<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PRIMIS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 6531 58-18785227
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Number) Identification Number)
</TABLE>
------------------------
11475 GREAT OAKS WAY, SUITE 320
ALPHARETTA, GEORGIA 30022
(770) 777-8600
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------------
C. JAMES SCHAPER
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRIMIS, INC.
11475 GREAT OAKS WAY, SUITE 320
ALPHARETTA, GEORGIA 30022
(770) 777-8600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GABRIEL DUMITRESCU, ESQ. OBY T. BREWER III, ESQ.
LARS O. SCOFIELD, ESQ. LAUREN Z. BURNHAM, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP DUNCAN T. SPEARS, ESQ.
SIXTEENTH FLOOR MORRIS, MANNING & MARTIN, L.L.P.
191 PEACHTREE STREET, N.E. 1600 ATLANTA FINANCIAL CENTER
ATLANTA, GEORGIA 30303 3343 PEACHTREE ROAD, N.E.
(404) 572-6600 ATLANTA, GEORGIA 30326
(404) 233-7000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
- ------------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value....................... $86,250,000(1) $22,770
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 20, 2000
PRELIMINARY PROSPECTUS
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SHARES
PRIMIS, INC.
[LOGO]
COMMON STOCK
----------------
We are offering shares of our common stock. This is our initial
public offering and no public market exists for our shares. We currently
estimate that the initial public offering price will be between $ and
$ per share.
We have applied to have our common stock approved for quotation on the Nasdaq
Stock Market under the symbol "PRMZ."
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 TO READ ABOUT CERTAIN RISKS THAT YOU SHOULD CONSIDER BEFORE
BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to an additional
shares of common stock from us at the initial public offering price less
the underwriting discount. The underwriters expect to deliver the shares on
, 2000.
------------------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
The date of this prospectus is , 2000.
<PAGE>
"Our Primis is simple..."
<PAGE>
[Picture of house that morphs from photo, to architectural schematic, to data
stream, to text]
"Primis has built an electronic infrastructure and distribution channel to
deliver property information efficiently to a consolidated, Internet-driven
financial services marketplace."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS PROSPECTUS.
YOU SHOULD CAREFULLY READ THE ENTIRE PROSPECTUS, INCLUDING THE RISK FACTORS AND
THE FINANCIAL STATEMENTS, BEFORE DECIDING WHETHER TO INVEST IN OUR COMMON STOCK.
PRIMIS, INC.
OUR BUSINESS
We are a leading business-to-business, web-based provider of property
information services in the United States. We provide appraisals, home
inspections, title services, flood determinations, energy audits, valuation
tools and other related property information services, all of which our clients
can order, monitor, receive and pay for over the Internet using a standard web
browser. We provide our services to large national mortgage lenders, regional
and local mortgage lenders and brokers, Internet lenders, specialized lenders,
utility companies and real estate professionals.
Currently, the property information services industry is fragmented among
thousands of local appraisal, inspection, title services and other firms. These
firms generally lack the resources to invest heavily in service delivery
infrastructure, and we believe that service quality can vary significantly
between firms. By contrast, our business model includes the following features:
NATIONAL SERVICE DELIVERY CAPABILITIES. We are a single, national provider
of property information services. We currently have company-owned offices in
over 40 markets, including 29 of the top 50 residential real estate markets in
the country. We expect to be in markets covering over 50% of all U.S. mortgage
loan originations by the end of 2000, primarily through acquisitions but also
through organic growth. We service customers in markets where we do not have
company-owned operations through our PRIMISnet network of contract appraisers
and home inspectors.
FLEXIBLE WEB-BASED PLATFORM. Our web-based platform enables our clients to
place orders, check the status of orders, receive reports in electronic format,
receive invoices and pay for services, all by using a standard web browser.
Although we currently derive the majority of our revenues from services
delivered through traditional methods, we are rapidly moving our clients to our
web-based platform. Our flexible platform will allow our larger clients to
bypass the web interface and connect their loan origination systems directly
with the PRIMIS engine, our transaction processing technology. This direct
connection will enable these clients to order our services when they originate
loans without additional data entry, and thereby encourage them to outsource
more of their property information services to us.
HIGH, CONSISTENT QUALITY STANDARDS. We maintain a rigorous quality
assurance program to ensure consistently high-quality service across all of our
offices. This quality assurance includes senior-level review of all reports, a
dedicated quality assurance team and continuing education and training for all
of our professionals. In addition, we deploy technology internally to automate
service delivery, improve the productivity of our field employees and improve
the quality and comprehensiveness of our reports.
FAST, EFFICIENT SERVICE DELIVERY. We deliver our property information
services to our clients quickly and efficiently. Our web-based platform removes
many of the time-consuming faxes, phone calls, paper deliveries and other delays
associated with searching for local service providers, scheduling appointments,
ordering services, checking order status and receiving reports. As an example,
we can usually provide a full appraisal to our large, national clients in 5 days
or less, whereas we believe other service providers to these clients typically
require 7 to 14 days. We intend to offer our larger clients one-day full
appraisal services in certain areas.
Our clients include 7 of the top 10 and 31 of the top 50 mortgage lenders in
the United States. We have acquired 21 businesses since 1995, including 9 since
the beginning of 1999. As we execute our business model, we are compiling what
we believe will be the most comprehensive database of property information in
the industry, which we believe in the long-term will become one of our most
valuable assets.
1
<PAGE>
OUR MARKET OPPORTUNITY
As Internet business-to-business trade accelerates into a period of
"hyper-growth" over the next five years, according to projections by Forrester
Research, we believe that our web-based technology platform, national service
delivery capabilities and quality control will position us well to capture a
significant portion of the business-to-business market for property information
services. We believe that the total market for our core home appraisal, home
inspection and title services is in excess of $5.5 billion annually. We also
believe there are additional market opportunities in the other property
information services we provide, such as energy audits, valuation tools,
commercial appraisals, appraisal reviews, construction inspections and
environmental inspections.
There are two trends occurring in the mortgage lending industry which we
believe will drive demand for our services. First, the mortgage lending industry
is undergoing significant consolidation. In 1998, the largest 20 lenders
originated, underwrote or funded over 40% of all residential mortgage loans in
the United States. We believe that thousands of fragmented local appraisal,
inspection and other property information service firms cannot well serve this
consolidating lending industry. We believe these major lenders will increasingly
seek to consolidate their property information services with fewer providers and
will demand technology-based cost and time efficiencies and consistent quality.
Second, Internet lenders have emerged which, according to Forrester Research,
will capture a 10% share of the mortgage lending market by 2003. This trend will
intensify competition, which we believe will further drive demand for faster
turnaround times and cost-efficient services.
OUR STRATEGY
Our objective is to be the leading provider of property information services
in the United States. To accomplish this objective, we intend to do the
following:
- Leverage our flexible web-based platform to deliver our services more
efficiently to our clients, and leverage our internal technology to
improve productivity and quality;
- Migrate our clients, a majority of which still obtain services through
traditional phone and fax channels, to web-based service delivery;
- Expand our national footprint, primarily through acquisitions but also
through organic growth;
- Aggressively target large, national accounts that we believe will benefit
most from a national provider of efficiently delivered, high-quality
property information services;
- Develop and monetize the valuable database of property information that we
are compiling into new valuation tools and service offerings; and
- Evolve our PRIMISnet network of local contract appraisers and inspectors
into close affiliates with whom we share our technology and clients in
exchange for local business referrals and property data.
RECENT DEVELOPMENTS
In January 2000, we acquired InspecTech Corporation, the third largest home
inspection firm in the United States. Through this acquisition, we entered the
market for home inspection services with a force of nearly 100 property
inspectors. InspecTech performed over 30,000 inspections in 1999.
In January 2000, we entered into a letter of intent with Trans Union LLC,
one of the three major U.S. credit agencies, under which Trans Union will engage
us to provide property information services for a majority of the loans which
Trans Union services. Also in January 2000, we entered into letters of intent
with the construction lending division of Countrywide Home Loans, Inc., under
which Countrywide will retain us to provide appraisal review and inspection
services over the next two years.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. To fund further development of our technology
and infrastructure; acquisitions; sales and
marketing activities; repayment of $9.7
million of indebtedness that may remain
outstanding after this offering; and working
capital and other general corporate purposes.
Proposed Nasdaq Stock Market symbol.......... PRMZ
</TABLE>
- ------------
The number of shares of common stock outstanding after this offering is
based on 7,743,745 shares outstanding as of January 18, 2000 plus:
- shares being sold by us in this offering;
- 1,834,617 shares to be issued upon conversion of all of our outstanding
convertible preferred stock, based on aggregate stated values and accrued
dividends as of January 18, 2000; and
- 661,064 shares to be issued upon conversion of our November 1999
convertible notes, which are mandatorily convertible upon the closing of
this offering, based on aggregate principal amount and accrued interest as
of January 18, 2000.
The number of shares of common stock outstanding after this offering
excludes:
- any shares issuable upon the exercise of the underwriters' over-allotment
option;
- 1,625,709 shares issuable upon the exercise of options outstanding as of
January 18, 2000 with a weighted average exercise price of $6.69 per
share;
- 457,018 shares issuable upon the exercise of warrants outstanding as of
January 18, 2000 with a weighted average exercise price of $15.29 per
share;
- 635,001 shares issuable upon the conversion of our January 2000
convertible notes, which are not mandatorily convertible upon the closing
of this offering, based on aggregate principal amount and accrued interest
as of January 18, 2000; and
- shares issuable in payment of dividends on all of our convertible
preferred stock and interest on all of our convertible notes accrued after
January 18, 2000.
CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, all information in this prospectus reflects
the following:
- no exercise by the underwriters of their over-allotment option to purchase
up to additional shares of our common stock;
- the conversion of all our outstanding convertible preferred stock into
1,834,617 shares of our common stock upon the closing of this offering,
based on aggregate stated values and accrued dividends as of January 18,
2000; and
- the conversion of our November 1999 convertible notes into 661,064 shares
of our common stock upon the closing of this offering, based on aggregate
principal amount and accrued interest as of January 18, 2000.
3
<PAGE>
------------------------
The terms "we," "our," "us," the "Company" and "PRIMIS" as used in this
prospectus refer to PRIMIS, Inc. and, unless the context otherwise requires, all
of its subsidiaries. We were incorporated in Georgia in 1990. Our principal
executive offices are located at 11475 Great Oaks Way, Suite 320, Alpharetta,
Georgia 30022, telephone (770) 777-8600. Our web site is located at
www.primis.com. INFORMATION CONTAINED ON OUR WEB SITE IS NOT A PART OF THIS
PROSPECTUS OR THE REGISTRATION STATEMENT OF WHICH IT IS A PART.
We have federal registrations for the following service marks and
trademarks: INSPECTECH-Registered Trademark-, VISTA-Registered Trademark- and
VISTA ADVANCED INSPECTION MANAGEMENT SYSTEM-Registered Trademark-. We have
applied for federal registration for or claim the following service marks and
trademarks: PRIMIS(SM) and design, PRIMIS SNAPSHOT(TM) and XPEDITE(SM). All
other trademarks, tradenames and service marks appearing in this prospectus are
the property of other entities.
------------------------
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth summary financial data for our company. You
should read this information together with the financial statements and notes to
those statements appearing elsewhere in this prospectus and the information
contained in the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------- -----------------------------------------
1998 1999
1996 1997 1998 PRO FORMA(1) 1998 1999 PRO FORMA(1)
-------- -------- -------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................. $ 1,922 $ 4,155 $14,356 $39,858 $ 8,718 $17,824 $28,279
Cost of revenues..................... 1,001 2,537 7,824 21,945 4,814 9,982 15,662
-------- ------- ------- ------- ------- ------- -------
Gross profit......................... 921 1,618 6,532 17,913 3,904 7,842 12,617
-------- ------- ------- ------- ------- ------- -------
Operating expenses
Selling, general and
administrative................... 1,862 2,518 7,350 19,889 4,707 13,478 18,113
Research and development........... -- 122 206 205 110 -- --
Depreciation and amortization...... 175 218 522 4,404 328 1,447 3,595
-------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 2,037 2,858 8,078 24,498 5,145 14,925 21,708
-------- ------- ------- ------- ------- ------- -------
Loss from operations................. (1,116) (1,240) (1,546) (6,585) (1,241) (7,083) (9,091)
Other income (expense)............... 15 41 131 (1,098) 87 37 (98)
-------- ------- ------- ------- ------- ------- -------
Loss before provision for income
taxes.............................. (1,101) (1,199) (1,415) (7,683) (1,154) (7,046) (9,189)
Provision for income taxes........... -- -- -- 112 -- -- 80
-------- ------- ------- ------- ------- ------- -------
Net loss............................. $ (1,101) $(1,199) $(1,415) $(7,795) $(1,154) $(7,046) $(9,269)
======== ======= ======= ======= ======= ======= =======
Preferred stock dividend............. -- -- -- -- -- (102) --
Net loss applicable to common
shareholders....................... (1,101) (1,199) (1,415) (7,795) (1,154) (7,148) (9,269)
======== ======= ======= ======= ======= ======= =======
Net loss per common and common
equivalent share--basic and
diluted............................ $ (1.12) $ (.43) $ (.29) $ (.76) $ (.28) $ (1.03) $ (.91)
======== ======= ======= ======= ======= ======= =======
Weighted average common and common
equivalent shares
outstanding--basic and diluted..... 981 2,800 4,914 10,214 4,195 6,960 10,214
OTHER FINANCIAL DATA:
EBITDA(2)............................ $ (941) $(1,023) $(1,024) $(2,181) $ (913) $(5,636) $(5,496)
Cash flows from:
Operating activities............... (1,068) (1,237) (1,935) -- (1,950) (5,378) --
Investing activities............... (93) (409) (4,296) -- (2,725) (4,452) --
Financing activities............... 1,187 1,655 9,238 -- 8,908 7,027 --
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(3) AS ADJUSTED(4)
-------- ----------- ---------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 880 $22,616 $
Working capital............................................. 58 10,765
Total assets................................................ 19,627 58,597
Long-term debt, less current portion........................ 3,911 4,822
Series A convertible preferred stock........................ 4,467 --
Shareholders' equity........................................ 5,779 36,661
</TABLE>
- ---------------
(1) The pro forma statements of operations data give effect to all of our
acquisitions that occurred after January 1, 1998 as if they had occurred on
January 1, 1998, and give effect to the issuances of our outstanding
convertible preferred stock and convertible notes issued after January 1,
1998 as if such issuances had occurred on January 1, 1998.
(2) EBITDA as used in this prospectus represents earnings before interest,
income taxes and depreciation and amortization. Although EBITDA is not a
measure of financial performance under generally accepted accounting
principles, we believe it is a common measure used by analysts and investors
in comparing a company's results with those of similar companies as well as
to evaluate the capacity of a company to service its debt obligations.
(3) The pro forma balance sheet data give effect to all of our acquisitions that
occurred after September 30, 1999 as if they had occurred on September 30,
1999, and give effect to the issuance of our outstanding convertible
preferred stock issued after September 30, 1999, the issuance of our
November 1999 and January 2000 convertible notes, and the conversion of all
of our outstanding convertible preferred stock and our November 1999
convertible notes as if such events had occurred on September 30, 1999.
(4) The pro forma as adjusted balance sheet data reflect the pro forma data
adjusted for the sale of shares of common stock offered by us in
this offering at an assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS WOULD LIKELY SUFFER. IN SUCH A CASE, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT CURRENTLY KNOWN TO US OR THAT WE
CURRENTLY CONSIDER IMMATERIAL MAY RESULT IN DECREASED REVENUES, INCREASED
EXPENSES AND OTHER EVENTS THAT COULD CAUSE THE PRICE OF OUR COMMON STOCK TO
DECLINE.
RISKS RELATING TO OUR BUSINESS
WE MAY NOT BE ABLE TO ACQUIRE BUSINESSES TO EXPAND OUR NATIONAL FOOTPRINT, WHICH
COULD CAUSE US TO LOSE REVENUES AND REVENUE OPPORTUNITIES AND SLOW OUR GROWTH.
Our business plan relies, in significant part, upon the expansion of our
business into new markets through the acquisition of companies that perform
property appraisals, inspections, tax services, title services and other
property information services. We primarily target larger businesses that we
believe are more likely to be easily integrated into the PRIMIS structure and
are capable of servicing national clients and marketing our broad range of
services. We expect to face increasing competition for acquisition candidates,
which may limit the number of acquisition opportunities and impede our ability
to expand into new geographic markets and establish a national footprint. This
competition may cause the prices for acquisitions to increase and we may not
find suitable acquisition candidates at acceptable acquisition prices. In
addition, increased competition for acquisition candidates may hinder our
ability to complete acquisitions. Failure to expand our national footprint could
cause us to lose national accounts and impair our ability to attract new large
clients, which could cause us to lose revenues and revenue opportunities and
slow our growth.
In addition, if we are unable to successfully transform PRIMISnet from a
network of contract appraisers and home inspectors into a network of affiliates
with whom we will share our technology, data and clients, we may not be able to
provide national clients with turnaround times comparable to those of our staff
professionals. As a result, we could lose client confidence and we may be unable
to successfully implement our growth strategy.
HIGHER INTEREST RATES OR CHANGES IN GENERAL ECONOMIC CONDITIONS COULD HARM OUR
BUSINESS.
The demand for mortgages and, correspondingly, the demand for appraisals and
other property information services, is typically adversely affected by rising
interest rates because higher interest rates generally decrease demand for
consumer credit, home sales and real estate valuations and negatively affect the
ability of borrowers to make loan payments. Over the last several years, we have
operated in an environment of relatively low interest rates, relatively high
demand for consumer credit and increasing home sales and real estate values. We
cannot be sure that we will be able to grow our business in an environment of
higher interest rates, lower consumer credit demand and real estate values and
fewer home sales. In addition, the residential real estate industry is highly
cyclical. Changes in general economic conditions typically affect the number of
home sales and new housing starts. A prolonged period of higher interest rates
or a downturn in the United States economy, both of which are outside our
control, could reduce our revenues and slow our growth.
IF WE ARE UNABLE TO SUCCESSFULLY MANAGE GROWTH, OUR FINANCIAL CONDITION IS
LIKELY TO SUFFER.
Our success depends on our ability to manage growth. If we do not expand our
operations in an efficient manner, our expenses could grow disproportionately to
revenues or our revenues could decline or grow more slowly than expected, either
of which could negatively affect the value of your
6
<PAGE>
investment. Our current and anticipated growth will place a significant strain
on our management, systems and administrative, operational and financial
resources and may not generate proportionate revenue growth. In addition, as a
result of our acquisitions, we may experience difficulties in responding to
client demand for services and client support in a timely manner and in
accordance with client expectations. To manage our growth successfully, we must
recruit and hire additional managerial and administrative personnel and continue
to improve and upgrade our financial, accounting and information systems. If our
management, operational and financial resources are not adequate to manage our
growth, our financial condition is likely to suffer.
WE FACE UNCERTAINTIES ASSOCIATED WITH THE INTEGRATION OF ACQUISITIONS.
Since June 1998, we have acquired 11 businesses nationwide, and we intend to
continue acquiring businesses to expand our national footprint, enhance our
technology and add new service offerings. We face challenges integrating these
businesses into our existing business. We must integrate acquired companies'
personnel into our administrative operations and train these personnel according
to our policies and procedures, and we must integrate acquired companies'
technologies and information systems into our own systems. We must also
integrate acquired companies' accounting and financial systems with our own to
ensure that we are able to properly monitor and control our accounting and
financial functions on a company-wide basis.
We will need to hire additional personnel and enhance our information
systems infrastructure to fully and timely integrate our recent and future
acquisitions. These integration activities will divert the attention of
management from other business activities. In addition, we cannot guarantee that
we will achieve any of the anticipated benefits we expect to realize from
acquisitions, including those reflected in our pro forma consolidated financial
data. Any failure to successfully integrate our acquisitions could cause our
financial results to suffer and could impede our ability to make additional
acquisitions.
WE HAVE A HISTORY OF LOSSES. IF WE CONTINUE TO EXPERIENCE LOSSES IN THE FUTURE,
OUR BUSINESS COULD SUFFER.
We have incurred substantial net losses in every fiscal period since we
began operations, and we expect that we will continue to incur losses for the
foreseeable future. As of September 30, 1999, we had an accumulated deficit of
approximately $11.9 million. We plan to continue to invest in our e-commerce and
administrative infrastructures and to expand our operations by developing new
services and acquiring companies involved in the appraisal, home inspection and
related businesses. These actions will require significant expenditures. As a
result, we will need to generate significant additional revenues to achieve and
maintain profitability. However, we may never achieve profitability. Even if we
achieve profitability, we may not be able to sustain or increase profitability.
Our prospects are subject to the risks, expenses and uncertainties frequently
encountered by companies in the early stages of development in new and evolving
markets for online services. These risks include, among others:
- our ability to develop a successful online business model;
- our ability to develop and maintain awareness and loyalty to our brand;
- our ability to attract clients and vendors in a highly competitive
environment characterized by low barriers to entry; and
- our ability to anticipate and adapt to changes in the evolving e-commerce
market.
7
<PAGE>
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS. AS A RESULT, WE
MAY FAIL TO MEET EXPECTATIONS OF INVESTORS AND SECURITIES ANALYSTS AND OUR STOCK
PRICE MAY DECLINE.
Our revenues and operating results may vary from quarter to quarter. As a
result, we may fail to meet expectations of investors and securities analysts,
which may cause our stock price to decline. These fluctuations may occur as a
result of the following factors:
- changes in interest rates or general economic conditions;
- variations in market acceptance of our web-based services;
- the number and timing of client orders for our services;
- increased expenses, whether related to sales and marketing, personnel or
administration;
- increased competition;
- costs related to acquisitions and integration of acquired businesses or
technologies; and
- the amount and timing of expenditures related to acquisitions and
expansion of our operations.
If our earnings are below securities analysts' expectations in any quarter,
our stock price is likely to decline.
IF MORTGAGE ORIGINATORS DO NOT EMBRACE WEB-BASED DELIVERY OF PROPERTY
INFORMATION SERVICES, OUR BUSINESS WILL SUFFER.
Our success depends upon an anticipated increase in the demand for our
web-based services. Currently, we derive a majority of our revenues from
services delivered through traditional methods, such as fax, phone and paper
delivery. If our clients and other mortgage lenders do not embrace our model for
providing online property information services, our business will suffer. The
market for providing property information services through the Internet is at an
early stage of development and is evolving rapidly. For us to fully implement
our business strategies, a sufficiently broad base of businesses and consumers
must adopt and use the Internet as a primary medium to acquire our services.
We believe that acceptance of our services will depend on or be affected by
the following additional factors, among others:
- our ability to successfully and efficiently develop web-based services
that are attractive to a sufficiently large number of mortgage originators
and consumers;
- a change in the perception among many real estate service providers and
consumers that web-based delivery of property information services is less
dependable than traditional methods;
- the reliability of the Internet as a medium for the delivery of our
services;
- the continuing development by third parties of the necessary Internet
network infrastructure to support new technologies and handle the
increasing demands placed upon the Internet; and
- increased government regulation of the Internet.
WE MAY HAVE DIFFICULTIES HIRING AND RETAINING QUALIFIED SALES AND OTHER SKILLED
PROFESSIONALS.
Our success is dependent to a significant degree on our ability to identify,
attract, hire, train, manage, retain and motivate highly qualified sales and
marketing, financial, managerial and technical employees and seasoned
professionals who are capable of implementing our business model. Competition
for such employees is intense, especially in the e-commerce sector, and there is
a risk that we will not be able to successfully attract, assimilate or retain
sufficiently qualified personnel. Because
8
<PAGE>
of our unique business model and diverse product mix, we believe that there is a
shortage of, and significant competition for, personnel with the advanced
technological, managerial, marketing, and other skills necessary to fit into our
business model. If we fail to retain and attract a necessary number of highly
qualified personnel and experienced professionals, or if the expenses associated
with attracting and retaining skilled professionals increase dramatically, our
business could suffer.
WE MAY NOT BE ABLE TO ACHIEVE DESIRED EFFICIENCIES IF WE ARE UNABLE TO
SUCCESSFULLY CROSS-TRAIN OUR PROFESSIONALS AND OUR SALES FORCE.
We plan to achieve efficiencies by cross-training our field personnel to use
our technology to perform a range of property information services in order to
reduce our overall cost of providing services. We may face difficulties in
successfully cross-training our inspectors and appraisers to properly identify
and record information necessary for other services. We cannot be certain that
our training will achieve the efficiencies and quality we are expecting. We may
face difficulties in training our professionals to take full advantage of new
technologies. In addition, our sales force consists of individuals from
different service backgrounds and different industries. We face challenges in
cross-training these individuals to effectively sell our range of services.
IF WE DO NOT LEVERAGE OUR TECHNOLOGY AND INFRASTRUCTURE TO THEIR LIMITS, OUR
BUSINESS COULD SUFFER.
We must constantly innovate and implement better technologies to drive
efficiencies. If we are unable to continually innovate, we will not be able to
distinguish ourselves from our competitors and may not be successful in
implementing our business model. We must constantly leverage both our external
infrastructure, by upgrading our network technology, and our internal
technology, by enhancing our transaction-processing systems. We may not be able
to accurately project the rate or timing of increases in demand of our services,
and we may not be able to upgrade our systems and infrastructure to accommodate
such increases in a timely manner. In addition, our web-based infrastructure may
not be able to support continued growth in its use. If we are unable to
anticipate or adapt to new developments in technology, our business could
suffer.
THE PROPERTY INFORMATION SERVICES INDUSTRY IS INTENSELY COMPETITIVE, AND WE MAY
FAIL TO COMPETE SUCCESSFULLY IN THIS INDUSTRY.
We face intense competition for our property information services in every
geographic market in which we operate. We will continue to face competition both
from emerging providers of online property information services and traditional
providers of appraisal, property inspection, title insurance and other property
related services. There are no substantial barriers to entry in these markets,
and we expect that competition will continue to intensify.
Additionally, the e-commerce market in general is new, rapidly evolving and
intensely competitive. We expect that an increasing number of property
information services providers will enter this market. Existing and new property
information services providers may launch new Internet sites at relatively low
cost and can distinguish themselves in niche markets through low cost online
marketing.
We will face increasing direct competition from companies that subcontract
out property information services, known in the industry as management
companies, and other companies that now offer, or plan to offer, property
information services over the Internet. In addition, we believe there are
approximately 19,000 property appraisal services firms that offer services in
defined geographic markets. Competition is likely to increase significantly as
new companies enter the market for online property information services, and
current competitors expand their services. Some of these current and potential
competitors enjoy substantial competitive advantages over us, including:
- greater name recognition;
- larger established client bases;
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<PAGE>
- substantially greater financial resources, sales and marketing personnel
and other resources; and
- longer operating histories.
We cannot provide any assurance that we will be able to compete successfully
against either traditional or web-based providers of property information
services or management companies. If we fail to compete successfully, we could
lose revenues and revenue opportunities and slow our growth.
WE DO NOT HAVE EXCLUSIVE ARRANGEMENTS WITH OUR CLIENTS. WE COULD LOSE KEY
RELATIONSHIPS WITH OUR CLIENTS AND, AS A RESULT, OUR BUSINESS COULD SUFFER.
We do not have exclusive arrangements or formal contractual relationships
with any of our clients that guarantee minimum payments or any revenue
thresholds. While we do have agreements with a few of our clients that obligate
the client to use our services for a portion of their property information
services needs, we continue to be substantially dependent on continued good
relationships with our clients. The vast majority of our clients are mortgage
originators who are under no obligation to continue their relationships with us.
Our reliance on these mortgage originators makes our sales volume and the prices
we charge for our services more susceptible to changes in the rates, services
and products such mortgage originators offer. The loss of our relationship with
one or more key mortgage originators could cause us to lose revenues and could
have an adverse effect on our business.
WE MAY BE SUBJECT TO FUTURE GOVERNMENT REGULATION THAT COULD ADVERSELY AFFECT
OUR ABILITY TO DO BUSINESS.
The real estate industry is highly regulated. Because companies have only
recently begun delivering real estate-related services over the Internet, it is
unclear how many of these regulations will extend to our operations or those of
our Internet-related clients. Any additional government regulation affecting our
operations or those of our clients could negatively impact our ability to
operate our business plan.
Our operations on the Internet are not currently subject to direct
regulation by any government agency in the United States beyond real estate
appraisal, home inspection and mortgage-related regulations and regulations
applicable to businesses generally. Laws and regulations directly applicable to
the Internet and e-commerce may become more prevalent in the future. In the
event governmental authorities adopt or modify laws or regulations relating to
the Internet, our business, results of operations and financial condition could
suffer.
A number of legislative and regulatory proposals under consideration by
federal, state and local governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including taxation,
access charges, liability for third-party activities, online content, user
privacy and jurisdiction.
The tax treatment of the Internet and electronic commerce is currently
unsettled. A number of proposals have been made that could impose taxes on the
sale of goods and services and certain other Internet activities. The Internet
Tax Freedom Act was signed into law in October 1998, placing a three-year
moratorium on new state and local taxes on Internet commerce. However, we cannot
assure you that future laws imposing taxes or other regulations would not
substantially impair the growth of our business and our financial condition.
OUR SUCCESS WILL DEPEND UPON THE PERFORMANCE, RELIABILITY AND SECURITY OF OUR
COMPUTER SYSTEMS.
The satisfactory performance, reliability and availability of our web site,
transaction-processing systems and network infrastructure are critical to our
ability to provide high levels of service and to attract and retain clients. Our
activities will involve the storage and transmission of proprietary and often
confidential information. Security breaches will damage our reputation and
expose us to a risk of litigation and possible liability. Although we will
implement and maintain systems designed to prevent
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<PAGE>
security breaches, we cannot assure that these security systems will prevent
security breaches. In addition, if our services were interrupted or delayed as a
result of a computer system failure, it could cause delays in the processing and
closing of loans for our clients. Interruptions of services or increases in
response times will significantly impact client satisfaction and future demand
for our services.
WE MAY NOT HAVE SUFFICIENT FUNDS AVAILABLE TO EXPAND OUR BUSINESS.
We will need to make significant expenditures in order to grow our business.
We expect to fund these expenditures through existing resources, internally
generated funds and the proceeds of this offering. If the proceeds of this
offering are insufficient to fund our capital needs, we will have to delay or
abandon some of our expenditures or plans for future expansion. This would
result in underutilization of our established infrastructure and reduced
profitability and may negatively affect our ability to compete for new clients
and satisfy the demands resulting from the growth and expansion of our clients.
We may use shares of our common stock to fund a significant portion of the
consideration to be paid in future acquisitions. If our common stock does not
maintain a sufficient market value, or if potential acquisition candidates are
unwilling to accept our common stock as part of the consideration for the sale
of their businesses, we will be required to utilize our cash, if available, to
make an acquisition. If we do not have sufficient cash resources, our growth
could be limited unless we are able to obtain additional capital through debt or
equity financings or other means.
WE FACE RISKS THAT OUR INTELLECTUAL PROPERTY IS NOT ADEQUATELY PROTECTED.
Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. We cannot assure you that the actions
we have taken are adequate to protect these intellectual property rights. We
have applied for federal trademark registration for certain of our intellectual
property and have registered the web site domain names we use, which prevents
any other person from using those names for their web sites. However, we have no
patents issued or applied for on our technology. Unauthorized parties may
attempt to copy or to otherwise obtain and use our services or technology, and
we cannot be certain that the steps we have taken and will take in the future
will prevent them from misappropriating or infringing upon our technology.
Additionally, we have not registered copyrights on all of our proprietary
software which could affect our ability to recover damages for infringement of
our copyrights.
We typically enter into confidentiality, license or similar contractual
agreements with our employees, consultants and affiliated appraisers, and
generally control access to and distribution of our technologies, documentation
and other proprietary information. Despite our efforts to protect our
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use our rights. The steps we have taken may not prevent
misappropriation of our proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect our proprietary rights
as fully as in the United States.
WE MAY BE SUBJECT TO CLAIMS FROM THIRD PARTIES FOR INFRINGEMENT.
We expect that we may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties by us. Such claims, even if without merit, could result in the
expenditure of significant financial and managerial resources. Further, if such
claims are successful, we may be required to change our technology or our
trademarks, alter our content and pay financial damages, which could adversely
affect our business. We may be required to obtain licenses from others to
refine, develop, market and deliver new services. There can be no assurance that
we will be able to
11
<PAGE>
obtain any such license on commercially reasonable terms or at all, or that
rights granted pursuant to licenses will be valid and enforceable. Further, the
costs associated with enforcing our rights to technology could adversely affect
our financial performance.
THE LOSS OF ANY OF OUR KEY EXECUTIVE OFFICERS COULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS.
We believe that our future success will depend to a significant extent on
the continued services of our senior management and other key personnel,
including, among others, C. James Schaper, our Chairman of the Board, President
and Chief Executive Officer, Revell L. Fraser, our Vice President--Marketing and
Strategic Development and J. Chris Foretich, our Vice President and Chief
Information Officer. The loss of the services of any of these employees could
cause our business to suffer.
WE HAVE A LIMITED OPERATING HISTORY WITH OUR CURRENT MANAGEMENT TEAM.
Six of our eight executive officers, including C. James Schaper, our
Chairman of the Board, President and Chief Executive Officer, Leslie H.
Schreiner, our Vice President, Chief Financial Officer and Secretary, and Kevin
P. Castle, our Vice President--Operations, joined our company during 1999. Our
other two executive officers joined our company in 1998. Accordingly, we have
only a limited history of operation under our current management team upon which
investors may evaluate our performance. Our current management team may not be
able to achieve or sustain revenue growth or profitability.
WE MAY BE ADVERSELY IMPACTED IF THE SOFTWARE, COMPUTER TECHNOLOGY OR OTHER
SYSTEMS USED BY US, OUR CLIENTS OR OTHER PARTIES WITH WHOM WE DO BUSINESS ARE
AFFECTED BY THE YEAR 2000 ISSUE.
We may be adversely affected if the software, computer technology or other
systems used by us, our clients or other parties with whom we do business are
impacted by the year 2000 issue. Such consequences would include difficulties in
operating our web site effectively, taking product orders or conducting other
fundamental parts of our business. Although January 1, 2000 has passed, and we
did not experience any disruption in our business as a result of the transition
to the year 2000, it is possible that problems have gone undetected, or that
other dates in the year 2000, such as February 29, may further affect computer
software and systems. Certain computer programs that were date sensitive to the
year 2000 may not have been programmed to process the year 2000 as a leap year,
and any negative consequential effects remain unknown. While we believe that all
of our systems are year 2000 compliant, we cannot assure you that we will not
discover a problem during 2000 that will require upgrades, modification or
replacement of computer software or systems. In addition, it is possible that
the internal systems of our clients or other parties with whom we do business
have already been or will be negatively affected by the year 2000 date change.
Our business could suffer if we, or any of our clients or other parties with
whom we do business experience failures of software, computer technology or
other systems as a result of problems associated with the year 2000.
RISKS RELATING TO THIS OFFERING
PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL
CONTROL OVER OUR BUSINESS AFTER THIS OFFERING.
Upon the closing of this offering, our executive officers, directors and
greater than 5% shareholders, and any of their affiliates, will, in the
aggregate, own approximately % of our outstanding common stock. As a
result, such persons, acting together, will have the ability to substantially
influence all matters submitted to the shareholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets, and to control our management and affairs.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control, impeding a merger, consolidation,
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<PAGE>
takeover or other business combination involving us or discouraging a potential
acquiror from making a tender offer or otherwise attempting to obtain control of
our business, even if such a transaction would be beneficial to other
shareholders.
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THIS OFFERING AND, AS A
RESULT, YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
Prior to the offering, there has been no public market for our common stock.
Our common stock has been approved for quotation on the Nasdaq Stock Market. We
do not know how our common stock will trade in the future. The initial public
offering price has been determined through negotiations between the underwriters
and us. You may not be able to resell your shares at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated fluctuations in our revenues and operating results;
- changes in expectations as to our future financial performance;
- changes in expectations for failure to achieve estimates of securities
analysts; and
- the operating and stock price performance of other comparable companies.
In addition, the stock market in general, and the market for
Internet-related stocks in particular, has experienced dramatic price and volume
fluctuations from time to time. These fluctuations may or may not be based upon
any business or operating results. Our common stock may experience similar or
even more dramatic price and volume fluctuations that may continue indefinitely.
THE MARKET PRICE OF OUR COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF
SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK IN THE PUBLIC MARKET.
Following the offering, we will have a large number of shares of common
stock outstanding and available for resale beginning at various points in the
future. The market price of our common stock could decline as a result of sales
of large numbers of shares of our common stock in the market following this
offering, or the perception that sales could occur. These sales might make it
more difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate.
We have an agreement with the holders of an aggregate of 9,623,691 shares of
our common stock, including shares issuable upon conversion of outstanding
convertible securities, that gives them the right, six months after this
offering, to require us to register their shares of common stock for resale
under the Securities Act of 1933. The holders of this right may require us to
file up to two registration statements under the Securities Act at our expense.
The exercise of these registration rights will cause the registered shares to
become eligible for sale. The sale of a large number of these shares, or the
possibility that such sale may occur, may adversely affect the market price of
our common stock. For more information, see "Shares Eligible for Future Sale."
YOUR STOCK OWNERSHIP COULD BE DILUTED IF WE NEED TO SELL ADDITIONAL SHARES OF
OUR COMMON STOCK TO FINANCE FUTURE ACQUISITIONS.
Part of our business strategy is to expand our national footprint,
cross-sell additional services, expand our client base, and improve our
operating profitability through the acquisition of property information
businesses. In order to successfully complete targeted acquisitions, we may
issue additional equity securities that could dilute your stock ownership. As a
result of our issuance of shares in acquisitions, investors purchasing shares in
the offering will incur substantial dilution.
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<PAGE>
WE WILL RETAIN BROAD DISCRETION IN USING THE NET PROCEEDS FROM THIS OFFERING AND
MAY SPEND A SUBSTANTIAL PORTION IN WAYS WITH WHICH YOU DO NOT AGREE.
We will retain a significant amount of discretion over the application of
the net proceeds from this offering as well as over the timing of our
expenditures. Because of the number and variability of factors that determine
our use of the net proceeds, we may apply the net proceeds from this offering in
ways that vary substantially from our current intentions. For more information,
see "Use of Proceeds."
OUR ARTICLES OF INCORPORATION, OUR BYLAWS AND GEORGIA LAW COULD DETER TAKEOVER
ATTEMPTS.
Our articles of incorporation, our bylaws and Georgia law could make it more
difficult for a third party to acquire us, even if a change in control would be
beneficial to our shareholders. For example, our articles of incorporation, as
anticipated to be in effect upon the closing of this offering, and bylaws
provide, among other things, that:
- our directors serve on a classified board, which could make it more
difficult for a third party to acquire us without the approval of our
board, may inhibit a shareholder from nominating and electing directors
and will make it difficult for shareholders to change the composition of
the board of directors in any one year;
- our shareholders may not take action outside of a meeting by less than
unanimous written consent;
- a director may be removed only for cause by the vote of at least 80% of
the outstanding shares entitled to vote at an election of directors;
- the board of directors, without shareholder approval, has the authority to
issue preferred stock with rights superior to the rights of the holders of
common stock; and
- the shareholders may call a special meeting only upon request of 25% of
votes entitled to be cast on an issue.
Georgia law also contains business combination and fair price provisions,
which may delay, deter or prevent a change in control. We have adopted these
provisions in our bylaws. These anti-takeover provisions could substantially
impede the ability of public shareholders to change our management and board of
directors, which may reduce the market price of our common stock. For more
information, see "Description of Capital Stock--Anti-takeover Provisions of
Georgia Law."
FORWARD-LOOKING STATEMENTS MAY PROVE TO BE INACCURATE.
Some of the statements contained in this prospectus are forward-looking. The
words "believe," "expect," "intend," "anticipate," "estimate," "plan," "future,"
and other similar expressions generally identify forward-looking statements.
They include statements concerning:
- our liquidity and capital expenditures;
- our growth strategy;
- our acquisition activities;
- use of proceeds from this offering;
- regulatory matters affecting our industry;
- competitive conditions in our industry; and
- projected growth of our industry.
Actual results may differ materially from those suggested by the
forward-looking statements for various reasons, including those discussed in
this section.
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $ million, or approximately $ million if the
underwriters exercise their over-allotment option in full. These estimates are
based on an assumed initial public offering price of $ per share and
reflect the deduction of the underwriting discounts and commissions and
estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for the following
purposes:
- to fund development of our service delivery infrastructure, our internal
technology and associated personnel training costs necessary to grow our
business;
- to fund future acquisitions to expand our national footprint;
- to fund sales and marketing activities to expand market share;
- to repay $9.7 million principal amount of our January 2000 convertible
notes which are not mandatorily convertible upon the closing of this
offering and which mature 181 days after the closing of this offering; and
- to fund working capital requirements and other general corporate purposes.
As of January 18, 2000, we had approximately $9.7 million aggregate
principal amount of our January 2000 convertible notes outstanding. These notes
were issued in connection with loans from existing shareholders to us in order
to fund short-term working capital and acquisition needs. These notes accrue
interest at a rate of 8.0%.
We continually evaluate acquisition and strategic alliance candidates as a
key part of our growth strategy. However, we currently have no commitments or
agreements and are not involved in any negotiations with respect to any material
acquisition or strategic alliance.
We currently intend to allocate the net proceeds among the foregoing uses.
The precise allocation of funds among these uses will depend on future business,
technological, and other developments in or affecting our business, the
competitive climate in which we operate and the emergence of future
opportunities. Because of the number and variability of factors that determine
our use of the net proceeds from this offering, we cannot assure you that our
application of the net proceeds will not vary substantially from our current
intentions. Pending these uses, we intend to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock and do not
anticipate declaring or paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings, if any, to fund the development and
growth of our business. Declaration or payment of future dividends, if any, will
be at the discretion of our board of directors after taking into account various
factors, including our financial condition, operating results, current and
anticipated cash needs and plans for expansion.
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CAPITALIZATION
The following table shows our capitalization as of September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) all of our acquisitions that occurred
after September 30, 1999 as if they had occurred on September 30, 1999;
(b) the issuance of our convertible preferred stock issued after
September 30, 1999; (c) the issuance of our November 1999 and January 2000
convertible notes; (d) the conversion of all of our outstanding
convertible preferred stock into 1,834,617 shares of our common stock,
based on stated values and accrued dividends as of January 18, 2000; and
(e) the conversion of our November 1999 convertible notes into 661,064,
shares of our common stock, based on aggregate principal amount and
accrued interest as of January 18, 2000.
- on a pro forma as adjusted basis to reflect the sale of the shares
of common stock offered by us in this offering at an assumed initial
public offering price of $ per share, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by us.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 880 $22,616 $
======== ======= ========
November 1999 convertible notes............................. -- -- --
January 2000 convertible notes.............................. -- $ 9,722 --
Current portion of long-term debt........................... $ 3,617 4,923 $ 4,923
-------- ------- --------
Total short-term debt................................. $ 3,617 $14,645 $ 4,923
======== ======= ========
Long-term debt, less current portion........................ $ 3,911 $ 4,822 $ 4,822
Series A convertible preferred stock, $.01 par value,
1,200,000 shares authorized, 1,091,242 shares issued and
outstanding actual and no shares issued and outstanding
pro forma and pro forma as adjusted....................... 4,467 -- --
Series B convertible preferred stock, $.01 par value,
3,000,000 shares authorized, no shares issued and
outstanding actual, pro forma and pro forma as adjusted... -- -- --
Series C convertible preferred stock, $.01 par value,
2,500,000 shares authorized, no shares issued and
outstanding actual, pro forma and pro forma as adjusted... -- -- --
Shareholders' equity:
Common stock, $.01 par value, 15,000,000 shares
authorized, 7,068,873 shares issued and outstanding
actual, 10,214,015 shares issued and outstanding pro
forma and shares issued and outstanding pro
forma as adjusted....................................... 71 104
Additional paid-in capital................................ 17,609 48,458
Accumulated deficit....................................... (11,901) (11,901) (11,901)
-------- ------- --------
Total shareholders' equity............................ 5,779 36,661
-------- ------- --------
Total capitalization................................ $ 18,654 $78,744 $
======== ======= ========
</TABLE>
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DILUTION
Our pro forma net tangible book value on September 30, 1999 was
approximately $9.8 million or $.96 per share of common stock. Pro forma net
tangible book value is total assets minus the sum of liabilities and intangible
assets. Pro forma net tangible book value per share is net tangible book value
divided by the total number of shares outstanding before the offering and after
giving effect to (a) all of our acquisitions that occurred after September 30,
1999 as if they had occurred on September 30, 1999; (b) the issuance of our
convertible preferred stock issued after September 30, 1999; (c) the issuance of
our November 1999 and January 2000 convertible notes; (d) the conversion of all
of our outstanding convertible preferred stock into 1,834,617 shares of our
common stock, based on stated values and accrued dividends as of January 18,
2000; and (e) the conversion of our November 1999 convertible notes into
661,064, shares of our common stock, based on aggregate principal amount and
accrued interest as of January 18, 2000. After giving effect to the sale by us
of shares of common stock offered by this prospectus at an assumed initial
offering price of $ per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us, our pro
forma net tangible book value as of September 30, 1999 would have been
approximately $ or $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing shareholders
and an immediate dilution of $ per share to new investors purchasing shares
of common stock in this offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999...................................... $ .96
Increase per share attributable to this offering..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Net tangible book value dilution per share to new investors
in this offering.......................................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1999, the total number of shares purchased from us, the total consideration paid
to us and the average price paid per share by existing shareholders and by new
investors purchasing shares in this offering.
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------------ ------------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- -------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 10,214,015 % $48,561,000 % $4.75
New investors...........
---------- ----- ----------- -----
Total............... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
The foregoing tables and pro forma calculations are based on 7,068,873 shares of
our common stock outstanding as of September 30, 1999 and:
- include 664,872 shares issued in acquisitions completed after
September 30, 1999;
- include 1,834,617 shares issuable upon the conversion of all of our
outstanding convertible preferred stock, based on aggregate stated values
and accrued dividends as of January 18, 2000;
- include 661,064 shares issuable upon conversion of our November 1999
convertible notes, based on aggregate principal amount and accrued
interest as of January 18, 2000;
- exclude 1,625,709 shares issuable upon the exercise of options outstanding
as of January 18, 2000 with a weighted average exercise price of $6.69 per
share;
- exclude 457,018 shares issuable upon the exercise of warrants outstanding
as of January 18, 2000 with a weighted average exercise price of $15.29
per share; and
- exclude 635,001 shares issuable upon the conversion of our January 2000
convertible notes, which are not mandatorily convertible upon the closing
of this offering, based on aggregate principal amount and accrued interest
as of January 18, 2000.
17
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Our consolidated financial statements are included elsewhere in this
prospectus. The pro forma condensed consolidated financial information that
follows should be read together with those financial statements and related
notes.
We adjust our historical condensed consolidated statements of operations for
the year ended December 31, 1998 and the nine months ended September 30, 1999 to
arrive at the unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1998 and the nine months ended
September 30, 1999. These adjustments reflect the acquisitions we have made
since January 1, 1998 as if they occurred on January 1, 1998 and the issuances
of our outstanding convertible preferred stock and convertible notes which we
issued after January 1, 1998 as if such issuances had occurred on January 1,
1998. The pro forma condensed consolidated statements of operations are not
necessarily indicative of the results of operations that would have been
achieved had the transactions occurred on January 1, 1998 and should not be
construed as being representative of future results of operations.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL BUSINESSES PRO FORMA
COMPANY ACQUIRED(2) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................................... $14,355,790 $25,502,472 -- $39,858,262
Cost of revenues............................................ 7,823,800 14,121,233 -- 21,945,033
----------- ----------- ----------- -----------
Gross profit................................................ 6,531,990 11,381,239 -- 17,913,229
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative....................... 7,350,183 12,538,536 -- 19,888,719
Research and development.................................. 205,648 -- -- 205,648
Depreciation and amortization............................. 522,334 587,463 $3,293,905(3) 4,403,702
----------- ----------- ----------- -----------
Total operating expenses................................ 8,078,165 13,125,999 3,293,905 24,498,069
----------- ----------- ----------- -----------
Operating loss.............................................. (1,546,175) (1,744,760) (3,293,905) (6,584,840)
Other income (expense)
Interest and other income................................. 155,481 108,014 -- 263,495
Interest expense.......................................... (24,323) (1,337,149) --(4) (1,361,472)
----------- ----------- ----------- -----------
Loss before provision for income taxes.................. (1,415,017) (2,973,895) (3,293,905) (7,682,817)
Provision for income taxes.............................. -- 112,594 -- 112,594
----------- ----------- ----------- -----------
Net loss................................................ (1,415,017) (3,086,489) (3,293,905) (7,795,411)
Series A convertible preferred stock........................ -- -- --(4) --
----------- ----------- ----------- -----------
Net loss applicable to common shareholders.................. $(1,415,017) $(3,086,489) $(3,293,905) $(7,795,411)(8)
=========== =========== =========== ===========
Basic and diluted net loss per common share(1).............. $ (.29) $ (.76)
=========== ===========
Weighted average common shares outstanding(1)............... 4,913,950 10,214,015(5)
</TABLE>
18
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL BUSINESSES PRO FORMA
COMPANY ACQUIRED(2) ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................. $17,824,357 $10,454,584 -- $28,278,941
Cost of revenues......................... 9,982,141 5,679,401 -- 15,661,542
----------- ----------- ----------- -----------
Gross profit............................. 7,842,216 4,775,183 -- 12,617,399
----------- ----------- ----------- -----------
Operating expenses
Selling, general and administrative.... 13,478,237 4,634,725 -- 18,112,962
Research and development............... -- -- -- --
Depreciation and amortization.......... 1,447,449 284,567 $ 1,862,952(3) 3,594,968
----------- ----------- ----------- -----------
Total operating expenses............. 14,925,686 4,919,292 1,862,952 21,707,930
----------- ----------- ----------- -----------
Operating loss........................... (7,083,470) (144,109) (1,862,952) (9,090,531)
Other income (expense)
Interest and other income.............. 118,034 22,605 -- 140,639
Interest expense....................... (80,839) (158,064) --(4) (238,903)
----------- ----------- ----------- -----------
Loss before provision for income
taxes.............................. (7,046,275) (279,568) (1,862,952) (9,188,795)
Provision for income taxes........... -- 80,394 -- 80,394
----------- ----------- ----------- -----------
Net loss............................. (7,046,275) (359,962) (1,862,952) (9,269,189)
Series A convertible preferred stock..... (101,849) -- 101,849(4) --
----------- ----------- ----------- -----------
Net loss applicable to common
shareholders....................... $(7,148,124) $ (359,962) $(1,761,103) $(9,269,189)
=========== =========== =========== ===========
Basic and diluted net loss per common
share(1)............................... $ (1.03) $ (.91)
=========== ===========
Weighted average common shares
outstanding(1)......................... 6,960,000 10,214,015(5)
</TABLE>
19
<PAGE>
We adjust our historical condensed consolidated balance sheet as of
September 30, 1999 to arrive at the unaudited pro forma condensed consolidated
balance sheet as of September 30, 1999. These adjustments give effect to all of
our acquisitions that occurred after September 30, 1999 as if they had occurred
on September 30, 1999 and give effect to the issuance of our outstanding
convertible preferred stock issued after September 30, 1999, the issuance of our
November 1999 and January 2000 convertible notes, and the conversion of all of
our outstanding convertible preferred stock and our November 1999 convertible
notes as if such events had occurred on September 30, 1999.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL BUSINESSES PRO FORMA
COMPANY ACQUIRED(6) ADJUSTMENTS(4) PRO FORMA
----------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents................. $ 880,456 $ (2,348,366) $24,083,816 $22,615,906
Certificates of deposit.............. 560,000 -- -- 560,000
Accounts receivable, net............. 3,932,740 400,000 -- 4,332,740
Prepaid expenses and other current
assets............................. 154,228 217,000 -- 371,228
----------- ------------ ----------- -----------
Total current assets............. 5,527,424 (1,731,366) 24,083,816 27,879,874
Property and equipment, net............ 2,984,538 261,000 -- 3,245,538
Intangible assets, net................. 10,832,611 16,029,000 -- 26,861,611
Security deposits and other assets..... 282,144 328,000 -- 610,144
----------- ------------ ----------- -----------
Total assets..................... $19,626,717 $ 14,886,634 $24,083,816 $58,597,167
=========== ============ =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses........................... $ 1,852,822 $ 617,000 -- $ 2,469,822
Current portion of long-term debt.... 3,616,949 1,306,000 $ 9,721,862 14,644,811
----------- ------------ ----------- -----------
Total current liabilities........ 5,469,771 1,923,000 9,721,862 17,114,633
Long-term debt, less current portion... 3,910,873 911,000 4,821,873
----------- ------------ ----------- -----------
Total liabilities................ 9,380,644 2,834,000 9,721,862 21,936,506
Series A convertible preferred stock... 4,466,818 -- (4,466,818) --
Shareholders' equity
Common stock......................... 70,688 7,872 24,703 103,263
Additional paid-in capital........... 17,609,226 12,044,762 18,804,069 48,458,057
Accumulated deficit.................. (11,900,659) -- -- (11,900,659)
----------- ------------ ----------- -----------
Total shareholders' equity....... 5,779,255 12,052,634 18,828,772 36,660,661
----------- ------------ ----------- -----------
Total liabilities and
shareholders' equity........... $19,626,717 $ 14,886,634 $24,083,816 $58,597,167
=========== ============ =========== ===========
</TABLE>
20
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(1) Potential shares of common stock consist of Series A and Series B
convertible preferred stock and the November 1999 convertible notes, using
the as-converted method, and stock options and warrants using the treasury
stock method, which are excluded from the computation, as their effect is
antidilutive.
(2) Our acquisition history since January 1, 1998 is reflected in the table
below. All of our acquisitions have been accounted for using the purchase
method and, accordingly, each purchase price has been allocated to the
tangible and intangible assets acquired and liabilities assumed on the basis
of their fair values at the acquisition dates. Identifiable intangible
assets consist primarily of non-compete agreements with previous owners of
the acquired entities. Each purchase price in excess of identified tangible
and intangible assets acquired has been allocated to goodwill and is being
amortized over eight years. Based on the acquisition dates, the allocation
of the purchase price in excess of the fair value of the net tangible assets
acquired between identifiable intangible assets and goodwill for the
companies acquired in 1999 is in process, and the final allocations could
differ from those set forth below. The value assigned to the shares of
common stock issued as consideration for the companies we acquired has been
valued based upon arms' length negotiations between ourselves and the target
companies and reflects the valuation used in the most recent private
financing consummated prior to the signing of the respective acquisition
agreements and other factors considered applicable by us and the owners of
the acquired companies.
<TABLE>
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
NET ASSETS
FAIR VALUE ACQUIRED
OF NET AND
TANGIBLE IDENTIFIABLE IDENTIFIABLE
ACQUISITION TOTAL ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED DATE CONSIDERATION ACQUIRED ASSETS ASSETS
- ----------------- ----------- ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Kushner & Robertson, Inc....................... 06/18/1998 $ 6,000,000 $ 944,003 $ 914,000 $ 4,141,997
Pardue, Heid, Church, Smith & Waller........... 12/01/1998 775,000 70,429 228,600 475,971
The William Fall Group, Inc.................... 02/26/1999 1,242,196 431,054 243,342 567,800
First Houston Appraisal Group.................. 04/01/1999 800,000 19,607 240,000 540,393
Cramer Property Services Incorporated.......... 09/03/1999 808,000 17,885 10,000 780,115
E.T. Jones & Associates, Inc................... 09/29/1999 2,030,000 8,000 2,022,000
Stewart Title of Birmingham, Inc............... 09/29/1999 1,000,000* 76,000 924,000
Fournier, Crane & Associates, Inc.............. 12/03/1999 550,000 18,000 532,000
InspecTech Corporation......................... 01/07/2000 12,500,000 114,000 12,386,000
The Appraisal Company.......................... 01/07/2000 756,300 26,300 50,000 680,000
Bliss Associates, Inc.......................... 01/18/2000 3,155,000 774,000 2,381,000
----------- ---------- ---------- -----------
Total.................................... $29,616,496 $2,499,278 $1,685,942 $25,431,276
=========== ========== ========== ===========
</TABLE>
- ---------------
* Excludes an earnout of up to $500,000 payable to the former owners, which
has not yet been earned.
(3) Reflects amortization expense for the year ended December 31, 1998 and the
nine months ended September 30, 1999 related to identifiable intangible
assets and goodwill in connection with the acquisitions we completed after
January 1, 1998. Such amounts are amortized over the estimated useful life
of each asset. Identifiable intangible assets consist primarily of
non-compete agreements, which are being amortized over periods of four to
six years. Goodwill is being amortized over eight years. In addition,
amortization excludes from the recognized purchase price calculations an
earnout payment of $500,000 which has not been earned under the terms of one
of the acquisition
21
<PAGE>
agreements. Any purchase price adjustments resulting from the payment of
this amount to the previous owners of this company will be recognized as an
adjustment to goodwill and will be amortized over the remaining expected
useful life.
(4) Reflects issuances of our Series B convertible preferred stock and our
November 1999 and January 2000 convertible notes and warrants. In the
aggregate, we raised $24.1 million from these issuances. Additionally, we
give effect to the conversion of our Series A and Series B convertible
preferred stock and our November 1999 convertible notes and warrants into
common stock upon the closing of this offering. The conversion reduces
accrued dividends and interest expense of $100,000 and $268,000,
respectively, for the year ended December 31, 1998 and $176,000 and
$200,000, respectively, for the nine months ended September 30, 1999. The
accrued dividends and interest expense relate to the portion of the proceeds
from the issuance of our Series A and our Series B convertible preferred
stock and November 1999 convertible notes and warrants which were used to
acquire businesses.
(5) Assumes conversion on January 1, 1998 of our Series A and our Series B
convertible preferred stock and our November 1999 convertible notes and
warrants upon event of an initial public offering.
(6) Reflects acquisitions we made subsequent to September 30, 1999 as if they
had occurred on September 30, 1999. The adjustments reflect the fair value
of the assets acquired and the liabilities assumed, the excess of the
purchase price over the fair value of the assets acquired and the
liabilities assumed, and the impact of these acquisitions on our cash and
equity balances. The value assigned to the shares of common stock issued as
consideration for the companies we acquired has been valued based upon arms'
length negotiations between ourselves and the target companies and reflects
the valuation used in the most recent private financing consummated prior to
the signing of the respective acquisition agreements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below are derived from our audited and
unaudited consolidated financial statements. The statements of operations data
for the three years ended December 31, 1996, 1997 and 1998, and the balance
sheet data as of the end of each such year, are derived from our audited
consolidated financial statements contained elsewhere in this prospectus. The
unaudited statements of operations data for the nine months ended September 30,
1998 and 1999 and the balance sheet data as of September 30, 1998 and 1999 are
derived from our unaudited consolidated financial statements contained elsewhere
in this prospectus and which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for a fair presentation of results for these unaudited
interim periods. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results of operations
that we expect for the full 1999 fiscal year. The following selected financial
information should be read in conjunction with the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the notes to
those statements, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------- -------------------------
1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................. $ 847 $ 1,922 $ 4,155 $14,356 $ 8,718 $17,824
Cost of revenues.......................................... 722 1,001 2,537 7,824 4,814 9,982
------ ------- ------- ------- ------- -------
Gross Profit.............................................. 125 921 1,618 6,532 3,904 7,842
------ ------- ------- ------- ------- -------
Operating expenses
Selling, general and administrative..................... 737 1,862 2,518 7,350 4,707 13,478
Research and development................................ -- -- 122 206 110 --
Depreciation and amortization........................... 111 175 218 522 328 1,447
------ ------- ------- ------- ------- -------
Operating loss............................................ (723) (1,116) (1,240) (1,546) (1,241) (7,083)
Other income and expense
Interest and other income............................... 36 20 45 155 98 118
Interest expense........................................ (7) (5) (4) (24) (11) (81)
------ ------- ------- ------- ------- -------
Loss before provision for income taxes.................... $ (694) $(1,101) $(1,199) $(1,415) $(1,154) $(7,046)
====== ======= ======= ======= ======= =======
Provision for income taxes................................ -- -- -- -- -- --
Net loss.................................................. $ (694) $(1,101) $(1,199) $(1,415) $(1,154) $(7,046)
Preferred stock dividend.................................. -- -- -- -- -- (102)
------ ------- ------- ------- ------- -------
Net loss applicable to common shareholders................ $ (694) $(1,101) $(1,199) $(1,415) $(1,154) $(7,148)
====== ======= ======= ======= ======= =======
Net loss per common and common
equivalent share--basic and diluted..................... $(1.16) $ (1.12) $ (.43) $ (.29) $ (.28) $ (1.03)
====== ======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding--basic and diluted........ 600 981 2,800 4,914 4,195 6,960
OTHER FINANCIAL DATA:
EBITDA(1)................................................. $ (613) $ (941) $(1,023) $(1,024) $ (913) $(5,636)
Cash flows from:
Operating activities.................................... (581) (1,068) (1,237) (1,935) (1,950) (5,378)
Investing activities.................................... (299) (93) (409) (4,296) (2,725) (4,452)
Financing activities.................................... 1,461 1,187 1,655 9,238 8,908 7,027
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 643 $ 668 $ 677 $ 3,684 $ 4,911 $ 880
Working capital........................................... 584 712 792 5,868 6,811 58
Total assets.............................................. 1,170 1,447 3,156 14,915 11,013 19,627
Long-term debt, net of current portion.................... 34 135 777 997 760 3,911
Series A convertible preferred stock...................... -- -- -- -- -- 4,467
Shareholders' equity...................................... 941 1,112 1,669 12,465 9,676 5,779
</TABLE>
- ---------------
(1) EBITDA as used in this prospectus represents earnings before interest,
income taxes and depreciation and amortization. Although EBITDA is not a
measure of financial performance under generally accepted accounting
principles, we believe it is a common measure used by analysts and investors
in comparing a company's results with those of similar companies as well as
to evaluate the capacity of a company to service its obligations.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS, INCLUDING THE NOTES TO THOSE STATEMENTS, INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISK AND UNCERTAINTY.
OVERVIEW
We are a leading web-based provider of property information services in the
United States. We provide appraisals, home inspections, title services, flood
determinations, energy audits, valuation tools and other related property
information services that our clients can order, monitor, receive and pay for
over the Internet using a standard web browser. Our clients include 7 of the top
10 and 31 of the top 50 mortgage lenders in the United States.
We originated as Residential and Relocation Appraisals, Inc., or RRA, an
Atlanta-based appraisal company founded in 1990. As RRA, we developed a
proprietary appraisal software system that automated the appraisal process by
using an electronic form linked with data suppliers. In 1992, we changed our
name to Premier Appraisals, Inc. We began broadening our distribution
capabilities in 1995 with the acquisitions of appraisal companies in North
Carolina and Florida. We have acquired 21 businesses nationwide since 1995,
including 9 since the beginning of 1999.
Until 1999, we were essentially a collection of acquired appraisal
companies, each focused on its local marketplace. In late 1998 and early 1999,
we brought in a new management team, changed our name to PRIMIS, Inc. and began
developing and executing an integrated strategy consisting of (1) company-owned
national service delivery capability, (2) web-based technology to allow
efficient delivery of our services, and (3) a quality assurance program intended
to set the highest standard in the industry.
In September 1999, we acquired Stewart Title of Birmingham, Alabama,
expanding our service offerings to include additional title services. In
January 2000, we acquired InspecTech Corporation of San Ramon, California, the
third largest home inspection company in the United States. The InspecTech
acquisition will leverage our existing distribution platform and allow us to
provide home inspection services nationwide.
We have acquired 21 businesses since September 1995 and intend to continue
acquiring companies in the future as a key element of our growth strategy. We
evaluate potential acquisitions based on a number of factors, including
geographic coverage, historical revenue and profitability, service quality,
share of their local market, and quality of management. Our acquisitions enable
us to expand both the geographic scope of our property information services and
the breadth of our service offerings.
24
<PAGE>
Our acquisition history since 1995 is set forth in the table below:
<TABLE>
<CAPTION>
PURCHASE PRICE
---------------------------------------------------
ACQUISITION TOTAL
BUSINESS ACQUIRED LOCATION DATE CASH STOCK(1) NOTES(2) CONSIDERATION
- ----------------- -------------------- ----------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vann and Company..................... Raleigh, NC 09/15/1995 $ 1,500 $ 16,500 $ 18,000
H.A. Yeargin & Associates, Inc....... Jacksonville, FL 10/31/1995 50,000 75,000 125,000
Michael P. DeChant & Associates,
Inc................................ Rockville, MD 02/23/1996 20,000 180,000 200,000
Carr, Fleming & Associates, Inc...... Orlando, FL 05/12/1997 23,521 94,084 117,605
Executive Appraisal Services, Inc.... Pembroke Pines, FL 08/04/1997 22,960 114,800 137,760
Thomas Brown, III ................... Birmingham, AL 09/01/1997 35,580 35,580
Management Plus, Inc................. Arnold, MD 10/31/1997 60,958 334,500 395,458
Graham-Foster & Associates, Inc...... Greensboro, NC 11/20/1997 40,000 181,000 221,000
Suncoast Appraisal Group of Sarasota
County, Inc........................ Sarasota, FL 12/10/1997 100,000 100,000 200,000
John B. Kennedy, Diversified
Appraisal Services, Inc............ Atlanta, GA 12/15/1997 25,000 105,000 130,000
Kushner & Robertson, Inc............. Pleasanton, CA 06/18/1998 3,000,000 $3,000,000 6,000,000
Pardue, Heid, Church, Smith &
Waller............................. Tampa, FL 12/01/1998 775,000 775,000
The William Fall Group, Inc.......... Toledo, OH 02/26/1999 352,196 890,000 1,242,196
First Houston Appraisal Group........ Houston, TX 04/01/1999 240,000 560,000 800,000
Cramer Property Services
Incorporated....................... Seattle, WA 09/03/1999 392,000 60,000 356,000 808,000
E.T. Jones & Associates, Inc......... Dallas, TX 09/29/1999 830,000 200,000 1,000,000 2,030,000
Stewart Title of Birmingham, Inc..... Birmingham, AL 09/29/1999 200,000(3) 200,000 600,000 1,000,000
Fournier, Crane & Associates, Inc.... Phoenix, AZ 12/03/1999 275,000 150,000 125,000 550,000
InspecTech Corporation............... San Ramon, CA 01/07/2000 600,000 11,900,000 12,500,000
The Appraisal Company................ Nashville, TN 01/07/2000 376,300 380,000 756,300
Bliss Associates, Inc................ Kansas City, MO 01/18/2000 2,100,000 1,055,000 3,155,000
</TABLE>
- ---------------
(1) The value assigned to the shares of common stock issued as consideration for
the companies we acquired has been determined based upon arms' length
negotiations between ourselves and the target companies and reflects the
valuation used in the most recent private financing consummated prior to the
signing of the respective acquisition agreements.
(2) Represents promissory notes we issued or deferred payments owed to former
owners of acquired companies in partial payment of the purchase price.
(3) Excludes an earnout of up to $500,000 payable to the former owners, which
has not yet been earned.
The success of our acquisition program depends upon, among other things, our
ability to find suitable acquisition candidates, integrate the operations and
personnel of these acquisitions successfully and retain the existing client base
while servicing our national account business in the acquired entity.
Our clients generally retain our services on a transaction-by-transaction
basis. We recognize revenue on the date of delivery of the respective service to
our clients. Concentration of credit risk with respect to trade accounts
receivable is generally diversified due to the large number of entities
comprising our client base. We perform ongoing credit evaluations and provide
for an allowance for potential credit losses against the portion of accounts
receivable that we estimate to be uncollectible.
We accounted for all of our acquisitions under the purchase method and,
accordingly, each purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their fair
values on the acquisition dates. Each purchase price in excess of identified
25
<PAGE>
tangible and intangible assets acquired has been allocated to goodwill and is
being amortized over eight years. Prior to January 1, 1999, goodwill was
amortized over 15 years. Identifiable intangible assets consist primarily of
non-compete agreements with previous owners of the acquired entities.
RESULTS OF OPERATIONS
The following discussion relates to our actual operating results for the
periods indicated. These operating results include the operations of the
companies acquired by us during the periods referenced from the date of
acquisition only. We anticipate that our acquisitions, both past and future,
will continue to significantly impact our future results. We believe that a
comparison of our historical financial results may not be meaningful because of
(a) the significant changes in management that occurred in early 1999, (b) the
recent change in our business strategy and focus, and (c) our significant
acquisition activity since June 1998.
The following sets forth selected statements of operations data expressed as
a percentage of total revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 52.1 61.1 54.5 55.2 56.0
-------- -------- -------- -------- --------
Gross profit................................ 47.9 38.9 45.5 44.8 44.0
Operating expenses
Selling, general and administrative....... 96.9 60.6 51.2 54.0 75.6
Research and development.................. -- 3.0 1.4 1.2 0.0
Depreciation and amortization............. 9.1 5.2 3.7 3.8 8.1
-------- -------- -------- -------- --------
Total operating expenses.............. 106.0 68.8 56.3 59.0 83.7
Operating loss.............................. (58.1) (29.9) (10.8) (14.2) (39.7)
Other income and expense
Interest and other income................. 1.0 1.1 1.1 1.1 0.7
Interest expense.......................... (0.2) (0.1) (0.2) (0.1) (0.5)
-------- -------- -------- -------- --------
Loss before provision for income taxes.... (57.3) (28.9) (9.9) (13.2) (39.5)
Net loss.................................. (57.3)% (28.9)% (9.9)% (13.2)% (39.5)%
======== ======== ======== ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
TOTAL REVENUES. Revenues, which consist of individual fees for services
ordered, increased $9.1 million, or 105%, to $17.8 million for the nine months
ended September 30, 1999 from $8.7 million for the nine months ended
September 30, 1998. This increase was primarily attributable to acquisitions
made by us during the first nine months of 1999. Acquisitions completed in the
last half of 1998 accounted for $6.2 million of the increase in 1999.
Acquisitions completed in the first nine months of 1999 accounted for
$3.0 million of the revenue increase. In addition, our revenues increased by the
addition of eight new Internet and national accounts in the first nine months of
1999, which were offset in part by a decrease in local business caused primarily
by an increase in interest rates beginning in July 1999.
COST OF REVENUES. Cost of revenues, which consist of fees shared with
contract appraisers and inspectors, costs of data sources and service delivery
costs associated with generated revenues,
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increased $5.2 million, or 108%, to $10.0 million for the nine months ended
September 30, 1999 from $4.8 million for the nine months ended September 30,
1998. This increase was primarily attributable to the increased levels of
appraisal production expense driven by increased volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $8.8 million, or 187%, to $13.5 million for
the nine months ended September 30, 1999 from $4.7 million for the nine months
ended September 30, 1998. This increase was primarily attributable to the hiring
of a national sales force, creation of a consolidated national client service
center, and additional hiring in technology needed to implement our technology
platform in the branch distribution system. In addition, the selling, general
and administrative expense for the 1999 period includes a $826,000 charge
related to a write-down of aged accounts receivable. During 1999, we established
a dedicated collection staff to identify and pursue collection matters on a
timely basis.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$0 for the nine months ended September 30, 1999 and $110,000 for the nine months
ended September 30, 1998. In 1998, we expensed costs associated with the plan
design of VALUTRACK and VALUEXPRESS, our proprietary ordering and tracking
software. In 1999, we developed and implemented VALUTRACK and VALUEXPRESS for
which the associated costs were capitalized and are being amortized over a
three-year period.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $1.1 million, or 335%, to $1.4 million for the nine months
ended September 30, 1999 from $328,000 million for the nine months ended
September 30, 1998. This increase was primarily attributable to amortization of
goodwill and other purchased intangibles resulting from acquisitions accounted
for as purchases and the investments in physical infrastructure in these
companies post acquisition. Additionally, this increase in depreciation was
attributable to the purchase of computer equipment used to build our technology
infrastructure.
INTEREST AND OTHER INCOME. Interest and other income increased $20,000, or
21%, to $118,000 for the nine months ended September 30, 1999 from $98,000 for
the nine months ended September 30, 1998. This increase can be attributed to
higher levels of average investable balances during 1999.
INTEREST EXPENSE. Interest expense increased $70,000, or 636%, to $81,000
for the nine months ended September 30, 1999 from $11,000 for the nine months
ended September 30, 1998. This increase can be attributed to higher levels of
debt incurred to finance our acquisitions.
INCOME TAXES. We have not paid income taxes in any of the periods shown due
to the operating losses which have been incurred to date. As of December 31,
1997 and 1998, we had net operating loss carryforwards for federal income tax
purposes of approximately $4.2 million and $2.8 million, respectively, that will
expire between 2012 and 2019 and may be applied to reduce future taxable income.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased $10.2 million, or 243%, to $14.4 million for
the year ended December 31, 1998 from $4.2 million for the year ended
December 31, 1997. This increase was primarily attributable to our acquisition
strategy coupled with increased sales of our appraisal and title services.
Acquisitions completed in the year ended December 31, 1998 accounted for
$5.4 million of the revenue increase.
COST OF REVENUES. Cost of revenues increased $5.3 million, or 212%, to
$7.8 million for the year ended December 31, 1998 from $2.5 million for the year
ended December 31, 1997. However, as a percentage of revenues, cost of revenues
decreased from 61% for the year ended December 31, 1997 to 54% for the year
ended December 31, 1998. The decrease in percentage terms was primarily
attributable to a change in product mix. In the year ended December 31, 1997,
35% of our revenues
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resulted from PRIMISnet and title activity, representing services that were
outsourced at a lower margin. For year ended December 31, 1998, title and
PRIMISnet revenues represented 23% of our total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.9 million, or 196%, to $7.4 million for the
year ended December 31, 1998 from $2.5 million for the year ended December 31,
1997. This was attributable to $3.8 million in field office administrative
spending associated with acquisitions made in 1997 and 1998 and increased
general corporate spending of $1.0 million.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $84,000, or 69%, to $206,000 in for the year ended December 31, 1998
from $122,000 for the year ended December 31, 1997. Research and development
costs in 1998 were primarily attributable to plan design associated with
VALUTRACK and VALUEXPRESS.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $304,000, or 139% to $522,000 for the year ended
December 31, 1998 from $218,000 for the year ended December 31, 1997. This
increase primarily related to amortization of goodwill resulting from
acquisitions.
INTEREST AND OTHER INCOME. Interest income increased $110,000, or 244%, to
$155,000 for the year ended December 31, 1998 from $45,000 for the year ended
December 31, 1997. This increase was due to higher average investable balances
in 1998.
INTEREST EXPENSE. Interest expense increased $21,000, or 700%, to $24,000
for the year ended December 31, 1998 from $3,000 for the year ended
December 31, 1997. This increase can be attributed to higher levels of debt
incurred to finance acquisitions and capital equipment purchases.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $2.3 million, or 121%, to $4.2 million for the
year ended December 31, 1997 from $1.9 million for the year ended December 31,
1996. This increase was primarily attributable to our acquisitions and title
service growth. Acquisitions completed in 1997 accounted for $870,000 in
revenues while increased title activity resulted in an $800,000 increase in
revenues.
COST OF REVENUES. Cost of revenues increased $1.5 million, or 150%, to
$2.5 million for the year ended December 31, 1997 from $1.0 million for the year
ended December 31, 1996. The increase in cost of revenues was primarily
attributable to an increase in overall revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $656,000, or 32%, to $2.5 million for the year
ended December 31, 1997 from $1.9 million for the year ended December 31, 1996.
This increase was primarily attributable to $444,000 in administrative spending
associated with new field offices, and increased general corporate spending of
$312,000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $123,000 from $0 in the year ended December 31, 1996. Research and
development costs in 1997 were attributable to costs associated with the
preliminary project stage for VALUTRACK and VALUEXPRESS.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased $43,000, or 25%, to $218,000 for the year ended December 31,
1997 from $175,000 for the year ended December 31, 1996. This increase primarily
related to amortization of goodwill resulting from acquisitions.
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INTEREST AND OTHER INCOME. Interest income increased $25,000, or 125%, to
$45,000 for the year ended December 31, 1997 from $20,000 in December 31, 1996.
This increase was due to higher average investable balances.
INTEREST EXPENSE. Interest expense was immaterial for the years ended
December 31, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements consist primarily of working capital, capital
expenditures and acquisitions. Historically, we have funded these cash needs
primarily by issuance of securities as follows:
- During 1995, 1996 and 1997, we raised $5.0 million through a series of
private placements of preferred and common stock to various venture
capital funds and individual investors.
- In June 1998, we sold 2,150,000 shares of common stock for $9.0 million to
six existing shareholders and four new venture capital fund investors.
- In November 1998, we borrowed $560,000 from First Union National Bank
pursuant to a promissory note secured by a certificate of deposit, payable
ratably over a three year period.
- In May 1999, we sold 1,091,242 shares of Series A convertible preferred
stock to existing shareholders for $4.4 million.
- In August 1999, we entered into a credit facility with Silicon Valley Bank
providing for borrowings of up to $2.5 million. As of September 30, 1999,
we had drawn $420,000 under this credit facility. Subsequent to
September 30, 1999, we repaid the entire outstanding amount under this
credit facility with Silicon Valley and cancelled the facility.
- In September 1999, we entered into a master note and security agreement
with Leasing Technologies International, Inc. to fund or refinance the
purchase of capital equipment. Maximum indebtedness is not to exceed
$2.0 million, to be paid over a two and half year period. As of
January 18, 2000, we had drawn $1.5 million under this master note.
- In September 1999, we issued notes to two existing shareholders for an
aggregate principal amount of $1.5 million, which were subsequently
converted into shares of Series B convertible preferred stock.
- In October 1999, we sold 725,130 shares of Series B convertible preferred
stock to existing shareholders for $4.4 million.
- In November 1999, we issued convertible notes and warrants to existing
shareholders for aggregate consideration of $10.0 million.
- In January 2000, we issued of convertible notes and warrants to existing
shareholders for aggregate consideration of $9.7 million.
As of January 18, 2000, we had approximately $13.0 million in cash and cash
equivalents. During 1999, we used $1.0 million per month in cash, excluding the
cash portion of the purchase price paid in acquisitions. However, we anticipate
our monthly cash needs to increase in such areas as sales and marketing, product
development and general overhead to support future revenue growth. Current cash
obligations include certain capital and operating leases. At January 18, 2000
the approximate future minimum lease payments for non-cancelable capital leases
were $1.8 million and future minimum lease payments for non-cancelable operating
leases were $4.3 million. We anticipate making additional capital equipment
purchases in line with the revenue growth. Additional cash obligations include
certain notes payable or deferred payments related to completed acquisitions
totaling $6.1 million as of January 18,
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2000. We anticipate that we will finance future acquisitions through a
combination of cash and the issuance of securities.
We believe that the net proceeds from this offering will be adequate to meet
our cash needs for at least the next 12 months.
IMPACT OF THE YEAR 2000
Even though we have not experienced any immediate adverse impact from the
transition to the year 2000, it is possible that other dates in the year 2000,
such as February 29, 2000, may further affect computer software and systems.
Certain computer programs that were date sensitive to the year 2000 may not have
been programmed to process the year 2000 as a leap year. While we believe that
all of our systems are year 2000 compliant, we may discover problems during 2000
that may require expenditures in order for our computer and software systems to
be upgraded, modified or replaced. In addition, we do not currently have any
information concerning the year 2000 compliance status of our clients or other
parties with whom we do business. It is possible that some of the internal
systems of our clients or other parties with whom we do business have already
been or will be negatively affected by the year 2000 date change. We currently
have no contingency plan to manage any year 2000 issues that may arise.
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BUSINESS
OVERVIEW
We are a leading business-to-business, web-based provider of property
information services in the United States. We provide appraisals, home
inspections, title services, flood determinations, energy audits, valuation
tools and other related property information services, all of which our clients
can order, monitor, receive and pay for over the Internet using a standard web
browser. We believe there are three key differentiating features of our business
model:
- NATIONAL SERVICE DELIVERY PLATFORM anchored by company-owned offices in
over 40 markets, including 29 of the top 50 residential real estate
markets in the United States, as well as our PRIMISnet network of contract
appraisers and home inspectors;
- WEB-BASED SERVICE DELIVERY through the PRIMIS SERVICE STATION that allows
our clients to realize cost savings and improved turnaround times; and
- SERVICE QUALITY AND CONSISTENCY through a rigorous quality assurance
program and aggressive internal use of technology.
We expect to enter a significant number of additional key markets in 2000
primarily through strategic acquisitions as well as organic growth.
Additionally, as we execute our business model, we are compiling what we believe
is the most comprehensive database of property information in the industry. We
believe this database will become one of our most valuable long-term assets.
Our clients include 7 of the top 10 and 31 of the top 50 mortgage lenders in
the United States. We sell our services to traditional lenders, such as Bank of
America, SunTrust and Compass Bank; Internet lenders such as Quicken Loans, a
division of Intuit, Inc., Mortgage.com and E-Loan; specialized lenders such as
Countrywide Construction Lending and Provident Funding; utility companies; real
estate professionals and consumers.
PRIMIS' MARKET OPPORTUNITIES
THE INTERNET BUSINESS-TO-BUSINESS OPPORTUNITY
The Internet provides companies the opportunity to conduct business with
other companies directly and more efficiently. Business-to-business, or B2B,
trade over the Internet is projected to accelerate into a period of
"hyper-growth" in the next five years. Forrester Research forecasts that
inter-company Internet trade will double every year over the next five years,
growing from $43 billion in 1998 to $1.5 trillion in 2003. Internet-based
lenders as well as traditional mortgage originators are increasingly relying on
e-commerce to procure property information services. We believe that our
web-based technology combined with our national service delivery platform and
our service quality focus position us well to capture a significant portion of
the B2B market for property information services.
THE PROPERTY INFORMATION SERVICES MARKET OPPORTUNITY
We believe that the total market for our core property information services
is in excess of $5.5 billion annually. Based on available industry data and our
internal estimates, we believe that in 1999 the market for appraisal services
was approximately $2.4 billion, the market for home inspection services was
approximately $2.1 billion, and the market for flood determinations and title
services was approximately $1.0 billion. In addition, we believe that we have
significant opportunities for growth in the markets for the other property
information services we provide, such as energy audits, valuation tools,
commercial appraisals, appraisal reviews, phased construction inspections and
environmental inspections.
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Commercial banks, mortgage lenders, mortgage brokers and other financial
institutions require property information services when they originate first
mortgage loans, refinance existing loans or provide home equity loans or lines
of credit. Mortgage lenders typically require an appraisal, a title search and a
flood determination in the loan approval process. Purchasers of homes and,
increasingly, sellers typically seek a home inspection in connection with the
purchase or sale of a home. In addition, mortgage lenders are increasingly
requiring home inspections as a condition to making mortgage loans.
We believe that there are two significant trends developing in the mortgage
lending industry that will considerably affect the property information services
market.
CONSOLIDATION IN THE MORTGAGE LENDING INDUSTRY. The mortgage lending
industry has experienced significant consolidation in the past few years. We
believe that this consolidation will continue. The largest 20 mortgage lenders
have increased market share considerably in the past few years and, in 1998
originated, underwrote or funded over 40% of all residential mortgage loans in
the United States according to Faulkner & Gray's Mortgage Infosource. These
multistate lenders are demanding a wide product mix, national coverage and
consistent quality of property information services. We believe that a
consolidating lending industry is not served well by a fragmented service
provider industry.
EMERGENCE OF INTERNET LENDERS. In addition to consolidation of the mortgage
lending industry, according to Forrester Research, online mortgage lending is
expected to grow from less than 1% of mortgages funded in 1998 to nearly 10%, or
approximately $91 billion, by 2003. This new class of Internet lenders is
intensifying the already fierce competition in the mortgage lending industry and
increasing the pressure to lower costs and improve margins. To reduce costs,
mortgage lenders increasingly seek to reduce the number of vendors with which
they do business and to outsource non-core property information functions, such
as managing property information and reports required in the mortgage
origination process.
We believe that the emergence of Internet lenders, as well as the
consolidation in the mortgage lending industry, is creating a demand for a
web-based property information services provider with national coverage that can
provide consistent quality services across all of its offices.
LIMITATIONS OF TRADITIONAL PROPERTY INFORMATION SERVICE PROVIDERS
We believe that the traditional model for the delivery of property
information services has several deficiencies, particularly in light of the
changes in the mortgage lending industry described above. These deficiencies
include the following:
- HIGHLY FRAGMENTED MARKET. The property information market is highly
fragmented. Based on available data and industry experience, we believe
that there are more than 18,000 appraisal companies in the United States,
most of which are firms with two to ten employees and minimal geographic
coverage. Similarly, we believe there are approximately 18,000 home
inspectors in the United States operating in approximately 15,000 firms.
As a result, national mortgage lenders and other financial institutions
are forced to source their property information services from a myriad of
vendors throughout the country.
- INCONSISTENT QUALITY. Traditional appraisal and home inspection firms
generally do not have strict quality assurance programs in place to
monitor adherence to industry standards and consistency among individual
reports. Many of these providers are small and lack the resources to
invest in technology, employee training and continuing education programs.
As a result, we believe that many traditional appraisal and home
inspection firms cannot consistently deliver high quality services,
particularly across a broad geographic region.
- SLOW, INEFFICIENT DELIVERY. The property information services industry
historically has had slow turnaround times between the time an order is
placed and final delivery of the report to the client. Ordering property
information reports and monitoring their status typically involves
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time-consuming telephone calls or faxes to different vendors. The
appraisal process is frequently the most time-consuming component of the
entire mortgage loan origination process. We can usually provide a full
appraisal to our large, national clients in 5 days or less, whereas we
believe other service providers to these clients typically require 7 to
14 days. Turnaround times can be particularly problematic for management
companies, which subcontract appraisal work to individual appraisers who
share their fees with the management company and, therefore, have less
incentive to rapidly complete their work.
THE PRIMIS SOLUTION
We are a national source for a wide range of high-quality property
information services delivered timely through an automated, web-based platform.
We have standardized and streamlined the process of obtaining property
information services, and we have done so from the lender's perspective. The key
elements of our solution include:
NATIONAL SERVICE DELIVERY CAPABILITIES. We are a single, national provider
of property information services. We currently have company-owned offices in
over 40 markets, including 29 of the top 50 residential real estate markets in
the country ranked by total mortgage origination volume in 1998. We expect to be
in markets covering over 50% of all U.S. loan originations by the end of 2000,
primarily through strategic acquisitions but also through organic growth.
Additionally, we established PRIMISnet, a network of contract appraisers and
home inspectors to service customers in smaller markets where we do not
currently have company-owned operations. Importantly, we apply the same quality
assurance standards to the services delivered through PRIMISnet as those we
apply to our own internal reports.
FLEXIBLE WEB-BASED PLATFORM. The PRIMIS SERVICE STATION, our web-based
platform, enables our clients to place orders, check the status of orders,
receive reports in electronic format, receive invoices and pay for services, all
by using a standard web browser. Our flexible, open architecture will allow our
larger clients to bypass the PRIMIS SERVICE STATION and interface their loan
origination systems with the PRIMIS engine through direct connections. In these
cases, as clients enter property information into their systems in the loan
origination process, the direct connection will allow the clients to place
orders, obtain status information and have reports generated and delivered
automatically, thereby eliminating an additional data entry step. In addition,
we continue to maintain our proprietary software system, VALUEXPRESS, which
contains nearly all of the functionality of our web-based platform, and enables
our legacy clients that use this software to order our services electronically.
Although the majority of our clients currently continue to rely on traditional
service delivery methods, we are rapidly moving them to our web-based model.
HIGH, CONSISTENT QUALITY STANDARDS. We use our internal and external
technology to deliver high quality services consistently throughout our national
service delivery system. We have automated a number of steps in the service
delivery process to minimize staff involvement and the possibility for human
errors. For example, our proprietary technology known as the Vista Advanced
Inspection Management System, or VISTA, enhances the quality and reliability of
our home inspection reports by automating the inspection and report preparation
processes. We intend to adapt and customize the VISTA technology to extend to
appraisal and other services we offer. In addition, we intend to become the
quality standard of the property information services industry by operating the
most comprehensive quality assurance program in the industry. Our quality
assurance program has three major components:
- office reviews, in which all of our reports are reviewed by senior
reviewers or branch managers prior to their release to clients;
- dedicated quality assurance team, which reviews randomly selected samples
of reports on an ongoing basis in all of our offices; and
- a training and continuing education program for all of our professionals.
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FAST, EFFICIENT SERVICE DELIVERY. We are able to deliver our property
information services to our clients very quickly as a result of our technology
infrastructure. Our web-based platform removes many of the time-consuming faxes,
phone calls, paper deliveries and other delays associated with searching for
local service providers, scheduling appointments, ordering the services,
monitoring status and receiving reports. Additionally, we have instituted
performance-based compensation programs for our professionals and branch
managers that provide incentives tied to targeted turnaround times. Furthermore,
by leveraging our national distribution channel and our web-based delivery
platform, we believe that we will be able to provide our large national clients
in select markets with one-day full appraisal turnaround service, which we call
XPEDITE.
FULL SUITE OF SERVICES. We offer a wide range of property information
services, all available through our flexible web-based platform. We sell these
services individually or packaged together with bundled pricing, encouraging
clients to order multiple services. Our current services include:
- APPRAISAL SERVICES--valuation tools, automated valuation models, or AVMs,
electronic collateral assessments, or ECAs, drive-by appraisals, full
appraisals, small residential income property reports and commercial
appraisals;
- APPRAISAL REVIEW SERVICES--desk reviews, four-hour reviews, field reviews
and enhanced field reviews;
- INSPECTION SERVICES--home inspections and new construction inspections;
- ENERGY AUDITS; and
- VALUE-ADDED SERVICES--flood determinations and title services.
PRIMIS' STRATEGY
Our objective is to be the leading web-based provider of property
information services in the United States. Our business strategy to accomplish
this objective includes the following key elements:
LEVERAGE INFRASTRUCTURE TO IMPROVE SERVICE DELIVERY. During the past
12 months, we have invested heavily in our flexible web-based infrastructure to
enable us to achieve substantial productivity and efficiency gains. We plan to
continue to automate all of the steps in our service delivery process, such as
order entry, status inquiry and reports and delivery of reports and billing, in
order to minimize staff involvement and the possibility for human errors. We
also intend to continue to invest in our internal technology, including adapting
the VISTA technology for use by many of our field professionals. We have
developed data format structures and system capabilities to retain and leverage
the data that we gather, which we believe will allow us to develop new
proprietary valuation services and improve the quality and consistency of our
services.
MIGRATE CUSTOMERS TO B2B E-COMMERCE. We intend to facilitate and encourage
the use of e-commerce service delivery channels by both our new and existing
clients. Many of our larger national accounts already utilize our e-commerce
platform to place orders, obtain status information and receive reports in
electronic format and experience significant cost savings over traditional
service delivery methods. We expect to quickly migrate a significant number of
our other clients from traditional service delivery methods to e-commerce. This
will further improve efficiency and turnaround time both for us and our clients.
EXPAND FOOTPRINT THROUGH ACQUISITIONS. In 2000, we intend to focus on
acquiring property information services businesses in active residential real
estate markets where we do not currently have a significant presence. Our goal
by the end of 2000 is to be in markets covering over 50% of all U.S. mortgage
loan originations. In making acquisitions, we target primarily larger,
well-managed operations that can service national clients, can market our
broader range of services and have good reputations
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for quality. In 2001, we intend to focus on in-market acquisitions to build
market share and leverage existing overhead.
AGGRESSIVELY TARGET NATIONAL ACCOUNTS. We have built and are expanding a
seasoned sales force to target and manage larger, national accounts. We believe
these national accounts have the greatest need for a national provider of
property information services that offers consistent quality, quick turnaround
and efficiencies through technology. In addition, we believe these national
accounts provide us with a mix of stable business and make our business less
sensitive to changes in the economy. Furthermore, this strategy complements the
existing, valuable relationships we have with smaller lenders and brokers in our
local markets. We will continue to focus on building relationships with the
major Internet lenders, regional and national banks, regional and national
homebuilders, large credit unions, local mortgage entities and brokers, and real
estate agencies.
DEVELOP AND MONETIZE PROPRIETARY INFORMATION DATABASE. During the normal
course of business, we gather, organize and analyze various property data from
our nationwide operations. In addition, during the appraisal, home inspection
and energy audit processes, we obtain a substantial amount of information about
the condition of the real estate properties in our markets. We have developed
data format structures and system capabilities to retain and leverage the
potential value of this information. Our rapidly expanding database of property
information will allow us to increasingly automate the appraisal and home
inspection processes. While this information will be useful internally to
improve productivity, we believe that this database will become one of our most
valuable long-term assets. We believe this data will enable us to develop new
proprietary valuation services, improve the quality and consistency of our
services, develop tools to value mortgage loan portfolios for investors and
servicers and update county and municipal tax assessments.
ENHANCE PRIMISNET. We intend to transform PRIMISnet from a network of
contract appraisers and home inspectors into a network of affiliates with whom
we will share our technology, data and clients. In exchange for our technology,
access to our database and our referrals, our PRIMISnet affiliates will adhere
to the same turnaround times as our staff professionals and share with us their
property data generated during the performance of their services. We believe
that we can bundle elements of our proprietary systems, broad services offering,
national account revenue and name recognition into an attractive package that
can be shared with independent professionals or small offices that agree to
become part of our PRIMISnet affiliated network. We believe this model is an
improvement over the traditional management company model because it adds value
to the local appraisal or home inspection firm, increases the qualities and
efficiencies they can achieve, creates additional revenue for us and gives us
access to property information data from smaller markets.
OUR SERVICES
We provide a wide range of property information services to various segments
of the lending community and to consumers through electronic and traditional
channels. Our service offerings include residential and commercial appraisal
services, home inspections, energy audits, title services, flood determinations
and related property information services.
APPRAISAL SERVICES
We believe that we are the only company to offer and deliver a full suite of
appraisal services via the Internet. We offer a full spectrum of appraisal
services ranging from low cost data access to the most complex valuation
assignments that require high levels of expertise. The following is a summary
description of our core appraisal services:
- PRIMIS SNAPSHOT is our software generated data service which provides our
clients a first step indication of the value of a particular property
based on publicly available property information
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and tax assessment data. Currently, this service uses property data we
acquire from third parties, which we format and resell under our brand. We
intend to enhance this service with our proprietary property information
data.
- AUTOMATED VALUATION MODEL, OR AVM, is our computer software program that
analyzes various data elements, primarily tax assessment records and
county property records, to determine property valuations. The output of
an AVM is not, by itself, an appraisal, but may become the basis for a
property valuation for use in certain lending decisions that are more
heavily-weighted towards credit factors. Typical users include equity
lenders who utilize the service to approve low risk equity loans. We
currently resell AVMs provided by several other vendors, and we intend to
introduce a proprietary PRIMIS AVM that leverages our extensive
proprietary property information database.
- ELECTRONIC COLLATERAL ASSESSMENT, OR ECA, is an estimate of the value of a
residential property made by one of our trained evaluators or appraisers
based on publicly available data. This service is typically used in equity
lending situations where a lender needs a qualified third-party
examination and interpretation of data. Our trained personnel rather than
certified appraisers usually complete our ECAs.
- LIMITED SCOPE APPRAISAL, OR LSA, is a valuation service that requires an
appraiser to view the residential property. This service is typically used
in equity lending situations where a lender needs a qualified third-party
examination and interpretation of data and, due to a higher level of risk,
requires that a certified appraiser perform the analysis.
- DRIVE-BY APPRAISAL is a standard appraisal required by Fannie Mae and the
Federal Home Loan Mortgage Corporation, or Freddie Mac. This type of
appraisal requires that the appraiser view the residential property being
evaluated, but does not require an inspection of the inside of the
property. This service is heavily utilized in both equity and first
mortgage lending.
- UNIFORM RESIDENTIAL APPRAISAL REPORT, OR URAR, is the most comprehensive
residential property appraisal service. This type of appraisal involves,
among other things, an inspection of the inside of the property by the
appraiser and a more in-depth analysis and visuals of comparable sales.
This is the most typical appraisal service approved by lenders and
investors for determining values, primarily for first mortgage loans.
- SMALL RESIDENTIAL INCOME PROPERTY REPORT is an appraisal of small
apartment buildings and condominiums. These are standard appraisal
services that include in-depth analysis and visuals of the interior and
exterior of the property as well as a complete analysis of comparable
properties.
- COMMERCIAL APPRAISAL is an appraisal of commercial, industrial, and
multi-family properties. We market these services to leverage our regional
and national coverage areas, technology platform and existing client
relationships. Commercial appraisals include in-depth analysis of the
property and comparable properties, and usually include analysis of rental
revenue potential.
- APPRAISAL REVIEW SERVICE involves the review of appraisals performed by
other firms at the request of investors who purchase mortgages or invest
in mortgage pools. We offer desk reviews, four-hour reviews, field reviews
and enhanced field reviews. Our certified appraisers review the work of
other appraisers to ensure that Uniform Standards of Professional
Appraisal Practice, or USPAP, guidelines were followed and that the
appraisers chose realistic sales data to help in determining the value of
the property. This service is typically required by wholesale lenders and
investors to guard against fraud on loans or portfolios of loans they are
purchasing.
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INSPECTION SERVICES
In January 2000, we entered the market for home inspection services through
the acquisition of InspecTech, the third largest home inspection firm in the
United States and the largest on the West Coast. Following our acquisition of
InspecTech, we now have home inspection operations in California, Arizona,
Washington, New Jersey and Colorado. InspecTech had 96 employee and franchise
inspectors as of December 31, 1999. InspecTech performed over 30,000 inspections
during 1999.
As a result of our acquisition of InspecTech, we are able to provide the
following inspection services:
- HOME INSPECTIONS involve the examination of the structure and systems of a
house and the issuance of a report on the condition of the house by an
independent professional. We perform home inspections for buyers or
sellers of residential properties during the purchase and sale process and
for financial institutions in connection with their evaluations of
non-performing mortgage loans.
- PHASED INSPECTIONS involve the inspection of a home by one of our
professionals at various points in time during the construction process.
We provide these services to financial institutions that provide
construction loans for new homes.
- ENVIRONMENTAL INSPECTIONS consist of water quality surveys, termite
inspections, radon detection and inspections for lead-based paint and
asbestos. We generally provide these services to home purchasers together
with the basic home inspection.
We ensure rapid delivery of consistent high-quality inspection services
through the use of our VISTA system, which allows a home inspector to carry a
hand-held, stylus-based device from room to room. The inspection software
displays appropriate categories and comments for over 500 building systems and
components from the extensive VISTA comment library. The VISTA system allows an
experienced inspector to increase the detail and thoroughness of the home
inspection report without an undue increase in time and effort. An inspector
equipped with the VISTA system and a portable color printer can perform an
extensive home inspection and print a comprehensive report on site. Inspectors
use their computers to connect to corporate headquarters and transfer inspection
data into our centralized database. At the same time, they retrieve booking and
scheduling information from our database.
We intend to adapt and customize the VISTA technology to extend to appraisal
and other services we offer. Once this technology is fully integrated, all of
our professionals will operate on an identical technology platform and will
perform all their field work through the use of a hand-held device. They will
also communicate through wireless modems and transfer information back to our
National Service Office. Our goal is that one field professional, in just one
visit, can gather the data to provide multiple services with respect to that
property.
ENERGY AUDITS
We perform energy audits of homes for utility companies such as Southern
California Gas pursuant to annual contracts. An energy audit involves the
inspection of a house to evaluate and gather information about heating and air
conditioning systems, appliances, ambient temperature and other readings. We
perform an energy audit to establish an energy footprint and a rating with
respect to the energy efficiency of the house and its systems. The information
provided by the inspector allows the homeowner to make intelligent decisions
about investing in system upgrades, the cost of which is often subsidized by
utility company rebate programs, to reduce overall energy consumption and lower
utility bills.
Historically, utilities have staffed and run such programs in-house, but are
under increasing pressure to outsource these programs to reduce costs. For
example, the California Public Utilities
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Commission has instituted a program that involves home inspectors gathering
additional data during the course of their regular home inspections, in a manner
that would take only an additional 10 to 15 minutes. This information is input
into software developed for this purpose, which generates an energy efficiency
rating and report on the home. The report includes recommendations for system
upgrades, along with costs, savings, environmental benefits, and information on
various rebate and incentive programs to help subsidize the costs of
renovations. The demand for energy audits is driven by regulations enacted by
various states, including California, Texas and Massachusetts, which require
that a portion of the ratepayer utility revenues be set aside by utility
companies for programs that encourage energy use efficiencies.
FLOOD DETERMINATIONS
Our flood determination service is a critical component for many mortgage
lenders and consumers. This service provides information on whether a property
is located in a flood zone and what potential exposure the property has to flood
damage. Our clients use our flood determination service to evaluate whether the
property qualifies for government and government-sponsored lending programs such
as Freddie Mac, Fannie Mae, Veteran's Administration or Federal Housing
Administration. In situations where flood insurance is not available, such as
coastal zones, Federal Emergency Management Agency, or FEMA, suspended
communities and communities not yet mapped, we provide information to assist our
clients in assessing the risk of acquiring property without flood insurance
coverage. This service makes use of data we purchase from a third-party
provider. Our provider uses industry-leading mapping technology, the latest FEMA
information, as well as community classifications from the National Flood
Insurance Program to provide swift and accurate flood zone determinations. These
determinations are ordered and delivered through the PRIMIS SERVICE STATION over
the Internet, usually within minutes.
TITLE SERVICES
We provide a full range of title services for the markets that we service.
We can deliver quick and accurate property reports and title insurance
commitments electronically or by fax to meet the needs of our clients, often
within 24 to 48 hours. We provide a variety of title services for mortgage
originators and some of the nation's leading underwriters of title insurance,
such as limited title reports, full title reports, title recordings, tax
information and property reports. Although representing a small percentage of
our revenue, title services represents a key opportunity to establish a
relationship with new clients and homebuyers and, at the same time, gather
additional data. Since we originate but do not underwrite title insurance
policies, we are not subject to underwriting risks.
OTHER POTENTIAL SERVICES
Our technology enables us to provide enhanced and new services such as
construction inspections, hybrid inspection/appraisals for repossessed
properties, homeowner subscription services and closing services. In addition,
we anticipate leveraging our expansive database to offer clients appraiser data
subscriptions, appliance/conditions marketing tools, commercial data/AVMs and
mortgage investor models. We believe that we will have significant opportunities
to cross-sell these additional services to clients who purchase our core
appraisal and home inspection services.
FLEXIBLE WEB-BASED SERVICE DELIVERY PLATFORM
We can deliver all of our services to our clients through our flexible
web-based platform. This platform allows service delivery through either of two
primary e-commerce channels: the PRIMIS SERVICE STATION or, for our larger
clients, a direct electronic connection to the PRIMIS engine.
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THE PRIMIS SERVICE STATION
The PRIMIS SERVICE STATION is our web-based resource for property
information services. Our clients can use the PRIMIS SERVICE STATION at
www.primis.com to review information about our suite of services and place
orders. From the PRIMIS SERVICE STATION, by using a standard web browser, the
user can:
- place orders for all of our services;
- review pricing information;
- monitor the status of orders;
- review, download and print reports;
- receive and review billing;
- generate an AVM;
- review archived reports; and
- review, search or manipulate lists of orders by category for any service
ordered.
The PRIMIS SERVICE STATION provides our clients with a convenient channel
for ordering and receiving property information services. By using the PRIMIS
SERVICE STATION channel, our clients can achieve cost savings and substantially
reduce turnaround times. We believe that the advantages of the PRIMIS SERVICE
STATION over traditional paper-based methods of delivery of property information
services will enable us to establish stable, long-term relationships with our
national clients and to attract new clients.
DIRECT CONNECTIONS
Our web-based platform has the flexibility to support direct connections for
our larger clients. Our open architecture will allow these clients to bypass the
PRIMIS SERVICE STATION and interface their loan origination systems with the
PRIMIS engine through direct electronic connections. These direct connections
will allow the clients to place orders, obtain status information and have
reports generated and delivered automatically, thereby eliminating an additional
data entry step. The direct connection will be able to support all of the same
functionality as our PRIMIS SERVICE STATION, yet will eliminate the data entry
step. In addition, we believe that the direct connection platform will help to
preserve and enhance our relationship with our larger customers, because the
direct connection will make it more difficult for them to switch to alternative
property information services providers.
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QUALITY ASSURANCE PROGRAM
We believe we operate the most comprehensive quality assurance program in
the property information services industry. Our quality assurance program
ensures that we meet or exceed acceptable industry standards in providing our
services and that we provide a consistent level of quality across all of our
locations.
The PRIMIS quality assurance program has three critical components:
- OFFICE REVIEW. All of our reports are reviewed at the local offices prior
to their release to clients. In most cases, the branch manager, who has
extensive industry experience and who has achieved requisite
certification, performs the review. We believe that quality control is one
of the primary responsibilities of each branch manager. In some of our
larger offices, this function is performed by a senior reviewer who is
responsible for reviewing reports.
- QUALITY ASSURANCE TEAM. Our dedicated quality assurance team reviews
randomly selected samples of reports on an ongoing basis in all of our
offices. The quality assurance team summarizes its findings into a rating
for each staff professional and each office. We hold each branch manager
accountable for maintaining a satisfactory rating from the quality
assurance team. We also evaluate and compensate branch managers based on
their ability to produce a high rating from the quality assurance team. A
staff professional who fails to meet quality assurance team standards is
either terminated or returned to a trainee status where the professional
can obtain constructive coaching and more extensive monitoring and review.
- TRAINING. We emphasize training for all of our professionals and conduct a
rigorous ongoing training program. We require appraisers and inspectors to
take continuing education courses, and we provide both educational
allowances and financial incentives to assist them in meeting those
requirements. For example, we require appraisers to complete at least
20 hours of continuing education each year. In addition, our quality
assurance team conducts continuing professional education at each field
office on an annual basis to ensure our employees provide consistent
quality throughout our national network of offices.
We maintain databases of staff appraisers, contract appraisers and fee
appraisers. These databases include resumes, work samples and licensing
information. We continually monitor all licenses and certifications to ensure
that they are current and meet the high expectations of our clients.
SALES AND MARKETING
We utilize a multi-tiered sales model to attract new clients and to increase
the level of services we provide to existing clients. Our sales department is
divided into national and local sales groups. Our national sales force calls on
large, national mortgage lenders, real estate companies and strategic accounts.
Our local sales force consists primarily of account executives who are in touch
with their local areas and understand the needs of their communities. These
account executives call on financial organizations, local mortgage lenders and
real estate professionals to foster and maintain close ties in the local real
estate industry.
Our account executives initiate contacts with clients through a variety of
methods, including attending trade shows, receiving recommendations from
existing clients, making cold calls, advertising, building on local
relationships to sell to national organizations and capitalizing on
relationships previously forged by acquired companies. Our account executives
work with clients to encourage use of PRIMIS services and to explore new sales
and revenue opportunities. In addition, our account
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executives develop and maintain relationships with decision-makers and influence
significant buying decisions. It is our account executive's responsibility to:
- DEVELOP AND EXECUTE STRATEGIES TO GAIN ADOPTION OF OUR PROPERTY
INFORMATION SERVICES including informing clients of all service offerings,
methods of connectivity and implementation timelines, developing sales
presentations, visiting existing clients to grow revenue opportunities,
reviewing monthly revenue reports to understand activities and trends and
monitoring service quality and turnaround times;
- LEAD AND MANAGE THE SERVICE AGREEMENT PROCESS by managing all
contract-related issues and negotiations (pricing, terms and conditions),
reviewing contracts three to six months before renewal date and developing
and delivering both new and renewal contract proposals;
- ESTABLISH AND MANAGE CLIENT REVENUE OBJECTIVES by influencing client
buying decisions and working to encourage increased property information
services growth;
- CONTINUALLY DEVELOP EACH CLIENT RELATIONSHIP by learning and documenting a
client's industry, organization, strategy, personnel, and politics and
participating in regularly scheduled meetings with the client's executive
and senior-level managers including account reviews; and
- COMMUNICATE AND REPORT TO OUR MANAGEMENT ON A REGULAR BASIS with respect
to support service issues and sales activities.
We compensate our account executives through a mix of a base salary and a
performance bonus. The starting base pay is determined by agreement and is often
dependent upon education, prior work experience, and acquired skills in light of
the base pay compensation being paid to those in the relevant job market with
comparable characteristics. Adjustments in future years are dependent upon
individual performance factors, as well as overall company guidelines that are
set in light of current economic conditions. The performance bonus is
principally divided into two primary components, new accounts and revenue
growth. The new accounts component is directly tied to securing new business
from high potential clients. Account executives are provided a list of target
accounts and are compensated on their ability to secure agreements, contracts,
or significant revenues from the target list. We apply a point system to give
reasonable credit for business obtained on a quarterly basis. We base the
revenue growth component of the compensation on the achievement of quarterly
revenue targets from assigned clients.
To service and grow our high potential accounts, we have developed a special
service level called PRIMIS SELECT to provide higher priority service. PRIMIS
SELECT clients have dedicated client teams consisting of account managers, a
relationship manager, and a seasoned account executive. These client teams
proactively manage the account relationship and day-to-day service issues that
are unique to high volume clients. The teams work closely with their assigned
clients and act as our internal PRIMIS SELECT client coordinators to ensure that
we are responding to our clients' requests with the appropriate sense of urgency
and commitment. In most cases, our PRIMIS SELECT clients receive a higher
priority of service and guaranteed turnaround times, often within three days.
Our sales strategy for the national accounts is to secure agreements from
larger or high profile clients whenever possible. We have been successful in
securing agreements with several high profile clients including Bank of America,
E-Loan and Quicken Loans. In addition, we have developed partnerships with
aggregators such as Homebid.com, RealEstate.com and Homespace.com, as a way to
reach consumers directly without the need for expensive sales forces and
marketing campaigns. These aggregators are Internet-based companies that provide
comprehensive web sites with information for homeowners, including information
on movers, furnishings, real estate services and mortgage lenders. Increasingly,
homeowners are playing a greater role in ordering appraisals and home
inspections as a result of heightened consumer awareness and greater access to
information. As the aggregators bring
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consumers into the appraisal and inspection ordering market, we will adapt our
market to increase our focus on the consumer directly.
We expect to continue to invest significant time, effort and financial
resources to market and promote our new and existing services and build the
PRIMIS brand name. To increase customer penetration and increase the level of
services used by our customers, we use a coordinated array of marketing
techniques, including advertising, industry trade shows, direct mail,
promotional items, direct sales and channel partner marketing.
OUR CLIENTS
We market and sell our services to traditional lenders (mortgage brokers,
mortgage companies and commercial banks), Internet lenders, specialized lenders,
utility companies, real estate professionals and consumers.
The following is a list of our more significant national clients, based on
revenues in each of these industry sectors:
<TABLE>
<CAPTION>
TRADITIONAL LENDERS INTERNET LENDERS SPECIALIZED LENDERS CHANNEL PARTNERS/OTHERS
- ------------------- ---------------- ------------------------ -----------------------
<S> <C> <C> <C>
Bank of America E-Loan Conti Mortgage Countrywide
Compass Bank Mortgage.com Countrywide Construction Quality Control
Chase Mortgage Quicken Loans First Franklin Homespace.com
Navy Federal Olympic Funding Investors Title
Credit Union Provident Funding RealEstate.com
SunTrust Trans Union
U.S. Appraisals
</TABLE>
TRADITIONAL LENDERS. We define traditional lenders as mortgage brokers,
mortgage companies and commercial banks. There are approximately 20,000 mortgage
brokerage operations in the United States according to the National Association
of Mortgage Brokers. Most of these brokers operate in local markets originating
loans for multiple underwriters who purchase the closed loans. Brokers earn
revenues by charging origination fees to the mortgage consumer and by generating
gains on the sale of closed mortgages. Mortgage brokers typically purchase
traditional full-appraisals, flood determinations and title services and recover
the cost from the consumer at closing.
Mortgage companies operate more broadly than brokers, originating, funding,
securitizing and servicing mortgages. Most mortgage companies operate a
wholesale division to purchase closed loans from mortgage brokers. This portion
of the mortgage industry has experienced significant consolidation. The top 20
lenders have increased market share considerably and now originate, underwrite
or fund over 40% of all residential mortgage loans. We believe that the mortgage
industry will continue to consolidate as the industry experiences pressure to
lower costs and improve margins. Mortgage companies purchase traditional
full-appraisal services for the loans they originate and also purchase our
appraisal review services as an additional underwriting control with respect to
mortgages purchased from mortgage brokers through their wholesale divisions.
Currently, we have business relationships with 31 of the top 50 mortgage
companies ranked by mortgage originations in 1998.
Commercial banks also originate first mortgage loans either directly or
through a mortgage subsidiary. Additionally, banks operate consumer lending
divisions, which originate home equity loans. Commercial banks generally
purchase from us traditional full-appraisals and drive-by appraisals for first
mortgages they originate; limited scope appraisals and electronic collateral
assessments for home equity loans; and automated valuation models and PRIMIS
SNAPSHOT data in connection with the evaluation of non-performing assets.
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INTERNET LENDERS. Because the traditional mortgage process can be
inefficient and expensive, several mortgage brokers have developed the
capability to offer mortgages over the Internet. Internet lenders have
introduced a more automated process and charge fees 50% to 70% lower than the
amounts charged by traditional mortgage brokers.
SPECIALIZED LENDERS. We have identified several specialized segments within
the mortgage lending industry that are clear targets for our systems and
services. These segments include new construction builders and lenders,
relocation lenders and wholesale lenders. These clients are typically less price
sensitive and place an even greater emphasis on speed, geographic coverage,
quality and hands-on service. Specialized lenders generally purchase our
appraisal services.
UTILITY COMPANIES. Some states, such as California, Texas and
Massachusetts, have enacted requirements that a portion of the ratepayer utility
revenues be set aside for programs to encourage more efficient energy use. We
market and sell our energy audit services to utility companies that are in the
process of designing or implementing mandated energy efficiency programs.
REAL ESTATE PROFESSIONALS AND CONSUMERS. Both real estate professionals and
consumers purchase or direct purchases of home inspections in many real estate
transactions. In fact, most real estate sales contracts encourage home buyers to
conduct professional home inspections prior to closing. In addition, we believe
that the acceptance of low-end, automated valuation products will increase the
number of consumers who purchase appraisals directly from appraisal firms to
establish their homes' values prior to or during the sales process or to cancel
private mortgage insurance, or PMI. We plan to market our property information
services to real estate professionals and consumers by offering our services
through various real estate agencies and Internet portals that target home
buyers and sellers.
OUR ACQUISITION STRATEGY
Our strategy is to make acquisitions in order to:
- ENTER NEW MARKETS to expand our national footprint;
- EXPAND IN EXISTING MARKETS through in-market acquisitions; and
- EXPAND OUR SERVICE OFFERINGS through the acquisition of businesses with
complementary or additional property information service offerings.
We expect to enter a significant number of additional key markets in 2000,
largely through strategic acquisitions. In 2001, we intend to focus on in-market
acquisitions to build market share and on strategic acquisitions to expand our
service offerings.
As the only major acquiror in the property information services industry, we
believe that we will readily be able to acquire attractive companies. We believe
that local property information services businesses will benefit from our
technological advantage, national distribution and data network and brand name.
Our acquisition strategy is carried out by two separate departments. Our
Mergers and Acquisitions department identifies potential acquisition candidates
and negotiates and completes our acquisitions. Our National Service Office
conducts the integration of all completed acquisitions into our company. This
separation of acquisition-related duties allows each department to focus on its
specific responsibilities.
We target primarily larger, well-managed operations that can service
national clients, can market our broader range of services and have good
reputations for quality. We generally focus on companies that have significant
presence in their local market, can extend our operational infrastructure and/or
add strategic proprietary technology that we deem critical to maintaining our
competitive position.
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Following an acquisition, our National Service Office prepares an
integration project plan for the acquisition, to be implemented over a period of
30 to 90 days. Our integration process has three primary goals: (1) to implement
PRIMIS operating processes and programs quickly, (2) to upgrade the acquired
company's technology and systems to PRIMIS standards, and (3) to improve local
office productivity. The National Service Office is the focal point and
coordinates the activities of other PRIMIS departments, such as accounting,
human resources and information technology. Three project managers with
integration backgrounds manage individual project plan tasks until the
integration process is successfully completed.
Our National Service Office reviews status and issues tracking reports using
standardized formats and procedures. Acquired companies' branch managers report
to the National Service Office until the integration is completed. After
integration is completed, the branch managers report to the appropriate PRIMIS
regional manager.
The following is a summary of the acquisitions we have completed since
January 1, 1999:
<TABLE>
<CAPTION>
BUSINESS ACQUIRED LOCATION SERVICE
- --------------------------------------- --------------- -----------------------------------------
<S> <C> <C>
Bliss Associates, Inc. Kansas City, MO Commercial and residential appraisal
services
The Appraisal Company Knoxville, TN Residential appraisal services
InspecTech Corporation San Ramon, CA Home inspection services
Fournier, Crane & Associates, Inc. Phoenix, AZ Commercial and residential appraisal
services
Stewart Title of Birmingham, Inc. Birmingham, AL Title services
E.T. Jones & Associates, Inc. Dallas, TX Commercial and residential appraisal
services
Cramer Property Services Incorporated Seattle, WA Commercial and residential appraisal
services
First Houston Appraisal Group Houston, TX Residential appraisal services
The William Fall Group, Inc. Toledo, OH Commercial and residential appraisal
services
</TABLE>
PRIMISNET
PRIMISnet is our network of contract appraisers and home inspectors that
provide services in smaller markets where we do not currently have company-owned
operations. We have built a network that ensures coverage in every state and
virtually every county. Prior to selecting a PRIMISnet contractor, we review all
qualifications, including samples of work and professional certifications, to
ensure that the contractor can meet our quality standards.
We pay our PRIMISnet contractors a portion of the fee we receive from our
clients for each property report completed. Typically, this fee is negotiated
based on the type of service requested and is affected by the volume of work
that we generate for the contractors. In many cases, we are able to negotiate
attractive fees because of the volume driven by our national accounts. In
addition, unlike traditional management companies who derive all of their
revenues from this model, we are able to share more of the fee with our
PRIMISnet contractors. We believe our model has a direct, positive influence on
meeting turnaround and quality expectations. All orders completed by our
PRIMISnet contractors go through the same rigorous quality review process that
we apply to our internally-generated reports before being delivered to our
clients. In addition, we actively track and monitor both turnaround and quality
scores for our PRIMISnet contractors and aggressively manage service
commitments.
We intend to transform PRIMISnet from a network of contract appraisers and
home inspectors into a network of affiliates with whom we will share our
technology, data and clients. In exchange for our technology, access to our
database and our referrals, our PRIMISnet affiliates will adhere to the
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same turnaround times as our staff professionals and will provide data to us to
enhance our existing database of property information.
We believe we can bundle elements of our proprietary systems capabilities,
broad service offerings, national account revenue and name recognition into an
attractive package that can be shared with independent professionals and small
offices that agree to become PRIMISnet affiliates. We believe this model is an
improvement over the traditional management company model because it adds value
to the local appraisal or home inspection firm, creates additional revenue for
us and gives us access to property information data from smaller markets.
TECHNOLOGY AND SYSTEMS
The key to our productivity and processing is combining our technology
infrastructure with our proprietary software, which we call the PRIMIS engine,
to manage our property information services. The backbone of the PRIMIS engine
is an Oracle 8i Internet-enabled relational database that stores all information
that is entered into our systems. Personnel at our offices enter data into the
PRIMIS engine through connections on an intranet. The hardware infrastructure
for this intranet consists of Cisco routers and switches, frame relay service
provided by AT&T, and servers that run Windows NT or UNIX operating systems.
The architecture behind our technology infrastructure allows for scalability
as transaction volume increases. We can continually upgrade our systems to
increase processing efficiency and reduce bottlenecks. We developed the PRIMIS
engine using object oriented technology. Object oriented technology reduces the
complexity of coding software by enabling developers to build scalable solutions
using individual subsets, known as objects, that perform specific functions.
There are more than 70 objects connected together to form the PRIMIS engine.
This isolation of functionality into smaller pieces of software allows us to act
or react to a changing market quickly. The software also allows us to add new
services and build customized solutions for customers quickly without
compromising the integrity of the software in production.
We primarily use Sun Microsystems servers that run the Unix (Solaris)
operating system for our Internet infrastructure. Our web site obtains real-time
information from the Oracle database as it is updated by our offices and can
route the requested information to the user over a secure connection. Our
flexible web-based platform was designed to use existing Internet standards so
that our clients can use existing hardware and software to interface with us
using a standard web browser.
COMPETITION
The market for property information services is highly competitive, and we
expect competition to intensify in our industry in the future as companies adapt
to the new e-commerce environment. We compete primarily with large national
management companies, independent local appraisal firms and franchised and local
home inspection companies.
MANAGEMENT COMPANIES. Currently, the management company model is the only
method of national delivery within the real estate appraisal industry.
Management companies operate as brokers obtaining orders from lenders and
distributing those orders to independent fee appraisers. Several of these firms
are wholly owned divisions of larger publicly held companies. Primary management
company competitors include Market Intelligence, owned by Fidelity Title; Lender
Services, Inc.; First American Real Estate Information, Inc., owned by First
American Financial Corporation; and U.S. Appraisal Company. Some management
companies who are our competitors also use our appraisal services from time to
time on a fee-sharing basis. We believe the management company model using
independent fee appraisers is inferior to the staff and affiliated appraiser
model that we operate. Because they must share their fees with management
companies, independent appraisers often prioritize management company
assignments lower than assignments from their primary clients, the
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local mortgage brokers. As a result, the management companies typically suffer
from inconsistent product quality and poor turnaround times, particularly during
peak periods. However, despite these perceived deficiencies, the leading
management companies are large, nationally-recognized organizations that,
compared to us, are better capitalized and have greater assets and access to
superior resources.
LOCAL APPRAISAL COMPANIES. Based on available data and industry experience,
we believe there are more than 18,000 appraisal companies in the United States.
Most of these firms have two to ten employees. Most of the local appraisal firms
have a small list of clients with which they do business, primarily mortgage
brokers. The quality of appraisals varies by individual appraiser and firm. We
believe that because many smaller firms have a highly concentrated customer
base, they face considerable pressure to produce valuations consistent with the
mortgage brokers' requirements to complete the transaction. This, we believe, is
especially true for appraisers who service sub-prime lenders who originate
mortgages with loan-to-value ratios over 100%.
HOME INSPECTION COMPANIES. Based on available data and industry experience,
we believe there are approximately 15,000 home inspection companies and 18,000
total inspectors in the United States that perform pre-purchase inspections. We
believe that because of lack of training and lack of professional certification
and standards, many home inspections are of poor quality. We also believe,
however, that both the economics of the home inspection business, a low-cost
service which protects against high-cost risks, and the dynamics of consumer
protection legislation will increasingly favor high-quality providers. In
addition, in the home inspection business, we compete with two large franchise
organizations, Amerispec and Housemaster, a division of ServiceMaster. Both
Amerispec and Housemaster have followed growth strategies of selling large
exclusive protected territories to individual franchise inspectors, which, we
believe, seriously limits their expansion capabilities. However, despite these
perceived deficiencies, Amerispec and Housemaster are large organizations that,
compared to us, are better capitalized and have greater assets and access to
superior resources.
LICENSING AND REGULATION
Real estate appraisers are required to be licensed. The licensing and
certification process was mandated by the enactment of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, or FIRREA. Under
FIRREA, the states are responsible for establishing the educational and
experience requirements necessary to obtain and retain an appraisal license. The
Appraisal Standard Board, or ASB, of The Appraisal Foundation develops,
publishes, interprets and amends the Uniform Standards of Professional Appraisal
Practice, or USPAP, on behalf of appraisers and the users of appraisal services.
All licensed and certified appraisers must follow USPAP rules and regulations.
Currently, New Jersey, Oregon, North Carolina, South Carolina, Texas, and
Wisconsin have inspector licensing laws, and states that require registration or
certification include Alabama, Arkansas, Nevada and Tennessee. Other states such
as California, Arizona, Washington, Pennsylvania, Illinois and New York are
expected to pass similar legislation during 2000. Much of this licensing
legislation makes use of the codes of conduct of the American Society of Home
Inspectors, or ASHI, or the California Real Estate Inspection Association, or
CREIA, the two leading home inspection organizations nationwide. All our home
inspectors are required to pass ASHI or CREIA exams and attain membership in one
of these two organizations.
INTELLECTUAL PROPERTY
Our intellectual property and technologies are important to our business. We
own the Internet domain name PRIMIS.COM. We intend to file for federal trademark
registration for the marks PRIMIS as well as other trademarks or service marks
incorporating the PRIMIS brand name. It is possible, however, that these
applications may not be approved.
46
<PAGE>
Our success depends in part upon developing, building and protecting
intellectual property and technologies. Generally, we have relied upon trademark
and copyright law, trade secret protection, and confidentiality and other
contractual agreements with employees, clients and others to protect our
proprietary interests. We intend to use similar protections with these parties
and our PRIMISnet affiliates in the future.
Notwithstanding these precautions, our efforts to protect our intellectual
property and technologies may not be adequate. Our competitors may independently
develop similar technologies to ours or duplicate our information database or
web-based service delivery platform. There can be no assurance that steps that
we have taken or will take will be adequate to prevent misappropriation,
infringement or other violations of our intellectual property and technologies,
or deter third-party development of similar technologies.
EMPLOYEES
We had 570 employees as of January 18, 2000, including 21 in sales and
marketing, 21 in information technology, 48 in management and administration,
and 480 in field operations and branch administration. We believe that our
future success will depend on our continued ability to attract and retain highly
skilled and qualified employees. None of our employees is currently covered by a
collective bargaining agreement. We believe that we have good relationships with
our employees.
FACILITIES
We are headquartered in Alpharetta, Georgia, an Atlanta suburb, where our
executive and administrative offices are located. Our lease for our executive
offices expires in May 2004, and covers an 11,753 square foot central office
facility. We also lease approximately 40 other office facilities in all of the
markets in which we operate. Generally, these facilities are less than 5,000
square feet and house our regional branch offices.
We believe that our leased facilities are adequate to meet our current needs
in the markets in which we currently operate. Additional facilities will be
required as our business grows and we expand into new markets.
LEGAL PROCEEDINGS
From time to time, we are made a party to routine litigation incidental to
our business. As of the date of this prospectus, we were not engaged in any
legal proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our company.
47
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of our
executive officers and directors as of the date of this prospectus:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
C. James Schaper....................... 48 Chairman of the Board, President and Chief Executive
Officer
Leslie H. Schreiner.................... 36 Vice President, Chief Financial Officer and Secretary
Kevin P. Castle........................ 43 Vice President--Operations
Revell L. Fraser....................... 38 Vice President--Marketing and Strategic Development
J. Chris Foretich...................... 39 Vice President and Chief Information Officer
M. Brent Burns......................... 36 Vice President--Sales
Connie C. Breeser...................... 42 Vice President and Chief Legal Officer
Kathleen G. Bergeron................... 47 Vice President of Human Resources
Donald W. Burton....................... 55 Director
Douglas F. Cobb........................ 42 Director
Alan Colner............................ 45 Director
Michael E. Gellert..................... 68 Director
J. David Grissom....................... 61 Director
Geoffrey P. Mott....................... 47 Director
Jack Tyrrell........................... 53 Director
</TABLE>
C. JAMES SCHAPER has served as our Chairman of the Board since January 2000
and as our President and Chief Executive Officer and director since April 1999.
From February 1997 to June 1998, Mr. Schaper served as Executive Vice President
and Chief Operating Officer of Per-Se Technologies, Inc., formerly known as
Medaphis Corporation, a healthcare services and software company, where he was
responsible for all operations of the software and services units. From August
1994 to November 1996, Mr. Schaper served in various capacities with Dun and
Bradstreet Software, including President and Chief Executive Officer in 1996,
Chief Operating Officer from 1995 to 1996 and Senior Vice President, Field
Operations from 1994 to 1995.
LESLIE H. SCHREINER has served as our Vice President, Chief Financial
Officer and Secretary since July 1999 and is responsible for accounting,
finance, budgeting and human resources. From April 1987 to June 1999,
Ms. Schreiner served in various capacities, including Vice President of Finance,
with Information America, Inc., a national online database company for publicly
available information. From February 1995 to June 1999, Ms. Schreiner was the
senior financial executive for Information America, responsible for all aspects
of finance, including strategic financial planning.
KEVIN P. CASTLE has served as our Vice President--Operations since
December 1999 and is responsible for field operations and our National Service
Office. From February 1998 to December 1999, Mr. Castle served as Senior Vice
President--Operations of Per-Se Technologies, Inc., formerly known as Medaphis
Corporation, where he was responsible for company operations. From 1995 to 1998,
Mr. Castle served as Senior Vice President of Technology Management Services, a
subsidiary of GE Capital Services Corporation, where he was responsible for new
and existing customer relationships. From 1993 to 1995, Mr. Castle served in
various capacities with Alltel Corporation, including as Senior Vice
President--Operations in 1995.
REVELL L. FRASER has served as our Vice President--Marketing and Strategic
Development since October 1998 and is responsible for developing and executing
our marketing, product, and sales strategies, including developing and
maintaining relationships with strategic and national accounts. From June 1997
to October 1998, Mr. Fraser served as Vice President--Sales and Relationship
48
<PAGE>
Management of CheckFree Corporation, a leading provider of electronic commerce
services. At CheckFree, Mr. Fraser managed the sales and account management
functions for CheckFree's strategic accounts. From July 1979 to June 1997,
Mr. Fraser served in various capacities with NationsBank and BankSouth
Corporation (which was acquired by NationsBank in 1996), including Senior Vice
President--Senior Project Manager, Alternative Banking Strategies from November
1995 to June 1997 and Senior Vice President--Direct Banking from January 1994 to
November 1995.
J. CHRIS FORETICH has served as our Vice President and Chief Information
Officer since November 1998 and is responsible for managing our national
electronic infrastructure and Internet strategies. From December 1996 to October
1998, Mr. Foretich served as Vice President, Information Technology for Auto
Lenders' Acceptance Corporation, an operating unit of Fortis, Inc., a
$4 billion holding company specializing in finance, insurance and benefits. At
Fortis, Mr. Foretich was responsible for Internet development, operations of
electronic infrastructure, strategy and executive management. From November 1984
to November 1996, Mr. Foretich served in various capacities with Rexam, Inc., a
$1.7 billion globally diversified manufacturer, including Director of
Information Technology from November 1993 to November 1996.
M. BRENT BURNS has served as our Vice President--Sales since August 1999 and
is responsible for managing the overall business relationships with all major
regional and national mortgage lenders. From September 1998 to August 1999,
Mr. Burns served as the Vice President of Account Management at CheckFree
Corporation, where he managed client relationships with CheckFree's top 100
financial institutions, brokerage firms and credit unions and the sales
activities for those clients. From October 1988 to September 1998, Mr. Burns was
the Atlanta Bond Manager for CitiGroup (formerly Travelers Group), where he
managed client relationships and the underwriting of financial guarantees for
major clients throughout the southeast United States.
CONNIE C. BREESER has served as our Vice President and Chief Legal Officer
since November 1999 and is responsible for managing our in-house legal
operations. From June 1988 to July 1999, Ms. Breeser served with Norrell
Corporation (which was acquired by Interim Services in 1999), a national
provider of temporary personnel and outsourcing services. At Interim Services
and Norrell, Ms. Breeser served as Vice President and Assistant General Counsel
from December 1997 to July 1999 and Associate Counsel from June 1988 to December
1997, where she was responsible for corporate contractual legal matters.
KATHLEEN G. BERGERON has served as our Vice President--Human Resources since
December 1999 and is responsible for all human resources functions, including
compensation and benefits, recruiting, training, performance issues and
organizational development. From January 1997 to October 1999, Ms. Bergeron
served as Executive Vice President and Chief of Staff of Associated Industries
of Florida and Associated Industries Insurance Services, where she managed the
human resources functions of each. From June 1996 to January 1997, Ms. Bergeron
served as regional director for the Florida Department of Banking and Finance,
where she was responsible for ensuring banking and finance regulation and
statute compliance. From October 1995 to June 1996, Ms. Bergeron served as
Assistant Chief of Staff for Administration for the United States Marine Corps,
Camp Lejeune, North Carolina, where she was the principal human resources
executive.
DONALD W. BURTON has served as a director since August 1998. Mr. Burton has
served as Managing General Partner of South Atlantic Venture Fund I, II
and III, Limited Partnerships, since each fund was organized, beginning in 1981.
He has also served as Chairman of the South Atlantic Private Equity Fund IV,
Limited Partnership and South Atlantic Capital, Inc. since 1997. Mr. Burton has
been the general partner of The Burton Partnership, Limited Partnership since
October 1979. Since January 1981, he has also served as President of South
Atlantic Capital Corporation. Mr. Burton also serves on the board of directors
of several companies, including ITCDeltaCom, Inc., and Powertel, Inc.
49
<PAGE>
He is a trustee of The Heritage Group of Mutual Funds and several private
companies. Mr. Burton also serves as a director of the National Venture Capital
Association.
DOUGLAS F. COBB has served as a director since April 1995. Since September
1997, Mr. Cobb has served as President and Chief Executive Officer of Greater
Louisville, Inc., Louisville's leading economic development organization. From
January 1994 to September 1997, Mr. Cobb served as Managing Director of
Chrysalis Ventures, Inc., a venture capital management firm that he co-founded.
ALAN COLNER has served as a director since 1998. Since August 1996,
Mr. Colner has served as Managing Director, Private Equity Investments at Moore
Capital Management, Inc. Before joining Moore Capital, Mr. Colner was a Managing
Director of Corporate Advisors, L.P., the general partner of Corporate Partners,
a private equity fund affiliated with Lazard Freres & Co. LLC. He also serves as
a director of Bolt, Inc., iVillage, Inc. and NextCard, Inc., as well as several
private companies.
MICHAEL E. GELLERT has served as a director since September 1999. Since
1967, Mr. Gellert has served as a General Partner of Windcrest Partners, New
York, New York, a private investment company. Mr. Gellert serves as a director
of Devon Energy Corp., High Speed Access Corp., Humana Inc., Premier
Parks, Inc., Seacor Smit Inc., Smith Barney World Funds, Smith Barney Worldwide
Securities Ltd., and Smith Barney Worldwide Special Fund NV.
J. DAVID GRISSOM has served as a director since April 1995 and served as our
Chairman from June 1998 to January 2000. Mr. Grissom has also served as Chairman
of Mayfair Capital, Inc., a private investment firm, since April 1989.
Mr. Grissom also serves as a director of Providian Financial Corporation,
Churchill Downs and LG&E Energy Corp., as well as a number of privately held
corporations.
GEOFFREY P. MOTT has served as a director since January 2000. Since January
1998, Mr. Mott has served as Managing Partner of the McKenna Group, a Silicon
Valley strategy consultancy. Prior to joining the McKenna Group, Mr. Mott served
as a Director of Lochridge & Co., a management consulting firm, beginning in
1987. Mr. Mott serves as a director of Mortice Kern Systems, Inc.
JACK TYRRELL has served as a director since June 1998. Mr. Tyrrell is
Managing Partner of Richland Ventures, L.P. and Richland Ventures II, L.P.,
venture capital firms based in Nashville, Tennessee, which were founded in
May 1994 and September 1996 respectively. He is also a director of National
Health Investors, Inc.
Our executive officers are appointed by and serve at the discretion of our
board of directors. There are no family relationships among any of our directors
or executive officers.
TERMS OF DIRECTORS
Our board of directors consists of eight members divided into three classes,
with staggered three-year terms. At each annual meeting of shareholders, a class
of directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The terms of office of our
directors are as follows: (a) C. James Schaper, Donald W. Burton and Douglas F.
Cobb serve as Class I directors for terms expiring at the 2001 annual meeting of
shareholders; (b) Michael E. Gellert and Geoffrey P. Mott serve as Class II
directors for terms expiring at the 2002 annual meeting of shareholders; and
(c) Alan Colner, J. David Grissom and Jack Tyrrell serve as Class III directors
for terms expiring at the 2003 annual meeting of shareholders.
BOARD COMMITTEES
The board of directors has established a compensation committee and an audit
committee. The compensation committee has the authority to review all
compensation matters relating to our executive officers. Messrs. Grissom, Mott
and Tyrrell serve on the compensation committee of the board of directors.
50
<PAGE>
The audit committee recommends to the board of directors the independent
public accountants to be selected to audit our annual financial statements and
approves any special assignments given to such accountants. The audit committee
also reviews the scope of the annual audit, any changes in accounting principles
and the effectiveness and efficiency of our internal accounting staff.
Messrs. Burton, Cobb, Colner and Gellert serve on the audit committee of the
board of directors.
The board of directors may from time to time establish other committees to
facilitate the management of our company.
DIRECTOR COMPENSATION
In the past, we have not compensated our directors for their services. We
have reimbursed and will continue to reimburse our directors who are not our
employees, upon request, for reimbursable out-of-pocket expenses incurred in
attending meetings of the board of directors or a committee of the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, our board of directors as a whole made
decisions relating to the compensation of our executive officers. During this
time, Michael W. Mattox, former President and Chief Executive Officer, and C.
James Schaper, Chairman of the Board, President and Chief Executive Officer,
participated in deliberations of our board of directors concerning executive
compensation. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for the year ended
December 31, 1999 paid to our current Chief Executive Officer, our former Chief
Executive Officer in 1999, two other executive officers who had compensation in
excess of $100,000 during 1999 and two additional former executive officers who
had compensation in excess of $100,000 during 1999. We may refer to these
officers as our named executive officers in other parts of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION(1)
- ----------------------------------------- -------- -------- ------------------ ---------------
<S> <C> <C> <C> <C>
C. James Schaper,........................ $146,282 $100,000 331,425 --
Chairman of the Board, President and
Chief Executive Officer(2)
Michael W. Mattox,....................... 13,750 -- -- 171,478(4)
former President and Chief Executive
Officer(3)
Revell L. Fraser,........................ 157,917 65,000 150,000 --
Vice President--Marketing and Strategic
Development
J. Chris Foretich,....................... 157,917 65,000 150,000 --
Vice President and Chief Information
Officer
William B. Britain,...................... 125,000 21,640 -- --
Regional Manager for the Mid-Atlantic
Region(5)
Michael L. Robertson,.................... 129,600 -- -- --
former Chief Appraisal Officer(6)
</TABLE>
51
<PAGE>
- ------------
(1) Unless otherwise indicated, the compensation set forth in the table does not
include compensation in the form of perquisites or other personal benefits,
because the aggregate value of such perquisites and other personal benefits
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus for the respective executive officer for the year ended December 31,
1999.
(2) Mr. Schaper has served as President and Chief Executive Officer since
April 1999. Mr. Schaper was elected Chairman of the Board in January 2000.
(3) Mr. Mattox resigned as President and Chief Executive Officer in
January 1999.
(4) Represents severance payments to Mr. Mattox.
(5) Mr. Britain has served as Regional Manager for the Mid-Atlantic Region since
July 1999. Previously in 1999, Mr. Britain served as our Vice President of
Finance and Operations.
(6) Mr. Robertson's employment with our company will terminate effective
February 1, 2000.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth all individual grants of stock options to
each of the named executive officers during the year ended December 31, 1999:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT
----------------------------------------------------------- ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED(1) 1999 PER SHARE DATE 5% 10%
- ---- ---------- ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
C. James Schaper..... 260,000 19.9% $ 4.00 4/1/09 $1,694,050 $2,697,792
21,425 1.6 6.00 11/4/09 209,394 333,425
50,000 3.8 15.31 12/29/09 1,246,919 1,985,510
Michael W. Mattox.... -- -- -- -- -- --
Revell L. Fraser..... 150,000 11.5 4.00 2/15/09 977,337 1,556,245
J. Chris Foretich.... 150,000 11.5 4.00 2/15/09 977,337 1,556,245
William B. Britain... -- -- -- -- -- --
Michael L. -- -- -- -- -- --
Robertson..........
</TABLE>
- ------------
(1) All options were granted with exercise prices equal to the fair market value
of our common stock on the date of grant as determined by the board of
directors.
(2) The potential realizable value is calculated based on the ten-year term of
the option at the time of its grant. It is calculated by assuming that the
stock price on the date of grant appreciates at the indicated annual rate,
compounded annually for the entire term of the option. The actual realizable
value of the options based on the price to the public in this offering could
substantially exceed the potential realizable value shown in the table.
52
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
No executive officer named in the table below exercised stock options during
the last fiscal year. The following table summarizes the value of the
outstanding options held at December 31, 1999 by the named executive officers:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
C. James Schaper............................... -- 331,425
Michael W. Mattox.............................. -- --
Revell L. Fraser............................... -- 150,000
J. Chris Foretich.............................. -- 150,000
William B. Britain............................. 15,667 84,333
Michael L. Robertson........................... -- --
</TABLE>
- ------------
(1) Based on the estimated fair market value of our common stock of $ per
share, the initial public offering price, less the exercise price payable
upon exercise of the offering.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We have entered into an employment agreement with C. James Schaper.
Mr. Schaper's agreement provides that he shall serve as our President and Chief
Executive Officer. His employment agreement, as amended, expires April 30, 2003,
but will remain in effect after that date unless terminated by either party upon
90 days prior written notice. Mr. Schaper's base salary is $250,000 per year,
subject to increase by the board of directors or compensation committee.
Mr. Schaper's employment agreement provides for a bonus of $150,000 for 2000 and
50% of his annual salary for each year thereafter, upon achievement of specific
performance goals. Under the terms of Mr. Schaper's employment agreement, he
received a grant of stock options to purchase 250,000 shares of our common stock
with an exercise price of $4.00 per share. These options vest in three equal
annual installments beginning on April 1, 2001. If we terminate Mr. Schaper
without cause or he terminates his employment for good reason within 12 months
of a change in control of our company, he will be entitled to receive severance
payments equal to one-half of his base salary at termination plus any prorated
cash bonus for that year. Mr. Schaper's employment agreement also contains
provisions for non-disclosure, non-competition and non-solicitation of customers
or employees.
We have entered into an employment agreement with Revell L. Fraser.
Mr. Fraser's agreement provides that he will serve as our Vice
President--Marketing and Strategic Development. His employment agreement expires
February 8, 2003, but will remain in effect after that date unless terminated by
either party upon 90 days prior written notice. In addition, Mr. Fraser may
terminate his employment at any time upon 90 days prior written notice to us.
Mr. Fraser's base salary is $160,000 per year, subject to increase by the board
of directors or compensation committee. Mr. Fraser's employment agreement
provides for a bonus of 25% of his annual salary for 1999 and for each year
thereafter, upon achievement of specific performance goals. Under the terms of
Mr. Fraser's employment agreement, he received a grant of stock options to
purchase 150,000 shares of our common stock with an exercise price of $4.00 per
share. These options vest in three equal annual installments beginning on
February 15, 2001. If we terminate Mr. Fraser without cause, he will be entitled
to receive (a) the fair market value of the underlying securities, less the
exercise price, for all vested but unexercised options, (b) the shares of common
stock purchased through the exercise of stock options, and (c) any prorated cash
bonus for that year. Mr. Fraser's employment agreement also contains provisions
for non-disclosure, non-competition and non-solicitation of customers or
employees.
53
<PAGE>
We have entered into an employment agreement with J. Chris Foretich.
Mr. Foretich's agreement provides that he will serve as our Vice President and
Chief Information Officer. His employment agreement expires February 28, 2003,
but will remain in effect after that date unless terminated by either party upon
90 days prior written notice. In addition, Mr. Foretich may terminate his
employment at any time upon 90 days prior written notice to us. Mr. Foretich's
base salary is $160,000 per year, subject to increase by the board of directors
or compensation committee. Mr. Foretich's employment agreement provides for a
bonus of 25% of his annual salary for 1999 and for each year thereafter, upon
achievement of specific performance goals. Under the terms of Mr. Foretich's
employment agreement, he received a grant of stock options to purchase 150,000
shares of our common stock with an exercise price of $4.00 per share. These
shares vest in three equal annual installments beginning on February 15, 2001.
If we terminate Mr. Foretich without cause, he will be entitled to receive
(a) the fair market value of the underlying securities, less the exercise price,
for all vested but unexercised options, (b) the shares of common stock purchased
through the exercise of stock options, and (c) any prorated cash bonus for that
year. Mr. Foretich's employment agreement also contains provisions for non-
disclosure, non-competition and non-solicitation of customers or employees.
In addition, we have employment agreements with Leslie H. Schreiner, Kevin
P. Castle and Connie C. Breeser. These agreements generally provide for
four-year terms, with provisions for later termination, base salaries, subject
to increased by the board of directors or compensation committee, performance
bonuses of a pre-determined percentage of the employees' annual salary for 1999
and for each year thereafter upon achievement of specific performance goals an
entitlement to stock options with an exercise price at the prevailing market
price, and, in some cases, severance benefits upon termination of the employee
by us without cause. In addition, these employment agreements also contain
provisions for non-disclosure, non-competition and non-solicitation of customers
or employees.
EMPLOYEE STOCK OPTION PLANS
1997 EMPLOYEE STOCK OPTION PLAN. Our 1997 Employee Stock Option Plan
provides for grants of incentive stock options and nonqualified stock options to
our key employees, including officers and directors. By encouraging stock
ownership, we seek to motivate these individuals to contribute to our success.
The plan authorizes up to 2,150,000 shares of our common stock for issuance
under the plan. Options to purchase 1,519,584 shares of our common stock are
outstanding under this plan as of January 18, 2000 with a weighted average
exercise price of $7.11 per share. If options granted under the plan expire or
are terminated for any reason without being exercised, the underlying shares of
our common stock will again be available for issuance under the plan.
The compensation committee of the board of directors administers and
interprets the plan. The compensation committee has the sole authority to
determine the type, size and terms of the grants, including the individuals to
whom grants shall be made. Grants of incentive stock options and nonqualified
stock options may be made to any key employees of PRIMIS or our subsidiaries,
including officers and directors who are also employees of PRIMIS or any of our
subsidiaries.
The exercise price of an option is determined by the compensation committee,
but in no event can the exercise price of an incentive stock option be less than
the fair market value of a share of our common stock on the date the incentive
stock option is granted. The exercise price of an incentive stock option granted
to an employee who owns more than 10% of our common stock may not be less than
110% of the fair market value of a share of our common stock on the date of
grant.
The compensation committee determines the term of each option, up to a
maximum of ten years from the date of grant, except that the term of an
incentive stock option granted to an employee who owns more than 10% of our
common stock may not exceed five years from the date of grant.
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<PAGE>
The compensation committee may amend or terminate the plan at any time,
subject to shareholder approval if required. The plan will terminate in
May 2007, unless the compensation committee terminates it earlier or extends it
with approval of the shareholders.
In the event of a change of control, whether by merger or asset sale or a
sale by the shareholders of more than 50% of our total voting power, all
outstanding options under the plan shall immediately vest. Upon the occurrence
of a change in control event where we are not the surviving entity or where we
survive only as a subsidiary of another entity, all outstanding grants shall be
assumed by or replaced with comparable options or stock of the surviving
corporation.
INSPECTECH STOCK OPTION PLANS. In connection with our acquisition of
InspecTech in January 2000, we converted all of InspecTech's outstanding stock
options into stock options to purchase shares of our common stock. We adjusted
the number of shares subject to the stock options we converted and the exercise
price of these options to reflect the exchange ratio we used in the acquisition.
We converted the InspecTech stock options into stock options to purchase 106,125
shares of our stock with a weighted average exercise price of $.66 per share. We
will not issue any additional stock options under stock options plans or
arrangements we assumed in the InspecTech acquisition.
55
<PAGE>
RELATED PARTY TRANSACTIONS
We believe that all of the transactions set forth below were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions between us and our officers,
directors, principal shareholders and their affiliates, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested members of the board of directors, and will be on terms no less
favorable to us than those that could be obtained from unaffiliated third
parties.
SALES OF STOCK, NOTES AND WARRANTS
CONVERTIBLE NOTE AND WARRANT FINANCING. In January 2000, we issued and sold
$9,721,862 aggregate principal amount of convertible notes and warrants. The
convertible notes bear interest at the rate of 8% per annum, and will mature six
months after the date issued unless we complete an initial public stock offering
or other qualifying financing prior to that time. If an initial public offering
is completed within 6 months, the notes will mature 181 days after the closing
of the offering. Prior to a public offering, the convertible notes are
convertible into shares of our Series C convertible preferred stock at the
option of the holder. Upon completion of a public offering of our common stock,
the notes will be convertible into shares of our common stock. In each case, the
conversion price is the lower of $15.31 per share or the per share price of the
securities issued in a qualifying financing, subject to anti-dilution
adjustments. With respect to the warrants, we have assumed an exercise price of
$15.31 per share.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
WARRANT
INVESTOR CONVERTIBLE NOTE SHARES
- -------- ---------------- --------
<S> <C> <C>
Windcrest Partners................................... $ 600,000 13,717
Richland Ventures II, L.P............................ 2,698,230 61,684
South Atlantic Private Equity Fund IV, Limited
Partnership........................................ 420,574 9,615
South Atlantic Private Equity Fund IV (Q.P.), Limited
Partnership........................................ 580,792 13,277
Moore Global Investments, Ltd........................ 2,205,287 50,415
Remington Investments Strategies, L.P................ 492,942 11,269
JG Funding, LLC...................................... 500,000 11,430
J. David Grissom..................................... 1,994,877 45,605
Jack Tyrrell......................................... 86,107 1,968
W. Patrick Ortale, III............................... 43,053 984
</TABLE>
Michael E. Gellert, one of our directors, is a general partner of Windcrest
Partners. Jack Tyrrell, one of our directors, is Partner of Richland Ventures
II, L.P. Donald W. Burton, one of our directors, is Chairman of South Atlantic
Private Equity Fund IV, Limited Partnership and South Atlantic Private Equity
Fund IV (Q.P.), Limited Partnership. Alan Colner, one of our directors, has sole
voting and investment power with respect to the PRIMIS securities held by Moore
Global Investments, Ltd. and Remington Investments Strategies, L.P. David A.
Jones, Jr. is Chairman of Chrysalis Ventures, LLC, which has sole voting and
investment power with respect to the PRIMIS securities held by JG Funding, LLC,
Chrysalis Ventures Limited Partnership and JG Partnership, Ltd. Mr. Jones is
deemed to own greater than five percent of our common stock by virtue of his
affiliation with these entities. W. Patrick Ortale, III is a partner and
beneficial owner of shares of Richland Ventures II, L.P., and is deemed to be a
five percent shareholder.
In November 1999, we issued and sold $10,011,174 aggregate principal amount
of convertible notes and warrants. Our November 1999 convertible notes mature
six months after the date issued, and bear
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<PAGE>
interest at 8% per annum. Pursuant to their terms, the notes will mandatorily
convert into shares of our common stock if this offering is completed prior to
the date the notes mature, and will convert into shares of our Series C
convertible preferred stock if a qualifying financing occurs prior to maturity
at the lower of $15.31 or the price per share of the securities issued in the
qualifying financing, subject to anti-dilution requirements. With respect to the
warrants, we have assumed an exercise price of $15.31 per share.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include the following:
<TABLE>
<CAPTION>
CONVERTIBLE WARRANT
INVESTOR NOTE SHARES
- -------- ----------- --------
<S> <C> <C>
Windcrest Partners...................................... $1,197,118 27,367
Richland Ventures II, L.P............................... 1,969,759 45,030
South Atlantic Private Equity Fund IV, Limited
Partnership........................................... 827,298 18,913
South Atlantic Private Equity Fund IV (Q.P.), Limited
Partnership........................................... 1,142,459 26,118
Moore Global Investments, Ltd........................... 1,575,807 36,024
Remington Investments Strategies, L.P................... 393,952 9,006
JG Funding, LLC......................................... 500,000 11,430
J. David Grissom........................................ 2,239,391 51,194
Jack Tyrrell............................................ 103,594 2,368
W. Patrick Ortale, III.................................. 51,796 1,184
</TABLE>
SERIES B CONVERTIBLE PREFERRED STOCK FINANCING. In October 1999, we issued
and sold an aggregate of 725,130 shares of Series B convertible preferred stock
to existing investors at a purchase price per share of $6.00. The Series B
shares will mandatorily convert into an aggregate of 725,130 shares of our
common stock upon the closing of this offering. All accrued and unpaid dividends
on the Series B shares will be valued at the initial public offering price and
payable in shares of our common stock on the day of the offering.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
NUMBER
OF
SERIES B
INVESTOR SHARES
- -------- --------
<S> <C>
Windcrest Partners.......................................... 87,813
Richland Ventures II, L.P................................... 77,542
South Atlantic Private Equity Fund IV, Limited
Partnership............................................... 32,568
South Atlantic Private Equity Fund IV (Q.P.), Limited
Partnership............................................... 44,974
Moore Global Investments, Ltd............................... 63,585
Remington Investments Strategies, L.P....................... 13,958
Casselberry Partners, L.P................................... 52,650
JG Funding, LLC............................................. 166,667
J. David Grissom............................................ 164,268
Jack Tyrrell................................................ 7,599
W. Patrick Ortale, III...................................... 3,799
</TABLE>
Douglas F. Cobb, one of our directors, has sole voting and investment power with
respect to the PRIMIS securities held by Casselberry Partners, L.P.
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<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK FINANCING. In June 1999, we issued and
sold 1,091,242 shares of Series A convertible preferred stock to existing
investors who exercised options and subscription rights to purchase such shares
at an exercise price per share of $4.00. The Series A shares will mandatorily
convert into an aggregate of 1,091,242 shares of our common stock upon the
closing of this offering. All accrued and unpaid dividends on the Series A
shares will be valued at the initial public offering price and payable in shares
of our common stock on the day of the offering.
Investors beneficially owning five percent or more of our common stock and
directors who participated in the transaction include:
<TABLE>
<CAPTION>
NUMBER
OF
SERIES A
INVESTOR SHARES
- -------- --------
<S> <C>
Windcrest Partners.......................................... 62,499
Richland Ventures II, L.P................................... 250,000
South Atlantic Private Equity Fund IV, Limited
Partnership............................................... 104,999
South Atlantic Private Equity Fund IV (Q.P.), Limited
Partnership............................................... 144,999
Moore Global Investments, Ltd............................... 204,999
Remington Investments Strategies, L.P....................... 45,000
Casselberry Partners, L.P................................... 30,858
Chrysalis Ventures Limited Partnership...................... 78,249
JG Funding, LLC............................................. 28,392
J. David Grissom............................................ 125,000
</TABLE>
David A. Jones, Jr. is Chairman of Chrysalis Ventures, LLC, which has sole
voting and investment power with respect to the PRIMIS securities held by JG
Funding, LLC, Chrysalis Ventures Limited Partnership and JG Partnership, Ltd.
Mr. Jones is deemed to own greater than five percent of our common stock by
virtue of his affiliation with these entities.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of January 18, 2000, and as adjusted to reflect
the sale of the shares of common stock offered in this prospectus, of:
- each named executive officer;
- each of our directors;
- each person known by us to be the beneficial owner of more than five
percent of our common stock; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, or SEC. Shares of common stock issuable by
us to a person or entity listed in the table pursuant to options or warrants
that may be exercised within 60 days after January 18, 2000 are deemed to be
beneficially owned and outstanding for purposes of calculating the number of
shares and the percentage beneficially owned by that person or entity. However,
these shares are not deemed to be beneficially owned and outstanding for
purposes of computing the percentage beneficially owned by any other person or
entity.
For purposes of calculating the percentage of common stock beneficially
owned by any person or entity, the number of shares deemed outstanding before
this offering includes:
- 7,743,745 shares of common stock outstanding as of January 18, 2000;
- 2,470,270 shares of common stock issuable upon the mandatory conversion of
convertible securities outstanding as of January 18, 2000, without taking
into account dividends or interest accrued thereon; and
- shares of common stock issuable upon the exercise of options and warrants
which may be exercised by that person or entity within 60 days of
January 18, 2000.
For purposes of calculating the percentage beneficially owned by any person
or entity, the number of shares deemed outstanding after this offering includes:
- all shares deemed to be outstanding before this offering; and
- shares being sold in this offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
C. James Schaper.................................. -- -- --
Michael W. Mattox................................. -- -- --
Revell L. Fraser.................................. -- -- --
J. Chris Foretich................................. -- -- --
William B. Britain................................ 34,230(1) * *
Michael L. Robertson(2)........................... 443,818(2) 4.3%
All directors and executive officers as a group
(15 persons)...................................... 7,449,623(3) 66.3
J. David Grissom(4)............................... 2,126,455(4) 20.4
David A. Jones, Jr.(5)............................ 2,061,462(5) 20.1
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- -------------------------------------------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Chrysalis Ventures Limited Partnership(5)......... 1,734,072(5) 17.0
JG Funding, LLC(5)................................ 1,734,072(5) 16.9
JG Partnership, Ltd.(5)........................... 1,734,072(5) 17.0
Jack Tyrrell(6)................................... 1,336,978(6) 12.7
Richland Ventures II, L.P.(7)..................... 1,239,154(7) 11.8
W. Patrick Ortale, III(8)......................... 1,288,065(8) 12.3
Michael E. Gellert(9)............................. 1,095,619(9) 10.6
Windcrest Partners(9)............................. 1,095,619(9) 10.6
Alan Colner(10)................................... 1,239,154(10) 11.8
Moore Global Investments, Ltd.(10)................ 1,239,154(10) 11.8
Remington Investments(10)......................... 1,239,154(10) 11.8
Donald W. Burton(11).............................. 1,089,527(11) 10.5
South Atlantic Private Equity
Fund IV, Limited Partnership(11)................ 1,089,527(11) 10.5
South Atlantic Private Equity
Fund IV (Q.P.), Limited Partnership(11)......... 1,089,527(11) 10.5
Douglas F. Cobb(12)............................... 561,890(12) 5.5
Casselberry Partners, L.P.(12).................... 561,890(12) 5.5
</TABLE>
- ------------
* Less than one percent.
(1) Includes 15,667 shares issuable upon the exercise of currently exercisable
options.
(2) Includes (a) 6,532 shares to be issued upon conversion of convertible notes
held by Mr. Robertson; and (b) 2,286 shares issuable upon exercise of a
warrant which will become exercisable upon completion of this offering.
Mr. Robertson's address is c/o Hacienda Property Valuation, 2340 Santa Rita
Road, Suite 4, Pleasanton, California 94566.
(3) Includes (a) an aggregate of 1,513,311 shares to be issued upon automatic
conversion of convertible preferred stock; (b) an aggregate of 1,210,201
shares to be issued upon conversion of convertible notes; and (c) an
aggregate of 423,570 shares issuable upon exercise of warrants which will
become exercisable upon completion of this offering.
(4) Includes (a) 289,268 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Mr. Grissom; (b) 276,569
shares to be issued upon conversion of convertible notes held by
Mr. Grissom; and (c) 96,799 shares issuable upon exercise of warrants which
will become exercisable upon completion of this offering. Mr. Grissom's
address is Suite 2510, 400 West Market Street, Louisville, Kentucky 40202.
(5) Includes (a) 1,327,052 shares owned by Chrysalis Ventures Limited
Partnership, including 78,249 shares to be issued on automatic conversion of
all shares of our convertible preferred stock owned by Chrysalis Ventures
Limited Partnership; (b) 340,022 shares owned by JG Funding, LLC, including
195,059 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by JG Funding, 65,316 shares to be issued
upon conversion of convertible notes held by JG Funding and 22,860 shares
issuable upon exercise of warrants held by JG Funding which will become
exercisable upon completion of this offering; and (c) 66,998 shares
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<PAGE>
owned by JG Partnership, Ltd. Chrysalis Ventures, LLC, of which Mr. Jones is
the Chairman and principal owner, has sole voting and investment power with
respect to the shares owned by Chrysalis Ventures Limited Partnership, JG
Funding and JG Partnership. The address for Mr. Jones, Chrysalis Ventures
Limited Partnership, JG Funding and JG Partnership is 1650 National City
Tower, 101 South Fifth Street, Louisville, Kentucky 40202.
(6) Consists of (a) 1,239,154 shares owned by Richland Ventures II, LP,
including 327,542 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Richland Ventures II,
304,898 shares to be issued upon conversion of convertible notes held by
Richland Ventures II and 106,714 shares issuable upon the exercise of
warrants held by Richland Ventures II, which will become exercisable upon
completion of this offering; and (b) 97,824 shares owned by Mr. Tyrrell
including 7,599 shares to be issued upon automatic conversion of all shares
of our convertible preferred stock owned by Mr. Tyrrell, 12,390 shares to be
issued upon conversion of convertible notes held by Mr. Tyrrell and 4,336
shares issuable upon the exercise of warrants held by Mr. Tyrrell which will
become exercisable upon completion of this offering. Mr. Tyrrell shares
voting and investment power with respect to the shares owned by Richland
Ventures II. The address for Mr. Tyrrell and Richland Ventures II is Suite
200, 200 31st Avenue North, Nashville, Tennessee 37203.
(7) Includes (a) 327,542 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Richland Ventures II;
(b) 304,898 shares to be issued upon conversion of convertible notes held by
Richland Ventures II; and (c) 106,714 shares issuable upon the exercise of
warrants held by Richland Ventures II, which become exercisable upon
completion of this offering.
(8) Consists of (a) 1,239,154 shares owned by Richland Ventures II, including
327,542 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Richland Ventures II, 304,898 shares to
be issued upon conversion of convertible notes held by Richland Ventures II
and 106,714 shares issuable upon the exercise of warrants held by Richland
Ventures II, which will become exercisable upon completion of this offering;
and (b) 48,911 shares owned by Mr. Ortale including 3,799 shares to be
issued upon conversion of all shares of our convertible preferred stock
owned by Mr. Ortale, 6,195 shares to be issued upon conversion of
convertible notes held by Mr. Ortale and 2,168 shares issuable upon the
exercise of warrants held by Mr. Ortale which will become exercisable upon
completion of this offering. Mr. Ortale shares voting and investment power
with respect to the shares held by Richland Ventures II. Mr. Ortale's
address is Suite 200, 200 31st Avenue North, Nashville, Tennessee 37203.
(9) Consists of (a) 1,095,619 shares owned by Windcrest Partners including
150,312 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Windcrest Partners; (b) 117,382 shares
to be issued upon conversion of convertible notes held by Windcrest
Partners; and (c) 41,084 shares issuable upon the exercise of warrants held
by Windcrest Partners which will become exercisable upon completion of this
offering. Mr. Gellert shares voting and investment power with respect to the
shares held by Windcrest Partners. The address for Mr. Gellert and Windcrest
Partners is 49th Floor, 122 E. 42nd Street, New York, New York 10168.
(10) Consists of (a) 1,011,992 shares owned by Moore Global Investments, Ltd.,
including 268,584 shares to be issued upon automatic conversion of all
shares of our convertible preferred stock owned by Moore Global Investments,
246,969 shares to be issued upon conversion of convertible notes held by
Moore Global Investments, and 86,439 shares issuable upon the exercise of
warrants held by Moore Global Investments, which will become exercisable
upon completion of this offering; and (b) 227,162 shares owned by Remington
Investments Strategies, LP, including 58,958 shares to be issued upon
automatic conversion of all shares of our convertible preferred stock owned
by Remington Investments Strategies, 57,929 shares to be issued upon
conversion of
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<PAGE>
convertible notes held by Remington Investments Strategies, and 20,275
shares issuable upon the exercise of warrants held by Remington Investments
Strategies, which will become exercisable upon completion of this offering.
Mr. Colner has sole voting and investment power with respect to the shares
owned by Moore Global Investments and Remington Investments Strategies. The
address for Mr. Colner, Moore Global Investments and Remington Investments
Strategies is 1251 Avenue of the Americas, New York, New York 10020.
(11) Consists of (a) 457,602 shares owned by South Atlantic Private Equity Fund
IV, Limited Partnership, including 137,567 shares to be issued upon
automatic conversion of all shares of our convertible preferred stock owned
by South Atlantic Private Equity Fund IV, Limited Partnership, 81,507 shares
to be issued upon conversion of convertible notes held by South Atlantic
Private Equity Fund IV, Limited Partnership, and 28,528 shares issuable upon
exercise of warrants held by South Atlantic Private Equity Fund IV, Limited
Partnership, which will become exercisable upon completion of this offering;
and (b) 631,925 shares beneficially owned by South Atlantic Private Equity
Fund IV (Q.P.), Limited Partnership, including 189,973 shares to be issued
upon automatic conversion of all shares of our convertible preferred stock
owned by South Atlantic Private Equity Fund IV (Q.P.), Limited Partnership,
112,557 shares to be issued upon conversion of convertible notes held by
South Atlantic Private Equity Fund IV (Q.P.), Limited Partnership, and
39,395 shares issuable upon exercise of warrants held by South Atlantic
Private Equity Fund IV (Q.P.), Limited Partnership, which will become
exercisable upon completion of this offering. Mr. Burton has sole voting and
investment power with respect to the shares owned by South Atlantic Private
Equity Fund IV, Limited Partnership, and South Atlantic Private Equity Fund
IV (Q.P.), Limited Partnership. The mailing address for Mr. Burton, South
Atlantic Private Equity Fund IV, Limited Partnership and South Atlantic
Private Equity Fund IV (Q.P.), Limited Partnership is Suite 200, 614 W. Bay
Street, Tampa, Florida 33606.
(12) Consists of 561,890 shares owned by Casselberry Partners, L.P., including
83,508 shares to be issued upon automatic conversion of all shares of our
convertible preferred stock owned by Casselberry Partners. Mr. Cobb has sole
voting and investment power with respect to the shares owned by Casselberry
Partners. The mailing address for Mr. Cobb and Casselberry Partners is 12206
E. Osage Rd., Louisville, Kentucky 40223.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following description of our capital stock and provisions of our
articles of incorporation and our bylaws are summaries thereof and are qualified
by reference to our articles of incorporation and our bylaws, copies of which
have been filed with the SEC as exhibits to our registration statement, of which
this prospectus forms a part. The discussion below describes our capital stock
and articles of incorporation as anticipated to be in effect upon closing of
this offering.
The total amount of our authorized capital stock consists of 108,000,000
shares, of which 100,000,000 have been designated common stock, par value $0.01
per share, and 8,000,000 have been designated preferred stock, par value $0.01
per share. Upon completion of this offering, all 1,816,372 shares of convertible
preferred stock outstanding will be converted into common stock. After
completion of this offering, there will be shares of common stock
issued and outstanding based on the 7,743,745 shares outstanding as of
January 18, 2000 and including the shares of common stock being sold
by us in this offering and the 2,470,270 shares of common stock issuable upon
conversion of our outstanding convertible preferred stock and mandatorily
convertible notes, based on the stated values and conversion prices of each of
the outstanding series of convertible preferred stock and mandatorily
convertible notes as discussed below, but not taking into account dividends or
interest accrued thereon.
COMMON STOCK
All outstanding shares of our common stock are fully paid and
non-assessable. Subject to the prior rights of the holders of our preferred
stock, the holders of our common stock are entitled to receive dividends at a
time and in such amounts as our board of directors may determine. The shares of
our common stock are not convertible and holders thereof have no preemptive or
subscription rights to purchase any of our securities, nor will holders be
entitled to the benefits of any redemption or sinking fund provisions. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive pro rata all of our assets which are legally available for
distribution, after payment of all debts and other liabilities and subject to
the prior rights of any holders of our preferred stock which is then
outstanding. Each outstanding share of our common stock is entitled to one vote
on all matters submitted to a vote of shareholders.
PREFERRED STOCK
We are authorized to issue 8,000,000 shares of preferred stock. 1,200,000
shares are currently designated Series A convertible preferred stock, of which
1,091,242 shares are currently issued and outstanding. 3,000,000 shares are
currently designated Series B convertible preferred stock, of which 725,130
shares are currently issued and outstanding. 2,500,000 shares are currently
designated Series C convertible preferred stock, of which no shares are
currently issued and outstanding. The Series A convertible preferred stock
currently has a stated value of $4.00 per share and a conversion price of $4.00
per share, the Series B convertible preferred stock currently has a stated value
of $6.00 per share and a conversion price of $6.00 per share, and the Series C
convertible preferred stock currently has a stated value of $15.31 per share and
a conversion price of $15.31 per share. All 1,816,372 shares of our convertible
preferred stock outstanding will be mandatorily converted into 1,816,372 shares
of common stock and none of the 8,000,000 shares of preferred stock that we are
authorized to issue will be issued and outstanding after the completion of this
offering. In addition, holders of our convertible preferred stock will be
entitled to receive accrued dividends valued at the initial public offering
price and payable in shares of our common stock on the day of the offering.
Dividends accrue at a rate of seven percent per annum.
Our board of directors has authority, without shareholder approval, to issue
shares of preferred stock in one or more series and to determine the number of
shares, designations, dividend rights,
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<PAGE>
conversion rights, voting power, redemption rights, liquidation preferences and
other terms of any such series. Satisfaction of any dividend preferences on
outstanding shares of preferred stock would reduce the amount of funds available
for the payment of dividends on shares of our common stock. The issuance of
preferred stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could adversely affect the voting
power of the holders of common stock and the likelihood that such holders will
receive payments upon liquidation and could have the effect of delaying,
deferring, or preventing a change in control of our company. We have no current
plans to issue any shares of preferred stock.
WARRANTS
In November 1999 and January 2000, we issued warrants to purchase shares of
our Series C convertible preferred stock. Upon the closing of this offering,
these warrants become exercisable for shares of common stock. The warrants have
a five-year term from the date of issue and become exercisable upon the earlier
of the following events:
- an underwritten public offering of our common stock within 180 days from
the date the warrant was issued;
- the merger, consolidation or sale of our company, within 180 days from the
date the warrant was issued; or
- the sale of additional shares of our preferred stock in a qualifying
financing.
Under any of these circumstances, the exercise price per share would be the
lesser of $15.31 or, in the case of a public offering or qualifying financing,
the price at which the shares of stock were sold in this financing.
If we fail to complete a public offering of our common stock or a qualifying
financing, and we are not sold, within 180 days from the date a warrant is
issued, the warrant can be exercised for shares of our Series C convertible
preferred stock at an exercise price of $6.00 per share.
A total of 228,864 shares are issuable under the warrants issued in
November 1999, and a total of 222,250 shares are issuable under the warrants
issued in January 2000. These warrants include a cashless exercise feature, and
the holders are entitled to customary antidilution protection, including
adjustments to the number of shares issuable upon exercise of the warrants in
the event of a subdivision or combination of stock or payment of a stock
dividend. These warrants were issued in connection with our convertible note and
warrant financing.
In connection with our acquisition of InspecTech in January 2000, we
converted all of InspecTech's outstanding warrants into warrants exercisable for
shares of our common stock. We adjusted the number of shares subject to the
warrants we converted and the exercise price of these warrants to reflect the
exchange ratio we used in the acquisition. We converted the InspecTech warrants
into warrants to purchase 5,904 shares of our common stock with a weighted
average exercise price of $13.99 per share.
ANTI-TAKEOVER PROVISIONS OF GEORGIA LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
The Georgia Business Corporation Code, or GBCC, generally restricts a
corporation from entering into certain business combinations with an interested
shareholder, which is defined as any person or entity that is the beneficial
owner of at least 10% of a company's voting stock, or its affiliates, for a
period of five years after the date on which the shareholder became an
interested shareholder, unless:
- the transaction is approved by the board of directors of the corporation
prior to the date the person became an interested shareholder;
- the interested shareholder acquires 90% of the corporation's voting stock
in the same transaction in which it exceeds 10%; or
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<PAGE>
- subsequent to becoming an interested shareholder, the shareholder acquires
90% of the corporation's voting stock and the business combination is
approved by the holders of a majority of the voting stock entitled to vote
on the transaction.
The fair price provisions of the GBCC further restrict business combination
transactions with 10% shareholders. These provisions require that the
consideration paid for stock acquired in the business combination must meet
specified tests that are designed to ensure that shareholders receive at least
fair market value for their shares in the business combination.
The interested shareholder and fair price provisions of the GBCC do not
apply to a corporation unless the bylaws of the corporation specifically provide
that these provisions are applicable to the corporation. We have elected to be
covered by these provisions in our bylaws.
In addition, some provisions of our articles of incorporation and bylaws may
be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a shareholder might deem to be in his best
interest. The existence of these provisions could limit the price that investors
might be willing to pay in the future for shares of our common stock. These
provisions include:
CLASSIFIED BOARD OF DIRECTORS. Under our articles of incorporation, our
board of directors is divided into three classes of directors, with staggered
three-year terms. As a result, approximately one-third of our board of directors
will be elected each year. The classified board provision will help ensure the
continuity and stability of our board of directors and our business strategies
and policies as determined by our board of directors. The classified board
provision could have the effect of discouraging a third party from making an
unsolicited tender offer or otherwise attempting to obtain control of us without
the approval of our board of directors even where such acquisitions could have
resulted in increased value to our shareholders. In addition, the classified
board provision could delay shareholders who do not like the policies of our
board of directors from electing a majority of our board of directors for two
years.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS. Our shareholders may
not take action, outside of a duly called annual or special meeting, by less
than unanimous written consent. Our bylaws further provide that special meetings
of our shareholders may be called only upon the written request of 25% of the
votes entitled to be cast on an issue.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our bylaws provide that shareholders seeking to bring business
before an annual meeting of shareholders, or to nominate candidates for election
as directors at an annual meeting of shareholders, must provide us timely notice
in writing. To be timely, a shareholder's notice must be delivered to or mailed
and received at our principal executive offices, not less than 90 days nor more
than 120 days prior to the first anniversary of the date of the preceding year's
annual meeting, provided, that if no annual meeting of shareholders was held in
the previous year or the date of the annual meeting of shareholders has been
changed to be more than 30 calendar days earlier than or 70 calendar days after
this anniversary, notice by the shareholder, to be timely, must be so received
not earlier than 120 days prior to such annual meeting nor later than the later
of:
- 90 days prior to the annual meeting of shareholders; or
- 10 days following the date on which notice of the date of the meeting is
made public.
Our bylaws also specify requirements as to the form and content of a
shareholder's notice. These provisions may preclude shareholders from bringing
matters before an annual meeting of shareholders or from making nominations for
directors at an annual meeting of shareholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval, subject to certain
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<PAGE>
limitations imposed by the Nasdaq Stock Market. These additional shares may be
utilized for a variety of corporate acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved common stock and preferred
stock could render more difficult or discourage an attempt to obtain control of
us by means of a proxy contest, tender offer, merger or otherwise.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide for the indemnification of our current
and former officers and directors in accordance with the GBCC. The GBCC empowers
a corporation to indemnify a director against liability arising from official
acts if the director acted in good faith and reasonably believed that his
conduct was in the best interests of the corporation. For all other acts, the
corporation may indemnify a director who acted in good faith and reasonably
believed that the conduct was at least not opposed to the best interests of the
corporation. The corporation may indemnify a director with respect to criminal
proceedings if the director acted in good faith and had no reasonable cause to
believe the conduct was unlawful. A corporation may not indemnify a director
adjudged liable for conduct involving receipt of an improper personal benefit.
The GBCC permits a corporation to indemnify an officer to the same extent as a
director.
Our bylaws provide for indemnification against liability for each director
or officer acting in a manner he believed in good faith to be in, or not opposed
to, our best interests and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. Our bylaws also provide
for indemnification against liability for any individual's conduct with respect
to an employee benefit plan for a purpose he believes in good faith to be in the
interests of the participants in, and beneficiaries of, the plan. Our bylaws
also provide that we will not indemnify an individual in connection with a
derivative proceeding in which that individual was adjudged liable to us on the
basis that personal benefit was improperly received by him unless that
individual is fairly and reasonably entitled to indemnification. Our bylaws also
require us to pay for or reimburse the reasonable expenses incurred by a
director or officer who is a party to a proceeding in advance of the final
disposition of the proceeding if that individual furnishes us with a written
affirmation of his good faith belief that he has met the standard of conduct
required for indemnification and also furnishes to us a written undertaking to
repay any advances made if it is determined that that person is not entitled to
indemnification.
REGISTRATION RIGHTS
We have entered into registration rights agreements with holders of an
aggregate of 9,623,691 shares of common stock, including shares issuable upon
conversion or exercise of outstanding convertible preferred stock, convertible
notes and warrants. The holders of 25% or more of the registrable securities are
entitled to demand that we register their registrable securities under the
Securities Act. We are not required to effect more than two registrations
pursuant to these demand registration rights. These holders are also entitled to
require us to include their registrable securities in registration statements
that we may file for the purpose of offering shares to the public, including
this offering. The holders of these registration rights have agreed to waive
their registration rights with respect to this offering. The registration rights
are subject to various conditions and limitations, including the right of the
underwriters of an offering to limit the number of registrable securities that
may be included in the offering. In addition, holders of registrable securities
will be restricted from exercising their demand rights until 180 days after the
date of this prospectus. We are required to bear the expense of such
registrations, except for any underwriting discounts and commissions which may
be borne by the selling shareholders in proportion to the number of shares sold.
Registration of any of the registrable securities will result in such shares
becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Union
National Bank.
66
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, there will be shares of common
stock outstanding, including shares of common stock to be issued upon conversion
of all of our outstanding convertible preferred stock and our mandatorily
convertible notes. Of these shares, the shares sold in this offering
will be freely tradable upon completion of this offering. The remaining
10,214,015 shares of common stock outstanding are "restricted securities" under
Rule 144 of the Securities Act of 1933 and are subject to the lock-up agreements
and Rule 144 restrictions discussed below.
Shares of our common stock will become eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES: DATE SHARES BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET:
----------------- ------------------------------------------------------------
<S> <C>
....................... These shares will be freely tradable without restriction as
of the date of this prospectus.
8,917,931...................... These shares are subject to 180-day lock-up agreements and
will be eligible for resale commencing 181 days after the
date of this prospectus. However, 8,482,931 of these shares
are held by affiliates and are subject to the provisions of
Rule 144 that limit the amount of securities that may be
sold in any three-month period.
1,296,084...................... These shares are restricted. However, of these shares,
484,573 are eligible to be sold as of the date of this
prospectus, pursuant to Rule 144 and the remainder will
become eligible for sale at various dates thereafter.
</TABLE>
In general, under Rule 144, a shareholder, including an affiliate, who has
beneficially owned restricted securities for at least one year is entitled to
sell, within any three month period, a number of shares that does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume in our common stock during a four calendar week period,
provided certain requirements concerning availability of public information,
manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from PRIMIS, or the date they were
acquired from an affiliate of PRIMIS, a shareholder who is not an affiliate of
PRIMIS at the time of sale and has not been an affiliate for at least three
months prior to the sale is entitled to sell the shares immediately without
compliance with the foregoing requirements under Rule 144.
Our directors and officers and shareholders holding an aggregate of
10,003,814 shares of our common stock, including shares issuable upon conversion
of our convertible securities, have agreed that they will not offer, sell or
agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock without the prior written consent of Bear, Stearns & Co. Inc. for a
period of 180 days from the date of this prospectus.
Any of our employees who purchased shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701, which
permits nonaffiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with the Rule 144 holding period restrictions, in each
case commencing 90 days after the date of this prospectus. As of January 18,
2000, the holders of options exercisable for approximately 133,192 shares of
common stock will be eligible to sell their shares after 90 days from the
completion of this offering. The holders of the remaining outstanding options
will be able to sell their shares on the expiration of the 180-day lockup period
or at various dates thereafter subject to vesting of such options. In addition,
the holders of warrants exercisable for approximately 457,018 shares of common
stock will
67
<PAGE>
be eligible to sell their shares pursuant to Rule 144 at various times after
90 days after the date of this prospectus.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
our Employee Stock Option Plan within 180 days after the date of this
prospectus, permitting the resale of such shares by nonaffiliates in the public
market without restriction under the Securities Act.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except
that we may issue, and grant options to purchase, shares of common stock under
our Employee Stock Option Plan. In addition, we may issue shares of common stock
in connection with any acquisition of, or strategic relationship with, another
company if the terms of issuance provide that such common stock shall not be
resold prior to the expiration of the 180-day period referenced in the preceding
sentence.
Following this offering, holders of an aggregate of 9,623,691 shares of our
common stock, including shares issuable upon conversion of our convertible
securities, will have demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares in any future registration of our
securities.
68
<PAGE>
UNDERWRITING
UNDERWRITING AGREEMENT
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., U.S. Bancorp Piper Jaffray Inc. and
J.C. Bradford & Co., has severally agreed to purchase from us the aggregate
number of shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Bear, Stearns & Co. Inc.....................................
U.S. Bancorp Piper Jaffray Inc..............................
J.C. Bradford & Co..........................................
[others]....................................................
-----
Total.....................................................
=====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all of the above shares of our common stock if any are purchased.
PUBLIC OFFERING PRICE
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this prospectus
and at that price less a concession not in excess of $ per share of common
stock to other dealers who are members of the National Association of Securities
Dealers, Inc. The underwriters may allow, and those dealers may reallow,
concessions not in excess of $ per share of common stock to certain other
dealers. After this offering, the offering price, concessions and other selling
terms may be changed by the underwriters. Our common stock is offered subject to
receipt and acceptance by the underwriters and subject to other conditions,
including the right to reject orders in whole or in part. The underwriters have
informed us that the underwriters do not expect to confirm sales of common stock
to any accounts over which they exercise discretionary authority.
The following table summarizes the per share and total public offering price
of the shares of common stock in the offering, the underwriting compensation to
be paid to the underwriters by us and the proceeds of the offering, before
expenses, to us. The information presented assumes either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
---------------------
WITHOUT WITH
OVER- OVER-
PER SHARE ALLOTMENT ALLOTMENT
--------- --------- ---------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discounts and commissions payable by us........
------- ------- -------
Proceeds, before expenses, to us............................ $ $ $
======= ======= =======
</TABLE>
The underwriting discounts and commissions per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
69
<PAGE>
We estimate total expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .
OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
INDEMNIFICATION AND CONTRIBUTION
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act or will contribute to payments that the underwriters may be required to make
in respect of those liabilities.
LOCK-UP AGREEMENTS
Our directors and officers and shareholders holding an aggregate of
10,003,814 shares of common stock, including shares issuable upon conversion of
convertible securities, have agreed that they will not offer, sell or agree to
sell, directly or indirectly, or otherwise dispose of any shares of common stock
in the public market without the prior written consent of Bear, Stearns &
Co. Inc. for a period of 180 days from the date of this prospectus.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of common
stock, except that we may issue, and grant options to purchase, shares of common
stock under our Employee Stock Option Plan. In addition, we may issue shares of
common stock in connection with any acquisition of, or strategic relationship
with, another company if the terms of such issuance provide that such common
stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence.
NASDAQ STOCK MARKET QUOTATION
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the representatives of the
underwriters. Among the factors to be considered in those negotiations, the
primary factors will be our results of operations in recent periods, estimates
of our prospects and the industry in which we compete, an assessment of our
management, the general state of the securities markets at the time of this
offering and the prices of similar securities of generally comparable companies.
We have applied for approval for the quotation of our common stock on the Nasdaq
Stock Market, under the symbol "PRMZ." We cannot assure you, however, that an
active or orderly trading market will develop for the common stock or that the
common stock will trade in the public market subsequent to this offering at or
above the initial offering price.
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
actually sold to them. The underwriters may elect to cover any such short
position by purchasing shares of
70
<PAGE>
common stock in the open market and may impose penalty bids, under which selling
concessions allowed to syndicate members or other broker-dealers participating
in this offering are reclaimed if shares of common stock previously distributed
in this offering are repurchased in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the common
stock to the extent that it discourages resales thereof. No representation is
made as to the magnitude or effect of any such stabilization or other
transactions. Such transactions may be effected on the Nasdaq Stock Market or
otherwise and, if commenced, may be discontinued at any time.
RESERVED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to shares of common stock to be sold in this
offering for sale to our directors, officers, employees, business associates,
vendors and related persons. Purchases of reserved shares are to be made through
an account at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns &
Co. Inc.'s procedures for opening an account and transacting in securities. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
by our directors, officers, employees, business associates, vendors and related
persons will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
71
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the shares of common stock offered
by this prospectus will be passed upon for PRIMIS, Inc. by Powell, Goldstein,
Frazer & Murphy LLP, Atlanta, Georgia. Certain legal matters in connection with
the offering will be passed upon by Morris, Manning & Martin, L.L.P., counsel to
the underwriters listed on the cover page of this prospectus.
EXPERTS
The consolidated financial statements of PRIMIS, Inc. as of December 31,
1997 and 1998, and for each of the three years in the period ended December 31,
1998, included in this prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of InspecTech Corporation as of December 31, 1998,
and for the year ended December 31, 1998, included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Kushner & Robertson, Inc. for the period from
January 1, 1998 to June 14, 1998, included in this prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, a registration statement
on Form S-1 under the Securities Act of 1933 with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedules thereto.
Certain items are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to us and our common stock, reference
is made to the registration statement and the exhibits and any schedules filed
therewith. Statements contained in this prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance, if such contract or document is filed as an exhibit, reference is made
to the copy of such contract or other documents filed as an exhibit to the
registration statement, each statement being qualified in all respects by such
reference. A copy of the registration statement, including the exhibits and
schedules thereto, may be read and copied at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an Internet site at http://www.sec.gov, from
which interested persons can electronically access the registration statement,
including the exhibits and any schedules thereto.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance with those requirements, will file periodic reports, proxy statements
and other information with the SEC. These reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
We intend to furnish our shareholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim financial information.
We also maintain an Internet site at http://www.primis.com. OUR WEB SITE AND
THE INFORMATION CONTAINED THEREIN OR CONNECTED THERETO WILL NOT BE DEEMED TO BE
INCORPORATED INTO THIS PROSPECTUS OR THE REGISTRATION STATEMENT OF WHICH IT
FORMS A PART.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PRIMIS, INC.
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999 (unaudited)........................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and for the Nine Months
Ended September 30, 1998 (unaudited) and 1999
(unaudited)............................................... F-4
Statement of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1997 and 1998 and for the Nine
Months Ended September 30, 1999 (unaudited)............... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and for the Nine Months
Ended September 30, 1998 (unaudited) and 1999
(unaudited)............................................... F-6
Notes to Consolidated Financial Statements.................. F-7
INSPECTECH CORPORATION
Report of Independent Accountants........................... F-17
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999 (unaudited)............................ F-18
Consolidated Statements of Operations for the Year Ended
December 31, 1998 and the Nine Months Ended September 30,
1999 (unaudited).......................................... F-19
Statement of Changes in Shareholders' Equity (Deficit) for
the Year Ended December 31, 1998 and the Nine Months Ended
September 30, 1999 (unaudited)............................ F-20
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1998 and for the Nine Months Ended
September 30, 1999 (unaudited)............................ F-21
Notes to Financial Statements............................... F-22
KUSHNER & ROBERTSON, INC.
Report of Independent Accountants........................... F-30
Statement of Operations for the Period January 1, 1998
through June 14, 1998..................................... F-31
Statement of Changes in Shareholders' Equity for the Period
January 1, 1998 through June 14, 1998..................... F-32
Statement of Cash Flows for the Period January 1, 1998
through June 14, 1998..................................... F-33
Notes to Financial Statements............................... F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
PRIMIS, Inc. and its subsidiaries at December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
April 9, 1999,
except as to Note 11
for which the date is
May 27, 1999
F-2
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998, AND SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------- AS OF SEPTEMBER 30,
1997 1998 1999
----------- ----------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................ $ 677,223 $ 3,683,836 $ 880,456
Certificate of deposit........................... 560,000 560,000
Accounts receivable, less allowance for doubtful
accounts of approximately $46,000 and $449,000
at December 31, 1997 and 1998 and $602,000 at
September 30, 1999, respectively............... 694,753 2,979,446 3,932,740
Prepaid expenses and other current assets........ 129,230 98,043 154,228
----------- ----------- ------------
Total current assets........................... 1,501,206 7,321,325 5,527,424
Property and equipment, net........................ 321,079 753,767 2,984,538
Intangible assets, net of accumulated amortization
of approximately $87,000 and $350,000 at December
31, 1997 and 1998 and $947,000 at September 30,
1999, respectively............................... 1,277,565 6,782,087 10,832,611
Security deposits and other assets................. 56,179 58,059 282,144
----------- ----------- ------------
Total assets................................... $ 3,156,029 $14,915,238 $ 19,626,717
=========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses............ $ 441,802 $ 861,194 $ 1,852,822
Current portion of long-term debt................ 267,472 591,764 3,616,949
----------- ----------- ------------
Total current liabilities...................... 709,274 1,452,958 5,469,771
Long-term debt, less current portion............... 777,415 996,907 3,910,873
----------- ----------- ------------
Total liabilities.............................. 1,486,689 2,449,865 9,380,644
Series A convertible redeemable preferred stock,
$.01 par value, 1,200,000 shares authorized, 0, 0
and 1,091,242 shares issued and outstanding at
December 31, 1997 and 1998 and September 30,
1999, respectively............................... -- -- 4,466,818
Class A Redeemable convertible preferred stock..... 1,467,449 -- --
Commitments and contingencies (Note 5)
Shareholders' equity
Common stock, $.01 par value, 15,000,000 shares
authorized, 3,358,332, 6,958,891 and 7,068,873
shares issued and outstanding at December 31,
1997 and 1998 and September 30, 1999,
respectively................................... 33,583 69,588 70,688
Additional paid-in capital....................... 3,285,639 17,250,169 17,609,226
Accumulated deficit.............................. (3,117,331) (4,854,384) (11,900,659)
----------- ----------- ------------
Total shareholders' equity..................... 201,891 12,465,373 5,779,255
----------- ----------- ------------
Total liabilities and shareholders' equity..... $ 3,156,029 $14,915,238 $ 19,626,717
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................ 1,922,025 4,155,116 14,355,790 8,718,345 17,824,357
Cost of revenues.................... 1,000,900 2,537,400 7,823,800 4,813,962 9,982,141
----------- ----------- ----------- ----------- -----------
Gross profit........................ 921,125 1,617,716 6,531,990 3,904,383 7,842,216
----------- ----------- ----------- ----------- -----------
Operating expenses
Selling, general and
administrative.................. 1,862,092 2,517,956 7,350,183 4,707,317 13,478,237
Research and development.......... -- 122,508 205,648 109,760 --
Depreciation and amortization..... 174,953 217,722 522,334 328,527 1,447,449
----------- ----------- ----------- ----------- -----------
Total operating expenses...... 2,037,045 2,858,186 8,078,165 5,145,604 14,925,686
----------- ----------- ----------- ----------- -----------
Operating loss...................... (1,115,920) (1,240,470) (1,546,175) (1,241,221) (7,083,470)
Other income and expense
Interest and other income......... 19,833 45,256 155,481 97,520 118,034
Interest expense.................. (4,930) (3,461) (24,323) (10,530) (80,839)
----------- ----------- ----------- ----------- -----------
Loss before provision for
income taxes................ (1,101,017) (1,198,675) (1,415,017) (1,154,231) (7,046,275)
Provision for income taxes........ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net loss.......................... $(1,101,017) $(1,198,675) $(1,415,017) $(1,154,231) $(7,046,275)
Preferred stock dividend.......... -- -- -- -- (101,849)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders.................... $(1,101,017) $(1,198,675) $(1,415,017) $(1,154,231) $(7,148,124)
=========== =========== =========== =========== ===========
Net loss per common and common
equivalent shares--basic and
diluted......................... $ (1.12) $ (.43) $ (.29) $ (.28) $ (1.03)
=========== =========== =========== =========== ===========
Weighted average common and common
equivalent shares
outstanding--basic and
diluted......................... 981,370 2,800,113 4,913,950 4,195,466 6,959,582
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
NOTE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------------- -------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDER
-------- ----------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......................... 420,000 $ 1,467,449 600,000 $ 6,000 $ 285,120 $ --
Issuance of common stock............................ 1,400,000 14,000 1,364,102
Receipt of note receivable from shareholder and
related accrued interest.......................... (106,504)
Net loss............................................
-------- ----------- --------- ------- ----------- ------------
Balance at December 31, 1996.......................... 420,000 1,467,449 2,000,000 20,000 1,649,222 (106,504)
Issuance of common stock............................ 1,458,332 14,583 1,735,417
Exchange of note receivable from shareholder and
related accrued interest for common stock......... (100,000) (1,000) (99,000) 106,504
Net loss............................................
-------- ----------- --------- ------- ----------- ------------
Balance at December 31, 1997.......................... 420,000 1,467,449 3,358,332 33,583 3,285,639 --
Issuance of common stock............................ 2,900,000 29,000 11,582,050
Exercise of options................................. 200,000 2,000 398,000
Conversion of Class A Preferred stock............... (420,000) (1,467,449) 500,509 5,005 1,784,480
Compensation expense................................ 200,000
Net loss............................................
-------- ----------- --------- ------- ----------- ------------
Balance at December 31, 1998.......................... 6,958,841 69,588 17,250,169 --
Issuance of common stock............................ 110,032 1,100 460,907
Dividends on Series A Preferred stock............... (101,850)
Net loss............................................
Balance at September 30, 1999 (unaudited)............. -- $ -- 7,068,873 $70,688 $17,609,226 $ --
======== =========== ========= ======= =========== ============
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDERS'
DEFICIT EQUITY
------------ -------------
<S> <C> <C>
Balance at December 31, 1995.......................... $ (817,639) $ 940,930
Issuance of common stock............................ 1,378,102
Receipt of note receivable from shareholder and
related accrued interest.......................... (106,504)
Net loss............................................ (1,101,017) (1,101,017)
------------ ------------
Balance at December 31, 1996.......................... (1,918,656) 1,111,511
Issuance of common stock............................ 1,750,000
Exchange of note receivable from shareholder and
related accrued interest for common stock......... 6,504
Net loss............................................ (1,198,675) (1,198,675)
------------ ------------
Balance at December 31, 1997.......................... (3,117,331) 1,669,340
Issuance of common stock............................ 11,611,050
Exercise of options................................. 400,000
Conversion of Class A Preferred stock............... (322,036) --
Compensation expense................................ 200,000
Net loss............................................ (1,415,017) (1,415,017)
------------ ------------
Balance at December 31, 1998.......................... (4,854,384) 12,465,373
Issuance of common stock............................ 462,007
Dividends on Series A Preferred stock............... (101,850)
Net loss............................................ (7,046,275) (7,046,275)
Balance at September 30, 1999 (unaudited)............. $(11,900,659) $ 5,779,255
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998,
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities
Net loss.............................................. $(1,101,017) $(1,198,675) $(1,415,017) $(1,154,231) $(7,046,275)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization....................... 174,953 217,722 522,334 283,922 1,590,137
Provision for doubtful accounts..................... 10,000 26,022 458,534 266,222 153,625
Noncash interest expense on notes payable........... -- -- 5,868 (39,354)
Compensation expense for stock options granted...... -- -- 200,000 150,000
Changes in operating assets and liabilities
Accounts receivable............................... (118,581) (518,934) (2,000,804) (1,177,302) (840,874)
Other assets...................................... (45,105) (99,262) 49,090 64,897 (267,004)
Accounts payable and accrued expenses............. 11,453 336,466 244,582 (383,389) 1,071,786
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities........... (1,068,297) (1,236,661) (1,935,413) (1,949,881) (5,377,959)
----------- ----------- ----------- ----------- -----------
Cash flow from investing activities
Purchases of property and equipment................... (73,284) (84,457) (268,877) (131,369) (2,560,733)
Cash paid for business acquisitions................... (20,000) (324,596) (3,466,823) (2,593,576) (1,891,625)
Purchase of certificate of deposit.................... -- -- (560,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........... (93,284) (409,053) (4,295,700) (2,724,945) (4,452,358)
----------- ----------- ----------- ----------- -----------
Cash flow from financing activities
Payments on long-term debt............................ (84,814) (94,891) (288,767) (85,652) (369,667)
Payment of capital lease obligation................... -- -- (27,639) (37,328)
Proceeds from issuance of stock....................... 1,271,598 1,750,000 8,994,132 8,994,132 5,933,269
Proceeds from long-term debt.......................... -- -- 560,000 1,500,663
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities....... 1,186,784 1,655,109 9,237,726 8,908,480 7,026,937
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash......................... 25,203 9,395 3,006,613 4,233,654 (2,803,380)
Cash at beginning of period............................. 642,625 667,828 677,223 677,223 3,683,836
----------- ----------- ----------- ----------- -----------
Cash at end of period................................... $ 667,828 $ 677,223 $ 3,683,836 $4,910,877 $ 880,456
=========== =========== =========== =========== ===========
Supplemental cash flow information
Cash paid for interest................................ $ 4,930 $ 3,461 $ 3,858 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We are a national provider of appraisals, title searches, flood
determination, valuation tools and other property information services. The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries from the date of acquisition after elimination of
intercompany transactions. Our revenues are subject to fluctuation based on the
volume of mortgage lending activity, which is dependent on factors such as
interest rates, home sales, and the general economic conditions.
The consolidated financial statements as of and for the nine months ended
September 30, 1998 and 1999 include the accounts of the Company and its
wholly-owned subsidiaries from the date of acquisition after the elimination of
intercompany transactions. In the opinion of management, the unaudited
information reflects all adjustments, consisting of normal recurring accruals
that are necessary to fairly present the results for the interim periods shown.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported and disclosures made in the
financial statements and accompanying notes. Actual results may differ from
those estimates. Such estimates include the useful lives and impairment of
intangible assets, the useful lives of property and equipment, the allowance for
doubtful accounts and income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents at December 31,
1997 and 1998 consist of funds on deposit with banks.
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost. Property and equipment are depreciated using the
double-declining method over the assets' expected useful lives which range from
5 to 7 years. Assets acquired under capital leases are amortized over the term
of the underlying lease. Amortization of leasehold improvements is recorded on a
straight-line basis over the shorter of the useful life of the improvement or
the term of the lease. Such amounts are included in depreciation expense.
INCOME TAXES
We account for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109").
Under the Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
We provide a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
F-7
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets represent covenants not to compete and costs in excess of
net assets acquired relating to acquired businesses. Amounts assigned to
covenants not to compete of approximately $110,000 and $1,253,000 for
December 31, 1997 and 1998, respectively, are amortized on a straight-line basis
over periods of 4 to 6 years. Costs in excess of net assets acquired of
approximately $1,254,000 and $5,876,000 at December 31, 1997 and 1998,
respectively, are amortized on a straight-line basis over 15 years. The lives
established for these assets are a composite of many factors which are subject
to change because of the nature of our operations. This is particularly true for
costs in excess of net assets acquired which reflect value attributable to the
going concern nature of acquired businesses, the stability of their operations,
market presence and reputation. Accordingly, at each balance sheet date, a
determination is made by management to ascertain whether the intangible assets
have been impaired based on several criteria, including but not limited to sales
trends and undiscounted cash flows.
Impairment of value, if any, is recognized in the period in which it is
determined. We do not believe that there are any facts or circumstances
indicating impairment of intangible assets at December 31, 1998.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based upon our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowance has historically been within our management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for our financial
instruments approximate fair values.
ADVERTISING EXPENDITURES
We expense the cost of advertising programs when incurred. Advertising
expense was approximately $53,000, $12,000 and $23,000 in 1996, 1997 and 1998,
respectively.
OTHER MATTERS
Certain prior year amounts have been reclassified to conform to current year
presentation.
F-8
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
At December 31, 1997 and 1998, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
Office and computer equipment............................... $ 543,546 $1,408,406
Furniture................................................... 109,248 289,667
Leasehold improvements...................................... 10,097 32,571
--------- ----------
662,891 1,730,644
Less: Accumulated depreciation and amortization......... (341,812) (976,877)
--------- ----------
Property and equipment, net............................. $ 321,079 $ 753,767
========= ==========
</TABLE>
Depreciation expense was $141,000, $167,000 and $259,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
3. ACQUISITIONS
In 1998, we completed two acquisitions of residential appraisal companies
located in California and Florida. The acquisitions were accounted for under the
purchase method. Accordingly, the purchase price was allocated to the assets
acquired including identifiable and unidentifiable intangible assets and
liabilities assumed based on estimated fair values. Costs in excess of net
assets acquired and covenants not to compete recorded as intangible assets in
connection with the acquisitions were approximately $4,531,000 and $1,143,000
for the California and Florida acquisitions, respectively. Aggregate cash
payments for the California acquisition were approximately $3,136,000. As
additional consideration, we agreed to issue up to 750,000 shares of common
stock, with a value of $4 per share, contingent upon the acquiree's attaining
specified earnings for 1998. Based on 1998 results, all 750,000 shares were
issued as of December 31, 1998. This contingent consideration was treated as
additional purchase price and included in the total costs in excess of net
assets acquired. Aggregate cash payments for the Florida acquisition at closing
were approximately $682,000 with another $47,000 due on or before March 14,
1999. Such amount was paid March 12, 1999.
In 1997, we completed seven acquisitions of residential appraisal companies
located in Georgia, Florida, North Carolina, Alabama and Maryland. The
acquisitions were accounted for under the purchase method. Aggregate cash
payments at closing were approximately $325,000. In conjunction with the
acquisitions, we issued non-interest bearing notes which call for payments in
equal annual installments over periods of two to four years totaling
approximately $935,000. Costs in excess of net assets acquired and covenants not
to compete recorded as intangible assets in connection with the acquisitions
were approximately $935,000. Certain selling shareholders of the acquired
companies received employment agreements under which we are required to pay the
individuals a specified salary and a percentage of revenue over periods ranging
from one to three years. These costs will be recorded as expense in the periods
in which the related services are performed.
In February 1996, we acquired substantially all of the assets and assumed
certain liabilities of a residential appraisal business in the Washington, D.C.
area. The acquisition was accounted for under the purchase method. The purchase
price was $200,000, with $20,000 payable at closing and the remainder payable in
four annual payments of $45,000 each. As additional consideration, we will make
payments to the seller for each of the four years following the closing in an
amount equal to 5% of the amount by which annual revenues of the acquired
Company exceed $1,000,000. Such additional consideration is contractually
limited to $200,000. Any contingent payments which are made will be expensed as
incurred. Under the terms of the agreement, a contingent payment of
approximately
F-9
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
$29,000 relating to 1998 has been recorded in our statements of operations for
the year ended December 31, 1998. We recorded costs in excess of net assets
acquired and covenants not to compete as intangible assets in connection with
the acquisition of $100,000 and $68,000, respectively.
The results of operations of each of the aforementioned acquired companies
are included in our results of operations since the respective acquisition
dates.
The following unaudited pro forma summary combines the consolidated results
of the Company and the 1997 and 1998 acquisitions as if the acquisitions had
occurred as of January 1, 1997. The pro forma summary does not purport to
represent what our results of operations would actually have been if such
transactions had occurred as of January 1, 1997, or to project the Company's
results of operations for any future period.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Pro forma revenues.......................................... $16,435,000 $21,217,000
Pro forma net losses........................................ (1,208,000) (1,044,000)
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Non-compete agreements............................... $ 110,350 $1,252,950
Goodwill............................................. 1,254,234 5,879,023
---------- ----------
Subtotal............................................. 1,364,584 7,131,973
Less: Accumulated amortization....................... (87,019) (349,886)
---------- ----------
Intangibles, net..................................... $1,277,565 $6,782,087
========== ==========
</TABLE>
Amortization expense relating to intangible assets was $50,000 and $263,000
for the years ended December 31, 1997 and 1998, respectively.
5. LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Note payable to bank, principal and interest payable monthly
at a rate of 7.75%, due in full on November 15, 2001...... $ -- $ 546,347
Notes payable to related parties, non-interest bearing...... 1,044,887 855,300
Capital lease obligations................................... -- 187,024
---------- ----------
1,044,887 1,588,671
Less: Current installments.................................. 267,472 591,764
---------- ----------
Long-term debt, excluding current installments.............. $ 777,415 $ 996,907
========== ==========
</TABLE>
Notes payable to related parties arose from business acquisitions in 1996
and 1997.
F-10
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
At December 31, 1998, approximate aggregate payments of long-term debt,
including capitalized lease obligations, are as follows:
<TABLE>
<S> <C>
Years ending December 31,
1999...................................................... $ 592,000
2000...................................................... 590,000
2001...................................................... 460,000
2002...................................................... 26,000
2003 and thereafter....................................... 2,000
----------
$1,670,000
==========
</TABLE>
During 1998, the Company acquired a certificate of deposit to be held as
collateral for the note payable to bank.
6. COMMITMENTS AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
and capital leases expiring in various years through 2003. Future minimum
payments under the noncancelable operating and capital leases with initial terms
of one year or more consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ----------
<S> <C> <C>
1999...................................................... $ 61,816 $ 803,817
2000...................................................... 61,816 606,662
2001...................................................... 61,078 379,987
2002...................................................... 25,792 263,997
2003...................................................... 3,672 170,273
-------- ----------
Total minimum obligations............................... 214,174 $2,224,736
==========
Less interest on capital leases......................... (27,150)
--------
Present value of net minimum obligation................. 187,024
Less: Current portions.................................. (49,039)
--------
Long-term obligations at December 31, 1998.............. $137,985
========
</TABLE>
Rental expense under operating leases was approximately $224,000, $318,000
and $707,000 for the years ended December 31, 1996, 1997, and 1998,
respectively.
From time to time, we are made a party to routine litigation incidental to
our business. As of December 31, 1998, we were not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our company.
The Company has employment agreements with several members of management
which provide for severance payments upon termination without cause.
7. SHAREHOLDERS' EQUITY
In December 1996, we amended our articles of incorporation to authorize
6,000,000 shares of Class A voting common stock ($.01 par), 500,000 shares of
Class B nonvoting common stock ($.01 par), 2,500,000 shares of preferred stock
and 420,000 shares of redeemable no par Class A convertible voting preferred
stock with a stated value of $3.57143 per share.
F-11
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
In May 1997, we sold 1,458,332 shares of Class A voting common stock for
$1,750,000 in cash. Also, 100,000 shares of Class A common stock held by an
officer were redeemed at $1 per share in exchange for forgiveness of a related
note receivable and accrued interest.
During June 1998, we consummated the following equity transactions:
i. Amended our articles of incorporation to reclassify its Class A and
Class B common stock into a single class of common stock.
ii. Sold 2,150,000 shares of common stock for approximately $8,600,000. An
officer exercised 200,000 options to acquire common stock for
approximately $400,000.
iii. Converted all 420,000 shares of Class A convertible preferred stock
issued and outstanding into an equivalent number of shares of common
stock pursuant to the original terms of the agreement. In addition, we
issued approximately 81,000 shares of common stock in settlement of the
cumulative unpaid dividends of approximately $320,000.
8. STOCK BASED COMPENSATION
We have issued options to our employees under the terms of the 1997 Employee
Stock Option Plan ("The Plan"). The Plan permits management to grant either
incentive stock options or nonqualified stock options to purchase shares of
Common Stock to our employees. The Plan authorizes the issuance of options to
purchase up to an aggregate of 4,000,000 shares of Common Stock. Options issued
under the plan vest at varying rates over periods up to five years from the date
of grant. The maximum term for options issued under the plan is ten years.
The following table summarizes information about options issued in 1997 and
1998 and outstanding at December 31, 1997 and 1998.
<TABLE>
<CAPTION>
1997 1998
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year...................... -- $ -- 675,000 $1.37
Granted............................................. 704,200 1.35 279,750 4.00
Exercised........................................... -- -- 200,000 2.00
Forfeited........................................... 29,200 1.00 40,500 1.20
-------- --------
Outstanding at end of year............................ 675,000 1.37 714,250 2.22
-------- --------
Options exercisable at year-end....................... -- -- 126,667 1.00
-------- -------- -----
Weighted average fair value of options granted during
the year............................................ $ .33 $ .85
</TABLE>
F-12
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK BASED COMPENSATION (CONTINUED)
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF OPTIONS AVERAGE
OUTSTANDING AT REMAINING
EXERCISE DECEMBER 31, CONTRACTUAL
PRICES 1998 LIFE
- -------- -------------- -----------
<S> <C> <C>
$1.00............................................... 259,000 8.41 years
1.20............................................... 175,500 8.87 years
4.00............................................... 279,750 9.79 years
</TABLE>
We account for employee stock options in accordance with Accounting
Principles Board Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and
related interpretations. The fair market value of an option is determined by the
compensation committee and approved by the Board of Directors. In no event can
the exercise price of an option be less than the fair market value of a share of
our common stock on the date the stock option is granted. During 1998, we
recognized $200,000 in compensation expense relating to options granted to an
officer of the Company during 1997.
We have adopted the disclosure-only provisions of Financial Accounting
Standards Board Statement 123 ("FAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, which define a fair value based method whereby compensation
expense is measured at the grant date based on the fair value of the award. Had
compensation cost for our stock-based compensation plan been determined on a
fair value basis in accordance with the provisions of this statement, our net
loss for the years ended December 31, 1997 and 1998, would have been as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
As reported........................................ $(1,198,675) $(1,415,017)
----------- -----------
Pro Forma.......................................... $(1,231,924) $(1,449,189)
----------- -----------
</TABLE>
The amount of the pro forma charge has been determined using the minimum
value method as permitted for private companies by FAS 123. For purposes of the
calculation, management used the following assumptions:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Risk rate of return..................................... 5.58% 4.92%
Expected life........................................... 5 years 1.81 years
Volatility.............................................. 0% 0%
Dividend yield.......................................... 0% 0%
</TABLE>
9. INCOME TAXES
We have available at December 31, 1997 and 1998, unused Federal and state
net operating loss carryforwards of $2,839,950 and $4,254,967, respectively,
that will expire between 2012 and 2019, and may be applied to reduce future
taxable income. Use of the net operating loss carryforwards may be limited on an
annual basis due to changes in ownership.
Our net deferred tax assets of $1,079,181 and $1,616,887 at December 31,
1997 and 1998, respectively, result principally from net operating loss
carryforwards and have been reduced by a valuation allowance of the same amount.
We have determined this valuation allowance is appropriate
F-13
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
because the criteria for recognition of the deferred tax asset in accordance
with SFAS No. 109 have not been met.
10. SEGMENT INFORMATION
Our management considers the performance and preparation of property
information services to be our sole business segment. No single customer
accounted for more than 10% of our revenues in 1996, 1997, or 1998.
11. SUBSEQUENT EVENTS
On January 25, 1999, our Chief Executive Officer resigned. Severance expense
related to this event of approximately $577,000 will be recognized in 1999.
On February 26, 1999, we acquired a residential appraisal company with
offices in Toledo, OH, and Detroit, MI. Aggregate cash payments at closing were
$352,000 with an additional $890,000 due in two equal installments over the next
two years.
On April 1, 1999, we acquired a residential appraisal company located in
Houston, TX. Aggregate cash payments at closing were $240,000 with an additional
$560,000 due in four equal installments over the next four years.
On May 27, 1999, we issued 1,074,995 shares of preferred stock for
approximately $4,300,000.
12. SUBSEQUENT EVENTS (UNAUDITED)
INTANGIBLES
In accordance with our accounting policies for intangible assets, we
evaluate whether changes in events and circumstances warrant revised estimates
for these assets. During 1999, we made a determination regarding impairment of
these assets and their remaining useful life. We considered the changes that
occurred in 1999, specifically, the changes in the nature of our business model,
web-based business-to-business strategy, new management, national verses local
customer sales and marketing, delivery methodology and increased competition in
a web-based environment. Based upon our assessment, we reduced the useful life
for the costs in excess of net assets acquired to eight years from 15 years,
effective January 1, 1999. Goodwill for businesses acquired during 1999 has been
recorded based on an eight year life. The unamortized cost for pre-1999
acquisitions are amortized over the lesser of the remaining useful life or eight
years. The impact of this change in estimate is included in our statement of
operations for the nine months ended September 30, 1999. The change in estimate
increased amortization expense by $335,000 for the nine months ended
September 30, 1999 and would have increased amortization expense by $109,000 and
$188,000 for the nine months ended September 30, 1998 and the year ended
December 31, 1998, respectively.
F-14
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITIONS
During the nine months ended September 30, 1999, we consummated the
following acquisitions:
<TABLE>
<CAPTION>
PER SHARE
FAIR VALUE SHARES OF
OF PRIMIS COMMON
ACQUISITION COMMON STOCK NOTES TOTAL
BUSINESS ACQUIRED DATE STOCK ISSUED PAYABLE(2) EARNOUT CASH CONSIDERATION
- -------------------------------------- ----------- ---------- --------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
APPRAISAL COMPANIES
The William Fall Group................ 02/26/99 $ 890,000 $ 352,196 $1,242,196
First Houston Appraisals, Inc......... 04/01/99 560,000 240,000 800,000
Cramer Property Services, Inc......... 09/03/99 $6.00 10,000 356,000 392,000 808,000
E.T. Jones & Associates, Inc.......... 09/29/99 4.00 50,000 1,000,000 830,000 2,030,000
TITLE COMPANY
Stewart Title of Birmingham, Inc...... 09/29/99 4.00 50,000 600,000 $500,000 200,000 1,000,000(1)
------- ---------- -------- ---------- ----------
Total............................. 110,000 $3,406,000 $500,000 $2,014,196 $5,880,196
------- ---------- -------- ---------- ----------
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
FAIR VALUE NET ASSETS
OF NET ACQUIRED AND
TANGIBLE INDENTIFIABLE INDENTIFIABLE
ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED ACQUIRED ASSETS ASSETS
- -------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
APPRAISAL COMPANIES
The William Fall Group................ $431,054 $243,342 $ 567,800
First Houston Appraisals, Inc......... 19,607 240,000 540,393
Cramer Property Services, Inc......... 17,885 10,000 780,115
E.T. Jones & Associates, Inc.......... 8,000 2,022,000
TITLE COMPANY
Stewart Title of Birmingham, Inc...... 76,000 924,000
-------- -------- ----------
Total............................. $552,546 $493,342 $4,834,308
-------- -------- ----------
</TABLE>
- --------------------
(1) Excludes earnout of up to $500,000 payable to the former owners which has
not been earned as of the date hereof.
(2) The notes payable to the former owners are payable in equal installments
over a period of two to four years.
These acquisitions were accounted for under the purchase method.
Identifiable intangible assets and the purchase price in excess of identified
tangible and intangible assets acquired have been allocated to goodwill and are
being amortized over their remaining useful lives. Identifiable intangible
assets consist of non-compete agreements with previous owners of the acquired
entities. These intangible assets, in the aggregate of $493,000, are being
amortized over a period of 4 to 6 years. Goodwill, in the aggregate of
$4.8 million, is being amortized primarily over 8 years. Based on the
acquisition dates our evaluation of the allocation of the excess of cost over
the fair value of the net assets acquired between identifiable and
unidentifiable intangible assets and is in process and the final purchase price
allocation could differ from these estimates and assumptions.
During the period of October 1, 1999 through January 15, 2000 we consummated
the following acquisitions:
<TABLE>
<CAPTION>
PER SHARE
FAIR VALUE SHARES OF
OF PRIMIS COMMON
ACQUISITION COMMON STOCK NOTES TOTAL
BUSINESS ACQUIRED DATE STOCK ISSUED PAYABLE(1) CASH CONSIDERATION
- ----------------------------------------------- ----------- ---------- --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
APPRAISAL COMPANIES
Fournier, Crane & Associates................... 12/03/99 $15.31 9,798 $ 125,000 $ 275,000 $ 550,000
The Appraisal Company.......................... 01/07/00 380,000 376,300 756,300
Bliss Associates............................... 01/18/00 1,055,000 2,100,000 3,155,000
INSPECTION COMPANY
InspecTech Corporation......................... 01/07/00 15.31 777,442 597,366 12,500,000
------- ---------- ---------- -----------
Total...................................... 787,240 $1,560,000 $3,348,666 $16,961,300
------- ---------- ---------- -----------
<CAPTION>
EXCESS OF
COST OVER
FAIR VALUE OF
FAIR VALUE NET ASSETS
OF NET ACQUIRED AND
TANGIBLE INDENTIFIABLE INDENTIFIABLE
ASSETS INTANGIBLE INTANGIBLE
BUSINESS ACQUIRED ACQUIRED ASSETS ASSETS
- ----------------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
APPRAISAL COMPANIES
Fournier, Crane & Associates................... $ 18,000 $ 532,000
The Appraisal Company.......................... 26,300 $50,000 680,000
Bliss Associates............................... 774,000 2,381,000
INSPECTION COMPANY
InspecTech Corporation......................... 114,000 12,386,000
-------- ------- -----------
Total...................................... $932,300 $50,000 $15,979,000
-------- ------- -----------
</TABLE>
- --------------------
(1) The notes payable to the former owners are payable in equal installments
over a period of two to four years.
These acquisitions were accounted for under the purchase method.
Identifiable intangible assets and the purchase price in excess of identified
tangible and intangible assets acquired have been allocated to goodwill and are
being amortized over their remaining useful lives. Identifiable intangible
assets consist of non-compete agreements with previous owners of the acquired
entities. These intangible assets, in the aggregate of $50,000, are being
amortized over a period of four to six years as specified in the acquisition
agreements. Goodwill, in the
F-15
<PAGE>
PRIMIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
aggregate of $16.0 million, is being amortized over 8 years. Based on the
acquisition dates our evaluation of the allocation of the excess of cost over
the fair value of the net assets acquired between identifiable and
unidentifiable intangible assets and is in process and the final purchase price
allocation could differ from these estimates and assumptions.
CAPITAL TRANSACTIONS
In October 1999, we issued and sold 725,000 shares of Series B convertible
preferred stock at a purchase price of $6.00 per share, resulting in an
aggregate proceeds of $4,350,000. These securities were not convertible at a
discount to market on the issue date.
In November 1999, we issued and sold convertible promissory notes and
warrants for aggregate proceeds of $10,011,000. These convertible promissory
notes mature six months after the date issued, and bear interest at 8% per
annum. Pursuant to their terms, the notes will convert into shares of our common
stock if an offering is completed prior to the date the notes mature and will
convert into shares of our Series C convertible preferred stock if a qualifying
financing occurs prior to maturity at the lower of $15.31 or the price per share
of the securities issued in the qualifying financing, subject to anti-dilution
requirements. These securities were not convertible at a discount to market at
the issue date.
In January 2000, we issued and sold convertible promissory notes and
warrants for aggregate proceeds of $9,722,000. The convertible promissory notes
bear interest at the rate of 8% per annum, and will mature 6 months after the
date issued unless we complete an initial public stock offering or other
qualifying financing prior to that time. If an initial public offering is
completed within six months, the notes will mature 181 days after the closing of
the offering. Prior to a public offering, the promissory notes are convertible
into shares of our Series C convertible preferred stock. Upon completion of a
public offering of our common stock, the notes will be convertible into shares
of our common stock. In each case, the conversion price is the lower of $15.31
per share or the per share price of the securities issued in a qualifying
financing, subject to anti-dilution adjustments. These securities were not
convertible at a discount to market at the issue date.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders of
PRIMIS, Inc.:
In our opinion, the accompanying balance sheet and the related statement of
operations and changes in shareholders' equity (deficit) and of cash flows
present fairly, in all material respects, the financial position of InspecTech
Corporation at December 31, 1998, and the results of its operations and its cash
flows for the year ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 7, 2000
F-17
<PAGE>
INSPECTECH CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 60,057 $ 56,958
Accounts receivable, less allowance for doubtful accounts
of $127,929 and $148,513 at December 31, 1998 and
September 30, 1999, respectively........................ 96,427 462,525
Prepaid expenses and other current assets................. 147,046 181,025
------------ ------------
Total current assets.................................... 303,530 700,508
Property and equipment, net................................. 347,235 229,543
Intangible assets, net of accumulated amortization of
$72,524 and $138,299 at December 31, 1998 and September
30, 1999, respectively.................................... 347,860 339,496
Security deposits and other assets.......................... 66,633 4,616
------------ ------------
Total assets............................................ $ 1,065,258 $ 1,274,163
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses..................... $ 1,057,958 $ 822,118
Notes payable and capital lease obligations............... 5,251,303 255,650
------------ ------------
Total current liabilities............................... 6,309,261 1,077,768
Long term portion of capital lease obligations.............. 48,332 --
Total liabilities....................................... 6,357,593 1,077,768
------------ ------------
Contingencies and Commitments (Note 5) -- --
Shareholders' equity (deficit)
Preferred stock no par value, authorized 10,000,000
shares, issued and outstanding 833,333 shares at
December 31, 1998 and 4,204,543 shares at September 30,
1999.................................................... 2,450,000 825,000
Common stock no par value, authorized 50,000,000 shares,
issued and outstanding 7,821,508 shares at December 31,
1998 and 2,319,840 shares at September 30, 1999......... 6,375,475 14,493,673
Additional paid-in capital................................ 696,381 696,381
Accumulated deficit....................................... (14,814,191) (15,818,659)
------------ ------------
Total shareholders' equity (deficit).................... (5,292,335) 196,395
============ ============
Total liabilities and shareholders' equity (deficit).... $ 1,065,258 $ 1,274,163
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
INSPECTECH CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... 3,280,338 2,977,435
Cost of revenues............................................ 2,544,748 1,794,121
----------- -----------
Gross profit................................................ 735,590 1,183,314
----------- -----------
Operating expenses
Selling, general and administrative....................... 3,712,850 1,863,790
Depreciation and amortization............................. 320,132 203,046
----------- -----------
Total operating expenses................................ 4,032,982 2,066,836
----------- -----------
Operating loss.............................................. (3,297,392) (883,522)
Other income and expense
Interest and other expenses, net.......................... (1,167,298) (120,946)
----------- -----------
Loss before provision for income taxes...................... (4,464,690) (1,004,468)
Provision for income taxes.................................. -- --
----------- -----------
Net loss.................................................... $(4,464,690) $(1,004,468)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
INSPECTECH CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1999 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
---------------------- -------------------------- PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME
--------- ---------- ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997........ 833,333 $2,450,000 404,668,919 $ 5,962,226 $366,140 $(69,714)
Issuance of common stock.......... 1,832,408 413,249
Issuance of warrants.............. 330,241
Unrealized loss on marketable
securities...................... 69,714
Net loss..........................
--------- ---------- ------------ ----------- -------- --------
Balance at December 31, 1998........ 833,333 2,450,000 406,501,327 6,375,475 696,381 --
Conversion of Series A Preferred
Stock........................... (833,333) (2,450,000) 833,333 2,450,000
Issuance of Series A1 preferred
stock........................... 4,204,543 825,000
Conversion of debt into common
stock........................... 147,912,586 5,668,198
Net loss..........................
--------- ---------- ------------ ----------- -------- --------
Balance at September 30, 1999
(unaudited)....................... 4,204,543 $ 825,000 555,247,246 $14,493,673 $696,381 $ --
========= ========== ============ =========== ======== ========
<CAPTION>
TOTAL
ACCUMULATED SHAREHOLDER'S
DEFICIT EQUITY (DEFICIT)
------------ ----------------
<S> <C> <C>
Balance at December 31, 1997........ $(10,349,501) $(1,640,849)
Issuance of common stock.......... 413,249
Issuance of warrants.............. 330,241
Unrealized loss on marketable
securities...................... 69,714
Net loss.......................... (4,464,690) (4,464,690)
------------ -----------
Balance at December 31, 1998........ (14,814,191) (5,292,335)
Conversion of Series A Preferred
Stock........................... --
Issuance of Series A1 preferred
stock........................... 825,000
Conversion of debt into common
stock........................... 5,668,198
Net loss.......................... (1,004,468) (1,004,468)
------------ -----------
Balance at September 30, 1999
(unaudited)....................... $(15,818,659) $ 196,395
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
INSPECTECH CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flow from operating activities
Net loss.................................................. $(4,464,690) $(1,004,468)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization........................... 320,132 203,046
Amortization of discount on debt........................ 528,427 25,444
Loss on sale of fixed assets............................ 4,000 --
Issuance of stock for services.......................... 7,320 --
Realized loss on sale of securities..................... 28,242 --
Changes in operating assets and liabilities
Accounts receivable and other current assets.......... 418 (338,060)
Accounts payable and accrued expenses................. 434,933 345,338
----------- -----------
Net cash used in operating activities............... (3,141,218) (768,700)
----------- -----------
Cash flow from investing activities
Purchase of fixed assets and intangibles.................. (266,010) (76,990)
Proceeds from sale of equipment........................... 6,223 --
Proceeds from sale of securities.......................... 184,400 --
----------- -----------
Net cash used in investing activities............... (75,387) (76,990)
----------- -----------
Cash flow from financing activities
Proceeds from issuance of notes payable................... 2,802,071 388,550
Proceeds from issuance of preferred stock................. -- 454,041
Proceeds from issuance of common stock.................... 405,929 --
----------- -----------
Net cash provided by financing activities........... 3,208,000 842,591
----------- -----------
Net decrease in cash........................................ (8,605) (3,099)
Cash at beginning of period................................. 68,662 60,057
----------- -----------
Cash at end of period....................................... $ 60,057 $ 56,958
=========== ===========
Supplemental cash flow information
Cash paid for interest.................................... $ 3,375 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide home inspection services to home buyers in the California,
Arizona, Washington, New Jersey and Colorado markets. Our revenues are subject
to fluctuation based on the volume of mortgage lending activity, which is
dependent on factors such as interest rates, home sales, and general economic
conditions.
In the opinion of our management, the unaudited information as of and for
the nine months ended September 30, 1999 reflects all adjustments, consisting of
normal recurring accruals, that are necessary to fairly present the results for
the interim period shown.
On January 7, 2000, we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives and impairment of intangible assets, the
useful lives of property and equipment, the allowance for doubtful accounts and
income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents. Cash equivalents at December 31,
1998 consist of funds on deposit with banks.
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost. Property and equipment are depreciated using the
double declining balance method over the assets' expected useful lives which
range from 3 to 7 years. Assets acquired under capital leases are amortized over
the shorter of the useful life or term of the underlying lease.
INCOME TAXES
We account for income taxes using the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES ("SFAS No. 109").
Under the Statement of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
We provide a valuation allowance for deferred tax assets which are
determined by management to be below the threshold for realization established
by SFAS 109.
F-22
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of software costs and customer acquisition costs.
Software development costs that have been capitalized relate to our proprietary
home inspection software, Vista. Software development costs have been
capitalized in accordance with Statement of Position No. 98-1, "Capitalization
of Internal Use Software Costs" (SOP 98-1). Under the provisions of SOP 98-1,
capitalization of costs begins when the preliminary project stage is complete
and management has made a definitive decision to move forward with the project.
We begin amortizing capitalized software development costs when the product is
substantially complete and ready for its intended use. Amortization is provided
on a straight-line basis over the estimated useful life of the related product,
generally five years.
We capitalized costs in association with customer acquisition costs of
$20,750 during 1998. Amortization for these intangibles is provided on a
straight-line basis over the estimated useful life of the related asset which is
generally five years.
At each balance sheet date, a determination is made by management to
ascertain whether intangible assets have been impaired based on several
criteria, including sales trends and undiscounted cash flows. Impairment of
value, if any, is recognized in the period in which it is determined. Our
management does not believe that there are any facts or circumstances indicating
impairment of intangible assets at December 31, 1998.
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provide for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for our financial
instruments approximate fair values.
ADVERTISING EXPENDITURES
We expense the cost of advertising programs when incurred. Advertising
expense was approximately $355,000 for the year ended December 31, 1998.
F-23
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PROPERTY AND EQUIPMENT
At December 31, 1998, property and equipment consisted of the following:
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Computer equipment.......................................... $1,081,926
Furniture and office equipment.............................. 67,288
----------
1,149,214
Less: accumulated depreciation............................ (801,979)
----------
Property and equipment, net............................... $ 347,235
==========
</TABLE>
Depreciation expense was $251,080 for the year ended December 31, 1998.
3. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Software development costs.................................. $374,634
Purchased customer base..................................... 45,750
--------
Subtotal.................................................... 420,384
Less: Accumulated amortization.............................. (72,524)
--------
Intangibles, net............................................ $347,860
========
</TABLE>
Amortization expense relating to intangible assets was $69,052 for the year
ended December 31, 1998.
4. NOTES PAYABLE
At December 31, 1998, our notes payable balance included promissory notes of
$50,000 that bear interest at 9% per year and are convertible, at the option of
the holder, into common stock at the rate of one share per each $1.20 of
principal amount to be converted. These notes were due on December 31, 1994. We
continue to pay interest on these notes and are obligated to repay the related
principal on demand.
Additionally at December 31, 1998, our notes payable balance included
promissory notes of $5,089,971 with our two principal shareholders. Of this
amount, $4,529,971 bore interest on unpaid principal of 14% per year and were
due at various dates between June 30, 1998 and May 31, 1999. The remaining
$560,000 bear interest on unpaid principal of 10% per year and was due on
August 31, 1999. The outstanding principal of these notes was convertible into
common stock upon default and was secured by certain assets including accounts
receivable.
With these promissory notes with our controlling shareholders, we issued
warrants to purchase 4,144,971 shares of common stock. These warrants are
exercisable at prices ranging from $1.80 to $2.50 in whole or in part at any
time before the expiration dates which range from August 31, 2002 to
November 30, 2002. Upon default, the exercise price of these warrants are
reduced to prices ranging from $.05 to $.25 per share.
F-24
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
During 1998 we borrowed an additional amount of $187,100 from our
shareholders. This amount, along with an additional $182,900 that was borrowed
in the beginning of 1999, was converted into Series A1 Preferred Stock in
February 1999.
These notes are reflected in our balance sheet at December 31, 1998 net of a
related discount relative to the detachable warrants of $75,768.
5. COMMITMENTS AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
and capital leases. Future minimum payments under the noncancelable operating
and capital leases with initial terms of one year or more consist of the
following at December 31, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ---------
<S> <C> <C>
1999.................................................... $ 79,474 $195,081
2000.................................................... 48,332 119,614
2001.................................................... -- 23,893
-------- --------
Total minimum obligations............................. 127,806 $338,588
--------
Less interest on capital leases....................... 13,939
--------
Present value of net minimum obligation............... $113,867
--------
</TABLE>
Rental expense under operating leases was $180,380 for the year ended
December 31, 1998.
From time to time, we are made a party to routine litigation incidental to
our business. As of December 31, 1998, we were not engaged in any legal
proceedings that are expected, individually or in the aggregate, to have a
material adverse effect on our Company.
6. SHAREHOLDERS' EQUITY
At December 31, 1998, our preferred stock consisted of 833,333 shares
outstanding of Series A Preferred Stock ("Series A"). The Series A shares are
cumulative and earn a dividend at 10 percent of the Liquidation Preference of
$3.75 per share. The Series A is convertible contingent upon the occurrence of
certain events. During January 1999, all of the outstanding shares of Series A
were converted into 833,333 shares of common stock. The Series A was converted
upon agreement by the holders and us in order to carry out the recapitalization
transactions in February 1999.
At December 31, 1998, we had 6,567,907 warrants outstanding to purchase
shares of our common stock at prices ranging from $.05 and $3.00. These warrants
expire through November 2003.
All common stock number of shares amounts are adjusted to reflect the
retroactive effect of the common stock reverse stock split which occured
February 12, 1999 at a rate of 1-for-.0148.
F-25
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION
The following table summarizes information about options issued in 1998 and
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at beginning of year........................ $1,277,500 $2.66
Granted............................................... 10,000 3.00
Exercised............................................. -- --
Forfeited............................................. 262,500 2.50
----------
Outstanding at end of year.............................. 1,025,000 2.63
---------- -----
Options exercisable at year-end......................... $ 495,417 $2.64
========== =====
Weighted average fair value of options granted during
the year.............................................. -- --
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER WEIGHTED
OF OPTIONS AVERAGE
OUTSTANDING AT REMAINING
EXERCISE DECEMBER 31, CONTRACTUAL
PRICES 1998 LIFE
-------- -------------- -----------
<S> <C> <C>
$1.50............................................... 15,000 1.00 year
$2.50............................................... 660,000 .66 years
$3.00............................................... 350,000 1.99 years
</TABLE>
We account for employee stock options in accordance with Accounting
Principles Board Opinion 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and
related interpretations. The fair value of an option is determined the Board of
Directors. In no event can the exercise price of an stock option be less than
the fair market value of a share of our common stock on the date the stock
option is granted.
We have adopted the disclosure-only provisions of Financial Accounting
Standards Board Statement 123 ("FAS 123"), ACCOUNTING FOR STOCK-BASED
COMPENSATION, which define a fair value based method whereby compensation
expense is measured at the grant date based on the fair value of the award. Had
compensation cost for our stock-based compensation plan been determined on a
fair value basis in accordance with the provisions of this statement, our net
loss for the year ended December 31, 1998 would have not been affected.
F-26
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCK BASED COMPENSATION (CONTINUED)
The amount of the pro forma charge was determined using the minimum value
method as permitted for private companies by FAS 123. For purposes of the
calculation, management used the following assumptions:
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Risk rate of return......................................... 4.92%
Expected life............................................... 5 years
Volatility.................................................. 0%
Divdend yield............................................... 0%
</TABLE>
8. INCOME TAXES
Our net deferred tax asset of $5,300,000 at December 31, 1998 results
principally from net operating loss carryforwards and has been reduced by a
valuation allowance of the same amount. We have determined this valuation
allowance is appropriate because of the criteria for recognition of the deferred
tax asset in accordance with SFAS No. 109 have not been met.
We have available at December 31, 1998, an unused Federal net operating loss
carryforward of approximately $13 million that will begin to expire in the year
ended December 31, 2006. We also have state net operating loss carryforwards
totaling approximately $6.5 million that begin to expire in the year ended
December 31, 2000.
9. SEGMENT INFORMATION
Our management considers the performance of home inspection services to be
our sole business segment. No single customer accounted for more than 10% of our
revenues for the year ended December 31, 1998.
F-27
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED)
REVERSE STOCK SPLIT
On February 12, 1999 we authorized and implemented a reverse stock split at
1-for-.0148. All references to the numbers of shares of common stock during 1999
reflect the effect of the reverse stock split.
NOTES PAYABLE
During February 1999, $5,089,071 of outstanding debt and $629,207 of accrued
interest with our principal shareholders was converted into common stock.
During 1999, we entered into new convertible, subordinated promissory notes
("Bridge Notes"), totaling $190,650. The Bridge Notes mandatorily convert into
common stock upon a qualified financing. A qualified financing is defined as the
date we sell equity securities for cash or retire of debt securities (other than
this note or identical notes) in a single transaction or series of transactions
within a 12 month period for an aggregate purchase price paid of no less than
$3,000,000. The conversion price for the Bridge Notes is the last price per
share paid in the qualified financing for the equity or debt securities.
There are warrants to purchase common stock attached to each Bridge Note.
The warrants entitle holder to purchase shares equal to 25% of note divided by
conversion price. The purchase price is the conversion price defined in the
Bridge Note agreement. These warrants are exercisable at the option of the
holder at any time before expiration on May 31, 2004, conditioned on
establishment of the conversion price.
At September 30, 1999, our notes payable included promissory notes of
$50,000, Bridge Notes of $190,650, and a short term loan of $15,000.
CAPITAL TRANSACTIONS
In January 1999, we amended our articles of incorporation to authorize a new
series of preferred stock, Series A1 Preferred Stock ("Series A1"). We are
authorized to issue 4,454,546 shares of Series A1 from the 10,000,000 shares of
Preferred Stock authorized.
In February 1999, we issued 4,204,545 shares of Series A1 at a purchase
price of $.22 per share. A total of $370,000 of outstanding debt was converted
into Series A1 as part of this issuance. The Series A1 is non-cumulative,
entitles holders to elect four of the five members of the Board of Directors and
has a liquidation preference of $.22 per share. Each holder may at any time
convert Series A1 shares into fully-paid and non-assessable shares of common
stock. Each share of Series A1 automatically converts into common stock in the
event of an initial public offering. We also issued to Series A1 holders 249,999
warrants to purchase Series A1 at an exercise price of $.22 per share. These
warrants expire in February 2009. These warrants expire in the event of certain
circumstances occuring including, but not limited to, a consolidation or
purchase of our company by another.
In February 1999, we also converted promissory notes with our controlling
shareholders into common stock. Per the agreement, a total of 2,191,590
post-split shares were issued for the $5,089,971 outstanding principal plus
$629,207 of accrued interest.
At September 30, 1999, we had 375,393 warrants outstanding to purchase
shares of our common stock at prices ranging from $.18 to $202. These warrants
expire through May 2004.
F-28
<PAGE>
INSPECTECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
During 1999 we issued 969,567 stock options to officers and employees at
fair-market values at dates of grant ranging from $.03 to $.08.
OTHER
In November 1999, we issued 98,412 options to purchase common stock to
non-employee directors at a price of $.24. We recorded compensation expense of
$22,635 at the grant date of these options.
In December 1999, we received a $50,000 loan from PRIMIS Inc. ("PRIMIS").
In January 2000, all of the issued and outstanding shares of InspecTech
Corporation were acquired by PRIMIS. Prior to the purchase by PRIMIS, all of the
outstanding options to purchase shares of our common stock become immediately
vested. Additionally prior to the PRIMIS acquisition, 70,306 warrants to
purchase our common stock with prices, affected by the reverse stock-split,
ranging from $3.37 to $168 per share were adjusted to $.22 and all warrants
issued attached to the Bridge Notes were priced at $1.52 per share.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
PRIMIS, Inc.
In our opinion, the accompanying statements of operations, changes in
shareholders' equity and cash flows present fairly, in all material respects,
the results of the operations and cash flows of Kushner & Robertson, Inc. for
the period from January 1, 1998 to June 14, 1998, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 17, 1999
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Revenues.................................................... $2,852,520
Cost of revenues............................................ 1,319,159
----------
Gross Profit................................................ 1,533,361
----------
Operating expenses
Selling, general and administrative....................... 1,298,828
Depreciation and amortization............................. 8,227
----------
Total operating expenses................................ 1,307,055
----------
Operating income............................................ 226,306
Other income
Interest and other income................................. 13,642
----------
Income before provision for income taxes.................... 239,948
Provision for income taxes.................................. 8,493
----------
Net income.................................................. $ 231,455
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE PERIOD JANUARY 1 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997................................ 1,000,000 $70,270 $730,823 $801,093
Dividends................................................. (86,639) (86,639)
Net Income................................................ 231,445 231,445
---------- ------- -------- --------
Balance at June 14, 1998.................................... 1,000,000 $70,270 $875,629 $945,899
========== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
KUSHNER & ROBERTSON, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1998 THROUGH JUNE 14, 1998
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Cash flow from operating activities
Net income................................................ $231,455
Adjustments to reconcile net income to net cash flows
provided by operating activities
Depreciation and amortization........................... 8,227
Provision for doubtful accounts......................... 20,000
Changes in operating assets and liabilities
Accounts receivable and advances...................... 60,457
Other assets.......................................... (9,656)
Accounts payable...................................... 307,709
Accrued expenses...................................... 68,636
--------
Net cash provided by operating activities........... 686,828
--------
Cash flow from investing activities
Capital expenditures.................................... (25,305)
--------
Net cash used in investing activities............... (25,305)
--------
Cash flow from financing activities
Payment on notes payable................................ (6,305)
Dividends............................................... (86,639)
--------
Net cash provided by financing activities........... (92,944)
--------
Net increase in cash........................................ 568,579
Cash at beginning of period................................. 49,138
--------
Cash at end of period....................................... $617,717
========
Supplemental cash flow information
Cash paid for interest.................................. $ 2,500
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
KUSHNER & ROBERTSON, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
We provide appraisal services to commercial and home real estate buyers in
the California market. Our revenues are subject to fluctuation based on the
volume of mortgage lending activity, which is dependent on factors such as
interest rates, home sales, and the general economic conditions.
On June 14, 1998 we were acquired by PRIMIS, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates. Such
estimates include the useful lives and impairment of intangible assets, the
useful lives of property and equipment, the allowance for doubtful accounts and
income taxes.
CASH EQUIVALENTS
We consider all highly liquid investments with maturities of three months or
less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property and equipment are
depreciated using the accelerated methods over the assets' expected useful lives
which range from 5 to 15 years. Amortization of leasehold improvements is
recorded on a straight-line basis over the shorter of the useful life of the
improvement or the term of the lease. Such amounts are included in depreciation
expense. Depreciation expense recorded for the period ended June 14, 1998 is
$8,227.
INCOME TAXES
We account for income taxes using the asset and liability method as
prescribed by Statement of Financial Accounting Standards No. 109, ACCOUNTING
FOR INCOME TAXES ("SFAS No. 109").
REVENUE RECOGNITION
We perform services for our customers at predetermined prices upon the
receipt of a firm order. We recognize revenue after the delivery of our product
to our customers based on our assessment of collectibility.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the large number of entities comprising our
customer base. We perform ongoing credit evaluations and provides for an
allowance for doubtful accounts which are estimated to be uncollectible. Such
allowances have historically been within our management's expectations.
F-34
<PAGE>
KUSHNER & ROBERTSON, INC.
NOTES TO FINANCIAL STATEMENTS
2. COMMITMENTS AND CONTINGENCIES
We lease office space and certain equipment under noncancelable operating
leases expiring in various years through 2001. Future minimum payments under the
noncancelable operating and capital leases with initial terms of one year or
more consist of the following at June 14, 1998:
<TABLE>
<S> <C>
1999........................................................ $ 63,518
2000........................................................ $114,904
2001........................................................ $ 54,625
</TABLE>
Rental expense under operating leases was approximately $49,718 for the
period June 14, 1998.
From time to time, we are made a party to routine litigation incidental to
our business. As of June 14, 1998, we were not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on our Company.
F-35
<PAGE>
[Picture of PRIMIS logo in center of page]
"Our PRIMIS is simple..."
[Picture of the PRIMIS home page, www.primis.com]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER PRIMIS, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary......................... 1
Risk Factors............................... 6
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Pro Forma Consolidated Financial
Information.............................. 18
Selected Consolidated Financial Data....... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 24
Business................................... 31
Management................................. 48
Related Party Transactions................. 56
Principal Shareholders..................... 59
Description of Capital Stock............... 63
Shares Eligible for Future Sale............ 67
Underwriting............................... 69
Legal Matters.............................. 72
Experts.................................... 72
Where You Can Find More Information........ 72
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
SHARES
PRIMIS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
U.S. BANCORP PIPER JAFFRAY
J.C. BRADFORD & CO.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of our common stock being registered, all of which will be paid by us. All
amounts are estimates except the registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 22,770
NASD filing fee............................................. 9,125
Nasdaq Stock Market original listing fee.................... +
Accounting fees and expenses................................ 450,000
Legal fees and expenses..................................... +
Transfer Agent and Registrar fees........................... +
Printing and engraving expenses............................. +
Miscellaneous............................................... +
--------
Total................................................. $ +
========
</TABLE>
- ------------
+ To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
GEORGIA BUSINESS CORPORATION CODE
Section 14-2-851 of the Georgia Business Corporation Code, or the GBCC,
empowers a corporation to indemnify a director (including a former director and
including a director who is or was serving at the request of the corporation as
a director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other entity) against liability arising from official acts if the director
acted in good faith and reasonably believed that his conduct was in the best
interests of the corporation. For all other acts, the corporation may indemnify
a director who acted in good faith and reasonably believed that the conduct was
at least not opposed to the best interests of the corporation. The corporation
may indemnify a director with respect to criminal proceedings if the director
acted in good faith and had no reasonable cause to believe the conduct was
unlawful. A corporation may not indemnify a director adjudged liable for conduct
involving receipt of an improper personal benefit.
In addition, Section 14-2-856 of the GBCC permits the articles of
incorporation, bylaws, a contract, or resolution approved or ratified by the
shareholders to authorize the corporation to indemnify a director against claims
to which the director was a party, including claims by the corporation or in the
right of the corporation (e.g., a shareholder derivative action). However, the
corporation may not indemnify the director for liability to the corporation for
any appropriation, in violation of his or her duties, of a corporate
opportunity, intentional misconduct or knowing violation of law, unlawful
distributions or receipt of an improper benefit.
Section 14-2-852 of the GBCC provides for mandatory indemnification against
reasonable expenses incurred by a director who is wholly successful on the
merits or otherwise in defending an action to which the director was a party due
to his status as a director of the corporation. Section 14-2-854 allows a court,
upon application by a director, to order indemnification and advancement of
expenses if it determines that the director is entitled to indemnification under
the GBCC or if it determines that indemnification is fair and reasonable even if
the director has failed to meet the statutory standard of conduct under
section 14-2-851. However, the court may not order indemnification in excess of
II-1
<PAGE>
reasonable expenses for liability to the corporation in a derivative action or
for receipt of an improper benefit.
Section 14-2-857 of the GBCC permits a corporation to indemnify an officer
(including a former officer and including an officer who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise) to the same extent as
a director. A corporation may indemnify an officer who is not a director to a
further extent by means of articles of incorporation, bylaw, board resolution,
or contract. However, the corporation may not indemnify an officer for liability
arising from conduct involving appropriation, in violation of his duties, of a
corporate opportunity, intentional misconduct or knowing violation of law,
unlawful distributions, or receipt of an improper personal benefit. An officer
who is not a director is also entitled to mandatory indemnification and may
apply for court-ordered indemnification.
Section 14-2-858 of the GBCC permits a corporation to purchase and maintain
insurance on behalf of directors and officers against liability incurred by them
in their capacities or arising out of their status as directors and officers of
the corporation, regardless of whether the corporation would have the power to
indemnify or advance expenses to the director or officer for the same liability
under the GBCC.
We intend to enter into indemnification agreements with each of our
executive officers and directors that will indemnify them to the fullest extent
permitted by the GBCC.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted as to directors, officers or persons controlling us pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission, this indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
ARTICLES OF INCORPORATION
Article VII of our Articles of Incorporation, as amended, provides that each
person who is or was one of our directors or officers, and each person who is or
was one of our directors or officers, who at our request is serving or has
served as an officer, director, partner, joint venturer or trustee of another
corporation, partnership, joint venture, trust or other enterprise shall be
indemnified by us against those expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement which are allowed to be paid or reimbursed
by us under the laws of the State of Georgia and which are actually and
reasonably incurred in connection with any action, suit, or proceeding, pending
or threatened, whether civil, criminal, administrative or investigative, in
which such person may be involved by reason of his being or having been a
director or officer of our company or of such other enterprises, subject to the
conditions prescribed by the GBCC.
Article VII further provides that, where required by the GBCC, such
indemnification shall be made only upon determination that certain specified
standards of conduct have been met, and upon application to us for
indemnification. As a condition to any such right of indemnification, we may
require that we be permitted to participate in the defense of any such action or
proceeding through legal counsel designated by us and at our expense. We may
purchase and maintain insurance on behalf of any such persons whether or not we
would have the power to indemnify such officers and directors against any
liability under the laws of the State of Georgia. If any expenses or other
amounts are paid by way of indemnification, other than by court order, action by
shareholders or by an insurance carrier, we shall provide notice of such payment
to the shareholders in accordance with the provisions of the laws of the State
of Georgia.
Article VIII of our Articles of Incorporation, as amended, provides that no
director shall have any personal liability to us or to our shareholders for
monetary damages for breach of duty of care or other
II-2
<PAGE>
duty as a director, by reason of any act or omission occurring subsequent to the
date of filing of the Articles of Incorporation, except that such provision
shall not eliminate or limit the liability of a director for (a) any
appropriation, in violation of his duties, or any business opportunity of our
company; (b) acts or omissions which involve intentional misconduct or a knowing
violation of law; (c) liabilities of a director imposed by Section 14-2-832 of
the GBCC; or (d) any transaction from which the director derived an improper
personal benefit.
BYLAWS
Article VIII of our Bylaws, as amended, provides for indemnification for
(a) each individual who is made a party to a proceeding because he is or was a
director or officer against liability incurred by him in the proceeding if the
individual acted in a manner he believed in good faith to be in or not opposed
to our best interests and, in the case of any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful, and (b) an individual's
conduct with respect to an employee benefit plan for a purpose he believed in
good faith to be in the interests of the participants in and beneficiaries of
the plan.
Article VIII further provides that we shall not indemnify an individual in
connection with a proceeding in which such individual was adjudged liable us or
in connection with any other proceeding in which such individual was adjudged
liable on the basis that personal benefit was improperly received by him unless
such individual is fairly and reasonably entitled to indemnification. However,
in either such circumstance, such indemnification is limited to reasonable
expenses incurred in connection with the proceeding.
Article VIII further provides that we shall pay for or reimburse the
reasonable expenses incurred by a director or officer who is a party to a
proceeding in advance of the final disposition of the proceeding if such
individual furnishes us with a written affirmation of his good faith belief that
he has met the standard of conduct required for indemnification and a written
undertaking to repay any advances made if it is determined that the person is
not entitled to indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
In May 1997, we sold 1,458,332 shares of Class A common stock to
existing shareholders who were accredited investors for a purchase price
of $1.20 per share, resulting in an aggregate offering price of
approximately $1,749,998. The offer and sale of shares were made pursuant
to an exemption from registration by virtue of Rule 506 of Regulation D
of the Securities Act.
In June 1998, holders of Class A convertible preferred stock elected
to convert such shares into 500,505 shares of common stock. Dividends on
the Class A convertible preferred stock were paid in common stock. The
conversion of shares was made pursuant to an exemption from registration
by virtue of Section 3(a)(9) of the Securities Act.
In June 1998, we sold 2,150,000 shares of common stock to accredited
investors at a purchase price of $4.00 per share, resulting in an
aggregate offering price of $8,600,000. The offer and sale of shares were
made pursuant to an exemption from registration by virtue of
Section 4(2) of the Securities Act.
In June 1998, we issued 750,000 shares of common stock to the former
owners of Kushner & Robertson, Inc. d/b/a Hacienda Property Valuation as
part of the consideration for
II-3
<PAGE>
our acquisition of all of the outstanding shares of that company. The
offer and sale of shares were made pursuant to an exemption from
registration by virtue of Section 4(2) of the Securities Act.
In June 1999, we sold 16,247 shares of our common stock to existing
shareholders for the aggregate purchase price of $64,988. The offer and
sale of shares were made pursuant to an exemption from registration by
virtue of Section 4(2) of the Securities Act.
In September 1999, we issued 10,032 shares of common stock to the
former owner of Cramer Property Services Incorporated as consideration
for the purchase of substantially all of the assets of that company. The
offer and sale of shares were made pursuant to an exemption from
registration by virtue of Section 4(2) of the Securities Act.
In September 1999, we issued 50,000 shares of common stock to the
former owner of E.T. Jones & Associates, Inc. as part of the
consideration for the purchase of substantially all of the assets of that
company. The offer and sale of shares were made pursuant to an exemption
from registration by virtue of Section 4(2) of the Securities Act.
In October 1999, we issued 50,000 shares of common stock to the
former owner of Stewart Title of Birmingham, Inc. as part of the
consideration for the purchase of substantially all of the assets of that
company. The offer and sale of shares were made pursuant to an exemption
from registration by virtue of Section 4(2) of the Securities Act.
In October 1999, we sold 725,130 shares of Series B convertible
preferred stock to existing shareholders at a purchase price of $6.00 per
share, resulting in an aggregate offering price of $4,350,780. The offer
and sale of shares were made pursuant to an exemption from registration
by virtue of Section 4(2) of the Securities Act.
In December 1999, we sold 9,798 shares of common stock to the former
owners of Fournier, Crane Associates, Inc. as part of the consideration
for the purchase of substantially all of the assets of that company. The
offer and sale of shares were made pursuant to an exemption from
registration by virtue of Section 4(2) of the Securities Act.
In January 2000, we issued 665,074 shares of common stock to the
former owners of InspecTech Corporation as part of the consideration for
our acquisition of that company. The offer and sale of securities in this
acquisition were made pursuant to an exemption from registration by
virtue of Rule 506 of Regulation D of the Securities Act.
(b) Issuances of Notes and Warrants.
In November 1999, we issued $10,011,174 of convertible notes and
warrants to existing shareholders who were accredited investors in
reliance on the exemption from registration contained in Section 4(2) of
the Securities Act. Our November 1999 convertible notes mature six months
after the date issued, and bear interest at 8% per annum. Pursuant to
their terms, the notes will convert into shares of our common stock if
this offering is completed prior to the date the notes mature, and will
convert into shares of our Series C convertible preferred stock if a
qualifying financing occurs prior to maturity at the lower of $15.31 or
the price per share of the securities issued in the qualifying financing,
subject to anti-dilution requirements. With respect to the warrants, the
number and kind of shares that can be acquired and the exercise price per
share may vary from time to time depending on whether certain events
occur within 180 days from the date issued.
In January 2000, we issued $9,721,862 of convertible notes and
warrants to existing shareholders who were accredited investors in
reliance on the exemption from registration contained in Section 4(2) of
the Securities Act. The convertible notes bear interest at the rate of 8%
per annum, and will mature six months after the date issued unless we
complete an
II-4
<PAGE>
initial public stock offering or other qualifying financing prior to that
time. If an initial public offering is completed within six months, the
notes will mature 181 days after the closing of the offering. Prior to a
public offering, the convertible notes are convertible into shares of our
Series C convertible preferred stock. Upon completion of a public
offering of our common stock, the notes will be convertible into shares
of our common stock. In each case, the conversion price is the lower of
$15.31 per share or the per share price of the securities issued in a
qualifying financing, subject to anti-dilution adjustments. With respect
to the warrants, the number and kind of shares that can be acquired and
the exercise price per share may vary from time to time depending on
whether certain events occur within 180 days from the date issued.
(c) Grants and Exercises of Stock Options.
Since May 1997, we have granted stock options to purchase 1,519,584
shares of common stock with exercise prices ranging from $1.00 to $15.31
per share, to employees, directors and officers pursuant to our 1997
Employee Stock Option Plan. This plan was amended and restated on
June 15, 1998, June 15, 1999 and on November 29, 1999. The issuance of
these options was made pursuant an exemption from registration by virtue
of Rule 701 of the Securities Act, as transactions pursuant to a
compensatory benefit plan.
In May 1997, we granted an option to purchase 200,000 shares of
Class A common stock to one investor. Such option had an exercise price
of $2.00 per share and were exercised on June 16, 1998, resulting in
aggregate proceeds of $400,000. The issuance of common stock upon
exercise of this option was made pursuant to an exemption from
registration by virtue of Rule 506 of Regulation D of the Securities Act.
In March 1998, we granted an option to purchase 15,000 shares of
Class A common stock at $1.20 per share to one of our directors. The
option was made pursuant to an exemption from registration by virtue of
Section 4(2) of the Securities Act.
In June 1998, in connection with an issuance of common stock to ten
accredited investors, we granted options to each of them to purchase
additional shares of common stock. Pursuant to subsequent agreements,
these options were amended to, among other things, become options to
purchase shares of Series A convertible preferred stock at a purchase
price of $4.00 per share. Such options were exercised on July 6, 1999 to
purchase a total of 1,074,995 shares of Series A convertible preferred
stock, resulting in aggregate proceeds of $4,299,980. The issuance of
common stock upon exercise of these options was made pursuant to an
exemption from registration by virtue of Section 4(2) of the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A list of exhibits included as part of this registration statement is set
forth in the Exhibit Index that immediately precedes the exhibits and is
incorporated by reference here.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this registration statement. Notwithstanding the foregoing, any increase
or decrease in
II-5
<PAGE>
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from the low or high and of the estimated maximum offering price may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the such Act and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(ii) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alpharetta, State of Georgia, on January 20, 2000.
<TABLE>
<S> <C> <C>
PRIMIS, INC.
By: /s/ C. JAMES SCHAPER
-----------------------------------------
C. James Schaper
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose signature
appears below appoints and constitutes C. James Schaper and Connie C. Breeser,
and each of them, his or her true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and
her and in his or her name, place and stead, in any and all capacities, to
execute any and all amendments (including post-effective amendments) to the
within registration statement (as well as any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to
file the same, together with all exhibits thereto and all other documents in
connection therewith, with the Securities and Exchange Commission and such other
agencies, offices and persons as may be required by applicable law, granting
unto each said attorney-in-fact and agent, each acting alone, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
each said attorney-in-fact and agent, each acting alone may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board, January 20, 2000
/s/ C. JAMES SCHAPER President
---------------------------------------- and Chief Executive Officer
C. James Schaper (principal executive officer)
Vice President and January 20, 2000
/s/ LESLIE H. SCHREINER Chief Financial Officer
---------------------------------------- (principal financial officer
Leslie H. Schreiner and accounting officer)
/s/ DONALD W. BURTON January 20, 2000
---------------------------------------- Director
Donald W. Burton
/s/ DOUGLAS F. COBB January 20, 2000
---------------------------------------- Director
Douglas F. Cobb
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN COLNER January 20, 2000
---------------------------------------- Director
Alan Colner
/s/ MICHAEL E. GELLERT January 20, 2000
---------------------------------------- Director
Michael E. Gellert
/s/ J. DAVID GRISSOM January 20, 2000
---------------------------------------- Director
J. David Grissom
/s/ GEOFFREY P. MOTT January 20, 2000
---------------------------------------- Director
Geoffrey P. Mott
/s/ JACK TYRRELL January 20, 2000
---------------------------------------- Director
Jack Tyrrell
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1 Form of Underwriting Agreement regarding offer and sale of
common stock.+
3.1 Form of Amended and Restated Articles of Incorporation of
the Registrant.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen Certificate for shares of the Registrant's common
stock.+
4.2 Description of Capital Stock (contained in the Articles of
Incorporation filed as Exhibit 3.1).
4.3 Form of Convertible Promissory Note issued in November 1999.
4.4 Form of Warrant to Purchase Stock issued in November 1999.
4.5 Form of Convertible Promissory Note issued in January 2000.
4.6 Form of Warrant to Purchase Stock issued in January 2000.
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
the legality of the common stock being registered.+
10.1 Employment and Non-Competition Agreement, dated as of
April 1, 1999, by and between the Registrant and C. James
Schaper.*
10.2 Employment and Non-Competition Agreement, dated as of
July 12, 1999, by and between the Registrant and Leslie H.
Schreiner.*
10.3 Employment and Non-Competition Agreement, dated as of
December 4, 1999, by and between the Registrant and Kevin P.
Castle.*
10.4 Employment and Non-Competition Agreement, dated as of
February 15, 1999, by and between the Registrant and Revell
L. Fraser.*
10.5 Employment and Non-Competition Agreement, dated as of
February 15, 1999, by and between the Registrant and J.
Chris Foretich.*
10.6 Employment and Non-Competition Agreement, dated as of
November 30, 1999, by and between the Registrant and Connie
C. Breeser.*
10.7 Common Stock Purchase Agreement, dated as of June 16, 1998,
by and among the Registrant and the parties named on
Schedule I thereto.
10.8 Second Amended and Restated Registration Rights Agreement,
dated as of June 16, 1998, by and among the Registrant and
the parties named on Schedule I thereto.
10.9 Amendment No. 1 to Second Amended and Restated Registration
Rights Agreement, dated as of December 17, 1998, by and
among the Registrant and the parties named on Schedule I
thereto.
10.10 Agreement to Extend Option, dated as of December 17, 1998,
by and among the Registrant and the parties named on
Schedule I thereto.
10.11 Release and Settlement Agreement, dated as of January 25,
1999, between the Registrant and Michael W. Mattox.
10.12 Office Lease Agreement, dated March 9, 1999, between the
Registrant and Opus South Corporation.+
10.13 Amendment to Agreement to Extend Option, dated as of June 1,
1999, by and among the Registrant and the parties named on
Schedule I thereto.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
10.14 Stock Purchase Agreement, dated as of June 18, 1999, by and
among the Registrant, Kushner & Robertson, Inc., Michael L.
Robertson, Jeremy McCarty, Joseph Mathews and James Sulger.
10.15 Master Note and Security Agreement, dated as of
September 10, 1999, between the Registrant and Leasing
Technologies International, Inc.+
10.16 Asset Purchase Agreement, dated as of September 29, 1999, by
and among the Registrant, E.T. Jones and E.T. Jones &
Associates, Inc.
10.17 Series B Convertible Preferred Stock Purchase Agreement,
dated as of October 7, 1999, by and among the Registrant and
the parties named on Schedule I thereto.
10.18 PRIMIS, Inc. Third Amended and Restated 1997 Employee Stock
Option Plan, dated as of November 24, 1999.*
10.19 Convertible Promissory Note and Warrant Purchase Agreement,
dated as of November 29, 1999, by and among the Registrant
and the parties named on Schedule I thereto.
10.20 Agreement and Plan of Reorganization, dated as of January 7,
2000, by and among the Registrant, InspecTech Corporation
and PRIMIS Acquisition Corp.
10.21 Convertible Promissory Note and Warrant Purchase Agreement,
dated as of January 18, 2000, by and among the Registrant
and the parties named on Schedule I thereto.
10.22 Stock Purchase Agreement, dated as of January 18, 2000, by
and among the Registrant, Bliss Associates, Inc., The Bliss
Associates, Inc. 401(k) Profit Sharing Plan, Mark R. Cox,
Roland G. Hoffman, Robert E. Marx, Kenneth E. Meyers and
Gregory Nitschke.
21.1 List of subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP relating to the
Registrant's audited financial statements.
23.2 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of InspecTech Corporation.
23.3 Consent of PricewaterhouseCoopers LLP relating to the
audited financial statements of Kushner & Robertson, Inc.
23.4 Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibit 5.1).+
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule for the Registrant.+
</TABLE>
- ------------
* Management contract or compensatory agreement.
+ To be filed by amendment.
<PAGE>
Exhibit 3.1
PRIMIS, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is: Primis, Inc.
ARTICLE II
PURPOSES AND DURATION
The purpose for which the Corporation is organized is to engage in any
lawful business for which corporations may be incorporated under the Georgia
Business Corporation Code (the "Code"). The Corporation shall have perpetual
duration.
ARTICLE III
AUTHORIZED CAPITAL STOCK
The aggregate number of shares the Corporation shall have authority to
issue shall be 108,000,000 shares, par value $.0l per share, divided into: [a]
100,000,000 shares of Common Stock ("Common Stock"), and [b] 8,000,000 shares of
Preferred Stock ("Preferred Stock") of which (i) 1,200,000 shares shall be
designated as Series A Convertible Preferred Stock ("Series A Preferred Stock"),
(ii) 3,000,000 shares shall be designated as Series B Convertible Preferred
Stock ("Series B Preferred Stock"), (iii) 2,500,000 shares shall be designated
as Series C Convertible Preferred Stock ("Series C Preferred Stock"), and (iv)
1,300,000 shares shall be designated (including in one or more series) with such
preferences, limitations and relative rights as may be determined by the Board
of Directors pursuant to Section 2(d) of Article IV hereof.
ARTICLE IV
RELATIVE RIGHTS AND PREFERENCES
The preferences, limitations and relative rights of the shares of Common
Stock, the shares of Preferred Stock, including the shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, shall be as
follows:
1. COMMON STOCK. Each outstanding share of Common Stock shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders. The
preferences, limitations and relative rights of the shares of Common Stock shall
be identical. The Common Stock shall be
<PAGE>
subject to the provisions of Articles III and IV and the provisions of any
resolution or resolutions validly adopted by the Board of Directors in
accordance with this Article IV.
2. PREFERRED STOCK. Each outstanding share of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock shall have such preferences,
limitations, and relative rights as set forth herein, and the remaining shares
of authorized Preferred Stock shall have such designations (including as one or
more series of Preferred Stock), preferences, limitations, and relative rights
as determined by the Board of Directors, in whole or in part, in accordance with
Section 2(d) of this Article IV.
(a) SERIES A PREFERRED STOCK. The Series A Preferred Stock shall have
the voting powers, designation, relative, participating, optional and other
special rights, preferences, qualifications, limitations and restrictions
thereof that are set forth as follows in this Section 2(a) of this Article
IV.
(1) STATED VALUE. The stated value of the Series A Preferred
Stock shall be $4.00 per share, the original per share issue price
(the "Stated Value").
(2) DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the
Series A Preferred Stock shall be entitled to receive dividends equal
to 7% of the Stated Value, or $.28, per share per annum. Such
dividends shall be payable, in cash, out of funds legally available
for such purpose, only when, as, and if declared by the Board, or as
otherwise provided in Section 2(a)(7)[A][I] of this Article IV. Unless
otherwise required by law, such dividends shall accrue on each share
commencing with the date of issue of such share, and shall accrue from
day to day, whether or not earned or declared, and shall be cumulative
so that, if such dividends in respect of any previous or current
annual dividend period, at the annual rate specified above, shall not
have been paid, the deficiency shall first be fully paid before any
dividend or distribution shall be paid on or declared and set apart
for the Common Stock or any other class or series of capital stock. No
interest shall be paid on accrued but unpaid dividends.
(3) VOTING RIGHTS. In addition to the voting rights required by
law or by these Articles, the holders of Series A Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the
Corporation's stockholders and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation
("Bylaws"). Each holder of shares of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of shares of
Common Stock into which such shares of Series A Preferred Stock could
be converted at the time of such vote. Except as otherwise required by
law or by these Articles, or any amendment adopted by the Board of
Directors as provided in Section 2(d) of this Article IV, the holders
of the Series A Preferred Stock, the holders of the Series B Preferred
Stock, the holders of the Series C Prefer-red Stock, the holders of
Common Stock and the holders of any other series of Preferred Stock
shall vote
-2-
<PAGE>
together as one voting group on all matters submitted to a vote of the
Corporation's stockholders or may act by written consent on all such
matters.
(4) CERTAIN RESTRICTIONS.
[A] DIVIDENDS. Whenever dividends payable on the Series A
Preferred Stock, as provided in Section 2(a)(2) of this Article
IV, are in arrears, thereafter and until dividends, including all
accrued dividends, on shares of the Series A Preferred Stock
outstanding shall have been paid in full or declared and set
apart for payment, the Corporation shall not (a) pay dividends
on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for or out of the
shares of any such junior stock, (b) pay dividends on or make any
other distributions on any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then
entitled, or (c) redeem or purchase or otherwise acquire for
consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except redemptions made ratably on
the Series A Preferred Stock and all such parity stock in
proportion to the total amounts to which the holders of all such
shares are then entitled.
[B] ADDITIONAL SHARES. "Additional Shares" shall mean all
shares of Common Stock issued (or deemed to have been issued
pursuant to Section 2(a)(7)[A][V][a][v] of this Article IV) by
the Corporation after the Initial Series A Purchase Date (as
defined in Section 2(a)(7)[A][V][a][i] of this Article IV) other
than shares of Common Stock issued or issuable (i) upon
conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, or Series C Preferred Stock, (ii) pursuant to a
transaction described in Section 2(a)(7)[A][V][b] of this Article
IV, (iii) to officers, directors or employees of the Corporation
pursuant to stock option or stock purchase plans or agreements on
terms approved by the Board, but not exceeding twenty percent
(20%) of the then outstanding shares of capital stock of the
Corporation (net of any repurchases of such shares or
cancellations or expirations of options), subject to adjustment
for all subdivisions and combinations and assuming conversion in
full of all shares of Series A Preferred Stock and exercise of
all then outstanding options or rights to acquire shares of the
Corporation's capital stock, or (iv) upon conversion of any notes
or the exercise of any warrants issued
-3-
<PAGE>
pursuant to that certain Convertible Promissory Note and Warrant
Purchase Agreement dated November 24, 1999, by and among the
Corporation and certain of its shareholders.
[C] CERTAIN RESTRICTIONS. Without the consent of the holders
of a majority of the then outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock voting together as a single class on an as-if converted
basis, the Corporation shall not (i) issue or sell any class or
series of equity securities or additional shares of existing
classes or series, or equivalents thereto or rights convertible
thereinto or exchangeable therefore except [a] pursuant to stock
option or stock purchase plans or agreements on terms approved by
the Board, but not exceeding twenty percent (20%) of the then
outstanding shares of capital stock of the Corporation as
determined in accordance with and subject to the adjustments set
forth in Section 2(a)(4)[B] of this Article IV, [b] upon
conversion of the Series A Preferred Stock, the Series B
Preferred Stock or the Series C Preferred Stock, [c] in a
Qualified Public Offering (as defined in Section 2(a)(7)[B] of
this Article IV) or [d] upon the conversion of any promissory
notes or the exercise of any warrants issued pursuant to that
certain Convertible Promissory Note and Warrant Purchase
Agreement, dated November 24, 1999, by and among the Corporation
and certain of its shareholders, (ii) effect a liquidation,
dissolution, winding up, merger or sale of the Corporation or
sale of substantially all of its assets; (iii) effect any
transaction, including, without limitation, the issuance of any
shares of stock or rights to acquire shares of stock, which would
result in a change in ownership of more than 50% of the
Corporation's outstanding common stock on an as-if fully
converted basis, except for a Qualified Public Offering (as
defined in Section 2(a)(7)[B] of this Article IV); (iv) amend the
Articles or the Bylaws; (v) redeem or otherwise acquire for value
or pay any dividend or distribution on the Common Stock or any
capital stock of the Corporation ranking junior to the Series A
Preferred Stock, and if ranking pari passu, without redeeming
and/or paying an equal dividend or distribution on the Series A
Preferred Stock; PROVIDED, HOWEVER, that this restriction shall
not apply to transactions in which the Corporation purchases or
otherwise acquires for value shares of Common Stock from
employees, officers, directors or other persons performing
services for the Corporation or one of its wholly-owned
subsidiaries pursuant to agreements under which the Corporation
has the option to repurchase such shares, such as the termination
of employment or service to the Corporation or one of its
wholly-owned subsidiaries; or (vi) take any other actions that
would materially and adversely affect the holders of the Series A
Preferred Stock; provided, however, that, as and to the extent
required by the Georgia Business Corporation Code, any amendment
which would materially affect the holders of the outstanding
shares of a class or series of capital stock must
-4-
<PAGE>
also be separately approved by a majority of the holders of such
class or series.
(5) REACQUIRED SHARES. Any shares of the Series A Preferred Stock
which have been converted to Common Stock or which have been purchased
or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof
and shall not be reissued in any form.
(6) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders
of the Common Stock or the holders of any other series of Preferred
Stock, except the Series B Preferred Stock and the Series C Preferred
Stock shall rank equal with the Series A Preferred Stock or any
liquidation, dissolution or winding up, an amount, equal to the
greater of (i) for each share of Series A Preferred Stock, the Stated
Value of such share, plus accrued and unpaid dividends thereon, or
(ii) for each share of Series A Preferred Stock, the amount
distributable for each share of Common Stock to all holders thereof
(assuming all shares of the Series A Preferred Stock had been
converted to Common Stock), plus accrued and unpaid dividends on the
Series A Preferred Stock. If, upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A
Preferred Stock and to the holders of any class or series of stock
ranking on parity with the Series A Preferred Stock (either as to
payment of dividends or upon liquidation, dissolution or winding up)
shall be insufficient to permit the payment to such holders of the
full aforesaid preferential amount, then the entire assets and funds
of the Corporation legally available for distribution shall be
distributed among the holders of the Series A Preferred Stock and all
other such parity stock in proportion to the amount each would have
received had there been sufficient funds to permit the payment to such
holders of the full aforesaid preferential amount.
After payment to the holders of the Series A Preferred Stock and
any other parity stock as set forth above, the entire remaining assets
and funds of the Corporation legally available for distribution, if
any, shall be distributed among the holders of the Common Stock and
any other class or series of capital stock ranking junior to the
Series A Preferred Stock.
For purposes of this Section 2(a)(6) of this Article IV, any
merger or consolidation of the Corporation with or into any other
corporation or entity, or sale of all or substantially all the assets
of the Corporation, or sale of fifty percent (50%) or more of the
voting securities of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation, except for
a merger or consolidation or sale of all or substantially all the
assets of the Corporation or sale
-5-
<PAGE>
of fifty percent (50%) or more of the voting securities of the
Corporation in which the shareholders of the Corporation immediately
prior thereto shall, immediately thereafter, hold as a group the right
to cast, directly or indirectly, at least a majority of the votes of
all holders of voting securities of the resulting or surviving
corporation or entity, or a majority of the votes of all holders of
voting securities of any corporation or entity that holds 100% of the
outstanding voting securities of any such resulting or surviving
corporation or entity, on any matter on which any such holders of
voting securities shall be entitled to vote.
(7) CONVERSION.
[A] OPTIONAL CONVERSION.
[I] The holder of any share or shares of Series A
Preferred Stock shall have the right, at such holder's
option, to convert all or any portion of such shares into
fully paid and nonassessable shares of Common Stock of the
Corporation at any time and from time to time after the date
of issuance, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing the Stated Value of such share or shares of Series
A Preferred Stock by the Conversion Price of such share or
shares of Series A Preferred Stock, determined as
hereinafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price
for the Series A Preferred Stock shall be $4.00 per share
(the "Series A Conversion Price"). The Series A Conversion
Price shall be adjusted as hereinafter provided.
To the extent permitted by law, when shares of Series A
Preferred Stock are converted, all dividends accrued and
unpaid on the shares so converted to the date of conversion
(whether or not currently payable) shall be immediately due
and payable and must accompany the shares of Common Stock
issued upon such conversion. Except as provided below, such
dividends may be paid, at the option of the holder, in cash
or in shares of Common Stock valued at the fair market value
thereof, as reasonably determined by the Board.
If any holder of shares of Series A Preferred Stock
shall disagree with the Board's determination as to the fair
market value per share of the Common Stock, then such holder
may select a nationally recognized investment banking firm
("Investment Banker"), reasonably acceptable to the
Corporation, to determine the fair market value per share of
the Common Stock. The determination thereof by the
Investment Banker shall be final and
-6-
<PAGE>
binding on the Corporation and such holder. The fees and
expenses of the Investment Banker shall be paid by such
holder.
If such conversion occurs in connection with any
consolidation or merger of the Corporation with, or sale of
all or substantially all of the assets of the Corporation to
another corporation or entity, then, at the option of the
holder thereof, all dividends accrued to the date of
conversion thereof may be paid in shares of such other
corporation or entity.
[II] The Series A Preferred Stock shall be convertible
at the principal office of the Corporation into that number
of fully paid and nonassessable shares of Common Stock
determined as aforesaid.
[III] In order to convert shares of Series A Preferred
Stock into shares of Common Stock pursuant to the right of
conversion set forth in this Section 2(a)(7)[A] of this
Article IV, the holder thereof shall surrender the
certificate or certificates representing the shares of
Series A Preferred Stock, duly endorsed to the Corporation
or in blank, at the principal office of the Corporation and
shall give written notice to the Corporation that such
holder elects to convert the same, stating in such notice
the name or names in which such holder wishes the
certificate or certificates representing shares of Common
Stock to be issued. The Corporation shall, within five (5)
business days, deliver at said office or other place to such
holder, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as
aforesaid, together with cash to which such holder shall be
entitled in lieu of fractional shares (as further described
in Section 2(a)(7)[A][VII] of this Article IV). Shares of
Series A Preferred Stock shall be deemed to have been
converted as of the date of the surrender of such shares for
conversion as provided above, and the person or persons
entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on
such date. Upon conversion of only a portion of the number
of shares covered by a certificate representing shares of
Series A Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to, or upon the written
order of, the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series A
Preferred Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall
entitle the holder thereof
-7-
<PAGE>
to the rights of the shares of Series A Preferred Stock
represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been
surrendered for conversion.
[IV] The issuance of certificates for shares of Common
Stock upon the conversion of shares of Series A Preferred
Stock shall be made without charge to the converting
stockholder for any original issue or transfer tax in
respect of the issuance of such certificates and any such
tax shall be paid by the Corporation.
[V] The Series A Conversion Price shall be subject to
the following adjustments from time to time:
[a]
[i] If the Corporation shall issue, after the
date upon which any shares of Series A Preferred
Stock were first issued (the "Initial Series A
Purchase Date"), any Additional Shares (as defined
in Section 2(a)(4)[B] of this Article IV) without
consideration or for a consideration price per
share less than the Series A Conversion Price in
effect immediately prior to the issuance of the
Additional Shares, the Series A Conversion Price
in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in
this Section 2(a)(7)[A][V][a] of this Article IV)
be adjusted to a price determined by multiplying
such Series A Conversion Price by a fraction, the
numerator of which shall be (a) the number of
shares of Series A Preferred Stock outstanding
immediately prior to such issuance plus (b) the
number of shares of capital stock that the
aggregate consideration received by the
Corporation for such issuance would purchase at
such Conversion Price; and the denominator of
which shall be the number of shares of Series A
Preferred Stock outstanding immediately prior to
such issuance plus the number of such Additional
Shares so issued.
[ii] No adjustment of the Series A Conversion
Price shall be made in an amount less than one
cent per share, provided that any adjustments that
are not required to be made by reason of this
sentence shall be carried forward and
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shall be either taken into account in any
subsequent adjustment made prior to three (3)
years from the date of the event giving rise to
the adjustment being carried forward, or shall be
made at the end of the three (3) years from the
date of the event giving rise to the adjustment
being carried forward. Except to the limited
extent provided for in Sections
2(a)(7)[A][V][a][v]c. and 2(a)(7)[A][V][a][v]d. of
this Article IV, no adjustment of the Series A
Conversion Price pursuant to this Section
2(a)(7)[A][V][a] of this Article IV shall have the
effect of increasing the Series A Conversion Price
above the Series A Conversion Price in effect
immediately prior to such adjustment.
[iii] In the case of the issuance of Common
Stock for cash, the consideration shall be deemed
to be the amount of cash paid therefore before
deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
[iv] In the case of the issuance of Common
Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair value thereof as
determined by the Board.
[v] In the case of the issuance (whether
before, on or after the applicable Initial Series
A Purchase Date) of any stock or similar security,
including without limitation, securities
containing equity features and securities
containing profit participation features, or any
security convertible or exchangeable, with or
without consideration, into or for any stock or
similar security, or any security carrying any
warrant or right to subscribe for or purchase any
stock or similar security, or any such warrant or
right (collectively, "Equity Securities," provided
the term Equity Securities shall exclude the
Series A Preferred Stock and the securities
issuable upon the exercise or conversion thereof),
the following provisions shall apply for all
purposes
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<PAGE>
of this Section 2(a)(7)[A][V][a] and Section
2(a)(7)[A][V][b] of this Article IV:
a. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (to the
extent then exercisable) of such options to
purchase or rights to Subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined,, in the manner provided in Sections
2(a)(7)[A][V][a][iii] and 2(a)(7)[A][V][a][iv] of
this Article IV), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum exercise price provided in
such options or rights for the Common Stock
covered thereby.
b. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in
exchange (to the extent then convertible or
exchangeable) for, any such convertible or
exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for
such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or rights
were issued for a consideration equal to the
consideration, if any, received by the Corporation
for any such securities and related options or
rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be
received by the Corporation upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in
each case to be determined in the manner provided
in Sections 2(a)(7)[A][V][a][iii] and
2(a)(7)[A][V][a][iv] of this Article IV).
c. In the event of any change in the number of
shares of Common Stock deliverable or in the
consideration payable to the Corporation upon
exercise of such options or rights or upon
conversion of or in exchange for such convertible
or
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<PAGE>
exchangeable securities, including, but not
limited to, a change resulting from the
antidilution provisions thereof, the Series A
Conversion Price, to the extent in any way
affected by or computed using such options, rights
or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made
for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of
such options or rights or the conversion or
exchange of such securities.
d. Upon the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any
options or rights related to such convertible or
exchangeable securities, the Series A Conversion
Price, to the extent in any way affected by or
computed using such options, rights or securities
or options or rights related to such securities,
shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and
convertible or exchangeable securities that remain
in effect) actually issued upon the exercise of
such options or rights, upon the conversion or
exchange of such securities or upon the exercise
of the options or rights related to such
securities.
e. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor
pursuant to Sections 2(a)(7)[A][V][a][v]a. and
2(a)(7)[A][V][a][v]b. of this Article IV shall be
appropriately adjusted to reflect any change,
termination or expiration of the type described in
either Sections 2(a)(7)[A][V][a][v]c. and
2(a)(7)[A][V][a][v]d. of this Article IV.
[b] In the event the Corporation should at any
time or from time to time after the Initial Series A
Purchase Date fix a record date for the effectuation of
a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other
distribution payable in additional shares of Common
Stock or other securities or rights convertible into,
or entitling the holder thereof to
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<PAGE>
receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by
such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such
record date (or the date of such dividend,
distribution, split or subdivision if no record date is
fixed), the Series A Conversion Price shall be
appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of
such series shall be increased in proportion to such
increase of the aggregate of shares of Common Stock
outstanding and those issuable with respect to such
Common Stock Equivalents.
[c] If the number of shares of Common Stock
outstanding at any time after the Initial Series A
Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the
record date for such combination, the Series A
Conversion Price shall be appropriately increased so
that the number of shares of Common Stock issuable on
conversion of each share of the Series A Preferred
Stock shall be decreased in proportion to such decrease
in outstanding shares.
[d] In the event the Corporation shall declare a
distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation or
other persons, assets (excluding cash dividends) or
options or rights not referred to in Section
2(a)(7)[A][V][b] of this Article IV, then, in each such
case for the purpose of this Section 2(a)(7)[A][V][d]
of this Article IV, the holders of the Series A
Preferred Stock shall be entitled to a proportionate
share of any such distribution as though they were the
holders of the number of shares of Common Stock of the
Corporation into which their shares of Series A
Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common
Stock of the Corporation entitled to receive such
distribution.
[e] If at any time or from time to time there
shall be a recapitalization of the Common Stock (other
than a subdivision, combination or merger or sale of
assets transaction provided for elsewhere in this
Section 2(a)(7)
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<PAGE>
or Section 2(a)(6) of this Article IV) provision shall
be made so that the holders of the Series A Preferred
Stock shall thereafter be entitled to receive upon
conversion of the Series A Preferred Stock the number
of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of
Common Stock deliverable upon conversion would have
been entitled on such recapitalization. In any such
cash, appropriate adjustment shall be made in the
application of the provisions of this Section 2(a)(7)
of this Article IV with respect to the rights of the
holders of the Series A Preferred Stock after the
recapitalization to the end that the provisions of this
Section 2(a)(7) of this Article IV (including
adjustment of the Series A Conversion Price then in
effect and the number of shares purchasable upon
conversion of the Series A Preferred Stock) shall be
applicable after that event as nearly equivalent as may
be practicable.
[f] If a purchase, tender or exchange offer is
made to and accepted by the holders of more than 50% of
the outstanding shares of Common Stock, the Corporation
shall not effect any consolidation, merger or sale with
the person having made such offer or with any affiliate
of such person, unless, prior to the consummation
thereof, each holder of shares of Series A Preferred
Stock shall have been given a reasonable opportunity to
elect to receive, upon conversion of the shares of
Series A Preferred Stock then held by such holder,
either the stock, securities, cash or assets then
issuable with respect to the Common Stock, or the
stock, securities, cash or assets issued to previous
holders of the Common Stock in accordance with such
offer, or the equivalent thereof, plus accrued
dividends due to holders of the Series A Preferred
Stock.
[g] If a state of facts shall occur which, without
being specifically controlled by the provisions of this
Section 2(a)(7), would not fairly protect the
conversion rights of the Series A Preferred Stock in
accordance with the essential intent and principles of
such provisions, then the Board shall make an
adjustment in the application of such provisions, in
accordance with such essential intent and principles,
so as to protect such conversion rights.
[VI] The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of
Common
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<PAGE>
Stock, solely for the purpose of effecting the conversion of
Series A Preferred Stock, the full number of shares of
Common Stock then deliverable upon the conversion or
exchange of all shares of Series A Preferred Stock at the
time outstanding. The Corporation shall take at all times
such corporate action as shall be necessary in order that
the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the conversion of
Series A Preferred Stock in accordance with the provisions
hereof.
[VII] No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be
issued upon any conversion of Series A Preferred Stock, but
in lieu thereof, the Corporation shall pay the holder
otherwise entitled to such fraction a sum in cash equal to
the fair market value of such fraction on the date of
conversion as determined in good faith by the Board.
[VIII] The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action,
seek to avoid or avoid the observance or performance of any
of the terms to be observed or performed hereunder by the
Corporation under Section 2(a)(7)[A][V] of this Article IV,
but will at all times in good faith assist in the carrying
out of all the provisions of Section 2(a)(7)[A][V] of this
Article IV and in taking all of such action as may be
necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred Stock.
[B] AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock shall automatically be converted into shares of Common
Stock as provided in this Section 2(a)(7)[B] of this Article IV
immediately upon the closing of the sale of the Corporation's
Common Stock in a firm commitment underwritten public offering
registered under the Securities Act of 1933, as amended (the
"Securities Act"), at a public offering price (prior to
underwriters' discounts and expenses) equal to or exceeding
Fifteen Dollars and Thirty-one Cents ($15.31) per share of Common
Stock (as adjusted for any stock dividends, combinations or
splits with respect to such shares) and the aggregate net
proceeds to the Corporation (after deduction for underwriters'
discounts and expenses relating to the issuance, including,
without limitation, fees of the Corporation's counsel) of which
exceed Thirty Million Dollars ($30,000,000) (a "Qualified Public
Offering"), other than a registration relating solely to a
transaction under Rule 145 under the Securities Act (or any
successor thereto) or to an
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<PAGE>
employee benefit plan of the Corporation. At the time of a
Qualified Public Offering, the accrued dividends on each share of
Series A Preferred Stock shall be paid in shares of Common Stock
valued at the initial public offering price.
(8) REDEMPTION. The holders of a majority of the shares of Series
A Preferred Stock shall have the right to require the Corporation to
redeem their shares of Series A Preferred Stock, from any source of
funds legally available for such purpose, in three annual installments
beginning on July 31, 2004 (the "Series A Redemption Right"). In order
to exercise the Series A Redemption Right, a majority of the holders
of the shares of Series A Preferred Stock must send written notice of
their intent to exercise the Series A Redemption Right to the
Corporation (the "Series A Redemption Notice"). The Series A
Redemption Notice shall specify the number of shares of Series A
Preferred Stock the holder exercising his, her or its Series A
Redemption Right is submitting for redemption (the "Series A Submitted
Shares"). The Corporation shall only redeem shares of Series A
Preferred Stock pursuant to this Section 2(a)(8) of this Article IV as
to which it has received a Series A Redemption Notice and only if the
total amount of Series A Submitted Shares is greater than fifty
percent (50%) of the then issued and outstanding shares of Series A
Preferred Stock. The Corporation will redeem the Series A Submitted
Shares, in the manner set forth below, three (3) months after the date
it receives the number of Series A Redemption Notices sufficient to
trigger the redemption set forth in this Section 2(a)(8) of this
Article IV (the "Redemption Date").
For purposes of this Section 2(a)(8) of this Article IV, the
redemption base price ("Series A Redemption Base Price") shall be an
amount equal to the greater of (a) the "Fair Market Value" (as defined
below) of the Series A Preferred Stock, on a per share basis, or (b)
an amount equal to the purchase price paid per share to the
Corporation upon issuance of such share of Series A Preferred Stock
plus accrued but unpaid dividends, as adjusted to reflect stock
dividends, stock splits, combinations, recapitalizations or the like.
The holders of a majority of the shares of Series A Preferred Stock
who have delivered a Series A Redemption Notice (the "Series A
Redeeming Holder(s)") shall select a nationally recognized investment
banking firm (the "Investment Banker."), which Investment Banker shall
be reasonably acceptable to the Corporation, to determine the Fair
Market Value of the Series A Preferred Stock. The "Fair Market Value"
of the Series A Preferred Stock shall mean a per share amount
calculated by the Investment Banker based upon the per share fair
market value of the Common Stock as if all shares of Series A
Preferred Stock had been converted into Common Stock. The fees and
expenses of the Investment Banker shall be paid by the Corporation.
On the Redemption Date, the Corporation shall redeem one-third
(1/3) of the Series A Submitted Shares by paying to each Series A
Redeeming Holder one-third (1/3) of the Series A Redemption Base Price
for each of the Series A
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<PAGE>
Submitted Shares held by such Series A Redeeming Holder, plus an
amount equal to the dividends which accrued on all of such Series A
Redeeming Holder's Series A Submitted Shares from the date of the
issuance of such shares through the day immediately prior to the
Redemption Date. On the first anniversary of the Redemption Date, the
Corporation shall redeem one-third (1/3) of the Series A Submitted
Shares by paying to each Series A Redeeming Holder one-third (1/3) of
the Series A Redemption Base Price for each of the Series A Submitted
Shares held by such Series A Redeeming Holder, plus an amount equal to
the dividends which accrued on all the as yet non-redeemed Series A
Submitted Shares from the Redemption Date through the day immediately
prior to the first anniversary of the Redemption Date. On the second
anniversary of the Redemption Date, the Corporation shall redeem the
remaining one-third (1/3) of the Series A Submitted Shares by paying
to each Series A Redeeming Holder one-third (1/3) of the Series A
Redemption Base Price for each of the Series A Submitted Shares held
by such Series A Redeeming Holder, plus an amount equal to the
dividends which accrued on all the as yet non-redeemed Series A
Submitted Shares from the first anniversary of the Redemption Date
through the day immediately prior to the second anniversary of the
Redemption Date. The Series A Redemption Base Price and the
appropriate amount of dividends shall be paid in immediately available
funds against, if the Board so requires, delivery of stock
certificates duly endorsed or accompanied by appropriate stock powers
representing the Series A Submitted Shares, free and clear of any
liens, claims or encumbrances.
From and after each of the three annual redemption payment dates
listed above, unless there shall have been a default in payment of the
amount owed at redemption, all rights of the Series A Redeeming
Holders as holders of Series A Preferred Stock (except the right to
receive the Series A Redemption Base Price and accrued dividends upon
surrender of their certificate or certificates) shall cease with
respect to those shares actually redeemed, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed
to be outstanding for any purpose whatsoever. If, on any of the three
annual redemption payment dates, the funds of the Corporation legally
available for redemption of Series A Submitted Shares are insufficient
to redeem the portion of the Series A Submitted Shares to be redeemed
on such date, those funds which are legally available will be used to
redeem the maximum possible number of such Series A Submitted Shares
ratably among the Series A Redeeming Holders based upon the percentage
of the Series A Submitted Shares each holds. Except as provided
herein, the shares of Series A Preferred Stock, including the Series A
Submitted Shares, not redeemed pursuant to Series A Redemption Notices
shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter, when additional
funds of the Corporation are legally available for the redemption of
shares of Series A Preferred Stock, such funds will immediately be
used to redeem the balance of the shares which the Corporation has
become obliged to redeem, but which it has not redeemed.
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<PAGE>
(9) REPORTS AS TO ADJUSTMENTS. Whenever the number of shares of
Common Stock into which the shares of the Series A Preferred Stock are
convertible is adjusted as provided in Section 2(a)(7) of this Article
IV, the Corporation will (A) promptly compute such adjustment and
furnish to each transfer agent for the Series A Preferred Stock a
certificate, signed by the chief financial officer of the Corporation,
setting forth the new Series A Conversion Price, the number of shares
of Common Stock into which each share of such Series A Preferred Stock
is convertible as a result of such adjustment, a brief statement of
the facts requiring such adjustment and the computation thereof and
when such adjustment will become effective and (B) promptly mail to
the holders of record of the outstanding shares of the Series A
Preferred Stock a notice stating that the number of shares into which
the shares of Series A Preferred Stock are convertible has been
adjusted and setting forth the new Series A Conversion Price, the new
number of shares into which each share of the Series A Preferred Stock
is convertible as a result of such adjustment and when such adjustment
will become effective. Notwithstanding the foregoing, the Corporation
shall incur no liability for its failure to take any action set forth
in this Section 2(a)(9) of this Article IV, nor shall such failure
affect the validity, rights or preferences of any shares of the Series
A Preferred Stock.
(10) RANKING. Except for any series of Preferred Stock created
pursuant to an amendment adopted by the Board of Directors as provided
in Section 2(d) of this Article IV, the Series A Preferred Stock shall
rank senior to the Common Stock or any other series of Preferred Stock
of the Corporation now existing or hereafter created, except that the
Series A Preferred Stock shall rank equal with the Series B Preferred
Stock and the Series C Preferred Stock as to the payment of dividends
and the distribution of assets and rights upon liquidation,
dissolution or winding up of the Corporation.
(b) SERIES B PREFERRED STOCK. The Series B Preferred Stock shall have
the voting powers, designation, relative, participating, optional and other
special rights, preferences, qualifications, limitations and restrictions
thereof that are set forth as follows in this Section 2(b) of this Article
IV.
(1) STATED VALUE. The stated value of the Series B Preferred
Stock shall be $6.00 per share, the original per share issue price
(the "Stated Value").
(2) DIVIDENDS AND DISTRIBUTIONS. The holders of shares of the
Series B Preferred Stock shall be entitled to receive dividends equal
to 7% of the Stated Value, or $.42, per share per annum. Such
dividends shall be payable, in cash, out of funds legally available
for such purpose, only when, as, and if declared by the Board, or as
otherwise provided in Section 2(b)(7)[A][I] of this Article IV. Unless
otherwise required by law, such dividends shall accrue on each share
commencing with the date of issue of such share, and shall accrue from
day to day, whether or not earned or declared, and shall be cumulative
so that, if such
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dividends in respect of any previous or current annual dividend
period, at the annual rate specified above, shall not have been paid,
the deficiency shall first be fully paid before any dividend or
distribution shall be paid on or declared and set apart for the Common
Stock or any other class or series of capital stock. No interest shall
be paid on accrued but unpaid dividends.
(3) VOTING RIGHTS. In addition to the voting rights required by
law or by these Articles, the holders of Series B Preferred Stock
shall be entitled to vote on all matters submitted to a vote of the
Corporation's stockholders and shall be entitled to notice of any
stockholders' meeting in accordance with the bylaws of the Corporation
("Bylaws"). Each holder of shares of Series B Preferred Stock shall be
entitled to the number of votes equal to the number of shares of
Common Stock into which such shares of Series B Preferred Stock could
be converted at the time of such vote. Except as otherwise required by
law or by these Articles or any amendment hereto adopted by the Board
of Directors as provided in Section 2(d) of this Article IV, the
holders of the Series B Preferred Stock, the holders of the Series A
Preferred Stock, the holders of the Series C Preferred Stock, the
holders of Common Stock and the holders of any other series of
Preferred Stock shall vote together as one voting group on all matters
submitted to a vote of the Corporation's stockholders or may act by
written consent on all such matters.
(4) CERTAIN RESTRICTIONS.
[A] DIVIDENDS. Whenever dividends payable on the Series B
Preferred Stock, as provided in Section 2(b)(2) of this Article
IV, are in arrears, thereafter and until dividends, including all
accrued dividends, on shares of the Series B Preferred Stock
outstanding shall have been paid in full or declared and set
apart for payment, the Corporation shall not (a) pay dividends
on, make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series B Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire
shares of any such junior stock in exchange for or out of the
shares of any such junior stock, (b) pay dividends on or make any
other distributions on any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series B Preferred Stock, except dividends paid ratably on
the Series B Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then
entitled, or (c) redeem or purchase or otherwise acquire for
consideration any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series B Preferred Stock, except for redemptions made ratably
on the Series B Preferred Stock and all such parity stock in
proportion, to the total amounts to which the holders of all such
shares are then entitled.
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[B] ADDITIONAL SHARES. "Additional Shares" shall mean all
shares of Common Stock issued (or deemed to have been issued
pursuant to Section 2(b)(7)[A][V][a][v] of this Article IV) by
the Corporation after the Initial Series B Purchase Date (as
defined in Section 2(b)(7)[A][V][a][i] of this Article IV) other
than shares of Common Stock issued or issuable (i) upon
conversion of shares of Series B Preferred Stock, Series A
Preferred Stock or Series C Preferred Stock, (ii) pursuant to a
transaction described in Section 2(b)(7)[A][V][b] of this Article
IV, or (iii) to officers, directors or employees of the
Corporation pursuant to stock option or stock purchase plans or
agreements on terms approved by the Board, but not exceeding
twenty percent (20%) of the then outstanding shares of capital
stock of the Corporation (net of any repurchases of such shares
or cancellations or expirations of options), subject to
adjustment for all subdivisions and combinations and assuming
conversion in full of all shares of Series B Preferred Stock and
exercise of all then outstanding options or rights to acquire
shares of the Corporation's capital stock.
[C] CERTAIN RESTRICTIONS. Without the consent of the holders
of a majority of the then outstanding shares of Series B
Preferred Stock, Series A Preferred Stock and Series C Preferred
Stock voting together as a single class on an as if converted
basis, the Corporation shall not (i) issue or sell any class or
series of equity securities or additional shares of existing
classes or series, or equivalents thereto or rights convertible
thereinto or exchangeable therefore except [a] pursuant to stock
option or stock purchase plans or agreements on terms approved by
the Board, but not exceeding twenty percent (20%) of the then
outstanding shares of capital stock of the Corporation as
determined in accordance with and subject to the adjustments set
forth in Section 2(b)(4)[B] of this Article IV, [b] upon
conversion of the Series B Preferred Stock, the Series A
Preferred Stock or the Series C Preferred Stock, [c] in a
Qualified Public Offering (as defined in Section 2(b)(7)[B] of
this Article IV) ) or [d] upon the conversion of any promissory
notes or the exercise of any warrants issued pursuant to that
certain Convertible Promissory Note and Warrant Purchase
Agreement, dated November 24, 1999, by and among the Corporation
and certain of its shareholders, (ii) effect a liquidation,
dissolution, winding up, merger or sale of the Corporation or
sale of substantially all of its assets; (iii) effect any
transaction, including, without limitation, the issuance of any
shares of stock or rights to acquire shares of stock, which would
result in a change in ownership of more than 50% of the
Corporation's outstanding common stock on an as-if fully
converted basis, except for a Qualified Public Offering (as
defined in Section 2(b)(7)[B] of this Article IV); (iv) amend the
Articles or the Bylaws; (v) redeem or otherwise acquire for value
or pay any dividend or distribution on the Common Stock or any
capital stock of the Corporation ranking
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junior to the Series B Preferred Stock, and if ranking pari
passu, without redeeming and/or paying an equal dividend or
distribution on the Series B Preferred Stock; PROVIDED, HOWEVER,
that this restriction shall not apply to transactions in which
the Corporation purchases or otherwise acquires for value shares
of Common Stock from employees, officers, directors or other
persons performing services for the Corporation or one of its
wholly-owned subsidiaries pursuant to agreements under which the
Corporation has the option to repurchase such shares, such as the
termination of employment or service to the Corporation or one of
its wholly-owned subsidiaries; or (vi) take any other actions
that would materially and adversely affect the holders of the
Series B Preferred Stock; provided, however, that, as and to the
extent required by the Georgia Business Corporation Code, any
amendment which would materially affect the holders of the
outstanding shares of a class or series of capital stock must
also be separately approved by a majority of the holders of such
class or series.
(5) REACQUIRED SHARES. Any shares of the Series B Preferred Stock
which have been converted to Common Stock or which have been purchased
or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof
and shall not be reissued in any form.
(6) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders
of the Common Stock or the holders of any other series of Preferred
Stock, except the Series A Preferred Stock and the Series C Preferred
Stock shall rank equal with the Series B Preferred Stock on any
liquidation, dissolution or winding up, an amount equal to the greater
of (i) for each share of Series B Preferred Stock, the Stated Value of
such share, plus accrued and unpaid dividends thereon, or (ii) for
each share of Series B Preferred Stock, the amount distributable for
each share of Common Stock to all holders thereof (assuming all shares
of the Series B Preferred Stock had been converted to Common Stock),
plus accrued and unpaid dividends on the Series B Preferred Stock. If,
upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series B Preferred Stock and to
the holders of any class or series of stock ranking on parity with the
Series B Preferred Stock (either as to payment of dividends or upon
liquidation, dissolution or winding up) shall be insufficient to
permit the payment to such holders of the full aforesaid preferential
amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of
the Series B Preferred Stock and all other such parity stock in
proportion to the amount each would have received had
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there been sufficient funds to permit the payment to such holders of
the full aforesaid preferential amount.
After payment to the holders of the Series B Preferred Stock and
any other parity stock as set forth above, the entire remaining assets
and funds of the Corporation legally available for distribution, if
any, shall be distributed among the holders of the Common Stock and
any other class or series of capital stock ranking junior to the
Series B Preferred Stock.
For purposes of this Section 2(b)(6) of this Article IV, any
merger or consolidation of the Corporation with or into any other
corporation or entity, or sale of all or substantially all the assets
of the Corporation, or sale of fifty percent (50%) or more of the
voting securities of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation, except for
a merger or consolidation or sale of all or substantially all the
assets of the Corporation or sale of fifty percent (50%) or more of
the voting securities of the Corporation in which the shareholders of
the Corporation immediately prior thereto shall, immediately
thereafter, hold as a group the right to cast, directly or indirectly,
at least a majority of the votes of all holders of voting securities
of the resulting or surviving corporation or entity, or a majority of
the votes of all holders of voting securities of any corporation or
entity that holds 100% of the outstanding voting securities of any
such resulting or surviving corporation or entity, on any matter on
which any such holders of voting securities shall be entitled to vote.
(7) Conversion.
[A] Optional Conversion.
[I] The holder of any share or shares of Series B
Preferred Stock shall have the right, at such holder's
option, to convert all or any portion of such shares into
fully paid and nonassessable shares of Common Stock of the
Corporation at any time and from time to time after the date
of issuance, into such number of fully paid and
nonassessable shares of Common Stock as is determined by
dividing the Stated Value of such share or shares of Series
B Preferred Stock by the Conversion Price of such share or
shares of Series B Preferred Stock, determined as
hereinafter provided, in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price
for the Series B Preferred Stock shall be $6.00 per share
(the "Series B Conversion Price"). The Series B Conversion
Price shall be adjusted as hereinafter provided.
To the extent permitted by law, when shares of Series B
Preferred Stock are converted, all dividends accrued and
unpaid on
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the shares so converted to the date of conversion (whether
or not currently payable) shall be immediately due and
payable and must accompany the shares of Common Stock issued
upon such conversion. Except as provided below, such
dividends may be paid, at the option of the holder, in cash
or in shares of Common Stock valued at the fair market value
thereof, as reasonably determined by the Board.
If any holder of shares of Series B Preferred Stock
shall disagree with the Board's determination as to the fair
market value per share of the Common Stock, then such holder
may select a nationally recognized investment banking firm
("Investment Banker"), reasonably acceptable to the
Corporation, to determine the fair market value per share of
the Common Stock. The determination thereof by the
Investment Banker shall be final and binding on the
Corporation and such holder. The fees and expenses of the
Investment Banker shall be paid by such holder.
If such conversion occurs in connection with any
consolidation or merger of the Corporation with, or sale of
all or substantially all of the assets of the Corporation to
another corporation or entity, then, at the option of the
holder thereof, all dividends accrued to the date of
conversion thereof may be paid in shares of such other
corporation or entity.
[II] The Series B Preferred Stock shall be convertible
at the principal office of the Corporation, into that number
of fully paid and nonassessable shares of Common Stock
determined as aforesaid.
[III] In order to convert shares of Series B Preferred
Stock into shares of Common Stock pursuant to the right of
conversion set forth in this Section 2(b)(7)[A] of this
Article IV, the holder thereof shall surrender the
certificate or certificates representing the shares of
Series B Preferred Stock, duly endorsed to the Corporation
or in blank, at the principal office of the Corporation and
shall give written notice to the Corporation that such
holder elects to convert the same, stating in such notice
the name or names in which such holder wishes the
certificate or certificates representing shares of Common
Stock to be issued. The Corporation shall, within five (5)
business days, deliver at said office or other place to such
holder, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as
aforesaid, together with cash to which such holder shall be
entitled in lieu of
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fractional shares (as further described in Section
2(b)(7)[A][VIII] of this Article IV). Shares of Series B
Preferred Stock shall be deemed to have been converted as of
the date of the surrender of such shares for conversion as
provided above, and the person or persons entitled to
receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such
date. Upon conversion of only a portion of the number of
shares covered by a certificate representing shares of
Series B Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to, or upon the written
order of, the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Series B
Preferred Stock representing the unconverted portion of the
certificate so surrendered, which new certificate shall
entitle the holder thereof to the rights of the shares of
Series B Preferred Stock represented thereby to the same
extent as if the certificate theretofore covering such
unconverted shares had not been surrendered for conversion.
[IV] The issuance of certificates for shares of Common
Stock upon the conversion of shares of Series B Preferred
Stock shall be made without charge to the converting
stockholder for any original issue or transfer tax in
respect of the issuance of such certificates and any such
tax shall be paid by the Corporation.
[V] The Series B Conversion Price shall be subject to
the following adjustments from time to time:
[a]
[i] If the Corporation shall issue, after the
date upon which any shares of Series B Preferred
Stock were first issued (the "Initial Series B
Purchase Date"), any Additional Shares (as defined
in Section 2(b)(4)[B] of this Article IV) without
consideration or for a consideration price per
share less than the Series B Conversion Price in
effect immediately prior to the issuance of the
Additional Shares, the Series B Conversion Price
in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in
this Section 2(b)(7)[A][V][a] of this Article IV)
be adjusted to a price determined by multiplying
such Series B Conversion Price by a fraction, the
numerator of which shall be (a) the number of
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shares of Series B Preferred Stock outstanding
immediately prior to such issuance plus (b) the
number of shares of capital stock that the
aggregate consideration received by the
Corporation for such issuance would purchase at
such Conversion Price; and the denominator of
which shall be the number of shares of Series B
Preferred Stock outstanding immediately prior to
such issuance plus the number of such Additional
Shares so issued.
[ii] No adjustment of the Series B Conversion
Price shall be made in an amount less than one
cent per share, provided that any adjustments that
are not required to be made by reason of this
sentence shall be carried forward and shall be
either taken into account in any subsequent
adjustment made prior to three (3) years from the
date of the event giving rise to the adjustment
being carried forward, or shall be made at the end
of the three (3) years from the date of the event
giving rise to the adjustment being carried
forward. Except to the limited extent provided for
in Sections 2(b)(7)[A][V][a][v]c. and
2(b)(7)[A][V][a][v]d. of this Article IV, no
adjustment of the Series B Conversion Price
pursuant to this Section 2(b)(7)[A][V][a] of this
Article IV shall have the effect of increasing the
Series B Conversion Price above the Series B
Conversion Price in effect immediately prior to
such adjustment.
[iii] In the case of the issuance of Common
Stock for cash, the consideration shall be deemed
to be the amount of cash paid therefore before
deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.
[iv] In the case of the issuance of Common
Stock for a consideration in whole or in part
other than cash, the consideration other than cash
shall be deemed to be the fair value thereof as
determined by the Board.
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[v] In the case of the issuance (whether
before, on or after the applicable Initial Series
B Purchase Date) of any stock or similar security,
including without limitation, securities
containing equity features and securities profit
participation features, or any security
convertible or exchangeable, with or without
consideration, into or for any stock or similar
security, or any security carrying any warrant or
right to subscribe for or purchase any stock or
similar security, or any such warrant or right
(collectively, "Equity Securities," provided the
term Equity Securities shall exclude the Series B
Preferred Stock and the Series A Preferred Stock
and the securities issuable upon the exercise or
conversion thereof), the following provisions
shall apply for all purposes of this Section
2(b)(7)[A][V][a] and Section 2(b)(7)[A][V][b] of
this Article IV:
a. The aggregate maximum number of shares of
Common Stock deliverable upon exercise (to the
extent then exercisable) of such options to
purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration
(determined in the manner provided in Sections
2(b)(7)[A][V][a][iii] and 2(b)(7)[A][V][a][iv] of
this Article IV), if any, received by the
Corporation upon the issuance of such options or
rights plus the minimum exercise price provided in
such options or rights for the Common Stock
covered thereby.
b. The aggregate maximum number of shares of
Common Stock deliverable upon conversion of, or in
exchange (to the extent then convertible or
exchangeable) for, any such convertible or
exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for
such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or rights
were issued for a consideration equal to the
consideration, if any, received by the Corporation
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for any such securities and related options or
rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be
received by the Corporation upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in
each case to be determined in the manner provided
in Sections 2(b)(7) [A][V][a][iii] and
2(b)(7)[A][V][a][iv] of this Article IV).
c. In the event of any change in the number of
shares of Common Stock deliverable or in the
consideration payable to the Corporation upon
exercise of such options or rights or upon
conversion of or in exchange for such convertible
or exchangeable securities, including, but not
limited to, a change resulting from the
antidilution provisions thereof, the Series B
Conversion Price, to the extent in any way
affected by or computed using such options, rights
or securities, shall be recomputed to reflect such
change, but no further adjustment shall be made
for the actual issuance of Common Stock or any
payment of such consideration upon the exercise of
such options or rights or the conversion or
exchange of such securities.
d. Upon the expiration of any such options or
rights, the termination of any such rights to
convert or exchange or the expiration of any
options or rights related to such convertible or
exchangeable securities, the Series B Conversion
Price, to the extent in any way affected by or
computed using such options, rights or securities
or options or rights related to such securities,
shall be recomputed to reflect the issuance of
only the number of shares of Common Stock (and
convertible or exchangeable securities that remain
in effect) actually issued upon the exercise of
such options or rights, upon the conversion or
exchange of such securities or upon the exercise
of the options or rights related to such
securities.
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e. The number of shares of Common Stock deemed
issued and the consideration deemed paid therefor
pursuant to Sections 2(b)(7)[A][V][a][v]a. and
2(b)(7)[A][V][a][v]b. of this Article IV shall be
appropriately adjusted to reflect any change,
termination or expiration of the type described in
either Sections 2(b)(7)[A][V][a][v]c. and
2(b)(7)[A][V][a][v]d. of this Article IV.
[b] In the event the Corporation should at
any time or from time to time after the Initial
Series B Purchase Date fix a record date for the
effectuation of a split or subdivision of the
outstanding shares of Common Stock or the
determination of holders of Common Stock entitled
to receive a dividend or other distribution
payable in additional shares of Common Stock or
other securities or rights convertible into, or
entitling the holder thereof to receive directly
or indirectly, additional shares of Common Stock
(hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration
by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including
the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend,
distribution, split or subdivision if no record
date is fixed), the Series B Conversion Price
shall be appropriately decreased so that the
number of shares of Common Stock issuable on
conversion of each share of such series shall be
increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding
and those issuable with respect to such Common
Stock Equivalents.
[c] If the number of shares of Common Stock
outstanding at any time after the Initial Series B
Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then,
following the record date for such combination,
the Series B Conversion Price shall be
appropriately increased so that the number of
shares of Common Stock issuable on conversion of
each share of the Series B Preferred Stock shall
be decreased in proportion to such decrease in
outstanding shares.
[d] In the event the Corporation shall
declare a distribution payable in securities of
other persons,
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evidences of indebtedness issued by the
Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred
to in Section 2(b)(7)[A][V][b] of this Article IV,
then, in each such case for the purpose of this
Section 2(b)(7)[A][V][d] of this Article IV, the
holders of the Series B Preferred Stock shall be
entitled to a proportionate share of any such
distribution as though they were the holders of
the number of shares of Common Stock of the
Corporation into which their shares of Series B
Preferred Stock are convertible as of the record
date fixed for the determination of the holders of
Common Stock of the Corporation entitled to
receive such distribution.
[e] If at any time or from time to time there
shall be a recapitalization of the Common Stock
(other than a subdivision, combination or merger
or sale of assets transaction provided for
elsewhere in this Section 2(b)(7) or Section
2(b)(6) of this Article IV) provision shall be
made so that the holders of the Series B Preferred
Stock shall thereafter be entitled to receive upon
conversion of the Series B Preferred Stock the
number of shares of stock or other securities or
property of the Corporation or otherwise, to which
a holder of Common Stock deliverable upon
conversion would have been entitled on such
recapitalization. In any such case, appropriate
adjustment shall be made in the application of the
provisions of this Section 2(b)(7) of this Article
IV with respect to the rights of the holders of
the Series B Preferred Stock after the
recapitalization to the end that the provisions of
this Section 2(b)(7) of this Article IV (including
adjustment of the Series B Conversion Price then
in effect and the number of shares purchasable
upon conversion of the Series B Preferred Stock)
shall be applicable after that event as nearly
equivalent as may be practicable.
[f] If a purchase, tender or exchange offer
is made to and accepted by the holders of more
than 50% of the outstanding shares of Common
Stock, the Corporation shall not effect any
consolidation, merger or sale with the person
having made such offer or with any affiliate of
such person, unless, prior to the consummation
thereof, each holder of shares of Series B
Preferred Stock shall have been given a reasonable
opportunity to elect to receive, upon conversion
of the shares of Series B Preferred Stock then
held by such holder, either the stock, securities,
cash or assets then issuable with respect to the
Common Stock, or the stock, securities, cash or
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assets issued to previous holders of the Common
Stock in accordance with such offer, or the
equivalent thereof, plus accrued dividends due to
holders of the Series B Preferred Stock.
[g] If a state of facts shall occur which,
without being specifically controlled by the
provisions of this Section 2(b)(7), would not
fairly protect the conversion rights of the Series
B Preferred Stock in accordance with the essential
intent and principles of such provisions, then the
Board shall make an adjustment in the application
of such provisions, in accordance with such
essential intent and principles, so as to protect
such conversion rights.
[VI] The Corporation shall at all times reserve
and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of
effecting the conversion of Series B Preferred Stock,
the full number of shares of Common Stock then
deliverable upon the conversion or exchange of all
shares of Series B Preferred Stock at the time
outstanding. The Corporation shall take at all times
such corporate action as shall be necessary in order
that the Corporation may validly and legally issue
fully paid and nonassessable shares of Common Stock
upon the conversion of Series B Preferred Stock in
accordance with the provisions hereof.
[VII] No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock
shall be issued upon any conversion of Series B
Preferred Stock, but, in lieu thereof, the Corporation
shall pay the holder otherwise entitled to such
fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion as
determined in good faith by the Board.
[VIII] The Corporation will not, by amendment of
its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any
other voluntary action, seek to avoid or avoid the
observance or performance of any of the terms to be
observed or performed hereunder by the Corporation
under Section 2(b)(7)[A][V] of this Article IV, but
will at all times in good faith assist in the carrying
out of all the provisions of Section 2(b)(7)[A][V] of
this Article IV and in taking all of such action as
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may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series B
Preferred Stock.
[B] AUTOMATIC CONVERSION. Each share of Series B
Preferred Stock shall automatically be converted into shares
of Common Stock as provided in this Section 2(b)(7)[B] of
this Article IV immediately upon the closing of the sale of
the Corporation's Common Stock in a firm commitment
underwritten public offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), at a public
offering price (prior to underwriters' discounts and
expenses) equal to or exceeding Fifteen Dollars and
Thirty-One Cents ($15.31) per share of Common Stock (as
adjusted for any stock dividends, combinations or splits
with respect to such shares) and the aggregate net proceeds
to the Corporation (after deduction for underwriters'
discounts and expenses relating to the issuance, including,
without limitation, fees of the Corporation's counsel) of
which exceed Thirty Million Dollars ($30,000,000) (a
"Qualified Public Offering"), other than a registration
relating solely to a transaction under Rule 145 under the
Securities Act (or any successor thereto) or to an employee
benefit plan of the Corporation. At the time of a Qualified
Public Offering, the accrued dividends on each share of
Series B Preferred Stock shall be paid in shares of Common
Stock valued at the initial public offering price.
(8) REDEMPTION. The holders of a majority of the shares of
Series B Preferred Stock shall have the right to require the
Corporation to redeem their shares of Series B Preferred Stock,
from any source of funds legally available for such purpose, in
three annual installments beginning on July 31, 2004 (the "Series
B Redemption Right"). In order to exercise the Series B
Redemption Right, a majority of the holders of the shares of
Series B Preferred Stock must send written notice of their intent
to exercise the Series B Redemption Right to the Corporation (the
"Series B Redemption Notice"). The Series B Redemption Notice
shall specify the number of shares of Series B Preferred Stock
the holder exercising his, her or its Series B Redemption Right
is submitting for redemption (the "Series B Submitted Shares").
The Corporation shall only redeem shares of Series B Preferred
Stock pursuant to this Section 2(b)(8) of this Article IV as to
which it has received a Series B Redemption Notice and only if
the total amount of Series B Submitted Shares is greater than
fifty percent (50%) of the then issued and outstanding shares of
Series B Preferred Stock. The Corporation will redeem the Series
B Submitted Shares, in the manner set forth below, three (3)
months after the date it receives the number of Series B
Redemption Notices sufficient to trigger the redemption set forth
in this Section 2(b)(8) of this Article IV (the "Redemption
Date").
For purposes of this Section 2(b)(8) of this Article IV, the
redemption base price ("Series B Redemption Base Price") shall be
an amount equal to the greater
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of (a) the "Fair Market Value" (as defined below) of the Series B
Preferred Stock, on a per share basis, or (b) an amount equal to
the purchase price paid per share to the Corporation upon
issuance of such share of Series B Preferred Stock plus accrued
but unpaid dividends, as adjusted to reflect stock dividends,
stock splits, combinations, recapitalizations or the like. The
holders of a majority of the shares of Series B Preferred Stock
who have delivered a Series B Redemption Notice (the "Series B
Redeeming Holder(s)") shall select a nationally recognized
investment banking firm (the "Investment Banker"), which
Investment Banker shall be reasonably acceptable to the
Corporation, to determine the Fair Market Value of the Series B
Preferred Stock. The "Fair Market Value" of the Series B
Preferred Stock shall mean a per share amount calculated by the
Investment Banker based upon the per share fair market value of
the Common Stock as if all shares of Series B Preferred Stock had
been converted into Common Stock. The fees and expenses of the
Investment Banker shall be paid by the Corporation.
On the Redemption Date, the Corporation shall redeem
one-third (1/3) of the Series B Submitted Shares by paying to
each Series B Redeeming Holder one-third (1/3) of the Series B
Redemption Base Price for each of the Series B Submitted Shares
held by such Series B Redeeming Holder, plus an amount equal to
the dividends which accrued on all of such Series B Redeeming
Holder's Series B Submitted Shares from the date of the issuance
of such shares through the day immediately prior to the
Redemption Date. On the first anniversary of the Redemption Date,
the Corporation shall redeem one-third (1/3) of the Series B
Submitted Shares by paying to each Series B Redeeming Holder
one-third (1/3) of the Series B Redemption Base Price for each of
the Series B Submitted Shares held by such Series B Redeeming
Holder, plus an amount equal to the dividends which accrued on
all the as yet non-redeemed Series B Submitted Shares from the
Redemption Date through the day immediately prior to the first
anniversary of the Redemption Date. On the second anniversary of
the Redemption Date, the Corporation shall redeem the remaining
one-third (1/3) of the Series B Submitted Shares by paying to
each Series B Redeeming Holder one third (1/3) of the Series B
Redemption Base Price for each of the Series B Submitted Shares
held by such Series B Redeeming Holder, plus an amount equal to
the dividends which accrued on all the as yet non-redeemed Series
B Submitted Shares from the first anniversary of the Redemption
Date through the day immediately prior to the second anniversary
of the Redemption Date. The Series B Redemption Base Price and
the appropriate amount of dividends shall be paid in immediately
available funds against, if the Board so requires, delivery of
stock certificates duly endorsed or accompanied by appropriate
stock powers representing the Series B Submitted Shares, free and
clear of any liens, claims or encumbrances.
From and after each of the three annual redemption payment
dates listed above, unless there shall have been a default in
payment of the amount owed at redemption, all rights of the
Series B Redeeming Holders as holders of Series B Preferred Stock
(except the right to receive the Series B Redemption Base Price
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and accrued dividends upon surrender of their certificate or
certificates) shall cease with respect to those shares actually
redeemed, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If, on any of the three annual redemption
payment dates, the funds of the Corporation legally available for
redemption of Series B Submitted Shares are insufficient to
redeem the portion of the Series B Submitted Shares to be
redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such Series
B Submitted Shares ratably among the Series B Redeeming Holders
based upon the percentage of the Series B Submitted Shares each
holds. Except as provided herein, the shares of Series B
Preferred Stock, including the Series B Submitted Shares, not
redeemed pursuant to Series B Redemption Notices shall remain
outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter, when additional funds of
the Corporation are legally available for the redemption of
shares of Series B Preferred Stock, such funds will immediately
be used to redeem the balance of the shares which the Corporation
has become obliged to redeem, but which it has not redeemed.
(9) REPORTS AS TO ADJUSTMENTS. Whenever the number of shares
of Common Stock into which the shares of the Series B Preferred
Stock are convertible is adjusted as provided in Section 2(b)(7)
of this Article IV, the Corporation will (A) promptly compute
such adjustment and furnish to each transfer agent for the Series
B Preferred Stock a certificate, signed by the chief financial
officer of the Corporation, setting forth the new Series B
Conversion Price, the number of shares of Common Stock into which
each share of such Series B Preferred Stock is convertible as a
result of such adjustment, a brief statement of the facts
requiring such adjustment and the computation thereof and when
such adjustment will become effective and (B) promptly mail to
the holders of record of the outstanding shares of the Series B
Preferred Stock a notice stating that the number of shares into
which the shares of Series B Preferred Stock are convertible has
been adjusted and setting forth the new Series B Conversion
Price, the new number of shares into which each share of the
Series B Preferred Stock is convertible as a result of such
adjustment and when such adjustment will become effective.
Notwithstanding the foregoing, the Corporation shall incur no
liability for its failure to take any action set forth in this
Section 2(b)(9) of this Article IV, nor shall such failure affect
the validity, rights or preferences of any shares of the Series B
Preferred Stock.
(10) RANKING. Except for any series of Preferred Stock
created pursuant to an amendment to the Articles adopted by the
Board of Directors as provided in Section 2(d) of this Article
IV, and the Series B Preferred Stock shall rank senior to the
Common Stock or any other series of Preferred Stock of the
Corporation now existing or hereafter created, except that the
Series B Preferred Stock shall rank equal with the Series A
Preferred Stock and the Series C Preferred Stock as
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to the payment of dividends and the distribution of assets and
rights upon liquidation, dissolution or winding up of the
Corporation.
(c) SERIES C PREFERRED STOCK. The Series C Preferred Stock shall
have the voting powers, designation, relative, participating, optional
and other special rights, preferences, qualifications, limitations and
restrictions thereof that are set forth as follows in this Section
2(c) of this Article IV.
(1) STATED VALUE. The stated value of the Series C Preferred
Stock shall be $15.31 per share, the original per share issue
price (the "Stated Value").
(2) DIVIDENDS AND DISTRIBUTIONS. The holders of shares of
the Series C Preferred Stock shall be entitled to receive
dividends equal to 7% of the Stated Value, or $1.07, per share
per annum. Such dividends shall be payable, in cash, out of funds
legally available for such purpose, only when, as, and if
declared by the Board, or as otherwise provided in Section
2(c)(7)[A][I] of this Article IV. Unless otherwise required by
law, such dividends shall accrue on each share commencing with
the date of issue of such share, and shall accrue from day to
day, whether or not earned or declared, and shall be cumulative
so that, if such dividends in respect of any previous or current
annual dividend period, at the annual rate specified above, shall
not have been paid, the deficiency shall first be fully paid
before any dividend or distribution shall be paid on or declared
and set apart for the Common Stock or any other class or series
of capital stock. No interest shall be paid on accrued but unpaid
dividends.
(3) VOTING RIGHTS. In addition to the voting rights required
by law or by these Articles, the holders of Series C Preferred
Stock shall be entitled to vote on all matters submitted to a
vote of the Corporation's stockholders and shall be entitled to
notice of any stockholders' meeting in accordance with the bylaws
of the Corporation ("Bylaws"). Each holder of shares of Series C
Preferred Stock shall be entitled to the number of votes equal to
the number of shares of Common Stock into which such shares of
Series C Preferred Stock could be converted at the time of such
vote. Except as otherwise required by law or by these Articles or
any amendment hereto adopted by the Board of Directors as
provided in Section 2(d) of this Article IV, the holders of the
Series C Preferred Stock, the holders of the Series A Preferred
Stock, the holders of the Series B Preferred Stock, the holders
of Common Stock and the holders of any other series of Preferred
Stock shall vote together as one voting group on all matters
submitted to a vote of the Corporation's stockholders or may act
by written consent on all such matters.
(4) CERTAIN RESTRICTIONS.
[A] DIVIDENDS. Whenever dividends payable on the Series
C Preferred Stock, as provided in Section 2(c)(2) of this
Article IV, are in arrears, thereafter and until dividends,
including all accrued dividends, on
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shares of the Series C Preferred Stock outstanding shall
have been paid in full or declared and set apart for
payment, the Corporation shall not (a) pay dividends on,
make any other distributions on, or redeem or purchase or
otherwise acquire for consideration any stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series C Preferred Stock, provided that
the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in
exchange for or out of the shares of any such junior stock,
(b) pay dividends on or make any other distributions on any
stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C
Preferred Stock, except dividends paid ratably on the Series
C Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are
then entitled, or (c) redeem or purchase or otherwise
acquire for consideration any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series C Preferred Stock, except
redemptions made ratably on the Series A Preferred Stock and
all such parity stock in proportion to the total amount to
which the holders of all such shares are then entitled.
[B] ADDITIONAL SHARES. "Additional Shares" shall mean
all shares of Common Stock issued (or deemed to have been
issued pursuant to Section 2(c)(7)[A][V][a][v] of this
Article IV) by the Corporation after the Initial Series C
Purchase Date (as defined in Section 2(c)(7)[A][V][a][v][i]
of this Article IV) other than shares of Common Stock issued
or issuable (i) upon conversion of shares of Series C
Preferred Stock, Series B Preferred Stock, or Series C
Preferred Stock, (ii) pursuant to a transaction described in
Section 2(c)(7)[A][V][b] of this Article IV, or (iii) to
officers, directors or employees of the Corporation pursuant
to stock option or stock purchase plans or agreements on
terms approved by the Board, but not exceeding twenty
percent (20%) of the then outstanding shares of capital
stock of the Corporation (net of any repurchases of such
shares or cancellations or expirations of options), subject
to adjustment for all subdivisions and combinations and
assuming conversion in full of all shares of Series C
Preferred Stock and exercise of all then outstanding options
or rights to acquire shares of the Corporation's capital
stock.
[C] CERTAIN RESTRICTIONS. Without the consent of the
holders of a majority of the then outstanding shares of
Series C Preferred Stock, Series A Preferred Stock and
Series B Preferred Stock voting together as a single class
on an as if converted basis, the Corporation shall not (i)
issue or sell any class or series of equity securities or
additional shares of existing classes or series, or
equivalents thereto or rights convertible thereinto or
exchangeable therefore except [a] pursuant to stock option
or
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stock purchase plans or agreements on terms approved by the
Board, but not exceeding twenty percent (20%) of the then
outstanding shares of capital stock of the Corporation as
determined in accordance with and subject to the adjustments
set forth in Section 2(c)(4)[B] of this Article IV, [b] upon
conversion of the Series C Preferred Stock, the Series A
Preferred Stock or the Series B Preferred Stock, [c] in a
Qualified Public Offering (as defined in Section 2(c)(7)[B]
of this Article IV)) or [d] upon the conversion of any
promissory notes or the exercise of any warrants issued
pursuant to that certain Convertible Promissory Note and
Warrant Purchase Agreement, dated November 24, 1999, by and
among the Corporation and certain of its shareholders, (ii)
effect a liquidation, dissolution, winding up, merger or
sale of the Corporation or sale of substantially all of its
assets; (iii) effect any transaction, including, without
limitation, the issuance of any shares of stock or rights to
acquire shares of stock, which would result in a change in
ownership of more than 50% of the Corporation's outstanding
common stock on an as-if fully converted basis, except for a
Qualified Public Offering (as defined in Section 2(c)(7)[B]
of this Article IV); (iv) amend the Articles or the Bylaws;
(v) redeem or otherwise acquire for value or pay any
dividend or distribution on the Common Stock or any capital
stock of the Corporation ranking junior to the Series C
Preferred Stock, and if ranking pari passu, without
redeeming and/or paying an equal dividend or distribution on
the Series C Preferred Stock; PROVIDED, HOWEVER, that this
restriction shall not apply to transactions in which the
Corporation purchases or otherwise acquires for value shares
of Common Stock from employees, officers, directors or other
persons performing services for the Corporation or one of
its wholly-owned subsidiaries pursuant to agreements under
which the Corporation has the option to repurchase such
shares, such as the termination of employment or service to
the Corporation or one of its wholly-owned subsidiaries; or
(vi) take any other actions that would materially and
adversely affect the holders of the Series C Preferred
Stock; provided, however, that, as and to the extent
required by the Georgia Business Corporation Code, any
amendment which would materially affect the holders of the
outstanding shares of a class or series of capital stock
must also be separately approved by a majority of the
holders of such class or series.
(5) REACQUIRED SHARES. Any shares of the Series C Preferred
Stock which have been converted to Common Stock or which have
been purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after
the acquisition thereof and shall not be reissued in any form.
(6) LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary,
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the holders of the Series C Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of
the assets or surplus funds of the Corporation to the holders of
the Common Stock or the holders of any other series of Preferred
Stock, except the Series A Preferred Stock and the Series B
Preferred Stock shall rank equal with the Series C Preferred
Stock on any liquidation, dissolution or winding up, an amount
equal to the greater of (i) for each share of Series C Preferred
Stock, the Stated Value of such share, plus accrued and unpaid
dividends thereon, or (ii) for each share of Series C Preferred
Stock, the amount distributable for each share of Common Stock to
all holders thereof (assuming all shares of the Series C
Preferred Stock had been converted to Common Stock), plus accrued
and unpaid dividends on the Series C Preferred Stock. If, upon
the occurrence of such event, the assets and funds thus
distributed among the holders of the Series C Preferred Stock and
to the holders of any class or series of stock ranking on parity
with the Series C Preferred Stock (either as to payment of
dividends or upon liquidation, dissolution or winding up) shall
be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds
of the Corporation legally available for distribution shall be
distributed among the holders of the Series C Preferred Stock and
all other such parity stock in proportion to the amount each
would have received had there been sufficient funds to permit the
payment to such holders of the full aforesaid preferential
amount.
After payment to the holders of the Series C Preferred Stock
and any other parity stock as set forth above, the entire
remaining assets and funds of the Corporation legally available
for distribution, if any, shall be distributed among the holders
of the Common Stock and any other class or series of capital
stock ranking junior to the Series C Preferred Stock.
For purposes of this Section 2(c)(6) of this Article IV, any
merger or consolidation of the Corporation with or into any other
corporation or entity, or sale of all or substantially all the
assets of the Corporation, or sale of fifty percent (50%) or more
of the voting securities of the Corporation, shall be deemed to
be a liquidation, dissolution or winding up of the Corporation,
except for a merger or consolidation or sale of all or
substantially all the assets of the Corporation or sale of fifty
percent (50%) or more of the voting securities of the Corporation
in which the shareholders of the Corporation immediately prior
thereto shall, immediately thereafter, hold as a group the right
to cast, directly or indirectly, at least a majority of the votes
of all holders of voting securities of the resulting or surviving
corporation or entity, or a majority of the votes of all holders
of voting securities of any corporation or entity that holds 100%
of the outstanding voting securities of any such resulting or
surviving corporation or entity, on any matter on which any such
holders of voting securities shall be entitled to vote.
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(7) Conversion.
[A] Optional Conversion.
[I] The holder of any share or shares of Series C
Preferred Stock shall have the right, at such holder's
option, to convert all or any portion of such shares
into fully paid and nonassessable shares of Common
Stock of the Corporation at any time and from time to
time after the date of issuance, into such number of
fully paid and nonassessable shares of Common Stock as
is determined by dividing the Stated Value of such
share or shares of Series C Preferred Stock by the
Conversion Price of such share or shares of Series C
Preferred Stock, determined as hereinafter provided, in
effect on the date the certificate is surrendered for
conversion. The initial Conversion Price for the Series
C Preferred Stock shall be $15.31 per share (the
"Series C Conversion Price"). The Series C Conversion
Price shall be adjusted as hereinafter provided.
To the extent permitted by law, when shares of
Series C Preferred Stock are converted, all dividends
accrued and unpaid on the shares so converted to the
date of conversion (whether or not currently payable)
shall be immediately due and payable and must accompany
the shares of Common Stock issued upon such conversion.
Except as provided below, such dividends may be paid,
at the option of the holder, in cash or in shares of
Common Stock valued at the fair market value thereof,
as reasonably determined by the Board.
If any holder of shares of Series C Preferred
Stock shall disagree with the Board's determination as
to the fair market value per share of the Common Stock,
then such holder may select a nationally recognized
investment banking firm ("Investment Banker"),
reasonably acceptable to the Corporation, to determine
the fair market value per share of the Common Stock.
The determination thereof by the Investment Banker
shall be final and binding on the Corporation and such
holder. The fees and expenses of the Investment Banker
shall be paid by such holder.
If such conversion occurs in connection with any
consolidation or merger of the Corporation with, or
sale of all or substantially all of the assets of the
Corporation to another corporation or entity, then, at
the option of the holder thereof, all dividends accrued
to the date of conversion thereof may be paid in shares
of such other corporation or entity.
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[II] The Series C Preferred Stock shall be
convertible at the principal office of the Corporation
into that number of fully paid and nonassessable shares
of Common Stock determined as aforesaid.
[III] In order to convert shares of Series C
Preferred Stock into shares of Common Stock pursuant to
the right of conversion set forth in this Section
2(c)(7)[A] of this Article IV, the holder thereof shall
surrender the certificate or certificates representing
the shares of Series C Preferred Stock, duly endorsed
to the Corporation or in blank, at the principal office
of the Corporation and shall give written notice to the
Corporation that such holder elects to convert the
same, stating in such notice the name or names in which
such holder wishes the certificate or certificates
representing shares of Common Stock to be issued. The
Corporation shall, within five (5) business days,
deliver at said office or other place to such holder,
or to such holder's nominee or nominees, a certificate
or certificates for the number of shares of Common
Stock to which such holder shall be entitled as
aforesaid, together with cash to which such holder
shall be entitled in lieu of fractional shares (as
further described in Section 2(c)(7)[A][VII] of this
Article IV). Shares of Series C Preferred Stock shall
be deemed to have been converted as of the date of the
surrender of such shares for conversion as provided
above, and the person or persons entitled to receive
the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock
on such date. Upon conversion of only a portion of the
number of shares covered by a certificate representing
shares of Series C Preferred Stock surrendered for
conversion, the Corporation shall issue and deliver to,
or upon the written order of, the holder of the
certificate so surrendered for conversion, at the
expense of the Corporation, a new certificate covering
the number of shares of Series C Preferred Stock
representing the unconverted portion of the certificate
so surrendered, which new certificate shall entitle the
holder thereof to the rights of the shares of Series C
Preferred Stock represented thereby to the same extent
as if the certificate theretofore covering such
unconverted shares had not been surrendered for
conversion.
[IV] The issuance of certificates for shares of
Common Stock upon the conversion of shares of Series C
Preferred Stock shall be made without charge to the
converting stockholder for any original issue or
transfer tax in respect of the issuance of such
certificates and any such tax shall be paid by the
Corporation.
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[V] The Series C Conversion Price shall be subject
to the following adjustments from time to time:
[a]
[i] If the Corporation shall issue,
after the date upon which any shares of
Series C Preferred Stock were first issued
(the "Initial Series C Purchase Date"), any
Additional Shares (as defined in Section
2(c)(4)[B] of this Article IV) without
consideration or for a consideration price
per share less than the Series C Conversion
Price in effect immediately prior to the
issuance of the Additional Shares, the Series
C Conversion Price in effect immediately
prior to each such issuance shall forthwith
(except as otherwise provided in this Section
2(c)(7)[A][V][a] of this Article IV) be
adjusted to a price determined by multiplying
such Series C Conversion Price by a fraction,
the numerator of which shall be (a) the
number of shares of Series C Preferred Stock
outstanding immediately prior to such
issuance plus (b) the number of shares of
capital stock that the aggregate
consideration received by the Corporation for
such issuance would purchase at such
Conversion Price; and the denominator of
which shall be the number of shares of Series
C Preferred Stock outstanding immediately
prior to such issuance plus the number of
such Additional Shares so issued.
[ii] No adjustment of the Series C
Conversion Price shall be made in an amount
less than one cent per share, provided that
any adjustments that are not required to be
made by reason of this sentence shall be
carried forward and shall be either taken
into account in any subsequent adjustment
made prior to three (3) years from the date
of the event giving rise to the adjustment
being carried forward, or shall be made at
the end of the three (3) years from the date
of the event giving rise to the adjustment
being carried forward. Except to the limited
extent provided for in Sections
2(c)(7)[A][V][a][v]c. and
2(c)(7)[A][V][a][v]d. of this Article IV, no
adjustment of the Series C
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Conversion Price pursuant to this Section
2(c)(7)[A][V][a] of this Article IV shall
have the effect of increasing the Series C
Conversion Price above the Series C
Conversion Price in effect immediately prior
to such adjustment.
[iii] In the case of the issuance of
Common Stock for cash, the consideration
shall be deemed to be the amount of cash paid
therefore before deducting any reasonable
discounts, commissions or other expenses
allowed, paid or incurred by the Corporation
for any underwriting or otherwise in
connection with the issuance and sale
thereof.
[iv] In the case of the issuance of
Common Stock for a consideration in whole or
in part other than cash, the consideration
other than cash shall be deemed to be the
fair value thereof as determined by the
Board.
[v] In the case of the issuance (whether
before, on or after the applicable Initial
Series C Purchase Date) of any stock or
similar security, including without
limitation, securities containing equity
features and securities containing profit
participation features, or any security
convertible or exchangeable, with or without
consideration, into or for any stock or
similar security, or any security carrying
any warrant or light to subscribe for or
purchase any stock or similar security, or
any such warrant or right (collectively,
"Equity Securities," provided the term Equity
Securities shall exclude the Series C
Preferred Stock and the Series A Preferred
Stock and the securities issuable upon the
exercise or conversion thereof), the
following provisions shall apply for all
purposes of this Section 2(c)(7)[A][V][a] and
Section 2(c)(7)[A][V][b] of this Article IV:
a. The aggregate maximum number of shares
of Common Stock deliverable upon exercise (to
the extent then exercisable) of such options
to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at
the time such options
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<PAGE>
or rights were issued and for a consideration
equal to the consideration (determined in the
manner provided in Sections
2(c)(7)[A][V][a][iii] and
2(c)(7)[A][V][a][iv] of this Article IV), if
any, received by the Corporation upon the
issuance of such options or rights plus the
minimum exercise price provided in such
options or rights for the Common Stock
covered thereby.
b. The aggregate maximum number of shares
of Common Stock deliverable upon conversion
of, or in exchange (to the extent then
convertible or exchangeable) for, any such
convertible or exchangeable securities or
upon the exercise of options to purchase or
rights to subscribe for such convertible or
exchangeable securities and subsequent
conversion or exchange thereof shall be
deemed to have been issued at the time such
securities were issued or such options or
rights were issued for a consideration equal
to the consideration, if any, received by the
Corporation for any such securities and
related options or rights (excluding any cash
received on account of accrued interest or
accrued dividends), plus the minimum
additional consideration, if any, to be
received by the Corporation upon the
conversion or exchange of such securities or
the exercise of any related options or rights
(the consideration in each case to be
determined in the manner provided in Sections
2(c)(7)[A][V][a][iii] and
2(c)(7)[A][VI[a][iv] of this Article IV).
c. In the event of any change in the
number of shares of Common Stock deliverable
or in the consideration payable to the
Corporation upon exercise of such options or
rights or upon conversion of or in exchange
for such convertible or exchangeable
securities, including, but not limited to, a
change resulting from the antidilution
provisions thereof, the Series C Conversion
Price, to the extent in any way affected by
or computed using such options, rights or
securities, shall be recomputed to reflect
such change, but no further adjustment shall
be made for the actual issuance of Common
Stock or any payment of such
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consideration upon the exercise of such
options or rights or the conversion or
exchange of such securities.
d. Upon the expiration of any such
options or rights, the termination of any
such rights to convert or exchange or the
expiration of any options or rights related
to such convertible or exchangeable
securities, the Series C Conversion Price, to
the extent in any way affected by or computed
using such options, rights or securities or
options or rights related to such securities,
shall be recomputed to reflect the issuance
of only the number of shares of Common Stock
(and convertible or exchangeable securities
that remain in effect) actually issued upon
the exercise of such options or rights, upon
the conversion or exchange of such securities
or upon the exercise of the options or rights
related to such securities.
e. The number of shares of Common Stock
deemed issued and the consideration deemed
paid therefor pursuant to Sections
2(c)(7)[A][V][a][v]a. and
2(c)(7)[A][V][a][v]b. of this Article IV
shall be appropriately adjusted to reflect
any change, termination or expiration of the
type described in either Sections
2(c)(7)[A][V][a][v]c. and
2(c)(7)[A][V][a][v]d. of this Article IV.
[b] In the event the Corporation should
at any time or from time to time after the
Initial Series C Purchase Date fix a record
date for the effectuation of a split or
subdivision of the outstanding shares of
Common Stock or the determination of holders
of Common Stock entitled to receive a
dividend or other distribution payable in
additional shares of Common Stock or other
securities or rights convertible into, or
entitling the holder thereof to receive
directly or indirectly, additional shares of
Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment
of any consideration by such holder for the
additional shares of Common Stock or the
Common Stock Equivalents (including the
additional shares of Common Stock issuable
upon conversion or exercise thereof), then,
as of such record date (or the date of such
dividend, distribution, split or subdivision
if no record
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date is fixed), the Series C Conversion Price
shall be appropriately decreased so that the
number of shares of Common Stock issuable on
conversion of each share of such series shall
be increased in proportion to such increase
of the aggregate of shares of Common Stock
outstanding and those issuable with respect
to such Common Stock Equivalents.
[c] If the number of shares of Common
Stock outstanding at any time after the
Initial Series C Purchase Date is decreased
by a combination of the outstanding shares of
Common Stock, then, following the record date
for such combination, the Series C Conversion
Price shall be appropriately increased so
that the number of shares of Common Stock
issuable on conversion of each share of the
Series C Preferred Stock shall be decreased
in proportion to such decrease in outstanding
shares.
[d] In the event the Corporation shall
declare a distribution payable in securities
of other persons, evidences of indebtedness
issued by the Corporation or other persons,
assets (excluding cash dividends) or options
or rights not referred to in 2(c)(7)[A][V][b]
of this Article IV, then, in each such case
for the purpose of this Section
2(c)(7)[A][V][d] of this Article IV, the
holders of the Series C Preferred Stock shall
be entitled to a proportionate share of any
such distribution as though they were the
holders of the number of shares of Common
Stock of the Corporation into which their
shares of Series C Preferred Stock are
convertible as of the record date fixed for
the determination of the holders of Common
Stock of the Corporation entitled to receive
such distribution.
[e] If at any time or from time to time
there shall be a recapitalization of the
Common Stock (other than a subdivision,
combination or merger or sale of assets
transaction provided for elsewhere in this
Section 2(c)(7) or Section 2(c)(6) of this
Article IV) provision shall be made so that
the holders of the Series C Preferred Stock
shall thereafter be entitled to receive upon
conversion of the Series C Preferred Stock
the number of shares of stock or other
securities or property of the Corporation or
otherwise, to which a holder of Common Stock
deliverable upon conversion would have been
entitled on such recapitalization. In any
such case, appropriate adjustment
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shall be made in the application of the
provisions of this Section 2(c)(7) of this
Article IV with respect to the rights of the
holders of the Series C Preferred Stock after
the recapitalization to the end that the
provisions of this Section 2(c)(7) of this
Article IV (including adjustment of the
Series C Conversion Price then in effect and
the number of shares purchasable upon
conversion of the Series C Preferred Stock)
shall be applicable after that event as
nearly equivalent as may be practicable.
[f] If a purchase, tender or exchange
offer is made to and accepted by the holders
of more than 50% of the outstanding shares of
Common Stock, the Corporation shall not
effect any consolidation, merger or sale with
the person having made such offer or with any
affiliate of such person, unless, prior to
the consummation thereof, each holder of
shares of Series C Preferred Stock shall have
been given a reasonable opportunity to elect
to receive, upon conversion of the shares of
Series C Preferred Stock then held by such
holder, either the stock, securities, cash or
assets then issuable with respect to the
Common Stock, or the stock, securities, cash
or assets issued to previous holders of the
Common Stock in accordance with such offer,
or the equivalent thereof, plus accrued
dividends due to holders of the Series C
Preferred Stock.
[g] If a state of facts shall occur
which, without being specifically controlled
by the provisions of this Section 2(c)(7),
would not fairly protect the conversion
rights of the Series C Preferred Stock in
accordance with the essential intent and
principles of such provisions, then the Board
shall make an adjustment in the application
of such provisions, in accordance with such
essential intent and principles, so as to
protect such conversion rights.
[VI] The Corporation shall at all times
reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of Series
C Preferred Stock, the full number of shares of
Common Stock then deliverable upon the conversion
or exchange of all shares of Series C Preferred
Stock at the time outstanding. The Corporation
shall take at all times such corporate action as
shall be necessary in order that the Corporation
may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the
conversion
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of Series C Preferred Stock in accordance with the
provisions hereof.
[VII] No fractional shares of Common Stock or
scrip representing fractional shares of Common
Stock shall be issued upon any conversion of
Series C Preferred Stock, but, in lieu thereof,
the Corporation shall pay the holder otherwise
entitled to such fraction a sum in cash equal to
the fair market value of such fraction on the date
of conversion as determined in good faith by the
Board.
[VIII] The Corporation will not, by amendment
of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities
or any other voluntary action, seek to avoid or
avoid the observance or performance of any of the
terms to be observed or performed hereunder by the
Corporation under Section 2(c)(7)[A][V] of this
Article IV, but will at all times in good faith
assist in the carrying out of all the provisions
of Section 2(c)(7)[A][V] of this Article IV and in
taking all of such action as may be necessary or
appropriate in order to protect the conversion
rights of the holders of the Series C Preferred
Stock.
[B] AUTOMATIC CONVERSION. Each share of Series C
Preferred Stock shall automatically be converted into shares
of Common Stock as provided in this Section 2(c)(7)[B] of
this Article IV immediately upon the closing of the sale of
the Corporation's Common Stock in a firm commitment
underwritten public offering registered under the Securities
Act of 1933, as amended (the "Securities Act"), at a public
offering price (prior to underwriters' discounts and
expenses) equal to or exceeding Fifteen Dollars and
Thirty-One Cents ($15.31) per share of Common Stock (as
adjusted for any stock dividends, combinations or splits
with respect to such shares) and the aggregate net proceeds
to the Corporation (after deduction for underwriters'
discounts and expenses relating to the issuance, including,
without limitation, fees of the Corporation's counsel) of
which exceed Thirty Million Dollars ($30,000,000) (a
"Qualified Public Offering"), other than a registration
relating solely to a transaction under Rule 145 under the
Securities Act (or any successor thereto) or to an employee
benefit plan of the Corporation. At the time of a Qualified
Public Offering, the accrued dividends on each share of
Series C Preferred Stock shall be paid in shares of Common
Stock valued at the initial public offering price.
(8) REDEMPTION. The holders of a majority of the shares of
Series C Preferred Stock shall have the right to require the
Corporation to redeem their
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shares of Series C Preferred Stock, from any source of funds
legally available for such purpose, in three annual installments
beginning on JULY 31, 2004 (the "Series C Redemption Right"). In
order to exercise the Series C Redemption Right, a majority of
the holders of the shares of Series C Preferred Stock must send
written notice of their intent to exercise the Series C
Redemption Right to the Corporation (the "Series C Redemption
Notice"). The Series C Redemption Notice shall specify the number
of shares of Series C Preferred Stock the holder exercising his,
her or its Series C Redemption Right is submitting for redemption
(the "Series C Submitted Shares"). The Corporation shall only
redeem shares of Series C Preferred Stock pursuant to this
Section 2(c)(8) of this Article IV as to which it has received a
Series C Redemption Notice and only if the total amount of Series
C Submitted Shares is greater than fifty percent (50%) of the
then issued and outstanding shares of Series C Preferred Stock.
The Corporation will redeem the Series C Submitted Shares, in the
manner set forth below three (3) months after the date it
receives the number of Series C Redemption Notices sufficient to
trigger the redemption set forth in this Section 2(c)(8) of this
Article IV (the "Redemption Date").
For purposes of this Section 2(c)(8) of this Article IV, the
redemption base price ("Series C Redemption Base Price") shall be
an amount equal to the greater of (a) the "Fair Market Value" (as
defined below) of the Series C Preferred Stock, on a per share
basis, or (b) an amount equal to the purchase price paid per
share to the Corporation upon issuance of such share of Series C
Preferred Stock plus accrued but unpaid dividends, as- adjusted
to reflect stock dividends, stock splits, combinations,
recapitalizations or the like. The holders of a majority of the
shares of Series C Preferred Stock who have delivered a Series C
Redemption Notice (the "Series C Redeeming Holder(s)") shall
select a nationally recognized investment banking firm (the
"Investment Banker"), which Investment Banker shall be reasonably
acceptable to the Corporation, to determine the Fair Market Value
of the Series C Preferred Stock. The "Fair Market Value" of the
Series C Preferred Stock shall mean a per share amount calculated
by the Investment Banker based upon the per share fair market
value of the Common Stock as if all shares of Series C Preferred
Stock had been converted into Common Stock. The fees and expenses
of the Investment Banker shall be paid by the Corporation.
On the Redemption Date, the Corporation shall redeem
one-third (1/3) of the Series C Submitted Shares by paying to
each Series C Redeeming Holder one-third (1/3) of the Series C
Redemption Base Price for each of the Series C Submitted Shares
held by such Series C Redeeming Holder, plus an amount equal to
the dividends which accrued on all of such Series C Redeeming
Holder's Series C Submitted Shares from the date of the issuance
of such shares through the day immediately prior to the
Redemption Date. On the first anniversary of the Redemption Date,
the Corporation shall redeem one-third (1/3) of the Series C
Submitted Shares by paying to each Series C Redeeming Holder
one-third (1/3) of the Series C Redemption Base Price for each of
the Series C Submitted Shares
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held by such Series C Redeeming Holder, plus an amount equal to
the dividends which accrued on all the as yet non-redeemed Series
C Submitted Shares from the Redemption Date through the day
immediately prior to the first anniversary of the Redemption
Date. On the second anniversary of the Redemption Date, the
Corporation shall redeem the remaining one-third (1/3) of the
Series C Submitted Shares by paying to each Series C Redeeming
Holder one-third (1/3) of the Series C Redemption Base Price for
each of the Series C Submitted Shares held by such Series C
Redeeming Holder, plus an amount equal to the dividends which
accrued on all the as yet non-redeemed Series C Submitted Shares
from the first anniversary of the Redemption Date through the day
immediately prior to the second anniversary of the Redemption
Date. The Series C Redemption Base Price and the appropriate
amount of dividends shall be paid in immediately available funds
against, if the Board so requires, delivery of stock certificates
duly endorsed or accompanied by appropriate stock powers
representing the Series C Submitted Shares, free and clear of any
liens, claims or encumbrances.
From and after each of the three annual redemption payment
dates listed above, unless there shall have been a default in
payment of the amount owed at redemption, all rights of the
Series C Redeeming Holders as holders of Series C Preferred Stock
(except the right to receive the Series C Redemption Base Price
and accrued dividends upon surrender of their certificate or
certificates) shall cease with respect to those shares actually
redeemed, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If, on any of the three annual redemption
payment dates, the funds of the Corporation legally available for
redemption of Series C Submitted Shares are insufficient to
redeem the portion of the Series C Submitted Shares to be
redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such Series
C Submitted Shares ratably among the Series C Redeeming Holders
based upon the percentage of the Series C Submitted Shares each
holds. Except as provided herein, the shares of Series C
Preferred Stock, including the Series C Submitted Shares, not
redeemed pursuant to Series C Redemption Notices shall remain
outstanding and entitled to all the rights and preferences
provided herein. At any time thereafter, when additional funds of
the Corporation are legally available for the redemption of
shares of Series C Preferred Stock, such funds will immediately
be used to redeem the balance of the shares which the Corporation
has become obliged to redeem, but which it has not redeemed.
(9) REPORTS AS TO ADJUSTMENTS. Whenever the number of shares
of Common Stock into which the shares of the Series C Preferred
Stock are convertible is adjusted as provided in Section 2(c)(7)
of this Article IV, the Corporation will (A) promptly compute
such adjustment and furnish to each transfer agent for the Series
C Preferred Stock a certificate, signed by the chief financial
officer of the Corporation, setting forth the new Series C
Conversion Price, the number of shares of Common Stock into which
each share of such
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Series C Preferred Stock is convertible as a result of such
adjustment, a brief statement of the facts requiring such
adjustment and the computation thereof and when such adjustment
will become effective and (B) promptly mail to the holders of
record of the outstanding shares of the Series C Preferred Stock
a notice stating that the number of shares into which the shares
of Series C Preferred Stock are convertible has been adjusted and
setting forth the new Series C Conversion Price, the new number
of shares into which each share of the Series C Preferred Stock
is convertible as a result of such adjustment and when such
adjustment will become effective. Notwithstanding the foregoing,
the Corporation shall incur no liability for its failure to take
any action set forth in this Section 2(c)(9) of this Article IV,
nor shall such failure affect the validity, rights or preferences
of any shares of the Series C Preferred Stock.
(10) RANKING. Except for any series of Preferred Stock
created pursuant to an amendment to these Articles adopted by the
Board of Directors as provided in Section 2(d) of this Article
IV, and the Series C Preferred Stock shall rank senior to the
Common Stock or any other series of Preferred Stock of the
Corporation now existing or hereafter created, except that the
Series C Preferred Stock shall rank equal with the Series A
Preferred Stock and the Series B Preferred Stock as to the
payment of dividends and the distribution of assets and rights
upon liquidation, dissolution or winding up of the Corporation.
(d) REMAINING AUTHORIZED SHARES OF PREFERRED STOCK. The Board of
Directors may determine, in whole or in part the preferences,
limitations, and relative rights of the remaining authorized shares of
Preferred Stock (or one or more series of such Preferred Stock) set
forth in Article III hereof, before the issuance of any such shares,
which preferences, limitations and relative rights shall be specified
in a subsequent amendment to these Articles of Incorporation adopted
by the Board of Directors, and may include, without limitation:
(1) Special, conditional, or limited voting, rights, or no
right to vote (except to the extent prohibited by law);
(2) Shares of Preferred Stock that are redeemable or
convertible (i) at the option of the Corporation, the shareholder
or another person or upon the occurrence of a designated event;
(ii) for cash, indebtedness, securities, or other property; (iii)
in a designated amount or in an amount determined in accordance
with a designated formula or by reference to extrinsic data or
events;
(3) Provisions entitling the holders to distributions
calculated in any manner, including dividends that may be
cumulative, non-cumulative, or partially cumulative;
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(4) Preferences over any other class of shares with respect
to distributions, including dividends and distributions payable
upon the dissolution of the Corporation; and
(5) Other preferences, limitations, or relative rights not
prohibited by law.
ARTICLE V
TREASURY SHARES
Shares of Common Stock and Preferred Stock reacquired by the Corporation
shall become and remain treasury shares until and unless cancelled by the
Corporation, at which time such cancelled treasury shares shall return to the
status of authorized but unissued shares.
ARTICLE VI
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by, or under
the direction of, a Board of Directors comprised as follows:
(1) The number of directors shall be not less than three and not more than
twelve, the exact number within such minimum and maximum limits to be fixed and
determined from time to time by resolution of a majority of the Board of
Directors or by the affirmative vote of the holders of at least 80% of all
outstanding shares entitled to be voted in the election of directors, voting
together as a single class.
(2) The Board of Directors shall be divided into three classes, each
consisting, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. At the first Special
Meeting of Shareholders at which the staggered board shall be elected, the first
class of directors shall be elected for a year term expiring upon the next
following Annual Meeting of Shareholders and upon the election and qualification
of their respective successors, the second class of directors shall be elected
for a term expiring upon the second next Annual Meeting of Shareholders and upon
the election and qualification of their respective successors, and the third
class of directors shall be elected for a term expiring upon the third next
Annual Meeting of Shareholders and upon the election and qualification of their
respective successors. At each succeeding Annual Meeting of Shareholders,
successors to the class of directors whose term expires at that Annual Meeting
of Shareholders shall be elected for a three-year term. If the number of
directors has changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such a class shall hold office for a term that
shall coincide with the remaining term of that class, unless otherwise required
by law, but in no case shall a decrease in the number of directors for a class
shorten the term of an incumbent director.
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(3) A director shall hold office until the Annual Meeting of Shareholders
upon which his term expires and until his successor shall be elected and
qualified, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Directors may be removed only for cause
by the vote of at least 80% of the outstanding shares entitled to vote at an
election of directors, at a meeting of shareholders called expressly for that
purpose.
(4) Nominations for the election of directors may be made by the Board of
Directors or a committee appointed by the Board of Directors, or as otherwise
provided in these Articles or the Corporation's Bylaws.
(5) Any vacancy on the Board of Directors that results from an increase in
the number of directors or from prior death, resignation, retirement,
disqualification or removal from office of a director shall be filled by a
majority of the Board of Directors then in office, though less than a quorum, or
by the sole remaining director.
(6) At any meeting of shareholders with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed, with cause, by the affirmative vote of the holders of 80% of all
outstanding shares entitled to be voted at an election of directors.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each person who is or was a director or officer of the Corporation, and
each person who is or was a director or officer of the Corporation who at the
request of the Corporation is serving or has served as an officer, director,
partner, joint venturer or trustee of another corporation, partnership, joint
venture, trust or other enterprise shall be indemnified by the Corporation
against those expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement which are allowed to be paid or reimbursed by the Corporation
under the laws of the State of Georgia and which are actually and reasonably
incurred in connection with any action, suit, or proceeding, pending or
threatened, whether civil, criminal, administrative or investigative, in which
such person may be involved by reason of his being or having been a director or
officer of this Corporation or of such other enterprises. Such indemnification
shall be made only in accordance with the laws of the State of Georgia and
subject to the conditions prescribed therein.
In any instance where the laws of the State of Georgia permit
indemnification to be provided to persons who are or have been an officer or
director of the Corporation or who are or have been an officer, director,
partner, joint venturer or trustee of any such other enterprise only on a
determination that certain specified standards of conduct have been met, upon
application for indemnification by any such person the Corporation shall
promptly cause such determination to be made (i) by the Board of Directors by
majority vote of a quorum consisting of directors not at the time parties to the
proceeding; (ii) if a quorum cannot be obtained by majority vote of a
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committee duly designated by the Board of Directors (in which designation
directors who are parties may participate), consisting solely of two or more
directors not at the time parties to the proceeding; (iii) by special legal
counsel selected by the Board of Directors or its committee in the manner
prescribed in (i) or (ii), or if a quorum of the Board of Directors cannot be
obtained under (i), and a committee cannot be designated under (ii), selected by
majority vote of the full Board of Directors (in which selection directors who
are parties may participate); or (iv) by the shareholders, but shares owned by
or voted under the control of directors who are at the time parties to the
proceeding may not be voted on the determination.
As a condition to any such right of indemnification, the Corporation may
require that it be permitted to participate in the defense of any such action or
proceeding through legal counsel designated by the Corporation and at the
expense of the Corporation.
The Corporation may purchase and maintain insurance on behalf of any such
persons whether or not the Corporation would have the power to indemnify such
officers and directors against any liability under the laws of the State of
Georgia. If any expenses or other amounts are paid by way of indemnification,
other than by court order, action by shareholders or by an insurance carrier,
the Corporation shall provide notice of such payment to the shareholders in
accordance with the provisions of the laws of the State of Georgia.
ARTICLE VIII
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
No director shall have any personal liability to the Corporation or to its
shareholders for monetary damages for breach of duty or care or other duty as a
director, by reason of any act or omission occurring subsequent to the date when
this provision becomes effective, except that this provision shall not eliminate
or limit the liability of a director for (a) any appropriation, in violation of
his duties, or any business opportunity of the Corporation; (b) acts or
omissions which involve intentional misconduct or a knowing violation of law;
(c) liabilities of a director imposed by Section 14-2-832 of the Georgia
Business Corporation Code; or (d) any transaction from which the director
derived an improper personal benefit.
ARTICLE IX
PRINCIPAL OFFICE
The mailing address of the principal office of the corporation is 11475
Great Oaks Way, Suite 320, Alpharetta, Georgia 30022.
<PAGE>
AMENDED AND RESTATED
B Y L A W S
O F
PRIMIS, INC.
(AMENDED AND RESTATED AS OF JANUARY 17, 2000)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I OFFICES...........................................................1
SECTION 1. REGISTERED OFFICE.................................................1
SECTION 2. OTHER OFFICES.....................................................1
ARTICLE II MEETINGS OF SHAREHOLDERS..........................................1
SECTION 1. PLACE OF MEETING..................................................1
SECTION 2. TIME OF MEETING...................................................1
SECTION 3. SPECIAL MEETING...................................................1
SECTION 4. DIRECTOR NOMINATIONS AND OTHER BUSINESS PROPOSALS.................2
SECTION 5. NOTICE OF MEETINGS................................................3
SECTION 7. VOTING GROUP......................................................3
SECTION 8. QUORUM............................................................4
SECTION 9. VOTING............................................................4
SECTION 10. REMOVAL OF DIRECTORS..............................................4
SECTION 11. RECORD DATE.......................................................4
ARTICLE III BOARD OF DIRECTORS................................................5
SECTION 1. GENERAL POWERS....................................................5
SECTION 2. NUMBER AND ELECTION...............................................5
SECTION 3. TERM OF OFFICE....................................................5
SECTION 4. VACANCY...........................................................5
SECTION 5. MEETINGS OF THE BOARD OF DIRECTORS................................5
SECTION 6. NOTICE OF MEETINGS................................................6
SECTION 7. WAIVER OF NOTICE..................................................6
SECTION 8. PLACE OF MEETING..................................................6
SECTION 9. PARTICIPATION BY COMMUNICATION....................................6
SECTION 10. QUORUM............................................................6
SECTION 11. VOTING............................................................6
SECTION 12. ACTION WITHOUT A MEETING..........................................6
SECTION 13. COMPENSATION OF DIRECTORS.........................................7
SECTION 14. GENERAL POWERS OF DIRECTORS.......................................7
SECTION 15. SPECIFIC POWERS OF DIRECTORS......................................7
ARTICLE IV COMMITTEES........................................................7
SECTION 1. APPOINTING COMMITTEES.............................................7
SECTION 2. POWERS OF COMMITTEES..............................................8
SECTION 3. COMMITTEE MEETINGS, QUORUM AND VOTING.............................8
SECTION 4. REMOVAL FROM COMMITTEES...........................................8
SECTION 5. COMPENSATION COMMITTEE............................................8
SECTION 6. AUDIT COMMITTEE...................................................9
ARTICLE V OFFICERS.........................................................10
SECTION 1. NUMBER...........................................................10
SECTION 2. ELECTION AND TERM................................................10
SECTION 3. SALARIES.........................................................10
SECTION 4. CHAIRMAN OF THE BOARD............................................10
SECTION 5. PRESIDENT........................................................10
SECTION 6. VICE PRESIDENT...................................................11
SECTION 7. SECRETARY........................................................11
SECTION 8. TREASURER........................................................11
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SECTION 9. DUTIES OF OFFICERS MAY BE DELEGATED..............................12
ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS AND DOCUMENTS...........12
SECTION 1. EXECUTION OF CONTRACTS AND DOCUMENTS.............................12
SECTION 2. LOANS............................................................12
SECTION 3. CHECKS AND DRAFTS................................................13
SECTION 4. DEPOSITS.........................................................13
SECTION 5. PROXIES..........................................................13
SECTION 6. CONFLICTING INTEREST TRANSACTIONS OF DIRECTORS OR OFFICERS.......13
ARTICLE VII CAPITAL STOCK..................................................13
SECTION 1. AUTHORIZATION AND ISSUANCE OF SHARES.............................13
SECTION 2. CAPITAL STOCK....................................................13
SECTION 3. RECORD OF SHAREHOLDERS...........................................14
SECTION 4. LOST CERTIFICATES................................................14
SECTION 5. TRANSFERS OF STOCK...............................................14
SECTION 6. REGISTERED SHAREHOLDERS..........................................14
SECTION 7. FRACTIONAL SHARES OR SCRIP.......................................15
ARTICLE VIII INDEMNIFICATION................................................15
SECTION 1. DEFINITIONS......................................................15
SECTION 2. INDEMNIFICATION..................................................16
SECTION 3. ADVANCES FOR EXPENSES............................................16
SECTION 4. COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES..........17
SECTION 5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION...............17
SECTION 6. SHAREHOLDER APPROVED INDEMNIFICATION.............................18
SECTION 7. INDEMNIFICATION OF EMPLOYEES AND AGENTS..........................19
SECTION 8. INSURANCE........................................................19
SECTION 9. NOT EXCLUSIVE OF OTHER RIGHTS....................................19
SECTION 10. SEVERABILITY.....................................................19
ARTICLE IX EMERGENCY POWERS.................................................20
SECTION 1. POWER TO ADOPT...................................................20
SECTION 2. LINES OF SUCCESSION OF OFFICERS OR AGENTS........................20
SECTION 3. CHANGE OF OFFICE.................................................20
SECTION 4. EFFECT OF BYLAWS.................................................20
SECTION 5. NOTICES..........................................................20
SECTION 6. QUORUM...........................................................20
SECTION 7. LIABILITY........................................................20
ARTICLE X BUSINESS COMBINATIONS............................................20
ARTICLE XI GENERAL PROVISIONS...............................................21
SECTION 1. FISCAL YEAR......................................................21
SECTION 2. CORPORATE SEAL...................................................21
SECTION 3. ANNUAL STATEMENTS................................................21
SECTION 4. INSPECTION OF BOOKS AND RECORDS..................................21
SECTION 5. CONFLICT WITH ARTICLES OF INCORPORATION..........................22
SECTION 6. DIVIDENDS........................................................22
SECTION 7. ADOPTION OF AMENDMENTS TO INCENTIVE STOCK OPTION PLANS...........22
ARTICLE XII AMENDMENTS.....................................................22
</TABLE>
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BYLAWS OF
PRIMIS, INC.
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the State
of Georgia, County of Fulton. The Board of Directors from time to time may
change the address of the registered office, which may be, but need not be, the
principal office of the Corporation.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Georgia as the Board of
Directors may from time to time determine and the business of the Corporation
may require or make desirable.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETING. All meetings of the Shareholders may be held
either within or without the State of Georgia, but in the absence of notice to
the contrary Shareholders' meetings shall be held at the principal office of the
Corporation.
Section 2. TIME OF MEETING. The Annual Meeting of the Shareholders shall be
held annually within six (6) months after the end of each fiscal year of the
Corporation. Failure to hold the Annual Meeting as aforesaid shall not work a
forfeiture or dissolution of the Corporation nor shall such failure affect
otherwise valid corporate acts.
Section 3. SPECIAL MEETING. Special Meetings of the Shareholders may be
called (a) by the Board of Directors or the person or persons authorized by the
Articles of Incorporation or these Bylaws, or (b) upon the written request of
the holders of at least twenty-five percent (25%), or such greater or lesser
percentage as may be provided in the Articles of Incorporation, of all the votes
entitled to be cast on any issue proposed to be considered at the proposed
Special Meeting; provided, however, such written request shall be signed and
dated by such holders and delivered to the Secretary of the Corporation and,
further provided, such written request shall set forth the purpose or purposes
for which such meeting is to be held, or (c) if the Corporation has 100 or fewer
shareholders of record, upon written request of the holders of at least
twenty-five percent (25%), or such lesser percentage as may be provided in the
Articles of Incorporation, of all the votes entitled to be cast on any issue to
be considered at the proposed Special Meeting; provided, however, such written
request shall be signed and dated by such holders and delivered to the Secretary
of the Corporation and, further provided, such written request shall set forth
the purpose or purposes for which such meeting is to be held. Business
transacted at such Special Meetings shall be restricted to the purpose or
purposes stated in the notice.
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Section 4. DIRECTOR NOMINATIONS AND OTHER BUSINESS PROPOSALS.
(a) Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the shareholders may be made at an
annual meeting of shareholders only (i) pursuant to the Corporation's notice of
meeting (or any supplement thereto), (ii) by or at the direction of the Board of
Directors or (iii) by any shareholder of the Corporation who was a shareholder
of record at the time of giving of notice provided for in this Section 4, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 4.
(b) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (iii) of paragraph (a) of
this Section 4, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the ninetieth (90th) day nor
earlier than the close of business on the one hundred twentieth (120th) day
prior to the first anniversary of the date of the preceding year's annual
meeting; provided, however, that if either the date of the annual meeting is
more than thirty (30) days before or more than seventy (70) days after such
anniversary date, notice by the shareholder to be timely must be so delivered
not earlier than the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such annual meeting or the close of
business on the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made by the Corporation. Such shareholder's
notice shall set forth (i) as to each person whom the shareholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each 3 case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the shareholder
proposes to bring before the meeting, the text of the proposal or business
(including the text of any resolutions proposed for consideration and in the
event that such business includes a proposal to amend the Bylaws of the
Corporation, the language of the proposed amendment), the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such shareholder, as they appear on the Corporation's books, and
of such beneficial owner, (B) the class and number of shares of capital stock of
the Corporation which are owned beneficially and of record by such shareholder
and such beneficial owner, (C) a representation that the shareholder is a holder
of record of stock of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to propose such business
or nomination, and (D) a representation whether the shareholder or the
beneficial owner, if any, intends or is part of a group which intends (x) to
deliver a proxy statement and/or form of proxy to holders of at least the
percentage of the Corporation's outstanding capital stock required to approve or
adopt
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the proposal or elect the nominee and/or (y) otherwise to solicit proxies from
shareholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
(c) Notwithstanding anything in the second sentence of paragraph (a)(ii) of
this Section 4 to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least
seventy (70) days prior to the first anniversary of the preceding year's annual
meeting (or, if the annual meeting is held more than thirty (30) days before or
sixty (60) days after such anniversary date, at least seventy (70) days prior to
such annual meeting), a shareholder's notice required by this Section 4 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive office of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
Section 5. NOTICE OF MEETINGS. A Corporation shall give written notice
stating the date, time and place of each Shareholders' Meeting, whether special
or annual, not less than ten (10) nor more than sixty (60) days before the date
of the meeting to each Shareholder of record entitled to vote at such meeting,
at such address as last appears on the books of the Corporation. In the case of
a Special Meeting, the notice of the meeting must include a description of
purpose or purposes for which the meeting is called. Notice of any adjourned
meeting need not be given otherwise than by announcement at the meeting, at
which the adjournment is taken; provided however, if a new record date for the
adjourned meeting is or must be fixed pursuant to Section 11 of Article II of
these Bylaws, notice of the adjourned meeting shall be given to persons who are
Shareholders as of the new record date.
Section 6. WAIVER OF NOTICE. Any Shareholder may waive notice of any
meeting, whether special or annual, either before, at or after the meeting, and
a Shareholder's attendance at a meeting, either in person or by proxy, shall of
itself constitute a waiver of notice and waiver of any and all objections to the
date, time, place, manner of calling, or consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, except when the Shareholder attends the meeting solely for the purpose
of stating such objection. However, any waiver of the notice of a meeting of
Shareholders required with respect to an amendment of the Articles of
Incorporation, a plan of merger or share exchange, a sale of assets, or any
other action which would entitle the Shareholder to dissent pursuant to Code
Section 14-2-1302 and obtain payment for his shares shall not be effective
except upon compliance with the provisions of Code Section 14-2-706(c).
Section 7. VOTING GROUP. A Voting Group means all shares of one or more
classes or series that under the Articles of Incorporation or the Georgia
Business Corporation Code ("Code") are entitled to vote and be counted together
collectively on a matter at a meeting of the Shareholders. All shares entitled
by the Articles of Incorporation or the Code to vote generally
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on the matter are for that purpose a single Voting Group. If the Articles of
Incorporation or the Code provide for voting by a single Voting Group on a
matter, action on that matter is taken when voted upon by that Voting Group as
provided in Section 8. If the Articles of Incorporation or the Code provide for
voting by two or more Voting Groups on a matter, action on that matter is taken
only when voted upon by each of those Voting Groups counted separately as
provided in Section 7. Action may be taken by one Voting Group on a matter even
though no action is taken by another Voting Group entitled to vote on the
matter.
Section 8. QUORUM. Shares entitled to vote as a separate Voting Group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Unless the Articles of Incorporation provide
otherwise, a majority of the votes entitled to be cast on the matter by the
Voting Group constitutes a quorum of that Voting Group for action on that
matter. Once a share is represented for any purpose at a meeting other than
solely to object to holding the meeting or transacting business at the meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting unless a new record date is or must be set
for that adjourned meeting. If a quorum exists, action on a matter (other than
the election of Directors) by a Voting Group is approved if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation, these Bylaws or the Code requires
a greater number of affirmative votes.
Section 9. VOTING. Except as otherwise provided for in the Articles of
Incorporation, each outstanding share having voting rights shall be entitled to
one vote on each matter submitted to a vote at a Shareholders' Meeting. At any
meeting of the Shareholders, each Shareholder having the right to vote shall be
entitled to vote in person or by proxy appointed by an instrument in writing
subscribed to by the Shareholder and bearing a date not more than eleven (11)
months prior to such meeting, unless such instrument provides for a longer
period.
Section 10. REMOVAL OF DIRECTORS. At any meeting of Shareholders with
respect to which notice of such purpose has been given, one or more Directors
may be removed, with or without cause, by the affirmative vote of the holders of
a majority of the shares entitled to vote at an election of Directors; provided,
however, if cumulative voting is required for the election of Directors, then a
Director may be removed if the votes cast against his removal would be
sufficient to elect him when cumulatively voted at an election of the entire
Board of Directors. If a Director is elected by a Voting Group of Shareholders,
only the Shareholders of that Voting Group may participate in the vote to remove
the Director. If the Directors have staggered terms, Directors may be removed
only for cause unless the Articles of Incorporation provide otherwise. A removed
Director's successor may be elected at the same meeting to serve the unexpired
term.
Section 11. RECORD DATE. For the purpose of determining Shareholders
entitled to notice of or to vote at any meeting of Shareholders or any
adjournment thereof, or in order to make a determination of Shareholders for any
other proper purpose, the Board of Directors of the Corporation may fix in
advance a date as the record date not more than seventy (70) days before the
meeting or action requiring a determination of Shareholders. When a
determination of Shareholders entitled to notice of or to vote at any meeting of
Shareholders has been made as provided in this Section 11, such determination
shall apply to any adjournment and reconvened
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meeting thereof, unless the Board of Directors sets a new record date under this
section for the reconvened meeting. If the adjournment is for a date more than
120 days after the date fixed for the original meeting, a new record date must
be fixed.
ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these Bylaws, the Board of
Directors shall exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, by any legal agreement among
Shareholders, by the Articles of Incorporation, or by these Bylaws directed or
required to be exercised or done by the Shareholders.
Section 2. NUMBER AND ELECTION. The Board of Directors of the Corporation
shall consist of not less than three (3) nor more than twelve (12) individuals.
The precise number of Directors shall be fixed by either the affirmative vote of
the holders of at least eighty percent (80%) of all outstanding shares of
capital stock entitled to vote in the election of directors or the Board of
Directors from time to time. The Directors shall be elected at the Annual
Meeting of the Shareholders by a plurality of the votes cast by the shares
represented in person or by proxy.
Section 3. TERM OF OFFICE. Each Director shall serve until the election and
qualification of his successor or until his earlier death, resignation or
removal as provided in the Articles of Incorporation or these Bylaws. In the
case of an increase in the number of directors between elections by the
Shareholders, the additional directorships shall be considered vacancies..
Section 4. VACANCY. Any vacancy occurring in the Board of Directors by
death, resignation, retirement, disqualification, increase in the number of
Directors or otherwise may be filled by the first to take action of (a) the
Shareholders, or (b) the Board of Directors, and if the Directors remaining in
office constitute fewer than a quorum of the Board of Directors, they may fill
the vacancy by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. If a vacancy occurs as
provided for in Section 10 of Article II, such vacancy may be filled as provided
for in such section. If the vacant office was held by a Director elected by a
Voting Group of Shareholders, only the holders of shares of that Voting Group or
the remaining Directors elected by that Voting Group are entitled to fill the
vacancy.
Section 5. MEETINGS OF THE BOARD OF DIRECTORS. The first meeting of each
newly elected Board of Directors shall follow immediately after the Annual
Meeting of the Shareholders and be held at the same place as the Annual Meeting
of the Shareholders, or may be held at such time and place as shall be fixed by
the consent in writing of all the Directors. No notice of such meeting to the
newly elected Directors shall be necessary in order legally to constitute a
meeting of the Board of Directors, provided a quorum shall be present.
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Section 6. NOTICE OF MEETINGS. Unless the Articles of Incorporation provide
otherwise, regular meetings of the Board of Directors may be held without notice
of the date, time, place or purpose of the meeting. Unless the Articles of
Incorporation provide otherwise, every Special Meeting shall be preceded by at
least two (2) days' notice of the date, time and place of the meeting. Such
notice shall be in writing unless oral notice is reasonable under the
circumstances, and may be communicated in person, by telephone, telegraph,
teletype, telecopy, or other forms of wire or wireless communication, or by mail
or private carrier. Such notice need not specify the purpose of the Special
Meeting of the Board unless required by the Articles of Incorporation.
Section 7. WAIVER OF NOTICE. A Director may waive notice of any meeting
either before or after the meeting stated in the notice. Except as specified
herein, the waiver must be in writing, signed by the Director entitled to
notice, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records. A Director's attendance at or participation in a
meeting waives any required notice to the Director of the meeting unless the
Director at the beginning of the meeting (or promptly upon arrival) objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
Section 8. PLACE OF MEETING. The Directors may hold their meetings at the
principal office of the Corporation or at such other place or places, either in
the State of Georgia or elsewhere, as they may from time to time determine.
Section 9. PARTICIPATION BY COMMUNICATION. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may permit any or all
Directors to participate in a regular or special meeting by, or conduct the
meeting through the use of any means of communication by which all Directors
participating may simultaneously hear each other during the meeting. A Director
participating in a meeting by this means is deemed to be present in person at
the meeting.
Section 10. QUORUM. Unless a greater number is required by the Articles of
Incorporation or the Code, a majority of the Directors in office immediately
before the meeting begins shall constitute a quorum of the Board of Directors.
Section 11. VOTING. If a quorum is present when a vote is taken, the
affirmative vote of a majority of the Directors present is the act of the Board
of Directors unless the Articles of Incorporation or the Code requires the vote
of a greater number of Directors.
Section 12. ACTION WITHOUT A MEETING. Unless the Articles of Incorporation
provide otherwise, action required or permitted to be taken at a Board of
Directors' meeting may be taken without a meeting if the action is taken by all
members of the Board of Directors. The action must be evidenced by one or more
written consents describing the action taken, signed by each Director, and
delivered to the Corporation for inclusion in the minutes or filing with the
corporate records.
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Section 13. COMPENSATION OF DIRECTORS. Unless the Articles of Incorporation
provide otherwise, the Board of Directors may fix the compensation of Directors.
Section 14. GENERAL POWERS OF DIRECTORS. The Board of Directors shall have,
in addition to such powers as are herein expressly conferred on it and all such
powers as may be conferred on it by law, all such powers as may be exercised by
the Corporation, subject to the provisions of the Articles of Incorporation and
the Code.
Section 15. SPECIFIC POWERS OF DIRECTORS. The Board of Directors shall also
have power:
(a) to purchase or otherwise acquire property, rights, or privileges
for the Corporation, which the Corporation has power to make, at such prices and
on such terms as the Board of Directors may deem proper;
(b) to pay for such property, rights or privileges in whole or in part
with money, stocks, bonds, debentures or other securities of the Corporation, or
by the delivery of other property of the Corporation;
(c) to create, make and issue mortgages, bonds, deeds of trust, trust
agreements and negotiable or transferable instruments and securities, secured by
mortgages or otherwise, and to do every act and thing necessary to effectuate
the same;
(d) to elect the corporate officers and fix their salaries, to appoint
employees and trustees, and to dismiss them at its discretion, to fix their
duties and emoluments, and to change them from time to time, and to require
security as it may deem proper;
(e) to confer on any officer of the Corporation the power of selecting,
discharging or suspending such employees; and
(f) to determine by whom and in what manner the Corporation's bills,
notes, receipts, acceptances, endorsements, checks, releases, contracts, or
other documents shall be signed.
ARTICLE IV
COMMITTEES
Section 1. APPOINTING COMMITTEES. Unless the Articles of Incorporation
provide otherwise, the Board of Directors may create one (1) or more committees
and appoint members of the Board of Directors to serve on them. Each committee
may have one or more members, who serve at the pleasure of the Board of
Directors.
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Section 2. POWERS OF COMMITTEES. To the extent specified by the Board of
Directors or in the Articles of Incorporation, each committee may exercise the
authority granted to the Board of Directors, except that a committee may not:
(a) approve or propose to Shareholders action that the Code requires to
be approved by Shareholders;
(b) fill vacancies on the Board of Directors or on any of its
committees;
(c) amend the Articles of Incorporation pursuant to Code Section
14-2-1002;
(d) adopt, amend, or repeal Bylaws; or
(e) approve a plan of merger not requiring Shareholder approval.
Section 3. COMMITTEE MEETINGS, QUORUM AND VOTING. Sections 6, 7, 8, 9, 10,
11 and 12 of Article III of these Bylaws which govern meetings, action without
meetings, notice and waiver of notice, and quorum and voting requirements of the
Board of Directors, apply to committees and their members.
Section 4. REMOVAL FROM COMMITTEES. The Board of Directors shall have power
at any given time to remove any member of any committee, with or without cause,
and to fill vacancies in and to dissolve any such committee.
Section 5. COMPENSATION COMMITTEE. The Board of Directors may, from time to
time by a majority vote of the Directors, elect one or more Directors as a
Compensation Committee to serve until its authority is revoked or its membership
is changed by a majority vote of the Directors. The Compensation Committee shall
have the power and authority to formulate, review and recommend to the full
Board of Directors compensation proposals with respect to the following matters,
provided the Compensation Committee may consult the President or an officer of
the Corporation with regard to compensation issues:
(a) All forms of compensation for Directors and officers of the
Corporation, including the form and amount of current salary, deferred salary,
cash and non-cash benefits and salary plans for other employees of the
Corporation;
(b) Statutory and non-statutory stock options, stock appreciation
rights, phantom stock rights, and any other form of current or deferred
compensation payable in the form of the Corporation's stock and/or payable with
respect to the current or future value of the Corporation's stock; and
(c) Corporate perquisites including special benefits to be considered
within general corporate policies, establishment of categories of management
personnel to whom benefits will be provided or who will be permitted to use
benefits, and determination of special benefits on a case by case basis.
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The Compensation Committee shall consist of one or more members of the
Board of Directors who shall serve until such time as their successors are
elected to the Compensation Committee or such time as such person ceases being a
member of the Board of Directors or the Compensation Committee. Any action of
the Compensation Committee may be taken at a meeting by vote of a majority of
the members present (a quorum being present) or without a meeting by written
consent of all of the members of the Committee. The members of the Compensation
Committee shall be empowered to participate in a meeting of such Committee by
means of conference telephone or similar communications equipment through which
all persons participating at the meeting can hear each other.
The Compensation Committee shall keep minutes of its meetings which minutes
shall be reviewed by the Board of Directors and inserted with the Corporation's
records.
Section 6. AUDIT COMMITTEE. The Board of Directors may, from time to time
by a majority vote of the Directors, elect one or more Directors as an Audit
Committee to serve until its authority is revoked or its membership is changed
by a majority of the Directors. The Audit Committee shall:
(a) recommend to the full Board of Directors the selection of the
Corporation's independent accountants;
(b) review the Corporation's financial statements and the report
thereon issued by the Corporation's independent accountants;
(c) review financial reporting procedures for the Corporation;
(d) evaluate internal controls of the Corporation;
(e) assess the performance of the Corporation's independent auditors;
and
(f) perform such other tasks as may be designated by a majority of the
Directors or as required by applicable state and federal laws and regulations.
Any action of the Audit Committee may be taken at a meeting by vote of a
majority of the members present (a quorum being present) or without a meeting by
written consent of all of the members of the Committee. Further, the members of
the Audit Committee shall be empowered to participate in a meeting of such
Committee by means of a conference telephone or similar communications equipment
through which all persons participating at the meeting can hear each other.
The Audit Committee shall keep minutes of its meetings which minutes shall
be reviewed by the Board of Directors and inserted with the Corporation's
records.
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ARTICLE V
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be designated and
elected by the Board of Directors with such responsibilities and duties as may
be designated by the Board of Directors consistent with this Article V. The
Board of Directors shall elect at least one officer who shall be responsible for
preparing minutes of the Directors' and Shareholders' meetings and for
authenticating records of the Corporation. Any two or more offices may be held
by the same person. No officer need be a Shareholder.
Section 2. ELECTION AND TERM. All officers shall be appointed by the Board
of Directors or by a duly appointed officer pursuant to this Article V and shall
serve at the pleasure of the Board of Directors or the appointing officers as
the case may be. All officers, however appointed, may be removed with or without
cause by the Board of Directors and any officer appointed by another officer may
also be removed by the appointing officer with or without cause.
Section 3. SALARIES. The salaries and compensation of all officers
appointed by the Board of Directors shall be fixed by the Board of Directors,
unless the Directors delegate such power to any officer or officers. Any payment
made to an officer of the Corporation such as salary, commission, bonus,
interest, or rent, or entertainment expense incurred by him, which shall be
disallowed in whole or in part as a deductible expense by the Internal Revenue
Service, shall be reimbursed by such officer to the Corporation to the full
extent of such disallowance. It shall be the duty of the Directors, as a Board,
to enforce payment of each amount disallowed. In lieu of payment by the officer,
subject to the determination of the Directors, proportionate amounts may be
withheld from his or her future compensation payments until the amount owed to
the Corporation has been recovered.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one shall
so be elected, shall preside at all meetings of the Board of Directors and shall
have such other powers as may be specifically designated by the Board of
Directors.
Section 5. PRESIDENT.
(a) The President, if one shall so be elected, shall be elected by the
Board of Directors and shall be the Chief Operating Officer of the Corporation
and shall preside at all meetings of the Shareholders; in the absence of a
Chairman, he shall preside at all meetings of the Board of Directors; he shall
have general and active management of the business of the Corporation, and shall
exercise general supervision and administration over all of its affairs with
power to make all contracts in the conduct of the regular and ordinary business
of the Corporation, and shall see that all orders and resolutions of the Board
of Directors are carried into effect.
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(b) The President shall execute deeds, bonds, notes, mortgages and
other contracts on behalf of the Corporation.
(c) The President shall be ex-officio a member of all standing
committees and shall have the generalpowers and duties of supervision and
management usually vested in the office of the President of a Corporation.
(d) The President may appoint and discharge agents and employees of the
Corporation and fix their compensation subject to the general supervisory power
of the Board of Directors, and do and perform such other duties as from time to
time may be assigned to the President by the Board of Directors and as may be
authorized by law. The President may from time to time appoint one or more
Assistant Secretaries of the Corporation.
Section 6. VICE PRESIDENT. The Vice President, if one or more shall so be
elected, shall, in the absence or disability of the President, perform all of
the duties and exercise all of the powers of the President and shall perform
such other duties as the Board of Directors shall request or delegate. If there
is more than one (1) Vice President, the one designated by the Board of
Directors shall act in the absence of the President.
Section 7. SECRETARY. The Secretary, if one shall so be elected, shall keep
accurate records of the acts and proceedings of all meetings of Shareholders,
Directors and committees of Directors. The Secretary shall give, or cause to be
given, notice of all meetings of the Shareholders and any meetings of the Board
of Directors, and other notices required by law or these Bylaws, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision the Secretary shall be. The Secretary shall
keep in safe custody the seal of the Corporation, and the Secretary or any other
officer may affix the same to any instrument requiring it and, when so affixed,
it may be attested by the Secretary's signature or by the signature of an
Assistant Secretary. Notwithstanding the foregoing, unless otherwise required by
law or the Code, the seal of the Corporation need not be affixed to any
documents or instruments, nor must the Secretary or Assistant Secretary attest
any such document or instrument. In the absence or disability of the Secretary
or at the direction of the President, any Assistant Secretary or other officer
designated by the Board of Directors may perform the duties and exercise the
powers of the Secretary.
Section 8. TREASURER.
(a) The Treasurer, if one shall so be elected, shall have custody of
and be responsible for all funds and securities, receipts and disbursements of
the Corporation, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit or cause
to be deposited, all monies and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors.
(b) The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors or by the President, taking proper vouchers
for such
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disbursements, and shall render to the President and Directors, whenever they
may require it, an account of all transactions as Treasurer and of the financial
condition of the Corporation, and at the regular meeting of the Board of
Directors next preceding the Annual Shareholders' Meeting, a like report for the
preceding year.
(c) The Treasurer shall keep an account of stock registered and
transferred in such manner and subject to such regulations as the Board of
Directors may prescribe.
(d) The Treasurer shall give the Corporation a bond, if required by the
Board of Directors, in such sum and in form and with security satisfactory to
the Board of Directors for the faithful performance of the duties of the office
and the restoration to the Corporation in case of the Treasurer's death,
resignation or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in the possession of the Treasurer, belonging to
the Corporation. The Treasurer shall perform such other duties as the Board of
Directors may from time to time prescribe or require.
Section 9. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence of
any officer of the Corporation, or for any other reason that the Board of
Directors may deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any Director, a majority of the entire Board of Directors concurring therein.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS AND DOCUMENTS
Section 1. EXECUTION OF CONTRACTS AND DOCUMENTS. The Board of Directors,
except as otherwise provided in these Bylaws, may authorize any officer or
officers or agent or agents of the Corporation to enter into any contract or
execute and deliver any instrument in the name and on the behalf of the
Corporation, and such authority may be general or confined to specific
instances, and unless so authorized by the Board of Directors or by an officer
or committee to whom the power to prescribe such authority is delegated pursuant
to the provisions of these Bylaws, no officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or to
pledge its credit or to render it liable for damages, whether monetary or
otherwise, for any purpose or for any amount.
Section 2. LOANS. No loan shall be contracted on behalf of the Corporation,
and no negotiable paper shall be issued in its name, unless authorized by the
Board of Directors. When so authorized, any officer or agent of the Corporation
may effect loans and advances at any time for the Corporation from any bank,
trust company or other institution, or from any firm, Corporation or individual,
and for such loans and advances may make, execute and deliver promissory notes
or other evidence of indebtedness of the Corporation, and when authorized as
aforesaid, as security for the payment of any and all loans, advances,
indebtedness and liabilities of the Corporation may mortgage, pledge,
hypothecate or transfer any real or personal property at
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any time held by the Corporation and to that end execute instruments of mortgage
or pledge or otherwise transfer said property. Such authority may be general or
confined to specific instances.
Section 3. CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by the President or such other person or persons
and in such manner as shall, from time to time, be determined by the Board of
Directors.
Section 4. DEPOSITS. All funds of the Corporation shall be deposited to the
credit of the Corporation under such conditions and in such banks, trust
companies or other depositories as the Board of Directors may designate or as
may be designated by an officer or officers or agent or agents of the
Corporation to whom such power may, from time to time, be determined by the
Board of Directors.
Section 5. PROXIES. Unless otherwise provided by the Board of Directors,
the President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation in the name and on behalf of the Corporation to cast
the vote which the Corporation may be entitled to cast as a Shareholder or
otherwise in any other corporation any of the stock or other securities of which
is held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, and may instruct the person or persons so
appointed as to the manner of casting such vote or giving such consent, and may
execute or cause to be executed in the name and on behalf of the Corporation
such written proxies or other instruments as the President may deem necessary or
proper in the premises.
Section 6. CONFLICTING INTEREST TRANSACTIONS OF DIRECTORS OR OFFICERS.
Contracts and transactions of the Corporation in which a Director or officer may
have a conflicting interest (as such term is defined in Code Section 14-2-860)
shall not be voidable solely because of the involvement or vote of such Director
or officer provided compliance with the provisions of Code Sections 14-2-860
through 14-2-864.
ARTICLE VII
CAPITAL STOCK
Section 1. AUTHORIZATION AND ISSUANCE OF SHARES. In accordance with the
Code, the Board of Directors may authorize shares of any class or series
provided for in the Articles of Incorporation to be issued for any consideration
valid under the provisions of the Code. To the extent provided in the Articles
of Incorporation, the Board of Directors shall determine the preferences,
limitations, and relative rights of the shares.
Section 2. CAPITAL STOCK. All shares issued by the Corporation shall be
evidenced by a certificate or certificates. Each certificate of stock of the
Corporation shall be numbered, shall be entered in the books of the Corporation,
and shall be signed, either manually or in facsimile, by any one of the
President, a Vice President, the Secretary, or the Treasurer or such other
officer or officers as designated to sign such certificates, from time to time,
by the Board of Directors.
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In any case in which any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature shall have
been used thereon had not ceased to be such officer or officers. If a share
certificate is signed in facsimile, then it shall be counter-signed by a
transfer agent or registered by a registrar other than the Corporation itself or
an employee of the Corporation. The corporate seal need not be affixed to the
share certificate. Each certificate representing shares shall set forth upon the
face thereof.
(a) The name of the Corporation;
(b) That the Corporation is organized under the laws of the State of
Georgia;
(c) The name of the person to whom issued; and
(d) The number and class of shares and the designation of the series,
if any, such certificate represents.
Section 3. RECORD OF SHAREHOLDERS. The Corporation shall keep a record of
the Shareholders of the Corporation which readily shows, in alphabetical order
or by alphabetical index, and by classes of stock, the names of the
Shareholders, including those Shareholders entitled to vote, with the address of
and the number of shares held by each.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his or her legal
representative, to advertise the same in such manner as it shall require or give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 5. TRANSFERS OF STOCK. The transfers of stock shall be made on the
books of the Corporation by the holder thereof, or by an attorney lawfully
constituted in writing, and upon surrender of the certificate therefor, or in
the case of a certificate alleged to have been lost, stolen or destroyed, upon
compliance with the provisions of Section 4 of this Article VII of these Bylaws.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares
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on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by laws of the state of
incorporation.
Section 7. FRACTIONAL SHARES. The Board of Directors shall not issue
fractional shares, but may pay money in lieu thereof.
ARTICLE VIII
INDEMNIFICATION
Section 1. DEFINITIONS. As used in this Article VIII, the term:
(a) "Corporation" includes any domestic or foreign predecessor entity
of the Corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the Corporation's request
if his duties to the Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
Director includes, unless the context requires otherwise, the estate or personal
representative of a director.
(c) "Expenses" include attorneys' fees.
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding.
(e) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the Corporation, is and
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
An officer is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on, or
otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. Officer includes, unless the context requires
otherwise, the estate or personal representative of an officer.
(f) "Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
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(g) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
Section 2. INDEMNIFICATION.
(a) Except as provided in subsections (d) and (e) of this Section 2
below, the Corporation shall indemnify an individual who is made a party to a
proceeding because he is or was a director or officer against liability incurred
by him in the proceeding if the individual acted in a manner he believed in good
faith to be in or not opposed to the best interests of the Corporation and, in
the case of any criminal proceeding, he had no reasonable cause to be believe
his conduct was unlawful.
(b) An individual's conduct with respect to an employee benefit plan
for a purpose he believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (a) of this Section 2 above.
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, be determinative that an individual did not meet the standard of conduct
set forth in subsection (a) of this Section 2 above.
(d) The Corporation shall not indemnify an individual under this
Article VIII:
(1) In connection with a proceeding by or in the right of the
Corporation in which such individual was adjudged liable to the Corporation; or
(2) In connection with any other proceeding in which such individual
was adjudged liable on the basis that personal benefit was improperly received
by him unless, and then only to the extent that, a court of competent
jurisdiction determines pursuant to Section 14-2-854 of the Code that in view of
the circumstances of the case, such individual is fairly and reasonably entitled
to indemnification.
(e) Indemnification permitted under this Article VIII in connection
with a proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 3. ADVANCES FOR EXPENSES.
(a) The Corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of
final disposition of the proceeding if:
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(1) Such individual furnishes the Corporation a written affirmation
of his good faith belief that he has met the standard of conduct set forth in
subsection (a) of Section 2 above; and
(2) Such individual furnishes the Corporation a written undertaking,
executed personally or on his behalf, to repay any advances if it is ultimately
determined that he is not entitled to indemnification under this Article VIII.
(b) The undertaking required by paragraph (2) of subsection (a) of this
Section 3 must be an unlimited general obligation of the director or officer but
need not be secured and may be accepted without reference to financial ability
to make repayment.
Section 4. COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES. Unless
the Articles of Incorporation provide otherwise, a director or officer of the
Corporation who is a party to a proceeding may apply for indemnification or
advances for expenses to the court conducting the proceeding or to another court
of competent jurisdiction. On receipt of an application, the court after giving
any notice the court considers necessary may order indemnification or advances
for expenses if it determines:
(a) The individual is entitled to mandatory indemnification under Code
Section 14-2-852, in which case the court shall also order the Corporation to
pay such individual's reasonable expenses incurred to obtain court ordered
indemnification;
(b) The individual is fairly and reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in subsection (a) of Section 2 above or was adjudged liable as
described in subsection (d) of Section 2 above, but if he was adjudged so liable
his indemnification is limited to reasonable expenses incurred unless the
Articles of Incorporation or a contract or resolution approved or ratified by
the Shareholders pursuant to Section 6 of this Article VIII below provides
otherwise; or
(c) In the case of advances for expenses, the individual is entitled
pursuant to the Articles of Incorporation or any applicable resolution or
agreement, to payment or reimbursement of his reasonable expenses incurred as a
party to a proceeding in advance of final disposition of the proceeding.
Section 5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(a) The Corporation shall not indemnify a director or officer under
Section 2 of this Article VIII above unless a determination has been made in the
specific case that indemnification of such individual is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
(a) of Section 2 of this Article VIII above; provided, however, that regardless
of the result or absence of any such determination, and unless limited by the
Articles of Incorporation, to the extent that such individual has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party, or in defense of any
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claim, issue or matter therein, because he is or was a director or officer, the
Corporation shall indemnify such individual against reasonable expenses incurred
by him in connection therewith.
(b) The determination specified in subsection (a) of this Section 5
shall be made:
(1) By the Board of Directors by majority vote of a quorum
consisting of Directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under paragraph (1) of this
subsection (b) of this Section 5, by majority vote of a committee duly
designated by the Board of Directors (in which designation Directors who are
parties may participate), consisting solely of two or more Directors not at the
time parties to the proceeding;
(3) By special legal counsel:
(A) Selected by the Board of Directors or its committee in the
manner prescribed in paragraphs (1) and (2) of this subsection (b) of this
Section 5; or
(B) If a quorum of the Board of Directors cannot be obtained
under paragraph (1) of this subsection (b) of this Section 5 and a committee
cannot be designated under paragraph (2) of this subsection (b) of this Section
5, selected by a majority vote of the full Board of Directors (in which
selection Directors who are parties may participate); or
(4) By the Shareholders, but shares owned by or voted under the
control of directors or officers who are at the time parties to the proceeding
may not be voted on the determination.
(c) Evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is permissible, except
that if the determination is made by special legal counsel, evaluation as to
reasonableness of expenses shall be made by those entitled under paragraph (3)
of subsection (b) of this Section 5 to select counsel.
Section 6. SHAREHOLDER APPROVED INDEMNIFICATION.
(a) If authorized by the Articles of Incorporation or a contract or
resolution approved or ratified by the Shareholders of the Corporation by a
majority of the votes entitled to be cast, the Corporation may indemnify or
obligate itself to indemnify a director or officer made a party to a proceeding,
including a proceeding brought by or in the right of the Corporation, without
regard to the limitations in other Sections of this Article VIII.
(b) The Corporation shall not indemnify an individual under this
Section 6 for any liability incurred in a proceeding in which such individual is
adjudged liable to the Corporation or is subjected to injunctive relief in favor
of the Corporation:
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(1) For any appropriation, in violation of his duties, of any business
opportunity of the Corporation;
(2) For acts or omissions which involve intentional misconduct or a
knowing violation of law;
(3) For the types of liability set forth in Section 14-2-832 of the
Code; or
(4) For any transaction from which he received an improper personal
benefit.
(c) Where approved or authorized in the manner described in subsection (a)
of this Section 6, the Corporation may advance or reimburse expenses incurred in
advance of final disposition of the proceeding only if:
(1) The Director furnishes the Corporation a written affirmation of his
good faith belief that his conduct does not constitute behavior of the kind
described in subsection (b) of this Section 6; and
(2) The Director furnishes the Corporation a written undertakings
executed personally or on his behalf to repay any advance if it is ultimately
determined that he is not entitled to indemnification under this Section 6 of
this Article VIII.
Section 7. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Unless the Articles of
Incorporation provide otherwise, the Corporation may indemnify and advance
expenses to an employee or agent of the Corporation who is not a director or
officer to the same extent, consistent with public policy, that may be provided
by the Articles of Incorporation, these Bylaws, general or specific action of
the Board of Directors, or contract.
Section 8. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of an individual who is or was a director, officer, employee, or agent
of the Corporation or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against liability asserted against or incurred by him in that
capacity or arising from his status as a director, officer, employee, or agent,
whether or not the Corporation would have power to indemnify him against the
same liability under Sections 2 and 5 of this Article VIII above.
Section 9. NOT EXCLUSIVE OF OTHER RIGHTS. The indemnification provided by
this Article VIII shall not be deemed exclusive of any other rights, in respect
of indemnification or seeking indemnification may be entitled apart from the
provisions of this y both as to action by a director, officer, employee or agent
in his official n in another capacity while holding such office
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or position, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 10. SEVERABILITY. In the event that any of the provisions of
Article VIII is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions of this Article VIII shall
remain enforceable to the fullest extent permitted by law.
ARTICLE IX
EMERGENCY POWERS
Section 1. POWER TO ADOPT. Unless the Articles of Incorporation provide
otherwise, the Board of Directors may adopt bylaws to be effective only in an
emergency, which bylaws shall be subject to amendment or repeal by the
Shareholders. An emergency exists for purposes of this Section if a quorum of
the Directors cannot readily be assembled because of some catastrophic event.
The emergency bylaws may make any provision that may be practical and necessary
for the circumstances of the emergency.
Section 2. LINES OF SUCCESSION OF OFFICERS OR AGENTS. The Board of
Directors, either before or during any such emergency, may provide, and from
time to time modify, lines of succession in the event that during such an
emergency any or all officers or agents of the Corporation shall for any reason
be rendered incapable of discharging their duties.
Section 3. CHANGE OF OFFICE. The Board of Directors, either before or
during any such emergency, may, effective in the emergency, change the head
office or designate several alternative head offices or regional offices, or
authorize the officers so to do.
Section 4. EFFECT OF BYLAWS. To the extent not inconsistent with any
emergency bylaws so adopted, these Bylaws shall remain in effect during any such
emergency and, upon its termination, the emergency bylaws shall cease to be
operative.
Section 5. NOTICES. Unless otherwise provided in emergency bylaws, notice
of any meeting of the Board of Directors during any such emergency may be given
only to such of the Directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
Section 6. QUORUM. To the extent required to constitute a quorum at any
meeting of the Board of Directors during any such emergency, the officers of the
Corporation who are present shall, unless otherwise provided in the emergency
bylaws, be deemed, in order of rank and within the same rank and order of
seniority, Directors for such meeting.
Section 7. LIABILITY. Corporate action taken in good faith in accordance
with the emergency bylaws binds the Corporation and may not be used to impose
liability on a corporate director, officer, employee or agent.
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ARTICLE X
BUSINESS COMBINATIONS
All of the fair price requirements contained in Sections 14-2-1110 through
14-2-1114 of the Code and the requirements for business combinations with
interested stockholders contained in Sections 14-2-1131 through 14-2-1133 of the
Code shall apply to any business combination of the Corporation.
ARTICLE XI
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall run from
the 1st day of January to the 31st day of December. The Board of Directors is
authorized to change the fiscal year of the Corporation from time to time as it
deems appropriate provided such change is not in violation of any provision of
the Internal Revenue Code of 1986, as amended, or in violation of any applicable
state statute.
Section 2. CORPORATE SEAL. The seal of the Corporation shall be in the
following form, to-wit:
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. In the event it is inconvenient to use such
a seal at any time, the signature of the Corporation followed by the word "Seal"
enclosed in parentheses shall be deemed the seal of the Corporation.
Section 3. ANNUAL STATEMENTS. Not later than four (4) months after the
close of each fiscal year, and in any case prior to the next annual meeting of
Shareholders, the Corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of its fiscal year, and
(b) A profit and loss statement showing the results of its operations
during its fiscal year.
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Section 4. INSPECTION OF BOOKS AND RECORDS. The inspection rights of
Shareholders owning two percent (2%) or less of the shares outstanding of the
Corporation are limited as provided under Section 14-2-1602(e) of the Code, as
follows: unless consented to in writing by Board of Directors, in its sole
discretion, such Shareholders have no right to inspect the following books and
records of the Corporation:
(a) Excerpts from Minutes of any meeting of the Board of Directors,
records of any action of a committee of the Board of Directors while acting in
place of the Board of Directors on behalf of the Corporation, minutes of any
meeting of the Shareholders, and records of action taken by the Shareholders or
Board of Directors without a meeting, to the extent not subject to inspection
under subsection 14-2-1602(a) of the Code;
(b) Accounting records of the Corporation; and
(c) The record of Shareholders.
Section 5. CONFLICT WITH ARTICLES OF INCORPORATION. In the event that any
provision of these Bylaws conflicts with any provision of the Articles of
Incorporation, the Articles of Incorporation shall govern.
Section 6. DIVIDENDS. Subject to limitations imposed by Georgia statutes,
distributions to the Shareholders may be declared at such time or times, and in
such amounts as the Board of Directors shall from time to time determine.
Section 7. ADOPTION OF AMENDMENTS TO INCENTIVE STOCK OPTION PLANS. In
addition to the rights of the Board of Directors to approve the adoption of
amendments to any incentive stock option plans of the Corporation which qualify
under Section 422A of the Internal Revenue Code of 1986, as amended, the
Shareholders of the Corporation may approve any such amendment by written
consent of the Shareholders which is signed by Shareholders having voting power
to cast not less than the minimum number of votes that would be necessary to
authorize such action, as provided in and subject to the provisions of Section
14-2-704, as amended, of the Code.
ARTICLE XII
AMENDMENTS
Except as otherwise provided in these Bylaws, the Board of Directors shall
have power to alter, amend or repeal these Bylaws or adopt new Bylaws by
majority vote of all of the Directors, but any Bylaws adopted by the Board of
Directors may be altered, amended or repealed, and new Bylaws adopted, by the
Shareholders by majority vote of all of the shares having voting power. The
Shareholders may prescribe by expressing in the action they take in adopting any
Bylaw or Bylaws that the Bylaw or Bylaws so adopted shall not be altered,
amended or repealed by the Board of Directors.
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Exhibit 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL SATISFACTORY TO
PAYOR THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT DATED JUNE
16, 1998 BY AND BETWEEN PRIMIS, INC. AND CERTAIN OF ITS SHAREHOLDERS.
$____________ November ___, 1999
PRIMIS, INC.
CONVERTIBLE PROMISSORY NOTE
For value received, Primis, Inc., a Georgia corporation
("Payor"), having an address of Suite 320, 11475 Great Oaks Way, Alpharetta,
Georgia 30022, promises to pay to ___________, or its assigns ("Holder"), having
an address of __________________________, the principal sum of
__________________ ($____________), together with all accrued and unpaid
interest thereon as set forth below.
Interest on the unpaid principal balance of this Note shall
accrue at the rate of eight percent (8%) per annum compounded annually
commencing on the date hereof, and shall be payable in a single installment at
maturity as set forth below. All interest on this Note shall be computed daily
on the basis of the actual number of days elapsed over a year assumed to consist
of three hundred sixty (360) days. If not automatically converted at an earlier
date as provided below, (i) the entire unpaid balance of principal and all
accrued and unpaid interest shall be due and payable one hundred eighty (180)
days following the date hereof (the "Maturity Date"), or (ii) Holder, at its
election, may convert this Note on or prior to the Maturity Date into the number
of shares of Series C Convertible Preferred Stock of the Company (the "Series C
Preferred Stock") obtained by dividing (a) the outstanding principal balance of,
and all accrued and unpaid interest on, this Note as of the date that is fifteen
(15) days from the date written notice is given by Holder to Payor of Holder's
election to convert this Note, by (b) $15.31 (as adjusted for any stock split,
combination, consolidation or stock distributions or stock dividends or
recapitalizations or the like) (the "Conversion Price Per Share"). Payor shall
provide Holder with at least ten (10) days notice prior to the closing of any
Sale of the Company. Sale of the Company shall mean (a) a sale or transfer of
all or substantially all of the Company's assets or (b) the acquisition of the
Company by another entity by means of merger, consolidation or other
<PAGE>
transaction or series of related transactions resulting in the exchange of the
outstanding shares of the Company's capital stock such that the Company's
shareholders prior to such transaction own, directly or indirectly, less than
fifty percent (50%) of the voting power of the surviving entity or the entity
that owns 100% of the outstanding voting securities of such surviving entity.
At the closing of a Qualifying Equity Financing (as defined
below) on or before the Maturity Date, the entire outstanding principal balance
of, and all accrued and unpaid interest on, this Note shall be automatically
converted into the number of shares of stock issued by Payor in such Qualifying
Equity Financing as is obtained by dividing (a) the outstanding principal
balance of, and all accrued and unpaid interest on, this Note as of the closing
date of the Qualified Equity Financing by (b) the lower of the Conversion Price
Per Share and the price per share of the stock issued in the Qualified Equity
Financing. A "Qualified Equity Financing" shall mean an equity financing in
which Payor sells equity securities and obtains gross cash proceeds (including
conversion of this Note or other notes issued in this series of notes on or
about the date hereof) in an amount not less than Twenty Million Dollars
($20,000,000). If this Note is automatically converted, written notice shall be
delivered to Holder at the address of Holder first set forth above or at such
other address as may be designated in writing by Holder, notifying Holder of the
conversion, specifying the principal amount of the Note converted, the amount of
accrued and unpaid interest converted, the date of such conversion and calling
upon such Holder to surrender this Note to Payor in exchange for equity
securities of Payor as provided herein, in the manner and at the place
designated by Payor.
As promptly as practicable after the conversion of this Note,
Payor at its expense will issue and deliver to Holder, upon surrender of this
Note, a certificate or certificates for the number of full shares of equity
securities issuable upon such conversion. The issuance of such equity securities
shall be deemed to have been made, as applicable, either (i) immediately prior
to the close of business on the date of the closing of the Qualified Equity
Financing, or (ii) immediately prior to the close of business on the date which
is fifteen (15) days from the date written notice is given by Holder to Payor of
Holder's election to convert this Note into Series C Preferred Stock, and the
person or persons entitled to receive the shares of equity securities upon
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of equity securities as of such date. No fractional
shares of equity securities shall be issued upon payment of this Note. In lieu
of Payor issuing any fractional shares to Holder, Payor shall pay to Holder the
amount of outstanding principal and interest that is not paid in shares of
equity securities, such payment to be made by check or in immediately available
funds.
All payments of interest and principal shall be in lawful
money of the United States of America, and shall be made in immediately
available funds to Holder at the address first set forth above in this Note or
to such other person or entity or at such other address as may be designated in
writing by Holder. All payments shall be applied first to costs of collection,
if any, then to accrued and unpaid interest, and thereafter to principal. Payor
reserves the right to prepay this Note in whole or in part at any time or from
time to time upon five (5) days' prior written notice to Holder (as provided
above), without penalty, additional fees or premium.
Payor hereby waives demand, notice, presentment, protest and
notice of dishonor.
<PAGE>
If there is any default under this Note, and this Note is
placed in the hands of an attorney for collection or is collected through any
court, including any bankruptcy court, Payor promises to pay to Holder its
reasonable attorneys' fees and court costs incurred in collecting or attempting
to collect or securing or attempting to secure this Note, provided the same is
legally allowed by the laws of the State of Georgia.
If any provision, or portion thereof, of this Note, or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Note, or the application of such
provision, or portion thereof, to any other person or circumstances shall not be
affected thereby, and each provision of this Note shall be valid and enforceable
to the fullest extent permitted by law.
This Note, including matters of construction, validity and
performance, and the obligations arising hereunder, shall be construed in
accordance with and otherwise governed in all respects by the laws of the State
of Georgia applicable to contracts made and performed in such state and any
applicable law of the United States of America.
Failure of Holder to exercise any of its rights and remedies
shall not constitute a waiver of the right to exercise the same at that or any
other time. All rights and remedies of Holder for default under this Note shall
be cumulative to the greatest extent permitted by law. Time is of the essence in
the payment of all principal and interest on this Note and the performance of
Payor's obligations hereunder.
The Payor and any holder of this Note acknowledge that the
indebtedness of the Payor on this Note is subordinate to the indebtedness, if
any, of the Payor to Silicon Valley Bank, pursuant to that certain Loan and
Security Agreement, dated as of August 30, by and between the Payor and Silicon
Valley Bank.
This Note is being issued as one of a series of notes issued
by Payor on or about the date hereof and any of the terms of this Note
(including, without limitation, the Maturity Date, the rate of interest, and the
conversion features) may be waived or modified only in writing, signed by Payor
and holders of two thirds (2/3) in principal amount of all notes issued by Payor
in such series.
PRIMIS, INC.
By: ___________________________________
C. James Schaper, President and CEO
<PAGE>
Exhibit 4.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED SHAREHOLDERS'
AGREEMENT DATED JUNE 16, 1998 BY AND BETWEEN PRIMIS, INC. AND CERTAIN OF
ITS SHAREHOLDERS.
No. W-__
WARRANT TO PURCHASE STOCK
OF
PRIMIS, INC.
VOID AFTER NOVEMBER ____, 2004
This certifies that, for value received,_____________________,
or its registered assigns ("Holder"), is entitled, subject to the terms set
forth below, to purchase from Primis, Inc., a Georgia corporation (the
"Company"), the number of shares of Series C Convertible Preferred Stock of the
Company ("Series C Preferred Stock") (or Common Stock of the Company ("Common
Stock") upon or after the occurrence of an IPO as defined below), as constituted
on the date hereof, upon surrender of this Warrant, at the principal office of
the Company, with the Notice of Exercise attached hereto as EXHIBIT A duly
executed, and simultaneous payment therefor in lawful money of the United States
or as otherwise provided hereinafter, at the Exercise Price set forth in Section
2 below. The number, character and Exercise Price of such shares of Series C
Preferred Stock (or, upon the occurrence of an IPO, Common Stock) are determined
as set forth and are subject to adjustment as provided below. The term "Warrant"
as used herein shall include this Warrant, and any warrants delivered in
substitution or exchange therefor as provided herein. This Warrant is issued
pursuant to the terms of that certain Convertible Promissory Note and Warrant
Purchase Agreement dated as of the date hereof (the "Purchase Agreement") in
connection with the Company's issuance to the Holder of a Convertible Promissory
Note dated as of the date hereof (the "Note"), in the principal amount of
_____________________ Dollars ($_________).
<PAGE>
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth and set forth in the Purchase Agreement, the Holder is
entitled, upon surrender of this Warrant at the principal office of the Company
(or at such other place as the Company shall notify the Holder hereof in
writing), to purchase from the Company up to that number of fully paid and
nonassessable shares of Series C Preferred Stock (or Common Stock in the case of
subsection (c) below), as more fully described below, that is equal to:
(a) in the event that the Company closes a sale of its
preferred stock in which the gross cash proceeds to the Company equal or exceed
Twenty Million Dollars ($20,000,000) (including the aggregate amount of debt
securities converted into equity securities upon conversion of the Notes issued
pursuant to the Purchase Agreement) prior to one hundred eighty (180) days from
the date hereof (the "Qualifying Financing"), the quotient obtained by dividing
(i) thirty-five percent (35%) of the principal amount of the Note to which this
Warrant relates (the "Warrant Coverage") by (ii) the lower of the Series C Price
Per Share (as defined below) and the price per share of the preferred stock sold
to investors in the Qualifying Financing;
(b) in the event that the Company closes prior to a
Qualifying Financing either (i) a sale or transfer of all or substantially all
of its assets or (ii) the acquisition of the Company by another entity by means
of merger, consolidation or other transaction or series of related transactions
resulting in the exchange of the outstanding shares of the Company's capital
stock such that the Company's shareholders prior to such transaction own,
directly or indirectly, less than fifty percent (50%) of the voting power of the
surviving entity or the entity that owns 100% of the outstanding securities of
such surviving entity (each, a "Sale of the Company"), the quotient obtained by
dividing (i) the Warrant Coverage by (ii) the Series C Price Per Share;
(c) in the event that the Company closes a firm
commitment underwritten public offering of shares of its Common Stock ("Common
Stock") under the Securities Act of 1933, as amended (the "1933 Act"), from
which the Company receives net proceeds of not less than Thirty Million Dollars
($30,000,000) at a public offering price of not less than the Series C Price Per
Share (the "IPO") prior to a Qualifying Financing or Sale of the Company, that
number of shares of Common Stock of the Company equal to the quotient obtained
by dividing (i) the Warrant Coverage by (ii) the Series C Price Per Share; or
(d) in the event that the Company does not close
Qualifying Financing, Sale of the Company or IPO prior to the date 180 days from
the date hereof, the quotient obtained by dividing (i) the Warrant Coverage by
(ii) $6.00 (subject to adjustment for any stock split, combination,
consolidation or stock distributions, stock dividends, recapitalizations or the
like).
"Series C Prices Per Share" shall mean $15.31 a share (subject to adjustment for
any stock split, combination, consolidation or stock distributions or stock
dividends or recapitalizations or the like).
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Upon the first to occur of (i) a Qualifying Financing, (ii) an IPO, (iii) a Sale
of the Company, or (iv) the date which is one-hundred eighty (180) days from the
date hereof if no Qualifying Financing, IPO or Sale of the Company occurs prior
thereto, the number of shares of Series C Preferred Stock or Common Stock into
which this Warrant may be exercised (the "Shares") shall be permanently
established and fixed in accordance with the foregoing subsections and shall
only be subject to further adjustment as provided in Section 8 hereof. If the
securities issuable to investors in the Qualifying Financing are not preferred
stock, all references in this Warrant to "preferred stock" that is issued in
such Qualifying Financing shall be deemed to be adjusted accordingly.
Notwithstanding anything herein to the contrary, upon the occurrence of an IPO
at any time while this Warrant remains exercisable, the Shares for which this
Warrant may be exercised shall automatically be converted into, and all
references herein to Shares shall be deemed to refer to, Common Stock of the
Company. In the event the Shares for which this Warrant could have been
exercised immediately prior to the IPO were Series C Preferred Stock, the shares
of Common Stock for which this Warrant may be exercised upon and after the
closing of the IPO shall be equal to that number of shares of Common Stock the
Holder would have received upon conversion of the Series C Preferred Stock
issuable pursuant hereto had the Holder exercised this Warrant immediately prior
to the IPO.
2. EXERCISE PRICE. Subject to adjustment pursuant to Section
8 hereof the purchase price for the shares ("Exercise Price") shall be (i) upon
a Qualifying Financing, the lower of the Series C Price Per Share or the price
per share of the preferred stock sold to investors in a Qualifying Financing;
(ii) in the event the Company does not close a Qualifying Financing, Sale of the
Company or IPO prior to the date 180 days from the date hereof, $6.00 per share;
and (iii) in all other cases, the Series C Price Per Share
3. EXERCISE PERIOD. This Warrant shall become exercisable,
in whole or in part, but not for less than 5,000 Shares (such number being
subject to adjustment as provided in Section 8 hereof), commencing upon the
earlier of (i) the closing of the Qualifying Financing, (ii) immediately prior
to the closing of the Sale of the Company, (iii) immediately prior to the
closing of the IPO or (iv) the date one hundred eighty (180) days from the date
set forth on the signature page of this Warrant, and it shall remain so
exercisable until 5:00 p.m. on the date which is five (5) years from the date
set forth on the signature page of this Warrant; provided, however, that in the
event of the closing of a Sale of the Company, this Warrant shall, on the date
of such event, no longer be exercisable and become null and void. In the event
of a proposed Sale of the Company, the Company shall notify the holder of the
Warrant at least fifteen (15) days prior to the consummation of such event or
transaction.
4. METHOD OF EXERCISE. While this Warrant remains
outstanding and exercisable in accordance with Section 3 above, the Holder may
exercise, in whole or in part, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly
executed copy of the form of Notice of Election attached hereto, to the
Secretary of the Company at its principal office (or such other office of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company);
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<PAGE>
(b) the payment to the Company of an amount equal to
the aggregate Exercise Price for the number of Shares being purchased (i) in
cash or by check payable to the Company, (ii) by cancellation by the Holder of
indebtedness or other obligations of the Company to the Holder or (iii) by
combination of (i) or (ii); and
(c) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Series C Preferred Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of Shares for which this Warrant may then be exercised.
5. NET EXERCISE. Notwithstanding any provisions herein to
the contrary, if this Warrant is exercised in connection with or following the
completion by the Company of an IPO, in lieu of exercising this Warrant for
cash, the Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by surrender of
this Warrant at the principal office of the Company together with the properly
endorsed Notice of Exercise and notice of such election in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common
Stock to be issued to the Holder
Y = the number of shares of
Common Stock purchasable
under the Warrant or, if
only a portion of the
Warrant is being exercised,
the portion of the Warrant
being canceled (at the date
of such calculation)
A = the Fair Market Value of one
share of Company's Common Stock
(at the date of such calculation)
B = Exercise Price (as adjusted to
the date of such calculation)
For purposes of the above calculation, Fair Market Value means, if the Company's
Common Stock is traded on a national securities exchange or the NASDAQ National
Market System, the average of the last reported sales price over the five (5)
days immediately preceding the date of valuation at which the Common Stock has
traded on such national securities exchange or NASDAQ National Market System or,
if the Company's Common Stock is traded in the over-the-counter market, the
average of the bid and asked prices on the over-the-counter market, on the date
of valuation.
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<PAGE>
6. CERTIFICATES FOR SHARES. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
number of Shares so purchased shall be issued as soon as practicable thereafter
(with appropriate restrictive legends, if applicable), and in any event within
thirty (30) days of the delivery of the Notice of Exercise.
7. ISSUANCE OF SHARES. The Company covenants that the
Shares, when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number of and kind of securities purchasable upon exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time as follows:
(a) MERGER, SALE OF ASSETS, ETC. If at any time while
this Warrant, or any portion thereof, is outstanding and unexpired there shall
be (i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash, or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provisions shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 8. The
foregoing provisions of this Section 8(a) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per share consideration payable to the holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
(b) RECLASSIFICATION, ETC. If the Company, at any time
while this Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
5
<PAGE>
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 8.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER
SECURITIES OR PROPERTY. If while this Warrant, or any portion hereof, remains
outstanding and unexpired, the holders of the securities as to which purchase
rights under this Warrant exist at the time shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) of the Company by way of
dividend (other than the 7% per annum dividend which accrues on the Series C
Preferred Stock pursuant to the terms set forth in the Company's Amended and
Restated Articles of Incorporation), then in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available to it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 8.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment pursuant to this Section 8, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustment
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number and kind of shares and the amount, if any, of other property that at the
time would be received upon the exercise of the Warrant.
(f) NO IMPAIRMENT. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 8 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment.
6
<PAGE>
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. NO SHAREHOLDER RIGHTS. Subject to Sections 8 and 13 of
this Warrant, the Holder shall not be entitled to vote or receive dividends or
be deemed the holder of Series C Preferred Stock or any other securities of the
Company that may at any time be issuable on the exercise hereof for any purpose,
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein. However, nothing in this Section 10 shall limit
the right of the Holder to be provided the Notices required under this Warrant
or the Purchase Agreement.
11. TRANSFERS OF WARRANT.
a. WARRANT REGISTER. The Company will maintain a
register (the "Warrant Register") containing the names and addresses of the
Holder or Holders. Any Holder of this Warrant or any portion thereof may change
his or her address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
b. TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT.
This Warrant may not be transferred or assigned in whole or in part without
compliance with (i) all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company) and (ii) the terms and conditions
of that certain Amended and Restated Shareholders' Agreement, dated as of June
16, 1998, by and among the Company and certain of its shareholders.
c. EXCHANGE OF WARRANT UPON A TRANSFER. On surrender
of this Warrant for exchange, properly endorsed on the Assignment Form and
subject to the provisions of this Warrant with respect to compliance with the
Act and with the limitations on assignments and transfers contained in this
Section 11, the Company at its expense shall issue to or on the order of the
Holder a new warrant or warrants of like tenor, in the name of the Holder or as
the Holder (on payment by the Holder of any applicable transfer taxes) may
direct, for the number of shares issuable upon exercise hereof.
7
<PAGE>
d. COMPLIANCE WITH SECURITIES LAWS.
i. The Holder of this Warrant, by acceptance
hereof, acknowledges that this Warrant and the shares of Series C Preferred
Stock (and the shares of Common Stock into which such shares of Series C
Preferred Stock convert) or Common Stock to be issued upon exercise hereof are
being acquired solely for the Holder's own account and not as a nominee for any
other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any shares of Series C Preferred Stock to
be issued upon exercise hereof except under circumstances that will not result
in a violation of the Act or any state securities laws. Upon exercise of this
Warrant, the Holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of Series C Preferred Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale and that the Holder is an "accredited investor" as
defined in Section 501 of the regulations adopted under the Act or that the
shares of Series C Preferred Stock so purchased may be issued without
registration under the Act and under applicable state securities laws.
ii. All shares of Series C Preferred Stock (and
the shares of Common Stock into which such shares of Series C Preferred Stock
convert) or Common Stock issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to any
legend required by state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED
AND RESTATED SHAREHOLDERS' AGREEMENT DATED JUNE 16, 1998 BY AND BETWEEN THE
COMPANY AND CERTAIN OF ITS SHAREHOLDERS.
12. RESERVATION OF STOCK. The Company covenants that, during
the term this Warrant is exercisable, the Company will reserve from its
authorized and unissued Series C Preferred Stock (and Common Stock) a sufficient
number of shares to provide for the issuance of Series C Preferred Stock or
Common Stock, as applicable, upon the exercise of this Warrant (and the issuance
of Common Stock upon the conversion of such Series C Preferred Stock) and, from
time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Series C Preferred
Stock (and Common Stock) issuable upon exercise of the Warrant. The Company
further covenants that all shares that may be issued upon
8
<PAGE>
the exercise of rights represented by this Warrant and payment of the Exercise
Price, all as set forth herein, will be fully paid, nonassessable, free of
preemptive rights (other than preemptive rights which have been waived) and free
from all taxes, liens and charges in respect of the issue thereof (other than
taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Series C Preferred Stock upon the exercise of this Warrant.
13. NOTICES.
a. In case:
(1) the Company shall take a record of the holders of its Series C
Preferred Stock (or other securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or
to receive any other right, or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up for
the Company, then, and in each such case, the Company will mail or cause to be
mailed to the Holder or Holders a notice specifying, as the case may be, (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Series C Preferred Stock (or such stock or securities
at the time receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Series C Preferred Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
b. All such notices, advices and communications shall be deemed
to have been received as set forth in Section 17 below.
14. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holders hereof and their respective successors and
assigns.
9
<PAGE>
15. AMENDMENTS AND WAIVERS. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of two
thirds of the shares of Series C Preferred Stock issued or issuable upon
exercise of Warrants issued pursuant to the Purchase Agreement. Any waiver or
amendment effected in accordance with this Section shall be binding upon each
holder of any Shares purchased under this Warrant at the time outstanding
(including securities into which such Shares have been converted), each future
holder of all such Shares, and the Company.
16. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges
that by the operation of Section 16 hereof, the holders of two thirds of the
shares of Series C Preferred Stock issued or issuable upon exercise of Warrants
issued pursuant to the Purchase Agreement will have the right and power to
diminish or eliminate all rights of such holder under this Warrant or under the
Purchase Agreement.
17. NOTICES. All notices required under this Warrant and
shall be deemed to have been given or made for all purposes (i) upon personal
delivery, (ii) upon confirmation receipt that the communication was successfully
sent to the applicable number if sent by facsimile; (iii) one day after being
sent, when sent by professional overnight courier service, or (iv) five days
after posting when sent by registered or certified mail. Notices to the Company
shall be sent to the principal office of the Company (or at such other place as
the Company shall notify the Holder hereof in writing). Notices to the Holder
shall be sent to the address of the Holder on the books of the Company (or at
such other place as the Holder shall notify the Company hereof in writing).
18. ATTORNEYS' FEES. If any action of law or equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which it may be entitled.
19. CAPTIONS. The section and subsection headings of this
Warrant are inserted for convenience only and shall not constitute a part of
this Warrant in construing or interpreting any provision hereof.
20. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of Georgia as applied to agreements among Georgia residents made
and to be performed entirely within the State of Georgia.
{END OF TEXT}
10
<PAGE>
IN WITNESS WHEREOF, Primis, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized as of this 3rd day of December,
1999.
PRIMIS, INC.
By:______________________________________
Leslie H. Schreiner, CFO and Secretary
11
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: PRIMIS, INC.
The undersigned hereby elects to [CHECK APPLICABLE
SUBSECTION]:
________ (a) Purchase _________________ shares of Series C
Preferred Stock or Common Stock, as applicable, of
Primis, Inc., pursuant to the terms of the attached
Warrant and payment of the Exercise Price per share
required under such Warrant accompanies this notice;
OR
________ (b) Exercise the attached Warrant for [all of the shares]
[________ of the shares] [CROSS OUT INAPPLICABLE
PHRASE] purchasable under the Warrant pursuant to
the net exercise provisions of Section 5 of such
Warrant.
The undersigned hereby represents and warrants that the
undersigned is acquiring such shares for its own account for investment purposes
only, and not for resale or a view to distribution of such shares or any part
thereof.
WARRANTHOLDER:
-----------------------------------------
By:
--------------------------------------
[NAME]
Address:
-----------------------------------------
-----------------------------------------
Date:
-------------------
Name in which shares should be registered:
- ------------------------------------------
<PAGE>
Exhibit 4.5
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL SATISFACTORY TO
PAYOR THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT DATED JUNE
16, 1998 BY AND BETWEEN PRIMIS, INC. AND CERTAIN OF ITS SHAREHOLDERS.
$____________ January ___, 2000
PRIMIS, INC.
CONVERTIBLE PROMISSORY NOTE
For value received, Primis, Inc., a Georgia corporation
("Payor"), having an address of Suite 320, 11475 Great Oaks Way, Alpharetta,
Georgia 30022, promises to pay to ___________, or its assigns ("Holder"), having
an address of __________________________, the principal sum of
__________________ ($____________), together with all accrued and unpaid
interest thereon as set forth below.
Interest on the unpaid principal balance of this Note shall
accrue at the rate of eight percent (8%) per annum compounded annually
commencing on the date hereof, and shall be payable in a single installment at
maturity as set forth below. All interest on this Note shall be computed daily
on the basis of the actual number of days elapsed over a year assumed to consist
of three hundred sixty (360) days. If not converted at an earlier date as
provided below, (i) the entire unpaid balance of principal and all accrued and
unpaid interest shall be due and payable one hundred eighty one (181) days
following the closing by the Company of a Qualified Equity Financing, as defined
below, or one hundred eighty (180) days from the date hereof if a Qualified
Equity Financing shall not have been completed prior thereto (the "Maturity
Date"), or (ii) Holder, at its election, may convert this Note on or prior to
the Maturity Date into the number of shares of Series C Convertible Preferred
Stock of the Company (the "Series C Preferred Stock") obtained by dividing (a)
the outstanding principal balance of, and all accrued and unpaid interest on,
this Note as of the date that is fifteen (15) days from the date written notice
is given by Holder to Payor of Holder's election to convert this Note, by (b)
$15.31 (as adjusted for any stock split, combination, consolidation or stock
distributions or stock dividends or recapitalizations or the like) (the
"Conversion Price Per Share").
<PAGE>
Notwithstanding the foregoing provisions of this Note, at the
closing of a Qualifying Equity Financing (as defined below) on or before the
Maturity Date, the entire outstanding principal balance of, and all accrued and
unpaid interest on, this Note may be converted, at the option of the Holder,
into shares of stock issued by Payor in such Qualifying Equity Financing equal
to the number obtained by dividing (a) the outstanding principal balance of, and
all accrued and unpaid interest on, this Note as of the closing date of the
Qualifying Equity Financing by (b) the lower of the Conversion Price Per Share
and the price per share of the stock issued in the Qualifying Equity Financing.
A "Qualifying Equity Financing" shall mean (i) a private equity financing in
which Payor sells shares of preferred or common stock and obtains gross cash
proceeds in an amount not less than Twenty Million Dollars ($20,000,000), or
(ii) a firm commitment underwritten public offering of shares of common stock of
Payor registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, from which the Company receives net proceeds
of not less than Thirty Million Dollars ($30,000,000) at a public offering price
of not less than the Conversion Price Per Share.
As promptly as practicable after the conversion of this Note,
Payor at its expense will issue and deliver to Holder, upon surrender of this
Note, a certificate or certificates for the number of full shares of equity
securities issuable upon such conversion. The issuance of such equity securities
shall be deemed to have been made, as applicable, either (i) immediately prior
to the close of business on the date of the closing of the Qualified Equity
Financing, or (ii) immediately prior to the close of business on the date which
is fifteen (15) days from the date written notice is given by Holder to Payor of
Holder's election to convert this Note into Series C Preferred Stock, and the
person or persons entitled to receive the shares of equity securities upon
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of equity securities as of such date. No fractional
shares of equity securities shall be issued upon payment of this Note. In lieu
of Payor issuing any fractional shares to Holder, Payor shall pay to Holder the
amount of outstanding principal and interest that is not paid in shares of
equity securities, such payment to be made by check or in immediately available
funds.
Payor shall provide Holder with at least ten (10) days notice
prior to the closing of any Sale of the Company. Sale of the Company shall mean
(a) a sale or transfer of all or substantially all of the Company's assets or
(b) the acquisition of the Company by another entity by means of merger,
consolidation or other transaction or series of related transactions resulting
in the exchange of the outstanding shares of the Company's capital stock such
that the Company's shareholders prior to such transaction own, directly or
indirectly, less than fifty percent (50%) of the voting power of the surviving
entity or the entity that owns 100% of the outstanding voting securities of such
surviving entity.
All payments of interest and principal shall be in lawful
money of the United States of America, and shall be made in immediately
available funds to Holder at the address first set forth above in this Note or
to such other person or entity or at such other address as may be designated in
writing by Holder. All payments shall be applied first to costs of collection,
if any, then to accrued and unpaid interest, and thereafter to principal. Payor
reserves the right to prepay this Note in whole or in part at any time or from
time to time upon five (5) days' prior written notice to Holder (as provided
above), without penalty, additional fees or premium.
<PAGE>
Payor hereby waives demand, notice, presentment, protest and
notice of dishonor.
If there is any default under this Note, and this Note is
placed in the hands of an attorney for collection or is collected through any
court, including any bankruptcy court, Payor promises to pay to Holder its
reasonable attorneys' fees and court costs incurred in collecting or attempting
to collect or securing or attempting to secure this Note, provided the same is
legally allowed by the laws of the State of Georgia.
If any provision, or portion thereof, of this Note, or the
application thereof to any persons or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Note, or the application of such
provision, or portion thereof, to any other person or circumstances shall not be
affected thereby, and each provision of this Note shall be valid and enforceable
to the fullest extent permitted by law.
This Note, including matters of construction, validity and
performance, and the obligations arising hereunder, shall be construed in
accordance with and otherwise governed in all respects by the laws of the State
of Georgia applicable to contracts made and performed in such state and any
applicable law of the United States of America.
Failure of Holder to exercise any of its rights and remedies
shall not constitute a waiver of the right to exercise the same at that or any
other time. All rights and remedies of Holder for default under this Note shall
be cumulative to the greatest extent permitted by law. Time is of the essence in
the payment of all principal and interest on this Note and the performance of
Payor's obligations hereunder.
The Payor and any holder of this Note acknowledge that the
indebtedness of the Payor on this Note is subordinate to the indebtedness, if
any, of the Payor to Silicon Valley Bank, pursuant to that certain Loan and
Security Agreement, dated as of August 30, 1999 by and between the Payor and
Silicon Valley Bank.
This Note is being issued as one of a series of notes issued
by Payor on or about the date hereof and any of the terms of this Note
(including, without limitation, the Maturity Date, the rate of interest, and the
conversion features) may be waived or modified only in writing, signed by Payor
and holders of two thirds (2/3) in principal amount of all notes issued by Payor
in such series.
PRIMIS, INC.
By: ____________________________________________
C. James Schaper, President and CEO
<PAGE>
Exhibit 4.6
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT DATED JUNE 16, 1998 BY AND BETWEEN PRIMIS, INC.
AND CERTAIN OF ITS SHAREHOLDERS.
No. W-__
WARRANT TO PURCHASE STOCK
OF
PRIMIS, INC.
VOID AFTER JANUARY ____, 2005
This certifies that, for value received,_____________________,
or its registered assigns ("Holder"), is entitled, subject to the terms set
forth below, to purchase from Primis, Inc., a Georgia corporation (the
"Company"), the number of shares of Series C Convertible Preferred Stock of the
Company ("Series C Preferred Stock") (or Common Stock of the Company ("Common
Stock") upon or after the occurrence of an IPO as defined below), as constituted
on the date hereof, upon surrender of this Warrant, at the principal office of
the Company, with the Notice of Exercise attached hereto as EXHIBIT A duly
executed, and simultaneous payment therefor in lawful money of the United States
or as otherwise provided hereinafter, at the Exercise Price set forth in Section
2 below. The number, character and Exercise Price of such shares of Series C
Preferred Stock (or, upon the occurrence of an IPO, Common Stock) are determined
as set forth and are subject to adjustment as provided below. The term "Warrant"
as used herein shall include this Warrant, and any warrants delivered in
substitution or exchange therefor as provided herein. This Warrant is issued
pursuant to the terms of that certain Convertible Promissory Note and Warrant
Purchase Agreement dated as of the date hereof (the "Purchase Agreement") in
connection with the Company's issuance to the Holder of a Convertible Promissory
Note dated as of the date hereof (the "Note"), in the principal amount of
_____________________ Dollars ($_________).
<PAGE>
1. PURCHASE OF SHARES. Subject to the terms and conditions
hereinafter set forth in the Purchase Agreement, the Holder is entitled, upon
surrender of this Warrant at the principal office of the Company (or at such
other place as the Company shall notify the Holder hereof in writing), to
purchase from the Company up to that number of fully paid and nonassessable
shares of Series C Preferred Stock (or Common Stock in the case of subsection
(c) below), as more fully described below, that is equal to:
(a) in the event that the Company closes a sale of its
common or preferred stock in which the gross cash proceeds to the Company equal
or exceed Twenty Million Dollars ($20,000,000) prior to one hundred eighty (180)
days from the date hereof (the "Qualifying Equity Financing"), the quotient
obtained by dividing (i) thirty-five percent (35%) of the principal amount of
the Note to which this Warrant relates (the "Warrant Coverage") by (ii) the
lower of the Series C Price Per Share (as defined below) and the price per share
of the common or preferred stock sold to investors in the Qualifying Equity
Financing;
(b) in the event that the Company closes prior to a
Qualifying Equity Financing either (i) a sale or transfer of all or
substantially all of its assets or (ii) the acquisition of the Company by
another entity by means of merger, consolidation or other transaction or series
of related transactions resulting in the exchange of the outstanding shares of
the Company's capital stock such that the Company's shareholders prior to such
transaction own, directly or indirectly, less than fifty percent (50%) of the
voting power of the surviving entity or the entity that owns 100% of the
outstanding securities of such surviving entity (each, a "Sale of the Company"),
the quotient obtained by dividing (i) the Warrant Coverage by (ii) the Series C
Price Per Share;
(c) in the event that the Company closes a firm
commitment underwritten public offering of shares of its Common Stock ("Common
Stock") under the Securities Act of 1933, as amended (the "1933 Act"), from
which the Company receives net proceeds of not less than Thirty Million Dollars
($30,000,000) at a public offering price of not less than the Series C Price Per
Share (the "IPO") prior to a Qualifying Equity Financing or Sale of the Company,
that number of shares of Common Stock of the Company equal to the quotient
obtained by dividing (i) the Warrant Coverage by (ii) the Series C Price Per
Share; or
(d) in the event that the Company does not close a
Qualifying Equity Financing, Sale of the Company or IPO prior to the date 180
days from the date hereof, the quotient obtained by dividing (i) the Warrant
Coverage by (ii) $6.00 (subject to adjustment for any stock split, combination,
consolidation or stock distributions, stock dividends, recapitalizations or the
like).
The "Series C Price Per Share" shall mean $15.31 a share (subject to adjustment
for any stock split, combination, consolidation or stock distributions or stock
dividends or recapitalizations or the like).
Upon the first to occur of (i) a Qualifying Equity Financing,
(ii) an IPO, (iii) a Sale of the Company, or (iv) the date which is one-hundred
eighty (180) days from the date
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<PAGE>
hereof if no Qualifying Equity Financing, IPO or Sale of the Company occurs
prior thereto, the number of shares of Series C Preferred Stock or Common Stock
into which this Warrant may be exercised (the "Shares") shall be permanently
established and fixed in accordance with the foregoing subsections and shall
only be subject to further adjustment as provided in Section 8 hereof. If the
securities issuable to investors in the Qualifying Equity Financing are not
preferred stock, all references in this Warrant to "preferred stock" that is
issued in such Qualifying Equity Financing shall be deemed to be adjusted
accordingly.
Notwithstanding anything herein to the contrary, upon the
occurrence of an IPO at any time while this Warrant remains exercisable, the
Shares for which this Warrant may be exercised shall automatically be converted
into, and all references herein to Shares shall be deemed to refer to, Common
Stock of the Company. In the event the Shares for which this Warrant could have
been exercised immediately prior to the IPO were Series C Preferred Stock, the
shares of Common Stock for which this Warrant may be exercised upon and after
the closing of the IPO shall be equal to that number of shares of Common Stock
the Holder would have received upon conversion of the Series C Preferred Stock
issuable pursuant hereto had the Holder exercised this Warrant immediately prior
to the IPO.
2. EXERCISE PRICE. Subject to adjustment pursuant to Section
8 hereof, the purchase price for the shares ("Exercise Price") shall be (i) upon
a Qualifying Equity Financing, the lower of the Series C Price Per Share or the
price per share of the stock sold to investors in a Qualifying Equity Financing,
(ii) in the event the Company does not close a Qualifying Financing, Sale of the
Company or IPO prior to the date 180 days from the date hereof, $6.00 per share,
and (iii) in all other cases, the Series C Price Per Share.
3. EXERCISE PERIOD. This Warrant shall become exercisable,
in whole or in part, but not for less than 5,000 Shares (such number being
subject to adjustment as provided in Section 8 hereof), commencing upon the
earlier of (i) the closing of the Qualifying Equity Financing, (ii) immediately
prior to the closing of the Sale of the Company, (iii) immediately prior to the
closing of the IPO or (iv) the date one hundred eighty (180) days from the date
set forth on the signature page of this Warrant, and it shall remain so
exercisable until 5:00 p.m. on the date which is five (5) years from the date
set forth on the signature page of this Warrant; provided, however, that in the
event of the closing of a Sale of the Company, this Warrant shall, on the date
of such event, no longer be exercisable and become null and void. In the event
of a proposed Sale of the Company, the Company shall notify the holder of the
Warrant at least fifteen (15) days prior to the consummation of such event or
transaction.
4. METHOD OF EXERCISE. While this Warrant remains
outstanding and exercisable in accordance with Section 3 above, the Holder may
exercise, in whole or in part, the purchase rights evidenced hereby. Such
exercise shall be effected by:
(a) the surrender of the Warrant, together with a duly
executed copy of the form of Notice of Election attached hereto, to the
Secretary of the Company at its principal office (or such other office of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company);
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<PAGE>
(b) the payment to the Company of an amount equal to
the aggregate Exercise Price for the number of Shares being purchased (i) in
cash or by check payable to the Company, (ii) by cancellation by the Holder of
indebtedness or other obligations of the Company to the Holder or (iii) by
combination of (i) or (ii); and
(c) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Series C Preferred Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. In the event that this Warrant is exercised in part, the Company at
its expense will execute and deliver a new Warrant of like tenor exercisable for
the number of Shares for which this Warrant may then be exercised.
5. NET EXERCISE. Notwithstanding any provisions herein to
the contrary, if this Warrant is exercised in connection with or following the
completion by the Company of an IPO, in lieu of exercising this Warrant for
cash, the Holder may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by surrender of
this Warrant at the principal office of the Company together with the properly
endorsed Notice of Exercise and notice of such election in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock
to be issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if
only a portion of the Warrant is
being exercised, the portion of the
Warrant being canceled (at the date
of such calculation)
A = the Fair Market Value of one share
of Company's Common Stock (at the
date of such calculation)
B = Exercise Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, Fair Market Value means, if the Company's
Common Stock is traded on a national securities exchange or the NASDAQ National
Market System, the average of the last reported sales price over the five (5)
days immediately preceding the date of valuation at which the Common Stock has
traded on such national securities exchange or NASDAQ National Market System or,
if the Company's Common Stock is traded in the over-the-counter market, the
average of the bid and asked prices on the over-the-counter market, on the date
of valuation.
4
<PAGE>
6. CERTIFICATES FOR SHARES. Upon the exercise of the
purchase rights evidenced by this Warrant, one or more certificates for the
number of Shares so purchased shall be issued as soon as practicable thereafter
(with appropriate restrictive legends, if applicable), and in any event within
thirty (30) days of the delivery of the Notice of Exercise.
7. ISSUANCE OF SHARES. The Company covenants that the
Shares, when issued pursuant to the exercise of this Warrant, will be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issuance thereof.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number of and kind of securities purchasable upon exercise of this Warrant and
the Exercise Price shall be subject to adjustment from time to time as follows:
(a) MERGER, SALE OF ASSETS, ETC. If at any time while
this Warrant, or any portion thereof, is outstanding and unexpired there shall
be (i) a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash, or otherwise, or (iii) a sale
or transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provisions shall be made so that the
holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 8. The
foregoing provisions of this Section 8(a) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per share consideration payable to the holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by the Company's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
(b) RECLASSIFICATION, ETC. If the Company, at any time
while this Warrant, or any portion hereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
5
<PAGE>
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 8.
(c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the
Company at any time while this Warrant, or any portion hereof, remains
outstanding and unexpired shall split, subdivide or combine the securities as to
which purchase rights under this Warrant exist, into a different number of
securities of the same class, the Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination.
(d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER
SECURITIES OR PROPERTY. If while this Warrant, or any portion hereof, remains
outstanding and unexpired, the holders of the securities as to which purchase
rights under this Warrant exist at the time shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor, other or additional stock
or other securities or property (other than cash) of the Company by way of
dividend (other than the 7% per annum dividend which accrues on the Series C
Preferred Stock pursuant to the terms set forth in the Company's Amended and
Restated Articles of Incorporation), then in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
available to it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 8.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment pursuant to this Section 8, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustment
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number and kind of shares and the amount, if any, of other property that at the
time would be received upon the exercise of the Warrant.
(f) NO IMPAIRMENT. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 8 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment.
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<PAGE>
9. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. NO SHAREHOLDER RIGHTS. Subject to Sections 8 and 13 of
this Warrant, the Holder shall not be entitled to vote or receive dividends or
be deemed the holder of Series C Preferred Stock or any other securities of the
Company that may at any time be issuable on the exercise hereof for any purpose,
nor shall anything contained herein be construed to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein. However, nothing in this Section 10 shall limit
the right of the Holder to be provided the Notices required under this Warrant
or the Purchase Agreement.
11. TRANSFERS OF WARRANT.
a. WARRANT REGISTER. The Company will maintain a register
(the "Warrant Register") containing the names and addresses of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his or her
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
b. TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This
Warrant may not be transferred or assigned in whole or in part without
compliance with (i) all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company) and (ii) the terms and conditions
of that certain Amended and Restated Shareholders' Agreement, dated as of June
16, 1998, by and among the Company and certain of its shareholders.
c. EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers contained in this Section 11, the
Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise hereof.
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<PAGE>
d. COMPLIANCE WITH SECURITIES LAWS.
i. The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Series C Preferred
Stock (and the shares of Common Stock into which such shares of Series
C Preferred Stock convert) or Common Stock to be issued upon exercise
hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the
Holder will not offer, sell or otherwise dispose of this Warrant or any
shares of Series C Preferred Stock to be issued upon exercise hereof
except under circumstances that will not result in a violation of the
Act or any state securities laws. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of Series C Preferred
Stock so purchased are being acquired solely for the Holder's own
account and not as a nominee for any other party, for investment, and
not with a view toward distribution or resale and that the Holder is an
"accredited investor" as defined in Section 501 of the regulations
adopted under the Act or that the shares of Series C Preferred Stock so
purchased may be issued without registration under the Act and under
applicable state securities laws.
ii. All shares of Series C Preferred Stock (and the
shares of Common Stock into which such shares of Series C Preferred
Stock convert) or Common Stock issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following form
(in addition to any legend required by state securities laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT DATED JUNE 16, 1998 BY AND
BETWEEN THE COMPANY AND CERTAIN OF ITS SHAREHOLDERS.
12. RESERVATION OF STOCK. The Company covenants that, during
the term this Warrant is exercisable, the Company will reserve from its
authorized and unissued Series C Preferred Stock (and Common Stock) a sufficient
number of shares to provide for the issuance of Series C Preferred Stock or
Common Stock, as applicable, upon the exercise of this Warrant (and the issuance
of Common Stock upon the conversion of such Series C Preferred Stock) and, from
time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Series C Preferred
Stock (and Common Stock) issuable upon
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<PAGE>
exercise of the Warrant. The Company further covenants that all shares that may
be issued upon the exercise of rights represented by this Warrant and payment of
the Exercise Price, all as set forth herein, will be fully paid, nonassessable,
free of preemptive rights (other than preemptive rights which have been waived)
and free from all taxes, liens and charges in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously or
otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Series C Preferred Stock upon the exercise of this
Warrant.
13. NOTICES.
a. In case:
(1) the Company shall take a record of the holders of its Series C
Preferred Stock (or other securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other securities, or
to receive any other right, or
(2) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to
another corporation, or
(3) of any voluntary dissolution, liquidation or winding-up for
the Company,
then, and in each such case, the Company will mail or cause to be mailed to
the Holder or Holders a notice specifying, as the case may be, (A) the date
on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (B) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up is to take place, and the time, if any is to be fixed, as of
which the holders of record of Series C Preferred Stock (or such stock or
securities at the time receivable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Series C Preferred Stock (or such other
stock or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
15 days prior to the date therein specified.
b. All such notices, advices and communications shall be deemed
to have been received as set forth in Section 17 below.
14. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Warrant and the Purchase Agreement shall inure to the benefit of, and be binding
upon, the Company and the Holders hereof and their respective successors and
assigns.
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15. AMENDMENTS AND WAIVERS. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of two
thirds of the shares of Series C Preferred Stock issued or issuable upon
exercise of Warrants issued pursuant to the Purchase Agreement. Any waiver or
amendment effected in accordance with this Section shall be binding upon each
holder of any Shares purchased under this Warrant at the time outstanding
(including securities into which such Shares have been converted), each future
holder of all such Shares, and the Company.
16. EFFECT OF AMENDMENT OR WAIVER. The Holder acknowledges
that by the operation of Section 16 hereof, the holders of two thirds of the
shares of Series C Preferred Stock issued or issuable upon exercise of Warrants
issued pursuant to the Purchase Agreement will have the right and power to
diminish or eliminate all rights of such holder under this Warrant or under the
Purchase Agreement.
17. NOTICES. All notices required under this Warrant and
shall be deemed to have been given or made for all purposes (i) upon personal
delivery, (ii) upon confirmation receipt that the communication was successfully
sent to the applicable number if sent by facsimile; (iii) one day after being
sent, when sent by professional overnight courier service, or (iv) five days
after posting when sent by registered or certified mail. Notices to the Company
shall be sent to the principal office of the Company (or at such other place as
the Company shall notify the Holder hereof in writing). Notices to the Holder
shall be sent to the address of the Holder on the books of the Company (or at
such other place as the Holder shall notify the Company hereof in writing).
18. ATTORNEYS' FEES. If any action of law or equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which it may be entitled.
19. CAPTIONS. The section and subsection headings of this
Warrant are inserted for convenience only and shall not constitute a part of
this Warrant in construing or interpreting any provision hereof.
20. GOVERNING LAW. This Warrant shall be governed by the laws
of the State of Georgia as applied to agreements among Georgia residents made
and to be performed entirely within the State of Georgia.
{END OF TEXT}
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<PAGE>
IN WITNESS WHEREOF, Primis, Inc. caused this Warrant to be
executed by an officer thereunto duly authorized as of this ___ day of
January, 2000.
PRIMIS, INC.
By:______________________________________
Title: __________________________________
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: PRIMIS, INC.
The undersigned hereby elects to [CHECK APPLICABLE
SUBSECTION]:
________ (a) Purchase _________________ shares of Series C
Preferred Stock or Common Stock, as applicable, of
Primis, Inc., pursuant to the terms of the attached
Warrant and payment of the Exercise Price per share
required under such Warrant accompanies this notice;
OR
________ (b) Exercise the attached Warrant for [all of the shares]
[________ of the shares] [CROSS OUT INAPPLICABLE
PHRASE] purchasable under the Warrant pursuant to
the net exercise provisions of Section 5 of such
Warrant.
The undersigned hereby represents and warrants that the
undersigned is acquiring such shares for its own account for investment purposes
only, and not for resale or with a view to distribution of such shares or any
part thereof.
WARRANTHOLDER:
-----------------------------------------
By:
--------------------------------------
[NAME]
Address:
-----------------------------------------
-----------------------------------------
Date:
-----------------
Name in which shares should be registered:
- ------------------------------------------
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT
("Agreement") is made and entered into as of the 1st day of April, 1999, by
and between PRIMIS, INC., a Georgia corporation (the "Company"), and JAMES
SCHAPER, an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on
the date hereof and ending on April 30, 2003, unless Employee's employment
terminates prior thereto as provided in Section 7 (the "Term"). Thereafter, this
Agreement shall continue in full force and effect, except that Section 7 shall
no longer be applicable, and either party hereto may terminate Employee's
employment hereunder upon ninety (90) days prior written notice to the other.
3. DUTIES. Employee shall be employed by the Company as its
President and Chief Executive Officer. So long as he is employed hereunder,
Employee agrees to devote his full business time and energy to the business and
affairs of the Company, to perform his duties hereunder to the best of his
ability and at a level of competency consistent with the position occupied, to
act on all matters in a manner he reasonably believes to be in and not opposed
to the best interests of the Company, to use his best efforts, skill and ability
to promote the profitable growth of the Company, and to perform such other
duties as may be assigned to him by the Company's Chairman or by the Company's
Board of Directors ("Board") from time to time.
Employee may volunteer his service to charitable, business and other
public service agencies, clubs or organizations; provided, however, that such
volunteer activities shall not involve substantial amounts of Employee's time
and shall in no way interfere or detract from the performance of Employee's
duties to be performed hereunder.
4. COMPENSATION AND BENEFITS. For all services rendered by
Employee, the Company shall pay compensation and provide benefits to Employee as
follows:
<PAGE>
A. SALARY. The Company shall pay Employee an annual
salary ("Salary") of Two Hundred Thousand Dollars ($200,000), payable not less
frequently than monthly. At least once every twelve (12) months the Board, or a
compensation committee made up of some of the members of the Board, shall review
Employee's Salary and make such adjustments to the Salary as it reasonably deems
appropriate, provided that the Salary shall not be reduced.
B. INCENTIVE CASH BONUS. Within seventy-five (75) days
after the end of the fiscal year 1999 of the Company, the Company shall
determine and, if appropriate, pay Employee a cash bonus (the "Incentive Cash
Bonus"), in an amount equal to thirty-seven and one half percent (37 1/2 %) of
Employee's Salary, determined by and in the reasonably exercised discretion of
the Board and based upon the Employee's achievement of specific goals concerning
the financial or other performance of the Company for the remainder of the
fiscal year 1999, as established by the Board after consultation with Employee.
Within seventy-five (75) days after the end of each fiscal year thereafter, the
Company shall determine, and if appropriate, pay Employee an Incentive Cash
Bonus, in an amount equal to fifty percent (50%) of Employee's Salary,
determined by and in the reasonably exercised discretion of the Board and based
upon the Employee's achievement of specific goals concerning the financial or
other performance of the Company for such fiscal year, established by the Board
prior thereto after consultation with Employee.
C. BUSINESS EXPENSES. The Company shall reimburse
Employee for his reasonable direct out-of-pocket ordinary and necessary
expenses, including trade association dues, if any, incurred by Employee in the
performance of his services hereunder and for which Employee properly accounts
in accordance with the Company's regulations and procedures in effect from time
to time.
D. ADDITIONAL BENEFITS. Employee shall be entitled to
participate (at the reasonable expense of the Company, where allowed under
applicable law) in any and all employee retirement, medical, life and disability
insurance, vacation and other benefits plans and perquisites as may be
established and in effect from time to time and made available to employees of
the Company.
5. STOCK OPTIONS. As of the date hereof, Company has granted to
Employee, pursuant to the terms of the Stock Option Agreement entered into by
the Company and Employee as of the date hereof substantially in the form
attached hereto as EXHIBIT A, an option to purchase 250,000 shares of common
stock of the Company at an exercise price of $4.00 per share, to vest as
follows: 83,333 of the option shares shall vest and Employee may exercise his
option to purchase such shares on and after April 1, 2001; 83,333 of the option
shares shall vest and Employee may exercise his option to purchase such shares
on and after April 1, 2002; and 83,334 of the option shares shall vest and
Employee may exercise his option to purchase such shares on and after April 1,
2003. Immediately after the closing of the Company's next round of private
equity financing (the "Measurement Date"), Employee's percentage ownership of
the Company ("Employee's Percentage Ownership") will be determined by the
Company in consultation with Employee on a fully diluted basis as if all
outstanding options to purchase shares of the Company had been exercised and
shares had been issued as a result thereof. If at any time and from time to time
after the
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<PAGE>
Measurement Date and before the Company's initial public offering, the Company
issues equity securities of any kind (the term "equity securities" shall include
for these purposes any warrants, options or other rights to acquire equity
securities and debt securities convertible into equity securities) of the
Company (other than the issuance of securities (i) upon conversion of any such
equity securities, (ii) pursuant to the acquisition of another company or other
business entity by the Company by merger, purchase of substantially all of the
assets or other form of reorganization or (iii) pursuant to an employee stock
option plan, stock bonus plan, stock purchase plan, employment agreement, or
other management equity program), then, the Company shall: (a) give Employee a
written notice setting forth in reasonable detail (1) the designation and all of
the terms and provisions of the securities to be issued (the "Securities"),
(2) the price of such Securities, and (3) the amount of such Securities
issued; and (b) issue to Employee options to purchase a portion of the
Securities equal to Employee's Percentage Ownership determined as of the
Measurement Date at an exercise price equal to the purchase price of the
Securities made the subject of such options.
6. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's
employment with the Company shall terminate prior to the expiration of the Term,
without further obligation on the part of the Company, except as provided in
this Agreement, upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for neglect injurious to
the Company or willful misconduct, dishonesty or fraud on Employee's part in
connection with the performance of any duties hereunder;
D. The discharge of Employee for a material breach by
Employee of any of the terms of Sections 10, 11 or 13 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that Employee's
performance in his position as President and Chief Executive Officer of the
Company has been unsatisfactory, after first having given written notice to the
Employee that the Employee's performance has been unsatisfactory (which notice
shall set forth in reasonable detail the nature of the unsatisfactory
performance), and Employee having failed to cure such unsatisfactory performance
within thirty (30) days thereafter to the reasonable satisfaction of the
Company;
F. The discharge of Employee upon a determination of the
Board, acting in good faith, that Employee has been unable, for any continuous
period of at least three (3) months, or for shorter
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<PAGE>
periods aggregating three (3) months during any 12-month period, to perform his
duties hereunder by reason of injury, illness or other physical or mental
disability; or
G. The discharge of Employee for conviction of Employee
of a crime involving moral turpitude.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C)
below, in the event Employee's employment with the Company shall terminate
during the Term for any of the reasons set forth in Section 7, or thereafter
pursuant to Section 2: [i] Employee's Salary shall be prorated and paid through
the date of termination; and [ii] all unvested options to purchase Common Stock
of the Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to
Section 7(B) or 7(F) hereof, Employee shall be entitled to receive, at such time
as it would otherwise be payable, any Incentive Cash Bonus which would have been
payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to
Section 7(F), the Company agrees to continue to pay Employee his full Salary
during such period of disability, said payments to continue for a maximum of six
(6) months. Thereafter, Employee shall be paid such disability benefits as may
be paid pursuant to the disability insurance, if any, provided to Employee by
the Company pursuant to Section 4(D) of this Agreement.
D. In the event of Employee's termination of employment
prior to the expiration of the Term, for any reason other than those set forth
in Section 7 of this Agreement, the Company shall pay Employee [i] in equal
monthly installments for a period of twelve (12) months from the date of
termination, an amount, in the aggregate, equal to one half (50%) of Employee's
Salary in effect on the date of termination, and [ii] at such time as it
otherwise would have been payable, the Incentive Cash Bonus, if any, which would
have been payable, based upon the Company's performance over the full fiscal
year, prorated for that portion of the fiscal year during which Employee was
employed by the Company.
9. CHANGE IN CONTROL.
A. Notwithstanding Sections 7 and 8 of this Agreement to
the contrary, if Employee's employment with the Company and/or its subsidiaries
or a successor is terminated by the Company within twelve (12) months following
a Change in Control, as defined herein, (i) for any reason (unless such
termination is pursuant to Section 7 of this Agreement) or (ii) by Employee for
Good Reason (as defined herein), Employee shall be entitled to the following
compensation and benefits:
4
<PAGE>
[1] the Company shall pay to Employee all of
Employee's compensation earned or accrued through the date of termination but
not paid as of the date of termination, including base salary in effect as of
the date of termination, vacation pay, and any incentive compensation which has
been awarded or allocated to Employee for a fiscal year preceding the
termination date but has not yet been paid; and
[2] the Company shall pay Employee [i] in equal
monthly installments for a period of twelve (12) months from the date of
termination, an amount, in the aggregate, equal to one half (50%) of Employee's
Salary in effect on the date of termination, and [ii] at such time as it
otherwise would have been payable, the Incentive Cash Bonus, if any, which would
have been payable, based upon the Company's performance over the full fiscal
year, prorated for that portion of the fiscal year during which Employee was
employed by the Company.
B. CHANGE IN CONTROL. The term "Change in Control" shall
have the same meaning as contained in Employee's Stock Option Agreement dated
the date hereof.
C. GOOD REASON. The term "Good Reason" means the
occurrence after a Change in Control of any of the following events or
conditions:
[1] a significant adverse change in Employee's
duties or responsibilities from those in effect at any time within ninety (90)
days preceding the date of a Change in Control or a change in Employee's
reporting responsibilities or offices as in effect immediately before a Change
in Control (it being understood that the failure of Employee to have duties or
responsibilities after the Change in Control comparable to those in effect
immediately before the Change in Control shall constitute a significant adverse
change in duties or responsibilities);
[2] a reduction in Employee's base salary or the
failure by the Company to increase Employee's base salary each year after a
Change in Control by an amount which at least equals, on a percentage basis, the
mean average percentage increase in base salary for all officers of the Company
during the two (2) full calendar years immediately preceding a Change in
Control;
[3] the Company's failure to provide employee
benefits to Employee which are comparable to those provided to similarly
situated employees of the Company;
[4] the taking of any action by the Company or
successor not required by law which would adversely affect Employee's
participation in or materially reduce Employee's benefits under any benefit,
compensation or bonus plan or arrangement in which Employee is participating
immediately preceding the Change in Control, or deprive Employee of any material
fringe benefit enjoyed by Employee at the time of the Change in Control; or
[5] removal of Employee from the Company's Board
of Directors.
5
<PAGE>
10. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the
inducements for the Company to enter into this agreement of employment is the
understanding that there will be no competition or interference, directly or
indirectly, for a period of time after the termination of his employment with
the Company. Employee further recognizes and acknowledges that, in consideration
of the scope of the business of the Company and the value of the services
Employee provides to the Company as its President and Chief Executive Officer,
and, to protect the Company's legitimate interests, Employee's covenant not to
compete must include all of the areas where the Company currently does business,
which areas include Alabama, Arizona, California, Florida, Georgia, Maryland,
North Carolina, Ohio and Virginia (collectively, the "Territory"), to the extent
hereafter Employee actively performs, supervises or assists in the Company's
business in such areas or has material contact with customers of the Company
within such areas. In consideration of the covenants herein, Employee agrees
that for the period he is employed by the Company (whether during the Term or
after the Term ends) and for a two-year period immediately following the
termination of his employment with the Company for any reason whatsoever, he
shall not, within the Territory, in any manner, directly or indirectly or by
assisting others, engage in any business which is the same or essentially the
same as the business of the Company, such business being the business of real
estate information services, including commercial and residential real estate
appraisals, title exams, flood certifications and credit reports, as a manager,
supervisor, administrator, executive, senior or management level employee,
owner, proprietor, shareholder or consultant; provided that Employee shall not
be restricted from owning less than 5% of the outstanding shares of a company
whose shares are publically traded.
B. NON-SOLICITATION. Employee agrees that for the period
he is employed by the Company (whether during the Term or after the Term ends)
and for a two-year period immediately following the termination of his
employment with the Company for any reason whatsoever, he shall not (other than
in the regular course of the Company's business), within the Territory, solicit,
directly or indirectly, business of the type then being performed by the Company
from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
provided that in the case of either [a] or [b], Employee had material contact
with such customer during and as a part or result of his employment with the
Company.
11. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period
he is employed by the Company (whether during the Term or after the Term ends)
and for a two-year period immediately following the termination of his
employment with the Company for any reason whatsoever, he shall not directly or
indirectly, individually or on behalf of persons not parties to this Agreement,
aid or endeavor to
6
<PAGE>
solicit or induce any of the Company's employees to leave their employment with
the Company in order to accept employment with Employee or another person,
partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge,
furnish or make accessible to anyone (other than in the regular course of the
Company's business) any knowledge or information with respect to confidential
information or data of the Company, or with respect to any confidential
information or data of any of the customers of the Company, or with respect to
any other confidential aspect of the business or products or services of the
Company or its customers.
12. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees
that Company may not be adequately compensated by damages for a breach by
Employee of any of the covenants contained in Sections 10 and 11, and that, in
addition to all other remedies, the Company shall be entitled to injunctive
relief and specific performance. In such event, the periods of time referred to
in Sections 10 and 11 shall be deemed extended for a period equal to the
respective period during which Employee is in breach thereof, in order to
provide for injunctive relief and specific performance for a period equal to the
full term thereof. The covenants contained in Sections 10 and 11 shall be
construed as separate covenants, and if any court shall finally determine that
the restraints provided for in any such covenants are too broad as to the
geographic area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable and such covenants
shall be enforced as to such reduced area, activity or time and Employee
expressly agrees that this Agreement, as so amended, shall be valid and binding.
Employee shall indemnify and hold Company harmless from any liability,
loss, damage, judgment, cost or expense (including reasonable attorneys' fees
and expenses) arising out of any claim or suit resulting from Employee's breach
of these covenants and his failure to perform a duty hereunder.
13. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At
all times during the term of his employment and thereafter, Employee will hold
in strictest confidence and will not disclose, use, lecture upon or publish any
of the Company's Proprietary Information (defined below), except as such
disclosure, use, lecture or publication may be required in connection with his
work for the Company, or unless the Chairman or the Board of Directors of the
Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights he may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, other works
7
<PAGE>
of authorship, know-how, improvements, discoveries, developments, designs and
techniques relating to the business or proposed products of the Company and
which were learned or discovered by Employee during the term of his employment
with the Company (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products and
services, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers and customers which
were learned or discovered by him during the term of his employment with the
Company, and information regarding the skills and compensation of other
employees of the Company. For purposes of this Agreement, the term "Proprietary
Information" shall not include information that Employee can show by competent
proof [i] was known to Employee prior to disclosure by the Company; [ii] was
generally known to the public at the time Company disclosed the information to
Employee; [iii] became generally known to the public after disclosure by the
Company through no act or omission of Employee; or [iv] was disclosed to
Employee by a third party having a bona fide right both to possess the
information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in
addition, that the Company may from time to time receive from third parties
confidential or proprietary information ("Third Party Information") subject to a
duty of the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of his
employment and thereafter, Employee will hold Third Party Information in the
strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with his work for the Company, Third
Party Information unless expressly authorized by the Chairman or the Board of
Directors of the Company in writing.
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the
Company all his right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by him, either alone or jointly with others,
during the period of his employment with the Company.
[2] Employee shall and hereby does acknowledge
that all original works of authorship which are made by him (solely or jointly
with others) during the term of him employment with the Company and that are
within the scope of his employment and which are protectable by copyright are
"works made for hire," as that term is defined in the United States Copyright
Act (17 U.S.C., Section 1201). Inventions assigned to or as directed by the
Company by this Section 13.C are hereinafter referred to as 'Company
Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will
assist the Company in every proper way to obtain and from time to time enforce
United States and foreign Proprietary Rights relating to Company Inventions in
any and all countries. To that end he will execute, verify and deliver such
8
<PAGE>
documents and perform such other acts (including appearances as a witness) as
the Company may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, Employee will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee.
Employee's obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of his employment, but the Company shall compensate him
at a reasonable rate after Employee's termination for the time actually spent by
him at the Company's request on such assistance. In the event the Company is
unable for any reason, after reasonable effort, to secure Employee's signature
on any document needed in connection with the actions specified in the
preceding, Employee hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as his agent and attorney in fact, to
act for and in his behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by
Employee. Employee hereby waives and quitclaims to the Company any and all
claims, of any nature whatsoever, which he now or may hereafter have for
infringement of any Proprietary Rights assigned hereunder to the Company.
E. OBLIGATION TO KEEP COMPANY INFORMED.. During the
period of his employment, Employee will promptly disclose to the Company fully
and in writing and will hold in trust for the sole right and benefit of the
Company any and all Inventions. In addition, after termination of his
employment, Employee will disclose all patent and copyright applications filed
by him within three (3) years after termination of employment.
F. PRIOR INVENTIONS. Inventions, if any, patented or
unpatented, which Employee made prior to the commencement of his employment with
the Company are excluded from the scope of this Agreement.
G. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, he will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company.
Employee further agrees that any property situated on the Company's premises and
owned by the Company, including disks and other storage media, filing cabinets
or other work areas, is subject to inspection by Company personnel at any time
with or without notice.
H. LEGAL AND EQUITABLE REMEDIES. Because Employee's
services are personal and unique and because Employee may have access to and
become acquainted with the Proprietary Information of the Company, the Company
shall have the right to enforce this Section 13; of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
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<PAGE>
14. NOTICES. All notices and other communications hereunder shall
be in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: J. David Grissom
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W. Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: James __. Schaper
635 Brisbane Manor
Alpharetta, GA 30022
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
15. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services
by Employee and may not be assigned by Employee. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver by
either party of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach, whether
occurring under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS.
This Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or
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<PAGE>
understandings concerning Employee's employment by the Company are hereby
canceled and superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement
are for convenience only and shall not be deemed a part of this Agreement in
construing or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Georgia. The
prevailing party in any action to enforce this Agreement shall be entitled to
attorneys' fees form the non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2
(c)(9), as evidenced by the parties affixing their initials to this Section
15.G, any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief form
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 10, 11 or 13 of this Agreement. Initials: Company:
_______________; Employee: _______________.
H. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
PRIMIS, INC.
By:____________________________________
Title:_________________________________
("Company")
---------------------------------------
JAMES __. SCHAPER
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("Employee")
12
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EXHIBIT A
STOCK OPTION AGREEMENT
13
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Exhibit 10.2
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT
("Agreement") is made and entered into as of the 12th day of July, 1999, by
and between PRIMIS, INC., a Georgia corporation (the "Company"), and LESLIE
H. SCHREINER, an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on
the date hereof and ending on July 12, 2003, unless Employee's employment
terminates prior thereto as provided in Section 7 (the "Term"). Thereafter, this
Agreement shall continue in full force and effect, except that Section 7 shall
no longer be applicable, and either party hereto may terminate Employee's
employment hereunder upon ninety (90) days prior written notice to the other;
provided, that Employee may resign at any time upon thirty (30) days prior
written notice to the Company. In addition, the Company will discuss with
Employee on or about 180 days prior to the expiration of the Term, the Company's
then present intention with respect to Employee's employment by the Company
after the Term, provided that Employee has requested the Company do so at or
about that time.
3. DUTIES. Employee shall be employed by the Company as Vice
President and Chief Financial Officer. So long as she is employed hereunder,
Employee agrees to devote her full business time and energy to the business and
affairs of the Company, to perform her duties hereunder to the best of her
ability and at a level of competency consistent with the position occupied, to
act on all matters in a manner she reasonably believes to be in and not opposed
to the best interests of the Company, to use her best efforts, skill and ability
to promote the profitable growth of the Company, and to perform such other
duties as may be assigned to her by the Company's Chief Executive Officer,
Chairman or by the Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by
Employee, the Company shall pay compensation and provide benefits to Employee as
follows:
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A. SALARY. The Company shall pay Employee an annual
salary ("Salary") of One Hundred Forty Thousand Dollars ($140,000), payable not
less frequently than monthly. At least once every twelve (12) months the Board
shall review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
B. INCENTIVE CASH BONUS. Within seventy-five (75) days
after the end of fiscal year 1999 of the Company, the Company shall pay Employee
a cash bonus (the "Incentive Cash Bonus"), in an amount not to exceed Forty
Thousand Dollars ($40,000), prorated for the portion of such fiscal year that
Employee was employed by the Company, if, and only if, Employee achieves
specific goals concerning the financial or other performance of the Company as
established by the Board after consultation with the Employee within thirty (30)
days from the date hereof. Within seventy-five (75) days after the end of each
fiscal year thereafter, Company shall determine, and if appropriate, pay
Employee an Incentive Cash Bonus, in an amount not to exceed Forty Thousand
Dollars ($40,000), determined by and in the reasonably exercised discretion of
the Board and based upon the Employee's achievement of specific goals concerning
the financial or other performance of the Company for such fiscal year,
previously established by the Board after consultation with the Employee. At
least once every twelve (12) months the Board shall review the maximum amount of
Employee's potential Incentive Cash Bonus and make such adjustments to such
maximum amount thereof as it reasonably deems appropriate provided that such
maximum amount shall not be reduced.
C. BUSINESS EXPENSES. The Company shall reimburse
Employee for her reasonable direct out-of-pocket ordinary and necessary
expenses, including trade association dues, a cell phone and cell phone charges,
if any, incurred by Employee in the performance of her services hereunder and
for which Employee properly accounts in accordance with the Company's
regulations and procedures in effect from time to time.
D. VACATION. Employee shall be entitled to three (3)
weeks (fifteen business days) paid vacation during each 12-month period of the
Term. Employee shall not be entitled to carry over any unused vacation; except
that she may carry over to later 12-month periods of the Term any vacation not
used during the first 12-month period of employment.
E. ADDITIONAL BENEFITS. Employee shall be entitled to
participate (on the same terms and conditions as employees similarly situated)
in any and all employee retirement, medical, life and disability insurance, and
other benefits plans and perquisites as may be established and in effect from
time to time and made available to employees of the Company.
5. STOCK OPTIONS. As of the date hereof, Company has granted to
Employee, pursuant to the terms of the Stock Option Agreement entered into by
the Company and Employee as of the date hereof substantially in the form
attached hereto as EXHIBIT A, an option to purchase 125,000 shares of common
stock of the Company at an exercise price of $4.00 per share, to vest as
follows: 18,750 of the option shares shall vest and Employee may exercise her
option to purchase such shares on and after one year from
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the date hereof; 35,417 of the option shares shall vest and Employee may
exercise her option to purchase such shares on and after two years from the date
hereof; 35,417 of the option shares shall vest and Employee may exercise her
option to purchase such shares on and after three years from the date hereof;
and 35,416 of the option shares shall vest and Employee may exercise her option
to purchase such shares on and after four years from the date hereof. Without
any representation or warranty by or on the part of the Company, to the extent
any of the option shares of the option granted to Employee hereby can, by the
terms set forth above, qualify as incentive stock options under the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), the parties
hereto intend that the same shall be treated as incentive stock options, and to
the extent any or all of the options shares cannot qualify as incentive stock
options under the Code, the parties hereto intend that the same shall be treated
as nonstatutory options.
6. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's
employment with the Company shall terminate prior to the expiration of the Term,
without further obligation on the part of the Company, except as provided in
this Agreement, only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for willful misconduct,
dishonesty or fraud on Employee's part in connection with the performance of any
duties hereunder;
D. The discharge of Employee for a material breach by
Employee of any of the terms of Sections 9, 10 or 12 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that Employee's
performance in her position as Vice President and Chief Financial Officer of the
Company has been unsatisfactory, after first having given written notice to the
Employee that her performance has been unsatisfactory (which notice shall set
forth in reasonable detail the nature of the unsatisfactory performance), and
Employee having failed to cure such unsatisfactory performance within thirty
(30) days thereafter to the reasonable satisfaction of the Company;
F. The discharge of Employee upon a determination that
Employee has been unable, for any continuous period of at least three (3)
months, or for shorter periods aggregating three (3) months during any 12-month
period, to perform her duties hereunder by reason of injury, illness or other
physical or mental disability (such determination to be made by agreement
between the Company and Employee, or, in the event the Company and Employee are
unable to agree on such determination, and upon written notice thereof by either
party to the other, then each of the Company and Employee shall, within ten (10)
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days after such notice is given, select a qualified and licensed physician, and
such physicians together shall select a third licensed and qualified physician
who will make such determination within thirty (30) days after his or her
appointment and whose determination shall be binding upon all parties hereto);
or
G. The discharge of Employee for conviction of Employee
of a crime involving moral turpitude.
H. The Involuntary Termination of Employee. "Involuntary
Termination" means termination by Employee of her employment because of (i) a
significant adverse change in Employee's duties or responsibilities or (ii)
relocation of Employee's office more than 35 miles from its present location.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C)
below, in the event Employee's employment with the Company shall terminate
during the Term for any of the reasons set forth in Section 7, or thereafter
pursuant to Section 2: [i] Employee's Salary shall be prorated and paid through
the date of termination; and [ii] all unvested options to purchase common stock
of the Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to
Section 7.B, 7.E. 7.F or 7.H hereof, Employee shall be entitled to receive, at
such time as it would otherwise be payable, any Incentive Cash Bonus which would
have been payable, based upon the Company's performance over the full fiscal
year, prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to
Section 7(F), the Company agrees to continue to pay Employee her full Salary
during such period of disability, said payments to continue for a maximum of six
(6) months. Thereafter, Employee shall be paid disability benefits pursuant to
the disability insurance, if any, established by the Company and in which
Employee participates pursuant to Section 4(E) of this Agreement.
D. In the event of Employee's termination of employment
prior to the expiration of the Term, for any reason other than those reasons set
forth in Section 7 of this Agreement, the Company shall [i] pay Employee in
equal monthly installments for a period of twelve (12) months from the date of
termination, an amount, in the aggregate, equal to Employee's annual Salary in
effect at the date of termination and [ii] pay Employee at such time as it
otherwise would have been payable, the Incentive Cash Bonus, if any, which would
have been payable, based upon the Company's performance over the full fiscal
year, prorated for that portion of the fiscal year during which Employee was
employed by the Company; provided that the amounts set forth in this Section 8.D
shall be payable (i) to Employee's estate if Employee's termination of
employment prior to expiration of the Term is due to her death and, at such
time,
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the Company does not provide life insurance or (ii) to Employee if Employee's
employment is terminated as a result of an Involuntary Termination as provided
in Section 7.H above.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the
inducements for the Company to enter into this agreement of employment is the
understanding that there will be no competition or interference, directly or
indirectly, for a period of time after the termination of her employment with
the Company. Employee further recognizes and acknowledges that, in consideration
of the scope of the business of the Company and the nature of the services
Employee provides to the Company as its Vice President and Chief Financial
Officer, and in order to protect the Company's legitimate interests, Employee's
covenant not to compete must include each of the areas where the Company
currently does business, which areas include Alabama, Arizona, California,
Florida, Georgia, Maryland, North Carolina, Ohio, Texas and Virginia
(collectively, the "Territory"), to the extent Employee hereafter actively
performs, supervises or assists in the Company's business in such areas or has
material contact with customers of the Company within such areas. In
consideration of the covenants herein, Employee agrees that for the period she
is employed by the Company (whether during the Term or after the Term ends) and
for a one-year period immediately following the termination of her employment
with the Company for any reason whatsoever, she shall not, within the Territory,
in any manner, directly or indirectly or by assisting others, engage in any
business which is the same or essentially the same as the Business of the
Company, such Business being the business of real estate information services,
including commercial and residential real estate appraisals, title exams, flood
certifications and credit reports, as a financial officer or controller or as a
supervisor, administrator, executive, senior or management level employee,
owner, proprietor, shareholder or consultant; provided that Employee shall not
be restricted from owning less than 5% of the outstanding shares of a company
whose shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period
she is employed by the Company (whether during the Term or after the Term ends)
and for a one-year period immediately following the termination of her
employment with the Company for any reason whatsoever, she shall not (other than
in the regular course of the Company's business), within the Territory, solicit,
directly or indirectly, business of the type then being performed therein by the
Company from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively-sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
for the purposes of providing products or services that are competitive with
those provided by the Company, provided that in the case of either [a] or [b],
Employee had material contact with such customer during and as a part or result
of her employment with the Company.
10. NON-INDUCEMENT AND NON-DISCLOSURE.
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A. NON-INDUCEMENT. Employee agrees that for the period
she is employed by the Company (whether during the Term or after the Term ends)
and for a two-year period immediately following the termination of her
employment with the Company for any reason whatsoever, she shall not directly or
indirectly, individually or on behalf of persons not parties to this Agreement,
aid or endeavor to solicit or induce any of the Company's employees to leave
their employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge,
furnish or make accessible to anyone (other than in the regular course of the
Company's business) any knowledge or information with respect to confidential
information or data of the Company, or with respect to any confidential
information or data of any of the customers of the Company, or with respect to
any other confidential aspect of the business or products or services of the
Company or its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees
that Company may not be adequately compensated by damages for a breach by
Employee of any of the covenants contained in Sections 9 and 10, and that, in
addition to all other remedies, the Company shall be entitled to injunctive
relief and specific performance. In such event, the periods of time referred to
in Sections 9 and 10 shall be deemed extended for a period equal to the
respective period during which Employee is in breach thereof, in order to
provide for injunctive relief and specific performance for a period equal to the
full term thereof. The covenants contained in Sections 9 and 10 shall be
construed as separate covenants, and if any court shall finally determine that
the restraints provided for in any such covenants are too broad as to the
geographic area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable and such covenants
shall be enforced as to such reduced area, activity or time and Employee
expressly agrees that this Agreement, as so amended, shall be valid and binding.
12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At
all times during the term of her employment and thereafter, Employee will hold
in strictest confidence and will not disclose, use, lecture upon or publish any
of the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with her work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights she may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, other words
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of authorship, know-how, improvements, discoveries, developments, designs and
techniques relating to the business or proposed products of the Company and
which were learned or discovered by Employee during the term of her employment
with the Company (hereinafter collectively referred to as "Inventions"); and (b)
information regarding plans for research, development, new products and
services, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers and customers which
were learned or discovered by her during the term of her employment with the
Company, and information regarding the skills and compensation of other
employees of the Company. For purposes of this Agreement, the term "Proprietary
Information" shall not include information that Employee can show by competent
proof (i) was known to Employee prior to disclosure by the Company; (ii) was
generally known to the public at the time Company disclosed the information to
Employee; (iii) became generally known to the public after disclosure by the
Company through no act or omission of Employee; or (iv) was disclosed to
Employee by a third party having a bona fide right both to possess the
information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in
addition, that the Company may from time to time receive from third parties
confidential or proprietary information ("Third Party Information") subject to a
duty of the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of her
employment and thereafter, Employee will hold Third Party Information in the
strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with her work for the Company, Third
Party Information unless expressly authorized by the Chairman or Chief Executive
Officer of the Company in writing.
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the
Company all her right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by her, either alone or jointly with others,
during the period of her employment with the Company.
[2] Employee shall and hereby does acknowledge
that all original works of authorship which are made by her (solely or jointly
with others) during the term of her employment with the Company and that are
within the scope of her employment and which are protectable by copyright are
"works made for hire," as that term is defined in the United States Copyright
Act (17 U.S.C., Section 1201). Inventions assigned to or as directed by the
Company by this Section 12.C are hereinafter referred to as 'Company
Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will
assist the Company in every proper way to obtain and from time to time enforce
United States and foreign Proprietary Rights relating to Company Inventions in
any and all countries. To that end she will execute, verify and deliver such
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documents and perform such other acts (including appearances as a witness) as
the Company may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, Employee will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee.
Employee's obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of her employment, but the Company shall compensate her
at a reasonable rate after Employee's termination for the time actually spent by
her at the Company's request on such assistance. In the event the Company is
unable for any reason, after reasonable effort, to secure Employee's signature
on any document needed in connection with the actions specified in the
preceding, Employee hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as her agent and attorney in fact, to
act for and in her behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by
Employee. Employee hereby waives and quitclaims to the Company any and all
claims, of any nature whatsoever, which she now or may hereafter have for
infringement of any Proprietary Rights assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or
unpatented, which Employee made prior to the commencement of her employment with
the Company or which do not in any way relate to the Business of the Company are
excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, she will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company.
Employee further agrees that any property situated on the Company's premises and
owned by the Company, including disks and other storage media, filing cabinets
or other work areas, is subject to inspection by Company personnel at any time
with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's
services are personal and unique and because Employee may have access to and
become acquainted with the Proprietary Information of the Company, the Company
shall have the right to enforce this Section 12 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
13. NOTICES. All notices and other communications hereunder shall
be in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: James Schaper
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Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W. Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: Leslie H. Schreiner
1752 Pine Ridge Drive
Atlanta, Georgia 30324
With a copy to: Peggy Eisenhauer
Hunton & Williams
Suite 4100
Nationsbank Plaza
600 Peachtree Street, NE
Atlanta, Georgia 30308-2216
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
14. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services
by Employee and may not be assigned by Employee. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver by
either party of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach, whether
occurring under similar or dissimilar circumstances.
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C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS.
This Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement
are for convenience only and shall not be deemed a part of this Agreement in
construing or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Georgia. In
connection with the enforcement of this Agreement, the parties consent to
jurisdiction in the courts of Georgia. The prevailing party in any action to
enforce this Agreement shall be entitled to attorneys' fees from the
non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2
(c)(9), as evidenced by the parties affixing their initials hereon next to this
Section 14.G., any controversy arising out of, or relating to, this Agreement or
any modification or extension of this Agreement, including any claim for
damages, recission, specific performance or other legal or equitable relief,
shall be settled by arbitration in the City of Atlanta, State of Georgia, in
accordance with the rules then obtaining of the American Arbitration
Association; provided that the arbitrator shall be mutually agreed upon by the
Company and Employee. The determination of the arbitrator when made shall be
binding upon all parties bound by the terms of this Agreement. Judgment upon the
award rendered by the arbitrator may be entered in any court of competent
jurisdiction. The foregoing notwithstanding, the Company shall have the right to
seek injunctive relief from any court of competent jurisdiction in the event of
any breach or threatened breach of Sections 9, 10 or 12 of this Agreement.
Notwithstanding the foregoing, the Employee shall have the right to pursue any
relief or remedies at law or in equity for any claims of wrongful dismissal or
any claims arising under the Civil Rights Act of 1991 or other statutory
discrimination statutes. Initials: Company: ______________________; Employee:
____________________.
H. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
PRIMIS, INC.
By:___________________________________
Title:________________________________
("Company")
--------------------------------------
LESLIE H. SCHREINER
("Employee")
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EXHIBIT A
Stock Option Agreement
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Exhibit 10.3
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT
("Agreement") is made and entered into as of the 4th day of December, 1999,
by and between PRIMIS, INC., a Georgia corporation (the "Company"), and KEVIN
P. CASTLE, an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing
on the date hereof and ending on December 4, 2003, unless Employee's
employment terminates prior thereto as provided in Section 7 (the "Term").
Thereafter, this Agreement shall continue in full force and effect, except
that Section 7 shall no longer be applicable, and either party hereto may
terminate Employee's employment hereunder upon ninety (90) days prior written
notice to the other.
3. DUTIES. Employee shall be employed by the Company as Vice
President of Operations. So long as he is employed hereunder, Employee agrees to
devote his full business time and energy to the business and affairs of the
Company, to perform his duties hereunder to the best of his ability and at a
level of competency consistent with the position occupied, to act on all matters
in a manner he reasonably believes to be in and not opposed to the best
interests of the Company, to use his best efforts, skill and ability to promote
the profitable growth of the Company, and to perform such other duties as may be
assigned to him by the Company's Chief Executive Officer, Chairman or by the
Company's Board of Directors ("Board") from time to time.
Employee may volunteer his service to charitable, business and
other public service agencies, clubs or organizations; provided, however, that
such volunteer activities shall not involve substantial amounts of Employee's
time and shall in no way interfere or detract from the performance of Employee's
duties to be performed hereunder.
4. COMPENSATION AND BENEFITS. For all services rendered by
Employee, the Company shall pay compensation and provide benefits to Employee as
follows:
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A. SALARY. The Company shall pay Employee an annual
salary ("Salary") of One Hundred Seventy-Five Thousand Dollars ($175,000),
payable not less frequently than monthly. At least once every twelve (12) months
the Board shall review Employee's Salary and make such adjustments to the Salary
as it reasonably deems appropriate, provided that the Salary shall not be
reduced.
B. INCENTIVE CASH BONUS. Within seventy-five (75) days
after the end of fiscal year 2000 of the Company, the Company shall determine,
and if appropriate, pay Employee a cash bonus (the "Incentive Cash Bonus"), in
an amount not to exceed One Hundred Five Thousand Dollars ($105,000), prorated
for the portion of such fiscal year that Employee was employed by the Company,
if, and only if, Employee achieves specific goals concerning the financial or
other performance of the Company as established by the Board after consultation
with the Employee within sixty (60) days from the later of the date of this
Agreement or the start of such fiscal year. Within seventy-five (75) days after
the end of each fiscal year thereafter, Company shall determine, and if
appropriate, pay Employee an Incentive Cash Bonus, in an amount not to exceed
One Hundred Five Thousand Dollars ($105,000), determined by and in the
reasonably exercised discretion of the Board and based upon the Employee's
achievement of specific goals concerning the financial or other performance of
the Company for such fiscal year, previously established by the Board after
consultation with the Employee.
C. SIGNING BONUS. Within forty-five (45) days after the
date Employee first begins employment with the Company hereunder, the Company
shall pay Employee a cash bonus of Twenty Thousand Dollars ($20,000).
D. BUSINESS EXPENSES. The Company shall reimburse
Employee for his reasonable direct out-of-pocket ordinary and necessary
expenses, including trade association dues, if any, incurred by Employee in the
performance of his services hereunder and for which Employee properly accounts
in accordance with the Company's regulations and procedures in effect from time
to time.
E. ADDITIONAL BENEFITS. Employee shall be entitled to
participate on the same terms and conditions as employees similarly situated in
any and all employee retirement, medical, life and disability insurance,
vacation and other benefits plans and perquisites as may be established and in
effect from time to time and made available to employees of the Company.
5. STOCK OPTIONS. Subject to approval of the Company's Board of
Directors, Company shall grant to Employee, pursuant to the terms of the Stock
Option Agreement to be entered into by the Company and Employee as of the date
hereof substantially in the form attached hereto as EXHIBIT A, an option to
purchase 150,000 shares of common stock of the Company at an exercise price of
$10.00 per share, to vest as follows: 37,500 of the option shares shall vest and
Employee may exercise his option to purchase such shares on and after one (1)
year from the date hereof; 37,500 of the option shares shall vest and
Employee may exercise his option to purchase such shares on and after two (2)
years from the date hereof; 37,500 of the option shares shall vest and
Employee may exercise his option to purchase such shares on and after three
(3) years from the date hereof; 37,500 of the option shares shall vest and
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Employee may exercise his option to purchase such shares on and after four
(4) years from the date hereof.
Without any representation or warranty by or on the part of the
Company, to the extent any of the option shares of the options granted or
potentially granted to Employee pursuant to this Section 5 can, by the terms set
forth above, qualify as incentive stock options under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the parties hereto
intend that the same shall be treated as incentive stock options, and to the
extent any or all of the options shares cannot qualify as incentive stock
options under the Code, the parties hereto intend that the same shall be treated
as nonstatutory options.
6. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's
employment with the Company shall terminate prior to the expiration of the Term,
without further obligation on the part of the Company, except as provided in
this Agreement, upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for neglect injurious to
the Company, breach of fiduciary duty to the Company involving personal profit,
misconduct, dishonesty or fraud on Employee's part in connection with the
performance of any duties hereunder;
D. The discharge of Employee for a material breach by
Employee of any of the terms of Sections 9, 10, 12 or 14 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that Employee's
performance in his position as Vice President of Operations of the Company has
been unsatisfactory, after first having given written notice to the Employee
that his performance has been unsatisfactory (which notice shall set forth in
reasonable detail the nature of the unsatisfactory performance), and Employee
having failed to cure such unsatisfactory performance within thirty (30) days
thereafter to the reasonable satisfaction of the Company;
F. The discharge of Employee upon a determination of the
Board, acting in good faith, that Employee has been unable, for any continuous
period of at least three (3) months, or for shorter periods aggregating three
(3) months during any 12-month period, to perform his duties hereunder by reason
of injury, illness or other physical or mental disability; or
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G. The discharge of Employee for conviction of Employee
of a crime involving moral turpitude.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C)
below, in the event Employee's employment with the Company shall terminate
during the Term for any of the reasons set forth in Section 7, or thereafter
pursuant to Section 2: [i] Employee's Salary shall be prorated and paid through
the date of termination; and [ii] all unvested options to purchase common stock
of the Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to
Section 7(B) or 7(F) hereof, Employee shall be entitled to receive, at such time
as it would otherwise be payable, any Incentive Cash Bonus which would have been
payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to
Section 7(F), the Company agrees to continue to pay Employee his full Salary
during such period of disability, said payments to continue for a maximum of six
(6) months. Thereafter, Employee shall be paid disability benefits pursuant to
the disability insurance, if any, established by the Company and in which
Employee participates pursuant to Section 4(E) of this Agreement.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the
inducements for the Company to enter into this agreement of employment is the
understanding that there will be no competition or interference, directly or
indirectly, for a period of time after the termination of his employment with
the Company. Employee further recognizes and acknowledges that, in consideration
of the scope of the business of the Company and the nature of the services
Employee provides to the Company as its Vice President of Operations, and in
order to protect the Company's legitimate interests, Employee's covenant not to
compete must include each of the areas where the Company currently does
business, which areas include Alabama, Arizona, California, District of
Columbia, Florida, Georgia, Maryland, Michigan, North Carolina, Nevada, Ohio,
Oregon, Texas, Virginia, and Washington (collectively, the "Territory"), to the
extent Employee hereafter actively performs, supervises or assists in the
Company's business in such areas or has material contact with customers of the
Company within such areas. In consideration of the covenants herein, Employee
agrees that for the period he is employed by the Company (whether during the
Term or after the Term ends) and for a two-year period immediately following the
termination of his employment with the Company for any reason whatsoever, he
shall not, within the Territory, in any manner, directly or indirectly or by
assisting others, engage in any business which is the same or essentially the
same as the business of the Company, such business being the business of real
estate information services, including commercial and residential real estate
appraisals, title exams, flood certifications and credit
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<PAGE>
reports, as an operations manager or as a supervisor, administrator, executive,
senior or management level employee, owner, proprietor, shareholder or
consultant; provided that Employee shall not be restricted from owning less than
3% of the outstanding shares of a company whose shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period
he is employed by the Company (whether during the Term or after the Term ends)
and for a two-year period immediately following the termination of his
employment with the Company for any reason whatsoever, he shall not (other than
in the regular course of the Company's business), within the Territory, solicit,
directly or indirectly, business of the type then being performed therein by the
Company from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively-sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
provided that in the case of either [a] or [b], Employee had material contact
with such customer during and as a part or result of his employment with the
Company.
10. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period
he is employed by the Company (whether during the Term or after the Term ends)
and for a two-year period immediately following the termination of his
employment with the Company for any reason whatsoever, he shall not directly or
indirectly, individually or on behalf of persons not parties to this Agreement,
aid or endeavor to solicit or induce any of the Company's employees to leave
their employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge,
furnish or make accessible to anyone (other than in the regular course of the
Company's business) any knowledge or information with respect to confidential
information or data of the Company, or with respect to any confidential
information or data of any of the customers of the Company, or with respect to
any other confidential aspect of the business or products or services of the
Company or its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees
that Company may not be adequately compensated by damages for a breach by
Employee of any of the covenants contained in Sections 9 and 10, and that, in
addition to all other remedies, the Company shall be entitled to injunctive
relief and specific performance. In such event, the periods of time referred to
in Sections 9 and 10 shall be deemed extended for a period equal to the
respective period during which Employee is in breach thereof, in order to
provide for injunctive relief and specific performance for a period equal to the
full term thereof. The covenants contained in Sections 9 and 10 shall be
construed as separate covenants, and if any court shall finally determine that
the restraints provided for in any such covenants are too broad as to the
geographic area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable and such covenants
shall be enforced as to such reduced area,
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<PAGE>
activity or time and Employee expressly agrees that this Agreement, as so
amended, shall be valid and binding.
Employee shall indemnity and hold Company harmless from any
liability, loss, damage, judgment, cost, or expense (including reasonable
attorneys' fees and expenses) arising out of any claim or suit resulting from
Employee's breach of these covenants, any representation or warranty contained
herein or his failure to perform a duty hereunder.
12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At
all times during the term of his employment and thereafter, Employee will hold
in strictest confidence and will not disclose, use, lecture upon or publish any
of the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with his work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights he may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, computer software (including source code), other works of authorship,
know-how, improvements, discoveries, developments, modifications, designs and
techniques relating to the business or proposed products of the Company or which
refer to, are suggested by, or result from any work which Employee may do during
his employment and which were made, conceived, expressed, developed, actually or
constructively reduced to practice, learned or discovered by Employee, solely or
jointly with others, during the term of his employment with the Company
(hereinafter collectively referred to as "Inventions"); and (b) information
regarding plans for research, development, new products and services, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, suppliers and customers which were learned or
discovered by him during the term of his employment with the Company, and
information regarding the skills and compensation of other employees of the
Company. For purposes of this Agreement, the term "Proprietary Information"
shall not include information that Employee can show by competent proof (i) was
known to Employee prior to disclosure by the Company; (ii) was generally known
to the public at the time Company disclosed the information to Employee; (iii)
became generally known to the public after disclosure by the Company through no
act or omission of Employee; or (iv) was disclosed to Employee by a third party
having a bona fide right both to possess the information and to disclose it to
Employee.
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<PAGE>
B. THIRD PARTY INFORMATION. Employee understands, in
addition, that the Company may from time to time receive from third parties
confidential or proprietary information ("Third Party Information") subject to a
duty of the Company's part to maintain the confidentiality of such information
and to use it only for certain limited purposes. During the term of his
employment and thereafter, Employee will hold Third Party Information in the
strictest confidence and will not disclose (to anyone other than Company
personnel who need to know such information in connection with their work for
the Company) or use, except in connection with his work for the Company, Third
Party Information unless expressly authorized by the Chairman or Chief Executive
Officer of the Company in writing.
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the
Company all his right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by him, either alone or jointly with others,
during the period of his employment with the Company. The Company shall have the
exclusive right to use the Inventions, whether original or derivative, for all
purposes without additional compensation to Employee, except as may be required
pursuant to Section 12.D below.
[2] Employee shall and hereby does acknowledge
that all original works of authorship which are made by him (solely or jointly
with others) during the term of his employment with the Company and that are
within the scope of his employment and which are protectable by copyright are
"works made for hire," as that term is defined in the United States Copyright
Act (17 U.S.C., Section 1201). To the extent any of the same, under applicable
law, may not be considered "works made for hire" by Employee for the Company,
Employee agrees to assign, and upon its creation, automatically assign the
ownership of the same, including any copyright or other intellectual property
rights in the same, without the necessity of any further consideration.
Inventions assigned to or as directed by the Company by this Section 12.C are
hereinafter referred to as 'Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will
assist the Company in every proper way to obtain and from time to time enforce
United States and foreign Proprietary Rights relating to Company Inventions in
any and all countries. To that end he will execute, verify and deliver such
documents and perform such other acts (including appearances as a witness) as
the Company may reasonably request for use in applying for, obtaining,
perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the
assignment thereof. In addition, Employee will execute, verify and deliver
assignments of such Proprietary Rights to the Company or its designee.
Employee's obligation to assist the Company with respect to Proprietary Rights
relating to such Company Inventions in any and all countries shall continue
beyond the termination of his employment, but the Company shall compensate him
at a reasonable rate after Employee's termination for the time actually spent by
him at the Company's request on such assistance. In the event the Company is
unable for any reason, after reasonable effort, to secure Employee's signature
on any document needed in connection with the actions specified in the
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<PAGE>
preceding, Employee hereby irrevocably designates and appoints the Company and
its duly authorized officers and agents as his agent and attorney in fact, to
act for and in his behalf to execute, verify and file any such documents and to
do all other lawfully permitted acts to further the purposes of the preceding
paragraph thereon with the same legal force and effect as if executed by
Employee. Employee hereby waives and quitclaims to the Company any and all
claims, of any nature whatsoever, which he now or may hereafter have for
infringement of any Proprietary Rights assigned hereunder to the Company.
E. OBLIGATION TO KEEP COMPANY INFORMED. During the
period of his employment, Employee will promptly disclose to the Company fully
and in writing and will hold in trust for the sole right and benefit of the
Company any and all Inventions. In addition, after the termination of his
employment, Employee will disclose all patent and copyright applications filed
by him within three (3) years after termination of employment.
F. PRIOR INVENTIONS. Inventions, if any, patented or
unpatented, which Employee made prior to the commencement of his employment with
the Company are excluded from the scope of this Agreement.
G. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, he will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company as
well as any equipment furnished to or prepared by Employee in the course of, or
incident to, his employment with the Company. Employee further agrees that any
property situated on the Company's premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice.
H. COMPANY RESOURCES. Employee may not use any Company
equipment for personal purposes without written permission from the Company.
Employee may not give access to Company's offices or files to any person not in
the employment of the Company without written permission of the Company.
I. LEGAL AND EQUITABLE REMEDIES. Because Employee's
services are personal and unique and because Employee may have access to and
become acquainted with the Proprietary Information of the Company, the Company
shall have the right to enforce this Section 12 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
13. NOTICES. All notices and other communications hereunder shall
be in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
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<PAGE>
A. If to the Company: Primis, Inc.
Attn: C. James Schaper
Suite 320
11475 Great Oaks Way
Alpharetta, Georgia 30022
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W. Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: Kevin P. Castle
4639 Briar Hill Cove
Diluth, Georgia 30096
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
14. REPRESENTATIONS AND WARRANTIES. Employee represents and
warrants that Employee is not under any obligations to any third party which
could interfere with Employee's performance under this Agreement and that
Employee's performance of his obligations to the Company during the term of his
employment with the Company will not breach any agreement by which Employee is
bound not to disclose any proprietary information, including, without
limitation, that of former employers.
15. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services
by Employee and may not be assigned by Employee. This Agreement shall inure to
the benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver by
either party of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach, whether
occurring under similar or dissimilar circumstances.
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C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS.
This Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement
are for convenience only and shall not be deemed a part of this Agreement in
construing or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Georgia. In
connection with the enforcement of this Agreement, the parties consent to
jurisdiction in the courts of Georgia. The prevailing party in any action to
enforce this Agreement shall be entitled to attorneys' fees from the
non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2
(c)(9), as evidenced by the parties affixing their initials hereon next to this
Section 15.G., any controversy arising out of, or relating to, this Agreement or
any modification or extension of this Agreement, including any claim for
damages, recission, specific performance or other legal or equitable relief,
shall be settled by arbitration in the City of Atlanta, State of Georgia, in
accordance with the rules then obtaining of the American Arbitration
Association. The determination of the arbitrator when made shall be binding upon
all parties bound by the terms of this Agreement. Judgment upon the award
rendered by the arbitrator may be entered in any court of competent
jurisdiction. The foregoing notwithstanding, the Company shall have the right to
seek injunctive relief from any court of competent jurisdiction in the event of
any breach or threatened breach of Sections 9, 10 or 12 of this Agreement.
Initials: Company: ______________________; Employee: _____________________.
H. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, the undersigned has executed this
counterpart signature page to this Employment Agreement between Primis, Inc. and
Kevin P. Castle on the date set forth below but effective as of the day and year
first written on page 1 of this Agreement.
PRIMIS, INC.
By:___________________________________
Dated __________ ___, 1999 Title:________________________________
("Company")
[Signature Page to Employment Agreement
between Primis, Inc. and Kevin P. Castle]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
counterpart signature page to this Employment Agreement between Primis, Inc. and
Kevin P. Castle on the date set forth below but effective as of the day and year
first written on page 1 of this Agreement.
Dated __________ ___, 1999 ______________________________________
KEVIN P. CASTLE
("Employee")
[Signature Page to Employment Agreement
between Primis, Inc. and Kevin P. Castle]
<PAGE>
EXHIBIT A
Stock Option Agreement
<PAGE>
Exhibit 10.4
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT ("Agreement")
is made and entered into as of the 15th day of February, 1999, by and between
PRIMIS, INC., a Georgia corporation (the "Company"), and REVELL FRASER, an
individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on the
date hereof and ending on February 28, 2003, unless Employee's employment
terminates prior thereto as provided in Section 7 (the "Term"). Thereafter, this
Agreement shall continue in full force and effect, except that Section 7 shall
no longer be applicable, and either party hereto may terminate Employee's
employment hereunder upon ninety (90) days prior written notice to the other;
provided, that Employee may resign at any time upon ninety (90) days prior
written notice to the Company.
3. DUTIES. Employee shall be employed by the Company as Vice
President of Sales and Marketing. So long as he is employed hereunder, Employee
agrees to devote his full business time and energy to the business and affairs
of the Company, to perform his duties hereunder to the best of his ability and
at a level of competency consistent with the position occupied, to act on all
matters in a manner he reasonably believes to be in and not opposed to the best
interests of the Company, to use his best efforts, skill and ability to promote
the profitable growth of the Company, and to perform such other duties as may be
assigned to him by the Company's Chief Executive Officer, Chairman or by the
Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of One Hundred Sixty Thousand Dollars ($160,000), payable not less
frequently than monthly. At least once every twelve (12) months the Board shall
review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
<PAGE>
B. INCENTIVE CASH BONUS. Within seventy-five (75) days after
the end of fiscal year 1999 of the Company, the Company shall pay Employee a
cash bonus (the "Incentive Cash Bonus"), in an amount equal to twenty-five
percent (25%) of Employee's Salary, if, and only if, Employee achieves each and
every specific goal set forth on EXHIBIT A attached hereto by the date which
corresponds to each such goal set forth thereon, subject to a ten (10) day grace
period. Within seventy-five (75) days after the end of each fiscal year
thereafter, Company shall determine, and if appropriate, pay Employee an
Incentive Cash Bonus, in an amount not to exceed twenty-five (25%) of Employee's
Salary, determined by and in the reasonably exercised discretion of the Board
and based upon the Employee's achievement of specific goals concerning the
financial or other performance of the Company for such fiscal year, previously
established by the Board after consultation with the Employee.
C. RETENTION BONUS. The Company shall pay Employee a bonus for
continuing as an Employee of the Company under this Agreement, in the amount of
Twenty-five Thousand Dollars ($25,000) (the "Retention Bonus"). The Retention
Bonus shall be paid in two equal installments of Twelve Thousand Five Hundred
Dollars ($12,500) each. The first installment of the Retention Bonus shall be
paid to Employee on April ___, 1999. The second installment of the Retention
Bonus shall be paid to Employee on December 15, 1999, PROVIDED, HOWEVER, that
the Company shall have no obligation or liability to Employee to pay the second
installment of the Retention Bonus, if prior to December 15, 1999, Employee's
employment with the Company has terminated for any of the reasons set forth in
Section 7 of this Agreement.
D. BUSINESS EXPENSES. The Company shall reimburse Employee for
his reasonable direct out-of-pocket ordinary and necessary expenses, including
trade association dues, a cell phone and cell phone charges, if any, incurred by
Employee in the performance of his services hereunder and for which Employee
properly accounts in accordance with the Company's regulations and procedures in
effect from time to time.
E. VACATION. Employee shall be entitled to three (3) weeks
(fifteen business days) paid vacation during each 12-month period of the Term.
Employee shall not be entitled to carry over any unused vacation.
F. ADDITIONAL BENEFITS. Employee shall be entitled to
participate (at the reasonable expense of the Company, where allowed under
applicable law) in any and all employee retirement, medical, life and disability
insurance, and other benefits plans and perquisites as may be established and in
effect from time to time and made available to employees of the Company.
Notwithstanding the foregoing, Employee shall at all times during any term of
this Agreement be provided with family health, dental, disability, life and
accidental death and dismemberment insurance in such amounts and coverages as
set forth on EXHIBIT B attached hereto.
5. STOCK OPTIONS. As of the date hereof, Company has granted to
Employee, pursuant to the terms of the Stock Option Agreement entered into by
the Company and Employee as of the date hereof
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substantially in the form attached hereto as EXHIBIT C, an option to purchase
150,000 shares of common stock of the Company at an exercise price of $4.00 per
share, to vest as follows: 50,000 of the option shares shall vest and Employee
may exercise his option to purchase such shares on and after February 15, 2001;
50,000 of the option shares shall vest and Employee may exercise his option to
purchase such shares on and after February 15, 2002; and 50,000 of the option
shares shall vest and Employee may exercise his option to purchase such shares
on and after February 15, 2003. The Stock Option Agreement entered into by the
Company and Employee substantially in the form attached hereto as EXHIBIT C
shall terminate and supersede in their entirety any and all prior stock option
agreements or other grants of options by the Company to Employee to purchase
shares of its common stock. Without any representation or warranty by or on the
part of the Company, to the extent any of the option shares of the option
granted to Employee hereby can, by the terms set forth above, qualify as
incentive stock options under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the parties hereto intend that the same shall be
treated as incentive stock options, and to the extent any or all of the options
shares cannot qualify as incentive stock options under the Code, the parties
hereto intend that the same shall be treated as nonstatutory options.
6. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment
with the Company shall terminate prior to the expiration of the Term, without
further obligation on the part of the Company, except as provided in this
Agreement, only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for willful misconduct, dishonesty
or fraud on Employee's part in connection with the performance of any duties
hereunder;
D. The discharge of Employee for a material breach by Employee
of any of the terms of Sections 9, 10 or 12 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that Employee's
performance in his position as Vice President of Sales and Marketing of the
Company has been unsatisfactory, after first having given written notice to the
Employee that the Employee's performance has been unsatisfactory (which notice
shall set forth in reasonable detail the nature of the unsatisfactory
performance), and Employee having failed to cure such unsatisfactory performance
within thirty (30) days thereafter to the reasonable satisfaction of the
Company;
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F. The discharge of Employee upon a determination that
Employee has been unable, for any continuous period of at least three (3)
months, or for shorter periods aggregating three (3) months during any 12-month
period, to perform his duties hereunder by reason of injury, illness or other
physical or mental disability (such determination to be made by agreement
between the Company and Employee, or, in the event the Company and Employee are
unable to agree on such determination, and upon written notice thereof by either
party to the other, then each of the Company and Employee shall, within ten (10)
days after such notice is given, select a qualified and licensed physician, and
such physicians together shall select a third licensed and qualified physician
who will make such determination within thirty (30) days after his or her
appointment and whose determination shall be binding upon all parties hereto);
or
G. The discharge of Employee for conviction of Employee of a
crime involving moral turpitude.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C) below,
in the event Employee's employment with the Company shall terminate during the
Term for any of the reasons set forth in Section 7, or thereafter pursuant to
Section 2: [i] Employee's Salary shall be prorated and paid through the date of
termination; and [ii] all unvested options to purchase common stock of the
Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to Section
7(B) or 7(F) hereof, Employee shall be entitled to receive, at such time as it
would otherwise be payable, any Incentive Cash Bonus which would have been
payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to Section
7(F), the Company agrees to continue to pay Employee his full Salary during such
period of disability, said payments to continue for a maximum of six (6) months.
Thereafter, Employee shall be paid such disability benefits as may be paid
pursuant to the disability insurance theretofore agreed on by Employee and the
Company pursuant to Section 4(F) of this Agreement.
D. In the event of Employee's termination of employment prior
to the expiration of the Term, for any reason other than those reasons set forth
in Section 7 of this Agreement, the Company shall [i] pay Employee in equal
monthly installments for a period of twelve (12) months from the date of
termination, an amount, in the aggregate, equal to Employee's Salary, [ii] pay
Employee at such time as it otherwise would have been payable, the Incentive
Cash Bonus, if any, which would have been payable, based upon the Company's
performance over the full fiscal year, prorated for that portion of the fiscal
year during which Employee was employed by the Company, and [iii] upon receipt
of written notice from Employee within twenty (20) days of such termination of
employment, purchase at a closing within ninety (90) days from the date of
termination, (a) all of Employee's vested but unexercised options to purchase
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stock of the Company for an amount equal to the fair market value of the shares
subject to the options less the exercise price therefor, and (b) the shares of
stock of the Company purchased by Employee pursuant his exercise of said options
for an amount equal to the fair market value thereof, as the case may be (in the
case of both (a) and (b), fair market value shall be determined by agreement
between the Company and Employee, or, if the Company and Employee are unable to
agree on the fair market value within thirty (30) days after termination, then
each of the Company and Employee shall promptly select an appraiser, and such
appraisers shall together promptly select a third appraiser, and the third
appraiser will, within thirty (30) days of his appointment, determine the fair
market value of the shares, and Employee and the Company shall each bear fifty
percent (50%) of the cost and expense of this appraisal process, including the
fees of any appraisers appointed in accordance herewith), and if in the case of
(a) the fair market value does not exceed the exercise price of such options,
then such options shall be repurchased by the Company for one hundred dollars
($100) in the aggregate.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the inducements
for the Company to enter into this agreement of employment is the understanding
that there will be no competition or interference, directly or indirectly, for a
period of time after the termination of his employment with the Company.
Employee further recognizes and acknowledges that, in consideration of the scope
of the business of the Company and the nature of the services Employee provides
to the Company as its Vice President of Sales and Marketing, and in order to
protect the Company's legitimate interests, Employee's covenant not to compete
must include each of the areas where the Company currently does business, which
areas include Alabama, Arizona, California, Florida, Georgia, Maryland, North
Carolina, Ohio and Virginia (collectively, the "Territory"), to the extent
Employee hereafter actively performs, supervises or assists in the Company's
business in such areas or has material contact with customers of the Company
within such areas. In consideration of the covenants herein, Employee agrees
that for the period he is employed by the Company (whether during the Term or
after the Term ends) and for a one-year period immediately following the
termination of his employment with the Company for any reason whatsoever, he
shall not, within the Territory, in any manner, directly or indirectly or by
assisting others, engage in any business which is the same or essentially the
same as the business of the Company, such business being the business of real
estate information services, including commercial and residential real estate
appraisals, title exams, flood certifications and credit reports, as a salesman,
sales manager, customer relations person or marketer or as a supervisor,
administrator, executive, senior or management level employee, owner,
proprietor, shareholder or consultant; provided that Employee shall not be
restricted from owning less than 5% of the outstanding shares of a company whose
shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period he is
employed by the Company (whether during the Term or after the Term ends) and for
a one-year period immediately following the termination of his employment with
the Company for any reason whatsoever, he shall not (other than in the regular
course of the Company's business), within the Territory, solicit, directly or
indirectly, business of the type then being performed therein by the Company
from any person, partnership,
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corporation or other entity which [a] is a customer of the Company within the
Territory at the time Employee's employment with the Company terminates,
including an actively-sought prospective customer, or [b] was such a customer
within the two-year period immediately prior thereto, for the purposes of
providing products or services that are competitive with those provided by the
Company, provided that in the case of either [a] or [b], Employee had material
contact with such customer during and as a part or result of his employment with
the Company.
10. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period he is
employed by the Company (whether during the Term or after the Term ends) and for
a two-year period immediately following the termination of his employment with
the Company for any reason whatsoever, he shall not directly or indirectly,
individually or on behalf of persons not parties to this Agreement, aid or
endeavor to solicit or induce any of the Company's employees to leave their
employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge, furnish
or make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 9 and 10, and that, in addition to
all other remedies, the Company shall be entitled to injunctive relief and
specific performance. In such event, the periods of time referred to in Sections
9 and 10 shall be deemed extended for a period equal to the respective period
during which Employee is in breach thereof, in order to provide for injunctive
relief and specific performance for a period equal to the full term thereof. The
covenants contained in Sections 9 and 10 shall be construed as separate
covenants, and if any court shall finally determine that the restraints provided
for in any such covenants are too broad as to the geographic area, activity or
time covered, said area, activity or time covered may be reduced to whatever
extent the court deems reasonable and such covenants shall be enforced as to
such reduced area, activity or time and Employee expressly agrees that this
Agreement, as so amended, shall be valid and binding.
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12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all
times during the term of his employment and thereafter, Employee will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with his work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights he may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, other words of authorship, know-how, improvements, discoveries,
developments, designs and techniques relating to the business or proposed
products of the Company and which were learned or discovered by Employee during
the term of his employment with the Company (hereinafter collectively referred
to as "Inventions"); and (b) information regarding plans for research,
development, new products and services, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers which were learned or discovered by him during the term
of his employment with the Company, and information regarding the skills and
compensation of other employees of the Company. For purposes of this Agreement,
the term "Proprietary Information" shall not include information that Employee
can show by competent proof (i) was known to Employee prior to disclosure by the
Company; (ii) was generally known to the public at the time Company disclosed
the information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in addition,
that the Company may from time to time receive from third parties confidential
or proprietary information ("Third Party Information") subject to a duty of the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of his employment and
thereafter, Employee will hold Third Party Information in the strictest
confidence and will not disclose (to anyone other than Company personnel who
need to know such information in connection with their work for the Company) or
use, except in connection with his work for the Company, Third Party Information
unless expressly authorized by the Chairman or Chief Executive Officer of the
Company in writing.
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C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the Company all
his right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by him, either alone or jointly with others,
during the period of his employment with the Company.
[2] Employee shall and hereby does acknowledge that
all original works of authorship which are made by him (solely or jointly with
others) during the term of him employment with the Company and that are within
the scope of his employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 1201). Inventions assigned to or as directed by the Company by
this Section 12.C are hereinafter referred to as 'Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions in any and
all countries. To that end he will execute, verify and deliver such documents
and perform such other acts (including appearances as a witness) as the Company
may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the assignment
thereof. In addition, Employee will execute, verify and deliver assignments of
such Proprietary Rights to the Company or its designee. Employee's obligation to
assist the Company with respect to Proprietary Rights relating to such Company
Inventions in any and all countries shall continue beyond the termination of his
employment, but the Company shall compensate him at a reasonable rate after
Employee's termination for the time actually spent by him at the Company's
request on such assistance. In the event the Company is unable for any reason,
after reasonable effort, to secure Employee's signature on any document needed
in connection with the actions specified in the preceding, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as his agent and attorney in fact, to act for and in his behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph thereon with
the same legal force and effect as if executed by Employee. Employee hereby
waives and quitclaims to the Company any and all claims, of any nature
whatsoever, which he now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or unpatented,
which Employee made prior to the commencement of his employment with the Company
are excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, he will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing
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any Company Invention, Third Party Information or Proprietary Information of the
Company. Employee further agrees that any property situated on the Company's
premises and owned by the Company, including disks and other storage media,
filing cabinets or other work areas, is subject to inspection by Company
personnel at any time with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's services
are personal and unique and because Employee may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Section 12 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
13. NOTICES. All notices and other communications hereunder shall be
in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: Chief Executive Officer
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W. Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: Revell Fraser
-------------------------------------
-------------------------------------
With a copy to:
-------------------------------------
-------------------------------------
-------------------------------------
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
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14. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver by
either party of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach, whether
occurring under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Georgia. In
connection with the enforcement of this Agreement, the parties consent to
jurisdiction in the courts of Georgia. The prevailing party in any action to
enforce this Agreement shall be entitled to attorneys' fees from the
non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2(c)(9), as
evidenced by the parties affixing their initials hereon next to this Section
14.G., any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief from
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 9, 10 or 12 of this Agreement. Initials:
Company: ______________________; Employee: _____________________.
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H. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
PRIMIS, INC.
By:
-------------------------------------
Title:
----------------------------------
("Company")
----------------------------------------
REVELL FRASER
("Employee")
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EXHIBIT A
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EXHIBIT B
Insurance
Company will use commercially reasonable efforts to establish a life insurance
and accidental death and disability insurance program for its employees in which
Employee can participate provided that such program shall be in place no later
than June 1, 1999.
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EXHIBIT C
Stock Option Agreement
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Exhibit 10.5
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT ("Agreement")
is made and entered into as of the 15th day of February, 1999, by and between
PRIMIS, INC., a Georgia corporation (the "Company"), and JAMES C. FORETICH, an
individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee
accepts employment by the Company and agrees to serve the Company, upon the
terms and conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on the
date hereof and ending on February 28, 2003, unless Employee's employment
terminates prior thereto as provided in Section 7 (the "Term"). Thereafter, this
Agreement shall continue in full force and effect, except that Section 7 shall
no longer be applicable, and either party hereto may terminate Employee's
employment hereunder upon ninety (90) days prior written notice to the other;
provided, that Employee may resign at any time upon ninety (90) days prior
written notice to the Company.
3. DUTIES. Employee shall be employed by the Company as Vice
President and Chief Information Officer. So long as he is employed hereunder,
Employee agrees to devote his full business time and energy to the business and
affairs of the Company, to perform his duties hereunder to the best of his
ability and at a level of competency consistent with the position occupied, to
act on all matters in a manner he reasonably believes to be in and not opposed
to the best interests of the Company, to use his best efforts, skill and ability
to promote the profitable growth of the Company, and to perform such other
duties as may be assigned to him by the Company's Chief Executive Officer,
Chairman or by the Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of One Hundred Sixty Thousand Dollars ($160,000), payable not less
frequently than monthly. At least once every twelve (12) months the Board shall
review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
<PAGE>
B. INCENTIVE CASH BONUS. Within seventy-five (75) days after the
end of fiscal year 1999 of the Company, the Company shall pay Employee a cash
bonus (the "Incentive Cash Bonus"), in an amount equal to twenty-five percent
(25%) of Employee's Salary, if, and only if, Employee achieves each and every
specific goal set forth on Exhibit A attached hereto by the date which
corresponds to each such goal set forth thereon, subject to a ten (10) day grace
period. Within seventy-five (75) days after the end of each fiscal year
thereafter, Company shall determine, and if appropriate, pay Employee an
Incentive Cash Bonus, in an amount not to exceed twenty-five (25%) of Employee's
Salary, determined by and in the reasonably exercised discretion of the Board
and based upon the Employee's achievement of specific goals concerning the
financial or other performance of the Company for such fiscal year, previously
established by the Board after consultation with the Employee.
C. RETENTION BONUS. The Company shall pay Employee a bonus for
continuing as an Employee of the Company under this Agreement, in the amount of
Twenty-five Thousand Dollars ($25,000) (the "Retention Bonus"). The Retention
Bonus shall be paid in two equal installments of Twelve Thousand Five Hundred
Dollars ($12,500) each. The first installment of the Retention Bonus shall be
paid to Employee on April ___, 1999. The second installment of the Retention
Bonus shall be paid to Employee on December 15, 1999, PROVIDED, HOWEVER, that
the Company shall have no obligation or liability to Employee to pay the second
installment of the Retention Bonus, if prior to December 15, 1999, Employee's
employment with the Company has terminated for any of the reasons set forth in
Section 7 of this Agreement.
D. BUSINESS EXPENSES. The Company shall reimburse Employee for his
reasonable direct out-of-pocket ordinary and necessary expenses, including trade
association dues, a cell phone and cell phone charges, if any, incurred by
Employee in the performance of his services hereunder and for which Employee
properly accounts in accordance with the Company's regulations and procedures in
effect from time to time.
E. VACATION. Employee shall be entitled to three (3) weeks
(fifteen business days) paid vacation during each 12-month period of the Term.
Employee shall not be entitled to carry over any unused vacation.
F. ADDITIONAL BENEFITS. Employee shall be entitled to participate
(at the reasonable expense of the Company, where allowed under applicable law)
in any and all employee retirement, medical, life and disability insurance, and
other benefits plans and perquisites as may be established and in effect from
time to time and made available to employees of the Company. Notwithstanding the
foregoing, Employee shall at all times during any term of this Agreement be
provided with family health, dental, disability, life and accidental death and
dismemberment insurance in such amounts and coverages as set forth on EXHIBIT B
attached hereto.
5. STOCK OPTIONS. As of the date hereof, Company has granted to
Employee, pursuant to the terms of the Stock Option Agreement entered into by
the Company and Employee as of the date hereof
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substantially in the form attached hereto as EXHIBIT C, an option to purchase
150,000 shares of common stock of the Company at an exercise price of $4.00 per
share, to vest as follows: 50,000 of the option shares shall vest and Employee
may exercise his option to purchase such shares on and after February 15, 2001;
50,000 of the option shares shall vest and Employee may exercise his option to
purchase such shares on and after February 15, 2002; and 50,000 of the option
shares shall vest and Employee may exercise his option to purchase such shares
on and after February 15, 2003. The Stock Option Agreement entered into by the
Company and Employee substantially in the form attached hereto as EXHIBIT C
shall terminate and supersede in their entirety any and all prior stock option
agreements or other grants of options by the Company to Employee to purchase
shares of its common stock. Without any representation or warranty by or on the
part of the Company, to the extent any of the option shares of the option
granted to Employee hereby can, by the terms set forth above, qualify as
incentive stock options under the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the parties hereto intend that the same shall be
treated as incentive stock options, and to the extent any or all of the options
shares cannot qualify as incentive stock options under the Code, the parties
hereto intend that the same shall be treated as nonstatutory options.
6. WITHHOLDING. The Company shall be authorized to deduct and
withhold from Employee's compensation such sums as are required by law to be
deducted and withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment
with the Company shall terminate prior to the expiration of the Term, without
further obligation on the part of the Company, except as provided in this
Agreement, only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for willful misconduct, dishonesty or
fraud on Employee's part in connection with the performance of any duties
hereunder;
D. The discharge of Employee for a material breach by Employee of
any of the terms of Sections 9, 10 or 12 of this Agreement;
E. The discharge of Employee upon a determination by the Board,
acting in good faith and with reasonable justification, that Employee's
performance in his position as Vice President and Chief Information Officer of
the Company has been unsatisfactory, after first having given written notice to
the Employee that the Employee's performance has been unsatisfactory (which
notice shall set forth in reasonable detail the nature of the unsatisfactory
performance), and Employee having failed to cure such unsatisfactory performance
within thirty (30) days thereafter to the reasonable satisfaction of the
Company;
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F. The discharge of Employee upon a determination that Employee
has been unable, for any continuous period of at least three (3) months, or for
shorter periods aggregating three (3) months during any 12-month period, to
perform his duties hereunder by reason of injury, illness or other physical or
mental disability (such determination to be made by agreement between the
Company and Employee, or, in the event the Company and Employee are unable to
agree on such determination, and upon written notice thereof by either party to
the other, then each of the Company and Employee shall, within ten (10) days
after such notice is given, select a qualified and licensed physician, and such
physicians together shall select a third licensed and qualified physician who
will make such determination within thirty (30) days after his or her
appointment and whose determination shall be binding upon all parties hereto);
or
G. The discharge of Employee for conviction of Employee of a crime
involving moral turpitude.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C) below, in
the event Employee's employment with the Company shall terminate during the Term
for any of the reasons set forth in Section 7, or thereafter pursuant to Section
2: [i] Employee's Salary shall be prorated and paid through the date of
termination; and [ii] all unvested options to purchase common stock of the
Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to Section 7
(B) or 7(F) hereof, Employee shall be entitled to receive, at such time as it
would otherwise be payable, any Incentive Cash Bonus which would have been
payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to Section 7
(F), the Company agrees to continue to pay Employee his full Salary during such
period of disability, said payments to continue for a maximum of six (6) months.
Thereafter, Employee shall be paid such disability benefits as may be paid
pursuant to the disability insurance theretofore agreed on by Employee and the
Company pursuant to Section 4(F) of this Agreement.
D. In the event of Employee's termination of employment prior to
the expiration of the Term, for any reason other than those reasons set forth in
Section 7 of this Agreement, the Company shall [i] pay Employee in equal monthly
installments for a period of twelve (12) months from the date of termination, an
amount, in the aggregate, equal to Employee's Salary, [ii] pay Employee at such
time as it otherwise would have been payable, the Incentive Cash Bonus, if any,
which would have been payable, based upon the Company's performance over the
full fiscal year, prorated for that portion of the fiscal year during which
Employee was employed by the Company, and [iii] upon receipt of written notice
from Employee within twenty (20) days of such termination of employment,
purchase at a closing within ninety (90) days from the date of termination, (a)
all of Employee's vested but unexercised options to purchase
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stock of the Company for an amount equal to the fair market value of the shares
subject to the options less the exercise price therefor, and (b) the shares of
stock of the Company purchased by Employee pursuant his exercise of said options
for an amount equal to the fair market value thereof, as the case may be (in the
case of both (a) and (b), fair market value shall be determined by agreement
between the Company and Employee, or, if the Company and Employee are unable to
agree on the fair market value within thirty (30) days after termination, then
each of the Company and Employee shall promptly select an appraiser, and such
appraisers shall together promptly select a third appraiser, and the third
appraiser will, within thirty (30) days of his appointment, determine the fair
market value of the shares, and Employee and the Company shall each bear fifty
percent (50%) of the cost and expense of this appraisal process, including the
fees of any appraisers appointed in accordance herewith), and if in the case of
(a) the fair market value does not exceed the exercise price of such options,
then such options shall be repurchased by the Company for one hundred dollars
($100) in the aggregate.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the inducements for
the Company to enter into this agreement of employment is the understanding that
there will be no competition or interference, directly or indirectly, for a
period of time after the termination of his employment with the Company.
Employee further recognizes and acknowledges that, in consideration of the scope
of the business of the Company and the nature of the services Employee provides
to the Company as a Vice President and its Chief Information Officer, and in
order to protect the Company's legitimate interests, Employee's covenant not to
compete must include [a] each of the areas where Employee has worked since
February 15, 1999 including all areas where Employee actively performed,
supervised or assisted in the Company's business, and [b] each of the areas
where customers of the Company, with whom Employee had material contact, were
present and doing business with the Company, which areas include Alabama,
Arizona, California, Florida, Georgia, Maryland, North Carolina, Ohio and
Virginia (collectively, the "Territory"). In consideration of the covenants
herein, Employee agrees that for the period he is employed by the Company
(whether during the Term or after the Term ends) and for a one-year period
immediately following the termination of his employment with the Company for any
reason whatsoever, he shall not, within the Territory, in any manner, directly
or indirectly or by assisting others, engage in any business which is the same
or essentially the same as the business of the Company, such business being the
business of real estate information services, including commercial and
residential real estate appraisals, title exams, flood certifications and credit
reports, as an information services manager or coordinator or as a supervisor,
administrator, executive, senior or management level employee, owner,
proprietor, shareholder or consultant; provided that Employee shall not be
restricted from owning less than 5% of the outstanding shares of a company whose
shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period he is
employed by the Company (whether during the Term or after the Term ends) and for
a one-year period immediately following the termination of his employment with
the Company for any reason whatsoever, he shall not (other than in the regular
course of the Company's business), within the Territory, solicit, directly or
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indirectly, business of the type then being performed therein by the Company
from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively-sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
for the purposes of providing products or services that are competitive with
those provided by the Company, provided that in the case of either [a] or [b],
Employee had material contact with such customer during and as a part or result
of his employment with the Company.
10. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period he is
employed by the Company (whether during the Term or after the Term ends) and for
a two-year period immediately following the termination of his employment with
the Company for any reason whatsoever, he shall not directly or indirectly,
individually or on behalf of persons not parties to this Agreement, aid or
endeavor to solicit or induce any of the Company's employees to leave their
employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge, furnish or
make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 9 and 10, and that, in addition to
all other remedies, the Company shall be entitled to injunctive relief and
specific performance. In such event, the periods of time referred to in Sections
9 and 10 shall be deemed extended for a period equal to the respective period
during which Employee is in breach thereof, in order to provide for injunctive
relief and specific performance for a period equal to the full term thereof. The
covenants contained in Sections 9 and 10 shall be construed as separate
covenants, and if any court shall finally determine that the restraints provided
for in any such covenants are too broad as to the geographic area, activity or
time covered, said area, activity or time covered may be reduced to whatever
extent the court deems reasonable and such covenants shall be enforced as to
such reduced area, activity or time and Employee expressly agrees that this
Agreement, as so amended, shall be valid and binding.
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12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all times
during the term of his employment and thereafter, Employee will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with his work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights he may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, other words of authorship, know-how, improvements, discoveries,
developments, designs and techniques relating to the business or proposed
products of the Company and which were learned or discovered by Employee during
the term of his employment with the Company (hereinafter collectively referred
to as "Inventions"); and (b) information regarding plans for research,
development, new products and services, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers which were learned or discovered by him during the term
of his employment with the Company, and information regarding the skills and
compensation of other employees of the Company. For purposes of this Agreement,
the term "Proprietary Information" shall not include information that Employee
can show by competent proof (i) was known to Employee prior to disclosure by the
Company; (ii) was generally known to the public at the time Company disclosed
the information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in addition,
that the Company may from time to time receive from third parties confidential
or proprietary information ("Third Party Information") subject to a duty of the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of his employment and
thereafter, Employee will hold Third Party Information in the strictest
confidence and will not disclose (to anyone other than Company personnel who
need to know such information in connection with their work for the Company) or
use, except in connection with his work for the Company, Third Party Information
unless expressly authorized by the Chairman or Chief Executive Officer of the
Company in writing.
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C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the Company all
his right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by him, either alone or jointly with others,
during the period of his employment with the Company.
[2] Employee shall and hereby does acknowledge that all
original works of authorship which are made by him (solely or jointly with
others) during the term of him employment with the Company and that are within
the scope of his employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 1201). Inventions assigned to or as directed by the Company by
this Section 12.C are hereinafter referred to as 'Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions in any and
all countries. To that end he will execute, verify and deliver such documents
and perform such other acts (including appearances as a witness) as the Company
may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the assignment
thereof. In addition, Employee will execute, verify and deliver assignments of
such Proprietary Rights to the Company or its designee. Employee's obligation to
assist the Company with respect to Proprietary Rights relating to such Company
Inventions in any and all countries shall continue beyond the termination of his
employment, but the Company shall compensate him at a reasonable rate after
Employee's termination for the time actually spent by him at the Company's
request on such assistance. In the event the Company is unable for any reason,
after reasonable effort, to secure Employee's signature on any document needed
in connection with the actions specified in the preceding, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as his agent and attorney in fact, to act for and in his behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph thereon with
the same legal force and effect as if executed by Employee. Employee hereby
waives and quitclaims to the Company any and all claims, of any nature
whatsoever, which he now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or unpatented,
which Employee made prior to the commencement of his employment with the Company
are excluded from the scope of this Agreement.
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the employ of
the Company, he will deliver to the Company all drawings, notes, memoranda,
specifications, devices, formulas, and documents, together with all copies
thereof, and any other material containing or disclosing
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any Company Invention, Third Party Information or Proprietary Information of the
Company. Employee further agrees that any property situated on the Company's
premises and owned by the Company, including disks and other storage media,
filing cabinets or other work areas, is subject to inspection by Company
personnel at any time with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's services are
personal and unique and because Employee may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Section 12 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
13. NOTICES. All notices and other communications hereunder shall be
in writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
Attn: Chief Executive Officer
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W.
Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: James C. Foretich
3335 Sugar Valley Trail
Alpharetta, Georgia 30022
With a copy to: Meadows, Ichter & Trigg, P.C.
Attention: Betsy Vance
Peterzell
Eight Piedmont Center, Suite
300
3525 Piedmont Road, N.E.
Atlanta, Georgia 30305
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
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return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
14. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to insist
upon compliance with any provision hereof shall not operate as, and is not to be
construed as, a waiver or amendment of such provision. The waiver by either
party of a breach of any provision of this Agreement by the other shall not
operate or be construed as a waiver of any subsequent breach, whether occurring
under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Georgia. In
connection with the enforcement of this Agreement, the parties consent to
jurisdiction in the courts of Georgia. The prevailing party in any action to
enforce this Agreement shall be entitled to attorneys' fees from the
non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. Section 9-9-2(c)(9), as
evidenced by the parties affixing their initials hereon next to this Section
14.G., any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief from
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 9, 10 or 12 of this Agreement. Initials: Company:
______________________; Employee: _____________________.
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H. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day, month and year first above written.
PRIMIS, INC.
By:_______________________________________
Title:___________________________________
("Company")
-----------------------------------------
JAMES C. FORETICH
("Employee")
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Exhibit A
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Exhibit B
Insurance
Company will use commercially reasonable efforts to establish a life insurance
and accidental death and disability insurance program for its employees in which
Employee can participate provided that such program shall be in place no later
than June 1, 1999.
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Exhibit C
Stock Option Agreement
<PAGE>
Exhibit 10.6
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AGREEMENT AND NON-COMPETITION AGREEMENT
("Agreement") is made and entered into as of the 30th day of November, 1999,
by and between PRIMIS, INC., a Georgia corporation (the "Company"), and
CONNIE CALDWELL BREESER, an individual ("Employee").
RECITAL:
Employee desires to be employed by the Company and the Company desires
to employ Employee on the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is agreed by and between the
parties hereto as follows:
1. EMPLOYMENT. The Company hereby employs Employee and Employee accepts
employment by the Company and agrees to serve the Company, upon the terms and
conditions hereinafter set forth.
2. TERM. Employee's employment shall be for a term commencing on the
date hereof and ending on November 30, 2003, unless Employee's employment
terminates prior thereto as provided in Section 7 (the "Term"). Thereafter,
this Agreement shall continue in full force and effect, except that Section 7
shall no longer be applicable, and either party hereto may terminate
Employee's employment hereunder upon ninety (90) days prior written notice to
the other.
3. DUTIES. Employee shall be employed by the Company as Vice President
and Chief Legal Officer. So long as she is employed hereunder, Employee agrees
to devote her full business time and energy to the business and affairs of the
Company, to perform her duties hereunder to the best of her ability and at a
level of competency consistent with the position occupied, to act on all matters
in a manner she reasonably believes to be in and not opposed to the best
interests of the Company, to use her best efforts, skill and ability to promote
the profitable growth of the Company, and to perform such other duties as may be
assigned to her by the Company's Chief Executive Officer, Chairman or by the
Company's Board of Directors ("Board") from time to time.
4. COMPENSATION AND BENEFITS. For all services rendered by Employee,
the Company shall pay compensation and provide benefits to Employee as follows:
A. SALARY. The Company shall pay Employee an annual salary
("Salary") of One Hundred Twenty-five Thousand Dollars ($125,000), payable not
less frequently than monthly. At least once every twelve (12) months the Board
shall review Employee's Salary and make such adjustments to the Salary as it
reasonably deems appropriate, provided that the Salary shall not be reduced.
<PAGE>
B. INCENTIVE CASH BONUS. Within seventy-five (75) days after
the end of fiscal year 2000 of the Company, the Company shall pay Employee a
cash bonus (the "Incentive Cash Bonus"), in an amount not to exceed Fifty
Thousand Dollars ($50,000), prorated for the portion of such fiscal year that
Employee was employed by the Company, if, and only if, Employee achieves
specific goals concerning the financial or other performance of the Company as
established by the Board after consultation with the Employee within sixty (60)
days from the later of the date of this Agreement or the start of such fiscal
year. Within seventy-five (75) days after the end of each fiscal year
thereafter, Company shall determine, and if appropriate, pay Employee an
Incentive Cash Bonus, in an amount not to exceed Fifty Thousand Dollars
($50,000), determined by and in the reasonably exercised discretion of the Board
and based upon the Employee's achievement of specific goals concerning the
financial or other performance of the Company for such fiscal year, previously
established by the Board after consultation with the Employee. At least once
every twelve (12) months the Board shall review the maximum amount of Employee's
potential Incentive Cash Bonus and make such adjustments to such maximum amount
thereof as it reasonably deems appropriate provided that such maximum amount
shall not be reduced.
C. BUSINESS EXPENSES. The Company shall reimburse Employee for
her reasonable direct out-of-pocket ordinary and necessary expenses, including
trade association dues, if any, incurred by Employee in the performance of her
services hereunder and for which Employee properly accounts in accordance with
the Company's regulations and procedures in effect from time to time.
D. ADDITIONAL BENEFITS. Employee shall be entitled to
participate on the same terms and conditions as employees similarly situated in
any and all employee retirement, medical, life and disability insurance,
vacation and other benefits plans and perquisites as may be established and in
effect from time to time and made available to employees of the Company.
5. STOCK OPTIONS. Subject to approval of the Company's Board of
Directors, Company shall grant to Employee, pursuant to the terms of the Stock
Option Agreement to be entered into by the Company and Employee as of the date
hereof substantially in the form attached hereto as EXHIBIT A, an option to
purchase 50,000 shares of common stock of the Company at an exercise price of
$6.00 per share, to vest as follows: 12,500 of the option shares shall vest and
Employee may exercise her option to purchase such shares on and after one (1)
year from the date hereof; 12,500 of the option shares shall vest and Employee
may exercise her option to purchase such shares on and after two (2) years from
the date hereof; 12,500 of the option shares shall vest and Employee may
exercise her option to purchase such shares on and after three (3) years from
the date hereof; 12,500 of the option shares shall vest and Employee may
exercise her option to purchase such shares on and after four (4) years from the
date hereof.
Without any representation or warranty by or on the part of the
Company, to the extent any portion of the option granted to Employee pursuant to
this Section 5 can, by the terms set forth above, qualify as an incentive stock
option under the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the parties hereto intend that the same shall be treated as an
incentive stock option, and to the
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extent any portion of the option cannot qualify as an incentive stock option
under the Code, the parties hereto intend that the same shall be treated as a
nonstatutory option.
6. WITHHOLDING. The Company shall be authorized to deduct and withhold
from Employee's compensation such sums as are required by law to be deducted and
withheld.
7. EVENTS CAUSING TERMINATION OF EMPLOYMENT. Employee's employment with
the Company shall terminate prior to the expiration of the Term, without further
obligation on the part of the Company, except as provided in this Agreement,
only upon the occurrence of any of the following events:
A. The voluntary resignation of Employee;
B. The death of Employee;
C. The discharge of Employee for misconduct, dishonesty or
fraud on Employee's part in connection with the performance of any duties
hereunder;
D. The discharge of Employee for a material breach by Employee
of any of the terms of Sections 9, 10 or 12 of this Agreement;
E. The discharge of Employee upon a determination by the
Board, acting in good faith and with reasonable justification, that Employee's
performance in her position as Vice President and Chief Legal Officer of the
Company has been unsatisfactory, after first having given written notice to the
Employee that her performance has been unsatisfactory (which notice shall set
forth in reasonable detail the nature of the unsatisfactory performance), and
Employee having failed to cure such unsatisfactory performance within thirty
(30) days thereafter to the reasonable satisfaction of the Company; PROVIDED,
HOWEVER, that Employee's performance in her position as Vice President and Chief
Legal Officer of the Company shall not be considered unsatisfactory by the Board
based solely and exclusively on any action taken by Employee (or Employee's
failure to act) with respect to matters affecting the Company if such action (or
inaction) is consistent with the ethical obligations imposed on Employee as a
licensed attorney and Employee takes such action (or fails to act) in the
reasonable exercise of her professional judgment as a licensed attorney;
F. The discharge of Employee upon a determination that
Employee has been unable, for any continuous period of at least three (3)
months, or for shorter periods aggregating three (3) months during any 12-month
period, to perform her duties hereunder by reason of injury, illness or other
physical or mental disability (such determination to be made by agreement
between the Company and Employee, or, in the event the Company and Employee are
unable to agree on such determination, and upon written notice thereof by either
party to the other, then each of the Company and Employee shall, within ten (10)
days after such notice is given, select a qualified and licensed physician, and
such physicians together shall
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select a third licensed and qualified physician who will make such determination
within thirty (30) days after his or her appointment and whose determination
shall be binding upon all parties hereto); or
G. The discharge of Employee for conviction of Employee of a
crime involving moral turpitude.
8. PAYMENTS TO EMPLOYEE UPON TERMINATION OF EMPLOYMENT.
A. Subject to the provisions of Sections 8(B) and 8(C) below,
in the event Employee's employment with the Company shall terminate during the
Term for any of the reasons set forth in Section 7, or thereafter pursuant to
Section 2: [i] Employee's Salary shall be prorated and paid through the date of
termination; and [ii] all unvested options to purchase common stock of the
Company shall cease and terminate as of the date of termination.
B. In the event of Employee's termination pursuant to Section
7(B) or 7(F) hereof, Employee shall be entitled to receive, at such time as it
would otherwise be payable, any Incentive Cash Bonus which would have been
payable, based upon the Company's performance over the full fiscal year,
prorated for that portion of the fiscal year during which the Employee was
employed by the Company.
C. In the event of Employee's termination pursuant to Section
7(F), the Company agrees to continue to pay Employee her full Salary during such
period of disability, said payments to continue for a maximum of six (6) months.
Thereafter, Employee shall be paid disability benefits pursuant to the
disability insurance, if any, established by the Company and in which Employee
participates pursuant to Section 4(D) of this Agreement.
9. COVENANTS NOT TO SOLICIT OR COMPETE.
A. NON-COMPETITION. Employee recognizes one of the inducements
for the Company to enter into this agreement of employment is the understanding
that there will be no competition or interference, directly or indirectly, for a
period of time after the termination of her employment with the Company.
Employee further recognizes and acknowledges that, in consideration of the scope
of the business of the Company and the nature of the services Employee provides
to the Company as Vice President and Chief Legal Officer, and in order to
protect the Company's legitimate interests, Employee's covenant not to compete
must include each of the areas where the Company currently does business, which
areas include Alabama, Arizona, California, District of Columbia, Florida,
Georgia, Maryland, Michigan, North Carolina, Nevada, Ohio, Oregon, Texas,
Virginia and Washington (collectively, the "Territory"), to the extent Employee
hereafter actively performs, supervises or assists in the Company's business in
such areas or has material contact with customers of the Company within such
areas. In consideration of the covenants herein, Employee agrees that for the
period she is employed by the Company (whether during the Term or after the Term
ends) and for a one-year period immediately following the termination of her
employment with the Company for any reason whatsoever, she shall not, within the
Territory, in any
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manner, directly or indirectly or by assisting others, engage in any business
which is the same or essentially the same as the business of the Company, such
business being the business of real estate information services, including
commercial and residential real estate appraisals, title exams, flood
certifications and credit reports, as an manager or as a supervisor,
administrator, executive, senior or management level employee, owner,
proprietor, shareholder or consultant; provided that Employee shall not be
restricted from owning less than 3% of the outstanding shares of a company whose
shares are publicly traded.
B. NON-SOLICITATION. Employee agrees that for the period she
is employed by the Company (whether during the Term or after the Term ends) and
for a one-year period immediately following the termination of her employment
with the Company for any reason whatsoever, she shall not (other than in the
regular course of the Company's business), within the Territory, solicit,
directly or indirectly, business of the type then being performed therein by the
Company from any person, partnership, corporation or other entity which [a] is a
customer of the Company within the Territory at the time Employee's employment
with the Company terminates, including an actively-sought prospective customer,
or [b] was such a customer within the two-year period immediately prior thereto,
for the purposes of providing products or services that are competitive with
those provided by the Company, provided that in the case of either [a] or [b],
Employee had material contact with such customer during and as a part or result
of her employment with the Company.
10. NON-INDUCEMENT AND NON-DISCLOSURE.
A. NON-INDUCEMENT. Employee agrees that for the period she is
employed by the Company (whether during the Term or after the Term ends) and for
a two-year period immediately following the termination of her employment with
the Company for any reason whatsoever, she shall not directly or indirectly,
individually or on behalf of persons not parties to this Agreement, aid or
endeavor to solicit or induce any of the Company's employees to leave their
employment with the Company in order to accept employment with Employee or
another person, partnership, corporation or other entity.
B. NON-DISCLOSURE. At no time shall Employee divulge, furnish
or make accessible to anyone (other than in the regular course of the Company's
business) any knowledge or information with respect to confidential information
or data of the Company, or with respect to any confidential information or data
of any of the customers of the Company, or with respect to any other
confidential aspect of the business or products or services of the Company or
its customers.
11. INJUNCTIVE RELIEF FOR BREACH: ENFORCEABILITY. Employee agrees that
Company may not be adequately compensated by damages for a breach by Employee of
any of the covenants contained in Sections 9 and 10, and that, in addition to
all other remedies, the Company shall be entitled to injunctive relief and
specific performance. In such event, the periods of time referred to in Sections
9 and 10 shall be deemed extended for a period equal to the respective period
during which Employee is in breach thereof, in order to provide for injunctive
relief and specific performance for a period equal to the full term thereof. The
covenants contained in Sections 9 and 10 shall be construed as separate
covenants, and if
5
<PAGE>
any court shall finally determine that the restraints provided for in any such
covenants are too broad as to the geographic area, activity or time covered,
said area, activity or time covered may be reduced to whatever extent the court
deems reasonable and such covenants shall be enforced as to such reduced area,
activity or time and Employee expressly agrees that this Agreement, as so
amended, shall be valid and binding.
12. PROPRIETARY RIGHTS.
A. RECOGNITION OF COMPANY'S RIGHTS; NONDISCLOSURE. At all
times during the term of her employment and thereafter, Employee will hold in
strictest confidence and will not disclose, use, lecture upon or publish any of
the Company's Proprietary Information (defined below), except as such
disclosure, use or publication may be required in connection with her work for
the Company, or unless the Chief Executive Officer or the Board of Directors of
the Company expressly authorizes such in writing. Employee shall and hereby does
assign to the Company any rights she may have or acquire in such Proprietary
Information and recognizes that all Proprietary Information shall be the sole
property of the Company and its assigns and that the Company and its assigns
shall be the sole owner of all patent rights, copyrights, trade secret rights
and all other rights throughout the world (collectively, "Proprietary Rights")
in connection therewith. The term "Proprietary Information" shall mean trade
secrets, confidential knowledge, data or any other proprietary information of
the Company which the Company treats as confidential with respect to the general
public. By way of illustration but not limitation, "Proprietary Information"
includes (a) inventions, trade secrets, ideas, processes, formulas, data,
programs, other words of authorship, know-how, improvements, discoveries,
developments, designs and techniques relating to the business or proposed
products of the Company and which were learned or discovered by Employee during
the term of her employment with the Company (hereinafter collectively referred
to as "Inventions"); and (b) information regarding plans for research,
development, new products and services, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers which were learned or discovered by her during the term
of her with the Company, and information regarding the skills and compensation
of other employees of the Company. For purposes of this Agreement, the term
"Proprietary Information" shall not include information that Employee can show
by competent proof (i) was known to Employee prior to disclosure by the Company;
(ii) was generally known to the public at the time Company disclosed the
information to Employee; (iii) became generally known to the public after
disclosure by the Company through no act or omission of Employee; or (iv) was
disclosed to Employee by a third party having a bona fide right both to possess
the information and to disclose it to Employee.
B. THIRD PARTY INFORMATION. Employee understands, in addition,
that the Company may from time to time receive from third parties confidential
or proprietary information ("Third Party Information") subject to a duty of the
Company's part to maintain the confidentiality of such information and to use it
only for certain limited purposes. During the term of her employment and
thereafter, Employee will hold Third Party Information in the strictest
confidence and will not disclose to anyone (other than Company personnel who
need to know such information in connection with their work for the Company)
6
<PAGE>
or use, except in connection with her work for the Company, Third Party
Information unless expressly authorized by the Chairman or Chief Executive
Officer of the Company in writing.
C. ASSIGNMENT OF INVENTIONS.
[1] Employee shall and hereby does assign to the
Company all her right, title and interest in and to any and all Inventions (and
all Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes that were made or conceived or
reduced to practice or learned by her, either alone or jointly with others,
during the period of her employment with the Company.
[2] Employee shall and hereby does acknowledge that
all original works of authorship which are made by her (solely or jointly with
others) during the term of her employment with the Company and that are within
the scope of her employment and which are protectable by copyright are "works
made for hire," as that term is defined in the United States Copyright Act (17
U.S.C., Section 1201). Inventions assigned to or as directed by the Company by
this Section 12.C are hereinafter referred to as "Company Inventions."
D. ENFORCEMENT OF PROPRIETARY RIGHTS. Employee will assist the
Company in every proper way to obtain and from time to time enforce United
States and foreign Proprietary Rights relating to Company Inventions in any and
all countries. To that end she will execute, verify and deliver such documents
and perform such other acts (including appearances as a witness) as the Company
may reasonably request for use in applying for, obtaining, perfecting,
evidencing, sustaining and enforcing such Proprietary Rights and the assignment
thereof. In addition, Employee will execute, verify and deliver assignments of
such Proprietary Rights to the Company or its designee. Employee's obligation to
assist the Company with respect to Proprietary Rights relating to such Company
Inventions in any and all countries shall continue beyond the termination of her
employment, but the Company shall compensate her at a reasonable rate after
Employee's termination for the time actually spent by her at the Company's
request on such assistance. In the event the Company is unable for any reason,
after reasonable effort, to secure Employee's signature on any document needed
in connection with the actions specified in the preceding, Employee hereby
irrevocably designates and appoints the Company and its duly authorized officers
and agents as her agent and attorney in fact, to act for and in her behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph thereon with
the same legal force and effect as if executed by Employee. Employee hereby
waives and quitclaims to the Company any and all claims, of any nature
whatsoever, which she now or may hereafter have for infringement of any
Proprietary Rights assigned hereunder to the Company.
E. PRIOR INVENTIONS. Inventions, if any, patented or
unpatented, which Employee made prior to the commencement of her employment with
the Company are excluded from the scope of this Agreement.
7
<PAGE>
F. RETURN OF COMPANY DOCUMENTS. When Employee leaves the
employ of the Company, she will deliver to the Company all drawings, notes,
memoranda, specifications, devices, formulas, and documents, together with all
copies thereof, and any other material containing or disclosing any Company
Invention, Third Party Information or Proprietary Information of the Company.
Employee further agrees that any property situated on the Company's premises and
owned by the Company, including disks and other storage media, filing cabinets
or other work areas, is subject to inspection by Company personnel at any time
with or without notice.
G. LEGAL AND EQUITABLE REMEDIES. Because Employee's services
are personal and unique and because Employee may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Section 12 of the Agreement and any of its
provisions by injunctions, specific performance or other equitable relief,
without bond, without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.
H. PERMITTED DISCLOSURE OF PROPRIETARY INFORMATION. Anything
to the contrary herein notwithstanding, disclosure by Employee of Proprietary
Information shall not be precluded if such disclosure is in response to a valid
order of a governmental body or is otherwise required by law; provided, however,
that Employee shall, if reasonably possible, first have given notice thereof to
the Company and shall have, as appropriate: [i] fully cooperated in the
Company's attempt, if any, to obtain a "protective order" from the appropriate
governmental body; or [ii] attempted to classify such documents to prevent
access by the public, in accordance with the provisions of any law pertaining to
freedom of information.
13. EMPLOYEE'S ETHICAL OBLIGATIONS AS AN ATTORNEY. The parties hereto
acknowledge that Employee is an attorney licensed to practice in the state(s) of
_____________, and is therefore subject to certain ethical obligations imposed
on her as an attorney by such state(s), which among other things, prohibit
Employee from entering into agreements, such as an employment agreement, which
restrict or otherwise limit her ability to practice law, represent certain
clients or pursue certain types of claims, cases or kinds of representations.
Notwithstanding anything contained elsewhere in this Agreement, this Agreement,
and in particular Sections 9, 10 and 12 hereof, does not attempt to limit or
restrict, and should not be construed as limiting or restricting, both during
the term of her employment with the Company and thereafter, Employee's ability,
in her role as a licensed attorney, to practice law, represent certain clients
or pursue certain types of claims, cases or kinds of representations, except
where any of the foregoing would otherwise violate or conflict with the ethical
obligations imposed on Employee in the state(s) in which she is licensed to
practice law.
14. NOTICES. All notices and other communications hereunder shall be in
writing and shall be given or made by hand delivery, or by certified or
registered mail, return receipt requested, postage prepaid, or by telegram, as
follows, or to such other person or address as shall be hereafter designated by
notice given in accordance with this Section:
A. If to the Company: Primis, Inc.
8
<PAGE>
Attn: C. James Schaper
Suite 320
11475 Great Oaks Way
Alpharetta, Georgia 30022
With a copy to: Wyatt, Tarrant & Combs
Attention: Patrick W. Mattingly, Esq.
2800 Citizens Plaza
Louisville, Kentucky 40202
B. If to Employee: Connie Caldwell Breeser
340 Glen Lake Drive
Atlanta, Georgia 30327
Any notice or other communication hereunder shall be deemed to have been duly
given or made if made by hand, when delivered against receipt therefor or when
attempted delivery shall be rejected, as the case may be, if made by letter,
upon deposit thereof in the mail, postage prepaid, registered or certified, with
return receipt requested, and if made by telegram, facsimile or reputable
overnight courier when sent. Notwithstanding the foregoing, any notice or other
communication hereunder which is actually received by a party hereto shall be
deemed to have been duly given or made to such party.
15. MISCELLANEOUS.
A. ASSIGNMENT. This is a contract for personal services by
Employee and may not be assigned by Employee. This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns.
B. WAIVER OF BREACH. Failure or delay by either party to
insist upon compliance with any provision hereof shall not operate as, and is
not to be construed as, a waiver or amendment of such provision. The waiver by
either party of a breach of any provision of this Agreement by the other shall
not operate or be construed as a waiver of any subsequent breach, whether
occurring under similar or dissimilar circumstances.
C. ENTIRE AGREEMENT: CANCELLATION OF PRIOR AGREEMENTS. This
Agreement contains the entire agreement of the parties with respect to the
subject matter hereof. It may not be changed orally, but only by an amendment in
writing signed by the parties hereto. All prior agreements or understandings
concerning Employee's employment by the Company are hereby canceled and
superseded by this Agreement.
9
<PAGE>
D. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remainder of this Agreement.
E. HEADINGS. The headings contained in this Agreement are for
convenience only and shall not be deemed a part of this Agreement in construing
or interpreting the provisions hereof.
F. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia. In connection
with the enforcement of this Agreement, the parties consent to jurisdiction in
the courts of Georgia. The prevailing party in any action to enforce this
Agreement shall be entitled to attorneys' fees from the non-prevailing party.
G. REMEDIES. In accordance with O.C.G.A. ss. 9-9-2(c)(9), as
evidenced by the parties affixing their initials hereon next to this Section
15.G., any controversy arising out of, or relating to, this Agreement or any
modification or extension of this Agreement, including any claim for damages,
recission, specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, in accordance
with the rules then obtaining of the American Arbitration Association. The
determination of the arbitrator when made shall be binding upon all parties
bound by the terms of this Agreement. Judgment upon the award rendered by the
arbitrator may be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek injunctive relief from
any court of competent jurisdiction in the event of any breach or threatened
breach of Sections 9, 10 or 12 of this Agreement. Initials:
Company: ______________________; Employee: _____________________.
H. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument.
[SIGNATURE PAGES TO FOLLOW]
10
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
counterpart signature page to this Employment Agreement between Primis, Inc. and
Connie Caldwell Breeser on the date set forth below but effective as of the day
and year first written on page 1 of this Agreement.
PRIMIS, INC.
By:
-------------------------------------
Dated __________ ___, 1999 Title:
----------------------------------
("Company")
[Signature Page to Employment Agreement
between Primis, Inc. and Connie Caldwell Breeser]
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
counterpart signature page to this Employment Agreement between Primis, Inc. and
Connie Caldwell Breeser the date set forth below but effective as of the day and
year first written on page 1 of this Agreement.
Dated __________ ___, 1999
------------------------------
CONNIE CALDWELL BREESER
("Employee")
[Signature Page to Employment Agreement
between Primis, Inc. and Connie Caldwell Breeser]
<PAGE>
EXHIBIT A
Stock Option Agreement
<PAGE>
Exhibit 10.7
COMMON STOCK PURCHASE AGREEMENT
by and among
PREMIER APPRAISALS, INC.,
J. DAVID GRISSOM,
WINDCREST PARTNERS,
CHRYSALIS VENTURES LIMITED PARTNERSHIP,
CASSELBERRY PARTNERS, L.P.,
J.G. FUNDING, LLC,
RICHLAND VENTURES II, L.P.,
SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP,
SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.), LIMITED PARTNERSHIP,
MOORE GLOBAL INVESTMENTS, LTD.
and
REMINGTON STRATEGIES INVESTMENTS, L.P.
June 16, 1998
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of the 16th day of June, 1998, by and among (i) PREMIER
APPRAISALS, INC., a Georgia corporation ("Company"), and (ii) CHRYSALIS VENTURES
LIMITED PARTNERSHIP, a Kentucky limited partnership, CASSELBERRY PARTNERS, L.P.,
a Kentucky limited partnership, J.G. FUNDING, LLC, a Kentucky limited liability
company, WINDCREST PARTNERS, a New York limited partnership, J. DAVID GRISSOM,
an individual, RICHLAND VENTURES II, L.P., a Delaware limited partnership,
REMINGTON INVESTMENTS STRATEGIES, L.P., a _______ limited partnership, MOORE
GLOBAL INVESTMENTS, LTD., a __________ limited partnership, SOUTH ATLANTIC
PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP, a Delaware limited partnership, and
SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.), LIMITED PARTNERSHIP, a Delaware
limited partnership (each an "Investor" and collectively the "Investors").
WITNESSETH:
Company desires to sell and issue, and each Investor desires
to purchase and acquire, the number of shares of Company's authorized but
unissued common stock ("Common Stock") set forth opposite his or its name on
SCHEDULE 1 hereto, upon the terms and subject to the conditions contained
herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company and Investors agree as follows:
1. SALE AND ISSUANCE OF COMMON STOCK.
a. Company shall adopt and file with the Secretary of State of
the State of Georgia on or before the Closing (as defined below) Articles of
Amendment to the Company's Articles of Incorporation in the form attached hereto
as EXHIBIT A (the "Articles of Amendment").
b. Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase from Company, and
Company agrees to sell, issue and deliver to each Investor, severally and not
jointly, the number of shares of Common Stock set forth opposite each Investor's
name on SCHEDULE 1 attached hereto at a price of Four Dollars ($4.00) per share
resulting in a total purchase price at the Closing of Eight Million Six Hundred
Thousand Dollars ($8,600,000). Except as set out on SCHEDULE 1, Investors will
pay the purchase price in immediately available funds at the Closing.
c. Subject to the terms and conditions of this Agreement, each
Investor shall have the right and option (the "Option"), but not the obligation,
at any time within six (6) months after the Closing, upon delivery of ten (10)
days prior written notice to Company (the
<PAGE>
"Option Notice"), to purchase from Company, and Company agrees to sell, issue
and deliver to such Investor, the number of shares of Common Stock of Company
set forth opposite each Investor's name on SCHEDULE 2 attached hereto (the
"Option Shares") at a price of Five Dollars and Fifty Cents ($5.50) per share
(the "Option Purchase Price"). The Option may not be exercised for any amount
less than the entire number of shares set forth on Schedule 2. Within ten (10)
days of delivery of the Option Notice, such Investor shall deliver the Option
Purchase Price to the Company in immediately available funds. Upon receipt of
the entire Option Purchase Price, the Company shall deliver certificates
representing the Option Shares to such Investor.
2. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on June 15, 1998, at
the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville,
Kentucky, or at such other time, date, or place as shall be mutually agreed upon
by the parties hereto in writing (the "Closing Date").
3. CLOSING ITEMS.
a. At the Closing, Company shall deliver, or cause to be
delivered, the following items:
i. the Articles of Incorporation and Bylaws of
Company, and all amendments thereto, certified as to their due adoption
and validity by the Secretary of Company;
ii. certificates representing the shares of Common
Stock that each Investor is purchasing as set forth on SCHEDULE 1
hereto against payment of the purchase price therefor in immediately
available funds;
iii. Waiver and Consent of certain shareholders of
the Company with respect to preemptive rights, antidilution protection
and other matters;
iv. Amended and Restated Registration Rights
Agreement in the form attached hereto as EXHIBIT B duly executed by
Company;
v. The Shareholders' Agreement in the form attached
hereto as EXHIBIT C duly executed by Company;
vi. the Amended and Restated Stock Option Plan in the
form attached hereto as EXHIBIT D duly executed by Company;
vii. resolutions of the Board of Directors of Company
authorizing the execution, delivery and consummation of this Agreement,
the issuance of the shares of Common Stock, and the other matters
contemplated hereby, certified as to their due adoption and continued
validity by the Secretary of Company;
<PAGE>
viii. resolutions of the shareholders of Company
authorizing the Articles of Amendment and the Amended and Restated
Stock Option Plan certified as to their due adoption and continued
validity by the Secretary of the Company; and
ix. a certificate executed by the President of
Company to the effect that each of Company's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date.
b. At the Closing, each Investor shall deliver, or cause to be
delivered, severally and not jointly, the following items:
i. immediately available funds or other consideration
equal to the purchase price of the shares of Common Stock set forth
opposite such Investor's name on SCHEDULE 1 attached hereto;
ii. the Amended and Restated Registration Rights
Agreement duly executed by Investor; and
iii. the Shareholders' Agreement duly executed by
Investor.
4. FURTHER ASSURANCES. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Except as set forth
in the disclosure letter dated the date hereof delivered to each Investor (the
"Disclosure Letter"), Company hereby represents and warrants to each Investor as
follows:
a. CORPORATE STANDING. Company is a corporation duly
organized, validly existing, and in good standing under the laws of Georgia.
Company has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
proposed to be conducted, to execute, deliver and perform this Agreement and any
other agreement to which Company is a party, the execution and delivery of which
is contemplated hereby (the "Ancillary Agreements"). Company is duly qualified
and is authorized to transact business and is in good standing as a foreign
corporation in each jurisdiction in which the failure so to qualify would have a
material adverse effect on its business, properties, prospects, or financial
condition. Every jurisdiction where the Company is qualified as a foreign
corporation to transact business is listed in Section 5.A of the Disclosure
Letter. True and accurate copies of the articles of incorporation and bylaws of
Company (and all amendments thereto) and minute book (containing the records of
meetings and written consents of the stockholders, the board of directors and
any committees of the board of directors) of Company have previously been
delivered to counsel to Investors.
b. AUTHORIZATION. The execution and delivery of this Agreement
and any
<PAGE>
Ancillary Agreement and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action on the
part of Company. Each of this Agreement and any Ancillary Agreement have been
duly executed and delivered by Company and constitutes the legal, valid and
binding obligation of Company enforceable against it in accordance with its
terms.
c. CAPITALIZATION. As of the Closing Date, the authorized
capital stock of Company shall consist of 12,920,000 shares, divided into: (i)
10,000,000 shares of Common Stock, par value $0.01 per share; (ii) 2,500,000
shares of preferred stock ("Preferred Stock") with such preferences, limitations
and relative rights as may be determined by the Board of Directors pursuant to
Article IV(B) of the Articles; and (iii) 420,000 shares of Class A Convertible
Preferred Stock ("Class A Preferred"). Immediately prior to the Closing, 100% of
the outstanding shares of Common Stock of the Company are owned by the
stockholders and in the amounts specified in Section 5.C of the Disclosure
Letter and no shares of Preferred Stock or Class A Preferred are outstanding.
Except as set forth in Section 5.C of the Disclosure Letter,
there are outstanding no subscriptions, options, warrants, calls, commitments or
rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements or agreements of any character relating to
shares of Company's capital stock or the Common Stock to be issued hereunder or
any instruments that can be converted into shares of Company's capital stock or
the Common Stock to be issued hereunder. None of the shares of Company's capital
stock have been issued in violation of any preemptive right. All issuances,
transfers or purchases of the capital stock of Company have been in compliance
with all applicable agreements and all applicable laws, including federal and
state securities laws, and all taxes thereon, if any, have been paid. No former
or present holder of any of the shares of capital stock of Company has any
legally cognizable claim against Company based on any issuance, sale, purchase,
redemption or involvement in any transfer of any shares of capital stock by
Company. There are no contractual obligations of Company to repurchase, redeem
or otherwise acquire any shares of capital stock of Company. No bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders of Company may vote are issued or outstanding. Company is not
a party to or subject to any agreement or understanding, and, to Company's best
knowledge, there is no agreement or understanding between any persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by any director of Company
d. VALIDLY ISSUED SHARES. The shares of Common Stock to be
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration set out herein, will, upon issuance in accordance with the
terms hereof, be duly and validly issued, fully paid and nonassessable, free of
restrictions on transfer other than restrictions on transfer under applicable
federal and state securities laws. The issuance of the Common Stock to Investors
pursuant to this Agreement will comply with all applicable laws, including
federal and state securities laws, and will not violate the preemptive rights of
any person.
The outstanding shares of Company's Common Stock have been
duly authorized
<PAGE>
and validly issued, are fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the applicable
federal and state securities laws or pursuant to valid exemptions therefrom.
e. NO CONFLICT. The execution and delivery of this Agreement
and any Ancillary Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Company's Articles of Incorporation or Bylaws, or result in any Violation of any
material lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company, or Company's properties or assets.
f. CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Company is not
in violation or default of any provision of its Articles of Incorporation or
Bylaws or in any respect of any provision of any material contract or other
items listed on the Disclosure Letter.
g. SUBSIDIARIES. Company does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Company is not a
participant in any joint venture, partnership or similar arrangement.
h. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company in connection with the execution and delivery of this
Agreement, or the consummation by Company of the transactions contemplated
hereby, which has not already been obtained, except for notices of sale required
to be filed with the Securities and Exchange Commission, or such post closing
filings as may be required under applicable state securities laws which will be
timely filed within the applicable periods therefor.
i. FINANCIAL STATEMENTS. Company has delivered to Investors
prior to the date hereof its audited financial statements for the years ended
December 31, 1996 and December 31, 1997, and its unaudited financial statements
(balance sheet and profit and loss statement) for the four (4) month period
ended April 30, 1998 (the "Financial Statements"). The Financial Statements,
including any footnotes thereto, were prepared in accordance with generally
accepted accounting principles and fairly present the financial position and
operating results of Company as of the dates and for the periods indicated
therein. Since April 30, 1998, there has not been any material adverse change in
the assets, liabilities, financial condition, results of operation or prospects
of Company.
j. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as and to the extent reflected and adequately reserved
against in the Financial Statements, as of the
<PAGE>
Closing Date, Company has no direct or indirect indebtedness for borrowed money,
indebtedness by way of lease-purchase arrangements, guarantees, undertakings,
chattel mortgages or other security arrangements with any bank, financial
institution or other third party and Company will not have any liability or
obligation whatsoever, whether accrued, absolute, contingent or otherwise.
k. TITLE TO PROPERTY AND ASSETS; LEASES. Company owns no real
property in fee simple. Company has good, valid and marketable title to all the
personal and mixed, tangible and intangible properties and assets which it
purports to own, free and clear of all liens, restrictions, claims, charges,
security interests, easements or other encumbrances of any nature whatsoever,
except for liens for current taxes not yet due and payable. With respect to the
property and assets that it leases, Company is in compliance with such leases
and, to Company's knowledge, holds a valid leasehold interest free and clear of
any liens, claims and encumbrances. All properties and assets of Company are in
the possession or control of Company, and no other person is entitled to
possession of any such properties and assets. Company is not bound or committed
to make any capital improvement or expenditure with respect to its owned or
leased real or personal property.
l. LEGAL PROCEEDINGS. Except as set forth in the Disclosure
Letter or which are not material to Company, there are no claims of any kind or
any actions, suits, proceedings, arbitrations or investigations pending or, to
Company's knowledge, threatened against or affecting Company or against any
asset, interest or right of Company or which questions the validity of the
transactions contemplated by this Agreement and Company knows of no facts which
may constitute a basis therefor.
m. ENVIRONMENTAL MATTERS. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's
knowledge, as of the date hereof no material expenditures are required to be
made by Company in order to comply with any of the Environmental Laws.
n. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as set
forth in Section 5.N of the Disclosure Letter, Company holds all franchises,
permits, licenses, variances, exemptions, orders and approvals of all
governmental entities which are material to the operation of Company's business
and is in compliance with the terms thereof. Company has complied with and is
not in any default under (and has not been charged with or received notice with
respect to, nor is threatened with or under investigation with respect to, any
charge concerning any violation of any provision of) any federal, state or local
law, regulation, ordinance, rule or order (whether executive, judicial,
legislative or administrative) or any order, writ, injunction or decree of any
court, agency or instrumentality and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failures to comply.
o. EMPLOYEE BENEFIT PLANS. Except as set forth in Section 5.O
of the Disclosure Letter, Company has no employee benefit plans including any
profit sharing, deferred
<PAGE>
compensation, incentive compensation, stock ownership, stock purchase, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of Company (collectively "Benefit Plans"), or any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Company and any officer, director or
employee of Company. Company has delivered to Investors true, complete and
correct copies of each Benefit Plan, or, in the case of any unwritten Benefit
Plans, descriptions thereof. Each Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws.
p. LABOR RELATIONS.
i. Company is in compliance in all material respects
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health;
ii. There is no unfair labor practice charge or
complaint or any other matter against or involving Company pending or,
to Company's knowledge, threatened before the National Labor Relations
Board or any court of law;
iii. There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Company's knowledge, threatened
against Company;
iv. Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement;
v. There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to Company's knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Company. There have
been no governmental audits of the equal employment opportunity
practices of Company and, to Company's knowledge, no basis for any such
claim exists; and
vi. To Company's knowledge, Company is in compliance
in all material respects with the requirements of the Americans With
Disabilities Act.
q. INSURANCE. Section 5.Q of the Disclosure Letter sets forth
a list of all insurance policies, including property, casualty, liability and
other insurance maintained with respect to the assets and business of Company
("Company Insurance"). Company is not liable for any material retroactive
premium adjustments with respect to any of its insurance policies or bonds. All
such policies and bonds are legal, valid and enforceable and in full force and
effect and Company is not in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration under the
<PAGE>
policy. Nor has the Company received any notice of premium increases or
cancellations with respect to any of such policies and bonds. Company believes
the amount and type of Company Insurance coverage is adequate for Company's
business and is consistent with good business practice.
r. TAX MATTERS. Company has timely filed or caused to be filed
all federal, state, foreign and local income, franchise, gross receipts,
payroll, sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all respects. Company has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or properly accruable for all periods ending on or
before the date of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority. There are no security interests
on any of the assets of Company that arise in connection with any failure (or
alleged failure) to pay any tax. Company has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. No deficiencies for any taxes have been proposed, asserted or assessed
against Company that are not adequately reserved for.
s. PATENTS AND TRADEMARKS. Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, and proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with, or infringement of the rights of, others.
Except for agreements with its own employees or consultants and standard
end-user license agreements, if any, there are no outstanding options, licenses,
or agreements of any kind relating to the foregoing, nor is the Company bound by
or a party to any options, licenses, or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, and proprietary rights and processes of any other person
or entity. Company has not received any communications alleging that Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets, or
other proprietary rights or processes of any other person or entity. Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the
interests of Company or that would conflict with Company's business as proposed
to be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Company's business by the employees of Company, nor the conduct
of Company's business as proposed, will, to Company's knowledge, conflict with
or result in a breach of the terms, conditions, or provisions of, or constitute
a default under, any contract, covenant, or instrument under which any of such
employees is now obligated. Company does not believe it is or will be necessary
to use any inventions of any of its employees (or persons it currently intends
to hire) made prior to their employment by Company. Each independent contractor,
employee and/or officer of Company who or which has contributed to the
development of the Computer Software has executed proprietary
<PAGE>
information/confidentiality agreements.
t. RELATED-PARTY TRANSACTIONS. Except as set forth in the
Disclosure Letter, no employee, officer, or director of Company, or member of
his or her immediate family is indebted to Company, nor is Company indebted (or
committed to make loans or extend or guarantee credit) to any of them. To
Company's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which Company is affiliated or with
which Company has a business relationship, or any firm or corporation that
competes with Company, except that employees, officers, or directors of Company,
and members of their immediate families may own stock in publicly traded
companies that may compete with Company. Except as set forth in Section 5.T of
the Disclosure Letter, no employee, officer or director of Company, or, to
Company's knowledge, any member of their immediate families is, directly or
indirectly, interested in any material contract with Company. For purposes of
this Agreement, Company shall be deemed to have knowledge of a fact, event,
condition, matter or situation if any of Company's officers or directors are
consciously aware of such fact, event, condition, matter or situation, as
appropriate.
u. SOFTWARE PRODUCTS. Company has received no customer
complaints concerning alleged defects in its computer appraisal software
products, including, without limitation, Value Express (collectively, the
"Computer Software") that, if true, would materially adversely affect the
operations or financial condition of Company.
v. BROKERS' AND FINDERS' FEES. Company has not employed any
broker, finder or financial advisor or incurred any liability for fees or
commissions payable to any broker, finder or financial advisor in connection
with the negotiations relating to or the transactions contemplated by this
Agreement.
w. MATERIAL FACTS. Company has provided each Investor with all
the information reasonably available to it that such Investor has requested for
deciding whether to purchase the Common Stock. This Agreement and the documents
or written statements furnished by Company to Investors in connection with the
transactions contemplated hereby do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor
hereby represents and warrants to Company, severally and not jointly, as of the
date hereof, as follows:
a. BINDING AGREEMENT. This Agreement and any Ancillary
Agreement, as applicable, have been duly executed and delivered by such Investor
and each constitutes the legal, valid and binding obligation of such Investor
enforceable against him in accordance with its terms.
b. INVESTMENT REPRESENTATIONS. Such Investor is acquiring the
Common Stock solely for its or his own account as principal, for investment
purposes only and not with a
<PAGE>
view to resale or distribution thereof in whole or in part, and such Investor
has no present intention of selling, granting any participation in, or otherwise
distributing the Securities.
c. ACCREDITED INVESTOR; RESIDENCE. Such Investor is a resident
of the state set forth under its or his name on SCHEDULE 1 attached hereto and
is an "accredited investor" as such term is defined under Rule 501 of Regulation
D promulgated pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
d. RECEIPT OF INFORMATION; RESTRICTED SECURITIES. Such
Investor acknowledges that the Common Stock is not being and will not be
registered under the Securities Act or the securities laws of any other
jurisdiction in reliance on exemptions thereunder. The Common Stock has not been
and will not be approved or disapproved by the Securities and Exchange
Commission or any other governmental authority or agency of any jurisdiction.
Such Investor represents that such Investor has had an opportunity to ask
questions and receive answers from Company regarding the terms and conditions of
the offering of the Common Stock and the business, properties, prospects, and
financial condition of Company and to obtain additional information (to the
extent Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to such Investor or to which such Investor had access.
Investors' representations under this Section 6, however, shall not limit or
modify the representations and warranties of Company in Section 5 of this
Agreement or the right of Investors to rely thereon.
e. INVESTMENT EXPERIENCE. Such Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage or development and acknowledges that such Investor
is able to fend for itself, can bear the economic risk of such Investor's
investment, and has such knowledge and experience in financial and business
matters that such Investor is capable of evaluating the merits and risks of the
investment in the Common Stock.
f. LEGENDS. Each certificate or other document evidencing any
of the Common Stock issued pursuant to this Agreement shall be endorsed with the
legend set forth below:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
AN AGREEMENT DATED AS OF APRIL 24, 1995, AS AMENDED, HAS BEEN ENTERED
INTO BY CERTAIN SHAREHOLDERS OF THE CORPORATION AND HAS BEEN DELIVERED
TO THE SECRETARY TO
<PAGE>
BE KEPT ON FILE AT THE CORPORATION'S REGISTERED OFFICE. THAT AGREEMENT
IMPOSES VARIOUS RESTRICTIONS UPON THE TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE AND CREATES VARIOUS OPTIONS, RIGHTS AND
INTERESTS WITH RESPECT TO THOSE SHARES.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained in this Agreement by any party to this Agreement and
any certificate or other instrument delivered by or on behalf of any party
pursuant to this Agreement shall be continuous and shall survive the Closing
and the issuance of all shares of Company's capital stock. Each party shall
have the right to rely on each other party's representations and warranties
made herein, notwithstanding any investigation conducted by such party.
8. INDEMNIFICATION.
a. INDEMNIFICATION BY COMPANY. Company shall indemnify and
reimburse each Investor for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees)
(hereinafter "Loss" or "Losses") suffered or incurred by such Investor, any
successors or assigns thereto (the "Protected Parties") as a result of, or with
respect to:
i. Any breach or inaccuracy of any representation or
warranty of Company set forth in Section 5;
ii. Any breach of or noncompliance by Company with
any covenant or agreement of Company contained in this Agreement; and
iii. any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
b. INDEMNIFICATION BY INVESTORS. Each Investor shall,
severally and not jointly, indemnify and reimburse Company for any and all
claims, losses, liabilities, damages (including, without limitation, fines,
penalties, and criminal or civil judgments and settlements), costs (including,
without limitation, court costs) and expenses (including, without limitation,
attorneys' and accountants' fees) (hereinafter "Loss" or "Losses") suffered or
incurred by Company or any successors or assigns thereto as a result of, or with
respect to:
i. Any breach or inaccuracy of any representation or
warranty of such Investor set forth in Section 6;
ii. Any breach of or noncompliance by such Investors
with any covenant or agreement of Investor contained in this Agreement;
and
iii. any and all actions, suits, proceedings, claims,
demands,
<PAGE>
assessments and judgments incident to any of the foregoing.
9. COMPANY COVENANTS. Company hereby covenants and agrees as follows:
a. USE OF PROCEEDS. The proceeds from the sale of the Common
Stock pursuant to this Agreement shall be used by Company (i) to purchase the
capital stock of Kushner & Robertson, Inc. and (ii) for working capital.
b. FINANCIAL STATEMENTS. Subject to Section 9.c, Company shall
furnish to the Investors:
i. an audited balance sheet and statements of income
and cash flow within ninety (90) days after the end of each fiscal
year, together with comparative figures for the last preceding fiscal
year prepared by a firm of certified public accountants acceptable from
time to time to a majority in interest of the Common Stock of Company;
ii. as soon as available, and in any event within
thirty (30) days after the close of each calendar month, an unaudited
balance sheet and statement of income and cash flows for such month,
together with comparative figures for both the month just ended and the
portion of the fiscal year then ended, and a written one or two page
monthly summary of Company's operations. Such financial statements
shall be prepared in accordance with generally accepted accounting
principles consistently applied (subject to audit and year-end
adjustments) by the principal financial or accounting officer of the
Company;
iii. as soon as available, and in any event within
thirty (30) days before the close of each fiscal year, a business plan
and projections for Company's next fiscal year; and
iv. such additional information with respect to
Company's financial condition as may be reasonably requested by the
Investors.
c. TERMINATION OF COVENANTS. The covenants set forth in
Section 9.b shall terminate and be of no further force or effect at such time as
Company is required to file reports pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934, provided Company delivers to the Investors
copies of all such reports filed within five (5) days of their filing with the
SEC.
10. PUBLIC STATEMENTS. Neither Company nor Investors shall, without
the prior written approval of the other parties hereto, make any press
release or other public announcement concerning the transactions contemplated
by this Agreement. Investors and Company may disclose information with
respect to the transaction contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such persons have a
need to know such information.
<PAGE>
11. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed
by first class, registered, or certified mail, postage prepaid, or sent via
overnight courier service, or delivered personally:
If to Investors, to: J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Chrysalis Ventures Limited Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202
J.G. Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P.
3100 West End Avenue, Suite 400
Nashville, TN 37203-1304
South Atlantic Private Equity Fund IV
Limited Partnership
and
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
c/o Don Burton
614 W. Bay Street, Suite 200
Tampa, FL 33606
<PAGE>
Moore Global Investments, Ltd.
and
Remington Investments Strategies, L.P.
c/o Moore Capital Management, Inc.
1251 Avenue of the Americas
New York, NY 10020
Attn: Michael Heffernan
If to Company to: Premier Appraisals, Inc.
Suite 1220
12 Perimeter Center East
Atlanta, GA 30346
Attn: Michael W. Mattox,
President and CEO
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
12. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties to this Agreement shall bind and inure to the
benefit of their respective heirs, executors, successors, and assigns,
whether so expressed or not. Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto and their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. This Agreement is not
assignable and any purported assignment shall be null and void.
13. CONSTRUCTION; GOVERNING LAW. The section headings contained in
this Agreement are inserted as a matter of convenience and shall not affect
in any way the construction of the terms of this Agreement. This Agreement
shall be governed by and interpreted in accordance with the laws of the
Commonwealth of Kentucky.
14. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement,
including the Disclosure Letter and Exhibits hereto, constitutes and contains
the entire agreement between the parties hereto with respect to the
transactions contemplated hereby and supersedes any prior writing by the
parties. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of Company and each Investor (or its or his permitted assigns). Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement at
the time outstanding (including securities into which such securities have
been converted), each future holder of all such securities, and Company.
15. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of the remaining provisions.
<PAGE>
[Rest of page left intentionally blank]
<PAGE>
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same Agreement.
17. EXPENSES. Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay all reasonable legal and out-of-pocket
expenses incurred by J. David Grissom in connection with this Agreement and
the transactions contemplated hereunder, including, without limitation, all
fees of Wyatt, Tarrant & Combs, plus expenses.
18. ATTORNEYS' FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or any Ancillary
Agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs, and disbursements in addition to any other relief to which such
party may be entitled.
19. RIGHTS OF INVESTORS. Each holder of Common Stock shall have the
absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement or any Common Stock,
including without limitation the right to consent to the waiver of any
obligation of Company under this Agreement and to enter into an agreement
with Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such holder shall not incur any
liability to any other holder or holders of Common Stock with respect to
exercising or refraining from exercising any such right or rights.
20. EXCULPATION AMONG INVESTORS. Each Investor acknowledges that he
is not relying upon any person, firm, or corporation, other than Company and
its current officers and directors, in making its investment or decision to
invest in Company. Each Investor agrees that no other Investor nor the
respective agents of any other Investor shall be liable for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the Common Stock.
IN WITNESS WHEREOF, Company and Investors have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
PREMIER APPRAISALS, INC.
By:_______________________________________
Michael J. Mattox, President and
Chief Executive Officer
<PAGE>
"INVESTORS"
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By: ______________________________________
Title:______________________________________
CASSELBERRY PARTNERS, L.P.
By:_______________________________________
Title:______________________________________
J.G. FUNDING, LLC
By:_______________________________________
Title:______________________________________
_______________________________________
J. DAVID GRISSOM
WINDCREST PARTNERS
By:_______________________________________
A General Partner
RICHLAND VENTURES II, L.P.
By:_______________________________________
Its:_______________________________________
<PAGE>
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its: General Partner
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
(Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its: General Partner
MOORE GLOBAL INVESTMENTS, LTD.
By:_______________________________________
_________________ of Moore Capital
Management
Its: Trading Advisor
REMINGTON INVESTMENTS STRATEGIES, L.P.
By:_______________________________________
_____________ of Moore Capital
Advisors, LLC
Its: General Partner
<PAGE>
SCHEDULE 1
Investor's Investment at Closing
<TABLE>
<CAPTION>
Number of Shares Purchase
Investor of Common Stock Price
-------- --------------- -----
<S> <C> <C>
J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202 250,000 $1,000,000(1)
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130 125,000 $ 500,000
Richland Ventures II, L.P.
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304 500,000 $2,000,000
South Atlantic Private Equity Fund IV
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 210,000 $ 840,000
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 290,000 $1,160,000
Moore Global Investments, Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas 410,000 $1,640,000
Remington Investments Strategies, L.P.
1251 Avenue of the Americas
New York, NY 10020 90,000 $ 360,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202 61,716 $246,864(2)
J.G. Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 56,787 $227,148(3)
Chrysalis Ventures Limited Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 156,497 $625,988(4)
</TABLE>
- -------------------
(1) Payable $178,871.92 by the cancellation of that certain Promissory Note
dated March 12, 1998 in favor of the Company with the remainder in cash.
(2) Payable $39,722.03 by the cancellation of that certain Promissory Note dated
April 27, 1998 in favor of the Company with the remainder in cash.
(3) Payable $36,549.73 by the cancellation of that certain Promissory Note dated
April 27, 1998 in favor of the Company with the remainder in cash.
(4) Payable $100,725.16 by the cancellation of that certain Promissory Note
dated April 27, 1998 in favor of the Company with the remainder in cash.
<PAGE>
SCHEDULE 2
Investor's Post-Closing Option
<TABLE>
<CAPTION>
Number of Shares
Investor of Common Stock
-------- ---------------
<S> <C>
J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202 90,909
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130 45,454
Richland Ventures II, L.P.
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304 181,818
South Atlantic Private Equity Fund IV
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 76,363
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 105,454
Moore Global Investments, Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas 149,090
Remington Investments Strategies, L.P.
1251 Avenue of the Americas
New York, NY 10020 32,727
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202 22,442
J.G. Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 20,649
Chrysalis Ventures Limited Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 56,908
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. Sale and Issuance of Common Stock........................................................................1
2. Closing..................................................................................................2
3. Closing Items............................................................................................2
4. Further Assurances.......................................................................................3
5. Representations and Warranties of Company................................................................3
a. Corporate Standing..............................................................................3
b. Authorization...................................................................................3
c. Capitalization..................................................................................4
d. Validly Issued Shares...........................................................................4
e. No Conflict.....................................................................................5
f. Contracts and Other Commitments; Compliance.....................................................5
g. Subsidiaries....................................................................................5
h. Consents........................................................................................5
i. Financial Statements............................................................................5
j. Indebtedness for Borrowed Money; No Undisclosed Liabilities.....................................5
k. Title to Property and Assets; Leases............................................................6
l. Legal Proceedings...............................................................................6
m. Environmental Matters...........................................................................6
n. Licenses and Permits; Compliance with Laws......................................................6
o. Employee Benefit Plans..........................................................................6
p. Labor Relations.................................................................................7
q. Insurance.......................................................................................7
r. Tax Matters.....................................................................................7
s. Patents and Trademarks..........................................................................8
t. Related-Party Transactions......................................................................8
u. Software Products...............................................................................9
v. Brokers' and Finders' Fees......................................................................9
w. Material Facts..................................................................................9
6. Representations and Warranties of Investors..............................................................9
a. Binding Agreement...............................................................................9
b. Investment Representations......................................................................9
c. Accredited Investor; Residence..................................................................9
d. Receipt of Information; Restricted Securities...................................................9
e. Investment Experience..........................................................................10
f. Legends........................................................................................10
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
7. Survival of Representations and Warranties..............................................................10
8. Indemnification.........................................................................................10
a. Indemnification by Company.....................................................................10
b. Indemnification by Investors...................................................................11
9. Company Covenants.......................................................................................11
a. Use of Proceeds................................................................................11
b. Financial Statements...........................................................................11
c. Termination of Covenants.......................................................................12
10. Public Statements.......................................................................................12
11. Notices.................................................................................................12
12. Parties in Interest; Assignment.........................................................................14
13. Construction; Governing Law.............................................................................14
14. Entire Agreement; Amendment and Waiver..................................................................14
15. Severability............................................................................................14
16. Counterparts............................................................................................15
17. Expenses................................................................................................15
18. Attorneys' Fees.........................................................................................15
19. Rights of Investors.....................................................................................15
20. Exculpation Among Investors.............................................................................15
</TABLE>
<PAGE>
Exhibits and Schedules
<TABLE>
<S> <C>
Schedule 1 Investors' Investment at Closing
Schedule 2 Investors' Post Closing Option
Exhibit A Articles of Amendment
Exhibit B Second Amended and Restated Registration Rights Agreement
Exhibit C Amended and Restated Shareholders' Agreement
Exhibit D Amended and Restated 1997 Employee Stock Option Plan
</TABLE>
<PAGE>
EXHIBIT 10.8
PREMIER APPRAISALS, INC.
Second Amended and Restated
Registration Rights Agreement
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT (this "Agreement") is made and entered into as of the 16th day of
June, 1998 by and among (i) PREMIER APPRAISALS, INC., a Georgia corporation (the
"Company") and (ii) CHRYSALIS VENTURES LIMITED PARTNERSHIP, a Kentucky limited
partnership, JG PARTNERSHIP, LTD., a Kentucky limited partnership, JG FUNDING,
LLC, a Kentucky limited liability company, DAVID A. JONES, an individual, W.
PATRICK ORTALE, III, an individual, JACK TYRRELL, an individual, WINDCREST
PARTNERS, a New York limited partnership, CASSELBERRY PARTNERS, L.P., a Kentucky
limited partnership, J. DAVID GRISSOM, an individual, MICHAEL W. MATTOX, an
individual, VICKI L. BRAKEBILL, an individual, RICHLAND VENTURES II, L.P., a
Delaware limited partnership, MOORE GLOBAL INVESTMENTS, LTD., a limited
partnership, REMINGTON INVESTMENTS STRATEGIES, L.P., a limited partnership,
SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP, a Delaware limited
partnership, and SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.), LIMITED
PARTNERSHIP, a Delaware limited partnership (each an "Investor" and collectively
the "Investors").
WHEREAS, the Company and certain of the Investors are parties
to an Amended and Restated Registration Rights Agreement dated as of May 30,
1997 (the "Registration Rights Agreement"); and
WHEREAS, the Company and the Investors desire to amend and
restate the Registration Rights Agreement with respect to the Common Stock now
owned and hereafter acquired by the Investors;
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties hereto agree to amend and restate the
Registration Rights Agreement, in its entirety, as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below.
1.1 "Common Stock" shall mean the Company's Common Stock,
par value $.01 per share, or any capital stock exchanged therefor.
1.2 "Commission" shall mean the federal Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.
<PAGE>
1.3 "Demand Statement" shall have the meaning given that
term in Section 3.1 hereof.
1.4 "Exchange Act" shall mean the Securities Exchange Ac
of 1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
1.5 "Holder" shall mean any Investor and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 8 hereof.
1.6 "Initiating Holders" shall mean any Holder or
Holders who hold not less than twenty-five percent (25%) of the Registrable
Securities and who submits the Demand Statement to the Company pursuant to
Section 3.1 hereof.
1.7 "Preferred Stock" shall mean any Preferred Stock of
the Company now or hereafter outstanding.
1.8 "Registrable Securities" shall mean all Common Stock
which any of the Investors shall have acquired at any time, provided, however,
that Registrable Securities shall NOT include any shares of Common Stock which
have previously been registered or which have been sold to the public or which
have been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
1.9 The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
1.10 "Registration Expenses" shall mean all expenses
incurred in effecting any registration pursuant to this Agreement, including,
without limitation, all registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holders (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
1.11 "Rule 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
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1.12 "Rule 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
1.13 "Securities Act" shall mean the Securities Act of
1933, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
1.14 "Selling Expenses" shall mean all underwriting
discounts, selling commissions, and stock transfer taxes applicable to the sale
of Registrable Securities and fees and disbursements of counsel for any Holder
(other than the fees and disbursements of counsel included in Registration
Expenses).
2. COMPANY REGISTRATION.
2.1 If the Company shall determine to register any of its
Common Stock or Preferred Stock for its own account or for the account of any
other party, other than a registration relating solely to employee benefit
plans, or a registration relating solely to a Rule 145 transaction, or a
registration on any registration form that does not permit secondary sales, the
Company will:
[a] promptly give to each Holder written notice
thereof and of the anticipated effective date of such registration; and
[b] use its best efforts to include in such
registration (and any related qualification under blue sky laws or
other compliance), except as set forth in Section 2.2 below, and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made by any Holder and received by
the Company within thirty (30) days after the written notice from the
Company described in clause [a] above is mailed or delivered by the
Company. Such written request may specify all or any part of a Holder's
Registrable Securities.
2.2 UNDERWRITING. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 2.1[a]. In such event, the right of any Holder
to registration pursuant to this Section 2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such under writing
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representatives of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section 2, if the
representative of the underwriter(s) advises the Company in writing that
marketing factors require a limitation on the number of
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<PAGE>
shares to be underwritten, the representative may (subject to the limitations
set forth below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting. The
Company shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
10. If any person does not agree to the terms of any such underwriting, he shall
be excluded therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors as determined by the
underwriters, the Company shall then offer to all persons who have retained the
right to include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares so withdrawn, with such shares to be allocated among the persons
requesting additional inclusion in accordance with Section 10 hereof.
3. DEMAND REGISTRATION.
3.1 DEMAND FOR REGISTRATION. At any time following the
Company's initial registered public offering of its Common Stock with the
Commission, the Initiating Holders may submit in writing to the Company a demand
that the Company effect a registration with respect to all or a part of the
Registrable Securities on Form S-3 or any related form of registration statement
(the "Demand Statement"). If the Company receives such Demand Statement from the
Initiating Holders, the Company will:
[a] promptly (but in any event with ten (10) days)
give written notice of the proposed registration to all other Holders;
and
[b] as soon as practicable, use its best efforts to
effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable
blue sky or other state securities laws, and appropriate compliance
with the Securities Act and any other governmental requirements or
regulations) and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within
thirty (30) business days after such written notice from the Company is
mailed or delivered.
The Company shall not be obligated to effect, or to
take any action to effect, any such registration pursuant to this
Section 3.1:
[i] In any particular jurisdiction in
which the Company would be required to execute a general
consent to service of process in effecting such registration,
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<PAGE>
qualification, or compliance, unless the Company is already
subject to service in such jurisdiction and except as may be
required by the Securities Act;
[ii] During a 180 day period commencing
with the effective date of a registration statement for the
Company's initial public offering;
[iii] If the Company delivers notice to
the Initiating Holders within thirty (30) days of the
Company's receipt of the Demand Notice stating the Company's
intent to file a registration statement within ninety (90)
days;
[iv] If the Initiating Holders do not
request that such offering be firmly underwritten by
underwriters selected by the Initiating Holders (subject to
the consent of the Company, which consent shall not be
unreasonably withheld);
[v] If the Company and the Initiating
Holders are unable to obtain the commitment of the underwriter
described in clause [iv] above to firmly underwrite the offer;
[vi] If the Company has previously
effected two (2) demand registrations for Holders pursuant to
this Section 3.1; or
[vii] If the Initiating Holders elect to
include less than twenty-five percent (25%) of the Registrable
Securities in the proposed registration.
3.2 POSTPONED REGISTRATION. Subject to the foregoing
clauses [i] through [vii] in Section 3.1, the Company shall file a registration
statement covering the Registrable Securities so requested to be registered as
soon as practicable, but in any event within ninety (90) days after receipt of
the request or requests of the Initiating Holders; provided, however, that if
(i) in the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company for such registration
statement to be filed in the near future and that it is, therefore, essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing (except as provided in Clause 3.1(ii) above) for a
period of not more than ninety (90) days after receipt of the Demand Notice,
and, provided further, that the Company shall not defer its obligation in this
matter more than once in any twenty-four month period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of this Section 3.2 and 10
hereof, include other securities of the Company, with respect to which
registration rights have been granted, and may include securities of the Company
being sold for the account of the Company.
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<PAGE>
3.3 UNDERWRITING. The right of any Holder to registration
pursuant to Section 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. A Holder may elect to include in
such underwriting all or a part of the Registrable Securities he holds.
3.4 PROCEDURES. If the Company shall request inclusion in
any registration pursuant to Section 3 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 3, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this
Agreement. The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 3, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 10 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares to be included in
such registration was previously reduced as a result of marketing factors
pursuant to this Section 3.4, then the Company shall offer to all holders who
have retained rights to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among
such Holders requesting additional inclusion in accordance with Section 10.
4. REGISTRATION EXPENSES. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 2 and 3.1 hereof shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the applicable Holder.
5. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder electing registration advised in writing as to the initiation of each
registration and as to the material progress and completion thereof. At its
expense, the Company will use its best efforts to:
5.1 Keep such registration effective for a period of one
hundred eighty (180) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however, that such 180-day period shall be extended for
a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company;
6
<PAGE>
5.2 Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
5.3 Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as a Holder from time to time may reasonably request;
5.4 Cause all such Registrable Securities registered
pursuant hereunto to be listed on each securities exchange, if any, on which
similar securities issued by the Company are then listed and comply with all
applicable blue sky laws to enable the Registrable Securities to be publicly
offered and sold in the states in which such Registrable Securities will be
offered;
5.5 Provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration; and
5.6 In connection with any underwritten offering pursuant
to a registration statement filed pursuant to section 2 hereof, the Company will
enter into an underwriting agreement in form reasonably necessary to effect the
offer and sale of the Common Stock provided such underwriting agreement contains
customary underwriting provisions and provided further that, if the underwriter
so requests, the underwriting agreement will contain customary contribution
provisions.
6. INDEMNIFICATION.
6.1 The Company will indemnify each Holder, each of the
Company's officers, directors and partners, legal counsel, and accountants and
each person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls within the meaning of Section 15 of the Securities Act
any underwriter, against all expenses, claims, losses, damages, and liabilities
(or actions, proceedings, or settlements in respect thereof), arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses
7
<PAGE>
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability or action, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
Holder or underwriter and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 6.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent has not been unreasonably withheld).
6.2 Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, each other such Holder and each of
their officers, directors, and partners, and each person controlling such Holder
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and such Holders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld); and provided that in
no event shall any indemnity under this Section 6.2 exceed the gross proceeds
from the offering received by such Holder.
6.3 Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party who shall conduct the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does
8
<PAGE>
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
6.4 If the indemnification provided for in this Section 6
is held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions of the Indemnifying Party and of the
Indemnified Party. Such relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission; provided that in no event shall contribution by the
Holder under this Section 6.4 exceed the gross proceeds from the offering
received by the Holder.
6.5 Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
7. INFORMATION BY HOLDER. Each Holder of Registrable Securities
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Agreement.
8. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to a Holder by the Company
under Section 2 or the right of the Holders to demand that the Company register
securities granted under Section 3 may be transferred or assigned by such Holder
to a transferee or assignee provided that the Company is given written notice at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes in writing the obligations of such Holder under this Agreement.
9. "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, a Holder shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (other than those
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included in the registration) during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that all Holders and officers and directors
of the Company are bound by and have entered into similar agreements.
The obligations described in this Section 9 shall not apply to
a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Rule 145 transaction on Form S-4 or similar forms that may
be promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
10. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance
in which all of the Registrable Securities and other shares of Common Stock of
the Company with registration rights (the "Other Shares") requested to be
included in a registration on behalf of the Holders or other selling
stockholders cannot be so included as a result of limitations on the aggregate
number of shares of Registrable Securities and Other Shares that may be so
included, the number of shares of Registrable Securities and Other Shares that
may be so included shall be allocated among the Holders and other selling
stockholders requesting inclusion of shares pro rata on the basis of the number
of shares of Registrable Securities and Other Shares that would be held by such
Holders and other selling stockholders at the time of filing the Registration
Statement; provided, however, that those Registrable Securities held by Michael
W. Mattox and Vicki L. Brakebill shall be limited or excluded completely from
the registration before the other Investors suffer any limitation or exclusion
of their Registrable Securities from such registration; and provided, further,
that such allocation shall not operate to reduce the aggregate number of
Registrable Securities and Other Shares to be included in such registration. If
any Holder or other selling stockholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of this
allocation shall be reallocated among those requesting Holders and other selling
stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares that
would be held by such Holders and other selling stockholders and this procedure
shall be repeated until all of the shares of Registrable Securities and Other
Shares which may be included in the registration on behalf of the Holders and
other selling stockholders have been so allocated. The Company shall not limit
the number of Registrable Securities to be included in a registration pursuant
to this Agreement in order to include shares held by stockholders with no
registration rights.
11. LIMITATIONS ON REGISTRATION OF OTHER SECURITIES;
REPRESENTATION. Except with respect to acquisitions of assets or any business
entity, the Company shall not, without the prior written consent of a
majority in interests of the Holders, enter into any agreement with any
holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are
as or more favorable than registration rights granted to the Holders
hereunder unless the Company shall also give such rights to the Holders
hereunder.
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12. TERMINATION OF REGISTRATION RIGHTS. All rights provided for in
Sections 2 and 3 hereof expire four (4) years after the Closing of the Company's
initial public offering. In addition, a Holder's registration rights shall
expire on such date after the Company's initial public offering that all shares
of Registrable Securities held or entitled to be held upon conversion by such
Holder could immediately be sold under Rule 144 during any consecutive 90-day
period.
13. REPORTING. The Company agrees to:
13.1 Make and keep public information available, as those
terms are understood and defined in Rule 144, at all times after ninety (90)
days after the effective date of the first registration filed by the Company for
an offering of its securities to the general public.
13.2 Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act.
14. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of Georgia, as applied to agreements among
Georgia residents entered into and to be performed entirely within Georgia.
14.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors and administrators of
the parties hereto.
14.3 TERMINATION OF PRIOR AGREEMENT; ENTIRE AGREEMENT.
This Agreement restates and supersedes in its entirety the Amended and Restated
Registration Rights Agreement dated as of May 30, 1997 between the Company,
Chrysalis Ventures Limited Partnership, J. David Grissom, David A. Jones, W.
Patrick Ortale, III, Jack Tyrrell, JG Partnership, Ltd., Windcrest Partners,
Casselberry Partners, L.P., Michael W. Mattox and Vicki L. Brakebill. This
Agreement constitutes the full and entire understanding and agreement between
the parties with regard to the subjects hereof.
14.4 AMENDMENT; WAIVER. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and holders of a majority in interest
of the Registrable Securities at the time such instrument is executed, and any
such amendment, waiver, discharge or termination shall be binding on all the
Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
14.5 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed by
first class, registered, or certified mail, postage
11
<PAGE>
prepaid, or sent via overnight reputable courier service, or delivered
personally or via facsimile with copy sent by mail as provided above:
If to Investors, to: J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Chrysalis Ventures Limited Partnership,
JG Funding, LLC and
JG Partnership, Ltd.
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
David A. Jones
c/o Chrysalis Ventures, Limited
Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Jack Tyrrell
c/o Richland Ventures
Suite 400
3100 West End Avenue
Nashville, TN 37203-1304
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202
W. Patrick Ortale, III
c/o Richland Ventures
Suite 400
3100 West End Avenue
Nashville, TN 37203-1304
Michael W. Mattox
12
<PAGE>
c/o Premier Appraisals, Inc.
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
Vicki L. Brakebill
1030 Berrington Circle
Birmingham, Alabama 35242
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P.
3100 West End Avenue, Suite 400
Nashville, TN 37203-1304
South Atlantic Private Equity Fund IV
Limited Partnership
and
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
c/o Don Burton
614 W. Bay Street, Suite 200
Tampa, FL 33606
Moore Global Investments, Ltd.
and
Remington Investments Strategies, L.P.
c/o Moore Capital Management, Inc.
1251 Avenue of the Americas
New York, NY 10020
Attn: Michael Heffernan
If to Company to: Premier Appraisals, Inc.
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
Attn: Michael W. Mattox, President
and Chief Executive Officer
13
<PAGE>
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
three days after being mailed, notices sent by overnight courier service shall
be deemed given one day after placed in the hands of a representative of such
service and notice given by facsimile shall be deemed given on the date of
transmission subject to sender's receipt of a confirmation copy.
14.6 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval
of any kind or character on the part of any Holder of any breach or default
under this Agreement or any waiver on the part of any Holder of any provisions
or conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
14.7 RIGHTS; SEPARABILITY. Unless otherwise expressly provided
herein, a Holder's rights hereunder are several rights, not rights jointly held
with any of the other Holders. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
14.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing or interpreting this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
14.10 PREVAILING PARTY. In the event any legal action or other
proceeding is brought by a party hereto to enforce the terms of this Agreement,
the prevailing party in such action or proceeding will be entitled to reasonable
attorneys', paralegals' and accountants' fees and costs incurred before and at
trial and at all appellate levels, in addition to all awards, judgments and
recoveries of damages obtained.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first written above.
14
<PAGE>
"COMPANY"
PREMIER APPRAISALS, INC.
------------------------------------------
Michael W. Mattox, President and
Chief Executive Officer
"INVESTORS"
CHRYSALIS VENTURES LIMITED
PARTNERSHIP
By: ______________________________________
Its: General Partner
JG PARTNERSHIP, LTD.
By: ______________________________________
Its: General Partner
JG FUNDING, LLC
By: ______________________________________
Its: ______________________________________
CASSELBERRY PARTNERS, L.P.
By________________________________________
Its: General Partner
15
<PAGE>
________________________________________
J. DAVID GRISSOM
________________________________________
DAVID A. JONES
________________________________________
W. PATRICK ORTALE, III
________________________________________
JACK TYRRELL
________________________________________
MICHAEL W. MATTOX
________________________________________
VICKI L. BRAKEBILL
WINDCREST PARTNERS
By:_______________________________________
A General Partner
RICHLAND VENTURES II, L.P.
By:_______________________________________
Its:_______________________________________
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
LIMITED PARTNERSHIP
16
<PAGE>
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its:_______________________________________
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
(Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its:_______________________________________
MOORE GLOBAL INVESTMENTS, LTD.
By:_______________________________________
______________ of Moore Capital Management
Its: Trading Advisor
REMINGTON INVESTMENTS STRATEGIES, L.P.
By:_______________________________________
_____________ of Moore Capital Advisors, LLC
Its: General Partner
17
<PAGE>
Exhibit 10.9
AMENDMENT NO. 1
TO
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT NO. 1 TO THE SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT ("Amendment") is made and entered into as of the
17th day of December, 1998, by and among (i) PREMIER APPRAISALS, INC., a Georgia
corporation (the "Company"), and (ii) CHRYSALIS VENTURES LIMITED PARTNERSHIP, a
Kentucky limited partnership, JG PARTNERSHIP, LTD., a Kentucky limited
partnership, JG FUNDING, LLC, a Kentucky limited liability company, DAVID A.
JONES, an individual, W. PATRICK ORTALE, III, an individual, JACK TYRRELL, an
individual, WINDCREST PARTNERS, a New York limited partnership, CASSELBERRY
PARTNERS, L.P., a Kentucky limited partnership, J. DAVID GRISSOM, an individual,
MICHAEL W. MATTOX, an individual, VICKI L. BRAKEBILL, an individual, RICHLAND
VENTURES II, L.P., a Delaware limited partnership, MOORE GLOBAL INVESTMENTS,
LTD., a limited partnership, REMINGTON INVESTMENTS STRATEGIES, L.P., a limited
partnership, SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP, a
Delaware limited partnership, and SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.),
LIMITED PARTNERSHIP, a Delaware limited partnership (each an "Investor" and
collectively the "Investors").
WITNESSETH:
WHEREAS, the Company and the Investors are parties to a Second
Amended and Restated Registration Rights Agreement dated as of June 16, 1998
(the "Registration Rights Agreement").
WHEREAS, the Company and the Investors desire to amend the
Registration Rights Agreement as set forth herein.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound, Company and Investors agree as follows:
1. Section 4 of the Registration Rights Agreement is hereby
amended to read in its entirety as follows:
4. REGISTRATION EXPENSES. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to Sections 2 and 3.1 hereof shall be borne by the Company. All Selling
Expenses relating to securities so registered shall be borne by the applicable
Holder; provided, however, that the reasonable fees and expenses of one counsel
for the Holders in the case of registrations pursuant to Section 3.1 shall be
borne by the Company.
2. Except as amended hereby, the Registration Rights Agreement
shall remain in full force and effect, unmodified and unrevoked.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the day and year first above written.
"COMPANY"
PREMIER APPRAISALS, INC.
__________________________________________
Michael W. Mattox, President and
Chief Executive Officer
"INVESTORS"
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By:________________________________________
David A. Jones, Jr., Managing Director,
Chrysalis Ventures, Inc., Its General
Partner
JG PARTNERSHIP, LTD.
By:________________________________________
David A. Jones, Managing Partners, by
David A. Jones, Jr., Power of Attorney
JG FUNDING, LLC
By:________________________________________
David A. Jones, Managing Partners, by
David A. Jones, Jr., Power of Attorney
2
<PAGE>
CASSELBERRY PARTNERS, L.P.
By:_______________________________________
Douglas A. Cobb, General Partner
__________________________________________
J. DAVID GRISSOM
__________________________________________
DAVID A. JONES
__________________________________________
W. PATRICK ORTALE, III
__________________________________________
JACK TYRRELL
__________________________________________
MICHAEL W. MATTOX
__________________________________________
VICKI L. BRAKEBILL
WINDCREST PARTNERS
By:_______________________________________
A General Partner
RICHLAND VENTURES II, L.P.
By:_______________________________________
Jack Tyrrell, Partner
3
<PAGE>
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its: Managing General Partner
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
(Q.P.) , LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:_______________________________________
Its: Managing General Partner
MOORE GLOBAL INVESTMENTS, LTD.
By:_______________________________________
Moore Capital Management
Its: Trading Advisor
REMINGTON INVESTMENTS STRATEGIES, L.P.
By:_______________________________________
Moore Capital Advisors, LLC
Its: General Partner
4
<PAGE>
Exhibit 10.10
AGREEMENT TO EXTEND OPTION
THIS AGREEMENT TO EXTEND OPTION ("Agreement") is made and entered into
as of the 17th day of December, 1998 by and among (i) PRIMIS, INC. (formerly
Premier Appraisals, Inc.), a Georgia corporation ("Company"), and (ii) CHRYSALIS
VENTURES LIMITED PARTNERSHIP, a Kentucky limited partnership, CASSELBERRY
PARTNERS, L.P., a Kentucky limited partnership, JG FUNDING, LLC, a Kentucky
limited liability company, WINDCREST PARTNERS, a New York limited partnership,
J. DAVID GRISSOM, an individual, RICHLAND VENTURES II, L.P., a Delaware limited
partnership, REMINGTON INVESTMENTS STRATEGIES, L.P., a limited partnership,
MOORE GLOBAL INVESTMENTS, LTD., a limited partnership, SOUTH ATLANTIC PRIVATE
EQUITY FUND IV, LIMITED PARTNERSHIP, a Delaware limited partnership, and SOUTH
ATLANTIC PRIVATE EQUITY FUND IV (Q.P.), LIMITED PARTNERSHIP, a Delaware limited
partnership (each an "Investor" and collectively the "Investors").
WITNESSETH:
Company and Investors entered into a Common Stock Purchase Agreement
dated June 16, 1998 (the "Purchase Agreement") pursuant to which Investors
purchased shares of Company's Common Stock.
Section 1.c of the Purchase Agreement provided that Investors would
have the right and option, at any time before December 16, 1998, to purchase
additional shares of Company's Common Stock, at a purchase price of $5.50 per
share, as set forth in the Purchase Agreement.
Company has determined that an extension of the options provided in the
Purchase Agreement would be in Company's best interest and in the interest of
the shareholders of Company.
Therefore, Company desires to effectively extend the Option granted
under the Purchase Agreement by granting each Investor a similar option to
purchase shares of Company's Common Stock exercisable upon and subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, and intending to be legally bound, Company and
Investors agree as follows:
1. OPTION TO PURCHASE COMMON STOCK. Subject to the terms and conditions
of this Agreement, each Investor shall have the right and option (the "Option"),
but not the obligation, at any time on or before July 1, 1999 (the "Option
Expiration Date"), upon delivery of ten (10) days prior written notice to
Company (the "Option Notice"), to purchase from Company, and Company agrees to
sell, issue and deliver to such Investor, the number of shares of Common Stock
of Company set forth opposite each Investor's name on SCHEDULE 1 attached
hereto (the "Option Shares"), at a price of Five Dollars and Fifty Cents
($5.50) per share (the "Option Purchase Price"). The Option Shares and the
Option Purchase Price shall be subject to adjustment as provided in Section 3
of this Agreement. The Option may not be exercised by an Investor for any
amount less than the entire number of shares set forth opposite such
<PAGE>
Investor's name on Schedule 1. Within ten (10) days of delivery of the Option
Notice by an Investor, such Investor shall deliver the Option Purchase Price
to Company in immediately available funds. Upon receipt of the entire Option
Purchase Price from an Investor, Company shall deliver certificates
representing the Option Shares to the Investor.
2. COMPANY RIGHT TO CALL OPTIONS. Notwithstanding the provisions of
Section 1 of this Agreement to the contrary, on or before the Option Expiration
Date, Company may, by delivery of twenty (20) days prior written notice to
Investors (the "Call Notice"), "call" the Options and, in such event, each
Investor shall either (i) exercise his or its Option to purchase all, but not
less than all, of the Investor's Option Shares, within twenty (20) days
following delivery of the Call Notice, or (ii) forfeit his or its right to
exercise the Option and purchase the Option Shares pursuant to Section 1 of this
Agreement. If an Investor elects to exercise his or its right to exercise the
Investor's Option under this Section 2 and purchase the Option Shares, the
purchase price and terms of purchase with respect to the Option shall be the
same as set forth in Section 1 of this Agreement. If an Investor elects not to
exercise the Investor's Option and purchase the Option Shares pursuant to this
Section 2, such Investor shall have no further rights pursuant to this Agreement
or the Purchase Agreement to purchase shares of Company's Common Stock pursuant
to the Option.
3. CAPITAL ADJUSTMENTS. In the event of a capital adjustment in the
Common Stock of Company by reason of any reorganization, recapitalization, stock
split, stock dividend, combination or exchange of shares, merger or
consolidation, or any other change in the nature or number of shares of Common
Stock of Company, a proportionate adjustment shall be made in the maximum number
and kind of shares to be delivered upon exercise of the Option, and in the
Option Purchase Price. By virtue of such a capital adjustment, the Option
Purchase Price shall be adjusted so that there will be no change in the
aggregate purchase price payable upon exercise of any such Option. In addition,
if Company shall issue any of its Common Stock for a consideration per share
which is less than the Option Purchase Price in effect immediately prior to such
issuance or for no consideration (other than shares reserved for issuance to
employees and officers of Company pursuant to Company's outstanding option
plan), the Option Purchase Price shall be reduced to such lower price.
4. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their heirs, executors,
successors and assigns.
5. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter hereof and may not be
amended excepted in a writing signed by all the parties hereto.
6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
"COMPANY"
PRIMIS, INC.
By:
----------------------------------------
Title:
-------------------------------------
"INVESTORS"
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By: Chrysalis Ventures, LLC, its General Partner
By:
----------------------------------------
David A. Jones, Jr., Manager
CASSELBERRY PARTNERS, L.P.
By:
----------------------------------------
Title:
-------------------------------------
J.G. FUNDING, LLC
By: Chrysalis Ventures, LLC, its Manager
By:
----------------------------------------
David A. Jones, Jr., Manager
3
<PAGE>
------------------------------------------
J. DAVID GRISSOM
WINDCREST PARTNERS
By:
---------------------------------------
A General Partner
RICHLAND VENTURES II, L.P.
By:
---------------------------------------
Its:
--------------------------------------
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:
-----------------------------------------
Its: General Partner
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
(Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:
----------------------------------------
Its: General Partner
4
<PAGE>
MOORE GLOBAL INVESTMENTS, LTD.
By:
_______________________________________
____________ of Moore Capital
Management
Its: Trading Advisor
REMINGTON INVESTMENTS STRATEGIES, L.P.
By:
_______________________________________
___________ of Moore Capital
Advisors, LLC
Its: General Partner
5
<PAGE>
SCHEDULE 1
Investor's Option
Number of Shares
Investor of Common Stock
-------- -----------------
J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202 90,909
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130 45,454
Richland Ventures II, L.P.
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304 181,818
South Atlantic Private Equity Fund IV
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 76,363
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 105,454
Moore Global Investments, Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas 149,090
6
<PAGE>
Remington Investments Strategies, L.P.
1251 Avenue of the Americas
New York, NY 10020 32,727
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202 22,442
J.G. Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 20,649
Chrysalis Ventures Limited Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 56,908
7
<PAGE>
Exhibit 10.11
RELEASE AND SETTLEMENT AGREEMENT
WHEREAS, MICHAEL W. MATTOX's employment has been severed with PRIMIS, INC.,
formerly known as PREMIER APPRAISALS, INC. ("Company") as of January 25, 1999;
WHEREAS, MICHAEL W. MATTOX ("Mattox") now wants to settle, compromise, and
resolve any and all differences, disputes, disagreements, or claims that have
been or could have been asserted, or that he has had or may have, against the
Company and its affiliated and associated corporations, expressly including but
not limited to the Company and its predecessors, successors, and assigns, all
present and former stockholders, officers, directors, employees, attorneys and
agents of the Company (collectively, "Employer");
THEREFORE, for and in consideration for the sum set forth below, Mattox for
himself and for his heirs, executors, administrators, successors, assigns, and
agents, and Company agree as follows:
1. Company hereby agrees to: (1) pay to Mattox the total sum of $178,750 in
26 equal payments of $6,875 each, less withholdings, consistent with the
Company's customary payroll practices on the 15th day and last day of each month
through and including February 29, 2000, and maintain in effect at the Company's
expense Mattox's medical insurance coverage for that period; (2) purchase his
vested options to purchase 122,866 shares of the Company's stock at a value of
$4.00 per share less the $1 per share exercise price of such options or $368,598
in the aggregate, and (3) pay to Mattox the total sum of $30,000 for any and all
consulting services rendered to Company after severance of his employment with
the Company for the purpose of settling and compromising all of the causes of
action he had or may have had arising out of his employment, consulting and
separation therefrom including, but not limited to, claims for unjust and
wrongful discharge, breach of contract, employment discrimination including
claims under
<PAGE>
Title VII, on account of age under the federal Age Discrimination in Employment
Act of 1967, as amended, and on account of disability under the Americans with
Disabilities Act, under any state or local laws or regulations, including but
not limited to those pertaining to employment discrimination, wrongful
discharge, breach of contract (express or implied), retaliation, embarrassment,
humiliation, outrage, loss of dignity and defamation, mental anguish, and
reinstatement or future employment as well as for attorney's fees or other costs
(collectively, "Claims"), as well as for the purpose of obtaining Mattox's
commitments contained in Paragraphs 7, 8, 9 and 10 below.
2. Mattox agrees to, and does hereby, waive, release, and forever discharge
Employer from the Claims that he has had or may have, excepting only any vested
rights under the Company's welfare benefit plans and/or Claims arising as a
result of Company's breach of this Release and Settlement Agreement.
3. Mattox understands and agrees that Employer denies any liability
whatsoever in connection with said Claims. Mattox also understands and agrees
that Employer denies that it wrongfully discharged or discriminated against,
injured or damaged him in any way.
4. Mattox and his counsel agree to keep the fact and amount of this
settlement in strict confidence; Mattox agrees not to disclose this document,
its contents, or subject matter to any person other than his wife, his attorney,
income tax preparer or accountant, without the prior written consent of J. David
Grissom or except in response to a proper request through legal process.
Furthermore, to the extent Mattox is permitted to disclose and does disclose
such information, he agrees to require, and does warrant, that the person
receiving such information shall maintain its confidentiality.
2
<PAGE>
5. Mattox agrees that he will fully cooperate with Company, upon its
reasonable request, in the future should there be any need for his testimony or
assistance in connection with any matter related to his employment with Company
or matters he worked on while in its employ. Company agrees to pay Mattox a fee
of $1,000 per day for all assistance and to reimburse Matttox for any and all
reasonable expenses related thereto.
6. Mattox understands and agrees that his employment with Company has
permanently ceased for all purposes, and that he shall never seek employment or
reemployment with Company.
7. NON-COMPETITION:
Mattox agrees that for the period commencing on January 25, 1999 and ending
on January 24, 2001 (a) within the areas where Mattox worked within one (1) year
prior to his termination including all areas where Mattox actively performed,
supervised or assisted in the Company's business, and (b) within any area where
customers of the Company, with whom Mattox had material contact, were present
and doing business with the Company which areas are as follows: Alabama,
Arizona, California, Florida, Georgia, Maryland, North Carolina, Ohio, and
Virginia (the "Territory"), he shall not in any manner, directly or indirectly
or by assisting others, engage in any business in the Territory which is the
same or essentially the same as the business of the Company, as a manager,
supervisor, administrator, executive, senior or management level employee,
owner, proprietor, shareholder or consultant; provided that Mattox shall not be
restricted for owning less than 5% of the outstanding shares of a company whose
shares are publically traded.
8. NON-SOLICITATION:
3
<PAGE>
Mattox agrees that for a period commencing on January 25, 1999 and ending
on January 24, 2001, he shall not within the Territory solicit, directly or
indirectly, business from customers of the Company with which he had contact,
including actively-sought prospective customers, for the purposes of providing
products or services that are competitive with those provided by the Company.
Mattox, for a period commencing on January 25, 1999 and ending on January
24, 2001, shall not directly or indirectly, aid or endeavor to solicit or induce
any of the Company's employees to leave their employment with the Company in
order to accept employment with Mattox or another person, partnership,
corporation or other entity.
9. NON-DISCLOSURE; RETURN OF COMPANY PROPERTY:
At no time shall Mattox divulge, furnish or make accessible to anyone any
conffdential information or data of the Company, or any confidential information
or data of any ofthe customers of the Company, or any other confidential aspect
of the business or products or services of the Company or its customers. Mattox
hereby represents and warrants to the Company that he has turned over to the
Company all computer equipment and other tangible or intangible personal
property, including records, data, documents or information of any kind and in
any form relating in any way to the business of the Company, including any and
all copies of such materials; except for documents or copies thereof that may
relate to Mattox personally such as employment agreements, stock option
agreements, performance reviews and the like. For purposes of this Release and
Settlement Agreement, the term Confidential Information shall not include
information that Mattox can show by competent proof (i) was known to Mattox
prior to disclosure by Company; (ii) was generally known to the public at the
time Company disclosed the information to Mattox; (iii) became
4
<PAGE>
generally known to the public after disclosure by Company through no act or
omission of Mattox; or (iv) was disclosed to Mattox by a third party having a
bona fide right both to possess the information and to disclose the information
to Mattox.
10. ENFORCEABILITY; INJUNCTIVE RELIEF:
Mattox agrees that the Company may not be adequately compensated by damages
for a breach by Mattox of any of the covenants contained in Sections 7, 8, and
9, and that, in addition to all other remedies, the Company shall be entitled to
injunctive relief and specific performance. In such event, the periods oftime
referred to in Sections 7 and 8 shall be deemed extended for a period equal to
the respective period during which Mattox is in breach thereof, in order to
provide for injunctive relief and specific performance for a period equal to the
full term thereof. The covenants contained in Sections 7 and 8 shall be
construed as separate covenants, and if any court shall finally determine that
the restraints provided for in any such covenants are too broad as to the
geographic area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable and such covenants
shall be enforced as to such reduced area, activity or time.
11. Mattox shall indemnify and hold the Company harmless from any
liability, loss, damage, judgment, cost or expense (including reasonable
attorneys' fees and expenses) arising out of any claim or suit resulting from
Mattox's breach of any provision of this Release and Settlement Agreement or his
failure to perform a duty hereunder.
12. Employer agrees to, and does hereby, waive, release, and forever
discharge Mattox from any claims or causes of action which it had or now has, or
may claim to have, by reason of any matter or thing arising from any cause
whatsoever at any time up to and including the date of this
Agreement, except
5
<PAGE>
for claims arising as a result of Mattox's breach of this Release and Settlement
Agreement. Employer shall indemnify and hold Mattox harmless from any liability,
loss, damage, judgment, cost or expense (including reasonable attorney's fees
and expenses) arising out of any claim or suit resulting from (i) the Company's
breach of any provision of this Release and Settlement Agreement or its failure
to perform a duty hereunder or (ii) Mattox's guarantee of payment of any
American Express cards issued to the Company or Company employees. The Company
further represents and warrants that Mattox is not obligated with respect to
such guaranty as of and after the date hereof.
13. Company understands and agrees that certain facts in respect of which
this Agreement is made may be hereafter known to be other than or different from
the facts now known or believed to be true. Company acknowledges that it has had
the opportunity to discover and acquire any and all facts with respect to this
Release and Settlement Agreement and Employer's claims, if any, and Company
hereby expressly accepts and assumes the risk that the facts may be different
than Employer understands or believes them to be and Company hereby agrees that
all terms, without limitation or exception, of this Release and Settlement
Agreement shall in all respects be effective, binding, and not subject to
termination or rescission because of any such difference in facts, without
regard to the nature of such facts or the reason or reasons why such facts were
not discovered until after the execution of this Release and Settlement
Agreement.
14. Mattox understands and agrees that certain facts in respect of which
this Agreement is made may be hereafter known to be other than or different from
the facts now known or believed by him to be true. Mattox acknowledges that he
has had the opportunity to discover and acquire any and all facts with respect
to this Release and Settlement Agreement and his claims, if any, and Mattox
hereby expressly
6
<PAGE>
accepts and assumes the risk that the facts may be different than he understands
or believes them to be and he hereby agrees that all terms, without limitation
or exception, of this Release and Settlement Agreement shall in all respects be
effective, binding, and not subject to termination or rescission because of any
such difference in facts, without regard to the nature of such facts or the
reason or reasons why such facts were not discovered until after the execution
of this Release and Settlement Agreement.
15. Mattox understands and agrees that all terms of this Release and
Settlement Agreement are contractual and not a mere recital, and Mattox
represents and warrants that he is competent and possesses the full and complete
authority to covenant and agree as herein provided; Mattox also understands,
agrees and represents that the covenants herein made and releases herein
executed may affect rights and liabilities of substantial extent and degree and
that the covenants and releases provided herein are in his best interest.
16. Company represents and warrants that it has full and complete authority
to covenant and agree as provided herein.
17. Should this Release and Settlement Agreement ever be held invalid or
unenforceable (in whole or in part) with respect to any particular claims or
circumstances, it shall remain fully valid and enforceable as to all other
claims and circumstances.
18. Mattox represents and warrants that in negotiating and executing this
Release and Settlement Agreement, he has been advised to consult with an
attorney and has consulted with and been advised by competent counsel of his
choosing concerning the meaning and legal effect of each term and provision
ofthis Release and Settlement Agreement. Mattox has carefully read this Release
and Settlement Agreement in its entirety, discussed it with his counsel, and
fully understands and agrees to its terms and
7
<PAGE>
provisions. Mattox acknowledges that there are no other promises,
inducements, representations or agreements in connection with this agreement
other than those expressly set forth in writing herein, and Mattox intends and
agrees that, except as expressly provided in Paragraph 2, this is a final and
binding release of the Claims, including any claim for employment discrimination
in violation ofthe federal Age Discrimination in Employment Act of 1967, as
amended, known or unknown, whether in law or in equity, which he had or now has,
or may claim to have, by reason of any matter or thing arising from any cause
whatsoever at any time up to and including the date of this Agreement.
19. As evidenced by the parties affixing their initials
hereon next to this Section 19, any controversy arising out of,
or relating to, this Agreement or any modification or extension
of this Agreement, including any claim for damages, recission, Parties
specific performance or other legal or equitable relief, shall be
settled by arbitration in the City of Atlanta, State of Georgia, Initials:
in accordance with the rules then obtaining of the American
Arbitration Association. The determination of the arbitrator when ________
made shall be binding upon all parties bound by the terms of this
Agreement. Judgment upon the award rendered by the arbitrator may ________
be entered in any court of competent jurisdiction. The foregoing
notwithstanding, the Company shall have the right to seek
injunctive relief from any court of competent jurisdiction in the
event of any breach or threatened breach of Sections 7, 8 or 9 of
this Agreement.
20. Mattox acknowledges that he was given this Agreement on April __, 1999
and informed he had twenty-one (21) days to consider it and he has voluntarily,
after fully consulting with his counsel, entered into the terms hereof realizing
it is a full and complete settlement of all matters contained herein. The
parties further acknowledge that this Agreement may be revoked by Mattox
within seven (7) days from
8
<PAGE>
the execution hereof and the Agreement shall not become effective and
enforceable until after the revocation period has ended.
IN WITNESS WHEREOF, the parties have executed this Release and Settlement
Agreement as of the _____ day of April, 1999.
------------------------------------------
MICHAEL W. MATTOX
- ---------------------------
WITNESS
PRIMIS, INC., formerly known as
PREMIER APPRAISALS, INC.
9
<PAGE>
By:
---------------------------------
Title:
------------------------------
10
<PAGE>
EXHIBIT 10.13
AMENDMENT TO AGREEMENT TO EXTEND OPTION
THIS AMENDMENT TO AGREEMENT TO EXTEND OPTION (this
"Amendment") is made and entered into as of June 1, 1999, by and among
PRIMIS, INC. (formerly Premier Appraisals, Inc.), a Georgia corporation
("Company"), CHRYSALIS VENTURES LIMITED PARTNERSHIP, a Kentucky limited
partnership, CASSELBERRY PARTNERS, L.P., a Kentucky limited partnership, JG
FUNDING, LLC, a Kentucky limited liability company, WINDCREST PARTNERS, a New
York limited partnership, J. DAVID GRISSOM, an individual, RICHLAND VENTURES
II, L.P., a Delaware limited partnership, REMINGTON INVESTMENTS STRATEGIES,
L.P., a limited partnership, MOORE GLOBAL INVESTMENTS, LTD., a limited
partnership, SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP, a
Delaware limited partnership, and SOUTH ATLANTIC PRIVATE EQUITY FUND IV
(Q.P.), LIMITED PARTNERSHIP, a Delaware limited partnership (the "Parties").
RECITAL
WHEREAS the Parties entered into a AGREEMENT TO EXTEND OPTION
(the "Agreement") dated as of December 17, 1998; and
WHEREAS the Parties now wish to amend certain defined terms of
and a schedule to the Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements set forth herein and in the Agreement, and
for other good and valuable consideration, the mutuality, receipt and
sufficiency of which are hereby acknowledged, the Parties hereto do hereby agree
as follows:
1. DEFINITIONS. Each capitalized term used herein, unless otherwise expressly
defined or redefined herein, shall have the meaning ascribed to it in the
Agreement.
2. AMENDMENTS TO DEFINITIONS. The definitions of the following terms in
Agreement are amended to read as follows:
a. The term "Common Stock", including its use in defining the term "Option
Shares", is amended to be Series A Convertible Preferred Stock, which
shall have such preferences, limitations and rights as set forth in the
Articles of Amendment attached hereto as EXHIBIT A.
b. The term "Option Purchase Price" is amended to be $4.00 per share.
1
<PAGE>
3. AMENDMENTS TO SCHEDULES. Schedule 1 of the Agreement is amended and restated
in its entirety as set forth on Schedule 1 to this Amendment and attached
hereto.
4. HEADINGS. The headings used in this Amendment are included for ease of
reference only and shall not be considered in the interpretation or
construction of this Amendment.
5. AFFIRMATION OF AGREEMENT. Except as specifically amended hereby, the
Agreement shall remain in full force and effect.
6. MULTIPLE COUNTERPARTS. This Amendment may be executed in several
counterparts, each of which shall be deemed an original and all of which
together constitute one and the same instrument.
[END OF TEXT]
2
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have duly executed and
delivered this Amendment as of the day and year first above written.
PRIMIS, INC.
By:____________________________________
Title:_________________________________
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By: Chrysalis Ventures, LLC, its General Partner
By:____________________________________
David A. Jones, Jr., Manager
CASSELBERRY PARTNERS, L.P.
By:____________________________________
Title:_________________________________
J.G. FUNDING, LLC
By: Chrysalis Ventures, LLC, its Manager
By:____________________________________
David A. Jones, Jr., Manager
3
<PAGE>
_______________________________________
J. DAVID GRISSOM
WINDCREST PARTNERS
By:____________________________________
A General Partner
RICHLAND VENTURES II, L.P.
By:____________________________________
Its:___________________________________
SOUTH ATLANTIC PRIVATE EQUITY FUND IV,
LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:____________________________________
Its: General Partner
SOUTH ATLANTIC PRIVATE EQUITY FUND IV
(Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:____________________________________
Its: General Partner
4
<PAGE>
MOORE GLOBAL INVESTMENTS, LTD.
By:____________________________________
_________________ of Moore Capital
Management
Its: Trading Advisor
REMINGTON INVESTMENTS STRATEGIES, L.P.
By:____________________________________
_____________ of Moore Capital
Advisors, LLC
Its: General Partner
5
<PAGE>
SCHEDULE 1
Investor's Option
<TABLE>
<CAPTION>
Number of Shares of Series A Total Purchase Price
Investor Convertible Preferred Stock at $4.00 per share
<S> <C> <C>
J. David Grissom 125,000 $ 500,000
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Windcrest Partners 62,499 249,996
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P. 250,000 $1,000,000
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
South Atlantic Private Equity 104,999 419,996
Fund IV
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
South Atlantic Private Equity 144,999 $ 579,996
Fund IV
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
Moore Global Investments, 204,999 $ 819,996
Ltd.
c/o Citco Fund Services
(Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Remington Investments 45,000 $ 180,000
Strategies, L.P.
1251 Avenue of the Americas
New York, NY 10020
Casselberry Partners, L.P. 30,858 $ 123,432
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202
J.G. Funding, LLC 28,392 $ 113,568
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Chrysalis Ventures Limited 78,249 $ 312,996
Partnership
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Total 1,074,995 $4,299,980
</TABLE>
7
<PAGE>
EXHIBIT A
Articles of Amendment
8
<PAGE>
EXHIBIT 10.14
STOCK PURCHASE AGREEMENT
BY AND AMONG
PREMIER APPRAISALS, INC.
("Buyer")
MICHAEL ROBERTSON,
JEREMY MCCARTY,
JOSEPH MATHEWS, and
JAMES SULGER
("Shareholders") and
KUSHNER & ROBERTSON, INC. ("KRI"),
dba Hacienda Property Valuation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. DEFINITIONS..............................................................1
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING....................................7
2.1. SHARES ..................................................................7
2.2. PURCHASE PRICE.............................................................8
2.3. CLOSING ..................................................................8
2.4. CLOSING OBLIGATIONS........................................................8
2.5. CONSIDERATION ADJUSTMENT...................................................9
2.6. ADJUSTMENT PROCEDURE......................................................10
2.7. BOARD OF DIRECTORS........................................................11
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.........................11
3.1. ORGANIZATION AND GOOD STANDING............................................11
3.2. AUTHORITY; NO CONFLICT....................................................12
3.3. CAPITALIZATION............................................................13
3.4. FINANCIAL STATEMENTS......................................................13
3.5. BOOKS AND RECORDS.........................................................14
3.6. TITLE TO PROPERTIES; ENCUMBRANCES.........................................14
3.7. CONDITION AND SUFFICIENCY OF EQUIPMENT....................................14
3.8. ACCOUNTS RECEIVABLE.......................................................14
3.9. [Intentionally omitted]...................................................15
3.10. NO UNDISCLOSED LIABILITIES................................................15
3.11. TAXES .................................................................15
3.12. NO MATERIAL ADVERSE CHANGE................................................16
3.13. EMPLOYEE BENEFITS.........................................................16
3.14. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS...........22
3.15. LEGAL PROCEEDINGS; ORDERS.................................................23
3.16. ABSENCE OF CERTAIN CHANGES AND EVENTS.....................................25
3.17. CONTRACTS; NO DEFAULTS....................................................26
3.18. INSURANCE.................................................................28
3.19. ENVIRONMENTAL MATTERS.....................................................28
3.20. EMPLOYEES.................................................................28
3.21. LABOR RELATIONS; COMPLIANCE...............................................29
3.22. INTELLECTUAL PROPERTY.....................................................29
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.23. DISCLOSURE................................................................31
3.24. RELATIONSHIPS WITH RELATED PERSONS........................................32
3.25. BROKERS OR FINDERS........................................................32
3.26. INVESTMENT INTENT.........................................................32
3.27. BANK ACCOUNTS.............................................................32
3.28. CUSTOMERS.................................................................32
3.29. IMPROPER AND OTHER PAYMENTS...............................................33
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.................................33
4.1. CORPORATE STANDING........................................................33
4.2. AUTHORITY; NO CONFLICT....................................................33
4.3. CAPITALIZATION............................................................34
4.4. FINANCIAL STATEMENTS......................................................34
4.5. NO CONFLICT...............................................................35
4.6. COMPLIANCE................................................................35
4.7. SUBSIDIARIES..............................................................35
4.8. CONSENTS .................................................................35
4.9. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES...............35
4.10. TITLE TO PROPERTY AND ASSETS; LEASES......................................36
4.11. LEGAL PROCEEDINGS.........................................................36
4.12. ENVIRONMENTAL MATTERS.....................................................36
4.13. LICENSES AND PERMITS; COMPLIANCE WITH LAWS................................36
4.14. EMPLOYEE BENEFIT PLANS....................................................36
4.15. LABOR RELATIONS...........................................................37
4.16. INSURANCE.................................................................37
4.17. TAX MATTERS...............................................................37
4.18. PATENTS AND TRADEMARKS....................................................38
4.19. RELATED-PARTY TRANSACTIONS................................................38
4.20. SOFTWARE PRODUCTS.........................................................39
4.21. [Intentionally Omitted]...................................................39
4.22. MATERIAL FACTS............................................................39
4.23. INVESTMENT INTENT.........................................................39
4.24. CERTAIN PROCEEDINGS.......................................................39
4.25. BROKERS OR FINDERS........................................................39
SECTION 5. COVENANTS OF SHAREHOLDERS PRIOR TO CLOSING DATE.........................39
5.1. ACCESS AND INVESTIGATION..................................................39
5.2. OPERATION OF THE BUSINESSES OF KRI........................................40
5.3. NEGATIVE COVENANT.........................................................40
5.4. REQUIRED APPROVALS........................................................40
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
5.5. NOTIFICATION..............................................................40
5.6. PAYMENT OF INDEBTEDNESS BY RELATED PERSONS................................41
5.7. NO NEGOTIATION............................................................41
5.8. BEST EFFORTS..............................................................41
SECTION 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE................................41
6.1. BEST EFFORTS..............................................................41
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.....................41
7.1. ACCURACY OF REPRESENTATIONS...............................................41
7.2. SHAREHOLDERS' PERFORMANCE.................................................42
7.3. CONSENTS .................................................................42
7.4. ADDITIONAL DOCUMENTS......................................................42
7.5. NO PROCEEDINGS............................................................42
7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS.......................42
7.7. NO PROHIBITION............................................................43
7.8. EQUITY FINANCING..........................................................43
SECTION 8. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATION TO CLOSE...............43
8.1. ACCURACY OF REPRESENTATIONS...............................................43
8.2. BUYER'S PERFORMANCE.......................................................43
8.3. CONSENTS .................................................................43
8.4. ADDITIONAL DOCUMENTS......................................................43
8.5. NO INJUNCTION.............................................................44
SECTION 9. TERMINATION.............................................................44
9.1. TERMINATION EVENTS........................................................44
9.2. EFFECT OF TERMINATION.....................................................44
SECTION 10. INDEMNIFICATION; REMEDIES..............................................45
10.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE..............45
10.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SHAREHOLDERS....................45
10.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER...........................46
10.4. LIMITATIONS ON INDEMNIFICATION............................................46
10.5. PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.......................46
10.6. PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS.............................47
SECTION 11. GENERAL PROVISIONS.....................................................47
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
11.1. EXPENSES; TERMINATION FEE.................................................47
11.2. PUBLIC ANNOUNCEMENTS......................................................48
11.3. CONFIDENTIALITY...........................................................48
11.4. NOTICES .................................................................48
11.5. JURISDICTION; SERVICE OF PROCESS..........................................50
11.6. FURTHER ASSURANCES........................................................50
11.7. WAIVER .................................................................50
11.8. ENTIRE AGREEMENT AND MODIFICATION.........................................50
11.9. DISCLOSURE LETTER.........................................................51
11.10. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS........................51
11.11. SEVERABILITY..............................................................51
11.12. SECTION HEADINGS, CONSTRUCTION............................................51
11.13. TIME OF ESSENCE...........................................................51
11.14. GOVERNING LAW.............................................................51
11.15. COUNTERPARTS..............................................................52
SECTION 12. NON-COMPETITION.......................................................52
12.1. NON-COMPETITION AGREEMENT.................................................52
12.2. SPECIFIC PERFORMANCE......................................................53
12.3. SEVERABILITY..............................................................53
12.4. NO LIMITATION OF OTHER PROVISIONS.........................................53
SECTION 13. MISCELLANEOUS SHAREHOLDERS' PROVISIONS................................53
13.1. E&O TAIL COVERAGE.........................................................53
13.2. INDEMNITY FOR PERSONAL LIABILITY ON OFFICE LEASES.........................53
</TABLE>
Exhibits
2.4(a)(ii) Shareholders' Releases
2.4(a)(iii) Employment Agreements
2.4(a)(iv) Employee Agreement Regarding Property Rights, Non-Solicitation and
Confidentiality
2.4(a)(vii) Amended and Restated Premier Appraisals Shareholders' Agreement
2.4(b) Custodial Agreement
7.4(a) Strategic Law Partners Opinion
8.4(a) Wyatt, Tarrant & Combs Opinion
iv
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of June 18, 1998, by and among (i) PREMIER APPRAISALS, INC., a
Georgia corporation ("Buyer"), (ii) MICHAEL ROBERTSON, JEREMY MCCARTY, JOSEPH
MATHEWS and JAMES SULGER (collectively the "Shareholders") and (iii) KUSHNER &
ROBERTSON, INC., a California corporation ("KRI").
RECITALS
Shareholders desire to sell, and Buyer desires to purchase,
all of the issued and outstanding shares (the "Shares") of capital stock of KRI,
for the consideration and on the terms set forth in this Agreement.
AGREEMENT
In consideration of the premises and the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1:
"Accountants" -- as defined in Section 2.6(a).
"Applicable Contract" -- any Contract (a) under which KRI has
or may acquire any rights, (b) under which KRI has or may become subject to any
obligation or liability, or (c) by which KRI or any of the assets owned or used
by it is or may become bound, excluding any lease or sublease of real property.
"Balance Sheet" -- as defined in Section 3.4.
"Best Efforts" -- the efforts that a prudent Person desirous
of achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible.
"Breach" -- a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if there is
or has been (a) any inaccuracy in or breach of, or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, or (b) any claim (by any Person) or other occurrence or circumstance
that is or was inconsistent with such representation, warranty,
<PAGE>
covenant, obligation, or other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence, or circumstance.
"Buyer" -- as defined in the first paragraph of this
Agreement.
"Buyer's Closing Documents" -- as defined in Section 4.2(a).
"Cash Consideration" -- as defined in Section 2.2.
"Cash Consideration Adjustment" -- as defined in Section
2.5(a).
"Closing" -- as defined in Section 2.3.
"Closing Date" -- the date and time as of which the Closing
actually takes place.
"Computer Software" -- as defined in Section 4.20.
"Consent" -- any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions
contemplated by this Agreement, including:
a. the execution, delivery, and performance of the Employment
Agreements, the Nondisclosure Agreements, the Premier Appraisals, Inc.
Amended and Restated Sharehold ers' Agreement, the Custodial Agreement
and the Shareholders' Releases; and
b. the performance by Buyer and Shareholders of their
respective covenants and obligations under this Agreement.
"Contract" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Copyright(s)" -- as defined in Section 3.22(a)(iii).
"Damages" -- as defined in Section 10.2.
"Disclosure Letter" -- the disclosure letter delivered by
Shareholders to Buyer concurrently with the execution and delivery of this
Agreement.
"Employment Agreements" -- as defined in Section 2.4(a)(iii).
2
<PAGE>
"Encumbrance" -- any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environmental Laws" -- any Legal Requirement that relates to
the environment or occupational health and safety:
"ERISA" -- the Employee Retirement Income Security Act of 1974
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law.
"GAAP" -- generally accepted United States accounting
principles, applied on a basis consistent with the basis on which the Balance
Sheet and the other financial statements referred to in Section 3.4 were
prepared.
"Governmental Authorization" -- any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"Governmental Body" -- any:
a. nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
b. federal, state, local, municipal, foreign, or other
government;
c. governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
d. multi-national organization or body; or
e. body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory,
or taxing authority or power of any nature.
"Indemnified Persons" -- as defined in Section 10.2.
"Intellectual Property Assets" -- as defined in Section
3.22(a).
"Interim Balance Sheet" -- as defined in Section 3.4.
"IRC" -- the Internal Revenue Code of 1986 or any successor
law, and regulations issued by the IRS pursuant to the Internal Revenue Code or
any successor law.
3
<PAGE>
"IRS" -- the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"June 14, 1998 Balance Sheet" -- as defined in Section 2.6(a).
"Knowledge" -- an individual will be deemed to have
"Knowledge" of a particular fact or other matter if:
a. such individual is actually aware of such fact or other
matter; or
b. a prudent individual could be expected to discover or
otherwise become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter.
A Person (other than an individual) will be deemed to have
"Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
"KRI" -- as defined in the first paragraph of this Agreement.
"Legal Requirement" -- any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Marks" -- as defined in Section 3.22(a)(i).
"1998 Financial Statements" -- as defined in Section 2.6(b).
"Nondisclosure Agreements" -- as defined in Section
2.4(a)(iv).
"Order" -- any award, decision, injunction, judgment, order,
ruling, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmen tal Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person
will be deemed to have been taken in the "Ordinary Course of Business" only if:
a. such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
4
<PAGE>
b. such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons
exercising similar authority); and
c. such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in
the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"Organizational Documents" -- (a) the articles or certificate
of incorporation and the bylaws of a corporation; and (b) any amendment to any
of the foregoing.
"Patent(s)" -- as defined in Section 3.22(a)(ii).
"Person" -- any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"Pre-Tax Financial Income" -- earnings before taxes as
calculated in accordance with GAAP.
"Proceeding" -- any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Body or arbitrator.
"Proprietary Rights Agreement" -- shall have the meaning set
forth in Section 3.20(b).
"Related Person" -- with respect to a particular individual:
a. each other member of such individual's Family;
b. any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
c. any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
d. any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
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a. any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person;
b. any Person that holds a Material Interest in such specified
Person;
c. each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
d. any Person in which such specified Person holds a Material
Interest;
e. any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
and
f. any Related Person of any individual described in clause
(b) or (c).
For purposes of this definition, (a) the "Family" of an
individual includes (i) the individual, (ii) the individual's spouse and former
spouses, (iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 5% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 5% of the outstanding
equity securities or equity interests in a Person.
"Representative" -- with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Section"--as defined in Section 11.12.
"Shareholders" -- as defined in the first paragraph of this
Agreement.
"Shareholders' Agreement" -- as defined in Section
2.4(a)(vii).
"Shareholders' Closing Documents" -- as defined in Section
3.2(a).
"Shareholders' Releases" -- as defined in Section 2.4(a)(ii).
"Shares" -- as defined in the recitals of this Agreement.
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"Stock Consideration" -- as defined in Section 2.2.
"Stock Consideration Adjustment"--as defined in Section
2.5(b).
"Custodial Agreement" -- as defined in Section 2.4(b).
"Stockholders' Equity" -- the residual interest in the assets
of a company that remains after deducting its liabilities, in accordance with
GAAP.
"Subsidiary" -- with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the KRI.
"Taxes" -- all taxes, charges, fees, duties (including customs
duties), levies or other assessments, including income, gross receipts, net
proceeds, ad valorem, turnover, real and personal property (tangible and
intangible), sales, use, franchise, excise, value added, stamp, leasing, lease,
user, transfer, fuel, excess profits, occupational, interest equalization,
windfall profits, severance, license, payroll, environmental, capital stock,
disability, employee's income withholding, other withholding, unemployment and
Social Security taxes, which are imposed by any Governmental Body, and such term
shall include any interest, penalties or additions to tax attributable thereto.
"Tax Return" -- any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Tax Statute of Limitations Date" -- the close of business on
the 90th day after the expiration of the applicable statute of limitations with
respect to Taxes, including any extensions thereof.
"Tax Warranty" -- a representation or warranty in Section 3.11
or 3.13.
"Threatened" -- a claim, Proceeding, dispute, action, or other
matter will be deemed to have been "Threatened" if any demand or statement has
been made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim, Proceeding,
dispute, action, or other matter is likely to be asserted, commenced, taken, or
otherwise pursued in the future.
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"Title and Authorization Warranty" -- a representation or
warranty in Sections 3.1, 3.2, 3.3, 3.6, 4.1 and 4.2.
"Trade Secret(s)" -- as defined in Section 3.22(a)(v).
SECTION 2. SALE AND TRANSFER OF SHARES; CLOSING
2.1. SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Shareholders will sell and transfer the Shares to Buyer, and Buyer
will purchase the Shares from Shareholders.
2.2. PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Shares shall be: (i) Three Million Dollars ($3,000,000) payable in cash (the
"Cash Consideration"); provided that such Cash Consideration shall be subject to
adjustment as set forth in Section 2.5(a) below; and (ii) 750,000 shares of the
common stock of Buyer (the "Stock Consideration"); provided that the amount of
such Stock Consideration shall be subject to adjustment as set forth in Section
2.5(b) below.
2.3. CLOSING. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of Wyatt, Tarrant & Combs in
Louisville, Kentucky, at 10:00 a.m. (local time) on June 18, 1998 or at such
other time and place as the parties may agree. Subject to the provisions of
Section 9, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 2.3 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
2.4. CLOSING OBLIGATIONS. At the Closing:
2.4.(a) Shareholders will deliver to Buyer:
2.4.(a)(i) certificates representing the Shares, duly endorsed
(or accompanied by duly executed stock powers), for transfer to Buyer;
2.4.(a)(ii) releases in the form of Exhibit 2.4(a)(ii)
executed by Shareholders (collectively, "Shareholders' Releases");
2.4.(a)(iii) employment agreements in the form of Exhibit
2.4(a)(iii), executed by the applicable Shareholders (collectively,
"Employment Agreements");
2.4.(a)(iv) employee agreement regarding property rights,
non-solicitation and confidentiality in the form of Exhibit 2.4(a)(iv),
executed by employees of KRI specified by Buyer (collectively, the
"Nondisclosure Agreements");
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2.4.(a)(v) resignations of all of the directors and officers
of KRI effective as of the Closing;
2.4.(a)(vi) a certificate executed by Shareholders
representing and warranting to Buyer that each of Shareholders'
representations and warranties in this Agreement was accurate in all
respects as of the date of this Agreement and is accurate in all
respects as of the Closing Date as if made on the Closing Date; and
2.4.(a)(vii) the Premier Appraisals, Inc. Amended and Restated
Shareholders' Agreement, executed by the Shareholders substantially in
the form attached hereto as Exhibit 2.4(a)(vii) (the "Shareholders'
Agreement).
2.4.(b) Buyer and Shareholders will enter into a Custodial
Agreement substantially in the form of Exhibit 2.4(b) attached hereto (the
"Custodial Agreement") to secure Shareholders' obligations with respect to the
consideration adjustment under Section 2.5(b) together with the appropriate
stock certificates representing the Shares and stock powers duly executed in
blank.
2.4.(c) Buyer will deliver to Shareholders:
2.4.(c)(i) Three Million Dollars ($3,000,000) by wire transfer
to accounts specified by Shareholders;
2.4.(c)(ii) a certificate executed by Buyer to the effect that
each of Buyer's representations and warranties in this Agreement was
accurate in all respects as of the date of this Agreement and is
accurate in all respects as of the Closing Date as if made on the
Closing Date;
2.4.(c)(iii) the Nondisclosure Agreements, executed by KRI;
2.4.(c)(iv) the Employment Agreements, executed by KRI; and
2.4.(c)(v) the Shareholders' Agreement, executed by Buyer.
2.5. CONSIDERATION ADJUSTMENT.
2.5.(a) The Cash Consideration is based upon KRI having, as of
June 14, 1998, $165,033 in cash on hand and total Stockholders' Equity of
$971,186. The Cash Consideration shall be adjusted as follows: (i) if, as set
forth on the June 14, 1998 Balance Sheet, (i) KRI's cash on hand is less than
$165,033, the Cash Consideration shall be decreased on a dollar for dollar basis
by the amount that the cash on hand set forth on the June 14, 1998 Balance Sheet
is less than $165,033; (ii) if on the June 14, 1998 Balance Sheet, KRI's cash on
hand exceeds $165,033, the Cash Consid eration shall be increased by 50% of the
amount that the cash on hand set forth on the June 14, 1998 Balance Sheet is in
excess of
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$165,033; (iii) in addition to the foregoing, if, on the June 14, 1998 Balance
Sheet, KRI's Stockholders' Equity is less than $971,186, the Cash Consideration
shall be decreased on a dollar for dollar basis by the amount the Stockholders'
Equity indicated on the June 14, 1998 Balance Sheet is less than $971,186 (the
"Cash Consideration Adjustment").
2.5.(b) The Stock Consideration is based upon KRI's Pre-Tax
Financial Income in calendar year 1998 being at least One Million Dollars
($1,000,000). As soon as practical after December 31, 1998, KRI's certified
public accountants shall prepare the 1998 Financial Statements (as defined
below) in accordance with GAAP and determine KRI's Pre-Tax Financial Income for
calendar year 1998; provided, however, that an amount equal to $83,000 shall be
added to such 1998 Pre-Tax Financial Income for purposes of determining any
adjustment to the Stock Consideration in accordance with this Section 2.5(b).
The Stock Consideration shall be adjusted as follows: (i) if as set forth on the
1998 Financial Statements, the 1998 Pre-Tax Financial Income of KRI is equal to
or less than $250,000, the Stock Consideration shall be reduced to zero (0)
shares of Buyer's common stock; (ii) if, as set forth on the 1998 Financial
Statements, the 1998 Pre-Tax Financial Income of KRI is in excess of $250,000
the Stock Consideration shall be equal to one share of Buyer common stock for
each dollar the Pre-Tax Financial Income of KRI exceeds $250,000, up to a limit
of 750,000 shares of the common stock of Buyer (the "Stock Consideration
Adjustment"). For example, if the Pre-Tax Financial Income of KRI in 1998 is
$800,000, the Stock Consideration, as adjusted, would be 550,000 shares of the
common stock of Buyer.
2.6. ADJUSTMENT PROCEDURE.
2.6.(a) Within thirty (30) days after the Closing, Buyer will
cause KRI's certified public accountants to prepare a balance sheet ("June 14,
1998 Balance Sheet") of KRI as of June 14, 1998, including a computation of
Stockholders' Equity and cash on hand as of June 14, 1998. Buyer shall deliver
to Shareholders the June 14, 1998 Balance Sheet within such thirty (30) day
period. If, within thirty (30) days following delivery of the June 14, 1998
Balance Sheet, Shareholders have not given Buyer notice of any objection to the
June 14, 1998 Balance Sheet, then the Stockholders' Equity and cash on hand
reflected in the June 14, 1998 Balance Sheet will be used in computing the Cash
Consideration Adjustment, if any. If Shareholders give such notice of objection,
then the issues in dispute will be submitted to Arthur Andersen & Co., certified
public accountants (the "Accountants"), for resolution. If issues in dispute are
submitted to the Accountants for resolution, (i) each party will furnish to the
Accountants such workpapers and other documents and information relating to the
disputed issues as the Accountants may request and are available to that party
or its Subsidiaries (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants, as set forth in a notice delivered to both
parties by the Accountants, will be binding and conclusive on the parties; and
(iii) Buyer and Shareholders will each bear 50% of the fees of the Accountants
for such determination. On the tenth business day following the final
determination of the Cash Consideration Adjustment, if the total Cash
Consideration should be greater than $3,000,000 in accordance with Section 2.5
as determined by the Accountants, Buyer will pay the difference to Shareholders,
and if the total Cash Consideration should be
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less than $3,000,000 in accordance with Section 2.5 as determined by the
Accountants, Shareholders will pay the difference to Buyer. Payments must be
made in immediately available funds. Payments to Shareholders must be made in
the manner specified in Section 2.4(c)(i). Payments to Buyer must be made by
wire transfer to such bank account as Buyer will specify. Notwithstanding the
foregoing, the June 14, 1998 Balance Sheet and the Cash Consider ation
Adjustment, if any, shall be further subject to year end adjustments based on
the 1998 Financial Statements. If there are any such year end adjustments
affecting the June 14, 1998 Balance Sheet and Cash Consideration Adjustment, if
any, and the parties are not in agreement on the amount of the adjustment to the
Cash Considerations Adjustment, if any, then such dispute shall be submitted to
the Accountants for binding and conclusive resolution as contemplated by Section
2.6(b).
2.6.(b) As soon as practical after December 31, 1998, but in no
event later than April 1, 1999 Buyer shall cause KRI's certified public
accountants to prepare annual audited financial statements for KRI (the "1998
Financial Statements"). As soon as the 1998 Financial Statements are completed,
Buyer will deliver copies to each of Shareholders. If within thirty (30) days
following delivery of the 1998 Financial Statements, Shareholders have not given
Buyer notice of any objection to the 1998 Financial Statements (such notice must
contain a statement of the basis of Shareholders' objection), then the Pre-Tax
Financial Income reflected in the 1998 Financial Statements will be used in
computing the Stock Consideration Adjustment pursuant to the formula set forth
in Section 2.5(b) above. If Shareholders give such notice of objection, then the
issues in dispute will be submitted to the Accountants, for resolution. If
issues in dispute are submitted to the Accountants for resolution, (i) each
party will furnish to the Accountants such workpapers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party or its Subsidiaries (or its independent public
accountants), and will be afforded the opportunity to present to the Accountants
any material relating to the determination and to discuss the determination with
the Accountants; (ii) the determination by the Accountants, as set forth in a
notice delivered to both parties by the Accountants, will be binding and
conclusive on the parties; and (iii) Buyer and Shareholders will each bear 50%
of the fees of the Accountants for such determination. On the tenth business day
following the final determination of the amount of the Stock Consideration
adjustment, Buyer shall deliver the appropriate number of shares of the common
stock of Buyer held by it under the terms of the Custodial Agreement to the
Shareholders, and any remaining shares shall be returned to Buyer and thereby
become authorized but unissued shares of common stock of Buyer.
2.7. BOARD OF DIRECTORS. For the period beginning as of the Closing
Date and ending on the earlier of (i) the two (2) year anniversary of the
Closing Date or (ii) the date of an initial public offering of the capital stock
of Buyer and for so long as Michael Robertson remains a full time employee of
Buyer or a Subsidiary of Buyer and owns at least 80% of the shares of common
stock of Buyer received in the transactions contemplated by this Agreement, as
adjusted, Michael Robertson may designate two (2) individual Persons to serve on
Buyer's board of directors and the Buyer shall use its Best Efforts to cause
such directors to be elected or approved and to serve as directors of Buyer
during such period. Thereafter, and for so long as Michael Robertson remains a
full time employee of Buyer or a
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Subsidiary of Buyer and he owns at least 80% of the shares of common stock of
Buyer received in the transactions contemplated by this Agreement, as adjusted,
Michael Robertson may designate one (1) individual Person to serve on the
Buyer's board of direc tors and Buyer shall use its Best Efforts to cause such
Person to be elected or appointed and to serve in such capacity during such
period.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Shareholders and KRI, jointly and severally, represent and warrant to
Buyer that the statements contained in this Section 3 are correct and complete:
3.1. ORGANIZATION AND GOOD STANDING.
3.1.(a) The Disclosure Letter contains a complete and accurate
list for KRI of its name, its jurisdiction of incorporation, other jurisdictions
in which it is authorized to do business, and its capitalization (including the
identity of each stockholder and the number of shares held by each). KRI is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under Applicable Contracts. The ownership or use of the properties
owned or used by KRI, or the nature of the activities conducted by it, do not
require qualification in any jurisdiction other than its jurisdiction of
incorporation.
3.1.(b) Shareholders have delivered to Buyer copies of the
Organizational Documents of KRI, as currently in effect.
3.2. AUTHORITY; NO CONFLICT.
3.2.(a) This Agreement constitutes the legal, valid, and binding
obligation of Shareholders, enforceable against Shareholders in accordance with
its terms. Upon the execution and delivery by Shareholders of this Agreement,
the Employment Agreements, the Shareholders' Releases, the Shareholders'
Agreement, and the Custodial Agreement (collectively, the "Sharehold ers'
Closing Documents"), the Shareholders' Closing Documents will constitute the
legal, valid, and binding obligations of Shareholders, enforceable against
Shareholders in accordance with their respective terms. Shareholders have the
absolute and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and the Shareholders' Closing Documents and to perform
their obligations under this Agreement and the Shareholders' Closing Documents.
3.2.(b) Except as set forth in the Disclosure Letter, neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
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3.2.(b)(i) contravene, conflict with, or result in a violation
of (A) any provision of the Organizational Documents of KRI, or (B) any
resolution adopted by the board of directors or the stockholders of
KRI;
3.2.(b)(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right
to challenge any of the Contemplated Transac tions or to exercise any
remedy or obtain any relief under, any Legal Requirement or any Order
to which KRI or any Shareholder, or any of the assets owned or used by
KRI, may be subject;
3.2.(b)(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any
Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by
KRI or that otherwise relates to the business of, or any of the assets
owned or used by, KRI;
3.2.(b)(iv) cause Buyer or KRI to become subject to, or to
become liable for the payment of, any Tax;
3.2.(c) [intentionally omitted]
3.2.(c)(i) contravene, conflict with, or result in a violation
or breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable
Contract; or
3.2.(c)(ii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the assets owned or used by
KRI.
Except as set forth in the Disclosure Letter, none of Shareholders
nor KRI is or will be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
3.3. CAPITALIZATION. The authorized equity securities of KRI consist of
2,000,000 shares of common stock, without par value per share, of which
1,000,000 shares are issued and outstanding and constitute the Shares.
Shareholders are and will be on the Closing Date the record and beneficial
owners and holders of the Shares, free and clear of all Encumbrances. Michael
Robertson owns 500,000 of the Shares, Jeremy McCarty owns 316,667 of the Shares,
Joseph Mathews owns 100,000 of the Shares and James Sulger owns 83,333 of the
Shares. Except as set forth in the Disclosure Letter, no legend or other
reference to any purported Encumbrance appears upon any certificate representing
equity securities of KRI. All of the outstanding equity securities of KRI have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as set forth in the Disclosure Letter and other than this Agreement,
there are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of KRI. None of the outstanding equity securities
or other securities of KRI was issued in violation of the
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Securities Act or any other Legal Requirement. KRI does not own, or have any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business.
3.4. FINANCIAL STATEMENTS. Shareholders have delivered to Buyer: (a)
balance sheets of KRI as at December 31 in each of the years 1995 through 1996,
and the related statements of income, changes in Stockholders' Equity, and cash
flow for each of the fiscal years then ended, together with the report thereon
of Virginia Smith, CPA, independent certified public accountant, (b) a balance
sheet of KRI as at December 31, 1997 (including the notes thereto, the "Balance
Sheet"), and the related statements of income, changes in Stockholders' Equity,
and cash flow for the fiscal year then ended, together with the report thereon
of Virginia Smith, CPA, independent certified public accountant, and (c) balance
sheet of KRI as at May 31, 1998 (the "Interim Balance Sheet") and the related
statements of income, changes in Stockholders' Equity, and cash flow for the
five (5) months then ended, including in each case the notes thereto. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in Stockholders' Equity, and cash flow of KRI as
at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP; the financial statements referred to in
this Section 3.4 reflect the consistent application of such accounting
principles throughout the periods involved. No financial statements of any
Person other than KRI are required by GAAP to be included in the financial
statements of KRI.
3.5. BOOKS AND RECORDS. The originals or complete and correct copies of
the books of account, minute books, stock record books, and other records of KRI
have been delivered to Buyer. At the Closing, all of those books and records
will be in the possession of KRI.
3.6. TITLE TO PROPERTIES; ENCUMBRANCES. The Disclosure Letter contains
a complete and accurate list of all real property leaseholds owned by KRI. KRI
does not now and never has owned any real property. Shareholders have delivered
to Buyer correct and complete copies of all leases by which KRI acquired such
leasehold interests, including any amendments or addenda thereto and copies of
all title insurance policies, opinions, abstracts, and surveys in the possession
of Shareholders or KRI, if any, and relating to such leasehold interests. KRI
has good and valid leasehold title in all real property (including all
buildings, improvements and fixtures thereon) used in the operation of KRI's
business. Except for the liens (if any) set forth in the Disclosure Letter,
there are no liens on any leasehold interest of KRI. All real property leases
are valid and binding on the parties thereto or there exists no default
thereunder by any party thereto.
3.7. CONDITION AND SUFFICIENCY OF EQUIPMENT. The Disclosure Letter
provides a complete listing of the material equipment of KRI. The equipment of
KRI is in good operating condition and repair, ordinary wear and tear excepted,
and is adequate for the uses to which it is being put, and none of such
equipment is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. The equipment
of KRI is sufficient for the conduct of KRI's business immediately after the
Closing in substantially the same manner as conducted prior to the Closing. All
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computer hardware and software and related materials used by KRI in its business
(herein collectively referred to as the "Computer System") are in good working
order and condition, KRI has not experienced any significant defects in design,
workmanship or material of the Computer System, and the Computer System has the
performance capabilities, characteristics and functions necessary to conduct the
business and operations of KRI. To the knowledge of Shareholders and KRI, the
Computer System is capable of processing, providing and/or receiving date data
within and between the twentieth and the twenty-first centuries. The use of the
Computer System by KRI (including any software modifications) (i) has not
violated or infringed upon the rights of any third parties and (ii) has not
resulted in the termination of any maintenance, service or support agreement
relating to any part of the Computer System or any reduction in the services
provided to KRI, warranties available to KRI or rights of KRI thereunder.
3.8. ACCOUNTS RECEIVABLE. All accounts receivable of KRI that are
reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting
records of KRI as of the Closing Date (collectively, the "Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the Ordinary Course of Business. Unless paid
prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on the
Balance Sheet or the Interim Balance Sheet or on the accounting records of KRI
as of the Closing Date (which reserves are adequate and calculated consistent
with past practice and, in the case of the reserve as of the Closing Date, will
not represent a greater percentage of the Accounts Receivable as of the Closing
Date than the reserve reflected in the Interim Balance Sheet represented of the
Accounts Receivable reflected therein and will not represent a material adverse
change in the composition of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts Receivable either has been or
will be collected in full, without any set-off or discount, within ninety (90)
days after the day on which it first becomes due and payable. There is no
contest, claim, or right of set-off, under any Contract with any obligor of an
Accounts Receivable relating to the amount or validity of such Accounts
Receivable. The Disclosure Letter contains a complete and accurate list of all
Accounts Receivable as of the date of the Interim Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
3.9. [Intentionally omitted]
3.10. NO UNDISCLOSED LIABILITIES. Except as set forth in the Disclosure
Letter, KRI has no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
3.11. TAXES.
3.11.(a) KRI has filed or caused to be filed all Tax Returns that
are or were required to be filed by or with respect to KRI, either separately or
as a member of a group of corporations, pursuant to applicable Legal
Requirements. Shareholders have delivered to Buyer copies of, and
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attached to the Disclosure Letter are all such Tax Returns filed since December
31, 1995. KRI has paid, or made provision for the payment of, all Taxes that
have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by Shareholders or KRI, except such Taxes,
if any, as are listed in the Disclosure Letter and are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Balance Sheet and the Interim Balance Sheet.
3.11.(b) The United States federal and state income Tax Returns of
KRI subject to such Taxes have never been audited by the IRS or relevant state
tax authorities. No Shareholder or KRI has given or been requested to give
waivers or extensions (or is or would be subject to a waiver or extension given
by any other Person) of any statute of limitations relating to the payment of
Taxes of KRI or for which KRI may be liable.
3.11.(c) The charges, accruals, and reserves with respect to Taxes
on the respective books of KRI are adequate (determined in accordance with GAAP)
and are at least equal to KRI's liability for Taxes. There exists no proposed
tax assessment against KRI except as disclosed in the Balance Sheet or in the
Disclosure Letter. No consent to the application of Section 341(f)(2) of the IRC
has been filed with respect to any property or assets held, acquired, or to be
acquired by KRI. All Taxes that KRI is or was required by Legal Requirements to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other Person.
3.11.(d) All Tax Returns filed by (or that include on a
consolidated basis) KRI are true, correct, and complete. There is no tax sharing
agreement that will require any payment by KRI after the date of this Agreement.
3.12. NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet,
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of KRI, and no event has occurred or
circumstance exists that may result in such a material adverse change.
3.13. EMPLOYEE BENEFITS.
3.13.(a) As used in this Section 3.13, the following terms have
the meanings set forth below.
"KRI Other Benefit Obligation" means an Other Benefit
Obligation owed, adopted, or followed by KRI or an ERISA Affiliate of KRI.
"KRI Plan" means all Plans of which KRI or an ERISA Affiliate
of KRI is or was a Plan Sponsor, or to which KRI or an ERISA Affiliate of KRI
otherwise contributes or has contributed, or in which KRI or an ERISA Affiliate
of KRI otherwise participates or has participated. All references to Plans are
to KRI Plans unless the context requires otherwise.
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"KRI VEBA" means a VEBA whose members include employees of KRI
or any ERISA Affiliate of KRI.
"ERISA Affiliate" means, with respect to KRI, any other person
that, together with KRI, would be treated as a single employer under IRC Section
414.
"Multi-Employer Plan" has the meaning given in ERISA Section
3(37)(A).
"Other Benefit Obligations" means all obligations,
arrangements, or customary practices, whether or not legally enforceable, to
provide benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than obligations,
arrangements, and practices that are Plans. Other Benefit Obligations include
consulting agreements under which the compensation paid does not depend upon the
amount of service rendered, sabbatical policies, severance payment policies, and
fringe benefits within the meaning of Section 132 of the Code.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA Section
3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet
the requirements of IRC Section 401(a).
"Title IV Plans" means all Pension Plans that are subject to
Title IV of ERISA, 29 U.S.C. Section 1301 et seq., other than Multi-Employer
Plans.
"VEBA" means a voluntary employees' beneficiary association
under IRC Section 501(c)(9).
"Welfare Plan" has the meaning given in ERISA Section 3(1).
3.13.(b) 3.13.(b)(i) The Disclosure Letter contains a complete and
accurate list of all KRI Plans, KRI Other Benefit Obligations, and KRI VEBAs,
and identifies as such all KRI Plans that are (A) defined benefit Pension Plans,
(B) Qualified Plans, (C) Title IV Plans, or (D) Multi-Employer Plans.
3.13.(b)(ii) The Disclosure Letter contains a complete and
accurate list of (A) all ERISA Affiliates of KRI, and (B) all Plans of
which any such ERISA Affiliate is or was a Plan Sponsor, in which any
such ERISA Affiliate participates or has participated, or to which any
such ERISA Affiliate contributes or has contributed.
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3.13.(b)(iii) The Disclosure Letter sets forth, for each
Multi-Employer Plan, as of its last valuation date, the amount of
potential withdrawal liability of KRI and KRI's other ERISA Affiliates,
calculated according to information made available pursuant to ERISA
Section 4221(e).
3.13.(b)(iv) The Disclosure Letter sets forth a calculation of
the liability of KRI for post-retirement benefits other than pensions,
made in accordance with Financial Accounting Statement 106 of the
Financial Accounting Standards Board, regardless of whether KRI is
required by this Statement to disclose such information.
3.13.(b)(v) The Disclosure Letter sets forth the financial
cost of all obligations owed under any KRI Plan or KRI Other Benefit
Obligation that is not subject to the disclosure and reporting
requirements of ERISA.
3.13.(c) Shareholders have delivered to Buyer, or will deliver to
Buyer within ten (10) days of the date of this Agreement:
3.13.(c)(i) all documents that set forth the terms of each KRI
Plan, KRI Other Benefit Obligation, or KRI VEBA and of any related
trust, including (A) all plan descriptions and summary plan
descriptions of KRI Plans for which Shareholders or KRI are required to
prepare, file, and distribute plan descriptions and summary plan
descriptions, and (B) all summaries and descriptions furnished to
participants and beneficiaries regarding KRI Plans, KRI Other Benefit
Obligations, and KRI VEBAs for which a plan description or summary plan
description is not required;
3.13.(c)(ii) all personnel, payroll, and employment manuals
and policies;
3.13.(c)(iii) all collective bargaining agreements pursuant to
which contributions have been made or obligations incurred (including
both pension and welfare benefits) by KRI and the ERISA Affiliates of
KRI, and all collective bargaining agreements pursuant to which
contributions are being made or obligations are owed by such entities;
3.13.(c)(iv) a written description of any KRI Plan or KRI
Other Benefit Obligation that is not otherwise in writing;
3.13.(c)(v) all registration statements filed with respect to
any KRI Plan;
3.13.(c)(vi) all insurance policies purchased by or to provide
benefits under any KRI Plan;
3.13.(c)(vii) all contracts with third party administrators,
actuaries, investment managers, consultants, and other independent
contractors that relate to any KRI Plan, KRI Other Benefit Obligation,
or KRI VEBA;
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3.13.(c)(viii) all reports submitted within the four years
preceding the date of this Agreement by third party administrators,
actuaries, investment managers, consultants, or other independent
contractors with respect to any KRI Plan, KRI Other Benefit Obligation,
or KRI VEBA;
3.13.(c)(ix) all notifications to employees of their rights
under ERISA SECTION 601 et seq. and IRC Section 4980B;
3.13.(c)(x) the Form 5500 filed in each of the most recent
three (3) plan years with respect to each KRI Plan, including all
schedules thereto and the opinions of indepen dent accountants;
3.13.(c)(xi) all notices that were given by KRI or any ERISA
Affiliate of KRI or any KRI Plan to the IRS, the PBGC, or any
participant or beneficiary, pursuant to statute, within the four years
preceding the date of this Agreement, including notices that are
expressly mentioned elsewhere in this Section 3.13;
3.13.(c)(xii) all notices that were given by the IRS, the
PBGC, or the Department of Labor to KRI, any ERISA Affiliate of KRI, or
any KRI Plan within the four years preceding the date of this
Agreement;
3.13.(c)(xiii) with respect to Qualified Plans and VEBAs, the
most recent determination letter for each Plan of KRI that is a
Qualified Plan; and
3.13.(c)(xiv) with respect to Title IV Plans, the Form
PBGC-1 filed for each of the three (3) most recent plan years.
3.13.(d) Except as set forth in the Disclosure Letter:
3.13.(d)(i) KRI has performed all of its respective
obligations under all KRI Plans, KRI Other Benefit Obligations, and KRI
VEBAs. KRI has made appropriate entries in its financial records and
statements for all obligations and liabilities under such Plans, VEBAs,
and Obligations that have accrued but are not due.
3.13.(d)(ii) No statement, either written or oral, has been
made by KRI to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit
Obligation and that could have an adverse economic consequence to KRI
or to Buyer.
3.13.(d)(iii) KRI, with respect to all KRI Plans, KRI Other
Benefits Obligations, and KRI VEBAs, is, and each KRI Plan, KRI Other
Benefit Obligation, and KRI VEBA is, in full
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compliance with ERISA, the IRC, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section 3.13, and
with any applicable collective bargaining agreement.
3.13.(d)(iii).1 No transaction prohibited by ERISA
Section 406 and no "prohibited transaction" under IRC Section
4975(c) have occurred with respect to any KRI Plan.
3.13.(d)(iii).2 No Shareholder or KRI has any liability
to the IRS with respect to any Plan, including any liability
imposed by Chapter 43 of the IRC.
3.13.(d)(iii).3 No Shareholder or KRI has any liability
to the PBGC with respect to any Plan or has any liability
under ERISA Section 502 or Section 4071.
3.13.(d)(iii).4 All filings required by ERISA and the IRC
as to each Plan have been timely filed, and all notices and
disclosures to participants required by either ERISA or the
IRC have been timely provided.
3.13.(d)(iii).5 All contributions and payments made or
accrued with respect to all KRI Plans, KRI Other Benefit
Obligations, and KRI VEBAs are deductible under IRC Section
162 or Section 404. No amount, or any asset of any KRI Plan or
KRI VEBA, is subject to tax as unrelated business taxable
income.
3.13.(d)(iv) Each KRI Plan can be terminated within thirty
(30) days, without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits promised by such
Plan.
3.13.(d)(v) Since January 1, 1997, there has been no
establishment or amendment of any KRI Plan, KRI VEBA, or KRI Other
Benefit Obligation.
3.13.(d)(vi) No event has occurred or circumstance exists that
would reasonably be expected to result in a material increase in
premium costs of KRI Plans and KRI Other Benefit Obligations that are
insured, or a material increase in benefit costs of such Plans and
Obligations that are self-insured.
3.13.(d)(vii) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or legal proceeding
involving, any KRI Plan, KRI Other Benefit Obligation, or KRI VEBA is
pending or, to Shareholders' Knowledge, is Threatened.
3.13.(d)(viii) [intentionally omitted]
3.13.(d)(ix) Each Qualified Plan of KRI is qualified in form
and operation under IRC Section 401(a); each trust for each such Plan
is exempt from federal income tax under IRC Section 501(a).
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Each KRI VEBA is exempt from federal income tax. No event has occurred
or circumstance exists that would reasonably be expected to give rise
to disqualification or loss of tax-exempt status of any such Plan or
trust.
3.13.(d)(x) KRI and each ERISA Affiliate of KRI has met the
minimum funding standard, and has made all contributions required,
under ERISA Section 302 and IRC Section 402.
3.13.(d)(xi) No KRI Plan is subject to Title IV of ERISA.
3.13.(d)(xii) KRI has paid all amounts due to the PBGC
pursuant to ERISA Section 4007.
3.13.(d)(xiii) Neither KRI nor any ERISA Affiliate of KRI has
ceased operations at any facility or has withdrawn from any Title IV
Plan in a manner that would subject to any entity or Shareholders to
liability under ERISA Section 4062(e), Section 4063, or Section 4064.
3.13.(d)(xiv) Neither KRI nor any ERISA Affiliate of KRI has
filed a notice of intent to terminate any Plan or has adopted any
amendment to treat a Plan as terminated. The PBGC has not instituted
proceedings to treat any KRI Plan as terminated. No event has occurred
or circumstance exists that may constitute grounds under ERISA Section
4042 for the termination of, or the appointment of a trustee to
administer, any KRI Plan.
3.13.(d)(xv) No amendment has been made, or is reasonably
expected to be made, to any Plan that has required or could require the
provision of security under ERISA Section 307 or IRC Section
401(a)(29).
3.13.(d)(xvi) No accumulated funding deficiency, whether or
not waived, exists with respect to any KRI Plan; no event has occurred
or circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such
Plan.
3.13.(d)(xvii) The actuarial report for each Pension Plan of
KRI and each ERISA Affiliate of KRI fairly presents the financial
condition and the results of operations of each such Plan in accordance
with GAAP.
3.13.(d)(xviii) Since the last valuation date for each Pension
Plan of KRI and each ERISA Affiliate of KRI, no event has occurred or
circumstance exists that would reasonably be expected to increase the
amount of benefits under any such Plan or that would cause the excess
of Plan assets over benefit liabilities (as defined in ERISA Section
4001) to decrease, or the amount by which benefit liabilities exceed
assets to increase.
3.13.(d)(xix) No reportable event (as defined in ERISA Section
4043 and in regulations issued thereunder) has occurred.
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3.13.(d)(xx) No Shareholder or KRI has Knowledge of any facts
or circumstanc es that may give rise to any liability of any
Shareholder, KRI, or Buyer to the PBGC under Title IV of ERISA.
3.13.(d)(xxi) Neither KRI nor any ERISA Affiliate of KRI has
ever established, maintained, or contributed to or otherwise
participated in, or had an obligation to maintain, contribute to, or
otherwise participate in, any Multi-Employer Plan.
3.13.(d)(xxii) Neither KRI nor any ERISA Affiliate of KRI has
withdrawn from any Multi-Employer Plan with respect to which there is
any outstanding liability as of the date of this Agreement. No event
has occurred or circumstance exists that presents a risk of the
occurrence of any withdrawal from, or the participation, termination,
reorganization, or insolvency of, any Multi-Employer Plan that could
result in any liability of either KRI or Buyer to a Multi-Employer
Plan.
3.13.(d)(xxiii) Neither KRI nor any ERISA Affiliate of KRI has
received notice from any Multi-Employer Plan that it is in
reorganization or is insolvent, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of any
excise tax, or that such Plan intends to terminate or has terminated.
3.13.(d)(xxiv) No Multi-Employer Plan to which KRI or any
ERISA Affiliate of KRI contributes or has contributed is a party to any
pending merger or asset or liability transfer or is subject to any
proceeding brought by the PBGC.
3.13.(d)(xxv) Except to the extent required under ERISA
SECTION 601 et seq. and IRC SECTION 4980B, KRI does not provide health
or welfare benefits for any retired or former employee nor is KRI
obligated to provide health or welfare benefits to any active employee
following such employee's retirement or other termination of service.
3.13.(d)(xxvi) KRI has the right to modify and terminate
benefits to retirees (other than pensions) with respect to both retired
and active employees.
3.13.(d)(xxvii) Shareholders and KRI have complied with the
provisions of ERISA Section 601 et seq. and IRC Section 4980B.
3.13.(d)(xxviii) No payment that is owed or may become due to
any director, officer, employee, or agent of KRI will be non-deductible
to KRI or subject to tax under IRC Section 280G or Section 4999; nor
will KRI be required to "gross up" or otherwise compensate any such
person because of the imposition of any excise tax on a payment to such
person.
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3.13.(d)(xxix) The consummation of the Contemplated
Transactions will not result in the payment, vesting, or acceleration
of any benefit.
3.14. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
3.14.(a) Except as set forth in the Disclosure Letter:
3.14.(a)(i) KRI is, and at all times since December 31, 1996
has been, in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
3.14.(a)(ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) (A) may constitute or result
in a violation by KRI of, or a failure on the part of KRI to comply
with, any Legal Requirement, or (B) may give rise to any obligation on
the part of KRI to undertake, or to bear all or any portion of the cost
of, any remedial action of any nature; and
3.14.(a)(iii) KRI has not received, at any time since December
31, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any
actual, alleged, possible, or potential violation of, or failure to
comply with, any Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of KRI to undertake, or
to bear all or any portion of the cost of, any remedial action of any
nature.
3.14.(b) The Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by KRI or that otherwise
relates to the business of, or to any of the assets owned or used by, KRI,
including without limitation the appraiser license held by certain employees of
KRI. Each Governmental Authorization listed or required to be listed in the
Disclosure Letter is valid and in full force and effect. Except as set forth in
the Disclosure Letter:
3.14.(b)(i) KRI and the applicable appraiser employee of KRI
is, and at all times since December 31, 1996 has been, in full
compliance with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in the Disclosure
Letter including with respect to each employee appraiser holding an
appraiser's license the Uniform Standards Professional Appraisal
Practice;
3.14.(b)(ii) no event has occurred or circumstance exists that
may (with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of or a failure to comply with
any term or requirement of any Governmental Authorization listed or
required to be listed in the Disclosure Letter, or (B) result directly
or indirectly in the revocation, withdrawal,
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suspension, cancellation, or termination of, or any modification to,
any Governmental Authorization listed or required to be listed in the
Disclosure Letter;
3.14.(b)(iii) Neither KRI nor any appraiser employee has
received, at any time since December 31, 1996, any notice or other
communication (whether oral or written) from any Governmental Body or
any other Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual,
proposed, possible, or potential revocation, withdrawal, suspension,
cancellation, termination of, or modification to any Governmental
Authorization; and
3.14.(b)(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or required to be
listed in the Disclosure Letter have been duly filed with the
appropriate Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations have been
duly made with the appropriate Governmental Bodies.
The Governmental Authorizations listed in the Disclosure
Letter collectively constitute all of the Governmental Authorizations necessary
to permit KRI to lawfully conduct and operate its business in the manner it
currently conducts and operates such business and to permit KRI to own and use
its assets in the manner in which it currently owns and uses such assets.
3.15. LEGAL PROCEEDINGS; ORDERS.
3.15.(a) Except as set forth in the Disclosure Letter, there is no
pending Proceeding:
3.15.(a)(i) that has been commenced by or against KRI or that
otherwise relates to or may affect the business of, or any of the
assets owned or used by, KRI; or
3.15.(a)(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions.
To the Knowledge of Shareholders and KRI, (1) no such
Proceeding has been Threatened, and (2) no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding. Shareholders have delivered to Buyer's counsel copies of all
pleadings, correspondence, and other documents relating to each Proceeding
listed in the Disclosure Letter. The Proceedings listed in the Disclosure Letter
will not have a material adverse effect on the business, operations, assets,
condition, or prospects of KRI.
3.15.(b) Except as set forth in the Disclosure Letter:
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3.15.(b)(i) there is no Order to which KRI, or any of the
assets owned or used by KRI, is subject;
3.15.(b)(ii) no Shareholder is subject to any Order that
relates to the business of, or any of the assets owned or used by, KRI;
and
3.15.(b)(iii) no officer, director, agent, or employee of KRI
is subject to any Order that prohibits such officer, director, agent,
or employee from engaging in or continuing any conduct, activity, or
practice relating to the business of KRI.
3.15.(c) Except as set forth in the Disclosure Letter:
3.15.(c)(i) KRI is, and at all times since December 31, 1996
has been, in full compliance with all of the terms and requirements of
each Order to which it, or any of the assets owned or used by it, is or
has been subject;
3.15.(c)(ii) no event has occurred or circumstance exists that
may constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any
Order to which KRI, or any of the assets owned or used by KRI, is
subject; and
3.15.(c)(iii) KRI has not received, at any time since December
31, 1996, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding any actual,
alleged, possible, or potential violation of, or failure to comply
with, any term or requirement of any Order to which KRI, or any of the
assets owned or used by KRI, is or has been subject.
3.16. ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in the
Disclosure Letter, since the date of the Balance Sheet, KRI has conducted its
business only in the Ordinary Course of Business and there has not been any:
3.16.(a) change in KRI's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of KRI;
issuance of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other acquisition by
KRI of any shares of any such capital stock; or declaration or payment of any
dividend or other distribution or payment in respect of shares of capital stock;
3.16.(b) amendment to the Organizational Documents of KRI;
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3.16.(c) payment or increase by KRI of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee;
3.16.(d) adoption of, or increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any employees of
KRI;
3.16.(e) damage to or destruction or loss of any asset or property
of KRI, whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects of KRI,
taken as a whole;
3.16.(f) entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to KRI of at least $5,000;
3.16.(g) sale (other than sales of inventory in the Ordinary
Course of Business), lease, or other disposition of any asset or property of KRI
or mortgage, pledge, or imposition of any lien or other encumbrance on any
material asset or property of KRI, including the sale, lease, or other
disposition of any of the Intellectual Property Assets;
3.16.(h) cancellation or waiver of any claims or rights with a
value to KRI in excess of $5,000;
3.16.(i) material change in the accounting methods used by KRI; or
3.16.(j) agreement, whether oral or written, by KRI to do any of
the foregoing.
3.17. CONTRACTS; NO DEFAULTS.
3.17.(a) The Disclosure Letter contains a complete and accurate
list, and Shareholders have delivered to Buyer true and complete copies, of:
3.17.(a)(i) each Applicable Contract that involves performance
of services or delivery of goods or materials by KRI of an amount or
value in excess of $1,000;
3.17.(a)(ii) each Applicable Contract that involves
performance of services or delivery of goods or materials to KRI of an
amount or value in excess of $1,000;
3.17.(a)(iii) each Applicable Contract that was not entered
into in the Ordinary Course of Business and that involves expenditures
or receipts of KRI in excess of $1,000;
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3.17.(a)(iv) each lease (other than real property leases or
subleases), rental or occupancy agreement, license, installment and
conditional sale agreement, and other Applicable Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other
interest in, any real or personal property, including, without
limitation, automobiles (except personal property leases and
installment and conditional sales agreements having a value per item or
aggregate payments of less than $1,000 and with terms of less than one
year);
3.17.(a)(v) each licensing agreement or other Applicable
Contract with respect to patents, trademarks, copyrights, or other
intellectual property, including agreements with current or former
employees, consultants, or contractors regarding the appropriation or
the non-disclosure of any of the Intellectual Property Assets;
3.17.(a)(vi) each collective bargaining agreement and other
Applicable Contract to or with any labor union or other employee
representative of a group of employees;
3.17.(a)(vii) each joint venture, partnership, and other
Applicable Contract (however named) involving a sharing of profits,
losses, costs, or liabilities by KRI with any other Person;
3.17.(a)(viii) each Applicable Contract containing covenants
that in any way purport to restrict the business activity of KRI or any
Affiliate of KRI or limit the freedom of KRI or any Affiliate of KRI to
engage in any line of business or to compete with any Person;
3.17.(a)(ix) each Applicable Contract providing for payments
to or by any Person based on sales, purchases, or profits, other than
direct payments for goods;
3.17.(a)(x) each power of attorney that is currently effective
and outstanding;
3.17.(a)(xi) each Applicable Contract entered into other than
in the Ordinary Course of Business that contains or provides for an
express undertaking by KRI to be responsible for consequential damages;
3.17.(a)(xii) each Applicable Contract for capital
expenditures in excess of $1,000;
3.17.(a)(xiii) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance extended by
KRI other than in the Ordinary Course of Business; and
3.17.(a)(xiv) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
3.17.(b) Except as set forth in the Disclosure Letter:
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3.17.(b)(i) neither Shareholder (and no Related Person of
either Shareholder) has or may acquire any rights under, and neither
Shareholder has or may become subject to any obligation or liability
under, any Contract that relates to the business of, or any of the
assets owned or used by KRI; and
3.17.(b)(ii) no officer, director, agent, employee,
consultant, or contractor of KRI is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct,
activity, or practice relating to the business of KRI, or (B) assign to
KRI or to any other Person any rights to any invention, improvement, or
discovery.
3.17.(c) Except as set forth in the Disclosure Letter, each
Contract identified or required to be identified in the Disclosure Letter is in
full force and effect and is valid and enforceable in accordance with its terms.
3.17.(d) Except as set forth in the Disclosure Letter:
3.17.(d)(i) KRI is, and at all times since December 31, 1996
has been, in full compliance with all applicable terms and requirements
of each Applicable Contract;
3.17.(d)(ii) each other Person that has or had any obligation
or liability under any Applicable Contract, and at all times since
December 31, 1996 has been, in full compliance with all applicable
terms and requirements of such Applicable Contract;
3.17.(d)(iii) no event has occurred or circumstance exists
that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give KRI or any other
Person the right to declare a default or exercise any remedy under, or
to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Applicable Contract; and
3.17.(d)(iv) KRI has not given to or received from any other
Person, at any time since December 31, 1996, any notice or other
communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any
Applicable Contract.
3.17.(e) Except as set forth in the Disclosure Letter, there are
no renegotiations of, attempts to renegotiate, or outstanding rights to
renegotiate any material amounts paid or payable to KRI under current or
completed Applicable Contracts with any Person and no such Person has made
written demand for such renegotiation.
3.17.(f) Any Contracts relating to the sale, design, manufacture,
or provision of products or services by KRI has been
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entered into in the Ordinary Course of Business and has been entered into
without the commission of any act alone or in concert with any other Person, or
any consideration having been paid or promised, that is or would be in violation
of any Legal Requirement.
3.18. INSURANCE. The Disclosure Letter contains a complete and accurate
list, and Shareholders have delivered to Buyer true and correct copies of all
policies of insurance currently in effect to which KRI is a party. KRI currently
maintains in full force and effect all insurance policies reasonably necessary
for the conduct of KRI's business or the ownership of KRI's equipment. KRI is
not in default of any provisions of its insurance policies, has paid all
premiums due thereunder and has not failed to present any notice or material
claim thereunder in a timely fashion. The Disclosure Letter sets forth a
complete and accurate list of any claims made under any such insurance policies.
3.19. ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Letter:
3.19.(a) KRI is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law. No material expenditures are required to be made by the KRI
in order to comply with any Environmental Laws.
3.20. EMPLOYEES.
3.20.(a) The Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of KRI,
including each employee on leave of absence or layoff status: employer; name;
job title; current compensation paid or payable; and service credited for
purposes of vesting and eligibility to participate under KRI's pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including investment credit
or payroll stock ownership), severance pay, insurance, medical, welfare, or
vacation plan, other Employee Pension Benefit Plan or Employee Welfare Benefit
Plan, or any other employee benefit plan or any Director Plan.
3.20.(b) No employee or director of KRI is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such employee or
director and any other Person ("Proprietary Rights Agreement") that in any way
adversely affects or will affect (i) the performance of his duties as an
employee or director of KRI, or (ii) the ability of KRI to conduct its business,
including any proprietary rights agreement with Shareholders or KRI by any such
employee or director. To Shareholders' Knowledge, no director, officer, or other
key employee of KRI intends to terminate his employment with KRI.
3.20.(c) The Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or director
of KRI, or their dependents, receiving benefits or scheduled to receive benefits
in the future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
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3.21. LABOR RELATIONS; COMPLIANCE. KRI has not been or is not a party
to any collective bargaining or other labor Contract. There has not been, there
is not presently pending or existing, and there is not Threatened, (a) any
strike, slowdown, picketing, work stoppage, or employee grievance process, (b)
any Proceeding against or affecting KRI relating to the alleged violation of any
Legal Requirement pertaining to labor relations or employment matters, including
any charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organiza tional activity, or other labor or employment
dispute against or affecting KRI or its premises, or (c) any application for
certification of a collective bargaining agent. No event has occurred or
circumstance exists that could provide the basis for any work stoppage or other
labor dispute. There is no lockout of any employees by KRI, and no such action
is contemplated by KRI. KRI has complied in all respects with all Legal
Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closing. KRI is not liable for the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements.
3.22. INTELLECTUAL PROPERTY.
3.22.(a) Intellectual Property Assets -- The term "Intellectual
Property Assets" includes the following:
3.22.(a)(i) the name "Kushner & Robertson", all fictional
business names, including without limitation, "Hacienda Property
Valuation", ["Hacienda Appraisal Review" and California Residential,"]
trading names, registered and unregistered trademarks, service marks,
and applications (collectively, "Marks");
3.22.(a)(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively, "Patents");
3.22.(a)(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
3.22.(a)(iv) [intentionally omitted]; and
3.22.(a)(v) all know-how, trade secrets, confidential
information, customer lists, software, technical information, data,
process technology, plans, drawings, and blue prints (collectively,
"Trade Secrets"); owned, used, or licensed by KRI as licensee or
licensor.
3.22.(b) Agreements -- The Disclosure Letter contains a complete
and accurate list of all Contracts relating to the Intellectual Property Assets
to which KRI is a party or by which KRI is bound, except for any license implied
by the sale of a product and perpetual, paid-up licenses for
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commonly available software programs with a value of less than $1,000 under
which KRI is the licensee. There are no outstanding and, to Shareholders'
Knowledge, no Threatened disputes or disagreements with respect to any such
agreement.
3.22.(c) Know-How Necessary for the Business
3.22.(c)(i) The Intellectual Property Assets are all those
necessary for the operation of KRI's business as it is currently
conducted. KRI is the owner of all right, title, and interest in and to
each of the Intellectual Property Assets, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse
claims, and has the right to use without payment to a third party all
of the Intellectual Property Assets.
3.22.(c)(ii) Except as set forth in the Disclosure Letter, all
former and current employees of KRI have executed written Contracts
with KRI that assign to KRI all rights to any inventions, improvements,
discoveries, or information relating to the business of KRI. No
employee of KRI has entered into any Contract that restricts or limits
in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than KRI.
3.22.(d) KRI has no Patents.
3.22.(e) Trademarks
3.22.(e)(i) The Disclosure Letter contains a complete and
accurate list and summary description of all Marks. KRI is the owner of
all right, title, and interest in and to each of the Marks, free and
clear of all liens, security interests, charges, encumbrances,
equities, and other adverse claims.
3.22.(e)(ii) [intentionally omitted].
3.22.(e)(iii) [intentionally omitted].
3.22.(e)(iv) To Shareholders' Knowledge, there is no
potentially interfering trademark or trademark application of any third
party.
3.22.(e)(v) No Mark is infringed or, to Shareholders'
Knowledge, has been challenged or threatened in any way. To
Shareholder's Knowledge, none of the Marks used by KRI infringes or is
alleged to infringe any trade name, trademark, or service mark of any
third party.
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3.22.(f) Copyrights.
3.22.(f)(i) The Disclosure Letter contains a complete and
accurate list and summary description of all Copyrights. KRI is the
owner of all right, title, and interest in and to each of the
Copyrights, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims.
3.22.(f)(ii) No Copyright is infringed or, to Shareholders'
Knowledge, has been challenged or threatened in any way. None of the
subject matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party or is a derivative work based
on the work of a third party.
3.22.(g) Trade Secrets
3.22.(g)(i) With respect to each Trade Secret, the
documentation relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to
allow its full and proper use without reliance on the knowledge or
memory of any individual.
3.22.(g)(ii) Shareholders and KRI have taken all reasonable
precautions to protect the secrecy, confidentiality, and value of their
Trade Secrets.
3.22.(g)(iii) KRI has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade
Secrets are not part of the public knowledge or literature, and, to
Shareholders' Knowledge, have not been used, divulged, or appropriated
either for the benefit of any Person (other than KRI) or to the
detriment of KRI. No Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way.
3.23. DISCLOSURE.
3.23.(a) No representation or warranty of Shareholders in this
Agreement and no statement in the Disclosure Letter omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
3.23.(b) No notice given pursuant to Section 5.5 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
3.23.(c) There is no fact known to any Shareholder that has
specific application to either Shareholder or KRI (other than general economic
or industry conditions) and that materially adversely affects the assets,
business, prospects, financial condition, or results of operations of KRI that
has not been set forth in this Agreement or the Disclosure Letter.
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3.24. RELATIONSHIPS WITH RELATED PERSONS. No Shareholder or any Related
Person of Shareholders or of KRI has, or since December 31, 1996 has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to KRI's business. Except as set forth in
the Disclosure Letter, no Shareholder or any Related Person of Shareholders or
KRI is, or since December 31, 1996 has owned (of record or as a beneficial
owner) an equity interest or any other financial or profit interest in, a Person
that has (i) had business dealings or a material financial interest in any
transaction with KRI, or (ii) engaged in competition with KRI with respect to
any line of the products or services of KRI (a "Competing Business") in any
market presently served by KRI except for less than one percent of the
outstanding capital stock of any Competing Business that is publicly traded on
any recognized exchange or in the over-the-counter market. Except as set forth
in the Disclosure Letter, no Shareholder or any Related Person of Shareholders
or KRI is a party to any Contract with, or has any claim or right against, KRI.
3.25. BROKERS OR FINDERS. Except with respect to the services of John
Taylor, Shareholders, KRI and their agents have not incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement.
3.26. INVESTMENT INTENT. Shareholders are acquiring the shares of
Buyer's common stock constituting the Stock Consideration for their own account
and not with a view to the distribu tion of such shares within the meaning of
Section 2(11) of the Securities Act.
3.27. BANK ACCOUNTS. Section 3.27 of the Disclosure Letter sets forth a
complete and accurate list of each bank or financial institution in which KRI
has an account or safe deposit box (giving the address and account numbers) and
the names of the persons authorized to draw thereon or to have access thereto.
3.28. CUSTOMERS.
3.28.(a) The Disclosure Letter sets forth an accurate and complete
list of the twenty (20) largest customers of the Company, in terms of revenue
during each of the 1996 and 1997 calendar years and the portion of 1998 prior to
the date of this Agreement (collectively, the "Major Customers"), showing the
total revenue received in each such period from each such customer;
3.28.(b) Except as set forth in the Disclosure Letter, since June
1, 1996 there has not been any adverse change in the business relationship, and
there has been no material dispute, between KRI and any Major Customer.
3.28.(c) Except as set forth in the Disclosure Letter, neither KRI
nor any Shareholder has Knowledge of a Major Customer's intention to discontinue
or substantially reduce doing business with KRI after the Closing nor has any
such elimination or diminution in business been Threatened.
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3.29. IMPROPER AND OTHER PAYMENTS. Except as set forth on the
Disclosure Letter, (a) neither KRI, nor any Shareholder, director, officer,
employee, agent or representative of KRI nor any Person acting on behalf of any
of them, has made, paid or received any bribes, kickbacks or other similar
payments to or from any Person, whether lawful or unlawful, (b) no contributions
have been made by KRI, directly or indirectly, to a domestic or foreign
political party or candidate, (c) no improper foreign payment (as defined in the
Foreign Corrupt Practices Act) has been made and (d) the internal accounting
controls of the Company are adequate to detect any of the foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth in the disclosure letter dated the date hereof
delivered to each Shareholder (the "Buyer's Disclosure Letter"), Buyer
represents and warrants to Shareholders as follows:
4.1. CORPORATE STANDING. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of Georgia. Buyer has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted and as presently proposed to be
conducted, to execute, deliver and perform this Agreement and any other
agreement to which Buyer is a party, the execution and delivery of which is
contemplated hereby. Buyer is duly qualified and is authorized to transact
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure so to qualify would have a material adverse effect on its
business, properties, prospects, or financial condition. Every jurisdiction
where the Buyer is qualified as a foreign corporation to transact business is
listed in the Buyer's Disclosure Letter.
4.2. AUTHORITY; NO CONFLICT.
4.2.(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement, the Shareholders' Agreement and the Custodial
Agreement (the "Buyer's Closing Documents") and to perform its obligations under
this Agreement and the Buyer's Closing Documents.
4.2.(b) Except as set forth in Buyer's Disclosure Letter, neither
the execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:
4.2.(b)(i) any provision of Buyer's Organizational Documents;
4.2.(b)(ii) any resolution adopted by the board of directors
or the stockholders of Buyer;
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4.2.(b)(iii) any Legal Requirement or Order to which Buyer may
be subject; or
4.2.(b)(iv) any Contract to which Buyer is a party or by which
Buyer may be bound.
Except as set forth in Buyer's Disclosure Letter, Buyer is not
and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
4.3. CAPITALIZATION. As of June 12, 1998, the authorized equity
securities of the Buyer consist of [i] 6,000,000 shares of Class A Common Stock,
par value $.01 per share, of which 3,298,759 shares are issued and outstanding,
[ii] 500,000 shares of Class B Common Stock, par value $.01 per share, or which
59,573 shares are issued and outstanding, [iii] 2,500,000 shares of Preferred
Stock, no par value per share, of which no shares are issued and outstanding,
and [iv] 420,000 shares of Class A Convertible Preferred Stock, no par value per
share, of which 420,000 shares are issued and outstanding. As of June 12, 1998,
the outstanding shares of capital stock of the Buyer are owned by the
stockholders and in the amounts specified in Buyer's Disclosure Letter. Upon
consummation of Buyer's equity offering, the authorized equity securities of
Buyer and the outstanding shares of capital stock of Buyer are owned by the
stockholders and in the amounts specified in Buyer's Disclosure Letter. Except
as set forth in the Buyer's Disclosure Letter, no legend or other reference to
any purported Encumbrance appears upon any certificate representing equity
securities of Buyer. All of the outstanding equity securities of Buyer have been
duly autho rized and validly issued and are fully paid and nonassessable. Other
than this Agreement and except as set forth in the Buyer's Disclosure Letter,
there are no Contracts relating to the issuance, sale, or transfer of any equity
securities or other securities of Buyer. None of the outstanding equity
securities or other securities of Buyer was issued in violation of the
Securities Act or any other Legal Requirement. Buyer does not own, or have any
Contract to acquire, any equity securities or other securities of any Person or
any direct or indirect equity or ownership interest in any other business.
4.4. FINANCIAL STATEMENTS. Buyer has delivered to Shareholders: (a)
balance sheets of Buyer as at December 31 in each of the years 1995 through
1996, and the related state ments of income, changes in Stockholders' Equity,
and cash flow for each of the fiscal years then ended, together with the report
thereon of Ernst & Young, independent certified public accountants for 1995 and
Coopers & Lybrand, independent certified public accountants for 1996, (b) a
balance sheet of Buyer as at December 31, 1997 (including the notes thereto),
and the related statements of income, changes in Stockholders' Equity, and cash
flow for the fiscal year then ended, together with the report thereon of Coopers
& Lybrand, independent certified public accountants, and (c) an unaudited
consolidated balance sheet of Buyer as at April 30, 1998 and the related
unaudited consolidated statements of income, changes in Stockholders' Equity,
and cash flow for the four (4) months then ended, including in each case the
notes thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in Stockholders' Equity, and
cash flow of Buyer as at the respective dates of and for the periods referred to
in such financial statements, all in accordance with GAAP; the financial
statements referred to in this Section 4.4 reflect the consistent application of
such accounting principles throughout the periods
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involved. No financial statements of any Person other than Buyer are required by
GAAP to be included in the consolidated financial statements of Buyer.
4.5. NO CONFLICT. The execution and delivery of this Agreement and any
ancillary agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Buyer's Articles of Incorporation or Bylaws, or result in any Violation of any
material lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Buyer, or Buyer's properties or assets.
4.6. COMPLIANCE. Buyer is not in violation or default of any provision
of its Articles of Incorporation or Bylaws or in any respect of any provision of
any material contract or other items listed in the Buyer's Disclosure Letter.
4.7. SUBSIDIARIES. Except for the Contemplated Transactions under this
Agreement, Buyer does not own or control, directly or indirectly, any interest
in any other corporation, partnership, limited liability company, association or
other business entity. Buyer is not a participant in any joint venture,
partnership or similar arrangement.
4.8. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Buyer in connection with the execution and delivery of this
Agreement, or the consummation by Buyer of the transactions contemplated hereby,
which has not already been obtained, except for such filings as may be required
under applicable state securities laws which will be timely filed within the
applicable periods therefor.
4.9. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES.
Except as and to the extent reflected and adequately reserved against in the
Buyer's financial statements, as of the Closing Date, Buyer has no direct or
indirect indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party, and
Buyer will not have any liability or obligation whatsoever, whether accrued,
absolute, contingent or otherwise.
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4.10. TITLE TO PROPERTY AND ASSETS; LEASES.
4.10.(a) Buyer is not bound or committed to make any capital
improvement or expenditure with respect to its owned or leased personal
property.
4.10.(b) Buyer owns no real property in fee simple. Buyer has
good, valid and marketable title to all the personal and mixed, tangible and
intangible properties and assets which it purports to own, free and clear of all
liens, restrictions, claims, charges, security interests, easements or other
encumbrances of any nature whatsoever, except for liens for current taxes not
yet due and payable. With respect to the property and assets that it leases,
Buyer is in compliance with such leases and, to Buyer's knowledge, holds a valid
leasehold interest free and clear of any liens, claims and encumbrances. All
properties and assets of Buyer are in the possession or control of Buyer, and no
other person is entitled to possession of any such properties and assets.
4.11. LEGAL PROCEEDINGS. Except as set forth in Buyer's Disclosure
Letter or which are not material to Buyer, there are no claims of any kind or
any actions, suits, proceedings, arbitrations or investigations pending or, to
Buyer's knowledge, threatened against or affecting Buyer or against any asset,
interest or right of Buyer or which questions the validity of the transactions
contemplated by this Agreement and Buyer knows of no facts which may constitute
a basis therefor.
4.12. ENVIRONMENTAL MATTERS. Buyer is not in violation of any
applicable Environmental Laws, and, as of the date hereof no material
expenditures are required to be made by Buyer in order to comply with any of the
Environmental Laws.
4.13. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as set forth
in the Buyer's Disclosure Letter, Buyer holds all franchises, permits, licenses,
variances, exemptions, orders and approvals of all governmental entities which
are material to the operation of Buyer's business and is in compliance with the
terms thereof. Buyer has complied with and is not in any default under (and has
not been charged with or received notice with respect to, nor is threatened with
or under investigation with respect to, any charge concerning any violation of
any provision of) any federal, state or local law, regulation, ordinance, rule
or order (whether executive, judicial, legislative or administrative) or any
order, writ, injunction or decree of any court, agency or instrumentality and no
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failures to comply.
4.14. EMPLOYEE BENEFIT PLANS. Except as set forth in the Buyer's
Disclosure Letter, Buyer has no employee benefit plans including any profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or director of Buyer (collectively "Benefit Plans"), or any
employment, consulting, severance, termination or indemnification agreement,
arrangement or understanding between Buyer and any officer, director or employee
of Buyer. Each Benefit Plan has been administered in all material respects in
accordance with its terms and all applicable laws.
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4.15. LABOR RELATIONS.
4.15.(a) Buyer is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and health;
4.15.(b) There is no unfair labor practice charge or complaint or
any other matter against or involving Buyer pending or, to Buyer's knowledge,
threatened before the National Labor Relations Board or any court of law;
4.15.(c) There is no labor strike, dispute, slowdown or stoppage
actually pending or, to Buyer's knowledge, threatened against Buyer;
4.15.(d) Buyer is not a party to or bound by any collective
bargaining agreement or any similar labor union arrangement;
4.15.(e) There are no charges, investigations, administrative
proceedings or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, color, religion, national origin,
sexual preference, disability, handicap or veteran status) pending or, to
Buyer's knowledge, threatened, before the Equal Employment Opportunity
Commission or any federal, state or local agency or court against Buyer. There
have been no governmental audits of the equal employment opportunity practices
of Buyer and, to Buyer's knowl edge, no basis for any such claim exists; and
4.16. INSURANCE. Buyer's Disclosure Letter sets forth a list of all
insurance policies, including property, casualty, liability and other insurance
maintained with respect to the assets and business of Buyer ("Buyer Insurance").
Buyer is not liable for any material retroactive premium adjustments with
respect to any of its insurance policies or bonds. All such policies and bonds
are legal, valid and enforceable and in full force and effect and Buyer is not
in breach or default (including with respect to the payment of premiums or the
giving of notices) and no event has occurred which, with notice or the lapse of
time, would constitute such a breach or default, or permit termination,
modification or acceleration under the policy received any notice of premium
increases or cancellations with respect to any of such policies and bonds. Buyer
believes the amount and type of Buyer Insurance coverage is adequate for Buyer's
business and is consistent with good business practice.
4.17. TAX MATTERS. Buyer has timely filed or caused to be filed all
federal, state, foreign and local income, franchise, gross receipts, payroll,
sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all respects. Buyer has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or properly accruable for all periods ending on or
before the date of this Agreement) to any city,
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county, state, foreign country, the United States or any other taxing authority.
There are no security interests on any of the assets of Buyer that arise in
connection with any failure (or alleged failure) to pay any tax. Buyer has
withheld and paid all taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. No deficiencies for any taxes have
been proposed, asserted or assessed against Buyer that are not adequately
reserved for.
4.18. PATENTS AND TRADEMARKS. Buyer owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, and proprietary rights and processes necessary
for its business as now conducted and as proposed to be conducted without any
conflict with, or infringement of the rights of, others. Buyer's Disclosure
Letter sets forth a complete list of the Buyer's copyrights and trademarks.
Except for agreements with its own employees or consultants and standard
end-user license agreements, if any, there are no outstanding options, licenses,
or agreements of any kind relating to the foregoing, nor is the Buyer bound by
or a party to any options, licenses, or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, and proprietary rights and processes of any other person
or entity. Buyer has not received any communications alleging that Buyer has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets, or
other proprietary rights or processes of any other person or entity. Buyer is
not aware that any of its employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the
interests of Buyer or that would conflict with Buyer's business as proposed to
be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Buyer's business by the employees of Buyer, nor the conduct of
Buyer's business as proposed, will, to Buyer's knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of, or constitute a
default under, any contract, covenant, or instrument under which any of such
employees is now obligated. Buyer does not believe it is or will be necessary to
use any inventions of any of its employees (or persons it currently intends to
hire) made prior to their employment by Buyer. Each independent contractor,
employee and/or officer of Buyer who or which has contributed to the development
of the Computer Software has executed proprietary information/confidentiality
agreements.
4.19. RELATED-PARTY TRANSACTIONS. Except as set forth in Buyer's
Disclosure Letter, no employee, officer, or director of Buyer, or member of his
or her immediate family is indebted to Buyer, nor is Buyer indebted (or
committed to make loans or extend or guarantee credit) to any of them. To
Buyer's knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which Buyer is affiliated or with which
Buyer has a business relationship, or any firm or corporation that competes with
Buyer, except that employees, officers, or directors of Buyer, and members of
their immediate families may own stock in publicly traded companies that may
compete with Buyer. Except as set forth in Buyer's Disclosure Letter, no
employee, officer or director of Buyer, or, to Buyer's knowledge, any member of
their immediate families is, directly or indirectly, interested in any material
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contract with Buyer. For purposes of this Agreement, Buyer shall be deemed to
have knowledge of a fact, event, condition, matter or situation if any of
Buyer's officers or directors are consciously aware of such fact, event,
condition, matter or situation, as appropriate.
4.20. SOFTWARE PRODUCTS. Buyer has received no customer complaints
concerning alleged defects in its computer appraisal software products,
including, without limitation, ValuExpress (collectively, the "Computer
Software") that, if true, would materially adversely affect the operations or
financial condition of Buyer.
4.21. [Intentionally Omitted].
4.22. MATERIAL FACTS. Buyer has provided each Shareholder with all the
information reasonably available to it that such Shareholder has requested for
deciding whether to acquire the shares needed. This Agreement and the documents
or written statements furnished by Buyer to Shareholders in connection with the
transactions contemplated hereby do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
4.23. INVESTMENT INTENT. Buyer is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of Section
2(11) of the Securities Act.
4.24. CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.25. BROKERS OR FINDERS. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
SECTION 5. COVENANTS OF SHAREHOLDERS PRIOR TO CLOSING DATE
5.1. ACCESS AND INVESTIGATION. Between the date of this Agreement and
the Closing Date, Shareholders will, and will cause KRI and its Representatives
to, (a) afford Buyer and its Representatives (collectively, "Buyer's Advisors")
full and free access to KRI's personnel, properties contracts, books and
records, and other documents and data, (b) furnish Buyer and Buyers's Advisors
with copies of all such contracts, books and records, and other existing
documents and data as Buyer may reasonably request, and (c) furnish Buyer and
Buyers's Advisors with such additional financial, operating, and other data and
information as Buyer may reasonably request. Buyer will (a) afford Shareholders
and their Representatives (collectively, "Shareholders' Advisors") full and free
access to Buyer's personnel,
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properties, contracts, books and records, and other documents and data and (b)
furnish Shareholders and Shareholder's Advisors with copies of all such
contracts, books and records, and other existing documents and data as
Shareholders may reasonably request, and (c) furnish Shareholders and
Shareholders Advisors with such additional financial, operating, and other data
and information as Shareholders may reasonably request.
5.2. OPERATION OF THE BUSINESSES OF KRI. Between the date of this
Agreement and the Closing Date, Shareholders will, and will cause KRI to:
5.2.(a) conduct the business of KRI only in the Ordinary Course of
Business;
5.2.(b) use their Best Efforts to preserve intact the current
business organization of KRI, keep available the services of the current
officers, employees, and agents of KRI, and maintain the relations and good will
with suppliers, customers, landlords, creditors, employees, agents, and others
having business relationships with KRI;
5.2.(c) confer with Buyer concerning operational matters of a
material nature; and
5.2.(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of KRI.
5.3. NEGATIVE COVENANT. Except as otherwise expressly permitted by this
Agreement, between the date of this Agreement and the Closing Date, Shareholders
will not, and will cause KRI not to, without the prior consent of Buyer, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in Section
3.16 is likely to occur.
5.4. REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Shareholders will, and will cause KRI to, make all filings
required by Legal Require ments to be made by them in order to consummate the
Contemplated Transactions. Between the date of this Agreement and the Closing
Date, Shareholders will, and will cause KRI to, (a) cooperate with Buyer with
respect to all filings that Buyer elects to make or is required by Legal
Requirements to make in connection with the Contemplated Transactions, and (b)
cooperate with Buyer in obtaining all consents identified in Schedule 4.2.
5.5. NOTIFICATION. Between the date of this Agreement and the Closing
Date, each Shareholder will promptly notify Buyer in writing if such Shareholder
or KRI becomes aware of any fact or condition that causes or constitutes a
Breach of any of Shareholders' representations and warranties as of the date of
this Agreement, or if such Shareholder or KRI becomes aware of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation
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or warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, Shareholders will promptly deliver
to Buyer a supplement to the Disclosure Letter specifying such change. During
the same period, each Shareholder will promptly notify Buyer of the occurrence
of any Breach of any covenant of Shareholders in this Section 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
Section 7 impossible or unlikely.
5.6. PAYMENT OF INDEBTEDNESS BY RELATED PERSONS. Except as expressly
provided in this Agreement, Shareholders will cause all indebtedness owed to KRI
by any Shareholder or any Related Person of either Shareholder to be paid in
full prior to Closing.
5.7. NO NEGOTIATION. Until such time, if any, as this Agreement is
terminated pursuant to Section 9, Shareholders will not, and will cause KRI and
each of its Representatives not to, directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or assets (other than in the
Ordinary Course of Business) of KRI, or any of the capital stock of KRI, or any
merger, consolidation, business combination, or similar transaction involving
KRI.
5.8. BEST EFFORTS. Between the date of this Agreement and the Closing
Date, KRI and Shareholders will use their Best Efforts to cause the conditions
in Sections 7 and 8 to be satisfied.
SECTION 6. COVENANTS OF BUYER PRIOR TO CLOSING DATE
6.1. BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Buyer will use its Best Efforts to cause the conditions in Sections 7 and
8 to be satisfied.
SECTION 7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
7.1. ACCURACY OF REPRESENTATIONS.
7.1.(a) Each of the representations and warranties of Shareholders
and KRI in this Agreement must have been accurate in all material respects as of
the date of this Agreement, and must be
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accurate in all material respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Disclosure Letter.
7.2. SHAREHOLDERS' PERFORMANCE.
Each of the covenants and obligations that Shareholders are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing, must have been duly performed and complied with in all material
respects.
7.3. CONSENTS. Each of the Consents identified in the Disclosure
Letter, and each Consent identified in Buyer's Disclosure Letter, must have been
obtained and must be in full force and effect.
7.4. ADDITIONAL DOCUMENTS. Each of the following documents must have
been delivered to Buyer:
7.4.(a) an opinion of Strategic Law Partners, KRI's and
Shareholders' counsel, dated the Closing Date, in the form of Exhibit 7.4(a);
7.4.(b) estoppel certificates executed on behalf of lessors and
sublessors to any real estate leases constituting Applicable Contracts dated as
of a date not more than five (5) days prior to the Closing Date.
7.4.(c) the documents required to be delivered by Shareholders and
KRI pursuant to Section 2.4; and
7.4.(d) such other documents as Buyer may reasonably request for
the purpose of (i) enabling its counsel to provide the opinion referred to in
Section 8.4(a), (ii) evidencing the accuracy of any of Shareholders'
representations and warranties, (iii) evidencing the performance by each
Shareholder of, or the compliance by each Shareholder with, any covenant or
obligation required to be performed or complied with by such Shareholder, (iv)
evidencing the satisfaction of any condition referred to in this Section 7, or
(v) otherwise facilitating the consummation or performance of any of the
Contemplated Transactions.
7.5. NO PROCEEDINGS. Since the date of this Agreement, there must not
have been commenced or Threatened against Buyer, or against any Person
affiliated with Buyer, any Proceed ing (a) involving any challenge to, or
seeking damages or other relief in connection with, any of the Contemplated
Transactions, or (b) that may have the effect of preventing, delaying, making
illegal, or otherwise interfering with any of the Contemplated Transactions.
7.6. NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS. There must
not have been made or Threatened by any Person any claim asserting that such
Person (a) is the
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holder or the beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any stock of, or any other voting, equity, or ownership
interest in, KRI, or (b) is entitled to all or any portion of the Purchase Price
payable for the Shares.
7.7. NO PROHIBITION. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise proposed by or before any Governmental Body.
7.8. EQUITY FINANCING. Buyer shall have consummated an offering of its
common shares, with net proceeds to the Buyer of at least $4.6 million and
otherwise on terms and conditions, satisfactory to Buyer.
SECTION 8. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATION TO CLOSE
Shareholders' obligation to sell the Shares and to take the other
actions required to be taken by Shareholders at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Shareholders, in whole or in part):
8.1. ACCURACY OF REPRESENTATIONS. Each of Buyer's representations and
warranties in this Agreement must have been accurate in all material respects as
of the date of this Agreement and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
8.2. BUYER'S PERFORMANCE.
8.2.(a) Each of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or
prior to the Closing must have been performed and complied with in all
material respects.
8.2.(b) Buyer must have delivered each of the documents
required to be delivered by Buyer pursuant to Section 2.4 and must have
made the cash payments required to be made by Buyer pursuant to
Sections 2.4(c)(i).
8.3. CONSENTS. Each of the Consents identified in the Buyer's
Disclosure Letter must have been obtained and must be in full force and effect.
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8.4. ADDITIONAL DOCUMENTS. Buyer must have caused the following
documents to be delivered to Shareholders:
8.4.(a) an opinion of Wyatt, Tarrant & Combs, Buyer's counsel,
dated the Closing Date, in the form of Exhibit 8.4(a); and
8.4.(b) such other documents as Shareholders may reasonably
request for the purpose of (i) enabling their counsel to provide the opinion
referred to in Section 7.4(a), (ii) evidencing the accuracy of any
representation or warranty of Buyer, (iii) evidencing the performance by Buyer
of, or the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, (ii) evidencing the satisfaction of any
condition referred to in this Section 8, or (v) otherwise facilitating the
consummation of any of the Contemplated Transactions.
8.5. NO INJUNCTION. There must not be in effect any Legal Requirement
or any injunction or other Order that (a) prohibits the sale of the Shares by
Shareholders to Buyer, and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.
SECTION 9. TERMINATION
9.1. TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
9.1.(a) by either Buyer or Shareholders if a material Breach of
any provision of this Agreement has been committed by the other party and such
Breach has not been waived;
9.1.(b) by Buyer if any of the conditions in Section 7 has not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply with
its obligations under this Agreement) and Buyer has not waived such condition on
or before the Closing Date; or (ii) by Shareholders, if any of the conditions in
Section 8 has not been satisfied as of the Closing Date or if satisfaction of
such a condition is or becomes impossible (other than through the failure of
Shareholders to comply with their obligations under this Agreement) and
Shareholders have not waived such condition on or before the Closing Date;
9.1.(c) by mutual consent of Buyer and Shareholders; or
9.1.(d) by either Buyer or Shareholders if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obliga tions under this Agreement) on or
before July 31, 1998, or such later date as the parties may agree upon.
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9.2. EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 9.1, all
further obligations of the parties under this Agreement will terminate, except
that the obligations in Sections 11.1 and 11.3 will survive; provided, however,
that if this Agreement is terminated by a party because of the Breach of the
Agreement by the other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
SECTION 10. INDEMNIFICATION; REMEDIES
10.1. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE.
All representations, warranties, covenants, and obligations in this Agreement,
the Disclosure Letter, the supplements to the Disclosure Letter, the certificate
delivered pursuant to Section 2.4(a)(vi), and any other certificate or document
delivered pursuant to this Agreement will survive the Closing for a period of
three (3) years, except that Tax Warranties shall survive until the Tax Statute
of Limitations Date and Title and Authorization Warranties shall survive
forever; provided, however, any claims for fraud or intentional breach shall
survive indefinitely. The right to indemnification, payment of Damages or other
remedy based on such representations, warranties, covenants, and obligations
will not be affected by any investigation conducted with respect to, or any
Knowledge acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
10.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SHAREHOLDERS.
Shareholders, jointly and severally, will indemnify and hold harmless Buyer,
KRI, and their respective Representatives, stockholders, controlling persons,
and affiliates (except Shareholders) (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage, expense (including costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with:
10.2.(a) any Breach of any representation or warranty made by
Shareholders in this Agreement or any other certificate or document delivered by
Shareholders pursuant to this Agreement;
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10.2.(b) any Breach by KRI or any Shareholder of any covenant or
obligation of such Shareholder in this Agreement;
10.2.(c) [intentionally omitted]
10.2.(d) any claim by John Taylor or by any other Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement or understanding alleged to have been made by any such Person with any
of Shareholders or KRI (or any Person acting on their behalf) in connection with
any of the Contemplated Transactions; or
10.2.(e) the fees or other amounts owed to James K. Baer, Esq.,
Strategic Law Partners or other professional advisors rendered or alleged to
have been rendered to Shareholders or KRI in connection with any of the
Contemplated Transactions.
The remedies provided in this Section 10.2 will not be
exclusive of or limit any other remedies that may be available to Buyer or the
other Indemnified Persons.
10.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Shareholders, and will pay to Shareholders the
amount of any Damages arising, directly or indirectly, from or in connection
with:
10.3.(a) any Breach of any representation or warranty made by
Buyer in this Agreement or in any other certificate or document
delivered by Buyer pursuant to this Agreement;
10.3.(b) any Breach by Buyer of any covenant or obligation of
Buyer in this Agreement, or
10.3.(c) any claim by any Person for brokerage or finder's
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with Buyer (or
any Person acting on its behalf) in connection with any of the
Contemplated Transactions.
10.4. LIMITATIONS ON INDEMNIFICATION. Notwithstanding any provision to
the contrary contained herein, no party shall have liability to another under
these indemnification provisions unless the Damages on a cumulative basis exceed
$50,000 after which time the indemnified party shall be entitled to recover all
Damages without regard to such $50,000 threshold amount; provided that this
Section 10.4 shall not apply to any intentional misrepresentation or fraud or
with respect to Section 10.2(d) and 10.2(e) or breach of Shareholders'
representations and warranties contained in Section 3.3. In addition, subject to
the foregoing proviso, a party's liability hereunder shall not exceed, in the
aggregate, $3,000,000.
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10.5. PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
10.5.(a) Promptly after receipt by an indemnified party under
Section 10.2 or Section 10.3 of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
10.5.(b) If any Proceeding referred to in Section 10.5(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 10 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten (10) days after the indemnified party's notice is
given, give notice to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will be bound by any
determination made in such Proceeding or any compromise or settlement effected
by the indemnified party.
10.5.(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnifica tion under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination
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of a Proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
10.5.(d) Shareholders and Buyer hereby consent to the
non-exclusive juris diction of any court in which a Proceeding is brought
against any Indemnified Person for purposes of any claim that an Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agree that process may be served on Shareholders or
Buyer, as applicable, with respect to such a claim anywhere in the world.
10.6. PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
SECTION 11. GENERAL PROVISIONS
11.1. EXPENSES; TERMINATION FEE. Except as otherwise expressly provided
in this Agreement, each party to this Agreement will bear its respective
expenses incurred in connection with the preparation, execution, and performance
of this Agreement and the Contemplated Transac tions, including all fees and
expenses of agents, representatives, counsel, and accountants; provided that
Shareholders will cause KRI not to incur any out-of-pocket expenses in
connection with this Agreement or the Contemplated Transactions, including,
without limitation, brokers', legal, accounting or other similar fees and
expenses. In the event of termination of this Agreement, the obligation of each
party to pay its own expenses will be subject to any rights of such party
arising from a breach of this Agreement by another party. Moreover, if KRI or
any Shareholder deliberately breaches a representation or warranty or fails to
perform a covenant under this Agreement with intent to sell or to consider
selling all or part of the assets or stock of KRI to another Person (besides
Buyer), KRI and Shareholders, jointly and severally, shall pay to Buyer upon
demand a fee of $1,000,000, plus all out-of-pocket expenses of Buyer incurred in
connection with this Agreement and the Contemplated Transactions.
11.2. PUBLIC ANNOUNCEMENTS. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer determines.
Unless consented to by Buyer in advance or required by Legal Requirements, prior
to the Closing Shareholders shall, and shall cause KRI to, keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. Shareholders and Buyer will consult with each other concerning the means
by which KRI's employees, customers, and suppliers and others having dealings
with KRI will be informed of the Contemplated Transac tions, and Buyer will have
the right to be present for any such communication.
11.3. CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, Buyer and Shareholders will maintain in confidence, and will cause
the directors, officers, employees, agents, and
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advisors of Buyer and KRI to maintain in confidence, any written, oral, or other
information obtained in confidence from another party or KRI in connection with
this Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by legal proceedings.
If the Contemplated Transactions are not consummated, each
party will return or destroy as much of such written information as the other
party may reasonably request and each party shall use its Best Efforts to
maintain the confidentiality of any trade secrets or other confidential
information obtained.
11.4. NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
SHAREHOLDERS: Michael Robertson
Hacienda Property Valuation
2340 Santa Rita Road, Suite 6
Pleasanton, CA 94566
Facsimile No.: (510) 426-5303
Jeremy McCarty
Hacienda Property Valuation
2340 Santa Rita Road, Suite 6
Pleasanton, CA 94566
Facsimile No.: (510) 426-5303
Joseph Mathews
Hacienda Property Valuation
2340 Santa Rita Road, Suite 6
Pleasanton, CA 94566
Facsimile No.: (510) 426-5303
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James Sulger
Hacienda Property Valuation
2340 Santa Rita Road, Suite 6
Pleasanton, CA 94566
Facsimile No.: (510) 426-5303
COMPANY: Michael Robertson
Hacienda Property Valuation
2340 Santa Rita Road, Suite 6
Pleasanton, CA 94566
Facsimile No: (510) 426-5303
with a copy to: Strategic Law Partners
Suite 3950
333 South Grand Avenue
Los Angeles, CA 90071
Attention: James K. Baer, Esq.
Fax: (213) 617-8961
Buyer: Premier Appraisals, Inc.
Suite 1220
12 Perimeter Center East
Atlanta, Georgia 30346
Attention: Michael W. Mattox
Facsimile No.: (770) 804-1997
with a copy to: Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, Kentucky 40202
Attention: Patrick W. Mattingly, Esq.
Facsimile No.: (502) 589-0309
11.5. JURISDICTION; SERVICE OF PROCESS. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Georgia, County of Dekalb, or, if it has or can acquire jurisdiction, in the
United States District Court for the Northern District of Georgia, and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
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11.6. FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
11.7. WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
11.8. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Term Sheet between Buyer and Shareholders dated APRIL 2, 1998)
and constitutes (along with the documents referred to in this Agreement) a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
11.9. DISCLOSURE LETTER.
11.9.(a) The disclosures in the Disclosure Letter and the Buyer's
Disclosure Letter, and those in any Supplement thereto, must relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement.
11.9.(b) In the event of any inconsistency between the statements
in the body of this Agreement and those in the Disclosure Letter or the Buyer's
Disclosure Letter (other than an exception expressly set forth as such in the
Disclosure Letter or the Buyer's Disclosure Letter with respect to a
specifically identified representation or warranty), the statements in the body
of this Agreement will control.
11.10. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit
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of the successors and permitted assigns of the parties. Nothing expressed or
referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement any legal or equitable right, remedy, or claim
under or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
11.11. SEVERABILITY. If any provision of this Agreement is held invalid
or unenforce able by any court of competent jurisdiction, the other provisions
of this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
11.12. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
11.13. TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
11.14. GOVERNING LAW. This Agreement will be governed by the laws of
the State of Georgia without regard to conflicts of laws principles.
11.15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
SECTION 12. NON-COMPETITION
12.1. NON-COMPETITION AGREEMENT. Each of the Shareholders agrees that
from and after the Closing Date until the later of (i) five (5) years after the
Closing Date or (ii) two (2) years after the date his employment by KRI, Buyer
or another Subsidiary of Buyer terminates (the later of such dates being
referred to herein as the "ENDING DATE" and the period beginning the Closing
Date and ending on the Ending Date, being referred to herein as the
"NON-COMPETITION PERIOD"), neither he nor any of his Affiliates will, directly
or indirectly:
12.1.(a) except as an officer or employee of KRI, Buyer or other
Subsidiary of Buyer engage in, control, advise, manage, serve as a director,
officer or employee of, act as a
53
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consultant to, receive any economic benefit from or exert any influence upon,
any business which conducts activities in the United States that are similar to
those conducted by KRI or Buyer;
12.1.(b) except in connection with any duties as an officer or
employee of KRI, Buyer, or other subsidiary of Buyer, solicit, divert or attempt
to solicit or divert any party who is, was or was solicited to become, a
customer or supplier of the Buyer at any time prior to the Closing Date;
12.1.(c) employ, solicit for employment or encourage to leave
their employment, any person who was during the one-year period prior to such
employment, solicitation or encouragement or is an officer or employee of KRI,
Buyer or other subsidiary of Buyer;
12.1.(d) avail himself of or invest in any business opportunity
which is related to the activities conducted by KRI or Buyer, and which came to
his attention prior to the Ending Date,
12.1.(e) disturb, or attempt to disturb, any business relationship
between any third party and KRI or Buyer; or
12.1.(f) make any statement to any third party, including the
press or media, likely to result in adverse publicity for KRI or Buyer.
For purposes of this Section, the term "directly or indirectly" shall include
acts or omissions as proprietor, partner, joint venturer, employer, salesman,
agent, employee, officer, director, lender or consultant of, or owner of any
interest in, any Person.
12.2. SPECIFIC PERFORMANCE. Each of the Shareholders recognizes and
affirms that in the event of breach by any of them of any of the provisions of
this Section, money damages would be inadequate and Buyer would have no adequate
remedy at law. Accordingly, each of the Shareholders agrees that Buyer shall
have the right, in addition to any other rights and remedies existing in its
favor, to enforce its rights and their obligations under this Section not only
by an action or actions for damages but also by an action or actions for
specific performance, injunction and/or other equitable relief in order to
enforce or prevent any violations (whether anticipatory, continuing or future of
the provisions of this Section (including the extension of the Non-Competition
Period by a period equal to (i) the length of the violation of this Section 12
plus (ii) the length of any court proceedings necessary to stop such violation).
In the event of a breach or violation by any of the Shareholders of any of the
provisions of this Section 12, the running of the Non-Competition Period (but
not of the Principals' obligations under this Section 12) shall be suspended
with respect to the Shareholders during the continuance of any actual breach or
violation. If a bond is required to be posted in order for Purchaser to secure
an injunction, the parties agree that said bond need not exceed the sum of
$1,000.
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12.3. SEVERABILITY. If at any time any of the provisions of this
Section 12 shall be determined to be invalid or unenforceable by reason of being
vague or unreasonable as to duration, area, scope of activity or otherwise, then
this Section 12 shall be considered divisible (with the other provisions to
remain in full force and effect) and the invalid or unenforceable provisions
shall become and be deemed to be immediately amended to include only such time,
area, scope of activity and other restrictions, as shall be determined to be
reasonable and enforceable by the court or other body having jurisdiction over
the matter, and the Shareholders expressly agree that this Agreement, as so
amended, shall be valid and binding as though any invalid or unenforceable
provision had not been included herein.
12.4. NO LIMITATION OF OTHER PROVISIONS. The provisions of this Section
12 shall be in addition to, and not in limitation of, any other provisions
contained in any other agreement restricting competition by any Shareholder.
SECTION 13. MISCELLANEOUS SHAREHOLDERS' PROVISIONS
13.1. E&O TAIL COVERAGE. Buyer shall provide for the benefit of each
Shareholder for a period of five (5) years after the Closing Date errors and
omissions "tail coverage" on a "claims made" basis for periods prior to the
Closing Date and otherwise on the same terms, conditions and coverages as
Buyer's regular E&O policy.
13.2. INDEMNITY FOR PERSONAL LIABILITY ON OFFICE LEASES. KRI shall
indemnify and hold Michael Robertson and any other Shareholder harmless from any
liability, loss, cost or expense arising out of or relating to the office leases
set forth in the Disclosure Letter and in connection with any primary obligation
of Michael Robertson or any other Shareholder or guarantee of KRI's performance
of any such lease by Michael Robertson or any other Shareholder.
13.3. WAIVER OF KRI SHAREHOLDERS' AGREEMENT. Each of KRI and the
Shareholders waive any rights it or he may have under the Shareholders Agreement
dated August 1, 1997 or similar agreement related to rights of first refusal or
otherwise and hereby terminate any such agreement effective as of and
simultaneously with the consummation of the transaction contemplated by this
Agreement.
[END OF TEXT]
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IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
BUYER:
PREMIER APPRAISALS, INC.
By:
------------------------------------
Title:
---------------------------------
SHAREHOLDERS:
---------------------------------------
MICHAEL ROBERTSON
---------------------------------------
JEREMY MCCARTY
---------------------------------------
JOSEPH MATHEWS
---------------------------------------
JAMES SULGER
KRI:
KUSHNER & ROBERTSON, INC.
By:
------------------------------------
Title:
---------------------------------
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Exhibit 10.16
ASSET PURCHASE AGREEMENT
AMONG
PRIMIS, INC.,
E.T. JONES (an individual)
and
E.T. JONES & ASSOCIATES, INC.
DATED September 29, 1999
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1. TRANSFER OF ASSETS AND CERTAIN RELATED MATTERS.........................................................1
1.1 Sale............................................................................................1
1.2 Excluded Assets.................................................................................2
1.3 Assumption of Certain Liabilities...............................................................2
1.4 Retained Liabilities............................................................................3
1.5 Employees.......................................................................................4
ARTICLE 2. PURCHASE PRICE.........................................................................................4
2.1 Payment of Purchase Price.......................................................................4
2.2 Allocation of Purchase Price....................................................................5
2.3 Adjustment to Purchase Price....................................................................5
2.4 Transfer Taxes and Proration....................................................................6
ARTICLE 3. CLOSING................................................................................................6
3.1 Time and Place..................................................................................6
3.2 Title...........................................................................................6
3.3 Closing Items...................................................................................6
3.4 Further Assurances..............................................................................7
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES......................................................7
4.1 Due Organization................................................................................7
4.2 Authorization; Title............................................................................8
4.3 Subsidiaries; Business Relationships............................................................8
4.4 Financial Statements............................................................................8
4.5 Undisclosed Liabilities and Obligations.........................................................8
4.6 Permits and Intangibles.........................................................................9
4.7 Title to Assets; Real and Personal Property.....................................................9
4.8 Contracts and Commitments.......................................................................9
4.9 Customers and Sales............................................................................10
4.10 Insurance......................................................................................10
4.11 Compensation...................................................................................11
4.12 Employee Benefit Plans.........................................................................11
4.13 Condition and Sufficiency of Assets............................................................11
4.14 Litigation; Conformity with Law................................................................12
4.15 Taxes..........................................................................................12
4.16 S Corporation Status...........................................................................12
4.17 Completeness; Books and Records................................................................12
4.18 Absence of Changes.............................................................................13
</TABLE>
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<TABLE>
<S> <C> <C>
4.19 Environmental Matters..........................................................................13
4.20 Validity of Obligations........................................................................13
4.21 Relations with Government......................................................................14
4.22 No Conflicts...................................................................................14
4.23 Consents.......................................................................................14
4.24 Employee Agreements............................................................................14
4.25 Disclosure.....................................................................................15
4.26 Additional Information from Purchaser..........................................................15
4.27 Investment Intent..............................................................................15
4.28 Sole Shareholder and Director..................................................................15
ARTICLE 5. REPRESENTATIONS OF PURCHASER..........................................................................16
5.1 Due Organization...............................................................................16
5.2 Authorization..................................................................................16
5.3 Capitalization.................................................................................16
5.4 Financial Statements...........................................................................16
5.5 No Conflicts...................................................................................16
ARTICLE 6. COVENANTS OF PARTIES PRIOR TO CLOSING.................................................................17
6.1 Access and Cooperation.........................................................................17
6.2 Contact with Customers.........................................................................17
6.3 Conduct of Business Pending Closing............................................................18
6.4 Prohibited Activities..........................................................................19
6.5 No Shop........................................................................................19
6.6 Best Efforts...................................................................................19
6.7 Public Announcements...........................................................................19
ARTICLE 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLING PARTIES................................................19
7.1 Representations and Warranties; Performance of Obligations.....................................19
7.2 No Litigation..................................................................................20
7.3 Employment Agreement...........................................................................20
7.4 Shareholders' Agreement........................................................................20
7.5 Promissory Note, Security Agreement and UCC-1 Financing Statement..............................20
ARTICLE 8. CONDITIONS TO OBLIGATIONS OF PURCHASER................................................................20
8.1 Representations and Warranties; Performance of Obligations.....................................20
8.2 No Litigation..................................................................................20
8.3 Customer Approval..............................................................................20
8.4 No Material Adverse Change.....................................................................21
8.5 Due Diligence..................................................................................21
8.6 Required Documents.............................................................................21
</TABLE>
iii
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<TABLE>
<S> <C> <C>
8.7 Use of Name....................................................................................21
8.8 Consents.......................................................................................21
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION................................................................................21
9.1 Survival of Representations and Warranties.....................................................21
9.2 Indemnification by Seller and Shareholder......................................................22
9.3 Indemnification by Purchaser...................................................................23
9.4 Third Person Claims............................................................................23
9.5 Method of Payment..............................................................................24
9.6 Dissolution of Seller..........................................................................24
ARTICLE 10. TERMINATION OF AGREEMENT.............................................................................24
ARTICLE 11. RESTRICTIVE COVENANTS................................................................................24
11.1 Non-Competition Agreement......................................................................24
11.2 Non-Disclosure.................................................................................25
11.3 Damages........................................................................................25
11.4 Reasonable Restraint...........................................................................26
11.5 Severability; Reformation......................................................................26
11.6 Independent Covenants..........................................................................26
11.7 Materiality....................................................................................26
11.8 Early Termination..............................................................................26
11.9 No Limitation of Other Provisions..............................................................26
ARTICLE 12. GENERAL..............................................................................................26
12.1 Cooperation....................................................................................26
12.2 Successors and Assigns.........................................................................27
12.3 Entire Agreement...............................................................................27
12.4 Counterparts...................................................................................27
12.5 Brokers and Agents.............................................................................27
12.6 Expenses.......................................................................................27
12.7 Notices........................................................................................27
12.8 Governing Law..................................................................................28
12.9 Exercise of Rights and Remedies................................................................28
12.10 Time...........................................................................................29
12.11 Reformation and Severability...................................................................29
12.12 Schedules......................................................................................29
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of the 29th day of September, 1999, by and among PRIMIS, INC., a Georgia
corporation ("Purchaser"), E.T. JONES, an individual, ("Shareholder") and E.T.
JONES & ASSOCIATES, INC., a Texas corporation ("Seller") (collectively Seller
and Shareholder are the "Selling Parties").
WHEREAS, Seller desires to transfer to Purchaser, and Purchaser desires
to acquire from Seller, substantially all of the assets relating to Seller's
real estate appraisal business located in Dallas, Texas (the "Business"), all as
set forth herein; and
WHEREAS, the Shareholder owns all of the issued and outstanding stock
of Seller and as such will derive substantial benefits under this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, and intending to be legally bound, Purchaser, Shareholder and Seller
hereby agree as follows:
ARTICLE 1. TRANSFER OF ASSETS AND CERTAIN RELATED MATTERS.
1.1 SALE. Seller shall sell, convey, transfer, assign and deliver to
Purchaser, at the Closing described in Article 3 hereof, and Purchaser shall
purchase from Seller, on the terms and conditions set forth in this Agreement,
all right, title, and interest in the assets, properties and business of Seller
of every kind, character and description, whether tangible, intangible, real,
personal or mixed, including goodwill, and wherever located (but excluding any
assets specifically excluded in Section 1.2 of this Article 1), all of which are
sometimes collectively referred to in this Agreement as the "Assets," including,
without limitation, the following:
(a) TANGIBLE PERSONAL PROPERTY. All furniture, fixtures,
equipment, purchased computer software, telephone numbers, and other personal
property of any nature or kind whatsoever owned by Seller and normally used in
the Business (the "Personal Property"), including without limitation the
physical assets described in Schedule 1.1(a);
(b) LEASES. All rights of Seller under those leases relating
to personal property or real property (the "Leases") described in Schedule
l.l(b) hereto;
(c) PERMITS. All rights of Seller under all permits, licenses,
authorizations, approvals, consents and franchises owned or held by Seller and
used in connection with the operation of the Business (the "Permits"), including
without limitation all governmental permits, licenses, authorizations, approvals
and consents described in Schedule l.l(c) hereto;
<PAGE>
(d) INVENTORY. All supplies, spare parts, repair materials and
other materials, wherever located, held for use in connection with the Business
(the "Inventory");
(e) INTANGIBLES. All trademarks, trademark applications,
service marks, service mark applications, copyrights, copyright applications,
trade names (including the name "E.T. Jones & Associates, Inc."), trade dress,
registered designs, unregistered design rights, Internet site locations or
rights, trade secrets, client lists, processes, know-how, procedures, formulae
and confidential information and other intangibles used or useful in the
operation of the Business and any and all goodwill associated therewith
(collectively, the "Intangibles");
(f) BOOKS AND RECORDS. All papers, computerized databases,
books and records of Seller, in all forms, used or useful in the operation of
the Business (the "Records"), including, but not limited to all personnel
records, sales records, marketing material, accounting and financial records and
files related to appraisals conducted by Seller and its employees or agents
since the inception of the Business;
(g) CONTRACTS. All rights of Seller under the contracts
relating to the Business (the "Contracts") described in Schedule 1.1(g) and any
prepaid expenses, rebates or deposits related thereto;
(h) WORK IN PROCESS. All work in process including any
completed appraisals not invoiced prior to September 1, 1999 (the "Effective
Date");
(i) CASH; ACCOUNTS RECEIVABLE; PREPAID EXPENSES. All accounts
receivable related to appraisal work performed on or after the Effective Date
and all of Seller's cash and cash equivalents attributable to completed
appraisals or work in process completed on or after the Effective Date ("Post
- -Effective Date Accounts Receivable and Cash"), remaining on hand or in accounts
of Seller, after payment of Assumed Liabilities and the expenses of the
operation of the Business on or after the Effective Date. To the extent
transferable, all prepaid expenses of Seller relating to the Business and all
surety bonds, surety deposits, lease deposits, letters of credit and other
instruments posted by or on behalf of Seller and relating to the Business as
security for the performance of any contract or agreement to be transferred to
Purchaser pursuant to this Agreement.
(j) OTHER PROPERTY NOT ELSEWHERE DESCRIBED. All other
properties of Seller of every kind, character or description owned, used or held
for use (whether or not exclusively) in connection with the Business, wherever
located and whether or not similar to the things set forth elsewhere in this
Article 1, but excluding any assets specifically excluded in this Article 1.
1.2 EXCLUDED ASSETS. Notwithstanding any provision of Section 1.1 to
the contrary, the assets of Seller relating to the Business listed on Schedule
1.2 are specifically excluded from the sale of the Assets to Purchaser (the
"Excluded Assets").
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1.3 ASSUMPTION OF CERTAIN LIABILITIES. On and subject to the terms and
conditions of this Agreement, Purchaser shall assume, as of the Closing, only
the liabilities and obligations set forth below (the "Assumed Liabilities"), and
no others:
(a) All obligations and liabilities of Seller under the
Contracts, Leases and Permits; PROVIDED, HOWEVER, that Purchaser is not assuming
any obligations or liabilities for any breach or default under any Contract,
Lease or Permit outstanding at any time as of or prior to Closing or resulting
from any event occurring at any time before the Closing which, with the giving
of notice or the passage of time or both, would result in a breach or default;
and
(b) Accrued vacation payable to employees at September 29,
1999, as set forth on Schedule 4.11;
(c) Trade account payables attributable to the real estate
appraisal operations of Seller on and after the Effective Date; and
(d) Those liabilities set forth on Schedule 1.3(c).
Purchaser is not assuming, and shall not be deemed to have assumed any
obligations or liabilities of Seller or any Affiliate of Seller or Shareholder
("Affiliate" is herein defined as any entity controlled by, or in common control
with, another entity) other than the Assumed Liabilities specifically described
above. No assumption by Purchaser of any of the Assumed Liabilities shall
relieve or be deemed to relieve Seller from any obligation or liability under
this Agreement with respect to any representations or warranties by Seller to
Purchaser.
1.4 RETAINED LIABILITIES. Except for the liabilities of Seller
specifically assumed in accordance with Section 1.3, Seller is retaining, and
Selling Parties shall indemnify and hold Purchaser harmless from, any and all
other liabilities of Seller, including without limitation the following
commitments, obligations and liabilities of Seller and the obligations and
liabilities listed on Schedule 1.4 (the "Retained Liabilities"):
(a) Any obligation or liability arising in connection with or
pertaining to the Business for taxes of any kind or nature for all periods
ending prior to the Effective Date;
(b) Any obligation or liability for services rendered by the
Business prior to the Closing Date;
(c) Any obligation or liability to pay for any products,
goods, raw materials or services delivered or provided to the Business prior to
the Effective Date;
(d) Any liability or obligation of the Selling Parties for
taxes based on or measured by any income or gain realized upon the transfer of
the Assets hereunder;
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(e) Any liability or obligation of Seller arising out of any
"employee benefit plan", as such term is defined by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), established or maintained by
Seller including, without limitation, any "successor liability" Purchaser may
incur with respect to such employee benefit plans referenced in Section 4.12(b)
herein;
(f) Any obligation for making payments of any kind or any
other liability (including without limitation as a result of the sale of Assets,
the termination of employment by Seller of employees, other labor or employment
claims, sick pay, or otherwise) to employees or former employees of Seller
(whether " leased" under any applicable contract listed on Schedule 1.1 (g) or
otherwise) relating to claims which arose as a result of events which occurred
on or before the Closing (including liability for failure to comply with any
state or federal statutory or regulatory requirements related to any employee
medical or hospitalization insurance);
(g) Any obligation or liability arising out of litigation,
claims, investigations or proceedings pertaining to the Business, whether or not
set forth in any schedule hereto, or other litigation, claims, investigations,
or proceedings relating in any way to the Business arising out of, or relating
to, an occurrence or any event happening prior to the Closing.
(h) Any obligation or liability pertaining to the Business
based upon acts or omissions occurring prior to the Closing;
(i) Any liabilities and obligations pertaining to the Business
arising out of or resulting from non-compliance prior to the time of Closing
with any national, regional, state or local laws, statutes, ordinances, rules,
regulations, orders, determinations, judgments, or directives, whether
legislatively, judicially, or administratively promulgated; and
(j) Payroll (including all related payroll taxes) and benefits
(including medical or hospitalization insurance) for employees and contractors
for any period ending on or before the Effective Date.
1.5 EMPLOYEES AT CLOSING. Purchaser shall initially employ all those
persons listed on Schedule 4.11, effective as of the Closing Date and make
arrangements to provide such persons with health care coverage at least equal to
the coverage provided by Seller.
ARTICLE 2. PURCHASE PRICE.
2.1 PAYMENT OF PURCHASE PRICE. The purchase price ("Purchase Price")
for the Assets shall be as follows:
(a) $830,000 will be paid to Seller at the Closing in
immediately available funds and 50,000 shares of Primis common stock (at $4 per
share) will be issued to Seller at the Closing;
4
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(b) On the first anniversary of Closing, $500,000 plus then
accrued interest will be paid to Seller in immediately available funds ("First
Anniversary Payment");
(c) On the second anniversary of Closing, $500,000 plus then
accrued interest will be paid to Seller in immediately available funds ("Second
Anniversary Payment");
(d) Payments made subsequent to Closing will carry an interest
obligation, payable to Seller, calculated at 7.00% per annum on any unpaid and
outstanding amount; and
(e) Deferred payments will be secured by a security interest
in certain of the Assets, as set forth in a Security Agreement by and between
Purchaser and Seller substantially in the form attached hereto as EXHIBIT D (the
"Security Agreement") and a UCC-1 financing statement in favor of the Seller
substantially in the form attached hereto as EXHIBIT E, as well as a Promissory
Note substantially in the form attached hereto as EXHIBIT C ("Promissory Note").
2.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Assets as set forth in Schedule 2.2, and the parties shall file their
respective tax returns in accordance with such allocation and shall not take any
position or action inconsistent with such allocation. This paragraph will
survive the Closing.
2.3 ADJUSTMENT TO PURCHASE PRICE.
(a) No later than forty-five (45) days after the Closing,
Purchaser shall calculate a "square up" of the revenues and expenses of the
Business, as further described below (the "Post- Closing Adjustment"). Purchaser
shall send a copy of this calculation to Seller and request Seller's consent
that the Post-Closing Adjustment is accurate. Seller shall have five (5)
business days to deliver such written consent to Purchaser (the "Consent
Notice") or send written notice to Purchaser of Seller's disagreement (the
"Dispute Notice"). If Seller disagrees, the provisions in subsection (c) below
shall govern the dispute resolution process
(b) The Post-Closing Adjustment shall be an amount equal to
the Business revenues collected on or after the Effective Date which are
attributable to services provided by Seller prior to the Effective Date, less
the total Business expenses generated by Seller prior to the Effective Date. To
the extent that the Post-Closing Adjustment, as calculated above, is more than
thirty-thousand dollars ($30,000), Purchaser shall pay to Seller the excess
amount within five (5) business days of Purchaser's receipt of Seller's Consent
Notice. To the extent that the Post-Closing Adjustment, as calculated above, is
less than thirty-thousand dollars ($30,000), Seller or Selling Shareholder shall
pay to Purchaser the amount of the deficiency within five (5) business days of
the date of Seller's Consent Notice.
(c) The Post-Closing Adjustment shall be final, conclusive and
binding upon the parties unless (i) Seller sends a Dispute Notice within the
time frame set forth in subsection (a) above and (ii) such
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Dispute Notice provides Purchaser with a reasonably detailed explanation of the
basis of Seller's objection and Seller's proposal for any adjustment to the
Adjustment Notice. Purchaser and Seller will use their best efforts to resolve
any disagreements as to the amount of the Post- Closing Adjustment. If Purchaser
and Seller are unable to reach agreement with respect to the final amount of the
Post-Closing Adjustment within twenty (20) days after delivery of the Dispute
Notice, then Purchaser shall refer such disagreement (no later than twenty-five
(25) days after delivery of the Dispute Notice) to a nationally recognized
accounting firm (the "Accounting Firm") selected by Purchaser and Seller to act
as an arbitrator to determine all remaining points of disagreement with respect
to the Post-Closing Adjustment. Each party shall provide the Accounting Firm
with access to all pertinent information and personnel and with access to its
work papers. All determinations made by the Accounting Firm with respect to the
Post-Closing Adjustment shall be final, conclusive and binding on Purchaser and
Seller. The fees and expenses charged by the Accounting Firm shall be paid
one-half by Purchaser and one-half by Seller.
2.4 TRANSFER TAXES AND PRORATION. Seller shall pay all sales, use,
transfer and other taxes that may be assessed on the transfer of title to the
Assets and the cost of transferring or reissuing any permits or licenses
associated with the Business. The parties shall prorate as of the Effective
Date, all expenses and other disbursements paid or payable by a party with
respect to the Assets and the operation of the Business, including, without
limitation, personal property taxes.
ARTICLE 3. CLOSING.
3.1 TIME AND PLACE. The closing of the purchase and sale of the Assets
by Seller to Purchaser (the "Closing") shall take place at 10:00 a.m., local
time, on Wednesday, September 29, 1999 (the "Closing Date"), at the offices of
Roberts, Cunningham & Stripling, L.L.P., in Dallas, Texas, or at such other time
and date as Purchaser and Seller may in writing designate.
3.2 TITLE. Subject to Seller's retained security interest as evidenced
by the Security Agreement, title to the Assets shall pass from Seller to
Purchaser on the Closing Date, but shall be effective as of the Effective Date.
Simultaneously with the consummation of the transfer, Seller, through its
officers, agents, and employees, shall put Purchaser in actual possession and
operating control of the Business and Assets.
3.3 CLOSING ITEMS.
(a) At the Closing, the Selling Parties shall deliver, or
cause to be delivered, the following items:
(1) Director and shareholder resolutions of Seller
authorizing the transactions contemplated by this Agreement,
and terminating Seller's 401(k) or SEP plan;
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(2) Such assignments, bills of sale, certificates of
title and sufficient instruments of conveyance and transfer as
shall be effective in the opinion of Purchaser's counsel to
vest in Purchaser good and valid title to the Assets, free and
clear of all liens, charges, security interests, options,
claims and encumbrances, except those obligations being
specifically assumed by Purchaser as set forth in
Section 1.3 above and the security interest in the Assets
created by the Security Agreement, substantially in the form
attached hereto as EXHIBIT D, in favor of Seller;
(3) the Employment and Noncompetition Agreement,
executed by Shareholder in the form attached hereto as EXHIBIT
A (the "Employment Agreement");
(4) the Primis, Inc. Shareholders' Agreement,
executed by the Shareholder substantially in the form attached
hereto as EXHIBIT B (the "Shareholders' Agreement"); and
(5) Articles of Amendment to Seller's (and each
Affiliate of Seller's) Articles of Incorporation changing the
name of Seller (and any such Affiliates) to a name dissimilar
to "E.T. Jones & Associates, Inc.".
(b) At the Closing, Purchaser shall deliver, or cause to be
delivered, the following items:
(1) that portion of the Purchase Price which is to be
delivered at the Closing in the manner provided in Section
2.2;
(2) the Shareholders' Agreement, duly executed by
Purchaser;
(3) the Employment Agreement, duly executed by
Purchaser; and
(4) the Promissory Note, Security Agreement and UCC-1
financing statement, duly executed by Purchaser.
3.4 FURTHER ASSURANCES. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SELLING PARTIES.
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The Selling Parties do jointly and severally represent and warrant to
Purchaser that all of the following statements are true and correct as of the
date hereof and shall be true and correct at the time of Closing. The Selling
Parties acknowledge that such statements constitute the basis upon which
Purchaser is induced to enter into and perform this Agreement.
4.1 DUE ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, and is duly
authorized, qualified and licensed under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its Business in the
places and in the manner as now conducted.
4.2 AUTHORIZATION; TITLE. The Selling Parties have full legal right,
requisite power and authority to enter into this Agreement and the attachments
hereto, to consummate the transactions contemplated by this Agreement, and the
exchange of the Assets for the consideration described herein will transfer good
and valid title in the Assets to Purchaser, free and clear of all liens,
encumbrances and claims of every kind except those liabilities specifically
assumed by Purchaser in Section 1.3. The execution and delivery by Seller of
this Agreement, the consummation of the sale of the Assets and the other
transactions contemplated hereby by Seller have been duly and validly authorized
by all necessary corporate action on the part of Seller.
No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or other
governmental authority, domestic or foreign, is required by or with respect to
Seller or Shareholder in connection with the execution and delivery of this
Agreement, or the consummation of the transactions contemplated hereby.
4.3 SUBSIDIARIES; BUSINESS RELATIONSHIPS. Except as set forth on
Schedule 4.3, Seller does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company, or
other business entity. Except as set forth in Schedule 4.3, Seller is not,
directly or indirectly, a participant in any joint venture, partnership or
similar arrangement.
4.4 FINANCIAL STATEMENTS. Attached as Schedule 4.4 are copies of
Seller's Balance Sheets and Statements of Earnings, Cash Flows and Retained
Earnings as of and for the five (5) month period ended on May 31, 1999, and for
the calendar year 1998 (the "Financial Statements"). The Financial Statements
are true and correct in all material respects and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated. The Balance Sheets present fairly in all
material respects the financial condition of Seller as of the dates indicated
thereon, and the Statements of Earnings, Cash Flows and Retained Earnings
present fairly in all material respects the results of its operations for the
periods indicated thereon. The Financial Statements are based on the books and
records of Seller.
4.5 UNDISCLOSED LIABILITIES AND OBLIGATIONS. Except (i) as set forth on
Schedule 4.5 hereto, or (ii) as reflected and adequately reserved against in the
Financial Statements or (iii) incurred in the
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ordinary course of business since May 31, 1999, Seller has no liabilities or
obligations of any kind, whether accrued, absolute, secured or unsecured,
contingent or otherwise. Without limiting the foregoing, the Selling Parties do
not know and have no reasonable grounds to know of any basis for assertion
against Seller or Shareholder of any claim or liability of any nature in any
amount that could materially and adversely affect the value of the Assets, the
Business or any part thereof.
4.6 PERMITS AND INTANGIBLES.
(a) The Permits and the Intangibles are valid, in good standing and
in full force and effect and, except as set forth on Schedule 4.6, are adequate
for the operation of the Business as presently conducted and as previously
conducted by Seller. There are no claims or proceedings pending or threatened
against Seller asserting the infringement by Seller of, and Seller has not
infringed on, any trademark, service mark, copyright or other proprietary right
of any other person or entity. Neither the consummation of the sale of the
Assets nor the other transactions contemplated hereby, will cause a default
under or alter or impair any rights or give rise to any rights of termination,
cancellation or acceleration or loss of any right or benefit, or require any
consent or approval which has not been obtained under, or with respect to, the
Permits or the Intangibles. After the Closing, Purchaser shall have the
exclusive use of the name E.T. Jones & Associates, Inc. Purchaser agrees to use
such name for a period of time no longer than two (2) years beginning with the
Closing Date. Thereafter, Purchaser shall maintain sole rights to use such name
but shall not use it in association with the Business. Purchaser may license
such name to Seller or Shareholder by written agreement, upon the termination of
Shareholder's employment with the Company, and the expiration of any non-compete
clause contained herein or in the employment agreement.
(b) The individual appraisers employed or retained by Seller
are fully licensed as required by state and local laws and regulations and have
been fully licensed during the entire time they have been employed or retained
by Seller except as noted on Schedule 4.6(b).
(c) Seller and Shareholder hold all permits, licenses,
variances, exemptions, orders and approvals of all governmental entities which
are material to the operation of the Business, and are in compliance with all
requirements thereof.
4.7 TITLE TO ASSETS; REAL AND PERSONAL PROPERTY. Seller has good and
marketable title to, or valid leasehold interests in, the Assets, free and clear
of all mortgages, liens, pledges, charges or other encumbrances, except as
disclosed on Schedule 4.7. Schedule 4.7 includes a complete list and description
of all real and personal property currently leased by Seller for use in
connection with the Business. All Leases are in full force and effect and
constitute valid and binding agreements of the parties thereto (and their
successors) in accordance with their respective terms and neither Seller nor, to
the best of the Selling Parties' knowledge, any other party thereto, is in
default thereunder. All of the assets used by Seller in the operation of the
Business are either owned by Seller or leased by it under an agreement listed on
a schedule hereto. All properties and assets of Seller are in the possession or
control of Seller, and no other person
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is entitled to possession of any such properties and assets, nor is the property
subject to any defects or objections, liens, restrictions, claims, security
interests or other title or interest retention agreements.
4.8 CONTRACTS AND COMMITMENTS.
(a) The Contracts on Schedule 4.8 constitute all material
contracts, commitments and similar agreements or arrangements, whether
written or oral, relating to the Business to which Seller is a party or by
which Seller or any of its properties are bound (including, but not limited
to, leases for real and personal property, employment agreements, joint
venture or partnership agreements, contracts with any labor organizations,
loan agreements, indemnity or guaranty agreements, express warranties or
guaranties as to goods sold or services provided by it, joint venture or
partnership agreements, bonds, mortgages, options to purchase land, liens,
pledges or other security agreements).
(b) Except for work-in-process, Seller has delivered to
Purchaser true and complete copies of the Contracts that are in writing and an
accurate and complete description of all oral Contracts.
(c) Except to the extent set forth on Schedule 4.8, (i) Seller
has complied with all material commitments and obligations under the Contracts
and (ii) Seller is not in material default or breach under any Contract and has
not received or given notice of default or breach thereunder and, to the best of
the Selling Parties' knowledge, no other party to a Contract is in material
default or breach thereunder.
(d) Each Contract is the legal, valid and binding obligation
of the Seller and, to the best of the Selling Parties' knowledge, the other
parties thereto. Each of the Contracts is in full force and effect and will
continue in full force and effect following the sale of the Assets and the other
transactions contemplated hereby.
(e) No Contract, singly or in the aggregate, materially and
adversely affects or is likely to materially and adversely affect, the Business.
4.9 CUSTOMERS AND SALES. Schedule 4.9 to this Agreement is a correct
and current list of the 20 largest customers of Seller together with summaries
of sales made to each such customer during the most recent twelve (12) months.
The Selling Parties have no information and are not aware of any facts
indicating that any of these customers intend to cease doing business with
Seller or materially alter the amount of business that they are presently doing
with Seller. To the Selling Parties' knowledge, the consummation of the
transactions contemplated hereunder will not have an adverse effect on the
business relationship of Seller with any such customers.
4.10 INSURANCE. Schedule 4.10 sets forth an accurate description of all
insurance policies (including property, casualty, liability and other
insurance), held by Seller relating to the Business and the Assets, and of all
claims against such policies received for the past three (3) policy years. The
insurance held by Seller with respect to the Business and the Assets is with
reputable insurers and is in amounts
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sufficient for the prudent protection of the Business and the Assets. Such
insurance policies are legal, valid and enforceable and currently in full force
and effect and shall remain in full force and effect through the Closing Date,
and Selling Parties are not in breach or default in any way. Seller's insurance
has never been canceled and none of the Selling Parties have ever been denied
insurance coverage.
4.11 COMPENSATION. Schedule 4.11 sets forth a complete and accurate
list of the following information for all officers, directors and all employees
of Seller at the Closing: employee name, job title, the rate of compensation
(and the portions thereof attributable to salary, bonus and other compensation,
respectively), accrued vacation, and severance pay.
4.12 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.12(a) sets forth an accurate list and description of the
following contracts, plans or arrangements owed, adopted, followed, maintained
or contributed to for any current or former employee, director, consultant or
agent of the Seller or any other person that, together with Seller, would be
treated as a single employer under Section 414 of the Code: [i] all employee
benefit plans, within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and [ii] any retirement or
deferred compensation plan, incentive compensation plan, stock plan,
unemployment compensation plan, vacation pay, severance pay, bonus or benefit
arrangement, insurance or hospitalization program or any other fringe benefit
arrangement which does not constitute an employee benefit plan (as defined in
Section 3(3) of ERISA). All plans or arrangements listed on Schedule 4.12 are
administered in compliance with the terms thereof and with all applicable
provisions of ERISA and the regulations issued thereunder, the Internal Revenue
Code of 1986, as amended, and the regulations issued thereunder, as well as with
all other applicable federal, state and local statutes, ordinances and
regulations and no liability will attach to Purchaser as a result of any
noncompliance by Seller. Seller maintains no plan(s) nor arrangement(s) that are
not set forth on Schedule 4.12(a).
(b) Seller and its affiliates have complied with the provisions of the
health care continuation coverage requirements of ERISA Section 601 ET. seq. and
IRC Section 4980B and hereby indemnify and hold Purchaser harmless from any
liabilities Purchaser may incur with respect to COBRA continuation coverage to
any individual under any group health plan of Seller and its affiliates. Seller
and its affiliates covenant and agree to provide any required federal or state
law healthcare continuation coverage to any employee of Seller not hired by
Purchaser as of the Closing Date, and any existing qualified beneficiary under
Seller's group health plans, and further agree to indemnify and hold Purchaser
and its affiliates harmless from any successor liability they might incur from
Seller's failure to provide said coverage.
4.13 CONDITION AND SUFFICIENCY OF ASSETS. The equipment of Seller is in
good operating condition and repair, ordinary wear and tear excepted, and is
adequate for the uses to which it is being put and none of such equipment is in
need of maintenance or repairs except for ordinary routine maintenance and
repairs that are not material in cost or nature. All computer hardware and
software and related materials used by Seller in its business (herein
collectively referred to as the "Computer System") are in
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good working order and condition. Seller does not anticipate any significant
defects in design, workmanship or material of the Computer System, and the
Computer System will have performance capabilities, characteristics and
functions necessary to conduct the business and operations of Seller as
presently being conducted by Seller. To the best knowledge of Selling Parties,
Seller's ACCPAC system used for billing, receivables, payroll and accounting
functions, is capable of processing, providing and/or receiving date data within
and between the twentieth and twenty-first centuries. The use of the Computer
System by Seller (including any software modifications) (i) has not violated or
infringed upon the rights of any third parties and (ii) has not resulted in the
termination of any maintenance, service or support agreement relating to any
part of the Computer System or any reduction in the services provided by Seller,
warranties available to Seller or rights of Seller thereunder. The Assets are
all of the assets required for Purchaser to operate and conduct the Business
after the Closing Date in substantially the same manner as the Business was
conducted by Seller during the twelve-month period immediately prior to the
Closing Date. The Assets include without limitation all property and rights
(other than the Excluded Assets) reflected in the Financial Statements except
those sold or otherwise disposed of since the date of such Financial Statements
in the ordinary course of business and consistent with past practice.
4.14 LITIGATION; CONFORMITY WITH LAW. Except to the extent set forth in
Schedule 4.14, there are no claims, actions, suits or proceedings, pending or
threatened, against or affecting Seller or the Assets, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. Seller has conducted and is conducting the
Business in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and is not in violation of any of the foregoing which might
materially and adversely affect the operations, affairs, prospects, properties,
assets, profits or condition (financial or otherwise) of the Business, taken as
a whole.
4.15 TAXES. Selling Parties have timely filed all requisite federal and
other tax returns required to be filed and have paid, or made adequate provision
for the payment of, all taxes which may have or become due pursuant to such
returns or to any assessment received by Selling Parties, related to the
Business. Selling Parties have withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party. To the best
knowledge of the Selling Parties, there is no additional assessment or any basis
therefor. There are no open years, examinations in progress or claims against
Seller for federal, state, and other taxes (including penalties and interest)
for any period and no notice of any claim, whether pending or threatened, for
taxes has been received.
4.16 S CORPORATION STATUS. The Seller is a Subchapter S corporation
currently and has been a Subchapter S corporation for the past 10 calendar years
of its operation, since 12/31/88, without interruption.
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4.17 COMPLETENESS; BOOKS AND RECORDS. The copies of all leases,
instruments, agreements, licenses, permits, certificates or other documents
which are included on schedules attached hereto or have been delivered to
Purchaser in connection with the transactions contemplated hereby are complete
and correct in all material respects. The originals or complete and correct
copies of the books of account, minute books, stock record books, and other
records of Seller have been delivered to Purchaser. At the Closing, all of those
books and records will be in the possession of Seller.
4.18 ABSENCE OF CHANGES. Since May 31, 1999, except as set forth on
Schedule 4.18, there has not been:
(a) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or Business of Seller;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the Business of Seller or future
prospects of Seller;
(c) any proposed law or regulation or any event or condition
of any character, materially adversely affecting the Business or future
prospects of Seller;
(d) any change in compensation payable to any employee in any
form;
(e) any waiver of any material rights or claims under any
Contract; or
(f) any transaction by Seller outside the ordinary course of
the Business nor any expenditure, commitment or investment in excess of $750.
4.19 ENVIRONMENTAL MATTERS. Seller is not in violation of any
applicable statute, law, ordinance, or regulation relating to the environment or
occupational health and safety ("Environmental Laws"), and no material
expenditures are required to be made by Seller in order to comply with any
Environmental Laws. Seller has never violated any of the Environmental Laws.
Seller has never disposed of, or contracted for the disposal of, hazardous waste
or hazardous substances, as those terms are defined by the Environmental Laws,
which have finally come to be located on any site which is or has been (included
as a potential or suspect site) included in any published federal, state or
local "superfund" or other list of hazardous or toxic waste sites. Seller has
not received any notice of any violation with respect to asbestos or other toxic
or dangerous materials at any of its sites, and there has been no spill,
discharge, leak, emission, injection, escape, dumping or release of any kind
onto any property owned or leased by Seller, or into the environment surrounding
any such property of any toxic or hazardous substances as defined under any
local, state or federal regulations or laws. Seller has never owned, operated
and/or leased a waste transfer, recycling, treatment, storage or disposal
facility. No employee of Seller has, in the course and scope of employment in
the Business, been exposed in violation of any law or regulation to hazardous,
infectious, radioactive or toxic wastes or substances. In addition, to the best
of the Selling
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Parties' knowledge, there has been no assertion by any governmental agency or
other regulatory authority of any environmental lien or action.
4.20 VALIDITY OF OBLIGATIONS. The execution and delivery of this
Agreement by the Selling Parties and the performance of the transactions
contemplated herein have been duly and validly authorized and this Agreement is
a legal, valid and binding obligation of the Selling Parties enforceable against
them in accordance with its terms.
4.21 RELATIONS WITH GOVERNMENT. None of the Selling Parties have made,
offered or agreed to offer anything of value to any governmental official,
political party or candidate for government office nor have any of them
otherwise taken any action which would cause the Seller to be in violation of
any applicable federal, state or local law.
4.22 NO CONFLICTS. Except as set forth on Schedule 4.22, the execution,
delivery and performance of this Agreement, the consummation of any transactions
herein referred to or contemplated by and the fulfillment of the terms hereof
and thereof will not:
(a) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Seller;
[[ (b) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or lapse of
time or both) under any document, agreement or other instrument to which Seller
is a party, or result in the creation or imposition of any lien, charge or
encumbrance on any of Seller's properties pursuant to (i) any law or regulation
to which Seller or any of its property is subject, or (ii) any judgment, order
or decree to which Seller is bound or any of its property is subject; or
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Seller.
4.23 CONSENTS. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality or other third
party, domestic or foreign, is required by or with respect to Seller or
Shareholder in connections with the execution and delivery of this Agreement, or
the consummation by Seller or Shareholder of the transactions contemplated
hereby.
4.24 EMPLOYEE AGREEMENTS. Each of Seller's employees and the
Shareholder is not, as a result of the business conducted by the Seller, or
proposed to be conducted by Purchaser, or for any other reason, in violation of
(i) any fiduciary or confidential relationship, (ii) any term of any contract or
covenant (either with the Seller or another entity) relating to employment,
patents, proprietary information disclosure, non-competition or non-solicitation
or (iii) any other contract or agreement, or any judgment, decree or
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order of any court or administrative agency, in each case relating to or
affecting the right of any of the Seller's employees to be employed by
Purchaser. No such relationship, term, judgment, decree or order conflicts with
any of the Seller's employee's obligation to use his or her best efforts to
promote the interests of the Seller or Purchaser after the Closing nor does the
execution, delivery and performance of the Agreement by the Selling Parties or
the activities of the Seller's employees or the Shareholder, as an employee,
officer or director of the Seller, conflict with any such relationship, term,
judgment, decree or order.
4.25 DISCLOSURE. This Agreement and the schedules hereto and all other
documents delivered to Purchaser at Closing do not and will not include any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein not misleading. If Seller or Shareholder become
aware of any fact or circumstance which would change a representation or
warranty of Seller or Shareholder in this Agreement or any representation made
on behalf of Seller, Seller and Shareholder shall immediately give notice of
such fact or circumstance to Purchaser. However, such notification shall not
relieve either Seller or Shareholder of any obligations under this Agreement.
4.26 ADDITIONAL INFORMATION FROM PURCHASER. Each of the Selling Parties
has had the opportunity to ask questions of, and receive answers from,
authorized officers of the Purchaser, and to obtain additional information
regarding the Purchaser or its business to the extent Purchaser possesses the
information or can acquire it without unreasonable effort or expense.
4.27 INVESTMENT INTENT. The Shareholder hereby represents and warrants
to the Purchaser that:
(a) The Shareholder is acquiring the Shares for his own
account for investment and not with a view to the resale, distribution or
fractionalization thereof, within the meaning of the federal and state
securities laws, including but not limited to Section 2(11) of the Securities
Act of 1933;
(b) The Shareholder has alone or together with his
representative (if any), such knowledge and experience in financial matters that
the Shareholder capable of evaluating the relative risks and merits of this
investment;
(c) The Shareholder has adequate means of providing for his
current needs and contingencies and have no need for liquidity in this
investment;
(d) All documents and records requested by the Shareholder
have been delivered or made available to him, he has had the opportunity to ask
questions of the Purchaser, and the Shareholder investment decision is based
upon his own investigations and analyses and not the representations or
inducements of Purchaser or any shareholder, employee, officer or director of
Purchaser; and
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(e) The Shareholder understand that Shares have not been, and
might never be registered under the Securities Act of 1933 in reliance upon
applicable exemptions from registration.
4.28 SOLE SHAREHOLDER AND DIRECTOR. The Shareholder owns 100% of the
issued and outstanding capital stock of the Seller and is the sole member of
Seller's Board of Directors as of the Closing and as of the date of the
authorizing resolutions delivered to Purchaser pursuant to Section 3.3(a)(i)
herein.
ARTICLE 5. REPRESENTATIONS OF PURCHASER
Purchaser represents and warrants that all of the following statements
are true as of the date hereof and shall be true as of the time of Closing.
5.1 DUE ORGANIZATION. Purchaser is duly organized, validly existing and
in good standing under the laws of the State of Georgia, and is duly authorized,
qualified and licensed under all applicable laws, regulations, and ordinances of
public authorities to carry on its business in the places and in the manner as
now conducted except for where the failure to be so authorized, qualified or
licensed would not have a material adverse affect on their respective
businesses.
5.2 AUTHORIZATION. Purchaser has all corporate power and authority to
execute and deliver this Agreement and the other documents and instruments to be
delivered pursuant to this Agreement and to consummate the purchase of the
Assets and assumption of the Assumed Liabilities and the other transactions
contemplated hereby. The execution and delivery by Purchaser of this Agreement,
the consummation of the purchase of the Assets and the assumption of the Assumed
Liabilities and the consummation of the other transactions contemplated hereby
by Purchaser have been duly and validly authorized by all necessary corporate
action on the part of Purchaser. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a valid and binding
obligation enforceable against Purchaser in accordance with its terms.
5.3 CAPITALIZATION. The authorized equity securities of Purchaser
immediately prior to the Closing, consist of [i] 10,000,000 shares of Common
Stock, par value $.01 per share, of which 6,968,873 shares are issued and
outstanding, [ii] 2,500,000 shares of Preferred Stock, par value $.01 per share,
1,200,000 shares of which have been designated as Series A Convertible Preferred
of which 1,091,242 are issued and outstanding, and [iii] 420,000 shares of Class
A Convertible Preferred Stock, par value $.01 per share, of which no shares are
issued and outstanding. The Company also has reserved for issuance under its
Second Amended and Restated 1997 Employee Stock Option Plan 1,150,000 shares of
Common Stock, par value $.01 per share. All these shares have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
contracts relating to the issuance, sale or transfer of these securities.
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5.4 FINANCIAL STATEMENTS. Purchaser has delivered to Selling Parties
annual balance sheets, income statements and statements of changes in
stockholders equity and cash flows ("Financial Statements") for the three year
period ended December 31, 1998, as well as Financial Statements for the five
month period ended May 31, 1999. These Financial Statements and the related
notes were prepared in accordance with GAAP, consistently applied, and present
fairly the financial condition and results of operations, changes in
stockholders equity and cash flows for the periods referred to in such
statements.
5.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of any transactions herein referred to or
contemplated by and the fulfillment of the terms hereof and thereof will not:
(a) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Purchaser,
(b) materially conflict with, or result in a material default
(or would constitute a default but for any requirement of notice or lapse of
time or both) under any document, agreement or other instrument to which
Purchaser is a party, or result in the creation or imposition of any lien,
charge or encumbrance on any of Purchaser's properties pursuant to (i) any law
or regulation to which Purchaser, or any of its property is subject, or (ii) any
judgment, order or decree to which Purchaser is bound or any of its property is
subject; or
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of
Purchaser.
ARTICLE 6. COVENANTS OF PARTIES PRIOR TO CLOSING.
6.1 ACCESS AND COOPERATION; CONFIDENTIALITY. Between the date of this
Agreement and the Closing Date, Seller and Shareholder will afford to the
officers and authorized representatives of Purchaser reasonable access to all of
Seller's sites, properties, books and records during normal business hours and
will furnish Purchaser with such additional financial and operating data and
other information as to the Business and the Assets as Purchaser may from time
to time reasonably request. The Selling Parties will cooperate with Purchaser,
its representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by any governmental agency and take all action and do all
things necessary, proper, or advisable in order to consummate and make effective
the transactions contemplated by this Agreement.
In connection with this access and cooperation, Purchaser agrees that
any proprietary information gained during this time will be deemed confidential,
and will be used solely for the purposes of evaluating the desirability of, and
conducting negotiations with respect to this acquisition. Purchaser may,
however, make this information available to its directors, officers, employees,
agents and representatives who need to know such information for purposes of the
investigation and negotiation contemplated hereby, and who
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are informed of its confidential nature. Upon termination of negotiations,
Purchaser agrees to destroy all notes or other documents derived from the
proprietary information. For purposes of this Agreement, the term Proprietary
Information shall not include information that Purchaser can show by competent
proof (i) was known to Purchaser prior to disclosure by Selling Parties; (ii)
was generally known to the public at the time Selling Parties disclosed the
information to Purchaser, (iii) became generally known to the public after
disclosure by Selling Parties through no act or omission of Purchaser; or (iv)
was disclosed to Purchaser by a third party having a bona fide right both to
possess the information and to disclose the information to Purchaser.
6.2 CONTACT WITH CUSTOMERS. Without limiting Section 6.1 above, Seller
consents to Purchaser's representatives contacting the customers listed on
Schedule 6.2 for the purpose of determining whether such customers will continue
to purchase services from Purchaser after the Closing at the same level as that
purchased from Seller prior to Closing. Seller shall have the right to
participate in any such customer contacts. Seller and Shareholder shall use
their respective best efforts to facilitate such contact by, among other things,
providing introductions to contact persons with the customers and having
representatives of Seller attend meetings with such contact persons along with
representatives of Purchaser if Purchaser so requests.
6.3 CONDUCT OF BUSINESS PENDING CLOSING. Between the Effective Date and
the Closing Date, except as otherwise agreed to by Purchaser, Seller shall:
(a) carry on the Business in substantially the same manner as
it has heretofore and shall not introduce any material new method of management,
operation or accounting;
(b) maintain the Assets, including those held under Leases, in
as good working order and condition as at present, ordinary wear and tear
excepted;
(c) perform all of its material obligations under Leases,
Permits, Contracts and other agreements relating to or affecting the Assets;
(d) keep in full force and effect present insurance policies
or other comparable insurance coverage;
(e) use its best efforts to maintain and preserve its business
organization and goodwill intact, retain its present employees and maintain its
relationships with suppliers, customers and others having business relations
with the Seller;
(f) maintain compliance with all permits, laws, rules and
regulations, consent orders, and similar requirements;
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(g) maintain present debt and lease instruments and not enter
into new or amended debt or lease instruments, without the knowledge and consent
of Purchaser;
(h) maintain present salaries and commission levels for all
officers, directors, employees and agents;
(i) take any action and do all things necessary, proper and
advisable to consummate and make effective the transactions contemplated by this
Agreement; and
(j) give Purchaser prompt written notification of any material
changes taking place during the course of dealing contemplated by this
Agreement, up to the date of the Closing, or upon receipt of knowledge of nay
fact making any provision of this Agreement untrue.
6.4 PROHIBITED ACTIVITIES. Between the date hereof and the Closing
Date, the Seller will not, without prior written consent of Purchaser:
(a) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures in excess of $750, except
in the normal course of business;
(b) increase the compensation payable or to become payable to
any employee or agent, or make any bonus or management fee payment to any such
person;
(c) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any of the Assets; or
(d) pay dividends with or from, or otherwise distribute, any
Post-Effective Date Accounts Receivable and Cash, or any proceeds thereof.
6.5 NO SHOP. Neither the Shareholder, Seller, nor any agent, officer,
director or any representative of Seller or Shareholders will, during the period
commencing on the date of this Agreement and ending with the earlier to occur of
September 30, 1999 or the termination of this Agreement in accordance with its
terms, directly or indirectly (i) solicit, initiate, encourage or consider any
proposals or offers from any person for, (ii) participate in any discussions
pertaining to, or (iii) furnish any information to any person other than
Purchaser relating to, any acquisition or purchase of all or a material amount
of the assets of, or any equity interest in, Seller or a merger, sale,
sale-leaseback, rent through management contract, consolidation or other
business combination of Seller. Seller will notify Purchaser immediately if any
person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6.6 BEST EFFORTS. Between the date of this Agreement and the Closing
Date, Selling Parties shall use their best efforts to cause the conditions in
Articles 7 and 8 to be satisfied.
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6.7 PUBLIC ANNOUNCEMENTS. All public announcements regarding the
transaction, including terms and conditions of the transaction or the status of
negotiations of the parties will be submitted first to the other party for
approval, which shall not be unreasonably withheld.
ARTICLE 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLING PARTIES.
The obligations of the Seller and Shareholder hereunder are, at their
option, subject to the following conditions. Upon the Closing, all conditions
not satisfied are deemed to be waived:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Purchaser contained in Section 5 shall be
accurate as of the Closing Date as though such representations and warranties
had been made as of that time; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by Purchaser on or before the
Closing Date shall have been duly complied with and performed; and a certificate
to the foregoing effect dated the Closing Date and signed by a duly authorized
officer of Purchaser shall have been delivered to Seller.
7.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by Purchaser of the Assets, and no governmental
agency or body shall have taken any other action or made any request of the
Seller or Shareholder as a result of which Seller or Shareholder deem it
inadvisable to proceed with the transactions hereunder.
7.3 EMPLOYMENT AGREEMENT. Purchaser shall execute at the Closing an
Employment Agreement with E.T. Jones in the form of EXHIBIT A attached hereto.
7.4 SHAREHOLDERS' AGREEMENT. Shareholder shall have received an
executed copy of the Primis, Inc. Shareholders' Agreement, substantially in the
form attached hereto as EXHIBIT B .
7.5 PROMISSORY NOTE, SECURITY AGREEMENT AND UCC-1 FINANCING STATEMENT.
Purchaser shall execute at the Closing the Promissory Note, Security Agreement
and a UCC-1 Financing Statement substantially in the forms attached hereto as
EXHIBITS C, D AND E.
ARTICLE 8. CONDITIONS TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser hereunder are, at its option, subject to
the satisfaction, on or prior to the Closing Date, of the following conditions.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Seller and Shareholder contained in Section 4
shall be accurate as of the Closing Date as though such representations and
warranties had been made as of that time. All of the terms, covenants and
conditions of this Agreement to be complied with and performed by Seller and
Shareholder on or
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before the Closing Date shall have been duly complied with and performed. A
certificate to the foregoing effect dated the Closing Date and signed by
Shareholder and a duly authorized officer of Seller shall have been delivered to
Purchaser.
8.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the acquisition by Purchaser of the Assets; and no governmental
agency or body shall have taken any other action or made any request of
Purchaser as a result of which Purchaser deems it inadvisable to proceed with
the transactions hereunder.
8.3 CUSTOMER APPROVAL. Purchaser shall be satisfied that Seller's
customers do not intend to stop purchasing services from Purchaser after the
Closing at the same level as they purchased services from Seller prior to the
Closing.
8.4 NO MATERIAL ADVERSE CHANGE. No material adverse change in the
results of operations, financial condition, working capital, relationships with
suppliers or customers, or Business of Seller shall have occurred and Seller
shall not have suffered any material loss or damages to any of the Assets,
whether or not covered by insurance, since May 31, 1999. Further, no material
transaction nor material change of any nature which would adversely affect the
business shall have occurred. Purchaser shall have received a certificate to
such effect signed by the Selling Parties dated the Closing Date.
8.5 DUE DILIGENCE. Purchaser shall have completed its due diligence
review of, and shall be satisfied in Purchaser's sole discretion with, the
business, operations, assets, prospects and condition, financial and otherwise,
of the Business.
8.6 REQUIRED DOCUMENTS. Selling Parties otherwise shall have delivered
the documents required to be delivered pursuant to Section 3.3(a) herein.
8.7 USE OF NAME. Purchaser shall have received evidence satisfactory to
it in its sole discretion that Seller and any entity affiliated with Seller or
Shareholder shall have changed its name to a name other than, and shall have
ceased using the name, "E.T. Jones & Associates, Inc.", or any variation
thereof.
8.8 CONSENTS. As determined by Purchaser in its discretion, Seller
shall have procured all third party consents necessary for Purchaser to conduct
the Business as it was conducted by the Seller.
ARTICLE 9. SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
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(a) The representations and warranties of Seller and
Shareholder made in this Agreement and in the documents and certificates
delivered in connection herewith shall be deemed to have been relied upon
notwithstanding any investigation heretofore or hereafter made or omitted by
Purchaser, and shall survive the Closing for a period of five (5) years from the
Closing Date, and, thereafter, to the extent a claim is made prior to such
expiration with respect to any breach of such representation, warranty or
agreement, until such claim is finally determined or settled, except that:
(i) such representations, warranties and agreements that
relate to federal, state and local taxes ("Tax Matters"), including
without limitation the representation and warranties set forth in
Section 4.15 shall survive until the expiration of the applicable
statutes of limitations for such taxes (including any extensions
thereof); and
(ii) such representations, warranties and agreements that
relate to environmental, including without limitation the
representations and warranties set forth in Sections 4.19 shall survive
until the expiration of the applicable statutes of limitations for such
matters.
(b) The representations and warranties of Purchaser made in this
Agreement and in the documents and certificates delivered in connection herewith
in connection with title to Assets and authorization, of the proposed
transaction shall survive the Closing for a period of five (5) years from the
Closing Date, and, thereafter, to the extent a claim is made prior to such
expiration with respect to any breach of such representation, warranty or
agreement, until such claim is finally determined or settled.
(c) The last day of the survival period for the various representations
and warranties shall be referred to as the "Expiration Date."
(d) Purchaser agrees that Seller may dissolve on or after a date which
is two years from the Closing Date.
9.2 INDEMNIFICATION BY SELLER AND SHAREHOLDER. Seller and Shareholder
covenant and agree that they, jointly and severally, will indemnify, defend,
protect and hold harmless Purchaser and Purchaser's officers, directors,
employees, agents, successors, assigns and affiliates for any and all claims,
losses, liabilities, damages (including, without limitation, fines, penalties,
and criminal or civil judgments and settlements), costs (including, without
limitation, court costs) and expenses (including, without limitation, attorneys'
and accountants' fees) (hereinafter, collectively, "Loss" or "Losses") suffered
or incurred by Purchaser and any successors or assigns thereto (collectively,
the "Protected Parties") as a result of, or with respect to:
(1) the operation of the Business and the
Assets prior to the Closing;
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(2) any liability of Selling Parties,
whether or not relating to the Business or the Assets, that
does not constitute an Assumed Liability under this Agreement;
(3) any material breach by Seller or
Shareholder of the representations and warranties set forth
herein or on the schedules or certificates attached hereto and
any breach or nonfulfillment of any covenant or agreement on
the part of Seller and Shareholder under this Agreement;
(4) all Retained Liabilities; and
(5) any and all actions suits proceedings,
claims, demands, assessments and judgments incident to any of
the foregoing.
9.3 INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify and
reimburse Shareholder, and Seller's officers, directors, employees, agents,
successors, assigns and affiliates for any and all claims, losses, liabilities,
damages (including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, attorneys' and accountants' fees),
for any and all amounts suffered or incurred by the Selling Parties as a result
of, or with respect to:
(a) the operation of the Business and the
Assets on and after the Closing Date, except to the extent
caused or contributed to by Seller and/or Selling Shareholder;
and
(b) any material breach by Purchaser of the
representations and warranties set forth herein or on the
schedules or certificates attached hereto and any breach or
nonfulfillment of any covenant or agreement on the part of
Purchaser under this Agreement; and
(c) any and all actions, suits, proceedings,
claims, demands, assessments and judgments incident to the
foregoing.
9.4 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
a person not a party to this Agreement ("Third Person") or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 9.2 or 9.3 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount
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thereof. The Indemnifying Party shall have right to defend and settle, at its
own expense and by its own counsel, reasonably acceptable to Indemnified Party,
any such matter so long as the Indemnifying Party pursues the same in good faith
and diligently and reasonably demonstrates to the Indemnified Party its
financial wherewithal to do so and to satisfy such claim if adversely
determined. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. Notwithstanding the
foregoing, the Indemnified Party shall have the right to participate in any
matter through counsel of its own choosing at its own expense; provided that the
Indemnifying Party's counsel shall always be lead counsel and shall determine
all litigation and settlement steps, strategy and the like. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses, out-of-pocket
expenses and allocable share of employee compensation incurred in connection
with such participation for any employee whose participation is so requested. If
the Indemnifying Party desires to accept a final and complete settlement of any
such Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person and the Indemnified Party shall reimburse the
Indemnifying Party for any additional costs of defense which it subsequently
incurs with respect to such claim. If the Indemnifying Party does not undertake
to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such maker, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
9.5 METHOD OF PAYMENT. All claims paid pursuant to this Article 9 shall
be paid in cash. Nothing herein contained shall prejudice Purchaser from
pursuing its rights to indemnification hereunder by reason of having first paid
any amount to Seller or Shareholder.
9.6 DISSOLUTION OF SELLER. Purchaser acknowledges that no sooner than
two years after the Closing Date, Seller may liquidate and terminate its
corporate existence in accordance with a plan of liquidation and pursuant to
laws of its state of incorporation.
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ARTICLE 10. TERMINATION OF AGREEMENT.
In addition to any other legal or equitable remedies available to it,
Selling Parties or Purchaser may, by notice provided on or before the Closing
Date, terminate this Agreement if a material default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Closing Date.
ARTICLE 11. RESTRICTIVE COVENANTS.
11.1 NON-COMPETITION AGREEMENT. The Shareholder agrees that from and
after the Closing Date until six (6) years after the Closing Date (such date
being referred to herein as the "Ending Date" and the period beginning on the
Closing Date and ending on the Ending Date, being referred to herein as the
"Non-Competition Period"), neither he nor any of his Affiliates will, directly
or indirectly:
(a) except as an employee of Purchaser or an affiliate of
Purchaser engage in, control, advise, manage, serve as a director, officer or
employee of, act as a consultant to, receive any economic benefit from or exert
any influence upon, any business which conducts activities that are similar to
or competitive with those conducted by Purchaser within the State of Texas (the
"Territory");
(b) except in connection with any duties as an employee of
Purchaser or an affiliate of Purchaser, solicit, divert or attempt to solicit or
divert any party who is, was or was solicited to become at any time after twelve
(12) months prior to the Closing Date, a customer or supplier of Seller or
Purchaser within the Territory;
(c) employ, solicit for employment or encourage to leave his
or her employment, any person who was, during the one-year period prior to such
employment, solicitation or encouragement, or is an officer or employee of
Purchaser or an affiliate of Purchaser;
(d) avail himself of or invest in any business opportunity
which is related to the activities conducted by Purchaser, and which came to his
attention prior to the Ending Date;
(e) disturb, or attempt to disturb, any business relationship
between any third party and Purchaser or any affiliate of Purchaser; or
(f) make any statement to any third party, including the press
or media, likely to result in adverse publicity for Purchaser or an affiliate of
Purchaser.
For purposes of this Section, the term "directly or indirectly" shall include
acts or omissions as proprietor, partner, joint venturer, employer, salesman,
agent, employee, officer, director, lender or consultant of, or owner of any
interest in, any Person.
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11.2 NON-DISCLOSURE. The Selling Parties recognize and acknowledge that
they have in the past, currently have, and in the future may possibly have,
access to certain confidential information of Seller and Purchaser, such as
lists of clients, operational policies, and pricing and cost policies that are
valuable, special and unique assets of Purchaser. The Selling Parties agree that
they will not disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
unless such information becomes known to the public generally through no fault
of the Selling Parties.
11.3 DAMAGES. Because of the difficulty of measuring economic losses to
Purchaser as a result of the breach of the foregoing covenants, and because of
the immediate and irreparable damage that would be caused to Purchaser for which
it would have no other adequate remedy, the Selling Parties agree that in the
event of a breach by any of them of the foregoing covenants, the covenants may
be enforced by Purchaser by injunctions and restraining orders in addition to
any other rights and remedies existing in its favor.
11.4 REASONABLE RESTRAINT. It is agreed by the parties that the
foregoing covenants in this Article 11 impose a reasonable restraint on the
Selling Parties in light of the activities and business of the Seller on the
date of the execution of this Agreement and the future plans of the Purchaser.
11.5 SEVERABILITY; REFORMATION. The covenants in this Article 11 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
11.6 INDEPENDENT COVENANTS. All of the covenants in this Article 11
shall be construed as an agreement independent of any other provision of this
Agreement, and the existence of any claim or cause of action of Shareholder or
Seller against the Purchaser, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by Purchaser of such
covenants. It is specifically agreed that the Noncompetition Period shall be
computed by excluding from such computation any time during which the Selling
Parties have been adjudicated by a court of competent jurisdiction to be in
violation of any provision of this Article 11 and any time during which there is
pending in any court of competent jurisdiction any action (including any appeal
from any judgment) brought by any person, whether or not a party to this
Agreement, in which action Purchaser seeks to enforce the agreements and
covenants of the Selling Parties or in which any person contests the validity of
such agreements and covenants or their enforceability or seeks to avoid their
performance or enforcement.
11.7 MATERIALITY. The Selling Parties agree that the foregoing
covenants are material and substantial parts of this transaction.
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11.8 EARLY TERMINATION. The covenants set forth in Section 11.1 herein
shall terminate if (i) Purchaser breaches its payment obligations set forth in
Section 2.1 herein and (ii) such breach continues after written notice to
Purchaser and passage of a 60-day cure period.
11.9 NO LIMITATION OF OTHER PROVISIONS. The provisions of this Article
11 shall be in addition to, and not in limitation of, any other provisions
contained in any other agreement restricting competition by any of the Selling
Parties.
ARTICLE 12. GENERAL.
12.1 COOPERATION. The Selling Parties and Purchaser shall each deliver
or cause to be delivered to the other on the Closing Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Agreement. Seller will cooperate and use best efforts to have the present
employees and contractors of Seller cooperate with Purchaser on and after the
Closing Date in furnishing information, evidence, testimony and other assistance
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date.
12.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Purchaser and Seller, and the heirs and legal representatives of
Shareholder.
12.3 ENTIRE AGREEMENT. This Agreement (including the schedules and
annexes attached hereto) and the documents delivered pursuant hereto constitute
the entire agreement and understanding between the Selling Parties and Purchaser
and supersede any prior agreement and understanding relating to the subject
matter of this Agreement. This Agreement, upon execution, constitutes a valid
and binding agreement on the parties thereto enforceable in accordance with its
terms and may be modified or amended only by a written instrument executed by
each of the Selling Parties and Purchaser.
12.4 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
12.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction and agrees to
indemnify the other against all loss, cost, damages or expense arising out of
claims for fees or commission of brokers employed or alleged to have been
employed by such indemnifying party.
12.6 EXPENSES. Whether or not the transactions herein contemplated are
consummated, Purchaser will pay the fees, expenses and disbursements of
Purchaser and its agents, representatives,
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accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments thereto. Whether or not the transactions herein
contemplated are consummated, the Selling Parties will pay their fees, expenses
and disbursements and of their agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments hereto and all other costs and expenses incurred in the performance
and compliance with all conditions to be performed by the Selling Parties under
this Agreement.
12.7 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (i) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or (ii) transmitting the
notice by facsimile and sending a copy by first class United States mail, or
(iii) by delivering the same in person to an officer or agent of such party.
(a) If to Purchaser:
Primis, Inc.
Attn.: Chief Executive Officer
11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
(770) 777-8600 (telephone)
(770) 777-8591 (facsimile)
With a copy to:
Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, Kentucky 40202
(502) 589-5235 (telephone)
(502) 589-0309 (facsimile)
(b) If to either of the Selling Parties:
E.T. Jones & Associates, Inc.
15851 Dallas Parkway
Addison, Texas 75001
_________ (telephone)
_________ (facsimile)
28
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With a copy to:
Robert A. Stripling
Roberts, Cunningham & Stripling, L.L.P.
800 Preston Commons West
8117 Preston Road
Dallas, Texas 75225
(214) 696-3200 (telephone)
(214) 696-5971 (facsimile)
12.8 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the laws of the State of Texas, without regard to any
choice of law principles.
12.9 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver. None of the remedies provided in this
Agreement, including termination of this Agreement or indemnification, are the
exclusive remedy for breach of this Agreement, and the parties may seek any
other remedy in law or equity in lieu of or in addition to any remedies provided
in this Agreement.
12.10 TIME. Time is of the essence of this Agreement.
12.11 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
12.12 SCHEDULES. The Schedules attached hereto constitute a part of
this Agreement and are incorporated herein by reference as if set forth herein
at the point where first mentioned.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"PURCHASER"
PRIMIS, INC.
By:____________________________________
Name:__________________________________
Title:___________________________________
"SELLER"
E.T. JONES & ASSOCIATES, INC.
By:____________________________________
Its:____________________________________
"SHAREHOLDER"
E.T. JONES
____________________________________
E.T. JONES
30
<PAGE>
EXHIBIT A
Employment and Noncompetition Agreement, by and between
E.T. Jones (an individual)
and PRIMIS, INC.
SEE ATTACHED
31
<PAGE>
EXHIBIT B
Primis, Inc. Shareholders' Agreement
SEE ATTACHED
32
<PAGE>
EXHIBIT C
Primis, Inc. Promissory Note
in favor of E.T. Jones & Associates, Inc.
SEE ATTACHED
33
<PAGE>
EXHIBIT D
Primis, Inc. Security Agreement
in favor of E.T. Jones & Associates, Inc.
SEE ATTACHED
34
<PAGE>
EXHIBIT E
Primis, Inc. Financing Statement
in favor of E.T. Jones & Associates, Inc.
SEE ATTACHED
35
<PAGE>
EXHIBIT 10.17
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
by and among
PRIMIS, INC.,
J. DAVID GRISSOM,
WINDCREST PARTNERS,
CASSELBERRY PARTNERS, L.P.,
JG FUNDING, LLC,
RICHLAND VENTURES II, L.P.,
SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP,
SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.), LIMITED PARTNERSHIP,
MOORE GLOBAL INVESTMENTS, LTD.,
REMINGTON INVESTMENTS STRATEGIES, L.P.,
JACK TYRRELL,
VICKI L. BRAKEBILL,
W. PATRICK ORTALE, III,
MICHAEL P. DECHANT, SR.,
and
WILLIAM B. BRITAIN
October 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Sale and Issuance of Common Stock........................................................................1
2. Closing..................................................................................................2
3. Closing Items............................................................................................2
4. Further Assurances.......................................................................................2
5. Representations and Warranties of Company................................................................2
A. Corporate Standing..............................................................................2
B. Authorization...................................................................................3
C. Capitalization..................................................................................3
D. Validly Issued Shares...........................................................................4
E. No Conflict.....................................................................................4
F. Contracts and Other Commitments; Compliance.....................................................4
G. Subsidiaries....................................................................................4
H. Consents........................................................................................5
I. Financial Statements............................................................................5
J. Indebtedness for Borrowed Money; No Undisclosed Liabilities.....................................5
K. Title to Property and Assets; Leases............................................................5
L. Legal Proceedings...............................................................................5
M. Environmental Matters...........................................................................6
N. Licenses and Permits; Compliance with Laws......................................................6
O. Employee Benefit Plans..........................................................................6
P. Labor Relations.................................................................................6
Q. Insurance.......................................................................................7
R. Tax Matters.....................................................................................7
S. Patents and Trademarks..........................................................................7
T. Related-Party Transactions......................................................................8
U. Software Products...............................................................................8
V. Brokers' and Finders' Fees......................................................................9
W. Material Facts..................................................................................9
6. Representations and Warranties of Investors..............................................................9
A. Binding Agreement...............................................................................9
B. Investment Representations......................................................................9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C>
C. Accredited Investor; Residence..................................................................9
D. Receipt of Information; Restricted Securities...................................................9
E. Investment Experience...........................................................................9
F. Legends........................................................................................10
7. Survival of Representations and Warranties..............................................................10
8. Indemnification.........................................................................................10
A. Indemnification by Company.....................................................................10
B. Indemnification by Investors...................................................................11
9. Company Covenants.......................................................................................11
A. Use of Proceeds................................................................................11
B. Financial Reporting............................................................................11
C. Termination of Covenants.......................................................................12
D. Reservation of Shares..........................................................................12
10. Public Statements.......................................................................................12
11. Notices.................................................................................................12
12. Parties in Interest; Assignment.........................................................................14
13. Construction; Governing Law.............................................................................14
14. Entire Agreement; Amendment and Waiver..................................................................15
15. Severability............................................................................................15
16. Counterparts............................................................................................15
17. Attorneys' Fees.........................................................................................15
18. Rights of Investors.....................................................................................15
19. Exculpation Among Investors.............................................................................15
</TABLE>
ii
<PAGE>
Exhibits and Schedules
Schedule 1 Investors' Investment at Closing
Exhibit A Articles of Amendment
Exhibit B Subscription Agreement
iii
<PAGE>
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT ("Agreement") is made and entered into as of the 7th day of October,
1999, by and among [i] PRIMIS, INC., a Georgia corporation ("Company"), and [ii]
CASSELBERRY PARTNERS, L.P., a Kentucky limited partnership, JG FUNDING, LLC, a
Kentucky limited liability company, WINDCREST PARTNERS, a New York limited
partnership, J. DAVID GRISSOM, an individual, RICHLAND VENTURES II, L.P., a
Delaware limited partnership, REMINGTON INVESTMENTS STRATEGIES, L.P., a _______
limited partnership, MOORE GLOBAL INVESTMENTS, LTD., a __________ limited
partnership, SOUTH ATLANTIC PRIVATE EQUITY FUND IV, LIMITED PARTNERSHIP, a
Delaware limited partnership, and SOUTH ATLANTIC PRIVATE EQUITY FUND IV (Q.P.),
LIMITED PARTNERSHIP, a Delaware limited partnership, JACK TYRRELL, individually,
VICKI L. BRAKEBILL, individually, W. PATRICK ORTALE, III, individually, MICHAEL
P. DECHANT, SR., individually, and WILLIAM B. BRITAIN, individually (each an
"Investor" and collectively the "Investors").
WITNESSETH:
Company desires to sell and issue, and each Investor desires
to purchase and acquire, the number of shares of Company's authorized but
unissued Series B Convertible Preferred stock ("Series B Preferred Stock") set
forth opposite his, her or its name on SCHEDULE 1 hereto, upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, Company and Investors agree as follows:
1. SALE AND ISSUANCE OF COMMON STOCK.
A. Company shall adopt and file with the Georgia Secretary of
State on or before the Closing (as defined below) Articles of Amendment to the
Company's Articles of Incorporation in the form attached hereto as EXHIBIT A
(the "Articles of Amendment").
B. Subject to the terms and conditions of this Agreement, each
Investor agrees, severally and not jointly, to purchase from Company, and
Company agrees to sell, issue and deliver to each Investor, severally and not
jointly, the number of shares of Series B Preferred Stock set forth opposite
each Investor's name on SCHEDULE 1 attached hereto at a price of Six Dollars
($6.00) per share resulting in a total purchase price of approximately Four
Million Three Hundred Fifty Thousand Seven Hundred Eighty Dollars ($4,350,780).
Investors will pay the purchase price in immediately available funds in
accordance with the Subscription Agreement previously executed by him, her or it
and delivered to the Company. Certificates representing the shares of the Series
B Preferred Stock will be issued against receipt by the Company of payments of
the Purchase Price as contemplated by such Subscription Agreements.
<PAGE>
2. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on or about October
___, 1999, at the offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza,
Louisville, Kentucky, or at such other time, date, or place as shall be mutually
agreed upon by the parties hereto in writing (the "Closing Date").
3. CLOSING ITEMS.
A. At the Closing, Company shall deliver, or cause to be
delivered, the following items:
[1] resolutions of the Board of Directors of Company
authorizing the execution, delivery and consummation of this Agreement,
the issuance of the shares of Series B Preferred Stock, and the other
matters contemplated hereby, certified as to their due adoption and
continued validity by the Secretary of Company;
[2] resolutions of the shareholders of Company
authorizing the Articles of Amendment certified as to their due
adoption and continued validity by the Secretary of the Company;
[3] a certificate executed by the President of
Company to the effect that each of Company's representations and
warranties in this Agreement was accurate in all respects as of the
date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date; and
[4] Executed counterpart of each Investor's
Subscription Agreement substantially in the form attached hereto as
EXHIBIT B.
4. FURTHER ASSURANCES. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY. Except as set forth in
the disclosure letter dated the date hereof delivered to each Investor (the
"Disclosure Letter"), Company hereby represents and warrants to each Investor as
follows:
A. CORPORATE STANDING. Company is a corporation duly
organized, validly existing, and in good standing under the laws of Georgia.
Company has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and as presently
proposed to be conducted, to execute, deliver and perform this Agreement and any
other agreement to which Company is a party, the execution and delivery of which
is contemplated hereby (the "Ancillary Agreements"). Company is duly qualified
and is authorized to transact business and is in good standing as
2
<PAGE>
a foreign corporation in each jurisdiction in which the failure so to qualify
would have a material adverse effect on its business, properties, prospects, or
financial condition. True and accurate copies of the articles of incorporation
and bylaws of Company (and all amendments thereto) and minute book (containing
the records of meetings and written consents of the stockholders, the board of
directors and any committees of the board of directors) of Company have
previously been made available to Investors.
B. AUTHORIZATION. The execution and delivery of this Agreement
and any Ancillary Agreement and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Company. Each of this Agreement and any
Ancillary Agreement have been duly executed and delivered by Company and
constitutes the legal, valid and binding obligation of Company enforceable
against it in accordance with its terms.
C. CAPITALIZATION. As of the Closing Date, the authorized
capital stock of Company shall consist of 14,920,000 shares, divided into: (i)
10,000,000 shares of Common Stock, par value $0.01 per share; (ii) 2,500,000
shares of preferred stock ("Preferred Stock") with such preferences, limitations
and relative rights as may be determined by the Board of Directors pursuant to
Article IV(B) of the Articles; (iii) 420,000 shares of Class A Convertible
Preferred Stock ("Class A Preferred"); and (iv) 2,000,000 shares of Series B
Convertible Preferred Stock. Immediately prior to the Closing, 100% of the
outstanding shares of Common Stock of the Company and 100% of the outstanding
shares of Series A Convertible Preferred Stock are owned by the stockholders and
in the amounts specified in Section 5.C of the Disclosure Letter and no shares
of Series B Convertible Preferred Stock , Class A Preferred Stock or other
Preferred Stock are outstanding.
Except as set forth in Section 5.C of the Disclosure Letter,
there are outstanding no subscriptions, options, warrants, calls, commitments or
rights (including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements or agreements of any character relating to
shares of Company's capital stock or the Series B Preferred Stock to be issued
hereunder or any instruments that can be converted into shares of Company's
capital stock or the Series B Preferred Stock to be issued hereunder. None of
the shares of Company's capital stock have been issued in violation of any
preemptive right. All issuances, transfers or purchases of the capital stock of
Company have been in compliance with all applicable agreements and all
applicable laws, including federal and state securities laws, and all taxes
thereon, if any, have been paid. No former or present holder of any of the
shares of capital stock of Company has any legally cognizable claim against
Company based on any issuance, sale, purchase, redemption or involvement in any
transfer of any shares of capital stock by Company. There are no contractual
obligations of Company to repurchase, redeem or otherwise acquire any shares of
capital stock of Company. No bonds, debentures, notes or other indebtedness
having the right to vote (or convertible into or exercisable for securities
having the right to vote) on any matters on which shareholders of Company may
vote are issued or outstanding. Company is not a party to or subject to any
agreement or understanding, and, to Company's best knowledge, there is no
agreement or understanding between any persons that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by any director of Company.
3
<PAGE>
D. VALIDLY ISSUED SHARES. The shares of Series B Convertible
Preferred Stock to be issued, sold and delivered in accordance with the terms of
this Agreement for the consideration set out herein, will, upon issuance in
accordance with the terms hereof, be duly and validly issued, fully paid and
nonassessable, free of restrictions on transfer other than restrictions on
transfer under applicable federal and state securities laws and the existing
Amended and Restated Shareholders' Agreement dated June 16, 1998, by and among
the Company and its Shareholders. The issuance of the Series B Convertible
Preferred Stock to Investors pursuant to this Agreement will comply with all
applicable laws, including federal and state securities laws, and will not
violate the preemptive rights of any person. The shares of Common Stock issuable
upon conversion of the Series B Preferred Stock being purchased under this
Agreement will be, upon issuance and delivery in accordance with the terms of
the Articles of Incorporation, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Shareholders' Agreement and under applicable
federal and state securities laws (other than those created by investors). The
issuance of the shares of Common Stock upon conversion of the Series A Preferred
Stock will comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations set forth in
Section 6.B through 6.E of this Agreement as of the date of issuance of such
shares of Common Stock), and will not violate the preemptive rights of any
person.
The outstanding shares of Company's Common Stock and Series A
Preferred Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in accordance with the registration or
qualification provisions of the applicable federal and state securities laws or
pursuant to valid exemptions therefrom.
E. NO CONFLICT. The execution and delivery of this Agreement
and any Ancillary Agreement do not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of the
Company's Articles of Incorporation or Bylaws, or result in any Violation of any
material lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company, or Company's properties or assets.
F. CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Company is not
in violation or default of any provision of its Articles of Incorporation or
Bylaws or in any respect of any provision of any material contract or other
items listed on the Disclosure Letter.
G. SUBSIDIARIES. Except as set forth in Section 5.G of the
Disclosure Letter, Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited
4
<PAGE>
liability company, association or other business entity. Except as set forth in
Section 5.G of the Disclosure Letter, Company is not a participant in any joint
venture, partnership or similar arrangement.
H. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Company in connection with the execution and delivery of this
Agreement, or the consummation by Company of the transactions contemplated
hereby, which has not already been obtained, except for notices of sale required
to be filed with the Securities and Exchange Commission, or such post closing
filings as may be required under applicable state securities laws which will be
timely filed within the applicable periods therefor.
I. FINANCIAL STATEMENTS. Company has delivered to Investors
prior to the date hereof its audited financial statements for the years ended
December 31, 1997 and December 31, 1998, and its unaudited financial statements
(balance sheet and profit and loss statement) for the six (6) month period ended
June 30, 1999 (the "Financial Statements"). The Financial Statements, including
any footnotes thereto, were prepared in accordance with generally accepted
accounting principles and fairly present the financial position and operating
results of Company as of the dates and for the periods indicated therein. Since
June 30, 1999, there has not been any material adverse change in the assets,
liabilities, financial condition, results of operation or prospects of Company.
J. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as and to the extent reflected and adequately reserved
against in the Financial Statements, and except as set forth in Section 5.J of
the Disclosure Letter, as of the Closing Date, Company has no direct or indirect
indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party and
Company will not have any liability or obligation whatsoever, whether accrued,
absolute, contingent or otherwise.
K. TITLE TO PROPERTY AND ASSETS; LEASES. Except as set forth
in Section 5.K of the Disclosure Letter, Company owns no real property in fee
simple. Company has good, valid and marketable title to all the personal and
mixed, tangible and intangible properties and assets which it purports to own,
free and clear of all liens, restrictions, claims, charges, security interests,
easements or other encumbrances of any nature whatsoever, except for liens for
current taxes not yet due and payable. With respect to the property and assets
that it leases, Company is in compliance with such leases and, to Company's
knowledge, holds a valid leasehold interest free and clear of any liens, claims
and encumbrances. All properties and assets of Company are in the possession or
control of Company, and no other person is entitled to possession of any such
properties and assets. Company is not bound or committed to make any capital
improvement or expenditure with respect to its owned or leased real or personal
property.
5
<PAGE>
L. LEGAL PROCEEDINGS. Except as set forth in the Disclosure
Letter or which are not material to Company, there are no claims of any kind or
any actions, suits, proceedings, arbitrations or investigations pending or, to
Company's knowledge, threatened against or affecting Company or against any
asset, interest or right of Company or which questions the validity of the
transactions contemplated by this Agreement and Company knows of no facts which
may constitute a basis therefor.
M. ENVIRONMENTAL MATTERS. Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety (the "Environmental Laws"), and, to Company's
knowledge, as of the date hereof no material expenditures are required to be
made by Company in order to comply with any of the Environmental Laws.
N. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as set
forth in Section 5.N of the Disclosure Letter, Company holds all franchises,
permits, licenses, variances, exemptions, orders and approvals of all
governmental entities which are material to the operation of Company's business
and is in compliance with the terms thereof. Company has complied with and is
not in any default under (and has not been charged with or received notice with
respect to, nor is threatened with or under investigation with respect to, any
charge concerning any violation of any provision of) any federal, state or local
law, regulation, ordinance, rule or order (whether executive, judicial,
legislative or administrative) or any order, writ, injunction or decree of any
court, agency or instrumentality and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failures to comply.
O. EMPLOYEE BENEFIT PLANS. Except as set forth in Section 5.O
of the Disclosure Letter, Company has no employee benefit plans including any
profit sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits to any current
or former employee, officer or director of Company (collectively "Benefit
Plans"), or any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between Company and any
officer, director or employee of Company. Each Benefit Plan has been adminis
tered in all material respects in accordance with its terms and all applicable
laws.
P. LABOR RELATIONS.
[1] Company is in compliance in all material respects
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health;
[2] There is no unfair labor practice charge or
complaint or any other matter against or involving Company pending or,
to Company's knowledge, threatened before the National Labor Relations
Board or any court of law;
6
<PAGE>
[3] There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Company's knowledge, threatened
against Company;
[4] Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement;
[5] There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to Company's knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Company. There have
been no governmental audits of the equal employment opportunity
practices of Company and, to Company's knowledge, no basis for any such
claim exists; and
[6] To Company's knowledge, Company is in compliance
in all material respects with the requirements of the Americans With
Disabilities Act.
Q. INSURANCE. Section 5.Q of the Disclosure Letter sets forth
a list of all insurance policies, including property, casualty, liability and
other insurance maintained with respect to the assets and business of Company
("Company Insurance"). Company is not liable for any material retroactive
premium adjustments with respect to any of its insurance policies or bonds. All
such policies and bonds are legal, valid and enforceable and in full force and
effect and Company is not in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration under the policy. Nor has the
Company received any notice of premium increases or cancellations with respect
to any of such policies and bonds. Company believes the amount and type of
Company Insurance coverage is adequate for Company's business and is consistent
with good business practice.
R. TAX MATTERS. Company has timely filed or caused to be filed
all federal, state, foreign and local income, franchise, gross receipts,
payroll, sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all respects. Company has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or properly accruable for all periods ending on or
before the date of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority. There are no security interests
on any of the assets of Company that arise in connection with any failure (or
alleged failure) to pay any tax. Company has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or other third
party. No deficiencies for any taxes have been proposed, asserted or assessed
against Company that are not adequately reserved for.
7
<PAGE>
S. PATENTS AND TRADEMARKS. Company owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, and proprietary rights and
processes necessary for its business as now conducted and as proposed to be
conducted without any conflict with, or infringement of the rights of, others.
Except for agreements with its own employees or consultants and standard
end-user license agreements, if any, there are no outstanding options, licenses,
or agreements of any kind relating to the foregoing, nor is the Company bound by
or a party to any options, licenses, or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, and proprietary rights and processes of any other person
or entity. Company has not received any communications alleging that Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets, or
other proprietary rights or processes of any other person or entity. Company is
not aware that any of its employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative agency,
that would interfere with the use of such employee's best efforts to promote the
interests of Company or that would conflict with Company's business as proposed
to be conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of Company's business by the employees of Company, nor the conduct
of Company's business as proposed, will, to Company's knowledge, conflict with
or result in a breach of the terms, conditions, or provisions of, or constitute
a default under, any contract, covenant, or instrument under which any of such
employees is now obligated. Company does not believe it is or will be necessary
to use any inventions of any of its employees (or persons it currently intends
to hire) made prior to their employment by Company. Each independent contractor,
employee and/or officer of Company who or which has contributed to the
development of the Computer Software (as defined below) has executed proprietary
information/confidentiality agreements.
T. RELATED-PARTY TRANSACTIONS. Except as set forth in Section
5.T of the Disclosure Letter, no employee, officer, or director of Company, or
member of his or her immediate family is indebted to Company, nor is Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them. To Company's knowledge, none of such persons has any direct or indirect
ownership interest in any firm or corporation with which Company is affiliated
or with which Company has a business relationship, or any firm or corporation
that competes with Company, except that employees, officers, or directors of
Company, and members of their immediate families may own stock in publicly
traded companies that may compete with Company. Except as set forth in Section
5.T of the Disclosure Letter, no employee, officer or director of Company, or,
to Company's knowledge, any member of their immediate families is, directly or
indirectly, interested in any material contract with Company. For purposes of
this Agreement, Company shall be deemed to have knowledge of a fact, event,
condition, matter or situation if any of Company's officers or directors are
consciously aware of such fact, event, condition, matter or situation, as
appropriate.
U. SOFTWARE PRODUCTS. Company has received no customer
complaints concerning alleged defects in its computer appraisal software
products, including, without limitation, Value Express
8
<PAGE>
(collectively, the "Computer Software") that, if true, would materially
adversely affect the operations or financial condition of Company.
V. BROKERS' AND FINDERS' FEES. Company has not employed any
broker, finder or financial advisor or incurred any liability for fees or
commissions payable to any broker, finder or financial advisor in connection
with the negotiations relating to or the transactions contemplated by this
Agreement.
W. MATERIAL FACTS. Company has provided each Investor with all
the information reasonably available to it that such Investor has requested for
deciding whether to purchase the Series B Preferred Stock. This Agreement and
the documents or written statements furnished by Company to Investors in
connection with the transactions contemplated hereby do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements contained herein or therein, in light of the circumstances
in which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Each Investor hereby
represents and warrants to Company, severally and not jointly, as of the date
hereof, as follows:
A. BINDING AGREEMENT. This Agreement and any Ancillary
Agreement, as applicable, have been duly executed and delivered by such Investor
and each constitutes the legal, valid and binding obligation of such Investor
enforceable against him in accordance with its terms.
B. INVESTMENT REPRESENTATIONS. Such Investor is acquiring the
Series B Preferred Stock solely for its or his own account as principal, for
investment purposes only and not with a view to resale or distribution thereof
in whole or in part, and such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the Securities.
C. ACCREDITED INVESTOR; RESIDENCE. Such Investor is a resident
of the state set forth under its or his name on SCHEDULE 1 attached hereto.
D. RECEIPT OF INFORMATION; RESTRICTED SECURITIES. Such
Investor acknowledges that the Series B Preferred Stock is not being and will
not be registered under the Securities Act of 1933, as amended (the "Securities
Act") or the securities laws of any other jurisdiction in reliance on exemptions
thereunder. The Series B Preferred Stock has not been and will not be approved
or disapproved by the Securities and Exchange Commission or any other
governmental authority or agency of any jurisdiction. Such Investor represents
that such Investor has had an opportunity to ask questions and receive answers
from Company regarding the terms and conditions of the offering of the Series B
Preferred Stock and the business, properties, prospects, and financial condition
of Company and to obtain additional information (to the extent Company possessed
such information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to such Investor
or to which such Investor had access. Investors' representations under this
Section 6, however, shall not limit or modify the
9
<PAGE>
representations and warranties of Company in Section 5 of this Agreement or the
right of Investors to rely thereon.
E. INVESTMENT EXPERIENCE. Such Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage or development and acknowledges that such Investor
is able to fend for itself, can bear the economic risk of such Investor's
investment, and has such knowledge and experience in financial and business
matters that such Investor is capable of evaluating the merits and risks of the
investment in the Series B Preferred Stock.
F. LEGENDS. Each certificate or other document evidencing any
of the Common Stock issued pursuant to this Agreement shall be endorsed with the
legend set forth below:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
AN AMENDED AND RESTATED AGREEMENT DATED AS OF JULY 16, 1998 HAS BEEN
ENTERED INTO BY CERTAIN SHAREHOLDERS OF THE CORPORATION AND HAS BEEN
DELIVERED TO THE SECRETARY TO BE KEPT ON FILE AT THE CORPORATION'S
REGISTERED OFFICE. THAT AGREEMENT IMPOSES VARIOUS RESTRICTIONS UPON THE
TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE AND CREATES
VARIOUS OPTIONS, RIGHTS AND INTERESTS WITH RESPECT TO THOSE SHARES.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement by any party to this Agreement and any
certificate or other instrument delivered by or on behalf of any party pursuant
to this Agreement shall be continuous and shall survive the Closing and the
issuance of all shares of Company's capital stock. Each party shall have the
right to rely on each other party's representations and warranties made herein,
notwithstanding any investigation conducted by such party.
8. INDEMNIFICATION.
A. INDEMNIFICATION BY COMPANY. Company shall indemnify and
reimburse each Investor for any and all claims, losses, liabilities, damages
(including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses
10
<PAGE>
(including, without limitation, attorneys' and accountants' fees) (hereinafter
"Loss" or "Losses") suffered or incurred by such Investor, any successors or
assigns thereto (the "Protected Parties") as a result of, or with respect to:
[1] Any breach or inaccuracy of any representation or
warranty of Company set forth in Section 5;
[2] Any breach of or noncompliance by Company with
any covenant or agreement of Company contained in this Agreement; and
[3] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
B. INDEMNIFICATION BY INVESTORS. Each Investor shall,
severally and not jointly, indemnify and reimburse Company for any and all
claims, losses, liabilities, damages (including, without limitation, fines,
penalties, and criminal or civil judgments and settlements), costs (including,
without limitation, court costs) and expenses (including, without limitation,
attorneys' and accountants' fees) (hereinafter "Loss" or "Losses") suffered or
incurred by Company or any successors or assigns thereto as a result of, or with
respect to:
[1] Any breach or inaccuracy of any representation or
warranty of such Investor set forth in Section 6;
[2] Any breach of or noncompliance by such Investors
with any covenant or agreement of Investor contained in this Agreement;
and
[3] any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
9. COMPANY COVENANTS. Company hereby covenants and agrees as follows:
A. USE OF PROCEEDS. The proceeds from the sale of the Series B
Preferred Stock pursuant to this Agreement shall be used by Company for working
capital, to make acquisitions and for other corporate purposes.
B. FINANCIAL REPORTING. Subject to Section 9.c, Company shall
furnish to the Investors:
[1] an audited balance sheet and statements of income
and cash flow within ninety (90) days after the end of each fiscal
year, together with comparative figures for the last preceding fiscal
year prepared by a firm of certified public accountants acceptable from
time to
11
<PAGE>
time to a majority in interest of the outstanding Series A Preferred
Stock, Series B Preferred Stock and Common Stock of Company voting
together as a single class on an as if converted basis;
[2] as soon as available, and in any event within
thirty (30) days after the close of each calendar month, an unaudited
balance sheet and statement of income and cash flows for such month,
together with comparative figures for both the month just ended and the
portion of the fiscal year then ended, and a written one or two page
monthly summary of Company's operations. Such financial statements
shall be prepared in accordance with generally accepted accounting
principles consistently applied (subject to audit and year-end
adjustments) by the principal financial or accounting officer of the
Company;
[3] as soon as available, and in any event within
thirty (30) days before the close of each fiscal year, a business plan
and projections for Company's next fiscal year; and
[4] such additional information with respect to
Company's financial condition as may be reasonably requested by the
Investors.
C. TERMINATION OF COVENANTS. The covenants set forth in
Section 9.b shall terminate and be of no further force or effect at such time as
Company is required to file reports pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934.
D. RESERVATION OF SHARES. On and after the Closing Date,
Company will reserve and keep reserved at all times sufficient Shares of Common
Stock for issuance upon conversion of the Series B Preferred Stock. Immediately
prior to the occurrence of any event that would cause the number of Shares of
Common Stock or type of securities into which the Series B Preferred Stock would
be convertible, to be adjusted, Company shall take any and all actions necessary
to permit such conversion or exercise. Upon conversion of any s hares of Series
B Preferred Stock, Company will promptly issue and deliver the Shares of Common
Stock required to be delivered.
10. PUBLIC STATEMENTS. Neither Company nor Investors shall, without the
prior written approval of the other parties hereto, make any press release or
other public announcement concerning the transactions contemplated by this
Agreement. Investors and Company may disclose information with respect to the
transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information.
11. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
12
<PAGE>
If to Investors, to: J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202
JG Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P.
3100 West End Avenue, Suite 400
Nashville, TN 37203-1304
South Atlantic Private Equity Fund IV
Limited Partnership
and
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
c/o Don Burton
614 W. Bay Street, Suite 200
Tampa, FL 33606
Moore Global Investments, Ltd.
and
Remington Investments Strategies, L.P.
c/o Moore Capital Management, Inc.
1251 Avenue of the Americas
New York, NY 10020
13
<PAGE>
Attn: Michael Heffernan
Jack Tyrrell
c/o Richland Ventures II, L.P.
200 31st Avenue, N.
Suite 200
Nashville, Tennessee 37203
W. Patrick Ortale, III
200 31st Avenue, N.
Suite 200
Nashville, Tennessee 37203
Vicki L. Brakebill
1030 Berrington Circle
Birmingham, Alabama 35242
Michael P. DeChant, Sr.
c/o Primis, Inc.
7611 Standish Place
Rockville, Maryland 20855
William B. Britain
c/o Primis, Inc.
12 Perimeter Center East
Suite 1220
Atlanta, Georgia 30346
If to Company to: Primis, Inc.
Suite 320
11475 Great Oaks Way
Alpharetta, GA 30022
Attn: James C. Schaper,
President and CEO
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
12. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind
14
<PAGE>
and inure to the benefit of their respective heirs, executors, successors, and
assigns, whether so expressed or not. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto and
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. This Agreement is not
assignable and any purported assignment shall be null and void.
13. CONSTRUCTION; GOVERNING LAW. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the Commonwealth of
Kentucky.
14. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement, including
the Disclosure Letter and Exhibits hereto, constitutes and contains the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior writing by the parties. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of Company and
Investors (or its or his permitted assigns) holding at the time a majority in
interest of the outstanding Series B Preferred Stock. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and Company.
15. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
17. ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or any Ancillary Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
18. RIGHTS OF INVESTORS. Each holder of Series B Preferred Stock shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement or any Series B
Preferred Stock, including without limitation the right to consent to the waiver
of any obligation of Company under this Agreement and to enter into an agreement
with Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and such holder shall not incur any liability
to any other holder or holders of Common Stock with respect to exercising or
refraining from exercising any such right or rights.
15
<PAGE>
19. EXCULPATION AMONG INVESTORS. Each Investor acknowledges that he is
not relying upon any person, firm, or corporation, other than Company and its
current officers and directors, in making its investment or decision to invest
in Company. Each Investor agrees that no other Investor nor the respective
agents of any other Investor shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Common Stock.
16
<PAGE>
IN WITNESS WHEREOF, Company and Investors have caused this
Agreement to be executed as of the day and year first written above.
"COMPANY"
PRIMIS, INC.
By:___________________________________
James C. Schaper, President and
Chief Executive Officer
"INVESTORS"
CASSELBERRY PARTNERS, L.P.
By:___________________________________
Title:________________________________
JG FUNDING, LLC
By:___________________________________
Title:________________________________
______________________________________
J. DAVID GRISSOM
WINDCREST PARTNERS
By:___________________________________
A General Partner
17
<PAGE>
RICHLAND VENTURES II, L.P.
By:___________________________________
Its:__________________________________
SOUTH ATLANTIC PRIVATE EQUITY FUND
IV, LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:___________________________________
Its: General Partner
SOUTH ATLANTIC PRIVATE EQUITY FUND
IV (Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By:___________________________________
Its: General Partner
MOORE GLOBAL INVESTMENTS, LTD.
By:___________________________________
_________________ of Moore Capital
Management
Its: Trading Advisor
18
<PAGE>
REMINGTON INVESTMENTS STRATEGIES,
L.P.
By:_______________________________________
_____________ of Moore Capital
Advisors, LLC
Its: General Partner
__________________________________________
JACK TYRRELL
__________________________________________
W. PATRICK ORTALE, III
__________________________________________
VICKI L. BRAKEBILL
__________________________________________
MICHAEL P. DECHANT, SR.
__________________________________________
WILLIAM B. BRITAIN
19
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
Investors' Investment
Number of Shares
of Series B Purchase
Investor Preferred Stock Price
-------- --------------- -----
<S> <C> <C>
J. David Grissom
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202 164,268 985,608*
Windcrest Partners
49th Floor
122 East 42nd Street
New York, NY 10168-0130 87,813 526,878
Richland Ventures II, L.P.
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304 77,542 465,252
South Atlantic Private Equity Fund IV,
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 32,568 195,408
South Atlantic Private Equity Fund IV
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606 44,974 269,844
Moore Global Investments, Ltd.
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas 63,585 381,510
Remington Investments Strategies, L.P.
1251 Avenue of the Americas
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
New York, NY 10020 13,958 83,748
Casselberry Partners, L.P.
c/o Douglas F. Cobb
600 West Main Street
Louisville, KY 40202 52,650 315,900
JG Funding, LLC
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202 166,667 1,000,002
Jack Tyrrell 7,599 45,594
W. Patrick Ortale, III 3,799 22,794
Vicki L. Brakebill 5,968 35,808
Michael P. DeChant, Sr. 2,000 12,000
William B. Britain 1,739 10,484
</TABLE>
* Purchase Price to be paid by cancellation of a promissory note from the
Company to Mr. Grissom in a like amount.
<PAGE>
EXHIBIT 10.18
PRIMIS, INC.
THIRD AMENDED AND RESTATED 1997 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to strengthen the Company by
providing an additional means of retaining and attracting competent management
personnel and by providing to participating officers, directors and other key
employees of the Company added incentive for high levels of performance and for
unusual efforts to increase the earnings of the Company through the opportunity
for stock ownership offered by the Plan.
2. DEFINITIONS. For purposes of this Plan, capitalized words and
phrases shall have the following meanings:
A. BOARD. The word "Board" means the Company's Board of
Directors.
B. CHANGE IN CONTROL. A "Change in Control" occurs if the
Company or any significant subsidiary of the Company, merges or consolidates,
and is not the surviving corporation in such merger or consolidation (or, if it
is the surviving corporation, there has been a change in the control of more
than fifty percent (50%) of the outstanding voting stock of the Company or such
subsidiary), or if all or substantially all of the Company's or any significant
subsidiary's assets are acquired by another corporation, person or entity, or if
fifty percent (50%) or more of the Company's outstanding voting stock is
acquired by a person, corporation or other entity which is not now a shareholder
of the Company. A significant subsidiary of the Company shall mean any
subsidiary of the Company which, as of the last day of the fiscal year
immediately preceding such Change in Control, constituted fifty percent (50%) or
more of the assets of the Company or contributed more than fifty percent (50%)
to the net income of the Company during such fiscal year.
C. CODE. The word "Code" means the Internal Revenue Code of
1986, as amended.
D. COMMON STOCK. The term "Common Stock" means the Company's
Common Stock, par value $0.01 per share, or the common stock or securities of a
Successor that have been substituted therefor pursuant to Section 8 hereof.
E. COMPANY. The word "Company" means Primis, Inc. a Georgia
corporation, f/k/a Premier Appraisals, Inc., with its principal place of
business at 11475 Great Oaks Way, Suite 220, Alpharetta, Georgia 30022.
F. DATE OF GRANT. The term "Date of Grant" means the effective
date on which an Option is awarded to an Optionee, as set forth in the Option
Agreement executed pursuant to Section 7 by the Optionee and by a member of the
Compensation Committee on behalf of the Company.
G. DISABILITY. The word "Disability" means, as defined by and
to be construed in accordance with Code Section 22(e)(3), any medically
determinable physical or mental impairment which
<PAGE>
can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve (12) months, and which
renders Optionee unable to engage in any substantial gainful activity. Optionee
shall not be considered to have a Disability unless Optionee furnishes proof of
the existence thereof in such form and manner, and at such time, as the
Compensation Committee may require.
H. EXCHANGE ACT. The term "Exchange Act" means the Securities
Exchange Act of 1934, as amended from time to time.
I. ISO. The acronym "ISO" means an option to purchase Common
Stock which at the time the option is granted qualifies as an incentive stock
option within the meaning of Code Section 422.
J. NSO. The acronym "NSO" means a nonstatutory stock option to
purchase Common Stock which at the time the option is granted does not qualify
as an ISO.
K. OPTION. The word "Option" means an ISO or NSO.
L. OPTION AGREEMENT. The term "Option Agreement" means an
agreement between the Company and an Optionee with respect to one or more
Options.
M. OPTION PRICE. The term "Option Price" means the price to be
paid for Common Stock upon the exercise of an Option granted under the Plan, in
accordance with Section 7.A hereof.
N. OPTIONEE. The word "Optionee" means an employee to whom
Options have been granted under the Plan.
O. OPTIONEE REPRESENTATIVE. The term "Optionee Representative"
means the personal representative of the Optionee's estate, and after final
settlement of the Optionee's estate, the successor or successors entitled
thereto by law.
P. PLAN. The word "Plan" means the Third Amended and Restated
Primis, Inc. 1997 Employee Stock Option Plan, as set forth herein, and as
amended from time to time.
Q. COMPENSATION COMMITTEE. The term "Compensation Committee"
means the committee appointed by the Board to administer the Plan, pursuant to
Section 4 hereof.
R. SUBSIDIARY. The word "Subsidiary" means, as defined in Code
Section 424(f), any corporation (other than the Company) in an unbroken chain of
corporations beginning with the Company if, at the time of the granting of an
Option under the Plan, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock of one of the other
corporations in such chain.
2
<PAGE>
S. SUCCESSOR. The word "Successor" means the entity surviving
a merger or consolidation with the Company, or the entity that acquires all or
substantially all of the Company's assets or 50% or more of the Company's
outstanding voting stock (whether by merger, purchase or otherwise).
T. TEN PERCENT SHAREHOLDER. The term "Ten Percent Shareholder"
means an employee who, at the time an Option is granted, owns, or is deemed
within the meaning of Section 422(b)(6) of the Code to own, stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company (or of its Subsidiary or parent (within the meaning of
Section 424(e) of the Code)).
3. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in Section
8 hereof, the aggregate number of shares of Common Stock which may be issued
under the Plan shall not exceed One Million Six Hundred Fifty Thousand
(1,650,000) shares. Authorized and unissued shares shall be delivered under the
Plan. If any Option expires or terminates for any reason, the shares of Common
Stock subject thereto shall again become available under the Plan to the extent
permitted by law.
4. ADMINISTRATION. The Compensation Committee shall have full power and
authority to construe, interpret and administer the Plan and may from time to
time adopt such rules and regulations for carrying out the Plan as it may deem
proper and in the Company's best interests. The decision of a majority of the
members of the Compensation Committee shall constitute the decision of the
Compensation Committee and the Compensation Committee may act either at a
meeting at which a majority of the members of the Compensation Committee are
present, or by a writing signed by all of the members of the Compensation
Committee. The interpretation of any provisions of the Plan by the Compensation
Committee shall be final, conclusive, and binding upon all persons and the
officers of the Company shall place into effect and shall cause the Company to
perform its obligations under the Plan in accordance with the determinations of
the Compensation Committee in administering the Plan.
5. GRANT OF OPTIONS.
A. COMPENSATION COMMITTEE'S AUTHORITY. Subject to the terms,
provisions and conditions of the Plan, the Compensation Committee shall have
exclusive jurisdiction: [i] to select the employees to whom Options shall be
granted; [ii] to authorize the granting of ISOs, NSOs or a combination of ISOs
and NSOs to employees; [iii] to determine the number of shares of Common Stock
subject to each Option; [iv] to determine the time or times when Options will be
granted, the manner in which each Option shall be exercisable, and the duration
of the exercise period; [v] to determine the time or times when Options shall
vest; [vi] to fix such other provisions of the Option Agreement as it may deem
necessary or desirable consistent with the terms of the Plan; and [vii] to
determine all other questions relating to the administration of the Plan.
B. $100,000 ISO EXERCISABILITY LIMITATION. Notwithstanding
Section 5.A hereof, the maximum aggregate fair market value of Common Stock
(determined as of the date the Option is
3
<PAGE>
granted) with respect to which ISOs will first become exercisable by an Optionee
in any calendar year under all ISO plans of the Company and its Subsidiaries
shall not exceed $100,000. Any portion of an Option granted under the Plan in
excess of the foregoing limit shall constitute a NSO.
6. ELIGIBILITY. Key employees of the Company and its Subsidiaries,
including officers and directors who are also employees of the Company or a
Subsidiary, are eligible to receive ISOs and NSOs under the Plan. Key employees
to whom Options may be granted under the Plan will be those selected by the
Compensation Committee from time to time who, in the sole discretion of the
Compensation Committee, have contributed in the past or who may be expected to
contribute materially in the future to the successful performance of the Company
and its Subsidiaries.
7. TERMS OF OPTIONS. Each Option granted under the Plan shall be
evidenced by an Option Agreement signed by the Optionee and by a member of the
Compensation Committee on behalf of the Company. An Option Agreement shall
constitute a binding contract between the Company and the Optionee, and every
Optionee, upon acceptance of such Option Agreement, shall be bound by the terms
and restrictions of the Plan and of the Option Agreement. Such agreement shall
be subject to the following express terms and conditions and to such other terms
and conditions that are not inconsistent with the Plan as the Compensation
Committee may deem appropriate.
A. OPTION PRICE. The Option Price per share of Common Stock
shall be determined by the Compensation Committee at the time an Option is
granted. The Option Price for ISOs shall be not less than: [i] the fair market
value of Common Stock on the Date of Grant, or [ii] in the case of an ISO
granted to a Ten Percent Shareholder, one hundred ten percent (110%) of the fair
market value of Common Stock on the Date of Grant. The fair market value of
Common Stock shall be determined by:
[I] if the Common Stock is traded on the over-the-counter
market, the closing high bid quotation for the Common Stock in the
over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System, on the business day
immediately preceding the Date of Grant;
[II] if the Common Stock is listed on a national securities
exchange, the aver age of the closing prices of the Common Stock on the
Composite Tape for the ten (10) consecutive trading days immediately
preceding such given date; and
[III] if the Common Stock is neither traded on the
over-the-counter market nor listed on a national securities exchange,
such value as the Compensation Committee, in good faith, shall
determine.
B. OPTION PERIOD. Subject to Section 7.C hereof, each Option
Agreement shall specify the period for which the Option thereunder is granted
and shall provide that the Option shall expire at the end of such period. The
Compensation Committee may extend such period provided that, in the
4
<PAGE>
case of an ISO, such extension shall not in any way disqualify the Option as an
ISO without the Optionee's consent. In no case shall such period, including any
such extensions, exceed ten (10) years from the Date of Grant, provided,
however, that in the case of an ISO granted to a Ten Percent Stockholder, such
period, including extensions, shall not exceed five (5) years from the Date of
Grant.
C. LAPSE OF ISO. An ISO shall expire and no longer be
exercisable at the earliest of the following times:
[1] ten (10) years from the Date of Grant;
[2] five (5) years after the Date of Grant, if
Optionee is a Ten Percent Shareholder on the Date of Grant;
[3] three (3) months after termination of employment
with the Company or a Subsidiary for reasons other than Disability,
discharge for cause, or death occurring less than three (3) months
after termination of employment;
[4] one (1) year after termination of employment with
the Company or a Subsidiary because of Optionee's Disability;
[5] one (1) year after the date of death if an
Optionee dies [i] while employed by the Company or a Subsidiary, or
[ii] within three (3) months after ceasing to be an employee of the
Company or a Subsidiary; or
[6] immediately upon termination of employment
through discharge for cause, as determined by the Compensation
Committee in its sole discretion.
D. EXERCISE PERIOD. Except to the extent provided otherwise by
Section 7.H hereof, each stock Option granted under Section 5 hereof shall be
exercisable in accordance with the Option Agreement.
E. LEAVES OF ABSENCE. The Compensation Committee may, in its
discretion, treat all or any portion of any period during which an Optionee is
on military or on an approved leave of absence from the Company or a Subsidiary
as a period of employment of the Optionee by the Company or Subsidiary for
purposes of accrual of the Optionee's rights under the Plan. Notwithstanding the
foregoing, if a leave of absence exceeds ninety (90) days and reemployment is
not guaranteed by contract or statute, the Optionee's employment by the Company
or a Subsidiary for the purposes of the Plan shall be deemed to have terminated
on the 91st day of the leave.
F. MANNER OF EXERCISE. To exercise an Option, the Optionee
shall deliver to the Company: [i] seven (7) days' prior written notice
specifying the number of shares as to which the Option
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is being exercised and, if determined by counsel for the Company to be
necessary, repre senting that such shares are being acquired for investment
purposes only and not for purpose of resale or distribution; [ii] an executed
Shareholders' Agreement in the form attached hereto as EXHIBIT A; [iii] an
executed Noncompetition Agreement in a form satisfactory to the Compensation
Committee; and [iv] payment by the Optionee, or a broker-dealer (as provided in
Section 7.G hereof), for such shares of the Option Price for the number of
shares with respect to which the Option is exercised. On or before the
expiration of the seven (7) day notice period, and provided that all conditions
precedent contained in the Plan are satisfied, the Company shall, without
transfer or issuance tax or other incidental expenses to Optionee, deliver to
Optionee, at the offices of the Company, or at such other place as may be
mutually acceptable, or, at the election of the Company, by certified mail
addressed to Optionee at Optionee's address as shown in the records of the
Company, a certificate or certificates for the Common Stock. Options are
exercisable only in whole shares, and fractional share interests shall be
treated in the manner described in the Option Agreement. If Optionee fails to
accept delivery of the Common Stock, the Optionee's rights to exercise the
applicable portion of the Option shall terminate.
G. PAYMENT FOR SHARES. Except as otherwise provided in this
Section 7, the Option Price for the Common Stock shall be paid in full when the
Option is exercised. Subject to such rules as the Committee may impose and the
terms of the Option Agreement, the Option Price may be paid in whole or in part
in [i] cash, [ii] certified or cashier's check, [iii] whole shares of Common
Stock owned by the Optionee evidenced by negotiable certificates, [iv] such
other consideration as shall constitute lawful consideration for the issuance of
Common Stock and be approved by the Committee (including without limitation, the
delivery of a copy of irrevocable instructions from the Optionee to a broker
registered under the Securities Exchange Act of 1934, reasonably acceptable to
the Committee, to sell certain of the Option Shares purchased upon exercise of
the Option, or to pledge said shares as collateral for a loan, and to promptly
deliver to the Corporation the amount of sale or loan proceeds necessary to pay
such purchase price), or [v] by a combination of such methods of payment. If
payment of the Option Price is made in Common Stock, the value of the Common
Stock used for payment of the Option Price shall be the fair market value of the
Common Stock, determined in accordance with Section 7.A hereof, on the business
day preceding the day written notice of exercise is delivered to the Company.
H. ACCELERATION. Notwithstanding the provisions of Sections
7.B or D hereof to the contrary, if there is a Change in Control, the exercise
dates of all outstanding Options shall accelerate so that each Option
outstanding may be exercised on or after the date of the Change in Control.
I. ISOS. Each Option Agreement which provides for the grant of
an ISO shall contain such terms and provisions as the Compensation Committee
deems necessary or desirable to qualify such Option as an ISO within the meaning
of Code Section 422.
J. TRANSFERABILITY OF OPTIONS. During Optionee's lifetime, the
Option shall be exercisable only by Optionee, and neither the Option nor any
right hereunder shall be transferable except by will or by the laws of descent
and distribution. The Option may not be subject to execution or other
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similar process. If Optionee attempts to alienate, assign, pledge, hypothecate
or otherwise dispose of the Option or any of Optionee's rights hereunder, except
as provided herein, or in the event of any levy, attachment, execution or
similar process upon the rights or interests hereby conferred, the Company may,
in its sole and absolute discretion, terminate the Option by notice to Optionee
and it shall thereupon become null and void.
8. ADJUSTMENT OF SHARES. In the event of capital adjustment after the
effective date of the Plan in the Common Stock of the Company by reason of any
reorganization, recapital ization, stock split, stock dividend, combination or
exchange of shares, merger or consolidation, or any other change (after the
effective date of the Plan) in the nature or number of shares of Common Stock of
the Company, a proportionate adjustment shall be made in the maximum number and
kind of shares which may be delivered under the Plan, and in the Option Price
under and the number and kind of shares of Common Stock covered by outstanding
Options granted under the Plan. By virtue of such a capital adjustment, the
price of any share under Option shall be adjusted so that there will be no
change in the aggregate purchase price payable upon exercise of any such Option.
Such determination by the Compensation Committee shall be conclusive.
Without limiting the generality of the foregoing, if [a] there
is a Change in Control of the Company, and [b] as a result of the transactions
contemplated by the Change in Control, a Successor will acquire all or
substantially all of the assets or 50% of more of the Company's outstanding
voting stock, then the kind of shares of common stock which shall be subject to
the Plan and to each outstanding Option shall automatically be converted into
and replaced by shares of common stock, or such other class of equity securities
having rights and preferences no less favorable than common stock of the
Successor, and the number of shares subject to the Options and the purchase
price per share upon exercise of the Options shall be correspondingly adjusted,
so that, by virtue of such Change in Control of the Company, each Optionee shall
have the right to purchase [i] that number of shares of the Successor which, as
of the date of the Change in Control, have a fair market value equal to the fair
market value of the shares of the Company theretofore subject to an Option, [ii]
for a purchase price per share which, when multiplied by the number of shares of
the Successor subject to the Option, shall equal the aggregate exercise price at
which the Optionee could have acquired shares of the Company under such Option.
The granting of an Option pursuant to this Plan shall not
affect in any way the right and power of the Company to make adjustments,
reorganizations, reclassifications, or changes of its capital or business
structure or to merge, consolidate, dissolve, liquidate, sell or transfer all or
any part of its business or assets; provided, however, that the Company shall
not, and shall not permit its Subsidiaries to, recommend or agree or consent to
a transaction or series of transactions which would result in a Change of
Control of the Company unless and until the person or persons acquiring or
succeeding to assets or capital stock of the Company or its Subsidiaries as a
result of such transaction or transactions agrees to be bound by the terms of
the Plan so far as it pertains to Options theretofore granted and agrees to
assume and perform the obligations of the Company and its Successor under the
Plan.
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9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Upon the
exercise of an Option at a time when there is not in effect a registration
statement under the Securities Act of 1933, as amended, and any applicable state
securities laws (the "Securities Laws") relating to the shares of Common Stock
issuable upon exercise thereof and available for delivery a prospectus meeting
the requirements of the Securities Laws, the shares of Common Stock may be
issued only if the Optionee or Optionee Representative represents and warrants
in writing to the Company that the shares being purchased are being acquired for
investment and not with a view to the distribution thereof. The shares of the
Common Stock shall contain such legends or other re strictive endorsements as
counsel for the Company shall deem necessary or proper. No shares of Common
Stock shall be purchased upon the exercise of any Option unless and until there
shall have been satisfied any applicable requirements of the Securities and
Exchange Commission or other regulatory agencies having jurisdiction and of any
exchanges upon which stock of the Company may be listed.
10. NO RIGHTS AS SHAREHOLDER. No Optionee or Optionee's Representative
shall have any rights as a shareholder with respect to Common Stock subject to
Optionee's Option before the date of issuance to the Optionee of a certificate
or certificates for such shares.
11. NO RIGHTS TO CONTINUED EMPLOYMENT. The Plan and any Option granted
under the Plan shall not confer upon any Optionee any right with respect to
continuance of employment by the Company or any Subsidiary, nor shall it
interfere in any way with the right of the Company or any Subsidiary by which an
Optionee is employed to terminate Optionee's employment at any time.
12. TERMINATION. The Plan shall terminate on May 29, 2007, ten (10)
years from the earlier of the date it was adopted by the Board or approved by
the shareholders of the Company, and may be terminated at any earlier time by
the Compensation Committee. No Option shall be granted after termination of the
Plan. Termination of the Plan, however, shall not affect the validity of any
Option theretofore granted under the Plan.
13. AMENDMENT. The Board shall have the right, at any time, to amend,
suspend or terminate the Plan in any respect that it may deem to be in the best
interests of the Company, except that, without approval by shareholders of the
Company holding not less than a majority of the votes represented and entitled
to be voted at a duly held meeting of the Company's shareholders, no amendment
shall be made if shareholder approval is necessary to qualify the Plan under the
Securities and Exchange Commission Rule 16b-3. No amendment of the Plan,
however, may, without the consent of the Optionee or Optionee Representative,
make any changes in any outstanding Option theretofore granted under the Plan
which would adversely affect the rights of such Optionee or Optionee
Representative.
14. TAX WITHHOLDING. Upon the exercise of any Option granted under the
Plan, or upon the disposition of any Common Stock acquired by the exercise of an
ISO granted under the Plan within two (2) years from the Date of Grant or one
(1) year after such Common Stock is trans ferred to the Optionee, the Company
shall have the right to require Optionee to remit to the Company an amount
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sufficient to satisfy all federal, state and local withholding tax requirements,
or, alternatively, the Company shall have the right to retain Common Stock
otherwise payable to the Optionee pursuant to exercise of an Option in an amount
sufficient to satisfy such withholding requirements, before the delivery to the
Optionee of any certificate(s) for shares of Common Stock.
15. GOVERNING LAW. This Plan and the Option Agreements entered into
under the Plan shall be governed by, and construed in accordance with, the laws
of the State of Georgia.
16. EFFECTIVE DATE. The effective date of the Plan shall be May 30,
1997. The Plan was adopted by the Board on May 30, 1997, and approved by
stockholders of the Company holding not less than a majority of the shares
represented and entitled to vote on May 30, 1997. The Amended and Restated Plan
was adopted by the Board on June 16, 1998 and approved by the stockholders of
the Company holding not less than a majority of the shares represented and
entitled to vote on June 16, 1998. The Second Amended and Restated Plan was
adopted by the Board on May 27, 1999 and approved by the stockholders of the
Company holding not less than a majority of the shares represented and entitled
to vote on June 15, 1999. This Third Amended and Restated Plan was adopted by
the Board on November 24, 1999 and approved by the stockholders of the Company
holding not less than a majority of the shares represented and entitled to vote
on November 24, 1999.
PRIMIS, INC.
By: __________________________________
Leslie H. Schreiner, Secretary and
Chief Financial Officer
ATTEST:
_____________________
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EXHIBIT A
(COMMON STOCK SHAREHOLDERS' AGREEMENT)
<PAGE>
Exhibit 10.19
CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
THIS CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE
AGREEMENT ("Agreement") is made and entered into as of the 29th day of
November, 1999, by and among [i] PRIMIS, INC., a Georgia corporation ("the
Company"), and [ii] those entities and persons whose names are set forth on
SCHEDULE 1 attached hereto (each an "Investor" and collectively the
"Investors").
RECITALS:
WHEREAS, the Company desires to sell and issue, and each
Investor desires to purchase and acquire, convertible promissory notes (the
"Notes") with an aggregate principal amount of Ten Million Eleven Thousand
One Hundred Seventy Four Dollars ($10,011,174), convertible, if at all, (i)
into shares of the Company's Series C Convertible Preferred Stock ("Series C
Preferred Stock") at the election of Investor , (ii) automatically into
shares of Series C Preferred Stock at the closing of the Company's next
Qualifying Financing (as defined in Section 1.1 below), provided that such
Qualifying Financing closes within one hundred eighty (180) days from the
respective dates of the Notes, or (iii) automatically into shares of the
Company's common stock ("Common Stock") issued at the closing of the
Company's IPO (as defined in Section 1.1 below); provided that such IPO
closes within one hundred eighty (180) days from the respective date of the
Notes; and
WHEREAS, in consideration of the purchase by the Investors of
the Notes, the Company desires to sell and issue warrants (the "Warrants") to
purchase the number of shares of Series C Preferred Stock or Common Stock, as
applicable, of the Company as determined in this Agreement and in the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, the Company and Investors agree as follows:
1. DEFINITIONS; AUTHORIZATION AND ISSUANCE OF NOTES AND WARRANTS.
1.1. DEFINITIONS.
a. "Qualifying Financing" shall mean a transaction in which the
Company sells preferred stock and the gross cash proceeds to
the Company equal or exceed $20,000,000 (including the value
of the Notes issued pursuant to this Agreement which will be
automatically converted at the closing of such financing
transaction).
b. "IPO" shall mean a firm commitment underwritten initial
public offering of shares of the Company's capital stock
under the Securities Act of 1933, as amended (the "1933
Act"), from which the Company receives net proceeds of not
less than Thirty Million Dollars ($30,000,000) at a public
<PAGE>
offering price of not less than $15.31 per share (subject to
adjustment for any stock split, combination, consolidation
or stock distributions or stock dividends or
recapitalizations or the like).
c. "Sale of the Company", for purposes of Section 1.5 below,
shall mean (a) a sale or transfer of all or substantially
all of the Company's assets or (b) the acquisition of the
Company by another entity by means of merger, consolidation
or other transaction or series of related transactions
resulting in the exchange of the outstanding shares of the
Company's capital stock such that the Company's shareholders
prior to such transaction own, directly or indirectly, less
than fifty percent (50%) of the voting power of the
surviving entity or the entity that owns 100% of the
outstanding voting securities of such surviving entity.
1.2. AUTHORIZATION. The Company has authorized the sale and issuance
of the Notes and Warrants to the Investors.
1.3. AMENDED AND RESTATED ARTICLES OF INCORPORATION. The Company shall
adopt and file with the Georgia Secretary of State on or before
the Closing (as defined below) Amended and Restated Articles of
Incorporation in the format attached hereto as EXHIBIT A (the
"Amended and Restated Articles").
1.4. SALE AND ISSUANCE OF NOTES. Subject to the terms and conditions
hereof, the Company agrees to sell and issue to each of the
Investors, and the Investors severally agree to purchase from the
Company, a Note in the form attached as EXHIBIT B hereto, in the
amount set forth opposite such Investor's name on SCHEDULE 1
hereto.
1.5. SALE AND ISSUANCE OF WARRANTS. Subject to the terms and
conditions hereof, the Company agrees to sell and issue to each
of the Investors, and the Investors severally agree to purchase
from the Company, Warrants (in the form attached hereto as
EXHIBIT C) originally exercisable for that number of shares of
Series C Preferred Stock (or Common Stock for the purposes of
subsection (c) below) equal to:
a. in the event a Qualifying Financing closes within one
hundred eighty (180) days from the date hereof, the quotient
obtained by dividing (a) thirty-five percent (35%) of the
principal amount of the Note to which such Warrant relates
(the "Warrant Coverage") by (b) the lower of $15.31 (the
"Series C Price Per Share") and the price per share of the
preferred stock sold to investors in the Qualifying
Financing;
b. in the event that the Company closes prior to a Qualifying
Financing a Sale of the Company, the quotient obtained by
dividing (x) the Warrant Coverage by (y) the Series C Price
Per Share;
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c. in the event that the Company closes an IPO prior to a
Qualifying Financing or a Sale of the Company, the Warrants
shall convert to that number of shares of Common Stock of
the Company equal to the quotient obtained by dividing (x)
the Warrant Coverage by (y) the Series C Price Per Share; or
d. in the event that the Company does not close the Qualifying
Financing, a Sale of the Company or an IPO prior to the date
180 days from the date hereof, the quotient obtained by
dividing (a) the Warrant Coverage by (b) $6.00 (subject to
adjustment for any stock split, combination, consolidation
or stock distributions or stock dividends or
recapitalizations or the like).
Upon the first to occur of (i) a Qualifying Financing, (ii) an IPO,
(iii) a Sale of the Company, or (iv) the date which is one-hundred
eighty (180) days from the date hereof if no Qualifying Financing, IPO
or Sale of the Company occurs prior thereto, the number of shares of
Series C Preferred Stock or Common Stock, as applicable, into which the
Warrants may be exercised shall be permanently established and fixed in
accordance with the foregoing subsections and shall only be subject to
further adjustment, as described in Section 8 of each Warrant.
Notwithstanding anything herein to the contrary, the Warrant Shares
shall automatically be converted into Common Stock in accordance with
the terms of the Warrants upon the occurrence of an IPO at any time
while the Warrants remain exercisable.
2. CLOSING.
2.1. CLOSING; CLOSING DATE. The closing of the issuance of the Notes
and Warrants under this Agreement (the "Closing") shall take
place on the date of this Agreement (the "Closing Date"), in
accordance with arrangements mutually satisfactory to the
Investors and counsel for the Company.
2.2. CLOSING DELIVERY. At the Closing, upon delivery to the Company by
wire transfer or check made payable to the order of the Company
of the aggregate purchase price for the Note and the Warrant set
forth opposite such Investor's name on SCHEDULE 1 hereto, the
Company will deliver to each Investor (a) a Note payable to the
Investor in the principal amount set forth opposite such
Investor's name on SCHEDULE 1 hereto and (b) a Warrant to
purchase that number of shares of Series C Preferred Stock as
provided for in Section 1.4 hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the disclosure letter dated the date hereof delivered to each Investor
(the "Disclosure Letter"), the Company hereby represents and warrants
to each Investor as follows:
3.1. CORPORATE STANDING . The Company is a corporation duly organized,
validly existing, and in good standing under the laws of Georgia.
The Company has all
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<PAGE>
requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted
and as presently proposed to be conducted, to execute, deliver
and perform this Agreement and any other agreement to which the
Company is a party, the execution and delivery of which is
contemplated hereby (the "Ancillary Agreements"). The Company is
duly qualified and is authorized to transact business and is in
good standing as a foreign corporation in each jurisdiction in
which the failure so to qualify would have a material adverse
effect on its business, properties, prospects, or financial
condition. True and accurate copies of the articles of
incorporation and bylaws of the Company (and all amendments
thereto) and minute book (containing the records of meetings and
written consents of the stockholders, the board of directors and
any committees of the board of directors) of the Company have
previously been made available to Investors upon request.
3.2. AUTHORIZATION. The execution and delivery of this Agreement and
any Ancillary Agreement, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company. Each of
this Agreement and any Ancillary Agreement have been duly
executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against
it in accordance with its terms.
3.3. CAPITALIZATION. As of the Closing Date, the authorized capital
stock of the Company shall consist of 23,000,000 shares par value
$0.01 per share, divided into: (i) 15,000,000 shares of Common
Stock, and (ii) 8,000,000 shares of preferred stock ("Preferred
Stock") of which 1,200,000 shares have been designated Series A
Convertible Preferred Stock ("Series A Preferred Stock"),
3,000,000 shares have been designated Series B Convertible
Preferred Stock ("Series B Preferred Stock"), 2,500,000 shares
have been designated Series C Convertible Preferred Stock
("Series C Preferred Stock") and the remaining 1,300,000 shares
of which shall have such preferences, limitations and relative
rights as may be determined by the Board of Directors pursuant to
Article IV(B) of the Articles. Immediately prior to the Closing,
100% of the outstanding shares of Common Stock of the Company,
100% of the outstanding shares of Series A Convertible Preferred
Stock and 100% of the outstanding shares of Series B Convertible
Preferred Stock are owned by the stockholders and in the amounts
specified in Section 3.3 of the Disclosure Letter and no shares
of Series C Preferred Stock or other Preferred Stock are
outstanding. Except as set forth in Section 3.3 of the Disclosure
Letter, there are outstanding no subscriptions, options,
warrants, calls, commitments or rights (including conversion or
preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to
shares of the Company's capital stock or the instruments that can
be converted into shares of the Company's capital stock to be
issued hereunder. None of the shares of the Company's capital
stock have been issued in violation of any preemptive right.
There are no contractual obligations
4
<PAGE>
of the Company to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company. No bonds, debentures,
notes or other indebtedness having the right to vote (or
convertible into or exercisable for securities having the right
to vote) on any matters on which shareholders of the Company may
vote are issued or outstanding. The Company is not a party to or
subject to any agreement or understanding, and, to the Company's
best knowledge, there is no agreement or understanding between
any persons that affects or relates to the voting or giving of
written consents with respect to any security or the voting by
any director of the Company.
3.4. VALIDLY ISSUED SHARES. The Notes and Warrants to be issued, sold
and delivered in accordance with the terms of this Agreement for
the consideration set out herein, will, upon issuance in
accordance with the terms hereof, be duly and validly issued,
fully paid and nonassessable, free of restrictions on transfer
other than restrictions on transfer under applicable federal and
state securities laws. The issuance of the Notes and Warrants to
Investors pursuant to this Agreement will comply with all
applicable laws, including federal and state securities laws, and
will not violate the preemptive rights of any person. The shares
of Series C Preferred Stock and/or Preferred Stock issuable upon
conversion of the Notes and exercise of the Warrants being
purchased under this Agreement will be, upon issuance and
delivery in accordance with the terms of the Articles of
Incorporation, duly and validly issued, fully paid and
nonassessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Amended and
Restated Shareholders' Agreement dated as of June 16, 1998 by and
among the Company and certain of its shareholders, and under
applicable federal and state securities laws (other than those
created by investors). The issuance of the shares of Common Stock
upon conversion of the Series C Preferred Stock and/or Preferred
Stock will comply with all applicable laws, including federal and
state securities laws (assuming the accuracy of the
representations set forth in Section 4.1 through 4.6 of this
Agreement as of the date of issuance of such shares of Common
Stock), and will not violate the preemptive rights of any person.
The outstanding shares of the Company's Common Stock, Series A
Preferred Stock and Series B Preferred Stock have been duly
authorized and validly issued, are fully paid and nonassessable.
3.5. NO CONFLICT. The execution and delivery of this Agreement and any
Ancillary Agreement do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict
with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation or
the loss of a material benefit under, or the creation of a lien,
pledge, security interest, charge or other encumbrance on assets
(any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation")
pursuant to, any provision of the Company's Articles of
Incorporation or Bylaws, or result in any Violation of any
material lease, agreement, obligation, instrument, permit,
5
<PAGE>
concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company, or
the Company's properties or assets.
3.6. CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. The Company is not
in violation or default of any provision of its Articles of
Incorporation or Bylaws or in any respect of any provision of any
material contract or other items listed on the Disclosure Letter.
3.7. SUBSIDIARIES. Except as set forth in Section 3.7 of the
Disclosure Letter, the Company does not own or control, directly
or indirectly, any interest in any other corporation,
partnership, limited liability company, association or other
business entity. Except as set forth in Section 3.7 of the
Disclosure Letter, the Company is not a participant in any joint
venture, partnership or similar arrangement.
3.8. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign,
or other third party is required by or with respect to the
Company in connection with the execution and delivery of this
Agreement, or the consummation by the Company of the transactions
contemplated hereby, which has not already been obtained, except
for notices of sale required to be filed with the Securities and
Exchange Commission, or such post closing filings as may be
required under applicable state securities laws which will be
timely filed within the applicable periods therefor.
3.9. FINANCIAL STATEMENTS. The Company has delivered to Investors
prior to the date hereof its audited financial statements for the
years ended December 31, 1997 and December 31, 1998, and its
unaudited financial statements (balance sheet and profit and loss
statement) for the Nine (9) month period ended September 30, 1999
(the "Financial Statements"). The Financial Statements, including
any footnotes thereto, were prepared in accordance with generally
accepted accounting principles and fairly present the financial
position and operating results of the Company as of the dates and
for the periods indicated therein. Since September 30, 1999,
there has not been any material adverse change in the assets,
liabilities, financial condition, results of operation or
prospects of the Company.
3.10. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES.
Except as and to the extent reflected and adequately reserved
against in the Financial Statements, and except as set forth in
Section 3.10 of the Disclosure Letter, as of the Closing Date,
the Company has no direct or indirect indebtedness for borrowed
money, indebtedness by way of lease-purchase arrangements,
guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third
party and the Company will not have any liability or obligation
whatsoever, whether accrued, absolute, contingent or otherwise.
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3.11. TITLE TO PROPERTY AND ASSETS; LEASES. Except as set forth in
Section 3.11 of the Disclosure Letter, the Company owns no real
property in fee simple. The Company has good, valid and
marketable title to all the personal and mixed, tangible and
intangible properties and assets which it purports to own, free
and clear of all liens, restrictions, claims, charges, security
interests, easements or other encumbrances of any nature
whatsoever, except for liens for current taxes not yet due and
payable. With respect to the property and assets that it leases,
the Company is in compliance with such leases and, to the
Company's knowledge, holds a valid leasehold interest free and
clear of any liens, claims and encumbrances. All properties and
assets of the Company are in the possession or control of the
Company, and no other person is entitled to possession of any
such properties and assets. The Company is not bound or committed
to make any capital improvement or expenditure with respect to
its owned or leased real or personal property.
3.12. LEGAL PROCEEDINGS. Except as set forth in the Disclosure Letter
or which are not material to the Company, there are no claims of
any kind or any actions, suits, proceedings, arbitrations or
investigations pending or, to the Company's knowledge, threatened
against or affecting the Company or against any asset, interest
or right of the Company or which questions the validity of the
transactions contemplated by this Agreement and the Company knows
of no facts which may constitute a basis therefor.
3.13. ENVIRONMENTAL MATTERS. The Company is not in violation of any
applicable statute, law or regulation relating to the environment
or occupational health and safety (the "Environmental Laws"),
and, to the Company's knowledge, as of the date hereof no
material expenditures are required to be made by the Company in
order to comply with any of the Environmental Laws.
3.14. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as set forth
in Section 3.14 of the Disclosure Letter, the Company holds all
franchises, permits, licenses, variances, exemptions, orders and
approvals of all governmental entities which are material to the
operation of the Company's business and is in compliance with the
terms thereof. The Company has complied with and is not in any
default under (and has not been charged with or received notice
with respect to, nor is threatened with or under investigation
with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation,
ordinance, rule or order (whether executive, judicial,
legislative or administrative) or any order, writ, injunction or
decree of any court, agency or instrumentality and no action,
suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any
of them alleging any failures to comply.
7
<PAGE>
3.15. EMPLOYEE BENEFIT PLANS. Except as set forth in Section 3.15 of
the Disclosure Letter, the Company has no employee benefit plans
including any profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits
to any current or former employee, officer or director of the
Company (collectively "Benefit Plans"), or any employment,
consulting, severance, termination or indemnification agreement,
arrangement or understanding between the Company and any officer,
director or employee of the Company. Each Benefit Plan has been
administered in all material respects in accordance with its
terms and all applicable laws.
3.16. LABOR RELATIONS.
(a) The Company is in compliance in all material respects with
all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and
hours and occupational safety and health;
(b) There is no unfair labor practice charge or complaint or any
other matter against or involving the Company pending or, to
the Company's knowledge, threatened before the National
Labor Relations Board or any court of law;
(c) There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Company's knowledge, threatened
against the Company;
(d) The Company is not a party to or bound by any collective
bargaining agreement or any similar labor union arrangement;
(e) There are no charges, investigations, administrative
proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital
status, race, color, religion, national origin, sexual
preference, disability, handicap or veteran status) pending
or, to the Company's knowledge, threatened, before the Equal
Employment Opportunity Commission or any federal, state or
local agency or court against the Company. There have been
no governmental audits of the equal employment opportunity
practices of the Company and, to the Company's knowledge, no
basis for any such claim exists; and
(f) To the Company's knowledge, the Company is in compliance in
all material respects with the requirements of the Americans
With Disabilities Act.
3.17. INSURANCE. Section 3.17 of the Disclosure Letter sets forth
a list of all insurance policies, including property,
casualty, liability and other insurance maintained with
respect to the assets and business of the Company (the
"Company Insurance"). The Company is not liable for any
material retroactive premium
8
<PAGE>
adjustments with respect to any of its insurance policies or
bonds. All such policies and bonds are legal, valid and
enforceable and in full force and effect and the Company is
not in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has
occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination,
modification or acceleration under the policy. Nor has the
Company received any notice of premium increases or
cancellations with respect to any of such policies and bonds.
The Company believes the amount and type of the Company
Insurance coverage is adequate for the Company's business and
is consistent with good business practice.
3.18. TAX MATTERS. The Company has timely filed or caused to be filed
all federal, state, foreign and local income, franchise, gross
receipts, payroll, sales, use, withholding, occupancy, excise,
real and personal property, employment and other tax returns, tax
information returns and reports ("Tax Returns") required to be
filed and all such Tax Returns were correct and complete in all
respects. The Company has paid, or made adequate provisions for
the payment of, all taxes, duties or assessments of any nature
whatsoever, interest payments, penalties and additions (whether
or not reflected in the returns as filed) due and payable (and/or
properly accruable for all periods ending on or before the date
of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority. There are no
security interests on any of the assets of the Company that arise
in connection with any failure (or alleged failure) to pay any
tax. The Company has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder or
other third party. No deficiencies for any taxes have been
proposed, asserted or assessed against the Company that are not
adequately reserved for.
3.19. PATENTS AND TRADEMARKS. The Company owns or possesses sufficient
legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information, and
proprietary rights and processes necessary for its business as
now conducted and as proposed to be conducted without any
conflict with, or infringement of the rights of, others. Except
for agreements with its own employees or consultants and standard
end-user license agreements, if any, there are no outstanding
options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, and proprietary rights and
processes of any other person or entity. The Company has not
received any communications alleging that the Company has
violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, or other proprietary rights or
processes of any other person or entity. The Company is not aware
that any of its employees is obligated under any contract
(including licenses, covenants, or commitments of
9
<PAGE>
any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to
promote the interests of the Company or that would conflict with
the Company's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of
the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the
Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any of
such employees is now obligated. The Company does not believe it
is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to
their employment by the Company. Each independent contractor,
employee and/or officer of the Company who or which has
contributed to the development of the Computer Software (as
defined below) has executed proprietary
information/confidentiality agreements.
3.20. RELATED-PARTY TRANSACTIONS. Except as set forth in Section 3.20
of the Disclosure Letter, no employee, officer, or director of
the Company, or member of his or her immediate family is indebted
to the Company, nor is the Company indebted (or committed to make
loans or extend or guarantee credit) to any of them. To the
Company's knowledge, none of such persons has any direct or
indirect ownership interest in any firm or corporation with which
the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes
with the Company, except that employees, officers, or directors
of the Company, and members of their immediate families may own
stock in publicly traded companies that may compete with the
Company. Except as set forth in Section 3.20 of the Disclosure
Letter, no employee, officer or director of the Company, or, to
the Company's knowledge, any member of their immediate families
is, directly or indirectly, interested in any material contract
with the Company. For purposes of this Agreement, the Company
shall be deemed to have knowledge of a fact, event, condition,
matter or situation if any of the Company's officers or directors
are consciously aware of such fact, event, condition, matter or
situation, as appropriate.
3.21. SOFTWARE PRODUCTS. The Company has received no customer
complaints concerning alleged defects in its computer appraisal
software products, including, without limitation, Value Express
(collectively, the "Computer Software") that, if true, would
materially adversely affect the operations or financial condition
of the Company.
3.22. BROKERS' AND FINDERS' FEES. The Company has not employed any
broker, finder or financial advisor or incurred any liability for
fees or commissions payable to any broker, finder or financial
advisor in connection with the negotiations relating to or the
transactions contemplated by this Agreement.
10
<PAGE>
3.23. QUALIFIED SMALL BUSINESS STOCK.. As of and immediately following
the Closing, the shares of Series C Preferred Stock issuable upon
conversion of the Notes and exercise of the Warrants will meet
each of the requirements for qualification as "qualified small
business stock" set forth in Section 1202(c) of the Code,
including without limitation the following: (i) the Company will
be a domestic C Corporation; (ii) the Company will not have made
any purchases of its own stock described in Code Section
1202(c)(3)(B) during the one year period preceding the Closing;
(iii) the Company's (and any predecessor's) aggregate gross
asses, as defined by Code Section 1202(d)(2), at no time between
August 1, 1997 and through the Initial Closing have exceeded or
will exceed Fifty Million Dollars ($50,000,000), taking into
account the assets of any corporation required to be aggregated
with the Company in accordance with Code Section 202(d)(3); (iv)
as of the Closing, at least eighty percent (80%) (by value) of
the assets of the Company will, by virtue of Code Section
1202(e)(6), be considered to be used by it in the active conduct
of one or more qualified trades or businesses, as defined by Code
Section 1202(e)(3); and (v) the Company is an eligible
corporation, as defined by Code Section 1202(e)(4).
3.24. MATERIAL FACTS. The Company has provided each Investor with all
the information reasonably available to it that such Investor has
requested for deciding whether to purchase the Notes and
Warrants. This Agreement and the documents or written statements
furnished by the Company to Investors in connection with the
transactions contemplated hereby do not contain any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not
misleading.
4. INVESTMENT REPRESENTATIONS. Each Investor hereby represents and
warrants to the Company, severally and not jointly, as of the date
hereof, as follows:
4.1. It is acquiring the Note and Warrants for its own account, not as
nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering of
the Note, Warrants, or Warrant Shares within the meaning of the
1933 Act.
4.2. It understands that (i) the Note, Warrants, and Warrant Shares
have not been registered under the 1933 Act by reason of a
specific exemption therefrom, that they must be held by it
indefinitely, and that Investor must, therefore, bear the
economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the 1933 Act
or is exempt from such registration; and (ii) the Note, Warrants,
and each certificate representing the Warrant Shares will be
endorsed with the following legends, as applicable:
THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES
11
<PAGE>
LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH
ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL SATISFACTORY TO
PAYOR THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN AMENDED
AND RESTATED SHAREHOLDERS' AGREEMENT
DATED JUNE 16, 1998 BY AND BETWEEN PRIMIS,
INC. AND CERTAIN OF ITS SHAREHOLDERS.
4.3. It has been furnished with such materials and has been given
access to such information relating to the Company as it or its
qualified representative has requested and it has been afforded
the opportunity to ask questions regarding the Company, the
Notes, and the Warrants, all as it has found necessary to make an
informed investment decision.
4.4. It is experienced in evaluating and investing in private
placement transactions of securities of companies in a similar
stage or development and acknowledges that it is able to fend for
itself, can bear the economic risk of such its investment, and
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of
the investment in the Notes and Warrants.
4.5. If it is a corporation, partnership, trust, or other entity, it
was not formed for the specific purpose of acquiring the Notes or
Warrants offered hereunder.
4.6. It is an "accredited investor" as provided under the 1933 Act and
regulations adopted thereunder and is a resident of the state
listed on SCHEDULE 1 hereto; and all information supplied by it
to the Company with respect to his or its purchase of the Notes
and Warrants has been and shall be true, complete, and accurate.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement by any party to this Agreement
and any certificate or other instrument delivered by or on behalf of
any party pursuant to this Agreement shall be continuous and shall
survive the Closing and the issuance of all shares of the Company's
capital stock. Each party shall have the right to rely on each other
party's representations and warranties made herein, notwithstanding any
investigation conducted by such party.
12
<PAGE>
6. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees as
follows:
6.1. USE OF PROCEEDS. The proceeds from the sale of the Notes and
Warrants pursuant to this Agreement shall be used by the Company
for working capital, to make acquisitions and for other corporate
purposes.
6.2. FINANCIAL REPORTING. Subject to Section 6.3, the Company shall
furnish to the Investors:
(a) an audited balance sheet and statements of income and cash
flow within ninety (90) days after the end of each fiscal
year, together with comparative figures for the last
preceding fiscal year prepared by a firm of certified public
accountants acceptable from time to time to a majority in
interest of the outstanding Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Common Stock
of the Company voting together as a single class on an as if
converted basis;
(b) as soon as available, and in any event within thirty (30)
days after the close of each calendar month, an unaudited
balance sheet and statement of income and cash flows for
such month, together with comparative figures for both the
month just ended and the portion of the fiscal year then
ended, and a written one or two page monthly summary of the
Company's operations. Such financial statements shall be
prepared in accordance with generally accepted accounting
principles consistently applied (subject to audit and
year-end adjustments) by the principal financial or
accounting officer of the Company;
(c) as soon as available, and in any event within thirty (30)
days before the close of each fiscal year, a business plan
and projections for the Company's next fiscal year; and
(d) such additional information with respect to the Company's
financial condition as may be reasonably requested by the
Investors.
6.3. TERMINATION OF COVENANTS. The covenants set forth in Section 6.2
shall terminate and be of no further force or effect at such time
as the Company is required to file reports pursuant to Sections
13 or 15(d) of the Securities Exchange Act of 1934.
6.4. RESERVATION OF SHARES. On and after the Closing Date, the Company
will reserve and keep reserved at all times sufficient shares of
Series C Preferred Stock and/or Preferred Stock for issuance upon
conversion of the Notes and Warrants (and a correspondingly
sufficient number of shares of Common Stock for issuance upon
conversion of such Series C Preferred Stock and/or Preferred
Stock). Immediately prior to the occurrence of any event that
would cause the number of shares of Series C Preferred Stock
and/or Preferred Stock or type of securities into which the Notes
and Warrants would be convertible, to be adjusted, the Company
shall take any and all actions necessary to permit such
conversion or exercise. Upon
13
<PAGE>
conversion of the Notes and/or exercise of the Warrants, the
Company will promptly issue and deliver the shares of Series C
Preferred Stock and/or Preferred Stock required to be delivered.
Upon conversion of such Series C Preferred Stock and/or Preferred
Stock, the Company will promptly issue and deliver the shares of
Common Stock in accordance with the Amended and Restated Articles
of Incorporation of the Company.
7. MISCELLANEOUS.
7.1. CONSTRUCTION; GOVERNING LAW. The section headings contained in
this Agreement are inserted as a matter of convenience and shall
not affect in any way the construction of the terms of this
Agreement. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Georgia.
7.2. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement
by or on behalf of any of the parties to this Agreement shall
bind and inure to the benefit of their respective heirs,
executors, successors, and assigns, whether so expressed or not.
Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto and their
respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
This Agreement is not assignable and any purported assignment
shall be null and void.
7.3. ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Disclosure Letter and the other documents delivered
pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof
and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein.
7.4. SEPARABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any Investor of any one or more of
the provisions of this Agreement, or any part thereof, whether
arising by reason of the law of any such Investor's domicile or
otherwise, shall in no way affect or impair the validity,
legality, or enforceability of this Agreement with respect to
other Investors. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
7.5. AMENDMENT AND WAIVER. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived
with the written consent of the Company and the Investors of more
than two-thirds of the outstanding principal amount of the Notes.
Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including
securities into which such
14
<PAGE>
securities have been converted), each future holder of all such
securities, and the Company.
7.6. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall
be mailed by first class, registered, or certified mail, postage
prepaid, or sent via overnight courier service, or delivered
personally:
If to Investors to the address set forth opposite their name on
SCHEDULE 1 hereto.
If to the Company to: Primis, Inc.
Suite 320
11475 Great Oaks Way
Alpharetta, GA 30022
Attn: C. James Schaper,
President and CEO
or to such other address of which the addressee shall have
notified the sender in writing. Notices mailed in accordance with
this section shall be deemed given when mailed, and notices sent
by overnight courier service shall be deemed given when placed in
the hands of a representative of such service.
7.7. ATTORNEY'S FEES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement or any
Ancillary Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and disbursements in addition
to any other relief to which such party may be entitled.
7.8. PUBLIC STATEMENTS. Neither the Company nor Investors shall,
without the prior written approval of the other parties hereto,
make any press release or other public announcement concerning
the transactions contemplated by this Agreement. Investors and
the Company may disclose information with respect to the
transaction contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such
persons have a need to know such information.
7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one instrument.
7.10. RIGHTS OF INVESTORS. Each holder of Notes and Warrants shall
have the absolute right to exercise or refrain from exercising
any right or rights that such holder may have by reason of this
Agreement or any Notes and Warrants, including without limitation
the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into an agreement with
the Company for the purpose of modifying this Agreement or any
agreement effecting any such
15
<PAGE>
modification, and such holder shall not incur any liability to
any other holder or holders of capital stock of the Company with
respect to exercising or refraining from exercising any such
right or rights.
7.11. EXCULPATION AMONG INVESTORS. Each Investor acknowledges that he
is not relying upon any person, firm, or corporation, other than
the Company and its current officers and directors, in making its
investment or decision to invest in the Company. Each Investor
agrees that no other Investor nor the respective agents of any
other Investor shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in
connection with the Notes and Warrants.
[COUNTERPART SIGNATURE PAGES TO FOLLOW]
16
<PAGE>
IN WITNESS WHEREOF, the Company has caused this counterpart signature
page to this Convertible Promissory Note and Warrant Purchase Agreement to be
signed by its duly authorized officer.
"THE COMPANY"
PRIMIS, INC.
By:______________________________
C. James Schaper, President and CEO
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
____________________________________
J. David Grissom
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
WINDCREST PARTNERS
By:_________________________________
Title:_________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
RICHLAND VENTURES II, L.P.
By:_________________________________
Title:_________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
SOUTH ATLANTIC PRIVATE EQUITY
FUND IV, LIMITED PARTNERSHIP
By: South Atlantic Private Equity
Partners, Limited Partnership, Its
General Partner
By:_________________________________
Its General Partner
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
SOUTH ATLANTIC PRIVATE EQUITY
FUND IV (Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity Partners,
Limited Partnership, Its General Partner
By: _________________________________
Its General Partner
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Its Trading
Advisor
By:_______________________________________
Title: _____________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, LLC, Its General Partner
By:_______________________________________
Title: _____________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By: Chrysalis Ventures, LLC, Its
Manager
By: ________________________________
David A. Jones, Jr., Manager
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
JG FUNDING, LLC
By: Chrysalis Ventures, LLC, Its Manager
By:_______________________________________
David A. Jones, Jr., Manager
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
_______________________________________
W. Patrick Ortale, III
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
_______________________________________
Jack Tyrrell
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
<TABLE>
<CAPTION>
Schedule 1
INVESTOR NAME AND ADDRESS PRINCIPAL AMOUNT OF NOTE
<S> <C>
J. David Grissom $2,239,391
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Windcrest Partners $1,197,118
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P. $1,969,759
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
South Atlantic Private Equity Fund IV $827,299
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
South Atlantic Private Equity Fund IV $1,142,460
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
Moore Global Investments, Ltd. $1,575,807
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Remington Investments Strategies, L.P. $393,952
1251 Avenue of the Americas
New York, NY 10020
J.G. Funding, LLC $ 500,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Jack Tyrrell
c/o Richland Ventures II, L.P. $103,596
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
W. Patrick Ortale, III
c/o Richland Ventures II, L.P. $51,797
3100 West End Avenue
Suite 400
Nashville, TN 37203-1304
Sheila J. Benson $10,000
2700 Highway 280E
Suite 60
Birmingham, Alabama 35243
</TABLE>
<PAGE>
EXHIBIT A
Amended and Restated Articles of Incorporation
<PAGE>
EXHIBIT B
Form of Convertible Promissory Note
<PAGE>
EXHIBIT C
Form of Warrant
<PAGE>
EXHIBIT 10.20
AGREEMENT AND PLAN OF REORGANIZATION
by and among
INSPECTECH CORPORATION,
PRIMIS, INC.
and
PRIMIS ACQUISITION CORP.
January 7, 2000
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is
made and entered into as of the 7th day of January, 2000, by and among
INSPECTECH CORPORATION, a California corporation ("InspecTech"), PRIMIS, INC., a
Georgia corporation ("Primis") and PRIMIS ACQUISITION CORP., a Delaware
corporation ("Acquisition Corp").
WITNESSETH:
PREAMBLE
The Boards of Directors of InspecTech, Primis and Acquisition
Corp are of the opinion that the transactions described herein are in the best
interests of the parties to this Agreement and their respective stockholders.
This Agreement provides for the acquisition of InspecTech by Primis pursuant to
the merger (the "Merger") of InspecTech with and into Acquisition Corp, a
wholly-owned subsidiary of Primis. At the Effective Time of the Merger (as
defined herein), the outstanding shares of capital stock of InspecTech shall be
converted into cash and shares of common stock of Primis as provided herein. As
a result, certain stockholders of InspecTech shall become stockholders of Primis
and InspecTech shall operate as a wholly-owned subsidiary of Primis. The
transactions described in this Agreement are subject to the approval of the
stockholders of InspecTech and the satisfaction of certain other conditions
described in this Agreement. It is the intention of the parties to this
Agreement that the Merger for federal income tax purposes shall qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
Certain terms used in this Agreement are defined in Section 13
of this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants, and agreements set forth herein, the
parties agree as follows:
1. TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, InspecTech shall be merged with and into
Acquisition Corp in accordance with the provisions of Section 252 of the DGCL
and with the effect provided in Section 259 of the DGCL and in accordance with
Section 1108 of the CGCL and with the effect provided in Section 1107 of the
CGCL. Acquisition Corp shall be the Surviving Corporation resulting from the
Merger and shall continue to be governed by the laws of the State of Delaware.
The Merger shall be consummated pursuant to the terms of this Agreement, which
has been approved and adopted by the Board of Directors of InspecTech and has
been or will be approved and adopted by the Board of Directors of Primis prior
to the Effective Time, and the Plan of Merger, in substantially the form of
EXHIBIT 1, which has been approved and adopted by the Board of Directors of
InspecTech and will be approved and adopted by the Board of Directors of
Acquisition Corp prior to the Effective Time.
<PAGE>
1.2 TIME AND PLACE OF CLOSING. The consummation of the Merger
(the "Closing") shall take place at 9:00 A.M., P.S.T., on the date that the
Effective Time occurs or at such other time as the parties, acting through their
duly authorized officers, may mutually agree. The place of Closing shall be at
such location as may be mutually agreed upon by the parties.
1.3 EFFECTIVE TIME. The Merger and the other transactions
contemplated by this Agreement shall become effective on the date and at the
time the Certificate of Merger shall become effective with the Secretary of
State of the State of Delaware (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the duly
authorized officers of each party, the parties shall use their reasonable best
efforts to cause the Effective Time to occur on or before January __, 2000.
2. TERMS OF MERGER
2.1 CHARTER. The Certificate of Incorporation of Acquisition
Corp in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation of the Surviving Corporation after the Effective Time until
otherwise amended or repealed.
2.2 BYLAWS. The Bylaws of Acquisition Corp in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation after the Effective Time until otherwise amended or repealed.
2.3 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The
directors and officers of InspecTech shall deliver their resignations effective
as of the Effective Time. The directors of Acquisition Corp in office
immediately prior to the Effective Time, together with such additional
individuals thereafter elected, shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation. The officers of Acquisition Corp in office
immediately prior to the Effective Time, together with such additional
individuals thereafter elected, shall serve as the officers of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws of
the Surviving Corporation.
3. MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article 3, at the Effective Time, by virtue of the Merger and without any action
on the part of Primis, Acquisition Corp or InspecTech, or the stockholders of
any of the foregoing, the shares of the constituent corporations to the Merger
shall be converted as follows:
[a] Each share of Primis Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding from and after the Effective Time.
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<PAGE>
[b] Each share of Acquisition Corp Common Stock
issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding from and after the Effective Time.
[c] Each share of InspecTech Common Stock issued and
outstanding at the Effective Time shall be converted into cash in an
amount equal to the InspecTech Value Per Share (as defined herein),
without interest (the "Common Stock Exchange Ratio").
[d] Each share of InspecTech Preferred Stock issued
and outstanding immediately prior to the Effective Time shall be
converted into .09938 share of Primis Common Stock, subject to
adjustment as provided in this Section 3.1 (the "Preferred Stock
Exchange Ratio").
Unless adjusted as provided in this Section 3.1, the InspecTech Value
Per Share shall equal $1.521, determined by dividing $12,168,068 (the "Aggregate
Merger Consideration") by 7,999,199, which is equal to the number of shares of
InspecTech Capital Stock issued and outstanding as of the date hereof and the
number of shares of InspecTech Capital Stock reserved for issuance as of the
date hereof with respect to outstanding options and warrants to purchase
InspecTech Capital Stock. If the "Closing Date Shareholders' Equity", as defined
herein, exceeds $1,000,000, the InspecTech Value Per Share and the Preferred
Stock Exchange Ratio shall be adjusted as follows: the InspecTech Value Per
Share shall equal the quotient obtained by dividing (a) $12,168,068, plus the
amount by which the Closing Date Shareholders' Equity exceeds $715,227, by (b)
7,999,199, and the Preferred Stock Exchange Ratio shall be determined by
dividing the InspecTech Value Per Share, as so adjusted, by $15.307. If the
Closing Date Shareholders' Equity is less than $500,000, the InspecTech Value
Per Share and the Preferred Stock Exchange Ratio shall be adjusted as follows:
the InspecTech Value Per Share shall equal the quotient obtained by dividing (x)
$12,168,068, less the amount by which the Closing Date Shareholders' Equity is
less than $715,227 by (y) 7,999,199, and the Preferred Stock Exchange Ratio
shall be determined by dividing the InspecTech Value Per Share, as so adjusted,
by $15.307.
For purposes of this Section 3, "Closing Date Balance Sheet" shall mean
InspecTech's unaudited consolidated balance sheet as of the Closing Date
prepared and delivered by InspecTech to Primis at the Closing. The Closing Date
Balance Sheet shall be prepared in accordance with GAAP applied on a basis
consistent with InspecTech's historical financial statements. InspecTech and its
accountants shall consult with Primis and its accountants in connection with the
preparation of the Closing Date Balance Sheet. The President and Chief Financial
Officer of InspecTech shall deliver to Primis a certificate to the effect that
the Closing Date Balance Sheet was prepared on the basis described above.
"Closing Date Shareholders' Equity" shall mean the consolidated shareholders'
equity of InspecTech as reflected on the Closing Date Balance Sheet.
Notwithstanding the foregoing, for purposes of calculating the Closing Date
Balance Sheet, the promissory notes to be purchased by Primis pursuant to the
Note Purchase Agreement referenced in Section 10.2[i] of this Agreement shall be
ignored.
3
<PAGE>
3.2 ANTI-DILUTION PROVISIONS. In the event Primis changes the
number of shares of Primis Capital Stock issued and outstanding prior to the
Effective Time as a result of a stock split, stock dividend, recapitalization,
or similar transaction with respect to such stock and the record date therefor
(in the case of a stock dividend) or the effective date thereof (in the case of
a stock split or similar recapitalization for which a record date is not
established) shall be prior to the Effective Time, the Common Stock Exchange
Ratio and the Preferred Stock Exchange Ratio shall be proportionately adjusted.
3.3 SHARES HELD BY INSPECTECH. Each of the shares of
InspecTech Common Stock issued but not outstanding shall be canceled and retired
at the Effective Time and no consideration shall be issued in exchange therefor.
3.4 SHARES HELD BY PRIMIS. Notwithstanding anything contained
in this Section 3, each of the shares of InspecTech Capital Stock owned by
Primis shall be canceled and retired at the Effective Time and no consideration
shall be issued in exchange therefor.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of
this Agreement, each holder of shares of InspecTech Preferred Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of Primis Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
Primis Common Stock multiplied by the InspecTech Value Per Share. No such holder
will be entitled to dividends, voting rights, or any other rights as a
stockholder in respect of any fractional shares.
3.6 CONVERSION OF STOCK OPTIONS.
[a] At the Effective Time, each option to purchase or
acquire shares of InspecTech Common Stock ("InspecTech Rights") granted
by InspecTech pursuant to each InspecTech Stock Plan which is
outstanding at the Effective Time, whether or not exercisable, shall
not terminate but shall be converted into and become rights with
respect to Primis Common Stock, and Primis or Acquisition Corp shall
assume each InspecTech Right, in accordance with the terms of the
InspecTech Stock Plan and stock option agreement by which it is
evidenced, except that from and after the Effective Time, (i) Primis
and its Compensation Committee (or Board of Directors if no
Compensation Committee shall exist) shall be substituted for InspecTech
and the committee of InspecTech's Board of Directors (including, if
applicable, the entire Board of Directors of InspecTech) administering
such InspecTech Stock Plan, (ii) each InspecTech Right assumed by
Primis may be exercised solely for shares of Primis Common Stock, (iii)
the number of shares of Primis Common Stock subject to such InspecTech
Right shall be equal to the number of shares of InspecTech Common Stock
subject to such InspecTech Right immediately prior to the Effective
Time multiplied by the Preferred Stock Exchange Ratio and rounded down
to the nearest whole share, and (iv) the per share exercise price under
each such InspecTech Right shall be adjusted by dividing the per share
exercise price under each such InspecTech Right by the Preferred Stock
Exchange Ratio and rounding up to the nearest cent. Notwithstanding the
4
<PAGE>
provisions of clauses (iii) and (iv) of the first sentence of this
Section 3.6, each InspecTech Right which is an "incentive stock option"
shall be adjusted as required by Section 424 of the Internal Revenue
Code, so as not to constitute a modification, extension or renewal of
the option, within the meaning of Section 424(h) of the Internal
Revenue Code. Primis and Acquisition Corp agree to take all necessary
steps to effectuate the foregoing provisions of this Section 3.6.
[b] At or prior to the Effective Time, Primis shall
take all corporate action necessary to reserve for issuance sufficient
shares of Primis Common Stock for delivery upon exercise of InspecTech
Rights assumed by it in accordance with this Section 3.6.
[c] All restrictions or limitations on transfer with
respect to InspecTech Common Stock awarded under the InspecTech Stock
Plan or any other plan, program or arrangement of InspecTech, to the
extent that such restrictions or limitations shall not have already
lapsed, and except as otherwise expressly provided in such plan,
program or arrangement, shall remain in full force and effect with
respect to shares of Primis Common Stock into which such stock is
converted pursuant to Section 3.6.
3.7 CONVERSION OF WARRANTS.
[a] At the Effective Time, each option to purchase or
acquire shares of InspecTech Common Stock pursuant to the InspecTech
Warrants, which is outstanding at the Effective Time, whether or not
exercisable, shall not terminate but shall be converted into and become
a warrant to purchase shares of Primis Common Stock, and Primis shall
assume each InspecTech Warrant, in accordance with the terms thereof by
which it is evidenced, except that from and after the Effective Time,
(i) each InspecTech Warrant assumed by Primis may be exercised solely
for shares of Primis Common Stock, (ii) the number of shares of Primis
Common Stock subject to such InspecTech Warrant shall be equal to the
number of shares of InspecTech Common Stock subject to such InspecTech
Warrant immediately prior to the Effective Time multiplied by the
Preferred Stock Exchange Ratio and rounded down to the nearest whole
share, and (iv) the per share exercise price under each such InspecTech
Warrant shall be adjusted by dividing the per share exercise price
under each such InspecTech Warrant by the Exchange Ratio and rounding
up to the nearest cent.
[b] At or prior to the Effective Time, Primis shall
take all corporate action necessary to reserve for issuance sufficient
shares of Primis Common Stock for delivery upon exercise of InspecTech
Warrants assumed by it in accordance with this Section 3.6.
3.8 FURTHER ASSURANCES. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
InspecTech, or (b) otherwise to carry out the purposes of this Agreement, the
Surviving Corporation and its proper officers and directors or their
5
<PAGE>
designees shall be authorized to execute and deliver, in the name and on behalf
of InspecTech, all such deeds, bills of sale, assignments and assurances and to
do, in the name and on behalf of InspecTech, all such other acts and things as
may be necessary, desirable or proper to vest, perfect or confirm the Surviving
Corporation's right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of InspecTech and otherwise
to carry out the purposes of this Agreement.
4. EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time,
Primis shall cause to be mailed to the former stockholders of InspecTech
appropriate transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing shares of InspecTech Capital Stock shall pass, only upon proper
delivery of such certificates to Primis). After the Effective Time, each holder
of shares of InspecTech Capital Stock issued and outstanding at the Effective
Time shall surrender the certificate or certificates representing such shares to
Primis and shall promptly upon surrender thereof receive in exchange therefor
the consideration provided in Article 3 of this Agreement. Subject to Section
7.2 of this Agreement, to the extent required by Section 3.5 of this Agreement,
each holder of shares of InspecTech Capital Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
Primis Common Stock to which such holder may be otherwise entitled. No interest
shall accrue or be paid on the cash payable, if any, on the surrender of a
certificate. Primis shall not be obligated to deliver the consideration to which
any former holder of InspecTech Capital Stock is entitled as a result of the
Merger until such holder surrenders such holder's certificate or certificates
representing the shares of InspecTech Capital Stock for exchange as provided in
this Section 4.1. The certificate or certificates of InspecTech Capital Stock so
surrendered shall be duly endorsed as Primis may require. Any other provision of
this Agreement notwithstanding, neither the Surviving Corporation nor Primis
shall be liable to a holder of InspecTech Capital Stock for any amounts paid or
property delivered in good faith to a public official pursuant to any applicable
abandoned property Law.
4.2 RIGHTS OF FORMER INSPECTECH STOCKHOLDERS. At the Effective
Time, the stock transfer books of InspecTech shall be closed as to holders of
InspecTech Capital Stock immediately prior to the Effective Time and no transfer
of InspecTech Capital Stock by any such holder shall thereafter be made or
recognized. Until surrendered for exchange in accordance with the provisions of
Section 4.1 of this Agreement, each certificate theretofore representing shares
of InspecTech Capital Stock shall from and after the Effective Time represent
for all purposes only the right to receive the consideration provided in Article
3 of this Agreement in exchange therefor. To the extent permitted by law, former
holders of record of InspecTech Preferred Stock shall be entitled to vote after
the Effective Time at any meeting of Primis stockholders the number of whole
shares of Primis Common Stock into which their respective shares of InspecTech
Preferred Stock are converted, regardless of whether such holders have exchanged
their certificates representing InspecTech Preferred Stock for certificates
representing Primis Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by Primis on
the Primis Common Stock, the record date for which is at or after the Effective
Time, the declaration shall
6
<PAGE>
include dividends or other distributions on all shares issuable pursuant to this
Agreement, but beginning 30 days after the Effective Time no dividend or other
distribution payable to the holders of record of Primis Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of InspecTech Preferred Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 4.1 of this Agreement. However, upon
surrender of such InspecTech Preferred Stock certificate, both the Primis Common
Stock certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered dividends and cash payments
to be paid for fractional share interests (without interest) shall be delivered
and paid with respect to each share represented by such certificate.
4.3 LOST CERTIFICATES. If any certificate for shares of
InspecTech Capital Stock shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate to
be lost, stolen or destroyed, Primis will issue in exchange for such lost,
stolen or destroyed certificate the cash, shares of Primis Common Stock, and any
cash in lieu of fractional shares of Primis Common Stock to which the holder
thereof is entitled pursuant to Section 3.1.
5. REPRESENTATIONS AND WARRANTIES OF INSPECTECH. InspecTech represents
and warrants to Primis as follows:
5.1 CORPORATE STANDING. InspecTech is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California. InspecTech has all requisite power and authority to: (i) own, lease
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted; and (ii) to execute, deliver and
perform this Agreement, the Plan of Merger and any other agreement to which
InspecTech is a party, the execution and delivery of which is contemplated
hereby or thereby. Each InspecTech Subsidiary listed in Section 5.6 of the
InspecTech Disclosure Letter is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Each InspecTech Subsidiary has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted. InspecTech and each InspecTech
Subsidiary is duly qualified and is authorized to transact business and is in
good standing as foreign corporation in each jurisdiction in which the failure
to so qualify would have a material adverse effect on its business, properties,
prospects or financial condition. InspecTech has delivered to Primis true and
complete copies of the Articles of Incorporation and Bylaws, and all amendments
thereto, of InspecTech and the InspecTech Subsidiaries.
5.2 AUTHORIZATION; BINDING AGREEMENT. The execution and
delivery of this Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of InspecTech. This Agreement and the
Plan of Merger have been duly executed and delivered by InspecTech and
constitute the legal, valid and binding obligations of InspecTech enforceable
against it in accordance with its terms except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors rights
7
<PAGE>
generally or (ii) general principles of equity (regardless of whether an
enforceability is considered in a proceeding at law or in equity).
5.3 CAPITALIZATION. Immediately prior to the Closing, the
authorized capital stock of InspecTech consists of (i) 30,000,000 shares of
Common Stock, no par value, of which 2,532,623 shares are validly issued and
outstanding, fully paid and nonassessable and owned, beneficially and of record,
as set forth in Section 5.3 of the InspecTech Disclosure Letter, and (ii)
10,000,000 shares of InspecTech Preferred Stock, no par value, of which
4,454,546 shares are designated Series A1 Preferred Stock and 3,991,828 are
validly issued and outstanding, fully paid and nonassessable and owned,
beneficially and of record, as set forth in Section 5.3 of the InspecTech
Disclosure Letter. The authorized, issued and outstanding shares of capital
stock of each InspecTech Subsidiary are as set forth in Section 5.3 of the
InspecTech Disclosure Letter. All of such issued and outstanding shares of
capital stock of each InspecTech Subsidiary are validly issued and outstanding,
fully paid and nonassessable and owned, beneficially and of record, by
InspecTech free and clear of all liens, claims, and encumbrances. Except as set
forth in Section 5.3 of the InspecTech Disclosure Letter, there are outstanding
no subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to shares of
InspecTech's or any InspecTech Subsidiary's capital stock or any instruments
that can be converted into or exchanged for shares of InspecTech's or any
InspecTech Subsidiary's capital stock. None of the shares of InspecTech's or any
InspecTech Subsidiary's capital stock have been issued in violation of any
preemptive right. All issuances, sales, redemptions, transfers or purchases of
the capital stock of InspecTech and each InspecTech Subsidiary and any
involvement in any transfer of any such stock by InspecTech or any InspecTech
Subsidiary have been in compliance with all applicable agreements and all
applicable laws, including federal and state securities laws, and all taxes
thereon, if any, have been paid. Except as set forth in Section 5.3 of the
InspecTech Disclosure Letter, there are no contractual obligations of InspecTech
to repurchase, redeem or otherwise acquire any shares of capital stock of
InspecTech or any InspecTech Subsidiary. No bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any matters on which shareholders of
InspecTech may vote are issued or outstanding. Except as set forth in Section
5.3 of the InspecTech Disclosure Letter, neither InspecTech nor any InspecTech
Subsidiary is a party or subject to any agreement or understanding, and, to
InspecTech's best knowledge, there is no agreement or understanding between any
persons that affects or relates to the voting or giving of written consents with
respect to any security or the voting by any director of InspecTech or any
InspecTech Subsidiary.
5.4 NO CONFLICT. The execution and delivery of this Agreement
and the Plan of Merger does not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of,
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of
InspecTech's Articles of Incorporation or Bylaws, or the Articles of
Incorporation or bylaws of any InspecTech Subsidiary,
8
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or, except as set forth in Section 5.4 of the InspecTech Disclosure Letter,
result in any Violation of any material lease, agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to InspecTech or any
InspecTech Subsidiary or InspecTech's or any InspecTech Subsidiary's properties
or Assets.
5.5 CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Section 5.5
of the InspecTech Disclosure Letter sets forth each material contract,
agreement, lease, loan, commitment and proposed transaction to which InspecTech
or any InspecTech Subsidiary is a party or is bound or which InspecTech or any
InspecTech Subsidiary is seeking to be bound (the "Contracts"). Neither
InspecTech nor any InspecTech Subsidiary is bound by any judgment, order, writ
or decree. Except as set forth in Section 5.5 of the InspecTech Disclosure
Letter, no event or condition has occurred or exists, or, to the knowledge of
InspecTech, is alleged by any of the other parties thereto to have occurred or
existed, which constitutes, or with lapse of time or giving of notice or both
might constitute, a default or breach under any Contract. InspecTech is not in
violation or default of any provision of its Articles of Incorporation or
Bylaws, no InspecTech Subsidiary is in violation or default of any provision of
its articles of incorporation or bylaws, and except as set forth in Section 5.5,
neither InspecTech nor any InspecTech Subsidiary is in violation or default in
any respect of any material provision of any Contract.
5.6 SUBSIDIARIES. Except as set forth in Section 5.6 of the
InspecTech Disclosure Letter, InspecTech does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Neither InspecTech nor
any InspecTech Subsidiary is a participant in any joint venture, partnership or
similar arrangement.
5.7 CONSENTS. Except as set forth in Section 5.7 of the
InspecTech Disclosure Letter, no consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to InspecTech in connection with the execution and delivery of this
Agreement or the Plan of Merger, or the consummation by InspecTech of the
transactions contemplated hereby and thereby, which has not already been
obtained.
5.8 FINANCIAL STATEMENTS. InspecTech's audited consolidated
balance sheet as of December 31, 1998, and the related audited consolidated
statement of income for the year then ended and its unaudited balance sheet as
of September 30, 1999 and the related unaudited statement of income for the nine
months then ended (the "Financial Statements"), are attached to the InspecTech
Disclosure Letter. The Financial Statements were prepared in accordance with
GAAP (except for the omission of footnotes and other required schedules and
information and year end accruals which are immaterial, in the aggregate, in
amount). The balance sheets included in such Financial Statements fairly present
the financial condition of InspecTech and its Subsidiaries as of their
respective dates and the statements of income included in such Financial
Statements fairly present the results of operations of InspecTech and the
InspecTech Subsidiaries for the periods then ended. None of InspecTech or any of
the InspecTech Subsidiaries has any liabilities or obligations of any
9
<PAGE>
nature, whether absolute, accrued, contingent or otherwise, which are not fully
reflected or reserved against in the Financial Statements, except for
liabilities that may have arisen in the ordinary course of business and that are
not required by GAAP to be included in the Financial Statements.
5.9 INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as set forth in the Financial Statements, neither InspecTech
nor any InspecTech Subsidiary has any direct or indirect indebtedness for
borrowed money, indebtedness by way of lease-purchase arrangements, guarantees,
chattel mortgages or other security arrangements with any bank, financial
institution or other third party. Except as and to the extent reflected and
adequately reserved against in the Financial Statements or incurred in the
ordinary course of business since September 30, 1999, as of the Closing, neither
InspecTech nor any InspecTech Subsidiary will have any liability or obligation
whatsoever, whether accrued, absolute, contingent or otherwise of a nature
required by GAAP to be included in the Financial Statements.
5.10 ABSENCE OF CHANGES. Except as set forth in Section 5.10
of the InspecTech Disclosure Letter, since September 30, 1999, there has not
been:
[a] any change in the assets, liabilities, financial
condition or operating results of InspecTech or any InspecTech
Subsidiary from that reflected in the Financial Statements, except
changes in the ordinary course of business or otherwise that have not,
individually or in the aggregate, materially and adversely affected the
business, properties, prospects or financial condition of InspecTech or
any InspecTech Subsidiary (as such business is presently conducted and
as it is proposed to be conducted);
[b] any damage, destruction or loss, whether or not
covered by insurance, affecting the business, properties, prospects, or
financial condition of InspecTech or any InspecTech Subsidiary (as such
business is presently conducted and as it is presently proposed to be
conducted);
[c] any waiver or compromise by InspecTech or any
InspecTech Subsidiary of a valuable right or of a material debt owed to
it;
[d] any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by InspecTech or any
InspecTech Subsidiary, except in the ordinary course of business and
that is not material to the business, properties, or financial
condition of InspecTech or any InspecTech Subsidiary (as such business
is presently conducted and as it is presently proposed to be
conducted);
[e] any material change to a material contract or
arrangement by which InspecTech or any InspecTech Subsidiary or any of
their respective assets is bound or subject;
[f] any material change in any compensation
arrangement or agreement with any employee or officer;
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[g] any sale, assignment or transfer of any
intangible assets;
[h] any resignation or termination of employment of
any key officer or employee of InspecTech or any InspecTech Subsidiary
(and InspecTech does not know of any impending resignation or
termination of employment of any such officer or employee);
[i] any mortgage, pledge, transfer of a security
interest in, or lien, created by InspecTech or any InspecTech
Subsidiary with respect to any of their properties or assets, except
Liens for taxes not yet due or payable;
[j] any declaration, setting aside or payment of any
dividend or other distribution of InspecTech's assets in respect of any
of InspecTech's or any InspecTech Subsidiary's capital stock, or any
direct or indirect redemption, purchase, or other acquisition of any of
such stock by InspecTech or any InspecTech Subsidiary;
[k] to InspecTech's knowledge, any other event or
condition of any character that might materially and adversely affect
the business, properties, prospects or financial condition of
InspecTech or any InspecTech Subsidiary (as such business is presently
conducted and as it is presently proposed to be conducted); or
[l] any agreement or commitment by InspecTech or any
InspecTech Subsidiary to do any of the things described in this Section
5.10, except as provided in this Agreement.
5.11 TITLE TO PROPERTY AND ASSETS; LEASES.
[a] Section 5.11 of the InspecTech Disclosure Letter
sets forth a complete and accurate list and description of all the real
property and all the material personal property that InspecTech or any
InspecTech Subsidiary owns or leases. Neither InspecTech nor any
InspecTech Subsidiary is bound or committed to make any capital
improvement or capital expenditure with respect to any owned or leased
real or personal property, except as may be set forth in the Contracts.
[b] Except as set forth in Section 5.11 of the
InspecTech Disclosure Letter, InspecTech and each InspecTech Subsidiary
has good, valid and marketable title to all the real, personal and
mixed, tangible and intangible properties and assets which it purports
to own, free and clear of all liens, restrictions, claims, charges,
security interests, easements or other encumbrances of any nature
whatsoever, except for liens for current taxes not yet due and payable.
With respect to the property and assets that it leases, InspecTech and
each InspecTech Subsidiary is in compliance with such leases and holds
a valid leasehold interest, free and clear of any liens, claims and
encumbrances. All properties and Assets of InspecTech and each
InspecTech Subsidiary are in the possession or control of
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InspecTech and such InspecTech Subsidiary, respectively, and no other
person is entitled to possession of any such properties and assets.
5.12 LEGAL PROCEEDINGS. Except as set forth in Section 5.12 of
the InspecTech Disclosure Letter, there are no claims of any kind or any
actions, suits, proceedings, arbitration's or investigations pending or, to
InspecTech's best knowledge, threatened against or affecting InspecTech or any
InspecTech Subsidiary against any asset, interest or right of InspecTech or any
InspecTech Subsidiary or which questions the validity of the transactions
contemplated by this Agreement.
5.13 ENVIRONMENTAL MATTERS. Neither InspecTech nor any
InspecTech Subsidiary is in violation in any material respect of any applicable
statute, law or regulation relating to the environment or occupational health
and safety (the "Environmental Laws") that would, individually, or, together
with all other such violations in the aggregate, result in a material and
adverse effect on the business and properties or financial condition of
InspecTech or any InspecTech Subsidiary and InspecTech has no knowledge of any
material expenditures necessary to comply with the Environmental Laws.
5.14 LICENSES AND PERMITS; COMPLIANCE WITH LAWS. InspecTech
and each InspecTech Subsidiary holds all franchises, permits, licenses,
variances, exemptions, orders and approvals of all governmental entities which
are material to the operation of InspecTech's and such InspecTech Subsidiary's
business and is in compliance with the terms thereof. InspecTech and each
InspecTech Subsidiary has complied in all material respects with, and is not in
any default in any material respect under (and has not been charged with or
received notice with respect to, nor is threatened with or under investigation
with respect to, any charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative) or any order, writ,
injunction or decree of any court, agency or instrumentality, and no action,
suit, proceeding, hearing, charge, claim, demand, or notice has been filed or
commenced against InspecTech or any InspecTech Subsidiary alleging any failures
to comply.
5.15 EMPLOYEE BENEFIT PLANS. Section 5.15 of the InspecTech
Disclosure Letter lists each employee benefit plan, including any profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or director of InspecTech or any InspecTech Subsidiary
(collectively "Benefit Plans"), and any employment, consulting, severance,
termination or indemnification agreement, arrangement or understanding between
InspecTech or any InspecTech Subsidiary and any officer, director or employee of
InspecTech or such InspecTech Subsidiary, or in the case of any unwritten
Benefit Plans, descriptions thereof. InspecTech has delivered to Primis true,
complete and correct copies of each Benefit Plan. Each Benefit Plan is and has
heretofore been maintained and operated in compliance in all material respects
with the terms of such Benefit Plan and with the requirements prescribed
(whether as a matter of substantive law or as necessary to secure favorable tax
treatment)
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by any and all statutes, governmental or court orders, or governmental rules or
regulations in effect from time to time, including but not limited to the
Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code and applicable to such Plan.
5.16 LABOR RELATIONS.
[a] InspecTech and each InspecTech Subsidiary is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment
and wages and hours and occupational safety and health;
[b] There is no unfair labor practice charge or
complaint or any other matter against or involving InspecTech or any
InspecTech Subsidiary pending or, to InspecTech's best knowledge,
threatened before the National Labor Relations Board, any other agency
or any court of law;
[c] There is no labor strike, dispute, slowdown or
stoppage actually pending or, to InspecTech's best knowledge,
threatened against InspecTech or any InspecTech Subsidiary;
[d] Neither InspecTech nor any InspecTech Subsidiary
is a party to or bound by any collective bargaining agreement or any
similar labor union arrangement; and
[e] There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to InspecTech's best knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against InspecTech or any
InspecTech Subsidiary. There are no pending governmental audits of the
equal employment opportunity practices of InspecTech or any InspecTech
Subsidiary and, to InspecTech's best knowledge, no basis for any such
claim exists.
[f] InspecTech is in compliance in all material
respects with the requirements of the American with Disabilities Act.
5.17 INSURANCE. InspecTech and each InspecTech Subsidiary
maintains insurance policies, including property, casualty, liability and other
insurance with respect to its assets and business in amounts customary for
similarly situated companies and sufficient in amount to allow it to replace any
of its properties that might be damaged or destroyed. Neither InspecTech nor any
InspecTech Subsidiary is liable for any material retroactive premium adjustments
with respect to any of its insurance policies or bonds. All such policies and
bonds are listed in Section 5.17 of the InspecTech Disclosure Letter and are
legal, valid and enforceable and in full force and effect and neither InspecTech
nor any InspecTech Subsidiary is in breach or default (including with respect to
the payment of premiums or the giving of notices) and no event has occurred
which, with notice or
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the lapse of time, would constitute such a breach or default, or permit
termination, modification or acceleration under the policy or received any
notice of premium increases or cancellations with respect to any of such
policies and bonds. InspecTech believes the amount and type of InspecTech's and
each InspecTech Subsidiary's insurance coverage is adequate for InspecTech's and
each InspecTech Subsidiary's business and is consistent with good business
practice.
5.18 TAX MATTERS. InspecTech and each InspecTech Subsidiary
has timely filed or caused to be filed all federal, state, foreign and local
income, franchise, gross receipts, payroll, sales, use, withholding, occupancy,
excise, real and personal property, employment and other tax returns, tax
information returns and reports ("Tax Returns") required to be filed and all
such Tax Returns were correct and complete in all material respects. InspecTech
and each InspecTech Subsidiary has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or properly accruable for all periods ending on or
before the date of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority. There are no security interests
on any of the assets of InspecTech or any InspecTech Subsidiary that arise in
connection with any failure (or alleged failure) to pay any tax. InspecTech and
each InspecTech Subsidiary has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party.
5.19 RELATED PARTY TRANSACTIONS. Except as set forth in
Section 5.19 of the InspecTech Disclosure Letter, no employee, officer or holder
of InspecTech's capital stock or member of his or her immediate family is
indebted to InspecTech or any InspecTech Subsidiary, nor is InspecTech or any
InspecTech Subsidiary indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses, or advances with
respect to expenses to be, incurred on behalf of InspecTech or any InspecTech
Subsidiary, and (iii) for other standard employee benefits made generally
available to all employees. To InspecTech's best knowledge, none of such persons
has any direct or indirect ownership interest in any firm or corporation with
which InspecTech or any InspecTech Subsidiary has a material business
relationship, or any firm or corporation that competes with InspecTech or any
InspecTech Subsidiary, except that employees, stockholders, and officers of
InspecTech and members of their immediate families may own stock in publicly
traded companies that may compete with InspecTech or a InspecTech Subsidiary.
5.20 BROKERS' AND FINDERS' FEES. InspecTech has not employed
any broker, finder or financial advisor or incurred any liability for fees or
commissions payable to any broker, finder or financial advisor in connection
with the negotiations relating to or the transactions contemplated by this
Agreement.
5.21 REGISTRATION RIGHTS. Except as set forth in Section 5.21
of the InspecTech Disclosure Letter, neither InspecTech nor any InspecTech
Subsidiary is presently under any obligation and has not granted any rights to
register under the Securities Act any of its outstanding securities or any of
its securities that may be subsequently issued.
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5.22 INTELLECTUAL PROPERTY. Section 5.22 of the InspecTech
Disclosure Letter sets forth a complete and correct list of all intellectual
property, including, without limitation, trademarks, service marks, patents,
copyrights and applications, used in the conduct of the business of InspecTech
and each InspecTech Subsidiary other than commercially available software
programs. InspecTech and the InspecTech Subsidiaries either own or have properly
licensed all rights necessary or required to provide and perform the services
they now provide and perform. InspecTech's and each InspecTech Subsidiary's
provision or operation of such services will not violate or infringe any
intellectual property laws or violate or infringe any rights of third parties.
There is no complaint, action or proceeding before any court pending or, to
InspecTech's best knowledge, threatened against InspecTech or any InspecTech
Subsidiary asserting that InspecTech's or any InspecTech Subsidiary's use of any
intellectual property infringes the rights of any third party or otherwise
contesting InspecTech's and each InspecTech Subsidiary's rights with respect to
any intellectual property, and there is no basis for such assertion or contest.
To InspecTech's best knowledge, no third party is infringing on InspecTech's or
any InspecTech Subsidiary's rights with respect to its intellectual property.
5.23 YEAR 2000 COMPLIANCE. All devices, systems, machinery,
information technology, computer software and hardware, and other date-sensitive
technology necessary for InspecTech to carry on its businesses as presently
conducted and as contemplated to be conducted in the future are Year 2000
Compliant or will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of InspecTech's business operations. The
term "Year 2000 Compliant" means each of the aforementioned items are designed
to be used prior to, during and after the year 2000 and will operate during each
such time period without error relating to date data, specifically including any
error to, or the product of, date data which represents or references different
centuries or more than one century.
5.24 REQUIRED VOTE OF INSPECTECH STOCKHOLDERS. The affirmative
vote of a majority of the shares present in person or by proxy at the InspecTech
Stockholder Meeting (as hereinafter defined) and entitled to vote on the Merger,
or by written consent in lieu of a meeting, is required to approve the Merger.
No other vote of the security holders of InspecTech is required by law,
InspecTech's Articles of Incorporation or Bylaws or otherwise in order for
InspecTech to consummate the Merger and the transactions contemplated hereby.
5.25 MATERIAL FACTS. This Agreement and the documents or
written statements furnished by InspecTech to Primis in connection with the
transactions contemplated hereby, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF PRIMIS. Primis and Acquisition
Corp hereby represents and warrants to InspecTech as follows:
6.1 ORGANIZATION AND GOOD STANDING. Primis is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Georgia. Acquisition Corp is
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a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Primis and Acquisition Corp has all
requisite power and authority to: (i) own, lease and operate its properties and
to carry on its business as now being conducted and as presently proposed to be
conducted; and (ii) to execute, deliver and perform this Agreement and any other
agreement to which Primis or Acquisition Corp is a party, the execution and
delivery of which is contemplated hereby or thereby. Each of Primis and
Acquisition Corp is duly qualified and is authorized to transact business and is
in good standing as foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business,
properties, prospects or financial condition.
6.2 AUTHORITY. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby has been duly
authorized by all necessary corporate action on the part of Primis. The
execution and delivery of this Agreement and the Plan of Merger and the
consummation of the transactions contemplated thereby has been duly authorized
by all necessary corporate action on the part of Acquisition Corp. This
Agreement and the Plan of Merger have been duly executed and delivered by Primis
and Acquisition Corp, respectively, and constitute the legal, valid and binding
obligation of Primis and Acquisition Corp, respectively, enforceable against
them in accordance with their respective terms except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors rights generally
or (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
6.3 CAPITALIZATION. Immediately prior to the Closing, the
authorized capital stock of Primis consists of 23,000,000 shares comprised of
(i) 15,000,000 shares of Common Stock, par value $.01 per share, of which
7,078,671 shares are issued and outstanding, and (ii) 8,000,000 shares of
Preferred Stock, par value $.01 per share, of which (a) 1,200,000 shares are
designated Series A Convertible Preferred Stock, of which 1,091,242 shares are
issued and outstanding, [b] 3,000,000 shares are designated Series B Convertible
Preferred Stock, of which 725,130 shares are issued and outstanding, and [c]
2,500,000 shares are designated Series C Convertible Preferred Stock, of which
no shares are issued and outstanding. Immediately prior to the Closing, the
authorized capital stock of Acquisition Corp consists of 1,000 shares of Common
Stock, $.01 par value per share, of which 1,000 shares are issued and
outstanding and owned by Primis. Primis also has reserved for issuance under its
Third Amended and Restated 1997 Employee Stock Option Plan 1,650,000 shares of
Common Stock, par value $.01 per share. All such outstanding shares have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth in Section 6.3 of the Primis Disclosure Letter, there are
outstanding no subscriptions, options, warrants, calls, commitments or rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements or agreements of any character relating to shares of
Primis's or Acquisition Corp's capital stock or any instruments that can be
converted into or exchanged for shares of Primis's or Acquisition Corp's capital
stock. None of the shares of Primis's capital stock have been issued in
violation of any preemptive right. All issuances, sales, redemptions, transfers
or purchases of the capital stock of Primis and any involvement in any transfer
of any such stock by Primis have been in compliance in all material respects
with all applicable agreements and all applicable laws, including federal and
state securities laws, and all taxes thereon, if any, have been
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paid. Except as set forth in Section 6.3 of the Primis Disclosure Letter, there
are no contractual obligations of Primis to repurchase, redeem or otherwise
acquire any shares of capital stock of Primis or Acquisition Corp. No bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders of Primis or Acquisition Corp. may vote are issued or
outstanding. Except as set forth in Section 6.3 of the Primis Disclosure Letter,
neither Primis nor Acquisition Corp. is a party or subject to any agreement or
understanding and, to Primis's best knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by any
director of Primis or Acquisition Corp.
6.4 NO CONFLICT. The execution and delivery of this Agreement
and the Plan of Merger does not, and the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of,
any obligation or the loss of a material benefit under, or the creation of a
lien, pledge, security interest, charge or other encumbrance on assets (any such
conflict, violation, default, right of termination, cancellation or
acceleration, loss or creation, a "Violation") pursuant to, any provision of
Primis's Articles of Incorporation or Bylaws, or the Articles of Incorporation
or bylaws of any Primis Subsidiary, or result in any Violation of any material
lease, agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Primis or any Primis Subsidiary or Primis's or any Primis
Subsidiary's properties or Assets.
6.5 CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Neither
Primis nor any Primis Subsidiary is bound by any judgment, order, writ or
decree. No event or condition has occurred or exists, or, to the knowledge of
Primis, is alleged by any of the other parties thereto to have occurred or
existed, which constitutes, or with lapse of time or giving of notice or both
might constitute, a default or breach under any material contract, agreement,
lease, loan, commitment and proposed transaction to which Primis or any Primis
Subsidiary is a party or is bound or which Primis or any Primis Subsidiary is
seeking to be bound (the "Contracts"). Primis is not in violation or default of
any provision of its Articles of Incorporation or Bylaws, no Primis Subsidiary
is in violation or default of any provision of its articles of incorporation or
bylaws, and neither Primis nor any Primis Subsidiary is in violation or default
in any material respect of any material provision of any Contract.
6.6 SUBSIDIARIES. Except as set forth in Section 6.6 of the
Primis Disclosure Letter, Primis does not own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. Except as set forth in
Section 6.6 of the Disclosure Letter, neither Primis nor any Primis Subsidiary
is a participant in any joint venture, partnership or similar arrangement.
6.7 CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Primis in connection with the execution and delivery of this
Agreement or the Plan
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of Merger, or the consummation by Primis of the transactions contemplated hereby
and thereby, which has not already been obtained except for notices of sale
required to be filed with the SEC under Regulation D of the Securities Act or
such filings as may be required under applicable state securities laws.
6.8 FINANCIAL STATEMENTS. Primis's audited consolidated
balance sheet as of December 31, 1998, and the related audited consolidated
statement of income for the year then ended and its unaudited balance sheet as
of September 30, 1999 and the related unaudited statement of income for the nine
months then ended (the "Financial Statements"), are attached to the Primis
Disclosure Letter. The Financial Statements were prepared in accordance with
GAAP (except for the omission of footnotes and other required schedules and
information and year end accruals which are immaterial, in the aggregate, in
amount). The balance sheets included in such Financial Statements fairly present
the financial condition of Primis and its Subsidiaries as of their respective
dates and the statements of income included in such Financial Statements fairly
present the results of operations of Primis and the Primis Subsidiaries for the
periods then ended. Except as set forth in Section 6.8 of the Primis Disclosure
Letter, none of Primis or any of the Primis Subsidiaries has any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the Financial Statements,
except for liabilities that may have arisen in the ordinary course of business
and that are not required by GAAP to be included in the Financial Statements.
6.9 INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as set forth in the Financial Statements, neither Primis nor
any Primis Subsidiary has any direct or indirect indebtedness for borrowed
money, indebtedness by way of lease-purchase arrangements, guarantees, chattel
mortgages or other security arrangements with any bank, financial institution or
other third party. Except as and to the extent reflected and adequately reserved
against in the Financial Statements or incurred in the ordinary course of
business since September 30, 1999 or as set forth in Section 6.9 of the Primis
Disclosure Letter, as of the Closing, neither Primis nor any Primis Subsidiary
will have any liability or obligation whatsoever, whether accrued, absolute,
contingent or otherwise of a nature required by GAAP to be included in the
Financial Statements.
6.10 ABSENCE OF CHANGES. Except as set forth in Section 6.10
of the Primis Disclosure Letter, since September 30, 1999, there has not been:
[a] any change in the assets, liabilities, financial
condition or operating results of Primis or any Primis Subsidiary from
that reflected in the Financial Statements, except changes in the
ordinary course of business or otherwise that have not, individually or
in the aggregate, materially and adversely affected the business,
properties, prospects or financial condition of Primis or any Primis
Subsidiary (as such business is presently conducted and as it is
proposed to be conducted);
[b] any damage, destruction or loss, whether or not
covered by insurance, affecting the business, properties, prospects, or
financial condition of Primis or any Primis
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Subsidiary (as such business is presently conducted and as it is
presently proposed to be conducted);
[c] any waiver or compromise by Primis or any Primis
Subsidiary of a valuable right or of a material debt owed to it;
[d] any satisfaction or discharge of any lien, claim,
or encumbrance or payment of any obligation by Primis or any Primis
Subsidiary, except in the ordinary course of business and that is not
material to the business, properties, or financial condition of Primis
or any Primis Subsidiary (as such business is presently conducted and
as it is presently proposed to be conducted);
[e] any material change to a material contract or
arrangement by which Primis or any Primis Subsidiary or any of their
respective assets is bound or subject;
[f] any material change in any compensation
arrangement or agreement with any employee or officer;
[g] any sale, assignment or transfer of any
intangible assets;
[h] any resignation or termination of employment of
any key officer or employee of Primis or any Primis Subsidiary (and
Primis does not know of any impending resignation or termination of
employment of any such officer or employee);
[i] any mortgage, pledge, transfer of a security
interest in, or lien, created by Primis or any Primis Subsidiary with
respect to any of their properties or assets, except Liens for taxes
not yet due or payable;
[j] any declaration, setting aside or payment of any
dividend or other distribution of Primis's assets in respect of any of
Primis's or any Primis Subsidiary's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such
stock by Primis or any Primis Subsidiary;
[k] any other event or condition of any character
that might materially and adversely affect the business, properties,
prospects or financial condition of Primis or any Primis Subsidiary (as
such business is presently conducted and as it is presently proposed to
be conducted); or
[l] any agreement or commitment by Primis or any
Primis Subsidiary to do any of the things described in this Section
6.10, except as provided in this Agreement.
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6.11 TITLE TO PROPERTY AND ASSETS; LEASES. Except as set forth
in Section 6.11 of the Primis Disclosure Letter, Primis and each Primis
Subsidiary has good, valid and marketable title to all the real, personal and
mixed, tangible and intangible properties and assets which it purports to own,
free and clear of all liens, restrictions, claims, charges, security interests,
easements or other encumbrances of any nature whatsoever, except for liens for
current taxes not yet due and payable. With respect to the property and assets
that it leases, Primis and each Primis Subsidiary is in compliance with such
leases and holds a valid leasehold interest, free and clear of any liens, claims
and encumbrances. All properties and Assets of Primis and each Primis Subsidiary
are in the possession or control of Primis and such Primis Subsidiary,
respectively, and no other person is entitled to possession of any such
properties and assets.
6.12 LEGAL PROCEEDINGS. Except as set forth in Section 6.12 of
the Primis Disclosure Letter, there are no claims of any kind or any actions,
suits, proceedings, arbitrations or investigations pending or, to Primis's best
knowledge, threatened against or affecting Primis or any Primis Subsidiary
against any asset, interest or right of Primis or any Primis Subsidiary or which
questions the validity of the transactions contemplated by this Agreement.
6.13 ENVIRONMENTAL MATTERS. Neither Primis nor any Primis
Subsidiary is in violation in any material respect of any applicable statute,
law or regulation relating to the environment or occupational health and safety
(the "Environmental Laws") that would, individually, or, together with all other
such violations in the aggregate, result in a material and adverse effect on the
business and properties or financial condition of Primis or any Primis
Subsidiary and Primis has no knowledge of any material expenditures necessary to
comply with the Environmental Laws.
6.14 LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Primis and
each Primis Subsidiary holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities which are material
to the operation of Primis's and such Primis Subsidiary's business and is in
compliance with the terms thereof. Primis and each Primis Subsidiary has
complied with, and is not in any default under (and has not been charged with or
received notice with respect to, nor is threatened with or under investigation
with respect to, any charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative) or any order, writ,
injunction or decree of any court, agency or instrumentality, and no action,
suit, proceeding, hearing, charge, claim, demand, or notice has been filed or
commenced against Primis or any Primis Subsidiary alleging any failures to
comply.
6.15 LABOR RELATIONS.
[a] Primis and each Primis Subsidiary is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment
and wages and hours and occupational safety and health;
[b] There is no unfair labor practice charge or
complaint or any other matter against or involving Primis or any Primis
Subsidiary pending or, to Primis's best
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knowledge, threatened before the National Labor Relations Board, any
other agency or any court of law;
[c] There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Primis's best knowledge, threatened
against Primis or any Primis Subsidiary;
[d] Neither Primis nor any Primis Subsidiary is a
party to or bound by any collective bargaining agreement or any similar
labor union arrangement; and
[e] There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to Primis's best knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Primis or any Primis
Subsidiary. There are no pending governmental audits of the equal
employment opportunity practices of Primis or any Primis Subsidiary
and, to Primis's best knowledge, no basis for any such claim exists.
[f] Primis is in compliance in all material respects
with the requirements of the American with Disabilities Act.
6.16 INSURANCE. Primis and each Primis Subsidiary maintains
insurance policies, including property, casualty, liability and other insurance
with respect to its assets and business in amounts customary for similarly
situated companies and sufficient in amount to allow it to replace any of its
properties that might be damaged or destroyed. Neither Primis nor any Primis
Subsidiary is liable for any material retroactive premium adjustments with
respect to any of its insurance policies or bonds. All such policies and bonds
are legal, valid and enforceable and in full force and effect and neither Primis
nor any Primis Subsidiary is in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default, or
permit termination, modification or acceleration under the policy or received
any notice of premium increases or cancellations with respect to any of such
policies and bonds. Primis believes the amount and type of Primis's and each
Primis Subsidiary's insurance coverage is adequate for Primis's and each Primis
Subsidiary's business and is consistent with good business practice.
6.17 TAX MATTERS. Primis and each Primis Subsidiary has timely
filed or caused to be filed all federal, state, foreign and local income,
franchise, gross receipts, payroll, sales, use, withholding, occupancy, excise,
real and personal property, employment and other tax returns, tax information
returns and reports ("Tax Returns") required to be filed and all such Tax
Returns were correct and complete in all material respects. Primis and each
Primis Subsidiary has paid, or made adequate provisions for the payment of, all
taxes, duties or assessments of any nature whatsoever, interest payments,
penalties and additions (whether or not reflected in the returns as filed) due
and payable (and/or properly accruable for all periods ending on or before the
date of this Agreement) to any city, county, state, foreign country, the United
States or any other taxing authority. There are
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no security interests on any of the assets of Primis or any Primis Subsidiary
that arise in connection with any failure (or alleged failure) to pay any tax.
Primis and each Primis Subsidiary has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
6.18 RELATED PARTY TRANSACTIONS. Except as set forth in
Section 6.18 of the Primis Disclosure Letter, no employee, officer or holder of
Primis' capital stock or member of his or her immediate family is indebted to
Primis or any Primis Subsidiary, nor is Primis or any Primis Subsidiary indebted
(or committed to make loans or extend or guarantee credit) to any of them, other
than (i) for payment of salary for services rendered, (ii) reimbursement for
reasonable expenses, or advances with respect to expenses to be, incurred on
behalf of Primis or any Primis Subsidiary, and (iii) for other standard employee
benefits made generally available to all employees. To Primis' knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which Primis or any Primis Subsidiary has a material business
relationship, or any firm or corporation that competes with Primis or any Primis
Subsidiary, except that employees, stockholders and officers of Primis or
members of their immediately families may won stock in publicly traded companies
that may compete with Primis or a Primis Subsidiary.
6.19 BROKERS' AND FINDERS' FEES. Primis has not employed any
broker, finder or financial advisor or incurred any liability for fees or
commissions payable to any broker, finder or financial advisor in connection
with the negotiations relating to or the transactions contemplated by this
Agreement.
6.20 INTELLECTUAL PROPERTY. Primis and the Primis Subsidiaries
either own or have properly licensed all rights necessary or required to provide
and perform the services they now provide and perform. Primis's and each Primis
Subsidiary's provision or operation of such services will not violate or
infringe any intellectual property laws or violate or infringe any rights of
third parties. There is no complaint, action or proceeding before any court
pending or, to Primis's best knowledge, threatened against Primis or any Primis
Subsidiary asserting that Primis's or any Primis Subsidiary's use of any
intellectual property infringes the rights of any third party or otherwise
contesting Primis's and each Primis Subsidiary's rights with respect to any
intellectual property, and there is no basis for such assertion or contest. To
Primis's best knowledge, no third party is infringing on Primis's or any Primis
Subsidiary's rights with respect to its intellectual property.
6.21 YEAR 2000 COMPLIANCE. All devices, systems, machinery,
information technology, computer software and hardware, and other date-sensitive
technology necessary for Primis to carry on its businesses as presently
conducted and as contemplated to be conducted in the future are Year 2000
Compliant or will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of Primis's business operations. The
term "Year 2000 Compliant" means each of the aforementioned items are designed
to be used prior to, during and after the year 2000 and will operate during each
such time period without error relating to date data, specifically including any
error to, or the product of, date data which represents or references different
centuries or more than one century.
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6.22 REQUIRED VOTE OF PRIMIS STOCKHOLDERS. The vote of Primis'
stockholders is not required to approve the Merger. Primis is, or will be prior
to the Closing, the sole shareholder of Acquisition Corp. As the sole
stockholder of Acquisition Corp, Primis will approve the Merger prior to the
Closing.
6.23 MATERIAL FACTS. This Agreement and the documents or
written statements furnished by Primis to InspecTech in connection with the
transactions contemplated hereby, do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading.
7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
7.1 SURVIVAL. After the Closing, any claim for indemnification
must be asserted by notice given no later than the end of the Survival Period
(as defined herein). All representations, warranties, covenants, and obligations
in this Agreement and any other certificate or document delivered pursuant to
this Agreement will survive the Closing until the sooner of (a) December 31,
2000, or (b) the date which is the expiration of any "lock-up period" imposed on
the shareholders of Primis by the underwriter following the sale of Primis
Common Stock in a firm commitment underwritten public offering registered under
the Securities Act of 1933, as amended (a "Qualified Public Offering");
provided, however, any claims for fraud and any claims related to or arising
from those matters set forth on SCHEDULE 7.1 attached hereto shall survive
indefinitely (the "Survival Period"). The right to indemnification, payment of
damages or other remedy based on such representations, warranties, covenants,
and obligations will not be affected by any investigation conducted with respect
to, or any knowledge acquired (or capable of being acquired) at any time,
whether before or after the execution and delivery of this Agreement or the
Closing, with respect to the accuracy or inaccuracy of or compliance with any
such representation, warranty, covenant, or obligation. The waiver of any
condition based on the accuracy of any representation or warranty, or on the
performance of or compliance with any covenant or obligation, will not affect
the right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants, and obligations.
7.2 INDEMNIFICATION; RETAINED STOCK. InspecTech will indemnify
and hold harmless Primis and its stockholders, controlling persons, and
affiliates (except Shareholders) (collectively, the "Indemnified Persons") for,
and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage, expense (including costs of investigation and defense and
reasonable attorneys' fees) or diminution of value, whether or not involving a
third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with: (a) any breach of any representation or warranty
made by InspecTech in this Agreement or any other certificate or document
delivered by InspecTech pursuant to this Agreement; (b) any breach by InspecTech
of any covenant or obligation of InspecTech in this Agreement; and (c) those
matters set forth on SCHEDULE 7.1 attached hereto.
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Certificates representing 25% of the shares of Primis Common
Stock to be issued in exchange for the InspecTech Preferred Stock pursuant to
Section 3 of this Agreement (the "Retained Stock") shall be deposited with Bank
One Kentucky, N.A., as escrow agent pursuant to the terms of an escrow agreement
substantially in the form attached hereto as EXHIBIT 2. After the Closing,
except for claims with respect to fraud, any liability under this Section 7.2
shall be discharged by surrender of that number of shares of the Retained Stock,
the value of which is equal to the amount of the Damages. The value of the
Retained Stock shall for all purposes of this Section 7 be deemed to equal the
per share value of the stock issued by Primis in Primis' latest round of equity
financing prior to the time Primis would be required to give notice of the
applicable claim for indemnification pursuant to Section 7.4, such value to
initially be $15.307 per share (as adjusted for any stock splits,
recapitalizations and the like with respect to the Primis Common Stock). Upon a
Qualified Public Offering, the value of the Primis Common Stock shall be deemed
to be equal to the initial public offering price per share. After (i) the
expiration of the Survival Period, or (ii) the final resolution of any claims
for indemnification brought pursuant to this Section 7, the Retained Stock shall
be delivered to the holders of the InspecTech Preferred Stock in accordance with
the provisions of Section 4.1 of this Agreement. Until delivery of the Retained
Stock to the holders of InspecTech Preferred Stock as provided herein, the
holders of the InspecTech Preferred Stock shall be deemed the owners of the
Retained Stock for all purposes, including for purposes of voting and the right
to receive dividends. The remedy provided for in this Section 7.2 shall be the
sole and exclusive remedy, and the amount of the Retained Stock shall be the
limit for Damages, for any of the matters set forth in this Section 7.2.
7.3 INDEMNIFICATION BY PRIMIS. Primis will indemnify and hold
harmless InspecTech and its stockholders (collectively, the "InspecTech
Indemnified Parties") for and will pay to the InspecTech Indemnified Parties the
amount of any Damages arising, directly or indirectly, from or in connection
with: any breach of any representation or warranty made by Primis in this
Agreement or in any other certificate or document delivered by Primis pursuant
to this Agreement; and any breach by Primis of any covenant or obligation of
Primis in this Agreement; provided, however, that, except with respect to claims
for fraud, Primis's liability for Damages under this Section 7.3 shall be
limited to 25% of the Aggregate Merger Consideration. The remedy provided for in
this Section 7.3 shall be the sole and exclusive remedy for any of the matters
set forth in this Section 7.3.
7.4 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
[a] Promptly after receipt by an indemnified party under
Section 7.2 or 7.3 of notice of the commencement of any proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
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[b] If any proceeding is brought against an indemnified party
and it gives notice to the indemnifying party of the commencement of such
proceeding, the indemnifying party will, unless the claim involves taxes, be
entitled to participate in such proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such proceeding and the
indemnified party determines in good faith that joint representation would be
inappropriate, or (ii) the indemnifying party fails to provide reasonable
assurance to the indemnified party of its financial capacity to defend such
proceeding and provide indemnification with respect to such proceeding), to
assume the defense of such proceeding with counsel reasonably satisfactory to
the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 7 for any fees of other
counsel or any other expenses with respect to the defense of such proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that proceeding are within the scope of and subject to indemnification; and (ii)
no compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If notice is given to an indemnifying party
of the commencement of any proceeding and the indemnifying party does not,
within ten (10) days after the indemnified party's notice is given, give notice
to the indemnified party of its election to assume the defense of such
proceeding, the indemnifying party will be bound by any determination made in
such proceeding or any compromise or settlement effected by the indemnified
party.
[c] Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such proceeding, but
the indemnifying party will not be bound by any determination of a proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
8. CONDUCT OF BUSINESS PENDING CONSUMMATION
8.1 AFFIRMATIVE COVENANTS OF BOTH PARTIES. From the date of
this Agreement until the earlier of the Effective Time or the termination of
this Agreement, unless the prior written consent of the other party shall have
been obtained, and except as otherwise expressly contemplated herein, each party
shall operate its business only in the usual, regular, and ordinary course,
preserve intact its business organization and Assets and maintain its rights and
franchises, and use its reasonable efforts to maintain its current employee
relationships.
8.2 NEGATIVE COVENANTS OF INSPECTECH. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement, InspecTech covenants and
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agrees that it will not do or agree or commit to do, or permit any of its
Subsidiaries to do or agree or commit to do, any of the following without the
prior written consent of Primis:
[a] amend the Articles of Incorporation, Bylaws, or
other governing instruments of InspecTech or any InspecTech Subsidiary,
or
[b] incur, guarantee, or otherwise become responsible
for, any additional debt obligation or other obligation for borrowed
money or impose, or suffer the imposition, on any Asset of InspecTech
or any InspecTech Subsidiary of any Lien or permit any such Lien to
exist, other than for taxes not yet due and payable; or
[c] repurchase, redeem, or otherwise acquire or
exchange, directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of InspecTech or any
InspecTech Subsidiary, or declare or pay any dividend or make any other
distribution in respect of InspecTech's Capital Stock; or
[d] except for this Agreement, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise
permit to become outstanding, any additional shares of InspecTech
Capital Stock, or any stock appreciation rights, or any option,
warrant, conversion, or other right to acquire any such stock, or any
security convertible into any such stock; or
[e] adjust, split, combine, or reclassify any
InspecTech Capital stock or issue or authorize the issuance of any
other securities in respect of or in substitution for shares of
InspecTech Capital Stock, or sell, lease, mortgage, or otherwise
dispose of or otherwise encumber any shares of capital stock of any
InspecTech Subsidiary or any Asset; or
[f] purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any person; or
[g] grant any increase in compensation or benefits to
the employees or officers of InspecTech or any InspecTech Subsidiary,
except in accordance with the ordinary course of business consistent
with past practice or as required by Law; pay any severance or
termination pay or any bonus other than pursuant to written policies or
written contracts in effect on the date of this Agreement; enter into
or amend any severance agreements with officers or employees of
InspecTech or any InspecTech Subsidiary; grant any material increase in
fees or other increases in compensation or other benefits to directors
of InspecTech or any InspecTech Subsidiary except in accordance with
the ordinary course of business consistent with past practice; or
voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits; or
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[h] enter into or amend any employment contract
between InspecTech or any InspecTech Subsidiary and any person (unless
such amendment is required by Law or a pre-existing contractual
obligation) that InspecTech or the InspecTech Subsidiary does not have
the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the
Effective Time; or
[i] adopt any new employee benefit plan of InspecTech
or any InspecTech Subsidiary or make any material change in or to any
existing employee benefit plans of InspecTech or any InspecTech
Subsidiary other than any such change that is required by Law or that,
in the opinion of counsel, is necessary or advisable to maintain the
tax qualified status of any such plan; or
[j] except in the ordinary course of business,
modify, amend, or terminate any material contract or waive, release,
compromise, or assign any material rights or claims.
9. ADDITIONAL AGREEMENTS
9.1 STOCKHOLDER APPROVAL. Prior to the Effective Time,
InspecTech shall duly call, give notice of, convene and hold a stockholders'
meeting (the "Stockholder Meeting"), to be held as soon as reasonably
practicable (or shall seek the written consent of its stockholders in lieu
thereof) for the purpose of voting upon approval of the Merger, this Agreement
and the Plan of Merger. In connection with the Stockholder Meeting or such
written consent, the Board of Directors of InspecTech shall recommend to
InspecTech's stockholders the approval of the matters submitted for approval,
and the Board of Directors and officers of InspecTech shall use their reasonable
efforts to obtain such stockholders' approvals. InspecTech's Board of Directors
shall not withdraw or modify, or propose to withdraw or modify, such
recommendation. Primis and InspecTech shall also take any action reasonably
required to be taken under any applicable federal or state securities laws in
connection with the issuance of Primis Common Stock in the Merger, and Primis
and InspecTech shall furnish to the InspecTech stockholders all information
concerning Primis as may be reasonably requested in connection with any such
action.
9.2 FILING OF CERTIFICATE OF MERGER. Upon the terms and
subject to the conditions of this Agreement, at the Effective Time, Primis shall
cause Acquisition Corp to execute and file the Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of State of the
State of California.
9.3 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the
terms and conditions of this Agreement, each party agrees to use its reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws to
consummate and make effective, as soon as reasonably practicable after the date
of this Agreement, the transactions contemplated by this Agreement.
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9.4 INVESTIGATION AND CONFIDENTIALITY.
[a] Prior to the Effective Time, each party shall
keep the other party advised of all material developments relevant to
its business and to consummation of the Merger and shall permit the
other party to make or cause to be made such investigation of the
business and properties of it and its Subsidiaries and of their
respective financial and legal conditions as the other party reasonably
requests, provided that such investigation shall be reasonably related
to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. No investigation by a party shall
affect the representations and warranties of the other party.
[b] Each party shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential
information furnished to it by the other party concerning its and its
Subsidiaries' businesses, operations, and financial positions and shall
not use such information for any purpose except in furtherance of the
transactions contemplated by this Agreement. If this Agreement is
terminated prior to the Effective Time, each party shall promptly
return or certify the destruction of all documents and copies thereof,
and all work papers containing confidential information received from
the other party.
[c] Each party agrees to give the other party notice
as soon as practicable after any determination by it of any fact or
occurrence relating to the other party which it has discovered through
the course of its investigation and which represents, or is reasonably
likely to represent, either a material breach of any representation,
warranty, covenant, or agreement of the other party or which has had or
is reasonably likely to have a material adverse effect on the other
party.
9.5 CERTAIN ACTIONS. Except with respect to this Agreement and
the Plan of Merger and the transactions contemplated hereby and thereby, neither
InspecTech, any InspecTech Subsidiary nor any Affiliate thereof nor any
Representatives thereof retained by InspecTech or any InspecTech Subsidiary
shall directly or indirectly solicit or engage in negotiations concerning any
Acquisition Proposal, or provide any confidential information or assistance to,
or have any discussions with, any person with respect to an Acquisition
Proposal.
9.6 TAX TREATMENT. Each of the parties undertakes and agrees
to use its reasonable efforts to cause the Merger, and to take no action, either
before or after the Merger is effective, which would cause the Merger not, to
qualify as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code for federal income tax purposes.
9.7 APPOINTMENT OF DIRECTOR. Primis will add Geoff Mott to its
board of directors at the next meeting of Primis' board of directors.
9.8 INSPECTECH PRINCIPAL OFFICE. For a period of one year from
the Effective Time, Primis shall not relocate the principal office of InspecTech
outside of the San Francisco Bay, California area.
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9.9 DIRECTORS AND OFFICERS LIABILITY INSURANCE. Primis shall
use its reasonable best efforts to maintain InspecTech's existing directors' and
officers' liability insurance covering persons who are currently covered by such
insurance for a period of one year after the Effective Time on terms no less
favorable than those in effect on the date hereof; provided, however, that
Primis may substitute therefore policies providing at least comparable coverage
containing terms and conditions no less favorable than those in effect on the
date hereof; and provided, further that Primis shall not be obligated to make
annual premium payments which materially exceed the annual premium payments in
effect as of the date of this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
10.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and the Plan of Merger and
to consummate the Merger and the other transactions contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by both
parties pursuant to Section 17 of this Agreement:
[a] The stockholders of InspecTech shall have
approved this Agreement and the Plan of Merger and the consummation of
the transactions contemplated hereby and thereby, including the Merger,
as and to the extent required by Law and by the provisions of any
governing instruments.
[b] All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall
be in full force and effect and all waiting periods required by Law
shall have expired.
[c] Each party shall have obtained any and all
Consents required for consummation of the Merger or for the preventing
of any default under any Contract or permit of such party which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect on such party.
[d] No court or governmental or Regulatory Authority
of competent jurisdiction shall have enacted, issued, promulgated,
enforced, or entered any Law or order (whether temporary, preliminary,
or permanent) or taken any other action which prohibits, restricts, or
makes illegal consummation of the transactions contemplated by this
Agreement.
10.2 CONDITIONS TO OBLIGATIONS OF PRIMIS. The obligations of
Primis and Acquisition Corp to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the satisfaction
of the following conditions, unless waived by Primis pursuant to Section 17 of
this Agreement:
[a] The representations and warranties of InspecTech
set forth in this Agreement shall be true and accurate in all material
respects as of the date of this Agreement
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and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are
confined to a specified date shall speak only as of such date).
[b] Each and all of the agreements and covenants of
InspecTech to be performed and complied with pursuant to this Agreement
and the other agreements contemplated hereby prior to the Effective
Time shall have been duly performed and complied with in all material
respects.
[c] InspecTech shall have delivered to Primis (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its duly authorized officers, to the effect that the conditions of its
obligations set forth in Section 10.2(a) and 10.2(b) of this Agreement
have been satisfied and (ii) certified copies of resolutions duly
adopted by InspecTech's Board of Directors and stockholders evidencing
the taking of all corporate action necessary to authorize the
execution, delivery, and performance of this Agreement and the Plan of
Merger, and the consummation of the transactions contemplated hereby
and thereby, all in such reasonable detail as Primis and its counsel
shall request.
[d] There shall not have been any material adverse
change in the InspecTech Assets or business, working capital,
liabilities, financial condition, business prospects or relationships
with any suppliers or customers or any material change or any material
commitment or transaction of any nature that would adversely affect the
business of InspecTech or any agreement in writing to take any action
that would have such an effect.
[e] There shall not have been any damage or
destruction materially adversely affecting the InspecTech Assets or
business.
[f] Shareholders of InspecTech holding more than 5.0%
of the outstanding InspecTech capital stock shall not have exercised or
preserved their right to dissent from the Merger.
[g] Each holder of InspecTech Preferred Stock shall
have executed a shareholders agreement substantially in the form
attached hereto as EXHIBIT 3.
[h] Primis shall have received the opinion of
InspecTech's counsel substantially in the form of EXHIBIT 4 attached
hereto.
[i] Immediately prior to the Closing, (x) each share
of InspecTech Preferred Stock owned by any non-accredited investor, as
such term is defined in Rule 501 promulgated under the Securities Act
and as designated in Section 5.3 of the InspecTech Disclosure Letter,
shall have been converted into InspecTech Common Stock, and Primis
shall be satisfied, in its sole reasonable discretion, that each holder
of InspecTech Preferred Stock receiving Primis Common Stock in the
Merger is an accredited investor, as such term is defined in such Rule
501, (y) the transactions contemplated by that certain Common Stock
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Purchase Agreement dated as of January ___, 2000 between Primis and
Shareholders shall have been consummated, and (z) the transactions
contemplated by that certain Note Purchase Agreement dated as of
January ___, 2000 by and between Primis and the Sellers named therein
shall have been consummated.
10.3 CONDITIONS TO OBLIGATIONS OF INSPECTECH. The obligations of
InspecTech to perform this Agreement and the Plan of Merger and consummate
the Merger and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by InspecTech
pursuant to Section 17 of this Agreement:
[a] The representations and warranties of Primis set
forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
with the same effect as though all such representations and warranties
had been made on and as of the Effective Time (provided that
representations and warranties which are confined to a specified date
shall speak only as of such date).
[b] Each and all of the agreements and covenants of
Primis to be performed and complied with pursuant to this Agreement and
the other agreements contemplated hereby prior to the Effective Time
shall have been duly performed and complied with in all material
respects.
[c] Primis shall have delivered to InspecTech (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its duly authorized officers, to the effect that the conditions of its
obligations set forth in Sections 10.3(a) and 10.3(b) of this Agreement
have been satisfied and (ii) certified copies of resolutions duly
adopted by Primis's and Acquisition Corp's Board of Directors
evidencing the taking of all corporate action necessary to authorize
the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby, all in such
reasonable detail as InspecTech and its counsel shall request.
[d] InspecTech shall have received the opinion of
Primis's counsel substantially in the form of EXHIBIT 5 attached
hereto.
[e] There shall not have been any material adverse
change in the Primis Assets or business, working capital, liabilities,
financial condition, business prospects or relationships with any
material suppliers or material customers or any material change or any
material commitment or transaction of any nature that would materially
adversely affect the business of Primis or any agreement in writing to
take any action that would have such effect.
11. TERMINATION. Notwithstanding any other provision of this Agreement
and the Plan of Merger, and notwithstanding the approval of this Agreement by
the stockholders of InspecTech or Primis, this Agreement may be terminated and
the Merger abandoned at any time prior to the Effective Time:
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[a] By mutual consent of the Board of Directors of
Primis and the Board of Directors of InspecTech; or
[b] By the Board of Directors of either party
(provided that the terminating party is not then in material breach of
any representation or warranty contained in this Agreement) in the
event of an inaccuracy in any material respect of any representation or
warranty of the other party contained in this Agreement which cannot be
or has not been cured within 30 days after the giving of written notice
to the breaching party of such inaccuracy; or
[c] By the Board of Directors of either party
(provided that the terminating party is not then in material breach of
any representation or warranty contained in this Agreement) in the
event of a material breach by the other party of any covenant or
agreement contained in this Agreement which cannot be or has not been
cured within 30 days after the giving of written notice to the
breaching party of such breach; or
[d] By the Board of Directors of either party in the
event that the Merger shall not have been consummated by January 31,
2000, if the failure to consummate the transactions contemplated hereby
on or before such date is not caused by any breach of this Agreement by
the party electing to terminate pursuant to this Section.
In the event of the termination and abandonment of this
Agreement, this Agreement and the Plan of Merger shall become void and have no
effect, except that the provisions of this Section 11 and Sections 9.4 and 20 of
this Agreement shall survive any such termination and abandonment.
12. DEFINITIONS. Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"ACQUISITION CORP" shall mean the wholly-owned subsidiary of
Primis organized under the Laws of the State of Delaware.
"ACQUISITION CORP COMMON STOCK" shall mean the $.001 par value
common stock of Acquisition Corp.
"ACQUISITION PROPOSAL" with respect to a party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition of all
of the stock or Assets of, or other business combination involving such party or
any of its Subsidiaries or the acquisition of a substantial equity interest in,
or a substantial portion of the Assets of, such party or any of its
Subsidiaries.
"AFFILIATE" of a person shall mean any other person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control with such person.
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"AGREEMENT" shall mean this Agreement and Plan of
Reorganization, including the Exhibits hereto delivered pursuant hereto and
incorporated herein by reference.
"ASSETS" of a person shall mean all of the assets, properties,
businesses, and rights of such person of every kind, nature, character, and
description, whether real, personal, or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such person's business,
directly or indirectly, in whole or in part, whether or not carried on the books
and records of such person, and whether or not owned in the name of such person
or any Affiliate of such person and wherever located.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger
to be executed by Acquisition Corp and filed with the Secretary of State of the
State of Delaware and the Secretary of State of the State of California relating
to the Merger as contemplated by Sections 1.1 and 1.3 of this Agreement.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any person pursuant to
any contract, Law, order, or permit.
"DGCL" shall mean the Delaware General Corporation Law.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code
of 1986, as amended.
"INSPECTECH CAPITAL STOCK" shall mean InspecTech Common Stock
and InspecTech Preferred Stock.
"INSPECTECH COMMON STOCK" shall mean the no par value common
stock of InspecTech.
"INSPECTECH DISCLOSURE LETTER" shall mean the letter delivered
prior to the execution of this Agreement to Primis describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section or subsection of this Agreement
under which such disclosure is being made.
"INSPECTECH PREFERRED STOCK" shall mean the no par value
preferred stock of InspecTech, of which 4,454,546 shares have been designated
Series A1 Preferred Stock.
"INSPECTECH STOCK PLANS" shall mean the existing stock option
and other stock-based compensation plans of InspecTech as disclosed in the
InspecTech Disclosure Letter.
"INSPECTECH SUBSIDIARIES" shall mean the Subsidiaries of
InspecTech, which shall include the InspecTech Subsidiaries described in Section
5.4 of this Agreement and any corporation,
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or other organization acquired as a Subsidiary of InspecTech in the future and
owned by InspecTech at the Effective Time.
""INSPECTECH WARRANTS"" shall mean the warrants to acquire
InspecTech Common Stock described on Section 5.3 of the InspecTech Disclosure
Letter.
"LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a person or
its Assets, liabilities, or business, including those promulgated, interpreted,
or enforced by any Regulatory Authority.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention,
or other security arrangement, or any adverse right or interest, charge, or
claim of any nature whatsoever of, on, or with respect to any property or
property interest, other than Liens for property taxes not yet due and payable.
"PLAN OF MERGER" shall mean the plan of merger providing for
the Merger, in substantially the form of Exhibit 1.
"PRIMIS CAPITAL STOCK" shall mean, collectively, the Primis
Common Stock, the Primis Preferred Stock and any other class or series of
capital stock of Primis.
"PRIMIS COMMON STOCK" shall mean the $.01 par value common
stock of Primis.
"PRIMIS DISCLOSURE LETTER" shall mean the letter delivered
prior to the execution of this Agreement to InspecTech describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section or subsection of this Agreement
under which such disclosure is being made.
"PRIMIS PREFERRED STOCK" shall mean the $.01 par value Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock of
Primis.
"REGULATORY AUTHORITIES" shall mean, collectively, all federal
and state regulatory agencies having jurisdiction over the parties and their
respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a person.
"RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings, warrants, or
other binding obligations of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock of a
Person or by which a Person is or may be bound to issue additional shares of its
capital stock or other Rights.
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"SEC" shall mean the United States Securities and Exchange
Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SECURITIES LAWS" shall mean the Securities Act, the 1934 Act,
the Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated thereunder.
"SUBSIDIARIES" shall mean all those corporations or other
entities of which the entity in question owns or controls 50% or more of the
outstanding equity securities either directly or through an unbroken chain of
entities as to each of which 50% or more of the outstanding equity securities is
owned directly or indirectly by its parent.
"SURVIVING CORPORATION" shall mean Acquisition Corp as the
surviving corporation resulting from the Merger.
13. PUBLIC STATEMENTS. Except as required by law, neither
InspecTech, Shareholders nor Primis shall, without the prior written approval
of the other party hereto, make any press release or other public
announcement concerning the transactions contemplated by this Agreement.
Primis, InspecTech and Shareholders may disclose information with respect to
the transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information or as may be required by law, rule, regulation, decree
or court order.
14. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed
by first class, registered, or certified mail, postage prepaid, or sent via
overnight courier service, or delivered personally and sent by facsimile:
(a) If to Primis or Acquisition Corp:
Primis, Inc.
Attn.: Chief Executive Officer
11475 Great Oaks Way
Suite 320
Alpharetta, Georgia 30022
(770) 777-8600 (telephone)
(770) 777-8591 (facsimile)
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<PAGE>
With a copy to:
Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, Kentucky 40202
(502) 589-5235 (telephone)
(502) 589-0309 (facsimile)
(b) If to InspecTech:
InspecTech, Inc.
Attn.: Donald Bonnell, President
2527 Camino Ramon, Suite 375
San Ramon, California 94583-4276
(925) 358-0250 (telephone)
(925) 358-0258 (facsimile)
With a copy to:
Ronald H. Star, Esq.
Howard, Rice, et al
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
(415) 434-1600 (telephone)
(415) 217-5910 (facsimile)
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
15. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of either party to this Agreement shall bind and inure to the benefit of their
respective heirs, executors, successors, and assigns, whether so expressed or
not. Nothing in this Agreement, express or implied, is intended to confer upon
any party other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable (whether by merger, operation
of law or otherwise) and any purported assignment shall be null and void.
16. CONSTRUCTION; GOVERNING LAW. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
California, without regard to the principles of conflicts of laws thereof.
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<PAGE>
17. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement, including
the InspecTech Disclosure Letter and Exhibits hereto, constitutes and contains
the entire agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior writing by the parties. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of Company and
Primis (or its permitted assigns). Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities have been converted), each future holder
of all such securities, and Company.
18. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
20. EXPENSES. Each party shall pay their respective legal and out-of-
pocket expenses incurred in connection with this Agreement and the transactions
contemplated hereby.
21. TIME OF ESSENCE. Time is of the essence to the performance of the
obligations set forth in this Agreement.
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IN WITNESS WHEREOF, InspecTech, Primis and Acquisition Corp
have caused this Agreement to be executed as of the day and year first written
above.
"InspecTech"
INSPECTECH CORPORATION
By:_______________________________
Title:____________________________
"Primis"
PRIMIS, INC.
By: ______________________________
Title: ___________________________
PRIMIS ACQUISITION CORP.
By:_______________________________
Title:____________________________
<PAGE>
EXHIBIT 10.21
CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
THIS CONVERTIBLE PROMISSORY NOTE AND WARRANT PURCHASE
AGREEMENT ("Agreement") is made and entered into as of the 18th day of January,
2000, by and among [i] PRIMIS, INC., a Georgia corporation ("the Company"), and
[ii] those entities and persons whose names are set forth on SCHEDULE 1 attached
hereto (each an "Investor" and collectively the "Investors").
RECITALS:
WHEREAS, the Company desires to sell and issue, and each
Investor desires to purchase and acquire, convertible promissory notes (the
"Notes") with an aggregate principal amount of Nine Million Seven Hundred
Twenty-One Thousand Eight Hundred Sixty-Two Dollars ($9,721,862.00); and
WHEREAS, in consideration of the purchase by the Investors of
the Notes, the Company desires to sell and issue warrants (the "Warrants") to
purchase shares of Series C Convertible Preferred Stock or Common Stock of the
Company as determined in the Warrants.
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, the Company and the Investors agree as follows:
1. AUTHORIZATION AND ISSUANCE OF NOTES AND WARRANTS.
1.1. AUTHORIZATION. The Company has authorized the sale and
issuance of the Notes and Warrants to the Investors.
1.2. SALE AND ISSUANCE OF NOTES. Subject to the terms and
conditions hereof, the Company agrees to sell and issue to
each of the Investors, and the Investors severally agree to
purchase from the Company, a Note in the form attached as
EXHIBIT A hereto, in the amount set forth opposite such
Investor's name on SCHEDULE 1 hereto.
1.3. SALE AND ISSUANCE OF WARRANTS. Subject to the terms and
conditions hereof, the Company agrees to sell and issue to
each of the Investors, and the Investors severally agree to
purchase from the Company, Warrants in the form attached
hereto as EXHIBIT B.
2. CLOSING.
2.1. CLOSING; CLOSING DATE. The closing of the issuance of the
Notes and Warrants under this Agreement (the "Closing") shall
take place on the date of this
<PAGE>
Agreement (the "Closing Date"), in accordance with
arrangements mutually satisfactory to the Investors and
counsel for the Company.
2.2. CLOSING DELIVERY. At the Closing, upon delivery to the Company
by each Investor, by wire transfer or check made payable to
the order of the Company, of the aggregate purchase price for
the Note and the Warrant set forth opposite such Investor's
name on SCHEDULE 1 hereto, the Company will deliver to each
Investor (a) a Note payable to the Investor in the principal
amount set forth opposite such Investor's name on SCHEDULE 1
hereto and (b) a Warrant to purchase that number of shares of
Series C Preferred Stock or Common Stock as provided for in
the Warrant.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the disclosure letter dated the date hereof delivered by the Company to
each Investor (the "Disclosure Letter"), the Company hereby represents
and warrants to each Investor as follows:
3.1. CORPORATE STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the
laws of Georgia. The Company has all requisite power and
authority to own, lease and operate its properties and to
carry on its business as now being conducted and as presently
proposed to be conducted, to execute, deliver and perform this
Agreement and any other agreement to which the Company is a
party, the execution and delivery of which is contemplated
hereby (the "Ancillary Agreements"). The Company is duly
qualified and is authorized to transact business and is in
good standing as a foreign corporation in each jurisdiction in
which the failure so to qualify would have a material adverse
effect on its business, properties, prospects, or financial
condition. True and accurate copies of the articles of
incorporation, as amended (the "Amended Articles") and bylaws
of the Company (and all amendments thereto) and minute book of
the Company (containing the records of meetings and written
consents of the stockholders, the board of directors and any
committees of the board of directors) have previously been
made available to Investors upon request.
3.2. AUTHORIZATION. The execution and delivery of this Agreement
and any Ancillary Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of
the Company. Each of this Agreement and any Ancillary
Agreement have been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the
Company enforceable against it in accordance with its terms.
3.3. CAPITALIZATION. As of the Closing Date, the authorized capital
stock of the Company shall consist of 23,000,000 shares par
value $0.01 per share, divided into: (i) 15,000,000 shares of
Common Stock, and (ii) 8,000,000 shares of preferred stock
("Preferred Stock") of which (a) 1,200,000 shares have been
designated Series A Convertible Preferred Stock ("Series A
Preferred Stock"), (b)
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3,000,000 shares have been designated Series B Convertible
Preferred Stock ("Series B Preferred Stock"), (c) 2,500,000
shares have been designated Series C Convertible Preferred
Stock ("Series C Preferred Stock") and (d) the remaining
1,300,000 shares of which shall have such preferences,
limitations and relative rights as may be determined by the
Board of Directors pursuant to Article IV(B) of the Articles.
Immediately prior to the Closing, 100% of the outstanding
shares of Common Stock of the Company, 100% of the outstanding
shares of Series A Convertible Preferred Stock and 100% of the
outstanding shares of Series B Convertible Preferred Stock are
owned by the stockholders and in the amounts specified in
Section 3.3 of the Disclosure Letter and no shares of Series C
Preferred Stock or other Preferred Stock are outstanding. The
outstanding shares of Common Stock, Series A Preferred Stock
and Series B Preferred Stock have been duly authorized and
validly issued, and fully paid and nonassessable. Except as
set forth in Section 3.3 of the Disclosure Letter, there are
outstanding no subscriptions, options, warrants, calls,
commitments or rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder
agreements or agreements of any character relating to shares
of the Company's capital stock or the instruments that can be
converted into shares of the Company's capital stock to be
issued hereunder. None of the shares of the Company's capital
stock have been issued in violation of any preemptive right.
There are no contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of capital
stock of the Company. No bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or
exercisable for securities having the right to vote) on any
matters on which shareholders of the Company may vote are
issued or outstanding. The Company is not a party to or
subject to any agreement or understanding, and, to the
Company's best knowledge, there is no agreement or
understanding between any persons that affects or relates to
the voting or giving of written consents with respect to any
security or the voting by any director of the Company.
3.4. VALIDLY ISSUED SHARES. The Notes and Warrants to be issued,
sold and delivered in accordance with the terms of this
Agreement for the consideration set out herein, will, upon
issuance in accordance with the terms hereof, be duly and
validly issued, fully paid and nonassessable, free of
restrictions on transfer other than restrictions on transfer
under applicable federal and state securities laws. The
issuance of the Notes and Warrants to Investors pursuant to
this Agreement will comply with all applicable laws, including
federal and state securities laws (assuming the accuracy of
the representations and warranties of Investors set forth in
Section 4.1 through 4.6 of this Agreement), and will not
violate the preemptive rights of any person. The shares of
Series C Preferred Stock and/or Common Stock issuable upon
conversion of the Notes and exercise of the Warrants being
purchased under this Agreement will be, upon issuance and
delivery in accordance with the terms of the Amended Articles,
the Notes and the Warrants, duly and validly issued, fully
paid and nonassessable and free of restrictions on transfer
other than restrictions on transfer under this Agreement, the
Amended and
3
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Restated Shareholders' Agreement dated as of June 16, 1998 by
and among the Company and certain of its shareholders, and
under applicable federal and state securities laws (other than
those restrictions, if any, created by Investors). The
issuance of the shares of Series C Preferred Stock or Common
Stock upon conversion of the Notes or exercise of the Warrants
and upon conversion of such Series C Preferred Stock will
comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations
set forth in Section 4.1 through 4.6 of this Agreement as of
the date of issuance of such shares of Series C Preferred
Stock and Common Stock), and will not violate the preemptive
rights of any person.
3.5. NO CONFLICT. The execution and delivery of this Agreement and
any Ancillary Agreement do not, and the consummation of the
transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default (with
or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration
of any obligation or the loss of a material benefit under, or
the creation of a lien, pledge, security interest, charge or
other encumbrance on assets (any such conflict, violation,
default, right of termination, cancellation or acceleration,
loss or creation, a "Violation") pursuant to, any provision of
the Amended Articles or the Bylaws of the Company, or result
in any Violation of any material lease, agreement, obligation,
instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or the Company's properties or
assets.
3.6. CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. The Company is
not in violation or default of any provision of its Amended
Articles or Bylaws of the Company or in any respect of any
provision of any material contract to which the Company is a
party or by which it is bound.
3.7. SUBSIDIARIES. Except as set forth in Section 3.7 of the
Disclosure Letter, the Company does not own or control,
directly or indirectly, any interest in any other corporation,
partnership, limited liability company, association or other
business entity. Except as set forth in Section 3.7 of the
Disclosure Letter, the Company is not a participant in any
joint venture, partnership or similar arrangement.
3.8. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with,
any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or
foreign, or other third party is required by or with respect
to the Company in connection with the execution and delivery
of this Agreement or any Ancillary Agreement, or the
consummation by the Company of the transactions contemplated
hereby or thereby, which has not already been obtained, except
for notices of sale required to be filed with the Securities
and Exchange Commission,
4
<PAGE>
or such post closing filings as may be required under
applicable state securities laws which will be timely filed
within the applicable periods therefor.
3.9. FINANCIAL STATEMENTS. The Company has delivered to the
Investors prior to the date hereof its audited financial
statements for the years ended December 31, 1997 and December
31, 1998, and its unaudited financial statements (balance
sheet and profit and loss statement) for the nine (9) month
period ended September 30, 1999 (the "Financial Statements").
The Financial Statements, including any footnotes thereto,
were prepared in accordance with generally accepted accounting
principles and fairly present the financial position and
operating results of the Company as of the dates and for the
periods indicated therein. Since September 30, 1999, there has
not been any material adverse change in the assets,
liabilities, financial condition, results of operation or
prospects of the Company.
3.10. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES.
Except as and to the extent reflected and adequately reserved
against in the Financial Statements, and except as set forth
in Section 3.10 of the Disclosure Letter, as of the Closing
Date, the Company has no direct or indirect indebtedness for
borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or
other security arrangements with any bank, financial
institution or other third party.
3.11. TITLE TO PROPERTY AND ASSETS; LEASES. Except as set forth in
Section 3.11 of the Disclosure Letter, the Company owns no
real property in fee simple. The Company has good, valid and
marketable title to all the personal and mixed, tangible and
intangible properties and assets which it purports to own,
free and clear of all liens, restrictions, claims, charges,
security interests, easements or other encumbrances of any
nature whatsoever, except for liens for current taxes not yet
due and payable. With respect to the property and assets that
it leases, the Company is in compliance with such leases and,
to the Company's knowledge, holds a valid leasehold interest
therein free and clear of any liens, claims and encumbrances.
All properties and assets of the Company are in the possession
or control of the Company, and no other person is entitled to
possession of any such properties and assets. The Company is
not bound or committed to make any capital improvement or
expenditure with respect to its owned or leased real or
personal property.
3.12. LEGAL PROCEEDINGS. Except as set forth in the Disclosure
Letter or which are not material to the Company, there are no
claims of any kind or any actions, suits, proceedings,
arbitrations or investigations pending or, to the Company's
knowledge, threatened against or affecting the Company or
against any asset, interest or right of the Company or which
questions the validity of the transactions contemplated by
this Agreement and the Company knows of no facts which may
constitute a basis therefor.
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<PAGE>
3.13. ENVIRONMENTAL MATTERS. The Company is not in violation of any
applicable statute, law or regulation relating to the
environment or occupational health and safety (the
"Environmental Laws"), and, to the Company's knowledge, as of
the date hereof no material expenditures are required to be
made by the Company in order to comply with any of the
Environmental Laws.
3.14. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as set
forth in Section 3.14 of the Disclosure Letter, the Company
holds all franchises, permits, licenses, variances,
exemptions, orders and approvals of all governmental entities
which are material to the operation of the Company's business
and is in compliance with the terms thereof. The Company has
complied with and is not in any default under (and has not
been charged with or received notice with respect to, nor is
threatened with or under investigation with respect to, any
charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or
administrative) or any order, writ, injunction or decree of
any court, agency or instrumentality and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of
them alleging any failures to comply.
3.15. EMPLOYEE BENEFIT PLANS. Except as set forth in Section 3.15 of
the Disclosure Letter, the Company has no employee benefit
plans including any profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase,
phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan,
arrangement or understanding (whether or not legally binding)
providing benefits to any current or former employee, officer
or director of the Company (collectively "Benefit Plans"), or
any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding
between the Company and any officer, director or employee of
the Company. Each Benefit Plan has been administered in all
material respects in accordance with its terms and all
applicable laws.
3.16. LABOR RELATIONS.
(a) The Company is in compliance in all material respects with
all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages
and hours and occupational safety and health;
(b) There is no unfair labor practice charge or complaint or
any other matter against or involving the Company pending
or, to the Company's knowledge, threatened before the
National Labor Relations Board or any court of law;
(c) There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the Company's knowledge,
threatened against the Company;
6
<PAGE>
(d) The Company is not a party to or bound by any collective
bargaining agreement or any similar labor union
arrangement;
(e) There are no charges, investigations, administrative
proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital
status, race, color, religion, national origin, sexual
preference, disability, handicap or veteran status)
pending or, to the Company's knowledge, threatened, before
the Equal Employment Opportunity Commission or any
federal, state or local agency or court against the
Company. There have been no governmental audits of the
equal employment opportunity practices of the Company and,
to the Company's knowledge, no basis for any such claim
exists; and
(f) To the Company's knowledge, the Company is in compliance
in all material respects with the requirements of the
Americans With Disabilities Act.
3.17. INSURANCE. Section 3.17 of the Disclosure Letter sets forth a
list of all insurance policies, including property, casualty,
liability and other insurance maintained with respect to the
assets and business of the Company (the "Company Insurance").
The Company is not liable for any material retroactive premium
adjustments with respect to any of its insurance policies or
bonds. All such policies and bonds are legal, valid and
enforceable and in full force and effect and the Company is
not in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has
occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination,
modification or acceleration under the policy. The Company has
not received any notice of premium increases or cancellations
with respect to any of such policies and bonds. The Company
believes the amount and type of such insurance coverage is
adequate for the Company's business and is consistent with
good business practice.
3.18. TAX MATTERS. The Company has timely filed or caused to be
filed all federal, state, foreign and local income, franchise,
gross receipts, payroll, sales, use, withholding, occupancy,
excise, real and personal property, employment and other tax
returns, tax information returns and reports ("Tax Returns")
required to be filed and all such Tax Returns were correct and
complete in all respects. The Company has paid, or made
adequate provisions for the payment of, all taxes, duties or
assessments of any nature whatsoever, interest payments,
penalties and additions (whether or not reflected in the
returns as filed) due and payable (and/or properly accruable
for all periods ending on or before the date of this
Agreement) to any city, county, state, foreign country, the
United States or any other taxing authority. There are no
security interests on any of the assets of the Company that
arise in connection with any failure (or alleged failure) to
pay any tax. The Company has withheld and paid all taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent
7
<PAGE>
contractor, creditor, stockholder or other third party. No
deficiencies for any taxes have been proposed, asserted or
assessed against the Company that are not adequately reserved
for.
3.19. PATENTS AND TRADEMARKS. The Company owns or possesses
sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses,
information, and proprietary rights and processes necessary
for its business as now conducted and as proposed to be
conducted without any conflict with, or infringement of the
rights of, others. Except for agreements with its own
employees or consultants and standard end-user license
agreements, if any, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing,
nor is the Company bound by or a party to any options,
licenses, or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, and proprietary rights
and processes of any other person or entity. The Company has
not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade
names, copyrights, trade secrets, or other proprietary rights
or processes of any other person or entity. The Company is not
aware that any of its employees is obligated under any
contract (including licenses, covenants, or commitments of any
nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts
to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the
Company, nor the conduct of the Company's business as
proposed, will, to the Company's knowledge, conflict with or
result in a breach of the terms, conditions, or provisions of,
or constitute a default under, any contract, covenant, or
instrument under which any of such employees is now obligated.
The Company does not believe it is or will be necessary to use
any inventions of any of its employees (or persons it
currently intends to hire) made prior to their employment by
the Company. Each independent contractor, employee and/or
officer of the Company who or which has contributed to the
development of the Computer Software (as defined in Section
3.21) has executed proprietary information/confidentiality
agreements.
3.20. RELATED-PARTY TRANSACTIONS. Except as set forth in Section
3.20 of the Disclosure Letter, no employee, officer, or
director of the Company, or member of his or her immediate
family is indebted to the Company, nor is the Company indebted
(or committed to make loans or extend or guarantee credit) to
any of them. To the Company's knowledge, none of such persons
has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which
the Company has a business relationship, or any firm or
corporation that competes with the Company, except that
employees, officers, or directors of the Company, and members
of their immediate families may own stock in publicly
8
<PAGE>
traded companies that may compete with the Company. Except as
set forth in Section 3.20 of the Disclosure Letter, no
employee, officer or director of the Company, or, to the
Company's knowledge, any member of their immediate families
is, directly or indirectly, interested in any material
contract with the Company. For purposes of this Agreement, the
Company shall be deemed to have knowledge of a fact, event,
condition, matter or situation if any of the Company's
officers or directors are consciously aware of such fact,
event, condition, matter or situation, as appropriate.
3.21. SOFTWARE PRODUCTS. The Company has received no customer
complaints concerning alleged defects in its computer
appraisal software products, including, without limitation,
Value Express (collectively, the "Computer Software"), that,
if true, would materially adversely affect the operations or
financial condition of the Company.
3.22. BROKERS' AND FINDERS' FEES. The Company has not employed any
broker, finder or financial advisor or incurred any liability
for fees or commissions payable to any broker, finder or
financial advisor in connection with the negotiations relating
to or the transactions contemplated by this Agreement.
3.23. QUALIFIED SMALL BUSINESS STOCK.. As of and immediately
following the Closing, the shares of Series C Preferred Stock
and/or issuable upon conversion of the Notes and exercise of
the Warrants will meet each of the requirements for
qualification as "qualified small business stock" set forth in
Section 1202(c) of the Code, including without limitation the
following: (i) the Company will be a domestic C Corporation;
(ii) the Company will not have made any purchases of its own
stock as described in Code Section 1202(c)(3)(B) during the
one year period preceding the Closing; (iii) the Company's
(and any predecessor's) aggregate gross assets, as defined by
Code Section 1202(d)(2), at no time between August 1, 1997 and
through the Closing have exceeded or will exceed Fifty Million
Dollars ($50,000,000), taking into account the assets of any
corporation required to be aggregated with the Company in
accordance with Code Section 202(d)(3); (iv) as of the
Closing, at least eighty percent (80%) (by value) of the
assets of the Company will, by virtue of Code Section
1202(e)(6), be considered to be used by it in the active
conduct of one or more qualified trades or businesses, as
defined by Code Section 1202(e)(3); and (v) the Company is an
eligible corporation, as defined by Code Section 1202(e)(4).
3.24. MATERIAL FACTS. The Company has provided each Investor with
all the information reasonably available to it that such
Investor has requested for deciding whether to purchase the
Notes and Warrants. This Agreement and the documents or
written statements furnished by the Company to Investors in
connection with the transactions contemplated hereby do not
contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements
contained
9
<PAGE>
herein or therein, in light of the circumstances in which they
are made, not misleading.
4. INVESTMENT REPRESENTATIONS. Each Investor hereby represents and
warrants to the Company, severally and not jointly, as of the date
hereof, as follows:
4.1. It is acquiring the Note and Warrants for its own account, not
as nominee or agent, for investment and not with a view to, or
for resale in connection with, any distribution or public
offering of the Note, the Warrants, or any shares deliverable
upon conversion of the Notes or exercise of the Warrants
within the meaning of the Securities Act of 1933, as amended
(the "1933 Act").
4.2. It understands that (i) the Note, Warrants, and any shares
deliverable upon conversion of the Notes or exercise of the
Warrants have not been registered under the 1933 Act by reason
of a specific exemption therefrom, that they must be held by
it indefinitely, and that Investor must, therefor, bear the
economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the 1933
Act or is exempt from such registration; and (ii) the Note,
Warrants, and each certificate representing the Warrant Shares
will be endorsed with the following legends, as applicable:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR PURSUANT TO RULE
144 OR AN OPINION OF COUNSEL SATISFACTORY TO PAYOR
THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT DATED
JUNE 16, 1998 BY AND BETWEEN PRIMIS, INC. AND CERTAIN
OF ITS SHAREHOLDERS.
4.3. It has been furnished with such materials and has been given
access to such information relating to the Company as it or
its qualified representative has requested and it has been
afforded the opportunity to ask questions regarding the
10
<PAGE>
Company, the Notes, and the Warrants, all as it has found
necessary to make an informed investment decision.
4.4. It is experienced in evaluating and investing in private
placement transactions of securities of companies in a similar
stage or development and acknowledges that it is able to fend
for itself, can bear the economic risk of such its investment,
and has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits
and risks of the investment in the Notes and Warrants.
4.5. If it is a corporation, partnership, trust, or other entity,
it was not formed for the specific purpose of acquiring the
Notes or Warrants offered hereunder.
4.6. It is an "accredited investor" as provided under the 1933 Act
and regulations adopted thereunder and is a resident of or
domiciled in the state listed on SCHEDULE 1 hereto; and all
information supplied by it to the Company with respect to its
purchase of the Notes and Warrants has been and shall be true,
complete, and accurate.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement by any party to this Agreement
and any certificate or other instrument delivered by or on behalf of
any party pursuant to this Agreement shall be continuous and shall
survive the Closing and the issuance of the Notes, the Warrants and all
shares of the Company's capital stock thereunder. Each party shall have
the right to rely on each other party's representations and warranties
made herein, notwithstanding any investigation conducted by such party.
6. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees as follows:
6.1. USE OF PROCEEDS. The proceeds from the sale of the Notes and
Warrants pursuant to this Agreement shall be used by the
Company for working capital, to make acquisitions and for
other corporate purposes.
6.2. FINANCIAL REPORTING. Subject to Section 6.3, the Company shall
furnish to the Investors:
(a) an audited balance sheet and statements of income and cash
flow within ninety (90) days after the end of each fiscal
year, together with comparative figures for the last
preceding fiscal year prepared by a firm of certified
public accountants acceptable from time to time to a
majority in interest of the outstanding Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock
and Common Stock of the Company voting together as a
single class on an as if converted basis;
(b) as soon as available, and in any event within thirty (30)
days after the close of each calendar month, an unaudited
balance sheet and statement of income and
11
<PAGE>
cash flows for such month, together with comparative
figures for both the month just ended and the portion of
the fiscal year then ended, and a written one or two page
monthly summary of the Company's operations. Such
financial statements shall be prepared in accordance with
generally accepted accounting principles consistently
applied (subject to audit and year-end adjustments) by the
principal financial or accounting officer of the Company;
(c) as soon as available, and in any event within thirty (30)
days before the close of each fiscal year, a business plan
and projections for the Company's next fiscal year; and
(d) such additional information with respect to the Company's
financial condition as may be reasonably requested by the
Investors.
6.3. TERMINATION OF COVENANTS. The covenants set forth in Section
6.2 shall terminate and be of no further force or effect at
such time as the Company is required to file reports pursuant
to Sections 13 or 15(d) of the Securities Exchange Act of
1934.
6.4. RESERVATION OF SHARES. On and after the Closing Date, the
Company will reserve and keep reserved at all times sufficient
shares of Series C Preferred Stock and/or Common Stock for
issuance upon conversion of the Notes and exercise of the
Warrants (and a correspondingly sufficient number of shares of
Common Stock for issuance upon conversion of such Series C
Preferred Stock). Immediately prior to the occurrence of any
event that would cause the number of shares of Series C
Preferred Stock and/or Common Stock or type of securities into
which the Notes and Warrants would be convertible, to be
adjusted, the Company shall take any and all actions necessary
to permit such conversion or exercise. Upon conversion of the
Notes and/or exercise of the Warrants, the Company will
promptly issue and deliver the shares of Series C Preferred
Stock and/or Common Stock required to be delivered. Upon
conversion of such Series C Preferred Stock, the Company will
promptly issue and deliver the shares of Common Stock in
accordance with the Amended Articles.
7. MISCELLANEOUS.
7.1. CONSTRUCTION; GOVERNING LAW. The section headings contained in
this Agreement are inserted as a matter of convenience and
shall not affect in any way the construction of the terms of
this Agreement. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of
Georgia.
7.2. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this
Agreement by or on behalf of any of the parties to this
Agreement shall bind and inure to the benefit of their
respective heirs, executors, successors, and assigns, whether
so expressed or not. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the
parties hereto and their respective successors and assigns any
rights,
12
<PAGE>
remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable and any
purported assignment shall be null and void.
7.3. ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Disclosure Letter and the other documents
delivered pursuant hereto constitute the full and entire
understanding and agreement among the parties with regard to
the subjects hereof and no party shall be liable or bound to
any other party in any manner by any representations,
warranties, covenants, or agreements except as specifically
set forth herein or therein.
7.4. SEPARABILITY. Any invalidity, illegality, or limitation of the
enforceability with respect to any Investor of any one or more
of the provisions of this Agreement, or any part thereof,
whether arising by reason of the law of any such Investor's
domicile or otherwise, shall in no way affect or impair the
validity, legality, or enforceability of this Agreement with
respect to other Investors. In case any provision of this
Agreement shall be invalid, illegal, or unenforceable, the
validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired
thereby.
7.5. AMENDMENT AND WAIVER. Any term of this Agreement may be
amended and the observance of any term of this Agreement may
be waived with the written consent of the Company and the
Investors holding more than two-thirds of the outstanding
principal amount of the Notes. Any amendment or waiver
effected in accordance with this paragraph shall be binding
upon each holder of any securities purchased under this
Agreement at the time outstanding (including securities into
which such securities have been converted), each future holder
of all such securities, and the Company.
7.6. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and
shall be mailed by first class, registered, or certified mail,
postage prepaid, or sent via overnight courier service, or
delivered personally:
If to Investors to the address set forth opposite their name
on SCHEDULE 1 hereto.
If to the Company to: Primis, Inc.
Suite 320
11475 Great Oaks Way
Alpharetta, GA 30022
Attn: C. James Schaper,
President and CEO
or to such other address of which the addressee shall have
notified the sender in writing. Notices mailed in accordance
with this section shall be deemed given
13
<PAGE>
when mailed, and notices sent by overnight courier service
shall be deemed given when placed in the hands of a
representative of such service.
7.7. ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement
or any Ancillary Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such
party may be entitled.
7.8. PUBLIC STATEMENTS. Neither the Company nor Investors shall,
without the prior written approval of the other parties
hereto, make any press release or other public announcement
concerning the transactions contemplated by this Agreement.
Investors and the Company may disclose information with
respect to the transaction contemplated hereby to their
respective employees, agents, consultants and third parties
only to the extent such persons have a need to know such
information.
7.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one instrument.
7.10. RIGHTS OF INVESTORS. Each holder of Notes and Warrants shall
have the absolute right to exercise or refrain from exercising
any right or rights that such holder may have by reason of
this Agreement or any Notes and Warrants, including without
limitation the right to consent to the waiver of any
obligation of the Company under this Agreement and to enter
into an agreement with the Company for the purpose of
modifying this Agreement or any agreement effecting any such
modification, and such holder shall not incur any liability to
any other holder or holders of capital stock of the Company
with respect to exercising or refraining from exercising any
such right or rights.
7.11. EXCULPATION AMONG INVESTORS. Each Investor agrees that no
other Investor nor the respective agents of any other Investor
shall be liable for any action heretofore or hereafter taken
or omitted to be taken by any of them in connection with the
Notes and Warrants.
[COUNTERPART SIGNATURE PAGES TO FOLLOW]
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this counterpart signature
page to this Convertible Promissory Note and Warrant Purchase Agreement to be
signed by its duly authorized officer.
"THE COMPANY"
PRIMIS, INC.
By:___________________________________
C. James Schaper, President and CEO
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
______________________________
J. David Grissom
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
WINDCREST PARTNERS
By:_______________________________
Title: ___________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
RICHLAND VENTURES II, L.P.
By:_____________________________
Title: _________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
SOUTH ATLANTIC PRIVATE EQUITY
FUND IV, LIMITED PARTNERSHIP
By: South Atlantic Private Equity
Partners, Limited Partnership, Its
General Partner
By:________________________________________
Its General Partner
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
SOUTH ATLANTIC PRIVATE EQUITY
FUND IV (Q.P.), LIMITED PARTNERSHIP
By: South Atlantic Private Equity
Partners, Limited Partnership,
Its General Partner
By: _________________________________
Its General Partner
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Its Trading
Advisor
By:_______________________________________
Title:____________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, LLC, Its
General Partner
By:_______________________________________
Title: ___________________________________
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
CHRYSALIS VENTURES LIMITED PARTNERSHIP
By: Chrysalis Ventures, LLC, Its Manager
By: ________________________________
David A. Jones, Jr., Manager
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
JG FUNDING, LLC
By: Chrysalis Ventures, LLC, Its Manager
By:__________________________________________
David A. Jones, Jr., Manager
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
_______________________________________
W. Patrick Ortale, III
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
_____________________________
Jack Tyrrell
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
IN WITNESS WHEREOF, the undersigned Investor has caused this
counterpart signature page to this Convertible Promissory Note and Warrant
Purchase Agreement to be signed by its duly authorized representative.
"THE INVESTOR"
_______________________________________
Michael Robertson
[COUNTERPART SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT
BETWEEN PRIMIS, INC. AND THE INVESTORS NAMED HEREIN]
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
Investor Name and Address Principal Amount of Note
- ------------------------- ------------------------
<S> <C>
J. David Grissom $1,994,877
c/o Mayfair Capital
Suite 2510
400 West Market Street
Louisville, KY 40202
Windcrest Partners $ 600,000
49th Floor
122 East 42nd Street
New York, NY 10168-0130
Richland Ventures II, L.P. $2,698,230
200 31st Avenue, N.
Suite 200
Nashville, TN 37203-1304
South Atlantic Private Equity Fund IV $ 420,574
Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
South Atlantic Private Equity Fund IV $ 580,792
(Q.P.), Limited Partnership
614 W. Bay Street, Suite 200
Tampa, FL 33606
Moore Global Investments, Ltd. $2,205,287
c/o Citco Fund Services (Bahamas), Ltd.
Bahamas Financial Center
Charlotte & Shirley Street
P.O. Box CB 13136
Nassau, Bahamas
Remington Investments Strategies, L.P. $ 492,942
1251 Avenue of the Americas
New York, NY 10020
</TABLE>
<PAGE>
<TABLE>
<S> <C>
JG Funding, LLC $ 500,000
1850 National City Tower
101 South Fifth Street
Louisville, KY 40202
Jack Tyrrell
c/o Richland Ventures II, L.P. $ 86,107
200 31st Avenue, N.
Suite 200
Nashville, TN 37203-1304
W. Patrick Ortale, III
c/o Richland Ventures II, L.P. $ 43,053
200 31st Avenue, N.
Suite 200
Nashville, TN 37203-1304
Michael Robertson $ 100,000
c/o Hacienda Property Valuation
2340 Santa Rita Road
Suite 4
Pleasonton, CA 94566
</TABLE>
<PAGE>
EXHIBIT A
Form of Convertible Promissory Note
<PAGE>
EXHIBIT B
Form of Warrant
<PAGE>
EXHIBIT 10.22
STOCK PURCHASE AGREEMENT
BY AND AMONG
BLISS ASSOCIATES, INC. ("Seller"),
THE BLISS ASSOCIATES, INC. 401(k) PROFIT SHARING PLAN,
MARK R. COX,
ROLAND G. HOFFMAN,
ROBERT E. MARX,
KENNETH E. MEYERS and
GREGORY NITSCHKE
("the Selling Shareholders") and
PRIMIS INC. ("Primis")
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C> <C>
SECTION 1. SALE AND TRANSFER OF SHARES; CLOSING..................................................................1
1.1. SHARES..........................................................................................1
1.2. PURCHASE PRICE..................................................................................1
1.3. CLOSING.........................................................................................2
1.4. CASH CLOSING CONSIDERATION ADJUSTMENT...........................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER AND THE SELLING SHAREHOLDERS.................................2
2.1. CORPORATE STANDING..............................................................................2
2.2. AUTHORIZATION; BINDING AGREEMENT................................................................3
2.3. CAPITALIZATION..................................................................................3
2.4. NO CONFLICT.....................................................................................3
2.4. NO CONFLICT.....................................................................................4
2.6. SUBSIDIARIES....................................................................................4
2.7. CONSENTS........................................................................................4
2.8. FINANCIAL STATEMENTS............................................................................4
2.9. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES.....................................5
2.10. ABSENCE OF CHANGES..............................................................................5
2.11. TITLE TO PROPERTY AND ASSETS; LEASES............................................................6
2.12. LEGAL PROCEEDINGS...............................................................................6
2.13. ENVIRONMENTAL MATTERS...........................................................................6
2.14. LICENSES AND PERMITS; COMPLIANCE WITH LAWS......................................................7
2.15. EMPLOYEE BENEFIT PLANS..........................................................................7
2.16. LABOR RELATIONS................................................................................10
2.17. INSURANCE......................................................................................11
2.18. TAX MATTERS....................................................................................11
2.19. RELATED PARTY TRANSACTIONS.....................................................................11
2.20. BROKERS' AND FINDERS' FEES.....................................................................11
2.21. REGISTRATION RIGHTS............................................................................12
2.22. INTELLECTUAL PROPERTY..........................................................................12
2.23. YEAR 2000 COMPLIANCE...........................................................................12
2.24. REQUIRED VOTE OF SELLER STOCKHOLDERS...........................................................12
2.25. MATERIAL FACTS.................................................................................12
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PRIMIS..............................................................12
3.1. ORGANIZATION AND GOOD STANDING.................................................................13
3.2. AUTHORITY......................................................................................13
3.3. CAPITALIZATION.................................................................................13
</TABLE>
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<TABLE>
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3.4. NO CONFLICT....................................................................................14
3.5. SUBSIDIARIES...................................................................................14
3.6. CONSENTS.......................................................................................14
3.7. FINANCIAL STATEMENTS...........................................................................14
3.8. LEGAL PROCEEDINGS..............................................................................15
3.9. BROKERS' AND FINDERS' FEES.....................................................................15
2.10. ABSENCE OF CHANGES.............................................................................15
SECTION 4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION...........................................16
4.1. SURVIVAL.......................................................................................16
4.2. INDEMNIFICATION................................................................................16
4.3 INDEMNIFICATION BY PRIMIS......................................................................17
4.4. LIMITATIONS ON INDEMNIFICATION.................................................................17
4.5. PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS..............................................18
4.6. EXCLUSIVE NATURE OF REMEDIES...................................................................18
4.7. RIGHT TO OFFSET................................................................................18
4.8. REMEDIES.......................................................................................18
SECTION 5. CONDUCT OF BUSINESS PENDING CONSUMMATION..............................................................19
5.1. AFFIRMATIVE COVENANTS OF BOTH PARTIES..........................................................19
5.2. NEGATIVE COVENANTS OF SELLER...................................................................20
SECTION 6. ADDITIONAL AGREEMENTS.................................................................................21
6.1. AGREEMENT AS TO EFFORTS TO CONSUMMATE..........................................................21
6.2. INVESTIGATION AND CONFIDENTIALITY..............................................................21
6.3. CERTAIN ACTIONS................................................................................22
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.....................................................22
7.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY........................................................22
7.2. CONDITIONS TO OBLIGATIONS OF PRIMIS............................................................23
7.3. CONDITIONS TO OBLIGATIONS OF SELLER AND THE SELLING SHAREHOLDERS...............................24
SECTION 8. NON-COMPETITION.......................................................................................25
8.1. NON-COMPETITION AGREEMENT......................................................................25
8.2. SPECIFIC PERFORMANCE...........................................................................25
8.3. SEVERABILITY...................................................................................26
8.4. NO LIMITATION OF OTHER PROVISIONS..............................................................26
SECTION 9. GENERAL PROVISIONS....................................................................................26
9.1. TERMINATION....................................................................................26
9.2. DEFINITIONS....................................................................................27
9.3. PUBLIC STATEMENTS..............................................................................28
</TABLE>
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<TABLE>
<S> <C> <C>
9.4. NOTICES........................................................................................28
9.5. PARTIES IN INTEREST; ASSIGNMENT................................................................30
9.6. CONSTRUCTION; GOVERNING LAW....................................................................30
9.7. ENTIRE AGREEMENT; AMENDMENT AND WAIVER.........................................................30
9.8. SEVERABILITY...................................................................................31
9.9. COUNTERPARTS...................................................................................31
9.10. EXPENSES.......................................................................................31
9.11. TIME OF ESSENCE................................................................................31
9.13. DISCLOSURE LETTER..............................................................................31
</TABLE>
Exhibits
Section 4.3 Exhibit 1
Section 6.4 Exhibit 2
Section 7.2(f) Exhibit 3
Section 7.2(h) Exhibit 4
Section 7.2(i) Exhibit 5
Section 7.2(j) Exhibit 6
Section 7.3(d) Exhibit 7
iii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made and
entered into as of January 18, 2000 by and among (i) PRIMIS, INC., a Georgia
corporation ("Primis"), (ii) THE BLISS ASSOCIATES, INC. 401(k) PROFIT SHARING
PLAN (sometimes hereinafter referred to as the "Plan"), MARK R. COX, ROLAND G.
HOFFMAN, ROBERT E. MARX, KENNETH E. MEYERS, and GREGORY NITSCHKE (collectively
the "Selling Shareholders") and (iii) BLISS ASSOCIATES, INC., a Missouri
corporation ("Seller").
RECITALS
The Selling Shareholders desire to sell, and Primis desires to
purchase, all of the issued and outstanding shares of capital stock of Seller
(the "Shares"), for the consideration and on the terms set forth in this
Agreement.
AGREEMENT
In consideration of the premises and the mutual warranties,
representations, covenants and agreements herein contained and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. SALE AND TRANSFER OF SHARES; CLOSING
1.1. SHARES. Subject to the terms and conditions of this Agreement, at
the Closing (as defined in Section 1.3), the Selling Shareholders will sell and
transfer the Shares to Primis, and Primis will purchase the Shares from the
Selling Shareholders.
1.2. PURCHASE PRICE. The purchase price for the Shares (the "Purchase
Price") shall be: (i) TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000)
payable in immediately available funds at Closing (the "Cash Closing
Consideration"); provided that such Cash Closing Consideration shall be subject
to adjustment as set forth in Section 1.4 below; and (ii) ONE MILLION FIFTY-FIVE
THOUSAND DOLLARS ($1,055,000) payable in cash on the first day after the first
anniversary of the Closing (the "Deferred Consideration"). Each of portions (i)
and (ii) of the Purchase Price shall be distributed as follows:
<TABLE>
<CAPTION>
at Closing Deferred Payment
<S> <C> <C>
BLISS ASSOCIATES, INC. 401(K)
PROFIT SHARING PLAN $1,726,070.05 $1,055,000.00
MARK R. COX 117,443.85 none
ROLAND G. HOFFMAN 117,443.85 none
ROBERT E. MARX 117,443.85 none
KENNETH E. MEYERS 117,443.85 none, and
GREGORY NITSCHKE 117,443.85 none.
</TABLE>
<PAGE>
1.3. CLOSING. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of Wyatt, Tarrant & Combs in
Louisville, Kentucky, at 10:00 a.m. (local time) on January 18, 2000 or at such
other time and place as the parties may agree. Subject to the provisions of
Section 9.1, failure to consummate the purchase and sale provided for in this
Agreement on the date and time and at the place determined pursuant to this
Section 1.3 will not result in the termination of this Agreement and will not
relieve any party of any obligation under this Agreement.
1.4. CASH CLOSING CONSIDERATION ADJUSTMENT.
1.4.(a) The Cash Closing Consideration is based upon Seller
having Closing Shareholders' Equity (as defined in Section 1.4(c)) of $550,000.
The Cash Closing Consideration shall be adjusted as follows: (i) if, as set
forth on the Closing Balance Sheet (as defined in Section 1.4(b)), the Closing
Shareholders' Equity is less than $550,000, the Cash Closing Consideration shall
be decreased on a dollar for dollar basis by the amount that the Closing
Shareholders' Equity is less than $550,000; and (ii) if, as set forth on the
Closing Balance Sheet, the Closing Shareholders' Equity exceeds $550,000, the
Cash Closing Consideration shall be increased on a dollar for dollar basis by
the amount that the Closing Shareholders' Equity is in excess of $550,000 (the
"Cash Closing Consideration Adjustment").
1.4.(b) For purposes of this Section 1.4, "Closing Balance
Sheet" shall mean Seller's unaudited balance sheet as of the date of the Closing
prepared and delivered by Seller to Primis at the Closing. The Closing Balance
Sheet shall be prepared in accordance with GAAP applied on a consistent basis
with Seller's historical financial statements. Seller and its accountants shall
consult with Primis and its accountants in connection with the preparation of
the Closing Balance Sheet. The President of Seller shall deliver to Primis a
certificate to the effect that the Closing Balance Sheet was prepared on the
basis described in this Section 1.4(b).
1.4.(c) For purposes of this Section 1.4, "Closing
Shareholders' Equity" shall mean the shareholder's equity of Seller as reflected
on the Closing Balance Sheet.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE SELLING SHAREHOLDERS
Seller and the Selling Shareholders, jointly and severally, represent
and warrant to Primis as follows:
2.1. CORPORATE STANDING. Seller is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Missouri.
Seller has all requisite power and authority to: (i) own, lease and operate its
properties and to carry on its business as now being conducted and as presently
proposed to be conducted; and (ii) to execute, deliver and perform this
Agreement and any other agreement to which Seller is a party, the execution and
delivery of which is contemplated hereby or thereby. Seller is duly qualified
and is authorized to transact business and
<PAGE>
is in good standing as foreign corporation in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business,
properties, prospects or financial condition. Seller has delivered to Primis
true and complete copies of the Articles of Incorporation and Bylaws, and all
amendments thereto, of Seller.
2.2. AUTHORIZATION; BINDING AGREEMENT. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Seller and all necessary action on the part of the Plan. This Agreement has
been duly executed and delivered by Seller and Selling Shareholders and
constitutes the legal, valid and binding obligation of Seller and Selling
Shareholders enforceable against it and them in accordance with its terms except
as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally or (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
2.3. CAPITALIZATION. As of the Closing Date, the authorized capital
stock of Seller consists of (i) 30,000 shares of Common Stock, $1.00 par value
per share, of which 2,151 shares are validly issued and outstanding, fully paid
and nonassessable and owned, beneficially and of record, as set forth in Section
2.3 of the Seller Disclosure Letter. Except as set forth in Section 2.3 of the
Seller Disclosure Letter, there are outstanding no subscriptions, options,
warrants, calls, commitments or rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements or
agreements of any character relating to shares of Seller's capital stock or any
instruments that can be converted into or exchanged for shares of Seller's
capital stock. None of the shares of Seller's capital stock has been issued in
violation of any preemptive right. All issuances, sales, redemptions, transfers
or purchases of the capital stock of Seller and any involvement in any transfer
of any such stock by Seller have been in compliance with all applicable
agreements and all applicable laws, including federal and state securities laws,
and all taxes thereon, if any, have been paid. Except as set forth in Section
2.3 of the Seller Disclosure Letter, there are no contractual obligations of
Seller to repurchase, redeem or otherwise acquire any shares of capital stock of
Seller. No bonds, debentures, notes or other indebtedness having the right to
vote (or convertible into or exercisable for securities having the right to
vote) on any matters on which shareholders of Seller may vote are issued or
outstanding. Except as set forth in Section 2.3 of the Seller Disclosure Letter,
Seller is not a party or subject to any agreement or understanding, and, to
Seller's knowledge, there is no agreement or understanding between any persons
that affects or relates to the voting or giving of written consents with respect
to any security or the voting by any director of Seller.
2.4. NO CONFLICT. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of, any obligation or the loss of a material
benefit under, or the creation of a Lien, pledge, security interest, charge or
other encumbrance on assets (any such conflict, violation, default, right of
termination, cancellation or acceleration, loss or creation, a "Violation")
pursuant to, any provision of Seller's Articles of Incorporation or Bylaws, or
the
3
<PAGE>
governing documents of the Plan or result in any Violation of any material
lease, agreement, obligation, instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Seller, the Selling Shareholders or the properties or Assets of
Seller or the Selling Shareholders.
2.5. CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Section 2.5 of the
Seller Disclosure Letter sets forth each material contract, agreement, lease,
loan, commitment and proposed transaction to which Seller is a party or is bound
(the "Contracts"). Seller is not bound by any judgment, order, writ or decree.
No event or condition has occurred or exists, or, to the knowledge of Seller, is
alleged by any of the other parties thereto to have occurred or existed, which
constitutes, or with lapse of time or giving of notice or both might constitute,
a default or breach under any Contract. Seller is not in violation or default of
any provision of its Articles of Incorporation or Bylaws, and Seller is not in
violation or default in any respect of any material provision of any Contract.
2.6. SUBSIDIARIES. Except as set forth in Section 2.6 of the Seller
Disclosure Letter, Seller does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association or other business entity. Seller is not a participant in any joint
venture, partnership or similar arrangement.
2.7. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Seller or Selling Shareholders in connection with the execution
and delivery of this Agreement, or the consummation by Seller and the Selling
Shareholders of the transactions contemplated hereby and thereby, which has not
already been obtained.
2.8. FINANCIAL STATEMENTS. Seller's unaudited balance sheet as of
December 31, 1999, and the related audited consolidated statement of income for
the year then ended ("Year End Financial Statements") and its audited balance
sheet as of September 30, 1999 and the related audited statement of income for
the nine months then ended (the "September Financial Statements"), are attached
to the Seller Disclosure Letter. The Year End Financial Statements and the
September Financial Statements were prepared on a cash basis, consistently
applied, and present fairly the financial condition and results of operations,
changes in stockholders' equity and cash flows for the periods referred to in
such (except for the omission of footnotes and other required schedules and
information). The balance sheets included in such Year End Financial Statements
and such September Financial Statements fairly present the financial condition
of Seller as of their respective dates and the statements of income included in
such Year End Financial Statements and such September Financial Statements
fairly present the results of operations of Seller for the periods then ended.
Except as set forth in Section 2.8 of the Sellers Disclosure Letter, Seller does
not have any liabilities or obligations of any nature, whether absolute,
contingent or otherwise, which are not fully reflected or reserved against in
the Year End Financial Statements and the September Financial Statements, except
for liabilities that may have arisen in the ordinary course of business and that
are
4
<PAGE>
not required to be included in the Year End Financial Statements and the
September Financial Statements.
2.9. INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED LIABILITIES.
Except as set forth in the Year End Financial Statements and the September
Financial Statements, Seller does not have any direct or indirect indebtedness
for borrowed money, indebtedness by way of lease-purchase arrangements,
guarantees, chattel mortgages or other security arrangements with any bank,
financial institution or other third party. Except as and to the extent
reflected and adequately reserved against in the Year End Financial Statements
and the September Financial Statements or incurred in the ordinary course of
business since September 30, 1999, as of the Closing, Seller will not have any
liability or obligation whatsoever, whether absolute, contingent or otherwise of
a nature required to be included in the Year End Financial Statements and the
September Financial Statements.
2.10. ABSENCE OF CHANGES. Except as set forth in Section 2.10 of the
Seller Disclosure Letter, since September 30, 1999, there has not been:
2.10.(a) any change in the assets, liabilities, financial
condition or operating results of Seller from that reflected in the
September Financial Statements, except changes in the ordinary course
of business or otherwise that have not, individually or in the
aggregate, materially and adversely affected the business, properties,
prospects or financial condition of Seller (as such business is
presently conducted and as it is presently proposed to be conducted);
2.10.(b) any damage, destruction or loss, whether or not
covered by insurance, affecting the business, properties, prospects, or
financial condition of Seller (as such business is presently conducted
and as it is presently proposed to be conducted);
2.10.(c) any waiver or compromise by Seller of a material
right or of a material debt owed to it;
2.10.(d) any satisfaction or discharge of any Lien, claim,
or encumbrance or payment of any obligation by Seller, except in the
ordinary course of business and that is not material to the business,
properties, or financial condition of Seller (as such business is
presently conducted and as it is presently proposed to be conducted);
2.10.(e) any material change to a material contract or
arrangement by which Seller or its assets is bound or subject;
2.10.(f) any material change in any compensation
arrangement or agreement with any employee or officer;
2.10.(g) any sale, assignment or transfer of any
intangible assets;
5
<PAGE>
2.10.(h) any resignation or termination of employment of
any key officer or employee of Seller (and Seller does not know of any
impending resignation or termination of employment of any such key
officer or key employee);
2.10.(i) any mortgage, pledge, transfer of a security
interest in, or Lien, created by Seller with respect to any of their
properties or assets, except Liens for taxes not yet due or payable;
2.10.(j) any declaration, setting aside or payment of any
dividend or other distribution of Seller's assets in respect of any of
Seller's capital stock, or any direct or indirect redemption, purchase,
or other acquisition of any of such stock by Seller;
2.10.(k) any other event or condition of any character
that might materially and adversely affect the business, properties,
prospects or financial condition of Seller (as such business is
presently conducted and as it is presently proposed to be conducted);
or
2.10.(l) any agreement or commitment by Seller to do any
of the things described in this Section 2.10.
2.11. TITLE TO PROPERTY AND ASSETS; LEASES.
2.11.(a) Section 2.11 of the Seller Disclosure Letter sets
forth a complete and accurate list and description of all the real
property and all the material personal property that Seller owns or
leases. Seller is not bound or committed to make any capital
improvement or expenditure with respect to any owned or leased real or
personal property.
2.11.(b) Except as set forth in Section 2.11 of the Seller
Disclosure Letter, Seller has good, valid and marketable title to all
the real, personal and mixed, tangible and intangible properties and
assets which it purports to own, free and clear of all Liens,
restrictions, claims, charges, security interests, easements or other
encumbrances of any nature whatsoever, except for Liens for current
taxes not yet due and payable. With respect to the property and assets
that it leases, Seller is in compliance with such leases and holds a
valid leasehold interest, free and clear of any Liens, claims and
encumbrances. All properties and Assets of Seller are in the possession
or control of Seller, and no other person is entitled to possession of
any such properties and assets.
2.12. LEGAL PROCEEDINGS. Except as set forth in Section 2.12 of the
Seller Disclosure Letter, there are no claims of any kind or any actions, suits,
proceedings, arbitrations or investigations pending or, to Seller's or Selling
Shareholders' knowledge, threatened against or affecting Seller or Selling
Shareholders against any asset, interest or right of Seller or Selling
Shareholders or which questions the validity of the transactions contemplated by
this Agreement.
2.13. ENVIRONMENTAL MATTERS. Seller is not in violation in any material
respect of any applicable statute, law or regulation relating to the environment
or occupational health and
6
<PAGE>
safety (the "Environmental Laws") that would, individually, or, together with
all other such violations in the aggregate, result in a material and adverse
effect on the business and properties or financial condition of Seller and
Seller has no knowledge of any material expenditures necessary to comply with
the Environmental Laws.
2.14. LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Seller holds all
franchises, permits, licenses, variances, exemptions, orders and approvals of
all governmental entities which are material to the operation of Seller's
business and is in compliance with the terms thereof. Seller has complied with,
and is not in any default under (and has not been charged with or received
notice with respect to, nor to Seller's knowledge is threatened with or under
investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any order,
writ, injunction or decree of any court, agency or instrumentality, and no
action, suit, proceeding, hearing, charge, claim, demand, or notice has been
filed or commenced against Seller alleging any failures to comply.
2.15. EMPLOYEE BENEFIT PLANS.
(a) Section 2.15 of Seller's Disclosure Letter lists each bonus,
pension (as defined in the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee, officer or
director of Seller maintained, or contributed to, by Seller (collectively,
"Benefit Plans"), and any employment, consulting, severance, termination or
indemnification agreement, arrangement or understanding between Seller and any
officer, director or employee of Seller. Seller maintains no Benefit Plans other
than those listed in Section 2.15 of Seller's Disclosure Letter.
(b) No Benefit Plan provides medical or hospitalization benefits to
retirees or other former employees, other than medical benefits required to be
provided to qualified beneficiaries under the provisions of Section 4980B(f) of
the Internal Revenue Code (the "Code") and paid for entirely by the individual
electing such coverage.
(c) Each Benefit Plan has been administered in all material respects in
accordance with its terms. Seller and all the Benefit Plans are in compliance in
all material respects with the applicable provisions of ERISA, the Code and all
other applicable laws. There are no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to benefits under
any Benefit Plan that could give rise to any material liability, and, to the
knowledge of any Selling Shareholder and Seller, there are not any facts that
could give rise to any material liability in the event of any such
investigation, claim, suit or proceeding.
7
<PAGE>
(d) Each Benefit Plan which is an Employee Benefit Pension Plan as
defined in Section 3(2) of ERISA ("Pension Plan"), has been the subject of
determination letters from the Internal Revenue Service to the effect that such
Pension Plans are qualified and exempt from Federal income taxes under Section
401(a) and 501(a), respectively, of the Code, and no such determination letter
has been revoked nor, to the knowledge of any Selling Shareholder and Seller,
has revocation been threatened, nor has any such Pension Plan been amended since
the date of its most recent determination letter or application therefore in any
respect that would adversely affect its qualification or, materially increase
its costs.
(e) No Pension Plan that Seller or any other company under common
control with Seller (within the meaning of Section 4001(a)(14) of ERISA)
("Affiliate") maintains, or to which Seller or any Affiliate is obligated to
contribute, other than any Pension Plan that is a "multiemployer plan" (as such
term is defined in Section 4001(a)(3) of ERISA) (collectively, the
"Multiemployer Pension Plans"), had, as of the respective last annual valuation
date for each such Pension Plan, an "unfunded benefit liability" (as such term
is defined in Section 4001(a)(18) of ERISA). No Selling Shareholder nor Seller
is aware of any facts or circumstances that would materially change the funded
status of any such Pension Plan. None of the Pension Plans has an "accumulated
funding deficiency" (as such term is defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived. All contributions to, and payments
from, the Pension Plans that may have been required to be made in accordance
with the Benefit Plans and, when applicable, Section 302 of ERISA or Section 412
of the Code, have been timely made, and there has been no application for or
waiver of the minimum funding standards imposed by Section 412 of the Code with
respect to any Pension Plan. All such contributions to, and payments from, the
Benefit Plans, except those payments to be made from a trust qualified under
Section 401(a) of the Code, for any period ending before the Closing Date that
are not yet, but will be, required to be made, will be properly accrued and
reflected in the proper books and records of Seller at the Closing Date. None of
Seller or any officer of Seller or any of the Benefit Plans of Seller which are
subject to ERISA, including the Pension Plans, or any trusts created thereunder,
any administrator or, to the knowledge of any Selling Shareholder and Seller,
any trustee thereof, has engaged in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the Code) or any other breach
of fiduciary responsibility under ERISA that could subject Seller or any officer
of Seller to the tax or penalty on prohibited transactions imposed by such
Section 4975 or to any liability under Section 502(i) or (1) of ERISA. Neither
any of such plans nor any of such trusts have been terminated, nor has there
been any "reportable event" (as that term is defined in Section 4043 of ERISA)
with respect thereto during the last five years. Neither Seller, any
administrator or other fiduciary or, to the knowledge of any Selling Shareholder
and Seller, any trustee of any Benefit Plan nor any agent of any of the
foregoing has engaged in any transaction or acted or failed to act in a manner
that could subject Seller to any material liability for breach of fiduciary duty
under ERISA or any other applicable law. Seller (or any other employer that
since September 2, 1974 has ever been treated as a "single employer" under
Section 414(b)(c) or (m) of the Code with Seller or any Subsidiary) has never
been required to contribute to any Multiemployer Pension Plans.
(f) With respect to any Pension Plan subject to Title IV of ERISA
(including for
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purposes of clause (1) below, any Pension Plan maintained by or contributed to
by Seller or any other company under common control with Seller within the
meaning of Section 414 of the Code and, for purposes of clause (2) below, any
Pension Plan maintained or contributed to by Seller or any other company under
common control with Seller within the meaning of Section 4001(a)(14) of ERISA):
Seller has not incurred any material liability on or prior to the date hereof
(1) to such Pension Plan or (2) to the Pension Benefit Guaranty Corporation
other than for the payment of remiums, all of which have been paid when due.
(g) With respect to any Benefit Plan that is an employee welfare
benefit plan: (1) no such Benefit Plan is unfunded or funded through a welfare
benefits fund, as such term is defined in Section 419(e) of the Code, (2) each
such Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code, complies with the applicable requirements of
Section 4980B(f) of the Code and (3) to the knowledge of Shareholder and Seller
each such Benefit Plan (including any such Plan covering retirees or other
former employees) may be amended or terminated without material liability to
Seller on or at any time after the Closing Date.
(h) Each employee bonus or profit sharing plan providing benefits to
any current or former officer, director or employee of Seller is terminable by
Seller without notice at any time.
(i) No liability has been or is expected to be incurred by Seller or
Selling Shareholders (either directly or indirectly, including as a result of an
indemnification obligation) under or pursuant to ERISA or the Code, including,
penalties and excise taxes, that could following the Closing, become or remain a
liability of Seller's business being acquired by Primis or become a liability of
the Primis or of any benefit plans of the Primis and no event, transaction or
condition has occurred or exists that could result in any such liability to the
business, or following the Closing, to the Primis.
(j) The Plan will be terminated by appropriate board resolution adopted
by Seller's board of directors before the Closing Date with the effective date
of plan termination to be before the Closing Date. All contributions to the Plan
shall immediately cease on the effective date of the plan termination as stated
in the board resolution. Each employee bonus or profit sharing plan providing
benefits to any current or former officer, director or employee of Seller is
terminable by Seller without notice at any time.
(k) The individual shareholders who are parties to this Agreement are
the only participants in the Plan who have any portion of their account balance
in the Plan invested in shares of Seller's stock, and such participants have
made the appropriate written direction to the trustees of the Plan to act on
their behalf to sell such shares pursuant to the terms of this Agreement and the
trustees of the Plan are authorized to and have taken such other actions that
may be necessary or appropriate to transfer said shares to Primis pursuant to
the terms of this Agreement. All shares of Seller's stock are held by the
individual shareholders who are parties to this Agreement and the Plan and there
are no other outstanding shares held by any other person or plan.
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(l) The Bliss Associates, Inc. Employee Stock Ownership Plan and Trust
(the "ESOP") has been properly and legally terminated and plan assets
distributed to participants. No liability (including penalties, interest and
excise taxes) has been or is expected to be incurred by Seller or Selling
Shareholders with respect to the ESOP, that could following the Closing, become
or remain a liability of Seller's business being acquired by Primis or become a
liability of Primis or of any benefit plans of Primis and no event, transaction
or condition has occurred or exists that could result in any such liability to
the business, or following the Closing, to Primis.
(m) The Bliss Associates, Inc. Deferred Compensation Plan, all of the
assets held by the plan, and all obligations and liabilities with respect
thereto, have been legally transferred from Seller to eBliss, LLC, a Missouri
limited liability company, said obligations and liabilities being wholly assumed
by eBliss, LLC, and further releasing Seller and Primis from any obligation or
liability with respect thereto, before the Closing Date. There is not and has
not been a legally established related rabbi trust (i.e., the Bliss Associates,
Inc., Deferred Compensation Trust), associated with the Bliss Associates, Inc.
Deferred Compensation Plan inasmuch as the trust was never funded, no assets
were transferred thereto and trust documents have not been and will not be
executed or delivered by Seller. Neither Seller nor Primis shall have any
liability with respect to the plan or trust effective as of the Closing Date.
2.16. LABOR RELATIONS.
2.16.(a) Seller is in compliance in all material respects
with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours and
occupational safety and health;
2.16.(b) There is no unfair labor practice charge or
complaint or any other matter against or involving Seller pending or,
to Seller's knowledge, threatened before the National Labor Relations
Board, any other agency or any court of law;
2.16.(c) There is no labor strike, dispute, slowdown or
stoppage actually pending or, to Seller's knowledge, threatened against
Seller;
2.16.(d) Seller is not a party to or bound by any
collective bargaining agreement or any similar labor union
arrangement;
2.16.(e) There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to Seller's knowledge,
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against Seller. There are no
pending governmental audits of the equal employment opportunity
practices of Seller and, to Seller's best knowledge, no basis for any
such claim exists; and
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2.16.(f) Seller is in compliance in all material respects
with the requirements of the Americans with Disabilities Act.
2.17. INSURANCE. Seller maintains insurance policies, including
property, casualty, liability and other insurance with respect to its assets and
business in amounts customary for similarly situated companies and sufficient in
amount to allow it to replace any of its properties that might be damaged or
destroyed. Seller is not liable for any material retroactive premium adjustments
with respect to any of its insurance policies or bonds. All such policies and
bonds are listed in Section 2.17 of the Seller Disclosure Letter and are legal,
valid and enforceable and in full force and effect and Seller is not in breach
or default (including with respect to the payment of premiums or the giving of
notices) and no event has occurred which, with notice or the lapse of time,
would constitute such a breach . Seller has not received any notice of premium
increases or cancellations with respect to any of such policies and bonds.
Seller believes the amount and type of Seller's insurance coverage is adequate
for Seller's business and is consistent with good business practice.
2.18. TAX MATTERS. Seller has timely filed or caused to be filed all
federal, state, foreign and local income, franchise, gross receipts, payroll,
sales, use, withholding, occupancy, excise, real and personal property,
employment and other tax returns, tax information returns and reports ("Tax
Returns") required to be filed and all such Tax Returns were correct and
complete in all material respects. Seller has paid, or made adequate provisions
for the payment of, all taxes, duties or assessments of any nature whatsoever,
interest payments, penalties and additions (whether or not reflected in the
returns as filed) due and payable (and/or properly accruable for all periods
ending on or before the date of this Agreement) to any city, county, state,
foreign country, the United States or any other taxing authority. There are no
security interests on any of the assets of Seller that arise in connection with
any failure (or alleged failure) to pay any tax. Seller has withheld and paid
all taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party.
2.19. RELATED PARTY TRANSACTIONS. Except as set forth in Section 2.19
of the Seller Disclosure Letter, no employee, officer or holder of Seller's
capital stock or member of his immediate family is indebted to Seller, nor is
Seller indebted (or committed to make loans or extend or guarantee credit) to
any of them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses, or advances with respect to expenses to
be, incurred on behalf of Seller, and (iii) for other standard employee benefits
made generally available to all employees. To the Seller's knowledge, none of
such persons has any direct or indirect ownership interest in any firm or
corporation with which Seller has a business relationship, or any firm or
corporation that competes with Seller, except that employees, stockholders, and
officers of Seller and members of their immediate families may own stock in
publicly traded companies that may compete with Seller.
2.20. BROKERS' AND FINDERS' FEES. Seller has not employed any broker or
finder or incurred any liability for fees or commissions payable to any broker
or finder in connection with the negotiations relating to or the transactions
contemplated by this Agreement.
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2.21. REGISTRATION RIGHTS. Except as set forth in Section 2.21 of the
Seller Disclosure Letter, Seller is not presently under any obligation and has
not granted any rights to register under the Securities Act any of its
outstanding securities or any of its securities that may be subsequently issued.
2.22. INTELLECTUAL PROPERTY. Section 2.22 of the Seller Disclosure
Letter sets forth a complete and correct list of all intellectual property,
including, without limitation, trademarks, service marks, patents, copyrights
and applications, used in the conduct of the business of Seller other than
commercially available software programs. Seller either owns or has properly
licensed all rights necessary or required to provide and perform the services it
now provides and performs. Seller's provision or operation of such services will
not violate or infringe any intellectual property laws or violate or infringe
any rights of third parties. There is no complaint, action or proceeding before
any court pending or, to Seller's knowledge, threatened against Seller asserting
that Seller's use of any intellectual property infringes the rights of any third
party or otherwise contesting Seller's rights with respect to any intellectual
property, and there is no basis for such assertion or contest. There are no
claims or demands by third parties whether based upon federal or state law,
statute or common laws connected with or arising out of or relating to the
holding or use of the name "bliss.com" prior to the date hereof. To Seller's
knowledge, no third party is infringing on Seller's rights with respect to its
intellectual property.
2.23. YEAR 2000 COMPLIANCE. All devices, systems, machinery,
information technology, computer software and hardware, and other date-sensitive
technology necessary for Seller to carry on its businesses as presently
conducted and as contemplated to be conducted in the future are Year 2000
Compliant or will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of Seller's business operations. The
term "Year 2000 Compliant" means each of the aforementioned items are designed
to be used prior to, during and after the year 2000 and will operate during each
such time period without error relating to date data, specifically including any
error to, or the product of, date data which represents or references different
centuries or more than one century, except that software of the Seller as
disclosed on Schedule 2.23 will not account for periods greater than 100 years.
2.24. REQUIRED VOTE OF SELLER STOCKHOLDERS. No vote of the security
holders of Seller is required by law, Seller's Articles of Incorporation or
Bylaws or otherwise in order for Seller to consummate the transactions
contemplated hereby.
2.25. MATERIAL FACTS. This Agreement and the Sellers Disclosure Letter
and certificates furnished by Seller and Selling Shareholders to Primis at the
Closing, do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained herein or therein,
in light of the circumstances in which they are made, not misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PRIMIS
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Except as set forth in the disclosure letter dated the date hereof
delivered to each Selling Shareholder (the "Primis Disclosure Letter"), Primis
represents and warrants to the Selling Shareholders as follows:
3.1. ORGANIZATION AND GOOD STANDING. Primis is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Georgia. Primis has all requisite power and authority to: (i) own, lease and
operate its properties and to carry on its business as now being conducted and
as presently proposed to be conducted; and (ii) to execute, deliver and perform
this Agreement and any other agreement to which Primis is a party, the execution
and delivery of which is contemplated hereby or thereby. Primis is duly
qualified and is authorized to transact business and is in good standing as
foreign corporation in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business, properties, prospects or
financial condition.
3.2. AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Primis. This Agreement has been
duly executed and delivered by Primis and constitutes the legal, valid and
binding obligation of Primis enforceable against it in accordance with its terms
except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors rights generally or (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
3.3. CAPITALIZATION. Except as otherwise noted in Section 3.3 of the
Primis Disclosure Letter, immediately prior to the Closing, the authorized
capital stock of Primis consists of 23,000,000 shares comprised of (i)
15,000,000 shares of Common Stock authorized, par value $.01 per share, of which
7,078,671 shares are issued and outstanding, (ii) 1,200,000 shares of Series A
Convertible Preferred Stock authorized, par value $.01 per share, of which
1,091,242 shares are issued and outstanding, (iii) 3,000,000 shares of Series B
Convertible Preferred Stock authorized, of which 725,130 shares are issued and
outstanding, and (iv)2,500,000 shares of Series C Convertible Preferred Stock
authorized, par value $.01 per share, of which no shares are issued and
outstanding. The Company also has reserved for issuance under its Third Amended
and Restated 1997 Employee Stock Option Plan 1,650,000 shares of Common Stock,
par value $.01 per share. All such outstanding shares have been duly authorized
and validly issued and are fully paid and nonassessable. Except as set forth in
Section 3.3 of the Primis Disclosure Letter, there are no contracts relating to
the issuance, sale or transfer of these securities. Except as set forth in
Section 3.3 of the Primis Disclosure Letter, there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements or agreements of any character relating to shares of
Primis's capital stock or any instruments that can be converted into or
exchanged for shares of Primis's capital stock. None of the shares of Primis's
capital stock has been issued in violation of any preemptive right. All
issuances, sales, redemptions, transfers or purchases of the capital stock of
Primis and any involvement in any transfer of any such stock by Primis have been
in compliance with all applicable agreements and all applicable laws, including
federal and state securities laws, and all taxes thereon,
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if any, have been paid. Except as set forth in Section 3.3 of the Primis
Disclosure Letter, there are no contractual obligations of Primis to repurchase,
redeem or otherwise acquire any shares of capital stock of Primis. No bonds,
debentures, notes or other indebtedness having the right to vote (or convertible
into or exercisable for securities having the right to vote) on any matters on
which shareholders of Primis may vote are issued or outstanding. Except as set
forth in Section 3.3 of the Primis Disclosure Letter, Primis is not a party or
subject to any agreement or understanding, and, to Primis's best knowledge,
there is no agreement or understanding between any persons that affects or
relates to the voting or giving of written consents with respect to any security
or the voting by any director of Primis.
3.4. NO CONFLICT. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby and thereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, any obligation or the loss of a
material benefit under, or the creation of a Lien, pledge, security interest,
charge or other encumbrance on assets (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss or creation, a
"Violation") pursuant to, any provision of Primis's Articles of Incorporation or
Bylaws, or the Articles of Incorporation or bylaws of any Primis Subsidiary, or
result in any Violation of any material lease, agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Primis or any Primis
Subsidiary or Primis's or any Primis Subsidiary's properties or Assets.
3.5. SUBSIDIARIES. Except as set forth in Section 3.5 of the Primis
Disclosure Letter, Primis does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
association or other business entity. Neither Primis nor any Primis Subsidiary
is a participant in any joint venture, partnership or similar arrangement.
3.6. CONSENTS. No consent, approval, qualification, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, or other third party is required by or
with respect to Primis in connection with the execution and delivery of this
Agreement, or the consummation by Primis of the transactions contemplated hereby
and thereby, which has not already been obtained.
3.7. FINANCIAL STATEMENTS. Primis's audited consolidated balance sheet
as of December 31, 1998, and the related audited consolidated statement of
income for the year then ended and its unaudited balance sheet as of September
30, 1999 and the related unaudited statement of income for the nine months then
ended (the "Primis Financial Statements"), are attached to the Primis Disclosure
Letter. The Primis Financial Statements were prepared in accordance with GAAP
(except for the omission of footnotes and other required schedules and
information and year end accruals which are immaterial, in the aggregate, in
amount). The balance sheets included in such Primis Financial Statements fairly
present the financial condition of Primis and its Subsidiaries as of their
respective dates and the statements of income included in such Primis Financial
Statements fairly present the results of operations of Primis and the Primis
Subsidiaries for the periods then
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ended. None of Primis or any of the Primis Subsidiaries has any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the Primis Financial
Statements, except for liabilities that may have arisen in the ordinary course
of business and that are not required by GAAP to be included in the Primis
Financial Statements.
3.8. LEGAL PROCEEDINGS. Except as set forth in Section 3.8 of the
Primis Disclosure Letter, there are no claims of any kind or any actions, suits,
proceedings, arbitrations or investigations pending or, to Primis's best
knowledge, threatened against or affecting Primis or any Primis Subsidiary
against any asset, interest or right of Primis or any Primis Subsidiary or which
questions the validity of the transactions contemplated by this Agreement.
3.9. BROKERS' AND FINDERS' FEES. Primis has not employed any broker,
finder or financial advisor or incurred any liability for fees or commissions
payable to any broker, finder or financial advisor in connection with the
negotiations relating to or the transactions contemplated by this Agreement.
3.10. ABSENCE OF CHANGES. Except as set forth in Section 3.10 of the
Primis Disclosure Letter, since September 30, 1999, there has not been:
3.10.(a) any change in the assets, liabilities, financial
condition or operating results of Primis from that reflected in the
Primis Financial Statements, except changes in the ordinary course of
business or otherwise that have not, individually or in the aggregate,
materially and adversely affected the business, properties, prospects
or financial condition of Primis (as such business is presently
conducted and as it is presently proposed to be conducted);
3.10.(b) any damage, destruction or loss, whether or not
covered by insurance, affecting the business, properties, prospects, or
financial condition of Primis (as such business is presently conducted
and as it is presently proposed to be conducted);
3.10.(c) any waiver or compromise by Primis of a
material right or of a material debt owed to it;
3.10.(d) any satisfaction or discharge of any Lien, claim,
or encumbrance or payment of any obligation by Primis, except in the
ordinary course of business and that is not material to the business,
properties, or financial condition of Primis (as such business is
presently conducted and as it is presently proposed to be conducted);
3.10.(e) any material change to a material contract or
arrangement by which Primis or its assets is bound or subject;
3.10.(f) any material change in any compensation
arrangement or agreement with any employee or officer;
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3.10.(g) any sale, assignment or transfer of any
intangible assets;
3.10.(h) any resignation or termination of employment of
any key officer or employee of Primis (and Primis does not know of any
impending resignation or termination of employment of any such key
officer or key employee);
3.10.(i) any mortgage, pledge, transfer of a security
interest in, or Lien, created by Primis with respect to any of their
properties or assets, except Liens for taxes not yet due or payable;
3.10.(j) any declaration, setting aside or payment of any
dividend or other distribution of Primis' assets in respect of any of
Primis' capital stock, or any direct or indirect redemption, purchase,
or other acquisition of any of such stock by Primis;
3.10.(k) any other event or condition of any character
that might materially and adversely affect the business, properties,
prospects or financial condition of Primis (as such business is
presently conducted and as it is presently proposed to be conducted);
or
3.10.(l) any agreement or commitment by Primis to do any
of the things described in this Section 3.10.
SECTION 4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
4.1. SURVIVAL. After the Closing, any claim for indemnification must be
asserted by notice given no later than the end of the Survival Period (as
defined herein). Except as provided in Section 8 of this Agreement, all
representations, warranties, covenants, and obligations in this Agreement and
any other certificate delivered pursuant to this Agreement at the Closing will
survive the Closing until the first anniversary of the Closing; provided,
however, any claims for fraud or intentional breach shall survive indefinitely.
The right to indemnification, payment of damages or other remedy based on such
representations, warranties, covenants, and obligations will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing, with respect to the accuracy or
inaccuracy of or compliance with any such representation, warranty, covenant, or
obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification, payment of
damages, or other remedy based on such representations, warranties, covenants,
and obligations.
4.2. INDEMNIFICATION. Seller, the non-Plan Selling Shareholders, and
the individual accounts in the Plan held by the non-Plan Selling Shareholders as
participants in the Plan (the "Specified Plan Accounts"), jointly and severally,
will indemnify and hold harmless Primis and its stockholders, controlling
persons, and Affiliates (except for Selling Shareholders and the Specified
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Plan Accounts) (collectively, the "Indemnified Persons") for, and will pay to
the Indemnified Persons the amount of, any loss, liability, claim, damage,
expense (including costs of investigation and defense and reasonable attorneys'
fees) whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with: any breach of any
representation or warranty made by Seller and the Selling Shareholders in this
Agreement or any other certificate delivered by Seller and the Selling
Shareholders pursuant to this Agreement at the Closing; and any breach by Seller
or any Selling Shareholder of any covenant or obligation of Seller or such
Selling Shareholder in this Agreement. Notwithstanding the foregoing, under no
circumstances will any participants in the Plan other than the non-Plan Selling
Shareholders (and then, only to the extent provided for in this Article 4) be
liable to Primis nor will any accounts in the Plan associated with such
participants be used in satisfying any such liability to Primis.
4.3. INDEMNIFICATION BY PRIMIS. Primis will indemnify and hold harmless
Seller for any Damages arising, directly or indirectly, from or in connection
with: any breach of any representation or warranty made by Primis in this
Agreement or in any other certificate or document delivered by Primis pursuant
to this Agreement; and any breach by Primis of any covenant or obligation of
Primis in this Agreement or closing certificates.
4.4 LIMITATIONS ON INDEMNIFICATION. No party to this Agreement will nor
will the Specified Plan Accounts have any obligation to indemnify any
Indemnified Person unless and until the aggregate of all Damages exceeds $25,000
("Indemnification Threshold"), in which case the indemnifying party will then be
obligated to indemnify the Indemnified Party for all such Damages in excess of
$25,000.
No person shall be entitled to indemnification under this Article 4 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, (i) no paying party
shall be liable under this Article 4 for an amount that exceeds the amount of
the Purchase Price defined in SECTION 1.2 of this Agreement and, (ii) if Seller
or any Selling Shareholder is the paying party under this Article 4, the
obligation of Seller or Selling Shareholder to make indemnification payments
shall be limited to the portion of such Purchase Price actually received by such
party in cash , and any difference between such amount and the Purchase Price
shall be obtained by Primis through its exercise of the right of offset under
Section 4.6 of this Agreement. The limitation on indemnification payments
provided in this paragraph shall be in the aggregate for Selling Shareholders
and Seller combined and shall not be construed as separate indemnification
limitations for each of Selling Shareholder or Seller.
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4.5. PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
4.5.(a) Promptly after receipt by an indemnified party under
Section 4.2 or 4.3 of notice of the commencement of any proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give written notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
4.5.(b) If any proceeding is brought against an indemnified
party and it gives written notice to the indemnifying party of the commencement
of such proceeding and reasonable details regarding the controversy subject to
such proceeding, the indemnifying party will, unless the claim involves taxes,
be entitled to participate in such proceeding and, to the extent that it wishes
(unless (i) the indemnifying party is also a party to such proceeding and the
indemnified party determines in good faith that joint representation would be
unethical, or (ii) the indemnifying party fails to provide reasonable assurance
to the indemnified party of its financial capacity to defend such proceeding and
provide indemnification with respect to such proceeding), to assume the defense
of such proceeding with counsel satisfactory to the indemnified party and, after
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such proceeding, the indemnifying party will not, as long
as it diligently conducts such defense, be liable to the indemnified party under
this Section 4 for any fees of other counsel or any other expenses with respect
to the defense of such proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such proceeding. If the
indemnifying party assumes the defense of a proceeding, (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that proceeding are within the scope of and subject to indemnification; and (ii)
no compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent; and (iii) the indemnified party
will have no liability with respect to any compromise or settlement of such
claims effected without its consent. If written notice (including reasonable
details) is given to an indemnifying party of the commencement of any proceeding
and the indemnifying party does not, within thirty (30) days after the
indemnified party's notice is given, give written notice to the indemnified
party of its election to assume the defense of such proceeding, the indemnifying
party will be bound by any determination made in such proceeding or any
compromise or settlement effected by the indemnified party.
4.5.(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
proceeding may adversely affect it or its Affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by written notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
proceeding, but the indemnifying party will not be bound by any determination of
a proceeding so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
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4.6. EXCLUSIVE NATURE OF REMEDIES. Except for the remedy of specific
performance and other equitable remedies and except to the extent that any of
the parties shall have engaged in fraud or an intentional breach of this
Agreement, if the transactions contemplated by this Agreement are consummated
the rights and remedies set forth in this Article 4 shall be the exclusive
rights or remedies available to a party with respect to claims against any of
the other parties hereto or any of their respective affiliates, shareholders,
members, officers, directors and employees, and heirs, successors and assigns,
for which indemnification is authorized or provided pursuant to this Article.
4.7 RIGHT TO OFFSET. Primis shall have the right to offset the amount
of any Fully Resolved Claim against any part of the Deferred Consideration that
has not yet been paid to Selling Shareholders. For purposes of this Section 4.7,
a "Fully Resolved Claim" shall be any claim for indemnification by Primis under
Section 4.2 which has been fully resolved pursuant to the terms of Section 4.8
of this Agreement.
4.8 REMEDIES. To the extent feasible, the parties desire to resolve any
controversies arising out of or relating to this Agreement, including any claim
for Damages, rescission, specific performance or other legal or equitable
relief, through discussions and good faith negotiations with each other. In the
event that, after good faith discussions and negotiations, such controversies
cannot be resolved solely among the parties within thirty (30) days after such
discussions have commenced, the parties may, if the controversy is for Damages
or other non-injunctive relief, select a type of non-binding formal or informal
alternative dispute resolution (ADR) method that is appropriate and feasible
under the circumstances such as mini-trial, mediation or the like, and to work
in good faith to resolve the controversy, and if the controversy is for
injunctive relief, the aggrieved party may appeal immediately to a court of
competent jurisdiction. If the parties are unable to resolve a controversy
relating to Damages or other non-injunctive relief amongst themselves, after
working in good faith and having taken advantage of an appropriate ADR method or
methods, such controversy may be settled by appropriate binding arbitration or
litigation and appeals, and any Damages established by reason of such
arbitration or litigation (upon exhaustion of all appellate remedies) shall be
deemed to be finally determined (i.e. "Fully Resolved Claim").
Arbitration of any controversy shall be settled in the City of Atlanta, State of
Georgia, in accordance with the rules then obtaining of the American Arbitration
Association. The determination of the arbitrator when made shall be binding upon
all parties bound by the terms of this Agreement. Judgment upon the award
rendered by the arbitrator may be entered in any court of competent
jurisdiction. The foregoing notwithstanding, Primis shall have the right to seek
injunctive relief from any court of competent jurisdiction in the event of any
breach or threatened breach of Article 8 of this Agreement.
SECTION 5. CONDUCT OF BUSINESS PENDING CONSUMMATION
5.1. AFFIRMATIVE COVENANTS OF BOTH PARTIES. From the date of this
Agreement until the earlier of the Closing or the termination of this Agreement
prior to Closing, unless the prior written consent of the other party shall have
been obtained, and except as otherwise
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expressly contemplated herein, each party shall operate its business only in the
usual, regular, and ordinary course, preserve intact its business organization
and Assets and maintain its rights and franchises, and use its reasonable
efforts to maintain its current employee relationships.
5.2. NEGATIVE COVENANTS OF SELLER. From the date of this Agreement
until the earlier of the Closing or the termination of this Agreement prior to
Closing, Seller covenants and agrees that it will not do or agree or commit to
do any of the following without the prior written consent of Primis:
5.2.(a) amend the Articles of Incorporation, Bylaws, or
other governing instruments of Seller, or
5.2.(b) incur, guarantee, or otherwise become responsible
for, any additional debt obligation or other obligation for borrowed
money or impose, or suffer the imposition, on any Asset of Seller of
any Lien or permit any such Lien to exist; or
5.2.(c) repurchase, redeem, or otherwise acquire or
exchange, directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of Seller, or declare
or pay any dividend or make any other distribution in respect of
Seller's capital stock; or
5.2.(d) except for this Agreement, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to issue,
sell, pledge, encumber, or authorize the issuance of, or otherwise
permit to become outstanding, any additional shares of Seller's capital
stock, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
5.2.(e) adjust, split, combine, or reclassify any of
Seller's capital stock or issue or authorize the issuance of any other
securities in respect of or in substitution for shares of Seller's
capital stock, or sell, lease, mortgage, or otherwise dispose of or
otherwise encumber any Asset; or
5.2.(f) purchase any securities or make any material
investment, either by purchase of stock or securities, contributions to
capital, Asset transfers, or purchase of any Assets, in any person; or
5.2.(g) grant any increase in compensation or benefits to
the employees or officers of Seller, except in accordance with the
ordinary course of business consistent with past practice or as
required by Law; pay any severance or termination pay or any bonus
other than pursuant to written policies or written contracts in effect
on the date of this Agreement; enter into or amend any severance
agreements with officers or employees of Seller; grant any material
increase in fees or other increases in compensation or other benefits
to directors of Seller except in accordance with the ordinary course of
business consistent with past
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practice; or voluntarily accelerate the vesting of any stock options or
other stock-based compensation or employee benefits; or
5.2.(h) enter into or amend any employment contract
between Seller and any person (unless such amendment is required by Law
or a pre-existing contractual obligation) that Seller does not have the
unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the
Closing; or
5.2.(i) adopt any new employee benefit plan of Seller or
make any material change in or to any existing employee benefit plans
of Seller other than any such change that is required by Law or that,
in the opinion of counsel, is necessary or advisable to maintain the
tax qualified status of any such plan; or
5.2.(j) except in the ordinary course of business, modify,
amend, or terminate any material contract or waive, release,
compromise, or assign any material rights or claims.
SECTION 6. ADDITIONAL AGREEMENTS
6.1. AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each party agrees to use its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper, or advisable under applicable laws to consummate and
make effective, as soon as reasonably practicable after the date of this
Agreement, the transactions contemplated by this Agreement.
6.2. INVESTIGATION AND CONFIDENTIALITY.
6.2.(a) Prior to the Closing, each party shall keep the
other party advised of all material developments relevant to its
business and to consummation of the transactions contemplated by this
Agreement and shall permit the other party to make or cause to be made
such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as
the other party reasonably requests, provided that such investigation
shall be reasonably related to the transactions contemplated hereby and
shall not interfere unnecessarily with normal operations. No
investigation by a party shall affect the representations and
warranties of the other party.
6.2.(b) Each party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential information
furnished to it by the other party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior
to the Closing, each party shall promptly return or certify the
destruction of all documents and copies thereof, and all work papers
containing confidential information received from the other party.
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6.2.(c) Each party agrees to give the other party notice
as soon as practicable after any determination by it of any fact or
occurrence relating to the other party which it has discovered through
the course of its investigation and which represents, or is reasonably
likely to represent, either a material breach of any representation,
warranty, covenant, or agreement of the other party or which has had or
is reasonably likely to have a material adverse effect on the other
party.
6.3. CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, neither Seller nor any Affiliate thereof nor
any Representatives thereof retained by Seller shall directly or indirectly
solicit or engage in negotiations concerning any Acquisition Proposal, or
provide any confidential information or assistance to, or have any discussions
with, any person with respect to an Acquisition Proposal prior to the Closing.
6.4. ASSIGNMENT AGREEMENT. Primis and Selling Shareholders agree that
Seller will execute, immediately prior to Closing, an Assignment Agreement,
substantially in the form attached hereto as EXHIBIT 2, to assign Seller's
rights to the Internet domain name "Bliss.com" to the Selling Shareholders.
After the Closing, Primis will promptly execute Articles of Amendment to the
Bliss Associates, Inc. Articles of Incorporation to change the corporate name to
a name substantially dissimilar from "Bliss Associates, Inc."
6.5. SELLER'S EMPLOYEES. At Closing, Primis will employ Seller's active
employees, including Barbara Blasy and Curt Bliss, at each employee's current
level of compensation, including the assumption by Primis of any accrued
vacation or sick pay at Closing under Seller's Benefit Plans. Nothing in the
preceding sentence shall preclude Primis from treating Seller's active employees
as its own employees at will after Closing, with continued employment at the
sole discretion of Primis.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
7.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each party to perform this Agreement and to consummate the
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both parties pursuant to Section 9.7 of
this Agreement:
7.1.(a) All Consents of, filings and registrations with,
and notifications to, all Regulatory Authorities required for
consummation of the transactions contemplated hereby shall have been
obtained or made and shall be in full force and effect and all waiting
periods required by Law shall have expired.
7.1.(b) Each party shall have obtained any and all
Consents required for consummation of the transactions contemplated
hereby or for the preventing of any default under any Contract or
permit of such party which, if not obtained or made, is reasonably
likely to have, individually or in the aggregate, a material adverse
effect on such party.
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7.1.(c) No court or governmental or Regulatory Authority
of competent jurisdiction shall have enacted, issued, promulgated,
enforced, or entered any Law or order (whether temporary, preliminary,
or permanent) or taken any other action which prohibits, restricts, or
makes illegal consummation of the transactions contemplated by this
Agreement.
7.2. CONDITIONS TO OBLIGATIONS OF PRIMIS. The obligations of Primis to
perform this Agreement and consummate the transactions contemplated hereby are
subject to the satisfaction of the following conditions, unless waived by Primis
pursuant to Section 9.7 of this Agreement:
7.2.(a) The representations and warranties of Seller and
the Selling Shareholders set forth in this Agreement shall be true and
accurate in all material respects as of the date of this Agreement and
as of the Closing with the same effect as though all such
representations and warranties had been made on and as of the Closing
(provided that representations and warranties which are confined to a
specified date shall speak only as of such date).
7.2.(b) Each and all of the agreements and covenants of
Seller to be performed and complied with pursuant to this Agreement and
the other agreements contemplated hereby prior to the Closing shall
have been duly performed and complied with in all material respects.
7.2.(c) Seller shall have delivered to Primis (i) a
certificate, dated as of the Closing and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its
obligations set forth in Section 7.2(a) and 7.2(b) of this Agreement
have been satisfied and (ii) certified copies of resolutions duly
adopted by Seller's Board of Directors, and Trustees of the Plan,
evidencing the taking of all corporate action necessary to authorize
the execution, delivery, and performance of this Agreement, and the
consummation of the transactions contemplated hereby and thereby, all
in such reasonable detail as Primis and its counsel shall request.
7.2.(d) Since September 30, 1999, there shall not have
been any material adverse change in the Seller's Assets or business,
working capital, liabilities, financial condition, business prospects
or relationships with any suppliers or customers or any material change
or any material commitment or transaction of any nature that would
adversely affect the business of Seller or any agreement in writing to
take any such action.
7.2.(e) There shall not have been any damage or
destruction materially adversely affecting the Seller's Assets or
business;
7.2.(f) Each Selling Shareholder shall have executed a
shareholders' release substantially in the form attached hereto as
EXHIBIT 3.
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7.2.(g) Primis shall have completed its due diligence
investigation of Seller, which shall be satisfactory to Primis in its
sole discretion.
7.2.(h) Primis shall have received opinions of Seller's
counsel and Plan counsel substantially in the form of EXHIBIT 4
attached hereto.
7.2.(i) Primis shall have received certified copies of
resolutions duly adopted by Seller's Board of Directors for the
termination of Seller's 401(k) plan substantially in the form of
EXHIBIT 5 attached hereto.
7.2.(j) Primis shall have received certified copies of
resolutions duly adopted by Seller's Board of Directors related to
Seller's Deferred Compensation Plan and related rabbi trust, the Bliss
Associates, Inc. Deferred Compensation Trust to provide for a transfer
of the assets held by the plan and trust, and all obligations and
liabilities with respect thereto, from Bliss Associates, Inc. to
eBliss, LLC, a Missouri limited liability company,substantially in the
form of EXHIBIT 6 attached hereto.
7.3. CONDITIONS TO OBLIGATIONS OF SELLER AND THE SELLING SHAREHOLDERS.
The obligations of Seller and the Selling Shareholders to perform this Agreement
and consummate the transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by Seller and the
Selling Shareholders pursuant to Section 9.7 of this Agreement:
7.3.(a) The representations and warranties of Primis set
forth in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing with
the same effect as though all such representations and warranties had
been made on and as of the Closing (provided that representations and
warranties which are confined to a specified date shall speak only as
of such date).
7.3.(b) Each and all of the agreements and covenants of
Primis to be performed and complied with pursuant to this Agreement and
the other agreements contemplated hereby prior to the Closing shall
have been duly performed and complied with in all material respects.
7.3.(c) Primis shall have delivered to Seller (i) a
certificate, dated as of the Closing and signed on its behalf by its
duly authorized officers, to the effect that the conditions of its
obligations set forth in Sections 7.3(a) and 7.3(b) of this Agreement
have been satisfied and (ii) certified copies of resolutions duly
adopted by Primis's Board of Directors evidencing the taking of all
corporate action necessary to authorize the execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated hereby, all in such reasonable detail as Seller and its
counsel shall request.
7.3.(d) The Selling Parties shall have received the
opinion of Primis' counsel substantially in the form of EXHIBIT 7
attached hereto.
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7.3.(e) Since September 30, 1999, there shall not have
been any material adverse change in Primis' Assets or business, working
capital, liabilities, financial condition, business prospects or
relationships with any suppliers or customers or any material change or
any material commitment or transaction of any nature that would
adversely affect the business of Seller or any agreement in writing to
take any such action.
SECTION 8. NON-COMPETITION
8.1. NON-COMPETITION AGREEMENT. Each of the Selling Shareholders agree
that from and after the Closing until five (5) years after the Closing (such
date being referred to herein as the "ENDING DATE" and the period beginning on
the Closing Date and ending on the Ending Date, being referred to herein as the
"NON-COMPETITION PERIOD"), neither Selling Shareholder nor any of their
Affiliates will, directly or indirectly:
8.1.(a) except as an officer or employee of Primis or any
Subsidiary of Primis, engage in, control, advise, manage, serve as a
director, officer or employee of, act as a consultant to, receive any
material economic benefit from (except as a passive investor in
publicly-held companies, holding less than one percent of its
outstanding voting common stock or in mutual funds) or exert any
influence upon, any business which conducts activities anywhere in the
counties within the states of Missouri and Kansas in which Seller or
its employees have performed an appraisal within the past five (5)
years or any county in which Primis employees perform appraisals, or
plan to perform appraisals, during the Non-Competition Period;
8.1.(b) except in connection with any duties as an officer
or employee of Primis or other Subsidiary of Primis, solicit, divert or
attempt to solicit or divert any party who is, was or was solicited to
become, a customer of Primis at any time prior to the Closing;
8.1.(c) employ, solicit for employment or encourage to
leave their employment, any person who was during the one-year period
prior to such employment, solicitation or encouragement or is an
officer or employee of Primis;
8.1.(d) induce or attempt to induce any third party to
cease doing business with Primis; or
8.1.(e) make any statement to any third party, including
the press or media, reasonably likely to result in adverse publicity
for Primis.
8.2. SPECIFIC PERFORMANCE. Each of the Selling Shareholders recognizes
and affirms that in the event of breach by any of them of any of the provisions
of this Section, money damages would be inadequate and Primis would have no
adequate remedy at law. Accordingly, each of the Selling Shareholders agrees
that Primis shall have the right, in addition to any other rights and
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remedies existing in its favor, to enforce its rights and the Selling
Shareholders' obligations under this Section not only by an action or actions
for damages but also by an action or actions for specific performance,
injunction and/or other equitable relief in order to enforce or prevent any
violations (whether anticipatory, continuing or future of the provisions of this
Section (including the extension of the Non-Competition Period by a period equal
to (i) the length of the violation of this Section 8 plus (ii) the length of any
court proceedings necessary to stop such violation). In the event of a breach or
violation by any of the Selling Shareholders of any of the provisions of this
Section 8, the running of the Non-Competition Period (but not of the
Shareholders' obligations under this Section 8) shall be suspended with respect
to the Selling Shareholders during the continuance of any actual breach or
violation.
8.3. SEVERABILITY. If at any time any of the provisions of this Section
8 shall be determined to be invalid or unenforceable by reason of being vague or
unreasonable as to duration, area, scope of activity or otherwise, then this
Section 8 shall be considered divisible (with the other provisions to remain in
full force and effect) and the invalid or unenforceable provisions shall become
and be deemed to be immediately amended to include only such time, area, scope
of activity and other restrictions, as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter, and
the Selling Shareholders expressly agree that this Agreement, as so amended,
shall be valid and binding as though any invalid or unenforceable provision had
not been included herein.
8.4. NO LIMITATION OF OTHER PROVISIONS. The provisions of this Section
8 shall be in addition to, and not in limitation of, any other provisions
contained in any other agreement restricting competition by any Selling
Shareholder.
SECTION 9. GENERAL PROVISIONS
9.1. TERMINATION. Notwithstanding any other provision of this
Agreement, this Agreement may be terminated at any time prior to the Closing:
9.1.(a) By mutual consent of the Board of Directors of
Primis and the Board of Directors of Seller; or
9.1.(b) By the Board of Directors of either party
(provided that the terminating party is not then in breach of any
representation or warranty contained in this Agreement) in the event of
an inaccuracy of any representation or warranty of the other party
contained in this Agreement which cannot be or has not been cured
within 30 days after the giving of written notice to the breaching
party of such inaccuracy; or
9.1.(c) By the Board of Directors of either party
(provided that the terminating party is not then in breach of any
representation or warranty contained in this Agreement) in the event of
a material breach by the other party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured
within 30 days after the giving of written notice to the breaching
party of such breach; or
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9.1.(d) By the Board of Directors of either party in the
event that the Closing shall not have been consummated by February 29,
2000, if the failure to consummate the transactions contemplated hereby
on or before such date is not caused by any breach of this Agreement by
the party electing to terminate pursuant to this Section.
In the event of the termination and abandonment of this
Agreement, this Agreement shall become void and have no effect, except that the
provisions of this Section 9.1 and Sections 6.2 and 9.10 of this Agreement shall
survive any such termination and abandonment.
9.2. DEFINITIONS. Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"ACQUISITION PROPOSAL" with respect to a party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition of all
of the stock or Assets of, or other business combination involving such party or
any of its Subsidiaries or the acquisition of a substantial equity interest in,
or a substantial portion of the Assets of, such party or any of its
Subsidiaries.
"AFFILIATE" of a person shall mean any other person directly,
or indirectly through one or more intermediaries, controlling, controlled by or
under common control with such person.
"AGREEMENT" shall mean this Agreement, including the Exhibits
and schedules hereto delivered pursuant hereto and incorporated herein by
reference.
"ASSETS" of a person shall mean all of the assets, properties,
businesses, and rights of such person of every kind, nature, character, and
description, whether real, personal, or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to or utilized in such person's business,
directly or indirectly, in whole or in part, whether or not carried on the books
and records of such person, and whether or not owned in the name of such person
or any Affiliate of such person and wherever located.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any person pursuant to
any contract, Law, order, or permit.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"LAW" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule, or statute applicable to a person or
its Assets, liabilities, or business, including those promulgated, interpreted,
or enforced by any Regulatory Authority.
"LIEN" shall mean any conditional sale agreement, default of
title, easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title retention,
or other security arrangement, or any adverse right or
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interest, charge, or claim of any nature whatsoever of, on, or with respect to
any property or property interest, other than Liens for property taxes not yet
due and payable.
"PRIMIS COMMON STOCK" shall mean the $.01 par value common
stock of Primis.
"PRIMIS DISCLOSURE LETTER" shall mean the letter delivered
prior to the execution of this Agreement to Seller describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section or subsection of this Agreement
under which such disclosure is being made.
"REGULATORY AUTHORITIES" shall mean, collectively, all federal
and state regulatory agencies having jurisdiction over the parties and their
respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial
advisor, attorney, accountant, consultant, or other representative of a person.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SELLER DISCLOSURE LETTER" shall mean the letter delivered
prior to the execution of this Agreement to Primis describing in reasonable
detail the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section or subsection of this Agreement
under which such disclosure is being made.
"SUBSIDIARIES" shall mean all those corporations or other
entities of which the entity in question owns or controls 50% or more of the
outstanding equity securities either directly or through an unbroken chain of
entities as to each of which 50% or more of the outstanding equity securities is
owned directly or indirectly by its parent.
9.3. PUBLIC STATEMENTS. Except as required by law, neither Seller, the
Selling Shareholders nor Primis shall, without the prior written approval of the
other party hereto, make any press release or other public announcement
concerning the transactions contemplated by this Agreement. Primis, Seller and
the Selling Shareholders may disclose information with respect to the
transaction contemplated hereby to their respective employees, agents,
consultants and third parties only to the extent such persons have a need to
know such information or as may be required by law, rule, regulation, decree or
court order.
9.4. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally and sent by facsimile:
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(a) If to Primis:
Primis, Inc.
Attn.: Chief Legal Officer
11475 Great Oaks Way, Suite 320
Alpharetta, Georgia 30022
(770) 777-8600 (telephone)
(770) 777-8591 (facsimile)
With a copy to:
Patrick W. Mattingly, Esq.
Wyatt, Tarrant & Combs
2800 Citizens Plaza
Louisville, Kentucky 40202
(502) 589-5235 (telephone)
(502) 589-0309 (facsimile)
(b) If to Seller or the Selling Shareholders:
"Seller"
Bliss Associates, Inc.
720 Commerce Tower
911 Main Street
Kansas City, Missouri 64105-2030
(816) 421-2964 (telephone)
(816) 421-3900 (facsimile)
"Selling Shareholders"
Mark R. Cox, as Shareholder and Plan Participant
5600 W. 86th Terrace
Overland Park, KS 66207
Roland G. Hoffman, as Shareholder and Plan Participant
1087 NE Lakepoint Court
Blue Springs, MO 64214
Robert E. Marx, as Shareholder and Plan Participant
6015 Howe Drive
Shawnee Mission, KS 66205-3445
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Kenneth E. Meyers, as Shareholder and Plan Participant
16519 W. 79th Terrace
Lenexa, KA 66219
Gregory Nitschke, as Shareholder and Plan Participant
813 NW North Ridge Ct.
Blue Springs, MO 64015
With a copy to:
P. Mitchell Woolery
Polsinelli White Vardeman & Shalton
700 West 47th Street, Suite 1000
Kansas City, MO 64112
(816) 753-1000 (telephone)
(816) 753-1536 (facsimile)
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
9.5. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of either party to this Agreement shall bind and inure to the benefit of their
respective heirs, executors, successors, and assigns, whether so expressed or
not. Nothing in this Agreement, express or implied, is intended to confer upon
any party other than the parties hereto and their respective successors and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. This Agreement is not assignable (whether by merger, operation
of law or otherwise) and any purported assignment shall be null and void.
9.6. CONSTRUCTION; GOVERNING LAW. The section headings contained in
this Agreement are inserted as a matter of convenience and shall not affect in
any way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of
Missouri, without regard to the principles of conflicts of laws thereof.
9.7. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement, including
the Seller Disclosure Letter, the Primis Disclosure Letter and Exhibits and
Schedules hereto, along with each of the Employment Agreements with each of the
Selling Shareholders ("Employment Agreement" or collectively "Employment
Agreements"), constitutes and contains the entire agreement between the parties
hereto with respect to the transactions contemplated hereby and supersedes any
prior writing by the parties. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of Seller and Primis (or its permitted assigns). Any amendment
or waiver effected in accordance with this paragraph shall be
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binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have been
converted), each future holder of all such securities, and Seller.
9.8. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
9.9. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
9.10. EXPENSES. Each party shall pay their respective legal and
out-of-pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby.
9.11. TIME OF ESSENCE. Time is of the essence to the performance of the
obligations set forth in this Agreement.
9.12. DISCLOSURE LETTER.
9.12.(a) The disclosures in the Seller Disclosure Letter and
the Primis Disclosure Letter, and those in any supplement thereto, must relate
only to the representations and warranties in the Section of the Agreement to
which they expressly relate and not to any other representation or warranty in
this Agreement.
9.12.(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in the Seller Disclosure
Letter or the Primis Disclosure Letter (other than an exception expressly set
forth as such in the Seller Disclosure Letter or the Primis Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
[ REMAINDER OF PAGE INTENTIONALLY LEFT BLANK ]
31
<PAGE>
IN WITNESS WHEREOF, Seller, the Selling Shareholders and
Primis have caused this Agreement to be executed as of the day and year first
written above.
"Seller"
BLISS ASSOCIATES, INC.
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
"Selling Shareholders"
_________________________________________________
Mark R. Cox, as Shareholder and Plan Participant
5600 W. 86th Terrace
Overland Park, KS 66207
_________________________________________________
Roland G. Hoffman, as Shareholder and Plan Participant
1087 NE Lakepoint Court
Blue Springs, MO 64214
_________________________________________________
Robert E. Marx, as Shareholder and Plan Participant
6015 Howe Drive
Shawnee Mission, KS 66205-3445
_________________________________________________
Kenneth E. Meyers, as Shareholder and Plan Participant
16519 W. 79th Terrace
Lenexa, KA 66219
_________________________________________________
Gregory Nitschke, as Shareholder and Plan Participant
813 NW North Ridge Ct.
Blue Springs, MO 64015
Signature Page to Stock Purchase Agreement
32
<PAGE>
BLISS ASSOCIATES, INC. 401(K) PROFIT SHARING PLAN
_______________________________________________
Mark R. Cox, as Trustee
_______________________________________________
Roland G. Hoffman, as Trustee
_______________________________________________
Robert E. Marx, as Trustee
_______________________________________________
Kenneth E. Meyers, as Trustee
_______________________________________________
Gregory Nitschke, as Trustee
"Primis"
PRIMIS, INC.
By: ________________________________________
Name: ________________________________________
Title: ________________________________________
Signature Page to Stock Purchase Agreement
33
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
Subsidiaries of PRIMIS, Inc.
Subsidiary Name State of Incorporation Doing Business as
- --------------- ---------------------- -----------------
<S> <C> <C>
Kushner & Robertson, Inc. California Hacienda Property Valuation
Primis of Florida, Inc. Florida Same as Subsidiary Name
The William Fall Group, Inc. Ohio Same as Subsidiary Name
Primis of Texas, Inc. Delaware Same as Subsidiary Name
Primis Acquisition Corp. Delaware Same as Subsidiary Name
Primis Acquisition II Corp. Delaware Same as Subsidiary Name
Bliss Associates, Inc. Missouri Bliss Associates
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated April 9, 1999, except as to Note 11 for which the date is
May 27, 1999, relating to the financial statements of PRIMIS, Inc. which appear
in such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 20, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated January 7, 2000, relating to the financial statements of
InspecTech Corporation which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 20, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated December 17, 1999, relating to the financial statements of
Kushner & Robertson, Inc. which appear in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 3,683,836 880,456
<SECURITIES> 0 0
<RECEIVABLES> 3,428,446 4,534,740
<ALLOWANCES> 449,000 602,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,321,325 5,527,424
<PP&E> 1,730,644 4,618,596
<DEPRECIATION> 976,877 1,634,058
<TOTAL-ASSETS> 14,915,238 19,626,717
<CURRENT-LIABILITIES> 1,452,958 5,469,771
<BONDS> 0 0
0 4,466,818
0 0
<COMMON> 69,588 70,688
<OTHER-SE> 12,395,785 5,708,567
<TOTAL-LIABILITY-AND-EQUITY> 14,915,238 19,626,717
<SALES> 14,355,790 17,824,357
<TOTAL-REVENUES> 14,355,790 17,824,357
<CGS> 7,823,800 9,982,141
<TOTAL-COSTS> 7,823,800 9,982,141
<OTHER-EXPENSES> 8,078,165 14,925,686
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 24,323 80,839
<INCOME-PRETAX> (1,415,017) (7,046,275)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,415,017) (7,046,275)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,415,017) (7,046,275)
<EPS-BASIC> (.29) (1.03)
<EPS-DILUTED> (.29) (1.03)
</TABLE>
