SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____________ to
--------------
Commission File No: 00-113959
CPS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1607857
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3400 CARLISLE, SUITE 500
DALLAS, TEXAS 75204
(214) 855-5277
(Address, including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MAY 07, 1999
----- ---------------------------------
Common stock
Par value $.01 per share 6,754,576
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of As of
03/31/99 12/31/98
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash ............................................ $ 461 $ 296
Accounts receivable ............................. 2,435 2,852
Deferred income tax ............................. 1,132 907
Inventory ....................................... 202 201
Refundable income taxes ......................... 89 267
Prepaid expense and other current assets ........ 446 564
-------- --------
Total current assets: ............... 4,765 5,087
PROPERTY AND EQUIPMENT ............................... 765 790
SOFTWARE DEVELOPMENT COST ............................ 5,258 4,167
OTHER ASSETS
Costs in excess of net assets acquired .......... 1,552 1,623
Debt issue costs ................................ 58 79
Other assets .................................... 23 29
-------- --------
--------
1,633 1,731
--------
$ 12,421 $ 11,775
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt ............... $ 2,050 $ 1,050
Accounts payable ................................ 1,310 1,066
Accrued income tax payable ...................... 27 --
Other accrued expenses .......................... 380 437
Customer deposits, unearned revenue ............. 3,929 4,013
-------- --------
Total current liabilities: .......... 7,696 6,566
OTHER LIABILITIES
Long-term debt .................................. 1,027 1,023
Unearned revenue ................................ 14 14
Other liabilities ............................... -- --
-------- --------
Total long term debt: ............... 1,041 1,037
-------- --------
Total Liabilities: .................. 8,737 7,603
COMMITMENTS AND CONTINGENCIES ........................ -- --
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 6,743,902 shares issued in 1999
and 6,734,928 shares issued in 1998 .......... 67 67
Additional paid-in capital ...................... 6,812 6,805
Accumulated deficit ............................. (3,195) (2,700)
-------- --------
--------
Total Shareholders' Equity: ......... 3,684 4,172
--------
$ 12,421 $ 11,775
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
Revenue
<S> <C> <C>
License fees .......................... $ 357 $ 198
Recurring maintenance and service fees 1,011 1,076
Product sales ......................... 385 643
Other service fees .................... 149 281
------- -------
1,902 2,198
Cost of Revenue
Product Sales ......................... 287 499
Purchased software .................... 288 147
Distribution .......................... 5 4
------- -------
580 650
Gross profit ..................... 1,322 1,548
------- -------
Operating Expenses
Support and customer service .......... 1,091 934
Selling and marketing ................. 233 471
Research and development .............. 123 102
General and administrative ............ 433 459
Amortization of intangible goodwill ... 70 71
------- -------
1,950 2,037
Earnings(loss) from operations ... (628) (489)
------- -------
Interest and financing costs ..................... 84 245
------- -------
Earnings(loss) before income taxes (712) (734)
Income tax expense(benefit) ...................... (217) (260)
------- -------
Net Earnings(loss) ............... $ (495) $ (474)
======= =======
Net earnings(loss) per common share
Basic and Diluted ........................... ($ 0.07) ($ 0.11)
Weighted average shares used in computing net
earnings(loss) per common share:
Basic and Diluted ........................... 6,744 4,140
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1999 1998
-------------------
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) .............................................. $ (495) $ (476)
Adjustments to reconcile net income(loss) to net cash:
Depreciation and amortization .............................. 188 178
Adjustment to put warrants ................................. -- 125
Loss on disposal of property and equipment ................. -- 1
Accrued interest to shareholders ........................... -- 2
Changes in assets and liabilities, net of business acquired:
Accounts receivable .................................... 417 (245)
Refundable income taxes ................................ 178 75
Inventories ............................................ (1) (232)
Deferred income tax expense ............................ (225) (508)
Prepaid expenses and other current assets .............. 118 (31)
Accounts payable ....................................... 244 (59)
Accrued expenses ....................................... (51) 253
Customer deposits, and unearned revenue ................ (84) 931
Income taxes payable ................................... 27 97
Other liabilities ...................................... -- 1
------------------
Net cash provided by operating activities $ 316 $ 111
Cash Flows from investing activities:
Purchase of property and equipment ............................ (38) (94)
Software development costs .................................... (1,124) (537)
------------------
Net cash used by investing activities .... $(1,162) $ (631)
Cash flows from financing activities:
Principal payment on long-term debt ........................... 4 (23)
Proceeds from notes payable - Tyler Corporation ............... 1,000 --
Proceeds from employee stock purchase plan .................... 7 --
Proceeds from public offering, net of offering cost ........... -- 6,434
------------------
Net cash provided by financing activities $ 1,011 $ 6,411
Net increase(decrease) in cash ..................................... 165 5,891
Cash at beginning of period ........................................ 296 327
------------------
Cash at end of period .............................................. $ 461 $ 6,218
Supplementary Cash Flow Disclosure:
Interest and financing costs paid ............................. $ 63 $ 92
Income taxes paid (refunded), net ............................. $ (180) $ --
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein have
been prepared by the Company without audit. These statements reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the consolidated financial position as of March 31, 1999, and the consolidated
results of operation and cash flows for the three months ended March 31, 1999
and 1998. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements and notes be read in conjunction with the
audited consolidated financial statements and notes for the year ended December
31, 1998, included in the Company's Form 10-K filed with the Securities and
Exchange Commission on April 15, 1999.
NOTE B - REVENUE RECOGNITION
The Company licenses its software products. Pursuant to AICPA Statement of
Position 97-2, "Software Revenue Recognition", revenue from software license
fees is recognized when an agreement has been executed, software has been
delivered and installed, all significant contractual obligations have been met
and collection of the related receivable is probable. Post contract customer
support revenue, consisting of continuing maintenance and service fees,
including that bundled with initial license fees, is deferred and recognized
ratably over the contractual periods the services are provided. Product sales,
consisting primarily of computer hardware, are recognized upon delivery of the
product.
NOTE C - INITIAL PUBLIC OFFERING
On March 30, 1998, the Company successfully completed its initial public
offering ("IPO") of common stock. The Company issued 1,900,000 shares of common
stock in connection with its IPO at $4.00 per share, which, upon payment of all
offering costs resulted in net proceeds of approximately $5,767, net of issuance
costs of approximately $1,833. In April 1998, the underwriters exercised their
option to purchase 285,000 additional shares of common stock to cover
over-allotments. All of the over-allotment shares were sold by certain selling
shareholders, resulting in no proceeds to the Company. However, the Company
incurred additional issuance cost of $148. Net proceeds subsequent to the
exercise of the over-allotment option was $5,619.
In connection with the IPO, all of the Company's outstanding put warrants were
converted into common stock. The exercise of the put warrants resulted in the
issuance of 927,766 common shares and proceeds to the Company of approximately
$2. Upon exercise of the put warrants, their recorded value of $367 was
reclassified to paid in capital.
NOTE D- SENIOR TERM LOAN
On December 31, 1999, the current portion, approximately $1,100 of a $2,100
senior note payable to Hanifen Imhoff Mezzanine Fund, L.P. (the "Hanifen Loan")
becomes due. As of December 31, 1998, the Company was in violation of the note
agreement with Hanifen Imhoff Mezzanine Fund, L.P., relating to the Hanifen
Loan. The violation pertains to the ratio of cash flow to total contractual debt
service. Hanifen Imhoff Mezzanine Fund, L.P has waived through September 30,
1999 compliance with this ratio.
5
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
NOTE E- MERGER AGREEMENT AND TERM LOAN
On March 30, 1999, the Company executed an Agreement and Plan of Merger with
Tyler Corporation ("Tyler") pursuant to which the Company will merge with and
into a wholly owned subsidiary of Tyler. In addition, on March 30, 1999, Tyler
loaned $1,000 to the Company, evidenced by a secured promissory note (the "Tyler
Loan"). The Tyler Loan is due on October 30, 1999, and has an interest rate of
2% over the prime rate. An interest payment is due June 30, 1999, and the entire
principal balance and accrued interest is then due on October 30, 1999. The note
is secured by a lien on the Company's assets, subordinate to the Hanifen Loan.
NOTE F- Backlog
The Company currently has a backlog of seven contracts representing
approximately $4,300 in initial license fees and $1,100 in average annual
recurring maintenance revenue. These seven contracts are for the Company's
property tax billing and collection product and computer-assisted mass appraisal
system.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section of the Report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results for future periods could differ materially from those discussed
in this section as a result of the various risks and uncertainties discussed
herein. A comprehensive summary of such risks and uncertainties can be found in
the Company's filings with the Securities and Exchange Commission from time to
time, including the Company's annual report on Form 10-K for the fiscal year
ended December 31, 1998 filed with the Securities and Exchange Commission on
April 15, 1999 and the registration statement on Form SB-2 filed on March 25,
1998 (File No. 333-39173). All dollar amounts are expressed in thousands, except
per share amounts. The financials results reflected in this item 2 are
unaudited.
6
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
Revenue
License fees ................................ 18.8% 9.0%
Recurring maintenance and service fees ...... 53.2% 49.0%
Product sales ............................... 20.2% 29.2%
Other service fees .......................... 7.8% 12.8%
----- -----
Total Revenue: ......................... 100.0% 100.0%
----- -----
Cost of Revenue
Product Sales ............................... 15.1% 22.7%
Purchased software .......................... 15.1% 6.7%
Distribution ................................ 0.3% 0.2%
----- -----
Total Cost of Sales: ................... 30.5% 29.6%
----- -----
Gross profit: .......................... 69.5% 70.4%
Operating Expenses:
Support and customer service ................ 57.3% 42.5%
Selling and marketing ....................... 12.3% 21.4%
Research and development .................... 6.5% 4.6%
General and administrative .................. 22.7% 20.9%
Amortization of intangible goodwill ......... 3.7% 3.2%
----- -----
Total Operating Expense: .............. 102.5% 92.6%
----- -----
Earnings(loss) from operations ......... (33.0)% (22.2)%
Interest and financing costs ........................... 4.4% 11.1%
----- -----
Earnings(loss) before income taxes ..... (37.4)% (33.3)%
Income tax expense(benefit) ............................ (11.4)% (11.8)%
----- -----
Net Earnings(loss) ..................... (26.0)% (21.5)%
----- -----
</TABLE>
7
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
REVENUE
The Company's revenue includes revenue of license fees, recurring maintenance
and service fees, product sales, and other service fees.
The Company's total revenue was $1,902 for the three months ended March 31,
1999 compared to $2,198 for the three months ended March 31, 1998, a decrease of
$296 or 13.5%. This decrease was primarily due to a decrease in remittance
processing ("RPS") hardware, software and installation sales. The decrease was
partially offset by an increase in city and municipal("City") sales and an
increase in our hardware parts and repair group ("Systems Engineering")sales.
License Fees. The Company's revenue from license fees was $357 for the three
months ended March 31, 1999 compared to $198 for the three months ended March
31, 1998, an increase of $159 or 80.3%. The increase was primarily due to a new
property tax billing and collection system ("Collections") installation. This
increase was partially offset by a decrease in RPS third party software sales.
The Company currently has a backlog of seven contracts representing
approximately $4,300 in initial license fees.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $1,011 for the three months ended March 31, 1999 compared to $1,076 for
the three months ended March 31, 1998, a decrease of $65 or 6.0%. The decrease
was primarily due to a decline in hardware maintenance. This decline is
associated with hardware manufacturers offering longer extended warranties,
declining costs of hardware and the Company's belief that some customers no
longer view hardware maintenance as a mission critical need for all components.
The Company currently has a backlog of seven contracts representing
approximately $1,100 in average annual recurring maintenance revenue.
Product Sales. Revenue from product sales was $385 for the three months ended
March 31, 1999 compared to $643 for the three months ended March 31, 1998, a
decrease of $258 or 40.1%. This decrease is primarily due to a decrease in RPS
product sales and, to a lesser extent, product sales for Collection systems.
This decrease was partially offset by an increase in product sales for our City
and Systems Engineering groups.
Other Service Fees. Revenue from other service fees was $149 for the three
months ended March 31, 1999 compared to $281 for the three months ended March
31, 1998, a decrease of $132 or 47.0%. This decrease was primarily due to
decreased RPS installation sales.
COST OF REVENUE
The Company's cost of revenue includes the cost of hardware product sales, the
cost of purchased software, amortization of software development cost and
distribution costs.
The total cost of revenue was $580 for the three months ended March 31, 1999
compared to $650 for the three months ended March 31, 1998, a decrease of $70 or
10.8%. This yielded a gross profit margin of 69.5% for the three months ended
March 31, 1999 compared to a gross profit margin of 70.4% for the three months
ended March 31, 1998. The decrease was associated with a decrease in the sale of
product sales, partially offset by an increase in cost of RPS software
installations. The decrease also resulted from additional costs to correct RPS
third-party software issues for existing customers incurred by the Company.
8
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
Product Sales. The cost of product sales was $287, or approximately 74.6% of
product sales, for the three months ended March 31, 1999 compared to $499, or
approximately 77.6% of product sales, for the three months ended March 31, 1998,
a decrease of $212 or 42.5%. This decrease was primarily due to a decrease in
product sales revenue of 40.1% for the three months ended March 31, 1999
compared to the three months ended March 31, 1998.
Software. Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software was
$288 or approximately 80.7% of license fees, for the three months ended March
31, 1999 compared to $147, or approximately 74.2% of license fees, for the three
months ended March 31, 1998, an increase of $141 or 95.9%. This increase was
largely due to the increase in cost of RPS software installations. The Company
has incurred additional costs to correct RPS third-party software issues for
existing customers. Amortization of software development cost was $33 for the
three months ended March 31, 1999 and $33 for the three months ended March 31,
1998.
Distribution. The costs associated with distribution were $5 for the three
months ended March 31, 1999 compared to $4 for the three months ended March 31,
1998, an increase of $1 or 25.0%.
OPERATING EXPENSES
The Company's operating expenses includes support and customer service, selling
and marketing, research and development, general and administrative, and
amortization of intangible goodwill.
Support and Customer Service. Expenses related to support and customer service
were $1,091 for the three months ended March 31, 1999 compared to $934 for the
three months ended March 31, 1998, an increase of $157 or 16.8%. This increase
resulted from an increase in salaries and hiring to enhance customer service and
support future growth.
Selling and Marketing. The Company's selling and marketing expenses were $233
for the three months ended March 31, 1999 compared to $471 for the three months
ended March 31, 1998, a decrease of $238 or 50.5%. This decrease was due to a
decrease in the numbers of sales personnel and expenses related to developing
new markets. In November 1998, the Company decided to focus on its core products
and core markets in an effort to grow these areas.
Research and Development. Research and development expenses were $123 for the
three months ended March 31, 1999 compared to $102 for the three months ended
March 31, 1998, an increase of $21 or 20.6%. These expenses are comprised
primarily of salaries as well as amounts paid to outside consultants to
supplement continuing product enhancement efforts. The increase resulted from
movement of personnel from the capitalization projects to research and
development expensed assignments.
General and Administrative. General and administrative expenses were $433 for
the three months ended March 31, 1999 compared to $459 for the three months
ended March 31, 1998, a decrease of $26 or 5.7%. This decrease was primarily due
to a decrease in legal expenses related to claims arising out of the Company's
operations in the normal course of business.
Amortization of Goodwill. The Company incurred a non-cash expense related to
the 1994 acquisition of the Company by a private investor group of $70 for the
three months ended March 31, 1999 compared to $71 for the three months ended
March 31, 1998, a decrease of approximately $1 or 1.4%.
9
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CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
EARNINGS FROM OPERATIONS
Loss from operation was $628 or (33.0%) of revenue, for the three months ended
March 31, 1999, compared to a loss from operations of $489 or (22.2%) for the
three months ended March 31, 1998. This decrease in earnings from operations of
$139 was primarily due to the decrease of 13.5% in total revenue for the three
months ended March 31, 1999 compared to the three months ended March 31, 1998.
To a lesser extent, the decrease resulted from a reduction in gross profit
margin to 69.5% for the three months ended March 31, 1999 from 70.4% for the
three months ended March 31, 1998
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense for its long term
debt was $84 for the three months ended March 31, 1999 compared to $245 for the
three months ended March 31, 1998, a decrease of $161 or 65.7%. This decrease
was primarily attributed to a put warrant adjustment for the three months ended
March 31, 1998. The put warrant adjustment is primarily based on the operating
earnings of the Company for the previous twelve month period, which increased in
the first quarter of 1998. There was no put warrant adjustment made in 1999.
Provisions for Income Taxes. The Company's provision for income tax benefit was
$217 for the three months ended March 31, 1999 compared to $260 for the three
months ended March 31, 1998, a decrease of $43. This decrease was attributable
primarily to decreased earnings from operations. The income tax provision is
higher than income taxes determined by applying the applicable statutory rates
primarily due to non-deductible amortization of goodwill and non-deductible put
warrant adjustments.
LIQUIDITY AND CAPITAL RESOURCES
The Company was acquired by an international private investor group on December
30, 1994 for approximately $4,600 in a leveraged transaction. The acquisition
was financed with a $1,500 senior term loan due December 1998, provided by
FINOVA Capital Corporation (the "Finova Loan") and a $2,100 senior subordinated
note due in two installments in December 1999 and December 2000, provided by
Hanifen Imhoff Mezzanine Fund, L.P. (the "Hanifen Loan"). The balance of the
acquisition funding was provided by certain officers and directors of the
Company in the form of equity capital.
Since that time, the Company has funded its business solely with cash generated
from operations. However, on March 30, 1998 the Company successfully completed
an initial public offering ("IPO") of $1,900 shares of its common stock. Net
proceeds of the IPO less all issuance costs were approximately $5,619.
From March 25, 1998 through March 31, 1999, the Company applied the following
amounts of its net proceeds from the IPO pursuant to the IPO registration
statement:
Construction of plant, building and facilities $
Purchase and installation of machinery and equipment
Purchases of real estate
Acquisitions of other business(es)
Repayment of indebtedness 855 Working
capital 1,401
Temporary investments
Other uses of at least $100,000 (research and development expenses) 3,363
-----
Total $5,619
10
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CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
In May 1997, some of the Company's shareholders advanced approximately $123,000
to CDP Systems, Inc., the Company's wholly owned subsidiary("CDP"), to cover CDP
expenses (the "CDP Loans"). As of April 8, 1998, there was approximately
$128,000 in principal and accrued interest outstanding under the CDP Loans. On
that date, the CDP Loans were paid from proceeds of the IPO. With the exception
of the repayment of the CDP Loans, none of the uses constituted direct or
indirect payments to the Company's directors, officers or general partners, or
associates thereof, persons owning 10% or more of any class of securities or any
affiliates of the Company.
The Company's cash balances were $461 and $6,218 as of March 31, 1999, and March
31, 1998, respectively. The Company's operating activities provided cash of $316
and $111 during the three months ended March 31, 1999 and March 31, 1998,
respectively. The Company's source of cash during the three months ended March
31, 1999 was primarily attributable to a decrease in accounts receivable of
$417, decrease in refundable income tax of $178, and an increase to accounts
payable of $244. These increases to cash were offset by a decrease to net income
of $495 and an increase to deferred income tax of $225.
The Company used cash of $1,162 and $631 for investing activities during the
three months ended March 31, 1999 and March 31, 1998, respectively. Investing
activities have consisted principally of the acquisition of property and
equipment and capitalized software development cost. The increase of $531 was
primarily attributable to increases in capitalized software development cost
The Company's financing activities provided cash of $1,011 for the three months
ended March 31, 1999 and $6,411 for the three months ended March 31, 1998. On
March 30, 1999, the Company executed an Agreement and Plan of Merger (the
"Merger Agreement") with Tyler Technologies (formerly known as "Tyler
Corporation" and referred to hereinafter as "Tyler") pursuant to which the
Company will merge with and into a wholly owned subsidiary of Tyler. Also, on
March 30, 1999, Tyler loaned $1,000 to the Company, evidenced by a secured
promissory note (the "Tyler Loan"). As of March 31, 1998, the Company's
aggregate net proceeds were $6,411 from the sale of 1,900,000 share of common
stock through its initial public offering. Subsequent to March 31, 1998, the
Company paid $761 to retire the outstanding principal amount of its senior term
loan including interest and prepayment fees on the Finova Loan, $128 in loans
from shareholders to the Company and $148 for over-allotment issuance cost.
On December 31, 1999, the current portion, $1,050, of a $2,100 senior note
payable to Hanifen Imhoff Mezzanine Fund, L.P. under the Hanifen Loan becomes
due. As of December 31, 1998, the Company was in violation of the note agreement
with Hanifen Imhoff Mezzanine Fund, L.P. The violation pertains to the ratio of
cash flow to total contractual debt service. Hanifen Imhoff Mezzanine Fund, L.P.
has waived through September 30, 1999 compliance with this ratio.
The Tyler Loan, originally due on September 30, 1999, has been extended by
agreement of the parties until October 30, 1999. The interest rate remains 2%
over the prime rate. An interest payment is still due June 30, 1999, but the
entire principal balance and accrued interest is next due on October 30, 1999.
The note is secured by a lien on the Company's assets, subordinate to the
Hanifen Loan. The Company believes that the proceeds of this Tyler Loan, when
combined with its cash balances and cash generated from operations, will satisfy
the Company's working capital, business development and capital expenditure
requirements through September 30, 1999. There can be no assurances, however,
that the Company will have sufficient working capital to satisfy all of the
anticipated needs until September 30, 1999. Increased costs, delays in
receivable collections and
11
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
opportunities for growth or expansion may increase the demand for working
capital, thereby making an additional infusion of capital necessary prior to
September 30, 1999. After September 30, 1999, the Company will have insufficient
resources to satisfy all of its obligations, working capital, business
development and capital expenditure requirements. The Company will require
additional sources of liquidity which may include equity offerings or debt
financing. The Company believes that the merger with Tyler, if consummated, will
permit it to satisfy these obligations, working capital, business development
and capital expenditure requirements. If the Merger Agreement is not closed and
the merger consummated, then the Company will not be able to satisfy its
obligations or fulfill its requirements absent additional equity offerings
and/or debt financings.
YEAR 2000 COMPLIANCE
There is significant uncertainty in the software industry concerning the
potential effects associated with compliance with Year 2000 ("Y2K") date codes.
Potential effects include, but are not limited to, product compliance, internal
systems compliance, impact upon the Company's revenue, and expenses related
thereto.
Product Compliance. Most of the Company's current products are Y2K compliant,
based upon results of successful tests on its software. Those products that are
not presently Y2K compliant are presently under development. These products will
be made Y2K compliant prior to December 31, 1999. Therefore, the Company does
not anticipate its products will be adversely affected by date changes in the
Y2K. However, there can be no assurance that the Company's products contain all
features or functions deemed necessary by customers, distributors, resellers and
systems integrators to be Y2K compliant. While the Company continuously enhances
its software to ensure availability of desired features and functions, there can
be no assurance that such features and functions will be timely available. The
Company's products may also rely upon the products of other vendors that may not
be Y2K compliant. Such reliance may prevent the Company's customers from
achieving all of the Company's desired features and functions. The Company
anticipates the software industry will generally be subject to material
litigation. Such claims against the Company, with or without merit, could have a
material adverse effect on the Company's business, operating results and
financial condition.
Internal Systems. The Company has assessed the impact of Y2K issues with regard
to its internal reporting systems and operations and determined that the
remaining costs associated with addressing such issues will not be material. The
Company expects all of its internal systems to be Y2K compliant prior to January
1, 2000. The Company is contacting its own key suppliers and vendors to
ascertain the extent to which their systems are Y2K compliant and the extent to
which the Company could be adversely affected by the failure of such systems to
be Y2K compliant. Management does not believe that the cost to bring its
software products and internal systems into Y2K compliance will have a material
adverse effect on the Company's results of operations or financial condition.
However, a failure to fully identify all Y2K dependencies in the Company's
systems or in the systems of its suppliers, vendors, and financial institutions
could have material adverse effect upon the Company, including but not limited
to operating results, financial condition and delays in the delivery or sale of
products. The Company believes that the likelihood of a disruption in operations
related to Y2K issues is remote.
Impact on Revenue. The Company believes the purchasing patterns of existing and
potential customers may be affected by Y2K issues. Many companies are expending
substantial resources to repair, in some cases temporarily, their current
software systems for Y2K compliance. These expenditures may result in an
increase in demand for the Company's products. However, there can be no
assurance that such increase in
12
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CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
demand will be realized or that any increase can be sustained beyond the end of
the current fiscal year. Consequently, changes in purchasing patterns could have
a material adverse effect upon the Company's business, operating results and
financial condition.
Expenses Related to Y2K Compliance. The Company has not incurred significant
expense in becoming Y2K compliant. Future costs related to Y2K compliance are
not expected to have a material adverse effect on the Company's operating
results or financial condition.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is presently involved in significant litigation. Five law suits have
been filed against the Company during the period from December 1998 through
January 1999 seeking class certification and recovery for, among other things,
violations of federal securities laws associated with the Company's registration
statement and its Form 10-Qs for the first and second quarter of 1998. These
lawsuits were filed following the Company's November 4, 1998 press release
announcing that it was restating its first and second quarter revenues for 1998
in light of AICPA Statement of Position 97-2, for software revenue recognition
requirements. The Company intends to vigorously defend the lawsuits.
The Company is also a defendant in Continental Pacific Corporation v. CPS
Systems Inc., et al., pending in the Circuit Court for Lee County, Florida. This
suit alleges that three former employees of the plaintiff joined the employment
of the Company in violation of their non-competition agreement, and seeks
injunctive and monetary relief for the defendants' breaches of the irrespective
employment agreements and for the Company's role in soliciting their employment.
The three former employees of the plaintiff left the plaintiff and sought other
employment due to financial difficulties facing the plaintiff, which caused it
to discontinue paying salary and employment benefits to the three individual
defendants. Accordingly, the defendants contend that the non-competition
agreements at issue in the case are unenforceable. In a preliminary injunction
hearing held in the case, the Company and the individual defendants prevailed.
The Court refused to enjoin the individual defendants from continuing to work
for the Company. The case is presently in discovery, and several key witnesses
remain to be deposed. The Company and the individual defendants have filed a
motion for summary judgment asking the Court to dismiss the case based on the
lack of a genuinely disputed issue of material fact that remains for trial.
Although the motion is presently pending, the Company and the defendants do not
expect a ruling until discovery in the case has been completed.
The Company has also been notified by Peoria County, Illinois of the County's
termination of the contract between the Company and the county and the county's
intention to recover the customer deposit of $340,000 and to receive a credit of
an outstanding receivable of $170,650. The outstanding receivable is not
recognized as current income but is instead booked to deferred revenue. The
Company has reviewed the notice and the contract and determined the county's
termination was not warranted.
From time to time, the Company is involved in other litigation relating to
claims arising out of its operations in the normal course of business. Except as
set forth above, the Company is not a party to any legal proceedings, the
adverse outcome of which, individually or in the aggregate, would have a
material adverse effect on the Company's results of operations or financial
position.
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CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
ITEM 2. CHANGES IN SECURITIES
The Company has established an equity participation plan (the "1997 Equity
Participation Plan") to enable executive officers, other key employees,
independent directors and consultants of CPS to participate in the ownership of
the Company. The 1997 Equity Participation Plan provides for the award to
executive officers, other key employees, independent directors and consultants
of the Company of a broad variety of stock-based compensation alternatives such
as nonqualified stock options, incentive stock options, restricted stock and
performance awards and provides for the grant to executive officers, other key
employees, independent directors and consultants of nonqualified stock options.
Awards under the 1997 Equity Participation Plan may provide participants with
rights to acquire shares of common stock. A total of 600,000 shares of Common
Stock are reserved for issuance pursuant to the 1997 Equity Participation Plan,
of which options to purchase 556,600 shares have been granted to certain
directors, officers and employees as of March 31, 1999. For the three months
ended March 31, 1999, 15,000 options were granted. Options shall become
exercisable in three cumulative equal installments. The first installment shall
become exercisable on the first anniversary of the date the option was granted.
Neither these options, nor the underlying securities, have been registered under
the Securities Act of 1933, as amended (the "Securities Act").
The Company has also established the CPS Systems, Inc. Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") to assist employees of the Company in
acquiring a stock ownership interest in CPS and to encourage them to remain in
the employment of the Company. The Employee Stock Purchase Plan permits
employees to purchase shares of Common Stock through payroll deductions at a
price equal to 85% of fair market value. A total of 100,000 shares of Common
Stock are reserved for issuance pursuant to the Employee Stock Purchase Plan. A
total of 100,000 shares of Common Stock are reserved for issuance pursuant to
the Employee Stock Purchase Plan. For the three months ended March 31, 1999,
employees have purchased 8,974 shares. Shares purchased under the Employee Stock
Purchase Plan are restricted for one year from the date of purchase. These
shares have not been registered under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of December 31, 1998, the Company was in violation of the note agreement with
Hanifen Imhoff Mezzanine Fund, L.P. relating to the Hanifen Loan The violation
pertains to the ratio of cash flow to total contractual debt service. Hanifen
Imhoff Mezzanine Fund, L.P has waived through September 30, 1999 compliance with
this ratio.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company's common stock is listed on the American Stock Exchange under the
symbol "SYS". Trading in the stock began on March 25, 1998.
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CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1999
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 2.1 Agreement and Plan of Merger dated March 30, 1999 between Tyle
Corporation and CPS Systems, Inc.
Exhibit 2.2 Agreement and Plan of Merger Amendment No. 1 dated April 20, 1999
between Tyler Corporation and CPS Systems, Inc.
Exhibit 27.1 Financial Data Schedule
(c) No reports on Form 8-K were filed by CPS SYSTEMS, INC. during the quarter
ended March 31, 1999.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 17, 1999
/s/ PAUL E. KANA
-----------------------------------------------
Paul E. Kana
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER
AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
/s/ KEVIN L. FIGGE
-----------------------------------------------
Kevin L. Figge
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
15
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 30, 1999 (this
"Agreement"), by and among Tyler Corporation, a Delaware corporation ("Parent"),
CPS Systems, Inc., a Delaware corporation, a wholly-owned subsidiary of Parent
("Merger Sub"), CPS Systems, Inc., a Texas corporation (the "Company"), and the
stockholders of the Company named on the signature pages of this Agreement (the
"Stockholders"). Parent and Merger Sub are sometimes referred to in this
Agreement as the "Tyler Companies," and the Tyler Companies and the Company are
sometimes referred to in this Agreement as the "Constituent Entities."
BACKGROUND
The Board of Directors of each of Parent, Merger Sub, and the Company
have determined that it is in the best interests of each respective company and
their respective stockholders that the Company merge with and into Merger Sub
(the "Merger"), on the terms and subject to the conditions of this Agreement and
in accordance with the Delaware General Corporation Law ("Delaware Law") and the
Texas Business Corporation Act ("Texas Law").
The Board of Directors of each of the Constituent Entities have
approved the Merger in accordance with Delaware Law and Texas Law.
The Merger is intended to be treated as a pooling-of-interests for
financial accounting purposes.
Articles I and II will constitute a "plan of merger" for the purposes
of Delaware Law and Texas Law.
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which all parties mutually acknowledge, the parties, intending to be legally
bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. On the terms and subject to the conditions
set forth in this Agreement, and in accordance with Delaware Law and Texas Law,
at the Effective Time (as defined in Section 1.02), the Company will be merged
with and into Merger Sub. As a result of the Merger, the separate corporate
existence of the Company will cease and Merger Sub will continue as the
surviving corporation of the Merger (the "Surviving Corporation").
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this
Agreement has been terminated pursuant to Section 7.01, and subject to the
satisfaction or waiver of the conditions set forth in Article VI, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Parent, 2800 W.
Mockingbird Lane, Dallas, Texas 75235 as soon as practicable (but in any event
within two business days) after the satisfaction or waiver of the conditions as
set forth in Article VI, or at such other date, time, and place as Parent and
the Company agree. The date on which the Closing takes place is referred to as
the "Closing Date." As promptly as practicable on the Closing Date, the parties
will cause the Merger to be consummated by filing articles or a certificate of
merger (together, the "Certificate of Merger") with the Secretary of State of
the State of Delaware and the Secretary of State of the State of Texas, in such
form as required by, and executed in accordance with the relevant provisions of,
Delaware Law and Texas Law, respectively (the date and time of the last such
filing, or such later date or time agreed upon by the Parent and the Company and
set forth in the Certificate of Merger, being the "Effective Time").
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SECTION 1.03. Effect of the Merger. At the Effective Time, the effect
of the Merger will be as provided in the applicable provisions of Delaware Law
and Texas Law.
SECTION 1.04. Certificate of Incorporation; Bylaws. At the Effective
Time, the certificate of incorporation of Merger Sub, as in effect immediately
prior to the Effective Time, will be the certificate of incorporation of the
Surviving Corporation and thereafter will continue to be its certificate of
incorporation until amended as provided in such certificate of incorporation and
pursuant to Delaware Law. At the Effective Time, the bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, will be the bylaws of the
Surviving Corporation and thereafter will continue to be its bylaws until
amended as provided in such bylaws and pursuant to Delaware Law.
SECTION 1.05. Directors and Officers. The directors of Merger Sub
immediately prior to the Effective Time will be the directors of the Surviving
Corporation, each to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time will be the officers of the
Surviving Corporation, each to hold office in accordance with the bylaws of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Merger Consideration; Conversion and Cancellation of Company
Stock. At the Effective Time, by virtue of the Merger and without any action on
the part of the Tyler Companies, the Company, or their respective stockholders:
(a) Subject to the other provisions of this Article II, each
share of Company common stock, $.01 par value per share (the "Company
Stock"), issued and outstanding immediately prior to the Effective Time
(excluding any Company Stock described in Section 2.01 (b)) will be
converted into the right to receive one-third of a share of Parent
common stock, $.01 par value per share ("Parent Common Stock"). The
shares of Parent Common Stock to be issued in the Merger are referred
to herein as the "Tyler Shares" or the "Merger Consideration".
Notwithstanding the foregoing, if, between the date of this
Agreement and the Effective Time, the outstanding shares of Parent
Common Stock or Company Stock have been changed into a different number
of shares or a different class by reason of any stock dividend,
subdivision, reclassification, re-capitalization, split, combination,
exchange of shares, or similar occurrence, the Merger Consideration
will be correspondingly adjusted to reflect such stock dividend,
subdivision, reclassification, re-capitalization, split, combination,
exchange of shares, or similar occurrence.
(b) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Stock held in the treasury of the
Company immediately prior to the Effective Time will be canceled and
extinguished without any conversion thereof and no payment will be made
with respect thereto.
(c) All shares of Company Stock will cease to be outstanding
and will automatically be canceled and retired, and each certificate
previously evidencing Company Stock outstanding immediately prior to
the Effective Time (other than Company Stock described in Section
2.01(b)) (the "Converted Shares") will thereafter represent the right
to receive the applicable portion of the Merger Consideration. The
holders of certificates previously evidencing Converted Shares will
cease to have any rights with respect to such Converted Shares, except
as otherwise provided in this Agreement or by applicable law. Such
certificates previously evidencing Converted Shares
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will be exchanged for certificates evidencing whole shares of Parent
Common Stock upon the surrender of such certificates in accordance
with the provisions of Section 2.02, without interest. No fractional
shares of Parent Common Stock will be issued in connection with the
Merger; and in lieu thereof, a cash payment shall be made pursuant to
Section 2.02.
(d) Under Texas Law, the holders of Company Stock are not
entitled to dissenters' rights of appraisal. Notwithstanding the
foregoing, upon consummation of the Merger, the holders of all
certificates which theretofore represented shares of Common Stock
shall, subject to applicable law, only have the right to receive the
Converted Shares and the amount of cash, if any, deliverable pursuant
to Section 2.02(d) hereof.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) As soon as practicable after the Effective Time, each
holder of a certificate previously evidencing Converted Shares shall be
entitled, upon the surrender thereof to Parent or an exchange agent
designated by Parent, to receive a certificate or certificates
representing the Tyler Shares into which the Converted Shares so
surrendered have been converted as described in Section 2.01, in such
denominations and registered in such names as such holder may request.
(b) All shares of Parent Common Stock issued upon the
surrender for exchange of certificates previously representing
Converted Shares in accordance with the terms of this Agreement will be
deemed to have been issued in full satisfaction of all rights
pertaining to such Converted Shares. At and after the Effective Time,
there will be no further registration of transfers on the stock
transfer books of the Surviving Corporation of Company Stock that was
outstanding immediately prior to the Effective Time. If, after the
Effective Time, certificates that previously evidenced Converted Shares
are presented to the Surviving Corporation for any reason, they will be
canceled and exchanged as provided in this Article II.
(c) As promptly as practicable after the Effective Time,
Parent will send or cause to be sent to each record holder of Company
Common Stock at the Effective Time a letter of transmittal and other
appropriate materials for use in surrendering certificates contemplated
hereby.
(d) No certificates or scrip evidencing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
certificates, and such fractional share interests will not entitle the
owner thereof to any rights of a stockholder of Parent. In lieu of any
such fractional shares, each holder of a certificate previously
representing Converted Shares, upon surrender of such certificate for
exchange pursuant to this Article II, shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by
multiplying (a) the per share closing price as reported on the New York
Stock Exchange of Parent Common Stock on the date of the Effective Time
by (b) the fractional interest to which such holder would otherwise be
entitled (after taking into account all Converted Shares held of record
by such holder at the Effective Time).
(e) Parent will be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any
former holder of Company Stock such amounts as Parent or any Affiliate
of Parent is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended
(the "Code"), or any provision of state, local, or foreign tax law. To
the extent that amounts are so withheld by Parent, such withheld
amounts will be treated for all purposes of this Agreement as having
been paid to the former holder of Company Stock in respect of which
such deduction and withholding was made by Parent.
3
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Tyler Companies as
follows:
SECTION 3.01. Organization and Qualification; Stockholders. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Texas, has all requisite power and authority to own,
lease, and operate its properties and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where the failure to be so duly qualified and in good standing would not
have a Company Material Adverse Effect. "Company Material Adverse Effect" means
any change, effect, or condition that, would be materially adverse to the
business, operations, assets, financial condition, or results of operations of
the Company, taken as a whole.
SECTION 3.02. Charter and Bylaws. The Company will, within 15 days of
the date of this Agreement, furnish to Parent true, complete, and correct copies
of the certificate of incorporation and bylaws of the Company, as amended or
restated to the date of this Agreement. The Company is not in violation in any
aspect of any of the provisions of its certificate of incorporation or, in any
material respect, the provisions of the Company's bylaws, and such certificates
and bylaws remain in full force and effect.
SECTION 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Company Stock and 10,000,000 shares of preferred
stock, $.01 per share, of which 6,743,902 shares and 0 shares,
respectively, are issued and outstanding. Except as disclosed in
Schedule 3.03(c) to the Disclosure Schedule, no shares of capital stock
of the Company are reserved for any purpose. Each of the outstanding
shares of capital stock of the Company is duly authorized, validly
issued, and fully paid and nonassessable, and has not been issued in
violation of (nor are any of the authorized shares of capital stock of
the Company subject to) any preemptive or similar rights under the
certificate of incorporation or bylaws of the Company, federal or state
securities laws, or any agreement to which the Company is a party or by
which it is bound.
(b) The Company does not (i) directly or indirectly own, (ii)
have any agreement to purchase or otherwise acquire, or (iii) hold any
interest convertible into or exchangeable or exercisable for, any
equity interest in any Person.
(c) Except as set forth in the Company SEC Reports or in
Schedule 3.03(c) to the Disclosure Schedule, there are no options,
warrants, or other rights, agreements, arrangements, or commitments of
any character to which the Company is a party or by which it is bound
relating to the issued or unissued capital stock or other securities of
the Company or obligating the Company to grant, issue, or sell any
shares of its capital stock or other securities. Except as set forth in
the Company SEC Reports or in Schedule 3.03(c) to the Disclosure
Schedule, there are no agreements, arrangements, or commitments of any
character (contingent or otherwise) pursuant to which any Person is or
may be entitled to receive any payment based on the revenues or
earnings, or calculated in accordance therewith, of the Company. There
are no voting trusts, proxies, or other agreements or understandings to
which the Company is a party or by which the Company is bound with
respect to the voting of any shares of capital stock of the Company.
(d) Except as set forth in the Company SEC Reports or in
Schedule 3.03(d) to the Disclosure Schedule, there are no obligations,
contingent or otherwise, of the Company to (i) repurchase, redeem, or
otherwise acquire any shares of the Company Stock or other capital
4
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stock or other securities of the Company; or (ii) provide material
funds to, or make any material investment in (in the form of a loan,
capital contribution, or otherwise), or provide any guarantee with
respect to the obligations of any Person.
SECTION 3.04. Authority. The Company has all requisite corporate power
and authority to execute and deliver this Agreement and the other documents
contemplated by this Agreement (the "Ancillary Agreements") to which it is a
party, to perform its obligations hereunder and thereunder, and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Ancillary Agreements to which the Company is a party by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby have, subject to satisfaction of the closing conditions
contained herein, been duly authorized by all necessary corporate action, and no
other corporate proceedings on the part of the Company or its stockholders are
necessary to authorize this Agreement or the Ancillary Agreements to which the
Company is a party or to consummate the transactions contemplated hereby or
thereby. This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution, and delivery of this Agreement by the
Tyler Companies, constitutes the legal, valid, and binding obligations of the
Company enforceable in accordance with its terms, subject to (i) general
principals of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law, and (ii) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.05(a) to the Disclosure
Schedule, the execution and delivery of this Agreement by the Company
does not, and the consummation of the transactions contemplated thereby
will not, (i) conflict with or violate the certificate of incorporation
or bylaws, as amended or restated to the date of this Agreement, of the
Company; (ii) to the knowledge of the Company, conflict with or violate
in any material respect any federal, state, foreign, or local law,
statute, ordinance, rule, regulation, order, judgment, or decree,
including, without limitation, laws relating to employment
discrimination, fair employment practices, fair labor standards, equal
employment opportunity, individual or collective employee rights, and
occupational health and safety (collectively, "Laws") applicable to the
Company or by which any of their respective properties is bound or
subject; or (iii) result in any material breach of or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, or give to any other Person any rights of
termination, amendment, acceleration, or cancellation of, or require
payment under, or result in the creation of a lien or encumbrance on
any of the properties or assets of the Company pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which
the Company is a party or by or to which the Company or any of its
properties is bound or subject.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements by the Company does not, and consummation of the
transactions contemplated hereby and thereby will not, require the
Company to obtain any consent, license, permit, approval, waiver,
authorization, or order of, or to make any filing with or notification
to, any governmental or regulatory authority, domestic or foreign
(collectively, "Governmental Entities"), except (i) the filing and
recordation of the Articles of Merger as required by Delaware Law and
Texas Law, (ii) the filing and approval of a definitive proxy statement
with and by the Securities and Exchange Commission which seeks the
approval of the Merger by the Company's stockholders, (iii) the
approval of the Merger by the Company's stockholders as required by
Texas Law and the articles and bylaws of the Company, and (iv) the
filing of a registration statement with the Securities and Exchange
Commission covering the Tyler Shares being issued to the Company's
stockholders.
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SECTION 3.06. Permits; Compliance. The Company is in possession of all
material franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals, and orders necessary
to own, lease, and operate its properties and to carry on its business as it is
now being conducted (collectively, the "Company Permits"), and there is no
action, proceeding, or investigation pending or, to the knowledge of the Company
or any Stockholder, threatened regarding suspension or cancellation of any of
the Company Permits. Except for instances that would not have a Company Material
Adverse Effect, the Company is not in conflict with or in default or violation
of (a) any Law applicable to the Company or by or to which any of its properties
is bound or to which they may be subject or (b) any of the Company Permits. The
Company has not received any written notice with respect to possible conflicts,
defaults, or violations of Laws from any Governmental Entity.
SECTION 3.07. Company SEC Reports; Financial Statements.
(a) Since March 1998, the Company has filed all forms,
reports, statements, and other documents required to be filed with the
Securities and Exchange Commission (the "SEC"), including, without
limitation, (i) all Annual Reports on Form 10-K, (ii) all Quarterly
Reports on Form 10-Q, (iii) all proxy statements relating to any annual
or special meeting of shareholders, (iv) all Current Reports on Form
8-K, and (v) all other reports, schedules, registration statements, or
other documents (collectively, the "Company SEC Reports"). The Company
SEC Reports, including all of the Company SEC Reports filed after the
date of this Agreement and prior to the Effective Time, (A) were or
will be prepared in all material respects in accordance with the
requirements of applicable Law and (B) did not at the time they were
filed, or will not at the time they are filed, contain any untrue
statement of material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company SEC
Reports filed prior to the Effective Time (i) have been or will be
prepared in accordance with the published rules and regulations of the
SEC and generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved and (ii) present
fairly or will present fairly, in all material respects, the financial
position of the Company at the dates shown and the results of
operations and cash flows for the periods covered, except that (A) any
unaudited interim financial statements were or will be subject to
normal and recurring year-end adjustments and (B) any pro forma
financial statements contained in such consolidated financial
statements are not necessarily indicative of the consolidated financial
position of the Company and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated.
(c) Notwithstanding the foregoing contained in subsections (a)
and (b) of this Section 3.07, the Tyler Companies acknowledge that the
Company has disclosed to them the existence of litigation which has
arisen in connection with the application of S.O.P. 97-2 to the
Company's financial statements for the fiscal year ended December 31,
1998.
SECTION 3.08. Absence of Certain Changes or Events. Except as
contemplated by this Agreement or as set forth in the Company SEC Reports or in
Schedule 3.08 to the Disclosure Schedule, since December 31, 1998, the Company
has conducted its business only in the ordinary course and in a manner
consistent with past practice, and there has not been (a) any material damage,
destruction, or loss (whether or not covered by insurance) with respect to any
assets of the Company; (b) any change by the Company in its accounting or tax
reporting methods, principles, or practices; (c) any declaration, setting aside,
or payment of any dividends or distributions in respect of shares of Company
Stock, or any redemption, repurchase, or other acquisition by the Company of any
of the Company's securities; (d) any increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase, or other
employee benefit plan, or any increase in the compensation payable or to
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become payable to directors, officers, or employees of the Company outside of
the ordinary course of business; (e) any entry by the Company into any material
commitment or transaction not in the ordinary course of business and consistent
with past practice (other than this Agreement and the transactions contemplated
by this Agreement); (f) any material increase in indebtedness for borrowed
money; or (g) any Company Material Adverse Effect.
SECTION 3.09. Absence of Litigation. Except as set forth in the Company
SEC Reports or in Schedule 3.09 to the Disclosure Schedule, there is no claim,
action, suit, litigation, proceeding, arbitration, or investigation of any kind,
at law or in equity (including actions or proceedings seeking injunctive
relief), pending or, to the knowledge of the Company, threatened against the
Company or any properties or rights of the Company, or relating to this
Agreement or the transactions contemplated by this Agreement which the Company
reasonably believes has a potential expense to the Company in excess of $50,000,
individually, and the Company is not subject to any continuing order of, consent
decree, settlement agreement, or other similar written agreement with, or
continuing investigation by, any Governmental Entity, or any judgment, order,
writ, injunction, decree, or award of any Governmental Entity or arbitrator,
including, without limitation, cease-and-desist or other orders.
SECTION 3.10. Employee Benefit Plans; Labor Matters.
(a) Set forth in Schedule 3.10(a) to the Disclosure Schedule
is a complete and correct list of all "employee benefit plans" (as
defined in the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), all plans or policies providing for "fringe
benefits" (including but not limited to vacation, paid holidays,
personal leave, employee discount, educational benefit, or similar
programs), and each other bonus, incentive, compensation, deferred
compensation, profit sharing, stock, severance, retirement, health,
life, disability, group insurance, employment, stock option, stock
purchase, stock appreciation right, supplemental unemployment, layoff,
consulting, or any other similar plan, agreement, policy, or
understanding (whether written or oral, qualified or nonqualified,
currently effective or terminated), and any trust, escrow, or other
agreement related thereto that (i) is or has been established,
maintained, or contributed to by the Company or any ERISA Affiliate (as
defined below) or with respect to which the Company or any ERISA
Affiliate has any liability, or (ii) provides benefits, or describes
policies or procedures applicable, to any officer, employee, director,
former officer, former employee, or former director of the Company or
any ERISA Affiliate, or any dependent thereof, regardless of whether
funded (each, an "Employee Plan," and collectively, the "Employee
Plans"). For purposes of this Agreement, "ERISA Affiliate" means the
Company and each Person or other trade or business, whether or not
incorporated, that is or has been treated as a single employer or
controlled group member with the Company pursuant to Code section 414
or ERISA section 4001.
(b) Except as contained in the Agreements referred to in
Section 3.10(c), no written or oral representations have been made to
any employee or officer or former employee or officer of the Company
promising or guaranteeing any coverage under any employee welfare plan
for any period of time beyond the end of the current plan year (except
to the extent of coverage required under Code section 4980B), and no
Employee Plan provides benefits to any employee of the Company or any
ERISA Affiliate or any employee's dependents after the employee
terminates employment other than as required by law. The consummation
of the transactions contemplated by this Agreement will not accelerate
the time of payment or vesting, or increase the amount of compensation
(including amounts due under Employee Plans) due to any employee,
officer, former employee, or former officer of the Company.
(c) Except as set forth in the Company SEC Reports or in
Schedule 3.10(c) to the Disclosure Schedule, all employees of the
Company are terminable at the will of the Company, and the Company has
not, nor has any present or former director, officer, employee, or
agent of the Company, made any binding commitments of the Company,
written or oral, to any present or
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former director, officer, agent, or employee concerning his or her
term, condition, or benefits of employment by the Company.
(d) To the knowledge of the Company, neither the Company, nor
any ERISA Affiliate, nor any plan fiduciary of any Employee Plan has
engaged in any transaction in violation of section 406(a) or (b) of
ERISA or any "prohibited transaction" (as defined in section 4975(c)(1)
of the Code), that could subject the Company, any ERISA Affiliate, or
the Parent to any taxes, penalties, or other liabilities resulting from
such prohibited transaction. To the knowledge of the Company, no
condition exists that would subject the Company, any ERISA Affiliate,
or the Parent to any excise tax, penalty tax, or fine related to any
Employee Plan.
(e) There are no agreements that will or may provide payments
to any officer, employee, stockholder, or highly compensated individual
that will be "parachute payments" under Code section 280G that are
nondeductible to the Company or subject to tax under Code section 4999
for which the Company or any ERISA Affiliate would have withholding
liability.
(f) There is no Employee Plan that is or was subject to Part 3
of Title I of ERISA or Title IV of ERISA; each Employee Plan has been
operated in all material respects in compliance with ERISA, the Code,
and all other applicable laws; none of the Employee Plans is or was a
"multiple employer plan" or "multiemployer plan" (as described or
defined in ERISA or the Code), nor has the Company or any ERISA
Affiliate ever contributed or been required to contribute to any such
plan; there are no material unfunded liabilities existing under any
Employee Plans; and each Employee Plan that has not been terminated
could be terminated as of the Closing Date without any material
liability to the Parent, the Company, or any ERISA Affiliate. All
contributions required to be made to the Employee Plans have been made
timely.
(g) Except as set forth in the Company SEC Reports or in
Schedule 3.10(g) to the Disclosure Schedule, the Company is not a party
to or bound by any severance agreements, programs, policies, plans, or
arrangements, whether or not written. Schedule 3.10(g) to the
Disclosure Schedule sets forth, and the Company has provided to Parent
true and correct copies of, (i) all employment agreements with officers
or employees of the Company; (ii) all agreements with consultants of
the Company obligating the Company to make annual cash payments in an
amount exceeding $10,000; and (iii) all noncompetition agreements with
the Company.
(h) The Company has not amended or taken any other action with
respect to any of the Employee Plans or any of the plans, programs,
agreements, policies, or other arrangements described in this Section
3.10 since December 31, 1998.
SECTION 3.11. Taxes.
(a) All returns and reports (the "Tax Returns") of or with
respect to any Tax that are required to be filed by or with respect to
the Company or its business or activities have been duly and timely
filed, within the required time period, as extended. All items of
income, gain, loss, deduction, and credit or other items required to be
included in each such Tax Return have been included, and all
information provided in each such Tax Return is true, correct, and
complete in all material respects. All Taxes that have been or are due
have been timely paid in full. The Company is not subject to taxation
by any jurisdiction where the Company does not file Tax Returns. All
withholding Tax requirements imposed on or with respect to the Company
have been satisfied in full in all respects. No penalty, interest, or
other charge is due with respect to the late filing of any such Tax
Return or late payment of any such Tax. The Company has disclosed on
its federal income Tax Returns all positions taken that could give rise
to a substantial understatement of federal income Tax within the
meaning of Code section 6662.
(b) Except as set forth on Schedule 3.11(b) to the Disclosure
Schedule, there is not in force any extension of time with respect to
the due date for the filing of any Tax Return of or
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with respect to the Company nor any waiver or agreement for any
extension of time for the assessment, collection, or payment of any
Tax of or with respect to the Company.
(c) There are no pending audits, actions, proceedings,
investigations, disputes, or claims with respect to or against the
Company for or with respect to any Taxes; no assessment, deficiency, or
adjustment has been assessed or proposed with respect to any Tax Return
of or with respect to the Company; and to the knowledge of the Company,
there is no reasonable basis on which any claim for material Taxes can
be asserted against the Company, other than those disclosed (and to
which are attached true and complete copies of all audit or similar
reports) on Schedule 3.11(c) to the Disclosure Schedule. Schedule
3.11(c) to the Disclosure Schedule also indicates all Tax Returns that
have been audited by any taxing authority.
(d) The Company is not liable for the Taxes of any Person
under federal, state, foreign, or local law as a transferee, successor,
by contract, or otherwise.
(e) Except for inchoate statutory liens for current Taxes not
yet due, no liens for Taxes exist upon the assets of the Company.
(f) The Company will not be required to include any amount in
income for any taxable period beginning after December 31, 1998 as a
result of a change in accounting method for any taxable period ending
on or before December 31, 1998 or pursuant to any agreement with any
Tax authority with respect to any such taxable period.
(g) No property of the Company is held in an arrangement for
which partnership Tax Returns are being filed, and the Company does not
own any interest in any controlled foreign corporation (as defined in
section 957 of the Code), passive foreign investment company (as
defined in section 1296 of the Code), foreign trust, or other Person
the income of which is required to be included in the income of the
Company.
(h) No property of the Company is subject to a safe-harbor
lease (pursuant to section 168(f) (8) of the Internal Revenue Code of
1954 as in effect after the Economic Recovery Tax Act of 1981 and
before the Tax Reform Act of 1986) or is "tax-exempt use property"
(within the meaning of section 168(h) of the Code) or "tax-exempt bond
financed property" (within the meaning of section 168(g) (5) of the
Code).
(i) The Company has not made an election under section 341(f)
of the Code. The Company is not a United States real property holding
corporation within the meaning of Code section 897(c)(2) during the
applicable period specified in Code section 897(c)(1)(A)(ii).
SECTION 3.12. Certain Business Practices. Neither the Company nor, to
the knowledge of the Company, any director, officer, agent, or employee of the
Company has (a) used any funds on behalf of the Company for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; (b) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; or (c) made any other unlawful payment.
SECTION 3.13. Environmental Matters. Except for matters disclosed in
the Company SEC Reports, (a) the properties, operations, and activities of the
Company comply currently with, and have at all times complied with, all
applicable Environmental Laws (as defined below); (b) the Company (or its
properties or operations) is not subject to any existing, pending, or, to the
knowledge of the Company, threatened action, suit, claim, investigation,
inquiry, or proceeding by or before any Governmental Entity under any
Environmental Law; (c) to the knowledge of the Company, there are no physical or
environmental conditions existing on any property used by the Company or
resulting from the Company's operations or activities, past or present, at any
location, that would give rise to any on-site or off-site
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remedial obligations or other liabilities imposed under any Environmental Laws
or that would affect the soil, groundwater, surface water, or human health; and
(d) to the knowledge of the Company, there has been no exposure of any Person or
property to hazardous substances or any pollutant or contaminant, nor has there
been any release of hazardous substances or any pollutant or contaminant into
the environment, by the Company or in connection with its properties or
operations.
For purposes of this Agreement, the term "Environmental Laws" means any
and all Laws, statutes, ordinances, rules, regulations, or orders of any
Governmental Entity pertaining to health or the environment currently in effect
in any and all jurisdictions in which the Company owns property or conducts
business, including without limitation, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended; the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended; any state
Laws implementing the foregoing federal laws; and all other environmental
conservation or protection Laws. For purposes of this Agreement, the terms
"hazardous substance" and "release" have the meanings specified in CERCLA and
RCRA, and the term "disposal" has the meaning specified in RCRA; provided,
however, that to the extent the laws of the state in which the property is
located establish a meaning for "hazardous substance," "release," or "disposal"
that is broader than that specified in either CERCLA or RCRA, such broader
meaning will apply.
SECTION 3.14. Vote Required. The only vote of the holders of any class
or series of the Company's capital stock necessary to approve the Merger and
adopt this Agreement is the affirmative vote or consent of the holders of
two-thirds of the outstanding shares of Company Stock.
SECTION 3.15. Brokers; Other Transactions. Except as set forth in
Schedule 3.15 to the Disclosure Schedule, no broker, finder, or investment
banker is entitled to any brokerage, finder's, or other fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or any Stockholder.
SECTION 3.16. Insurance. Except as set forth on Schedule 3.16 to the
Disclosure Statement, the Company is currently insured, and during each of the
past three calendar years has been insured, for reasonable amounts against such
risks as companies engaged in a similar business and similarly situated would,
in accordance with good business practice, customarily be insured.
SECTION 3.17. Properties. Except for liens disclosed in Schedule 3.17
of the Disclosure Statement, and arising in the ordinary course of business
after the date of this Agreement and properties and assets disposed of in the
ordinary course of business after December 31, 1998, the Company has good and
marketable title, free and clear of all liens and adverse claims, to all of
their respective properties and assets, whether tangible or intangible,
reflected in the SEC Company Reports as being owned by the Company as of such
date or purported to be owned on the date of this Agreement. All buildings and
all fixtures, equipment, and other property and assets that are material to the
business of the Company and are held under leases by the Company are held under
valid instruments enforceable by the Company in accordance with their respective
terms. The properties and equipment of the Company, including, without
limitation, their information systems, (i) have been maintained and are in good
and serviceable condition, reasonable wear and tear excepted, and (ii) are
adequate for the uses to which they are being put.
SECTION 3.18 Intellectual Property. To the knowledge of the Company,
the Company's ownership of all trademarks, tradenames, service marks,
copyrights, patents and other proprietary intellectual property (the
"Intellectual Property") is valid and enforceable, and the Company has the
exclusive right to use such Intellectual Property. To the knowledge of the
Company, the current use by the Company of such Intellectual Property does not
infringe the rights of any other Person, and no other Person is infringing the
rights of the Company in any such Intellectual Property.
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SECTION 3.19. Certain Contracts; Licenses; Etc.
(a) Schedule 3.19(a) to the Disclosure Schedule lists, as of
the date of this Agreement, each agreement, contract, or commitment to
which the Company is a party or by which the Company is bound (i)
involving a lease for real property or consideration during the
previous twelve months in excess of $50,000 or that could reasonably be
expected to involve consideration in the twelve month period following
the date of this Agreement in excess of $50,000, or (ii) that is
otherwise material to the financial condition, results of operations,
or current or future business or operations of the Company and that is
not otherwise listed pursuant to this Section 3.19.
(b) The Company is in compliance in all material respects
under all leases, licenses, agreements, contracts, permits, plans, and
commitments by which any of its properties or assets is bound and, to
the knowledge of the Stockholders, no event has occurred that
constitutes a violation or breach of or a default (with the passage of
time or the giving of notice or both) in respect of any thereof, and
each of the other parties thereto or bound thereby has performed all
the obligations required to be performed by it to date and is not in
default thereunder. Each of the items required to be disclosed in
Schedule 3.19 to the Disclosure Schedule is in full force and
constitutes a legal, valid, and binding obligation of the Company and
the other parties thereto, enforceable in accordance with its terms.
Except as disclosed on Schedule 3.19 to the Disclosure Schedule, the
Company does not know or have reason to know that any material client
or customer intends to terminate its relationship with the Company as a
result of the Merger or any of the related transactions.
SECTION 3.20. Employees. Schedule 3.20(a) to the Disclosure Schedule
sets forth an accurate, correct, and complete list of all employees of the
Company as of March 31, 1999, including name, title or position, the present
annual compensation or wage rate, any interests in any bonus or incentive
compensation plan, and any other perquisite or form of non-cash compensation. To
the knowledge of the Company, no employee of the Company is subject to a
non-competition or any other form of agreement, whether written or oral, that
would prevent such employee from continuing as an employee of Merger Sub,
Parent, and their respective Affiliates upon consummation of the Merger or
devoting his full talents, knowledge, and efforts to Merger Sub, Parent, and
their respective Affiliates upon consummation of the Merger. Schedule 3.20(b) to
the Disclosure Schedule sets forth an accurate and complete list of all loans,
debts, and other obligations in excess of $2,500 each (collectively, "Employee
Loans") owed by any employee of the Company to the Company. All outstanding
Employee Loans owed to the Company by any Stockholder will be repaid to the
Company at Closing.
SECTION 3.21. Year 2000 Compliance. All of the material management
information systems and software utilized in the Company's business (the
"Systems") comply in all material respects with all of the following criteria
(compliance with such criteria referred to herein as being "Year 2000
Compliant"): (a) the Systems must operate with dates that are less than, equal
to, or greater than 2000 when the date is 1999 or less; (b) the Systems must
operate with dates that are less than, equal to, or greater than 2000 when the
date is 2000 or greater; (c) the Systems must work when the date rolls between
12/31/99 and 01/01/2000; (d) if any System is passing a date that contains a
year less than four digits to another application or system, it must pass enough
information for the receiving system to comply with Section 3.23(a)-(c); (e) if
any System is receiving a date that contains a year less than four digits from
another application or system, it must be able to interpret the date received to
comply with Section 3.23(a)-(c); (f) the Systems must recognize year 2000 as a
leap year and operate accordingly; (g) the Systems must recognize the correct
day of the week where required; (h) date values must sort correctly; (i) date
value calculations must operate and provide correct results; and (j) date values
stored, calculated, imported, exported, or displayed with less than a four digit
year must be completely ambiguous.
SECTION 3.22. Information Supplied. Without limiting any of the
representations and warranties contained in this Agreement, no representation or
warranty of the Company and no statement by the Company or other information
contained in the Disclosure Schedule, as of the date of such
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representation, warranty, statement, or document, contains any untrue statement
of material fact, or omits to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which such
statements were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TYLER COMPANIES
Parent hereby represents and warrants to the Company as follows:
SECTION 4.01. Organization. Each of the Tyler Companies is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of its incorporation, has all requisite power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business as a
foreign corporation in each jurisdiction in which the nature of the business
conducted by it or the ownership or leasing of its properties makes such
qualification necessary other than where the failure to be so duly qualified in
good standing would not have a Tyler Material Adverse Effect. The term "Tyler
Material Adverse Effect" means any change, effect, or condition that would be
materially adverse to the business, operations, assets, financial condition, or
results of operations of the Tyler Companies.
SECTION 4.02. Capitalization. The authorized capital stock of Parent
consists of 50,000,000 shares of Parent Common Stock and 1,000,000 shares of
preferred stock, $10 per share (the "Preferred Stock"), of which, as of December
31, 1998, 34,489,931 shares of Parent Common Stock and no shares of Preferred
Stock were issued and outstanding. Each of the outstanding shares of capital
stock of Parent is duly authorized, validly issued, and fully paid and
nonassessable, and has not been issued in violation of any preemptive or similar
rights under the certificate of incorporation or bylaws of Parent, federal or
state securities laws, or any agreement to which Parent is a party or by which
it is bound.
SECTION 4.03. Tyler Shares. The Tyler Shares to be issued pursuant to
the Merger will, when issued and delivered at the Closing in accordance with
this Agreement, be duly authorized, validly issued, fully paid, and
nonassessable and not subject to statutory preemptive rights.
SECTION 4.04. Authority. Each of the Tyler Companies has all requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements to which it is a party, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Ancillary
Agreements to which it is a party by each of the Tyler Companies and the
consummation by each of the Tyler Companies of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of any of the Tyler Companies are
necessary to authorize this Agreement and the Ancillary Agreements to which it
is a party or to consummate the transactions contemplated hereby and thereby.
This Agreement and the Ancillary Agreements have been duly executed and
delivered by each of the Tyler Companies that is a party thereto and, assuming
the due authorization, execution, and delivery of this Agreement and the
Ancillary Agreements by the Company and the Stockholders, constitute the legal,
valid, and binding obligations of each of the Tyler Companies that is a party
thereto, enforceable in accordance with their respective terms, subject to (i)
general principals of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law, and (ii) bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium, receivership or other similar laws relating
to or affecting creditors' rights generally.
SECTION 4.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the
Ancillary Agreements by each of the Tyler Companies that is a party
thereto do not, and the consummation of the transactions contemplated
thereby will not, (i) conflict with or violate the certificate of
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incorporation or bylaws, in each case as amended or restated as of the
date of this Agreement, of any Tyler Company; (ii) to the knowledge of
the Tyler Companies, conflict with or violate any Laws applicable to
any Tyler Company or by which any of its properties is bound or
subject; or (iii) result in any breach of or constitute any material
default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, accelerations or cancellation of, or result in the creation
of a lien or encumbrance on any of the properties or assets of any
Tyler Company pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, or other
instrument or obligation to which any Tyler Company is a party or by or
to which any Tyler Company or any of its respective properties is bound
or subject.
(b) The execution and delivery of this Agreement and the
Ancillary Agreements by each of the Tyler Companies that is a party
thereto do not, and the consummation of the transactions contemplated
by this Agreement and the Ancillary Agreements will not, require any
Tyler Company to obtain any consent, license, permit, approval, waiver,
authorization, or order of, or to make any filing with or notification
to, any Governmental Entity, except for (i) the filing and recordation
of the Articles of Merger as required by Delaware Law and Texas Law,
(ii) the filing and approval of a definitive proxy statement with and
by the Securities and Exchange Commission which seeks the approval of
the Merger by the Company's stockholders, (iii) the approval of the
Merger by the Company's stockholders as required by Texas Law and the
articles and bylaws of the Company, and (iv) the filing of a
registration statement with the Securities and Exchange Commission
covering the Tyler Shares.
SECTION 4.06. Parent SEC Reports; Financial Statements.
(a) Since January 1, 1997, Parent has filed all forms,
reports, statements, and other documents required to be filed with the
SEC (the "SEC"), including, without limitation, (i) all Annual Reports
on Form 10-K, (ii) all Quarterly Reports on Form 10-Q, (iii) all proxy
statements relating to any annual or special meeting of shareholders,
(iv) all Current Reports on Form 8-K, and (v) all other reports,
schedules, registration statements, or other documents (collectively,
the "Parent SEC Reports"). The Parent SEC Reports, including all of the
Parent SEC Reports filed after the date of this Agreement and prior to
the Effective Time, (A) were or will be prepared in all material
respects in accordance with the requirements of applicable Law and (B)
did not at the time they were filed, or will not at the time they are
filed, contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC
Reports filed prior to the Effective Time (i) have been or will be
prepared in accordance with the published rules and regulations of the
SEC and GAAP applied on a consistent basis throughout the periods
involved and (ii) present fairly or will present fairly, in all
material respects, the financial position of Parent at the dates shown
and the results of operations and cash flows for the periods covered,
except that (A) any unaudited interim financial statements were or will
be subject to normal and recurring year-end adjustments and (B) any pro
forma financial statements contained in such consolidated financial
statements are not necessarily indicative of the consolidated financial
position of Parent and its subsidiaries as of the respective dates
thereof and the consolidated results of operations and cash flows for
the periods indicated.
SECTION 4.07. Absence of Certain Changes or Events. Except as
contemplated by this Agreement or as otherwise disclosed by Parent to the
Company and the Stockholders, since December 31, 1998, there has not been a
Parent Material Adverse Effect.
SECTION 4.08. Brokers. No broker, finder, or investment banker is
entitled to any brokerage, finder's, or other fee or commission in connection
with the transactions contemplated by this Agreement
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based upon arrangements made by or on behalf of the Parent or any Affiliate of
the Parent for which any Stockholder or the Company will have any liability.
SECTION 4.09. Information Supplied. Without limiting any of the
representations and warranties contained in this Agreement, no representation or
warranty of Parent, as of the date of such representation, warranty, or
statement contains any untrue statement of material fact, or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which such statements were made, not
misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
SECTION 5.01. Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or on Schedule 5.01 to the Disclosure
Schedule or consented to in writing by Parent, the Company will, (a) operate in
the ordinary course of business and consistent with past practices and use its
best efforts to preserve the goodwill of the Company and of its employees,
customers, suppliers, Governmental Entities and others having business dealings
with the Company; (b) not engage in any transaction outside the ordinary course
of business, including, without limitation, making any material expenditure,
investment, or commitment or entering into any material agreement or arrangement
obligating the Company to more than $50,000 through December 31, 1999; (c)
maintain all insurance policies and all Company Permits (or obtain reasonable
substitutes) that are required for the Company to carry on its business; (d) not
take or permit any action that would cause the conditions on the obligations of
the parties to effect the transactions contemplated by this Agreement not to be
fulfilled, including, without limitation, by taking or causing to be taken any
action that would cause the representations and warranties made by the Company
in this Agreement not to be true and correct; (e) not increase the compensation
payable to or to become payable to any stockholder, director, or officer of the
Company; (f) not grant any severance or termination pay (other than pursuant to
the normal severance policy of the Company as in effect on December 31, 1998)
to, or enter into or amend any employment or severance agreement with, any
stockholder, director, officer, or employee of the Company; (g) not establish,
adopt, or enter into any employee benefit plan or arrangement; (h) not amend in
any respect, or take any other actions with respect to, any of the Employee
Plans or any of the plans, programs, agreements, policies, or other arrangements
described in Section 3.10; (i) not declare or pay any dividend on, or make any
other distribution in respect of, outstanding shares of capital stock; (j) not
redeem, purchase, or otherwise acquire any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock, or any options, warrants, or conversion or other rights to
acquire any shares of its capital stock or any such securities or obligations;
(k) not effect any reorganization or re-capitalization; (l) not split, combine,
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock; (m) not issue, deliver, award, grant, or sell,
or authorize or propose the issuance, delivery, award, grant, or sale (including
the grant of any security interests, liens, claims, pledges, limitations in
voting rights, charges, or other encumbrances) of, any shares of any class of
its capital stock or other securities (including shares held in treasury), any
securities convertible into or exercisable or exchangeable for any such shares
or other securities, or any rights, warrants, or options to acquire any such
shares or other securities; (n) not acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any Person or division
thereof, or otherwise acquire or agree to acquire any assets of any other Person
(other than the purchase of assets from suppliers or vendors in the ordinary
course of business and consistent with past practice); (o) not sell, lease,
exchange, mortgage, pledge, transfer, or otherwise dispose of, or agree to sell,
lease, exchange, mortgage, pledge, transfer, or otherwise dispose of, any of its
material assets or any interest therein, except for dispositions of inventories
and of assets in the ordinary course of business and consistent with past
practice; (p) not adopt or propose to adopt any amendments to its articles of
incorporation or bylaws or similar organizational documents; (q) not (i) change
any of its methods of accounting in effect at December 31, 1998, or make or
rescind any express or deemed election relating to
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<PAGE>
taxes; (ii) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit, or controversy relating to taxes;
or (iii) change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1998, except, in each case,
as may be required by Law or generally accepted accounting principles; (r) not
incur any obligation for borrowed money or purchase money indebtedness, whether
or not evidenced by a note, bond, debenture, or similar instrument; (s) enter
into any transaction with any Affiliate of the Company; and (s) to take all
reasonable steps to cause to be fulfilled the conditions precedent to the Tyler
Companies' obligations to consummate the transactions contemplated by this
Agreement that are dependent on the actions of the Stockholders or the Company.
SECTION 5.02. No-Shop Provisions.
(a) Until the earlier of the Closing Date or August 31, 1999,
the Company will comply with the following no-shop provisions: (a) the
Company will each negotiate exclusively and in good faith with Parent
with respect to the sale of the Company; (b) the Company will not,
directly or indirectly (through agents or otherwise), encourage or
solicit any inquiries or accept any proposals by, or engage in any
discussions or negotiations with or furnish any information to, any
other Person concerning a sale of a substantial portion of the assets
or business of the Company (whether through an asset sale, stock sale,
merger or otherwise); and (c) the Company will promptly communicate to
Parent the material substance of any inquiry or proposal concerning any
such transaction that may be received by any of them. Notwithstanding
the foregoing, in the event that the transaction has not received all
necessary regulatory approval prior to August 31, 1999, the date of the
no shop provision will extend for sixty days if and only if Parent
extends the maturity date of the $1,000,000 bridge financing entered
into simultaneous with this Agreement, as well as any other interim
financing subsequently provided by Parent, for an additional sixty
days.
(b) Notwithstanding the provisions of Section 5.02(a) hereof,
nothing herein shall be construed to prohibit the Board of Directors of
the Company from performing what they reasonably believe, upon advice
of independent counsel, to be their fiduciary obligations to the
shareholders of the Company in the event that any competing,
comparable, or other offer to acquire all or a substantial part of the
assets or securities of the Company is received.
SECTION 5.03. Access and Information. Each of the Constituent Entities
has caused and will, until the Closing Date, continue to cause the other
Constituent Entities and their representatives to have reasonable access to
their directors, officers, employees, agents, assets, and properties and all
relevant books, records and documents of or relating to the business and assets
during normal business hours and will furnish to the other Constituent Entities
such information, financial records and other documents relating to its
operations and business as the other Constituent Entities may reasonably
request. Each of the Constituent Entities will permit the others and their
representatives reasonable access to their accountants, auditors, customers,
suppliers, and Governmental Entities having dealings with them for consultation
or verification of any information obtained by the other Constituent Entities
and will use their respective best efforts to cause such Persons to cooperate
with the other Constituent Entities and their representatives in such
consultation and in verifying such information.
SECTION 5.04. Supplemental Disclosure. The Company will have a period
of fourteen days from the date of this Agreement for the purpose of completing
and/or altering any of the Disclosure Schedules, at which time the Disclosure
Schedules will be deemed final between the parties. After such time, the Company
will promptly supplement or amend each of the Disclosure Schedules with respect
to any matter that arises or is discovered after the date of this Agreement
that, if existing or known at the date of this Agreement, would have been
required to be set forth or listed in the Disclosure Schedule; provided that,
for purposes of determining the rights and obligations of the parties under this
Agreement (other than the obligations of the Company under this Section 5.04),
any such supplemental or amended disclosure after the fourteen day period will
not be deemed to have been disclosed to Parent unless Parent otherwise expressly
consents in writing.
15
<PAGE>
SECTION 5.05. Information for Filings. Each party will furnish to the
other with all information concerning such party as is required for inclusion in
any application or filing made by the other party to any Governmental Entity in
connection with the transactions contemplated by this Agreement.
SECTION 5.06. Publicity. The Tyler Companies and the Company will
cooperate with each other in the development and distribution of all news
releases and other public disclosures relating to the transactions contemplated
by this Agreement. Neither the Tyler Companies, on the one hand, nor the
Company, on the other hand, will issue or make, or allow to have issued or made,
any press release or public announcement concerning the transactions
contemplated by this Agreement without the advance approval in writing of the
form and substance thereof by the other parties, unless otherwise required by
applicable legal or stock exchange requirements.
SECTION 5.07. Transaction Costs. The Company and Tyler will each pay
prior to the Closing all attorneys', accountants', finders', brokers',
investment banking and other fees, costs and expenses incurred by such party in
connection with the preparation, negotiation, execution, and performance of this
Agreement or any of the transactions contemplated by this Agreement, provided
that (in addition to any other remedies that the Tyler Companies may have under
this Agreement), the Company agrees to reimburse Parent for all of its expenses
incurred in connection with this Agreement if Parent terminates this Agreement
as a result of any breach by the Company. Parent agrees to reimburse the Company
for all of the Company's expenses incurred in connection with this Agreement if
the Company terminates this Agreement as a result of any breach by Parent.
SECTION 5.08. Confidential Information. Each party acknowledges that it
has had access to the other party's confidential information, and may in the
future have access to information proprietary to, used by, or in the possession
of the other party, or their respective Affiliates, or any of their respective
customers or not generally known in the industry, including, but not limited to,
records regarding sales, price and cost information, marketing plans, trade
secrets, customer names, customer lists, sales techniques, distribution plans or
procedures, and other material relating to the other party's business (the
"Confidential Information"). The parties agree that any non-public Confidential
Information exchanged during due diligence is confidential and that such
information will not be disclosed to any third party without the prior written
consent of the owner of such information. In the event the proposed transactions
contemplated by this Agreement are not consummated, the parties will return all
information furnished to them and they will not thereafter use such information
for any purpose or permit such information to be disclosed publicly.
SECTION 5.09. Termination of Representations and Warranties. Each of
the parties hereby agrees that the representations and warranties of the parties
contained in Article III and Article IV will terminate at the Effective Time.
SECTION 5.10. Pooling of Interests and Tax Treatment. It is the intent
of the parties that the transactions contemplated by this Agreement qualify as a
pooling-of-interests transaction for accounting purposes and as a tax-free
reorganization pursuant to Section 368(a) for tax purposes. Accordingly, each
party agrees to use commercially reasonable efforts to not take any action that
could prevent the Merger from being treated as a pooling of interests
transaction for accounting purposes or as a tax-free reorganization for tax
purposes.
SECTION 5.11. Registration Statement; Proxy Statement.
(a) Promptly after the expiration of thirty (30) days from the
date of this Agreement, Parent and the Company will use their
respective commercially reasonable efforts to prepare and file a
registration statement on Form S-4 with the SEC, containing a proxy
statement / prospectus for the stockholders of the Company, in
connection with the registration of the offer and sale of the Tyler
Shares. Parent and the Company will use commercially reasonable efforts
to cause any such registration statement to be declared effective by
the SEC. Each of Parent and the
16
<PAGE>
Company will furnish to the other all information concerning it and
the holders of its capital stock as the other may reasonably request
in connection with such actions.
(b) As promptly as practicable after the registration
statement has been declared effective by the SEC, the Company shall
mail the Company proxy statement / prospectus to its stockholders
entitled to notice of and to vote at the company's meeting of
stockholders and shall take all other actions necessary in accordance
with Texas Law, the rules and regulations of the SEC, and its articles
of incorporation and bylaws to convene a meeting of the stockholders to
act on this Agreement and the proposed Merger. The Company's proxy
statement / prospectus shall include the recommendation of the
Company's board of directors to in favor of the Merger and the adoption
of this Agreement, unless otherwise necessary in accordance with
Section 5.02.
(c) The information supplied by each party for inclusion in
the registration statement and the proxy statement / prospectus shall
not contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading. If at any time prior to the
Effective Time any event or circumstance relating to the information
disclosed in such registration statement or proxy statement /
prospectus should be discovered that should be set forth in an
amendment or supplement to such document, then each party will promptly
inform the other in writing.
SECTION 5.12. NYSE Listing. Parent shall cause the Tyler Shares to be
approved for listing (subject to official notice of issuance) on the NYSE prior
to the Effective Time.
SECTION 5.13. Continuing Indemnification. The Tyler Companies agree
that subsequent to the Merger they shall cause the Company through the Merger
Sub to act diligently in the defense of all existing litigation of the Company,
including, but not limited to, the class actions previously filed against the
Company in connection with the restatement of the Company's earnings in 1998,
and that the Board of Directors, officers, employees, and agents of the Company
shall continue to be indemnified by the surviving entities to the Merger in the
same manner for all acts that occurred prior to the Effective Time as such
indemnification existed prior to the Merger.
SECTION 5.14. Stock Option Plans.
(a) Parent and the Company shall take such actions not
inconsistent with the Merger being accounted for as a
pooling-of-interests transaction to permit Parent to assume, and Parent
shall assume, effective at the Effective Time, each Company stock
option that remains unexercised in whole or in part as of the Effective
Time and substitute shares of Parent Common Stock for the shares of
Company Stock purchasable under each such assumed option ("Assumed
Option"), which assumption and substitution will be effected as
follows:
(i) the Assumed Option shall not give the optionee
additional benefits that such optionee did not have under the
stock option before such assumption and shall be assumed on
the same terms and conditions as the stock option being
assumed;
(ii) the number of shares of Parent Common Stock
purchasable under the Assumed Option shall be equal to the
number of shares of Parent Common Stock that the holder of the
stock option would have received (without regard to any
vesting schedule) upon consummation of the Merger had such
stock option been exercised in full immediately prior to the
consummation of the Merger; and
(iii) the per share exercise price of such Assumed
Option shall be equal to the per share exercise price of the
Stock Option being assumed multiplied by three.
(b) Parent shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of the Assumed Options, and, as soon
as practicable after the Effective Time, Parent shall file a
registration
17
<PAGE>
statement on Form S-8 with respect to the shares of Parent Common
Stock subject to the Assumed Option.
SECTION 5.15. Senior Debt. Parent covenants and agrees to pay off the
senior debt of the Company held by Hanifen Imboff Mezzanine Fund, L.P. in full
at Closing.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01. Conditions to the Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and the
other transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing in the absolute discretion of the other
parties, in whole or in part, to the extent permitted by applicable law:
(a) The registration statement shall be declared effective by
the SEC. No stop order suspending the effectiveness of the registration
statement shall have been issued by the SEC and no proceedings for that
purpose shall have been initiated by the SEC.
(b) This Agreement and the Merger shall have been approved by
the requisite vote of the stockholders of the Company.
(c) There must be no pending litigation in any court or any
proceeding before or by any Governmental Entity against the
Stockholders, the Company, or Parent to restrain or prohibit or obtain
damages or other relief with respect to this Agreement or the Ancillary
Agreements or the consummation of the transactions contemplated by this
Agreement or the Ancillary Agreement.
(d) Each of the Parent and the Company shall be advised in
writing by the independent auditors of each that the Merger should be
treated for financial accounting purposes as a pooling-of-interests
transaction.
(e) None of the Constituent Entities shall have been informed
by their outside accountants or counsel that the consummation of the
Merger would not qualify as a tax-free reorganization pursuant to
Section 368(a) of the Code.
SECTION 6.02. Conditions to Obligations of the Tyler Companies. The
obligations of the Tyler Companies to effect the Merger and the other
transactions contemplated by this Agreement are subject to the satisfaction at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in writing in the absolute discretion of the Parent, in whole or
in part:
(a) Each of the representations and warranties of the Company
and the Stockholders contained in this Agreement must be true and
correct in all material respects as of the Closing Date as though made
on and as of the Closing Date.
(b) The Company and the Stockholders must have performed or
complied with all agreements and covenants required by this Agreement
to be performed or complied with by them on or prior to the Closing
Date.
(c) All contractual and governmental consents, approvals, and
notifications required must have been obtained or given.
18
<PAGE>
(d) The Company must have delivered to Parent a closing
certificate substantially in the form of Exhibit A.
(e) The Company must have delivered to Parent a certificate of
the secretary of the Company substantially in the form of Exhibit B.
(f) The Parent or the Merger Sub and James K. Hoofard, Jr.
shall have entered into an employment contract covering Mr. Hoofard's
services to the Parent and to the Merger Sub following the Closing,
based upon terms substantially similar to that attached hereto as
Exhibit C.
SECTION 6.03. Conditions to Obligations of the Company. The obligations
of the Company to effect the Merger and the other transactions contemplated by
this Agreement are subject to the satisfaction at or prior to the Closing Date
of the following conditions, any or all of which may be waived in writing in the
absolute discretion of the Company, in whole or in part:
(a) Each of the representations and warranties of the Tyler
Companies contained in this Agreement must be true and correct in all
material respects as of the Closing Date as though made on and as of
the Closing Date.
(b) The Tyler Companies must have performed or complied with
all agreements and covenants required by this Agreement to be performed
or complied with by them on or prior to the Closing Date.
(c) All contractual and governmental consents, approvals, and
notifications must have been obtained or given.
(d) Parent must have delivered to the Company a closing
certificate substantially in the form of Exhibit D.
(e) Parent must have delivered to the Company a certificate of
the secretary of the Parent substantially in the form of Exhibit E.
(f) The Company shall have received a fairness opinion of the
type customarily received in such transactions.
(g) The Parent or the Merger Sub and James K. Hoofard, Jr.
shall have entered into an employment contract covering Mr. Hoofard's
services to the Parent and to the Merger Sub following the Closing,
based upon terms substantially similar to that attached hereto as
Exhibit C.
(h) The Tyler Shares being delivered to the stockholders of
the Company shall have been approved for listing on the NYSE, and
shall, subject to certain limitations which may apply to affiliates of
the Company pursuant to Rule 145 of the Securities Act of 1933, or the
pooling of interest accounting rules, be freely tradable by the
recipients of such shares upon receipt.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Termination. This Agreement and the transactions
contemplated by this Agreement may be terminated and abandoned (a) at any time
prior to the Closing by mutual written consent of Parent and the Company; or (b)
by Parent, if at any time prior to the thirtieth (30th) day immediately
following execution of this Agreement, the results of its due diligence review
of the Company are not satisfactory to Parent in its sole discretion; (c) by the
Company, if the Company's Board of Directors, in the exercise of its' fiduciary
duties as set forth in Section 5.02(b) and upon the advice of independent
counsel, determines that it is required to accept a competing offer for the
assets or securities
19
<PAGE>
of the Company, or (d) by either Parent, on the one hand,
or the Company, on the other hand, if a condition to performance by the
terminating party or parties under this Agreement has not been satisfied or
waived prior to August 31, 1999. Notwithstanding the foregoing clause (b), (i)
Parent may not terminate this Agreement if the event giving rise to its
termination right results from Parent's willful failure to perform or observe
any of its covenants or agreements set forth herein or if Parent is, at such
time, in breach of this Agreement, and (ii) the Company may not terminate this
Agreement if the event giving rise to its termination right results from the
willful failure of the Company to perform or observe any of its covenants or
agreements set forth in this Agreement or if the Company is, at such time, in
breach of this Agreement. The right of any party to terminate this Agreement
pursuant to this Section 7.01 will remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party, any Person
controlling any such party, or any of their respective officers, directors,
representatives, or agents, whether before or after the execution of this
Agreement. Upon termination of this Agreement pursuant to Section 7.01, this
Agreement will become void, there will be no liability on the part of the Tyler
Companies, on the one hand, or the Company, on the other hand, to the other and
all rights and obligations of each party to this Agreement will cease, except
that nothing in this Agreement will relieve any party of any liability for (a)
any breach of such party's covenants or agreements contained in this Agreement,
or (b) any knowing or willful breach of such party's representations or
warranties contained in this Agreement. In addition to the foregoing, in the
event that the Board of Directors of the Company should fail to oppose any
tender or exchange offer by a third party which is made prior to the Closing and
which is successfully consummated by September 30, 1999 for more than 50% of the
then outstanding capital stock of the Company, or should the Company enter into
a binding agreement to merge, consolidate, combine, or otherwise sell all or
substantially all of its assets or securities to any party other than a Tyler
Company prior to September 30, 1999, then in such event, the Company shall, upon
demand by the Tyler Companies, pay to the Tyler Companies a cancellation fee of
$4,000,000, as liquidated damages, not as a penalty, payable in immediately
available funds. The provisions for liquidated damages hereunder acknowledged by
the parties to be reasonable due to the inability to accurately estimate
damages, and shall be the sole remedy for such acts.
SECTION 7.02. Notices. All notices that are required or may be given
pursuant to this Agreement must be in writing and delivered personally, by a
recognized courier service, by a recognized overnight delivery service, by
telecopy or by registered or certified mail, postage prepaid, to the parties at
the following addresses (or to the attention of such other person or such other
address as any party may provide to the other parties by notice in accordance
with this Section 7.02):
If to Parent:
Tyler Corporation
2800 W. Mockingbird Lane
Dallas, Texas 75235
Attention: Corporate Counsel
Telecopy: (214) 902-5058
If to the Company:
CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, Texas 75204
Attention: Paul Kana
Telecopy: (214) 720-1380
20
<PAGE>
with a copy to:
Edward H. Brown, Esq.
Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Telecopy: (404) 681-1046
Any such notice or other communication will be deemed to have been given and
received on the day it is personally delivered and signed for by addressee or,
if delivered by courier or overnight delivery service or sent by telecopy or
mailed, three days after sending.
SECTION 7.03. Attorneys' Fees and Costs. If attorneys' fees or other
costs are incurred to secure performance of any obligations under this
Agreement, or to establish damages for the breach thereof or to obtain any other
appropriate relief, whether by way of prosecution or defense, the prevailing
party will be entitled to recover reasonable attorneys' fees and costs incurred
in connection therewith.
SECTION 7.04. Further Assurances. Each party agrees to execute any and
all documents and to perform such other acts as may be necessary or expedient to
further the purposes of this Agreement and the transactions contemplated by this
Agreement.
SECTION 7.05. Counterparts. This Agreement may be executed in one or
more counterparts for the convenience of the parties to this Agreement, all of
which together will constitute one and the same instrument.
SECTION 7.06. Certain Definitions. For the purposes of this Agreement,
the following terms have the meanings specified:
(a) "Affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is
under common control with, the first mentioned Person.
(b) "Control" (including the terms "controlling,"
"controlled," "controlled by," and "under common control with") means
the possession, directly or indirectly, or as trustee or executor, of
the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of securities, or
as trustee or executor, by contract or credit arrangement or otherwise.
(c) "Knowledge" or "to the knowledge of" and other phrases of
like substance are to be broadly construed (i) to include the knowledge
of the Person making the representation and (ii) to represent that the
Person making the representations has made or caused such inquiry and
investigation to be made into the matter represented to be true as such
Person in good faith believes to be reasonable and sufficient.
(d) "Person" will be broadly construed to include to mean an
individual, corporation, partnership, association, trust,
unincorporated organization, Governmental Entity, other entity or group
(as used in Section l3(d) of the Exchange Act).
(e) "Tax" or "taxes" means any and all taxes, charges, fees,
levies, assessments, duties, or other amounts payable to any federal,
state, local, or foreign taxing government, authority, or agency,
including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, ad valorem, value
added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social security,
workers compensation, unemployment compensation, utility, severance,
excise, stamp, windfall profits, transfer, and gains taxes; (ii)
customs, duties, imposts, charges, levies, or other
21
<PAGE>
similar assessments of any kind; and (iii) interest, penalties, and
additions to tax imposed with respect thereto.
SECTION 7.07. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement will be assigned or delegated by
the Company or Parent, without the prior written consent of the other parties;
except that Parent may assign its rights and obligations under this Agreement to
any direct or indirect subsidiary of Parent. This Agreement is not intended to
confer any rights or benefits to any Person (including, without limitation, any
employees of the Company) other than the parties to this Agreement.
SECTION 7.08. Entire Agreement. This Agreement and the related
documents contained as Exhibits and Schedules to this Agreement or expressly
contemplated by this Agreement contain the entire understanding of the parties
relating to the subject matter hereof and supersede all prior written or oral
and all contemporaneous oral agreements and understandings relating to the
subject matter hereof. This Agreement cannot be modified or amended except in
writing signed by the party against whom enforcement is sought. The Exhibits and
Schedules to this Agreement are hereby incorporated by reference into and made a
part of this Agreement for all purposes.
SECTION 7.09. Governing Law. This Agreement will be governed by, and
construed in accordance with, the substantive laws of the State of Texas,
without giving effect to any conflicts-of-law, rule, or principle that might
require the application of the laws of another jurisdiction.
[remainder of page intentionally left blank]
22
<PAGE>
IN WITNESS WHEREOF, each of the parties to this Agreement has caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
TYLER CORPORATION,
a Delaware corporation
By:__________________________________________
Name: John M. Yeaman
Title: President
CPS SYSTEMS, INC.,
a Delaware corporation and wholly-owned
subsidiary of Tyler Corporation
By:__________________________________________
Name: John M. Yeaman
Title: President
CPS SYSTEMS, INC.,
a Texas corporation
By:__________________________________________
Name: Paul E. Kana
Title: Chief Executive Officer
23
<PAGE>
Exhibit A
Closing Certificate of CPS Systems, Inc.
<PAGE>
CPS SYSTEMS, INC.
CLOSING CERTIFICATE
The undersigned hereby certifies on behalf of CPS Systems, Inc., a
Texas corporation (the "Company"), pursuant to the Agreement and Plan of Merger,
dated as of March 30, 1999 (the "Merger Agreement"), by and among Tyler
Corporation, a Delaware corporation ("Parent"), CPS Systems, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and the
Company (the "Stockholders"), that:
1. All representations and warranties of the Company contained
in the Merger Agreement are true and correct in all material respects
at and as of the Closing with the same effect as though such
representations and warranties were made at and as of the Closing.
2. The Company has performed and complied with all the
covenants and agreements and satisfied the conditions required by the
Merger Agreement to be performed, complied with, or satisfied by it at
or prior to the Closing.
All capitalized terms not otherwise defined herein have the meanings
assigned to such terms in the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
behalf of the Company to be effective as of _______________, 1999.
CPS SYSTEMS, INC.,
a Texas corporation
By: ________________________
Name: Paul E. Kana
Title: Chief Executive Officer
<PAGE>
Exhibit B
CPS Systems, Inc. Secretary's Certificate
<PAGE>
CPS SYSTEMS, INC.
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected and qualified Secretary of CPS
Systems, Inc., a Texas corporation (the "Company"), hereby certifies on behalf
of the Company, pursuant to the Agreement and Plan of Merger, dated as of March
30, 1999 (the "Merger Agreement"), by and among Tyler Corporation, a Delaware
corporation ("Parent"), CPS Systems, Inc., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), and the Company (the
"Stockholders"), that:
1. Attached hereto is a true, correct, and complete copy of
resolutions duly adopted by unanimous written consent of the Board of
Directors of the Company on March ____, 1999. Such resolutions are the
only resolutions relating to the Merger Agreement, and they have not
been amended, modified, or rescinded since their adoption and are still
in full force and effect as of the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Secretary on behalf of the Company to be effective as of ___________, 1999.
CPS SYSTEMS, INC.,
a Texas corporation
By: ______________________
Name: ______________________
Title: Secretary
<PAGE>
Exhibit C
Terms of James K. Hoofard, Jr. Employment Agreement
<PAGE>
Exhibit D
Tyler Corporation Closing Certificate
<PAGE>
TYLER CORPORATION
CLOSING CERTIFICATE
The undersigned hereby certifies on behalf of Tyler Corporation, a
Delaware corporation ("Parent"), pursuant to the Agreement and Plan of Merger,
dated as of March 30, 1999 (the "Merger Agreement"), by and among Parent, CPS
Systems, Inc., a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub"), and CPS Systems, Inc., a Texas corporation (the "Company"),
that:
1. All representations and warranties of Parent contained in
the Merger Agreement are true and correct in all material respects at
and as of the Closing with the same effect as though such
representations and warranties were made at and as of the Closing.
2. Parent has performed and complied with all the covenants
and agreements and satisfied the conditions required by the Merger
Agreement to be performed, complied with, or satisfied by it at or
prior to the Closing.
All capitalized terms not otherwise defined herein have the meanings
assigned to such terms in the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
behalf of Parent to be effective as of _______________, 1999.
TYLER CORPORATION,
a Delaware corporation
By: ____________________
Name: John M. Yeaman
Title: President
<PAGE>
Exhibit E
Tyler Corporation Secretary's Certificate
<PAGE>
TYLER CORPORATION
CERTIFICATE OF SECRETARY
The undersigned, being the duly elected and qualified Secretary of
Tyler Corporation, a Delaware corporation ("Parent"), hereby certifies on behalf
of Parent, pursuant to the Agreement and Plan of Merger, dated as of March 30,
1999 (the "Merger Agreement"), by and among Parent, CPS Systems, Inc., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and
CPS Systems, Inc., a Texas corporation (the "Company"), that:
1. Attached hereto is a true, correct, and complete copy of
resolutions duly adopted by unanimous written consent of the Board of
Directors of Parent on ___________, 1999. Such resolutions are the only
resolutions relating to the Merger Agreement, and they have not been
amended, modified, or rescinded since their adoption and are still in
full force and effect as of the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Secretary on behalf of Parent to be effective as of ________________, 1999.
TYLER CORPORATION,
a Delaware corporation
By: _____________________
Name: Deanie Morel
Title: Secretary
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1
This Amendment No. 1 (this "Amendment") to the Agreement and Plan of
Merger, dated as of March 30, 1999, is entered into by and among Tyler
Corporation, a Delaware corporation ("Parent"), CPS Systems, Inc., a Delaware
corporation and wholly-owned subsidiary of Parent ("Merger Sub"), and CPS
Systems, Inc., a Texas corporation (the "Company").
WHEREAS, Parent, Merger Sub, and the Company entered into that certain
Agreement and Plan of Merger dated as of March 30, 1999 (the "Merger
Agreement");
WHEREAS, each of Parent, Merger Sub, and the Company desire to amend
the Merger Agreement as set forth in this Amendment;
THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which all parties mutually
acknowledge, the parties agree as follows:
1. Section 7.01 of the Merger Agreement, Termination, is hereby amended
by deleting the terms and provisions of Section 7.01(b) in their entirety and
replacing such terms and provisions with the following:
"(b) by Parent, if at any time prior to the sixtieth (60th) day
immediately following execution of this Agreement the results of its
due diligence review of the Company are not satisfactory to Parent in
its sole discretion;"
2. Section 5.11 of the Merger Agreement, Registration Statement; Proxy
Statement, is hereby amended by deleting the first sentence of Section 5.11(a)
in its entirety and replacing such sentence with the following:
"(a) Promptly after the expiration of sixty (60) days from the date of
this Agreement, Parent and the Company will use their respective
commercially reasonable efforts to prepare and file a registration
statement on Form S-4 with the SEC, containing a proxy statement /
prospectus for the stockholders of the Company, in connection with the
registration of the offer and sale of the Tyler Shares."
3. All other terms and provisions of the Merger Agreement shall remain
unchanged.
4. This Amendment will be governed by and construed in accordance with
the substantive laws of the State of Texas, without giving effect to any
conflicts-of-law, rule, or principle that might require the application of the
laws of another jurisdiction.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed by a duly authorized officer to be effective as of April 20, 1999.
TYLER CORPORATION,
a Delaware corporation
By: _______________________
Name: John M. Yeaman
Title: President
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed
by a duly authorized officer to be effective as of April 20, 1999.
CPS SYSTEMS, INC.,
a Delaware corporation and wholly-owned
subsidiary of Tyler Corporation
By: ________________________________
Name: John M. Yeaman
Title: President
CPS SYSTEMS, INC.,
a Texas corporation
By: ________________________________
Name: ________________________________
Title: ________________________________
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