ("Merger
Agreement") between the issuer, the holder of this certificate and the
other parties thereto, the shares represented by this certificate may
not be voluntarily sold, assigned, exchanged, transferred, encumbered,
pledged, distributed, appointed or otherwise disposed of, and the
issuer shall not be required to give effect to any attempted voluntary
sale, assignment, exchange, transfer, encumbrance, pledge,
distribution, appointment or other disposition prior to [date that is
one year after the Closing Date.] Upon the written request of the
holder of this certificate, the issuer agrees to remove this
restrictive legend (and any stop order placed with the transfer agent)
after the expiration of the period specified in the Merger Agreement.
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ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that the
shares of Acquiror Common Stock to be delivered to such Stockholder
pursuant to this Agreement have not been and will not be registered
under the Securities Act and may not be resold without compliance with
the Securities Act. The Acquiror Common Stock to be acquired by such
Stockholder pursuant to this Agreement is being acquired solely for
his, her or its own account, for investment purposes only and with no
present intention of distributing, selling or otherwise disposing of it
in connection with a distribution.
17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to
such Stockholder will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act
and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of
Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of
such investment and has such knowledge and experience in financial and
business matters that he, she or it is capable of evaluating the merits
and risks of the proposed investment and therefore have the capacity to
protect his, her or its own interests in connection with the
acquisition of the Acquiror Common Stock. Each Stockholder or its
purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of Acquiror concerning
any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background
and experience of the officers and directors of Acquiror, the plans for
the operations of the business of Acquiror, and any plans for
additional acquisitions and the like. Each Stockholder or its purchaser
representatives have asked any and all questions in the nature
described in the preceding sentence and all questions have been
answered to their satisfaction.
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17.4 ACCREDITED INVESTOR STATUS. Each Stockholder is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. The
Stockholder recognizes that, as an accredited investor, Acquiror is not
required to provide the Stockholder with any particular information or
disclosures as a condition to relying upon the Rule 506 exemption from
registration under the Securities Act with respect to the issuance of
Acquiror Common Stock in the Merger. However, the Stockholder
acknowledges that he, she or it has received and had the opportunity to
review the information about Acquiror contained in the Acquiror
Disclosure Schedules.
ARTICLE XVIII
MISCELLANEOUS
18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be
in writing, and signed by the parties hereto. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
18.2 ASSIGNMENT. Neither this Agreement nor any right created hereby or in
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by
Acquiror to a wholly owned subsidiary of Acquiror; provided that any
such assignment shall not relieve Acquiror of its obligations
hereunder.
18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any
rights or remedies hereunder or thereunder.
18.4 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect
to the subject matter hereof.
18.5 SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
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illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including
all statements contained in any certificate, exhibit or other
instrument delivered pursuant to this Agreement by or on behalf of the
Company, the Stockholder, or Acquiror, as the case may be, shall
survive the Closing until the first anniversary of the Closing Date.
18.7 GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
18.8 CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms
or provisions hereof.
18.9 GENDER AND NUMBER. When the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto"
and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement, unless otherwise noted.
18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall keep this
Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge
and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (a) by press release, filing or
otherwise that Acquiror has determined in its good faith judgment to be
required by federal securities laws or the rules of the National
Association of Securities Dealers, (b) to attorneys, accountants,
investment bankers or other agents of the parties assisting the parties
in connection with the transactions contemplated by this Agreement and
(c) by Acquiror in connection with the conduct of its Initial Public
Offering and conducting an examination of the operations and assets of
the Company; provided that Acquiror shall promptly provide notice to
the Company of any release made under this Section 18.11. In the event
that the transactions contemplated hereby are not consummated for any
reason whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the
other parties, except for information that is required by law to be
disclosed; provided that should the transactions contemplated hereby
not be consummated, nothing contained in this Section shall be
construed to prohibit the parties hereto from operating businesses in
competition with each
52
<PAGE> 60
other so long as no party discloses or uses any such Confidential
Information in connection therewith.
18.12 NOTICE. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by
telex, telegram, facsimile or courier service, when actually received
by the party to whom notice is sent or (ii) if delivered by mail
(whether actually received or not), at the close of business on the
third business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at
such other address as such party may designate by written notice to all
other parties in accordance herewith):
If to Acquiror: Universal Document Management Systems,
Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: Applied Software Technology, Inc.
1908 Cliff Valley Way, N.E.
Atlanta, Georgia 30329
Attn: Richard B. Burroughs, III
James M. Moss
with a copy to: Elrod & Thompson
1500 Peachtree Center-South Tower
225 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: J. Alston Thompson, Jr.
18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject to the in
personam jurisdiction of any state or federal court located in Hamilton
County, State of Ohio.
18.14 NO WAIVER; REMEDIES. No party hereto shall by any act (except by
written instrument pursuant to Section 18.1 hereof), delay, indulgence,
omission or otherwise be deemed to
53
<PAGE> 61
have waived any right or remedy hereunder or to have acquiesced in any
default in or breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of any
party hereto, any right, power or privilege hereunder shall operate as
a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. No
remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and
cumulative and may be exercised from time to time as often as occasion
may arise or as may be deemed expedient.
18.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its
own costs and expenses (including attorneys' fees) incurred in
connection with the transactions contemplated herein.
54
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:
-------------------------------------
Terry L. Theye, President
COMPANY:
APPLIED SOFTWARE TECHNOLOGY, INC.
By:
-------------------------------------
Richard B. Burroughs, III, President
STOCKHOLDERS:
----------------------------------------
Richard B. Burroughs, III
----------------------------------------
James M. Moss
55
<PAGE> 63
ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons;
Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
56
<PAGE> 64
Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related
Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons;
Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons;
Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
57
<PAGE> 1
EXHIBIT 10.4
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
TECHNICAL SOFTWARE, INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions............................................................. 1
Section 1.1 Certain General Definitions................................ 1
ARTICLE II
The Merger.............................................................. 4
Section 2.1 The Merger................................................. 4
Section 2.2 The Closing................................................ 4
Section 2.3 Effective Time............................................. 4
Section 2.4 Articles of Incorporation of Surviving Corporation......... 5
Section 2.5 Code of Regulations of Surviving Corporation............... 5
Section 2.6 Directors of the Surviving Corporation..................... 5
Section 2.7 Officers of the Surviving Corporation...................... 5
Section 2.8 Conversion of Company Capital Stock........................ 5
Section 2.9 Exchange of Certificates Representing Shares of Company
Common Stock .............................................. 5
Section 2.10 Fractional Shares.......................................... 6
Section 2.11 Subsequent Actions......................................... 6
ARTICLE III
Representations and Warranties of the Company and the Stockholder....... 7
Section 3.1 Organization and Good Standing; Qualification.............. 7
Section 3.2 Capitalization............................................. 7
Section 3.3 Transactions in Capital Stock.............................. 7
Section 3.4 Continuity of Business Enterprise.......................... 7
Section 3.5 Corporate Records.......................................... 7
Section 3.6 Authorization and Validity................................. 8
Section 3.7 No Violation............................................... 8
Section 3.8 Consents................................................... 8
Section 3.9 Financial Statements....................................... 8
Section 3.10 Liabilities and Obligations................................ 9
Section 3.11 Employee Matters........................................... 9
3.11.1 Cash Compensation................................... 9
3.11.2 Compensation Plans.................................. 9
3.11.3 Employment Agreements............................... 9
3.11.4 Employee Policies and Procedures.................... 10
3.11.5 Unwritten Amendments................................ 10
3.11.6 Labor Compliance.................................... 10
3.11.7 Unions.............................................. 10
3.11.8 Aliens.............................................. 10
Section 3.12 Employee Benefit Plans..................................... 10
3.12.1 Identification...................................... 10
3.12.2 Administration...................................... 11
3.12.3 Examinations........................................ 11
3.12.4 Prohibited Transactions............................. 11
</TABLE>
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<TABLE>
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3.12.5 Claims and Litigation................................ 11
3.12.6 Qualification........................................ 11
3.12.7 Funding Status....................................... 11
3.12.8 Excise Taxes......................................... 12
3.12.9 Multiemployer Plans.................................. 12
3.12.10 PBGC................................................. 12
3.12.11 Retirees............................................. 12
Section 3.13 Absence of Certain Changes................................... 12
Section 3.14 Title; Leased Assets......................................... 14
3.14.1 Real Property........................................ 14
3.14.2 Personal Property.................................... 14
3.14.3 Leases............................................... 14
Section 3.15 Commitments.................................................. 14
3.15.1 Commitments; Defaults................................ 14
3.15.2 No Cancellation or Termination of Commitment......... 15
Section 3.16 Insurance.................................................... 16
Section 3.17 Proprietary Rights and Information........................... 16
Section 3.18 Taxes........................................................ 16
3.18.1 Filing of Tax Returns................................ 17
3.18.2 Payment of Taxes..................................... 17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments
or Audits............................................ 17
3.18.4 No Extension of Limitation Period.................... 17
3.18.5 Withholding Requirements Satisfied................... 17
3.18.6 Foreign Person....................................... 17
3.18.7 Safe Harbor Lease.................................... 17
3.18.8 Tax Exempt Entity.................................... 17
3.18.9 Collapsible Corporation.............................. 18
3.18.10 Boycotts............................................. 18
3.18.11 Parachute Payments................................... 18
3.18.12 S Corporation........................................ 18
3.18.13 Personal Service Corporation......................... 18
3.18.14 Personal Holding Company............................. 18
Section 3.19 Compliance with Laws......................................... 18
Section 3.20 Finder's Fee................................................. 18
Section 3.21 Litigation................................................... 19
Section 3.22 Condition of Fixed Assets.................................... 19
Section 3.23 Distributions and Repurchases................................ 19
Section 3.24 Banking Relations............................................ 19
Section 3.25 Ownership Interests of Interested Persons; Affiliations...... 19
Section 3.26 Investments in Competitors................................... 19
Section 3.27 Environmental Matters........................................ 19
Section 3.28 Certain Payments............................................. 20
Section 3.29 No affiliation with NASD Member.............................. 20
ARTICLE IV
Representations and Warranties of the Stockholder......................... 20
Section 4.1 Validity; Stockholder Capacity............................... 20
</TABLE>
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<TABLE>
<S> <C>
Section 4.2 No Violation................................................. 20
Section 4.3 Personal Holding Company; Control of Related Businesses...... 21
Section 4.4 Transfers of the Company Capital Stock....................... 21
Section 4.5 Consents..................................................... 21
Section 4.6 Certain Payments............................................. 21
Section 4.7 Finder's Fee................................................. 21
Section 4.8 Ownership of Interested Persons; Affiliations................ 21
Section 4.9 Investments in Competitors................................... 21
Section 4.10 Disposition of Acquiror Shares............................... 22
ARTICLE V
Representations and Warranties of Acquiror................................ 22
Section 5.1 Organization and Good Standing............................... 22
Section 5.2 Capitalization............................................... 22
Section 5.3 Corporate Records............................................ 22
Section 5.4 Authorization and Validity................................... 22
Section 5.5 No Violation................................................. 23
Section 5.6 Finder's Fee................................................. 23
Section 5.7 Capital Stock................................................ 23
Section 5.8 Continuity of Business Enterprise............................ 23
Section 5.9 Consents..................................................... 23
Section 5.10 Proprietary Rights and Information........................... 24
Section 5.11 Taxes........................................................ 24
5.11.1 Filing of Tax Returns................................ 24
5.11.2 Payment of Taxes..................................... 24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments
or Audits............................................ 24
5.11.4 No Extension of Limitation Period.................... 24
5.11.5 All Withholding Requirements Satisfied............... 24
5.11.6 Foreign Person....................................... 24
5.11.7 Safe Harbor Lease.................................... 24
5.11.8 Tax Exempt Entity.................................... 25
5.11.9 Collapsible Corporation.............................. 25
5.11.10 Boycotts............................................. 25
5.11.11 Parachute Payments................................... 25
5.11.12 S Corporation........................................ 25
Section 5.12 Compliance with Laws................................. 25
Section 5.13 Litigation................................................... 25
Section 5.14 Ownership Interests of Interested Persons; Affiliations...... 26
Section 5.15 Investments in Competitors................................... 26
Section 5.16 Certain Payments............................................. 26
Section 5.17 Commitments.................................................. 26
5.17.1 Commitments; Defaults................................ 26
5.17.2 No Cancellation or Termination of Acquiror Commitment 27
Section 5.18 Acquiror Financial Statements................................ 27
Section 5.19 Liabilities and Obligations.................................. 28
Section 5.20 Employee Matters............................................. 28
</TABLE>
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<TABLE>
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ARTICLE VI
Covenants of the Company and the Stockholder........................... 28
Section 6.1 Consummation of Agreement................................. 28
Section 6.2 Business Operations....................................... 28
Section 6.3 Access.................................................... 29
Section 6.4 Notification of Certain Matters........................... 29
Section 6.5 Approvals of Third Parties................................ 29
Section 6.6 Employee Matters.......................................... 29
Section 6.7 Contracts................................................. 30
Section 6.8 Capital Assets; Payments of Liabilities................... 30
Section 6.9 Mortgages, Liens and Guaranties........................... 30
Section 6.10 Acquisition Proposals..................................... 31
Section 6.11 Distributions and Repurchases............................. 31
Section 6.12 Requirements to Effect the Merger......................... 31
Section 6.13 Lockup Agreements......................................... 31
ARTICLE VII Covenants of Acquiror............................................ 32
Section 7.1 Consummation of Agreement................................. 32
Section 7.2 Requirements to Effect Merger............................. 32
Section 7.3 Access.................................................... 32
Section 7.4 Notification of Certain Matters........................... 32
Section 7.5 Approvals of Third Parties................................ 32
ARTICLE VIII
Covenants of all Parties............................................... 32
Section 8.1 Filings; Other Action..................................... 33
Section 8.2 Amendment of Schedules.................................... 33
Section 8.3 Stockholder Employment Agreements......................... 34
ARTICLE IX
Conditions Precedent of Acquiror....................................... 34
Section 9.1 Due Diligence............................................. 34
Section 9.2 Representations and Warranties............................ 34
Section 9.3 Covenants................................................. 34
Section 9.4 Legal Opinion............................................. 34
Section 9.5 Proceedings............................................... 34
Section 9.6 No Material Adverse Change................................ 35
Section 9.7 Securities Approvals...................................... 35
Section 9.8 Simultaneous Closings..................................... 35
Section 9.9 Closing Deliveries........................................ 35
ARTICLE X
Conditions Precedent of the Company and the Stockholder................ 35
Section 10.1 Representations and Warranties............................ 35
Section 10.2 Covenants................................................. 35
Section 10.3 Legal Opinions............................................ 36
Section 10.4 Proceedings............................................... 36
</TABLE>
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<TABLE>
<S> <C>
Section 10.5 Government Approvals and Required Consents................ 36
Section 10.6 Securities Approvals...................................... 36
Section 10.7 Closing Deliveries........................................ 36
ARTICLE XI
Closing Deliveries...................................................... 36
Section 11.1 Deliveries of the Company and the Stockholder............. 36
Section 11.2 Deliveries of Acquiror.................................... 38
ARTICLE XII
Post Closing Matters.................................................... 39
Section 12.1 Further Instruments of Transfer........................... 39
Section 12.2 Preservation of Tax and Accounting Treatment.............. 39
Section 12.3 Merger Tax Covenants...................................... 40
ARTICLE XIII
Remedies................................................................ 41
Section 13.1 Indemnification by the Stockholder........................ 41
Section 13.2 Indemnification by Acquiror............................... 42
Section 13.3 Conditions of Indemnification............................. 43
Section 13.4 Remedies Not Exclusive.................................... 45
Section 13.5 Indemnification Limitations............................... 45
Section 13.6 Tax Benefits; Insurance Proceeds.......................... 45
Section 13.7 Payment of Indemnification Obligation..................... 45
ARTICLE XIV
Termination............................................................. 46
Section 14.1 Termination............................................... 46
Section 14.2 Effect of Termination..................................... 47
ARTICLE XV
Nondisclosure of Confidential Information............................... 47
Section 15.1 Nondisclosure............................................. 47
Section 15.2 Damages................................................... 47
Section 15.3 Survival.................................................. 48
ARTICLE XVI
Transfer Restrictions................................................... 48
Section 16.1 Transfer Restrictions..................................... 48
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock................................... 48
Section 17.1 Investment Representation................................. 49
Section 17.2 Compliance with Law....................................... 49
Section 17.3 Economic Risk; Sophistication............................. 49
Section 17.4 Accredited Investor Status................................ 49
</TABLE>
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<TABLE>
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ARTICLE XVIII
Miscellaneous .......................................................... 50
Section 18.1 Amendment; Waivers........................................ 50
Section 18.2 Assignment................................................ 50
Section 18.3 Parties In Interest; No Third Party Beneficiaries......... 50
Section 18.4 Entire Agreement.......................................... 50
Section 18.5 Severability.............................................. 50
Section 18.6 Survival of Representations, Warranties and Covenants..... 50
Section 18.7 Governing Law............................................. 51
Section 18.8 Captions.................................................. 51
Section 18.9 Gender and Number......................................... 51
Section 18.10 Reference to Agreement.................................... 51
Section 18.11 Confidentiality; Publicity and Disclosures................ 51
Section 18.12 Notice.................................................... 51
Section 18.13 Choice of Forum........................................... 52
Section 18.14 No Waiver; Remedies....................................... 52
Section 18.15 Counterparts.............................................. 52
Section 18.16 Costs, Expenses and Legal Fees............................ 53
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this "Agreement"),
dated as of ________, 1997, is by and among Technical Software, Inc., an Ohio
corporation (the "Company"), Greg Malkin, sole stockholder of the Company (the
"Stockholder"), and Universal Document Management Systems, Inc., an Ohio
corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror have
determined that a business combination between the Company and Acquiror is in
the best interests of their respective companies and Stockholder and presents an
opportunity for their respective companies to achieve long-term strategic
objectives and, accordingly, have agreed to effect the Merger (as hereinafter
defined) upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of", "do not
actually know of" and similar phrases shall mean (i) in the case of a natural
person, the actual conscious awareness, or not, as the context requires, of the
particular fact by such person, and (ii) in the case of an entity, the actual
conscious awareness, or not, as the context requires, of the particular fact by
any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no knowledge of",
"do not know of" or "to the knowledge of" and similar phrases shall mean (i) in
the case of a natural person, the particular fact was known, or not known, as
the context requires, to such person after diligent investigation and inquiry by
such person, and (ii) in the case of an entity, the particular fact was known,
or not known, as the context requires, to any stockholder, director or executive
officer of such entity after diligent investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital stock
of the Company, as set forth in the Company Disclosure Schedules, which are
authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholder to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets and
other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601
et seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Sections 6901 et seq., as amended), and regulations promulgated
thereunder, (iii) statutes, rules or regulations, whether federal, state or
local, applicable to the Company's assets or operations that relate to asbestos
or polychlorinated
2
<PAGE> 10
biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company's assets
or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.1.10 "Initial Public Offering" shall mean the initial underwritten
public offering of Acquiror Common Stock contemplated by the Registration
Statement.
1.1.11 "Initial Public Offering Price" shall mean the price per
share at which Acquiror Common Stock is offered for sale to the public in the
Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the United
States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the Merger,
and the mergers and acquisitions of entities and assets contemplated by the
Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules and
the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.1.21 "Target Companies" shall mean the companies listed on Exhibit
1.1.21 which Acquiror intends to acquire simultaneously with its acquisition of
the Company.
3
<PAGE> 11
1.1.22 "Tax Returns" shall include all federal, state, local or
foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter in
the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock, par
value $0.01 per share, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto or otherwise delivered by
Acquiror to the Company and/or the Stockholder, as such may be amended or
supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into
Acquiror in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be the
surviving corporation in the Merger (in such capacity, hereinafter referred to
as the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Ohio, and the separate corporate existence of Acquiror with all its
rights, privileges, powers, immunities, purposes and franchises shall continue
unaffected by the Merger, except as set forth herein. The Merger shall have the
effects specified in the Ohio General Corporation Law.
SECTION 2.2 THE CLOSING. The Closing shall take place at 10:00 a.m.,
Cincinnati time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of the
Target Companies. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
SECTION 2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth
in Articles IX and X shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated in accordance with Article
XIV, the parties hereto shall cause to be properly executed and filed on the
Closing Date a Certificate of Merger meeting the requirements of Section 1701.79
of the Ohio Revised Code. The Merger shall become effective at the time of the
filing of such document with the Secretary of State of Ohio, in accordance with
such laws or at such later time which the parties hereto have theretofore agreed
upon and designated in such filings as the effective time of the Merger (the
"Effective Time").
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SECTION 2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The
Articles of Incorporation of Acquiror in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
SECTION 2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of
Regulations of Acquiror in effect immediately prior to the Effective Time shall
be the Code of Regulations of the Surviving Corporation until duly amended in
accordance with its terms.
SECTION 2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are
directors of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Code of Regulations.
SECTION 2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are
officers of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation and shall
hold their same respective office(s) until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal.
SECTION 2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting
shares of the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the Company's
treasury at the Effective Time, by virtue of the Merger, shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
SECTION 2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON
STOCK.
2.9.1 At or after the Effective Time and at Closing (i) the
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock
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determined in accordance with the provisions of Exhibit 2.8.1 attached hereto;
and (ii) until the certificate or certificates representing Company Capital
Stock have been surrendered by a Stockholder and replaced by a certificate or
certificates representing Acquiror Common Stock, the certificate or certificates
for Company Capital Stock shall, for all purposes be deemed to evidence
ownership of the number of shares of Acquiror Common Stock determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto. All shares of
Acquiror Common Stock issuable to the Stockholder in the Merger shall be deemed
for all purposes to have been issued by Acquiror at the Effective Time.
2.9.2 The Stockholder shall deliver to Acquiror at Closing the
certificate or certificates representing Company Capital Stock owned by him,
duly endorsed in blank by the Stockholder, or accompanied by duly endorsed stock
powers in blank, and with all necessary transfer tax and other revenue stamps,
acquired at the Stockholder's expense, affixed and canceled. The Stockholder
agrees to cure any deficiencies with respect to the endorsement of the
certificates or other documents of conveyance with respect to such Company
Capital Stock or with respect to the stock powers accompanying any Company
Capital Stock. Upon such delivery, the Stockholder shall receive in exchange
therefor a certificate representing that number of shares of Acquiror Common
Stock and the amount of cash, if any, such Stockholder is entitled to receive
pursuant hereto.
SECTION 2.10 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Acquiror Common Stock will be issued and if the
Stockholder is entitled hereunder to receive a fractional share of Acquiror
Common Stock but for this Section 2.10, he will be entitled to receive a cash
payment in lieu thereof reflecting the Stockholder's proportionate interest in a
share of Acquiror Common Stock multiplied by the Initial Public Offering Price.
SECTION 2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of any of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, and to effect the cancellation of all
outstanding shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving Corporation
shall, at the sole cost and expense of the Surviving Corporation, be authorized
to execute and deliver, in the name and on behalf of the Company, to carry out
all such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of the Company, all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDER
The Company and the Stockholder, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
SECTION 3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of organization, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is not duly qualified and licensed
to do business in any other jurisdiction. The Company does not have any assets,
employees or offices in any state other than the state of its organization.
SECTION 3.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is set forth in the Company Disclosure Schedules. The
Stockholder owns all of the issued and outstanding Company Capital Stock, free
and clear of all security interests, liens, adverse claims, encumbrances,
equities, proxies and shareholders' agreements. Each outstanding share of
Company Capital Stock has been legally and validly issued and is fully paid and
nonassessable. No shares of Company Capital Stock are owned by the Company in
treasury. No shares of Company Capital Stock have been issued or disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any of the Company's Stockholder. The Company has no bonds, debentures, notes or
other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholder on any matter.
SECTION 3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired
any Company Capital Stock since January 1, 1993. There exist no options,
warrants, subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding securities of the
Company, and no option, warrant, call, conversion right or commitment of any
kind exists which obligates the Company to issue any of its authorized but
unissued capital stock. The Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative ownership
of shares among any of its Stockholder has been altered or changed in
contemplation of the Merger within the two years preceding the date of this
Agreement.
SECTION 3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the two
years preceding the date of this Agreement.
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SECTION 3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Code of Regulations, and all amendments thereto, of the Company that have
been delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of the
Company, copies of which have been delivered or made available to Acquiror,
contain accurate minutes of all meetings of, and accurate consents to all
actions taken without meetings by, the Board of Directors (and any committees
thereof) and such Stockholder of the Company since its formation.
SECTION 3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Company of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The Company has obtained, in accordance with
applicable law and its Articles of Incorporation and Code of Regulations, the
approval of its Stockholder necessary to the consummation of the transactions
contemplated hereby.
SECTION 3.7 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Code of Regulations of the Company, (b) except as would not, individually or in
the aggregate, result in a Material Adverse Effect, conflict with, or result in
a violation or breach of the terms, conditions or provisions of, or constitute a
default under, any agreement, indenture or other instrument under which the
Company is bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon any of the assets of the Company or (c) to the knowledge of the
Company, except as would not, individually or in the aggregate, result in a
Material Adverse Effect, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body.
SECTION 3.8 CONSENTS. Except as may have been obtained or as may be
required under the Exchange Act, the Securities Act, the Ohio General
Corporation Law and state securities laws, no consent, authorization, approval,
permit or license of, or filing with, any governmental or public body or
authority, any lender or lessor or any other person or entity is required to
authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or the agreements contemplated hereby on the part
of the Company, other than such consents as to which the failure to obtain would
not, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror
its: (i) audited balance sheet (the "Company Balance Sheet") as of December 31,
1996 (the "Company
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Balance Sheet Date") and 1995, and the related audited statements of operations,
stockholders' equity and cash flows for its three full fiscal years ended
December 31, 1996; and (ii) unaudited balance sheet as of June 30, 1997 and
related unaudited statements of operations, stockholders' equity and cash flows
for the six months ended June 30, 1997 and 1996 (collectively, with the related
notes thereto, the "Financial Statements"), copies of all of which are included
in the Company Disclosure Schedules. The Financial Statements fairly present the
financial condition and results of operations of the Company as of the dates and
for the periods indicated and have been prepared in conformity with generally
accepted accounting principles (subject to normal year-end adjustments and the
absence of notes for any unaudited interim financial statement for any interim
periods presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements.
SECTION 3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect
all liabilities of the Company, accrued, contingent or otherwise that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles (subject to normal
year-end adjustments and the absence of notes for any unaudited interim
financial statement for any interim periods presented). Except as set forth in
the Financial Statements, the Company is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity, and
the Company does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
SECTION 3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules contain a
complete and accurate list of the names, titles and annual cash compensation as
of December 31, 1996, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "Cash
Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules contain
a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options. The Company has provided or made available to
Acquiror a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Each of the Compensation Plans can be
terminated or amended at will by the Company.
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3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to any
employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company Disclosure
Schedules contain a complete and accurate list of all employee manuals and all
material policies, procedures and work-related rules (the "Employee Policies and
Procedures") that apply to employees of the Company. The Company has provided or
made available to Acquiror a copy of all written Employee Policies and
Procedures and a written description of all material unwritten Employee Policies
and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any agreement
with any union, labor organization or collective bargaining unit. The Company
has not been advised by any employee that he or she is represented by any union,
labor organization or collective bargaining unit. To the actual knowledge of the
Company, none of the employees of the Company has threatened to organize or join
a union, labor organization or collective bargaining unit.
3.11.8 ALIENS. To the best knowledge of the Company, all employees
of the Company are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
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SECTION 3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. To the knowledge of the Company, The Company and the Stockholder
have made all necessary filings, reports and disclosures with respect to all
applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the Company, no
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code or Sections 406 and 407 of ERISA) have occurred with respect to any
Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual knowledge
of the Company, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of Section 501 (a) of
the Internal Revenue Code. No proceedings exist or, to the actual knowledge of
the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
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3.12.7 FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Internal Revenue Code) in which the Company is a member (a "Controlled Group").
With respect to each Employee Benefit Plan subject to Title IV of ERISA, the
assets of each such plan are at least equal in value to the present value of
accrued benefits determined on an ongoing basis as of the date hereof. The
Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the Employee
Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet
Date, the Company has not
3.13.1 suffered a Material Adverse Effect, whether or not caused by
any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset having a
cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
3.13.3 incurred any indebtedness for borrowed money (other than
short-term borrowing in the ordinary course of business), or issued or sold any
debt securities;
3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
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3.13.5 paid any amount on any indebtedness prior to the due date,
forgiven or cancelled any claims or any debt in excess of $5,000, or released or
waived any rights or claims except in the ordinary course of business;
3.13.6 mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets
(other than statutory liens arising in the ordinary course of business or other
liens that do not materially detract from the value or interfere with the use of
such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate value
in excess of $25,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of its
assets, other than accounts receivable or inventories in the ordinary course of
business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier that
has, individually or in the aggregate, resulted in a Material Adverse Effect;
3.13.12 except in the ordinary course of business consistent with
past practice, increased the compensation of any director, officer, key employee
or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $50,000;
3.13.14 except in the ordinary course of business consistent with
past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
3.13.16 redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such capital stock, securities or
rights;
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3.13.17 entered into any agreement providing for total payments in
excess of $5,000 in any 12 month period with any person or group, or modified or
amended in any material respect the terms of any such existing agreement, except
in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit Plan,
except as contemplated hereby or the other agreements contemplated hereby; or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
SECTION 3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest (other
than leasehold interests described in the Company Disclosure Schedules) in real
property. The leased real property described in the Company Disclosure Schedules
constitutes the only real property necessary for the conduct of the Company's
business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and marketable
title to all the personal property owned by the Company, all of which is
reflected in the Financial Statements (collectively, the "Personal Property").
The Personal Property and the leased personal property referred to in Section
3.14.3 constitute the only personal property necessary for the conduct of the
Company's business. Upon consummation of the transactions contemplated hereby,
such interest in the Personal Property shall be free and clear of all security
interests, liens, claims and encumbrances, other than statutory liens arising in
the ordinary course of business or other liens that do not materially detract
from the value or interfere with the use of such properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases of
real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.15 COMMITMENTS.
3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which the
Company is a party or is bound by, or which any of the shares of Company Capital
Stock are subject to, or which the assets or the business of the Company are
bound by, whether or not in writing, are listed in the Company Disclosure
Schedules (collectively "Commitments"):
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3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification or
contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 days' notice or without penalty;
3.15.1.6 any agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition covenants;
3.15.1.10 any agreement providing for the purchase from a
supplier of all or substantially all of the requirements of the Company of a
particular product or service; or
3.15.1.11 any other agreement or commitment not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
Company or, to the best knowledge of the Company, any other party to a material
Commitment, and no penalties have been incurred nor are amendments pending, with
respect to the material Commitments. The Commitments are in full force and
effect and are valid and enforceable obligations of the Company and, to the best
knowledge of the Company, the other parties thereto in accordance with their
respective terms, in each case as may be limited any applicable bankruptcy,
insolvency, or similar laws affecting creditors' rights generally or the
availability of equitable
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remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of the Company, may be made by any party thereto (other than
the Company), nor has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither the
Company nor any Stockholder has received notice of any plan or intention of any
other party to any Commitment to exercise any right to cancel or terminate any
Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
SECTION 3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described in the Company Disclosure Schedules (the
"Insurance Policies"). The Insurance Policies are all of insurance polices
relating to the business of the Company. All of the Insurance Policies are
issued by insurers of recognized responsibility, and, to the best knowledge of
the Company, are valid and enforceable policies, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Acquiror. Neither the Company nor any
Stockholder has received any notice or other communication from any issuer of
any Insurance Policy canceling such policy, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and to the actual knowledge of the
Company, no such cancellation or increase of deductibles, retainages or premiums
is threatened. There are no outstanding claims, settlements or premiums owed
against any Insurance Policy, or the Company has given all notices or has
presented all potential or actual claims under any Insurance Policy in due and
timely fashion. The Company Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company during the immediately preceding three-year period.
SECTION 3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company
Disclosure Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties, assignments and other
similar agreements relating to the foregoing to which the Company is a party
(including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or processes
that the Company is licensed or authorized to use by others, or which it
licenses or authorizes others to use.
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The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
SECTION 3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Company Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records for all of the same that have not yet become due and (ii) the Company is
not delinquent in the payment of any tax, assessment or governmental charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required to be
withheld by the Company and paid to governmental agencies for all income, social
security, unemployment
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insurance, sales, excise, use, and other taxes have been collected or withheld
and paid to the respective governmental agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company and none
of the Assets are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any time
consented, and the Stockholder will not permit the Company to elect, to have the
provisions of Section 341(f)(2) of the Internal Revenue Code apply to it.
3.18.10 BOYCOTTS. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company, no
payment required or contemplated to be made by the Company will be characterized
as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code.
3.18.12 S CORPORATION. The Company has made an election to be taxed
as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
3.18.13 PERSONAL SERVICE CORPORATION. The Company is not a personal
service corporation subject to the provisions of Section 269A of the Internal
Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. The Company is not or has not been
a personal holding company within the meaning of Section 542 of the Internal
Revenue Code.
SECTION 3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the
Company has complied with all applicable laws, and regulations and has filed
with the proper authorities all necessary statements and reports except where
the failure to so comply or file would not, individually or in the aggregate,
result in a Material Adverse Effect. To the knowledge of the Company, there are
no existing violations by the Company of any federal, state or local law or
regulation that could, individually or in the aggregate, result in a Material
Adverse Effect. The Company possesses all necessary licenses, franchises,
permits and governmental authorizations for the conduct of the Company's
business as now conducted, all of which are listed (with expiration
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dates, if applicable) in the Company Disclosure Schedules. The transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded by any such
licenses, franchises, permits or government authorizations, except for any such
default, breach or violation that would not, individually or in the aggregate,
have a Material Adverse Effect. Since January 1, 1992, the Company has not
received any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any insurance
or inspection body, that its operations or any of its properties, facilities,
equipment, or business practices fail to comply with any applicable law,
ordinance, regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.20 FINDER'S FEE. The Company has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.21 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of the
Company threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the assets of the
Company, or the operation, business, condition (financial or otherwise), or
results of operations of the Company which (i) if, successful, could,
individually or in the aggregate, have a Material Adverse Effect or (ii) could
adversely affect the ability of the Company or any Stockholder to effect the
transactions contemplated hereby. Neither the Company nor any Stockholder is (a)
subject to any continuing court or administrative order, judgment, writ,
injunction or decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any such
order, judgment, writ, injunction or decree. The Company has no knowledge of any
valid basis for any such action, proceeding or investigation. All claims made
or, to the actual knowledge of the Company, threatened against the Company in
excess of its deductible are covered under its Insurance Policies.
SECTION 3.22 CONDITION OF FIXED ASSETS. All of the structures and
equipment reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and tear, and
conform in all material respects with all applicable ordinances, regulations and
other laws, and the Company has no actual knowledge of any latent defects
therein.
SECTION 3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
SECTION 3.24 BANKING RELATIONS. Set forth in the Company Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of
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arrangement maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect thereof.
SECTION 3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an individual
or joint basis, any interest in, has a compensation or other financial
arrangement with, or serves as an officer or director of, any customer or
supplier of the Company or any organization that has a material contract or
arrangement with the Company.
SECTION 3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any
Stockholder owns directly or indirectly any interests or has any investment in
any person that is a competitor of the Company.
SECTION 3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its
assets are currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or inquiry by any
governmental authority or to any remedial obligations under, any Environmental
Laws, except for any such violations, investigations or inquiries that would
not, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.28 CERTAIN PAYMENTS. Neither the Company nor any director,
officer or employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholder or
officers or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to Acquiror that the following,
except as set forth in the Company Disclosure Schedules, are true and correct as
of the date hereof and agrees as follows:
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SECTION 4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the
Stockholder Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will be as of
the Closing Date duly executed and delivered by the Stockholder and constitutes
or will constitute legal, valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
The Stockholder has legal capacity to enter into and perform this Agreement and
his Stockholder Employment Agreement.
SECTION 4.2 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation of the
transactions contemplated hereby or thereby, will (a) conflict with, or result
in a violation or breach of the terms, conditions or provisions of, or
constitute a default under, any agreement, indenture or other instrument under
which the Stockholder is bound or to which any of his, her or its shares of
Company Capital Stock are subject, or result in the creation or imposition of
any security interest, lien, charge or encumbrance upon any of his shares of
Company Capital Stock or (b) to the actual knowledge of the Stockholder, violate
or conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
SECTION 4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly or
indirectly, beneficially or of record, through a personal holding company. The
Stockholder does not control another business that is in the same or similar
line of business as the Company or that has or is engaged in transactions with
the Company except transactions in the ordinary course of business.
SECTION 4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the
Company Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All transfers of
Company Capital Stock by the Stockholder have been made for valid business
reasons and not in anticipation or contemplation of the consummation of the
transactions contemplated by this Agreement.
SECTION 4.5 CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, the Ohio General Corporation Law and state securities laws,
or otherwise disclosed pursuant to this Agreement, no consent, authorization,
approval, permit or license of, or filing with, any governmental or public body
or authority, or any other person is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of the Stockholder.
SECTION 4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be
paid, directly or indirectly, in connection with the business of the Company:
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4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate (other
than from personal funds not reimbursed by the Company or as otherwise permitted
by applicable law).
SECTION 4.7 FINDER'S FEE. The Stockholder has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the
Stockholder nor his spouse, children or Affiliates, owns directly or indirectly,
on an individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any customer
or supplier of the Company or any organization that has a material contract or
arrangement with the Company.
SECTION 4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own
directly or indirectly any interests or have any investment in any person that
is a competitor of the Company.
SECTION 4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not
presently intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or agreement
for the disposition of such shares of Acquiror Common Stock, except this
Agreement and the Registration Rights Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
SECTION 5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, with all requisite corporate power and authority to carry on the business
in which it is engaged, to own the properties it owns, to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
SECTION 5.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not have any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the shareholders of Acquiror on any matter. There exist no
options, warrants, subscriptions or other rights to purchase, or securities
convertible into or exchangeable for, any of
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the authorized or outstanding securities of Acquiror, and no option, warrant,
call, conversion right or commitment of any kind exists which obligates Acquiror
to issue any of its authorized but unissued capital stock, except this Agreement
and the Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay a dividend or make any distribution in respect
thereof. To the best knowledge of Acquiror, no shareholder of Acquiror has
granted options or other rights to purchase any shares of Acquiror Common Stock
from such shareholder.
SECTION 5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Code of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholder are true, correct
and complete copies thereof, as in effect on the date hereof. The minute books
of Acquiror, copies of which have been delivered or made available to the
Company and the Stockholder, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the shareholders of Acquiror, since
its formation.
SECTION 5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by the Board of Directors and shareholders of
Acquiror. This Agreement and each other agreement contemplated hereby to be
executed by Acquiror have been or will be as of the Closing Date duly executed
and delivered by Acquiror and constitute or will as of the Closing Date
constitute legal, valid and binding obligations of Acquiror, enforceable against
Acquiror in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
SECTION 5.5 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Articles of Incorporation or
Code of Regulations of Acquiror or any agreement, indenture or other instrument
under which Acquiror is bound or (b) to the knowledge of Acquiror, except as
would not, individually or in the aggregate, have a Material Adverse Effect on
the business, operations, condition (financial or otherwise) or results of
operations of Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the properties or
assets of Acquiror.
SECTION 5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares
of Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of Acquiror.
The shares of Acquiror Common Stock to
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be issued in connection with the Merger, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights, rights of
first refusal or similar rights of any of Acquiror's shareholders, or any
federal or state law, including, without limitation, the registration
requirements of applicable federal and state securities laws.
SECTION 5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention
of Acquiror to continue at least one significant historic business line of the
Company, or to use at least a significant portion of the Company's historic
business assets in a business, in each case within the meaning of Treasury
Regulation Section 1.368-1(d).
SECTION 5.9 CONSENTS. Except as have been obtained or as may be required
by or under the Exchange Act, the Ohio General Corporation Law, the Securities
Act and state securities laws, no consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of Acquiror.
SECTION 5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or
use any trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any agreement
relating to the use of technology or know-how. Acquiror has the right to use,
free and clear of any claims or rights of others, all trade secrets, customer
lists and proprietary information required for the marketing of all merchandise
and services formerly or presently sold or marketed by it.
SECTION 5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such tax
returns or reports are complete and accurate and properly reflect the taxes of
Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due. Acquiror is not delinquent in the payment
of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing
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authority audit of Acquiror pending, or to the actual knowledge of Acquiror,
threatened. Acquiror has not violated any federal, state, local or foreign tax
law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by Acquiror and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder thereof
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror constitute
property that the Company, Acquiror, or any Affiliate of Acquiror, will be
required to treat as being owned by another person pursuant to the "Safe Harbor
Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior to
repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the Stockholder thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or contemplated to
be made by Acquiror will be characterized as an "excess parachute payment"
within the meaning of Section 28OG(b)(1) of the Internal Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
SECTION 5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the aggregate, result
in a Material Adverse Effect. There are no existing violations by Acquiror of
any federal, state or local law or regulation that could materially adversely
affect its property or business. Acquiror possesses all necessary licenses,
franchises, permits and governmental
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authorizations for the conduct of its business as now conducted. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government authorizations
except for any default, breach or violation that would not, individually or in
the aggregate, have a Material Adverse Effect. Acquiror has not received any
notice from any federal, state or other governmental authority or agency having
jurisdiction over its properties or activities, or any insurance or inspection
body, that its operations or any of its properties, facilities, equipment, or
business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or quasi-public
authority or body.
SECTION 5.13 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the outstanding
shares of Acquiror Common Stock, any of the assets of Acquiror, or the
operations, business, condition (financial or otherwise) or results of
operations of Acquiror. Acquiror is not (a) subject to any continuing court or
administrative order, writ, injunction or decree applicable specifically to it
or to its business, assets, operations or employees or (b) in default with
respect to any such order, writ, injunction or decree. Acquiror has no knowledge
of any valid basis for any such action, proceeding or investigation.
SECTION 5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any customer
or supplier of Acquiror or any organization that has a material contract or
arrangement with Acquiror, except Acquiror's corporate parent, MedPlus, Inc.
SECTION 5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any
shareholder thereof owns directly or indirectly any interests or has any
investment in any person that is a competitor of Acquiror or one of the Target
Companies.
SECTION 5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder,
director, officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 5.17 COMMITMENTS.
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5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another;
5.17.1.4 contract to purchase real property;
5.17.1.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 day's notice or without penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholder.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other
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party to a material Acquiror Commitment, and no penalties have been incurred nor
are amendments pending, with respect to the material Acquiror Commitments. The
Acquiror Commitments are in full force and effect and are valid and enforceable
obligations of Acquiror and, to the best knowledge of Acquiror, the other
parties thereto in accordance with their respective terms, in each case as may
be limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally or the availability of equitable remedies, and no
defenses, off-sets or counterclaims have been asserted or, to the best knowledge
of Acquiror, may be made by any party thereto (other than Acquiror), nor has
Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT. Except
as contemplated hereby, (i) Acquiror has not received notice of any plan or
intention of any other party to any Acquiror Commitment to exercise any right to
cancel or terminate any Acquiror Commitment, and Acquiror does not know of any
fact that would justify the exercise of such a right; and (ii) Acquiror does not
currently contemplate, or have knowledge any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
SECTION 5.18 ACQUIROR FINANCIAL STATEMENTS. The audited balance sheet as
of December 31, 1996 and 1995, and related statements of operations,
shareholder's net investment and cash flows for each of the years in the
three-year period ended December 31, 1996, along with the unaudited interim
balance sheet as of June 30, 1997 and related statements of operations,
shareholder's net investment and cash flows for the six months ended June 30,
1997 and 1996 are contained in the Acquiror Disclosure Schedules (collectively,
with the related notes thereto, the "Acquiror Financial Statements"). The
Acquiror Financial Statements fairly present the financial condition and results
of operations of Acquiror as of the dates and for the periods indicated and have
been prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments) applied on a consistent basis with
prior periods, except as otherwise indicated in the Acquiror Financial
Statements.
SECTION 5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial
Statements reflect all liabilities of Acquiror, accrued, contingent or
otherwise, that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1996. Acquiror is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
SECTION 5.20 EMPLOYEE MATTERS. Acquiror does not have any material
arrangements, agreements or plans with any person with respect to the employment
by Acquiror of such person or whereby such person is to serve as an officer or
director of Acquiror.
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ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDER
The Company and the Stockholder, jointly and severally, agree that between
the date hereof and the Closing or the date on which this Agreement is
terminated in accordance with Article XIV hereof (with respect to the Company's
covenants, the Stockholder agrees to use their best efforts to cause the Company
to perform):
SECTION 6.1 CONSUMMATION OF AGREEMENT. Subject to the rights of
termination set forth in Article XIV hereof, the Company and the Stockholder
shall use their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions; provided,
however, that this covenant shall not require the Company or a Stockholder to
make any expenditures that are not expressly set forth in this Agreement or
otherwise contemplated herein.
SECTION 6.2 BUSINESS OPERATIONS. The Company shall operate its business in
the ordinary course. The Company and the Stockholder shall use his best efforts
to preserve the business of the Company intact. Neither the Company nor any
Stockholder shall take any action that would, individually or in the aggregate,
result in a Material Adverse Effect. The Company shall use its best efforts to
preserve intact its relationships with customers, suppliers, employees and
others having significant business relations with it, unless doing so would
impair its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its trade
payables in the ordinary course of business consistent with past practice.
SECTION 6.3 ACCESS. The Company and the Stockholder shall, at reasonable
times during normal business hours and on reasonable notice, permit Acquiror and
its authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Acquiror and its authorized
representatives to inspect and, at Acquiror's sole cost and expense, make copies
of all documents, records and information with respect to the affairs of the
Company as Acquiror and its representatives may request, all for the sole
purpose of permitting Acquiror to become familiar with the business and assets
and liabilities of the Company.
SECTION 6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Stockholder shall promptly inform Acquiror in writing of (a) any notice of or
other communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by the Company or any
Stockholder subsequent to the date of this Agreement and prior to the Effective
Time under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
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SECTION 6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholder
shall use their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including, without
limitation, all necessary approvals and consents required under any real
property and personal property leases; provided, however, that this covenant
shall not require the Company or the Stockholder to make any material
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
SECTION 6.6 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder or other
employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any Employee
Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with respect to
any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any Employee
Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation except
as could not, individually or in the aggregate, result in a Material Adverse
Effect;
6.6.10 enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any past or
present employee of the Company that would, individually or in the aggregate,
result in a Material Adverse Effect.
SECTION 6.7 CONTRACTS. Except with Acquiror's prior written consent, the
Company shall not assume or enter into any contract, lease, license, obligation,
indebtedness, commitment,
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purchase or sale except in the ordinary course of business that is material to
the Company's business, nor will it waive any material right or cancel any
material contract, debt or claim.
SECTION 6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall
not, without the prior written approval of Acquiror (a) acquire or dispose of
any capital asset having a fair market value of $25,000 or more, or acquire or
dispose of any capital asset outside of the ordinary course of business or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the Financial
Statements or (ii) current liabilities and obligations incurred in the usual and
ordinary course of business since the Company Balance Sheet Date and, in either
case (i) or (ii) above, only as required by the express terms of the agreement
or other instrument pursuant to which the liability or obligation was incurred.
SECTION 6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not,
without the prior written approval of Acquiror, enter into or assume any
mortgage, pledge, conditional sale or other title retention agreement, permit
any security interest, lien, encumbrance or claim of any kind to attach to any
of its assets (other than statutory liens arising in the ordinary course of
business, other liens that do not materially detract from the value or interfere
with the use of such assets, and liens, guarantees and encumbrances that are
granted or created in the ordinary course of business), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for any
obligation of another, except obligations arising by reason of endorsement for
collection and other similar transactions in the ordinary course of business, or
make any capital contribution or investment in any person.
SECTION 6.10 ACQUISITION PROPOSALS. The Company and the Stockholder agrees
that from and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the Stockholder
and the Company shall direct and use their best efforts to cause the Company's
employees, agents and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
Stockholder) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that the Stockholder and the Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing and each
will take the necessary steps to inform the individuals or entities referred to
in the first sentence hereof of the obligations undertaken in this Section 6.10;
and (c) that the Stockholder and the Company will notify Acquiror immediately if
any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Company or the Stockholder.
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SECTION 6.11 DISTRIBUTIONS AND REPURCHASES. Except as provided in Section
6.14, no distribution, payment or dividend of any kind will be declared or paid
by the Company in respect of Company Capital Stock, nor will any repurchase of
any Company Capital Stock be approved or effected.
SECTION 6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the
Stockholder shall use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
SECTION 6.13 LOCKUP AGREEMENTS. Each of the Stockholder shall, upon
request of the Underwriter Representative, execute a customary "lockup"
agreement in connection with the Initial Public Offering, pursuant to which the
Stockholder will be prohibited from selling any Acquiror Common Stock owned by
them for up to 180 days from the closing of the Initial Public Offering.
SECTION 6.14 S CORPORATION DISTRIBUTION; "AAA" NOTES. The Company shall,
upon request of the Stockholder, distribute to the Stockholder on the Closing
Date immediately prior to the Closing an amount equal to the amount of the
Company's Accumulated Adjustment Account as of the Closing Date, in either (a)
cash or (b) cash plus a promissory note of the Company payable to the order of
the Stockholder in form and substance satisfactory to the Stockholder.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
SECTION 7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts
to cause the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant shall not
require Acquiror to make any expenditures that are not expressly set forth in
this Agreement or otherwise contemplated herein.
SECTION 7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best
efforts to take, or cause to be taken, all actions necessary to effect the
Merger under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form approved by
counsel for the parties to this Agreement.
SECTION 7.3 ACCESS. Acquiror shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company, the Stockholder and
his authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of Acquiror,
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including its employees, and permit the Company, the Stockholder, and his
authorized representatives to inspect and, at the Company's and the
Stockholder's sole expense, make copies of all documents, records and
information with respect to the affairs of Acquiror as the Company, the
Stockholder and his representatives may request (including documents, records
and information pertaining to or generated in connection with any Target
Company, except as may be prohibited by confidentiality agreements to which
Acquiror is a party), all for the sole purpose of permitting the Company and the
Stockholder to become familiar with the business and assets and liabilities of
Acquiror.
SECTION 7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly
inform the Company and the Stockholder in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by Acquiror subsequent to the date of
this Agreement and prior to the Effective Time under any Acquiror Commitment
material to Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business and to which it is subject; or (b) any material adverse
change in Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business.
SECTION 7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholder agrees as follows (with respect
to the Company's covenants, the Stockholder agrees to use their best efforts to
cause the Company to perform):
SECTION 8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholder shall cooperate to
promptly prepare and file with the SEC the Registration Statement on Form S-1
(or other appropriate Form) to be filed by Acquiror in connection with its
Initial Public Offering (including the prospectus constituting a part thereof,
the "Registration Statement"). Acquiror shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company and the Stockholder
shall furnish all information concerning the Company and the Stockholder as may
be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholder and Acquiror specifically for
inclusion in the Registration
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Statement, by exhibit or otherwise, will, at the time the Registration Statement
and each amendment and supplement thereto, if any, becomes effective under the
Securities Act, 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 the light of the circumstances under which they were
made, not misleading. The Company, the Stockholder and Acquiror shall agree as
to the information and documents supplied by the Company and the Stockholder for
inclusion in the Registration Statement, including all exhibits and schedules
thereto, and shall indicate such information and documents in a letter to be
delivered at Closing (the "Information Letter"). The Company and the Stockholder
shall be entitled to review the Registration Statement, including all exhibits
and schedules thereto, and each amendment thereto, if any, prior to the time
each becomes effective under the Securities Act.
8.1.3 The Stockholder and the Company shall, upon request, furnish
Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and Stockholder and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
SECTION 8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly (i) in the case of Acquiror, the Acquiror
Disclosure Schedules and (ii) in the case of the Company or the Stockholder, the
Company Disclosure Schedules with respect to any matter that would have been or
would be required to be set forth or described in the Schedules in order to not
materially breach any representation, warranty or covenant of such party
contained herein; provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be made
unless Acquiror consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Acquiror may be made unless the Company and the Stockholder consent to such
amendment or supplement. For all purposes of this Agreement, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 8.2. In the event that the Company seeks to amend or supplement
a Schedule pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and the Company and the Stockholder does not
consent, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 14.1.1 hereof.
SECTION 8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to
Closing, each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent without any
liability on the part of the Company therefor, and shall enter into a
Stockholder Employment Agreement in the form appended hereto as Exhibit 8.3 with
Acquiror (the "Stockholder Employment Agreements").
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ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence
review of the Company and shall be reasonably satisfied with the results
thereof.
SECTION 9.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Stockholder contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all respects as of the Closing Date.
SECTION 9.3 COVENANTS. The Company and the Stockholder shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by the Company or the
Stockholder prior to the Closing Date.
SECTION 9.4 LEGAL OPINION. Counsel to the Company and the Stockholder
shall have delivered to Acquiror their opinions, dated as of the Closing Date,
in form and substance reasonably satisfactory to Acquiror, to the effect set
forth in Exhibit 9.4.
SECTION 9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet Date, whether
or not such change shall have been caused by the deliberate act or omission of
the Company or the Stockholder.
SECTION 9.7 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Acquiror shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby. The Acquiror Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
SECTION 9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as
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Acquiror and the Underwriter Representative shall agree will be sufficient for
purposes of the Initial Public Offering) shall all be closed and consummated
simultaneously with the closing of the Merger.
SECTION 9.9 CLOSING DELIVERIES. Acquiror shall have received all documents
and agreements, duly executed and delivered in form satisfactory to Acquiror,
referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDER
Except as may be waived in writing by the Company and the Stockholder, the
obligations of the Company and the Stockholder hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acquiror contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
respects as of the Closing Date.
SECTION 10.2 COVENANTS. Acquiror shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
SECTION 10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company and
the Stockholder their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholder, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to Company and the
Stockholder their opinion, dated as of the Closing Date, to the effect set forth
in Exhibit 10.3.2 (the "Tax Opinion").
SECTION 10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company,
Stockholder and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
SECTION 10.6 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration
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Statement shall have been issued and no proceedings for that purpose shall have
been initiated or threatened by the SEC. At or prior to the Closing Date,
Acquiror shall have received all state securities and "Blue Sky" permits
necessary to consummate the transactions contemplated hereby. At or prior to the
Closing Date, the Acquiror Common Stock shall have been approved for listing on
The Nasdaq National Market, subject only to official notification of issuance.
SECTION 10.7 CLOSING DELIVERIES. The Company shall have received all
documents and agreements, duly executed and delivered in form satisfactory to
the Company, referred to in Section 11.2.
SECTION 10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the closing of the Merger.
ARTICLE XI
CLOSING DELIVERIES
SECTION 11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDER. At or prior to
the Closing Date, the Company and the Stockholder shall deliver to Acquiror c/o
Dinsmore & Shohl LLP, counsel to Acquiror, the following, all of which shall be
in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
Stockholder of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholder, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholder contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and the
Stockholder, dated the Closing Date, (i) as to the performance of and compliance
in all material respects by the Company and the Stockholder with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of the Company and the Stockholder to the Closing have been
satisfied;
11.1.4 a certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
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11.1.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of the state of incorporation of the Company
establishing that such corporation is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in its state of organization;
11.1.6 an opinion of Ulmer & Berne LLP, counsel to the Company and
the Stockholder dated as of the Closing Date, pursuant to Section 9.4;
11.1.7 all necessary authorizations, consents, approvals, permits
and licenses;
11.1.8 the resignations of the directors and officers of the Company
as requested by Acquiror;
11.1.9 an executed Stockholder Employment Agreement between Acquiror
and each Stockholder in substantially the form attached hereto as Exhibit 8.3;
11.1.10 an executed Registration Rights Agreement between Acquiror
and the Stockholder in substantially the form attached hereto as Exhibit 11.1.11
(the "Registration Rights Agreement");
11.1.11 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.1.12 a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder, signed
under a penalty of perjury and dated as of the Closing Date, to the effect that
each Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder United States taxpayer
identification number;
11.1.13 the Information Letter required by Section 8.1.2
11.1.14 a copy of the bill from Ulmer & Berne LLP, the Company's
legal counsel, setting forth the aggregate legal fees incurred by the Company
for services rendered to the Company in connection with the Merger; and
11.1.15 such other instrument or instruments of transfer prepared by
Acquiror as shall be necessary or appropriate, as Acquiror or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
SECTION 11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date,
Acquiror shall deliver to the Company and the Stockholder c/o Dinsmore & Shohl
LLP, counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholder:
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11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the Closing
Date as to the truth and correctness of the representations and warranties of
Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the Closing
Date, (i) as to the performance and compliance by Acquiror with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Acquiror to the Closing have been satisfied or waived;
11.2.4 a certificate of the Secretary of Acquiror certifying as to
the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten days
prior to the Closing Date, of the Secretaries of State of the states in which
Acquiror is qualified to do business, to the effect that Acquiror is qualified
to do business and, if applicable, is in good standing as a foreign corporation
in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to Acquiror,
dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.2.11 an executed Stockholder Employment Agreement in
substantially the form attached hereto as Exhibit 8.3;
11.2.12 the Merger Consideration; and
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11.2.13 such other instrument or instruments of transfer, prepared
by the Company or the Stockholder as shall be necessary or appropriate, as the
Company, the Stockholder or their counsel shall reasonably request, to carry out
and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
SECTION 12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the request of Acquiror and at Acquiror's sole cost and expense, the Stockholder
and the Company shall deliver any further instruments of transfer and take all
reasonable action as may be necessary or appropriate to carry out the purpose
and intent of this Agreement.
SECTION 12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Closing Date, Acquiror shall not and shall not permit any of its subsidiaries
to:
12.2.1 retire or reacquire, directly or indirectly, all or part of
the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of the
Stockholder; or
12.2.3 dispose of a significant part of the assets of the Company
within the two years following the Closing Date except in the ordinary course of
business, to Affiliates of Acquiror or to eliminate duplicate services or excess
capacity.
SECTION 12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholders as a result of the Merger will not exceed
the amount of any cash received by the Stockholders in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Internal
Revenue Code, to report the Merger as a Reorganization and such opinion either
is furnished prior to the Effective Time or is based on facts or events not
known at the Effective Time. Each party shall provide to each other party such
tax
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information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
SECTION 12.4 OTHER TAX COVENANTS.
12.4.1 The Company will include the income of the Company for
taxable periods ending on and prior to the Closing Date in the Company's federal
income tax returns for such periods in accordance with the provisions of the
Code and the regulations promulgated thereunder and in its state and local
income tax returns. The parties agree that Stockholder shall have the final
authority for determining the taxable income of the Company for all taxable
periods ending on and prior to the Closing Date, as well as other information to
be reported or elections to be made for said periods in the income tax returns
of the Company; provided, however, Stockholder shall be responsible for any tax
liability of the Company for taxable periods ending on and prior to the Closing
Date, including any income tax liability which may be assessed as a result of an
audit for such taxable periods by any taxing authorities.
12.4.2 After the Closing Date, Stockholder and Acquiror will
cooperate with each other as to any tax matters involving the operations of the
Company prior to and after the Closing Date. In the event of an audit by or a
contest with taxing authorities relating to the operations of the Company for
any period prior to the Closing Date, Stockholder shall have the right, after
consultation with Acquiror, to control and make all decisions regarding the
audit or any contest of the issues involved, including the selection of legal
counsel and the forum for such contests. In the event of an audit by or contest
with taxing authorities relating to periods subsequent to the Closing Date,
Acquiror shall have the right, after consultation with Stockholder, to control
and make all decisions regarding the audit or any contest of the issues
involved, including the selection of legal counsel and the forum for such
contest. Stockholder and Acquiror agree that, with ten (10) business days
following a request by a party hereto, they will: (a) furnish such data as each
may reasonably require to determine the tax liability of the Company for the
relevant period; (b) make available to each other, as reasonably requested,
personnel responsible for preparing or maintaining information, records and
documents concerning tax matters involving the Company which are required by the
requesting party in preparing any tax returns involving the Company; (c) assist
each other, as reasonably requested, in preparing any necessary tax forms and
schedules relating the Company; and (d) cooperate with any reasonable request of
a requesting party in connection with its preparation for an audit of any tax
return involving the operation of the Company, including providing all
documents, correspondence, reports and other materials bearing on such audit,
and the execution of such powers of attorney as either party may reasonably
require. The requesting party agrees to reimburse the other party for all
reasonable out-of-pocket expenses sustained by the other party in supplying
information or assistance to the requesting party.
12.4.3 Acquiror will not make any changes in methods or conventions
used by the Company, or report or treat any specific item of the Company for any
taxable period ending after the Closing Date in a manner inconsistent with the
manner in which such specific item was reported or treated by the Company on any
such tax return for a taxable period ending prior to the Closing
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Date, if such action would have the legal effect of increasing the tax liability
or reducing the tax benefits of Stockholder for any taxable period ending prior
to the Closing Date; provided, however, nothing herein shall restrict Acquiror
from treating any item for tax purposes in a manner which is inconsistent with
the practices of the Company prior to the Closing Date, if in the opinion of
Acquiror or its independent certified public accountants, such inconsistency is
necessary or appropriate under the Code or regulations thereunder.
12.4.4 Stockholder shall be entitled to recover from Acquiror any
refunds or credits (when received) attributable to taxes paid by Stockholder or
the Company for periods prior to the Closing Date. Acquiror agrees to promptly,
after receipt of such refunds or credits, pay to Stockholder the amount of such
refunds or credits attributable to the tax periods prior to the Closing Date.
With respect to such credits or refunds, Acquiror agrees to cause or permit the
Company to file all necessary forms and applications (with any such forms and
applications to be prepared at Stockholder's expense) required in order to
obtain such credits or refunds, including, but not limited to, any application
for a tentative carryback adjustment for periods prior to the Closing Date as
may be required under Section 6411 of the Code or the regulations thereunder.
ARTICLE XIII
REMEDIES
SECTION 13.1 INDEMNIFICATION BY THE STOCKHOLDER. Subject to the terms and
conditions of this Article XIII, the Stockholder agrees to indemnify, defend and
hold Acquiror, the Company, the Surviving Corporation and their respective
directors, officers, members, managers, employees, agents, attorneys and
affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (collectively, "Damages") asserted against or incurred by such
indemnities arising out of or resulting from:
13.1.1 a material breach of the Company or the Stockholder of any
representation, warranty or covenant of the Company or the Stockholder contained
herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation by the Stockholder, the Company and/or any of
their past or present directors, officers, members, managers, shareholders,
employees, agents, consultants and affiliates of state or federal laws occurring
on or before the Closing Date;
13.1.3 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the Stockholder or the Company,
and provided in writing to Acquiror or its counsel by the Company or the
Stockholder, specifically for inclusion in any preliminary prospectus, the
Registration Statement
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or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission or alleged omission to state
therein a material fact relating to the Stockholder and/or the Company required
to be stated therein or necessary to make the statements therein not misleading,
and not provided to Acquiror or its counsel by the Company or the Stockholder,
provided, however, that such indemnity shall not inure to the benefit of
Acquiror and the Company to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and Stockholder provided, in writing, corrected
information to Acquiror's counsel and to Acquiror for inclusion in the final
prospectus, and such information was not so included; and
13.1.4 any filings, reports or disclosures made by the Company or
the Stockholder, as the case may be, pursuant to the IRS Voluntary Compliance
Resolution Program.
SECTION 13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and
conditions of this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholder harmless from and against all Damages asserted against or incurred
by him arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation, warranty
or covenant of Acquiror contained herein or in any Schedule or certificate
delivered by it hereunder; and
13.2.2 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Acquiror or any other Target
Company, contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission or alleged omission to state
therein a material fact relating to Acquiror, required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (and, in any event, at least ten days prior
to the due date for any responsive pleadings, filings or other documents) (i)
notify the party from whom indemnification is sought (the "Indemnifying Party")
of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice
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(the "Election Period"), the Indemnifying Party shall notify the Indemnified
Party (i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIII with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Third Party
claim.
13.3.2 If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 13.3.2, or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 13.3.2 but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
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Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period
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for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
SECTION 13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
SECTION 13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions
of Sections 13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or covenant unless
the claim for indemnification is brought within the time limit set forth in
Section 18.6, (b) no claim may be brought by any party entitled to
indemnification under this Article XIII unless and until the aggregate
cumulative amount to which such party is entitled equals or exceeds $50,000, and
(c) no party shall be obligated to make any indemnification in excess of 50% of
the value of the Merger Consideration.
SECTION 13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
SECTION 13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholder has an indemnification obligation to Acquiror hereunder, subject to
Acquiror's approval as set forth below, the Stockholder may satisfy such
obligation by transferring to Acquiror such number of shares of Acquiror Common
Stock owned by the Stockholder having an aggregate fair market value (based on
the last reported sale price of Acquiror Common Stock on the Nasdaq National
Market or other exchange on which the Acquiror Common Stock is then listed or
the last quoted ask price on any over-the-counter market through which the
Acquiror Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholder transfers shares of Acquiror Common
Stock to Acquiror hereunder) equal to the indemnification obligation; provided
that each of the following conditions are satisfied:
13.7.1 The Stockholder shall transfer to Acquiror good, valid and
marketable title to the shares of Acquiror Common Stock, free and clear of all
adverse claims, security interests, liens, claims, proxies, options, Stockholder
agreements and encumbrances;
13.7.2 The Stockholder shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, Stockholder agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
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13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section 13.7.3 and the effects thereof, including
any legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
SECTION 14.1 TERMINATION. This Agreement may be terminated and the Merger
and the Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual agreement of
all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if any
material representation or warranty of the Company or the Stockholder contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or the Stockholder pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or the Stockholder
fails to comply in any material respect with any covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 20 days after receipt by the Company of written
notice thereof; or
14.1.3 at any time prior to the Closing Date by the Company if any
material representation or warranty of Acquiror contained in this Agreement or
in any certificate or other document executed and delivered by Acquiror pursuant
to this Agreement is or becomes untrue or breached in any material respect or if
Acquiror fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by Acquiror of written
notice thereof; or
14.1.4 by Acquiror or the Company if the Merger shall not have been
consummated by March 31, 1998.
SECTION 14.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the
Company and the Stockholder, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available at law or
in equity. In the event of a termination of this Agreement under the provisions
of this Article, a party not then in material breach of this Agreement shall
stand fully released and discharged of any and all obligations under this
Agreement; provided, however, that if a termination of this Agreement occurs
pursuant to the last sentence of Section 8.2, the parties hereto shall stand
fully released and discharged of any and all obligations under this Agreement.
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ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 15.1 NONDISCLOSURE. The Stockholder recognizes and acknowledges
that he had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's respective
businesses. Acquiror acknowledges that it has had in the past, currently has,
and in the future may possible have, access to certain Confidential Information
of the Company that is valuable, special and unique assets of the Company's
business. The Stockholder, the Company, and Acquiror agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Acquiror, the Company and the Stockholder and (b)
to their counsel and other advisers provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 15.1, unless
(i) such information becomes available to or known by the public generally
through no fault of the Stockholder, the Company, or Acquiror, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), the Stockholder, the Company, or Acquiror, as the
case may be, shall, if possible, give prior written notice thereof to the
Stockholder, the Company, and Acquiror and provide the Stockholder, the Company,
Acquiror with the opportunity to contest such disclosure, (iii) the disclosing
party reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, or (iv) the disclosing
party is the sole and exclusive owner of such Confidential Information as a
result of the Merger or otherwise. In the event of a breach or threatened breach
by a Stockholder of the provisions of this Section 15.1, Acquiror and the
Company shall be entitled to an injunction restraining the Stockholder from
disclosing, in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting Acquiror, the Stockholder and the Company from
pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages.
SECTION 15.2 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, Acquiror, the Company, and the Stockholder agree that,
in the event of a breach by any of them of the foregoing covenant, the covenant
may be enforced against them by injunctions and restraining orders.
SECTION 15.3 SURVIVAL. The obligations of the parties under this Article
XV shall survive the termination of this Agreement.
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ARTICLE XVI
TRANSFER RESTRICTIONS
SECTION 16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of
one year from the Closing or such other holding period as may be required under
applicable federal or state securities laws, except pursuant to the Registration
Rights Agreement and Section 13.7 hereof, no Stockholder shall voluntarily (a)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of (i) any shares of Acquiror Common Stock received by such
Stockholder in the Merger, or (ii) any interest (including, without limitation,
an option to buy or sell) in any such shares of Acquiror Common Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose or (b) engage in any transaction, whether or not with respect to any
shares of Acquiror Common Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning shares of Acquiror Common Stock. The
certificates evidencing the Acquiror Common Stock delivered to the Stockholder
pursuant to this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Acquiror may reasonably
deem necessary or appropriate:
Except pursuant to the terms of the Registration Rights Agreement and the
Agreement and Plan of Merger and Reorganization ("Merger Agreement")
between the issuer, the holder of this certificate and the other parties
thereto, the shares represented by this certificate may not be voluntarily
sold, assigned, exchanged, transferred, encumbered, pledged, distributed,
appointed or otherwise disposed of, and the issuer shall not be required
to give effect to any attempted voluntary sale, assignment, exchange,
transfer, encumbrance, pledge, distribution, appointment or other
disposition prior to [date that is one year after the Closing Date.] Upon
the written request of the holder of this certificate, the issuer agrees
to remove this restrictive legend (and any stop order placed with the
transfer agent) after the expiration of the period specified in the Merger
Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
SECTION 17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that
the shares of Acquiror Common Stock to be delivered to such Stockholder pursuant
to this Agreement have not been and will not be registered under the Securities
Act and may not be resold without compliance with the Securities Act. The
Acquiror Common Stock to be acquired by such Stockholder pursuant to this
Agreement is being acquired solely for his, her or its own account, for
investment purposes only and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
49
<PAGE> 57
SECTION 17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to such
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All certificates evidencing
shares of Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
SECTION 17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to
bear the economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of the
proposed investment and therefore have the capacity to protect his, her or its
own interests in connection with the acquisition of the Acquiror Common Stock.
Each Stockholder or its purchaser representatives have had an adequate
opportunity to ask questions and receive answers from the officers of Acquiror
concerning any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background and
experience of the officers and directors of Acquiror, the plans for the
operations of the business of Acquiror, and any plans for additional
acquisitions and the like. Each Stockholder or its purchaser representatives
have asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to their satisfaction.
SECTION 17.4 ACCREDITED INVESTOR STATUS. Each Stockholder is an
"accredited investor" as defined in Rule 501(a) under the Securities Act. The
Stockholder recognizes that, as an accredited investor, Acquiror is not required
to provide the Stockholder with any particular information or disclosures as a
condition to relying upon the Rule 506 exemption from registration under the
Securities Act with respect to the issuance of Acquiror Common Stock in the
Merger. However, the Stockholder acknowledges that he, she or it has received
and had the opportunity to review the information about Acquiror contained in
the Acquiror Disclosure Schedules.
50
<PAGE> 58
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
SECTION 18.2 ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by Acquiror
to a wholly owned subsidiary of Acquiror; provided that any such assignment
shall not relieve Acquiror of its obligations hereunder.
SECTION 18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 18.4 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 18.5 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.The
representations, warranties and covenants contained herein, including all
statements contained in any certificate, exhibit or other instrument delivered
pursuant to this Agreement by or on behalf of the Company, the Stockholder, or
Acquiror, as the case may be, shall survive the Closing until the first
anniversary of the Closing Date.
51
<PAGE> 59
SECTION 18.7 GOVERNING LAW. This agreement and the rights and obligations
of the parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Ohio.
SECTION 18.8 CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
SECTION 18.9 GENDER AND NUMBER. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
SECTION 18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof",
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or provision of
this Agreement, unless otherwise noted.
SECTION 18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that Acquiror has
determined in its good faith judgment to be required by federal securities laws
or the rules of the National Association of Securities Dealers, (b) to
attorneys, accountants, investment bankers or other agents of the parties
assisting the parties in connection with the transactions contemplated by this
Agreement and (c) by Acquiror in connection with the conduct of its Initial
Public Offering and conducting an examination of the operations and assets of
the Company; provided that Acquiror shall promptly provide notice to the Company
of any release made under this Section 18.11. In the event that the transactions
contemplated hereby are not consummated for any reason whatsoever, the parties
hereto agree not to disclose or use any Confidential Information they may have
concerning the affairs of the other parties, except for information that is
required by law to be disclosed; provided that should the transactions
contemplated hereby not be consummated, nothing contained in this Section shall
be construed to prohibit the parties hereto from operating businesses in
competition with each other so long as no party discloses or uses any such
Confidential Information in connection therewith.
SECTION 18.12 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
52
<PAGE> 60
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholder: Technical Software, Inc.
23550 Commerce Park
Cleveland, Ohio 44122
Attn: Greg Malkin
with a copy to: Ulmer & Berne LLP
1300 East Ninth Street, Suite 900
Cleveland, Ohio 44114
Fax No.: (216) 621-7488
Attn.: Christopher C. McCracken, Esq.
SECTION 18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject
to the in personam jurisdiction of any state or federal court located in
Hamilton County, State of Ohio.
SECTION 18.14 NO WAIVER; REMEDIES. No party hereto shall by any act
(except by written instrument pursuant to Section 18.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
SECTION 18.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
53
<PAGE> 61
SECTION 18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees) incurred in connection
with the transactions contemplated herein.
54
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:
-----------------------------------
Terry L. Theye, President
COMPANY:
TECHNICAL SOFTWARE, INC.
By:
-----------------------------------
Its:
----------------------------------
STOCKHOLDER:
--------------------------------------
Greg Malkin
55
<PAGE> 63
ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
56
<PAGE> 64
Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
57
<PAGE> 1
EXHIBIT 10.5
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
SYNERGIS TECHNOLOGIES, INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE I
Definitions.............................................................................................. 1
Section 1.1 Certain General Definitions............................................................ 1
ARTICLE II
The Merger............................................................................................... 4
Section 2.1 The Merger............................................................................. 4
Section 2.2 The Closing............................................................................ 4
Section 2.3 Effective Time......................................................................... 4
Section 2.4 Articles of Incorporation of Surviving Corporation..................................... 5
Section 2.5 Code of Regulations of Surviving Corporation........................................... 5
Section 2.6 Directors of the Surviving Corporation................................................. 5
Section 2.7 Officers of the Surviving Corporation.................................................. 5
Section 2.8 Conversion of Company Capital Stock.................................................... 5
Section 2.9 Exchange of Certificates Representing Shares of Company Common Stock................... 5
Section 2.10 Fractional Shares...................................................................... 6
Section 2.11 Subsequent Actions..................................................................... 6
ARTICLE III
Representations and Warranties of the Company and the Stockholders....................................... 7
Section 3.1 Organization and Good Standing; Qualification.......................................... 7
Section 3.2 Capitalization......................................................................... 7
Section 3.3 Transactions in Capital Stock.......................................................... 7
Section 3.4 Continuity of Business Enterprise...................................................... 7
Section 3.5 Corporate Records...................................................................... 8
Section 3.6 Authorization and Validity............................................................. 8
Section 3.7 No Violation........................................................................... 8
Section 3.8 Consents............................................................................... 8
Section 3.9 Financial Statements................................................................... 8
Section 3.10 Liabilities and Obligations............................................................ 9
Section 3.11 Employee Matters....................................................................... 9
3.11.1 Cash Compensation............................................................. 9
3.11.2 Compensation Plans............................................................ 9
3.11.3 Employment Agreements......................................................... 9
3.11.4 Employee Policies and Procedures............................................. 10
3.11.5 Unwritten Amendments......................................................... 10
3.11.6 Labor Compliance............................................................. 10
3.11.7 Unions....................................................................... 10
3.11.8 Aliens....................................................................... 10
Section 3.12 Employee Benefit Plans................................................................ 10
3.12.1 Identification............................................................... 10
3.12.2 Administration............................................................... 11
3.12.3 Examinations................................................................. 11
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
3.12.4 Prohibited Transactions...................................................... 11
3.12.5 Claims and Litigation........................................................ 11
3.12.6 Qualification................................................................ 11
3.12.7 Funding Status............................................................... 11
3.12.8 Excise Taxes................................................................. 12
3.12.9 Multiemployer Plans.......................................................... 12
3.12.10 PBGC......................................................................... 12
3.12.11 Retirees..................................................................... 12
Section 3.13 Absence of Certain Changes............................................................ 12
Section 3.14 Title; Leased Assets.................................................................. 14
3.14.1 Real Property................................................................ 14
3.14.2 Personal Property............................................................ 14
3.14.3 Leases....................................................................... 14
3.15.1 Commitments; Defaults........................................................ 14
3.15.2 No Cancellation or Termination of Commitment................................. 15
Section 3.16 Insurance............................................................................. 16
Section 3.17 Proprietary Rights and Information.................................................... 16
Section 3.18 Taxes................................................................................. 16
3.18.1 Filing of Tax Returns........................................................ 17
3.18.2 Payment of Taxes............................................................. 17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 17
3.18.4 No Extension of Limitation Period............................................ 17
3.18.5 Withholding Requirements Satisfied........................................... 17
3.18.6 Foreign Person............................................................... 17
3.18.7 Safe Harbor Lease............................................................ 17
3.18.8 Tax Exempt Entity............................................................ 17
3.18.9 Collapsible Corporation...................................................... 18
3.18.10 Boycotts..................................................................... 18
3.18.11 Parachute Payments........................................................... 18
3.18.12 S Corporation................................................................ 18
3.18.13 Personal Service Corporation................................................. 18
3.18.14 Personal Holding Company..................................................... 18
Section 3.19 Compliance with Laws.................................................................. 18
Section 3.20 Finder's Fee.......................................................................... 19
Section 3.21 Litigation............................................................................ 19
Section 3.22 Condition of Fixed Assets............................................................. 19
Section 3.23 Distributions and Repurchases......................................................... 19
Section 3.24 Banking Relations..................................................................... 19
Section 3.25 Ownership Interests of Interested Persons; Affiliations............................... 19
Section 3.26 Investments in Competitors............................................................ 19
Section 3.27 Environmental Matters................................................................. 20
Section 3.28 Certain Payments...................................................................... 20
Section 3.29 No affiliation with NASD Member....................................................... 20
ARTICLE IV
Representations and Warranties of the Stockholders...................................................... 20
Section 4.1 Validity; Stockholder Capacity........................................................ 20
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 4.2 No Violation.......................................................................... 21
Section 4.3 Personal Holding Company; Control of Related Businesses............................... 21
Section 4.4 Transfers of the Company Capital Stock................................................ 21
Section 4.5 Consents.............................................................................. 21
Section 4.6 Certain Payments...................................................................... 21
Section 4.7 Finder's Fee.......................................................................... 21
Section 4.8 Ownership of Interested Persons; Affiliations......................................... 21
Section 4.9 Investments in Competitors............................................................ 22
Section 4.10 Disposition of Acquiror Shares........................................................ 22
ARTICLE V
Representations and Warranties of Acquiror.............................................................. 22
Section 5.1 Organization and Good Standing........................................................ 22
Section 5.2 Capitalization........................................................................ 22
Section 5.3 Corporate Records..................................................................... 22
Section 5.4 Authorization and Validity............................................................ 23
Section 5.5 No Violation.......................................................................... 23
Section 5.6 Finder's Fee.......................................................................... 23
Section 5.7 Capital Stock......................................................................... 23
Section 5.8 Continuity of Business Enterprise..................................................... 23
Section 5.9 Consents.............................................................................. 23
Section 5.10 Proprietary Rights and Information.................................................... 24
Section 5.11 Taxes................................................................................. 24
5.11.1 Filing of Tax Returns........................................................ 24
5.11.2 Payment of Taxes............................................................. 24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 24
5.11.4 No Extension of Limitation Period............................................ 24
5.11.5 All Withholding Requirements Satisfied....................................... 24
5.11.6 Foreign Person............................................................... 25
5.11.7 Safe Harbor Lease............................................................ 25
5.11.8 Tax Exempt Entity............................................................ 25
5.11.9 Collapsible Corporation...................................................... 25
5.11.10 Boycotts..................................................................... 25
5.11.11 Parachute Payments........................................................... 25
5.11.12 S Corporation................................................................ 25
Section 5.12 Compliance with Laws.................................................................. 25
Section 5.13 Litigation............................................................................ 25
Section 5.14 Ownership Interests of Interested Persons; Affiliations............................... 26
Section 5.15 Investments in Competitors............................................................ 26
Section 5.16 Certain Payments...................................................................... 26
Section 5.17 Commitments........................................................................... 26
5.17.1 Commitments; Defaults........................................................ 26
5.17.2 No Cancellation or Termination of Acquiror Commitment........................ 27
Section 5.18 Acquiror Financial Statements......................................................... 28
Section 5.19 Liabilities and Obligations........................................................... 28
Section 5.20 Employee Matters...................................................................... 28
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE VI
Covenants of the Company and the Stockholders........................................................... 28
Section 6.1 Consummation of Agreement............................................................. 28
Section 6.2 Business Operations................................................................... 28
Section 6.3 Access................................................................................ 29
Section 6.4 Notification of Certain Matters....................................................... 29
Section 6.5 Approvals of Third Parties............................................................ 29
Section 6.6 Employee Matters...................................................................... 29
Section 6.7 Contracts............................................................................. 30
Section 6.8 Capital Assets; Payments of Liabilities............................................... 30
Section 6.9 Mortgages, Liens and Guaranties....................................................... 30
Section 6.10 Acquisition Proposals................................................................. 31
Section 6.11 Distributions and Repurchases......................................................... 31
Section 6.12 Requirements to Effect the Merger..................................................... 31
Section 6.13 Lockup Agreements..................................................................... 31
Section 6.14 S Corporation Distribution; "AAA" Notes. ............................................. 32
ARTICLE VII
Covenants of Acquiror................................................................................... 32
Section 7.1 Consummation of Agreement............................................................. 32
Section 7.2 Requirements to Effect Merger......................................................... 32
Section 7.3 Access................................................................................ 32
Section 7.4 Notification of Certain Matters....................................................... 32
Section 7.5 Approvals of Third Parties............................................................ 33
ARTICLE VIII
Covenants of all Parties................................................................................ 33
Section 8.1 Filings; Other Action................................................................. 33
Section 8.2 Amendment of Schedules................................................................ 34
Section 8.3 Stockholder Employment Agreements..................................................... 34
ARTICLE IX
Conditions Precedent of Acquiror........................................................................ 35
Section 9.1 Due Diligence......................................................................... 35
Section 9.2 Representations and Warranties........................................................ 35
Section 9.3 Covenants............................................................................. 35
Section 9.4 Legal Opinion......................................................................... 35
Section 9.5 Proceedings........................................................................... 35
Section 9.6 No Material Adverse Change............................................................ 35
Section 9.7 Securities Approvals.................................................................. 35
Section 9.8 Simultaneous Closings................................................................. 35
Section 9.9 Closing Deliveries.................................................................... 36
ARTICLE X
Conditions Precedent of the Company and the Stockholders................................................ 36
Section 10.1 Representations and Warranties........................................................ 36
Section 10.2 Covenants............................................................................. 36
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 10.3 Legal Opinions........................................................................ 36
Section 10.4 Proceedings........................................................................... 36
Section 10.5 Government Approvals and Required Consents............................................ 36
Section 10.6 Securities Approvals.................................................................. 36
Section 10.7 Closing Deliveries.................................................................... 37
ARTICLE XI
Closing Deliveries...................................................................................... 37
Section 11.1 Deliveries of the Company and the Stockholders........................................ 37
Section 11.2 Deliveries of Acquiror................................................................ 39
ARTICLE XII
Post Closing Matters.................................................................................... 40
Section 12.1 Further Instruments of Transfer....................................................... 40
Section 12.2 Preservation of Tax and Accounting Treatment.......................................... 40
ARTICLE XIII
Remedies................................................................................................ 40
Section 13.1 Indemnification by the Stockholders................................................... 40
Section 13.2 Indemnification by Acquiror........................................................... 41
Section 13.3 Conditions of Indemnification......................................................... 42
Section 13.4 Remedies Not Exclusive................................................................ 44
Section 13.5 Indemnification Limitations........................................................... 44
Section 13.6 Tax Benefits; Insurance Proceeds...................................................... 44
Section 13.7 Payment of Indemnification Obligation................................................. 44
ARTICLE XIV
Termination............................................................................................. 45
Section 14.1 Termination........................................................................... 45
Section 14.2 Effect of Termination................................................................. 46
ARTICLE XV
Nondisclosure of Confidential Information............................................................... 46
Section 15.1 Nondisclosure......................................................................... 46
Section 15.2 Damages............................................................................... 46
Section 15.3 Survival.............................................................................. 47
ARTICLE XVI
Transfer Restrictions................................................................................... 47
Section 16.1 Transfer Restrictions................................................................. 47
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock................................................................... 48
Section 17.1 Investment Representation............................................................. 48
Section 17.2 Compliance with Law................................................................... 48
Section 17.3 Economic Risk; Sophistication......................................................... 48
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Section 17.4 Accredited Investor Status............................................................ 48
ARTICLE XVIII
Miscellaneous.......................................................................................... 49
Section 18.1 Amendment; Waivers.................................................................... 49
Section 18.2 Assignment............................................................................ 49
Section 18.3 Parties In Interest; No Third Party Beneficiaries..................................... 49
Section 18.4 Entire Agreement...................................................................... 49
Section 18.5 Severability.......................................................................... 49
Section 18.6 Survival of Representations, Warranties and Covenants................................. 50
Section 18.7 Governing Law......................................................................... 50
Section 18.8 Captions.............................................................................. 50
Section 18.9 Gender and Number..................................................................... 50
Section 18.10 Reference to Agreement................................................................ 50
Section 18.11 Confidentiality; Publicity and Disclosures............................................ 50
Section 18.12 Notice................................................................................ 50
Section 18.13 Choice of Forum....................................................................... 51
Section 18.14 No Waiver; Remedies................................................................... 51
Section 18.15 Counterparts.......................................................................... 52
Section 18.16 Costs, Expenses and Legal Fees........................................................ 52
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of ________, 1997, is by and among Synergis Technologies
Inc., a Pennsylvania corporation (the "Company"), Janet Kiehart, William Stamp
and David Sharp, stockholders of the Company (collectively, the "Stockholders")
and Universal Document Management Systems, Inc., an Ohio corporation
("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror
have determined that a business combination between the Company and Acquiror is
in the best interests of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic objectives and, accordingly, have agreed to effect the Merger (as
hereinafter defined) upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes the Merge
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
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1.1.1 "actual knowledge", "have no actual knowledge of", "do
not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no
knowledge of", "do not know of" or "to the knowledge of" and similar phrases
shall mean (i) in the case of a natural person, the particular fact was known,
or not known, as the context requires, to such person after diligent
investigation and inquiry by such person, and (ii) in the case of an entity, the
particular fact was known, or not known, as the context requires, to any
stockholder, director or executive officer of such entity after diligent
investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital
stock of the Company, as set forth in the Company Disclosure Schedules, which
are authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules
of exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholders to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets
and other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601 et
seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Sections 6901 et seq., as amended), and regulations promulgated
thereunder, (iii) statutes, rules or regulations, whether federal, state or
local, applicable to the Company's assets or operations that relate to asbestos
or polychlorinated
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biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company's assets
or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Acquiror Common Stock contemplated by the
Registration Statement.
1.1.11 "Initial Public Offering Price" shall mean the price
per share at which Acquiror Common Stock is offered for sale to the public in
the Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's business, operations, condition (financial
or otherwise) or results of operations, taken as a whole, in consideration of
all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
Merger, and the mergers and acquisitions of entities and assets contemplated by
the Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules
and the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Acquiror intends to acquire simultaneously with its
acquisition of the Company.
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1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean the
Robinson-Humphrey Company, Inc., managing underwriter in the Initial Public
Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock,
without par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Acquiror to the Company and/or the Stockholders, as such may be
amended or supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Acquiror
in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be
the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of Acquiror with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Ohio General Corporation Law and Pennsylvania Business
Corporation Law.
2.2 THE CLOSING. The Closing shall take place at 10:00 a.m., Cincinnati
time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of
the Target Companies. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Articles IX and X shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in
accordance with Article XIV, the parties hereto shall cause to be
properly executed and filed on the Closing Date a Certificate of Merger
meeting the requirements of Section 1701.79 of the Ohio Revised Code
and Articles of Merger meeting the requirements of Section 1926 of the
Pennsylvania Business Corporation Law, as amended. The Merger
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shall become effective at the time of the filing of such document with
the Secretaries of State of Pennsylvania and Ohio, in accordance with
such laws or at such later time which the parties hereto have
theretofore agreed upon and designated in such filings as the effective
time of the Merger (the "Effective Time").
2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Acquiror in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of Regulations
of Acquiror in effect immediately prior to the Effective Time shall be
the Code of Regulations of the Surviving Corporation until duly amended
in accordance with its terms.
2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are directors
of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation
and Code of Regulations.
2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are officers of
Acquiror immediately prior to the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation and
shall hold their same respective office(s) until their successors have
been duly elected or appointed and qualified or until their earlier
death, resignation or removal.
2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting shares of
the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the
Company's treasury at the Effective Time, by virtue of the Merger, shall cease
to be outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK.
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<PAGE> 13
2.9.1 At or after the Effective Time and at Closing (i) each
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock and other
consideration, if any, determined in accordance with the provisions of Exhibit
2.8.1 attached hereto; and (ii) until the certificate or certificates
representing Company Capital Stock have been surrendered by a Stockholder and
replaced by a certificate or certificates representing Acquiror Common Stock,
the certificate or certificates for Company Capital Stock shall, for all
purposes be deemed to evidence ownership of the number of shares of Acquiror
Common Stock and other consideration, if any, determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing
the certificate or certificates representing Company Capital Stock owned by him,
her or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, if any, such Stockholder is entitled to
receive pursuant hereto.
2.10 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of
Acquiror Common Stock but for this Section 2.10 will be entitled to
receive a cash payment in lieu thereof reflecting such Stockholder's
proportionate interest in a share of Acquiror Common Stock multiplied
by the Initial Public Offering Price.
2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of any of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out
this Agreement, and to effect the cancellation of all outstanding
shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving
Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on
behalf of the Company, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on
behalf of the Company, all such other actions and things as may be
necessary or desirable
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to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its state of organization, with all requisite corporate
power and authority to carry on the business in which it is engaged, to
own the properties it owns, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The Company is not
duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state
other than the state of its organization.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital
Stock, free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies and shareholders' agreements. Each
outstanding share of Company Capital Stock has been legally and validly
issued and is fully paid and nonassessable. No shares of Company
Capital Stock are owned by the Company in treasury. No shares of
Company Capital Stock have been issued or disposed of in violation of
the preemptive rights, rights of first refusal or similar rights of any
of the Company's stockholders. The Company has no bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or are convertible into or exercisable for securities having the right
to vote) with the Stockholders on any matter.
3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any Company
Capital Stock since January 1, 1993. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding
securities of the Company, and no option, warrant, call, conversion
right or commitment of any kind exists which obligates the Company to
issue any of its authorized but unissued capital stock. The Company has
no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein
or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been
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altered or changed in contemplation of the Merger within the two years
preceding the date of this Agreement.
3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any sale,
distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the
two years preceding the date of this Agreement.
3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation and
Bylaws, and all amendments thereto, of the Company that have been
delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of
the Company, copies of which have been delivered or made available to
Acquiror, contain accurate minutes of all meetings of, and accurate
consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the
Company since its formation.
3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
the Company of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The Company
has obtained, in accordance with applicable law and its Articles of
Incorporation and Bylaws, the approval of its stockholders necessary to
the consummation of the transactions contemplated hereby.
3.7 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the
Articles of Incorporation or Bylaws of the Company, (b) except as would
not, individually or in the aggregate, result in a Material Adverse
Effect, conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, any
agreement, indenture or other instrument under which the Company is
bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of the assets of the Company or (c) to
the knowledge of the Company, except as would not, individually or in
the aggregate, result in a Material Adverse Effect, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
3.8 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the Pennsylvania Business
Corporation Law, as amended, and state securities laws, no consent,
authorization, approval, permit or license of, or filing with, any
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governmental or public body or authority, any lender or lessor or any
other person or entity is required to authorize, or is required in
connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the
Company, other than such consents as to which the failure to obtain
would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror its: (i)
audited balance sheet (the "Company Balance Sheet") as of September 30,
1996 (the "Company Balance Sheet Date") and 1995, and the related
audited statements of operations, stockholders' equity and cash flows
for its three full fiscal years ended September 30, 1996; and (ii)
unaudited balance sheet as of June 30, 1997 and related unaudited
statements of operations, stockholders' equity and cash flows for the
nine months ended June 30, 1997 and 1996 (collectively, with the
related notes thereto, the "Financial Statements"), copies of all of
which are included in the Company Disclosure Schedules. The Financial
Statements fairly present the financial condition and results of
operations of the Company as of the dates and for the periods indicated
and have been prepared in conformity with generally accepted accounting
principles (subject to normal year-end adjustments and the absence of
notes for any unaudited interim financial statement for any interim
periods presented) applied on a consistent basis with prior periods,
except as otherwise indicated in the Financial Statements.
3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect all
liabilities of the Company, accrued, contingent or otherwise that would
be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles. Except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in
any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any
amount.
3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of June 30, 1997, including without limitation wages, salaries,
bonuses (discretionary and formula) and other cash compensation (the "Cash
Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation
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Plans") sponsored by the Company or to which the Company contributes on behalf
of its employees. The Compensation Plans include without limitation plans,
arrangements or practices that provide for severance pay, deferred compensation,
incentive, bonus or performance awards, and stock ownership or stock options.
The Company has provided or made available to Acquiror a copy of each written
Compensation Plan and a written description of each unwritten Compensation Plan.
Each of the Compensation Plans can be terminated or amended at will by the
Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to
any employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company
Disclosure Schedules contain a complete and accurate list of all employee
manuals and all material policies, procedures and work-related rules (the
"Employee Policies and Procedures") that apply to employees of the Company. The
Company has provided or made available to Acquiror a copy of all written
Employee Policies and Procedures and a written description of all material
unwritten Employee Policies and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the actual knowledge of
the Company, does any valid basis therefor exist) or (ii) existing or, to the
actual knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the actual
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. The
Company has not been advised by any employee that he or she is represented by
any union, labor organization or collective bargaining unit.
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To the actual knowledge of the Company, none of the employees of the Company has
threatened to organize or join a union, labor organization or collective
bargaining unit.
3.11.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules
contain a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholders have made all necessary
filings, reports and disclosures pursuant to and have complied with all
requirements of the IRS Voluntary Compliance Resolution Program with respect to
all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the
Company, no prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
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3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of Section 501 (a) of
the Internal Revenue Code. No proceedings exist or, to the actual knowledge of
the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
3.12.7 FUNDING STATUS. No accumulated funding deficiency
(within the meaning of Section 412 of the Internal Revenue Code), whether or not
waived, exists with respect to any Employee Benefit Plan or any plan sponsored
by any member of a controlled group (within the meaning of Section 412(n)(6)(B)
of the Internal Revenue Code) in which the Company is a member (a "Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the
Employee Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
3.13 ABSENCE OF CERTAIN CHANGES. Since June 30, 1997, the Company has not
3.13.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset having
a cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
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3.13.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any claims or any debt in excess of $5,000, or
released or waived any rights or claims except in the ordinary course of
business;
3.13.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate
value in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of
its assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.13.12 except in the ordinary course of business consistent
with past practice, increased the compensation of any director, officer, key
employee or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $50,000;
3.13.14 except in the ordinary course of business consistent
with past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
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3.13.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such capital stock,
securities or rights;
3.13.17 entered into any agreement providing for total
payments in excess of $5,000 in any 12 month period with any person or group, or
modified or amended in any material respect the terms of any such existing
agreement, except in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or the other agreements contemplated hereby;
or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.14.3 constitute the only personal property necessary for the
conduct of the Company's business. Upon consummation of the transactions
contemplated hereby, such interest in the Personal Property shall be free and
clear of all security interests, liens, claims and encumbrances, other than
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases
of real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the actual knowledge of
the Company, enforceable in accordance with their respective terms except as may
be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
3.15 COMMITMENTS.
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3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which
the Company is a party or is bound by, or which any of the shares of Company
Capital Stock are subject to, or which the assets or the business of the Company
are bound by, whether or not in writing, are listed in the Company Disclosure
Schedules (collectively "Commitments"):
3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification or
contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 days' notice or without
penalty;
3.15.1.6 any agreement relating to any material matter
or transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition
covenants;
3.15.1.10 any agreement providing for the purchase from
a supplier of all or substantially all of the requirements of the Company of a
particular product or service; or
3.15.1.11 any other agreement or commitment not made in
the ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
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Company or, to the actual knowledge of the Company, any other party to a
material Commitment, and no penalties have been incurred nor are amendments
pending, with respect to the material Commitments. The Commitments are in full
force and effect and are valid and enforceable obligations of the Company and,
to the actual knowledge of the Company, the other parties thereto in accordance
with their respective terms, in each case as may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors' rights generally or
the availability of equitable remedies, and no defenses, off-sets or
counterclaims have been asserted or, to the actual knowledge of the Company, may
be made by any party thereto (other than the Company), nor has the Company
waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither
the Company nor any Stockholder has received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described in the Company
Disclosure Schedules (the "Insurance Policies"). The Insurance Policies
are all of insurance polices relating to the business of the Company.
All of the Insurance Policies are issued by insurers of recognized
responsibility, and, to the actual knowledge of the Company, are valid
and enforceable policies, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance
Policies shall be maintained in force without interruption up to and
including the Closing Date. True, complete and correct copies of all
Insurance Policies have been provided or made available to Acquiror.
Neither the Company nor any Stockholder has received any notice or
other communication from any issuer of any Insurance Policy canceling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums
payable thereunder, and to the actual knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is
threatened. There are no outstanding claims, settlements or premiums
owed against any Insurance Policy, or the Company has given all notices
or has presented all potential or actual claims under any Insurance
Policy in due and timely fashion. The Company Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of
$10,000 per occurrence filed by the Company during the immediately
preceding three-year period.
3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company Disclosure
Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents and applications
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therefor currently owned, in whole or in part, by the Company, and all licenses,
royalties, assignments and other similar agreements relating to the foregoing to
which the Company is a party (including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or
processes that the Company is licensed or authorized to use by others, or which
it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the actual knowledge of the Company, without conflicting, infringing or
violating the rights of any other person. No consent of any person will be
required for the use thereof by Acquiror upon consummation of the transactions
contemplated hereby and the Proprietary Rights are freely transferable. No claim
has been asserted by any person to the ownership of or for infringement by the
Company of the proprietary right of any other person, and the Company does not
know of any valid basis for any such claim. The Company to its actual knowledge
has the right to use, free and clear of any adverse claims or rights of others
all trade secrets, customer lists and proprietary information required for the
marketing of all merchandise and services formerly or presently sold or marketed
by it.
3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Company Disclosure Schedules, (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records for all of the same that have not yet become due and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. To the actual knowledge of
the Company, there is no unpaid assessment, proposal for additional taxes,
deficiency or delinquency in the payment of any of the taxes of the Company that
could be asserted by any taxing authority. There is no taxing authority audit of
the Company pending, or to the actual knowledge of the Company, threatened, and
the results of any completed audits are properly reflected in the Financial
Statements. To the actual knowledge of the Company, the Company has not violated
any federal, state, local or foreign tax law.
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3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. To the knowledge
of the Company, all monies required to be withheld by the Company and paid to
governmental agencies for all income, social security, unemployment insurance,
sales, excise, use, and other taxes have been collected or withheld and paid to
the respective governmental agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company
are subject to a lease to a "tax exempt entity" as such term is defined in
Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented, and the Stockholders will not permit the Company to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
3.18.10 BOYCOTTS. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company,
no payment required or contemplated to be made by the Company will be
characterized as an "excess parachute payment" within the meaning of Section
28OG(b)(1) of the Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the
Company, the Company is not or has not been a personal holding company within
the meaning of Section 542 of the Internal Revenue Code.
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3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company has
complied with all applicable laws, and regulations and has filed with
the proper authorities all necessary statements and reports except
where the failure to so comply or file would not, individually or in
the aggregate, result in a Material Adverse Effect. To the knowledge of
the Company, there are no existing violations by the Company of any
federal, state or local law or regulation that could, individually or
in the aggregate, result in a Material Adverse Effect. The Company
possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of the Company's business as now
conducted, except as would not, individually or in the aggregate, have
a Material Adverse Effect, all of which are listed (with expiration
dates, if applicable) in the Company Disclosure Schedules. The
transactions contemplated by this Agreement will not result in a
default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits
or government authorizations, except for any such default, breach or
violation that would not, individually or in the aggregate, have a
Material Adverse Effect. Since January 1, 1992, the Company has not
received any notice from any federal, state or other governmental
authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that its operations or
any of its properties, facilities, equipment, or business practices
fail to comply with any applicable law, ordinance, regulation, building
or zoning law, or requirement of any public or quasi-public authority
or body, except where failure to so comply would not, individually or
in the aggregate, have a Material Adverse Effect.
3.20 FINDER'S FEE. The Company has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
3.21 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of the Company
threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the
assets of the Company, or the operation, business, condition (financial
or otherwise), or results of operations of the Company which (i) if,
successful, could, individually or in the aggregate, have a Material
Adverse Effect or (ii) could adversely affect the ability of the
Company or any Stockholder to effect the transactions contemplated
hereby. Neither the Company nor any Stockholder is (a) subject to any
continuing court or administrative order, judgment, writ, injunction or
decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any
such order, judgment, writ, injunction or decree. The Company has no
knowledge of any valid basis for any such action, proceeding or
investigation. All claims made or, to the actual knowledge of the
Company, threatened against the Company in excess of its deductible are
covered under its Insurance Policies.
3.22 CONDITION OF FIXED ASSETS. All of the structures and equipment
reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and
tear, and conform in all material respects with all applicable
ordinances,
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regulations and other laws, and the Company has no actual knowledge of
any latent defects therein.
3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind has been declared or paid by the Company on any of its capital
stock since June 30, 1997. No repurchase of any of the Company's
capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
3.24 BANKING RELATIONS. Set forth in the Company Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements
that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement
maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect
thereof.
3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. To the
knowledge of the Company, no officer, supervisory employee or director
of the Company, or their respective spouses, children or Affiliates,
owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or
serves as an officer or director of, any customer or supplier of the
Company or any organization that has a material contract or arrangement
with the Company.
3.26 INVESTMENTS IN COMPETITORS. To the knowledge of the Company, neither
the Company nor any Stockholder owns directly or indirectly any
interests or has any investment in any person that is a competitor of
the Company.
3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its assets are
currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations
under, any Environmental Laws, except for any such violations,
investigations or inquiries that would not, individually or in the
aggregate, result in a Material Adverse Effect.
3.28 CERTAIN PAYMENTS. To the knowledge of the Company, neither the Company
nor any director, officer or employee of the Company acting for or on
behalf of the Company, has paid or caused to be paid, directly or
indirectly, in connection with the business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
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3.29 NO AFFILIATION WITH NASD MEMBER. To the knowledge of the Company, none
of the Stockholders or officers or directors of the Company has any
affiliation or association with a member of the National Association of
Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself or
itself only, represents and warrants to Acquiror that the following, except as
set forth in the Company Disclosure Schedules and only insofar as they relate to
an individual Stockholder (referred to in this Article IV as "the Stockholder")
and not to any other Stockholders, are true and correct as of the date hereof
and agrees as follows:
4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the Stockholder
Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will
be as of the Closing Date duly executed and delivered by the
Stockholder and constitute or will constitute legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The
Stockholder has legal capacity to enter into and perform this Agreement
and his or her Stockholder Employment Agreement.
4.2 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation
of the transactions contemplated hereby or thereby, will (a) conflict
with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture
or other instrument under which the Stockholder is bound or to which
any of his, her or its shares of Company Capital Stock are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of his shares of Company Capital Stock
or (b) to the actual knowledge of the Stockholder, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly
or indirectly, beneficially or of record, through a personal holding
company. The Stockholder does not control another business that is in
the same or similar line of business as the Company or that has or is
engaged in transactions with the Company except transactions in the
ordinary course of business.
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4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the Company
Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All
transfers of Company Capital Stock by the Stockholder have been made
for valid business reasons and not in anticipation or contemplation of
the consummation of the transactions contemplated by this Agreement.
4.5 CONSENTS. Except as may be required under the Exchange Act, the
Securities Act, the Pennsylvania Business Corporation Law, as amended,
and state securities laws, or otherwise disclosed pursuant to this
Agreement, no consent, authorization, approval, permit or license of,
or filing with, any governmental or public body or authority, or any
other person is required to authorize, or is required in connection
with, the execution, delivery and performance of this Agreement or the
agreements contemplated hereby on the part of the Stockholder.
4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate
(other than from personal funds not reimbursed by the Company or as otherwise
permitted by applicable law).
4.7 FINDER'S FEE. The Stockholder has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the Stockholder
nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the
Company.
4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own directly or
indirectly any interests or have any investment in any person that is a
competitor of the Company.
4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not presently
intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or
agreement for the disposition of such shares of Acquiror Common Stock,
except this Agreement and the Registration Rights Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it
owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not
have any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the shareholders of
Acquiror on any matter. There exist no options, warrants, subscriptions
or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of
Acquiror, and no option, warrant, call, conversion right or commitment
of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the
Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay a dividend or make any distribution
in respect thereof. To the best knowledge of Acquiror, no shareholder
of Acquiror has granted options or other rights to purchase any shares
of Acquiror Common Stock from such shareholder.
5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation and Code
of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholders are
true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror, copies of which have been
delivered or made available to the Company and the Stockholders,
contain accurate minutes of all meetings of, and accurate consents to
all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of Acquiror, since its
formation.
5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Board of Directors and
shareholders of Acquiror. This Agreement and each other agreement
contemplated hereby to be executed by Acquiror have been or will be as
of the Closing Date duly executed and delivered by Acquiror and
constitute or will constitute as of the Closing Date legal, valid and
binding obligations of Acquiror, enforceable against Acquiror in
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accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies.
5.5 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of Acquiror or any
agreement, indenture or other instrument under which Acquiror is bound
or (b) to the knowledge of Acquiror, except as would not, individually
or in the aggregate, have a Material Adverse Effect on the business,
operations, condition (financial or otherwise) or results of operations
of Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the
properties or assets of Acquiror.
5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares of
Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights,
rights of first refusal or similar rights of any of Acquiror's
shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and
state securities laws.
5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Acquiror to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d).
5.9 CONSENTS. Except as have been obtained or as may be required by or
under the Exchange Act, the Ohio General Corporation Law, the
Securities Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Acquiror.
5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or use any
trademarks, tradenames, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any
agreement relating to the use of technology or know-how.
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Acquiror has the right to use, free and clear of any claims or rights
of others, all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services
formerly or presently sold or marketed by it.
5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
tax returns or reports are complete and accurate and properly reflect the taxes
of Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due. Acquiror is not delinquent in the
payment of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. To the actual knowledge of Acquiror,
there is no unpaid assessment, proposal for additional taxes, deficiency or
delinquency in the payment of any of the taxes of Acquiror that could be
asserted by any taxing authority. There is no taxing authority audit of Acquiror
pending, or to the actual knowledge of Acquiror, threatened. To the actual
knowledge of Acquiror, Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by Acquiror and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder
thereof is a foreign person, as such term is referred to in Section 1445(f)(3)
of the Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror
constitute property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
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5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by Acquiror will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Internal
Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all applicable laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Acquiror of any federal, state or local law or regulation
that could materially adversely affect its property or business.
Acquiror possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of its business as now
conducted, except as would not, individually or in the aggregate, have
a Material Adverse Effect. The transactions contemplated by this
Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded by any such
licenses, franchises, permits or government authorizations except for
any default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror has not received
any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any
insurance or inspection body, that its operations or any of its
properties, facilities, equipment, or business practices fail to comply
with any applicable law, ordinance, regulation, building or zoning law,
or requirement of any public or quasi-public authority or body.
5.13 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the
outstanding shares of Acquiror Common Stock, any of the assets of
Acquiror, or the operations, business, condition (financial or
otherwise) or results of operations of Acquiror. Acquiror is not (a)
subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to it or to its business,
assets, operations or employees or (b) in default with respect to any
such order, writ, injunction or
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decree. Acquiror has no knowledge of any valid basis for any such
action, proceeding or investigation.
5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of Acquiror or any
organization that has a material contract or arrangement with Acquiror,
except Acquiror's corporate parent, MedPlus, Inc.
5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any shareholder
thereof owns directly or indirectly any interests or has any investment
in any person that is a competitor of Acquiror or one of the Target
Companies.
5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder, director,
officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
5.17.1.4 contract to purchase real property;
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5.17.1.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 day's notice or without penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made in
the ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the actual knowledge
of Acquiror, the other parties thereto in accordance with their respective
terms, in each case as may be limited by applicable bankruptcy, insolvency, or
similar laws affecting creditors' rights generally or the availability of
equitable remedies, and no defenses, off-sets or counterclaims have been
asserted or, to the best knowledge of Acquiror, may be made by any party thereto
(other than Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT.
Except as contemplated hereby, (i) Acquiror has not received notice of any plan
or intention of any other party to any Acquiror Commitment to exercise any right
to cancel or terminate any Acquiror Commitment, and Acquiror does not know of
any fact that would justify the exercise of such a right; and (ii) Acquiror does
not currently contemplate, or have knowledge that any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
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5.18 ACQUIROR FINANCIAL STATEMENTS. The audited year end financial
statements for Acquiror for the two most recent fiscal years and
interim unaudited statements for the month ending prior to the date of
this Agreement are contained in the Acquiror Disclosure Schedules
(collectively, with the related notes thereto, the "Acquiror Financial
Statements"). The Acquiror Financial Statements fairly present the
financial condition and results of operations of Acquiror as of the
dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles (subject to
normal year-end adjustments) applied on a consistent basis with prior
periods, except as otherwise indicated in the Acquiror Financial
Statements.
5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial Statements reflect
all liabilities of Acquiror, accrued, contingent or otherwise, that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the
ordinary course of business since December 31, 1996. Acquiror is not
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner,
any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and
Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
5.20 EMPLOYEE MATTERS. Acquiror does not have any material arrangements,
agreements or plans with any person with respect to the employment by
Acquiror of such person or whereby such person is to serve as an
officer or director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders shall use
their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or
a Stockholder to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
6.2 BUSINESS OPERATIONS. The Company shall operate its business in the
ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the Company intact. Neither the
Company nor any Stockholder shall take any action that would,
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individually or in the aggregate, result in a Material Adverse Effect.
The Company shall use its best efforts to preserve intact its
relationships with customers, suppliers, employees and others having
significant business relations with it, unless doing so would impair
its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past
practice.
6.3 ACCESS. The Company and the Stockholders shall, at reasonable times
during normal business hours and on reasonable notice, permit Acquiror
and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of the
Company, including its employees, customers and suppliers, and permit
Acquiror and its authorized representatives to inspect and, at
Acquiror's sole cost and expense, make copies of all documents, records
and information with respect to the affairs of the Company as Acquiror
and its representatives may request, all for the sole purpose of
permitting Acquiror to become familiar with the business and assets and
liabilities of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the Stockholders shall
promptly inform Acquiror in writing of (a) any notice of or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company
or any Stockholder subsequent to the date of this Agreement and prior
to the Effective Time under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or
business and to which it is subject; or (b) any material adverse change
in the Company's condition (financial or otherwise), operations,
assets, liabilities or business.
6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders shall use
their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under
any real property and personal property leases; provided, however, that
this covenant shall not require the Company or the Stockholders to make
any material expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
6.6 EMPLOYEE MATTERS. The Company shall not, without the prior written
approval (not to be unreasonably withheld) of Acquiror, except, in the
ordinary course of business consistent with past practice or as
required by law:
6.6.1 increase the Cash Compensation of any Stockholder or
other employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
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6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any
Employee Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with
respect to any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any
Employee Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation
except as could not, individually or in the aggregate, result in a Material
Adverse Effect;
6.6.10 enter into, modify, amend or terminate any agreement
with any union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any
past or present employee of the Company that would, individually or in the
aggregate, result in a Material Adverse Effect.
6.7 CONTRACTS. Except with Acquiror's prior written consent, the Company
shall not assume or enter into any contract, lease, license,
obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business,
nor will it waive any material right or cancel any material contract,
debt or claim.
6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall not, without
the prior written approval (not to be unreasonably withheld) of
Acquiror (a) acquire or dispose of any capital asset having a fair
market value of $25,000 or more, or acquire or dispose of any capital
asset outside of the ordinary course of business or (b) discharge or
satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the
Financial Statements or (ii) current liabilities and obligations
incurred in the usual and ordinary course of business since the Company
Balance Sheet Date and, in either case (i) or (ii) above, only as
required by the express terms of the agreement or other instrument
pursuant to which the liability or obligation was incurred.
6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not, without the
prior written approval (not to be unreasonably withheld) of Acquiror,
enter into or assume any mortgage, pledge, conditional sale or other
title retention agreement, permit any security interest, lien,
encumbrance or claim of any kind to attach to any of its assets (other
than statutory liens arising in the ordinary course of business, other
liens that do not materially detract from the value or interfere with
the use of such assets, and liens, guarantees, and encumbrances that
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are granted or created in the ordinary course of business), whether now
owned or hereafter acquired, or guarantee or otherwise become
contingently liable for any obligation of another, except obligations
arising by reason of endorsement for collection and other similar
transactions in the ordinary course of business, or make any capital
contribution or investment in any person.
6.10 ACQUISITION PROPOSALS. The Company and the Stockholders agree that from
and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the
Stockholders and the Company shall direct and use their best efforts to
cause the Company's employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (b) that the
Stockholders and the Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing
and each will take the necessary steps to inform the individuals or
entities referred to in the first sentence hereof of the obligations
undertaken in this Section 6.10; and (c) that the Stockholders and the
Company will notify Acquiror immediately if any such inquiries or
proposals are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or
continued with, the Company or the Stockholders.
6.11 DISTRIBUTIONS AND REPURCHASES. Except as provided in Section 6.14, no
distribution, payment or dividend of any kind will be declared or paid
by the Company in respect of Company Capital Stock, nor will any
repurchase of any Company Capital Stock be approved or effected.
6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the Stockholders
shall use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon request of the
Underwriter Representative, execute a customary "lockup" agreement in
connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any Acquiror Common Stock
owned by them for up to 180 days from the closing of the Initial
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Public Offering, provided that any such agreement shall be on similar
terms and conditions as agreements with other shareholders of Acquiror
similarly situated.
6.14 S CORPORATION DISTRIBUTION; "AAA" NOTES. The Company shall either (i)
distribute to the Stockholder an amount of cash equal to the
Stockholder's federal and state income tax liability with respect to
income of the Company for the period commencing October 1, 1996 and
ending on the Closing Date; provided such amount may be determined on
or prior to the Closing Date; or (ii) issue a promissory note in favor
of the Stockholder in an amount equal to the Stockholder's federal and
state income tax liability with respect to income of the Company for
the period commencing October 1, 1996 and ending on the Closing Date,
regardless of when such amount may be determined, with such amount to
become due and payable no sooner than 30 days and no later than 45 days
after such amount is determined and all proceeds of the Initial Public
Offering have been received by Acquiror.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts to cause
the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant
shall not require Acquiror to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best efforts to
take, or cause to be taken, all actions necessary to effect the Merger
under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form
approved by counsel for the parties to this Agreement.
7.3 ACCESS. Acquiror shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of Acquiror,
including its employees, and permit the Company, the Stockholders, and
their authorized representatives to inspect and, at the Company's and
the Stockholders' sole expense, make copies of all documents, records
and information with respect to the affairs of Acquiror as the Company,
the Stockholders and their representatives may request (including
documents, records and information pertaining to or generated in
connection with any Target Company, except as may be prohibited by
confidentiality agreements to which Acquiror is a party), all for the
sole purpose of permitting the Company and the Stockholders to become
familiar with the business and assets and liabilities of Acquiror.
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7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly inform the
Company and the Stockholders in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Acquiror
subsequent to the date of this Agreement and prior to the Effective
Time under any Acquiror Commitment material to Acquiror's condition
(financial or otherwise), operations, assets, liabilities or business
and to which it is subject; or (b) any material adverse change in
Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business.
7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best efforts to
secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with
respect to the Company's covenants, the Stockholders agree to use their best
efforts to cause the Company to perform):
8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall
cooperate to promptly prepare and file with the SEC the Registration Statement
on Form S-1 (or other appropriate Form) to be filed by Acquiror in connection
with its Initial Public Offering (including the prospectus constituting a part
thereof, the "Registration Statement"). Acquiror shall obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied in writing by each of the Company, the Stockholders and Acquiror
specifically for inclusion in the Registration Statement, by exhibit or
otherwise, will, at the time the Registration Statement and each amendment and
supplement thereto, if any, becomes effective under the Securities Act, 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
the light of the circumstances under which they were made, not misleading. The
Company, the Stockholders and Acquiror shall agree as to the information and
documents supplied by the Company and the Stockholders for inclusion in the
Registration Statement and shall indicate such information and documents in a
letter to be delivered
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at Closing (the "Information Letter"). The Company and the Stockholders shall be
entitled to review the Registration Statement and each amendment thereto, if
any, prior to the time each becomes effective under the Securities Act.
8.1.3 The Stockholders and the Company shall, upon request,
furnish Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly (i) in the case of Acquiror,
the Acquiror Disclosure Schedules and (ii) in the case of the Company
or the Stockholders, the Company Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein;
provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be
made unless Acquiror consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to Acquiror may be made unless the Company and
the Stockholder consent to such amendment or supplement. For all
purposes of this Agreement, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 8.2.
In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a
Schedule pursuant to this Section 8.2 and the Company and the
Stockholder do not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 14.1.1 hereof.
8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to Closing,
each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent
without any liability on the part of the Company therefor, and shall
enter into a Stockholder Employment Agreement in the form appended
hereto as Exhibit 8.3 with Acquiror (the "Stockholder Employment
Agreements").
8.4 POTENTIAL ACQUISITION. The parties hereto hereby acknowledge that the
Company is currently engaged in negotiations regarding the purchase of
a similar business located in New Jersey. In the event that the Company
and such other business reach agreement as to the terms and conditions
of such purchase, the Company shall immediately notify Acquiror of such
agreement whereupon Acquiror shall have no less than ten business days
to engage in a due diligence investigation of such other business to
determine whether Acquiror desires
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to include such business in the Initial Public Offering. In the event
that Acquiror and the Company, after such due diligence investigation
by Acquiror, cannot agree on an adjustment to the Merger Consideration
reflecting the value of such acquisition to Acquiror, this Agreement
shall be deemed terminated by mutual consent as set forth in Section
14.1.1 hereof. Notwithstanding anything to the contrary in this Section
8.4, Acquiror hereby acknowledges that the Stockholders may acquire
such other business in lieu of the Company, and in such event, all
rights and obligations of the Company under this Section 8.4 shall pass
to the Stockholders.
ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence review
of the Company and shall be reasonably satisfied with the results
thereof.
9.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company and the Stockholder contained herein shall have been true
and correct in all material respects when initially made and shall be
true and correct in all material respects as of the Closing Date,
subject to Section 8.2.
9.3 COVENANTS. The Company and the Stockholders shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
9.4 LEGAL OPINION. Counsel to the Company and the Stockholders shall have
delivered to Acquiror their opinions, dated as of the Closing Date, in
form and substance reasonably satisfactory to Acquiror, to the effect
set forth in Exhibit 9.4.
9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since June 30, 1997, whether or not
such change shall have been caused by the deliberate act or omission of
the Company or the Stockholders.
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9.7 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. The Acquiror Common
Stock shall have been approved for listing on the Nasdaq National
Market, subject only to official notification of issuance.
9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
9.9 CLOSING DELIVERIES. Acquiror shall have received all documents and
agreements, duly executed and delivered in form satisfactory to
Acquiror, referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquiror contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all
material respects as of the Closing Date.
10.2 COVENANTS. Acquiror shall have performed and complied in all material
respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company
and the Stockholders their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholders, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the Company
their opinion, dated as of the Closing Date, to the effect set forth in Exhibit
10.3.2 (the "Tax Opinion").
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10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company, Stockholders
and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
10.6 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the
Closing Date, the Acquiror Common Stock shall have been approved for
listing on The Nasdaq National Market, subject only to official
notification of issuance.
10.7 CLOSING DELIVERIES. The Company shall have received all documents and
agreements, duly executed and delivered in form satisfactory to the
Company, referred to in Section 11.2.
10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
10.9 The Robinson-Humphrey Company, Inc. shall continue to act as managing
underwriter in the Initial Public Offering.
ARTICLE XI
CLOSING DELIVERIES
11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior to the
Closing Date, the Company and the Stockholders shall deliver to
Acquiror c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following,
all of which shall be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the
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Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholders contained
herein on and as of the Closing Date subject to the provisions of Section 8.2;
11.1.3 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Stockholders to the Closing
have been satisfied;
11.1.4 a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of such
corporation and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of the state of incorporation of the
Company establishing that such corporation is in existence, duly subsistent and,
if applicable, otherwise is in good standing to transact business in its state
of organization;
11.1.6 certificates, dated within ten days prior to the
Closing Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Alan I. Goldberg, counsel to the Company
dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals,
permits and licenses;
11.1.9 the resignations of the directors and officers of the
Company as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between
Acquiror and the Stockholders in substantially the form attached hereto as
Exhibit 11.1.11 (the "Registration Rights Agreement");
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11.1.12 an executed Certificate of Merger and executed
Articles of Merger necessary to effect the Merger referred to in Section 2.4;
11.1.13 a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder,
signed under a penalty of perjury and dated as of the Closing Date, to the
effect that each Stockholder is a United States citizen or a resident alien (and
thus not a foreign person) and providing such Stockholders United States
taxpayer identification number;
11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Alan I. Goldberg, the
Company's legal counsel, setting forth the aggregate legal fees incurred by the
Company for services rendered to the Company in connection with the Merger; and
11.1.16 such other instrument or instruments of transfer
prepared by Acquiror as shall be necessary or appropriate, as Acquiror or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date, Acquiror shall
deliver to the Company and the Stockholders c/o Dinsmore & Shohl LLP,
counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholders:
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the
Closing Date as to the truth and correctness of the representations and
warranties of Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the
Closing Date, (i) as to the performance and compliance by Acquiror with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Acquiror to the Closing have been satisfied or
waived;
11.2.4 a certificate of the Secretary of Acquiror certifying
as to the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
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11.2.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten
days prior to the Closing Date, of the Secretaries of State of the states in
which Acquiror is qualified to do business, to the effect that Acquiror is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to
Acquiror, dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the executed Registration Rights Agreement;
11.2.9 an executed Certificate of Merger and executed Articles
of Merger necessary to effect the Merger referred to in Section 2.4;
11.2.10 executed Stockholder Employment Agreements in
substantially the form attached hereto as Exhibit 8.3;
11.2.11 all necessary authorizations, consents, approvals,
permits and licenses;
11.2.12 the Merger Consideration; and
11.2.13 such other instrument or instruments of transfer,
prepared by the Company or the Stockholders as shall be necessary or
appropriate, as the Company, the Stockholders or their counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at the request
of Acquiror and at Acquiror's sole cost and expense, the Stockholders
and the Company shall deliver any further instruments of transfer and
take all reasonable action as may be necessary or appropriate to carry
out the purpose and intent of this Agreement.
12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Acquiror shall not and shall not permit any of its subsidiaries to:
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12.2.1 retire or reacquire, directly or indirectly, all or
part of the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of
the Stockholders; or
12.2.3 dispose of a significant part of the assets of the
Company within the two years following the Closing Date except in the ordinary
course of business, to Affiliates of Acquiror or to eliminate duplicate services
or excess capacity.
ARTICLE XIII
REMEDIES
13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify,
defend and hold Acquiror, the Company, the Surviving Corporation and
their respective directors, officers, members, managers, employees,
agents, attorneys and affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (collectively,
"Damages") asserted against or incurred by such indemnities arising out
of or resulting from:
13.1.1 a material breach of the Company or the Stockholders of
any representation, warranty or covenant of the Company or the Stockholders
contained herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation (or alleged violation) by Stockholders,
the Company and/or any of their past or present directors, officers, members,
managers, shareholders, employees, agents, consultants and affiliates of state
or federal laws occurring on or before the Closing Date;
13.1.3 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Stockholders, or the
Company, and provided in writing to Acquiror or its counsel by the Company or
the Stockholders, specifically for inclusion in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Stockholders and/or the Company required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Acquiror or its
counsel by the Company or the Stockholders, provided, however, that such
indemnity shall not inure to the benefit of Acquiror and the Company to the
extent that such untrue statement (or alleged untrue statement) was
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made in, or omission (or alleged omission) occurred in, any preliminary
prospectus and Stockholder provided, in writing, corrected information to
Acquiror's counsel and to Acquiror for inclusion in the final prospectus, and
such information was not so included; or
13.1.4 any filings, reports or disclosures made by the Company
or the Stockholder, as the case may be, pursuant to the IRS Voluntary Compliance
Resolution Program.
13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and conditions of
this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or
incurred by him arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation,
warranty or covenant of Acquiror contained herein or in any Schedule or
certificate delivered by it hereunder; and
13.2.2 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to Acquiror, contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (and, in any event, at least ten days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party claim.
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13.3.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 13.3.2, or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
13.3.2 but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any
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compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article XIII and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section or of the Indemnifying Party's participation
therein at the Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all costs and expenses of such
litigation. The Indemnifying Party may participate in, but not control any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 13.3.3, and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation; provided, however, that if the named parties
to any such action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and the Indemnifying Party has
been advised by counsel that there may be one or more legal defenses available
to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement shall
not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
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13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions of Sections
13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or
covenant unless the claim for indemnification is brought within the
time limit set forth in Section 18.6, (b) no claim may be brought by
any party entitled to indemnification under this Article XIII unless
and until the aggregate cumulative amount to which such party is
entitled equals or exceeds $50,000, and (c) no party shall be obligated
to make any indemnification in excess of 50% of the value of the Merger
Consideration.
13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds, and
such correlative insurance benefit shall be net of the insurance
premium, if any, that becomes due as a result of such claim.
13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder,
the Stockholders may satisfy such obligation by transferring to
Acquiror such number of shares of Acquiror Common Stock owned by the
Stockholders having an aggregate fair market value (based on the last
reported sale price of Acquiror Common Stock on the Nasdaq National
Market or other exchange on which the Acquiror Common Stock is then
listed or the last quoted ask price on any over-the-counter market
through which the Acquiror Common Stock is then quoted on the last
trading day immediately preceding the day on which the Stockholder
transfers shares of Acquiror Common Stock to Acquiror hereunder) equal
to the indemnification obligation; provided that each of the following
conditions are satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good, valid
and marketable title to the shares of Acquiror Common Stock, free and clear of
all adverse claims, security interests, liens, claims, proxies, options,
stockholders' agreements and encumbrances;
13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, shall not have a Material Adverse Effect on Acquiror
or its business.
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ARTICLE XIV
TERMINATION
14.1 TERMINATION. This Agreement may be terminated and the Merger and the
Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual
agreement of all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if
any material representation or warranty of the Company or the Stockholders
contained in this Agreement or in any certificate or other document executed and
delivered by the Company or the Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or the
Stockholders fail to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 20 days after receipt by the
Company of written notice thereof;
14.1.3 at any time prior to the Closing Date by the Company or
the Stockholders if any material representation or warranty of Acquiror
contained in this Agreement or in any certificate or other document executed and
delivered by Acquiror pursuant to this Agreement is or becomes untrue or
breached in any material respect or if Acquiror fails to comply in any material
respect with any covenant or agreement contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within 20 days after receipt by Acquiror of written notice thereof; or
14.1.4 by Acquiror or the Company or the Stockholders if the
Merger shall not have been consummated by March 31, 1998, which, with the
exception of Access Corporation, coincides with similar provisions for all
Target Companies.
14.2 EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the Company
and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available
at law or in equity. In the event of a termination of this Agreement
under the provisions of this Article or Section 8.4, a party not then
in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement; provided,
however, that if a termination of this Agreement occurs pursuant to the
last sentence of Section 8.2, the parties hereto shall stand fully
released and discharged of any and all obligations under this
Agreement.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges that he had
in the past, currently has, and in the future may possibly have, access
to certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's
respective businesses. Acquiror acknowledges that it has had in the
past, currently has, and in the future may possible have, access to
certain Confidential Information of the Company that is valuable,
special and unique assets of the Company's business. Each Stockholder,
the Company, and Acquiror agree that they will not disclose such
Confidential Information to any person, firm, corporation, association
or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Acquiror, the Company and such
Stockholder and (b) to their counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality
provisions of this Section 15.1, unless (i) such information becomes
available to or known by the public generally through no fault of such
Stockholder, the Company, or Acquiror, as the case may be, (ii)
disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any
information pursuant to this clause (ii), such Stockholder, the
Company, or Acquiror, as the case may be, shall, if possible, give
prior written notice thereof to such Stockholder, the Company, and
Acquiror and provide such Stockholder, the Company, Acquiror with the
opportunity to contest such disclosure, (iii) the disclosing party
reasonably believes that such disclosure is required in connection with
the defense of a lawsuit against the disclosing party, or (iv) the
disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a
breach or threatened breach by a Stockholder of the provisions of this
Section 15.1, Acquiror and the Company shall be entitled to an
injunction restraining the Stockholder from disclosing, in whole or in
part, such Confidential Information. Nothing herein shall be construed
as prohibiting Acquiror, the Stockholders and the Company from pursuing
any other available remedy for such breach or threatened breach,
including the recovery of damages.
15.2 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they
would have no other adequate remedy, Acquiror, the Company, and the
Stockholder agree that, in the event of a breach by any of them of the
foregoing covenant, the covenant may be enforced against them by
injunctions and restraining orders.
15.3 SURVIVAL. The obligations of the parties under this Article XV shall
survive the termination of this Agreement.
48
<PAGE> 56
ARTICLE XVI
TRANSFER RESTRICTIONS
16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of one year
from the Closing or such other holding period as may be required under
applicable federal or state securities laws, except pursuant to the
Registration Rights Agreement and Section 13.7 hereof or by David Sharp
solely to a charitable foundation of which a Stockholder is an
executive officer upon its agreement to be bound hereby, no Stockholder
shall voluntarily (a) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint, or otherwise dispose of (i) any shares of
Acquiror Common Stock received by such Stockholder in the Merger, or
(ii) any interest (including, without limitation, an option to buy or
sell) in any such shares of Acquiror Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any
purpose or (b) engage in any transaction, whether or not with respect
to any shares of Acquiror Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning shares of
Acquiror Common Stock. The certificates evidencing the Acquiror Common
Stock delivered to the Stockholder pursuant to this Agreement will bear
a legend substantially in the form set forth below and containing such
other information as Acquiror may reasonably deem necessary or
appropriate:
Except pursuant to the terms of the Registration Rights Agreement and
the Agreement and Plan of Merger and Reorganization ("Merger
Agreement") between the issuer, the holder of this certificate and the
other parties thereto, the shares represented by this certificate may
not be voluntarily sold, assigned, exchanged, transferred, encumbered,
pledged, distributed, appointed or otherwise disposed of, and the
issuer shall not be required to give effect to any attempted voluntary
sale, assignment, exchange, transfer, encumbrance, pledge,
distribution, appointment or other disposition prior to [date that is
one year after the Closing Date.] Upon the written request of the
holder of this certificate, the issuer agrees to remove this
restrictive legend (and any stop order placed with the transfer agent)
after the expiration of the period specified in the Merger Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that the
shares of Acquiror Common Stock to be delivered to such Stockholder
pursuant to this Agreement have not been and will not be registered
under the Securities Act and may not be resold without compliance with
the Securities Act. The Acquiror Common Stock to be acquired by such
Stockholder pursuant to this Agreement is being acquired solely for
his, her or its own
49
<PAGE> 57
account, for investment purposes only and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution.
17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to
such Stockholder will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act
and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of
Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI:
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of
such investment and has such knowledge and experience in financial and
business matters that he, she or it is capable of evaluating the merits
and risks of the proposed investment and therefore have the capacity to
protect his, her or its own interests in connection with the
acquisition of the Acquiror Common Stock. Each Stockholder or its
purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of Acquiror concerning
any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background
and experience of the officers and directors of Acquiror, the plans for
the operations of the business of Acquiror, and any plans for
additional acquisitions and the like. Each Stockholder or its purchaser
representatives have asked any and all questions in the nature
described in the preceding sentence and all questions have been
answered to their satisfaction.
17.4 ACCREDITED INVESTOR STATUS. David Sharp is an "accredited investor" as
defined in Rule 501(a) under the Securities Act. David Sharp recognizes
that, as an accredited investor, Acquiror is not required to provide
him with any particular information or disclosures as a condition to
relying upon the Rule 506 exemption from registration under the
Securities Act with respect to the issuance of Acquiror Common Stock in
the Merger. However, David Sharp acknowledges that he has received and
had the opportunity to review the information about Acquiror contained
in the Acquiror Disclosure Schedules.
50
<PAGE> 58
ARTICLE XVIII
MISCELLANEOUS
18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be
in writing, and signed by the parties hereto. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
18.2 ASSIGNMENT. Neither this Agreement nor any right created hereby or in
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by
Acquiror to a wholly owned subsidiary of Acquiror; provided that any
such assignment shall not relieve Acquiror of its obligations
hereunder.
18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any
rights or remedies hereunder or thereunder.
18.4 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect
to the subject matter hereof.
18.5 SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including
all statements contained in any certificate, exhibit or other
instrument delivered pursuant to this Agreement by or on behalf of the
Company, the Stockholders, or Acquiror, as the case may be, shall
survive the Closing until the first anniversary of the Closing Date.
51
<PAGE> 59
18.7 GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
18.8 CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms
or provisions hereof.
18.9 GENDER AND NUMBER. When the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto"
and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement, unless otherwise noted.
18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall keep this
Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge
and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (a) by press release, filing or
otherwise that Acquiror has determined in its good faith judgment to be
required by federal securities laws or the rules of the National
Association of Securities Dealers, (b) to attorneys, accountants,
investment bankers or other agents of the parties assisting the parties
in connection with the transactions contemplated by this Agreement and
(c) by Acquiror in connection with the conduct of its Initial Public
Offering and conducting an examination of the operations and assets of
the Company; provided that Acquiror shall promptly provide notice to
the Company of any release made under this Section 18.11. In the event
that the transactions contemplated hereby are not consummated for any
reason whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the
other parties, except for information that is required by law to be
disclosed; provided that should the transactions contemplated hereby
not be consummated, nothing contained in this Section shall be
construed to prohibit the parties hereto from operating businesses in
competition with each other so long as no party discloses or uses any
such Confidential Information in connection therewith.
18.12 NOTICE. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by
telex, telegram, facsimile or courier service, when actually received
by the party to whom notice is sent or (ii) if delivered by mail
(whether actually received or not), at the close of business on the
third business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address
52
<PAGE> 60
of such party set forth below (or at such other address as such party
may designate by written notice to all other parties in accordance
herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: Synergis Technologies, Inc.
427 California Road
Quakertown, PA 18951
Attn: David Sharp
with a copy to: Alan I. Goldberg
2828 Charter Road, Suite 101
Philadelphia, PA 19154
18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject to the in
personam jurisdiction of any state or federal court located in Hamilton
County, State of Ohio.
18.14 NO WAIVER; REMEDIES. No party hereto shall by any act (except by
written instrument pursuant to Section 18.1 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay
in exercising, on the part of any party hereto, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No remedy set forth in this Agreement
or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but
the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be
deemed expedient.
53
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18.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its
own costs and expenses (including attorneys' fees) incurred in
connection with the transactions contemplated herein.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:
-------------------------------------
Terry L. Theye, President
COMPANY:
SYNERGIS TECHNOLOGIES, INC.
By:
-------------------------------------
Its:
------------------------------------
STOCKHOLDERS:
----------------------------------------
Janet Kiehart
----------------------------------------
William Stamp
----------------------------------------
David Sharp
54
<PAGE> 62
ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
<TABLE>
<CAPTION>
<S> <C>
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
Schedule 3.29 No Affiliation with NASD Member
</TABLE>
55
<PAGE> 63
<TABLE>
<CAPTION>
<S> <C>
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
</TABLE>
Acquiror Disclosure Schedules:
<TABLE>
<S> <C>
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
</TABLE>
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
56
<PAGE> 1
EXHIBIT 10.6
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
CADD MICROSYSTEMS, INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
Definitions....................................................................................1
Section 1.1 Certain General Definitions..................................................1
ARTICLE II
The Merger.....................................................................................4
Section 2.1 The Merger...................................................................4
Section 2.2 The Closing..................................................................4
Section 2.3 Effective Time...............................................................4
Section 2.4 Articles of Incorporation of Surviving Corporation...........................5
Section 2.5 Code of Regulations of Surviving Corporation.................................5
Section 2.6 Directors of the Surviving Corporation.......................................5
Section 2.7 Officers of the Surviving Corporation........................................5
Section 2.8 Conversion of Company Capital Stock..........................................5
Section 2.9 Exchange of Certificates Representing Shares of Company
Common Stock.................................................................5
Section 2.10 Fractional Shares............................................................6
Section 2.11 Subsequent Actions...........................................................6
ARTICLE III
Representations and Warranties of the Company and the Stockholders.............................7
Section 3.1 Organization and Good Standing; Qualification................................7
Section 3.2 Capitalization...............................................................7
Section 3.3 Transactions in Capital Stock................................................7
Section 3.4 Continuity of Business Enterprise............................................7
Section 3.5 Corporate Records............................................................7
Section 3.6 Authorization and Validity...................................................8
Section 3.7 No Violation.................................................................8
Section 3.8 Consents.....................................................................8
Section 3.9 Financial Statements.........................................................8
Section 3.10 Liabilities and Obligations..................................................9
Section 3.11 Employee Matters.............................................................9
3.11.1 Cash Compensation...................................................9
3.11.2 Compensation Plans..................................................9
3.11.3 Employment Agreements...............................................9
3.11.4 Employee Policies and Procedures....................................9
3.11.5 Unwritten Amendments...............................................10
3.11.6 Labor Compliance...................................................10
3.11.7 Unions.............................................................10
3.11.8 Aliens.............................................................10
Section 3.12 Employee Benefit Plans......................................................10
3.12.1 Identification.....................................................10
3.12.2 Administration.....................................................11
3.12.3 Examinations.......................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.12.4 Prohibited Transactions............................................11
3.12.5 Claims and Litigation..............................................11
3.12.6 Qualification......................................................11
3.12.7 Funding Status.....................................................11
3.12.8 Excise Taxes.......................................................12
3.12.9 Multiemployer Plans................................................12
3.12.10 PBGC...............................................................12
3.12.11 Retirees...........................................................12
Section 3.13 Absence of Certain Changes..................................................12
Section 3.14 Title; Leased Assets........................................................14
3.14.1 Real Property......................................................14
3.14.2 Personal Property..................................................14
3.14.3 Leases.............................................................14
Section 3.15 Commitments.................................................................14
3.15.1 Commitments; Defaults..............................................14
3.15.2 No Cancellation or Termination of Commitment.......................15
Section 3.16 Insurance...................................................................16
Section 3.17 Proprietary Rights and Information..........................................16
Section 3.18 Taxes.......................................................................17
3.18.1 Filing of Tax Returns..............................................17
3.18.2 Payment of Taxes...................................................17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments or Audits......17
3.18.4 No Extension of Limitation Period..................................17
3.18.5 Withholding Requirements Satisfied.................................17
3.18.6 Foreign Person.....................................................17
3.18.7 Safe Harbor Lease..................................................17
3.18.8 Tax Exempt Entity..................................................18
3.18.9 Collapsible Corporation............................................18
3.18.10 Boycotts...........................................................18
3.18.11 Parachute Payments.................................................18
3.18.12 S Corporation......................................................18
3.18.13 Personal Service Corporation.......................................18
3.18.14 Personal Holding Company...........................................18
Section 3.19 Compliance with Laws........................................................18
Section 3.20 Finder's Fee................................................................19
Section 3.21 Litigation..................................................................19
Section 3.22 Condition of Fixed Assets...................................................19
Section 3.23 Distributions and Repurchases...............................................19
Section 3.24 Banking Relations...........................................................19
Section 3.25 Ownership Interests of Interested Persons; Affiliations.....................19
Section 3.26 Investments in Competitors..................................................19
Section 3.27 Environmental Matters.......................................................20
Section 3.28 Certain Payments............................................................20
Section 3.29 No affiliation with NASD Member.............................................20
ARTICLE IV
Representations and Warranties of the Stockholders............................................20
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 4.1 Validity; Stockholder Capacity..............................................20
Section 4.2 No Violation................................................................20
Section 4.3 Personal Holding Company; Control of Related Businesses.....................21
Section 4.4 Transfers of the Company Capital Stock......................................21
Section 4.5 Consents....................................................................21
Section 4.6 Certain Payments............................................................21
Section 4.7 Finder's Fee................................................................21
Section 4.8 Ownership of Interested Persons; Affiliations...............................21
Section 4.9 Investments in Competitors..................................................22
Section 4.10 Disposition of Acquiror Shares..............................................22
ARTICLE V
Representations and Warranties of Acquiror....................................................22
Section 5.1 Organization and Good Standing..............................................22
Section 5.2 Capitalization..............................................................22
Section 5.3 Corporate Records...........................................................22
Section 5.4 Authorization and Validity..................................................23
Section 5.5 No Violation................................................................23
Section 5.6 Finder's Fee................................................................23
Section 5.7 Capital Stock...............................................................23
Section 5.8 Continuity of Business Enterprise...........................................23
Section 5.9 Consents....................................................................24
Section 5.10 Proprietary Rights and Information..........................................24
Section 5.11 Taxes.......................................................................24
5.11.1 Filing of Tax Returns..............................................24
5.11.2 Payment of Taxes...................................................24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments or Audits......24
5.11.4 No Extension of Limitation Period..................................24
5.11.5 All Withholding Requirements Satisfied.............................24
5.11.6 Foreign Person.....................................................25
5.11.7 Safe Harbor Lease..................................................25
5.11.8 Tax Exempt Entity..................................................25
5.11.9 Collapsible Corporation............................................25
5.11.10 Boycotts...........................................................25
5.11.11 Parachute Payments.................................................25
5.11.12 S Corporation......................................................25
Section 5.12 Compliance with Laws........................................................25
Section 5.13 Litigation..................................................................25
Section 5.14 Ownership Interests of Interested Persons; Affiliations.....................26
Section 5.15 Investments in Competitors..................................................26
Section 5.16 Certain Payments............................................................26
Section 5.17 Commitments.................................................................26
5.17.1 Commitments; Defaults..............................................26
5.17.2 No Cancellation or Termination of Acquiror Commitment..............27
Section 5.18 Acquiror Financial Statements...............................................28
Section 5.19 Liabilities and Obligations.................................................28
Section 5.20 Employee Matters............................................................28
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE VI
Covenants of the Company and the Stockholders.................................................28
Section 6.1 Consummation of Agreement...................................................28
Section 6.2 Business Operations.........................................................28
Section 6.3 Access......................................................................29
Section 6.4 Notification of Certain Matters.............................................29
Section 6.5 Approvals of Third Parties..................................................29
Section 6.6 Employee Matters............................................................29
Section 6.7 Contracts...................................................................30
Section 6.8 Capital Assets; Payments of Liabilities.....................................30
Section 6.9 Mortgages, Liens and Guaranties.............................................30
Section 6.10 Acquisition Proposals.......................................................31
Section 6.11 Distributions and Repurchases...............................................31
Section 6.12 Requirements to Effect the Merger...........................................31
Section 6.13 Lockup Agreements...........................................................31
ARTICLE VII
Covenants of Acquiror.........................................................................31
Section 7.1 Consummation of Agreement...................................................32
Section 7.2 Requirements to Effect Merger...............................................32
Section 7.3 Access......................................................................32
Section 7.4 Notification of Certain Matters.............................................32
Section 7.5 Approvals of Third Parties..................................................32
ARTICLE VIII
Covenants of all Parties......................................................................32
Section 8.1 Filings; Other Action.......................................................33
Section 8.2 Amendment of Schedules......................................................33
Section 8.3 Stockholder Employment Agreements...........................................34
ARTICLE IX
Conditions Precedent of Acquiror..............................................................34
Section 9.1 Due Diligence...............................................................34
Section 9.2 Representations and Warranties..............................................34
Section 9.3 Covenants...................................................................34
Section 9.4 Legal Opinion...............................................................34
Section 9.5 Proceedings.................................................................34
Section 9.6 No Material Adverse Change..................................................34
Section 9.7 Securities Approvals........................................................35
Section 9.8 Simultaneous Closings.......................................................35
Section 9.9 Closing Deliveries..........................................................35
ARTICLE X
Conditions Precedent of the Company and the Stockholders......................................35
Section 10.1 Representations and Warranties..............................................35
Section 10.2 Covenants...................................................................35
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Section 10.3 Legal Opinions..............................................................35
Section 10.4 Proceedings.................................................................36
Section 10.5 Government Approvals and Required Consents..................................36
Section 10.6 Securities Approvals........................................................36
Section 10.7 Closing Deliveries..........................................................36
Section 10.8 Simultaneous Closings.......................................................36
ARTICLE XI
Closing Deliveries............................................................................36
Section 11.1 Deliveries of the Company and the Stockholders..............................36
Section 11.2 Deliveries of Acquiror......................................................38
ARTICLE XII
Post Closing Matters..........................................................................39
Section 12.1 Further Instruments of Transfer.............................................39
Section 12.2 Preservation of Tax and Accounting Treatment................................39
Section 12.3 Merger Tax Covenants........................................................39
ARTICLE XIII
Remedies......................................................................................40
Section 13.1 Indemnification by the Stockholders.........................................40
Section 13.2 Indemnification by Acquiror.................................................41
Section 13.3 Conditions of Indemnification...............................................41
Section 13.4 Remedies Not Exclusive......................................................44
Section 13.5 Indemnification Limitations.................................................44
Section 13.6 Tax Benefits; Insurance Proceeds............................................44
Section 13.7 Payment of Indemnification Obligation.......................................44
ARTICLE XIV
Termination...................................................................................45
Section 14.1 Termination.................................................................45
Section 14.2 Effect of Termination.......................................................45
ARTICLE XV
Nondisclosure of Confidential Information.....................................................45
Section 15.1 Nondisclosure...............................................................45
Section 15.2 Damages.....................................................................46
Section 15.3 Survival....................................................................46
ARTICLE XVI
Transfer Restrictions.........................................................................46
Section 16.1 Transfer Restrictions.......................................................46
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock.........................................................47
Section 17.1 Investment Representation...................................................47
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
Section 17.2 Compliance with Law.........................................................47
Section 17.3 Economic Risk; Sophistication...............................................48
Section 17.4 Accredited Investor Status..................................................48
ARTICLE XVIII
Miscellaneous................................................................................48
Section 18.1 Amendment; Waivers..........................................................48
Section 18.2 Assignment..................................................................48
Section 18.3 Parties In Interest; No Third Party Beneficiaries...........................49
Section 18.4 Entire Agreement............................................................49
Section 18.5 Severability................................................................49
Section 18.6 Survival of Representations, Warranties and Covenants.......................49
Section 18.7 Governing Law...............................................................49
Section 18.8 Captions....................................................................49
Section 18.9 Gender and Number...........................................................49
Section 18.10 Reference to Agreement......................................................49
Section 18.11 Confidentiality; Publicity and Disclosures..................................50
Section 18.12 Notice......................................................................50
Section 18.13 Choice of Forum.............................................................51
Section 18.14 No Waiver; Remedies.........................................................51
Section 18.15 Counterparts................................................................51
Section 18.16 Costs, Expenses and Legal Fees..............................................51
</TABLE>
vi
<PAGE> 8
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of ________, 1997, is by and among CADD Microsystems,
Inc., a Virginia corporation (the "Company"), Leroy T. Gravatte, Jeffrey F.
Gravatte, Matthew M. Davoren, and Robert A. Steele, stockholders of the Company
(collectively, the "Stockholders"), and Universal Document Management Systems,
Inc., an Ohio corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror
have determined that a business combination between the Company and Acquiror is
in the best interests of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic objectives and, accordingly, have agreed to effect the Merger (as
hereinafter defined) upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of",
"do not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no
knowledge of", "do not know of" or "to the knowledge of" and similar phrases
shall mean (i) in the case of a natural person, the particular fact was known,
or not known, as the context requires, to such person after diligent
investigation and inquiry by such person, and (ii) in the case of an entity, the
particular fact was known, or not known, as the context requires, to any
stockholder, director or executive officer of such entity after diligent
investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of
capital stock of the Company, as set forth in the Company Disclosure Schedules,
which are authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto as of the date
hereof or otherwise delivered by the Company and the Stockholders to Acquiror,
as such may be amended or supplemented from time to time pursuant to the
provisions hereof. The information contained in the Company Disclosure Schedules
is labeled to correspond with the Section numbers of this Agreement to which the
disclosure relates.
1.1.6 "Confidential Information" shall mean all trade
secrets and other confidential and/or proprietary information of the particular
person, including information derived from reports, investigations, research,
work in progress, codes, marketing and sales programs, financial projections,
cost summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or
regulations pertaining to health or the environment, as in effect on the date
hereof and the Closing Date, including without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
SectionSection9601 et seq.), as amended (including without limitation as amended
pursuant to the Superfund Amendments and Reauthorization Act of 1986), and
regulations promulgated thereunder, (ii) the Resource Conservation and Recovery
Act of 1976 (42 U.S.C. SectionSection6901 et seq., as amended), and regulations
promulgated thereunder, (iii) statutes, rules or regulations, whether federal,
state or local, applicable to the Company's assets or operations that relate to
asbestos or polychlorinated
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<PAGE> 10
biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company's assets
or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Acquiror Common Stock contemplated by the
Registration Statement.
1.1.11 "Initial Public Offering Price" shall mean the price
per share at which Acquiror Common Stock is offered for sale to the public in
the Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal
Revenue Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material
adverse effect on the Company's or Acquiror's , as applicable, business,
operations, condition (financial or otherwise) or results of operations, taken
as a whole, in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual
and customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
Merger, and the mergers and acquisitions of entities and assets contemplated by
the Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure
Schedules and the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of
1933, as amended.
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Acquiror intends to acquire simultaneously with its
acquisition of the Company.
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<PAGE> 11
1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any
underwriter in the Initial Public Offering who acts as a managing underwriter in
the Initial Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock,
without par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Acquiror to the Company and/or the Stockholders, as such may be
amended or supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Acquiror
in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be
the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of Acquiror with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Ohio General Corporation Law and the Virginia Stock
Corporation Act.
2.2 THE CLOSING. The Closing shall take place at 10:00 a.m., Cincinnati
time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of
the Target Companies. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Articles IX and X shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in
accordance with Article XIV, the parties hereto shall cause to be
properly executed and filed on the Closing Date Articles of Merger
meeting the requirements of Section 13.1-720 of the Virginia Stock
Corporation Act and a Certificate of Merger meeting the requirements of
Section 1701.79 of the Ohio Revised Code. The Merger shall become
effective at the time of the filing of such document with the Virginia
State Corporation
4
<PAGE> 12
Commission and Ohio Secretary of State, in accordance with such laws or
at such later time which the parties hereto have theretofore agreed
upon and designated in such filings as the effective time of the Merger
(the "Effective Time").
2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Acquiror in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of Regulations
of Acquiror in effect immediately prior to the Effective Time shall be
the Code of Regulations of the Surviving Corporation until duly amended
in accordance with its terms.
2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are directors
of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation
and Code of Regulations.
2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are officers of
Acquiror immediately prior to the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation and
shall hold their same respective office(s) until their successors have
been duly elected or appointed and qualified or until their earlier
death, resignation or removal.
2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting shares of
the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on
the part of the holders thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share, if any, of Company Capital Stock held in
the Company's treasury at the Effective Time, by virtue of the Merger, shall
cease to be outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK.
5
<PAGE> 13
2.9.1 At or after the Effective Time and at Closing (i)
each Stockholder, as the holder of a certificate or certificates representing
shares of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by a Stockholder and replaced by a certificate or certificates
representing Acquiror Common Stock, the certificate or certificates for Company
Capital Stock shall, for all purposes be deemed to evidence ownership of the
number of shares of Acquiror Common Stock determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing
the certificate or certificates representing Company Capital Stock owned by him,
her or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, such Stockholder is entitled to receive
pursuant to the provisions of Exhibit 2.8.1 hereto.
2.10 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of
Acquiror Common Stock but for this Section 2.10 will be entitled to
receive a cash payment in lieu thereof reflecting such Stockholder's
proportionate interest in a share of Acquiror Common Stock multiplied
by the Initial Public Offering Price.
2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of any of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out
this Agreement, and to effect the cancellation of all outstanding
shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving
Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on
behalf of the Company, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on
behalf of the Company, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.
6
<PAGE> 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules attached hereto the following are true and correct as of the date
hereof:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its state of organization, with all requisite corporate
power and authority to carry on the business in which it is engaged, to
own the properties it owns, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The Company is not
duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state
other than the state of its organization.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital
Stock, free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies and shareholders' agreements. Each
outstanding share of Company Capital Stock has been legally and validly
issued and is fully paid and nonassessable. No shares of Company
Capital Stock are owned by the Company in treasury. No shares of
Company Capital Stock have been issued or disposed of in violation of
the preemptive rights, rights of first refusal or similar rights of any
of the Company's stockholders. The Company has no bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or are convertible into or exercisable for securities having the right
to vote) with the Stockholders on any matter.
3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any Company
Capital Stock since January 1, 1993. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding
securities of the Company, and no option, warrant, call, conversion
right or commitment of any kind exists which obligates the Company to
issue any of its authorized but unissued capital stock. The Company has
no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein
or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been altered or changed in
contemplation of the Merger within the two years preceding the date of
this Agreement.
7
<PAGE> 15
3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any sale,
distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the
two years preceding the date of this Agreement.
3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation and
Bylaws, and all amendments thereto, of the Company that have been
delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of
the Company, copies of which have been delivered or made available to
Acquiror, contain accurate minutes of all meetings of, and accurate
consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the
Company since its formation.
3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
the Company of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The Company
has obtained, in accordance with applicable law and its Articles of
Incorporation and Bylaws, the approval of its stockholders necessary to
the consummation of the transactions contemplated hereby.
3.7 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of the Articles of Incorporation or Bylaws of
the Company, (b) except as would not, individually or in the aggregate,
result in a Material Adverse Effect, conflict with, or result in a
violation or breach of the terms, conditions or provisions of, or
constitute a default under, any agreement, indenture or other
instrument under which the Company is bound or to which any of the
assets of the Company are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon
any of the assets of the Company or (c) to the knowledge of the
Company, except as would not, individually or in the aggregate, result
in a Material Adverse Effect, violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body.
3.8 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the Virginia Stock Corporation
Act and state securities laws, no consent, authorization, approval,
permit or license of, or filing with, any governmental or public body
or authority, any lender or lessor or any other person or entity is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Company, other than
8
<PAGE> 16
such consents as to which the failure to obtain would not, individually
or in the aggregate, result in a Material Adverse Effect.
3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror its: (i)
audited balance sheet (the "Company Balance Sheet") as of December 31,
1996 (the "Company Balance Sheet Date") and 1995, and the related
audited statements of operations, stockholders' equity and cash flows
for its three full fiscal years ended December 31, 1996; and (ii)
unaudited balance sheet as of June 30, 1997 and related unaudited
statements of operations, stockholders' equity and cash flows for the
six months ended June 30, 1997 and 1996 (collectively, with the related
notes thereto, the "Financial Statements"), copies of all of which are
included in the Company Disclosure Schedules. The Financial Statements
fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated and have been
prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments and the absence of notes for
any unaudited interim financial statement for any interim periods
presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements.
3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect all
liabilities of the Company, accrued, contingent or otherwise that would
be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles. Except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in
any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any
amount.
3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of December 31, 1996, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
9
<PAGE> 17
ownership or stock options. The Company has provided or made available to
Acquiror a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Each of the Compensation Plans can be
terminated or amended at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to
any employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company
Disclosure Schedules contain a complete and accurate list of all employee
manuals and all material policies, procedures and work-related rules (the
"Employee Policies and Procedures") that apply to employees of the Company. The
Company has provided or made available to Acquiror a copy of all written
Employee Policies and Procedures and a written description of all material
unwritten Employee Policies and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans or Employee Policies and
Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company,
the Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. The
Company has not been advised by any employee that he or she is represented by
any union, labor organization or collective bargaining unit. To the actual
knowledge of the Company, none of the employees of the Company has threatened to
organize or join a union, labor organization or collective bargaining unit.
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3.11.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules
contain a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholders have made all necessary
filings, reports and disclosures pursuant to and have complied with all
requirements of the IRS Voluntary Compliance Resolution Program with respect to
all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the
Company, no prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of
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Section 501 (a) of the Internal Revenue Code. No proceedings exist or, to the
actual knowledge of the Company, have been threatened that could result in the
revocation of any such favorable determination letter or ruling.
3.12.7 FUNDING STATUS. To the Company's knowledge, no
accumulated funding deficiency (within the meaning of Section 412 of the
Internal Revenue Code), whether or not waived, exists with respect to any
Employee Benefit Plan or any plan sponsored by any member of a controlled group
(within the meaning of Section 412(n)(6)(B) of the Internal Revenue Code) in
which the Company is a member (a "Controlled Group"). To the Company's
knowledge, with respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any
member of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the
Employee Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet Date, the
Company has not
3.13.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset
having a cost in excess of $25,000 or made any single capital expenditure in
excess of $25,000;
3.13.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
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3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any claims or any debt in excess of $5,000, or
released or waived any rights or claims except in the ordinary course of
business;
3.13.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an
aggregate value in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any
of its assets, other than accounts receivable in the ordinary course of
business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.13.12 except in the ordinary course of business consistent
with past practice, increased the compensation of any director, officer, key
employee or consultant;
3.13.13 increased the compensation of any employee (except
for increases in the ordinary course of business consistent with past practice)
or hired any new employee who is expected to receive annualized compensation of
at least $50,000;
3.13.14 except in the ordinary course of business consistent
with past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
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3.13.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such capital stock,
securities or rights;
3.13.17 entered into any agreement providing for total
payments in excess of $5,000 in any 12 month period with any person or group, or
modified or amended in any material respect the terms of any such existing
agreement, except in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or the other agreements contemplated hereby;
or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.14.3 constitute the only personal property necessary for the
conduct of the Company's business. Upon consummation of the transactions
contemplated hereby, such interest in the Personal Property shall be free and
clear of all security interests, liens, claims and encumbrances, other than
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
3.14.3 LEASES. A list and brief description of (i) all
leases of real property and (ii) leases of personal property involving rental
payments within any 12 month period in excess of $5,000, in either case to which
the Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
3.15 COMMITMENTS.
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3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to
which the Company is a party or is bound by, or which any of the shares of
Company Capital Stock are subject to, or which the assets or the business of the
Company are bound by, whether or not in writing, are listed in the Company
Disclosure Schedules (collectively "Commitments"):
3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification
or contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 days' notice or without
penalty;
3.15.1.6 any agreement relating to any material
matter or transaction in which an interest is held by a person or entity that is
an Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition
covenants;
3.15.1.10 any agreement providing for the purchase
from a supplier of all or substantially all of the requirements of the Company
of a particular product or service; or
3.15.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of the
Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. To the Company's knowledge, there are
no existing or asserted defaults, events of default or events, occurrences, acts
or omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by the Company or, to the best knowledge of the Company, any
other party
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to a material Commitment, and no penalties have been incurred nor are amendments
pending, with respect to the material Commitments. The Commitments are in full
force and effect and are valid and enforceable obligations of the Company and,
to the best knowledge of the Company, the other parties thereto in accordance
with their respective terms, in each case as may be limited by applicable
bankruptcy, insolvency, or similar laws affecting creditors' rights generally or
the availability of equitable remedies, and no defenses, off-sets or
counterclaims have been asserted or, to the best knowledge of the Company, may
be made by any party thereto (other than the Company), nor has the Company
waived any material rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither
the Company nor any Stockholder has received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described in the Company
Disclosure Schedules (the "Insurance Policies"). The Insurance Policies
are all of the insurance polices relating to the business of the
Company. All of the Insurance Policies are issued by insurers of
recognized responsibility, and, to the best knowledge of the Company,
are valid and enforceable policies, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. All
Insurance Policies shall be maintained in force without interruption up
to and including the Closing Date. True, complete and correct copies of
all Insurance Policies have been provided or made available to
Acquiror. Neither the Company nor any Stockholder has received any
notice or other communication from any issuer of any Insurance Policy
canceling such policy, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or
other premiums payable thereunder, and to the actual knowledge of the
Company, no such cancellation or increase of deductibles, retainages or
premiums is threatened. There are no outstanding claims, settlements or
premiums owed against any Insurance Policy, or the Company has given
all notices or has presented all potential or actual claims under any
Insurance Policy in due and timely fashion. The Company Disclosure
Schedules also set forth a list of all claims under any Insurance
Policy in excess of $10,000 per occurrence filed by the Company during
the immediately preceding three-year period.
3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company Disclosure
Schedules is a true and correct description of the following
("Proprietary Rights"), if any:
3.17.1 all trademarks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties,
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assignments and other similar agreements relating to the foregoing to which the
Company is a party (including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or
processes that the Company is licensed or authorized to use by others, or which
it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and
timely filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the
Company may be disputing in good faith by proceedings in compliance with
applicable law, which are described in the Company Disclosure Schedules, (i) the
Company has paid all taxes, penalties, assessments and interest that have become
due with respect to any Tax Returns that it has filed and has properly accrued
on its books and records for all of the same that have not yet become due and
(ii) the Company is not delinquent in the payment of any tax, assessment or
governmental charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS
OR AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
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3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has
not granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any
Stockholder is a foreign person, as such term is referred to in Section
1445(f)(3) of the Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company
and none of the Assets are subject to a lease to a "tax exempt entity" as such
term is defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented, and the Stockholders will not permit the Company to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
3.18.10 BOYCOTTS. The Company has not at any time
participated in or cooperated with any international boycott as defined in
Section 999 of the Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company,
no payment required or contemplated to be made by the Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election
to be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the
Company, the Company is not or has not been a personal holding company within
the meaning of Section 542 of the Internal Revenue Code.
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3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company has
complied with all applicable laws, and regulations and has filed with
the proper authorities all necessary statements and reports except
where the failure to so comply or file would not, individually or in
the aggregate, result in a Material Adverse Effect. To the knowledge of
the Company, there are no existing violations by the Company of any
federal, state or local law or regulation that could, individually or
in the aggregate, result in a Material Adverse Effect. The Company
possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of the Company's business as now
conducted, all of which are listed (with expiration dates, if
applicable) in the Company Disclosure Schedules. The transactions
contemplated by this Agreement will not result in a default under or a
breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that
would not, individually or in the aggregate, have a Material Adverse
Effect. Since January 1, 1992, the Company has not received any notice
from any federal, state or other governmental authority or agency
having jurisdiction over its properties or activities, or any insurance
or inspection body, that its operations or any of its properties,
facilities, equipment, or business practices fail to comply with any
applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except
where failure to so comply would not, individually or in the aggregate,
have a Material Adverse Effect.
3.20 FINDER'S FEE. The Company has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
3.21 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of the Company
threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the
assets of the Company, or the operation, business, condition (financial
or otherwise), or results of operations of the Company which (i) if,
successful, could, individually or in the aggregate, have a Material
Adverse Effect or (ii) could adversely affect the ability of the
Company or any Stockholder to effect the transactions contemplated
hereby. Neither the Company nor any Stockholder is (a) subject to any
continuing court or administrative order, judgment, writ, injunction or
decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any
such order, judgment, writ, injunction or decree. The Company has no
knowledge of any valid basis for any such action, proceeding or
investigation. All claims made or, to the actual knowledge of the
Company, threatened against the Company in excess of its deductible are
covered under its Insurance Policies.
3.22 CONDITION OF FIXED ASSETS. All of the structures and equipment
reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and
tear, and conform in all material respects with all applicable
ordinances,
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regulations and other laws, and the Company has no actual knowledge of
any latent defects therein.
3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind has been declared or paid by the Company on any of its capital
stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or
is contemplated by the Board of Directors of the Company.
3.24 BANKING RELATIONS. Set forth in the Company Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements
that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement
maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect
thereof.
3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a
material contract or arrangement with the Company.
3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any Stockholder
owns directly or indirectly any interests or has any investment in any
person that is a competitor of the Company.
3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its assets are
currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations
under, any Environmental Laws, except for any such violations,
investigations or inquiries that would not, individually or in the
aggregate, result in a Material Adverse Effect.
3.28 CERTAIN PAYMENTS. Neither the Company nor any director, officer or
employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with
the business of the Company:
3.28.1 to any government or agency thereof or any agent of
any supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
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3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholders or officers
or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself or
itself only, represents and warrants to Acquiror that the following, except as
set forth in the Company Disclosure Schedules and only insofar as they relate to
an individual Stockholder (referred to in this Article IV as "the Stockholder")
and not to any other Stockholders, are true and correct as of the date hereof
and agrees as follows:
4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the Stockholder
Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will
be as of the Closing Date duly executed and delivered by the
Stockholder and constitute or will constitute legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The
Stockholder has legal capacity to enter into and perform this Agreement
and his or her Stockholder Employment Agreement.
4.2 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation
of the transactions contemplated hereby or thereby, will (a) conflict
with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture
or other instrument under which the Stockholder is bound or to which
any of his, her or its shares of Company Capital Stock are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of his shares of Company Capital Stock
or (b) to the actual knowledge of the Stockholder, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly
or indirectly, beneficially or of record, through a personal holding
company. The Stockholder does not control another business that is in
the same or similar line of business as the Company or that has or is
engaged in transactions with the Company except transactions in the
ordinary course of business.
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4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the Company
Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All
transfers of Company Capital Stock by the Stockholder have been made
for valid business reasons and not in anticipation or contemplation of
the consummation of the transactions contemplated by this Agreement.
4.5 CONSENTS. Except as may be required under the Exchange Act, the
Securities Act, the Virginia Stock Corporation Act and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any
governmental or public body or authority, or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Stockholder.
4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of
any supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate
(other than from personal funds not reimbursed by the Company or as otherwise
permitted by applicable law).
4.7 FINDER'S FEE. The Stockholder has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the Stockholder
nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the
Company.
4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own directly or
indirectly any interests or have any investment in any person that is a
competitor of the Company.
4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not presently
intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or
agreement for the disposition of such shares of Acquiror Common Stock,
except this Agreement and the Registration Rights Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it
owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not
have any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the shareholders of
Acquiror on any matter. There exist no options, warrants, subscriptions
or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of
Acquiror, and no option, warrant, call, conversion right or commitment
of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the
Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay a dividend or make any distribution
in respect thereof. To the best knowledge of Acquiror, no shareholder
of Acquiror has granted options or other rights to purchase any shares
of Acquiror Common Stock from such shareholder.
5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation and Code
of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholders are
true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror, copies of which have been
delivered or made available to the Company and the Stockholders,
contain accurate minutes of all meetings of, and accurate consents to
all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of Acquiror, since its
formation.
5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Board of Directors and
shareholders of Acquiror. This Agreement and each other agreement
contemplated hereby to be executed by Acquiror have been or will be as
of the Closing Date duly executed and delivered by Acquiror and
constitute or will as of the Closing Date constitute legal, valid and
binding obligations of Acquiror, enforceable against Acquiror in
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accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies.
5.5 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of Acquiror or any
agreement, indenture or other instrument under which Acquiror is bound
or to which any of the assets of the Acquiror are subject, or result in
the creation or imposition of any security interest, lien, charge or
encumbrance upon any of the assets of the Acquiror, or (b) to the
knowledge of Acquiror, except as would not, individually or in the
aggregate, have a Material Adverse Effect on the business, operations,
condition (financial or otherwise) or results of operations of
Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the
properties or assets of Acquiror.
5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares of
Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights,
rights of first refusal or similar rights of any of Acquiror's
shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and
state securities laws.
5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Acquiror to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d).
5.9 CONSENTS. Except as have been obtained or as may be required by or
under the Exchange Act, the Ohio General Corporation Law, the
Securities Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Acquiror.
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5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or use any
trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any
agreement relating to the use of technology or know-how. Acquiror has
the right to use, free and clear of any claims or rights of others, all
trade secrets, customer lists and proprietary information required for
the marketing of all merchandise and services formerly or presently
sold or marketed by it.
5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
tax returns or reports are complete and accurate and properly reflect the taxes
of Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due. Acquiror is not delinquent in the
payment of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS
OR AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by Acquiror and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder
thereof is a foreign person, as such term is referred to in Section 1445(f)(3)
of the Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror
constitute property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by
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another person pursuant to the "Safe Harbor Lease" provisions of Section
168(f)(8) of the Internal Revenue Code prior to repeal by the Tax Equity and
Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by Acquiror will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Internal
Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all applicable laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Acquiror of any federal, state or local law or regulation
that could materially adversely affect its property or business.
Acquiror possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of its business as now
conducted. The transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses,
franchises, permits or government authorizations except for any
default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror has not received
any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any
insurance or inspection body, that its operations or any of its
properties, facilities, equipment, or business practices fail to comply
with any applicable law, ordinance, regulation, building or zoning law,
or requirement of any public or quasi-public authority or body.
5.13 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the
outstanding shares of Acquiror Common Stock, any of the assets of
Acquiror, or the operations, business, condition (financial or
otherwise) or results of operations of Acquiror. Acquiror is not (a)
subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to it or to its business,
assets,
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operations or employees or (b) in default with respect to any such
order, writ, injunction or decree. Acquiror has no knowledge of any
valid basis for any such action, proceeding or investigation.
5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of Acquiror or any
organization that has a material contract or arrangement with Acquiror,
except Acquiror's corporate parent, MedPlus, Inc.
5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any shareholder
thereof owns directly or indirectly any interests or has any investment
in any person that is a competitor of Acquiror or one of the Target
Companies.
5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder, director,
officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of
any supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to
which Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
5.17.1.4 contract to purchase real property;
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5.17.1.5 agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 day's notice or without
penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of
services, supplies, equipment, inventory, fixtures or other property involving
more than $5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition
covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made
in the ordinary course of business or that is material to the business,
operations, condition (financial or otherwise) or results of operations of
Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR
COMMITMENT. Except as contemplated hereby, (i) Acquiror has not received notice
of any plan or intention of any other party to any Acquiror Commitment to
exercise any right to cancel or terminate any Acquiror Commitment, and Acquiror
does not know of any fact that would justify the exercise of such a right; and
(ii) Acquiror does not currently contemplate, or have knowledge that any other
person currently contemplates, any amendment or change to any Acquiror
Commitment.
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5.18 ACQUIROR FINANCIAL STATEMENTS. The audited balance sheet as of December
31, 1996 and 1995, and related statements of operations, shareholder's
net investment and cash flows for each of the years in the three-year
period ended December 31, 1996, along with the unaudited interim
balance sheet as of June 30, 1997 and related statements of operations,
shareholder's net investment and cash flows for the six months ended
June 30, 1997 and 1996 are contained in the Acquiror Disclosure
Schedules (collectively, with the related notes thereto, the "Acquiror
Financial Statements"). The Acquiror Financial Statements fairly
present the financial condition and results of operations of Acquiror
as of the dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles (subject to
normal year-end adjustments) applied on a consistent basis with prior
periods, except as otherwise indicated in the Acquiror Financial
Statements.
5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial Statements reflect
all liabilities of Acquiror, accrued, contingent or otherwise, that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the
ordinary course of business since December 31, 1996. Acquiror is not
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner,
any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and
Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
5.20 EMPLOYEE MATTERS. Acquiror does not have any material arrangements,
agreements or plans with any person with respect to the employment by
Acquiror of such person or whereby such person is to serve as an
officer or director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders shall use
their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or
a Stockholder to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
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6.2 BUSINESS OPERATIONS. The Company shall operate its business in the
ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the Company intact. Neither the
Company nor any Stockholder shall take any action that would,
individually or in the aggregate, result in a Material Adverse Effect.
The Company shall use its best efforts to preserve intact its
relationships with customers, suppliers, employees and others having
significant business relations with it, unless doing so would impair
its goodwill or result, individually or in the aggregate, in a Material
Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past
practice.
6.3 ACCESS. The Company and the Stockholders shall, at reasonable times
during normal business hours and on reasonable notice, permit Acquiror
and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of the
Company, including its employees, customers and suppliers, and permit
Acquiror and its authorized representatives to inspect and, at
Acquiror's sole cost and expense, make copies of all documents, records
and information with respect to the affairs of the Company as Acquiror
and its representatives may request, all for the sole purpose of
permitting Acquiror to become familiar with the business and assets and
liabilities of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the Stockholders shall
promptly inform Acquiror in writing of (a) any notice of or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company
or any Stockholder subsequent to the date of this Agreement and prior
to the Effective Time under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or
business and to which it is subject; or (b) any material adverse change
in the Company's condition (financial or otherwise), operations,
assets, liabilities or business.
6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders shall use
their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under
any real property and personal property leases; provided, however, that
this covenant shall not require the Company or the Stockholders to make
any material expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
6.6 EMPLOYEE MATTERS. The Company shall not, without the prior written
approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder or
other employee of the Company;
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6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any
Employee Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with
respect to any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any
Employee Benefit Plan;
6.6.9 institute, settle or dismiss any employment
litigation except as could not, individually or in the aggregate, result in a
Material Adverse Effect;
6.6.10 enter into, modify, amend or terminate any agreement
with any union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any
past or present employee of the Company that would, individually or in the
aggregate, result in a Material Adverse Effect.
6.7 CONTRACTS. Except with Acquiror's prior written consent, the Company
shall not assume or enter into any contract, lease, license,
obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business,
nor will it waive any material right or cancel any material contract,
debt or claim.
6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall not, without
the prior written approval of Acquiror (a) acquire or dispose of any
capital asset having a fair market value of $25,000 or more, or acquire
or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or
perform any obligation or liability other than (i) liabilities and
obligations reflected in the Financial Statements or (ii) current
liabilities and obligations incurred in the usual and ordinary course
of business since the Company Balance Sheet Date and, in either case
(i) or (ii) above, only as required by the express terms of the
agreement or other instrument pursuant to which the liability or
obligation was incurred.
6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not, without the
prior written approval of Acquiror, enter into or assume any mortgage,
pledge, conditional sale or other title retention agreement, permit any
security interest, lien, encumbrance or claim of any kind
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to attach to any of its assets (other than statutory liens arising in
the ordinary course of business, other liens that do not materially
detract from the value or interfere with the use of such assets, and
liens, guarantees and encumbrances that are granted or created in the
ordinary course of business), whether now owned or hereafter acquired,
or guarantee or otherwise become contingently liable for any obligation
of another, except obligations arising by reason of endorsement for
collection and other similar transactions in the ordinary course of
business, or make any capital contribution or investment in any person.
6.10 ACQUISITION PROPOSALS. The Company and the Stockholders agree that from
and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the
Stockholders and the Company shall direct and use their best efforts to
cause the Company's employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (b) that the
Stockholders and the Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing
and each will take the necessary steps to inform the individuals or
entities referred to in the first sentence hereof of the obligations
undertaken in this Section 6.10; and (c) that the Stockholders and the
Company will notify Acquiror immediately if any such inquiries or
proposals are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or
continued with, the Company or the Stockholders.
6.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind will be declared or paid by the Company in respect of Company
Capital Stock, nor will any repurchase of any Company Capital Stock be
approved or effected.
6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the Stockholders
shall use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon request of the
Underwriter Representative, execute a customary "lockup" agreement in
connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any
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Acquiror Common Stock owned by them for up to 180 days from the closing
of the Initial Public Offering.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts to cause
the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant
shall not require Acquiror to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best efforts to
take, or cause to be taken, all actions necessary to effect the Merger
under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form
approved by counsel for the parties to this Agreement.
7.3 ACCESS. Acquiror shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of Acquiror,
including its employees, and permit the Company, the Stockholders, and
their authorized representatives to inspect and, at the Company's and
the Stockholders' sole expense, make copies of all documents, records
and information with respect to the affairs of Acquiror as the Company,
the Stockholders and their representatives may request (including
documents, records and information pertaining to or generated in
connection with any Target Company, except as may be prohibited by
confidentiality agreements to which Acquiror is a party), all for the
sole purpose of permitting the Company and the Stockholders to become
familiar with the business and assets and liabilities of Acquiror.
7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly inform the
Company and the Stockholders in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Acquiror
subsequent to the date of this Agreement and prior to the Effective
Time under any Acquiror Commitment material to Acquiror's condition
(financial or otherwise), operations, assets, liabilities or business
and to which it is subject; or (b) any material adverse change in
Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business.
7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best efforts to
secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
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ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with
respect to the Company's covenants, the Stockholders agree to use their best
efforts to cause the Company to perform):
8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall
cooperate to promptly prepare and file with the SEC the Registration Statement
on Form S-1 (or other appropriate Form) to be filed by Acquiror in connection
with its Initial Public Offering (including the prospectus constituting a part
thereof, the "Registration Statement"). Acquiror shall obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to
be supplied by each of the Company, the Stockholders and Acquiror specifically
for inclusion in the Registration Statement, by exhibit or otherwise, will, at
the time the Registration Statement and each amendment and supplement thereto,
if any, becomes effective under the Securities Act, 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 the light of the
circumstances under which they were made, not misleading. The Company, the
Stockholders and Acquiror shall agree as to the information and documents
supplied by the Company and the Stockholders for inclusion in the Registration
Statement and shall indicate such information and documents in a letter to be
delivered at Closing (the "Information Letter"). The Company and the
Stockholders shall be entitled to review the Registration Statement and each
amendment thereto, if any, prior to the time each becomes effective under the
Securities Act.
8.1.3 The Stockholders and the Company shall, upon request,
furnish Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
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8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly (i) in the case of Acquiror,
the Acquiror Disclosure Schedules and (ii) in the case of the Company
or the Stockholders, the Company Disclosure Schedules with respect to
any matter that would have been or would be required to be set forth or
described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein;
provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be
made unless Acquiror consents to such amendment or supplement, and no
amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to Acquiror may be made unless the Company and
the Stockholder consent to such amendment or supplement. For all
purposes of this Agreement, the Schedules hereto shall be deemed to be
the Schedules as amended or supplemented pursuant to this Section 8.2.
In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a
Schedule pursuant to this Section 8.2 and the Company and the
Stockholder do not consent, this Agreement shall be deemed terminated
by mutual consent as set forth in Section 14.1.1 hereof.
8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to Closing,
each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent
without any liability on the part of the Company therefor, and shall
enter into a Stockholder Employment Agreement in the form appended
hereto as Exhibit 8.3 with Acquiror (the "Stockholder Employment
Agreements").
ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence review
of the Company and shall be reasonably satisfied with the results
thereof.
9.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company and the Stockholder contained herein shall have been true
and correct in all material respects when initially made and shall be
true and correct in all respects as of the Closing Date.
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9.3 COVENANTS. The Company and the Stockholders shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
9.4 LEGAL OPINION. Counsel to the Company and the Stockholders shall have
delivered to Acquiror their opinions, dated as of the Closing Date, in
form and substance reasonably satisfactory to Acquiror, substantially
in the form as set forth in Exhibit 9.4.
9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet
Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Stockholders.
9.7 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. The Acquiror Common
Stock shall have been approved for listing on the Nasdaq National
Market, subject only to official notification of issuance.
9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
9.9 CLOSING DELIVERIES. Acquiror shall have received all documents and
agreements, duly executed and delivered in form satisfactory to
Acquiror, referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
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10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquiror contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all
respects as of the Closing Date.
10.2 COVENANTS. Acquiror shall have performed and complied in all material
respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the
Company and the Stockholders their opinion, dated as of the Closing Date, in
form and substance reasonably satisfactory to the Company and the Stockholders,
to the effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the
Company their opinion, dated as of the Closing Date, to the effect set forth in
Exhibit 10.3.2 (the "Tax Opinion").
10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company, Stockholders
and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
10.6 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the
Closing Date, the Acquiror Common Stock shall have been approved for
listing on The Nasdaq National Market, subject only to official
notification of issuance.
10.7 CLOSING DELIVERIES. The Company shall have received all documents and
agreements, duly executed and delivered in form satisfactory to the
Company, referred to in Section 11.2.
10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
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ARTICLE XI
CLOSING DELIVERIES
11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior to the
Closing Date, the Company and the Stockholders shall deliver to
Acquiror c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following,
all of which shall be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and
the stockholders of the Company authorizing the execution, delivery and
performance of this Agreement and all related documents and agreements and
consummation of the Merger, each certified by the Secretary of the Company as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
11.1.2 a certificate of the President of the Company, and
the Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholders contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and
the Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Stockholders to the Closing
have been satisfied or waived;
11.1.4 a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of such
corporation and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the
Closing Date, of the Virginia State Corporation Commission establishing that
such corporation is in existence, has paid all franchise or similar taxes, if
any, and, if applicable, otherwise is in good standing to transact business in
its state of organization;
11.1.6 certificates, dated within ten days prior to the
Closing Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Mr. Millard Ottman, counsel to the
Company and the Stockholders dated as of the Closing Date, pursuant to Section
9.4;
11.1.8 all necessary authorizations, consents, approvals,
permits and licenses;
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11.1.9 the resignations of the directors and officers of the
Company as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between
Acquiror and the Stockholders in substantially the form attached hereto as
Exhibit 11.1.11 (the "Registration Rights Agreement");
11.1.12 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.1;
11.1.13 a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder,
signed under a penalty of perjury and dated as of the Closing Date, to the
effect that each Stockholder is a United States citizen or a resident alien (and
thus not a foreign person) and providing such Stockholders United States
taxpayer identification number;
11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Winston & Strawn, the
Company's legal counsel, setting forth the aggregate legal fees incurred by the
Company for services rendered to the Company in connection with the Merger; and
11.1.16 such other instrument or instruments of transfer
prepared by Acquiror as shall be necessary or appropriate, as Acquiror or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date, Acquiror shall
deliver to the Company and the Stockholders c/o Dinsmore & Shohl LLP,
counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholders:
11.2.1 a copy of the resolutions of the Board of Directors
and shareholders of Acquiror authorizing the execution, delivery and performance
of this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the
Closing Date as to the truth and correctness of the representations and
warranties of Acquiror contained herein on and as of the Closing Date;
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11.2.3 a certificate of an officer of Acquiror dated the
Closing Date, (i) as to the performance and compliance by Acquiror with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Acquiror to the Closing have been satisfied or
waived;
11.2.4 a certificate of the Secretary of Acquiror certifying
as to the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within
ten days prior to the Closing Date, of the Secretaries of State of the states in
which Acquiror is qualified to do business, to the effect that Acquiror is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to
Acquiror, dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.1;
11.2.11 executed Stockholder Employment Agreements in
substantially the form attached hereto as Exhibit 8.3;
11.2.12 the Merger Consideration; and
11.2.13 such other instrument or instruments of transfer,
prepared by the Company or the Stockholders as shall be necessary or
appropriate, as the Company, the Stockholders or their counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
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ARTICLE XII
POST CLOSING MATTERS
12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at the request
of Acquiror and at Acquiror's sole cost and expense, the Stockholders
and the Company shall deliver any further instruments of transfer and
take all reasonable action as may be necessary or appropriate to carry
out the purpose and intent of this Agreement.
12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Acquiror shall not and shall not permit any of its subsidiaries to:
12.2.1 retire or reacquire, directly or indirectly, all or
part of the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of
the Stockholders; or
12.2.3 dispose of a significant part of the assets of the
Company within the two years following the Closing Date except in the ordinary
course of business, to Affiliates of Acquiror or to eliminate duplicate services
or excess capacity.
12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholders as a result of the Merger will not exceed
the amount of any cash received by the Stockholders in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Effective Time, all books
and records shall be maintained, and all Tax Returns and schedules thereto shall
be filed in a manner consistent with the Merger being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Internal Revenue Code, to report the Merger as a Reorganization and such opinion
either is furnished prior to the Effective Time or is based on facts or events
not known at the Effective Time. Each party shall provide to each other party
such tax information, reports, returns, or schedules as may be reasonably
required to assist such party in accounting for and reporting the Merger as a
Reorganization.
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ARTICLE XIII
REMEDIES
13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify,
defend and hold Acquiror, the Company, the Surviving Corporation and
their respective directors, officers, members, managers, employees,
agents, attorneys and affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable attorneys' fees and expenses (collectively,
"Damages") asserted against or incurred by such indemnities arising out
of or resulting from:
13.1.1 a material breach of the Company or the Stockholders
of any representation, warranty or covenant of the Company or the Stockholders
contained herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation (or alleged violation) by Stockholders,
the Company and/or any of their past or present directors, officers, members,
managers, shareholders, employees, agents, consultants and affiliates of state
or federal laws occurring on or before the Closing Date;
13.1.3 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Stockholders, or the
Company, and provided in writing to Acquiror or its counsel by the Company or
the Stockholders, specifically for inclusion in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Stockholders and/or the Company required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Acquiror or its
counsel by the Company or the Stockholders, provided, however, that such
indemnity shall not inure to the benefit of Acquiror and the Company to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and
Stockholder provided, in writing, corrected information to Acquiror's counsel
and to Acquiror for inclusion in the final prospectus, and such information was
not so included; and
13.1.4 any filings, reports or disclosures made by the
Company or the Stockholders, as the case may be, pursuant to the IRS Voluntary
Compliance Resolution Program.
13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and conditions of
this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or
incurred by him arising out of or resulting from:
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13.2.1 a material breach by Acquiror of any representation,
warranty or covenant of Acquiror contained herein or in any Schedule or
certificate delivered by it hereunder; and
13.2.2 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to Acquiror, contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (and, in any event, at least ten days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party claim.
13.3.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood
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and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 13.3.2, or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
13.3.2 but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying
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Party and the Indemnified Party, and the Indemnifying Party has been advised by
counsel that there may be one or more legal defenses available to it that are
different from or additional to those available to the Indemnified Party, then
the Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense of
such action on behalf of the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a
claim against any Indemnifying Party hereunder that does not involve a Third
Party Claim, the Indemnified Party shall transmit to the Indemnifying Party a
written notice (the "Indemnity Notice") describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification under
this Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying
Party pursuant to this Article XIII relating to a Third Party Claim shall be
made within 30 days after the latest of (i) the settlement of such Third Party
Claim, (ii) the expiration of the period for appeal of a final adjudication of
such Third Party Claim or (iii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement. Payments of all amounts owing by an Indemnifying
Party shall be made within 30 days after the later of (i) the expiration of the
60-day Indemnity Notice period or (ii) the expiration of the period for appeal
of a final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement shall
not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions of Sections
13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or
covenant unless the claim for indemnification is brought within the
time limit set forth in Section 18.6, (b) no claim may be brought by
any party entitled to indemnification under this Article XIII unless
and until the aggregate cumulative amount to which such party is
entitled equals or exceeds $50,000, and (c) no party shall be obligated
to make any indemnification in excess of 50% of the value of the Merger
Consideration.
13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be
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indemnified with respect to recovery from third parties or insurance
proceeds, and such correlative insurance benefit shall be net of the
insurance premium, if any, that becomes due as a result of such claim.
13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder,
subject to Acquiror's approval as set forth below, the Stockholders may
satisfy such obligation by transferring to Acquiror such number of
shares of Acquiror Common Stock owned by the Stockholders having an
aggregate fair market value (based on the last reported sale price of
Acquiror Common Stock on the Nasdaq National Market or other exchange
on which the Acquiror Common Stock is then listed or the last quoted
ask price on any over-the-counter market through which the Acquiror
Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholder transfers shares of Acquiror
Common Stock to Acquiror hereunder) equal to the indemnification
obligation; provided that each of the following conditions are
satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good,
valid and marketable title to the shares of Acquiror Common Stock, free and
clear of all adverse claims, security interests, liens, claims, proxies,
options, stockholders' agreements and encumbrances;
13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section 13.7.3 and the effects thereof, including
any legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
14.1 TERMINATION. This Agreement may be terminated and the Merger and the
Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual
agreement of all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if
any material representation or warranty of the Company or the Stockholders
contained in this Agreement or in any certificate or other document executed and
delivered by the Company or the Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or the
Stockholders fail to comply in any material respect with any covenant or
agreement
46
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contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by the Company of
written notice thereof;
14.1.3 at any time prior to the Closing Date by the Company
if any material representation or warranty of Acquiror contained in this
Agreement or in any certificate or other document executed and delivered by
Acquiror pursuant to this Agreement is or becomes untrue or breached in any
material respect or if Acquiror fails to comply in any material respect with any
covenant or agreement contained herein, and any such misrepresentation,
noncompliance or breach is not cured, waived or eliminated within 20 days after
receipt by Acquiror of written notice thereof; or
14.1.4 by Acquiror or the Company if the Merger shall not
have been consummated by March 31, 1998.
14.2 EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the Company
and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available
at law or in equity. In the event of a termination of this Agreement
under the provisions of this Article, a party not then in material
breach of this Agreement shall stand fully released and discharged of
any and all obligations under this Agreement; provided, however, that
if a termination of this Agreement occurs pursuant to the last sentence
of Section 8.2, the parties hereto shall stand fully released and
discharged of any and all obligations under this Agreement.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges that he had
in the past, currently has, and in the future may possibly have, access
to certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's
respective businesses. Acquiror acknowledges that it has had in the
past, currently has, and in the future may possible have, access to
certain Confidential Information of the Company that is valuable,
special and unique assets of the Company's business. Each Stockholder,
the Company, and Acquiror agree that they will not disclose such
Confidential Information to any person, firm, corporation, association
or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Acquiror, the Company and such
Stockholder and (b) to his, her or its counsel and other advisers
provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 15.1, unless (i) such
information becomes available to or known by the public generally
through no fault of such Stockholder, the Company, or Acquiror, as the
case may be, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided,
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<PAGE> 55
that prior to disclosing any information pursuant to this clause (ii),
such Stockholder, the Company, or Acquiror, as the case may be, shall,
if possible, give prior written notice thereof to such Stockholder, the
Company, and Acquiror and provide such Stockholder, the Company,
Acquiror with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing
party, or (iv) the disclosing party is the sole and exclusive owner of
such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by a Stockholder of the
provisions of this Section 15.1, Acquiror and the Company shall be
entitled to an injunction restraining such Stockholder from disclosing,
in whole or in part, such Confidential Information. Nothing herein
shall be construed as prohibiting Acquiror, the Stockholders and the
Company from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
15.2 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they
would have no other adequate remedy, Acquiror, the Company, and the
Stockholder agree that, in the event of a breach by any of them of the
foregoing covenant, the covenant may be enforced against them by
injunctions and restraining orders.
15.3 SURVIVAL. The obligations of the parties under this Article XV shall
survive the termination of this Agreement.
ARTICLE XVI
TRANSFER RESTRICTIONS
16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of one year
from the Closing or such other holding period as may be required under
applicable federal or state securities laws, except pursuant to the
Registration Rights Agreement and Section 13.7 hereof, no Stockholder
shall voluntarily (a) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint, or otherwise dispose of (i) any shares of
Acquiror Common Stock received by such Stockholder in the Merger, or
(ii) any interest (including, without limitation, an option to buy or
sell) in any such shares of Acquiror Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any
purpose or (b) engage in any transaction, whether or not with respect
to any shares of Acquiror Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning shares of
Acquiror Common Stock. The certificates evidencing the Acquiror Common
Stock delivered to the Stockholder pursuant to this Agreement will bear
a legend substantially in the form set forth below and containing such
other information as Acquiror may reasonably deem necessary or
appropriate:
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<PAGE> 56
Except pursuant to the terms of the Registration Rights Agreement and
the Agreement and Plan of Merger and Reorganization ("Merger
Agreement") between the issuer, the holder of this certificate and the
other parties thereto, the shares represented by this certificate may
not be voluntarily sold, assigned, exchanged, transferred, encumbered,
pledged, distributed, appointed or otherwise disposed of, and the
issuer shall not be required to give effect to any attempted voluntary
sale, assignment, exchange, transfer, encumbrance, pledge,
distribution, appointment or other disposition prior to [date that is
one year after the Closing Date.] Upon the written request of the
holder of this certificate, the issuer agrees to remove this
restrictive legend (and any stop order placed with the transfer agent)
after the expiration of the period specified in the Merger Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that the
shares of Acquiror Common Stock to be delivered to such Stockholder
pursuant to this Agreement have not been and will not be registered
under the Securities Act and may not be resold without compliance with
the Securities Act. The Acquiror Common Stock to be acquired by such
Stockholder pursuant to this Agreement is being acquired solely for
his, her or its own account, for investment purposes only and with no
present intention of distributing, selling or otherwise disposing of it
in connection with a distribution.
17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to
such Stockholder will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act
and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of
Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI:
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford
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to sustain a total loss of such investment and has such knowledge and
experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of the proposed investment
and therefore have the capacity to protect his, her or its own
interests in connection with the acquisition of the Acquiror Common
Stock. Each Stockholder or its purchaser representatives have had an
adequate opportunity to ask questions and receive answers from the
officers of Acquiror concerning any and all matters relating to the
transactions described in the Registration Statement including, without
limitation, the background and experience of the officers and directors
of Acquiror, the plans for the operations of the business of Acquiror,
and any plans for additional acquisitions and the like. Each
Stockholder or its purchaser representatives have asked any and all
questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17.4 ACCREDITED INVESTOR STATUS. Leroy Gravatte, a Stockholder of the
Company, is an "accredited investor" as defined in Rule 501(a) under
the Securities Act. Such Stockholder recognizes that, as an accredited
investor, Acquiror is not required to provide such Stockholder with any
particular information or disclosures as a condition to relying upon
the Rule 506 exemption from registration under the Securities Act with
respect to the issuance of Acquiror Common Stock in the Merger.
However, such Stockholder acknowledges that he, she or it has received
and had the opportunity to review the information about Acquiror
contained in the Acquiror Disclosure Schedules.
ARTICLE XVIII
MISCELLANEOUS
18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be
in writing, and signed by the parties hereto. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
18.2 ASSIGNMENT. Neither this Agreement nor any right created hereby or in
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by
Acquiror to a wholly owned subsidiary of Acquiror; provided that any
such assignment shall not relieve Acquiror of its obligations
hereunder.
18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be
deemed to
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confer upon any person not a party hereto or thereto any rights or
remedies hereunder or thereunder.
18.4 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect
to the subject matter hereof.
18.5 SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
illegal, invalid or unenforceable provision, there shall be added
automatically as part of this Agreement a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and enforceable.
18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including
all statements contained in any certificate, exhibit or other
instrument delivered pursuant to this Agreement by or on behalf of the
Company, the Stockholder, or Acquiror, as the case may be, shall
survive the Closing until the first anniversary of the Closing Date.
18.7 GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
18.8 CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms
or provisions hereof.
18.9 GENDER AND NUMBER. When the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto"
and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement, unless otherwise noted.
18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall keep this
Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge
and consent of the other parties hereto; provided that the foregoing
shall not prohibit any
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disclosure (a) by press release, filing or otherwise that Acquiror has
determined in its good faith judgment to be required by federal
securities laws or the rules of the National Association of Securities
Dealers, (b) to attorneys, accountants, investment bankers or other
agents of the parties assisting the parties in connection with the
transactions contemplated by this Agreement and (c) by Acquiror in
connection with the conduct of its Initial Public Offering and
conducting an examination of the operations and assets of the Company;
provided that Acquiror shall promptly provide notice to the Company of
any release made under this Section 18.11. In the event that the
transactions contemplated hereby are not consummated for any reason
whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the
other parties, except for information that is required by law to be
disclosed; provided that should the transactions contemplated hereby
not be consummated, nothing contained in this Section shall be
construed to prohibit the parties hereto from operating businesses in
competition with each other so long as no party discloses or uses any
such Confidential Information in connection therewith.
18.12 NOTICE. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by
telex, telegram, facsimile or courier service, when actually received
by the party to whom notice is sent or (ii) if delivered by mail
(whether actually received or not), at the close of business on the
third business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at
such other address as such party may designate by written notice to all
other parties in accordance herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: CADD Microsystems, Inc.
6183 Grovedale Court,
Suite Number 200
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Alexandria, Virginia 22310
Attn: Jeff Gravatte
with a copy to: Winston & Strawn
1400 L. Street, N.W.
Washington, D.C. 20005-3502
Attn: Gordon Coffee
18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject to the in
personam jurisdiction of any state or federal court located in Hamilton
County, State of Ohio.
18.14 NO WAIVER; REMEDIES. No party hereto shall by any act (except by
written instrument pursuant to Section 18.1 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay
in exercising, on the part of any party hereto, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No remedy set forth in this Agreement
or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but
the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be
deemed expedient.
18.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its
own costs and expenses (including attorneys' fees) incurred in
connection with the transactions contemplated herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By
-----------------------------------
Terry L. Theye, President
COMPANY:
CADD MICROSYSTEMS, INC.
By
-----------------------------------
Jeffrey F. Gravatte, President
STOCKHOLDERS:
-------------------------------------
Leroy T. Gravatte
-------------------------------------
Jeffrey F. Gravatte
-------------------------------------
Matthew M. Davoren
-------------------------------------
Robert A. Steele
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ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
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Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
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Exhibit 10.7
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
MID-WEST CAD, INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
Definitions............................................................................................. 1
Section 1.1 Certain General Definitions........................................................... 1
ARTICLE II
The Merger.............................................................................................. 4
Section 2.1 The Merger............................................................................ 4
Section 2.2 The Closing........................................................................... 4
Section 2.3 Effective Time........................................................................ 4
Section 2.4 Articles of Incorporation of Surviving Corporation.................................... 5
Section 2.5 Code of Regulations of Surviving Corporation.......................................... 5
Section 2.6 Directors of the Surviving Corporation................................................ 5
Section 2.7 Officers of the Surviving Corporation................................................. 5
Section 2.8 Conversion of Company Capital Stock................................................... 5
Section 2.9 Exchange of Certificates Representing Shares of Company Common Stock
....................................................................................................... 5
Section 2.10 Fractional Shares..................................................................... 6
Section 2.11 Subsequent Actions.................................................................... 6
ARTICLE III
Representations and Warranties of the Company and the Stockholders...................................... 7
Section 3.1 Organization and Good Standing; Qualification......................................... 7
Section 3.2 Capitalization........................................................................ 7
Section 3.3 Transactions in Capital Stock......................................................... 7
Section 3.4 Continuity of Business Enterprise..................................................... 7
Section 3.5 Corporate Records..................................................................... 7
Section 3.6 Authorization and Validity............................................................ 8
Section 3.7 No Violation.......................................................................... 8
Section 3.8 Consents.............................................................................. 8
Section 3.9 Financial Statements.................................................................. 8
Section 3.10 Liabilities and Obligations........................................................... 9
Section 3.11 Employee Matters...................................................................... 9
3.11.1 Cash Compensation............................................................ 9
3.11.2 Compensation Plans........................................................... 9
3.11.3 Employment Agreements........................................................ 9
3.11.4 Employee Policies and Procedures............................................. 10
3.11.5 Unwritten Amendments......................................................... 10
3.11.6 Labor Compliance............................................................. 10
3.11.7 Unions....................................................................... 10
3.11.8 Aliens....................................................................... 10
Section 3.12 Employee Benefit Plans................................................................ 10
3.12.1 Identification............................................................... 10
3.12.2 Administration............................................................... 11
3.12.3 Examinations................................................................. 11
</TABLE>
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<TABLE>
<S> <C> <C>
3.12.4 Prohibited Transactions...................................................... 11
3.12.5 Claims and Litigation........................................................ 11
3.12.6 Qualification................................................................ 11
3.12.7 Funding Status............................................................... 11
3.12.8 Excise Taxes................................................................. 12
3.12.9 Multiemployer Plans.......................................................... 12
3.12.10 PBGC......................................................................... 12
3.12.11 Retirees..................................................................... 12
Section 3.13 Absence of Certain Changes............................................................ 12
Section 3.14 Title; Leased Assets.................................................................. 14
3.14.1 Real Property................................................................ 14
3.14.2 Personal Property............................................................ 14
3.14.3 Leases....................................................................... 14
Section 3.15 Commitments........................................................................... 14
3.15.1 Commitments; Defaults........................................................ 14
3.15.2 No Cancellation or Termination of Commitment................................. 15
Section 3.16 Insurance............................................................................. 16
Section 3.17 Proprietary Rights and Information.................................................... 16
Section 3.18 Taxes................................................................................. 17
3.18.1 Filing of Tax Returns........................................................ 17
3.18.2 Payment of Taxes............................................................. 17
3.18.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 17
3.18.4 No Extension of Limitation Period............................................ 17
3.18.5 Withholding Requirements Satisfied........................................... 17
3.18.6 Foreign Person............................................................... 17
3.18.7 Safe Harbor Lease............................................................ 17
3.18.8 Tax Exempt Entity............................................................ 18
3.18.9 Collapsible Corporation...................................................... 18
3.18.10 Boycotts..................................................................... 18
3.18.11 Parachute Payments........................................................... 18
3.18.12 S Corporation................................................................ 18
3.18.13 Personal Service Corporation................................................. 18
3.18.14 Personal Holding Company..................................................... 18
Section 3.19 Compliance with Laws.................................................................. 18
Section 3.20 Finder's Fee.......................................................................... 19
Section 3.21 Litigation............................................................................ 19
Section 3.22 Condition of Fixed Assets............................................................. 19
Section 3.23 Distributions and Repurchases......................................................... 19
Section 3.24 Banking Relations..................................................................... 19
Section 3.25 Ownership Interests of Interested Persons; Affiliations............................... 19
Section 3.26 Investments in Competitors............................................................ 19
Section 3.27 Environmental Matters................................................................. 20
Section 3.28 Certain Payments...................................................................... 20
Section 3.29 No affiliation with NASD Member....................................................... 20
ARTICLE IV
Representations and Warranties of the Stockholders...................................................... 20
</TABLE>
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<TABLE>
<S> <C> <C>
Section 4.1 Validity; Stockholder Capacity........................................................ 20
Section 4.2 No Violation.......................................................................... 20
Section 4.3 Personal Holding Company; Control of Related Businesses............................... 21
Section 4.4 Transfers of the Company Capital Stock................................................ 21
Section 4.5 Consents.............................................................................. 21
Section 4.6 Certain Payments...................................................................... 21
Section 4.7 Finder's Fee.......................................................................... 21
Section 4.8 Ownership of Interested Persons; Affiliations......................................... 21
Section 4.9 Investments in Competitors............................................................ 22
Section 4.10 Disposition of Acquiror Shares........................................................ 22
ARTICLE V
Representations and Warranties of Acquiror.............................................................. 22
Section 5.1 Organization and Good Standing........................................................ 22
Section 5.2 Capitalization........................................................................ 22
Section 5.3 Corporate Records..................................................................... 22
Section 5.4 Authorization and Validity............................................................ 23
Section 5.5 No Violation.......................................................................... 23
Section 5.6 Finder's Fee.......................................................................... 23
Section 5.7 Capital Stock......................................................................... 23
Section 5.8 Continuity of Business Enterprise..................................................... 23
Section 5.9 Consents.............................................................................. 23
Section 5.10 Proprietary Rights and Information.................................................... 24
Section 5.11 Taxes................................................................................. 24
5.11.1 Filing of Tax Returns........................................................ 24
5.11.2 Payment of Taxes............................................................. 24
5.11.3 No Pending Deficiencies, Delinquencies, Assessments or Audits................ 24
5.11.4 No Extension of Limitation Period............................................ 24
5.11.5 All Withholding Requirements Satisfied....................................... 24
5.11.6 Foreign Person............................................................... 24
5.11.7 Safe Harbor Lease............................................................ 25
5.11.8 Tax Exempt Entity............................................................ 25
5.11.9 Collapsible Corporation...................................................... 25
5.11.10 Boycotts..................................................................... 25
5.11.11 Parachute Payments........................................................... 25
5.11.12 S Corporation................................................................ 25
Section 5.12 Compliance with Laws......................................................... 25
Section 5.13 Litigation............................................................................ 25
Section 5.14 Ownership Interests of Interested Persons; Affiliations............................... 26
Section 5.15 Investments in Competitors............................................................ 26
Section 5.16 Certain Payments...................................................................... 26
Section 5.17 Commitments........................................................................... 26
5.17.1 Commitments; Defaults........................................................ 26
5.17.2 No Cancellation or Termination of Acquiror Commitment........................ 27
Section 5.18 Acquiror Financial Statements......................................................... 28
Section 5.19 Liabilities and Obligations........................................................... 28
Section 5.20 Employee Matters...................................................................... 28
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VI
Covenants of the Company and the Stockholders........................................................... 28
Section 6.1 Consummation of Agreement............................................................. 28
Section 6.2 Business Operations................................................................... 28
Section 6.3 Access................................................................................ 29
Section 6.4 Notification of Certain Matters....................................................... 29
Section 6.5 Approvals of Third Parties............................................................ 29
Section 6.6 Employee Matters...................................................................... 29
Section 6.7 Contracts............................................................................. 30
Section 6.8 Capital Assets; Payments of Liabilities............................................... 30
Section 6.9 Mortgages, Liens and Guaranties....................................................... 30
Section 6.10 Acquisition Proposals................................................................. 31
Section 6.11 Distributions and Repurchases......................................................... 31
Section 6.12 Requirements to Effect the Merger..................................................... 31
Section 6.13 Lockup Agreements..................................................................... 31
ARTICLE VII
Covenants of Acquiror................................................................................... 31
Section 7.1 Consummation of Agreement............................................................. 32
Section 7.2 Requirements to Effect Merger......................................................... 32
Section 7.3 Access................................................................................ 32
Section 7.4 Notification of Certain Matters....................................................... 32
Section 7.5 Approvals of Third Parties............................................................ 32
ARTICLE VIII
Covenants of all Parties................................................................................ 32
Section 8.1 Filings; Other Action................................................................. 33
Section 8.2 Amendment of Schedules................................................................ 33
Section 8.3 Stockholder Employment Agreements..................................................... 34
ARTICLE IX
Conditions Precedent of Acquiror........................................................................ 34
Section 9.1 Due Diligence......................................................................... 34
Section 9.2 Representations and Warranties........................................................ 34
Section 9.3 Covenants............................................................................. 34
Section 9.4 Legal Opinion......................................................................... 34
Section 9.5 Proceedings........................................................................... 34
Section 9.6 No Material Adverse Change............................................................ 34
Section 9.7 Securities Approvals.................................................................. 35
Section 9.8 Simultaneous Closings................................................................. 35
Section 9.9 Closing Deliveries.................................................................... 35
ARTICLE X
Conditions Precedent of the Company and the Stockholders................................................ 35
Section 10.1 Representations and Warranties........................................................ 35
Section 10.2 Covenants............................................................................. 35
</TABLE>
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<TABLE>
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Section 10.3 Legal Opinions........................................................................ 35
Section 10.4 Proceedings........................................................................... 36
Section 10.5 Government Approvals and Required Consents............................................ 36
Section 10.6 Securities Approvals.................................................................. 36
Section 10.7 Closing Deliveries.................................................................... 36
Section 10.8 Simultaneous Closings................................................................. 36
ARTICLE XI
Closing Deliveries...................................................................................... 36
Section 11.1 Deliveries of the Company and the Stockholders........................................ 36
Section 11.2 Deliveries of Acquiror................................................................ 38
ARTICLE XII
Post Closing Matters.................................................................................... 39
Section 12.1 Further Instruments of Transfer....................................................... 39
Section 12.2 Preservation of Tax and Accounting Treatment.......................................... 39
Section 12.3 Merger Tax Covenants.................................................................. 39
ARTICLE XIII
Remedies................................................................................................ 40
Section 13.1 Indemnification by the Stockholders................................................... 40
Section 13.2 Indemnification by Acquiror........................................................... 41
Section 13.3 Conditions of Indemnification......................................................... 41
Section 13.4 Remedies Not Exclusive................................................................ 43
Section 13.5 Indemnification Limitations........................................................... 44
Section 13.6 Tax Benefits; Insurance Proceeds...................................................... 44
Section 13.7 Payment of Indemnification Obligation................................................. 44
ARTICLE XIV
Termination............................................................................................. 45
Section 14.1 Termination........................................................................... 45
Section 14.2 Effect of Termination................................................................. 45
ARTICLE XV
Nondisclosure of Confidential Information............................................................... 45
Section 15.1 Nondisclosure......................................................................... 46
Section 15.2 Damages............................................................................... 46
Section 15.3 Survival.............................................................................. 46
ARTICLE XVI
Transfer Restrictions................................................................................... 46
Section 16.1 Transfer Restrictions................................................................. 46
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock................................................................... 47
Section 17.1 Investment Representation............................................................. 47
</TABLE>
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<TABLE>
<S> <C> <C>
Section 17.2 Compliance with Law................................................................... 47
Section 17.3 Economic Risk; Sophistication......................................................... 48
Section 17.4 Accredited Investor Status............................................................ 48
ARTICLE XVIII
Miscellaneous.......................................................................................... 48
Section 18.1 Amendment; Waivers.................................................................... 48
Section 18.2 Assignment............................................................................ 48
Section 18.3 Parties In Interest; No Third Party Beneficiaries..................................... 49
Section 18.4 Entire Agreement...................................................................... 49
Section 18.5 Severability.......................................................................... 49
Section 18.6 Survival of Representations, Warranties and Covenants................................. 49
Section 18.7 Governing Law......................................................................... 49
Section 18.8 Captions.............................................................................. 49
Section 18.9 Gender and Number..................................................................... 49
Section 18.10 Reference to Agreement................................................................ 49
Section 18.11 Confidentiality; Publicity and Disclosures............................................ 50
Section 18.12 Notice................................................................................ 50
Section 18.13 Choice of Forum....................................................................... 51
Section 18.14 No Waiver; Remedies................................................................... 51
Section 18.15 Counterparts.......................................................................... 51
Section 18.16 Costs, Expenses and Legal Fees........................................................ 51
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this
"Agreement"), dated as of ________, 1997, is by and among Mid-West CAD, Inc., a
Missouri corporation (the "Company"), Roger Roberts as Trustee for the Roger
Roberts Trust, Carol Roberts as Trustee for the Carol Roberts Trust, Robert
Treolo, and James Claypool, stockholders of the Company (collectively, the
"Stockholders"), and Universal Document Management Systems, Inc., an Ohio
corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror
have determined that a business combination between the Company and Acquiror is
in the best interests of their respective companies and stockholders and
presents an opportunity for their respective companies to achieve long-term
strategic objectives and, accordingly, have agreed to effect the Merger (as
hereinafter defined) upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of, "do
not actually know of" and similar phrases shall mean (i) in the case of a
natural person, the actual conscious awareness, or not, as the context requires,
of the particular fact by such person, and (ii) in the case of an entity, the
actual conscious awareness, or not, as the context requires, of the particular
fact by any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a
person that directly or indirectly through one or more intermediaries, controls,
or is controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no
knowledge of", "do not know of" or "to the knowledge of" and similar phrases
shall mean (i) in the case of a natural person, the particular fact was known,
or not known, as the context requires, to such person after diligent
investigation and inquiry by such person, and (ii) in the case of an entity, the
particular fact was known, or not known, as the context requires, to any
stockholder, director or executive officer of such entity after diligent
investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital
stock of the Company, as set forth in the Company Disclosure Schedules, which
are authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules
of exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholders to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets
and other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section Section 9601
et seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Section Section 6901 et seq., as amended), and regulations
promulgated thereunder, (iii) statutes, rules or regulations, whether federal,
state or
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local, applicable to the Company's assets or operations that relate to asbestos
or polychlorinated biphenyls, and (iv) the provisions contained in any similar
state statutes or regulations relating to environmental matters applicable to
the Company's assets or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.1.10 "Initial Public Offering" shall mean the initial
underwritten public offering of Acquiror Common Stock contemplated by the
Registration Statement.
1.1.11 "Initial Public Offering Price" shall mean the price
per share at which Acquiror Common Stock is offered for sale to the public in
the Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the
United States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the
Merger, and the mergers and acquisitions of entities and assets contemplated by
the Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules
and the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and
Exchange Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933,
as amended.
1.1.21 "Target Companies" shall mean the companies listed on
Exhibit 1.1.21 which Acquiror intends to acquire simultaneously with its
acquisition of the Company.
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1.1.22 "Tax Returns" shall include all federal, state, local
or foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter
in the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock,
without par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the
schedules of exceptions and other disclosures attached hereto or otherwise
delivered by Acquiror to the Company and/or the Stockholders, as such may be
amended or supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
2.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company shall be merged with and into Acquiror
in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be
the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Ohio, and the separate corporate
existence of Acquiror with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the
Merger, except as set forth herein. The Merger shall have the effects
specified in the Ohio General Corporation Law and the Missouri General
and Business Corporation Law.
2.2 THE CLOSING. The Closing shall take place at 10:00 a.m., Cincinnati
time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of
the Target Companies. The date on which the Closing occurs is
hereinafter referred to as the "Closing Date."
2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Articles IX and X shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in
accordance with Article XIV, the parties hereto shall cause to be
properly executed and filed on the Closing Date Articles of Merger
meeting the requirements of Section 351.430 of the Missouri General and
Business Corporation Law and a Certificate of Merger meeting the
requirements of Section 1701.79 of the Ohio Revised Code. The Merger
4
<PAGE> 12
shall become effective at the time of the filing of such document with
the Secretaries of State of Missouri and Ohio, in accordance with such
laws or at such later time which the parties hereto have theretofore
agreed upon and designated in such filings as the effective time of the
Merger (the "Effective Time").
2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The Articles of
Incorporation of Acquiror in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of Regulations
of Acquiror in effect immediately prior to the Effective Time shall be
the Code of Regulations of the Surviving Corporation until duly amended
in accordance with its terms.
2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are directors
of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in
accordance with the Surviving Corporation's Articles of Incorporation
and Code of Regulations.
2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are officers of
Acquiror immediately prior to the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation and
shall hold their same respective office(s) until their successors have
been duly elected or appointed and qualified or until their earlier
death, resignation or removal.
2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting shares of
the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the
part of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the
Company's treasury at the Effective Time, by virtue of the Merger, shall cease
to be outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK.
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<PAGE> 13
2.9.1 At or after the Effective Time and at Closing (i) each
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by a Stockholder and replaced by a certificate or certificates
representing Acquiror Common Stock, the certificate or certificates for Company
Capital Stock shall, for all purposes be deemed to evidence ownership of the
number of shares of Acquiror Common Stock determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing
the certificate or certificates representing Company Capital Stock owned by him,
her or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, if any, such Stockholder is entitled to
receive pursuant hereto.
2.10 FRACTIONAL SHARES. Notwithstanding any other provision herein, no
fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of
Acquiror Common Stock but for this Section 2.10 will be entitled to
receive a cash payment in lieu thereof reflecting such Stockholder's
proportionate interest in a share of Acquiror Common Stock multiplied
by the Initial Public Offering Price.
2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things
are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in,
to or under any of the rights, properties or assets of any of the
Company acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to carry out
this Agreement, and to effect the cancellation of all outstanding
shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving
Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on
behalf of the Company, to carry out all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on
behalf of the Company, all such other actions and things as may be
necessary or desirable
6
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to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of its state of organization, with all requisite corporate
power and authority to carry on the business in which it is engaged, to
own the properties it owns, to execute and deliver this Agreement and
to consummate the transactions contemplated hereby. The Company is not
duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state
other than the state of its organization.
3.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital
Stock, free and clear of all security interests, liens, adverse claims,
encumbrances, equities, proxies and shareholders' agreements. Each
outstanding share of Company Capital Stock has been legally and validly
issued and is fully paid and nonassessable. No shares of Company
Capital Stock are owned by the Company in treasury. No shares of
Company Capital Stock have been issued or disposed of in violation of
the preemptive rights, rights of first refusal or similar rights of any
of the Company's stockholders. The Company has no bonds, debentures,
notes or other obligations the holders of which have the right to vote
(or are convertible into or exercisable for securities having the right
to vote) with the Stockholders on any matter.
3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired any Company
Capital Stock since January 1, 1993. There exist no options, warrants,
subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding
securities of the Company, and no option, warrant, call, conversion
right or commitment of any kind exists which obligates the Company to
issue any of its authorized but unissued capital stock. The Company has
no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein
or to pay any dividend or make any distribution in respect thereof.
Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been altered or changed in
contemplation of the Merger within the two years preceding the date of
this Agreement.
7
<PAGE> 15
3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any sale,
distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the
two years preceding the date of this Agreement.
3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation and
Bylaws, and all amendments thereto, of the Company that have been
delivered or made available to Acquiror are true, correct and complete
copies thereof, as in effect on the date hereof. The minute books of
the Company, copies of which have been delivered or made available to
Acquiror, contain accurate minutes of all meetings of, and accurate
consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the
Company since its formation.
3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
the Company of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Company. This Agreement
has been duly executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The Company
has obtained, in accordance with applicable law and its Articles of
Incorporation and Bylaws, the approval of its stockholders necessary to
the consummation of the transactions contemplated hereby.
3.7 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, the
Articles of Incorporation or Bylaws of the Company, (b) except as would
not, individually or in the aggregate, result in a Material Adverse
Effect, conflict with, or result in a violation or breach of the terms,
conditions or provisions of, or constitute a default under, any
agreement, indenture or other instrument under which the Company is
bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of the assets of the Company or (c) to
the knowledge of the Company, except as would not, individually or in
the aggregate, result in a Material Adverse Effect, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
3.8 CONSENTS. Except as may have been obtained or as may be required under
the Exchange Act, the Securities Act, the Missouri General and Business
Corporation Law and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person or
entity is required to authorize, or is required in connection with, the
execution, delivery and
8
<PAGE> 16
performance of this Agreement or the agreements contemplated hereby on
the part of the Company, other than such consents as to which the
failure to obtain would not, individually or in the aggregate, result
in a Material Adverse Effect.
3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror its: (i)
audited balance sheet (the "Company Balance Sheet") as of December 31,
1996 (the "Company Balance Sheet Date") and 1995, and the related
audited statements of operations, stockholders' equity and cash flows
for its three full fiscal years ended December 31, 1996; and (ii)
unaudited balance sheet as of June 30, 1997 and related unaudited
statements of operations, stockholders' equity and cash flows for the
six months ended June 30, 1997 and 1996 (collectively, with the related
notes thereto, the "Financial Statements"), copies of all of which are
included in the Company Disclosure Schedules. The Financial Statements
fairly present the financial condition and results of operations of the
Company as of the dates and for the periods indicated and have been
prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments and the absence of notes for
any unaudited interim financial statement for any interim periods
presented) applied on a consistent basis with prior periods, except as
otherwise indicated in the Financial Statements.
3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect all
liabilities of the Company, accrued, contingent or otherwise that would
be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles. Except as set forth in the Financial Statements, the
Company is not liable upon or with respect to, or obligated in any
other way to provide funds in respect of or to guarantee or assume in
any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any
amount.
3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules
contain a complete and accurate list of the names, titles and annual cash
compensation as of December 31, 1996, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules
contain a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide
9
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for severance pay, deferred compensation, incentive, bonus or performance
awards, and stock ownership or stock options. The Company has provided or made
available to Acquiror a copy of each written Compensation Plan and a written
description of each unwritten Compensation Plan. Each of the Compensation Plans
can be terminated or amended at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to
any employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company
Disclosure Schedules contain a complete and accurate list of all employee
manuals and all material policies, procedures and work-related rules (the
"Employee Policies and Procedures") that apply to employees of the Company. The
Company has provided or made available to Acquiror a copy of all written
Employee Policies and Procedures and a written description of all material
unwritten Employee Policies and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments
have been made, whether by oral communication, pattern of conduct or otherwise,
with respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any
agreement with any union, labor organization or collective bargaining unit. The
Company has not been advised by any employee that he or she is represented by
any union, labor organization or collective bargaining unit. To the actual
knowledge of the Company, none of the employees of the Company has threatened to
organize or join a union, labor organization or collective bargaining unit.
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3.11.8 ALIENS. To the best knowledge of the Company, all
employees of the Company are citizens of, or are authorized in accordance with
federal immigration laws to be employed in, the United States.
3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules
contain a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA) sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholders have made all necessary
filings, reports and disclosures pursuant to and have complied with all
requirements of the IRS Voluntary Compliance Resolution Program with respect to
all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice
that any Employee Benefit Plan is currently the subject of an audit,
investigation, enforcement action or other similar proceeding conducted by any
state or federal agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the
Company, no prohibited transactions (within the meaning of Section 4975 of the
Internal Revenue Code or Sections 406 and 407 of ERISA) have occurred with
respect to any Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual
knowledge of the Company, threatened, claims, suits or other proceedings exist
with respect to any Employee Benefit Plan other than normal benefit claims filed
by participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the
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meaning of Section 401(a) of the Internal Revenue Code and/or tax-exempt within
the meaning of Section 501 (a) of the Internal Revenue Code. No proceedings
exist or, to the actual knowledge of the Company, have been threatened that
could result in the revocation of any such favorable determination letter or
ruling.
3.12.7 FUNDING STATUS. No accumulated funding deficiency
(within the meaning of Section 412 of the Internal Revenue Code), whether or not
waived, exists with respect to any Employee Benefit Plan or any plan sponsored
by any member of a controlled group (within the meaning of Section 412(n)(6)(B)
of the Internal Revenue Code) in which the Company is a member (a "Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member
of a Controlled Group is or ever has been obligated to contribute to a
multiemployer plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the
Employee Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment
to provide medical, dental or life insurance benefits to or on behalf of any of
its employees who may retire or any of its former employees who have retired
except as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet Date, the
Company has not
3.13.1 suffered a Material Adverse Effect, whether or not
caused by any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset having
a cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
3.13.3 incurred any indebtedness for borrowed money (other
than short-term borrowing in the ordinary course of business), or issued or sold
any debt securities;
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3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due
date, forgiven or cancelled any claims or any debt in excess of $5,000, or
released or waived any rights or claims except in the ordinary course of
business;
3.13.6 mortgaged, pledged or subjected to any security
interest, lien, lease or other charge or encumbrance any of its properties or
assets (other than statutory liens arising in the ordinary course of business or
other liens that do not materially detract from the value or interfere with the
use of such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any
assets (whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate
value in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of
its assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier
that has, individually or in the aggregate, resulted in a Material Adverse
Effect;
3.13.12 except in the ordinary course of business consistent
with past practice, increased the compensation of any director, officer, key
employee or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $50,000;
3.13.14 except in the ordinary course of business consistent
with past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
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3.13.16 redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of its capital
stock or securities or any rights to acquire such capital stock or securities,
or agreed to change the terms and conditions of any such capital stock,
securities or rights;
3.13.17 entered into any agreement providing for total
payments in excess of $5,000 in any 12 month period with any person or group, or
modified or amended in any material respect the terms of any such existing
agreement, except in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit
Plan, except as contemplated hereby or the other agreements contemplated hereby;
or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest
(other than leasehold interests described in the Company Disclosure Schedules)
in real property. The leased real property described in the Company Disclosure
Schedules constitutes the only real property necessary for the conduct of the
Company's business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and
marketable title to all the personal property owned by the Company, all of which
is reflected in the Financial Statements (collectively, the "Personal
Property"). The Personal Property and the leased personal property referred to
in Section 3.14.3 constitute the only personal property necessary for the
conduct of the Company's business. Upon consummation of the transactions
contemplated hereby, such interest in the Personal Property shall be free and
clear of all security interests, liens, claims and encumbrances, other than
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases
of real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
3.15 COMMITMENTS.
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3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which
the Company is a party or is bound by, or which any of the shares of Company
Capital Stock are subject to, or which the assets or the business of the Company
are bound by, whether or not in writing, are listed in the Company Disclosure
Schedules (collectively "Commitments"):
3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification or
contribution agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or
commission agents, public relations or advertising agencies, accountants or
attorneys (other than in connection with this Agreement and the transactions
contemplated hereby) involving total payments within any 12 month period in
excess of $5,000 and which is not terminable on 30 days' notice or without
penalty;
3.15.1.6 any agreement relating to any material matter
or transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition
covenants;
3.15.1.10 any agreement providing for the purchase from
a supplier of all or substantially all of the requirements of the Company of a
particular product or service; or
3.15.1.11 any other agreement or commitment not made in
the ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
Company or, to the best knowledge of the Company, any other party to a material
Commitment, and
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no penalties have been incurred nor are amendments pending, with respect to the
material Commitments. The Commitments are in full force and effect and are valid
and enforceable obligations of the Company and, to the best knowledge of the
Company, the other parties thereto in accordance with their respective terms, in
each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of the Company, may be made by any party thereto (other than
the Company), nor has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither
the Company nor any Stockholder has received notice of any plan or intention of
any other party to any Commitment to exercise any right to cancel or terminate
any Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the
insurance policies listed and briefly described in the Company
Disclosure Schedules (the "Insurance Policies"). The Insurance Policies
are all of insurance polices relating to the business of the Company.
All of the Insurance Policies are issued by insurers of recognized
responsibility, and, to the best knowledge of the Company, are valid
and enforceable policies, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance
Policies shall be maintained in force without interruption up to and
including the Closing Date. True, complete and correct copies of all
Insurance Policies have been provided or made available to Acquiror.
Neither the Company nor any Stockholder has received any notice or
other communication from any issuer of any Insurance Policy canceling
such policy, materially increasing any deductibles or retained amounts
thereunder, or materially increasing the annual or other premiums
payable thereunder, and to the actual knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is
threatened. There are no outstanding claims, settlements or premiums
owed against any Insurance Policy, or the Company has given all notices
or has presented all potential or actual claims under any Insurance
Policy in due and timely fashion. The Company Disclosure Schedules also
set forth a list of all claims under any Insurance Policy in excess of
$10,000 per occurrence filed by the Company during the immediately
preceding three-year period.
3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company Disclosure
Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other
trade designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties,
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assignments and other similar agreements relating to the foregoing to which the
Company is a party (including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or
processes that the Company is licensed or authorized to use by others, or which
it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
Tax Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company
may be disputing in good faith by proceedings in compliance with applicable law,
which are described in the Company Disclosure Schedules, (i) the Company has
paid all taxes, penalties, assessments and interest that have become due with
respect to any Tax Returns that it has filed and has properly accrued on its
books and records for all of the same that have not yet become due and (ii) the
Company is not delinquent in the payment of any tax, assessment or governmental
charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
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3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by the Company and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company
and none of the Assets are subject to a lease to a "tax exempt entity" as such
term is defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any
time consented, and the Stockholders will not permit the Company to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
3.18.10 BOYCOTTS. The Company has not at any time participated
in or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company,
no payment required or contemplated to be made by the Company will be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to
be taxed as an "S" corporation under Section 1362(a) of the Internal Revenue
Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the
Company, the Company is not or has not been a personal holding company within
the meaning of Section 542 of the Internal Revenue Code.
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3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company has
complied with all applicable laws, and regulations and has filed with
the proper authorities all necessary statements and reports except
where the failure to so comply or file would not, individually or in
the aggregate, result in a Material Adverse Effect. To the knowledge of
the Company, there are no existing violations by the Company of any
federal, state or local law or regulation that could, individually or
in the aggregate, result in a Material Adverse Effect. The Company
possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of the Company's business as now
conducted, all of which are listed (with expiration dates, if
applicable) in the Company Disclosure Schedules. The transactions
contemplated by this Agreement will not result in a default under or a
breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that
would not, individually or in the aggregate, have a Material Adverse
Effect. Since January 1, 1992, the Company has not received any notice
from any federal, state or other governmental authority or agency
having jurisdiction over its properties or activities, or any insurance
or inspection body, that its operations or any of its properties,
facilities, equipment, or business practices fail to comply with any
applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except
where failure to so comply would not, individually or in the aggregate,
have a Material Adverse Effect.
3.20 FINDER'S FEE. The Company has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
3.21 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of the Company
threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the
assets of the Company, or the operation, business, condition (financial
or otherwise), or results of operations of the Company which (i) if,
successful, could, individually or in the aggregate, have a Material
Adverse Effect or (ii) could adversely affect the ability of the
Company or any Stockholder to effect the transactions contemplated
hereby. Neither the Company nor any Stockholder is (a) subject to any
continuing court or administrative order, judgment, writ, injunction or
decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any
such order, judgment, writ, injunction or decree. The Company has no
knowledge of any valid basis for any such action, proceeding or
investigation. All claims made or, to the actual knowledge of the
Company, threatened against the Company in excess of its deductible are
covered under its Insurance Policies.
3.22 CONDITION OF FIXED ASSETS. All of the structures and equipment
reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and
tear, and conform in all material respects with all applicable
ordinances,
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regulations and other laws, and the Company has no actual knowledge of
any latent defects therein.
3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind has been declared or paid by the Company on any of its capital
stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or
is contemplated by the Board of Directors of the Company.
3.24 BANKING RELATIONS. Set forth in the Company Disclosure Schedules is a
complete and accurate list of all borrowing and investing arrangements
that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement
maintained (such as checking account, borrowing arrangements, safe
deposit box, etc.) and the person or persons authorized in respect
thereof.
3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a
material contract or arrangement with the Company.
3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any Stockholder
owns directly or indirectly any interests or has any investment in any
person that is a competitor of the Company.
3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its assets are
currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations
under, any Environmental Laws, except for any such violations,
investigations or inquiries that would not, individually or in the
aggregate, result in a Material Adverse Effect.
3.28 CERTAIN PAYMENTS. Neither the Company nor any director, officer or
employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with
the business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
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3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholders or officers
or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself or
itself only, represents and warrants to Acquiror that the following, except as
set forth in the Company Disclosure Schedules and only insofar as they relate to
an individual Stockholder (referred to in this Article IV as "the Stockholder")
and not to any other Stockholders, are true and correct as of the date hereof
and agrees as follows:
4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the Stockholder
Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will
be as of the Closing Date duly executed and delivered by the
Stockholder and constitute or will constitute legal, valid and binding
obligations of the Stockholder, enforceable against the Stockholder in
accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors'
rights generally or the availability of equitable remedies. The
Stockholder has legal capacity to enter into and perform this Agreement
and his or her Stockholder Employment Agreement.
4.2 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation
of the transactions contemplated hereby or thereby, will (a) conflict
with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture
or other instrument under which the Stockholder is bound or to which
any of his, her or its shares of Company Capital Stock are subject, or
result in the creation or imposition of any security interest, lien,
charge or encumbrance upon any of his shares of Company Capital Stock
or (b) to the actual knowledge of the Stockholder, violate or conflict
with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly
or indirectly, beneficially or of record, through a personal holding
company. The Stockholder does not control another business that is in
the same or similar line of business as the Company or that has or is
engaged in transactions with the Company except transactions in the
ordinary course of business.
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4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the Company
Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All
transfers of Company Capital Stock by the Stockholder have been made
for valid business reasons and not in anticipation or contemplation of
the consummation of the transactions contemplated by this Agreement.
4.5 CONSENTS. Except as may be required under the Exchange Act, the
Securities Act, the Missouri General and Business Corporation Law and
state securities laws, or otherwise disclosed pursuant to this
Agreement, no consent, authorization, approval, permit or license of,
or filing with, any governmental or public body or authority, or any
other person is required to authorize, or is required in connection
with, the execution, delivery and performance of this Agreement or the
agreements contemplated hereby on the part of the Stockholder.
4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be paid,
directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate
(other than from personal funds not reimbursed by the Company or as otherwise
permitted by applicable law).
4.7 FINDER'S FEE. The Stockholder has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the Stockholder
nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the
Company.
4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own directly or
indirectly any interests or have any investment in any person that is a
competitor of the Company.
4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not presently
intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or
agreement for the disposition of such shares of Acquiror Common Stock,
except this Agreement and the Registration Rights Agreement.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, with all requisite corporate power and authority to
carry on the business in which it is engaged, to own the properties it
owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
5.2 CAPITALIZATION. The authorized, issued and outstanding capital stock of
Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not
have any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or are convertible into or exercisable
for securities having the right to vote) with the shareholders of
Acquiror on any matter. There exist no options, warrants, subscriptions
or other rights to purchase, or securities convertible into or
exchangeable for, any of the authorized or outstanding securities of
Acquiror, and no option, warrant, call, conversion right or commitment
of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the
Other Agreements. Acquiror has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay a dividend or make any distribution
in respect thereof. To the best knowledge of Acquiror, no shareholder
of Acquiror has granted options or other rights to purchase any shares
of Acquiror Common Stock from such shareholder.
5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation and Code
of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholders are
true, correct and complete copies thereof, as in effect on the date
hereof. The minute books of Acquiror, copies of which have been
delivered or made available to the Company and the Stockholders,
contain accurate minutes of all meetings of, and accurate consents to
all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the shareholders of Acquiror, since its
formation.
5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and performance by
Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by the Board of Directors and
shareholders of Acquiror. This Agreement and each other agreement
contemplated hereby to be executed by Acquiror have been or will be as
of the Closing Date duly executed and delivered by Acquiror and
constitute or will as of the Closing Date
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constitute legal, valid and binding obligations of Acquiror,
enforceable against Acquiror in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or
similar laws affecting creditors' rights generally or the availability
of equitable remedies.
5.5 NO VIOLATION. Neither the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or constitute a default under, the
Articles of Incorporation or Code of Regulations of Acquiror or any
agreement, indenture or other instrument under which Acquiror is bound
or (b) to the knowledge of Acquiror, except as would not, individually
or in the aggregate, have a Material Adverse Effect on the business,
operations, condition (financial or otherwise) or results of operations
of Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the
properties or assets of Acquiror.
5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares of
Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and nonassessable
and will not have been issued in violation of any preemptive rights,
rights of first refusal or similar rights of any of Acquiror's
shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and
state securities laws.
5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention of
Acquiror to continue at least one significant historic business line of
the Company, or to use at least a significant portion of the Company's
historic business assets in a business, in each case within the meaning
of Treasury Regulation Section 1.368-1(d).
5.9 CONSENTS. Except as have been obtained or as may be required by or
under the Exchange Act, the Ohio General Corporation Law, the
Securities Act and state securities laws, no consent, authorization,
approval, permit or license of, or filing with, any governmental or
public body or authority, any lender or lessor or any other person is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of Acquiror.
5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or use any
trademarks, tradenames, service marks or other trade designations or
patents in the conduct of its business.
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Acquiror is not a party to any agreement relating to the use of
technology or know-how. Acquiror has the right to use, free and clear
of any claims or rights of others, all trade secrets, customer lists
and proprietary information required for the marketing of all
merchandise and services formerly or presently sold or marketed by it.
5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely
filed (in accordance with any extensions duly granted by the appropriate
governmental agency, if applicable) with the appropriate governmental agencies
all Tax Returns and reports required to be filed by the United States or any
state or any political subdivision thereof or any foreign jurisdiction. All such
tax returns or reports are complete and accurate and properly reflect the taxes
of Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes,
penalties, assessments and interest that have become due with respect to any Tax
Returns that it has filed and has properly accrued on its books and records for
all of the same that have not yet become due. Acquiror is not delinquent in the
payment of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies
required to be withheld by Acquiror and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use, and other
taxes have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder
thereof is a foreign person, as such term is referred to in Section 1445(f)(3)
of the Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror
constitute property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
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5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are
subject to a lease to a "tax exempt entity" as such term is defined in Section
168(h)(2) of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in
or cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or
contemplated to be made by Acquiror will be characterized as an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Internal
Revenue Code.
5.11.12 S Corporation. Acquiror has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all applicable laws,
regulations and licensing requirements and has filed with the proper
authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Acquiror of any federal, state or local law or regulation
that could materially adversely affect its property or business.
Acquiror possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of its business as now
conducted. The transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses,
franchises, permits or government authorizations except for any
default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Acquiror has not received
any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any
insurance or inspection body, that its operations or any of its
properties, facilities, equipment, or business practices fail to comply
with any applicable law, ordinance, regulation, building or zoning law,
or requirement of any public or quasi-public authority or body.
5.13 LITIGATION. There are no legal actions or administrative proceedings or
investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the
outstanding shares of Acquiror Common Stock, any of the assets of
Acquiror, or the operations, business, condition (financial or
otherwise) or results of operations of Acquiror. Acquiror is not (a)
subject to any continuing court or administrative order, writ,
injunction or decree applicable specifically to it or to its business,
assets, operations or employees or (b) in default with respect to any
such order, writ, injunction or decree. Acquiror has no knowledge of
any valid basis for any such action, proceeding or investigation.
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5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No officer,
supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a
compensation or other financial arrangement with, or serves as an
officer or director of, any customer or supplier of Acquiror or any
organization that has a material contract or arrangement with Acquiror,
except Acquiror's corporate parent, MedPlus, Inc.
5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any shareholder
thereof owns directly or indirectly any interests or has any investment
in any person that is a competitor of Acquiror or one of the Target
Companies.
5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder, director,
officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate
(other than from personal funds of directors, officers or employees not
reimbursed by their respective employers or as otherwise permitted by applicable
law).
5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
5.17.1.4 contract to purchase real property;
5.17.1.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this
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Agreement and the transactions contemplated hereby) involving total payments
within any 12 month period in excess of $5,000 and which is not terminable on 30
day's notice or without penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made in
the ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT.
Except as contemplated hereby, (i) Acquiror has not received notice of any plan
or intention of any other party to any Acquiror Commitment to exercise any right
to cancel or terminate any Acquiror Commitment, and Acquiror does not know of
any fact that would justify the exercise of such a right; and (ii) Acquiror does
not currently contemplate, or have knowledge that any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
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5.18 ACQUIROR FINANCIAL STATEMENTS. The audited balance sheet as of December
31, 1996 and 1995, and related statements of operations, shareholder's
net investment and cash flows for each of the years in the three-year
period ended December 31, 1996, along with the unaudited interim
balance sheet as of June 30, 1997 and related statements of operations,
shareholder's net investment and cash flows for the six months ended
June 30, 1997 and 1996 are contained in the Acquiror Disclosure
Schedules (collectively, with the related notes thereto, the "Acquiror
Financial Statements"). The Acquiror Financial Statements fairly
present the financial condition and results of operations of Acquiror
as of the dates and for the periods indicated and have been prepared in
conformity with generally accepted accounting principles (subject to
normal year-end adjustments) applied on a consistent basis with prior
periods, except as otherwise indicated in the Acquiror Financial
Statements.
5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial Statements reflect
all liabilities of Acquiror, accrued, contingent or otherwise, that
would be required to be reflected on a balance sheet, or in the notes
thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the
ordinary course of business since December 31, 1996. Acquiror is not
liable upon or with respect to, or obligated in any other way to
provide funds in respect of or to guarantee or assume in any manner,
any debt, obligation or dividend of any person, corporation,
association, partnership, joint venture, trust or other entity, and
Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
5.20 EMPLOYEE MATTERS. Acquiror does not have any material arrangements,
agreements or plans with any person with respect to the employment by
Acquiror of such person or whereby such person is to serve as an
officer or director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders shall use
their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or
a Stockholder to make any expenditures that are not expressly set forth
in this Agreement or otherwise contemplated herein.
6.2 BUSINESS OPERATIONS. The Company shall operate its business in the
ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the
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Company intact. Neither the Company nor any Stockholder shall take any
action that would, individually or in the aggregate, result in a
Material Adverse Effect. The Company shall use its best efforts to
preserve intact its relationships with customers, suppliers, employees
and others having significant business relations with it, unless doing
so would impair its goodwill or result, individually or in the
aggregate, in a Material Adverse Effect. The Company shall collect its
receivables and pay its trade payables in the ordinary course of
business consistent with past practice.
6.3 ACCESS. The Company and the Stockholders shall, at reasonable times
during normal business hours and on reasonable notice, permit Acquiror
and its authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of the
Company, including its employees, customers and suppliers, and permit
Acquiror and its authorized representatives to inspect and, at
Acquiror's sole cost and expense, make copies of all documents, records
and information with respect to the affairs of the Company as Acquiror
and its representatives may request, all for the sole purpose of
permitting Acquiror to become familiar with the business and assets and
liabilities of the Company.
6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the Stockholders shall
promptly inform Acquiror in writing of (a) any notice of or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company
or any Stockholder subsequent to the date of this Agreement and prior
to the Effective Time under any Commitment material to the Company's
condition (financial or otherwise), operations, assets, liabilities or
business and to which it is subject; or (b) any material adverse change
in the Company's condition (financial or otherwise), operations,
assets, liabilities or business.
6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders shall use
their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including,
without limitation, all necessary approvals and consents required under
any real property and personal property leases; provided, however, that
this covenant shall not require the Company or the Stockholders to make
any material expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
6.6 EMPLOYEE MATTERS. The Company shall not, without the prior written
approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder or
other employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
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6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any
Employee Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with
respect to any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any
Employee Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation
except as could not, individually or in the aggregate, result in a Material
Adverse Effect;
6.6.10 enter into, modify, amend or terminate any agreement
with any union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any
past or present employee of the Company that would, individually or in the
aggregate, result in a Material Adverse Effect.
6.7 CONTRACTS. Except with Acquiror's prior written consent, the Company
shall not assume or enter into any contract, lease, license,
obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business,
nor will it waive any material right or cancel any material contract,
debt or claim.
6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall not, without
the prior written approval of Acquiror (a) acquire or dispose of any
capital asset having a fair market value of $25,000 or more, or acquire
or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or
perform any obligation or liability other than (i) liabilities and
obligations reflected in the Financial Statements or (ii) current
liabilities and obligations incurred in the usual and ordinary course
of business since the Company Balance Sheet Date and, in either case
(i) or (ii) above, only as required by the express terms of the
agreement or other instrument pursuant to which the liability or
obligation was incurred.
6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not, without the
prior written approval of Acquiror, enter into or assume any mortgage,
pledge, conditional sale or other title retention agreement, permit any
security interest, lien, encumbrance or claim of any kind to attach to
any of its assets (other than statutory liens arising in the ordinary
course of business, other liens that do not materially detract from the
value or interfere with the use of
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such assets, and liens, guarantees and encumbrances that are granted or
created in the ordinary course of business), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently
liable for any obligation of another, except obligations arising by
reason of endorsement for collection and other similar transactions in
the ordinary course of business, or make any capital contribution or
investment in any person.
6.10 ACQUISITION PROPOSALS. The Company and the Stockholders agree that from
and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the
Stockholders and the Company shall direct and use their best efforts to
cause the Company's employees, agents and representatives not to,
initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (b) that the
Stockholders and the Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing
and each will take the necessary steps to inform the individuals or
entities referred to in the first sentence hereof of the obligations
undertaken in this Section 6.10; and (c) that the Stockholders and the
Company will notify Acquiror immediately if any such inquiries or
proposals are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or
continued with, the Company or the Stockholders.
6.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or dividend of
any kind will be declared or paid by the Company in respect of Company
Capital Stock, nor will any repurchase of any Company Capital Stock be
approved or effected.
6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the Stockholders
shall use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon request of the
Underwriter Representative, execute a customary "lockup" agreement in
connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any Acquiror Common Stock
owned by them for up to 180 days from the closing of the Initial Public
Offering.
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ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts to cause
the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant
shall not require Acquiror to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best efforts to
take, or cause to be taken, all actions necessary to effect the Merger
under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form
approved by counsel for the parties to this Agreement.
7.3 ACCESS. Acquiror shall, at reasonable times during normal business
hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make
available for inspection, all of the assets and business of Acquiror,
including its employees, and permit the Company, the Stockholders, and
their authorized representatives to inspect and, at the Company's and
the Stockholders' sole expense, make copies of all documents, records
and information with respect to the affairs of Acquiror as the Company,
the Stockholders and their representatives may request (including
documents, records and information pertaining to or generated in
connection with any Target Company, except as may be prohibited by
confidentiality agreements to which Acquiror is a party), all for the
sole purpose of permitting the Company and the Stockholders to become
familiar with the business and assets and liabilities of Acquiror.
7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly inform the
Company and the Stockholders in writing of (a) any notice of, or other
communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Acquiror
subsequent to the date of this Agreement and prior to the Effective
Time under any Acquiror Commitment material to Acquiror's condition
(financial or otherwise), operations, assets, liabilities or business
and to which it is subject; or (b) any material adverse change in
Acquiror's condition (financial or otherwise), operations, assets,
liabilities or business.
7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best efforts to
secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
ARTICLE VIII
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COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with
respect to the Company's covenants, the Stockholders agree to use their best
efforts to cause the Company to perform):
8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall
cooperate to promptly prepare and file with the SEC the Registration Statement
on Form S-1 (or other appropriate Form) to be filed by Acquiror in connection
with its Initial Public Offering (including the prospectus constituting a part
thereof, the "Registration Statement"). Acquiror shall obtain all necessary
state securities law or "Blue Sky" permits and approvals required to carry out
the transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholders and Acquiror specifically for
inclusion in the Registration Statement, by exhibit or otherwise, will, at the
time the Registration Statement and each amendment and supplement thereto, if
any, becomes effective under the Securities Act, 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 the light of the circumstances
under which they were made, not misleading. The Company, the Stockholders and
Acquiror shall agree as to the information and documents supplied by the Company
and the Stockholders for inclusion in the Registration Statement and shall
indicate such information and documents in a letter to be delivered at Closing
(the "Information Letter"). The Company and the Stockholders shall be entitled
to review the Registration Statement and each amendment thereto, if any, prior
to the time each becomes effective under the Securities Act.
8.1.3 The Stockholders and the Company shall, upon request,
furnish Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the
Closing to supplement or amend promptly (i) in the case of Acquiror,
the Acquiror Disclosure Schedules and (ii) in the case of the Company
or the Stockholders, the Company Disclosure Schedules with respect to
any matter that would have
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been or would be required to be set forth or described in the Schedules
in order to not materially breach any representation, warranty or
covenant of such party contained herein; provided that, no amendment or
supplement to a Schedule that constitutes or reflects a material
adverse change to the Company may be made unless Acquiror consents to
such amendment or supplement, and no amendment or supplement to a
Schedule that constitutes or reflects a material adverse change to
Acquiror may be made unless the Company and the Stockholder consent to
such amendment or supplement. For all purposes of this Agreement, the
Schedules hereto shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 8.2. In the event that the
Company seeks to amend or supplement a Schedule pursuant to this
Section 8.2 and Acquiror does not consent to such amendment or
supplement, or Acquiror seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and the Company and the Stockholder do not
consent, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 14.1.1 hereof.
8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to Closing,
each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent
without any liability on the part of the Company therefor, and shall
enter into a Stockholder Employment Agreement in the form appended
hereto as Exhibit 8.3 with Acquiror (the "Stockholder Employment
Agreements").
ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence review
of the Company and shall be reasonably satisfied with the results
thereof.
9.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company and the Stockholder contained herein shall have been true
and correct in all material respects when initially made and shall be
true and correct in all respects as of the Closing Date.
9.3 COVENANTS. The Company and the Stockholders shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
9.4 LEGAL OPINION. Counsel to the Company and the Stockholders shall have
delivered to Acquiror their opinions, dated as of the Closing Date, in
form and substance reasonably satisfactory to Acquiror, to the effect
set forth in Exhibit 9.4.
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9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in
writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the condition
(financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet
Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Stockholders.
9.7 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. The Acquiror Common
Stock shall have been approved for listing on the Nasdaq National
Market, subject only to official notification of issuance.
9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
9.9 CLOSING DELIVERIES. Acquiror shall have received all documents and
agreements, duly executed and delivered in form satisfactory to
Acquiror, referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Acquiror contained herein shall be true and correct in all material
respects when initially made and shall be true and correct in all
respects as of the Closing Date.
10.2 COVENANTS. Acquiror shall have per-formed and complied in all material
respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
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10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company
and the Stockholders their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholders, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the Company
their opinion, dated as of the Closing Date, to the effect set forth in Exhibit
10.3.2 (the "Tax Opinion").
10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying
out of the transactions contemplated hereby.
10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company, Stockholders
and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
10.6 SECURITIES APPROVALS. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and
no proceedings for that purpose shall have been initiated or threatened
by the SEC. At or prior to the Closing Date, Acquiror shall have
received all state securities and "Blue Sky" permits necessary to
consummate the transactions contemplated hereby. At or prior to the
Closing Date, the Acquiror Common Stock shall have been approved for
listing on The Nasdaq National Market, subject only to official
notification of issuance.
10.7 CLOSING DELIVERIES. The Company shall have received all documents and
agreements, duly executed and delivered in form satisfactory to the
Company, referred to in Section 11.2.
10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and Acquiror's
acquisition of all of the Target Companies (or such Target Companies if
less than all of them as Acquiror and the Underwriter Representative
shall agree will be sufficient for purposes of the Initial Public
Offering) shall all be closed and consummated simultaneously with the
closing of the Merger.
ARTICLE XI
CLOSING DELIVERIES
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11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior to the
Closing Date, the Company and the Stockholders shall deliver to
Acquiror c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following,
all of which shall be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholders contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Stockholders to the Closing
have been satisfied or waived;
11.1.4 a certificate of the Secretary of the Company
certifying as to the incumbency of the directors and officers of such
corporation and as to the signatures of such directors and officers who have
executed documents delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of the state of incorporation of the
Company establishing that such corporation is in existence, has paid all
franchise or similar taxes, if any, and, if applicable, otherwise is in good
standing to transact business in its state of organization;
11.1.6 certificates, dated within ten days prior to the
Closing Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Carl Chinnery, counsel to the Company and
the Stockholders dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals,
permits and licenses;
11.1.9 the resignations of the directors and officers of the
Company as requested by Acquiror;
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11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between
Acquiror and the Stockholders in substantially the form attached hereto as
Exhibit 11.1.11 (the "Registration Rights Agreement");
11.1.12 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.4;
11.1.13 a nonforeign affidavit, as such affidavit is referred
to in Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder,
signed under a penalty of perjury and dated as of the Closing Date, to the
effect that each Stockholder is a United States citizen or a resident alien (and
thus not a foreign person) and providing such Stockholders United States
taxpayer identification number;
11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Carl Chinnery, the Company's
legal counsel, setting forth the aggregate legal fees incurred by the Company
for services rendered to the Company in connection with the Merger; and
11.1.16 such other instrument or instruments of transfer
prepared by Acquiror as shall be necessary or appropriate, as Acquiror or its
counsel shall reasonably request, to carry out and effect the purpose and intent
of this Agreement.
11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date, Acquiror shall
deliver to the Company and the Stockholders c/o Dinsmore & Shohl LLP,
counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholders:
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the
Closing Date as to the truth and correctness of the representations and
warranties of Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the
Closing Date, (i) as to the performance and compliance by Acquiror with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of Acquiror to the Closing have been satisfied or
waived;
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11.2.4 a certificate of the Secretary of Acquiror certifying
as to the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the
Closing Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten
days prior to the Closing Date, of the Secretaries of State of the states in
which Acquiror is qualified to do business, to the effect that Acquiror is
qualified to do business and, if applicable, is in good standing as a foreign
corporation in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to
Acquiror, dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect
the Merger referred to in Section 2.4;
11.2.11 executed Stockholder Employment Agreements in
substantially the form attached hereto as Exhibit 8.3;
11.2.12 the Merger Consideration; and
11.2.13 such other instrument or instruments of transfer,
prepared by the Company or the Stockholders as shall be necessary or
appropriate, as the Company, the Stockholders or their counsel shall reasonably
request, to carry out and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at the request
of Acquiror and at Acquiror's sole cost and expense, the Stockholders
and the Company shall deliver any further instruments of transfer and
take all reasonable action as may be necessary or appropriate to carry
out the purpose and intent of this Agreement.
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12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the Closing Date,
Acquiror shall not and shall not permit any of its subsidiaries to:
12.2.1 retire or reacquire, directly or indirectly, all or
part of the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of
the Stockholders; or
12.2.3 dispose of a significant part of the assets of the
Company within the two years following the Closing Date except in the ordinary
course of business, to Affiliates of Acquiror or to eliminate duplicate services
or excess capacity.
12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholders as a result of the Merger will not exceed
the amount of any cash received by the Stockholders in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Effective Time, all books
and records shall be maintained, and all Tax Returns and schedules thereto shall
be filed in a manner consistent with the Merger being treated as a
Reorganization. These obligations are excused as to a party required to maintain
the books or file a Tax Return if such party has provided to the other parties a
written opinion of competent tax counsel to the effect that there is not
substantial authority, within the meaning of Section 6662(d)(2)(B)(i) of the
Internal Revenue Code, to report the Merger as a Reorganization and such opinion
either is furnished prior to the Effective Time or is based on facts or events
not known at the Effective Time. Each party shall provide to each other party
such tax information, reports, returns, or schedules as may be reasonably
required to assist such party in accounting for and reporting the Merger as a
Reorganization.
ARTICLE XIII
REMEDIES
13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify,
defend and hold Acquiror, the Company, the Surviving Corporation and
their respective directors, officers, members, managers, employees,
agents, attorneys and affiliates harmless from and against all losses,
claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, reasonable
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attorneys' fees and expenses (collectively, "Damages") asserted against
or incurred by such indemnities arising out of or resulting from:
13.1.1 a material breach of any representation, warranty or
covenant of the Company or the Stockholders contained herein or in any Schedule
or certificate delivered by them hereunder;
13.1.2 any violation by Stockholders, the Company and/or any
of their past or present directors, officers, members, managers, shareholders,
employees, agents, consultants and affiliates of state or federal laws occurring
on or before the Closing Date; or
13.1.3 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to the Stockholders, the
Company, and provided to Acquiror or its counsel by the Company or the
Stockholders, specifically for inclusion in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Stockholders and/or the Company required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Acquiror or its
counsel by the Company or the Stockholders, provided, however, that such
indemnity shall not inure to the benefit of Acquiror and the Company to the
extent that such untrue statement was made in, or omission occurred in, any
preliminary prospectus and Stockholder provided, in writing, corrected
information to Acquiror's counsel and to Acquiror for inclusion in the final
prospectus, and such information was not so included.
13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and conditions of
this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or
incurred by him arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation,
warranty or covenant of Acquiror contained herein or in any Schedule or
certificate delivered by it hereunder;
13.2.2 any liability under the Securities Act, the Exchange
Act or any other federal or state "Blue Sky" or securities law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact relating to Acquiror, contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification under
this Agreement shall be asserted and resolved as follows:
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13.3.1 A party claiming indemnification under this Agreement
(an "Indemnified Party") shall promptly (and, in any event, at least ten days
prior to the due date for any responsive pleadings, filings or other documents)
(i) notify the party from whom indemnification is sought (the "Indemnifying
Party") of any third-party claim or claims asserted against the Indemnified
Party ("Third Party Claim") that could give rise to a right of indemnification
under this Agreement and (ii) transmit to the Indemnifying Party a written
notice ("Claim Notice") describing in reasonable detail the nature of the Third
Party Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party claim.
13.3.2 If the Indemnifying Party notifies the Indemnified
Party within the Election Period that the Indemnifying Party elects to assume
the defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those
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available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the Indemnified Party, which firm shall be designated in writing by the
Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the
Indemnified Party within the Election Period that the Indemnifying Party elects
to defend the Indemnified Party pursuant to Section 13.3.2, or if the
Indemnifying Party elects to defend the Indemnified Party pursuant to Section
13.3.2 but fails diligently and promptly to prosecute or settle the Third Party
Claim, then the Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party (if the Indemnified Party is entitled
to indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the
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Indemnified Party in the Indemnity Notice shall be deemed a liability of the
Indemnifying Party hereunder. If the Indemnifying Party has timely disputed such
claim, as provided above, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction if the parties do not reach a
settlement of such dispute within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this Agreement shall
not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions of Sections
13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or
covenant unless the claim for indemnification is brought within the
time limit set forth in Section 18.6, (b) no claim may be brought by
any party entitled to indemnification under this Article XIII unless
and until the aggregate cumulative amount to which such party is
entitled equals or exceeds $50,000, and (c) no party shall be obligated
to make any indemnification in excess of 50% of the value of the Merger
Consideration.
13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any indemnity
payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be
indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds, and
such correlative insurance benefit shall be net of the insurance
premium, if any, that becomes due as a result of such claim.
13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder,
subject to Acquiror's approval as set forth below, the Stockholders may
satisfy such obligation by transferring to Acquiror such number of
shares of Acquiror Common Stock owned by the Stockholders having an
aggregate fair market value (based on the last reported sale price of
Acquiror Common Stock on the Nasdaq National Market or other exchange
on which the Acquiror Common Stock is then listed or the last quoted
ask price on any over-the-counter market through which the Acquiror
Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholder transfers shares of Acquiror
Common Stock to Acquiror hereunder)
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equal to the indemnification obligation; provided that each of the
following conditions are satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good, valid
and marketable title to the shares of Acquiror Common Stock, free and clear of
all adverse claims, security interests, liens, claims, proxies, options,
stockholders' agreements and encumbrances;
13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
14.1 TERMINATION. This Agreement may be terminated and the Merger and the
Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual
agreement of all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if
any material representation or warranty of the Company or the Stockholders
contained in this Agreement or in any certificate or other document executed and
delivered by the Company or the Stockholder pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or the
Stockholders fail to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 20 days after receipt by the
Company of written notice thereof;
14.1.3 at any time prior to the Closing Date by the Company if
any material representation or warranty of Acquiror contained in this Agreement
or in any certificate or other document executed and delivered by Acquiror
pursuant to this Agreement is or becomes untrue or breached in any material
respect or if Acquiror fails to comply in any material respect with any covenant
or agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within 20 days after receipt by
Acquiror of written notice thereof;
14.1.4 by Acquiror or the Company if the Merger shall not have
been consummated by March 31, 1998.
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14.2 EFFECT OF TERMINATION. In the event this Agreement is terminated
pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the Company
and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available
at law or in equity. In the event of a termination of this Agreement
under the provisions of this Article, a party not then in material
breach of this Agreement shall stand fully released and discharged of
any and all obligations under this Agreement; provided, however, that
if a termination of this Agreement occurs pursuant to the last sentence
of Section 8.2, the parties hereto shall stand fully released and
discharged of any and all obligations under this Agreement.
14.3 NON-COMPETITION. In the event this Agreement is terminated pursuant to
Sections 14.1.1, 14.1.3 or 14.1.4, Acquiror shall not take part in any
business in direct competition to the current business of the Company
within the states of Missouri and Kansas, for a period of two years
after termination thereof.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges that he or
she had in the past, currently has, and in the future may possibly
have, access to certain Confidential Information of the Company and
Acquiror that is valuable, special and unique assets of the Company's
and Acquiror's respective businesses. Acquiror acknowledges that it has
had in the past, currently has, and in the future may possible have,
access to certain Confidential Information of the Company that is
valuable, special and unique assets of the Company's business. Each
Stockholder, the Company, and Acquiror agree that they will not
disclose such Confidential Information to any person, firm,
corporation, association or other entity for any purpose or reason
whatsoever, except (a) to authorized representatives of Acquiror, the
Company and such Stockholder and (b) to their counsel and other
advisers provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 15.1, unless (i) such
information becomes available to or known by the public generally
through no fault of such Stockholder, the Company, or Acquiror, as the
case may be, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), such
Stockholder, the Company, or Acquiror, as the case may be, shall, if
possible, give prior written notice thereof to the Stockholder, the
Company, and Acquiror and provide such Stockholder, the Company,
Acquiror with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing
party, or (iv) the disclosing party is the sole and exclusive owner of
such Confidential Information as a result of the Merger or otherwise.
In the event of a breach or threatened breach by a Stockholder of the
provisions of this Section 15.1, Acquiror and the Company shall be
entitled to an injunction restraining such Stockholder from disclosing,
in whole or in part, such Confidential Information. Nothing herein
shall be construed as
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prohibiting Acquiror, the Stockholder and the Company from pursuing any
other available remedy for such breach or threatened breach, including
the recovery of damages.
15.2 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they
would have no other adequate remedy, Acquiror, the Company, and the
Stockholders agree that, in the event of a breach by any of them of the
foregoing covenant, the covenant may be enforced against them by
injunctions and restraining orders.
15.3 SURVIVAL. The obligations of the parties under this Article XV shall
survive the termination of this Agreement.
ARTICLE XVI
TRANSFER RESTRICTIONS
16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of one year
from the Closing or such other holding period as may be required under
applicable federal or state securities laws, except pursuant to the
Registration Rights Agreement and Section 13.7 hereof, no Stockholder
shall voluntarily (a) sell, assign, exchange, transfer, encumber,
pledge, distribute, appoint, or otherwise dispose of (i) any shares of
Acquiror Common Stock received by such Stockholder in the Merger, or
(ii) any interest (including, without limitation, an option to buy or
sell) in any such shares of Acquiror Common Stock, in whole or in part,
and no such attempted transfer shall be treated as effective for any
purpose or (b) engage in any transaction, whether or not with respect
to any shares of Acquiror Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning shares of
Acquiror Common Stock. The certificates evidencing the Acquiror Common
Stock delivered to the Stockholder pursuant to this Agreement will bear
a legend substantially in the form set forth below and containing such
other information as Acquiror may reasonably deem necessary or
appropriate:
Except pursuant to the terms of the Registration Rights Agreement and
the Agreement and Plan of Merger and Reorganization ("Merger
Agreement") between the issuer, the holder of this certificate and the
other parties thereto, the shares represented by this certificate may
not be voluntarily sold, assigned, exchanged, transferred, encumbered,
pledged, distributed, appointed or otherwise disposed of, and the
issuer shall not be required to give effect to any attempted voluntary
sale, assignment, exchange, transfer, encumbrance, pledge,
distribution, appointment or other disposition prior to [date that is
one year after the Closing Date.] Upon the written request of the
holder of this certificate, the issuer agrees to remove this
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restrictive legend (and any stop order placed with the transfer agent) after the
expiration of the period specified in the Merger Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that the
shares of Acquiror Common Stock to be delivered to such Stockholder
pursuant to this Agreement have not been and will not be registered
under the Securities Act and may not be resold without compliance with
the Securities Act. The Acquiror Common Stock to be acquired by such
Stockholder pursuant to this Agreement is being acquired solely for
his, her or its own account, for investment purposes only and with no
present intention of distributing, selling or otherwise disposing of it
in connection with a distribution.
17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to
such Stockholder will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the Securities Act
and the rules and regulations of the SEC and applicable state
securities laws and regulations. All certificates evidencing shares of
Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of
such investment and has such knowledge and experience in financial and
business matters that he, she or it is capable of evaluating the merits
and risks of the proposed investment and therefore have the capacity to
protect his, her or its own interests in connection with the
acquisition of the Acquiror Common Stock. Each Stockholder or its
purchaser representatives have had an adequate opportunity to ask
questions and receive answers from the officers of Acquiror concerning
any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background
and experience of the officers and directors of Acquiror, the plans for
the operations of the business of Acquiror, and any plans for
additional acquisitions and the like.
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Each Stockholder or its purchaser representatives have asked any and
all questions in the nature described in the preceding sentence and all
questions have been answered to their satisfaction.
17.4 ACCREDITED INVESTOR STATUS. Each Stockholder is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. The
Stockholder recognizes that, as an accredited investor, Acquiror is not
required to provide the Stockholder with any particular information or
disclosures as a condition to relying upon the Rule 506 exemption from
registration under the Securities Act with respect to the issuance of
Acquiror Common Stock in the Merger. However, the Stockholder
acknowledges that he, she or it has received and had the opportunity to
review the information about Acquiror contained in the Acquiror
Disclosure Schedules.
ARTICLE XVIII
MISCELLANEOUS
18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified or
supplemented only by an instrument in writing executed by all the
parties hereto. Any waiver of any terms and conditions hereof must be
in writing, and signed by the parties hereto. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
18.2 ASSIGNMENT. Neither this Agreement nor any right created hereby or in
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by
Acquiror to a wholly owned subsidiary of Acquiror; provided that any
such assignment shall not relieve Acquiror of its obligations
hereunder.
18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither
this Agreement nor any other agreement contemplated hereby shall be
deemed to confer upon any person not a party hereto or thereto any
rights or remedies hereunder or thereunder.
18.4 ENTIRE AGREEMENT. This Agreement and the agreements contemplated hereby
constitute the entire agreement of the parties regarding the subject
matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect
to the subject matter hereof.
18.5 SEVERABILITY. If any provision of this Agreement is held to be illegal,
invalid or unenforceable under present or future laws effective during
the term hereof, such provision
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shall be fully severable and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision never
comprised a part hereof; and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of
this Agreement a provision as similar in its terms to such illegal,
invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including
all statements contained in any certificate, exhibit or other
instrument delivered pursuant to this Agreement by or on behalf of the
Company, the Stockholders, or Acquiror, as the case may be, shall
survive the Closing until the first anniversary of the Closing Date.
18.7 GOVERNING LAW. This agreement and the rights and obligations of the
parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing
conflicts of laws) of the State of Ohio.
18.8 CAPTIONS. The captions in this Agreement are for convenience of
reference only and shall not limit or otherwise affect any of the terms
or provisions hereof.
18.9 GENDER AND NUMBER. When the context requires, the gender of all words
used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof", "hereto"
and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or
provision of this Agreement, unless otherwise noted.
18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall keep this
Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the
transactions contemplated by this Agreement without the prior knowledge
and consent of the other parties hereto; provided that the foregoing
shall not prohibit any disclosure (a) by press release, filing or
otherwise that Acquiror has determined in its good faith judgment to be
required by federal securities laws or the rules of the National
Association of Securities Dealers, (b) to attorneys, accountants,
investment bankers or other agents of the parties assisting the parties
in connection with the transactions contemplated by this Agreement and
(c) by Acquiror in connection with the conduct of its Initial Public
Offering and conducting an examination of the operations and assets of
the Company; provided that Acquiror shall promptly provide notice to
the Company of any release made under this Section 18.11. In the event
that the transactions contemplated hereby are not consummated for any
reason whatsoever, the parties hereto agree not to disclose or use any
Confidential Information they may have concerning the affairs of the
other parties, except
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for information that is required by law to be disclosed; provided that
should the transactions contemplated hereby not be consummated, nothing
contained in this Section shall be construed to prohibit the parties
hereto from operating businesses in competition with each other so long
as no party discloses or uses any such Confidential Information in
connection therewith, except as otherwise provided in Section 14.3.
18.12 NOTICE. Whenever this Agreement requires or permits any notice,
request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be
delivered and received (i) if personally delivered or if delivered by
telex, telegram, facsimile or courier service, when actually received
by the party to whom notice is sent or (ii) if delivered by mail
(whether actually received or not), at the close of business on the
third business day next following the day when placed in the mail,
postage prepaid, certified or registered, addressed to the appropriate
party or parties, at the address of such party set forth below (or at
such other address as such party may designate by written notice to all
other parties in accordance herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: Mid-West CAD, Inc.
620 S.E. 291 Highway, Suite 106
Lee's Summit, Missouri 64063
Attn: Roger Roberts
with a copy to: Carl Chinnery, Esq.
200 S.E. Douglas
Lee's Summit, Missouri 64063
18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject to the in
personam jurisdiction of any state or federal court located in Hamilton
County, State of Ohio.
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18.14 NO WAIVER; REMEDIES. No party hereto shall by any act (except by
written instrument pursuant to Section 18.1 hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of
the terms and conditions hereof. No failure to exercise, nor any delay
in exercising, on the part of any party hereto, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. No remedy set forth in this Agreement
or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but
the same shall be distinct, separate and cumulative and may be
exercised from time to time as often as occasion may arise or as may be
deemed expedient.
18.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the transactions
contemplated hereby are consummated, each party hereto shall bear its
own costs and expenses (including attorneys' fees) incurred in
connection with the transactions contemplated herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:___________________________________
Terry L. Theye, President
COMPANY:
MID-WEST CAD, INC.
By:___________________________________
Its:__________________________________
STOCKHOLDERS:
Roger Roberts Trust, u/t/a dated
November 30, 1993
______________________________________
Roger Roberts, Trustee
Carol Roberts Trust, u/t/a dated
November 30, 1993
______________________________________
Carol Roberts Trustee
______________________________________
Robert Treolo
______________________________________
James Claypool
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ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
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Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
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<PAGE> 1
EXHIBIT 10.8
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
DEVTRON, RUSSELL INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
Definitions.............................................................1
Section 1.1 Certain General Definitions................................1
ARTICLE II
The Merger..............................................................4
Section 2.1 The Merger.................................................4
Section 2.2 The Closing................................................4
Section 2.3 Effective Time.............................................4
Section 2.4 Articles of Incorporation of Surviving Corporation.........5
Section 2.5 Code of Regulations of Surviving Corporation...............5
Section 2.6 Directors of the Surviving Corporation.....................5
Section 2.7 Officers of the Surviving Corporation......................5
Section 2.8 Conversion of Company Capital Stock........................5
Section 2.9 Exchange of Certificates Representing Shares of Company
Common Stock.........................................................5
Section 2.10 Fractional Shares..........................................6
Section 2.11 Subsequent Actions.........................................6
ARTICLE III
Representations and Warranties of the Company and the Stockholders......7
Section 3.1 Organization and Good Standing; Qualification..............7
Section 3.2 Capitalization.............................................7
Section 3.3 Transactions in Capital Stock..............................7
Section 3.4 Continuity of Business Enterprise..........................7
Section 3.5 Corporate Records..........................................8
Section 3.6 Authorization and Validity.................................8
Section 3.7 No Violation...............................................8
Section 3.8 Consents...................................................8
Section 3.10 Liabilities and Obligations................................9
Section 3.11 Employee Matters...........................................9
3.11.1 Cash Compensation....................................9
3.11.2 Compensation Plans...................................9
3.11.3 Employment Agreements................................9
3.11.4 Employee Policies and Procedures....................10
3.11.5 Unwritten Amendments................................10
3.11.6 Labor Compliance....................................10
3.11.7 Unions..............................................10
3.11.8 Aliens..............................................10
Section 3.12 Employee Benefit Plans....................................11
3.12.1 Identification......................................11
3.12.2 Administration......................................11
3.12.3 Examinations........................................11
3.12.4 Prohibited Transactions.............................11
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3.12.5 Claims and Litigation...............................11
3.12.6 Qualification.......................................11
3.12.7 Funding Status......................................12
3.12.8 Excise Taxes........................................12
3.12.9 Multiemployer Plans.................................12
3.12.10 PBGC................................................12
3.12.11 Retirees............................................12
Section 3.13 Absence of Certain Changes................................12
Section 3.14 Title; Leased Assets......................................14
3.14.1 Real Property.......................................14
3.14.2 Personal Property...................................14
3.14.3 Leases..............................................14
Section 3.15 Commitments...............................................14
3.15.1 Commitments; Defaults...............................14
3.15.2 No Cancellation or Termination of Commitment........16
Section 3.16 Insurance.................................................16
Section 3.17 Proprietary Rights and Information........................16
Section 3.18 Taxes.....................................................17
3.18.1 Filing of Tax Returns...............................17
3.18.2 Payment of Taxes....................................17
3.18.3 No Pending Deficiencies, Delinquencies,
Assessments or Audits...............................17
3.18.4 No Extension of Limitation Period...................17
3.18.5 Withholding Requirements Satisfied..................17
3.18.6 Foreign Person......................................18
3.18.7 Safe Harbor Lease...................................18
3.18.8 Tax Exempt Entity...................................18
3.18.9 Collapsible Corporation.............................18
3.18.10 Boycotts............................................18
3.18.11 Parachute Payments..................................18
3.18.12 S Corporation.......................................18
3.18.13 Personal Service Corporation........................18
3.18.14 Personal Holding Company............................18
Section 3.19 Compliance with Laws......................................18
Section 3.20 Finder's Fee..............................................19
Section 3.21 Litigation................................................19
Section 3.22 Condition of Fixed Assets.................................19
Section 3.23 Distributions and Repurchases.............................19
Section 3.24 Banking Relations.........................................19
Section 3.25 Ownership Interests of Interested Persons; Affiliations...20
Section 3.26 Investments in Competitors................................20
Section 3.27 Environmental Matters.....................................20
Section 3.28 Certain Payments..........................................20
Section 3.29 No affiliation with NASD Member...........................20
ARTICLE IV
Representations and Warranties of the Stockholders.......................20
Section 4.1 Validity; Stockholder Capacity............................21
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Section 4.2 No Violation................................................21
Section 4.3 Personal Holding Company; Control of Related Businesses.....21
Section 4.4 Transfers of the Company Capital Stock......................21
Section 4.5 Consents....................................................21
Section 4.6 Certain Payments............................................22
Section 4.7 Finder's Fee................................................22
Section 4.8 Ownership of Interested Persons; Affiliations...............22
Section 4.9 Investments in Competitors..................................22
Section 4.10 Disposition of Acquiror Shares..............................22
ARTICLE V
Representations and Warranties of Acquiror...............................22
Section 5.1 Organization and Good Standing..............................22
Section 5.2 Capitalization..............................................22
Section 5.3 Corporate Records...........................................23
Section 5.4 Authorization and Validity..................................23
Section 5.5 No Violation................................................23
Section 5.6 Finder's Fee................................................23
Section 5.7 Capital Stock...............................................24
Section 5.8 Continuity of Business Enterprise...........................24
Section 5.9 Consents....................................................24
Section 5.10 Proprietary Rights and Information..........................24
Section 5.11 Taxes.......................................................24
5.11.1 Filing of Tax Returns................................24
5.11.2 Payment of Taxes.....................................24
5.11.3 No Pending Deficiencies, Delinquencies,
Assessments or Audits................................25
5.11.4 No Extension of Limitation Period....................25
5.11.5 All Withholding Requirements Satisfied...............25
5.11.6 Foreign Person.......................................25
5.11.7 Safe Harbor Lease....................................25
5.11.8 Tax Exempt Entity....................................25
5.11.9 Collapsible Corporation..............................25
5.11.10 Boycotts.............................................25
5.11.11 Parachute Payments...................................25
5.11.12 S Corporation........................................25
Section 5.12 Compliance with Laws......................................25
Section 5.13 Litigation................................................26
Section 5.14 Ownership Interests of Interested Persons; Affiliations...26
Section 5.15 Investments in Competitors................................26
Section 5.16 Certain Payments..........................................26
Section 5.17 Commitments...............................................27
5.17.1 Commitments; Defaults.................................27
5.17.2 No Cancellation or Termination of Acquiror
Commitment............................................28
Section 5.18 Aquiror Financial Statements..............................28
Section 5.19 Liabilities and Obligations...............................28
Section 5.20 Employee Matters..........................................29
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ARTICLE VI
Covenants of the Company and the Stockholders.........................29
Section 6.1 Consummation of Agreement................................29
Section 6.2 Business Operations......................................29
Section 6.3 Access...................................................29
Section 6.4 Notification of Certain Matters..........................29
Section 6.5 Approvals of Third Parties...............................30
Section 6.6 Employee Matters.........................................30
Section 6.7 Contracts................................................31
Section 6.8 Capital Assets; Payments of Liabilities..................31
Section 6.9 Mortgages, Liens and Guaranties..........................31
Section 6.10 Acquisition Proposals....................................31
Section 6.11 Distributions and Repurchases............................32
Section 6.12 Requirements to Effect the Merger........................32
Section 6.13 Lockup Agreements........................................32
ARTICLE VII
Covenants of Acquiror.................................................32
Section 7.1 Consummation of Agreement................................32
Section 7.2 Requirements to Effect Merger............................32
Section 7.3 Access...................................................32
Section 7.4 Notification of Certain Matters..........................33
Section 7.5 Approvals of Third Parties...............................33
ARTICLE VIII
Covenants of all Parties..............................................33
Section 8.1 Filings; Other Action....................................33
Section 8.2 Amendment of Schedules...................................34
Section 8.3 Stockholder Employment Agreements........................34
ARTICLE IX
Conditions Precedent of Acquiror......................................35
Section 9.1 Due Diligence............................................35
Section 9.2 Representations and Warranties...........................35
Section 9.3 Covenants................................................35
Section 9.4 Legal Opinion............................................35
Section 9.5 Proceedings..............................................35
Section 9.6 No Material Adverse Change...............................35
Section 9.7 Securities Approvals.....................................35
Section 9.8 Simultaneous Closings....................................35
Section 9.9 Closing Deliveries.......................................36
ARTICLE X
Conditions Precedent of the Company and the Stockholders..............36
Section 10.1 Representations and Warranties...........................36
Section 10.2 Covenants................................................36
Section 10.3 Legal Opinions...........................................36
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<PAGE> 6
Section 10.4 Proceedings...............................................36
Section 10.5 Government Approvals and Required Consents................36
Section 10.6 Securities Approvals......................................36
Section 10.7 Closing Deliveries........................................37
Section 10.8 Simultaneous Closings.....................................37
ARTICLE XI
Closing Deliveries.....................................................37
Section 11.1 Deliveries of the Company and the Stockholders............37
Section 11.2 Deliveries of Acquiror....................................39
ARTICLE XII
Post Closing Matters...................................................40
Section 12.1 Further Instruments of Transfer...........................40
Section 12.2 Preservation of Tax and Accounting Treatment..............40
Section 12.3 Merger Tax Covenants......................................40
ARTICLE XIII
Remedies...............................................................41
Section 13.1 Indemnification by the Stockholders.......................41
Section 13.2 Indemnification by Acquiror...............................42
Section 13.3 Conditions of Indemnification.............................42
Section 13.4 Remedies Not Exclusive....................................44
Section 13.5 Indemnification Limitations...............................44
Section 13.6 Tax Benefits; Insurance Proceeds..........................45
Section 13.7 Payment of Indemnification Obligation.....................45
ARTICLE XIV
Termination............................................................45
Section 14.1 Termination...............................................45
Section 14.2 Effect of Termination.....................................46
ARTICLE XV
Nondisclosure of Confidential Information..............................46
Section 15.1 Nondisclosure.............................................46
Section 15.2 Damages...................................................47
Section 15.3 Survival..................................................47
ARTICLE XVI
Transfer Restrictions..................................................47
Section 16.1 Transfer Restrictions.....................................47
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock..................................48
Section 17.1 Investment Representation.................................48
Section 17.2 Compliance with Law.......................................48
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Section 17.3 Economic Risk; Sophistication.............................48
Section 17.4 Accredited Investor Status................................49
ARTICLE XVIII
Miscellaneous...........................................................49
Section 18.1 Amendment; Waivers........................................49
Section 18.2 Assignment................................................49
Section 18.3 Parties In Interest; No Third Party Beneficiaries.........49
Section 18.4 Entire Agreement..........................................49
Section 18.5 Severability..............................................50
Section 18.6 Survival of Representations, Warranties and Covenants.....50
Section 18.7 Governing Law.............................................50
Section 18.8 Captions..................................................50
Section 18.9 Gender and Number.........................................50
Section 18.10 Reference to Agreement....................................50
Section 18.11 Confidentiality; Publicity and Disclosures................50
Section 18.12 Notice....................................................51
Section 18.14 No Waiver; Remedies.......................................52
Section 18.15 Counterparts..............................................52
Section 18.16 Costs, Expenses and Legal Fees............................52
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this "Agreement"),
dated as of ________, 1997, is by and among Devtron, Russell Inc., a Michigan
corporation (the "Company"), Edward J. Russell, Jonathan P. Best and Joshua J.
Russell, stockholders of the Company (the "Stockholders"), and Universal
Document Management Services, Inc., an Ohio corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror have
determined that a business combination between the Company and Acquiror is in
the best interests of their respective companies and stockholders and presents
an opportunity for their respective companies to achieve long-term strategic
objectives and, accordingly, have agreed to effect the Merger (as hereinafter
defined) upon the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
<PAGE> 9
1.1.1 "actual knowledge", "have no actual knowledge of", "do not
actually know of" and similar phrases shall mean (i) in the case of a natural
person, the actual conscious awareness, or not, as the context requires, of the
particular fact by such person, and (ii) in the case of an entity, the actual
conscious awareness, or not, as the context requires, of the particular fact by
any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no knowledge of",
"do not know of" or "to the knowledge of" and similar phrases shall mean (i) in
the case of a natural person, the particular fact was known, or not known, as
the context requires, to such person after diligent investigation and inquiry by
such person, and (ii) in the case of an entity, the particular fact was known,
or not known, as the context requires, to any stockholder, director or executive
officer of such entity after diligent investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital stock
of the Company, as set forth in the Company Disclosure Schedules, which are
authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholders to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets and
other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601
et seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder, (ii) the Resource Conservation and Recovery Act of 1976
(42 U.S.C. Sections 6901 et seq., as amended), and regulations promulgated
thereunder, (iii) statutes, rules or regulations, whether federal, state or
local, applicable to the Company's assets or operations that relate to asbestos
or polychlorinated
2
<PAGE> 10
biphenyls, and (iv) the provisions contained in any similar state statutes or
regulations relating to environmental matters applicable to the Company's assets
or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.1.10 "Initial Public Offering" shall mean the initial underwritten
public offering of Acquiror Common Stock contemplated by the Registration
Statement.
1.1.11 "Initial Public Offering Price" shall mean the price per
share at which Acquiror Common Stock is offered for sale to the public in the
Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the United
States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the Merger,
and the mergers and acquisitions of entities and assets contemplated by the
Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules and
the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and Exchange
Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.1.21 "Target Companies" shall mean the companies listed on Exhibit
1.1.21 which Acquiror intends to acquire simultaneously with its acquisition of
the Company.
3
<PAGE> 11
1.1.22 "Tax Returns" shall include all federal, state, local or
foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter in
the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock, without
par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto or otherwise delivered by
Acquiror to the Company and/or the Stockholders, as such may be amended or
supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into
Acquiror in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be the
surviving corporation in the Merger (in such capacity, hereinafter referred to
as the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Ohio, and the separate corporate existence of Acquiror with all its
rights, privileges, powers, immunities, purposes and franchises shall continue
unaffected by the Merger, except as set forth herein. The Merger shall have the
effects specified in the Ohio General Corporation Law and Michigan Business
Corporation Act.
SECTION 2.2 THE CLOSING. The Closing shall take place at 10:00 a.m.,
Cincinnati time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of the
Target Companies. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
SECTION 2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth
in Articles IX and X shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated in accordance with Article
XIV, the parties hereto shall cause to be properly executed and filed on the
Closing Date a Certificate of Merger meeting the requirements of Section
450.1707 of the Michigan Business Corporation Act and Section 1701.79 of the
Ohio Revised Code. The Merger shall become effective at the time of the filing
of such document with the Secretaries of State of Michigan and Ohio, in
accordance with such laws or at such later time which the parties
4
<PAGE> 12
hereto have theretofore agreed upon and designated in such filings as the
effective time of the Merger (the "Effective Time").
SECTION 2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The
Articles of Incorporation of Acquiror in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
SECTION 2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of
Regulations of Acquiror in effect immediately prior to the Effective Time shall
be the Code of Regulations of the Surviving Corporation until duly amended in
accordance with its terms.
SECTION 2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are
directors of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Code of Regulations.
SECTION 2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are
officers of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation and shall
hold their same respective office(s) until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal.
SECTION 2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting
shares of the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the Company's
treasury at the Effective Time, by virtue of the Merger, shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
SECTION 2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON
STOCK.
5
<PAGE> 13
2.9.1 At or after the Effective Time and at Closing (i) each
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by a Stockholder and replaced by a certificate or certificates
representing Acquiror Common Stock, the certificate or certificates for Company
Capital Stock shall, for all purposes be deemed to evidence ownership of the
number of shares of Acquiror Common Stock determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing the
certificate or certificates representing Company Capital Stock owned by him, her
or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, if any, such Stockholder is entitled to
receive pursuant hereto.
SECTION 2.10 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of Acquiror Common
Stock but for this Section 2.10 will be entitled to receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
Acquiror Common Stock multiplied by the Initial Public Offering Price.
SECTION 2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of any of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, and to effect the cancellation of all
outstanding shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving Corporation
shall, at the sole cost and expense of the Surviving Corporation, be authorized
to execute and deliver, in the name and on behalf of the Company, to carry out
all such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of the Company, all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
6
<PAGE> 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, represent and
warrant to Acquiror that except as may be set forth in the Company Disclosure
Schedules the following are true and correct as of the date hereof:
SECTION 3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of organization, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is not duly qualified and licensed
to do business in any other jurisdiction. The Company does not have any assets,
employees or offices in any state other than the state of its organization.
SECTION 3.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital Stock, free
and clear of all security interests, liens, adverse claims, encumbrances,
equities, proxies and shareholder's agreements. Each outstanding share of
Company Capital Stock has been legally and validly issued and is fully paid and
nonassessable. No shares of Company Capital Stock are owned by the Company in
treasury. No shares of Company Capital Stock have been issued or disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
the Company's Stockholders. The Company has no bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible into
or exercisable for securities having the right to vote) with the Stockholders on
any matter.
SECTION 3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired
any Company Capital Stock since January 1, 1993. There exist no options,
warrants, subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding securities of the
Company, and no option, warrant, call, conversion right or commitment of any
kind exists which obligates the Company to issue any of its authorized but
unissued capital stock. The Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative ownership
of shares among any of its Stockholders has been altered or changed in
contemplation of the Merger within the two years preceding the date of this
Agreement.
SECTION 3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the two
years preceding the date of this Agreement.
7
<PAGE> 15
SECTION 3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Bylaws, and all amendments thereto, of the Company that have been delivered
or made available to Acquiror are true, correct and complete copies thereof, as
in effect on the date hereof. The minute books of the Company, copies of which
have been delivered or made available to Acquiror, contain accurate minutes of
all meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the Stockholders of the
Company since its formation.
SECTION 3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Company of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The Company has obtained, in accordance with
applicable law and its Articles of Incorporation and Bylaws, the approval of its
Stockholders necessary to the consummation of the transactions contemplated
hereby.
SECTION 3.7 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of the Company, (b) except as would not, individually or in the
aggregate, result in a Material Adverse Effect, conflict with, or result in a
violation or breach of the terms, conditions or provisions of, or constitute a
default under, any agreement, indenture or other instrument under which the
Company is bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon any of the assets of the Company or (c) to the knowledge of the
Company, except as would not, individually or in the aggregate, result in a
Material Adverse Effect, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body.
SECTION 3.8 CONSENTS. Except as may have been obtained or as may be
required under the Exchange Act, the Securities Act, the Michigan Business
Corporation Act and state securities laws, no consent, authorization, approval,
permit or license of, or filing with, any governmental or public body or
authority, any lender or lessor or any other person or entity is required to
authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or the agreements contemplated hereby on the part
of the Company, other than such consents as to which the failure to obtain would
not, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror
its: (i) audited balance sheet (the "Company Balance Sheet") as of September 30,
1996 (the "Company
8
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Balance Sheet Date") and 1995, and the related audited statements of operations,
stockholders' equity and cash flows for its three full fiscal years ended
September 30, 1996; and (ii) unaudited balance sheet as of June 30, 1997 and
related unaudited statements of operations, stockholders' equity and cash flows
for the six months ended March 31, 1997 and 1996 and for the nine months ended
June 30, 1997 and 1996 (collectively, with the related notes thereto, the
"Financial Statements"), copies of all of which are included in the Company
Disclosure Schedules. The Financial Statements fairly present the financial
condition and results of operations of the Company as of the dates and for the
periods indicated and have been prepared in conformity with generally accepted
accounting principles (subject to normal year-end adjustments and the absence of
notes for any unaudited interim financial statement for any interim periods
presented) applied on a consistent basis with prior periods, except as otherwise
indicated in the Financial Statements.
SECTION 3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect
all liabilities of the Company, accrued, contingent or otherwise that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles. Except as set forth
in the Financial Statements, the Company is not liable upon or with respect to,
or obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity, and
the Company does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
SECTION 3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules contain a
complete and accurate list of the names, titles and annual cash compensation as
of September 30, 1996, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "Cash
Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules contain
a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options. The Company has provided or made available to
Acquiror a copy of each written Compensation Plan and a written description of
each unwritten Compensation Plan. Each of the Compensation Plans can be
terminated or amended at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to any
employment agreement ("Employment Agreements") with respect to any of its
employees. Employment
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Agreements include without limitation employee leasing agreements, employee
services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company Disclosure
Schedules contain a complete and accurate list of all employee manuals and all
material policies, procedures and work-related rules (the "Employee Policies and
Procedures") that apply to employees of the Company. The Company has provided or
made available to Acquiror a copy of all written Employee Policies and
Procedures and a written description of all material unwritten Employee Policies
and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any agreement
with any union, labor organization or collective bargaining unit. The Company
has not been advised by any employee that he or she is represented by any union,
labor organization or collective bargaining unit. To the actual knowledge of the
Company, none of the employees of the Company has threatened to organize or join
a union, labor organization or collective bargaining unit.
3.11.8 ALIENS. To the best knowledge of the Company, all employees
of the Company are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
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SECTION 3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholders have made all necessary
filings, reports and disclosures pursuant to and have complied with all
requirements of the IRS Voluntary Compliance Resolution Program with respect to
all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the Company, no
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code or Sections 406 and 407 of ERISA) have occurred with respect to any
Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual knowledge
of the Company, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of Section 501 (a) of
the Internal Revenue Code. No proceedings exist or, to the actual knowledge of
the Company, have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
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3.12.7 FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Internal Revenue Code) in which the Company is a member (a "Controlled Group").
With respect to each Employee Benefit Plan subject to Title IV of ERISA, the
assets of each such plan are at least equal in value to the present value of
accrued benefits determined on an ongoing basis as of the date hereof. The
Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the Employee
Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet
Date, the Company has not
3.13.1 suffered a Material Adverse Effect, whether or not caused by
any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset having a
cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
3.13.3 incurred any indebtedness for borrowed money (other than
short-term borrowing in the ordinary course of business), or issued or sold any
debt securities;
3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
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3.13.5 paid any amount on any indebtedness prior to the due date,
forgiven or cancelled any claims or any debt in excess of $5,000, or released or
waived any rights or claims except in the ordinary course of business;
3.13.6 mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets
(other than statutory liens arising in the ordinary course of business or other
liens that do not materially detract from the value or interfere with the use of
such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate value
in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of its
assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier that
has, individually or in the aggregate, resulted in a Material Adverse Effect;
3.13.12 except in the ordinary course of business consistent with
past practice, increased the compensation of any director, officer, key employee
or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $50,000;
3.13.14 except in the ordinary course of business consistent with
past practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
3.13.16 redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or agreed
to change the terms and conditions of any such capital stock, securities or
rights;
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3.13.17 entered into any agreement providing for total payments in
excess of $5,000 in any 12 month period with any person or group, or modified or
amended in any material respect the terms of any such existing agreement, except
in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit Plan,
except as contemplated hereby or the other agreements contemplated hereby; or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
SECTION 3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest (other
than leasehold interests described in the Company Disclosure Schedules) in real
property. The leased real property described in the Company Disclosure Schedules
constitutes the only real property necessary for the conduct of the Company's
business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and marketable
title to all the personal property owned by the Company, all of which is
reflected in the Financial Statements (collectively, the "Personal Property").
The Personal Property and the leased personal property referred to in Section
3.14.3 constitute the only personal property necessary for the conduct of the
Company's business. Upon consummation of the transactions contemplated hereby,
such interest in the Personal Property shall be free and clear of all security
interests, liens, claims and encumbrances, other than statutory liens arising in
the ordinary course of business or other liens that do not materially detract
from the value or interfere with the use of such properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases of
real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.15 COMMITMENTS.
3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which the
Company is a party or is bound by, or which any of the shares of Company Capital
Stock are subject to, or which the assets or the business of the Company are
bound by, whether or not in writing, are listed in the Company Disclosure
Schedules (collectively "Commitments"):
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3.15.1.1 any partnership or joint venture agreement;
3.15.1.2 any guaranty or suretyship, indemnification or contribution
agreement or performance bond;
3.15.1.3 any debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another;
3.15.1.4 any contract to purchase real property;
3.15.1.5 any agreement with dealers or sales or commission agents,
public relations or advertising agencies, accountants or attorneys (other than
in connection with this Agreement and the transactions contemplated hereby)
involving total payments within any 12 month period in excess of $5,000 and
which is not terminable on 30 days' notice or without penalty;
3.15.1.6 any agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Stockholder;
3.15.1.7 any agreement for the acquisition of services, supplies,
equipment, inventory, fixtures or other property involving more than $5,000 in
the aggregate;
3.15.1.8 any powers of attorney;
3.15.1.9 any contracts containing noncompetition covenants;
3.15.1.10 any agreement providing for the purchase from a supplier
of all or substantially all of the requirements of the Company of a particular
product or service; or
3.15.1.11 any other agreement or commitment not made in the ordinary
course of business or that is material to the business, operations, condition
(financial or otherwise) or results of operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
Company or, to the best knowledge of the Company, any other party to a material
Commitment, and no penalties have been incurred nor are amendments pending, with
respect to the material Commitments. The Commitments are in full force and
effect and are valid and enforceable obligations of the Company and, to the best
knowledge of the Company, the other parties thereto in accordance with their
respective terms, in each case as may be limited by applicable bankruptcy,
insolvency, or similar laws affecting creditors' rights generally or the
availability of equitable
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remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of the Company, may be made by any party thereto (other than
the Company), nor has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither the
Company nor any Stockholder has received notice of any plan or intention of any
other party to any Commitment to exercise any right to cancel or terminate any
Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
SECTION 3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described in the Company Disclosure Schedules (the
"Insurance Policies"). The Insurance Policies are all of insurance polices
relating to the business of the Company. All of the Insurance Policies are
issued by insurers of recognized responsibility, and, to the best knowledge of
the Company, are valid and enforceable policies, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Acquiror. Neither the Company nor any
Stockholder has received any notice or other communication from any issuer of
any Insurance Policy canceling such policy, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and to the actual knowledge of the
Company, no such cancellation or increase of deductibles, retainages or premiums
is threatened. There are no outstanding claims, settlements or premiums owed
against any Insurance Policy, or the Company has given all notices or has
presented all potential or actual claims under any Insurance Policy in due and
timely fashion. The Company Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company during the immediately preceding three-year period.
SECTION 3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company
Disclosure Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties, assignments and other
similar agreements relating to the foregoing to which the Company is a party
(including expiration date if applicable); and
3.17.2 all agreements relating to technology, know-how or processes
that the Company is licensed or authorized to use by others, or which it
licenses or authorizes others to use.
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The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
SECTION 3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past five taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Company Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records for all of the same that have not yet become due and (ii) the Company is
not delinquent in the payment of any tax, assessment or governmental charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required to be
withheld by the Company and paid to governmental agencies for all income, social
security, unemployment
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insurance, sales, excise, use, and other taxes have been collected or withheld
and paid to the respective governmental agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company and none
of the Assets are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any time
consented, and the Stockholders will not permit the Company to elect, to have
the provisions of Section 341(f)(2) of the Internal Revenue Code apply to it.
3.18.10 BOYCOTTS. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company, no
payment required or contemplated to be made by the Company will be characterized
as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the Company,
the Company is not or has not been a personal holding company within the meaning
of Section 542 of the Internal Revenue Code.
SECTION 3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the
Company has complied with all applicable laws, and regulations and has filed
with the proper authorities all necessary statements and reports except where
the failure to so comply or file would not, individually or in the aggregate,
result in a Material Adverse Effect. To the knowledge of the Company, there are
no existing violations by the Company of any federal, state or local law or
regulation that could, individually or in the aggregate, result in a Material
Adverse Effect. The
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Company possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of the Company's business as now conducted, all
of which are listed (with expiration dates, if applicable) in the Company
Disclosure Schedules. The transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits or
government authorizations, except for any such default, breach or violation that
would not, individually or in the aggregate, have a Material Adverse Effect.
Since January 1, 1992, the Company has not received any notice from any federal,
state or other governmental authority or agency having jurisdiction over its
properties or activities, or any insurance or inspection body, that its
operations or any of its properties, facilities, equipment, or business
practices fail to comply with any applicable law, ordinance, regulation,
building or zoning law, or requirement of any public or quasi-public authority
or body, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.20 FINDER'S FEE. The Company has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.21 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of the
Company threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the assets of the
Company, or the operation, business, condition (financial or otherwise), or
results of operations of the Company which (i) if, successful, could,
individually or in the aggregate, have a Material Adverse Effect or (ii) could
adversely affect the ability of the Company or any Stockholder to effect the
transactions contemplated hereby. Neither the Company nor any Stockholder is (a)
subject to any continuing court or administrative order, judgment, writ,
injunction or decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any such
order, judgment, writ, injunction or decree. The Company has no knowledge of any
valid basis for any such action, proceeding or investigation. All claims made
or, to the actual knowledge of the Company, threatened against the Company in
excess of its deductible are covered under its Insurance Policies.
SECTION 3.22 CONDITION OF FIXED ASSETS. All of the structures and
equipment reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and tear, and
conform in all material respects with all applicable ordinances, regulations and
other laws, and the Company has no actual knowledge of any latent defects
therein.
SECTION 3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
SECTION 3.24 BANKING RELATIONS. Set forth in the Company Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with
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any bank or other financial institution, indicating with respect to each
relationship the type of arrangement maintained (such as checking account,
borrowing arrangements, safe deposit box, etc.) and the person or persons
authorized in respect thereof.
SECTION 3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an individual
or joint basis, any interest in, has a compensation or other financial
arrangement with, or serves as an officer or director of, any customer or
supplier of the Company or any organization that has a material contract or
arrangement with the Company.
SECTION 3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any
Stockholder owns directly or indirectly any interests or has any investment in
any person that is a competitor of the Company.
SECTION 3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its
assets are currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or inquiry by any
governmental authority or to any remedial obligations under, any Environmental
Laws, except for any such violations, investigations or inquiries that would
not, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.28 CERTAIN PAYMENTS. Neither the Company nor any director,
officer or employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholders or
officers or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself
or itself only, represents and warrants to Acquiror that the following, except
as set forth in the Company Disclosure Schedules and only insofar as they relate
to an individual Stockholder (referred to in this Article IV
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as "the Stockholder") and not to any other Stockholders, are true and correct as
of the date hereof and agrees as follows:
SECTION 4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the
Stockholder Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will be as of
the Closing Date duly executed and delivered by the Stockholder and constitute
or will constitute legal, valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
The Stockholder has legal capacity to enter into and perform this Agreement and
his or her Stockholder Employment Agreement.
SECTION 4.2 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation of the
transactions contemplated hereby or thereby, will (a) conflict with, or result
in a violation or breach of the terms, conditions or provisions of, or
constitute a default under, any agreement, indenture or other instrument under
which the Stockholder is bound or to which any of his, her or its shares of
Company Capital Stock are subject, or result in the creation or imposition of
any security interest, lien, charge or encumbrance upon any of his shares of
Company Capital Stock or (b) to the actual knowledge of the Stockholder, violate
or conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
SECTION 4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly or
indirectly, beneficially or of record, through a personal holding company. The
Stockholder does not control another business that is in the same or similar
line of business as the Company or that has or is engaged in transactions with
the Company except transactions in the ordinary course of business.
SECTION 4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the
Company Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All transfers of
Company Capital Stock by the Stockholder have been made for valid business
reasons and not in anticipation or contemplation of the consummation of the
transactions contemplated by this Agreement.
SECTION 4.5 CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, the Michigan Business Corporation Act and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, or any other person is required to authorize, or is
required in connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Stockholder.
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SECTION 4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be
paid, directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate (other
than from personal funds not reimbursed by the Company or as otherwise permitted
by applicable law).
SECTION 4.7 FINDER'S FEE. The Stockholder has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the
Stockholder nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a compensation
or other financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a material
contract or arrangement with the Company.
SECTION 4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own
directly or indirectly any interests or have any investment in any person that
is a competitor of the Company.
SECTION 4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not
presently intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or agreement
for the disposition of such shares of Acquiror Common Stock, except this
Agreement and the Registration Rights Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
SECTION 5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, with all requisite corporate power and authority to carry on the business
in which it is engaged, to own the properties it owns, to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
SECTION 5.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not have any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having
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the right to vote) with the shareholder of Acquiror on any matter. There exist
no options, warrants, subscriptions or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of Acquiror, and no option, warrant, call, conversion right or
commitment of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the Other
Agreements. Acquiror has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay a dividend or make any distribution in respect thereof. To the
best knowledge of Acquiror, no shareholder of Acquiror has granted options or
other rights to purchase any shares of Acquiror Common Stock from such
shareholder.
SECTION 5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Code of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholder are true, correct
and complete copies thereof, as in effect on the date hereof. The minute books
of Acquiror, copies of which have been delivered or made available to the
Company and the Stockholder, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the shareholder of Acquiror, since
its formation.
SECTION 5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by the Board of Directors and shareholder of
Acquiror. This Agreement and each other agreement contemplated hereby to be
executed by Acquiror have been or will be as of the Closing Date duly executed
and delivered by Acquiror and constitute or will constitute as of the Closing
Date legal, valid and binding obligations of Acquiror, enforceable against
Acquiror in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
SECTION 5.5 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Articles of Incorporation or
Code of Regulations of Acquiror or any agreement, indenture or other instrument
under which Acquiror is bound or (b) to the knowledge of Acquiror, except as
would not, individually or in the aggregate, have a Material Adverse Effect on
the business, operations, condition (financial or otherwise) or results of
operations of Acquiror, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body having jurisdiction over Acquiror or the properties or
assets of Acquiror.
SECTION 5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
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SECTION 5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares
of Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of Acquiror.
The shares of Acquiror Common Stock to be issued in connection with the Merger,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable and will not have been issued in violation
of any preemptive rights, rights of first refusal or similar rights of
Acquiror's shareholder, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and state
securities laws.
SECTION 5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention
of Acquiror to continue at least one significant historic business line of the
Company, or to use at least a significant portion of the Company's historic
business assets in a business, in each case within the meaning of Treasury
Regulation Section 1.368-1(d).
SECTION 5.9 CONSENTS. Except as have been obtained or as may be required
by or under the Exchange Act, the Ohio General Corporation Law, the Securities
Act and state securities laws, no consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of Acquiror.
SECTION 5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or
use any trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any agreement
relating to the use of technology or know-how. Acquiror has the right to use,
free and clear of any claims or rights of others, all trade secrets, customer
lists and proprietary information required for the marketing of all merchandise
and services formerly or presently sold or marketed by it.
SECTION 5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such tax
returns or reports are complete and accurate and properly reflect the taxes of
Acquiror, as the case may be, for the periods covered thereby.
5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due. Acquiror is not delinquent in the payment
of any tax, assessment or governmental charge.
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5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by Acquiror and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder thereof
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror constitute
property that the Company, Acquiror, or any Affiliate of Acquiror, will be
required to treat as being owned by another person pursuant to the "Safe Harbor
Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior to
repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the Stockholder thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or contemplated to
be made by Acquiror will be characterized as an "excess parachute payment"
within the meaning of Section 28OG(b)(1) of the Internal Revenue Code.
5.11.12 S CORPORATION. Acquiror has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
SECTION 5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary
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statements and reports, except where the failure to so comply or file would not,
individually or in the aggregate, result in a Material Adverse Effect. There are
no existing violations by Acquiror of any federal, state or local law or
regulation that could materially adversely affect its property or business.
Acquiror possesses all necessary licenses, franchises, permits and governmental
authorizations for the conduct of its business as now conducted. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government authorizations
except for any default, breach or violation that would not, individually or in
the aggregate, have a Material Adverse Effect. Acquiror has not received any
notice from any federal, state or other governmental authority or agency having
jurisdiction over its properties or activities, or any insurance or inspection
body, that its operations or any of its properties, facilities, equipment, or
business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or quasi-public
authority or body.
SECTION 5.13 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the outstanding
shares of Acquiror Common Stock, any of the assets of Acquiror, or the
operations, business, condition (financial or otherwise) or results of
operations of Acquiror. Acquiror is not (a) subject to any continuing court or
administrative order, writ, injunction or decree applicable specifically to it
or to its business, assets, operations or employees or (b) in default with
respect to any such order, writ, injunction or decree. Acquiror has no knowledge
of any valid basis for any such action, proceeding or investigation.
SECTION 5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any customer
or supplier of Acquiror or any organization that has a material contract or
arrangement with Acquiror, except Acquiror's corporate parent, MedPlus, Inc.
SECTION 5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any
shareholder thereof owns directly or indirectly any interests or has any
investment in any person that is a competitor of Acquiror or one of the Target
Companies.
SECTION 5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder,
director, officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
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5.16.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.1.1 partnership or joint venture agreement;
5.17.1.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.1.3 debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another;
5.17.1.4 contract to purchase real property;
5.17.1.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 day's notice or without penalty;
5.17.1.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.1.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
5.17.1.8 powers of attorney;
5.17.1.9 contracts containing noncompetition covenants;
5.17.1.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
5.17.1.11 any other agreement or commitment not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of Acquiror.
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True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT. Except
as contemplated hereby, (i) Acquiror has not received notice of any plan or
intention of any other party to any Acquiror Commitment to exercise any right to
cancel or terminate any Acquiror Commitment, and Acquiror does not know of any
fact that would justify the exercise of such a right; and (ii) Acquiror does not
currently contemplate, or have knowledge that any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
SECTION 5.18 AQUIROR FINANCIAL STATEMENTS. The audited balance sheet as of
December 31, 1996 and 1995, and related statements of operations, shareholder's
net investment and cash flows for each of the years in the three-year period
ended December 31, 1996, along with the unaudited interim balance sheet as of
June 30, 1997 and related statements of operations, shareholder's net investment
and cash flows for the six months ended June 30, 1997 and 1996 are contained in
the Acquiror Disclosure Schedules (collectively, with the related notes thereto,
the "Acquiror Financial Statements"). The Acquiror Financial Statements fairly
present the financial condition and results of operations of Acquiror as of the
dates and for the periods indicated and have been prepared in conformity with
generally accepted accounting principles (subject to normal year-end
adjustments) applied on a consistent basis with prior periods, except as
otherwise indicated in the Acquiror Financial Statements.
SECTION 5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial
Statements reflect all liabilities of Acquiror, accrued, contingent or
otherwise, that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1996. Acquiror is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and Acquiror does not know of any valid basis for the assertion of any
other claims or liabilities of any nature or in any amount.
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SECTION 5.20 EMPLOYEE MATTERS. Acquiror does not have any material
arrangements, agreements or plans with any person with respect to the employment
by Acquiror of such person or whereby such person is to serve as an officer or
director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
SECTION 6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders
shall use their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions; provided,
however, that this covenant shall not require the Company or a Stockholder to
make any expenditures that are not expressly set forth in this Agreement or
otherwise contemplated herein.
SECTION 6.2 BUSINESS OPERATIONS. The Company shall operate its business in
the ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the Company intact. Neither the Company nor
any Stockholder shall take any action that would, individually or in the
aggregate, result in a Material Adverse Effect. The Company shall use its best
efforts to preserve intact its relationships with customers, suppliers,
employees and others having significant business relations with it, unless doing
so would impair its goodwill or result, individually or in the aggregate, in a
Material Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past practice.
SECTION 6.3 ACCESS. The Company and the Stockholders shall, at reasonable
times during normal business hours and on reasonable notice, permit Acquiror and
its authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Acquiror and its authorized
representatives to inspect and, at Acquiror's sole cost and expense, make copies
of all documents, records and information with respect to the affairs of the
Company as Acquiror and its representatives may request, all for the sole
purpose of permitting Acquiror to become familiar with the business and assets
and liabilities of the Company.
SECTION 6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Stockholders shall promptly inform Acquiror in writing of (a) any notice of or
other communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by the Company or any
Stockholder subsequent to the date of this Agreement and prior to the Effective
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Time under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
SECTION 6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders
shall use their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including, without
limitation, all necessary approvals and consents required under any real
property and personal property leases; provided, however, that this covenant
shall not require the Company or the Stockholders to make any material
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
SECTION 6.6 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder or other
employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any Employee
Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with respect to
any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any Employee
Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation except
as could not, individually or in the aggregate, result in a Material Adverse
Effect;
6.6.10 enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any past or
present employee of the Company that would, individually or in the aggregate,
result in a Material Adverse Effect.
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SECTION 6.7 CONTRACTS. Except with Acquiror's prior written consent, the
Company shall not assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course of
business that is material to the Company's business, nor will it waive any
material right or cancel any material contract, debt or claim.
SECTION 6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall
not, without the prior written approval of Acquiror (a) acquire or dispose of
any capital asset having a fair market value of $5,000 or more, or acquire or
dispose of any capital asset outside of the ordinary course of business or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the Financial
Statements or (ii) current liabilities and obligations incurred in the usual and
ordinary course of business since the Company Balance Sheet Date and, in either
case (i) or (ii) above, only as required by the express terms of the agreement
or other instrument pursuant to which the liability or obligation was incurred.
SECTION 6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not,
without the prior written approval of Acquiror, enter into or assume any
mortgage, pledge, conditional sale or other title retention agreement, permit
any security interest, lien, encumbrance or claim of any kind to attach to any
of its assets (other than statutory liens arising in the ordinary course of
business, other liens that do not materially detract from the value or interfere
with the use of such assets, and liens, guarantees, and encumbrances that are
granted or created in the ordinary course of business), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for any
obligation of another, except obligations arising by reason of endorsement for
collection and other similar transactions in the ordinary course of business, or
make any capital contribution or investment in any person.
SECTION 6.10 ACQUISITION PROPOSALS. The Company and the Stockholders agree
that from and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the Stockholders
and the Company shall direct and use their best efforts to cause the Company's
employees, agents and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
Stockholders) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that the Stockholders and the Company will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing and each
will take the necessary steps to inform the individuals or entities referred to
in the first sentence hereof of the obligations undertaken in this Section 6.10;
and (c) that the Stockholders and the Company will notify Acquiror immediately
if any such inquiries or proposals are received by, any such information is
requested from, or any such
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negotiations or discussions are sought to be initiated or continued with, the
Company or the Stockholders.
SECTION 6.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind will be declared or paid by the Company in respect of
Company Capital Stock, nor will any repurchase of any Company Capital Stock be
approved or effected.
SECTION 6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the
Stockholders shall use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
SECTION 6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon
request of the Underwriter Representative, execute a customary "lockup"
agreement in connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any Acquiror Common Stock owned by
them for up to 180 days from the closing of the Initial Public Offering.
SECTION 6.14 EXCLUDED ASSETS. Notwithstanding anything to the contrary
elsewhere in this Agreement, the Company is not transferring any interest in
assets related to its Devbar software product nor its 69 Peening Tool product to
Acquiror and shall have transferred such assets out of the Company prior to
Closing, so as to exclude them from the Merger.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
SECTION 7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts
to cause the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant shall not
require Acquiror to make any expenditures that are not expressly set forth in
this Agreement or otherwise contemplated herein.
SECTION 7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best
efforts to take, or cause to be taken, all actions necessary to effect the
Merger under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form approved by
counsel for the parties to this Agreement.
SECTION 7.3 ACCESS. Acquiror shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make available
for inspection, all of the assets and business of Acquiror,
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including its employees, and permit the Company, the Stockholders, and their
authorized representatives to inspect and, at the Company's and the
Stockholders' sole expense, make copies of all documents, records and
information with respect to the affairs of Acquiror as the Company, the
Stockholders and their representatives may request (including documents, records
and information pertaining to or generated in connection with any Target
Company, except as may be prohibited by confidentiality agreements to which
Acquiror is a party), all for the sole purpose of permitting the Company and the
Stockholders to become familiar with the business and assets and liabilities of
Acquiror.
SECTION 7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly
inform the Company and the Stockholders in writing of (a) any notice of, or
other communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by Acquiror subsequent to the
date of this Agreement and prior to the Effective Time under any Acquiror
Commitment material to Acquiror's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; or (b)
any material adverse change in Acquiror's condition (financial or otherwise),
operations, assets, liabilities or business.
SECTION 7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with respect
to the Company's covenants, the Stockholder agrees to use their best efforts to
cause the Company to perform):
SECTION 8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall cooperate to
promptly prepare and file with the SEC the Registration Statement on Form S-1
(or other appropriate Form) to be filed by Acquiror in connection with its
Initial Public Offering (including the prospectus constituting a part thereof,
the "Registration Statement"). Acquiror shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholders and Acquiror specifically for
inclusion in the Registration Statement, by exhibit or otherwise, will, at the
time the Registration Statement and each amendment
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and supplement thereto, if any, becomes effective under the Securities Act,
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 the light of the circumstances under which they were made, not misleading.
The Company, the Stockholders and Acquiror shall agree as to the information and
documents supplied by the Company and the Stockholders for inclusion in the
Registration Statement and shall indicate such information and documents in a
letter to be delivered at Closing (the "Information Letter"). The Company and
the Stockholders shall be entitled to review the Registration Statement and each
amendment thereto, if any, prior to the time each becomes effective under the
Securities Act.
8.1.3 The Stockholders and the Company shall, upon request, furnish
Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and Stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
SECTION 8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly (i) in the case of Acquiror, the Acquiror
Disclosure Schedules and (ii) in the case of the Company or the Stockholders,
the Company Disclosure Schedules with respect to any matter that would have been
or would be required to be set forth or described in the Schedules in order to
not materially breach any representation, warranty or covenant of such party
contained herein; provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be made
unless Acquiror consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Acquiror may be made unless the Company and the Stockholders consent to such
amendment or supplement. For all purposes of this Agreement, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 8.2. In the event that the Company seeks to amend or supplement
a Schedule pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and the Company and the Stockholders do not
consent, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 14.1.1 hereof.
SECTION 8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to
Closing, each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent without any
liability on the part of the Company therefor, and shall enter into a
Stockholder Employment Agreement in the form appended hereto as Exhibit 8.3 with
Acquiror (the "Stockholder Employment Agreements").
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ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence
review of the Company and shall be reasonably satisfied with the results
thereof.
SECTION 9.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Stockholders contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all respects as of the Closing Date.
SECTION 9.3 COVENANTS. The Company and the Stockholders shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
SECTION 9.4 LEGAL OPINION. Counsel to the Company and the Stockholders
shall have delivered to Acquiror their opinions, dated as of the Closing Date,
in form and substance reasonably satisfactory to Acquiror, to the effect set
forth in Exhibit 9.4.
SECTION 9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet Date, whether
or not such change shall have been caused by the deliberate act or omission of
the Company or the Stockholders.
SECTION 9.7 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Acquiror shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby. The Acquiror Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
SECTION 9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the closing of the Merger.
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SECTION 9.9 CLOSING DELIVERIES. Acquiror shall have received all documents
and agreements, duly executed and delivered in form satisfactory to Acquiror,
referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acquiror contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
respects as of the Closing Date.
SECTION 10.2 COVENANTS. Acquiror shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
SECTION 10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company and
the Stockholders their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholder, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the Company their
opinion, dated as of the Closing Date, to the effect set forth in Exhibit 10.3.2
(the "Tax Opinion").
SECTION 10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company,
Stockholders and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
SECTION 10.6 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Acquiror shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby.
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At or prior to the Closing Date, the Acquiror Common Stock shall have been
approved for listing on The Nasdaq National Market, subject only to official
notification of issuance.
SECTION 10.7 CLOSING DELIVERIES. The Company shall have received all
documents and agreements, duly executed and delivered in form satisfactory to
the Company, referred to in Section 11.2.
SECTION 10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the closing of the Merger.
ARTICLE XI
CLOSING DELIVERIES
SECTION 11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior
to the Closing Date, the Company and the Stockholders shall deliver to Acquiror
c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following, all of which shall
be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
Stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties of the Company and the Stockholders contained
herein on and as of the Closing Date;
11.1.3 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Stockholders to the Closing
have been satisfied;
11.1.4 a certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of the state of incorporation of the Company
establishing that such corporation is in
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existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of organization;
11.1.6 certificates, dated within ten days prior to the Closing
Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Douglas A. Jacobson, counsel to the Company and
the Stockholders dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals, permits
and licenses;
11.1.9 the resignations of the directors and officers of the Company
as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder to become employed by Acquiror in substantially
the form attached hereto as Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between Acquiror
and the Stockholder in substantially the form attached hereto as Exhibit 11.1.11
(the "Registration Rights Agreement");
11.1.12 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.1.13 a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder, signed
under a penalty of perjury and dated as of the Closing Date, to the effect that
each Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholder United States taxpayer
identification number;
11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Douglas A. Jacobson, the Company's
legal counsel, setting forth the aggregate legal fees incurred by the Company
for services rendered to the Company in connection with the Merger; and
11.1.16 such other instrument or instruments of transfer prepared by
Acquiror as shall be necessary or appropriate, as Acquiror or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
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SECTION 11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date,
Acquiror shall deliver to the Company and the Stockholders c/o Dinsmore & Shohl
LLP, counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholder;
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the Closing
Date as to the truth and correctness of the representations and warranties of
Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the Closing
Date, (i) as to the performance and compliance by Acquiror with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Acquiror to the Closing have been satisfied or waived;
11.2.4 a certificate of the Secretary of Acquiror certifying as to
the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
11.2.6 certificates (or photocopies thereof), dated within ten days
prior to the Closing Date, of the Secretaries of State of the states in which
Acquiror is qualified to do business, to the effect that Acquiror is qualified
to do business and, if applicable, is in good standing as a foreign corporation
in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to Acquiror,
dated as of the Closing Date, pursuant to Section 10.3.1:
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.2.11 executed Stockholder Employment Agreements in substantially
the form attached hereto as Exhibit 8.3
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11.2.12 the Merger Consideration;
11.2.13 such other instrument or instruments of transfer, prepared
by the Company or the Stockholders as shall be necessary or appropriate, as the
Company, the Stockholders or his or her counsel shall reasonably request, to
carry out and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
SECTION 12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the request of Acquiror and at Acquiror's sole cost and expense, the
Stockholders and the Company shall deliver any further instruments of transfer
and take all reasonable action as may be necessary or appropriate to carry out
the purpose and intent of this Agreement.
SECTION 12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Closing Date, Acquiror shall not and shall not permit any of its subsidiaries
to:
12.2.1 retire or reacquire, directly or indirectly, all or part of
the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of the
Stockholder; or
12.2.3 dispose of a significant part of the assets of the Company
within the two years following the Closing Date except in the ordinary course of
business, to Affiliates of Acquiror or to eliminate duplicate services or excess
capacity.
SECTION 12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholders as a result of the Merger will not exceed
the amount of any cash received by the Stockholders in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the
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meaning of Section 6662(d)(2)(B)(i) of the Internal Revenue Code, to report the
Merger as a Reorganization and such opinion either is furnished prior to the
Effective Time or is based on facts or events not known at the Effective Time.
Each party shall provide to each other party such tax information, reports,
returns, or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger as a Reorganization.
ARTICLE XIII
REMEDIES
SECTION 13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify, defend and
hold Acquiror, the Company, the Surviving Corporation and their respective
directors, officers, members, managers, employees, agents, attorneys and
affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (collectively, "Damages") asserted against or incurred by such
indemnities arising out of or resulting from:
13.1.1 a material breach of the Company or the Stockholders of any
representation, warranty or covenant of the Company or the Stockholders
contained herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation by Stockholders, the Company and/or any of
their past or present directors, officers, members, managers, shareholder,
employees, agents, consultants and affiliates of state or federal laws occurring
on or before the Closing Date; or
13.1.3 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Stockholders, the Company, and provided to
Acquiror or its counsel by the Company or the Stockholders, specifically for
inclusion in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission to state therein a material
fact relating to the Stockholders and/or the Company required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to Acquiror or its counsel by the Company or the Stockholders,
provided, however, that such indemnity shall not inure to the benefit of
Acquiror and the Company to the extent that such untrue statement was made in,
or omission occurred in, any preliminary prospectus and Stockholders provided,
in writing, corrected information to Acquiror's counsel and to Acquiror for
inclusion in the final prospectus, and such information was not so included.
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SECTION 13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and
conditions of this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or incurred
by him arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation, warranty
or covenant of Acquiror contained herein or in any Schedule or certificate
delivered by it hereunder;
13.2.2 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Acquiror, contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (and, in any event, at least ten days prior
to the due date for any responsive pleadings, filings or other documents) (i)
notify the party from whom indemnification is sought (the "Indemnifying Party")
of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable detail the nature of the Third Party
Claim, a copy of all papers served with respect to such claim (if any), an
estimate of the amount of damages attributable to the Third Party Claim and the
basis of the Indemnified Party's request for indemnification under this
Agreement. The failure to promptly deliver a Claim Notice shall not relieve the
Indemnifying Party of its obligations to the Indemnified Party with respect to
the related Third Party Claim except to the extent that the resulting delay is
materially prejudicial to the defense of such claim. Within 30 days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article XIII with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party claim.
13.3.2 If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby
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authorized, at the sole cost and expense of the Indemnifying Party (but only if
the Indemnified Party is entitled to indemnification hereunder), to file, during
the Election Period, any motion, answer or other pleadings that the Indemnified
Party shall deem necessary or appropriate to protect its interests or those of
the Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 13.3.2, or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 13.3.2 but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such
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litigation. The Indemnifying Party may participate in, but not control any
defense or settlement controlled by the Indemnified Party pursuant to this
Section 13.3.3, and the Indemnifying Party shall bear its own costs and expenses
with respect to such participation; provided, however, that if the named parties
to any such action (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party, and the Indemnifying Party has
been advised by counsel that there may be one or more legal defenses available
to it that are different from or additional to those available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
SECTION 13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
SECTION 13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions
of Sections 13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or covenant unless
the claim for indemnification is brought within the time limit set forth in
Section 18.6, (b) no claim may be brought by any party entitled to
indemnification under this Article XIII unless and until the aggregate
cumulative amount to which such party is entitled equals or exceeds $50,000, and
(c) no party shall be obligated to make any indemnification in excess of 50% of
the value of the Merger Consideration.
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SECTION 13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
SECTION 13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder, subject
to Acquiror's approval as set forth below, the Stockholders may satisfy such
obligation by transferring to Acquiror such number of shares of Acquiror Common
Stock owned by the Stockholders having an aggregate fair market value (based on
the last reported sale price of Acquiror Common Stock on the Nasdaq National
Market or other exchange on which the Acquiror Common Stock is then listed or
the last quoted ask price on any over-the-counter market through which the
Acquiror Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholders transfer shares of Acquiror Common
Stock to Acquiror hereunder) equal to the indemnification obligation; provided
that each of the following conditions are satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good, valid and
marketable title to the shares of Acquiror Common Stock, free and clear of all
adverse claims, security interests, liens, claims, proxies, options,
stockholder's agreements and encumbrances;
13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholder's agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
SECTION 14.1 TERMINATION. This Agreement may be terminated and the Merger
and the Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual agreement of
all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if any
material representation or warranty of the Company or the Stockholders contained
in this Agreement or in
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any certificate or other document executed and delivered by the Company or the
Stockholders pursuant to this Agreement is or becomes untrue or breached in any
material respect or if the Company or the Stockholders fails to comply in any
material respect with any covenant or agreement contained herein, and any such
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within 20 days after receipt by the Company of written notice thereof;
14.1.3 at any time prior to the Closing Date by the Company if any
material representation or warranty of Acquiror contained in this Agreement or
in any certificate or other document executed and delivered by Acquiror pursuant
to this Agreement is or becomes untrue or breached in any material respect or if
Acquiror fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by Acquiror of written
notice thereof;
14.1.4 by Acquiror or the Company if the Merger shall not have been
consummated by March 31, 1998.
SECTION 14.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the
Company and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available at law or
in equity. In the event of a termination of this Agreement under the provisions
of this Article, a party not then in material breach of this Agreement shall
stand fully released and discharged of any and all obligations under this
Agreement; provided, however, that if a termination of this Agreement occurs
pursuant to the last sentence of Section 8.2, the parties hereto shall stand
fully released and discharged of any and all obligations under this Agreement.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges
that he had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's respective
businesses. Acquiror acknowledges that it has had in the past, currently has,
and in the future may possible have, access to certain Confidential Information
of the Company that is valuable, special and unique assets of the Company's
business. The Stockholder, the Company, and Acquiror agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Acquiror, the Company and such Stockholder and (b)
to their counsel and other advisers provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 15.1, unless
(i) such information becomes available to or known by the public generally
through no fault of such Stockholder, the Company, or Acquiror, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under
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color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), such Stockholder, the Company, or Acquiror, as the case may
be, shall, if possible, give prior written notice thereof to such Stockholder,
the Company, and Acquiror and provide such Stockholder, the Company, Acquiror
with the opportunity to contest such disclosure, (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, or (iv) the disclosing party
is the sole and exclusive owner of such Confidential Information as a result of
the Merger or otherwise. In the event of a breach or threatened breach by a
Stockholder of the provisions of this Section 15.1, Acquiror and the Company
shall be entitled to an injunction restraining the Stockholder from disclosing,
in whole or in part, such Confidential Information. Nothing herein shall be
construed as prohibiting Acquiror, the Stockholder and the Company from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages.
SECTION 15.2 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, Acquiror, the Company, and the Stockholders agree
that, in the event of a breach by any of them of the foregoing covenant, the
covenant may be enforced against them by injunctions and restraining orders.
SECTION 15.3 SURVIVAL. The obligations of the parties under this Article
XV shall survive the termination of this Agreement.
ARTICLE XVI
TRANSFER RESTRICTIONS
SECTION 16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of
one year from the Closing Date or such other holding period as may be required
under applicable federal or state securities laws, except pursuant to the
Registration Rights Agreement and Section 13.7 hereof, no Stockholder shall
voluntarily (a) sell, assign, exchange, transfer, encumber, pledge, distribute,
appoint, or otherwise dispose of (i) any shares of Acquiror Common Stock
received by such Stockholder in the Merger, or (ii) any interest (including,
without limitation, an option to buy or sell) in any such shares of Acquiror
Common Stock, in whole or in part, and no such attempted transfer shall be
treated as effective for any purpose or (b) engage in any transaction, whether
or not with respect to any shares of Acquiror Common Stock or any interest
therein, the intent or effect of which is to reduce the risk of owning shares of
Acquiror Common Stock. The certificates evidencing the Acquiror Common Stock
delivered to the Stockholder pursuant to this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Acquiror may reasonably deem necessary or appropriate:
Except pursuant to the terms of the Registration Rights Agreement and the
Agreement and Plan of Merger and Reorganization ("Merger Agreement")
between
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the issuer, the holder of this certificate and the other parties thereto,
the shares represented by this certificate may not be voluntarily sold,
assigned, exchanged, transferred, encumbered, pledged, distributed,
appointed or otherwise disposed of, and the issuer shall not be required
to give effect to any attempted voluntary sale, assignment, exchange,
transfer, encumbrance, pledge, distribution, appointment or other
disposition prior to [date that is one year after the Closing Date.] Upon
the written request of the holder of this certificate, the issuer agrees
to remove this restrictive legend (and any stop order placed with the
transfer agent) after the expiration of the period specified in the Merger
Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
SECTION 17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that
the shares of Acquiror Common Stock to be delivered to such Stockholder pursuant
to this Agreement have not been and will not be registered under the Securities
Act and may not be resold without compliance with the Securities Act. The
Acquiror Common Stock to be acquired by such Stockholder pursuant to this
Agreement is being acquired solely for his, her or its own account, for
investment purposes only and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
SECTION 17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to such
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All certificates evidencing
shares of Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise
transferred if the holder hereof complies with the Act and applicable
securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall bear
any legend required by the securities or blue sky laws of any state where the
Stockholder resides.
SECTION 17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to
bear the economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of the
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proposed investment and therefore have the capacity to protect his, her or its
own interests in connection with the acquisition of the Acquiror Common Stock.
Each Stockholder or its purchaser representatives have had an adequate
opportunity to ask questions and receive answers from the officers of Acquiror
concerning any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background and
experience of the officers and directors of Acquiror, the plans for the
operations of the business of Acquiror, and any plans for additional
acquisitions and the like. Each Stockholder or its purchaser representatives
have asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to their satisfaction.
SECTION 17.4 ACCREDITED INVESTOR STATUS. Each Stockholder is an
"accredited investor" as defined in Rule 501(a) under the Securities Act. The
Stockholder recognizes that, as an accredited investor, Acquiror is not required
to provide the Stockholder with any particular information or disclosures as a
condition to relying upon the Rule 506 exemption from registration under the
Securities Act with respect to the issuance of Acquiror Common Stock in the
Merger. However, the Stockholder acknowledges that he, she or it has received
and had the opportunity to review the information about Acquiror contained in
the Acquiror Disclosure Schedules.
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any of the terms and conditions of
this Agreement shall not be construed as a waiver of any other terms and
conditions hereof.
SECTION 18.2 ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by Acquiror
to a wholly owned subsidiary of Acquiror; provided that any such assignment
shall not relieve Acquiror of its obligations hereunder.
SECTION 18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 18.4 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and
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supersede all prior agreements and understandings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof.
SECTION 18.5 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including all
statements contained in any certificate, exhibit or other instrument delivered
pursuant to this Agreement by or on behalf of the Company, the Stockholders, or
Acquiror, as the case may be, shall survive the Closing until the first
anniversary of the Closing Date.
SECTION 18.7 GOVERNING LAW. This agreement and the rights and obligations
of the parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Ohio.
SECTION 18.8 CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
SECTION 18.9 GENDER AND NUMBER. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
SECTION 18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof",
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or provision of
this Agreement, unless otherwise noted.
SECTION 18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that Acquiror has
determined in its good faith judgment to be required by federal securities laws
or the rules of the National Association of Securities Dealers, (b) to
attorneys, accountants, investment bankers or other agents of the parties
assisting the parties in connection with the transactions contemplated by this
Agreement and (c) by Acquiror in connection with the conduct of its Initial
Public Offering and conducting an examination
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of the operations and assets of the Company; provided that Acquiror shall
promptly provide notice to the Company of any release made under this Section
18.11. In the event that the transactions contemplated hereby are not
consummated for any reason whatsoever, the parties hereto agree not to disclose
or use any Confidential Information they may have concerning the affairs of the
other parties, except for information that is required by law to be disclosed;
provided that should the transactions contemplated hereby not be consummated,
nothing contained in this Section shall be construed to prohibit the parties
hereto from operating businesses in competition with each other so long as no
party discloses or uses any such Confidential Information in connection
therewith.
SECTION 18.12 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: Mr. Edward J. Russell
Devtron, Russell Inc.
301 North Bowery Avenue
Gladwin, Michigan 48624
with a copy to: Douglas A. Jacobson, Esq.
348 West Cedar Avenue
Gladwin, Michigan 48624-2022
Fax No.: (517) 426-0324
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SECTION 18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject
to the in personam jurisdiction of any state or federal court located in
Hamilton County, State of Ohio.
SECTION 18.14 NO WAIVER; REMEDIES. No party hereto shall by any act
(except by written instrument pursuant to Section 18.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
SECTION 18.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees) incurred in connection
with the transactions contemplated herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:
----------------------------------
Terry L. Theye, President
COMPANY:
DEVTRON, RUSSELL INC.
By:
----------------------------------
Its:
---------------------------------
STOCKHOLDER:
-------------------------------------
Edward J. Russell
-------------------------------------
Jonathan P. Best
-------------------------------------
Joshua J. Russell
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ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
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Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
<PAGE> 1
EXHIBIT 10.9
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
COMPUTERS FOR DESIGN, INC.,
THE UNDERSIGNED STOCKHOLDERS THEREOF,
and
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Definitions..............................................................1
Section 1.1 Certain General Definitions................................2
ARTICLE II
The Merger...............................................................4
Section 2.1 The Merger.................................................4
Section 2.2 The Closing................................................4
Section 2.3 Effective Time.............................................4
Section 2.4 Articles of Incorporation of Surviving Corporation.........5
Section 2.5 Code of Regulations of Surviving Corporation...............5
Section 2.6 Directors of the Surviving Corporation.....................5
Section 2.7 Officers of the Surviving Corporation......................5
Section 2.8 Conversion of Company Capital Stock........................5
Section 2.9 Exchange of Certificates Representing Shares of Company
Common Stock...............................................5
Section 2.10 Fractional Shares..........................................6
Section 2.11 Subsequent Actions.........................................6
ARTICLE III
Representations and Warranties of the Company and the Stockholders.......7
Section 3.1 Organization and Good Standing; Qualification..............7
Section 3.2 Capitalization.............................................7
Section 3.3 Transactions in Capital Stock..............................7
Section 3.4 Continuity of Business Enterprise..........................7
Section 3.5 Corporate Records..........................................8
Section 3.6 Authorization and Validity.................................8
Section 3.7 No Violation...............................................8
Section 3.8 Consents...................................................8
Section 3.9 Financial Statements.......................................8
Section 3.10 Liabilities and Obligations................................9
Section 3.11 Employee Matters...........................................9
3.11.1 Cash Compensation................................9
3.11.2 Compensation Plans...............................9
3.11.3 Employment Agreements............................9
3.11.4 Employee Policies and Procedures................10
3.11.5 Unwritten Amendments............................10
3.11.6 Labor Compliance................................10
3.11.7 Unions..........................................10
3.11.8 Aliens..........................................10
Section 3.12 Employee Benefit Plans....................................10
3.12.1 Identification..................................10
3.12.2 Administration..................................11
3.12.3 Examinations....................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.12.4 Prohibited Transactions.........................11
3.12.5 Claims and Litigation...........................11
3.12.6 Qualification...................................11
3.12.7 Funding Status..................................11
3.12.8 Excise Taxes....................................12
3.12.9 Multiemployer Plans.............................12
3.12.10 PBGC............................................12
3.12.11 Retirees........................................12
Section 3.13 Absence of Certain Changes................................12
Section 3.14 Title; Leased Assets......................................14
3.14.1 Real Property...................................14
3.14.2 Personal Property...............................14
3.14.3 Leases..........................................14
Section 3.15 Commitments...............................................14
3.15.1 Commitments; Defaults...........................14
3.15.2 No Cancellation or Termination of Commitment....15
Section 3.16 Insurance.................................................16
Section 3.17 Proprietary Rights and Information........................16
Section 3.18 Taxes.....................................................17
3.18.1 Filing of Tax Returns...........................17
3.18.2 Payment of Taxes................................17
3.18.3 No Pending Deficiencies, Delinquencies,
Assessments or Audits ..........................17
3.18.4 No Extension of Limitation Period...............17
3.18.5 Withholding Requirements Satisfied..............17
3.18.6 Foreign Person..................................17
3.18.7 Safe Harbor Lease...............................17
3.18.8 Tax Exempt Entity...............................18
3.18.9 Collapsible Corporation.........................18
3.18.10 Boycotts........................................18
3.18.11 Parachute Payments..............................18
3.18.12 S Corporation...................................18
3.18.13 Personal Service Corporation....................18
3.18.14 Personal Holding Company........................18
Section 3.19 Compliance with Laws......................................18
Section 3.20 Finder's Fee..............................................19
Section 3.21 Litigation................................................19
Section 3.22 Condition of Fixed Assets.................................19
Section 3.23 Distributions and Repurchases.............................19
Section 3.24 Banking Relations.........................................19
Section 3.25 Ownership Interests of Interested Persons; Affiliations...19
Section 3.26 Investments in Competitors................................19
Section 3.27 Environmental Matters.....................................20
Section 3.28 Certain Payments..........................................20
Section 3.29 No affiliation with NASD Member...........................20
ARTICLE IV
Representations and Warranties of the Stockholders......................20
</TABLE>
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<TABLE>
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Section 4.1 Validity; Stockholder Capacity............................20
Section 4.2 No Violation..............................................20
Section 4.3 Personal Holding Company; Control of Related Businesses...21
Section 4.4 Transfers of the Company Capital Stock....................21
Section 4.5 Consents..................................................21
Section 4.6 Certain Payments..........................................21
Section 4.7 Finder's Fee..............................................21
Section 4.8 Ownership of Interested Persons; Affiliations.............21
Section 4.9 Investments in Competitors................................22
Section 4.10 Disposition of Acquiror Shares............................22
ARTICLE V
Representations and Warranties of Acquiror..............................22
Section 5.1 Organization and Good Standing............................22
Section 5.2 Capitalization............................................22
Section 5.3 Corporate Records.........................................22
Section 5.4 Authorization and Validity................................23
Section 5.5 No Violation..............................................23
Section 5.6 Finder's Fee..............................................23
Section 5.7 Capital Stock.............................................23
Section 5.8 Continuity of Business Enterprise.........................23
Section 5.9 Consents..................................................23
Section 5.10 Proprietary Rights and Information........................24
Section 5.11 Taxes.....................................................24
5.11.1 Filing of Tax Returns...........................24
5.11.2 Payment of Taxes................................24
5.11.3 No Pending Deficiencies, Delinquencies,
Assessments or Audits ..........................24
5.11.4 No Extension of Limitation Period...............24
5.11.5 All Withholding Requirements Satisfied..........24
5.11.6 Foreign Person..................................24
5.11.7 Safe Harbor Lease...............................25
5.11.8 Tax Exempt Entity...............................25
5.11.9 Collapsible Corporation.........................25
5.11.10 Boycotts........................................25
5.11.11 Parachute Payments..............................25
5.11.12 S Corporation...................................25
Section 5.12 Compliance with Laws.......................................25
Section 5.13 Litigation................................................25
Section 5.14 Ownership Interests of Interested Persons; Affiliations...26
Section 5.15 Investments in Competitors................................26
Section 5.16 Certain Payments..........................................26
Section 5.17 Commitments...............................................26
5.17.1 Commitments; Defaults...........................26
5.17.2 No Cancellation or Termination of Acquiror
Commitment .....................................27
Section 5.18 Acquiror Financial Statements.............................28
Section 5.19 Liabilities and Obligations...............................28
Section 5.20 Employee Matters..........................................28
</TABLE>
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<TABLE>
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ARTICLE VI
Covenants of the Company and the Stockholders...........................28
Section 6.1 Consummation of Agreement.................................28
Section 6.2 Business Operations.......................................28
Section 6.3 Access....................................................29
Section 6.4 Notification of Certain Matters...........................29
Section 6.5 Approvals of Third Parties................................29
Section 6.6 Employee Matters..........................................29
Section 6.7 Contracts.................................................30
Section 6.8 Capital Assets; Payments of Liabilities...................30
Section 6.9 Mortgages, Liens and Guaranties...........................30
Section 6.10 Acquisition Proposals.....................................31
Section 6.11 Distributions and Repurchases.............................31
Section 6.12 Requirements to Effect the Merger.........................31
Section 6.13 Lockup Agreements.........................................31
ARTICLE VII
Covenants of Acquiror...................................................31
Section 7.1 Consummation of Agreement.................................32
Section 7.2 Requirements to Effect Merger.............................32
Section 7.3 Access....................................................32
Section 7.4 Notification of Certain Matters...........................32
Section 7.5 Approvals of Third Parties................................32
ARTICLE VIII
Covenants of all Parties................................................32
Section 8.1 Filings; Other Action.....................................33
Section 8.2 Amendment of Schedules....................................33
Section 8.3 Stockholder Employment Agreements.........................34
ARTICLE IX
Conditions Precedent of Acquiror........................................34
Section 9.1 Due Diligence.............................................34
Section 9.2 Representations and Warranties............................34
Section 9.3 Covenants.................................................34
Section 9.4 Legal Opinion.............................................34
Section 9.5 Proceedings...............................................34
Section 9.6 No Material Adverse Change................................34
Section 9.7 Securities Approvals......................................35
Section 9.8 Simultaneous Closings.....................................35
Section 9.9 Closing Deliveries........................................35
ARTICLE X
Conditions Precedent of the Company and the Stockholders................35
Section 10.1 Representations and Warranties............................35
</TABLE>
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<TABLE>
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Section 10.2 Covenants.................................................35
Section 10.3 Legal Opinions............................................35
Section 10.4 Proceedings...............................................36
Section 10.5 Government Approvals and Required Consents................36
Section 10.6 Securities Approvals......................................36
Section 10.7 Closing Deliveries........................................36
ARTICLE XI
Closing Deliveries......................................................36
Section 11.1 Deliveries of the Company and the Stockholders............36
Section 11.2 Deliveries of Acquiror....................................38
ARTICLE XII
Post Closing Matters....................................................39
Section 12.1 Further Instruments of Transfer...........................39
Section 12.2 Preservation of Tax and Accounting Treatment..............40
Section 12.3 Merger Tax Covenants......................................40
ARTICLE XIII
Remedies................................................................40
Section 13.1 Indemnification by the Stockholders.......................40
Section 13.2 Indemnification by Acquiror...............................41
Section 13.3 Conditions of Indemnification.............................42
Section 13.4 Remedies Not Exclusive....................................44
Section 13.5 Indemnification Limitations...............................44
Section 13.6 Tax Benefits; Insurance Proceeds..........................44
Section 13.7 Payment of Indemnification Obligation.....................44
ARTICLE XIV
Termination.............................................................45
Section 14.1 Termination...............................................45
Section 14.2 Effect of Termination.....................................46
ARTICLE XV
Nondisclosure of Confidential Information...............................46
Section 15.1 Nondisclosure.............................................46
Section 15.2 Damages...................................................46
Section 15.3 Survival..................................................47
ARTICLE XVI
Transfer Restrictions...................................................47
Section 16.1 Transfer Restrictions.....................................47
ARTICLE XVII
Federal Securities Law
Restrictions on Acquiror Common Stock...................................48
Section 17.1 Investment Representation.................................48
</TABLE>
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Section 17.2 Compliance with Law.......................................48
Section 17.3 Economic Risk; Sophistication.............................48
Section 17.4 Accredited Investor Status................................48
ARTICLE XVIII
Miscellaneous...........................................................49
Section 18.1 Amendment; Waivers........................................49
Section 18.2 Assignment................................................49
Section 18.3 Parties In Interest; No Third Party Beneficiaries.........49
Section 18.4 Entire Agreement..........................................49
Section 18.5 Severability..............................................49
Section 18.6 Survival of Representations, Warranties and Covenants.....49
Section 18.7 Governing Law.............................................50
Section 18.8 Captions..................................................50
Section 18.9 Gender and Number.........................................50
Section 18.10 Reference to Agreement....................................50
Section 18.11 Confidentiality; Publicity and Disclosures................50
Section 18.12 Notice....................................................50
Section 18.13 Choice of Forum...........................................51
Section 18.14 No Waiver; Remedies.......................................51
Section 18.15 Counterparts..............................................51
Section 18.16 Costs, Expenses and Legal Fees............................52
</TABLE>
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this "Agreement"),
dated as of ________, 1997, is by and among Computers for Design, Inc., a
Colorado corporation (the "Company") Eric H. Darst, Robert Harney, Dennis Reid,
Lane Callow, and McFall, Konkel and Kimball Consulting Engineers, Inc., a
Colorado corporation, stockholders of the Company (collectively, the
"Stockholders"), and Universal Document Management Systems, Inc., an Ohio
corporation ("Acquiror").
WITNESSETH:
WHEREAS, the Boards of Directors of each of the Company and Acquiror have
determined that a business combination between the Company and Acquiror is in
the best interests of their respective companies and stockholders and presents
an opportunity for their respective companies to achieve long-term strategic
objectives and, accordingly, have agreed to effect the Merger (as hereinafter
defined) upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is intended that for federal income tax purposes the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code; and
WHEREAS, Acquiror has entered or intends to enter into merger or other
acquisition agreements (collectively, the "Other Agreements") pursuant to which
it intends to acquire a number of other companies whose businesses are similar
to that of the Company, the "Target Companies," as such term is defined herein;
and
WHEREAS, to provide Acquiror with necessary working capital and funds
required to consummate the transactions contemplated hereby, Acquiror will,
subject to the terms and conditions of this Agreement, enter into an
underwriting agreement with the Underwriter Representative (as defined herein)
in connection with the Initial Public Offering (as defined herein); and
WHEREAS, prior to the Closing Date (defined below), Acquiror intends to
change its name to Synergis Technologies, Inc.;
NOW, THEREFORE, and in consideration of the mutual representations,
warranties and covenants herein contained, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
<PAGE> 9
SECTION 1.1 CERTAIN GENERAL DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth below:
1.1.1 "actual knowledge", "have no actual knowledge of", "do not
actually know of" and similar phrases shall mean (i) in the case of a natural
person, the actual conscious awareness, or not, as the context requires, of the
particular fact by such person, and (ii) in the case of an entity, the actual
conscious awareness, or not, as the context requires, of the particular fact by
any stockholder, director or executive officer of such entity.
1.1.2 "Affiliate" with respect to any person shall mean a person
that directly or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such person.
1.1.3 "best knowledge", "have knowledge of", "have no knowledge of",
"do not know of" or "to the knowledge of" and similar phrases shall mean (i) in
the case of a natural person, the particular fact was known, or not known, as
the context requires, to such person after diligent investigation and inquiry by
such person, and (ii) in the case of an entity, the particular fact was known,
or not known, as the context requires, to any stockholder, director or executive
officer of such entity after diligent investigation and inquiry.
1.1.4 "Company Capital Stock" shall mean the shares of capital stock
of the Company, as set forth in the Company Disclosure Schedules, which are
authorized, issued and outstanding as of the Effective Time.
1.1.5 "Company Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto as of the date hereof or
otherwise delivered by the Company and the Stockholders to Acquiror, as such may
be amended or supplemented from time to time pursuant to the provisions hereof.
The information contained in the Company Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates.
1.1.6 "Confidential Information" shall mean all trade secrets and
other confidential and/or proprietary information of the particular person,
including information derived from reports, investigations, research, work in
progress, codes, marketing and sales programs, financial projections, cost
summaries, pricing formulae, contract analyses, financial information,
projections, confidential filings with any state or federal agency, and all
other confidential concepts, methods of doing business, ideas, materials or
information prepared or performed for, by or on behalf of such person by its
employees, officers, directors, agents, representatives, or consultants.
1.1.7 "Environmental Laws" shall mean any laws or regulations
pertaining to health or the environment, as in effect on the date hereof and the
Closing Date, including without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Sections 9601
et seq.), as amended (including without limitation as amended pursuant to the
Superfund Amendments and Reauthorization Act of 1986), and regulations
promulgated thereunder,
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(ii) the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Sections 6901 et seq., as amended), and regulations promulgated thereunder,
(iii) statutes, rules or regulations, whether federal, state or local,
applicable to the Company's assets or operations that relate to asbestos or
polychlorinated biphenyls, and (iv) the provisions contained in any similar
state statutes or regulations relating to environmental matters applicable to
the Company's assets or operations.
1.1.8 "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.1.9 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.1.10 "Initial Public Offering" shall mean the initial underwritten
public offering of Acquiror Common Stock contemplated by the Registration
Statement.
1.1.11 "Initial Public Offering Price" shall mean the price per
share at which Acquiror Common Stock is offered for sale to the public in the
Initial Public Offering.
1.1.12 "Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
1.1.13 "IRS" shall mean the Internal Revenue Service of the United
States Department of the Treasury.
1.1.14 "Material Adverse Effect" shall mean a material adverse
effect on the Company's or Acquiror's, as applicable, business, operations,
condition (financial or otherwise) or results of operations, taken as a whole,
in consideration of all relevant facts and circumstances.
1.1.15 "ordinary course of business" shall mean the usual and
customary way in which the Company has conducted its business in the past.
1.1.16 "person" shall mean any natural person, corporation,
partnership, joint venture, limited liability company, association, group,
organization or other entity.
1.1.17 "Related Acquisitions" shall mean, collectively, the Merger,
and the mergers and acquisitions of entities and assets contemplated by the
Other Agreements.
1.1.18 "Schedules" shall mean the Company Disclosure Schedules and
the Acquiror Disclosure Schedules.
1.1.19 "SEC" shall mean the United States Securities and Exchange
Commission.
1.1.20 "Securities Act" shall mean the Securities Act of 1933, as
amended.
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1.1.21 "Target Companies" shall mean the companies listed on Exhibit
1.1.21 which Acquiror intends to acquire simultaneously with its acquisition of
the Company.
1.1.22 "Tax Returns" shall include all federal, state, local or
foreign income, excise, corporate, franchise, property, sales, use, payroll,
withholding, provider, environmental, duties, value added and other tax returns
(including information returns).
1.1.23 "Underwriter Representative" shall mean any underwriter in
the Initial Public Offering who acts as a managing underwriter in the Initial
Public Offering.
1.1.24 "Acquiror Common Stock" shall mean the Common Stock, without
par value, of Acquiror.
1.1.25 "Acquiror Disclosure Schedules" shall mean the schedules of
exceptions and other disclosures attached hereto or otherwise delivered by
Acquiror to the Company and/or the Stockholders, as such may be amended or
supplemented from time to time pursuant to the provisions hereof. The
information contained in the Acquiror Disclosure Schedules is labeled to
correspond with the Section numbers of this Agreement to which the disclosure
relates, if applicable.
ARTICLE II
THE MERGER
SECTION 2.1 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company shall be merged with and into
Acquiror in accordance with this Agreement and the separate corporate existence
of the Company shall thereupon cease (the "Merger"). Acquiror shall be the
surviving corporation in the Merger (in such capacity, hereinafter referred to
as the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Ohio, and the separate corporate existence of Acquiror with all its
rights, privileges, powers, immunities, purposes and franchises shall continue
unaffected by the Merger, except as set forth herein. The Merger shall have the
effects specified in the Ohio General Corporation Law and the Colorado Business
Corporation Act.
SECTION 2.2 THE CLOSING. The Closing shall take place at 10:00 a.m.,
Cincinnati time, at the offices of Dinsmore & Shohl LLP simultaneously with the
closings of the Initial Public Offering and Acquiror's acquisitions of the
Target Companies. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
SECTION 2.3 EFFECTIVE TIME. If all the conditions to the Merger set forth
in Articles IX and X shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated in accordance with Article
XIV, the parties hereto shall cause to be properly executed and filed on the
Closing Date a Certificate of Merger meeting the requirements of Section
4
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7-111-101 of the Colorado Business Corporation Act and Section 1701.79 of the
Ohio Revised Code. The Merger shall become effective at the time of the filing
of such document with the Secretaries of State of Colorado and Ohio, in
accordance with such laws or at such later time which the parties hereto have
theretofore agreed upon and designated in such filings as the effective time of
the Merger (the "Effective Time").
SECTION 2.4 ARTICLES OF INCORPORATION OF SURVIVING CORPORATION. The
Articles of Incorporation of Acquiror in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until duly amended in accordance with their terms.
SECTION 2.5 CODE OF REGULATIONS OF SURVIVING CORPORATION. The Code of
Regulations of Acquiror in effect immediately prior to the Effective Time shall
be the Code of Regulations of the Surviving Corporation until duly amended in
accordance with its terms.
SECTION 2.6 DIRECTORS OF THE SURVIVING CORPORATION. The persons who are
directors of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and Code of Regulations.
SECTION 2.7 OFFICERS OF THE SURVIVING CORPORATION. The persons who are
officers of Acquiror immediately prior to the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation and shall
hold their same respective office(s) until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal.
SECTION 2.8 CONVERSION OF COMPANY CAPITAL STOCK. The manner of converting
shares of the Company in the Merger shall be as follows:
2.8.1 As a result of the Merger and without any action on the part
of the holder thereof, all shares of Company Capital Stock issued and
outstanding at the Effective Time shall cease to be outstanding and shall be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares of Company Capital Stock shall thereafter cease to
have any rights with respect to such shares of Company Capital Stock, except the
right to receive, without interest, validly issued, fully paid and nonassessable
shares of Acquiror Common Stock and other consideration, if any, determined in
accordance with the provisions of Exhibit 2.8.1 attached hereto (collectively,
the "Merger Consideration") upon the surrender of such certificate.
2.8.2 Each share of Company Capital Stock held in the Company's
treasury at the Effective Time, by virtue of the Merger, shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
5
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SECTION 2.9 EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON
STOCK.
2.9.1 At or after the Effective Time and at Closing (i) each
Stockholder, as the holder of a certificate or certificates representing shares
of Company Capital Stock, shall, upon surrender of such certificate or
certificates, receive the number of shares of Acquiror Common Stock determined
in accordance with the provisions of Exhibit 2.8.1 attached hereto; and (ii)
until the certificate or certificates representing Company Capital Stock have
been surrendered by a Stockholder and replaced by a certificate or certificates
representing Acquiror Common Stock, the certificate or certificates for Company
Capital Stock shall, for all purposes be deemed to evidence ownership of the
number of shares of Acquiror Common Stock determined in accordance with the
provisions of Exhibit 2.8.1 attached hereto. All shares of Acquiror Common Stock
issuable to a Stockholder in the Merger shall be deemed for all purposes to have
been issued by Acquiror at the Effective Time.
2.9.2 Each Stockholder shall deliver to Acquiror at Closing the
certificate or certificates representing Company Capital Stock owned by him, her
or it, duly endorsed in blank by such Stockholder, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at such Stockholder's expense, affixed and canceled.
Each Stockholder agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Capital Stock or with respect to the stock powers accompanying any
Company Capital Stock. Upon such delivery, each Stockholder shall receive in
exchange therefor a certificate representing that number of shares of Acquiror
Common Stock and the amount of cash, if any, such Stockholder is entitled to
receive pursuant hereto.
SECTION 2.10 FRACTIONAL SHARES. Notwithstanding any other provision
herein, no fractional shares of Acquiror Common Stock will be issued and any
Stockholder entitled hereunder to receive a fractional share of Acquiror Common
Stock but for this Section 2.10 will be entitled to receive a cash payment in
lieu thereof reflecting such Stockholder's proportionate interest in a share of
Acquiror Common Stock multiplied by the Initial Public Offering Price.
SECTION 2.11 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of any of the Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, and to effect the cancellation of all
outstanding shares of Company Capital Stock in return for the consideration set
forth in this Agreement, the officers and directors of the Surviving Corporation
shall, at the sole cost and expense of the Surviving Corporation, be authorized
to execute and deliver, in the name and on behalf of the Company, to carry out
all such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of the Company, all such other actions and things as may
be
6
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necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders (except as to McFall, Konkel & Kimball
Consulting Engineers, Inc., which makes no representations or warranties except
with respect to the second sentence of Section 3.2), jointly and severally,
represent and warrant to Acquiror that except as may be set forth in the Company
Disclosure Schedules the following are true and correct as of the date hereof:
SECTION 3.1 ORGANIZATION AND GOOD STANDING; QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of its state of organization, with all requisite corporate power and
authority to carry on the business in which it is engaged, to own the properties
it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is not duly qualified and licensed
to do business in any other jurisdiction. The Company does not have any assets,
employees or offices in any state other than the state of its organization.
SECTION 3.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company is set forth in the Company Disclosure Schedules. The
Stockholders own all of the issued and outstanding Company Capital Stock, free
and clear of all security interests, liens, adverse claims, encumbrances,
equities, proxies and shareholders' agreements. Each outstanding share of
Company Capital Stock has been legally and validly issued and is fully paid and
nonassessable. No shares of Company Capital Stock are owned by the Company in
treasury. No shares of Company Capital Stock have been issued or disposed of in
violation of the preemptive rights, rights of first refusal or similar rights of
any of the Company's stockholders. The Company has no bonds, debentures, notes
or other obligations the holders of which have the right to vote (or are
convertible into or exercisable for securities having the right to vote) with
the Stockholders on any matter.
SECTION 3.3 TRANSACTIONS IN CAPITAL STOCK. The Company has not acquired
any Company Capital Stock since January 1, 1993. There exist no options,
warrants, subscriptions or other rights to purchase, or securities convertible
into or exchangeable for, any of the authorized or outstanding securities of the
Company, and no option, warrant, call, conversion right or commitment of any
kind exists which obligates the Company to issue any of its authorized but
unissued capital stock. The Company has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof. Neither the equity structure of the Company nor the relative ownership
of shares among any of its stockholders has been altered or changed in
contemplation of the Merger within the two years preceding the date of this
Agreement.
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SECTION 3.4 CONTINUITY OF BUSINESS ENTERPRISE. There has not been any
sale, distribution or spin-off of significant assets of the Company or any of
its Affiliates other than in the ordinary course of business within the two
years preceding the date of this Agreement.
SECTION 3.5 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Bylaws, and all amendments thereto, of the Company that have been delivered
or made available to Acquiror are true, correct and complete copies thereof, as
in effect on the date hereof. The minute books of the Company, copies of which
have been delivered or made available to Acquiror, contain accurate minutes of
all meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the stockholders of the
Company since its formation.
SECTION 3.6 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Company of this Agreement and the other agreements
contemplated hereby, and the consummation of the transactions contemplated
hereby and thereby, have been duly authorized by the Company. This Agreement has
been duly executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies. The Company has obtained, in accordance with
applicable law and its Articles of Incorporation and Bylaws, the approval of its
stockholders necessary to the consummation of the transactions contemplated
hereby.
SECTION 3.7 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, the Articles of Incorporation or
Bylaws of the Company, (b) except as would not, individually or in the
aggregate, result in a Material Adverse Effect, conflict with, or result in a
violation or breach of the terms, conditions or provisions of, or constitute a
default under, any agreement, indenture or other instrument under which the
Company is bound or to which any of the assets of the Company are subject, or
result in the creation or imposition of any security interest, lien, charge or
encumbrance upon any of the assets of the Company or (c) to the knowledge of the
Company, except as would not, individually or in the aggregate, result in a
Material Adverse Effect, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body.
SECTION 3.8 CONSENTS. Except as may have been obtained or as may be
required under the Exchange Act, the Securities Act, the Colorado Business
Corporation Act and state securities laws, no consent, authorization, approval,
permit or license of, or filing with, any governmental or public body or
authority, any lender or lessor or any other person or entity is required to
authorize, or is required in connection with, the execution, delivery and
performance of this Agreement or the
8
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agreements contemplated hereby on the part of the Company, other than such
consents as to which the failure to obtain would not, individually or in the
aggregate, result in a Material Adverse Effect.
SECTION 3.9 FINANCIAL STATEMENTS. The Company has furnished to Acquiror
its: (i) audited balance sheet (the "Company Balance Sheet") as of December 31,
1996 (the "Company Balance Sheet Date") and 1995, and the related audited
statements of operations, stockholders' equity and cash flows for its three full
fiscal years ended December 31, 1996; and (ii) unaudited balance sheet as of
June 30, 1997 and related unaudited statements of operations, stockholders'
equity and cash flows for the six months ended June 30, 1997 and 1996
(collectively, with the related notes thereto, the "Financial Statements"),
copies of all of which are included in the Company Disclosure Schedules. The
Financial Statements fairly present the financial condition and results of
operations of the Company as of the dates and for the periods indicated and have
been prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments and the absence of notes for any
unaudited interim financial statement for any interim periods presented) applied
on a consistent basis with prior periods, except as otherwise indicated in the
Financial Statements.
SECTION 3.10 LIABILITIES AND OBLIGATIONS. The Financial Statements reflect
all liabilities of the Company, accrued, contingent or otherwise that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles. Except as set forth
in the Financial Statements, the Company is not liable upon or with respect to,
or obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity, and
the Company does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
SECTION 3.11 EMPLOYEE MATTERS.
3.11.1 CASH COMPENSATION. The Company Disclosure Schedules contain a
complete and accurate list of the names, titles and annual cash compensation as
of December 31, 1996, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "Cash
Compensation") of all employees of the Company. In addition, the Company
Disclosure Schedules contain a complete and accurate description of (i) all
increases in Cash Compensation of employees of the Company during the current
fiscal year and the immediately preceding fiscal year and (ii) any promised
increases in Cash Compensation of employees of the Company that have not yet
been effected.
3.11.2 COMPENSATION PLANS. The Company Disclosure Schedules contain
a complete and accurate list of all compensation plans, arrangements or
practices (the "Compensation Plans") sponsored by the Company or to which the
Company contributes on behalf of its employees. The Compensation Plans include
without limitation plans, arrangements or practices that provide for severance
pay, deferred compensation, incentive, bonus or performance awards, and stock
ownership or stock options. The Company has provided or made available to
Acquiror a copy of
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each written Compensation Plan and a written description of each unwritten
Compensation Plan. Each of the Compensation Plans can be terminated or amended
at will by the Company.
3.11.3 EMPLOYMENT AGREEMENTS. The Company is not a party to any
employment agreement ("Employment Agreements") with respect to any of its
employees. Employment Agreements include without limitation employee leasing
agreements, employee services agreements and noncompetition agreements.
3.11.4 EMPLOYEE POLICIES AND PROCEDURES. The Company Disclosure
Schedules contain a complete and accurate list of all employee manuals and all
material policies, procedures and work-related rules (the "Employee Policies and
Procedures") that apply to employees of the Company. The Company has provided or
made available to Acquiror a copy of all written Employee Policies and
Procedures and a written description of all material unwritten Employee Policies
and Procedures.
3.11.5 UNWRITTEN AMENDMENTS. No material unwritten amendments have
been made, whether by oral communication, pattern of conduct or otherwise, with
respect to any Compensation Plans or Employee Policies and Procedures.
3.11.6 LABOR COMPLIANCE. To the knowledge of the Company, the
Company has been and is in compliance with all applicable laws, rules,
regulations and ordinances respecting employment and employment practices, terms
and conditions of employment and wages and hours, except for any such failures
to be in compliance that, individually or in the aggregate, would not result in
a Material Adverse Effect, and the Company is not liable for any arrears of
wages or penalties for failure to comply with any of the foregoing. To the
knowledge of the Company, the Company has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, national
origin, age, disability or handicap in its employment conditions or practices
that would, individually or in the aggregate, result in a Material Adverse
Effect. There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company, threatened against the Company before any federal, state or local
court, board, department, commission or agency (nor, to the knowledge of the
Company, does any valid basis therefor exist) or (ii) existing or, to the actual
knowledge of the Company, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the
knowledge of the Company, does any valid basis therefor exist).
3.11.7 UNIONS. The Company has never been a party to any agreement
with any union, labor organization or collective bargaining unit. The Company
has not been advised by any employee that he or she is represented by any union,
labor organization or collective bargaining unit. To the actual knowledge of the
Company, none of the employees of the Company has threatened to organize or join
a union, labor organization or collective bargaining unit.
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3.11.8 ALIENS. To the best knowledge of the Company, all employees
of the Company are citizens of, or are authorized in accordance with federal
immigration laws to be employed in, the United States.
SECTION 3.12 EMPLOYEE BENEFIT PLANS.
3.12.1 IDENTIFICATION. The Company Disclosure Schedules contain a
complete and accurate list of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) sponsored by the Company or to which the Company
contributes on behalf of its employees and all employee benefit plans previously
sponsored or contributed to on behalf of its employees within the three years
preceding the date hereof (the "Employee Benefit Plans"). The Company has
provided or made available to Acquiror copies of all plan documents,
determination letters, pending determination letter applications, trust
instruments, insurance contracts, administrative services contracts, annual
reports, actuarial valuations, summary plan descriptions, summaries of material
modifications, administrative forms and other documents that constitute a part
of or are incident to the administration of the Employee Benefit Plans. In
addition, the Company has provided or made available to Acquiror a written
description of all existing practices engaged in by the Company that constitute
Employee Benefit Plans. Subject to the requirements of the Internal Revenue Code
and ERISA, each of the Employee Benefit Plans can be terminated or amended at
will by the Company. No unwritten amendment exists with respect to any Employee
Benefit Plan.
3.12.2 ADMINISTRATION. To the knowledge of the Company, each
Employee Benefit Plan has been administered and maintained in compliance with
all applicable laws, rules and regulations, except where the failure to be in
compliance would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and the Stockholders have made all necessary
filings, reports and disclosures pursuant to and have complied with all
requirements of the IRS Voluntary Compliance Resolution Program with respect to
all applicable Employee Benefit Plans.
3.12.3 EXAMINATIONS. The Company has not received any notice that
any Employee Benefit Plan is currently the subject of an audit, investigation,
enforcement action or other similar proceeding conducted by any state or federal
agency.
3.12.4 PROHIBITED TRANSACTIONS. To the knowledge of the Company, no
prohibited transactions (within the meaning of Section 4975 of the Internal
Revenue Code or Sections 406 and 407 of ERISA) have occurred with respect to any
Employee Benefit Plan.
3.12.5 CLAIMS AND LITIGATION. No pending or, to the actual knowledge
of the Company, threatened, claims, suits or other proceedings exist with
respect to any Employee Benefit Plan other than normal benefit claims filed by
participants or beneficiaries.
3.12.6 QUALIFICATION. The Company has received a favorable
determination letter or ruling from the IRS for each of the Employee Benefit
Plans intended to be qualified within the meaning of Section 401(a) of the
Internal Revenue Code and/or tax-exempt within the meaning of
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Section 501 (a) of the Internal Revenue Code. No proceedings exist or, to the
actual knowledge of the Company, have been threatened that could result in the
revocation of any such favorable determination letter or ruling.
3.12.7 FUNDING STATUS. No accumulated funding deficiency (within the
meaning of Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any Employee Benefit Plan or any plan sponsored by any
member of a controlled group (within the meaning of Section 412(n)(6)(B) of the
Internal Revenue Code) in which the Company is a member (a "Controlled Group").
With respect to each Employee Benefit Plan subject to Title IV of ERISA, the
assets of each such plan are at least equal in value to the present value of
accrued benefits determined on an ongoing basis as of the date hereof. The
Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Internal Revenue Code. None of the Employee Benefit Plans are
subject to actuarial assumptions.
3.12.8 EXCISE TAXES. Neither the Company nor any member of a
Controlled Group has any liability to pay excise taxes with respect to any
Employee Benefit Plan under applicable provisions of the Code or ERISA.
3.12.9 MULTIEMPLOYER PLANS. Neither the Company nor any member of a
Controlled Group is or ever has been obligated to contribute to a multiemployer
plan within the meaning of Section 3(37) of ERISA.
3.12.10 PBGC. To the knowledge of the Company, none of the Employee
Benefit Plans is subject to the requirements of Title IV of ERISA.
3.12.11 RETIREES. The Company has no obligation or commitment to
provide medical, dental or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Internal Revenue Code and Sections 601 through 608 of
ERISA.
SECTION 3.13 ABSENCE OF CERTAIN CHANGES. Since the Company Balance Sheet
Date, the Company has not
3.13.1 suffered a Material Adverse Effect, whether or not caused by
any deliberate act or omission of the Company or a Stockholder;
3.13.2 contracted for the purchase of any capital asset having a
cost in excess of $25,000 or made any single capital expenditure in excess of
$25,000;
3.13.3 incurred any indebtedness for borrowed money (other than
short-term borrowing in the ordinary course of business), or issued or sold any
debt securities;
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3.13.4 incurred or discharged any material liabilities or
obligations except in the ordinary course of business;
3.13.5 paid any amount on any indebtedness prior to the due date,
forgiven or cancelled any claims or any debt in excess of $5,000, or released or
waived any rights or claims except in the ordinary course of business;
3.13.6 mortgaged, pledged or subjected to any security interest,
lien, lease or other charge or encumbrance any of its properties or assets
(other than statutory liens arising in the ordinary course of business or other
liens that do not materially detract from the value or interfere with the use of
such properties or assets);
3.13.7 suffered any damage or destruction to or loss of any assets
(whether or not covered by insurance) that has, individually or in the
aggregate, resulted in a Material Adverse Effect;
3.13.8 acquired or disposed of any assets having an aggregate value
in excess of $5,000, except in the ordinary course of business;
3.13.9 written up or written down the carrying value of any of its
assets, other than accounts receivable in the ordinary course of business;
3.13.10 changed the costing system or depreciation methods of
accounting for its assets in any material respect;
3.13.11 lost or terminated any employee, customer or supplier that
has, individually or in the aggregate, resulted in a Material Adverse Effect;
3.13.12 except in the ordinary course of business consistent with
past practice, increased the compensation of any director, officer, key employee
or consultant;
3.13.13 increased the compensation of any employee (except for
increases in the ordinary course of business consistent with past practice) or
hired any new employee who is expected to receive annualized compensation of at
least $15,000;
3.13.14 except in the ordinary course of business consistent with
post practice, made any payments to or loaned any money to any employee,
officer, director or stockholder;
3.13.15 formed or acquired or disposed of any interest in any
corporation, partnership, joint venture or other entity;
3.13.16 redeemed, purchased or otherwise acquired, or sold, granted
or otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such
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capital stock or securities, or agreed to change the terms and conditions of any
such capital stock, securities or rights;
3.13.17 entered into any agreement providing for total payments in
excess of $5,000 in any 12 month period with any person or group, or modified or
amended in any material respect the terms of any such existing agreement, except
in the ordinary course of business;
3.13.18 entered into, adopted or amended any Employee Benefit Plan,
except as contemplated hereby or the other agreements contemplated hereby; or
3.13.19 entered into any other commitment or transaction or
experienced any other event that would materially interfere with its performance
under this Agreement or any other agreements or document executed or to be
executed pursuant to this Agreement, or otherwise has, individually or in the
aggregate, resulted in a Material Adverse Effect.
SECTION 3.14 TITLE; LEASED ASSETS.
3.14.1 REAL PROPERTY. The Company does not own any interest (other
than leasehold interests described in the Company Disclosure Schedules) in real
property. The leased real property described in the Company Disclosure Schedules
constitutes the only real property necessary for the conduct of the Company's
business.
3.14.2 PERSONAL PROPERTY. The Company has good, valid and marketable
title to all the personal property owned by the Company, all of which is
reflected in the Financial Statements (collectively, the "Personal Property").
The Personal Property and the leased personal property referred to in Section
3.14.3 constitute the only personal property necessary for the conduct of the
Company's business. Upon consummation of the transactions contemplated hereby,
such interest in the Personal Property shall be free and clear of all security
interests, liens, claims and encumbrances, other than statutory liens arising in
the ordinary course of business or other liens that do not materially detract
from the value or interfere with the use of such properties or assets.
3.14.3 LEASES. A list and brief description of (i) all leases of
real property and (ii) leases of personal property involving rental payments
within any 12 month period in excess of $5,000, in either case to which the
Company is a party, either as lessor or lessee, are set forth in the Company
Disclosure Schedules. All such leases are valid and, to the knowledge of the
Company, enforceable in accordance with their respective terms except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
SECTION 3.15 COMMITMENTS.
3.15.1 COMMITMENTS; DEFAULTS. Any of the following as to which the
Company is a party or is bound by, or which any of the shares of Company Capital
Stock are subject to, or
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which the assets or the business of the Company are bound by, whether or not in
writing, are listed in the Company Disclosure Schedules (collectively
"Commitments"):
3.15.A.1 any partnership or joint venture agreement;
3.15.A.2 any guaranty or suretyship, indemnification or
contribution agreement or performance bond;
3.15.A.3 any debt instrument, loan agreement or other
obligation relating to indebtedness for borrowed money or money lent or to be
lent to another;
3.15.A.4 any contract to purchase real property;
3.15.A.5 any agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 days' notice or without penalty;
3.15.A.6 any agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of the Company or any Stockholder;
3.15.A.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
3.15.A.8 any powers of attorney;
3.15.A.9 any contracts containing noncompetition covenants;
3.15.A.10 any agreement providing for the purchase from a
supplier of all or substantially all of the requirements of the Company of a
particular product or service; or
3.15.A.11 any other agreement or commitment not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Acquiror. There are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that, with
the giving of notice or lapse of time or both, would constitute defaults by the
Company or, to the best knowledge of the Company, any other party to a material
Commitment, and no penalties have been incurred nor are amendments pending, with
respect to the material Commitments. The Commitments are in full force and
effect and are valid and enforceable
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obligations of the Company and, to the best knowledge of the Company, the other
parties thereto in accordance with their respective terms, in each case as may
be limited by applicable bankruptcy, insolvency, or similar laws affecting
creditors' rights generally or the availability of equitable remedies, and no
defenses, off-sets or counterclaims have been asserted or, to the best knowledge
of the Company, may be made by any party thereto (other than the Company), nor
has the Company waived any rights thereunder.
3.15.2 NO CANCELLATION OR TERMINATION OF COMMITMENT. Neither the
Company nor any Stockholder has received notice of any plan or intention of any
other party to any Commitment to exercise any right to cancel or terminate any
Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and neither the Company nor any Stockholder currently
contemplates, or has knowledge that any other person currently contemplates, any
amendment or change to any Commitment.
SECTION 3.16 INSURANCE. The Company carries property, liability, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described in the Company Disclosure Schedules (the
"Insurance Policies"). The Insurance Policies are all of insurance polices
relating to the business of the Company. All of the Insurance Policies are
issued by insurers of recognized responsibility, and, to the best knowledge of
the Company, are valid and enforceable policies, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Acquiror. Neither the Company nor any
Stockholder has received any notice or other communication from any issuer of
any Insurance Policy canceling such policy, materially increasing any
deductibles or retained amounts thereunder, or materially increasing the annual
or other premiums payable thereunder, and to the actual knowledge of the
Company, no such cancellation or increase of deductibles, retainages or premiums
is threatened. There are no outstanding claims, settlements or premiums owed
against any Insurance Policy, or the Company has given all notices or has
presented all potential or actual claims under any Insurance Policy in due and
timely fashion. The Company Disclosure Schedules also set forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company during the immediately preceding three-year period.
SECTION 3.17 PROPRIETARY RIGHTS AND INFORMATION. Set forth in the Company
Disclosure Schedules is a true and correct description of the following
("Proprietary Rights"):
3.17.1 all trademarks, trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, and all patents and applications therefor currently owned, in whole or
in part, by the Company, and all licenses, royalties, assignments and other
similar agreements relating to the foregoing to which the Company is a party
(including expiration date if applicable); and
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3.17.2 all agreements relating to technology, know-how or processes
that the Company is licensed or authorized to use by others, or which it
licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, without conflicting, infringing or violating the
rights of any other person. No consent of any person will be required for the
use thereof by Acquiror upon consummation of the transactions contemplated
hereby and the Proprietary Rights are freely transferable. No claim has been
asserted by any person to the ownership of or for infringement by the Company of
the proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. The Company has the right to use, free and clear
of any adverse claims or rights of others all trade secrets, customer lists and
proprietary information required for the marketing of all merchandise and
services formerly or presently sold or marketed by it.
SECTION 3.18 TAXES.
3.18.1 FILING OF TAX RETURNS. The Company has duly and timely filed
(in accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such Tax
Returns or reports are complete and accurate in all material respects and
properly reflect the taxes of the Company for the periods covered thereby. True
and correct copies of such Tax Returns for the past three taxable years have
heretofore been delivered to Acquiror.
3.18.2 PAYMENT OF TAXES. Except for such items as the Company may be
disputing in good faith by proceedings in compliance with applicable law, which
are described in the Company Disclosure Schedules, (i) the Company has paid all
taxes, penalties, assessments and interest that have become due with respect to
any Tax Returns that it has filed and has properly accrued on its books and
records for all of the same that have not yet become due and (ii) the Company is
not delinquent in the payment of any tax, assessment or governmental charge.
3.18.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. The Company has not received any notice that any tax deficiency or
delinquency has been asserted against the Company. There is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to the
actual knowledge of the Company, threatened, and the results of any completed
audits are properly reflected in the Financial Statements. To the knowledge of
the Company, the Company has not violated any federal, state, local or foreign
tax law.
3.18.4 NO EXTENSION OF LIMITATION PERIOD. The Company has not
granted an extension to any taxing authority of the limitation period during
which any tax liability may be assessed or collected.
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3.18.5 WITHHOLDING REQUIREMENTS SATISFIED. All monies required to be
withheld by the Company and paid to governmental agencies for all income, social
security, unemployment insurance, sales, excise, use, and other taxes have been
collected or withheld and paid to the respective governmental agencies.
3.18.6 FOREIGN PERSON. Neither the Company nor any Stockholder is a
foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
3.18.7 SAFE HARBOR LEASE. None of the assets of the Company
constitutes property that the Company, Acquiror, or any Affiliate of Acquiror,
will be required to treat as being owned by another person pursuant to the "Safe
Harbor Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior
to repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
3.18.8 TAX EXEMPT ENTITY. None of the assets of the Company and none
of the Assets are subject to a lease to a "tax exempt entity" as such term is
defined in Section 168(h)(2) of the Internal Revenue Code.
3.18.9 COLLAPSIBLE CORPORATION. The Company has not at any time
consented, and the Stockholders will not permit the Company to elect, to have
the provisions of Section 341(f)(2) of the Internal Revenue Code apply to it.
3.18.10 BOYCOTTS. The Company has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
3.18.11 PARACHUTE PAYMENTS. To the knowledge of the Company, no
payment required or contemplated to be made by the Company will be characterized
as an "excess parachute payment" within the meaning of Section 280G(b)(1) of the
Internal Revenue Code.
3.18.12 S CORPORATION. The Company has not made an election to be
taxed as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
3.18.13 PERSONAL SERVICE CORPORATION. To the knowledge of the
Company, the Company is not a personal service corporation subject to the
provisions of Section 269A of the Internal Revenue Code.
3.18.14 PERSONAL HOLDING COMPANY. To the knowledge of the Company,
the Company is not or has not been a personal holding company within the meaning
of Section 542 of the Internal Revenue Code.
SECTION 3.19 COMPLIANCE WITH LAWS. To the knowledge of the Company, the
Company has complied with all applicable laws, and regulations and has filed
with the proper authorities all necessary statements and reports except where
the failure to so comply or file would not, individually or in the aggregate,
result in a Material Adverse Effect. There are no existing violations
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by the Company of any federal, state or local law or regulation that could,
individually or in the aggregate, result in a Material Adverse Effect. To the
knowledge of the Company, the Company possesses all necessary licenses,
franchises, permits and governmental authorizations for the conduct of the
Company's business as now conducted, all of which are listed (with expiration
dates, if applicable) in the Company Disclosure Schedules. The transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded by any such
licenses, franchises, permits or government authorizations, except for any such
default, breach or violation that would not, individually or in the aggregate,
have a Material Adverse Effect. Since January 1, 1992, the Company has not
received any notice from any federal, state or other governmental authority or
agency having jurisdiction over its properties or activities, or any insurance
or inspection body, that its operations or any of its properties, facilities,
equipment, or business practices fail to comply with any applicable law,
ordinance, regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.20 FINDER'S FEE. The Company has not incurred any obligation for
any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 3.21 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of the
Company threatened, against the Company, affecting or that could materially
affect the outstanding shares of Company Capital Stock, any of the assets of the
Company, or the operation, business, condition (financial or otherwise), or
results of operations of the Company which (i) if, successful, could,
individually or in the aggregate, have a Material Adverse Effect or (ii) could
adversely affect the ability of the Company or any Stockholder to effect the
transactions contemplated hereby. Neither the Company nor any Stockholder is (a)
subject to any continuing court or administrative order, judgment, writ,
injunction or decree applicable specifically to the Company or to its business,
assets, operations or employees or (b) in default with respect to any such
order, judgment, writ, injunction or decree. The Company has no knowledge of any
valid basis for any such action, proceeding or investigation. All claims made
or, to the actual knowledge of the Company, threatened against the Company in
excess of its deductible are covered under its Insurance Policies.
SECTION 3.22 CONDITION OF FIXED ASSETS. All of the structures and
equipment reflected in the Financial Statements and used by the Company in its
business are in good condition and repair, subject to normal wear and tear, and
conform in all material respects with all applicable ordinances, regulations and
other laws, and the Company has no actual knowledge of any latent defects
therein.
SECTION 3.23 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind has been declared or paid by the Company on any of its
capital stock since the Company Balance Sheet Date. No repurchase of any of the
Company's capital stock has been approved, effected or is pending, or is
contemplated by the Board of Directors of the Company.
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SECTION 3.24 BANKING RELATIONS. Set forth in the Company Disclosure
Schedules is a complete and accurate list of all borrowing and investing
arrangements that the Company has with any bank or other financial institution,
indicating with respect to each relationship the type of arrangement maintained
(such as checking account, borrowing arrangements, safe deposit box, etc.)
and the person or persons authorized in respect thereof.
SECTION 3.25 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee or director of the Company, or their respective
spouses, children or Affiliates, owns directly or indirectly, on an individual
or joint basis, any interest in, has a compensation or other financial
arrangement with, or serves as an officer or director of, any customer or
supplier of the Company or any organization that has a material contract or
arrangement with the Company.
SECTION 3.26 INVESTMENTS IN COMPETITORS. Neither the Company nor any
Stockholder owns directly or indirectly any interests or has any investment in
any person that is a competitor of the Company.
SECTION 3.27 ENVIRONMENTAL MATTERS. Neither the Company nor any of its
assets are currently in violation of, or subject to any existing, pending or, to
the actual knowledge of the Company threatened, investigation or inquiry by any
governmental authority or to any remedial obligations under, any Environmental
Laws, except for any such violations, investigations or inquiries that would
not, individually or in the aggregate, result in a Material Adverse Effect.
SECTION 3.28 CERTAIN PAYMENTS. Neither the Company nor any director,
officer or employee of the Company acting for or on behalf of the Company, has
paid or caused to be paid, directly or indirectly, in connection with the
business of the Company:
3.28.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
3.28.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 3.29 NO AFFILIATION WITH NASD MEMBER. None of the Stockholders or
officers or directors of the Company has any affiliation or association with a
member of the National Association of Securities Dealers, Inc.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder, severally and not jointly, as to himself, herself or
itself only, represents and warrants to Acquiror that the following, except as
set forth in the Company Disclosure Schedules and only insofar as they relate to
an individual Stockholder (referred to in this Article IV as "the Stockholder")
and not to any other Stockholders, are true and correct as of the date hereof
and agrees as follows:
SECTION 4.1 VALIDITY; STOCKHOLDER CAPACITY. This Agreement, the
Stockholder Employment Agreement (as defined in Section 8.3, if applicable), and
each other agreement contemplated hereby or thereby have been or will be as of
the Closing Date duly executed and delivered by the Stockholder and constitute
or will constitute legal, valid and binding obligations of the Stockholder,
enforceable against the Stockholder in accordance with their respective terms,
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
The Stockholder has legal capacity to enter into and perform this Agreement and
his or her Stockholder Employment Agreement.
SECTION 4.2 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement, the Stockholder Employment Agreement or the other agreements
of the Stockholder contemplated hereby or thereby, nor the consummation of the
transactions contemplated hereby or thereby, will (a) conflict with, or result
in a violation or breach of the terms, conditions or provisions of, or
constitute a default under, any agreement, indenture or other instrument under
which the Stockholder is bound or to which any of his, her or its shares of
Company Capital Stock are subject, or result in the creation or imposition of
any security interest, lien, charge or encumbrance upon any of his shares of
Company Capital Stock or (b) to the actual knowledge of the Stockholder, violate
or conflict with any judgment, decree, order, statute, rule or regulation of any
court or any public, governmental or regulatory agency or body.
SECTION 4.3 PERSONAL HOLDING COMPANY; CONTROL OF RELATED BUSINESSES. The
Stockholder does not own the shares of Company Capital Stock, directly or
indirectly, beneficially or of record, through a personal holding company. The
Stockholder does not control another business that is in the same or similar
line of business as the Company or that has or is engaged in transactions with
the Company except transactions in the ordinary course of business.
SECTION 4.4 TRANSFERS OF THE COMPANY CAPITAL STOCK. Set forth in the
Company Disclosure Schedules is a list of all transfers or other transactions
involving capital stock of the Company since January 1, 1993. All transfers of
Company Capital Stock by the Stockholder have been made for valid business
reasons and not in anticipation or contemplation of the consummation of the
transactions contemplated by this Agreement.
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SECTION 4.5 CONSENTS. Except as may be required under the Exchange Act,
the Securities Act, the Colorado Business Corporation Act and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, or any other person is required to authorize, or is
required in connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Stockholder.
SECTION 4.6 CERTAIN PAYMENTS. The Stockholder has not paid or caused to be
paid, directly or indirectly, in connection with the business of the Company:
4.6.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
4.6.2 any contribution to any political party or candidate (other
than from personal funds not reimbursed by the Company or as otherwise permitted
by applicable law).
SECTION 4.7 FINDER'S FEE. The Stockholder has not incurred any obligation
for any finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 4.8 OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. Neither the
Stockholder nor his or her spouse, children or Affiliates, owns directly or
indirectly, on an individual or joint basis, any interest in, has a compensation
or other financial arrangement with, or serves as an officer or director of, any
customer or supplier of the Company or any organization that has a material
contract or arrangement with the Company.
SECTION 4.9 INVESTMENTS IN COMPETITORS. The Stockholder does not own
directly or indirectly any interests or have any investment in any person that
is a competitor of the Company.
SECTION 4.10 DISPOSITION OF ACQUIROR SHARES. The Stockholder does not
presently intend to dispose of any shares of Acquiror Common Stock received as
Merger Consideration and is not a party to any plan, arrangement or agreement
for the disposition of such shares of Acquiror Common Stock, except this
Agreement and the Registration Rights Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to the Company and to each Stockholder
that, except as set forth in the Acquiror Disclosure Schedules, the following
are true and correct as of the date hereof:
SECTION 5.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, with all
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requisite corporate power and authority to carry on the business in which it is
engaged, to own the properties it owns, to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
SECTION 5.2 CAPITALIZATION. The authorized, issued and outstanding capital
stock of Acquiror is set forth in the Acquiror Disclosure Schedules. No shares
of capital stock are owned by Acquiror in treasury. Acquiror does not have any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or are convertible into or exercisable for securities having the
right to vote) with the shareholders of Acquiror on any matter. There exist no
options, warrants, subscriptions or other rights to purchase, or securities
convertible into or exchangeable for, any of the authorized or outstanding
securities of Acquiror, and no option, warrant, call, conversion right or
commitment of any kind exists which obligates Acquiror to issue any of its
authorized but unissued capital stock, except this Agreement and the Other
Agreements. Acquiror has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its equity securities or any interests
therein or to pay a dividend or make any distribution in respect thereof. To the
best knowledge of Acquiror, no shareholder of Acquiror has granted options or
other rights to purchase any shares of Acquiror Common Stock from such
shareholder.
SECTION 5.3 CORPORATE RECORDS. The copies of the Articles of Incorporation
and Code of Regulations, and all amendments thereto, of Acquiror that have been
delivered or made available to the Company and the Stockholders are true,
correct and complete copies thereof, as in effect on the date hereof. The minute
books of Acquiror, copies of which have been delivered or made available to the
Company and the Stockholders, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the shareholders of Acquiror, since
its formation.
SECTION 5.4 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by Acquiror of this Agreement and the other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby and
thereby, have been duly authorized by the Board of Directors and Shareholders of
Acquiror. This Agreement and each other agreement contemplated hereby to be
executed by Acquiror have been or will be as of the Closing Date duly executed
and delivered by Acquiror and constitute or will constitute as of the Closing
Date legal, valid and binding obligations of Acquiror, enforceable against
Acquiror in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies.
SECTION 5.5 NO VIOLATION. Neither the execution, delivery or performance
of this Agreement or the other agreements contemplated hereby nor the
consummation of the transactions contemplated hereby or thereby will (a)
conflict with, or result in a violation or breach of the terms, conditions and
provisions of, or constitute a default under, the Articles of Incorporation or
Code of Regulations of Acquiror or any agreement, indenture or other instrument
under which Acquiror is bound or (b) to the knowledge of Acquiror, except as
would not, individually or in the aggregate, have a Material Adverse Effect on
the business, operations, condition (financial or otherwise) or
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results of operations of Acquiror, violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body having jurisdiction over Acquiror or
the properties or assets of Acquiror.
SECTION 5.6 FINDER'S FEE. Acquiror has not incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
SECTION 5.7 CAPITAL STOCK. The issuance and delivery by Acquiror of shares
of Acquiror Common Stock in connection with the Merger have been duly and
validly authorized by all necessary corporate action on the part of Acquiror.
The shares of Acquiror Common Stock to be issued in connection with the Merger,
when issued in accordance with the terms of this Agreement, will be validly
issued, fully paid and nonassessable and will not have been issued in violation
of any preemptive rights, rights of first refusal or similar rights of any of
Acquiror's shareholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and state
securities laws.
SECTION 5.8 CONTINUITY OF BUSINESS ENTERPRISE. It is the present intention
of Acquiror to continue at least one significant historic business line of the
Company, or to use at least a significant portion of the Company's historic
business assets in a business, in each case within the meaning of Treasury
Regulation Section 1.368-1(d).
SECTION 5.9 CONSENTS. Except as have been obtained or as may be required
by or under the Exchange Act, the Ohio General Corporation Law, the Securities
Act and state securities laws, no consent, authorization, approval, permit or
license of, or filing with, any governmental or public body or authority, any
lender or lessor or any other person is required to authorize, or is required in
connection with, the execution, delivery and performance of this Agreement or
the agreements contemplated hereby on the part of Acquiror.
SECTION 5.10 PROPRIETARY RIGHTS AND INFORMATION. Acquiror does not own or
use any trademarks, trade-names, service marks or other trade designations or
patents in the conduct of its business. Acquiror is not a party to any agreement
relating to the use of technology or know-how. Acquiror has the right to use,
free and clear of any claims or rights of others, all trade secrets, customer
lists and proprietary information required for the marketing of all merchandise
and services formerly or presently sold or marketed by it.
SECTION 5.11 TAXES.
5.11.1 FILING OF TAX RETURNS. Acquiror has duly and timely filed (in
accordance with any extensions duly granted by the appropriate governmental
agency, if applicable) with the appropriate governmental agencies all Tax
Returns and reports required to be filed by the United States or any state or
any political subdivision thereof or any foreign jurisdiction. All such tax
returns or reports are complete and accurate and properly reflect the taxes of
Acquiror, as the case may be, for the periods covered thereby.
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5.11.2 PAYMENT OF TAXES. Acquiror has paid all taxes, penalties,
assessments and interest that have become due with respect to any Tax Returns
that it has filed and has properly accrued on its books and records for all of
the same that have not yet become due. Acquiror is not delinquent in the payment
of any tax, assessment or governmental charge.
5.11.3 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Acquiror has not received any notice that any tax deficiency or
delinquency has been asserted against it. There is no unpaid assessment,
proposal for additional taxes, deficiency or delinquency in the payment of any
of the taxes of Acquiror that could be asserted by any taxing authority. There
is no taxing authority audit of Acquiror pending, or to the actual knowledge of
Acquiror, threatened. Acquiror has not violated any federal, state, local or
foreign tax law.
5.11.4 NO EXTENSION OF LIMITATION PERIOD. Acquiror has not granted
an extension to any taxing authority of the limitation period during which any
tax liability may be assessed or collected.
5.11.5 ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required
to be withheld by Acquiror and paid to governmental agencies for all income,
social security, unemployment insurance, sales, excise, use, and other taxes
have been collected or withheld and paid to the respective governmental
agencies.
5.11.6 FOREIGN PERSON. Neither Acquiror nor any shareholder thereof
is a foreign person, as such term is referred to in Section 1445(f)(3) of the
Internal Revenue Code.
5.11.7 SAFE HARBOR LEASE. None of the assets of Acquiror constitute
property that the Company, Acquiror, or any Affiliate of Acquiror, will be
required to treat as being owned by another person pursuant to the "Safe Harbor
Lease" provisions of Section 168(f)(8) of the Internal Revenue Code prior to
repeal by the Tax Equity and Fiscal Responsibility Act of 1982.
5.11.8 TAX EXEMPT ENTITY. None of the assets of Acquiror are subject
to a lease to a "tax exempt entity" as such term is defined in Section 168(h)(2)
of the Internal Revenue Code.
5.11.9 COLLAPSIBLE CORPORATION. Acquiror has not at any time
consented, and the stockholders thereof will not permit Acquiror to elect, to
have the provisions of Section 341(f)(2) of the Internal Revenue Code apply to
it.
5.11.10 BOYCOTTS. Acquiror has not at any time participated in or
cooperated with any international boycott as defined in Section 999 of the
Internal Revenue Code.
5.11.11 PARACHUTE PAYMENTS. No payment required or contemplated to
be made by Acquiror will be characterized as an "excess parachute payment"
within the meaning of Section 28OG(b)(1) of the Internal Revenue Code.
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5.11.12 S CORPORATION. Acquiror has not made an election to be taxed
as an "S" corporation under Section 1362(a) of the Internal Revenue Code.
SECTION 5.12 COMPLIANCE WITH LAWS. Acquiror has complied with all
applicable laws, regulations and licensing requirements and has filed with the
proper authorities all necessary statements and reports, except where the
failure to so comply or file would not, individually or in this aggregate,
result in a Material Adverse Effect. There are no existing violations by
Acquiror of any federal, state or local law or regulation that could materially
adversely affect its property or business. Acquiror possesses all necessary
licenses, franchises, permits and governmental authorizations for the conduct of
its business as now conducted. The transactions contemplated by this Agreement
will not result in a default under or a breach or violation of, or adversely
affect the rights and benefits afforded by any such licenses, franchises,
permits or government authorizations except for any default, breach or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect. Acquiror has not received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its properties or
activities, or any insurance or inspection body, that its operations or any of
its properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body.
SECTION 5.13 LITIGATION. There are no legal actions or administrative
proceedings or investigations instituted, or to the actual knowledge of Acquiror
threatened against affecting Acquiror or which could affect the outstanding
shares of Acquiror Common Stock, any of the assets of Acquiror, or the
operations, business, condition (financial or otherwise) or results of
operations of Acquiror. Acquiror is not (a) subject to any continuing court or
administrative order, writ, injunction or decree applicable specifically to it
or to its business, assets, operations or employees or (b) in default with
respect to any such order, writ, injunction or decree. Acquiror has no knowledge
of any valid basis for any such action, proceeding or investigation.
SECTION 5.14 OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. No
officer, supervisory employee, director or shareholder of Acquiror, or their
respective spouses, children or Affiliates, owns directly or indirectly, on an
individual or joint basis, any interest in, has a compensation or other
financial arrangement with, or serves as an officer or director of, any customer
or supplier of Acquiror or any organization that has a material contract or
arrangement with Acquiror, except Acquiror's corporate parent, MedPlus, Inc.
SECTION 5.15 INVESTMENTS IN COMPETITORS. Neither Acquiror nor any
shareholder thereof owns directly or indirectly any interests or has any
investment in any person that is a competitor of Acquiror or one of the Target
Companies.
SECTION 5.16 CERTAIN PAYMENTS. Neither Acquiror, nor any shareholder,
director, officer or employee of Acquiror, has paid or caused to be paid,
directly or indirectly, in connection with the business of Acquiror:
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5.16.1 to any government or agency thereof or any agent of any
supplier or customer any bribe, kick-back or other similar payment; or
5.16.2 any contribution to any political party or candidate (other
than from personal funds of directors, officers or employees not reimbursed by
their respective employers or as otherwise permitted by applicable law).
SECTION 5.17 COMMITMENTS.
5.17.1 COMMITMENTS; DEFAULTS. Any of the following as to which
Acquiror is a party or is bound by, or which any of the shares of Acquiror
Common Stock is subject to, or which the assets or the business of Acquiror are
bound by, whether or not in writing, are listed in the Acquiror Disclosure
Schedules (collectively "Acquiror Commitments"):
5.17.A.1 partnership or joint venture agreement;
5.17.A.2 guaranty or suretyship, indemnification or
contribution agreement or performance bond;
5.17.A.3 debt instrument, loan agreement or other obligation
relating to indebtedness for borrowed money or money lent or to be lent to
another;
5.17.A.4 contract to purchase real property;
5.17.A.5 agreement with dealers or sales or commission
agents, public relations or advertising agencies, accountants or attorneys
(other than in connection with this Agreement and the transactions contemplated
hereby) involving total payments within any 12 month period in excess of $5,000
and which is not terminable on 30 day's notice or without penalty;
5.17.A.6 agreement relating to any material matter or
transaction in which an interest is held by a person or entity that is an
Affiliate of Acquiror or any shareholder of Acquiror;
5.17.A.7 any agreement for the acquisition of services,
supplies, equipment, inventory, fixtures or other property involving more than
$5,000 in the aggregate;
5.17.A.8 powers of attorney;
5.17.A.9 contracts containing noncompetition covenants;
5.17.A.10 agreement providing for the purchase from a
supplier of all or substantially all of the requirements of Acquiror of a
particular product or service; or
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5.17.A.11 any other agreement or commitment not made in the
ordinary course of business or that is material to the business, operations,
condition (financial or otherwise) or results of operations of Acquiror.
True, correct and complete copies of the written Acquiror Commitments, and true,
correct and complete written descriptions of the oral Acquiror Commitments, have
heretofore been delivered or made available to the Company and the Stockholders.
There are no existing or asserted defaults, events of default or events,
occurrences, acts or omissions that, with the giving of notice or lapse of time
or both, would constitute defaults by Acquiror or, to the best knowledge of
Acquiror, any other party to a material Acquiror Commitment, and no penalties
have been incurred nor are amendments pending, with respect to the material
Acquiror Commitments. The Acquiror Commitments are in full force and effect and
are valid and enforceable obligations of Acquiror and, to the best knowledge of
Acquiror, the other parties thereto in accordance with their respective terms,
in each case as may be limited by applicable bankruptcy, insolvency, or similar
laws affecting creditors' rights generally or the availability of equitable
remedies, and no defenses, off-sets or counterclaims have been asserted or, to
the best knowledge of Acquiror, may be made by any party thereto (other than
Acquiror), nor has Acquiror waived any rights thereunder.
5.17.2 NO CANCELLATION OR TERMINATION OF ACQUIROR COMMITMENT. Except
as contemplated hereby, (i) Acquiror has not received notice of any plan or
intention of any other party to any Acquiror Commitment to exercise any right to
cancel or terminate any Acquiror Commitment, and Acquiror does not know of any
fact that would justify the exercise of such a right; and (ii) Acquiror does not
currently contemplate, or have knowledge that any other person currently
contemplates, any amendment or change to any Acquiror Commitment.
SECTION 5.18 ACQUIROR FINANCIAL STATEMENTS. The audited balance sheet as
of December 31, 1996 and 1995, and related statements of operations,
shareholder's net investment and cash flows for each of the years in the
three-year period ended December 31, 1996, along with the unaudited interim
balance sheet as of June 30, 1997 and related statements of operations,
shareholder's net investment and cash flows for the six months ended June 30,
1997 and 1996 are contained in the Acquiror Disclosure Schedules (collectively,
with the related notes thereto, the "Acquiror Financial Statements"). The
Acquiror Financial Statements fairly present the financial condition and results
of operations of Acquiror as of the dates and for the periods indicated and have
been prepared in conformity with generally accepted accounting principles
(subject to normal year-end adjustments) applied on a consistent basis with
prior periods, except as otherwise indicated in the Acquiror Financial
Statements.
SECTION 5.19 LIABILITIES AND OBLIGATIONS. The Acquiror Financial
Statements reflect all liabilities of Acquiror, accrued, contingent or
otherwise, that would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business since December 31, 1996. Acquiror is not liable upon or with
respect to, or obligated in any other way
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to provide funds in respect of or to guarantee or assume in any manner, any
debt, obligation or dividend of any person, corporation, association,
partnership, joint venture, trust or other entity, and Acquiror does not know of
any valid basis for the assertion of any other claims or liabilities of any
nature or in any amount.
SECTION 5.20 EMPLOYEE MATTERS. Acquiror does not have any material
arrangements, agreements or plans with any person with respect to the employment
by Acquiror of such person or whereby such person is to serve as an officer or
director of Acquiror.
ARTICLE VI
COVENANTS OF THE COMPANY AND THE STOCKHOLDERs
The Company and the Stockholders, jointly and severally, agree that
between the date hereof and the Closing (with respect to the Company's
covenants, the Stockholders agree to use their best efforts to cause the Company
to perform):
SECTION 6.1 CONSUMMATION OF AGREEMENT. The Company and the Stockholders
shall use their best efforts to cause the consummation of the transactions
contemplated hereby in accordance with their terms and conditions; provided,
however, that this covenant shall not require the Company or a Stockholder to
make any expenditures that are not expressly set forth in this Agreement or
otherwise contemplated herein.
SECTION 6.2 BUSINESS OPERATIONS. The Company shall operate its business in
the ordinary course. The Company and the Stockholders shall use their best
efforts to preserve the business of the Company intact. Neither the Company nor
any Stockholder shall take any action that would, individually or in the
aggregate, result in a Material Adverse Effect. The Company shall use its best
efforts to preserve intact its relationships with customers, suppliers,
employees and others having significant business relations with it, unless doing
so would impair its goodwill or result, individually or in the aggregate, in a
Material Adverse Effect. The Company shall collect its receivables and pay its
trade payables in the ordinary course of business consistent with past practice.
SECTION 6.3 ACCESS. The Company and the Stockholders shall, at reasonable
times during normal business hours and on reasonable notice, permit Acquiror and
its authorized representatives reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Acquiror and its authorized
representatives to inspect and, at Acquiror's sole cost and expense, make copies
of all documents, records and information with respect to the affairs of the
Company as Acquiror and its representatives may request, all for the sole
purpose of permitting Acquiror to become familiar with the business and assets
and liabilities of the Company.
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SECTION 6.4 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Stockholders shall promptly inform Acquiror in writing of (a) any notice of or
other communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by the Company or any
Stockholder subsequent to the date of this Agreement and prior to the Effective
Time under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
SECTION 6.5 APPROVALS OF THIRD PARTIES. The Company and the Stockholders
shall use their best efforts to secure, as soon as practicable after the date
hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby, including, without
limitation, all necessary approvals and consents required under any real
property and personal property leases; provided, however, that this covenant
shall not require the Company or the Stockholders to make any material
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
SECTION 6.6 EMPLOYEE MATTERS. The Company shall not, without the prior
written approval of Acquiror, other than in the ordinary course of business and
consistent with past practice or except as required by law:
6.6.1 increase the Cash Compensation of any Stockholder or other
employee of the Company;
6.6.2 adopt, amend or terminate any Compensation Plan;
6.6.3 adopt, amend or terminate any Employment Agreement;
6.6.4 adopt, amend or terminate any Employee Policies and
Procedures;
6.6.5 adopt, amend or terminate any Employee Benefit Plan;
6.6.6 take any action that could deplete the assets of any Employee
Benefit Plan, other than payment of benefits in the ordinary course to
participants and beneficiaries;
6.6.7 fail to pay any premium or contribution due or with respect to
any Employee Benefit Plan;
6.6.8 fail to file any return or report with respect to any Employee
Benefit Plan;
6.6.9 institute, settle or dismiss any employment litigation except
as could not, individually or in the aggregate, result in a Material Adverse
Effect;
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6.6.10 enter into, modify, amend or terminate any agreement with any
union, labor organization or collective bargaining unit; or
6.6.11 take or fail to take any action with respect to any past or
present employee of the Company that would, individually or in the aggregate,
result in a Material Adverse Effect.
SECTION 6.7 CONTRACTS. Except with Acquiror's prior written consent, the
Company shall not assume or enter into any contract, lease, license, obligation,
indebtedness, commitment, purchase or sale except in the ordinary course of
business that is material to the Company's business, nor will it waive any
material right or cancel any material contract, debt or claim.
SECTION 6.8 CAPITAL ASSETS; PAYMENTS OF LIABILITIES. The Company shall
not, without the prior written approval of Acquiror (a) acquire or dispose of
any capital asset having a fair market value of $25,000 or more, or acquire or
dispose of any capital asset outside of the ordinary course of business or (b)
discharge or satisfy any lien or encumbrance or pay or perform any obligation or
liability other than (i) liabilities and obligations reflected in the Financial
Statements or (ii) current liabilities and obligations incurred in the usual and
ordinary course of business since the Company Balance Sheet Date and, in either
case (i) or (ii) above, only as required by the express terms of the agreement
or other instrument pursuant to which the liability or obligation was incurred.
SECTION 6.9 MORTGAGES, LIENS AND GUARANTIES. The Company shall not,
without the prior written approval of Acquiror, enter into or assume any
mortgage, pledge, conditional sale or other title retention agreement, permit
any security interest, lien, encumbrance or claim of any kind to attach to any
of its assets (other than statutory liens arising in the ordinary course of
business, other liens that do not materially detract from the value or interfere
with the use of such assets, and liens, guarantees, and encumbrances that are
granted or created in the ordinary course of business), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for any
obligation of another, except obligations arising by reason of endorsement for
collection and other similar transactions in the ordinary course of business, or
make any capital contribution or investment in any person.
SECTION 6.10 ACQUISITION PROPOSALS. The Company and the Stockholders agree
that from and after the date of this Agreement (a) neither any Stockholder nor
the Company, nor any of its officers and directors shall, and the Stockholders
and the Company shall direct and use their best efforts to cause the Company's
employees, agents and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, the Company (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (b) that the Stockholders and the Company will immediately cease and
cause
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to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing and each will
take the necessary steps to inform the individuals or entities referred to in
the first sentence hereof of the obligations undertaken in this Section 6.10;
and (c) that the Stockholders and the Company will notify Acquiror immediately
if any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, the Company or the Stockholders.
SECTION 6.11 DISTRIBUTIONS AND REPURCHASES. No distribution, payment or
dividend of any kind will be declared or paid by the Company in respect of
Company Capital Stock, nor will any repurchase of any Company Capital Stock be
approved or effected.
SECTION 6.12 REQUIREMENTS TO EFFECT THE MERGER. The Company and the
Stockholders shall use their best efforts to take, or cause to be taken, all
actions necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all necessary
documents in form approved by counsel for the parties to this Agreement.
SECTION 6.13 LOCKUP AGREEMENTS. Each of the Stockholders shall, upon
request of the Underwriter Representative, execute a customary "lockup"
agreement in connection with the Initial Public Offering, pursuant to which the
Stockholders will be prohibited from selling any Acquiror Common Stock owned by
them for up to 180 days from the closing of the Initial Public Offering.
ARTICLE VII
COVENANTS OF ACQUIROR
Acquiror agrees that between the date hereof and the Closing:
SECTION 7.1 CONSUMMATION OF AGREEMENT. Acquiror shall use its best efforts
to cause the consummation of the transactions contemplated hereby in accordance
with their terms and conditions and take all corporate and other action
necessary to approve the Merger; provided, however, that this covenant shall not
require Acquiror to make any expenditures that are not expressly set forth in
this Agreement or otherwise contemplated herein.
SECTION 7.2 REQUIREMENTS TO EFFECT MERGER. Acquiror will use its best
efforts to take, or cause to be taken, all actions necessary to effect the
Merger under applicable law, including without limitation the filing with the
appropriate government officials all necessary documents in form approved by
counsel for the parties to this Agreement.
SECTION 7.3 ACCESS. Acquiror shall, at reasonable times during normal
business hours and on reasonable notice, permit the Company, the Stockholders
and their authorized representatives reasonable access to, and make available
for inspection, all of the assets and business of Acquiror,
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including its employees, and permit the Company, the Stockholders, and their
authorized representatives to inspect and, at the Company's and the
Stockholders' sole expense, make copies of all documents, records and
information with respect to the affairs of Acquiror as the Company, the
Stockholders and their representatives may request (including documents, records
and information pertaining to or generated in connection with any Target
Company, except as may be prohibited by confidentiality agreements to which
Acquiror is a party), all for the sole purpose of permitting the Company and the
Stockholders to become familiar with the business and assets and liabilities of
Acquiror.
SECTION 7.4 NOTIFICATION OF CERTAIN MATTERS. Acquiror shall promptly
inform the Company and the Stockholders in writing of (a) any notice of, or
other communication relating to, a default or event that, with notice or lapse
of time or both, would become a default, received by Acquiror subsequent to the
date of this Agreement and prior to the Effective Time under any Acquiror
Commitment material to Acquiror's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; or (b)
any material adverse change in Acquiror's condition (financial or otherwise),
operations, assets, liabilities or business.
SECTION 7.5 APPROVALS OF THIRD PARTIES. Acquiror shall use its best
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties to the consummation of the transactions
contemplated hereby.
ARTICLE VIII
COVENANTS OF ALL PARTIES
Acquiror, the Company and the Stockholders agree as follows (with respect
to the Company's covenants, the Stockholders agree to use their best efforts to
cause the Company to perform):
SECTION 8.1 FILINGS; OTHER ACTION.
8.1.1 Acquiror, the Company and the Stockholders shall cooperate to
promptly prepare and file with the SEC the Registration Statement on Form S-1
(or other appropriate Form) to be filed by Acquiror in connection with its
Initial Public Offering (including the prospectus constituting a part thereof,
the "Registration Statement"). Acquiror shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company and the
Stockholders shall furnish all information concerning the Company and the
Stockholders as may be reasonably requested in connection with any such action.
8.1.2 None of the information or documents supplied or to be
supplied by each of the Company, the Stockholders and Acquiror specifically for
inclusion in the Registration
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Statement, by exhibit or otherwise, will, at the time the Registration Statement
and each amendment and supplement thereto, if any, becomes effective under the
Securities Act, 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 the light of the circumstances under which they were
made, not misleading. The Company, the Stockholders and Acquiror shall agree as
to the information and documents supplied by the Company and the Stockholders
for inclusion in the Registration Statement and shall indicate such information
and documents in a letter to be delivered at Closing (the "Information Letter").
The Company and the Stockholders shall be entitled to review the Registration
Statement and each amendment thereto, if any, prior to the time each becomes
effective under the Securities Act.
8.1.3 The Stockholders and the Company shall, upon request, furnish
Acquiror with all information concerning the Company, its subsidiaries,
directors, officers, partners and stockholders and such other matters as may be
reasonably requested by Acquiror in connection with the preparation of the
Registration Statement and each amendment or supplement thereto, or any other
statement, filing, notice or application made by or on behalf of each such party
or any of its subsidiaries to any governmental entity in connection with the
Merger, and the other transactions contemplated by this Agreement.
SECTION 8.2 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing to
supplement or amend promptly (i) in the case of Acquiror, the Acquiror
Disclosure Schedules and (ii) in the case of the Company or the Stockholders,
the Company Disclosure Schedules with respect to any matter that would have been
or would be required to be set forth or described in the Schedules in order to
not materially breach any representation, warranty or covenant of such party
contained herein; provided that, no amendment or supplement to a Schedule that
constitutes or reflects a material adverse change to the Company may be made
unless Acquiror consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Acquiror may be made unless the Company and the Stockholders consent to such
amendment or supplement. For all purposes of this Agreement, the Schedules
hereto shall be deemed to be the Schedules as amended or supplemented pursuant
to this Section 8.2. In the event that the Company seeks to amend or supplement
a Schedule pursuant to this Section 8.2 and Acquiror does not consent to such
amendment or supplement, or Acquiror seeks to amend or supplement a Schedule
pursuant to this Section 8.2 and the Company and the Stockholders do not
consent, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 14.1.1 hereof.
SECTION 8.3 STOCKHOLDER EMPLOYMENT AGREEMENTS. At or immediately prior to
Closing, each Stockholder who is an employee of the Company shall terminate his
employment agreement, if any, with the Company by mutual consent without any
liability on the part of the Company therefor, and shall enter into a
Stockholder Employment Agreement in the form appended hereto as Exhibit 8.3 with
Acquiror (the "Stockholder Employment Agreements").
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ARTICLE IX
CONDITIONS PRECEDENT OF ACQUIROR
Except as may be waived in writing by Acquiror, the obligations of
Acquiror hereunder are subject to the fulfillment at or prior to the Closing
Date of each of the following conditions:
SECTION 9.1 DUE DILIGENCE. Acquiror shall have completed its due diligence
review of the Company and shall be reasonably satisfied with the results
thereof.
SECTION 9.2 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company and the Stockholders contained herein shall have been
true and correct in all material respects when initially made and shall be true
and correct in all respects as of the Closing Date.
SECTION 9.3 COVENANTS. The Company and the Stockholders shall have
performed and complied in all material respects with all covenants required by
this Agreement to be performed and complied with by the Company or the
Stockholders prior to the Closing Date.
SECTION 9.4 LEGAL OPINION. Counsel to the Company and the Stockholders
shall have delivered to Acquiror their opinions, dated as of the Closing Date,
in form and substance reasonably satisfactory to Acquiror, to the effect set
forth in Exhibit 9.4.
SECTION 9.5 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened orally or in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 9.6 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of the Company shall have occurred since the Company Balance Sheet Date, whether
or not such change shall have been caused by the deliberate act or omission of
the Company or the Stockholders.
SECTION 9.7 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Acquiror shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby. The Acquiror Common Stock shall have been approved for
listing on the Nasdaq National Market, subject only to official notification of
issuance.
SECTION 9.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the closing of the Merger.
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SECTION 9.9 CLOSING DELIVERIES. Acquiror shall have received all documents
and agreements, duly executed and delivered in form satisfactory to Acquiror,
referred to in Section 11.1.
ARTICLE X
CONDITIONS PRECEDENT OF THE COMPANY AND THE STOCKHOLDERS
Except as may be waived in writing by the Company and the Stockholders,
the obligations of the Company and the Stockholders hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Acquiror contained herein shall be true and correct in all
material respects when initially made and shall be true and correct in all
respects as of the Closing Date.
SECTION 10.2 COVENANTS. Acquiror shall have performed and complied in all
material respects with all covenants and conditions required by this Agreement
to be performed and complied with by it prior to the Closing Date.
SECTION 10.3 LEGAL OPINIONS.
10.3.1 Counsel to Acquiror shall have delivered to the Company and
the Stockholders their opinion, dated as of the Closing Date, in form and
substance reasonably satisfactory to the Company and the Stockholders, to the
effect set forth in Exhibit 10.3.1.
10.3.2 Counsel to Acquiror shall have delivered to the Company their
opinion, dated as of the Closing Date, to the effect set forth in Exhibit 10.3.2
(the "Tax Opinion").
SECTION 10.4 PROCEEDINGS. No action, proceeding or order by any court or
governmental body or agency shall have been threatened in writing, asserted,
instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
SECTION 10.5 GOVERNMENT APPROVALS AND REQUIRED CONSENTS. The Company,
Stockholders and Acquiror shall have obtained all necessary government and other
third party approvals and consents.
SECTION 10.6 SECURITIES APPROVALS. The Registration Statement shall have
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
At or prior to the Closing Date, Acquiror shall have received all state
securities and "Blue Sky" permits necessary to consummate the transactions
contemplated hereby.
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At or prior to the Closing Date, the Acquiror Common Stock shall have been
approved for listing on The Nasdaq National Market System, subject only to
official notification of issuance.
SECTION 10.7 CLOSING DELIVERIES. The Company shall have received all
documents and agreements, duly executed and delivered in form satisfactory to
the Company, referred to in Section 11.2.
SECTION 10.8 SIMULTANEOUS CLOSINGS. The Initial Public Offering and
Acquiror's acquisition of all of the Target Companies (or such Target Companies
if less than all of them as Acquiror and the Underwriter Representative shall
agree will be sufficient for purposes of the Initial Public Offering) shall all
be closed and consummated simultaneously with the closing of the Merger.
SECTION 10.9 PERSONAL GUARANTY. The Company shall have provided evidence
to the Stockholders to the effect that all personal guarantees given by the
Stockholders guaranteeing debt of the Company have been released by the
appropriate lending institution and the Stockholders are no longer personally
liable for any of the debts of the Company.
SECTION 10.10 COMPANY DEBT TO THE STOCKHOLDERS. Acquiror shall shall have
arranged to satisfy out of the proceeds of the Initial Public Offering the
obligations of the Company to those Stockholders to which the Company is
indebted in connection with prior payments made on behalf of the Company to
Norwest Bank Colorado, N.A., as evidenced by certain promissory notes given by
the Company in favor of such Stockholders.
ARTICLE XI
CLOSING DELIVERIES
SECTION 11.1 DELIVERIES OF THE COMPANY AND THE STOCKHOLDERS. At or prior
to the Closing Date, the Company and the Stockholders shall deliver to Acquiror
c/o Dinsmore & Shohl LLP, counsel to Acquiror, the following, all of which shall
be in a form satisfactory to Acquiror:
11.1.1 a copy of resolutions of the Board of Directors and the
stockholders of the Company authorizing the execution, delivery and performance
of this Agreement and all related documents and agreements and consummation of
the Merger, each certified by the Secretary of the Company as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
11.1.2 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, as to the truth and correctness of the
representations and warranties made specifically by the Company and the
Stockholders herein on and as of the Closing Date;
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11.1.3 a certificate of the President of the Company, and the
Stockholders, dated the Closing Date, (i) as to the performance of and
compliance in all material respects by the Company and the Stockholders with all
covenants contained herein on and as of the Closing Date and (ii) certifying
that all conditions precedent of the Company and the Stockholders to the Closing
have been satisfied;
11.1.4 a certificate of the Secretary of the Company certifying as
to the incumbency of the directors and officers of such corporation and as to
the signatures of such directors and officers who have executed documents
delivered at the Closing on behalf of that corporation;
11.1.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of the state of incorporation of the Company
establishing that such corporation is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in its state of organization;
11.1.6 certificates, dated within ten days prior to the Closing
Date, of the Secretaries of State of the states in which the Company is
qualified to do business, to the effect that such corporation is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
11.1.7 an opinion of Smith McCullough, P.C., counsel to the Company
and the Stockholders dated as of the Closing Date, pursuant to Section 9.4;
11.1.8 all necessary authorizations, consents, approvals, permits
and licenses;
11.1.9 the resignations of the directors and officers of the Company
as requested by Acquiror;
11.1.10 an executed Stockholder Employment Agreement between
Acquiror and each Stockholder in substantially the form attached hereto as
Exhibit 8.3;
11.1.11 an executed Registration Rights Agreement between Acquiror
and the Stockholders in substantially the form attached hereto as Exhibit
11.1.11 (the "Registration Rights Agreement");
11.1.12 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.1.13 a nonforeign affidavit, as such affidavit is referred to in
Section 1445(b)(2) of the Internal Revenue Code, of each Stockholder, signed
under a penalty of perjury and dated as of the Closing Date, to the effect that
each Stockholder is a United States citizen or a resident alien (and thus not a
foreign person) and providing such Stockholders United States taxpayer
identification number;
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11.1.14 the Information Letter required by Section 8.1.2;
11.1.15 a copy of the bill from Smith McCullough, P.C., the
Company's legal counsel, setting forth the aggregate legal fees incurred by the
Company for services rendered to the Company in connection with the Merger;
11.1.16 UCC-3 termination statements and all other releases of any
other security interest held by Eric Darst in connection with repayment of the
indebtedness evidenced by the promissory note to be paid out of the Merger
Consideration, and the original promissory note, marked paid in full; and
11.1.17 such other instrument or instruments of transfer prepared by
Acquiror as shall be necessary or appropriate, as Acquiror or its counsel shall
reasonably request, to carry out and effect the purpose and intent of this
Agreement.
SECTION 11.2 DELIVERIES OF ACQUIROR. At or prior to the Closing Date,
Acquiror shall deliver to the Company and the Stockholders c/o Dinsmore & Shohl
LLP, counsel to Acquiror, the following, all of which shall be in a form
satisfactory to the Company and the Stockholders:
11.2.1 a copy of the resolutions of the Board of Directors and
shareholders of Acquiror authorizing the execution, delivery and performance of
this Agreement, and all related documents and agreements, and consummation of
the Merger, each certified by Acquiror's Secretary as being true and correct
copies of the originals thereof subject to no modifications or amendments;
11.2.2 a certificate of an officer of Acquiror dated the Closing
Date as to the truth and correctness of the representations and warranties of
Acquiror contained herein on and as of the Closing Date;
11.2.3 a certificate of an officer of Acquiror dated the Closing
Date, (i) as to the performance and compliance by Acquiror with all covenants
contained herein on and as of the Closing Date and (ii) certifying that all
conditions precedent of Acquiror to the Closing have been satisfied or waived;
11.2.4 a certificate of the Secretary of Acquiror certifying as to
the incumbency of the directors and officers of Acquiror and as to the
signatures of such officers and directors who have executed documents delivered
at the Closing on behalf of Acquiror;
11.2.5 a certificate, dated within ten days prior to the Closing
Date, of the Secretary of State of Ohio establishing that Acquiror is in
existence, has paid all franchise or similar taxes, if any, and, if applicable,
otherwise is in good standing to transact business in its state of
incorporation;
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11.2.6 certificates (or photocopies thereof), dated within ten days
prior to the Closing Date, of the Secretaries of State of the states in which
Acquiror is qualified to do business, to the effect that Acquiror is qualified
to do business and, if applicable, is in good standing as a foreign corporation
in each of such states;
11.2.7 an opinion of Dinsmore & Shohl LLP, counsel to Acquiror,
dated as of the Closing Date, pursuant to Section 10.3.1;
11.2.8 the Tax Opinion, dated as of the Closing Date;
11.2.9 the executed Registration Rights Agreement;
11.2.10 an executed Certificate of Merger necessary to effect the
Merger referred to in Section 2.4;
11.2.11 executed Stockholder Employment Agreements in substantially
the form attached hereto as Exhibit 8.3;
11.2.12 the Merger Consideration; and
11.2.13 such other instrument or instruments of transfer, prepared
by the Company or the Stockholders as shall be necessary or appropriate, as the
Company, the Stockholders or their counsel shall reasonably request, to carry
out and effect the purpose and intent of this Agreement.
ARTICLE XII
POST CLOSING MATTERS
SECTION 12.1 FURTHER INSTRUMENTS OF TRANSFER. Following the Closing, at
the request of Acquiror and at Acquiror's sole cost and expense, the
Stockholders and the Company shall deliver any further instruments of transfer
and take all reasonable action as may be necessary or appropriate to carry out
the purpose and intent of this Agreement.
SECTION 12.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. After the
Closing Date, Acquiror shall not and shall not permit any of its subsidiaries
to:
12.2.1 retire or reacquire, directly or indirectly, all or part of
the Acquiror Common Stock issued in connection with the transactions
contemplated hereby within the two years following the Closing Date;
12.2.2 enter into financial arrangements for the benefit of the
Stockholders; or
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12.2.3 dispose of a significant part of the assets of the Company
within the two years following the Closing Date except in the ordinary course of
business, to Affiliates of Acquiror or to eliminate duplicate services or excess
capacity.
SECTION 12.3 MERGER TAX COVENANTS.
12.3.1 The parties intend that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
in which the Company will not recognize gain or loss, and pursuant to which any
gain recognized by the Stockholders as a result of the Merger will not exceed
the amount of any cash received by the Stockholders in the Merger (a
"Reorganization").
12.3.2 Both prior to and after the Effective Time, all books and
records shall be maintained, and all Tax Returns and schedules thereto shall be
filed in a manner consistent with the Merger being treated as a Reorganization.
These obligations are excused as to a party required to maintain the books or
file a Tax Return if such party has provided to the other parties a written
opinion of competent tax counsel to the effect that there is not substantial
authority, within the meaning of Section 6662(d)(2)(B)(i) of the Internal
Revenue Code, to report the Merger as a Reorganization and such opinion either
is furnished prior to the Effective Time or is based on facts or events not
known at the Effective Time. Each party shall provide to each other party such
tax information, reports, returns, or schedules as may be reasonably required to
assist such party in accounting for and reporting the Merger as a
Reorganization.
ARTICLE XIII
REMEDIES
SECTION 13.1 INDEMNIFICATION BY THE STOCKHOLDERS. Subject to the terms and
conditions of this Article XIII, the Stockholders agree to indemnify, defend and
hold Acquiror, the Company, the Surviving Corporation and their respective
directors, officers, members, managers, employees, agents, attorneys and
affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (collectively, "Damages") asserted against or incurred by such
indemnities arising out of or resulting from:
13.1.1 a breach of the Company or the Stockholders of any
representation, warranty or covenant of the Company or the Stockholders
contained herein or in any Schedule or certificate delivered by them hereunder;
13.1.2 any violation (or alleged violation) by the Stockholders, the
Company and/or any of their past or present directors, officers, members,
managers, shareholders, employees, agents, consultants and affiliates of state
or federal laws occurring on or before the Closing Date;
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13.1.3 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to the Stockholders, or the
Company, and provided in writing to Acquiror or its counsel by the Company or
the Stockholders, specifically for inclusion in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Stockholders and/or the Company required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Acquiror or its
counsel by the Company or the Stockholders, provided, however, that such
indemnity shall not inure to the benefit of Acquiror and the Company to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and
Stockholder provided, in writing, corrected information to Acquiror's counsel
and to Acquiror for inclusion in the final prospectus, and such information was
not so included; or
13.1.4 any filings, reports or disclosures made by the Company or
the Stockholders, as the case may be, pursuant to the IRS Voluntary Compliance
Resolution Program.
SECTION 13.2 INDEMNIFICATION BY ACQUIROR. Subject to the terms and
conditions of this Article XIII, Acquiror shall indemnify, defend and hold the
Stockholders harmless from and against all Damages asserted against or incurred
by him arising out of or resulting from:
13.2.1 a material breach by Acquiror of any representation, warranty
or covenant of Acquiror contained herein or in any Schedule or certificate
delivered by it hereunder;
13.2.2 any liability under the Securities Act, the Exchange Act or
any other federal or state "Blue Sky" or securities law or regulation, at common
law or otherwise, arising out of or based upon any untrue statement or alleged
untrue statement of a material fact relating to Acquiror, contained in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, arising out of or
based upon any omission or alleged omission to state therein a material fact
relating to Acquiror, required to be stated therein or necessary to make the
statements therein not misleading.
SECTION 13.3 CONDITIONS OF INDEMNIFICATION. All claims for indemnification
under this Agreement shall be asserted and resolved as follows:
13.3.1 A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (and, in any event, at least ten days prior
to the due date for any responsive pleadings, filings or other documents) (i)
notify the party from whom indemnification is sought (the "Indemnifying Party")
of any third-party claim or claims asserted against the Indemnified Party
("Third Party Claim") that could give rise to a right of indemnification under
this Agreement and (ii) transmit to the Indemnifying Party a written notice
("Claim Notice") describing in reasonable
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detail the nature of the Third Party Claim, a copy of all papers served with
respect to such claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. The failure to promptly
deliver a Claim Notice shall not relieve the Indemnifying Party of its
obligations to the Indemnified Party with respect to the related Third Party
Claim except to the extent that the resulting delay is materially prejudicial to
the defense of such claim. Within 30 days after receipt of any Claim Notice (the
"Election Period"), the Indemnifying Party shall notify the Indemnified Party
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article XIII with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense of
the Indemnifying Party, to defend the Indemnified Party against such Third Party
claim.
13.3.2 If the Indemnifying Party notifies the Indemnified Party
within the Election Period that the Indemnifying Party elects to assume the
defense of the Third Party Claim, then the Indemnifying Party shall have the
right to defend, at its sole cost and expense, such Third Party Claim by all
appropriate proceedings, which proceedings shall be prosecuted diligently by the
Indemnifying Party to a final conclusion or settled at the discretion of the
Indemnifying Party in accordance with this Section 13.3.2. The Indemnifying
Party shall have full control of such defense and proceedings, including any
compromise or settlement thereof. The Indemnified Party is hereby authorized, at
the sole cost and expense of the Indemnifying Party (but only if the Indemnified
Party is entitled to indemnification hereunder), to file, during the Election
Period, any motion, answer or other pleadings that the Indemnified Party shall
deem necessary or appropriate to protect its interests or those of the
Indemnifying Party and not prejudicial to the Indemnifying Party (it being
understood and agreed that if an Indemnified Party takes any such action that is
prejudicial and causes a final adjudication that is adverse to the Indemnifying
Party, the Indemnifying Party shall be relieved of its obligations hereunder
with respect to such Third Party Claim). If requested by the Indemnifying Party,
the Indemnified Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnifying Party and its counsel in contesting
any Third Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the person
asserting the Third Party Claim or any cross-complaint against any person. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
Section 13.3.2 and shall bear its own costs and expenses with respect to such
participation; provided, however, that if the named parties to any such action
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and the Indemnified Party has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one
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separate firm of attorneys at any time for the Indemnified Party, which firm
shall be designated in writing by the Indemnified Party.
13.3.3 If the Indemnifying Party fails to notify the Indemnified
Party within the Election Period that the Indemnifying Party elects to defend
the Indemnified Party pursuant to Section 13.3.2, or if the Indemnifying Party
elects to defend the Indemnified Party pursuant to Section 13.3.2 but fails
diligently and promptly to prosecute or settle the Third Party Claim, then the
Indemnified Party shall have the right to defend, at the sole cost and expense
of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings, provided, however, that
the Indemnified Party may not enter into, without the Indemnifying Party's
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect that
the Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article XIII and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnified Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 13.3.3, and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or additional
to those available to the Indemnified Party, then the Indemnifying Party may
employ separate counsel and upon written notification thereof, the Indemnified
Party shall not have the right to assume the defense of such action on behalf of
the Indemnifying Party.
13.3.4 In the event any Indemnified Party should have a claim
against any Indemnifying Party hereunder that does not involve a Third Party
Claim, the Indemnified Party shall transmit to the Indemnifying Party a written
notice (the "Indemnity Notice") describing in reasonable detail the nature of
the claim, an estimate of the amount of damages attributable to such claim and
the basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 60 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall be deemed a liability of the Indemnifying Party
hereunder. If the Indemnifying Party has timely disputed such claim, as provided
above, such dispute shall be resolved by litigation in an appropriate court of
competent jurisdiction if the parties do not reach a settlement of such dispute
within 30 days after notice of a dispute is given.
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13.3.5 Payments of all amounts owing by an Indemnifying Party
pursuant to this Article XIII relating to a Third Party Claim shall be made
within 30 days after the latest of (i) the settlement of such Third Party Claim,
(ii) the expiration of the period for appeal of a final adjudication of such
Third Party Claim or (iii) the expiration of the period for appeal of a final
adjudication of the Indemnifying Party's liability to the Indemnified Party
under this Agreement. Payments of all amounts owing by an Indemnifying Party
shall be made within 30 days after the later of (i) the expiration of the 60-day
Indemnity Notice period or (ii) the expiration of the period for appeal of a
final adjudication of the Indemnifying Party's liability to the Indemnified
Party under this Agreement.
SECTION 13.4 REMEDIES NOT EXCLUSIVE. The remedies provided in this
Agreement shall not be exclusive of any other rights or remedies available to
one party against the other, either at law or in equity.
SECTION 13.5 INDEMNIFICATION LIMITATIONS. Notwithstanding the provisions
of Sections 13.1 and 13.2, (a) no party shall be required to indemnify another
party with respect to a breach of a representation, warranty or covenant unless
the claim for indemnification is brought within the time limit set forth in
Section 18.6, (b) no claim may be brought by any party entitled to
indemnification under this Article XIII unless and until the aggregate
cumulative amount to which such party is entitled equals or exceeds $50,000, and
(c) no party shall be obligated to make any indemnification in excess of 50% of
the value of the Merger Consideration.
SECTION 13.6 TAX BENEFITS; INSURANCE PROCEEDS. The total amount of any
indemnity payments owed by one party to another party to this Agreement shall be
reduced by any correlative tax benefit received by the party to be indemnified
or the net proceeds received by the party to be indemnified with respect to
recovery from third parties or insurance proceeds, and such correlative
insurance benefit shall be net of the insurance premium, if any, that becomes
due as a result of such claim.
SECTION 13.7 PAYMENT OF INDEMNIFICATION OBLIGATION. In the event that the
Stockholders have an indemnification obligation to Acquiror hereunder, subject
to Acquiror's approval as set forth below, the Stockholders may satisfy such
obligation by transferring to Acquiror such number of shares of Acquiror Common
Stock owned by the Stockholders having an aggregate fair market value (based on
the last reported closing sale price of Acquiror Common Stock on the Nasdaq
National Market or other exchange on which the Acquiror Common Stock is then
listed or the last quoted ask price on any over-the-counter market through which
the Acquiror Common Stock is then quoted on the last trading day immediately
preceding the day on which the Stockholder transfers shares of Acquiror Common
Stock to Acquiror hereunder) equal to the indemnification obligation; provided
that each of the following conditions are satisfied:
13.7.1 The Stockholders shall transfer to Acquiror good, valid and
marketable title to the shares of Acquiror Common Stock, free and clear of all
adverse claims, security interests, liens, claims, proxies, options,
stockholders' agreements and encumbrances;
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13.7.2 The Stockholders shall make such representations and
warranties as to title to the stock, absences of security interests, liens,
claims, proxies, options, stockholders' agreements and other encumbrances and
other matters as reasonably requested by Acquiror; and
13.7.3 The other terms and conditions of any transaction
contemplated pursuant to this Section and the effects thereof, including any
legal or tax consequences, shall be reasonably satisfactory to Acquiror.
ARTICLE XIV
TERMINATION
SECTION 14.1 TERMINATION. This Agreement may be terminated and the Merger
and the Acquisition may be abandoned:
14.1.1 at any time prior to the Closing Date by mutual agreement of
all parties;
14.1.2 at any time prior to the Closing Date by Acquiror if any
material representation or warranty of the Company or the Stockholders contained
in this Agreement or in any certificate or other document executed and delivered
by the Company or the Stockholders pursuant to this Agreement is or becomes
untrue or breached in any material respect or if the Company or the Stockholders
fail to comply in any material respect with any covenant or agreement contained
herein, and any such misrepresentation, noncompliance or breach is not cured,
waived or eliminated within 20 days after receipt by the Company of written
notice thereof;
14.1.3 at any time prior to the Closing Date by the Company if any
material representation or warranty of Acquiror contained in this Agreement or
in any certificate or other document executed and delivered by Acquiror pursuant
to this Agreement is or becomes untrue or breached in any material respect or if
Acquiror fails to comply in any material respect with any covenant or agreement
contained herein, and any such misrepresentation, noncompliance or breach is not
cured, waived or eliminated within 20 days after receipt by Acquiror of written
notice thereof;
14.1.4 by Acquiror or the Company or the Stockholders if the Merger
shall not have been consummated by March 31, 1998.
SECTION 14.2 EFFECT OF TERMINATION. In the event this Agreement is
terminated pursuant to Sections 14.1.2 or 14.1.3 above, Acquiror, and the
Company and the Stockholders, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available at law or
in equity. In the event of a termination of this Agreement under the provisions
of this Article, a party not then in material breach of this Agreement shall
stand fully released and discharged of any and all obligations under this
Agreement; provided, however, that if a termination
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of this Agreement occurs pursuant to the last sentence of Section 8.2, the
parties hereto shall stand fully released and discharged of any and all
obligations under this Agreement.
ARTICLE XV
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
SECTION 15.1 NONDISCLOSURE. Each Stockholder recognizes and acknowledges
that he had in the past, currently has, and in the future may possibly have,
access to certain Confidential Information of the Company and Acquiror that is
valuable, special and unique assets of the Company's and Acquiror's respective
businesses. Acquiror acknowledges that it has had in the past, currently has,
and in the future may possible have, access to certain Confidential Information
of the Company that is valuable, special and unique assets of the Company's
business. The Stockholder, the Company, and Acquiror agree that they will not
disclose such Confidential Information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of Acquiror, the Company and such Stockholder and (b)
to their counsel and other advisers provided that such advisers (other than
counsel) agree to the confidentiality provisions of this Section 15.1, unless
(i) such information becomes available to or known by the public generally
through no fault of such Stockholder, the Company, or Acquiror, as the case may
be, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), such Stockholder, the Company, or Acquiror, as the
case may be, shall, if possible, give prior written notice thereof to such
Stockholder, the Company, and Acquiror and provide such Stockholder, the
Company, Acquiror with the opportunity to contest such disclosure, (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party, or (iv)
the disclosing party is the sole and exclusive owner of such Confidential
Information as a result of the Merger or otherwise. In the event of a breach or
threatened breach by a Stockholder of the provisions of this Section 15.1,
Acquiror and the Company shall be entitled to an injunction restraining the
Stockholder from disclosing, in whole or in part, such Confidential Information.
Nothing herein shall be construed as prohibiting Acquiror, the Stockholder and
the Company from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
SECTION 15.2 DAMAGES. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which they would have
no other adequate remedy, Acquiror, the Company, and the Stockholder agree that,
in the event of a breach by any of them of the foregoing covenant, the covenant
may be enforced against them by injunctions and restraining orders.
SECTION 15.3 SURVIVAL. The obligations of the parties under this Article
XV shall survive the termination of this Agreement.
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ARTICLE XVI
TRANSFER RESTRICTIONS
SECTION 16.1 TRANSFER RESTRICTIONS. Until the expiration of the later of
one year from the Closing or such other holding period as may be required under
applicable federal or state securities laws, except pursuant to the Registration
Rights Agreement and Section 13.7 hereof, no Stockholder shall voluntarily (a)
sell, assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of (i) any shares of Acquiror Common Stock received by such
Stockholder in the Merger, or (ii) any interest (including, without limitation,
an option to buy or sell) in any such shares of Acquiror Common Stock, in whole
or in part, and no such attempted transfer shall be treated as effective for any
purpose or (b) engage in any transaction, whether or not with respect to any
shares of Acquiror Common Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning shares of Acquiror Common Stock. The
certificates evidencing the Acquiror Common Stock delivered to the Stockholder
pursuant to this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Acquiror may reasonably
deem necessary or appropriate:
Except pursuant to the terms of the Registration Rights Agreement and the
Agreement and Plan of Merger and Reorganization ("Merger Agreement")
between the issuer, the holder of this certificate and the other parties
thereto, the shares represented by this certificate may not be voluntarily
sold, assigned, exchanged, transferred, encumbered, pledged, distributed,
appointed or otherwise disposed of, and the issuer shall not be required
to give effect to any attempted voluntary sale, assignment, exchange,
transfer, encumbrance, pledge, distribution, appointment or other
disposition prior to [date that is one year after the Closing Date.] Upon
the written request of the holder of this certificate, the issuer agrees
to remove this restrictive legend (and any stop order placed with the
transfer agent) after the expiration of the period specified in the Merger
Agreement.
ARTICLE XVII
FEDERAL SECURITIES LAW
RESTRICTIONS ON ACQUIROR COMMON STOCK
SECTION 17.1 INVESTMENT REPRESENTATION. Each Stockholder acknowledges that
the shares of Acquiror Common Stock to be delivered to such Stockholder pursuant
to this Agreement have not been and will not be registered under the Securities
Act and may not be resold without compliance with the Securities Act. The
Acquiror Common Stock to be acquired by such Stockholder pursuant to this
Agreement is being acquired solely for his, her or its own account, for
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investment purposes only and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution.
SECTION 17.2 COMPLIANCE WITH LAW. Each Stockholder covenants, warrants and
represents that none of the shares of Acquiror Common Stock issued to such
Stockholder will be offered, sold, assigned, pledged, hypothecated, transferred
or otherwise disposed of except after full compliance with all of the applicable
provisions of the Securities Act and the rules and regulations of the SEC and
applicable state securities laws and regulations. All certificates evidencing
shares of Acquiror Common Stock shall bear the following legend in addition to
the legends under Article XVI.
The shares represented hereby have not been registered under the
Securities Act of 1933 (the "Act") and may only be sold or otherwise transferred
if the holder hereof complies with the Act and applicable securities law.
In addition, certificates evidencing shares of Acquiror Common Stock shall
bear any legend required by the securities or blue sky laws of any state where
the Stockholder resides.
SECTION 17.3 ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to
bear the economic risk of an investment in Acquiror Common Stock acquired
pursuant to this Agreement and can afford to sustain a total loss of such
investment and has such knowledge and experience in financial and business
matters that he, she or it is capable of evaluating the merits and risks of the
proposed investment and therefore has the capacity to protect his, her or its
own interests in connection with the acquisition of the Acquiror Common Stock.
Each Stockholder or its purchaser representatives have had an adequate
opportunity to ask questions and receive answers from the officers of Acquiror
concerning any and all matters relating to the transactions described in the
Registration Statement including, without limitation, the background and
experience of the officers and directors of Acquiror, the plans for the
operations of the business of Acquiror, and any plans for additional
acquisitions and the like. Each Stockholder or its purchaser representatives
have asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to their satisfaction.
SECTION 17.4 ACCREDITED INVESTOR STATUS. None of the Stockholders is an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
ARTICLE XVIII
MISCELLANEOUS
SECTION 18.1 AMENDMENT; WAIVERS. This Agreement may be amended, modified
or supplemented only by an instrument in writing executed by all the parties
hereto. Any waiver of any terms and conditions hereof must be in writing, and
signed by the parties hereto. The waiver of any
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of the terms and conditions of this Agreement shall not be construed as a waiver
of any other terms and conditions hereof.
SECTION 18.2 ASSIGNMENT. Neither this Agreement nor any right created
hereby or in any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except by Acquiror
to a wholly owned subsidiary of Acquiror; provided that any such assignment
shall not relieve Acquiror of its obligations hereunder.
SECTION 18.3 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. Except as
otherwise provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties hereto. Neither this
Agreement nor any other agreement contemplated hereby shall be deemed to confer
upon any person not a party hereto or thereto any rights or remedies hereunder
or thereunder.
SECTION 18.4 ENTIRE AGREEMENT. This Agreement and the agreements
contemplated hereby constitute the entire agreement of the parties regarding the
subject matter hereof, and supersede all prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
SECTION 18.5 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term hereof, such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
SECTION 18.6 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants contained herein, including all
statements contained in any certificate, exhibit or other instrument delivered
pursuant to this Agreement by or on behalf of the Company, the Stockholder, or
Acquiror, as the case may be, shall survive the Closing until the first
anniversary of the Closing Date.
SECTION 18.7 GOVERNING LAW. This agreement and the rights and obligations
of the parties hereto shall be governed by and construed and enforced in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Ohio.
SECTION 18.8 CAPTIONS. The captions in this Agreement are for convenience
of reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
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SECTION 18.9 GENDER AND NUMBER. When the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
SECTION 18.10 REFERENCE TO AGREEMENT. Use of the words "herein", "hereof",
"hereto" and the like in this Agreement shall be construed as references to this
Agreement as a whole and not to any particular Article, Section or provision of
this Agreement, unless otherwise noted.
SECTION 18.11 CONFIDENTIALITY; PUBLICITY AND DISCLOSURES. Each party shall
keep this Agreement and its terms confidential, and shall make no press release
or public disclosure, either written or oral, regarding the transactions
contemplated by this Agreement without the prior knowledge and consent of the
other parties hereto; provided that the foregoing shall not prohibit any
disclosure (a) by press release, filing or otherwise that Acquiror has
determined in its good faith judgment to be required by federal securities laws
or the rules of the National Association of Securities Dealers, (b) to
attorneys, accountants, investment bankers or other agents of the parties
assisting the parties in connection with the transactions contemplated by this
Agreement and (c) by Acquiror in connection with the conduct of its Initial
Public Offering and conducting an examination of the operations and assets of
the Company; provided that Acquiror shall promptly provide notice to the Company
of any release made under this Section 18.11. In the event that the transactions
contemplated hereby are not consummated for any reason whatsoever, the parties
hereto agree not to disclose or use any Confidential Information they may have
concerning the affairs of the other parties, except for information that is
required by law to be disclosed; provided that should the transactions
contemplated hereby not be consummated, nothing contained in this Section shall
be construed to prohibit the parties hereto from operating businesses in
competition with each other so long as no party discloses or uses any such
Confidential Information in connection therewith.
SECTION 18.12 NOTICE. Whenever this Agreement requires or permits any
notice, request, or demand from one party to another, the notice, request, or
demand must be in writing to be effective and shall be deemed to be delivered
and received (i) if personally delivered or if delivered by telex, telegram,
facsimile or courier service, when actually received by the party to whom notice
is sent or (ii) if delivered by mail (whether actually received or not), at the
close of business on the third business day next following the day when placed
in the mail, postage prepaid, certified or registered, addressed to the
appropriate party or parties, at the address of such party set forth below (or
at such other address as such party may designate by written notice to all other
parties in accordance herewith):
If to Acquiror: Universal Document Management Systems, Inc.
8044 Montgomery Road, Suite 700
Cincinnati, Ohio 45236
Attn.: Terry L. Theye
with a copy to: Dinsmore & Shohl LLP
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1900 Chemed Center
255 East Fifth Street
Cincinnati, Ohio 45202
Fax No.: (513) 977-8141
Attn: Charles F. Hertlein, Jr.
If to the Company
or the Stockholders: Computers For Design, Inc.
5460 South Quebec St., Suite 110
Englewood, Colorado 80111
Attn: Eric H. Darst
with a copy to: Smith, McCullough, P.C.
Regency Plaza One
4643 South Ulster Street, Suite 900
Denver, Colorado 80237-2866
Attn: Thomas S. Smith
SECTION 18.13 CHOICE OF FORUM. Each of the parties hereto shall be subject
to the in personam jurisdiction of any state or federal court located in
Hamilton County, State of Ohio.
SECTION 18.14 NO WAIVER; REMEDIES. No party hereto shall by any act
(except by written instrument pursuant to Section 18.1 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default in or breach of any of the terms
and conditions hereof. No failure to exercise, nor any delay in exercising, on
the part of any party hereto, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No remedy set forth in this
Agreement or otherwise conferred upon or reserved to any party shall be
considered exclusive of any other remedy available to any party, but the same
shall be distinct, separate and cumulative and may be exercised from time to
time as often as occasion may arise or as may be deemed expedient.
SECTION 18.15 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
SECTION 18.16 COSTS, EXPENSES AND LEGAL FEES. Whether or not the
transactions contemplated hereby are consummated, each party hereto shall bear
its own costs and expenses (including attorneys' fees) incurred in connection
with the transactions contemplated herein.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
ACQUIROR:
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By: ____________________________________
Terry L. Theye, President
COMPANY:
COMPUTERS FOR DESIGN, INC.
By: ____________________________________
Eric H. Darst, President
STOCKHOLDERS:
________________________________________
Eric H. Darst
________________________________________
Robert Harney
________________________________________
Dennis Reid
________________________________________
Lane Callow
McFall, Konkel & Kimball Consulting
Engineers, Inc.
By: ____________________________________
Norman G. Almquist, President
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ATTACHMENTS
Exhibit 1.1.21 List of Target Companies
Exhibit 2.8.1 Merger Consideration
Exhibit 8.3 Stockholder Employment Agreement(s)
Exhibit 9.4 Form of Opinion of Company Counsel
Exhibit 10.3.1 Form of Opinion of Acquiror Counsel
Exhibit 10.3.2 Form of Tax Opinion
Exhibit 11.1.11 Registration Rights Agreement
***
Company Disclosure Schedules:
Schedule 3.1 Organization and Good Standing
Schedule 3.2 Capitalization
Schedule 3.3 Transactions in Capital Stock
Schedule 3.4 Continuity of Business Enterprise
Schedule 3.5 Corporate Records
Schedule 3.6 Authorization and Validity
Schedule 3.7 No Violation
Schedule 3.8 Consents
Schedule 3.9 Financial Statements
Schedule 3.10 Liabilities and Obligations
Schedule 3.11 Employee Matters
Schedule 3.12 Employee Benefit Plans
Schedule 3.13 Absence of Certain Changes
Schedule 3.14 Title; Leased Assets
Schedule 3.15 Commitments
Schedule 3.16 Insurance
Schedule 3.17 Proprietary Rights and Information
Schedule 3.18 Taxes
Schedule 3.19 Compliance with Laws
Schedule 3.20 Finder's Fee
Schedule 3.21 Litigation
Schedule 3.22 Condition of Fixed Assets
Schedule 3.23 Distributions and Repurchases
Schedule 3.24 Banking Relations
Schedule 3.25 Ownership Interests of Interested Persons; Affiliations
Schedule 3.26 Investments in Competitors
Schedule 3.27 Environmental Matters
Schedule 3.28 Certain Payments
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Schedule 3.29 No Affiliation with NASD Member
Schedule 4.1 Validity; Stockholder Capacity
Schedule 4.2 No Violation
Schedule 4.3 Personal Holding Company; Control of Related Businesses
Schedule 4.4 Transfers of the Company Capital Stock
Schedule 4.5 Consents
Schedule 4.6 Certain Payments
Schedule 4.7 Finder's Fee
Schedule 4.8 Ownership of Interested Persons; Affiliations
Schedule 4.9 Investments in Competitors
Schedule 4.10 Disposition of Acquiror Shares
Acquiror Disclosure Schedules:
Schedule 5.1 Organization and Good Standing
Schedule 5.2 Capitalization
Schedule 5.3 Corporate Records
Schedule 5.4 Authorization and Validity
Schedule 5.5 No Violation
Schedule 5.6 Finder's Fee
Schedule 5.7 Capital Stock
Schedule 5.8 Continuity of Business Enterprise
Schedule 5.9 Consents
Schedule 5.10 Proprietary Rights and Information
Schedule 5.11 Taxes
Schedule 5.12 Litigation
Schedule 5.13 Ownership Interests of Interested Persons; Affiliations
Schedule 5.14 Investments in Competitors
Schedule 5.15 Certain Payments
Schedule 5.16 Commitments; Defaults
Schedule 5.17 Acquiror Financial Statements
Schedule 5.18 Liabilities and Obligations
Schedule 5.19 Employee Matters
Schedule 5.20 Absence of Certain Changes
Business Plan
Acquiror Financial Statements
Proforma Financial Statements
Risk Factors
<PAGE> 1
EXHIBIT 10.10
SYNERGIS TECHNOLOGIES, INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement dated as of __________, 1997 (this
"Agreement") among SYNERGIS TECHNOLOGIES, INC., an Ohio corporation (the
"Company"), and the persons executing a counterpart of this Agreement listed as
Holders on the signature pages of this Agreement.
PRELIMINARY STATEMENT
The Company and each of certain companies have entered into an Agreement
and Plan of Merger and Reorganization of even date herewith (the "Merger
Agreement") pursuant to which the Company has agreed to acquire or merge with
such companies. The acquisitions or mergers shall take place concurrently with
the execution of this Agreement, the consideration for such acquisitions and
mergers being cash, common stock of the Company, or a combination thereof.
In consideration of the mutual representations and agreements set forth in
this Agreement, the Company and the Holders agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS.
1.1 As used in this Agreement, the following terms shall have the
following meanings:
"AFFILIATE" means any entity controlling, controlled by or under
common control with a designated person. For the purposes of this definition,
"control" shall have the meaning specified as of the date of this Agreement for
that word in Rule 405 promulgated by the Securities and Exchange Commission
under the Securities Act.
"BOARD" means the Board of Directors of the Company.
"COMMISSION" means the Securities and Exchange Commission, and any
successor thereto.
"COMMON" means the Company's Common Stock, without par value
including any Common issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect thereto, or in exchange for or in replacement thereof.
<PAGE> 2
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"HOLDERS" means holders of outstanding Common who are (a) persons
executing a counterpart of this Agreement listed as Holders on the signature
pages of this Agreement, or (b) any subsequent legal or beneficial owner of
Common who has become a party to this Agreement in accordance with Section 12 of
this Agreement.
"REGISTRABLE COMMON" means the shares of Common owned by Holders and
which are entitled to registration hereunder.
"RULE 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Exchange Act, as such rule may be amended from time to
time, or any successor rule thereto.
"SECURITIES" means any debt or equity securities of the Company,
whether now or hereafter authorized, and any instrument convertible into, or
exercisable or exchangeable for, Securities or a Security.
"SECURITIES ACT" means the Securities Act of 1933, as amended prior
to or after the date of this Agreement, or any federal statute or statutes which
shall be enacted to take the place of such Act, together with all rules and
regulations promulgated thereunder.
SECTION 2. REGISTRATION.
2.1 Beginning nine months after the date of this Agreement, by a written
notice to the Company, one or more Holders of the Registrable Common issued and
issuable may from time to time demand that the Company register up to 50% of the
Registrable Common held by such Holder or Holders as specified in the notice,
under the Securities Act and under other relevant securities laws, for
disposition in accordance with methods stated in the notice.
2.2 Beginning 21 months after the date of this Agreement, by a written
notice to the Company, one or more Holders of the Registrable Common issued and
issuable may from time to time demand that the Company register up to 100% of
the Registrable Common held by such Holder or Holders as specified in the
notice, under the Securities Act and under other relevant securities laws, for
disposition in accordance with methods stated in the notice.
2.3 When it receives a registration notice under Sections 2.1 or 2.2, the
Company shall promptly deliver a copy of the registration notice to each Holder
of Registrable Common who is not a party to the registration notice, each of
whom may then specify, by notice to the Company within 10 days after receipt by
such Holder of such registration notice from the Company, a number of shares of
Registrable Common held by or issuable to it which it wishes to include in any
registration pursuant to the registration notice under Sections 2.1 or 2.2;
provided, however, that if the
<PAGE> 3
registration notice so delivered to such Holder was delivered to the Company
under Section 2.1, such Holder may not elect to include more than 50% of such
Holder's shares of Registrable Common. Failure by any Holder to provide notice
to the Company within the time specified in this Section 2.3 shall be deemed to
mean that such Holder has elected not to participate in the registration
pursuant to such registration notice.
2.4 When it receives a registration notice under Sections 2.1 or 2.2, and
provided that the reasonably anticipated price to the public of the Common
proposed to the registered would total more than $500,000, the Company shall use
its best efforts in good faith to effect the registration under the Securities
Act and under other relevant securities laws of Registrable Common specified in
the registration notice under Sections 2.1 or 2.2 and subsequent notices under
Section 2.3 which is not then freely transferable under the provisions of
subsection (k) of Rule 144, all to the extent requisite to permit disposition by
such Holders in accordance with the intended methods of disposition described in
the registration notice. Provided that the Company receives a registration
notice under Section 2.1 at least 60 days prior to the date of the first
anniversary of this Agreement, or under Section 2.2 at least 60 days prior to
the date of the second anniversary of this Agreement, the Company shall use its
best efforts in good faith to cause the registration statement filed in
connection therewith to become effective upon the date of such first anniversary
or second anniversary, as applicable, or as soon as practicable thereafter.
SECTION 3. INCIDENTAL REGISTRATION. Each time the Company proposes to
register any of its Securities under the Securities Act in connection with an
underwritten offering thereof, it will give at least 60 days' advance written
notice of its intention to do so to each Holder. Each Holder may then specify,
by notice to the Company within 10 days after receipt by such Holder of such
registration notice from the Company, a number of shares of Common held by it
which it wishes to include in the Company's proposed registration. Subject to
the market cutback limitations of Section 8, the Company will use its best
efforts in good faith to effect the registration under the Securities Act of
Common specified by Holders under this Section 3 which is not then freely
transferable. Failure by any Holder to provide notice to the Company within the
time specified in this Section 3 shall be deemed to mean that such Holder has
elected not to participate in the Registration pursuant to such registration
notice.
SECTION 4. LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding any
contrary provision of this Agreement:
(a) the Company shall not be required to effect more than two
registrations pursuant to Section 2; and
(b) Section 3 shall not apply to a registration effected solely to
implement an employee benefit plan or to any other form or type of
registration which does not permit inclusion of Common pursuant to
Commission rule or practice; and
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<PAGE> 4
(c) notwithstanding any contrary provision of this Agreement, the
rights to registration granted under this Agreement shall terminate as to
any particular Registrable Common when such Registrable Common shall have
been (i) effectively registered under the Securities Act and sold by the
holder thereof in accordance with such registration, or (ii) sold to the
public pursuant to Rule 144 of the Commission, or any successor rule.
SECTION 5. REGISTRATION PROCEDURES.
5.1 Whenever the Company is required by the provisions of this Agreement
to use its best efforts to effect the registration of any Common under the
Securities Act and under other relevant securities laws, the Company will, as
expeditiously as possible:
(a) in the case of a registration required under Section 2, engage
the underwriters designated by the Holders giving notice under Section 2.1
subject to the terms and conditions of Section 12;
(b) before filing each registration statement or prospectus or
amendment or supplement thereto with the Commission, furnish counsel for
the sellers with copies of all such documents proposed to be filed which
shall be subject to the reasonable approval of such counsel;
(c) prepare and file with the Commission a registration statement
with respect to such Common and use its best efforts in good faith to
cause such registration statement to become and remain effective for the
period provided in Section 5.2;
(d) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Common covered by
such registration statement in accordance with the intended methods of
disposition set forth in such registration statement;
(e) prepare and promptly file with the Commission, and notify each
seller of such Common immediately after the filing of, such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, during such periods a
prospectus relating to such securities is required to be delivered under
the Securities Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances in which they were made, not misleading, and notify each
seller immediately after its discovery of such event;
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<PAGE> 5
(f) furnish to the underwriters and each seller of such Common such
numbers of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such
underwriters or seller may reasonably request in order to facilitate the
disposition of the Common subject to such registration statement in
accordance with such registration statement;
(g) use its best efforts in good faith to register or qualify any
Common covered by such registration statement under the securities or blue
sky laws of such jurisdictions within the United States of America as any
seller or the underwriters reasonably request, and to take any other acts
which any seller or the underwriters may reasonably request under such
securities or blue sky laws to enable the consummation of the disposition
in such jurisdictions of such Common (provided, however, that the Company
may not be required under this Agreement (i) to qualify generally to do
business as a foreign corporation in any jurisdiction in which it would
not otherwise be required to qualify, or (ii) to subject itself to
taxation in any such jurisdiction, or (iii) to consent to general service
of process in any such jurisdiction);
(h) provide a transfer agent and registrar for all Common sold under
the registration not later than the effective date of the registration
statement;
(i) cause all Common sold under the registration to be listed on
each securities exchange or to be qualified and eligible for trading in
any automated quotation system, if any, on which similar securities issued
by the Company are then listed or traded or, if no such listing or
qualification has then occurred, to cause such Securities to be so listed
or qualified on an exchange or in a trading system that is reasonably
acceptable to the Holders of Common being sold;
(j) enter into such customary agreements (including underwriting
agreements in customary form), as the Holders of more than 50% of the
Common being sold reasonably request in order to expedite or facilitate
the disposition of such Common (including, without limitation, effecting a
stock split or a combination of shares);
(k) furnished to each prospective seller a signed counterpart,
addressed to the prospective sellers, of (i) an opinion of counsel for the
Company, dated the effective date of the registration statement, and (ii)
a "comfort" letter, if any, signed by the independent public accountants
who have certified the Company's financial statements included in the
registration statement, covering substantially the same matters with
respect to the registration statement (and the prospectus included
therein) and (in the case of the "comfort" letter) with respect to events
subsequent to the date of the financial statements, as are customarily
covered (at the time of such registration) in opinions of issuer's counsel
and in "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
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<PAGE> 6
(l) advise each seller of Common, immediately after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for such purpose and
promptly use reasonable efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(m) make available for inspection by the sellers of Common, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any
such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller or underwriter in
connection with such registration statement, all subject to such
limitations as the Company reasonably deems appropriate in order to
protect the Company's confidential or proprietary information; and
(n) notify each Holder of Registrable Common covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing.
5.2 Notwithstanding any contrary provision of this Section 5, the Company
shall not be required to use its best efforts to maintain the effectiveness of
any registration statement for a period in excess of 180 days or until the
sellers have sold or otherwise disposed of their Registrable Common registered
under such registration statement, whichever is earlier; provided, however, that
(i) such 180-day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of an underwriter participating in any distribution
pursuant thereto; and (ii) in the case of any registration of any Registrable
Common on Form S-3 which are intended to be offered on a continuous or delayed
basis, such 180-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Common are sold,
provided that Rule 415, or any successor rule under the Act, permit an offering
on a continuous or delayed basis, and provided further that applicable rules
under the Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment which (I) includes any
prospectus required by Section 10(a)(3) of the Act or (II) reflects facts or
events representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
5.3 It shall be a condition precedent to the inclusion of the Common of
any Holder in a registration effected pursuant to this Agreement that such
Holder shall (a) furnish to the Company such information regarding such Holder,
the Common of such Holder to be registered and the intended method of
disposition of such Common, and (b) execute such indemnities, underwriting
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<PAGE> 7
agreements and other documents, as the Company shall reasonably request in order
to satisfy the requirements applicable to such registration.
SECTION 6. EXPENSES. The Company shall pay all expenses incurred in
effecting the two registrations of Common provided for in Section 2 of this,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, reasonable fees and
disbursements of a single counsel for the sellers selected by the Holders of
more than 50% of the Common subject to such registration, fees and underwriting
expenses (other than discounts and commissions), expenses of any audits incident
to or required by any such registration, fees and disbursements of all
independent certified public accounts (including the expenses relating to the
preparation and delivery of any special audit or "comfort" letters incident to
such registration) and expenses of complying with the securities or blue sky
laws of any jurisdictions pursuant to Section 5.1(g) of this Agreement. Except
as the Company and any sellers of securities in a registration may otherwise
agree, all expenses incurred due to any Holder's participation in any
registrations provided for in Section 3 of this Agreement shall be paid by the
sellers and all other persons whose securities are included in such
registration, including the Company if it shall be such a person, pro rata in
accordance with the offering price to the public of the securities of each such
or other person so included.
SECTION 7. INDEMNIFICATION.
7.1 In the event of any registration of any of its Registrable Common
under the Securities Act pursuant to this Agreement, the Company agrees, to the
extent permitted by law, to indemnify and hold harmless each seller of Common,
and each Affiliate of such seller, against any losses, claims, damages or
liabilities, joint or several, arising out of or based upon:
(1) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any summary
prospectus contained therein or any Securities being registered or any
amendment or supplement thereto, or
(2) any alleged omission to state in any such document a material
fact required to be stated therein or necessary to make the statements
therein not misleading,
except insofar as any such loss, claim, damage or liability is:
(a) caused by or contained in any information furnished in writing
to the Company by such seller expressly for use in connection with such
registration, or
(b) caused by or contained in such statements, or caused by such
omissions, based upon the authority of an expert as defined in the
Securities Act (but only if the
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<PAGE> 8
Company had no ground to believe, and did not believe, that the statements
made on the authority of an expert were untrue or that there was an
omission to state a material fact), or
(c) caused by the use of a prospectus or preliminary prospectus or
any amendment or supplement thereto after receipt of notice from the
Company that it should no longer be used.
In connection with an underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each person who controls (within
the meaning of the Securities Act) such underwriters to the same extent as
provided above with respect to the sellers of Common. The Company shall
reimburse each person indemnified pursuant to this Section 7.1 in connection
with investigating or defending any loss, claim, damage, liability or action
indemnified against. The reimbursements required by this Section 7.1 shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred. The indemnities provided
pursuant to this Section 7.1 shall remain in force and effect regardless of any
investigation made by or on behalf of the indemnified party and shall survive
transfer of Common by a seller.
7.2 In the event of any registration of any Common under the Securities
Act pursuant to this Agreement, each Holder agrees to furnish to the Company in
writing such information and affidavits as the Company reasonably requests for
use in connection with any registration statement or prospectus in connection
with the registration or any amendment or supplement thereto.
7.3 To the extent permitted by law, and subject to the limitation set
forth in the last sentence of this Section 7.3, each Holder which is a seller of
Registrable Common in a registration pursuant to this Agreement agrees severally
and not jointly to indemnify and hold harmless the Company, its directors and
officers, each other seller of securities in such registration, each Affiliate
of each such other seller, and each Affiliate of the Company, against (a) any
losses, claims, damages or liabilities, joint or several, arising out of or
based upon:
(1) any alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
Securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any summary
prospectus contained therein, or any Securities being registered, or any
amendment or supplement thereto, or
(2) any alleged omission to state in any such document a material
fact required to be stated therein or necessary to make the statements
therein not misleading,
but only insofar as any such loss, claim, damage or liability is caused by or
contained in any information furnished in writing to the Company by the
indemnifying seller expressly for use in connection with such registration, and
excluding any such loss, claim, damage or liability which is caused by or
contained in such statements, or caused by such omissions, based upon the
authority of an expert as defined in the Securities Act (but only if the
indemnifying seller had no ground to
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<PAGE> 9
believe, and did not believe, that the statements made on the authority of an
expert were untrue or that there was an omission to state a material fact), and
(b) any losses, claims, damages or liabilities, joint or several, arising out of
or based upon any failure by such seller to deliver a copy of the registration
statement or prospectus or any amendment or supplement thereto as required by
the Securities Act or the rules or regulations thereunder. In connection with an
underwritten offering each seller will indemnify such underwriters, their
officers and directors and each person who controls (within the meaning of the
Securities Act) such underwriters to the same extent as provided above with
respect to the Company and other sellers. Each seller shall reimburse each
person indemnified pursuant to this Section 7.3 in connection with investigating
or defending any loss, claim, damage, liability or action indemnified against.
The indemnities provided pursuant to this Section 7.3 shall remain in force and
effect regardless of any investigation made by or on behalf of the indemnified
party and shall survive transfer of Common by an indemnifying seller, and
transfer of other securities by any other indemnified seller.
7.4 Indemnification similar to that specified in Sections 7.1 and 7.3
(with such modifications as shall be appropriate) shall be given by the Company
and each Holder of any Common covered by any registration or other qualification
of Securities under any federal or state securities law or regulation other than
the Securities Act with respect to any such registration or other qualification
effected pursuant to this Agreement.
7.5 Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 7, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to investigate and defend any such action; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by such indemnified
party or parties, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 7, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 7.
SECTION 8. MARKETING RESTRICTIONS.
8.1 If:
A. a registration is to be made pursuant to a registration notice
under Section 2 of this Agreement, and
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B. the offering proposed to be made by the Holder or Holders for
whom such registration is to be made is to be an underwritten public
offering, and
C. the managing underwriters of such public offering furnish a
written opinion that the total amount of Securities to be included in such
offering would exceed the maximum number of shares of Common (as specified
in such opinion) which can be marketed at a price reasonably related to
the current market value of such Common and without otherwise materially
and adversely affecting such offering,
then the rights of the Holders for whom such registration is to be made, of the
other Holders, of the holders of other Securities having the right to include
Common in such registration and of the Company to participate in such offering
shall be in the following order of priority:
First: the Holders for whom such registration is to be made shall be
entitled to participate in such offering to the extent of such maximum
number of shares of Common which the managing underwriter desires to
include in such offering, or of the aggregate number of shares of Common
that all such Holders for whom such registration is to be made shall have
requested be registered, whichever is less, pro rata among themselves in
accordance with the number of shares of Common which each such Holder for
whom such registration is to be made shall have requested be registered;
and then
Second: if such maximum number of shares of Common which the
managing underwriter desires to include in such offering exceeds the
aggregate number of shares of Common that all such Holders for whom such
registration is to be made shall have requested be registered, the
Company, all other Holders, and all holders of other Securities having the
right to include such Securities in such registration shall be entitled to
participate pro rata in accordance with the number of shares proposed to
be registered by each of them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act until the
expiration of 180 days after the effective date of the registration statement
filed in connection with such registration or such earlier time consented to by
the managing underwriter.
8.2 If:
A. any Holder of Common requests registration of Common under
Section 3 of this Agreement, and
B. the offering proposed to be made is to be an underwritten public
offering, and
C. the managing underwriters of such public offering furnish a
written opinion that the total amount of securities to be included in such
offering would exceed the maximum
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amount of Securities (as specified in such opinion) which can be marketed
at a price reasonably related to the then current market value of such
Securities and without materially and adversely affecting such offering,
then the rights of the Holders, of the holders of other Securities having the
right to include such Securities in such registration and of the Company to
participate in such offering shall be in the following order of priority:
First: the person or persons (including the Company in the case of a
primary offering) requesting such registration shall be entitled to
participate in accordance with the relative priorities, if any, that shall
exist among them; and then
Second: the Holders shall be entitled to participate in such
offering pro rata among themselves in accordance with the number of shares
of Common which each Holder shall have requested be registered; and then
Third: all other holders (including the Company, if such
registration shall have been requested by a person other than the Company)
of Securities having the right to include such Securities in such
registration shall be entitled to participate pro rata in accordance with
the number of shares proposed to be registered by each of them;
and no Securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act until the
expiration of 180 days after the effective date of the registration statement
filed in connection with such registration or such earlier time consented to by
the managing underwriter.
8.3 In connection with any offering involving an underwriting of Common
pursuant to Section 3 of this Agreement, the Company shall not be required to
include any of the Common of a Holder in such offering unless such Holder agrees
to the terms of the underwriting agreed to between the Company and the
underwriter or underwriters selected by the Company.
SECTION 9. LOCKUP AGREEMENT. Each Holder agrees in connection with any
registration of any of the Company's Securities that, upon the request of the
Company or the underwriters managing any underwritten offering of the Company's
Securities, he, she or it will not sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Securities of the
Company (other than the Securities included in the registration) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify; provided however,
that the provisions of this Section 9 shall not apply to any Securities which
the Holder thereof requested to be included with such registration but which
were specifically excluded therefrom pursuant to the cutback limitations of
Section 8 hereof.
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SECTION 10. COMPLIANCE WITH RULE 144. In the event that the Company (a)
registers a class of securities under Section 12 of the Exchange Act, (b) issues
an offering circular meeting the requirements of Regulation A under the
Securities Act or (c) commences to file reports under Section 13 or 15(d) of the
Exchange Act, then at the request of any Holder who proposes to sell securities
in compliance with Rule 144 of the Commission, the Company shall
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company
for the offer of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Common, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144
(at any time after 90 days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualified as a registrant whose securities may
be resold pursuant to Form S-3 (at any time after it so qualified), (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any
rule or regulation of the Commission which permits the selling of any such
securities without registration or pursuant to such form.
SECTION 11. ASSIGNABILITY OF REGISTRATION RIGHTS. The rights set forth in
this Agreement shall accrue to each subsequent Holder of Common who shall have
executed a written consent agreeing to be bound by the terms and conditions of
this Agreement as a party to this Agreement.
SECTION 12. DESIGNATION OF UNDERWRITER. In the case of any registration
effected pursuant to Section 2, the managing underwriters and any other
investment banking advisers to the Company shall be selected by Holders of not
less than 50% of the Common, and shall be reasonably acceptable to the Company.
SECTION 13. GRANT OF SUBSEQUENT REGISTRATION RIGHTS. The Company may grant
registration rights to subsequent investors in the Company only if such rights
are subordinate to the rights of the Holders pursuant to this Agreement or the
Holders' rights pursuant to this Agreement are waived pursuant to Section 14 of
this Agreement.
SECTION 14. MISCELLANEOUS.
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14.1 AMENDMENT. Any provision of this Agreement may be amended by a
written agreement signed by all of the following:
(a) the Company, and
(b) the Holders of Common equivalent to more than 75% of the
Registrable Common.
14.2 SEVERABILITY. In the event that any court or any governmental
authority or agency declares all or any part of any Section of this Agreement to
be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any other Section of this Agreement, and in the event that only a
portion of any Section is so declared to be unlawful or invalid, such
unlawfulness or invalidity shall not serve to invalidate the balance of such
Section.
14.3 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to
the benefit of the Company, its successors and assigns, and the Holders. their
successors and assigns, heirs, and legal representatives.
14.4 NOTICES. All communications in connection with this Agreement shall
be in writing and shall be deemed properly given if hand delivered or sent by
overnight courier with adequate evidence of delivery or sent by registered or
certified mail, return receipt requested, at the last known address of record
for the Holders or the Company or such other addresses or persons as the
recipient shall have designated to the sender by a written notice given in
accordance with this Section. Any notice called for hereunder shall be deemed
given when received.
14.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio applicable to agreements between
Ohio residents entered into and to be performed entirely within Ohio.
14.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each which shall be deemed an original but all of which shall
together constitute one and the same instrument. A written consent executed
pursuant to Section 12 of this Agreement shall be deemed to be part of, and
constitute a counterpart of, this Agreement.
14.7 HEADINGS. The headings used herein are solely for the conveyance of
the parties and shall not serve to modify or interpret the text of the Sections
at the beginning of which they appear.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day first above written.
The Company: SYNERGIS TECHNOLOGIES, INC.,
AN OHIO CORPORATION
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By:
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Its:
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Holders:
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EXHIBIT 10.11
Employment Agreement
This Agreement is made and entered into as of the _____ day of October,
1997 by and between Universal Document Management Systems, Inc., an Ohio
corporation (the "Employer"), and Terry L. Theye, (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement, the term of this Agreement shall be for a period of one (1) year,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of One Hundred and Twenty Thousand Dollars ($120,000),
payable in twelve (12) equal installments, and (ii) additional annual incentive
compensation of $120,000 which shall be based on profitability objectives for
the Employer as a whole as may be mutually agreed upon by the parties. All
payments made pursuant to this Section 3 shall be subject to withholding and
other applicable taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive. These benefits should
include, without limitation, the grant of stock options under Employer's stock
option plan.
5. Duties. The Executive is engaged as President and Chief Executive
Officer, and shall perform such services and assume and discharge such
responsibilities, which are commensurate with his position, as the Employer, in
its reasonable discretion, may, from time to time, require of, or assign to
Executive. The Executive shall not delegate the duties and responsibilities
which are vested in him. He, nevertheless, may utilize and delegate to such
individuals who may also be employed by the Employer those tasks which he deems
necessary or appropriate to help him carry out the duties and responsibilities
assigned to him as an employee of the Employer; except that he shall remain
accountable for such tasks to the Employer. Executive further agrees that he
shall devote substantially his full time, energy and best efforts to the
business of the Employer during the hours that the business remains open and
such additional time as is reasonably necessary to complete Executive's tasks,
except that time Executive is required to devote to his position as Chairman and
a principal of Growth Management Advisors, Inc. Executive agrees to exercise his
best efforts, judgment, skills and talents in performing his duties and, in
general, to comply with the policies and be subject to the direction of the
Board of Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
7. Exclusive Services. The Executive shall devote his entire business
time, attention, and energies to the business of the Employer, and shall not,
except in or through his capacity as Chairman and a principal of Growth
Management Advisors, Inc. during the term of this Agreement, either directly or
indirectly, engage in any other profession or business whether or
<PAGE> 2
not such business activity is pursued for gain, profit, or other pecuniary
advantage to which the Executive would be giving of his time and effort to the
detriment of Employer; but this shall not be construed as preventing the
Executive from serving on boards of directors or trustees of other companies,
corporations or not-for-profit entities, or from investing his assets in such
form or manner as will not require any substantial services on the part of the
Executive in the operation of the affairs of the companies in which such
investments are made; provided, however, that no such investment shall be made
in any company which competes with Employer in any aspect of the computer
business, except that Executive shall be able to invest in any such public
company provided such investment does not exceed 5% of such company's issued and
outstanding shares.
Notwithstanding the above, Employer agrees and acknowledges that
Executive is, and will continue to be, Chairman and a principal of Growth
Management Advisors, Inc.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
A. (i) Executive acknowledges that as a result of his
employment by Employer, he will be making use of, acquiring and/or adding to
confidential information of a special and unique nature and value relating to
Employer's intellectual property, proprietary information, trade secrets,
systems, procedures, manuals, confidential reports and customer lists and all
information related to customer lists and customer sales and service (the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement and to pay Executive the compensation set forth in this
Agreement, Executive covenants and agrees that, except as authorized by
Employer, he shall not, at any time during or following the term of this
Agreement, directly or indirectly, divulge or disclose for any purpose
whatsoever any Confidential Information. Executive acknowledges that
unauthorized disclosure or misuse of the Confidential Information will cause
irreparable damage to the Employer. Employer and Executive also agree that
covenants by Executive not to make unauthorized disclosures of the Confidential
Information are essential to the growth and stability of the Employer.
Accordingly, Executive agrees to the confidentiality covenants in this Section
of the Agreement.
Confidential information shall not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Executive or (ii) is or becomes available to the
Executive on a non-confidential basis from a source other than the Employer
provided that such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
(ii) Because a remedy at law for any breach of the
provisions of this Section may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents, and
agrees that the confidentiality covenants contained in this Section are
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content, and Executive represents and warrants that
he has had the opportunity to consult with his attorney concerning this
Agreement and that he understands the contents hereof.
B. Executive agrees to indemnify and hold Employer harmless
from any loss, cost or expense incurred by the Employer arising out of any
material breach of the agreements set forth in this Section or the fact that any
material representation made by Executive in this agreement was false when made.
It is further understood and agreed that in the event there is a material breach
of any of the provisions set forth above, all obligations of Employer shall end,
and Executive's employment with the Employer may be terminated immediately.
2
<PAGE> 3
10. Expenses. Executive may, from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. In such instances, the Employer will
reimburse the Executive upon submission of an itemized account of such
expenditures.
11. Vacations. The Executive shall be entitled to a vacation of four
(4) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment if (a) the Employer requires Executive to relocate more than 40 miles
from the current location of Executive's branch of Employer or (b) there is a
material and adverse change in Executive's position, duties, responsibilities or
status with the Employer; a material reduction in Executive's salary or
benefits, other than a reduction in salary or benefits comparable to reductions
generally applicable to similarly situated employees of the Employer; or the
Employer violates any of the provisions of this Agreement in any material
respect and such change, reduction or violation is not cured to the Executive's
reasonable satisfaction within a period of thirty (30) days following the
Employer's receipt of written notice from the Executive making specific
reference to this Section 12(a)(ii)(b) and stating with particularity all
alleged actions or omissions of the Employer being relied upon by the Executive
hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated by Employer pursuant to
Section 12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay in the
amount of one year's salary. Payments pursuant to this Section 12(e) shall
continue to be made by Employer in equal monthly installments, and shall be
subject to withholding and other applicable taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
3
<PAGE> 4
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) For a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, except in or through his
capacity as Chairman and a principal of Growth Management Advisors, Inc.
directly or indirectly, (i) own, manage, operate, control, direct, be employed
by, participate in, or be connected in any manner with the ownership,
management, operation, direction or control of any business which competes with
the business conducted by the Employer at the time of the termination of this
Agreement; (ii) solicit any of Employer's customers; or (iii) solicit for
employment any of Employer's employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
(e) Because a remedy at law for any breach of the provisions
of this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and
4
<PAGE> 5
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of October, 1997.
Universal Document Management Systems, Inc.
By: _______________________________________
Its: ______________________________________
Executive:
___________________________________________
Terry L. Theye
5
<PAGE> 1
EXHIBIT 10.12
Employment Agreement
This Agreement is made and entered into as of the _____ day of
September, 1997 by and between Universal Document Management Systems, Inc., an
Ohio corporation (the "Employer"), and Thomas R. McLean (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of three (3) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of One Hundred Twenty Thousand Dollars ($120,000),
payable in twelve (12) equal installments, and (ii) such additional annual
incentive compensation of One Hundred Twenty Thousand Dollars ($120,000) which
shall be based on profitability objectives for the Employer as a whole as may be
mutually agreed upon by the parties, provided however, that $2,500 of such
incentive compensation shall be guaranteed to Executive for each month ending
July 6, 1998, and shall be paid to Executive on a monthly basis. All payments
made pursuant to this Section 3 shall be subject to withholding and other
applicable taxes.
4. Fringe Benefits. Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer. These benefits shall include without limitation the grant of
stock options under Employer's stock option plan.
In the event Employer does not have medical insurance available
to Executive as of the date set forth above, Employer shall pay Executive a
dollar amount equal to the cost of Executive's COBRA coverage from his prior
employer less the amount currently paid by Executive under such prior employer's
plan.
5. Duties. The Executive is engaged as the Senior Vice President of
Business Development and Marketing, and shall perform such services and assume
and discharge such responsibilities as the Employer, in its reasonable
discretion, may, from time to time, require of, or assign to Executive. The
Executive shall not delegate the duties and responsibilities which are vested in
him. He, nevertheless, may utilize and delegate to such individuals who may also
be employed by the Employer those tasks which he deems necessary or appropriate
to help him carry out the duties and responsibilities assigned to him as an
employee of the Employer; except that he shall remain accountable for such tasks
to the Employer. Executive further agrees that he shall devote substantially his
full time, energy and best efforts to the business of the Employer during the
hours that the business remains open and such additional time as is reasonably
necessary to complete Executive's tasks. Executive agrees to exercise his best
efforts, judgment, skills and talents in performing his duties and, in general,
to comply with the policies and be subject to the direction of the Board of
Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
<PAGE> 2
7. Exclusive Services. The Executive shall devote his entire business
time, attention, and energies to the business of the Employer, and shall not
during the term of this Agreement, either directly or indirectly, engage in any
other profession or business whether or not such business activity is pursued
for gain, profit, or other pecuniary advantage to which the Executive would be
giving of his time and effort to the detriment of Employer; but this shall not
be construed as preventing the Executive from investing his assets in such form
or manner as will not require any substantial services on the part of the
Executive in the operation of the affairs of the companies in which such
investments are made; provided, however, that no such investment shall be made
in any company which competes with Employer in any aspect of the computer
business, except that Executive shall be able to invest in any such public
company provided such investment does not exceed 5% of such company's issued and
outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
A. Executive acknowledges that as a result of his employment
by Employer, he will be making use of, acquiring and/or adding to confidential
information of a special and unique nature and value relating to Employer's
intellectual property, proprietary information, trade secrets, systems,
procedures, manuals, confidential reports and customer lists and all information
related to customer lists and customer sales and service (the "Confidential
Information"). As a material inducement to Employer to enter into this Agreement
and to pay Executive the compensation set forth in this Agreement, Executive
covenants and agrees that, except as authorized by Employer, he shall not, at
any time during or following the term of this Agreement, directly or indirectly,
divulge or disclose for any purpose whatsoever any Confidential Information.
Executive acknowledges that unauthorized disclosure or misuse of the
Confidential Information will cause irreparable damage to the Employer. Employer
and Executive also agree that covenants by Executive not to make unauthorized
disclosures of the Confidential Information are essential to the growth and
stability of the Employer. Accordingly, Executive agrees to the confidentiality
covenants in this Section of the Agreement.
Confidential information shall not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Executive or (ii) is or becomes available to the
Executive on a non-confidential basis from a source other than the Employer
provided that such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
B. Executive also acknowledges that he has a duty to his
former employer(s) not to use or to disclose their trade secrets or confidential
information to third persons, including the Employer, in competition with his
former employer(s) or to their injury. Accordingly, Executive agrees as a
condition of employment, that he shall not, without the express written consent
of his prior employer(s), either directly or indirectly, disclose or divulge to
Employer or any of its employees or agents any of the trade secret(s) or other
confidential information, if any, that he may have learned or acquired in the
course of his former employment or otherwise use such information for any
purpose whatsoever while employed with Employer.
As a further condition of employment with the Employer,
Executive represents, acknowledges and agrees that:
(i) Except for a one year non-compete with Lan Vision,
Inc., he is not subject to any unexpired covenant not to compete with any former
employer(s), and his employment with the Employer will not, directly or
indirectly, breach or violate such Lan Vision, Inc., or any restrictive
covenant(s) or other non-compete or non-disclosure provision(s) in any
employment or other agreement(s) which exist between Employee and any former
employer(s);
<PAGE> 3
(ii) He will honor and abide by any reasonable and
enforceable restrictive covenant(s) or non-compete and non-disclosure
agreement(s), if any, executed by Executive and any former employer(s);
(iii) All files, books, correspondence, reports,
proposals, records, and similar documents concerning his former employer's
business (which could include Confidential Information concerning a former
employer) whether prepared by Executive or not, have been returned to the former
employer and such items have not been wrongfully retained by Executive or
removed from the prior employer's premises or disclosed to anyone at the
Employer;
(iv) He has not used, directly or indirectly, and shall
not use during his employment with Employer any Confidential Information
concerning a former employer (including copies thereof), in whole or in part,
that he acquired during any prior employment.
C. (i) Executive agrees to indemnify and hold Employer
harmless from any loss, cost or expense incurred by the Employer arising out of
any material breach of the agreements set forth in this Section 9 or the fact
that any material representation made by Executive in this agreement was false
when made. It is further understood and agreed that in the event there is a
material breach of any of the provisions set forth above, all obligations of
Employer shall end, and Executive's employment with the Employer may be
terminated immediately.
(ii) Because a remedy at law for any breach of the
provisions of this Section 9 may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents, and
agrees that the covenants contained in this Section 9 are necessary for the
protection of the Employer's legitimate business interests and are reasonable in
scope and content, and Executive represents and warrants that his attorney has
thoroughly and completely reviewed this Agreement with him, and he understands
the contents hereof.
10. Expenses. Executive may , from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items and a monthly car allowance of $350. In
such instances, the Employer will reimburse the Executive upon submission of an
itemized account of such expenditures.
11. Vacations. The Executive shall be entitled to a vacation of four
(4) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment if (a) the Employer requires Executive to relocate more than 40 miles
from the current location of Executive's branch of Employer or (b) there is a
material and adverse change in Executive's position, duties, responsibilities or
status with the Employer; a material reduction in Executive's salary or
benefits, other than a reduction in salary or benefits comparable to reductions
generally
<PAGE> 4
applicable to similarly situated employees of the Employer; or the Employer
violates any of the provisions of this Agreement in any material respect and
such change, reduction or violation is not cured to the Executive's reasonable
satisfaction within a period of thirty (30) days following the Employer's
receipt of written notice from the Executive making specific reference to this
Section 12(a)(ii)(b) and stating with particularity all alleged actions or
omissions of the Employer being relied upon by the Executive hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated by Employer pursuant to
Section 12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay in the
amount of one year's salary. Payments pursuant to this Section 12(e) shall
continue to be made by Employer in equal monthly installments, and shall be
subject to withholding and other applicable taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) For a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, directly or indirectly,
(i) own, manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business conducted by the
Employer at the time of the termination of this Agreement; (ii) solicit any of
Employer's customers; or (iii) solicit for employment any of Employer's
employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
<PAGE> 5
(e) Because a remedy at law for any breach of the provisions
of this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the date set forth above.
Universal Document Management Systems, Inc.
______________________________________________
Terry L. Theye
Chief Executive Officer and President
Executive:
______________________________________________
Thomas R. McLean
<PAGE> 1
EXHIBIT 10.13
Employment Agreement
This Agreement is made and entered into as of the _____ day of August,
1997 by and between Universal Document Management Systems, Inc., an Ohio
corporation (the "Employer"), and Scott D. Watkins (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of two (2) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of One Hundred Seventy Thousand Dollars ($170,000)
payable in twelve (12) equal installments, and (ii) additional annual incentive
compensation of $60,000 which shall be based on profitability objectives for the
Company as a whole as may be mutually agreed upon by the parties. All payments
made pursuant to this Section 3 shall be subject to withholding and other
applicable taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer.
5. Duties. The Executive is engaged as Senior Vice President of
Operations and Services, and shall perform such services and assume and
discharge such responsibilities, which are commensurate with his position, as
the Employer, in its reasonable discretion, may, from time to time, require of,
or assign to Executive. The Executive shall not delegate the duties and
responsibilities which are vested in him. He, nevertheless, may utilize and
delegate to such individuals who may also be employed by the Employer those
tasks which he deems necessary or appropriate to help him carry out the duties
and responsibilities assigned to him as an employee of the Employer; except that
he shall remain accountable for such tasks to the Employer. Executive further
agrees that he shall devote substantially his full time, energy and best efforts
to the business of the Employer during the hours that the business remains open
and such additional time as is reasonably necessary to complete Executive's
tasks. Executive agrees to exercise his best efforts, judgment, skills and
talents in performing his duties and, in general, to comply with the policies
and be subject to the direction of the Board of Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
7. Exclusive Services. The Executive shall devote his entire business
time, attention, and energies to the business of the Employer, and shall not
during the term of this Agreement, either directly or indirectly, engage in any
other profession or business whether or not such business activity is pursued
for gain, profit, or other pecuniary advantage to which the Executive would be
giving of his time and effort to the detriment of Employer; but this shall not
<PAGE> 2
be construed as preventing the Executive from investing his assets in such form
or manner as will not require any substantial services on the part of the
Executive in the operation of the affairs of the companies in which such
investments are made; provided, however, that no such investment shall be made
in any company which competes with Employer in any aspect of the computer
business, except that Executive shall be able to invest in any such public
company provided such investment does not exceed 5% of such company's issued and
outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
A. (i) Executive acknowledges that as a result of his
employment by Employer, he will be making use of, acquiring and/or adding to
confidential information of a special and unique nature and value relating to
Employer's intellectual property, proprietary information, trade secrets,
systems, procedures, manuals, confidential reports and customer lists and all
information related to customer lists and customer sales and service (the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement and to pay Executive the compensation set forth in this
Agreement, Executive covenants and agrees that, except as authorized by
Employer, he shall not, at any time during or following the term of this
Agreement, directly or indirectly, divulge or disclose for any purpose
whatsoever any Confidential Information. Executive acknowledges that
unauthorized disclosure or misuse of the Confidential Information will cause
irreparable damage to the Employer. Employer and Executive also agree that
covenants by Executive not to make unauthorized disclosures of the Confidential
Information are essential to the growth and stability of the Employer.
Accordingly, Executive agrees to the confidentiality covenants in this Section
of the Agreement.
Confidential information shall not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Executive or (ii) is or becomes available to the
Executive on a non-confidential basis from a source other than the Employer
provided that such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
(ii) Because a remedy at law for any breach of the
provisions of this Section may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents, and
agrees that the confidentiality covenants contained in this Section are
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content, and Executive represents and warrants that
his attorney has thoroughly and completely reviewed this Agreement with him, and
he understands the contents hereof.
B. Executive agrees to indemnify and hold Employer harmless
from any loss, cost or expense incurred by the Employer arising out of any
material breach of the agreements set forth in this Section or the fact that any
material representation made by Executive in this agreement was false when made.
It is further understood and agreed that in the event there is a material breach
of any of the provisions set forth above, all obligations of Employer shall end,
and Executive's employment with the Employer may be terminated immediately.
10. Expenses. Executive may, from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. In such instances, the Employer will
reimburse the Executive upon submission of an itemized account of such
expenditures.
2
<PAGE> 3
11. Vacations. The Executive shall be entitled to a vacation of five
(5) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
3
<PAGE> 4
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment, if (a) the Employer requires Executive to relocate more than 40
miles from the current location of Executive's branch of Employer or (b) there
is a material and adverse change in Executive's position, duties,
responsibilities or status with the Employer; a material reduction in
Executive's salary or benefits, other than a reduction in salary or benefits
comparable to reductions generally applicable to similarly situated employees of
the Employer; or the Employer violates any of the provisions of this Agreement
in any material respect and such change, reduction or violation is not cured to
the Executive's reasonable satisfaction within a period of thirty (30) days
following the Employer's receipt of written notice from the Executive making
specific reference to this Section 12(a)(ii)(b) and stating with particularity
all alleged actions or omissions of the Employer being relied upon by the
Executive hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated pursuant to Section
12(a)(i) by Executive pursuant to Section 12(b) or pursuant to Section 12(c)(i),
Executive shall be paid only such amounts as are accrued under Sections 3, 4 and
10, but are unpaid as of the date of termination. Payment pursuant to this
Section 12(d) shall be made to Executive as soon as practicable, and shall be
subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay in the
amount of one year's salary. Payments pursuant to this Section 12(e) shall
continue to be made by Employer in equal monthly installments, and shall be
subject to withholding and other applicable taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) For a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, directly or indirectly,
(i) own, manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business
4
<PAGE> 5
conducted by the Employer at the time of the termination of this Agreement; (ii)
solicit any of Employer's customers; or (iii) solicit for employment any of
Employer's employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
(e) Because a remedy at law for any breach of the provisions
of this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
5
<PAGE> 6
23. Retention Agreements. Employer agrees and acknowledges that
Executive and Access Corporation ("Access") have entered into an Executive
Retention Agreement, dated as of August 24, 1994, that the consummation of the
transactions contemplated by the Asset Purchase Agreement of even date herewith
between Employer and Access will constitute a Change of Control as defined in
such Executive Retention Agreement, and that, except as otherwise set forth in
this Section 23, Employer will assume and agree to perform such Executive
Retention Agreement as provided in Section 5 of such Executive Retention
Agreement.
Executive and Employer agree that such Executive Retention Agreement
shall terminate two years after the effective date of this Employment Agreement
and that Executive's compensation, fringe benefits and duties shall be as
described in this Employment Agreement. Executive agrees and acknowledges that
the compensation, fringe benefits and duties as described in this Employment
Agreement may be different than those which he is currently receiving or
performing, that the termination of the Executive Retention Agreement two years
after the effective date of this Employment Agreement may be a material
modification of such Executive Retention Agreement, and that Employer's
assumption of and agreement to perform such Executive Retention Agreement is
subject to the Executive's agreement to the modifications to such Executive
Retention Agreement set forth in this Section 23. Furthermore, Executive waives
any rights under such Executive Retention Agreement that he would otherwise have
as a result of the aforesaid modifications to the Executive Retention Agreement,
including without limitation any right to receive the termination benefits set
forth in Sections 2 and 5 of such Executive Retention Agreement. Employer agrees
and acknowledges, however, that, except as otherwise stated in this Section 23,
by reason of accepting the compensation, fringe benefits and duties described in
this Employment Agreement Executive is not waiving any other right under the
Executive Retention Agreement.
Except as provided in the preceding two paragraphs, in the event of any
conflict between the provisions of this Employment Agreement and such Executive
Retention Agreement, the provisions of the latter shall control.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of August, 1997.
Universal Document Management Systems, Inc.
____________________________________________
Terry L. Theye
Chief Executive Officer and President
Executive:
____________________________________________
Scott D. Watkins
6
<PAGE> 1
EXHIBIT 10.14
Employment Agreement
This Agreement is made and entered into as of the _____ day of October,
1997 by and between Universal Document Management Systems, Inc., an Ohio
corporation (the "Employer"), and Dan Dolan (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of three (3) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of One Hundred Fifty Thousand Dollars ($150,000),
payable in twelve (12) equal installments, and (ii) additional annual incentive
compensation of $100,000 which shall be based on profitability objectives for
the Division as may be mutually agreed upon by the parties. All payments made
pursuant to this Section 3 shall be subject to withholding and other applicable
taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer. These benefits shall include, without limitation, the grant
of stock options under Employer's stock option plan.
5. Duties. The Executive is engaged as Divisional President and shall
perform such services and assume and discharge such responsibilities, which are
commensurate with his position, as the Employer, in its reasonable discretion,
may, from time to time, require of, or assign to Executive. The Executive shall
not delegate the duties and responsibilities which are vested in him. He,
nevertheless, may utilize and delegate to such individuals who may also be
employed by the Employer those tasks which he deems necessary or appropriate to
help him carry out the duties and responsibilities assigned to him as an
employee of the Employer; except that he shall remain accountable for such tasks
to the Employer. Executive further agrees that he shall devote substantially his
full time, energy and best efforts to the business of the Employer during the
hours that the business remains open and such additional time as is reasonably
necessary to complete Executive's tasks. Executive agrees to exercise his best
efforts, judgment, skills and talents in performing his duties and, in general,
to comply with the policies and be subject to the direction of the Board of
Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
7. Exclusive Services. The Executive shall devote his entire business
time, attention, and energies to the business of the Employer, and shall not
during the term of this Agreement, either directly or indirectly, engage in any
other profession or business whether or not such business activity is pursued
for gain, profit, or other pecuniary advantage to which the Executive would be
giving of his time and effort to the detriment of Employer; but this shall not
<PAGE> 2
be construed as preventing the Executive from investing his assets in such form
or manner as will not require any substantial services on the part of the
Executive in the operation of the affairs of the companies in which such
investments are made; provided, however, that no such investment shall be made
in any company which competes with Employer in any aspect of the computer
business, except that Executive shall be able to invest in any such public
company provided such investment does not exceed 5% of such company's issued and
outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
A. (i) Executive acknowledges that as a result of his
employment by Employer, he will be making use of, acquiring and/or adding to
confidential information of a special and unique nature and value relating to
Employer's intellectual property, proprietary information, trade secrets,
systems, procedures, manuals, confidential reports and customer lists and all
information related to customer lists and customer sales and service (the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement and to pay Executive the compensation set forth in this
Agreement, Executive covenants and agrees that, except as authorized by
Employer, he shall not, at any time during or following the term of this
Agreement, directly or indirectly, divulge or disclose for any purpose
whatsoever any Confidential Information. Executive acknowledges that
unauthorized disclosure or misuse of the Confidential Information will cause
irreparable damage to the Employer. Employer and Executive also agree that
covenants by Executive not to make unauthorized disclosures of the Confidential
Information are essential to the growth and stability of the Employer.
Accordingly, Executive agrees to the confidentiality covenants in this Section
of the Agreement.
Confidential information shall not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Executive or (ii) is or becomes available to the
Executive on a non-confidential basis from a source other than the Employer
provided that such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
(ii) Because a remedy at law for any breach of the provisions
of this Section may be inadequate, in addition to any and all other remedies
available to Employer, Employer shall have the remedies of a restraining order,
injunction or other equitable relief to enforce the provisions hereof.
(iii) Executive acknowledges, warrants, represents, and agrees
that the confidentiality covenants contained in this Section are necessary for
the protection of the Employer's legitimate business interests and are
reasonable in scope and content, and Executive represents and warrants that his
attorney has thoroughly and completely reviewed this Agreement with him, and he
understands the contents hereof.
B. Executive agrees to indemnify and hold Employer harmless
from any loss, cost or expense incurred by the Employer arising out of any
material breach of the agreements set forth in this Section or the fact that any
material representation made by Executive in this agreement was false when made.
It is further understood and agreed that in the event there is a material breach
of any of the provisions set forth above, all obligations of Employer shall end,
and Executive's employment with the Employer's may be terminated immediately.
10. Expenses. Executive may, from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. In such instances, the Employer will
reimburse the Executive upon submission of an itemized account of such
expenditures.
2
<PAGE> 3
11. Vacations. The Executive shall be entitled to a vacation of four
(4) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
3
<PAGE> 4
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment, if (a) the Employer requires Executive to relocate more than 40
miles from the current location of Executive's branch of Employer or (b) there
is a material and adverse change in Executive's position, duties,
responsibilities or status with the Employer; a material reduction in
Executive's salary or benefits, other than a reduction in salary or benefits
comparable to reductions generally applicable to similarly situated employees of
the Employer; or the Employer violates any of the provisions of this Agreement
in any material respect and such change, reduction or violation is not cured to
the Executive's reasonable satisfaction within a period of thirty (30) days
following the Employer's receipt of written notice from the Executive making
specific reference to this Section 12(a)(ii)(b) and stating with particularity
all alleged actions or omissions of the Employer being relied upon by the
Executive hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated pursuant to Section
12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay for the
remainder of the term of this Agreement or one year, whichever is greater, at
the rate of Executive's salary in effect at the time of termination. Payments
pursuant to this Section 12(e) shall continue to be made by Employer in equal
monthly installments, and shall be subject to withholding and other applicable
taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) (i) In the event Section 12(d) governs a termination of
this Agreement, then for a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, directly or indirectly,
(x) own, manage, operate, control, direct, be employed by, participate
4
<PAGE> 5
in, or be connected in any manner with the ownership, management, operation,
direction or control of any business which competes with the business conducted
by the Employer at the time of the termination of this Agreement; (y) solicit
any of Employer's customers; or (z) solicit for employment any of Employer's
employees.
(ii) In the event Section 12(e) governs a termination of
this Agreement, then for a period of time equal to the remainder of the term of
this Agreement or one (1) year after termination or expiration of this
Agreement, whichever is greater, the Executive shall not, directly or
indirectly, (x) own, manage, operate, control, direct, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, direction or control of any business which competes with the business
conducted by the Employer at the time of the termination of this Agreement; (y)
solicit any of Employer's customers; or (z) solicit for employment any of
Employer's employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
(e) Because a remedy at law for any breach of the provisions
of this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
5
<PAGE> 6
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of October, 1997.
Universal Document Management Systems, Inc.
_________________________________________________
Terry L. Theye
Chief Executive Officer and President
Executive:
_________________________________________________
Dan Dolan
6
<PAGE> 1
EXHIBIT 10.15
Employment Agreement
This Agreement is made and entered into as of the _____ day of
September, 1997 by and between Universal Document Management Systems, Inc., an
Ohio corporation (the "Employer"), and Bonnie L. Johnson, (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of three (3) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of One Hundred and Fifty Thousand Dollars ($150,000),
payable in twelve (12) equal installments, and (ii) additional annual incentive
compensation of Twenty Thousand Dollars ($20,000) which shall be based on
profitability objectives for the Employer as a whole on such terms as may be
mutually agreed upon by the parties. All payments made pursuant to this Section
3 shall be subject to withholding and other applicable taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer. These benefits shall include, without limitation, the grant
of stock options under Employer's stock option plan.
5. Duties. The Executive is engaged as Vice President, Secretary and
General Counsel, and shall perform such services and assume and discharge such
responsibilities, which are commensurate with her position, as the Employer, in
its reasonable discretion, may, from time to time, require of, or assign to
Executive. The Executive shall not delegate the duties and responsibilities
which are vested in her. She, nevertheless, may utilize and delegate to such
individuals who may also be employed by the Employer those tasks which she deems
necessary or appropriate to help her carry out the duties and responsibilities
assigned to her as an employee of the Employer; except that she shall remain
accountable for such tasks to the Employer. Executive further agrees that she
shall devote substantially her full time, energy and best efforts to the
business of the Employer during the hours that the business remains open and
such additional time as is reasonably necessary to complete Executive's tasks.
Executive agrees to exercise her best efforts, judgment, skills and talents in
performing her duties and, in general, to comply with the policies and be
subject to the direction of the Board of Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
7. Exclusive Services. The Executive shall devote her entire business
time, attention, and energies to the business of the Employer, and shall not
during the term of this Agreement, either directly or indirectly, engage in any
other profession or business whether or not such business activity is pursued
for gain, profit, or other pecuniary advantage to which the
<PAGE> 2
Executive would be giving of her time and effort to the detriment of Employer;
but this shall not be construed as preventing the Executive from other business
activities as long as such activities are conducted outside Executive's business
time and do not compete with Employer or investing her assets in such form or
manner as will not require any substantial services on the part of the Executive
in the operation of the affairs of the companies in which such investments are
made; provided, however, that no such investment shall be made in any company
which competes with Employer in any aspect of the computer business, except that
Executive shall be able to invest in any such public company provided such
investment does not exceed 5% of such company's issued and outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing her
services hereunder.
9. Disclosure of Information.
A. (i) Executive acknowledges that as a result of her
employment by Employer, she will be making use of, acquiring and/or adding to
confidential information of a special and unique nature and value relating to
Employer's intellectual property, proprietary information, trade secrets,
systems, procedures, manuals, confidential reports and customer lists and all
information related to customer lists and customer sales and service (the
"Confidential Information"). As a material inducement to Employer to enter into
this Agreement and to pay Executive the compensation set forth in this
Agreement, Executive covenants and agrees that, except as authorized by
Employer, she shall not, at any time during or following the term of this
Agreement, directly or indirectly, divulge or disclose for any purpose
whatsoever any Confidential Information. Executive acknowledges that
unauthorized disclosure or misuse of the Confidential Information will cause
irreparable damage to the Employer. Employer and Executive also agree that
covenants by Executive not to make unauthorized disclosures of the Confidential
Information are essential to the growth and stability of the Employer.
Accordingly, Executive agrees to the confidentiality covenants in this Section
of the Agreement.
Confidential information shall not include information which
(i) is or becomes generally available to the public other than as a result of a
disclosure by the Executive or (ii) is or becomes available to the Executive on
a non-confidential basis from a source other than the Employer provided that
such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
B. Executive also acknowledges that she has a duty to her
former employer(s) not to use or to disclose their trade secrets or confidential
information to third persons, including the Employer, in competition with her
former employer(s) or to their injury. Accordingly, Executive agrees as a
condition of employment, that she shall not, without the express written consent
of her prior employer(s), either directly or indirectly, disclose or divulge to
Employer or any of its employees or agents any of the trade secret(s) or other
confidential information, if any, that she may have learned or acquired in the
course of her former employment or otherwise use such information for any
purpose whatsoever while employed with Employer.
As a further condition of employment with the Employer,
Executive represents, acknowledges and agrees that:
(i) She is not subject to any unexpired covenant not
to compete with any former employer(s), and her employment with the Employer
will not, directly or indirectly, breach or violate any restrictive covenant(s)
or other non-compete or non-disclosure provision(s) in any employment or other
agreement(s) which exist between Employee and any former employer(s);
(ii) She will honor and abide by any reasonable and
enforceable restrictive covenant(s) or non-compete and non-disclosure
agreement(s), if any, executed by Executive and any former employer(s);
2
<PAGE> 3
(iii) All files, books, correspondence, reports,
proposals, records, and similar documents concerning her former employer's
business (which could include Confidential Information concerning a former
employer) whether prepared by Executive or not, have been returned to the former
employer and such items have not been wrongfully retained by Executive or
removed from the prior employer's premises or disclosed to anyone at the
Employer;
(iv) She has not used, directly or indirectly, and
shall not use during her employment with Employer any Confidential Information
concerning a former employer (including copies thereof), in whole or in part,
that she acquired during any prior employment.
C. (i) Executive agrees to indemnify and hold Employer
harmless from any loss, cost or expense incurred by the Employer arising out of
any material breach of the agreements set forth in this Section 9 or the fact
that any material representation made by Executive in this agreement was false
when made. It is further understood and agreed that in the event there is a
material breach of any of the provisions set forth above, all obligations of
Employer shall end, and Executive's employment with the Employer may be
terminated immediately.
(ii) Because a remedy at law for any breach of the
provisions of this Section 9 may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents,
and agrees that the covenants contained in this Section 9 are necessary for the
protection of the Employer's legitimate business interests and are reasonable in
scope and content, and Executive represents and warrants that her attorney has
thoroughly and completely reviewed this Agreement with her, and she understands
the contents hereof.
10. Expenses. Executive may, from time to time, to incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel, a cellular phone to the extent used for business
purposes, continuing legal education, and similar items. In such instances, the
Employer will reimburse the Executive upon submission of an itemized account of
such expenditures.
11. Vacations. The Executive shall be entitled to a vacation of six (6)
weeks per year during the term of this Agreement, during which time her
compensation shall be paid in full.
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform her duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and her employment
if (a) the Employer requires Executive to relocate more than 40 miles from the
current location of Executive's branch of Employer or (b) there is a material
and adverse change in Executive's position, duties, responsibilities or status
with the Employer; a material reduction in Executive's salary or benefits, other
than a reduction in salary or benefits comparable to reductions generally
applicable to similarly situated employees of the Employer; or the Employer
violates any of the provisions of this Agreement in any material respect and
such change, reduction or violation is
3
<PAGE> 4
not cured to the Executive's reasonable satisfaction within a period of thirty
(30) days following the Employer's receipt of written notice from the Executive
making specific reference to this Section 12(a)(ii)(b) and stating with
particularity all alleged actions or omissions of the Employer being relied upon
by the Executive hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated by Employer pursuant to
Section 12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay for the
remainder of the term of this agreement or one year, whichever is greater, at
the rate of Executive's salary in effect at the time of termination. Payments
pursuant to this Section 12(e) shall continue to be made by Employer in equal
monthly installments, and shall be subject to withholding and other applicable
taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) (i) In the event Section 12(d) governs a termination
of this Agreement, then for a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, directly or indirectly,
(x) own, manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business conducted by the
Employer at the time of the termination of this Agreement; (y) solicit any of
Employer's customers; or (z) solicit for employment any of Employer's employees.
(ii) In the event Section 12(e) governs a termination
of this Agreement, then for a period of time equal to the remainder of the term
of this Agreement or one (1) year after termination or expiration of this
Agreement, whichever is greater, the Executive shall not, directly or
indirectly, (x) own, manage, operate, control, direct, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, direction or control of any business which competes with the business
conducted by the Employer at the time of the termination of this Agreement; (y)
solicit any of Employer's customers; or (z) solicit for employment any of
Employer's employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid
4
<PAGE> 5
in any jurisdiction, in whole or in part, Executive acknowledges, warrants,
represents, and agrees that such limitation shall nevertheless be valid in all
other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
(e) Because a remedy at law for any breach of the provisions
of this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
her employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to her residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
5
<PAGE> 6
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of September, 1997.
Universal Document Management Systems, Inc.
---------------------------------------
Terry L. Theye
Chief Executive Officer and President
Executive:
---------------------------------------
Bonnie L. Johnson
<PAGE> 1
EXHIBIT 10.16
Employment Agreement
This Agreement is made and entered into as of the _____ day of October,
1997 by and between Universal Document Management Systems, Inc., an Ohio
corporation (the "Employer"), and Jeffrey A. Pakrosnis (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of two (2) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of Ninety Thousand Dollars ($90,000), payable in
twelve (12) equal installments, and (ii) additional annual incentive
compensation of Thirty Thousand Dollars ($30,000) which shall be based on
profitability objectives for the Employer as a whole as may be mutually agreed
upon by the parties. All payments made pursuant to this Section 3 shall be
subject to withholding and other applicable taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer. These benefits shall include, without limitation, the grant
of stock options under Employer's stock option plan.
5. Duties. The Executive is engaged as Vice President and Chief
Financial Officer, and shall perform such services and assume and discharge such
responsibilities, which are commensurate with his position, as the Employer, in
its reasonable discretion, may, from time to time, require of, or assign to
Executive. The Executive shall not delegate the duties and responsibilities
which are vested in him. He, nevertheless, may utilize and delegate to such
individuals who may also be employed by the Employer those tasks which he deems
necessary or appropriate to help him carry out the duties and responsibilities
assigned to him as an employee of the Employer; except that he shall remain
accountable for such tasks to the Employer. Executive further agrees that he
shall devote substantially his full time, energy and best efforts to the
business of the Employer during the hours that the business remains open and
such additional time as is reasonably necessary to complete Executive's tasks.
Executive agrees to exercise his best efforts, judgment, skills and talents in
performing his duties and, in general, to comply with the policies and be
subject to the direction of the Board of Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
Exclusive Services. The Executive shall devote his entire
business time, attention, and energies to the business of the Employer, and
shall not during the term of this Agreement, either directly or indirectly,
engage in any other profession or business whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage to which the Executive
<PAGE> 2
would be giving of his time and effort to the detriment of Employer; but this
shall not be construed as preventing the Executive from investing his assets in
such form or manner as will not require any substantial services on the part of
the Executive in the operation of the affairs of the companies in which such
investments are made; provided, however, that no such investment shall be made
in any company which competes with Employer in any aspect of the computer
business, except that Executive shall be able to invest in any such public
company provided such investment does not exceed 5% of such company's issued and
outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
Executive acknowledges that as a result of his employment by
Employer, he will be making use of, acquiring and/or adding to confidential
information of a special and unique nature and value relating to Employer's
intellectual property, proprietary information, trade secrets, systems,
procedures, manuals, confidential reports and customer lists and all information
related to customer lists and customer sales and service (the "Confidential
Information"). As a material inducement to Employer to enter into this Agreement
and to pay Executive the compensation set forth in this Agreement, Executive
covenants and agrees that, except as authorized by Employer, he shall not, at
any time during or following the term of this Agreement, directly or indirectly,
divulge or disclose for any purpose whatsoever any Confidential Information.
Executive acknowledges that unauthorized disclosure or misuse of the
Confidential Information will cause irreparable damage to the Employer. Employer
and Executive also agree that covenants by Executive not to make unauthorized
disclosures of the Confidential Information are essential to the growth and
stability of the Employer. Accordingly, Executive agrees to the confidentiality
covenants in this Section of the Agreement.
Confidential information shall not include information which
(i) is or becomes generally available to the public other than as a result of a
disclosure by the Executive or (ii) is or becomes available to the Executive on
a non-confidential basis from a source other than the Employer provided that
such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
B. Executive also acknowledges that he has a duty to his
former employer(s) not to use or to disclose their trade secrets or confidential
information to third persons, including the Employer, in competition with his
former employer(s) or to their injury. Accordingly, Executive agrees as a
condition of employment, that he shall not, without the express written consent
of his prior employer(s), either directly or indirectly, disclose or divulge to
Employer or any of its employees or agents any of the trade secret(s) or other
confidential information, if any, that he may have learned or acquired in the
course of his former employment or otherwise use such information for any
purpose whatsoever while employed with Employer.
As a further condition of employment with the Employer,
Executive represents, acknowledges and agrees that:
(i) He is not subject to any unexpired covenant not
to compete with any former employer(s), and his employment with the Employer
will not, directly or indirectly, breach or violate any restrictive covenant(s)
or other non-compete or non-disclosure provision(s) in any employment or other
agreement(s) which exist between Employee and any former employer(s);
(ii) He will honor and abide by any reasonable and
enforceable restrictive covenant(s) or non-compete and non-disclosure
agreement(s), if any, executed by Executive and any former employer(s);
(iii) All files, books, correspondence, reports,
proposals, records, and similar documents concerning his former employer's
business (which could include Confidential
2
<PAGE> 3
Information concerning a former employer) whether prepared by Executive or not,
have been returned to the former employer and such items have not been
wrongfully retained by Executive or removed from the prior employer's premises
or disclosed to anyone at the Employer;
(iv) He has not used, directly or indirectly, and
shall not use during his employment with Employer any Confidential Information
concerning a former employer (including copies thereof), in whole or in part,
that he acquired during any prior employment.
C. (i) Executive agrees to indemnify and hold Employer
harmless from any loss, cost or expense incurred by the Employer arising out of
any material breach of the agreements set forth in this Section 9 or the fact
that any material representation made by Executive in this agreement was false
when made. It is further understood and agreed that in the event there is a
material breach of any of the provisions set forth above, all obligations of
Employer shall end, and Executive's employment with the Employer may be
terminated immediately.
(ii) Because a remedy at law for any breach of the
provisions of this Section 9 may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents,
and agrees that the covenants contained in this Section 9 are necessary for the
protection of the Employer's legitimate business interests and are reasonable in
scope and content, and Executive represents and warrants that his attorney has
thoroughly and completely reviewed this Agreement with him, and he understands
the contents hereof.
10. Expenses. Executive may, from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. In such instances, the Employer will
reimburse the Executive upon submission of an itemized account of such
expenditures.
11. Vacations. The Executive shall be entitled to a vacation of four
(4) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
12. Termination of Employment.
(i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment if (a) the Employer requires Executive to relocate more than 40 miles
from the current location of Executive's branch of Employer or (b) there is a
material and adverse change in Executive's position, duties, responsibilities or
status with the Employer; a material reduction in Executive's salary or
benefits, other than a reduction in salary or benefits comparable to reductions
generally applicable to similarly situated employees of the Employer; or the
Employer violates any of the provisions of this Agreement in any material
respect and such change, reduction or violation is not cured to the Executive's
reasonable satisfaction within a period of thirty (30) days following the
Employer's receipt of written notice from the Executive making specific
reference to this Section 12(a)(ii)(b) and stating with particularity all
alleged actions or omissions of the
3
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Employer being relied upon by the Executive hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated by Employer pursuant to
Section 12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay for the
remainder of the term of this agreement or one year, whichever is greater, at
the rate of Executive's salary in effect at the time of termination. Payments
pursuant to this Section 12(e) shall continue to be made by Employer in equal
monthly installments, and shall be subject to withholding and other applicable
taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever
(i) In the event Section 12(d) governs a termination of this
Agreement, then for a period of one (1) year after termination or expiration of
this Agreement, the Executive shall not, directly or indirectly, (x) own,
manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business conducted by the
Employer at the time of the termination of this Agreement; (y) solicit any of
Employer's customers; or (z) solicit for employment any of Employer's employees.
(ii) In the event Section 12(e) governs a termination of this
Agreement, then for a period of time equal to the remainder of the term of this
Agreement or one (1) year after termination or expiration of this Agreement,
whichever is greater, the Executive shall not, directly or indirectly, (x) own,
manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business conducted by the
Employer at the time of the termination of this Agreement; (y) solicit any of
Employer's customers; or (z) solicit for employment any of Employer's employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the
4
<PAGE> 5
restrictive covenants contained in this Section are reasonable and necessary for
the protection of the Employer's legitimate business interests and are
reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
Because a remedy at law for any breach of the provisions of
this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
5
<PAGE> 6
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of October, 1997.
Universal Document Management Systems, Inc.
-----------------------------
Terry L. Theye
Chief Executive Officer and President
Executive:
-----------------------------
Jeffrey A. Pakrosnis
6
<PAGE> 1
EXHIBIT 10.17
Employment Agreement
This Agreement is made and entered into as of the _____ day of
September, 1997 by and between Universal Document Management Systems, Inc., an
Ohio corporation (the "Employer"), and Michael Theye (the "Executive").
Whereas, the Employer desires to employ the Executive on the terms and
conditions set forth in this Agreement and the Executive is willing to accept
such employment.
Now, Therefore, In consideration of the mutual covenants and promises
set forth in this Agreement, the Employer and Executive, intending to be legally
bound, agree as follows:
1. Employment. The Employer hereby employs the Executive, and the
Executive hereby accepts employment, upon the terms and conditions set forth in
this Agreement. The relationship between the Executive and Employer is that of
employee and employer.
2. Term. Subject to the provisions for termination set forth in this
Agreement , the term of this Agreement shall be for a period of two (2) years,
beginning on the date of the Initial Public Offering of Employer's common stock.
3. Compensation. For all services rendered by the Executive under this
Agreement, the Employer shall pay Executive during the term of this Agreement:
(i) an annual base salary of Ninety Thousand Dollars ($90,000), payable in
twelve (12) equal installments, and (ii) additional annual incentive
compensation of Thirty Thousand Dollars ($30,000) which shall be based on
profitability objectives for the Employer as a whole as may be mutually agreed
upon by the parties. All payments made pursuant to this Section 3 shall be
subject to withholding and other applicable taxes.
4. Fringe Benefits. The Executive shall be entitled to the same fringe
benefits as are offered, from time to time, to other employees of Employer who
are employed in positions similar to that of Executive, including the Chief
Executive Officer. These benefits shall include, without limitation, the grant
of stock options under Employer's stock option plan.
5. Duties. The Executive is engaged as a Vice President of Corporate
Integration, and shall perform such services and assume and discharge such
responsibilities, which are commensurate with his position, as the Employer, in
its reasonable discretion, may, from time to time, require of, or assign to
Executive. The Executive shall not delegate the duties and responsibilities
which are vested in him. He, nevertheless, may utilize and delegate to such
individuals who may also be employed by the Employer those tasks which he deems
necessary or appropriate to help him carry out the duties and responsibilities
assigned to him as an employee of the Employer; except that he shall remain
accountable for such tasks to the Employer. Executive further agrees that he
shall devote substantially his full time, energy and best efforts to the
business of the Employer during the hours that the business remains open and
such additional time as is reasonably necessary to complete Executive's tasks.
Executive agrees to exercise his best efforts, judgment, skills and talents in
performing his duties and, in general, to comply with the policies and be
subject to the direction of the Board of Directors of the Employer.
6. Direction of Services. The Employer shall direct, control and
supervise the duties and work of Executive; provided, however, that the Employer
shall not impose employment duties or constraints of any kind which would
require Executive to violate any ordinance or law.
7. Exclusive Services. The Executive shall devote his entire business
time, attention, and energies to the business of the Employer, and shall not
during the term of this Agreement, either directly or indirectly, engage in any
other profession or business whether or
<PAGE> 2
not such business activity is pursued for gain, profit, or other pecuniary
advantage to which the Executive would be giving of his time and effort to the
detriment of Employer; but this shall not be construed as preventing the
Executive from investing his assets in such form or manner as will not require
any substantial services on the part of the Executive in the operation of the
affairs of the companies in which such investments are made; provided, however,
that no such investment shall be made in any company which competes with
Employer in any aspect of the computer business, except that Executive shall be
able to invest in any such public company provided such investment does not
exceed 5% of such company's issued and outstanding shares.
8. Working Facilities. The Executive shall be furnished, at the expense
of the Employer, with all necessary facilities and equipment for performing his
services hereunder.
9. Disclosure of Information.
A. Executive acknowledges that as a result of his employment
by Employer, he will be making use of, acquiring and/or adding to confidential
information of a special and unique nature and value relating to Employer's
intellectual property, proprietary information, trade secrets, systems,
procedures, manuals, confidential reports and customer lists and all information
related to customer lists and customer sales and service (the "Confidential
Information"). As a material inducement to Employer to enter into this Agreement
and to pay Executive the compensation set forth in this Agreement, Executive
covenants and agrees that, except as authorized by Employer, he shall not, at
any time during or following the term of this Agreement, directly or indirectly,
divulge or disclose for any purpose whatsoever any Confidential Information.
Executive acknowledges that unauthorized disclosure or misuse of the
Confidential Information will cause irreparable damage to the Employer. Employer
and Executive also agree that covenants by Executive not to make unauthorized
disclosures of the Confidential Information are essential to the growth and
stability of the Employer. Accordingly, Executive agrees to the confidentiality
covenants in this Section of the Agreement.
Confidential information shall not include information
which (i) is or becomes generally available to the public other than as a result
of a disclosure by the Executive or (ii) is or becomes available to the
Executive on a non-confidential basis from a source other than the Employer
provided that such source is not, to the knowledge of the Executive, bound by a
confidentiality agreement with the Employer.
B. Executive also acknowledges that he has a duty to his
former employer(s) not to use or to disclose their trade secrets or confidential
information to third persons, including the Employer, in competition with his
former employer(s) or to their injury. Accordingly, Executive agrees as a
condition of employment, that he shall not, without the express written consent
of his prior employer(s), either directly or indirectly, disclose or divulge to
Employer or any of its employees or agents any of the trade secret(s) or other
confidential information, if any, that he may have learned or acquired in the
course of his former employment or otherwise use such information for any
purpose whatsoever while employed with Employer.
As a further condition of employment with the Employer,
Executive represents, acknowledges and agrees that:
(i) He is not subject to any unexpired covenant not
to compete with any former employer(s), and his employment with the Employer
will not, directly or indirectly, breach or violate any restrictive covenant(s)
or other non-compete or non-disclosure provision(s) in any employment or other
agreement(s) which exist between Employee and any former employer(s);
(ii) He will honor and abide by any reasonable and
enforceable restrictive covenant(s) or non-compete and non-disclosure
agreement(s), if any, executed by Executive and any former employer(s);
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<PAGE> 3
(iii) All files, books, correspondence, reports,
proposals, records, and similar documents concerning his former employer's
business (which could include Confidential Information concerning a former
employer) whether prepared by Executive or not, have been returned to the former
employer and such items have not been wrongfully retained by Executive or
removed from the prior employer's premises or disclosed to anyone at the
Employer;
(iv) He has not used, directly or indirectly, and
shall not use during his employment with Employer any Confidential Information
concerning a former employer (including copies thereof), in whole or in part,
that he acquired during any prior employment.
C. (i) Executive agrees to indemnify and hold Employer
harmless from any loss, cost or expense incurred by the Employer arising out of
any material breach of the agreements set forth in this Section 9 or the fact
that any material representation made by Executive in this agreement was false
when made. It is further understood and agreed that in the event there is a
material breach of any of the provisions set forth above, all obligations of
Employer shall end, and Executive's employment with the Employer may be
terminated immediately.
(ii) Because a remedy at law for any breach of the
provisions of this Section 9 may be inadequate, in addition to any and all other
remedies available to Employer, Employer shall have the remedies of a
restraining order, injunction or other equitable relief to enforce the
provisions hereof.
(iii) Executive acknowledges, warrants, represents,
and agrees that the covenants contained in this Section 9 are necessary for the
protection of the Employer's legitimate business interests and are reasonable in
scope and content, and Executive represents and warrants that his attorney has
thoroughly and completely reviewed this Agreement with him, and he understands
the contents hereof.
10. Expenses. Executive may, from time to time, incur reasonable
expenses for promoting the business of Employer, including expenses for
entertainment, travel and similar items. In such instances, the Employer will
reimburse the Executive upon submission of an itemized account of such
expenditures.
11. Vacations. The Executive shall be entitled to a vacation of four
(4) weeks per year during the term of this Agreement, during which time his
compensation shall be paid in full.
12. Termination of Employment.
(a) (i) The Employer may terminate this Agreement and
Executive's employment at any time for cause which shall include but not be
limited to (a) Executive's fraud, felony conviction (whether or not employment
related), misappropriation, embezzlement or the like, or (b) if, for any reason,
Executive fails or neglects to perform his duties hereunder in any material
respect, or if Executive violates any of the provisions hereunder in any
material respect and such failure, neglect or violation is not cured by the
Executive to the Employer's reasonable satisfaction within a period of thirty
(30) days following the Executive's receipt of written notice from the Employer
making specific reference to this Section 12(a)(i)(b) and stating with
particularity all alleged actions or omissions in the Executive's service being
relied upon by the Employer hereunder.
(ii) Executive may terminate this agreement and his
employment if (a) the Employer requires Executive to relocate more than 40 miles
from the current location of Executive's branch of Employer or (b) there is a
material and adverse change in Executive's position, duties, responsibilities or
status with the Employer; a material reduction in Executive's salary or
benefits, other than a reduction in salary or benefits comparable to reductions
generally applicable to similarly situated employees of the Employer; or the
Employer violates any of the provisions of this Agreement in any material
respect and such change, reduction or violation is not cured to the Executive's
reasonable satisfaction within a period of thirty (30) days following
<PAGE> 4
the Employer's receipt of written notice from the Executive making specific
reference to this Section 12(a)(ii)(b) and stating with particularity all
alleged actions or omissions of the Employer being relied upon by the Executive
hereunder.
(b) The Employer or Executive may terminate this Agreement
without cause upon thirty (30) days written notice to the other party.
(c) This Agreement shall also be terminated (i) by the mutual
agreement of Employer and Executive; (ii) by the dissolution and liquidation of
Employer (other than as part of a reorganization, merger, consolidation, or sale
of all or substantially all of the assets of Employer through which the business
of the Employer is continued); and (iii) by the total or complete disability of
the Executive for more than 90 consecutive days.
(d) If this Agreement is terminated by Employer pursuant to
Section 12(a)(i), by Executive pursuant to Section 12(b) or pursuant to Section
12(c)(i), Executive shall be paid only such amounts as are accrued under
Sections 3, 4 and 10, but are unpaid as of the date of termination. Payment
pursuant to this Section 12(d) shall be made to Executive as soon as
practicable, and shall be subject to withholding and other applicable taxes.
(e) If this Agreement is terminated by Executive pursuant to
Section 12(a)(ii), by Employer pursuant to Section 12(b), or pursuant to Section
12(c)(ii), or Section 12(c)(iii), Executive shall receive severance pay in the
amount of one year's salary. Payments pursuant to this Section 12(e) shall
continue to be made by Employer in equal monthly installments, and shall be
subject to withholding and other applicable taxes.
(f) In the event of termination of this Agreement for any
reason, Executive agrees to resign from all positions held in Employer or any of
its affiliate or subsidiary companies, including without limitation any position
as a director, officer, trustee or consultant.
13. Restrictive Covenants.
(a) The provisions of the Section apply in the event this
Agreement is terminated for any reason whatsoever.
(b) For a period of one (1) year after termination or
expiration of this Agreement, the Executive shall not, directly or indirectly,
(i) own, manage, operate, control, direct, be employed by, participate in, or be
connected in any manner with the ownership, management, operation, direction or
control of any business which competes with the business conducted by the
Employer at the time of the termination of this Agreement; (ii) solicit any of
Employer's customers; or (iii) solicit for employment any of Employer's
employees.
(c) Executive acknowledges that the foregoing time and other
limitations are reasonable and properly required for the adequate protection of
the business affairs of the Employer, and in the event any such limitation is
found to be unreasonable by a Court of competent jurisdiction, Executive agrees
and submits to the reduction of said limitation to such an area, time or other
limitation or otherwise as the Court may determine to be reasonable. In the
event that any limitation under this Section is found to be unreasonable or
otherwise invalid in any jurisdiction, in whole or in part, Executive
acknowledges, warrants, represents, and agrees that such limitation shall
nevertheless be valid in all other jurisdictions.
(d) Executive acknowledges, warrants, represents, and agrees
that the restrictive covenants contained in this Section are reasonable and
necessary for the protection of the Employer's legitimate business interests and
are reasonable in scope and content and represents and warrants that Executive's
attorney has reviewed this Agreement with Executive and Executive understands
the contents of these restrictive covenants.
(e) Because a remedy at law for any breach of the provisions of
this Section will be inadequate, in addition to any and all other remedies
available to the Employer, the Employer shall have the remedies of a restraining
order, injunction or other equitable relief to enforce the provisions hereof.
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14. Death During Employment. If the Executive dies during the term of
his employment hereunder, the Employer shall pay to the estate of the Executive
the compensation, if any, accrued but unpaid to the date of death.
5
<PAGE> 6
15. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing, and if sent by certified or
registered mail or personally delivered to his residence in the case of the
Executive or to its principal place of business in the case of the Employer.
Either party, by notice to the other, may change the address to which further
notice is to be sent to such party.
16. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach.
17. Assignment. The rights and obligations of the Employer and
Executive under this Agreement are of a personal nature and, therefore, this
Agreement and the rights and obligations of the parties are not assignable by
either party, without the prior written consent of the other party.
18. Entire Agreement; Amendments. This Agreement contains the entire
agreement of the parties. This Agreement may be amended at any time by mutual
consent of the parties provided, however, that no such amendment shall be valid
or enforceable unless set forth in writing and signed by Employer and Executive.
19. Applicable Laws. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Ohio.
20. Severability. The invalidity or unenforceability of any provision
in the Agreement shall not in any way affect the validity of enforceability of
any other provision and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had never been in the Agreement.
21. Headings. The various headings in this Agreement are inserted for
convenience only and are not part of the Agreement.
22. Expenses. All expenses, including reasonable attorney's fees and
expenses, arising out of claims under this Agreement, shall be borne by the
losing party to the fullest extent permitted by law.
IN WITNESS WHEREOF, Employer and Executive have executed this Agreement
as of the ______ day of September, 1997.
Universal Document Management Systems, Inc.
-----------------------------------
Terry L. Theye
Chief Executive Officer and President
Executive:
-----------------------------------
Michael Theye
6
<PAGE> 1
EXHIBIT 10.18
SYNERGIS TECHNOLOGIES, INC.
1997 LONG-TERM INCENTIVE PLAN
1. DEFINITIONS
In this Plan the following definitions apply:
1.1 "Agreement" means a written agreement implementing a grant of an
Option or an award of Restricted Stock.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Code" means the Internal Revenue Code of 1986, as amended.
1.4 "Committee" means the Compensation Committee of the Board.
1.5 "Common Stock" means the common stock of the Company.
1.6 "Company" means SYNERGIS TECHNOLOGIES, INC.
1.7 "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Article 8.
1.8 "Date of Grant" means the date on which an Option is granted or
Restricted Stock is awarded by the Committee.
1.9 "Director" means a member of the Board of the Company.
1.10 "Employee" means any person determined by the Committee to be an
employee of the Company or a Subsidiary.
1.11 "Employee Director" means a Director who is an Employee of the
Company.
1.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.13 "Fair Market Value" of a Share of Common Stock means the amount
equal to the fair market value of a Share of Common Stock determined pursuant to
a reasonable method adopted by the Committee in good faith. Unless otherwise
provided to the contrary in an Agreement or in resolutions of the Committee, the
Fair Market Value of a Share will be the mean between the highest and lowest
selling price on the date of determination on the Nasdaq National Market, or if
no sales are made on that date, on the most recent prior date for which sales
are reported.
1.14 "Grantee" means an Employee to whom Restricted Stock has been
awarded pursuant to Article 10.
1.15 "Insider" means an officer or other employee of the Company
subject to Section 16(a) of the Exchange Act.
1.16 "Insider Program" means that portion of the Plan under which
grants or awards are made to Insiders, including Employee Directors.
1.17 "Non-Insider Program" means that portion of the Plan under which
grants or awards are made to Employees, excluding Insiders and Employee
Directors.
1.18 "Option" means a nonstatutory stock option granted under the Plan
that does not qualify as an incentive stock option under Section 422 of the
Code.
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<PAGE> 2
1.19 "Option Period" means the period during which an Option may be
exercised.
1.20 "Option Price" means the price per Share at which an Option may be
exercised. The Option Price will be determined by the Committee, but in no event
shall the Option Price of an Option be less than the Fair Market Value per Share
determined as of the Date of Grant.
1.21 "Optionee" means an Employee or Director to whom an Option has
been granted.
1.22 "Outside Director Program" means that portion of the Plan under
which grants are made to Directors, other than Employee Directors.
1.23 "Performance Goals" means performance goals established by the
committee which may be based on earnings or earnings growth, sales, return on
assets, equity or investment, total shareholder return, regulatory compliance,
satisfactory internal or external audits, improvement of financial ratings,
achievement of balance sheet, income statement or other financial statement
objectives, or any other objective goals established by the Committee, and may
be absolute in their terms or measured against or in relationship to other
companies similarly or otherwise situated. Performance goals may be particular
to an employee or the department, branch, Subsidiary or other division in which
he or she works, or may be based on the performance of the Company generally,
and may cover any period specified by the Committee.
1.24 "Plan" means SYNERGIS TECHNOLOGIES, INC. 1997 Long-Term Incentive
Plan.
1.25 "Restricted Stock" means Shares awarded pursuant to Article 10.
1.26 "Share" means a share of authorized but unissued Common Stock or a
reacquired share of issued Common Stock
1.27 "Subsidiary" means a corporation at least 50% of the total
combined voting power of all classes of stock of which is owned by the Company,
either directly or through one or more other Subsidiaries.
2. PURPOSE
The Plan is intended to assist in attracting and retaining Employees
and Directors of outstanding ability and to promote the identification of their
interests with those of the shareholders of the Company.
3. ADMINISTRATION
The Plan will be administered by the Committee. In addition to any
other powers granted to the Committee, it will have the following powers,
subject to the express provisions of the Plan:
3.1 to determine in its discretion the Employees to whom Options will
be granted and to whom Restricted Stock will be awarded, the number of Shares to
be subject to each Option or Restricted Stock award, and the terms upon which
Options may be acquired and exercised and the terms and conditions of Restricted
Stock awards;
3.2 to determine all other terms and provisions of each Agreement,
which need not be identical;
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3.3 without limiting the generality of the foregoing, to provide in its
discretion in an Agreement:
(a) for an agreement by the Optionee or Grantee to render
services to the Company or a Subsidiary upon such terms and conditions as may be
specified in the Agreement, provided that the Committee will not have the power
to commit the Company or any Subsidiary to employ or otherwise retain any
Optionee or Grantee;
(b) for restrictions on the transfer, sale or other
disposition of Shares issued to the Optionee upon the exercise of an Option and
for other restrictions permitted by Article 10 with respect to Restricted Stock;
(c) for an agreement by the Optionee or Grantee to resell to
the Company, under specified conditions, Shares issued upon the exercise of an
Option or awarded as Restricted Stock; and
(d) for the payment of the Option Price upon the exercise by
an Optionee of an Option otherwise than in cash, including without limitation by
delivery (including constructive delivery) of shares of Common Stock (other than
Restricted Stock) valued at Fair Market Value on the Date of Exercise of the
Option, or a combination of cash and shares of Common Stock;
3.4 to construe and interpret the Agreements and the Plan;
3.5 to require, whether or not provided for in the pertinent Agreement,
of any person exercising an Option or acquiring Restricted Stock, at the time of
such exercise or acquisition, the making of any representations or agreements
that the Committee may deem necessary or advisable in order to comply with the
securities laws of the United States or of any state;
3.6 to provide for satisfaction of an Optionee's or Grantee's tax
liabilities rising in connection with the Plan through, without limitation,
retention by the Company of shares of Common Stock otherwise issuable on the
exercise of an Option or through delivery of Common Stock to the Company by the
Optionee or Grantee under such terms and conditions as the Committee deems
appropriate; and
3.7 to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan.
Any determinations or actions made or taken by the Committee
pursuant to this Article shall be binding and final.
4. ELIGIBILITY
Options and Restricted Stock may be granted or awarded only to
Employees and Directors. In no event may any participant receive awards and
grants covering more than 500,000 Shares in the aggregate under this Plan.
5. STOCK SUBJECT TO THE PLAN
5.1 The maximum number of Shares that may be issued under the Plan is
720,000 Shares. The maximum number of Shares that may be awarded as Restricted
Stock under the Plan is 150,000.
5.2 If an Option expires or terminates for any reason without having
been fully exercised or if Shares of Restricted Stock are forfeited, the
unissued or forfeited Shares
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<PAGE> 4
that had been subject to the Agreement relating thereto will become available
for the grant of other Options or for the award of additional Restricted Stock.
6. SPECIAL CONDITIONS TO OUTSIDE DIRECTOR PROGRAM
6.1 The Outside Director Program is a formula plan under which
Directors, excluding Employee Directors, will be granted Options, but only in
accordance with the provisions set forth in this Article 6.
6.2 Options will be granted to Directors as follows:
(a) On the date of the Initial Public Offering of the Common
Stock of the Company, each Director who is or becomes a Director on the date of
the Initial Public Offering shall be granted an Option to purchase 5,000 Shares
at an option price equal to the initial public offering price of the Shares on
that date, which date will be the Date of Grant. Each Director who becomes a
Director after the Initial Public Offering shall receive an Option to purchase
5,000 Shares at an option price equal to the Fair Market Value of the Shares on
the date of his or her election, which date will be the Date of Grant.
(b) In subsequent fiscal years, on the date of the Annual
Meeting of Shareholders, each Director who is a Director after each such Annual
Meeting will be granted an Option to purchase 3,000 Shares at an Option Price
equal to the Fair Market Value of the Shares on that date, which date will be
the Date of Grant; and
(c) One half of each Option granted under this Article 6 shall
vest six months after the Date of Grant and
the remaining half shall vest on the first anniversary date of the Date of Grant
and may be exercised by the Optionee at any time after vesting and prior to the
termination of the Option. These options terminate one year from the date on
which the Optionee ceases to be a member of the Board or 10 years from the Date
of Grant, whichever first occurs. Options granted hereunder are not transferable
other than by will or the laws of descent and distribution.
6.3 If on any Date of Grant there is an insufficient number of Shares
available for a grant, the number of Shares subject to such grant will be
reduced to the greatest whole number of Shares arrived at by dividing the
remaining Shares available for the grant by the number of Directors eligible for
the grant.
7. OPTIONS
7.1 The Committee is authorized to grant Options to Employees,
including Employee Directors. Options also may be granted to Directors,
excluding Employee Directors, only pursuant to Article 6.
7.2 The Option Period for Options granted to Employees, including
Employee Directors, will be determined by the Committee and specifically set
forth in the Agreement. No Option will be exercisable before six months after
the Date of Grant or after ten years from the Date of Grant.
7.3 In no event will the Option Price of an Option be less than the
Fair Market Value of a Share of Common Stock at the time of the grant.
7.4 All other terms of Options granted under the Plan will be
determined by the Committee in its sole discretion.
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8. EXERCISE
An Option may, subject to the provisions of the Agreement under which
it was granted, be exercised in whole or in part by the delivery to the Company
of written notice of the exercise, in such form as the Committee may prescribe,
accompanied, in the case of an Option, by full payment for the Shares with
respect to which the Option is exercised.
9. NON-TRANSFERABILITY
Unless otherwise provided in the Agreement respecting the grant,
Options granted under the Plan will not be transferable otherwise than by will
or the laws of descent and distribution, and an Option may be exercised during
his or her lifetime only by the Optionee or, in the event of his or her legal
disability, by his or her legal representative.
10. RESTRICTED STOCK AWARDS
10.1 The Committee is hereby authorized to award Shares of Restricted
Stock to Employees, including Employee Directors.
10.2 Restricted Stock awards under the Plan will consist of Shares that
are restricted against transfer, subject to forfeiture, and subject to such
other terms and conditions intended to further the purposes of the Plan as may
be determined by the Committee. The terms and conditions may provide, in the
discretion of the Committee, for the vesting of awards to be contingent upon the
achievement of one or more Performance Goals.
10.3 Restricted Stock awards will be evidenced by Agreements containing
provisions setting forth the terms and conditions governing the awards. Each
agreement will contain the following:
(a) prohibitions against the sale, assignment, transfer,
exchange, pledge, hypothecation, or other encumbrance of (i) the Shares awarded
as Restricted Stock under the Plan, (ii) the right to vote the Shares, or (iii)
the right to receive dividends thereon in each case during the restriction
period applicable to the Shares; provided, however, that the Grantee shall have
all the other rights of a shareholder including, but not limited to, the right
to receive dividends and the right to vote the Shares;
(b) at least one term, condition or restriction constituting a
"substantial risk of forfeiture" as defined in Section 83(c) of the Code;
(c) such other terms, conditions and restrictions as the
Committee in its discretion may specify (including, without limitation,
provisions creating additional substantial risks of forfeiture);
(d) a requirement that each certificate representing Shares of
Restricted Stock must be deposited with the Company, or its designee, and will
bear the following legend:
"This certificate and the shares of stock represented hereby
are subject to the terms and conditions (including the risks of forfeiture and
restrictions against transfer) contained in SYNERGIS TECHNOLOGIES, INC. 1997
Long-Term Incentive Plan and an Agreement entered into between the registered
owner and SYNERGIS Technologies, Inc. Release from such terms and conditions
shall be made only in accordance with the provisions of the Plan and the
Agreement, a copy of each of which is on file in the office of the Secretary of
SYNERGIS Technologies, Inc."
5
<PAGE> 6
(e) the applicable period or periods of any terms, conditions
or restrictions applicable to the Restricted Stock, provided, however, that the
Committee in its discretion may accelerate the expiration of the applicable
restriction period with respect to any part or all of the Shares awarded to a
Grantee; and
(f) the terms and conditions upon which any restrictions upon
Shares of Restricted Stock awarded under the Plan will lapse and new
certificates free of the foregoing legend will be issued to the Grantee or his
or her legal representative.
10.4 The Committee may include in an Agreement a requirement that in
the event of a Grantee's termination of employment for any reason prior to the
lapse of restrictions, all Shares of Restricted Stock shall be forfeited by the
Grantee to the Company without payment of any consideration by the Company, and
neither the Grantee nor any successors, heirs, assigns or personal
representatives of the Grantee will thereafter have any further rights or
interest in the Shares or certificates.
10.5 The maximum number of Shares of Restricted Stock that may be
awarded to any Employee under this Plan during its term is 75,000 Shares.
11. CAPITAL ADJUSTMENTS
The number and class of Shares subject to each outstanding Option or
Restricted Stock award, the Option Price and the aggregate number and class of
Shares for which grants or awards thereafter may be made, including Options
granted under Article 6, will be subject to such adjustment, if any, as the
Committee in its sole discretion deems appropriate to reflect such events as
stock dividends, stock splits, adoption of stock rights plans,
recapitalizations, mergers, consolidations or reorganizations of or by the
Company.
12. TERMINATION OR AMENDMENT
The Board may amend or terminate this Plan in any respect at any time.
Board approval must be accompanied by (i) shareholder approval in those cases in
which amendment requires shareholder approval under applicable law or
regulations or the requirements of the principal exchange or interdealer
quotation system on which the Common Stock is listed or quoted, and (ii)
affected Optionee or Grantee approval if the amendment or termination would
adversely affect the holder's rights under any outstanding grants or awards.
13. EFFECTIVENESS OF THE PLAN
The Plan and any amendments requiring shareholder approval pursuant to
Article 12 are subject to approval by vote of the shareholders of the Company
within 12 months after their adoption by the Board. Subject to that approval,
the Plan and any amendments are effective on the date on which they are adopted
by the Board. Options and Restricted Stock may be granted or awarded prior to
shareholder approval of the Plan or amendments, but each such Option or
Restricted Stock grant or award are made subject to the approval of the Plan or
amendments by the shareholders. The date on which any Option or Restricted Stock
granted or awarded prior to shareholder approval of the Plan or amendment is
granted or awarded will be the Date of Grant for all purposes as if the Option
or Restricted Stock had not been subject to approval. No Option may be
6
<PAGE> 7
exercised prior to shareholder approval, and any Restricted Stock awarded will
be forfeited if shareholder approval is not obtained.
14. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Article 12, the Plan
will terminate on the date ten years after its adoption by the Board, and no
Options or Restricted Stock may be granted or awarded after termination. The
termination will not affect the validity of any Option or Restricted Stock
outstanding on the date of termination.
15. INDEMNIFICATION OF COMMITTEE
In addition to any other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee will be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option or Restricted Stock
granted or awarded hereunder, and against all amounts reasonably paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, if such members acted in good faith and in a manner
which they believed to be in, and not opposed to, the best interests of the
Company.
16. GENERAL PROVISIONS
16.1 The establishment of the Plan does not confer upon any Employee or
Director any legal or equitable right against the Company, any Subsidiary or the
Committee, except as expressly provided in the Plan.
16.2 The Plan does not constitute inducement or consideration for the
employment of any Employee or the service of any Director, nor is it a contract
between the Company or any Subsidiary and any Employee or Director.
Participation in the Plan, or the receipt of a grant or award hereunder, does
not give an Employee or Director any right to be retained in the service of the
Company or any Subsidiary.
16.3 The Company and its Subsidiaries may assume options, warrants, or
rights to purchase stock issued or granted by other corporations whose stock or
assets are acquired by the Company or its Subsidiaries, or which is merged into
or consolidated with the Company. The terms and conditions of assumed options
may vary from the terms and conditions contained in this Plan, to the extent
determined by the Committee. Assumed options will not be counted toward the
limit specified in Section 7.3 unless the Committee determines that application
of the limit is necessary for the grants of Options to qualify as
"performance-based compensation" under Section 162(m) of the Code. Neither the
adoption of this Plan, nor its submission to the shareholders, may be taken to
impose any limitations on the powers of the Company or its affiliates to issue,
grant, or assume options, warrants, rights, or restricted stock, otherwise than
under this Plan, or to adopt other long-term incentive plans or to impose any
requirement of shareholder approval upon the same.
7
<PAGE> 8
16.4 The interests of any Employee or Director under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in Article 9.
16.5 The Plan will be governed, construed and administered in
accordance with the laws of Ohio.
6-Oct-97
8
<PAGE> 1
EXHIBIT 10.19
THE SECURITY EVIDENCED HEREBY MAY NOT BE TRANSFERRED EXCEPT (I) IN
ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1 HEREOF AND (II) WITH EITHER (A) AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE
LAWFULLY MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR (B) SUCH
REGISTRATION.
COMMON STOCK WARRANT
To Purchase Five (5)
Shares of Common Stock of
Universal Document Management Systems, Inc.
February 19,1997
THIS CERTIFIES THAT, in consideration of services rendered to Universal
Document Management Systems, Inc., an Ohio corporation (the "Company"), Terry L.
Theye ("Holder") is entitled to subscribe for and purchase from the Company, at
any time after 11:59 PM, Cincinnati time, on the day prior to the date on which
the Company conducts an initial public offering of its common stock (the "IPO"),
and for five (5) years from such date (at which time this Warrant shall expire
and which is hereinafter referred to as the "Expiration Time") five (5) fully
paid and nonassessable shares of the Company's common stock without par value at
a total price of $27,673.20 cash per share.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this
Warrant may be exercised by the Holder, in whole or in part, by written notice
of exercise delivered to the Company 5 business days prior to the intended date
of exercise and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company and upon payment to it by check of the
purchase price for such shares. This Warrant may not be transferred except by
the laws of descent and distribution.
2. ISSUANCE OF SHARES. The Company agrees that the shares
purchasable hereunder shall be and are deemed to be issued to Holder as of the
close of business on the date on which this Warrant shall have been surrendered
and the payment made for such shares as described herein. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised, shall be delivered to Holder within a
reasonable time, not exceeding ten days after the rights represented by this
Warrant shall have been so exercised. Notwithstanding the foregoing, however,
the Company shall not be required to deliver any certificate for shares of stock
upon exercise of this Warrant, except as otherwise expressly provided herein.
3. COVENANTS OF COMPANY. The Company covenants and agrees that
all shares which
<PAGE> 2
may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be duly authorized and issued, fully paid, nonassessable
and free from all taxes, liens and charges with respect to the issue thereof,
and, without limiting the generality of the foregoing, the Company covenants and
agrees that it will from time to time take all such action as may be required to
assure that the par value per share of common stock is at all times equal to or
less than the then effective purchase price per share of the common stock
issuable pursuant to this Warrant. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its common stock to
provide for the exercise of the rights represented by this Warrant.
4. ANTI-DILUTION ADJUSTMENTS.
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the per share exercise price of this Warrant in effect immediately
prior to the subdivision, combination or record date for such dividend payable
in common stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
common stock, and each share of common stock purchasable upon exercise of this
Warrant shall be changed to the number determined by dividing the then current
exercise price by the exercise price as adjusted after the subdivision,
combination or dividend payable in common stock.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of common stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
<PAGE> 3
securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing such
assets, shall assume by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(d) Upon any adjustment of the Warrant purchase price, then, and
in each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
5. COMMON STOCK. As used herein, the term "common stock" shall
mean and include the Company's presently authorized shares of common stock and
shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution, dissolution or winding up of the Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring any common stock issued upon the exercise hereof ("Warrant
Shares"), of Holder's intention to do so, describing briefly the manner of any
proposed transfer. Promptly upon receiving such written notice, the Company
shall present copies thereof to the Company's counsel and to counsel to the
original transferee of this Warrant. If in the opinion of each such counsel the
proposed transfer may be effected without registration or qualification (under
any federal or state law), the Company, as promptly as practicable, shall notify
Holder of such opinions, whereupon Holder shall be entitled to transfer the
Warrant Shares or to dispose of shares of common stock received upon the
previous exercise hereof in accordance with the notice delivered by Holder to
the Company, provided that an appropriate legend may be endorsed on this Warrant
or the certificates for such Warrant Shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel satisfactory
to the Company to prevent further transfers which would be in violation of
Section 5 of the Securities Act of 1933.
If, in the reasonable opinion of either of the counsel referred to in
this paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of the Warrant Shares, the Company shall promptly
give written notice thereof to Holder, and Holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both such
counsel, are permitted by law.
<PAGE> 4
REGISTRATION RIGHTS.
(a) If the Company proposes to register under the Securities Act
of 1933 (except by a registration statement on a form that does not permit the
inclusion of shares by its security holders) any of its securities, it will give
written notice to all registered holders of Warrants, and all registered holders
of shares of common stock acquired upon the exercise of Warrants, of its
intention to do so and, on the written request of any registered holders given
within 20 days after receipt of any such notice (which request must be made on
or before the Expiration Time and which notice shall specify the Warrant Shares
intended to be sold or disposed of by such registered holder and describe the
nature of any proposed sale or other disposition thereof), the Company will use
its best efforts to cause all such Warrant Shares, the registered holders of
which shall have requested the registration or qualification thereof, to be
included in such notification or registration statement proposed to be filed by
the Company. All expenses of such offering, except the fees of special counsel
and brokers' commissions to such holders, shall be borne by the Company.
(b) Further, on a one-time basis only, upon request by a majority
in interest of Warrants, or by the holders of a majority of the shares of the
common stock issued upon exercise thereof, made in writing to the Company prior
to the Expiration Time, the Company will, at the expense of such holders,
promptly take all necessary steps to register or qualify the Warrant Shares
under Section 3(b) or Section 5 of the Securities Act of 1933 and such state
laws as such holders may reasonably request. The Company shall keep effective
and maintain any registration, qualification, notification or approval specified
in this paragraph for such period as may be necessary for the holders of the
Warrant Shares to dispose of such shares and from time to time shall amend or
supplement, at the holder's expense, the prospectus, or offering circular used
in connection therewith to the extent necessary in order to comply with
applicable law, provided that the Company shall not be obligated to maintain any
registration for a period of more than six months after effectiveness except
that a Form S-3 Registration Statement or successor thereof shall be maintained
for up to 12 months after effectiveness.
(c) The Company shall indemnify the Holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
relating to the registration or qualification of the Warrant Shares or caused by
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Warrant holder or such holder of Warrant Shares expressly for use therein, and
each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and
<PAGE> 5
each of its directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act of 1933 with respect to losses,
claims, damages or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
holder expressly for use therein.
9. RIGHT TO RECEIVE INFORMATION. Prior to the earlier of the
Expiration Time or such time as this Warrant has been fully exercised, the
Company shall provide Holder with copies of any and all reports, notices or
other communications which the Company generally provides to all of its
shareholders.
IN WITNESS WHEREOF, Universal Document Management Systems, Inc. has
caused this Warrant to be signed by its duly authorized officer and this Warrant
to be dated as of , 1997.
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS,
INC.
By__________________________________________
Its_________________________________________
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
TO:________________________________
PURCHASE FORM --To be executed by the Registered Holder in Order to Exercise the
Warrant.
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate to purchase, for cash, _________________ of the shares issuable upon
the exercise of such Warrant, and requests that certificates for such shares
shall be issued in the name of:
_____________________________________
(Name)
_____________________________________
(Address)
_____________________________________
(Tax ID No.)
_____________________________________
(Signature)
ASSIGNMENT FORM -- To be Executed By the Registered Holder in Order to Transfer
the Warrant.
<PAGE> 6
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers ___ of
the Warrants represented by the attached Warrant Certificate unto
_____________________________________ (Please print or typewrite name and
address including postal zip code of assignee)
(Social Security or other identifying number of assignee: ________________) and
does irrevocably constitute and appoint ________________________ attorney to
transfer the Warrant Certificate on the records of the Company with full power
of substitution in the premises.
Date:__________________, 19____.
PLEASE NOTE: The signature(s) to the Purchase Form or the Assignment
Form must correspond to the name as written upon the face of the
Warrant Certificate in every particular without alteration or
enlargement or any change whatsoever.
EXERCISE NOTICE
The undersigned Warrant holder hereby irrevocably elects to exercise
the attached Warrant certificate by exercising the conversion rights of Section
1 of the Warrant. The Warrant is hereby exercised for _____________________
shares and is accompanied by a check in the amount of $ to cover the exercise
price thereof.
Date:__________________________ ____________________________________
(Name)
____________________________________
(Address)
____________________________________
(Tax ID No.)
____________________________________
(Signature)
<PAGE> 1
EXHIBIT 10.20
THE SECURITY EVIDENCED HEREBY MAY NOT BE TRANSFERRED EXCEPT (I) IN
ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1 HEREOF AND (II) WITH EITHER (A) AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE
LAWFULLY MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR (B) SUCH
REGISTRATION.
COMMON STOCK WARRANT
To Purchase
Shares of Common Stock of
Universal Document Management Systems, Inc.
February _____, 1997
THIS CERTIFIES THAT, in consideration of services rendered to Universal
Document Management Systems, Inc., an Ohio corporation (the "Company"), Norma
Skoog ("Holder") is entitled to subscribe for and purchase from the Company, at
any time following the date on which the Company conducts an initial public
offering of its common stock (the "IPO") and for five (5) years from such date
(at which time this Warrant shall expire and which is hereinafter referred to as
the "Expiration Time") that number of fully paid and nonassessable shares of the
Company's common stock without par value which equals 1% of all of the shares of
the Company's common stock outstanding immediately following the IPO, assuming
the exercise of all options and warrants issued by the Company and outstanding
on the date of the closing of such IPO, at a price per share equal to the
price per share at which the Company's common stock is offered in the IPO.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this
Warrant may be exercised by the Holder, in whole or in part, by written notice
of exercise delivered to the Company 5 business days prior to the intended date
of exercise and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company and upon payment to it by check of the
purchase price for such shares. This Warrant may not be transferred except by
the laws of descent and distribution.
2. ISSUANCE OF SHARES. The Company agrees that the shares
purchasable hereunder shall be and are deemed to be issued to Holder as of the
close of business on the date on which this Warrant shall have been surrendered
and the payment made for such shares as described herein. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised, shall be delivered to Holder within a
reasonable time, not exceeding ten days after the rights represented by this
Warrant shall have been so exercised. Notwithstanding the foregoing, however,
the Company shall not be required to deliver any certificate for shares of stock
upon exercise of this Warrant, except as otherwise expressly provided herein.
<PAGE> 2
3. COVENANTS OF COMPANY. The Company covenants and agrees that
all shares which may be issued upon the exercise of the rights represented by
this Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such action
as may be required to assure that the par value per share of common stock is at
all times equal to or less than the then effective purchase price per share of
the common stock issuable pursuant to this Warrant. The Company further
covenants and agrees that, during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its common stock to provide for the exercise of the rights represented by this
Warrant.
4. ANTI-DILUTION ADJUSTMENTS.
(a) In case the Company shall at any time after the IPO subdivide
or combine the outstanding shares of common stock or declare a dividend payable
in common stock, the per share exercise price of this Warrant in effect
immediately prior to the subdivision, combination or record date for such
dividend payable in common stock shall forthwith be proportionately increased,
in the case of combination, or decreased, in the case of subdivision or dividend
payable in common stock, and each share of common stock purchasable upon
exercise of this Warrant shall be changed to the number determined by dividing
the then current exercise price by the exercise price as adjusted after the
subdivision, combination or dividend payable in common stock.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of common stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for
<PAGE> 3
adjustments of the Warrant purchase price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company shall not effect
any such consolidation, merger or sale unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall assume
by written instrument executed and mailed to the registered holder hereof at the
last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase.
(d) Upon any adjustment of the Warrant purchase price, then, and
in each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
5. COMMON STOCK. As used herein, the term "common stock" shall
mean and include the Company's presently authorized shares of common stock and
shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution, dissolution or winding up of the Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring any common stock issued upon the exercise hereof ("Warrant
Shares"), of Holder's intention to do so, describing briefly the manner of any
proposed transfer. Promptly upon receiving such written notice, the Company
shall present copies thereof to the Company's counsel and to counsel to the
original transferee of this Warrant. If in the opinion of each such counsel the
proposed transfer may be effected without registration or qualification (under
any federal or state law), the Company, as promptly as practicable, shall notify
Holder of such opinions, whereupon Holder shall be entitled to transfer the
Warrant Shares or to dispose of shares of common stock received upon the
previous exercise hereof in accordance with the notice delivered by Holder to
the Company, provided that an appropriate legend may be endorsed on this Warrant
or the certificates for such Warrant Shares respecting restrictions upon
transfer thereof necessary or advisable in the opinion of counsel satisfactory
to the Company to prevent further transfers which would be in violation of
Section 5 of the Securities Act of 1933.
If, in the reasonable opinion of either of the counsel referred to in
this paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of the Warrant Shares, the Company shall promptly
give written notice thereof to Holder, and Holder will limit its activities in
respect to such
<PAGE> 4
proposed transfer or disposition as, in the opinion of both such counsel, are
permitted by law.
REGISTRATION RIGHTS.
(a) If the Company proposes to register under the Securities Act
of 1933 (except by a registration statement on a form that does not permit the
inclusion of shares by its security holders) any of its securities, it will give
written notice to all registered holders of Warrants, and all registered holders
of shares of common stock acquired upon the exercise of Warrants, of its
intention to do so and, on the written request of any registered holders given
within 20 days after receipt of any such notice (which request must be made on
or before the Expiration Time and which notice shall specify the Warrant Shares
intended to be sold or disposed of by such registered holder and describe the
nature of any proposed sale or other disposition thereof), the Company will use
its best efforts to cause all such Warrant Shares, the registered holders of
which shall have requested the registration or qualification thereof, to be
included in such notification or registration statement proposed to be filed by
the Company. All expenses of such offering, except the fees of special counsel
and brokers' commissions to such holders, shall be borne by the Company.
(b) Further, on a one-time basis only, upon request by a majority
in interest of Warrants, or by the holders of a majority of the shares of the
common stock issued upon exercise thereof, made in writing to the Company prior
to the Expiration Time, the Company will, at the expense of such holders,
promptly take all necessary steps to register or qualify the Warrant Shares
under Section 3(b) or Section 5 of the Securities Act of 1933 and such state
laws as such holders may reasonably request. The Company shall keep effective
and maintain any registration, qualification, notification or approval specified
in this paragraph for such period as may be necessary for the holders of the
Warrant Shares to dispose of such shares and from time to time shall amend or
supplement, at the holder's expense, the prospectus, or offering circular used
in connection therewith to the extent necessary in order to comply with
applicable law, provided that the Company shall not be obligated to maintain any
registration for a period of more than six months after effectiveness except
that a Form S-3 Registration Statement or successor thereof shall be maintained
for up to 12 months after effectiveness.
(c) The Company shall indemnify the Holder of this Warrant and of
any common stock issued or issuable hereunder, its officers and directors, and
any person who controls such Warrant holder or such holder of common stock
within the meaning of Section 15 of the Securities Act of 1933, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
relating to the registration or qualification of the Warrant Shares or caused by
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Warrant holder or such holder of Warrant Shares expressly for use therein,
<PAGE> 5
and each such holder by its acceptance hereof severally agrees that it will
indemnify and hold harmless the Company and each of its officers who signs such
registration statement and each of its directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act of
1933 with respect to losses, claims, damages or liabilities which are caused by
any untrue statement or omission contained in information furnished in writing
to the Company by such holder expressly for use therein.
9. RIGHT TO RECEIVE INFORMATION. Prior to the earlier of the
Expiration Time or such time as this Warrant has been fully exercised, the
Company shall provide Holder with copies of any and all reports, notices or
other communications which the Company generally provides to all of its
shareholders.
IN WITNESS WHEREOF, Universal Document Management Systems, Inc. has
caused this Warrant to be signed by its duly authorized officer and this Warrant
to be dated as of , 1997.
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS,
INC.
By__________________________________________
Its_________________________________________
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
TO:________________________________
PURCHASE FORM --To be executed by the Registered Holder in Order to Exercise the
Warrant.
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate to purchase, for cash, _________________ of the shares issuable upon
the exercise of such Warrant, and requests that certificates for such shares
shall be issued in the name of:
_______________________________________
(Name)
_______________________________________
(Address)
_______________________________________
(Tax ID No.)
_______________________________________
<PAGE> 6
(Signature)
ASSIGNMENT FORM -- To be Executed By the Registered Holder in Order to Transfer
the Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers ___ of
the Warrants represented by the attached Warrant Certificate unto
_____________________________________ (Please print or typewrite name and
address including postal zip code of assignee)
(Social Security or other identifying number of assignee: ________________) and
does irrevocably constitute and appoint ________________________ attorney to
transfer the Warrant Certificate on the records of the Company with full power
of substitution in the premises.
Date:__________________, 19____.
PLEASE NOTE: The signature(s) to the Purchase Form or the Assignment
Form must correspond to the name as written upon the face of the
Warrant Certificate in every particular without alteration or
enlargement or any change whatsoever.
EXERCISE NOTICE
The undersigned Warrant holder hereby irrevocably elects to exercise
the attached Warrant certificate by exercising the conversion rights of Section
1 of the Warrant. The Warrant is hereby exercised for _____________________
shares and is accompanied by a check in the amount of $ to cover the exercise
price thereof.
Date:________________________ ____________________________________
(Name)
____________________________________
(Address)
____________________________________
(Tax ID No.)
____________________________________
(Signature)
<PAGE> 1
EXHIBIT 10.21
REIMBURSEMENT AGREEMENT
This Reimbursement Agreement is made and entered into as of the 28th
day of May, 1997 ("Effective Date") by and between MEDPLUS, INC., an Ohio
corporation with its principal place of business at 8805 Governor's Hill Drive,
Cincinnati, OH 45249 ("MedPlus") and its wholly-owned subsidiary, UNIVERSAL
DOCUMENT MANAGEMENT SYSTEMS, INC., an Ohio corporation with its principal place
of business at 8805 Governor's Hill Drive, Cincinnati, OH 45249 ("UDMS").
W I T N E S S E T H:
WHEREAS, UDMS desires to acquire a number of CAD software resellers
and/or other companies whose business may complement that of UDMS ("Prospect
Companies") to help distribute UDMS' product (the "Acquisitions"); and
WHEREAS, UDMS and its sole shareholder, MedPlus, believe that, in the
event the Prospect Companies are acquired, it will be in the best interests of
UDMS to conduct an initial public offering of UDMS Common Stock following its
acquisition of such Prospect Companies (an "IPO"); and
WHEREAS, UDMS has incurred and shall continue to incur substantial
costs and require administrative and operational assistance associated with the
due diligence and negotiations involved with the Acquisitions and in conducting
the IPO and transactions related thereto; and
WHEREAS, MedPlus has provided and shall continue to provide
administrative and operational services (the "Services") to UDMS, and UDMS has
borrowed, and desires to continue to borrow, from MedPlus the funds necessary to
conduct the Acquisitions, the IPO and related transactions, including but not
limited to the administrative assistance necessary to recruit and the funds
required to compensate certain advisors and/or consultants to assist UDMS with
the Acquisitions and the IPO, due diligence services and costs, audit services
and fees and recruitment of the Prospect Companies by UDMS (the funds provided
by MedPlus shall be referred to as the "Funding").
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the sufficiency of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. OBLIGATIONS OF MEDPLUS. Subject to the terms and conditions set forth
herein, and as periodically requested by UDMS in accordance herewith,
MedPlus hereby agrees to provide to UDMS, and/or directly distribute or
provide on UDMS' behalf to certain third parties, the Services and the
Funding.
2. MONTHLY REPORTS. Each month during the Term (as hereinafter defined),
MedPlus shall provide to UDMS a report describing (1) the cost of the
Services and the Funding provided to UDMS and/or to third parties on
behalf of UDMS during such month and (2) interest accrued thereon at a
rate equal to MedPlus' then-current borrowing rate with the Provident
Bank, Cincinnati, Ohio plus 1% ("Interest") (the "Monthly Reports").
Specifically, the value of Services provided during such month, including
but not limited to legal, accounting and recruitment services, shall be
calculated based on industry standard rates for such services. Within 15
days of its receipt of a Monthly Report, UDMS shall notify MedPlus of any
discrepancies contained in such Monthly Report. If UDMS does not notify
MedPlus with respect to any discrepancies in a Monthly Report during such
15 day period, the information contained in such Monthly Report shall be
assumed to be accurate.
<PAGE> 2
3. FUNDING AGENT. The Funding shall be made solely by MedPlus. UDMS shall
deal directly with MedPlus, shall reimburse MedPlus with respect to the
Funding and shall be entitled to rely upon MedPlus with respect to all
matters relating to the Funding.
4. USE OF PROCEEDS FROM THE FUNDING. The proceeds of the Funding shall be
used by UDMS for the purpose of the Acquisitions, the IPO and related
matters.
5. REPAYMENT OF THE FUNDING. UDMS shall reimburse MedPlus with respect to the
Services and the Funding, as described in the Monthly Reports, as follows:
(a) in the event the IPO is completed, then within 30 days following
such IPO, UDMS shall reimburse MedPlus for the value of the Services
and the Funding plus Interest; or
(b) in the event the IPO is not completed but UDMS receives third party
financing, then, at the request of MedPlus, UDMS shall immediately
reimburse MedPlus for the value of the Services and the Funding plus
Interest.
6. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the
following occurs and is continuing:
(a) UDMS fails to make any payment of principal on any note executed in
connection with this Agreement on or before fifteen business days
after the date such payment is due;
(b) UDMS fails to make any payment of interest on any note executed in
connection with this Agreement on or before fifteen business days
after the date such payment is due;
(c) UDMS fails to comply with any other provision of this Agreement, and
such failure continues for more than 30 days after such failure
shall first become known to any officer of UDMS;
(d) UDMS becomes insolvent or bankrupt, or makes an assignment for the
benefit of creditors, or consents to the appointment of a trustee,
receiver or liquidator; or
(e) bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings are instituted by or against UDMS.
7. ACCELERATION. If an Event of Default exists, MedPlus may immediately
exercise any right, power or remedy permitted to MedPlus by law, and shall
have, in particular, without limiting the generality of the foregoing, the
right to declare the entire principal and all interest accrued on all
notes then outstanding pursuant to this Agreement to be forthwith due and
payable, without any presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived by UDMS.
8. MISCELLANEOUS.
(a) This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties.
(b) This Agreement may be amended, and the observance of any term of
this Agreement may be waived, with (and only with) the written
consent of UDMS and MedPlus.
(c) Two or more duplicate originals of this Agreement may be signed by
the parties, each of which
2
<PAGE> 3
(d) shall be an original but all of which together shall constitute one
and the same instrument. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first written above.
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:
---------------------------
Its:
---------------------------
MEDPLUS, INC.
By:
---------------------------
Its:
---------------------------
3
<PAGE> 1
EXHIBIT 10.22
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
RESELLER'S SOFTWARE LICENSE AGREEMENT
THIS AGREEMENT is entered into on the _____ day of ________, 1997 (the
"Effective Date") by and between UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC., an
Ohio corporation (hereafter "UDMS") located in Cincinnati, Ohio and MEDPLUS,
INC., an Ohio corporation (hereafter "Reseller") located in Cincinnati, Ohio.
W I T N E S S E T H:
WHEREAS, UDMS licenses certain software and updates thereto,
specifically the executable code of UDMS' Step2000 software and executable
Application Builder codes associated therewith (the "Software"), and provides
support, training and updates therefor; and
WHEREAS, Reseller is in the business of licensing and/or sublicensing
computer software and selling computer hardware, specifically in the health care
industry; and
WHEREAS, in exchange for the consideration summarized on Exhibit A
hereto, UDMS agrees to license the Software to Reseller so that Reseller may use
and sublicense the Software upon the terms and conditions contained herein and
Reseller agrees to pay the consideration summarized on Exhibit A.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties agree as follows:
1. LICENSE, TRAINING, MAINTENANCE AND UPDATES. UDMS hereby grants to Reseller
and Reseller accepts, in accordance with the terms and conditions set
forth hereafter, a perpetual, non-transferable, non-exclusive (except as
otherwise indicated herein) license to sublicense the Software and
documentation associated therewith (the "Documentation") to third parties
("Sublicensees"). In addition, upon the request of Reseller, UDMS shall
assist Reseller in providing maintenance and/or support with respect to
the Software ("Maintenance"), training with respect to the use of the
Software ("Training") and shall provide Reseller with updates to the
Software ("Updates").
2. SUBLICENSING. All Sublicensees to whom Reseller desires to sublicense the
Software shall execute a Software License Agreement with Reseller (the
"Sublicense Agreement") which Sublicense Agreement shall fully protect
UDMS' proprietary and intellectual property rights, including but not
limited to prohibiting unauthorized distribution of the Software, and
which shall allow Reseller to assign its right to payment thereunder to
UDMS.
3. TITLE TO SOFTWARE/LIMITATION ON DISTRIBUTION. Reseller acknowledges that
no ownership rights nor rights of any kind not specifically set forth
herein are transferred by this license. Reseller, its employees and agents
are prohibited from and have no right to sell, distribute or otherwise
transfer the Software, any copies of the Software, any documentation or
manuals supplied with the Software, nor to create additional copies of the
Software, other than for the
1
<PAGE> 2
purposes set forth herein. The media upon which the Software is placed
shall remain the property of UDMS. Any authorized or unauthorized copies
of the Software subsequently created, including the magnetic floppy
disk(s) or other media upon which such copies are placed, shall become the
property of UDMS immediately upon the creation of a copy of the Software
thereon.
4. LICENSE FEES AND OTHER COMPENSATION. In consideration for the license
granted hereunder, Reseller shall pay UDMS for the right to sublicense the
Software in accordance with the fees set forth in the then-current UDMS
Reseller Price Schedule and as more specifically described on Exhibit A
hereto. In addition, any Maintenance, Training or Updates requested by
Reseller with respect a particular sublicense shall be provided by UDMS at
the costs indicated on Exhibit A hereto.
5. TERM AND TERMINATION. This term of this license shall begin on the
Effective Date and continue in perpetuity unless terminated as follows
(the "Term"):
(a) by one party due to a material breach hereof by the other party
which breach is not cured within thirty (30) days of the receipt by
the breaching party of notice of such breach (for purposes hereof,
failure to pay fees due UDMS and failure to protect UDMS proprietary
property when possible shall be considered "material" breaches by
Reseller); or
(b) by UDMS in accordance with the provisions of Section 13 hereof
(termination of this license in accordance with this Section 7(b)
shall also act to terminate any and all Sublicenses issued
hereunder).
6. EFFECT OF TERMINATION. Within seven (7) days following termination of this
Agreement for any reason and by either party:
(a) Reseller shall return all copies of the Software and the
Documentation, if any, to UDMS by registered or certified mail or
other delivery method which generates a receipt or shall cause all
such copies to be destroyed;
(b) Reseller shall remove all copies of the Software, if any, stored in
hard memory of any Reseller computer so that the Software is not
capable of being recovered by any standard recovery techniques; and
(c) Reseller shall send to UDMS the certificate attached hereto as
Exhibit B certifying that the Software has been fully erased from
Reseller's systems and that Reseller has not retained any copies of
the Software or the Documentation, if any, in any form.
7. UDMS' PROPRIETARY RIGHTS IN THE SOFTWARE/CONFIDENTIAL INFORMATION.
Reseller acknowledges and agrees that the Software and Documentation, and
any copies thereof, provided under this license are subject to the
proprietary rights of UDMS, are considered trade secrets and "Confidential
Information" of UDMS and are unpublished works for which UDMS holds all
rights, including copyright. "Confidential Information" is information
2
<PAGE> 3
which does not meet the statutory definition of trade secret, but
nonetheless is not generally known in the community and is of benefit to
UDMS and the release of which could harm UDMS or benefit competitors or
potential competitors. The confidentiality obligations in this Agreement
shall not extend to any item of information identified as Confidential
Information which is disclosed or made available by one party (disclosing
party) to the other party and received by that other party (receiving
party) and which (a) was in the receiving party's possession before
receipt from the disclosing party, (b) is or becomes a matter of public
knowledge through no fault of the receiving party, (c) is rightfully
received by the receiving party from a rightfully possessing third party
without a duty of confidentiality, (d) is disclosed by the receiving party
in accordance with the disclosing party's prior written approval, or (e)
is independently developed by the receiving party without access to
Confidential Information exchanged hereunder, as provable by competent
evidence. The disclosure of any Confidential Information pertaining to the
Software or providing access to the Software or Documentation to any third
parties or potential licensees without UDMS' consent is absolutely
prohibited; except that such Confidential Information may be disclosed if
such disclosure is required by law. Reseller agrees that it will
immediately disclose to UDMS any violation of this Section 7 which comes
to its attention and will assist UDMS in halting or limiting damage from
such violation and in pursuing whomever caused such violation to occur.
THIS SECTION IS IN ADDITION TO, NOT IN SUBSTITUTION OF, ANY RIGHTS WHICH
UDMS MAY HAVE AT LAW OR OTHERWISE AND IS NOT LIMITED AS TO DURATION BY
THIS AGREEMENT.
8. ASSIGNMENT. Reseller shall not transfer by assignment, license, sale, gift
or otherwise, any of the rights granted Reseller hereunder unless
consented to by UDMS which consent shall not be unreasonably withheld.
Reseller may assign all of its rights herein to any entity which takes
control of substantially all of the assets of Reseller, so long as such
entity agrees in writing to be bound by the terms of this Agreement.
9. SOFTWARE ACCEPTANCE. The Software will be deemed accepted when
installation is successfully concluded and the software is operating
according to UDMS specifications.
10. MODIFICATIONS AND ENHANCEMENTS. Reseller may not create modifications to
the Software except to build processing applications THROUGH USE OF TOOLS
PROVIDED WITHIN THE SOFTWARE ITSELF ("UDMS Tools"). ANY OTHER ALTERATION
OF THE SOFTWARE MAY HAVE UNFORESEEN CONSEQUENCES FOR WHICH UDMS SHALL IN
NO WAY BE LIABLE. Modifications or enhancements, other than those
performed using UDMS Tools, will void any warranties as set forth below.
Reseller has no right or authority under this license to alter, modify or
enhance the Software or to sell licenses to modified or enhanced Software,
without written permission from UDMS; except that, any alteration,
modification or enhancement created by the use of the UDMS Tools may be
sublicensed in accordance with this Agreement.
11. LIMITED WARRANTY. For a period of ninety (90) days after installation of
the Software, UDMS shall repair, correct or replace any Software which is
not operating in accordance with UDMS specifications. THERE ARE NO OTHER
WARRANTIES, WRITTEN OR
3
<PAGE> 4
ORAL, OR PROMISES, EITHER EXPRESS OR IMPLIED, WITH REGARD TO THE SOFTWARE,
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
12. DAMAGES. UDMS SHALL NOT BE LIABLE FOR DAMAGES, OTHER THAN THE REPLACEMENT
OF THE SOFTWARE, INCLUDING BUT NOT LIMITED TO SPECIAL, CONSEQUENTIAL,
INCIDENTAL OR PUNITIVE DAMAGES, WHETHER DIRECT OR INDIRECT, ARISING OUT OF
OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE SOFTWARE. IN NO EVENT
SHALL DAMAGES BE AWARDED FOR ANY CLAIM AGAINST UDMS WHICH ARE GREATER THAN
THE FEE RECEIVED FOR THE SALE OF THE SOFTWARE AND THE LAST 12 MONTHS OF
MAINTENANCE AND SUPPORT PAYMENTS RECEIVED BY UDMS FOR SUPPORT OF THE
SOFTWARE, IF ANY. THE SOFTWARE IS NOT CREATED TO PERMIT INTERNAL (SOURCE
CODE) MODIFICATION OF THE SOFTWARE. UDMS SHALL NOT BE LIABLE IN ANY WAY
FOR THE CONSEQUENCES OR RESULTS OF SUCH MODIFICATION.
13. INFRINGEMENT. UDMS shall defend, at its cost, any claim against Reseller
or any Sublicensees alleging copyright, patent or other trademark
infringement by the Software (a "Claim"). Reseller shall promptly notify
UDMS of any Claim of which it is aware in writing and in sufficient time
to permit UDMS to defend or settle such Claim. Such notice to UDMS shall
attach a copy of any Summons and Complaint, Cease and Desist letter or
other notice from the party claiming infringement. If, as the result of
such Claim, an injunction preventing further use of the Software appears
to UDMS likely to be issued or is actually issued, then UDMS may, in its
sole determination and in its absolute discretion: (1) obtain licenses
necessary to permit continued use of the Software, or (2) obtain licenses
for software substantially similar to the Software, or (3) terminate this
Agreement and the licenses issued pursuant hereto and refund fees paid by
Reseller to UDMS on a pro-rata basis, assuming a four year useful life for
the Software.
14. LIMITED EXCLUSIVITY. During the Term, Reseller shall have the exclusive
right to license and/or sublicense the Software to third parties in the
health care industry. Specifically, UDMS shall not directly license the
Software, nor shall it knowingly permit any other party to license or
sublicense the Software, to any third party in the health care industry.
Notwithstanding the remainder of this Section 14, the exclusivity provided
for herein shall not affect agreements executed prior to the Effective
Date by and between UDMS and (i) any of its current resellers or (ii)
third parties to whom UDMS has directly licensed the Software.
15. GOVERNING LAW. This Agreement shall be governed by the laws of the State
of Ohio. This Agreement was entered into in Cincinnati, Hamilton County,
Ohio, and all parties to this Agreement hereby specifically submit to the
jurisdiction over any action concerning this Agreement by either the
Common Pleas Court of Hamilton County, Ohio or the U.S. District Court for
the Southern District of Ohio, Western Division.
4
<PAGE> 5
16. VALIDITY. If any provisions of this Agreement shall be held invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be impaired or effected thereby.
17. TIME FOR BRINGING AN ACTION. No action of any kind arising out of this
Agreement may be brought by either party more than one (1) year after the
cause of action has arisen, nor, in the case of non-payment, more than one
(1) year from the date UDMS knew of an unpaid installation.
18. COMPLETE AGREEMENT. This Agreement is the complete and exclusive statement
of the agreement between the parties and supersedes all prior agreements,
oral or written, and all other communications, promises or discussions
between the parties relating to the subject matter of this Agreement.
19. LANGUAGE. Without regard to any languages into which this Agreement may be
translated, the sole reference, should there be a dispute as to the
meaning of the agreement, between different language versions of this
Agreement, shall be the English language version.
20. DEPARTMENT OF COMMERCE RULES. Reseller specifically agrees that it will
submit to all rules and regulations of the United States Department of
Commerce, including the United States Department of Commerce Export
Controls.
IN WITNESS WHEREOF, the parties having read this Agreement and agreeing to
be bound by same, have hereunto set their signatures as of the date first above
written.
LICENSOR: RESELLER:
UNIVERSAL DOCUMENT MEDPLUS, INC.
MANAGEMENT SYSTEMS, INC.
BY:_________________________________ BY:__________________________________
Richard A. Mahoney, Chairman Philip S. Present II, Chief Operating
Officer
5
<PAGE> 6
EXHIBIT A
FEES TO BE PAID FOR SUBLICENSES
OF THE SOFTWARE AND MAINTENANCE
AND UPDATES WITH RESPECT THERETO
For each sublicense executed by and between Reseller and a Sublicensee, Reseller
shall pay to UDMS a license fee (the "Reseller License Fee"). The Reseller
License Fee due for a particular sublicense shall be based on the UDMS Reseller
Price Schedule in effect at the time such sublicense is executed. In addition,
if Reseller requests that UDMS provide Maintenance, Training and/or Updates with
respect to the Software sublicensed to a particular Sublicensee, then either
Reseller or the Sublicensee, as the case may be, shall pay to UDMS the
maintenance fees and update fees indicated on the UDMS Reseller Price Schedule
in effect at the time such sublicense is executed.
Any fees due UDMS by Reseller in accordance herewith with respect to a
particular sublicense shall become due and payable to UDMS within 30 days of
Reseller's receipt of payment from the Sublicensee for such sublicense.
i
<PAGE> 7
EXHIBIT B
CERTIFICATE OF SOFTWARE DISPOSAL
The undersigned hereby certifies, warrants and covenants that it has
returned or destroyed in a manner beyond recovery all copies of the Step2000(TM)
Software, that no copies thereof or of related documentation or manuals have
been maintained and that no copies were given, sold or provided to any third
party not granted a license to use the same by MedPlus, Inc. or Universal
Document Management Systems, Inc.
SUBLICENSEE:
---------------------------------------
---------------------------------------
By:
---------------------------------------
Its:
ii
<PAGE> 1
EXHIBIT 10.23
NEITHER THIS DEBENTURE NOR THE STOCK INTO WHICH IT MAY BE CONVERTED ("CONVERSION
STOCK") HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE
STATE SECURITIES LAWS. NEITHER THIS DEBENTURE NOR THE CONVERSION STOCK MAY BE
OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION THEREFROM. THIS DEBENTURE CONTAINS FURTHER RESTRICTIONS ON
THE TRANSFERABILITY OF THE DEBENTURE AND THE CONVERSION STOCK.
No. 2 $299,500.00
Cincinnati, Ohio
June ____, 1994
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
10% CONVERTIBLE DEBENTURE
DUE DECEMBER 31, 1995
Universal Document Management Systems, Inc., a corporation duly
organized and existing under the laws of the State of Ohio, hereinafter referred
to as the Company, for value received, hereby promises to pay to MedPlus, Inc.,
whose address is 8600 Governor's Hill Drive, Suite 112, Cincinnati, Ohio 45249,
or his permitted registered assigns ("Holder"), the principal sum of $299,500.00
on the thirty-first day of December, 1995, upon presentation and surrender of
this Debenture at the office of the Company in Cincinnati, Ohio, and to pay at
maturity interest on the unpaid principal balance hereof from the date of this
Debenture at the rate of ten percent (10%) per annum. Payments of principal and
interest shall be made in currency of the United States of America.
1. Series. This Debenture is one of the duly authorized issue of
debentures of the Company designated as its Convertible Debentures Due December
31, 1995, hereinafter referred to as the Debentures, limited to the aggregate
principal sum of $400,000.00, issued or to be issued by the Company pursuant to
resolutions of its Board of Directors.
2. Conversion. Subject to the provisions of this Debenture, the Holder
of this Debenture has the right, at its option, at any time or from time to time
on or before the thirtieth day prior to maturity (provided that if maturity
shall be accelerated pursuant to paragraph 5 below, then the Holder's right
shall extend through the accelerated maturity date), to convert all or any
portion of
<PAGE> 2
the original principal amount hereof into shares of the Company's common stock,
no par value ("Common Shares" or "Common Stock"), as such Common Shares are
constituted at the date hereof, at the conversion price of $487.50 per share,
upon surrender of this Debenture, at the office of the Company in Cincinnati,
Ohio, accompanied by written notice of conversion and written instrument of
transfer, duly executed by the registered Holder. The Common Shares into which
the Holder may convert all or any part of this Debenture shall be referred to as
the "Conversion Stock." The date of conversion shall be the date the surrendered
Debenture and the duly executed written notice of conversion and instrument of
transfer are received by the Company (the "Conversion Date"). As soon as
practicable after the Conversion Date, the Company shall reissue and deliver to
the Holder, in exchange for the Debenture surrendered for conversion, a new
Debenture in like form representing the unconverted principal amount and shall
issue and deliver to such Holder a certificate or certificates for the full
number of Common Shares issuable hereunder upon conversion, together with cash
in respect of any fraction of a Common Share issuable upon such conversion. Such
conversion shall be deemed to have been effected on the Conversion Date and the
person in whose name any certificate for Common Shares is issued on such
conversion shall be deemed to have become on such date the Holder of record of
the Common Shares represented thereby. No fractional shares of Common Shares
shall be issued on conversion of the Debenture. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Company shall pay cash. The
Company shall pay to the Holder accrued interest on the converted portion of the
principal amount of this Debenture through the Conversion Date.
The Company shall at all times when this Debenture is outstanding,
reserve and keep available out of its authorized but unissued stock, such number
of duly authorized Common Shares as shall be sufficient to effect the conversion
of this Debenture in accordance with its terms.
The Company covenants and agrees that in the event its present Common
Shares shall be reclassified, split, combined or otherwise changed, or in case
of any consolidation or merger of the Company with or into another corporation
as a result of which holders of Common Stock become entitled to receive
securities or other assets (including cash) with respect to or in exchange for
their Common Stock (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable conversion of this Debenture) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, the Company shall make
proper provision as a part of the terms of such reclassification, split,
combination, change, consolidation, merger or sale, that the Holder of this
Debenture will thereafter be entitled to convert it into the same kind and
amount of securities (including in that term, stock of any class or classes) and
other assets as may be issuable or distributable by the terms of such
reclassification, split, combination, change, consolidation, merger or sale.
3. Restricted Securities. The Debentures and the Conversion Stock are
not, as of the date hereof, subject to an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), and have not been registered
or otherwise qualified for sale under any
2
<PAGE> 3
applicable state securities law. Further, the Company has no present intention
of registering or qualifying the Debentures or the Conversion Stock. Neither the
Debentures nor the Conversion Stock may be offered, sold, transferred, pledged
or hypothecated in the absence of such registration under the Act and applicable
state securities laws or exemptions therefrom.
4. Redemption. The Company shall redeem any Debentures with any accrued
but unpaid interest, not converted into Common Shares at maturity.
5. Default. If one or more of the following events shall happen, the
principal and accrued interest of this Debenture shall become due and payable
forthwith:
(a) If a default occurs in the payment of the principal of
this Debenture or any installment of interest thereon, when and as the same
shall become due and payable, and such default shall continue for a period of
thirty days thereafter; or
(b) If (i) any court of competent jurisdiction shall make an
order (A) adjudicating the Company a bankrupt, (B) appointing a trustee or
receiver of the Company or any substantial part of its property, or (C)
approving a petition or any other judicial modification or alteration of the
Company, and any such order shall not be vacated, set aside or stayed within 60
days after the date of its entry, or if (ii) the Company shall itself (A) file
any petition or (B) take or consent to any other action, seeking any such
judicial order, or if (iii) the Company shall make an assignment for the benefit
of its creditors.
(c) If a court of competent jurisdiction shall enter an order,
judgment or decree appointing, without the consent of the Company, a custodian
for the Company on the whole or substantially all of its property, or enter an
order for relief against the Company in a reorganization or arrangement
proceeding under any bankruptcy or insolvency laws or any other law for the
relief of debtors, and such order, judgment or decree shall not be vacated, set
aside or stayed within 60 days after the date of its entry.
6. Transferability. This Debenture at the time of issuance shall be
registered upon the books of the Company in the name of the person to whom
issued, and it may be transferred at the principal office of the Company in
Cincinnati, Ohio, by surrendering it for cancellation, accompanied by a written
instrument of transfer, duly executed by the registered owner hereof, and
thereupon the Company shall issue and deliver in the name of and to the
transferee or transferees, in exchange hereof a new Debenture for a like
aggregate principal amount, subject to the terms and conditions hereof.
Neither the Debentures nor the conversion Stock have been registered
under any applicable securities laws. The Debentures are being issued in
reliance upon exemptions provided under the Securities Act of 1933 and
applicable state securities laws. This Debenture is issued in reliance on the
representation, which by acceptance of this Debenture the Holder makes to the
Company, that the Holder is acquiring this Debenture, and any Conversion Stock
into which the Holder may convert
3
<PAGE> 4
the Debenture, for his own account, for investment purposes, and not with a view
to the distribution or public offering thereof. Accordingly, this Debenture
shall not be transferable except upon one of the following conditions: (a) The
Debenture shall have been registered under all applicable state and federal
securities laws and analogous statutes applicable to such transfer; or (b) the
Company shall have received an opinion of counsel, in form and substance
satisfactory to the Company, to the effect that such transfer may be effected
without such registration and that such transfer not constitute or cause the
violation of any such applicable securities laws or other statutes.
7. Unsecured Corporate Obligation. This Debenture represents the
unsecured general obligation of the Company. No recourse under or upon any
obligation, covenant, or agreement contained in this Debenture, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
promoter, subscriber to shares, incorporator, shareholder, officer, or director,
as such, past, present, or future, of the Company or of any successor
corporation, either directly or through the Company or any successor corporation
or through any trustee, receiver, or any other person, whether by virtue of any
constitution, statute, or rule of law, or by the enforcement of any assessment
or penalty or otherwise.
8. Payment Obligation. No provision of this Debenture shall alter or
impair the obligation of the Company, which is absolute and unconditional, to
pay the principal of this Debenture and the interest payable thereon at the
place, time and in the currency herein prescribed.
9. Holder Deemed Owner. The person in whose name this Debenture shall
be registered shall be deemed the owner hereof for all purposes, including all
notices provided for herein. Payment of or on account of the principal hereof,
and conversion to Common Shares as provided for herein, shall be made only to or
upon the order in writing of the registered owner hereof; and all such payments
or conversions shall be valid and effective to satisfy and discharge the
liability upon this Debenture to the extent of the sum or sums paid on Common
Shares issued.
10. Notices. All notices from the Company to the Holder shall be to the
last known address of the Holder on the records of the Company shall be sent by
certified or registered mail, and shall be deemed effective on the date of
postmark by the U.S. Postal Service. All notices from the Holder to the Company
shall be to the Company's headquarters and shall be deemed effective on the
business day on which received by the Company at its headquarters.
11. Waiver. The Company, for itself and its successors and assigns,
expressly waives presentment, demand, protest, notice or dishonor, notice of
nonpayment, notice of maturity, note of protest, presentment for the purpose of
accelerating maturity, diligence in collection and the benefit of any insolvency
law.
12. Applicable Law. This Debenture is governed by, and shall be
construed and enforced in accordance with, Ohio law.
4
<PAGE> 5
13. Successors and Assigns. All provisions herein contained shall be
binding upon the Company, its successors and assigns and the Holder, its
personal representatives, heirs, legatees, successors and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
by its Chairman and to be duly attested by its Secretary, on the _____ day of
_____________, 1994.
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
By: _____________________________________
Chairman
ATTEST:
By: __________________________________
Secretary
5
<PAGE> 1
EXHIBIT 10.24
AMENDMENT TO STOCK PURCHASE AGREEMENT
This AMENDMENT TO STOCK PURCHASE AGREEMENT is made the 12th day of August,
1997, with an effective date as described below, by and between UNIVERSAL
DOCUMENT MANAGEMENT SYSTEMS, INC. (formerly "MedPlus Acquisition Corp.") (the
"Purchaser"), an Ohio corporation and a wholly-owned subsidiary of MedPlus, Inc.
("MedPlus"), with its principal offices located at 8805 Governor's Hill Drive,
Cincinnati, Ohio 45249, JAY AND JUDY HILNBRAND, individuals residing at 617
Sonora Ct., Cincinnati, Ohio 45215 ("Hilnbrand") and ROBERT C. WEISS, an
individual residing at 5632 Julmar, Cincinnati, OH 45238 ("Weiss") (Hilnbrand
and Weiss are collectively referred to as the "Sellers").
W I T N E S S E T H:
WHEREAS, the Purchaser and the Sellers entered into a Stock Purchase
Agreement dated December 29th, 1995 (the "Initial Agreement") pursuant to which
the Sellers sold to the Purchaser and the Purchaser purchased from the Sellers
all of the common stock of HWB, Inc. owned by the Sellers (the "HWB Stock"); and
WHEREAS, the consideration for the HWB Stock, which the parties agree was a
capital asset, was to be paid to the Sellers over a period of three years in the
form of MedPlus common stock and/or cash and was to be calculated based on the
revenues of the Purchaser during such three year period (the "Earn-Out
Consideration"); and
WHEREAS, the Purchaser is planning to combine with certain CAD resellers
and conduct an initial public offering of its common stock (the "IPO") with an
effective date which is on or before December 31, 1997 (the "IPO Date");and
WHEREAS, if the IPO occurs, then following the IPO, MedPlus will no longer
be the sole shareholder of the Purchaser; and
WHEREAS, if the IPO occurs, then as a result of the change in ownership and
structure of the Purchaser following the IPO, the Purchaser and the Sellers
desire to amend the Initial Agreement with respect to the Earn-Out Consideration
to clarify the revenues as to which it applies and to provide for additional
time during which the Earn-Out Consideration may be paid to the Sellers and to
allow a portion of such consideration to be paid in the form of the Purchaser's
common stock instead of MedPlus' common stock; and
WHEREAS, the Purchaser and Sellers agree that this Amendment to Stock
Purchase Agreement shall only become effective in the event of the IPO and on
the IPO Date, if any.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties, intending to be legally bound, agree as follows:
On the IPO Date, Schedule 2 to the Initial Agreement shall be amended to
read in its entirety as follows:
<PAGE> 2
"SCHEDULE 2
STOCK PURCHASE CONSIDERATION
On January 1, 1998, the Purchaser shall pay to the Sellers $390,000 (of which
$311,922 shall be paid to Hilnbrand and $78,078 shall be paid to Weiss). So long
as each of Jay Hilnbrand and Robert C. Weiss remains employed by the Purchaser
until at least December 31, 1998, the following consideration shall be payable
to Sellers no later than March 31, 1999, 2000 and 2001, respectively, as follows
(the 'Earn-Out Consideration'):
If, during any of the three periods described below (the 'Earn-Out Periods'),
the Audited Net Revenue (as defined below) of the Purchaser exceeds a certain
amount, as listed below, with respect to that Earn-Out Period (the 'Earn-Out
Threshold'), then Purchaser shall pay to the Sellers an aggregate amount equal
to 99.9% of the 'Payment Amount' listed below (the 'Annual Payment'). In no
event shall the cumulative aggregate of the Earn-Out Consideration for all three
Earn-Out Periods exceed $2,610,000.
<TABLE>
<CAPTION>
EARN-OUT PERIOD EARN-OUT THRESHOLD PAYMENT AMOUNT*
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
The IPO Date through $1,750,000 $1.00 for each dollar of Audited
December 31, 1998 Net Revenue over $1.75 million
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
January 1, 1999 through 2,750,000 $1.00 for each dollar of Audited
December 31, 1999 Net Revenue over $2.75 million
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
January 1, 2000 through 3,750,000 $1.00 for each dollar of Audited
December 31, 2000 Net Revenue over $3.75 million
- --------------------------------------------------------------------------------
</TABLE>
For purposes hereof, 'Audited Net Revenue' of the Purchaser shall mean all the
gross revenues related to the Purchaser's Step2000 software product (including,
but not limited to, licensing and maintenance fees and consulting and
application building fees with respect to Step2000), minus returns and
allowances related to the Purchaser's Step2000 software product and minus the
amount of accounts receivable written off as uncollectible during the period in
question which are related to the Purchaser's Step2000 software product and
which are either over 180 days old or are owed by a debtor which has declared
bankruptcy or has otherwise admitted its insolvency in a public filing. In the
event that the amount of any fees charged by Purchaser to any person who is an
affiliate of Purchaser or MedPlus are less than the ordinary rates charged for
customers who are not affiliates in arms-length transactions, then the amount of
Audited Net Revenues for purposes of calculating the Earn-Out Consideration
shall be increased by the amount by which the ordinary rates exceed the actual
rates charged. All payments of the Earn-Out Consideration shall be made in cash
or, at the election of the Purchaser, in a combination of cash and the
Purchaser's common stock, provided that the common stock component of any
payment of the Earn-Out Consideration shall not
<PAGE> 3
exceed 50%. To the extent the Purchaser's common stock is used to make any
payment, each share so issued shall be deemed to have a value equal to the
average of the closing price per share of the Purchaser's common stock on the
Nasdaq National Market for each of the 20 trading days preceding the payment
date. Notwithstanding the foregoing, payments may only be made in the form of
the Purchaser's common stock if at the time of issuance thereof there is a
registration statement effective under the Securities Act of 1933 covering a
resale of such shares by Sellers, the cost of which shall not be the
responsibility of Sellers. The term 'Purchaser's common stock' shall not include
any securities of the Purchaser other than its common stock, or any securities
of any successor of the Purchaser.
The percentage of each Annual Payment of Earn-Out Consideration to which each
Seller is entitled is set forth as follows: Hilnbrand, 79.98%; Weiss 20.02%."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
Stock Purchase Agreement to be executed as of the day and year first above
written.
UNIVERSAL DOCUMENT
MANAGEMENT SYSTEMS, INC.
--------------------------------------
Jay Hilnbrand
By:
- -------------------------------------- --------------------------------------
Judy Hilnbrand
Its:
- --------------------------------------
--------------------------------------
Robert C. Weiss
<PAGE> 1
EXHIBIT 10.25
September 25, 1997
Terry L. Theye
President and Chief Executive Officer
Universal Document Management Systems, Inc.
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
Dear Mr. Theye:
Universal Document Management Systems, Inc. ("UDMS") is in the process
of acquiring the following companies (the "Acquired Companies"):
Access Corporation based in Cincinnati, Ohio
Applied Software Technology, Inc. based in Atlanta, Georgia
AVCOM Technologies, Inc. based in Sunnyvale, California
CADD Microsystems, Inc. based in Alexandria, Virginia
Computers for Design, Inc. based in Denver, Colorado
Devtron, Russell Inc. based in Gladwin, Michigan
DTI Technologies, Inc. based in Bedford, New Hampshire
Mid-West CAD, Inc. based in Lee's Summit, Missouri
Synergis Technologies, Inc. based in Quakertown, Pennsylvania
Technical Software, Inc. based in Cleveland, Ohio
You have requested that Autodesk, Inc. ("Autodesk") consent to the
Acquired Companies' assignment of their rights and delegation of their duties to
UDMS under the Autodesk Authorized Dealer Agreements between Autodesk and the
Acquired companies effective February 1, 1997 and all other Agreements of
whatever nature between Autodesk or Softdesk, Inc. on the one hand and the
Acquired Companies on the other (the "Agreements").
Autodesk hereby consents to the Acquired Companies' assignment of their
rights and delegation of their duties under the Agreements to UDMS as successor
in interest to the Acquired Companies effective at the time of the acquisition
of the Acquired Companies by UDMS, subject to the following conditions:
1. That UDMS expressly assume all of the Acquired Companies'
duties under the Agreements and agree to be bound by each of
the Agreements in its entirety.
2. That if for any reason the acquisition of the Acquired
Companies, or the acquisition of any of the Acquired
Companies, by UDMS shall not be consummated, this consent
shall be null and void ab initio as to the Agreement or
Agreements with such Acquired Company or Acquired Companies.
<PAGE> 2
This consent to assignment shall be effective when signed by all
parties and shall in all respects be governed by and interpreted in accordance
with the laws of the State of California (excluding rules regarding conflicts of
law). The parties hereby submit to the personal jurisdiction of and venue in the
Superior Court of the State of California, County of Marin, and the United
States District Court for the Northern District of California in San Francisco.
Enclosed are twelve originally executed copies of this letter, please
return one signed original to me, retain one signed original for your records
and a signed copy should be retained by each of the Acquired Companies.
AUTODESK, INC.
By:
----------------------------------
Marcia K. Sterling, Vice President
Each of the Acquired Companies hereby agrees to the terms and
conditions under which Autodesk has granted its consent.
Access Corporation
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Applied Software Technology, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
AVCOM Technologies, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
<PAGE> 3
CADD Microsystems, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Computers for Design, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Devtron, Russell Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
DTI Technologies, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Mid-West CAD, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
<PAGE> 4
Synergis Technologies, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
Technical Software, Inc.
By:
----------------------------------
Title:
----------------------------------
Date:
----------------------------------
UDMS hereby expressly assumes all of the Acquired Companies' duties
under the Agreements and agrees to be bound by each of the Agreements in its
entirety, and otherwise agrees to the terms and conditions under which Autodesk
has granted its consent.
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS,
INC.
By:
----------------------------------
Title:
----------------------------------
<PAGE> 1
AGREEMENT
This AGREEMENT dated as of the 10th day of July, 1997 (the "Effective
Date"), is by and between MEDPLUS, INC. (the "Company"), an Ohio corporation
with its principal offices located at 8805 Governor's Hill Drive, Cincinnati,
Ohio 45249 and GROWTH MANAGEMENT ADVISORS, INC., an Ohio corporation with its
principal offices located at 8044 Montgomery Road, Ste. 700, Cincinnati, Ohio
45236 ("GMA").
W I T N E S S E T H:
WHEREAS, Universal Document Management Systems, Inc. ("UDMS"), a
wholly-owned subsidiary of the Company, and GMA entered into a Consulting
Agreement dated February 19th, 1997 pursuant to which GMA agreed to provide to
UDMS the services of Terry L. Theye ("Consultant"), an employee of GMA, to
assist UDMS with the identification and recruitment of, and negotiations with,
certain CAD software resellers and/or other companies whose business may
complement that of UDMS, which UDMS is interested in acquiring, and to assist
UDMS with an initial public offering (the "IPO") by UDMS; and
WHEREAS, to date, as the parent company of UDMS, the Company has expended
considerable resources on behalf of UDMS to ensure the success of the IPO; and
WHEREAS, the Company desires to provide GMA with incentive to ensure
successful completion of the IPO on or before March 31, 1997.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties, intending to be legally bound, agree as follows:
AGREEMENT. GMA and Consultant agree to use their best efforts to ensure
that the IPO is completed on or before December 31, 1997.
COMPENSATION. If the IPO occurs on or before March 31, 1997, then, within
60 days following the IPO, the Company shall pay to GMA $500,000.
MISCELLANEOUS.
SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, the heirs and legal representatives
of Consultant, and the successors and assigns of GMA and the Company,
except that neither GMA nor Consultant may assign this Agreement or any
of Consultant's duties or services hereunder.
MODIFICATION. This Agreement may not be changed, amended or modified except
by a writing signed by both parties.
ENTIRE AGREEMENT/GOVERNING LAW. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to
the subject matter hereof an supersedes any prior agreements or
understandings between the Company, GMA and/or Consultant with respect
to such subject matter. This Agreement shall be governed and construed
in accordance with the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
MEDPLUS, INC.
By:
------------------------------------------
Its:
------------------------------------------
GROWTH MANAGEMENT ADVISORS, INC.
By:
------------------------------------------
Terry L. Theye, Chairman
Agreed and Acknowledged:
- -----------------------------
Terry L. Theye, individually
<PAGE> 1
Exhibit 10.27
AGREEMENT
This AGREEMENT dated as of the _____day of September, 1997 (the "Effective
Date"), is by and between UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC. ("UDMS"),
an Ohio corporation with its principal offices located at 8805 Governor's Hill
Drive, Cincinnati, Ohio 45249 and GROWTH MANAGEMENT ADVISORS, INC., an Ohio
corporation with its principal offices located at 8044 Montgomery Road, Ste.
700, Cincinnati, Ohio 45236 ("GMA").
W I T N E S S E T H:
WHEREAS, UDMS and GMA entered into a Consulting Agreement dated February
19th, 1997 pursuant to which GMA agreed to provide to UDMS the services of Norma
Skoog ("Consultant"), an employee of GMA, to assist UDMS with the identification
and recruitment of, and negotiations with, certain CAD software resellers and/or
other companies whose business may complement that of UDMS, which UDMS is
interested in acquiring, and to assist UDMS with an initial public offering (the
"IPO") by UDMS; and
WHEREAS, UDMS desires to provide GMA with incentive to ensure successful
completion of the IPO on or before March 31, 1998.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, the parties, intending to be legally bound, agree as follows:
AGREEMENT. GMA and Consultant agree to use their best efforts to ensure that
the IPO is completed on or before March 31, 1998.
COMPENSATION. If the IPO occurs on or before March 31, 1998, then, within 30
days following the IPO, UDMS shall pay to GMA $60,000.
MISCELLANEOUS.
SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, the heirs and legal representatives
of Consultant, and the successors and assigns of GMA and UDMS, except
that neither GMA nor Consultant may assign this Agreement or any of
Consultant's duties or services hereunder.
MODIFICATION. This Agreement may not be changed, amended or modified except
by a writing signed by both parties.
ENTIRE AGREEMENT/GOVERNING LAW. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to
the subject matter hereof an supersedes any prior agreements or
understandings between UDMS, GMA and/or Consultant with respect to such
subject matter. This Agreement shall be governed and construed in
accordance with the laws of the State of Ohio.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
UNIVERSAL DOCUMENT MANAGEMENT
SYSTEMS, INC.
By:___________________________________________
Its:___________________________________________
GROWTH MANAGEMENT ADVISORS, INC.
By:___________________________________________
Terry L. Theye, Chairman
Agreed and Acknowledged:
_____________________________
Norma Skoog, individually
2
<PAGE> 1
Exhibit 10.28
THE SECURITY EVIDENCED HEREBY MAY NOT BE TRANSFERRED EXCEPT (I) IN
ACCORDANCE WITH THE PROVISIONS OF PARAGRAPH 1 HEREOF AND (II) WITH EITHER (A)
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE
LAWFULLY MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR (B) SUCH
REGISTRATION.
COMMON STOCK WARRANT
To Purchase One Half (.5)
of One Share of Common Stock of
Universal Document Management Systems, Inc.
July 7, 1997
THIS CERTIFIES THAT, in consideration of services rendered to Universal
Document Management Systems, Inc., an Ohio corporation (the "Company"), Thomas
R. McLean ("Holder") is entitled to subscribe for and purchase from the
Company, at any time after 11:59 PM, Cincinnati time, on the day prior to the
date on which the Company conducts an initial public offering of its common
stock (the "IPO"), and for five (5) years from such date (at which time this
Warrant shall expire and which is hereinafter referred to as the "Expiration
Time") one half (.5) of one fully paid and nonassessable share of the Company's
common stock without par value at a total price of $10,000.00 cash per one half
share.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY. The rights represented by this Warrant
may be exercised by the Holder, in whole or in part, by written notice of
exercise delivered to the Company 5 business days prior to the intended date of
exercise and by the surrender of this Warrant (properly endorsed if required)
at the principal office of the Company and upon payment to it by check of the
purchase price for such shares. This Warrant may not be transferred except by
the laws of descent and distribution.
2. ISSUANCE OF SHARES. The Company agrees that the shares purchasable
hereunder shall be and are deemed to be issued to Holder as of the close of
business on the date on which this Warrant shall have been surrendered and the
payment made for such shares as described herein. Subject to the provisions of
the next succeeding paragraph, certificates for the shares of stock so
purchased and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant shall not then
have been exercised, shall be delivered to Holder within a reasonable time, not
exceeding ten days after the rights represented by this Warrant shall have been
so exercised. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except as otherwise expressly provided herein.
<PAGE> 2
3. COVENANTS OF COMPANY. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will, upon issuance, be duly authorized and issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Company covenants and agrees that it will from time to time take all such
action as may be required to assure that the par value per share of common
stock is at all times equal to or less than the then effective purchase price
per share of the common stock issuable pursuant to this Warrant. The Company
further covenants and agrees that, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its common stock to provide for the exercise of the rights
represented by this Warrant.
4. ANTI-DILUTION ADJUSTMENTS.
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of common stock or declare a dividend payable in
common stock, the per share exercise price of this Warrant in effect immediately
prior to the subdivision, combination or record date for such dividend payable
in common stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
common stock, and each share of common stock purchasable upon exercise of this
Warrant shall be changed to the number determined by dividing the then current
exercise price by the exercise price as adjusted after the subdivision,
combination or dividend payable in common stock.
(b) No fractional shares of common stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in respect
of any fraction of a share which would otherwise be issuable in an amount equal
to the same fraction of the market price per share of common stock on the day of
exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of common stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the
2
<PAGE> 3
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the Warrant purchase price and of the
number of shares purchasable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation purchasing such
assets, shall assume by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(d) Upon any adjustment of the Warrant purchase price, then, and
in each such case, the Company shall give written notice thereof, by first class
mail, postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the Warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
5. COMMON STOCK. As used herein, the term "common stock" shall
mean and include the Company's presently authorized shares of common stock and
shall also include any capital stock of any class of the Company hereafter
authorized which shall not be limited to fixed sum or percentage in respect of
the rights of the holders thereof to participate in dividends or in the
distribution, dissolution or winding up of the Company.
6. NO VOTING RIGHTS. This Warrant shall not entitle the
holder hereof to any voting rights or other rights as a shareholder of the
Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF SHARES. Holder, by
acceptance hereof, agrees to give written notice to the Company before
transferring any common stock issued upon the exercise hereof ("Warrant
Shares"), of Holder's intention to do so, describing briefly the manner of any
proposed transfer. Promptly upon receiving such written notice, the Company
shall present copies thereof to the Company's counsel and to counsel to the
original transferee of this Warrant. If in the opinion of each such counsel the
proposed transfer may be effected without registration or qualification (under
any federal or state law), the Company, as promptly as practicable, shall notify
Holder of such opinions, whereupon Holder shall be entitled to transfer the
Warrant Shares or to dispose of shares of common stock received upon the
previous exercise hereof in accordance with the notice delivered by Holder to
the Company, provided that an appropriate legend may be endorsed on this Warrant
or the certificates for such
3
<PAGE> 4
Warrant Shares respecting restrictions upon transfer thereof necessary or
advisable in the opinion of counsel satisfactory to the Company to prevent
further transfers which would be in violation of Section 5 of the Securities Act
of 1933.
If, in the reasonable opinion of either of the counsel referred to in
this paragraph 7, the proposed transfer or disposition described in the written
notice given pursuant to this paragraph 7 may not be effected without
registration or qualification of the Warrant Shares, the Company shall promptly
give written notice thereof to Holder, and Holder will limit its activities in
respect to such proposed transfer or disposition as, in the opinion of both
such counsel, are permitted by law.
8. REGISTRATION RIGHTS.
(a) If the Company proposes to register under the Securities Act
of 1933 (except by a registration statement on a form that does not permit the
inclusion of shares by its security holders) any of its securities, it will give
written notice to all registered holders of Warrants, and all registered holders
of shares of common stock acquired upon the exercise of Warrants, of its
intention to do so and, on the written request of any registered holders given
within 20 days after receipt of any such notice (which request must be made on
or before the Expiration Time and which notice shall specify the Warrant Shares
intended to be sold or disposed of by such registered holder and describe the
nature of any proposed sale or other disposition thereof), the Company will use
its best efforts to cause all such Warrant Shares, the registered holders of
which shall have requested the registration or qualification thereof, to be
included in such notification or registration statement proposed to be filed by
the Company. All expenses of such offering, except the fees of special counsel
and brokers' commissions to such holders, shall be borne by the Company.
(b) Further, on a one-time basis only, upon request by a majority
in interest of Warrants, or by the holders of a majority of the shares of the
common stock issued upon exercise thereof, made in writing to the Company prior
to the Expiration Time, the Company will, at the expense of such holders,
promptly take all necessary steps to register or qualify the Warrant Shares
under Section 3(b) or Section 5 of the Securities Act of 1933 and such state
laws as such holders may reasonably request. The Company shall keep effective
and maintain any registration, qualification, notification or approval specified
in this paragraph for such period as may be necessary for the holders of the
Warrant Shares to dispose of such shares and from time to time shall amend or
supplement, at the holder's expense, the prospectus, or offering circular used
in connection therewith to the extent necessary in order to comply with
applicable law, provided that the Company shall not be obligated to maintain any
registration for a period of more than six months after effectiveness except
that a Form S-3 Registration Statement or successor thereof shall be maintained
for up to 12 months after effectiveness.
(c) The Company shall indemnify the Holder of this Warrant and of
any common
4
<PAGE> 5
stock issued or issuable hereunder, its officers and directors, and any person
who controls such Warrant holder or such holder of common stock within the
meaning of Section 15 of the Securities Act of 1933, against all losses, claims,
damages and liabilities caused by any untrue statement of a material fact
contained in any registration statement, prospectus, notification or offering
circular (and as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus relating to the
registration or qualification of the Warrant Shares or caused by any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading except insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Warrant holder or
such holder of Warrant Shares expressly for use therein, and each such holder by
its acceptance hereof severally agrees that it will indemnify and hold harmless
the Company and each of its officers who signs such registration statement and
each of its directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act of 1933 with respect to losses,
claims, damages or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
holder expressly for use therein.
9. RIGHT TO RECEIVE INFORMATION. Prior to the earlier of the
Expiration Time or such time as this Warrant has been fully exercised, the
Company shall provide Holder with copies of any and all reports, notices or
other communications which the Company generally provides to all of its
shareholders.
IN WITNESS WHEREOF, Universal Document Management Systems, Inc. has caused
this Warrant to be signed by its duly authorized officer and this Warrant to be
dated as of , 1997.
----------------
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
By
------------------------------------------
Its
-----------------------------------------
5
<PAGE> 6
UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC.
TO:
----------------------------
PURCHASE FORM -- To be executed by the Registered Holder in Order to Exercise
the Warrant.
The undersigned hereby irrevocably elects to exercise the attached Warrant
Certificate to purchase, for cash, _________________ of the shares issuable
upon the exercise of such Warrant, and requests that certificates for such
shares shall be issued in the name of:
-----------------------------------
(Name)
-----------------------------------
(Address)
-----------------------------------
(Tax ID No.)
-----------------------------------
(Signature)
ASSIGNMENT FORM -- To be Executed By the Registered Holder in Order to Transfer
the Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers ___ of
the Warrants represented by the attached Warrant Certificate unto
_____________________________________ (Please print or typewrite name and
address including postal zip code of assignee)
(Social Security or other identifying number of assignee: ________________) and
does irrevocably constitute and appoint ________________________ attorney to
transfer the Warrant Certificate on the records of the Company with full power
of substitution in the premises.
Date:__________________, 19____.
PLEASE NOTE: The signature(s) to the Purchase Form or the Assignment
Form must correspond to the name as written upon the face of the
Warrant Certificate in every particular without alteration or
enlargement or any change whatsoever.
i
<PAGE> 7
EXERCISE NOTICE
The undersigned Warrant holder hereby irrevocably elects to exercise
the attached Warrant certificate by exercising the conversion rights of Section
1 of the Warrant. The Warrant is hereby exercised for _____________________
shares and is accompanied by a check in the amount of $_____________ to cover
the exercise price thereof.
Date:
-----------------------
-----------------------------------
(Name)
-----------------------------------
(Address)
-----------------------------------
(Tax ID No.)
-----------------------------------
(Signature)
ii
<PAGE> 1
Exhibit 11
SYNERGIS TECHNOLOGIES, INC.
COMPUTATION OF PRO FORMA LOSS PER COMMON SHARE
(unaudited)
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Weighted Average Pro Forma
Number of Common Pro Forma Loss per Net
Shares Outstanding Net Loss Common Share
------------------ ---------- ------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Shares outstanding at January 1, 1996(1)(2)............. 24,480 $ - $ -
Dilutive stock options and warrants issued within one
year of the Offering............................... 59,012 - -
Newly issued shares to shareholders of the Founding
Companies as a result of the Acquisitions.......... 875,508 - -
Initial public offering of common stock(1).............. 2,600,000 - -
Pro forma net loss...................................... - 455 -
--------- ---------- ------------
3,559,000 $ 455 $ 0.13
========= ========== ============
Six Months Ended June 30, 1997:
Shares outstanding at January 1, 1997(1)(2)............. 24,480 $ - $ -
Dilutive stock options and warrants issued within one
year of the Offering............................... 59,012 - -
Newly issued shares to shareholders of the Founding
Companies as a result of the Acquisitions.......... 875,508 - -
Initial public offering of common stock(1).............. 2,600,000 - -
Pro forma net loss...................................... - 465 -
--------- ---------- ------------
3,559,000 $ 465 $ 0.13
========= ========== ============
</TABLE>
(1) After giving effect to the 750,000 shares sold in the Offering by the
Selling Shareholder.
(2) After giving effect to the 59,012 shares which were contributed by the
Selling Shareholder to the Company prior to the closing of the Offering.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated July 31, 1997, except for notes 3 and
16 which are dated as of October 7, 1997, relating to the balance sheets of
Universal Document Management Systems, Inc. as of December 31, 1995 and 1996,
and the related statements of operations, stockholder's equity, and cash flows
for the period from December 14, 1995 to December 31, 1995 and the year ended
December 31, 1996, included herein and to the reference to our firm under the
heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Cincinnati, Ohio
October 7, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated February 15, 1996, relating to the
balance sheets of Universal Document Management Systems, Inc. as of December 31,
1993 and 1994 and December 13, 1995, and the related statements of operations,
stockholder's deficit, and cash flows for the years ended December 31, 1993 and
1994 and for the period from January 1, 1995 to December 13, 1995, included
herein and to the reference to our firm under the heading "Experts" in the
Prospectus.
/s/ CLARK, SCHAEFER, HACKETT & CO.
Cincinnati, Ohio
October 7, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
DTI Technologies, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Boston, Massachusetts
October 7, 1997
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement relating to 2,990,000
shares of Common Stock of Universal Document Management Systems, Inc. on Form
S-1 of our report dated May 29, 1997 relating to the financial statements of
Access Corporation, appearing in the Prospectus, which is a part of this
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
October 8, 1997
<PAGE> 1
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Applied Software Technology, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Atlanta, Georgia
October 7, 1997
<PAGE> 1
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Technical Software, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Columbus, Ohio
October 7, 1997
<PAGE> 1
EXHIBIT 23.7
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Synergis Technologies, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
October 7, 1997
<PAGE> 1
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mid-West CAD, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Kansas City, Missouri
October 7, 1997
<PAGE> 1
EXHIBIT 23.9
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CADD Microsystems, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
McLean, Virginia
October 7, 1997
<PAGE> 1
EXHIBIT 23.10
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Devtron, Russell Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Detroit, Michigan
October 7, 1997
<PAGE> 1
EXHIBIT 23.11
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Computers for Design, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/KPMG Peat Marwick LLP
Denver, Colorado
October 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC. ("UDMS") AS
OF DECEMBER 31, 1996 AND FOR THE YEAR THEN ENDED AS CONTAINED IN THIS
REGISTRATION STATEMENT ON FORM S-1 OF UDMS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 468
<ALLOWANCES> 15
<INVENTORY> 0
<CURRENT-ASSETS> 470
<PP&E> 90
<DEPRECIATION> 11
<TOTAL-ASSETS> 1,786
<CURRENT-LIABILITIES> 1,091
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 674
<TOTAL-LIABILITY-AND-EQUITY> 1,786
<SALES> 398
<TOTAL-REVENUES> 1,100
<CGS> 57
<TOTAL-COSTS> 1,210
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> (141)
<INCOME-TAX> 0
<INCOME-CONTINUING> (141)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (141)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNIVERSAL DOCUMENT MANAGEMENT SYSTEMS, INC. ("UDMS") AS
OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AS CONTAINED IN THIS
REGISTRATION STATEMENT ON FORM S-1 OF UDMS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 246
<ALLOWANCES> 15
<INVENTORY> 0
<CURRENT-ASSETS> 284
<PP&E> 132
<DEPRECIATION> 26
<TOTAL-ASSETS> 1,979
<CURRENT-LIABILITIES> 1,626
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 347
<TOTAL-LIABILITY-AND-EQUITY> 1,979
<SALES> 186
<TOTAL-REVENUES> 428
<CGS> 40
<TOTAL-COSTS> 771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (362)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.2
CONSENT OF DIRECTOR
The Board of Directors
Universal Document Management Systems, Inc.
The undersigned hereby consents to serve on the Board of Directors of Universal
Document Management Systems, Inc. and consents to reference in the registration
statement on Form S-1 of Universal Document Management Systems, Inc. to his or
her name and qualifications for such position as director.
/s/ Vince Rinaldi
-------------------------
Vincent Rinaldi
Cincinnati, Ohio
[date]
<PAGE> 1
EXHIBIT 99.3
CONSENT OF DIRECTOR
The Board of Directors
Universal Document Management Systems, Inc.
The undersigned hereby consents to serve on the Board of Directors of Universal
Document Management Systems, Inc. and consents to reference in the registration
statement on Form S-1 of Universal Document Management Systems, Inc. to his or
her name and qualifications for such position as director.
/s/ Norma Skoog
------------------------
Norma Skoog
Cincinnati, Ohio
[date]
