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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 1, 1998
ENTERPRISE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-18034 68-0158367
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
38705 Seven Mile Road, Suite 435, Livonia, Michigan 48152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (248) 380-6070
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
-------------------------------------
THE BUSINESS COMBINATION
On September 1, 1998, the business combination of Software Acquisition
Corporation, a Delaware corporation and a newly formed wholly-owned subsidiary
of Enterprise Software, Inc. ("SAC"), and REVIVE Technologies Incorporated, a
Delaware corporation ("REVIVE"), was consummated pursuant to the Agreement of
Merger dated as of August 4, 1998, as amended by an Agreement dated as of
September 1, 1998 (collectively, the "Merger Agreement"), both executed by and
among Enterprise Software, Inc. ("Enterprise"), SAC, REVIVE and certain
shareholders of REVIVE. All capitalized terms not otherwise defined herein shall
have the meanings provided for such terms in the Merger Agreement.
The business combination of REVIVE and SAC was effected through the
merger of REVIVE with and into SAC, with SAC continuing on as the surviving
corporation (the "Merger").
By virtue of the consummation of the transactions contemplated by the
Merger Agreement: (i) Enterprise remains the parent of SAC, SAC holds all of the
assets and liabilities of REVIVE, and REVIVE ceased to exist; (ii) all
shareholders of REVIVE ceased to have any rights as shareholders of REVIVE
(including the right to elect directors, the right to vote as to other matters,
and all rights with respect to the distribution of surplus in liquidation); and
(iii) all issued and outstanding shares of capital stock of REVIVE ("REVIVE
Stock") were converted into an aggregate of 893,500 shares of common stock, par
value $.001 per share, of Enterprise ("Enterprise Common Stock") and
$4,401,442.98 in cash and ceased to exist. In consideration for such shares of
REVIVE Stock, the Merger Securities have been allocated to, and are being
distributed to, shareholders of REVIVE in accordance with the Preference
Specifications delivered by each of them to REVIVE. REVIVE shareholders who have
failed to submit a Preference Specification have been allocated solely cash.
Pursuant to the Merger Agreement, each share of REVIVE Stock is convertible into
1/6 shares of Enterprise Common Stock or $1.77 in cash (after taking into
account a balance sheet adjustment), as applicable.
Each share of SAC Common Stock outstanding immediately prior to
consummation of the Merger remains outstanding and unchanged as a result of the
Merger. Following the consummation of the Merger, SAC was renamed "REVIVE
Technologies Incorporated". SAC is maintaining its executive offices in
Carnegie, Pennsylvania and local sales offices in Colorado, Illinois, Indiana
and New York.
Prior to the consummation of the Merger, each option to purchase REVIVE
Stock and each warrant to purchase REVIVE Stock was cancelled by the written
agreement of the holder thereof in exchange for the right of such holder to
receive, with respect to each such option and each such warrant, cash in an
amount equal to the difference between $1.82 and the exercise price of such
option or warrant. As a result, (i) 700,000 warrants, each to purchase one share
of REVIVE Stock for an exercise price of $1.00, were cancelled in exchange for
the right to receive an aggregate amount of cash equal to $574,000, and (ii)
615,211 options, each to purchase one share of REVIVE Stock and, collectively,
having an exercise prices of $249,057.50, were converted into a right to receive
an aggregate amount of cash equal to $870,626.52.
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Also in connection with the Merger, Enterprise paid $643,000 for legal,
accounting and other expenses of REVIVE, and paid off $338,096.00 of
indebtedness owed by REVIVE to certain related parties. Collectively, the total
consideration paid by Enterprise in connection with the Merger, including the
payment of cash out amounts to former warrant holders and former option holders,
and the payment of the expenses and indebtedness referred to in the immediately
preceding sentence, was $6,827,165.50 in cash (the "Total Cash Amount") and
893,500 shares of Enterprise Common Stock.
Enterprise borrowed approximately $6,000,000 of the Total Cash Amount
from Allied Capital Corporation, a Maryland corporation ("Allied"), and the
balance from NBD Bank, a Michigan banking corporation ("NBD").
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. Included with this
Current Report on Form 8-K as Exhibit 99 are (A) the report dated May 5, 1998 of
Arthur Andersen LLP, independent auditors, on the financial statements of
REVIVE; (B) balance sheets of REVIVE as of March 31, 1998 and 1997; (C)
statements of operations of REVIVE for the years ended March 31, 1998 and 1997;
(D) statements of shareholder's investment of REVIVE for the years ended March
31, 1998 and 1997; (E) statements of cash flows of REVIVE for the years ended
March 31, 1998 and 1997; and (E) notes to such financial statements of REVIVE.
(b) Pro Forma Financial Information. It is impracticable for the
registrant to provide the required pro forma financial information on the
acquired business at this time. Accordingly, the registrant will file the
required pro forma financial information for the acquired business under cover
of an amendment to this Current Report on Form 8-K as soon as practicable, but
not later than November 15, 1998 (60 days after the date (September 16, 1998)
that this Current Report on Form 8-K was required to be filed).
(c) Exhibits.
<TABLE>
<CAPTION>
Item 601
Regulation S-K
Exhibit Reference
Number Exhibit Description
------ -------------------
<S> <C>
(2)(a) Agreement of Merger dated as of August 4, 1998,
by and among Enterprise Software, Inc., Software Acquisition,
Inc., REVIVE Technologies Incorporated and certain shareholders
of REVIVE Technologies Incorporated (with exhibits).
(2)(b) Agreement dated as of September 1, 1998, by and
among Enterprise Software, Inc., Software
Acquisition Corporation, REVIVE Technologies
Incorporated and certain shareholders of REVIVE
Technologies Incorporated.
23 Consent of Arthur Andersen LLP
99 Financial Statements of REVIVE Technologies
Incorporated.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Enterprise Software, Inc.
September 15, 1998 By: /s/ Andre A. Blay
--------------------------
Andre A. Blay
Chairman of the Board and
Chief Executive Officer
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EXHIBIT INDEX
-------------
Exhibit Reference
Number Exhibit Description
- ----------------- -------------------
(2)(a) Agreement of Merger dated as of August 4, 1998,
by and among Enterprise Software, Inc., Software
Acquisition, Inc., REVIVE Technologies
Incorporated and certain shareholders of REVIVE
Technologies Incorporated (with exhibits).
(2)(b) Agreement dated as of September 1, 1998, by and
among Enterprise Software, Inc., Software
Acquisition Corporation, REVIVE Technologies
Incorporated and certain shareholders of REVIVE
Technologies Incorporated.
23 Consent of Arthur Andersen LLP
99 Financial Statements of REVIVE Technologies
Incorporated.
<PAGE> 1
EXHIBIT 2(a)
EXECUTION COPY
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (this "Agreement") is entered into as of
August 4, 1998, by and among ENTERPRISE SOFTWARE, INC., a Delaware corporation
formerly known as IndeNet, Inc. ("Acquiror"); SOFTWARE ACQUISITION CORPORATION,
a Delaware corporation ("Newco"); and REVIVE TECHNOLOGIES INCORPORATED, a
Delaware corporation ("Target") and the shareholders of the Target whose names
are listed at the end of this Agreement (the "Significant Target Shareholders").
PREMISES:
A. This Agreement sets forth the terms and conditions of the
reorganization of Target and the Acquiror Companies through the Merger (as
defined below), in which Target will be merged with and into Newco, Newco (the
surviving corporation of the Merger) will continue to be a wholly owned
subsidiary of Acquiror, holders of Target Stock (as defined below) will exchange
their shares of Target Stock for Merger Consideration (as defined below)
pursuant to conversion formulas and procedures set forth herein and each issued
and outstanding share of capital stock of Newco will remain as one issued and
outstanding share of capital stock of Newco, as the surviving corporation of the
Merger.
B. The respective Boards of Directors of Target, Acquiror and Newco
have determined that it is in the best interests of Target, Acquiror, and Newco
and their respective shareholders for Target to be merged with and into Newco
upon the terms and subject to the conditions set forth in this Agreement and the
Plan of Merger and in accordance with the DGCL (as defined below).
C. The respective Boards of Directors of Target, Acquiror and Newco
have adopted resolutions approving this Agreement and the Merger, and the Board
of Directors of Target has resolved to recommend approval of this Agreement and
the Merger to its shareholders.
D. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the IRC
(as defined below).
E. Target, the Significant Target Shareholders and the Acquiror
Companies desire to make certain representations, warranties, and agreements in
connection with the transactions contemplated herein and also to prescribe
various conditions to the consummation of such transactions.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, and agreements set forth herein, and
intending to be legally bound hereby, the parties agree as follows:
1. DEFINITIONS AND RULES OF CONSTRUCTION.
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1.1. Definitions. As used in this Agreement, the following terms have
the following meanings:
"AAA" means the American Arbitration Association.
"Accredited Investor" shall mean a Target Shareholder that has executed
and delivered to Target at least five business days prior to the Closing a
certificate in the form of Exhibit 2 to certify that such Target Shareholder
qualifies as an "accredited investor" as defined in Rule 501 promulgated under
the Exchange Act.
"Acquiror" shall have the meaning given to it in the preamble to this
Agreement.
"Acquiror Common Stock" means the Common Stock, $.001 par value per
share, of Acquiror.
"Acquiror Company" means either Acquiror or Newco.
"Acquiror Disclosure Schedule" means the disclosure schedule delivered
to Target by the Acquiror Companies prior to the execution of this Agreement.
"Acquiror Preferred Stock" means the Preferred Stock, $.0001 par value
per share, of Acquiror.
"Acquiror SEC Documents" means the following documents heretofore filed
with or furnished to the SEC by Acquiror (including, in each case, all documents
incorporated by reference therein): (a) Annual Report on Form 10-KSB for the
fiscal year ended March 31, 1998 and all amendments thereto; and (b) Quarterly
Reports on Form 10-Q/A for the fiscal quarters ended June 30, 1997, September
30, 1997 and December 31, 1997.
"Acquiror Stock" means the Acquiror Common Stock and the Acquiror
Preferred Stock.
"Agreement" means this Agreement of Merger, as the same may from time
to time be amended or supplemented.
"Applicable Contract" means any Contract (a) under which Target has or
may acquire any rights, (b) under which Target has or may become subject to any
obligation or liability, or (c) by which Target or any of the assets owned or
used by it is or may become bound.
"Assignments of Employment Agreements" means, collectively, Assignments
of Employment Agreements among each of the following Persons, Target and Newco,
in the form of Exhibit 3: Anthony J. Bonidy, Joseph J. Porfeli, Donald E.
Currie, Glenn L. Crilley and Michael H. Poore.
"Assignments of Noncompete, Nondisclosure and Assignment of Inventions
Agreements" means, collectively, Assignments of Noncompete, Nondisclosure and
Assignment of Inventions Agreements among Target, Newco and each of the
employees of Target listed on Part 4.1.21 of the Target Disclosure Schedule, in
the form of Exhibit 4.
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"Best Efforts" means 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; provided, however, that an obligation
to use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"Breach" means 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, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"Cash Component"-- as defined in Section 2.3(b).
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq.
"Certificate of Merger" means a certificate of merger with respect to
the Merger, to be filed with the Secretary of State for the State of Delaware
and the Recorder of Deeds of the County in Delaware in which the registered
office of Newco is located, in accordance with the DGCL.
"Certificates" means share certificates representing Target Stock.
"Closing" means the consummation of the transactions which this
Agreement provides are to occur on the Closing Date.
"Closing Balance Sheet" is defined in Section 2.3(c).
"Closing Date" is defined in Section 3.1.
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"Contemplated Transactions" means the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Damages"--as defined in Section 9.2.
"Deal Expenses" means the aggregate of (i) the amount of actual legal
and accounting fees incurred by Target in connection with preparing for and
consummating the Contemplated Transactions and (ii) all amounts payable by
Target to Spencer Trask Securities, Incorporated for
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brokerage or finders' fees or commissions, or termination of agreements,
in connection with this Agreement and the consummation of the Merger, as
determined pursuant to Section 2.6(b) of this Agreement.
"DGCL" means the General Corporation Law of the State of Delaware, as
amended.
"Effective Time" is defined in Section 2.4.
"Encumbrance" means 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.
"Environment" means soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Environmental, Health, and Safety Liabilities" means any cost,
damages, expense, liability, obligation, or other responsibility arising from or
under Environmental Law or Occupational Safety and Health Law and consisting of
or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and expenses
arising under Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or corrective
action, including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety and Health Law
(whether or not such Cleanup has been required or requested by any
Governmental Body or any other Person) and for any natural resource
damages; or
(d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational
Safety and Health Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA").
"Environmental Law" means any Legal Requirement that requires or
relates to:
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(a) advising appropriate authorities, employees, and the
public of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as resource
extraction or construction, that could have significant impact on the
Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or
minimizing the hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged,
and used so that they do not present unreasonable risks to human health
or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public interest to
recover for injuries done to public assets.
"ERISA" means 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.
"Escrow Agreement" means an Escrow Agreement in a form mutually
agreeable to Acquiror and Target providing for the escrow at the Closing of the
portion of the Merger Consideration constituting the Escrow Amount.
"Exchange Act" means the Securities Exchange Act of 1934 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Facilities" means any real property, leaseholds, or other interests
currently or formerly owned or operated by Target or its Subsidiaries and any
buildings, plants, structures, or equipment (including motor vehicles, tank
cars, and rolling stock) currently or formerly owned or operated by Target or
its Subsidiaries.
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Authorization" means 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.
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"Governmental Body" means 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.
"Hazardous Activity" means the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Target or
its Subsidiaries.
"Hazardous Materials" means any waste or other substance that is
listed, defined, designated, or classified as, or otherwise determined to be,
hazardous, radioactive, or toxic or a pollutant or a contaminant under or
pursuant to any Environmental Law, including any admixture or solution thereof,
and specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.
"Information" means and includes any and all information, whether
printed, written, oral, photographic, or otherwise, which is or has been
provided by one party to this Agreement to the other party to this Agreement,
its representatives or agents or to which one party to this Agreement is
provided access, regardless of form and whether or not marked as confidential or
proprietary.
"IRC" means 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.
"IRS" means the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"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
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(b) such individual should reasonably have been aware 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.
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Material Adverse Effect" (whether or not capitalized), when used with
respect to a specified Person, means a material adverse effect on either (a) the
business, assets, liabilities, results of operations, condition (financial or
otherwise), or prospects of such person (and its Subsidiaries, if any) taken as
a whole, or (b) the ability of any of such person to perform its obligations
hereunder or to consummate the Contemplated Transactions.
"Merger" means the merger of Target with and into Newco pursuant to
this Agreement.
"Merger Consideration" means any one or more of the following: (a) the
Merger Securities and (b) the Cash Component.
"Merger Securities"-- as defined in Section 2.3(b).
"Newco" means Software Acquisition Corporation, a Delaware corporation
and a wholly owned subsidiary of Acquiror.
"Newco Stock" means the Common Stock, $.001 par value per share, of
Newco.
"Occupational Safety and Health Law" means any Legal Requirement
designed to provide safe and healthful working conditions and to reduce
occupational safety and health hazards, and any program, whether governmental or
private (including those promulgated or sponsored by industry associations and
insurance companies), designed to provide safe and healthful working conditions.
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental 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;
(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
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(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" means: (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" means 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.
"Preference Specification"-- as defined in Section 2.3(b).
"Proceeding" means 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.
"RCRA" means the Resource Conservation and Recovery Act of 1976, 42
U.S.C. Sections 6901 et seq.
"Registration Statement" means a Registration Statement on Form S-1 or
S-3 to be filed with the SEC pursuant to the Securities Act by Acquiror with
respect to the Merger Securities.
"Related Person" means, 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:
(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;
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(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.
"Release" means any spilling, leaking, emitting, discharging,
depositing, escaping, leaching, dumping, or other releasing into the
Environment, whether intentional or unintentional.
"Representative" means, 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.
"Requisite Regulatory Approvals" means all authorizations, consents,
orders, or approvals of, all declarations or filings with, and the expiration or
early termination of all waiting periods by, any Governmental Entity which are
prescribed by law as necessary for the consummation of the Merger and the other
transactions contemplated hereby, other than the filing of the Certificate of
Merger.
"Returns" means all returns, declarations, reports, statements, claims
for refund, information returns or statements relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
"Significant Target Shareholders" means the shareholders of the Target
whose names are listed at the end of this Agreement.
"Subsidiary" means, 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
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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.
"Surviving Corporation" means Newco as the surviving corporation of the
Merger.
"Takeover Proposal" means any tender or exchange offer, proposal for a
merger, consolidation, or other business combination involving Target, or any
proposal or offer to acquire in any manner 51 percent or more of any class of
Target's capital stock or 51 percent or more of Target's assets, other than the
transactions contemplated by this Agreement.
"Target" means REVIVE Technologies Incorporated, a Delaware
corporation.
"Target Disclosure Schedule" means the disclosure schedule to be
delivered to the Acquiror Companies by Target pursuant to Section 5.1.7.
"Target Financial Statements" means: (a) the balance sheet as of March
31, 1996, 1997 and 1998, the related statements of operations, shareholders'
investments, and cash flows of Target for the years ended March 31, 1996, 1997
and 1998, the notes thereto and the audit reports prepared in connection
therewith by its independent certified public accountants; (b) the balance sheet
as of June 30, 1998, the related statements of operations, shareholders'
investment, and cash flows of Target for the period from April 1, 1998 to June
30, 1998, and the notes thereto; and (c) the Closing Balance Sheet.
"Target Shareholder" mean a Person who is a beneficial owner of Target
Stock as of the Closing Date.
"Target Shareholder Meeting" means a meeting of Target's shareholders
to be held for the purpose of voting upon the approval of this Agreement and the
Merger.
"Target Stock" means the Common Stock, $0.01 par value per share, of
Target.
"Tax Return" means any return (including any information return),
declaration, report, statement, claim for refund, schedule, notice, form, or
other document or information relating to Taxes, including any schedule or
attachment thereto and including any amendment thereof, 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.
"Taxes" means all federal, state, local, foreign, and other net income,
gross income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, lease, service, service use, withholding, payroll,
employment, unemployment and payroll related, excise, severance, stamp,
occupation, premium, property, personal property, disability, registration,
alternative or add on minimum, estimated, or windfall profits taxes, customs,
duties, or any other taxes, fees, assessments, or charges of any kind whatever,
together with any interest and any penalties, additions to tax, or additional
amounts with respect thereto whether disputed or not.
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"Threat of Release" means a substantial likelihood of a Release that
may require action in order to prevent or mitigate damage to the Environment
that may result from such Release.
"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.
"Violation" means, with respect to any document, any event or condition
which conflicts with, gives rise to or results in any violation of or default
(with or without notice or lapse of time, or both) under, or gives rise to a
right of termination, cancellation, or acceleration of any obligation or the
loss of a material benefit under, or the creation of an Encumbrance on assets
pursuant to, any provision of such document.
"Voting Debt" means bonds, debentures, notes, or other indebtedness the
holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with the shareholders of the issuer thereof
on any matter.
1.2. Plurals. Any defined term used in this Agreement in the plural
form shall be deemed to include all members of the relevant class.
1.3. Gender. Any masculine, feminine, or neuter word or term used in
this Agreement shall be deemed also to include the other genders.
2. THE MERGER AND RELATED TRANSACTIONS.
2.1. Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date the Certificate of Merger shall be duly
prepared, executed, and acknowledged by the Surviving Corporation and thereafter
delivered for filing to the Secretary of State for the State of Delaware and the
Recorder of Deeds of the County in Delaware in which the registered office of
which the Surviving Corporation is located, as provided in the DGCL. The Merger
shall become effective upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware or at such time thereafter as
Acquiror, the Target and the Surviving Corporation may agree in writing to
provide in the Certificate of Merger (the "Effective Time").
2.2. Effects of the Merger.
(a) At the Effective Time,
(i) the separate existence of Target shall cease and
it shall be merged with and into Newco, which shall be the Surviving Corporation
of the Merger;
(ii) the Certificate of Incorporation of Newco, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation
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but amended to change the name of Newco to "REVIVE Technologies Incorporated"
and as it may be further amended in accordance with the provisions thereof and
the DGCL;
(iii) the Bylaws of Newco, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until amended in accordance with the provisions thereof and the DGCL; and
(iv) the officers and directors of Newco shall be and
remain the officers and directors of the Surviving Corporation until their
respective successors shall have been duly appointed or elected or until earlier
death, resignation or removal.
(b) At and after the Effective Time, the Merger will have
the effects set forth in Sections 259 and 261 of the DGCL.
2.3. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Target
Stock or Newco Stock:
(a) Cancellation of Treasury Stock and Target-Owned Stock.
(i) All shares of Target Stock that are owned by
Target as treasury stock shall be canceled and retired and shall cease to exist
and no Merger Consideration shall be delivered in exchange therefor.
(ii) All shares of Acquiror Stock that are owned by
Target shall become treasury stock of Acquiror.
(b) Conversion of Target Stock. Subject to Section 2.5(e), the
shares of Target Stock (other than shares to be canceled and retired in
accordance with Section 2.3(a) and shares held by any holder who shall have
perfected such holder's appraisal rights under the DGCL) issued and outstanding
immediately prior to the Effective Time shall be converted into the right to
receive Eight Hundred Ninety Three Thousand Five Hundred (893,500) shares of
Acquiror Common Stock (the "Merger Securities") and cash consideration equal to
(i) the product of $2.00 multiplied by the difference between the number of
issued and outstanding shares of Target Stock on the Closing Date and 5,361,000,
(ii) less Deal Expenses of $700,000, (iii) plus $0.18 multiplied by the number
of canceled options and warrants entitled to receive Cash Out Amount pursuant to
Section 2.6(a). In connection with seeking approval of this Agreement and the
Merger from the Target Shareholders, the Target shall ask each Target
Shareholder to specify such Target Shareholder's preference for the Merger
Securities and Cash Component to be received in consideration of such Target
Shareholder's Target Stock (the "Preference Specification"). The Preference
Specification shall (i) be in the form attached as Exhibit 1, (ii) be delivered
by the Target to the Target Shareholders with the notice of the Target
Shareholder Meeting, (iii) provide for each Target Shareholder to designate such
Target Shareholder's preference for the Merger Consideration payable to such
Target Shareholder to be allocated between Merger Securities and Cash Component,
and (iv) provide that the Preference Specification must be delivered to the
Target not less than three business days prior to the Closing to be effective.
In the event that an effective and fully completed Preference Specification for
any Target Shareholder is not received by the Target by such date, such Target
Shareholder shall be entitled to receive Merger Consideration allocated to
Merger Securities and
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<PAGE> 13
Cash Component in proportion to the amount of Merger Securities and Cash
Component remaining after taking into account all effective and fully
completed Preference Specifications. Notwithstanding any Preference
Specification, the Merger Consideration shall consist of, and the Target
Shareholders shall receive, 893,500 shares of Acquiror Common Stock plus the
Cash Component. In the event the Preference Specifications, in the aggregate,
specify less than 893,500, then the difference between 893,500 and the amount so
specified shall be allocated to each Target Shareholder that is an Accredited
Investors in proportion to the percentage of the issued and outstanding Target
Stock owned by such Target Shareholder. In addition, if necessary to preserve
the tax-free status of the Merger under Section 368(a) of the IRC, Target shall
prorate the Merger Securities and the Cash Component among the Target
Shareholders; provided, however, that only Target Shareholders that are
Accredited Investors shall be allocated Merger Securities. All shares of Target
Stock converted into Merger Consideration pursuant to this Section shall
automatically cease to be outstanding, be canceled and retired and shall cease
to exist. Certificates previously representing shares of Target Stock shall be
exchanged for certificates representing whole shares of Acquiror Common Stock
and cash in lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with Section 2.5 without any
interest thereon.
(c) Adjustment of Merger Consideration. The Merger
Consideration shall be adjusted downward on a dollar for dollar basis to the
extent that shareholders' equity of the Target as reflected on the Closing
Balance Sheet, reduced by the aggregate amount of consideration received by
Target for exercise of options and warrants following the date of this
Agreement, is less than $98,800. Such adjustment shall be made first from the
Excess Deal Expenses (as defined in Section 2.6(b), and then by reducing the
Merger Securities and the Cash Component in proportion to their respective
percentages of the Merger Consideration, with each share of Acquiror Common
Stock valued at the closing price of Acquiror Common Stock on NASDAQ on the date
immediately preceding the Closing Date. As soon as practicable, but not later
than five business days prior to the Closing Date, the Target shall prepare and
deliver to Acquiror a good faith estimate of the balance sheet of the Target as
of the Closing Date (the "Closing Balance Sheet"), together with a certificate
of the President of Target certifying that the Closing Balance Sheet is true and
correct in all material respects and has been prepared in accordance with GAAP.
The Closing Balance Sheet shall be prepared in accordance with GAAP. Acquiror
shall have three business days from receipt of the Closing Balance Sheet to
deliver a written notice of disagreement ("Notice of Disagreement"). During such
period, the Target shall make the books and accounting records of the Target
(including work papers) and appropriate Target accounting personnel reasonably
available to Acquiror. Any such Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted. If no Notice of
Disagreement is delivered within such five day period, the Closing Balance Sheet
shall become final and binding upon Acquiror and the Target. Following delivery
of a Notice of Disagreement, the parties shall attempt to resolve any
differences which they may have with respect to any matter specified in the
Notice of Disagreement. If prior to the scheduled Closing Date, the parties fail
to reach a written agreement with respect to all such matters, then all such
matters as specified in the Notice of Disagreement as to which such written
agreement has not been reached (the "Disputed Matters") shall be submitted to
and reviewed by an arbitrator (the "Arbitrator"), who shall be an audit partner
of any of the "big five" accounting firms (other than KPMG Peat Marwick LLP or
Arthur Andersen LLP) selected by Acquiror's and Target's representatives at
their respective independent accounting firms. The Arbitrator shall act
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promptly (in no event to exceed 20 days) to resolve all Disputed Matters
and his or her decision with respect to all Disputed Matters shall be final
and binding upon Acquiror and the Target. The fees and expenses of the
Arbitrator incurred in resolving the Disputed Matters shall be borne equally
by Acquiror and the Target (with the Target's portion of the fees and expenses
being a further adjustment to the Merger Consideration (reducing the Merger
Securities and the Cash Component in proportion to their respective percentages
of the Merger Consideration, with each share of Acquiror Common Stock valued at
the closing price of Acquiror Common Stock on NASDAQ on the date immediately
preceding the Closing Date). The Closing Date shall be postponed until all
Disputed Matters have been resolved by the Arbitrator or waived in writing by
the parties.
(d) No Change in Newco Stock. Each issued and outstanding
share of Newco Stock shall be and remain as one issued and outstanding share of
Common Stock of the Surviving Corporation. The Merger Consideration payable with
respect to each share of Target Stock shall be adjusted to reflect fully the
effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into Acquiror Common Stock or
Target Stock), reorganization, recapitalization or other like change with
respect to Acquiror Common Stock or Target Stock, as appropriate, occurring
after the date hereof and prior to the Effective Time.
2.4. Escrow Amount. At the Closing, as security for the general
obligations of Target and the Significant Target Shareholders under this
Agreement, the lesser of (i) an amount of Merger Consideration having a value of
10% of the value of the total Merger Consideration (with each share of Acquiror
Common Stock valued for this purpose at the closing price of Acquiror Common
Stock on the NASDAQ on the day immediately preceding the Closing Date) and (ii)
the amount calculated by part (i) of this Section, reducing the Merger
Securities held in escrow by an amount necessary for the total value of the
shares of Acquiror Common Stock included in the Merger Securities, less the
total value of all shares of Acquiror Common Stock included in the Escrow
Account, to be equal to the sum of: (x) the Cash Component, plus (y) the
aggregate amount of Cash Out Amounts and Deal Expenses payable at the Closing,
plus (z) the total value of shares of Acquiror Common Stock included in the
Escrow Account (collectively, the "Escrow Amount") shall be delivered by
Acquiror (on behalf of the Significant Target Shareholders, allocable to each of
them on a pro rata basis compared with the value of Merger Consideration payable
to each of them in connection with the Merger) to NBD Bank, as escrow agent (the
"Escrow Agent"), to be deposited and held in and released from escrow pursuant
to the Escrow Agreement to be entered into at the Closing, and shall be
deposited and held in escrow pursuant to the provisions of the Escrow Agreement
until May 31, 1999. Subject to the foregoing, the mix of Merger Securities and
Cash Component in the Escrow Account shall be identical to the mix of Merger
Securities and Cash Component payable to the Significant Target Shareholders, in
the aggregate, in connection with the Merger, or as Acquiror and each
Significant Target Shareholder shall otherwise agree. For purposes of this
Section, each share of Acquiror Common Stock shall be deemed to have a value
equal to the closing price of Acquiror Common Stock on the NASDAQ on the day
immediately preceding the Closing Date.
2.5. Exchange of Certificates.
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<PAGE> 15
(a) Exchange Agent. As of the Effective Time, Acquiror shall
deposit, or shall cause to be deposited, with NBD Bank, or such other bank or
trust company acceptable to the parties (the "Exchange Agent"), for the benefit
of the holders of the Target Stock, for exchange in accordance with this Article
2, (i) certificates representing the shares of Acquiror Common Stock issuable
pursuant to Section 2.3 in exchange for outstanding shares of Target Stock and
(ii) cash in an aggregate amount sufficient to pay (x) the Cash Component of the
Merger Consideration and (y) for fractional shares pursuant to Section 2.5(e),
less the Escrow Amount (the shares and cash so deposited, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund"). Any interest, dividends or other income earned on the
investment of cash or other property (not including Acquiror Common Stock) held
in the Exchange Fund shall be for the account of and payable to Acquiror. All
costs of the Exchange Agent shall be borne by Acquiror.
(b) Exchange Procedures. Promptly after the Effective Time,
Acquiror shall cause the Exchange Agent to mail to each holder of record of
Target Stock (i) a letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Acquiror may reasonably specify, (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Acquiror Common Stock and cash in lieu
of fractional shares, (iii) the Lock-up Letter, and (iv) such other
documentation as is customary for transactions of this type. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal and lock-up letter, both of which shall be duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor (A) a
certificate representing that number of whole shares of Acquiror Common Stock
which such holder has the right to receive pursuant to Section 2.3 in respect of
the shares of Target Stock formerly evidenced by such Certificate, less, if the
holder is a Significant Target Shareholder, such Significant Target
Shareholder's proportionate amount of the Acquiror Common Stock included in the
Escrow Account (B) any dividends or other distributions to which such holder is
entitled pursuant to Section 2.5(c), and (C) cash in respect of the Cash
Component of the Merger Consideration and of fractional shares as provided in
Sections 2.3(c) and 2.5(e) hereof, less, if the holder is a Significant Target
Shareholder, such Significant Target Shareholder's proportionate amount of the
cash included in the Escrow Amount (which cash portion shall be disbursed by
wire transfer upon receipt by the Exchange Agent of the documents described
above and appropriate wire transfer instructions from a Target Shareholder) and
the Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on the cash in lieu of fractional shares or unpaid dividends and
distributions, if any, payable to holders of Certificates. Except as otherwise
provided in the next sentence, no transfer taxes shall be payable by any holder
of a Certificate in respect of the issuance of a certificate representing the
Acquiror Common Stock pursuant to this Agreement. In the event of a transfer of
ownership of Target Stock which is not registered in the transfer records of the
Target as of the Effective Time, a certificate representing the proper number of
shares of Acquiror Common Stock, together with any dividends and distributions,
and cash in respect of the Cash Component of the Merger Consideration and of
fractional shares, may be issued and paid to such a transferee if the
Certificate representing such shares of Target Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer pursuant to this Section 2.5(b) and by evidence that any
applicable stock transfer taxes have been paid. Until so surrendered, each
outstanding Certificate that, prior to the Effective
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Time, represented Target Stock, will be deemed from and after the Effective
Time, for all corporate purposes, other than the exercise of voting rights
and the payment of dividends and subject to Section 2.3(a), to evidence the
ownership of the number of full shares of Acquiror Common Stock into which
such shares of Target Stock shall have been so converted.
(c) Distributions with Respect to Unexchanged Shares; Voting.
No dividends or other distributions declared or made after the Effective Time
with respect to Acquiror Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to Target Stock until the holder of such Certificate shall surrender such
Certificate for exchange in accordance with this Section 2.5. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates representing whole shares of
Acquiror Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Acquiror Common Stock and not paid.
(d) Transfers. After the Effective Time, the stock transfer
books of the Target shall be closed, and there shall be no further registration
of transfers of Target Stock thereafter on the records of the Target. If after
the Effective Time, certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged for Merger Consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Article 2.
(e) Fractional Shares. No fractional shares of Acquiror Common
Stock shall be issued in connection with the Merger, and such fractional share
interests will not entitle the owner thereof to vote or to any other rights as a
shareholder of Acquiror. In lieu of the issuance of any fractional share of
Acquiror Common Stock pursuant to Section 2.3(b), each holder of Target Stock
upon surrender of a Certificate for exchange shall be paid an amount in cash
(without interest), rounded up to the nearest cent, determined by multiplying
(i) the closing price of Acquiror Common Stock on NASDAQ the date immediately
preceding the Closing Date, by (ii) the fractional interest to which such holder
would otherwise be entitled (after taking into account all shares of Target
Stock then held of record by such holder).
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund (including the proceeds of any investments thereof and any Acquiror Common
Stock) that remains unclaimed by the Target Shareholders for six months after
the Effective Time shall be delivered to Acquiror, upon demand, and thereafter
such holders of Target Stock who have not theretofore complied with this Section
2.5 shall be entitled to look only to Acquiror for payment of the Merger
Consideration to which they are entitled pursuant hereto, without interest
thereon. Notwithstanding the foregoing, none of Acquiror, the Exchange Agent or
any other person shall be liable to any former holder of shares of Target Stock
for any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) Withholding Rights. Acquiror or Exchange Agent shall be
entitled to deduct and withhold from the Merger Consideration otherwise payable
pursuant to this Agreement to any holder of Target Stock such amounts as
Acquiror or the Exchange Agent is required to deduct and withhold with respect
to the making of such payment under the IRC, or
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any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Acquiror or the Exchange Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to
the holder of the Acquiror Common Stock in respect of which such deduction
and withholding was made by Acquiror or the Exchange Agent.
(h) Lost Certificate(s). In the event any Certificate 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
and, if required by Acquiror, the posting by such person of a bond in such
amount as Acquiror may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent shall issue, in
exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
2.6. Other Payments At Closing.
(a) Payments to Option and Warrant Holders. Target and the
Significant Target Shareholders represent and warrant to Acquiror and the
Surviving Corporation that, at the time of the execution of this Agreement, the
Target has outstanding (i) 700,000 warrants, each of which permits the holder
thereof to purchase one (1) share of Target Stock for an exercise price of
$1.00, and (ii) 616,211 options, which presently permit or will permit the
holders thereof to purchase one (1) share of Target Stock for the exercise price
applicable to such option, the aggregate exercise price for all of such options
being equal to $249,808. The Target and the Significant Target Shareholders
further represent and warrant to Acquiror and the Surviving Corporation that,
immediately prior to the Closing, none of such warrants and options shall be
outstanding, either because they shall have been exercised or because the Target
shall have entered into an agreement (each, a "Cancellation Agreement") with
such holders pursuant to which each such option and warrant is canceled in
exchange for receipt by the holder thereof of cash equal to the difference
between $1.82 and the exercise price of such option or warrant (each, a "Cash
Out Amount"). At the Closing, Target shall deliver to Acquiror duly executed
copies of each Cancellation Agreement, along with a statement setting forth the
aggregate Cash Out Amount payable to each former option or warrant holder
pursuant to each Cancellation Agreement. Upon receipt of such Cancellation
Agreements, at the Closing either Acquiror or a third party designated by
Acquiror as its payment agent for this purpose shall pay to each former option
or warrant holder with respect to which Acquiror has received a duly executed
Cancellation Agreement, the Cash Out Amount payable to such former option or
warrant holder, either by wire transfer of immediately available funds or by
Acquiror check. Acquiror or its designee shall be entitled to deduct and
withhold from the aggregate Cash Out Amount otherwise payable pursuant to this
Section to any former option or warrant holder such amounts as Acquiror or its
designee is required to deduct and withhold with respect to the making of such
payment under the IRC, or any provision of state, local or foreign tax law,
which payment shall be made to the applicable tax authority on behalf of the
former option holder or warrant holder. To the extent that amounts are so
withheld by Acquiror or its designee, such withheld amounts shall be treated for
all purposes of this Agreement as having been paid to the former option or
warrant holder in respect of which such deduction and withholding was made by
Acquiror or its designee.
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(b) Deal Expenses. At the Closing: (i) Morgan, Lewis & Bockius
LLP and Arthur Andersen LLP will each deliver to Acquiror and Target written
invoices setting forth in reasonable detail the fees and expenses owed by the
Target to each of them in connection with the preparation for, and consummation
of, the Contemplated Transactions and (ii) Spencer Trask Securities,
Incorporated shall deliver to Acquiror and Target a written statement of the
amount payable by Target for brokerage or finders' fees or commissions, and for
termination of agreements, in connection with this Agreement and the
consummation of the Merger. Upon receipt of such invoices and statements, at the
Closing Acquiror shall pay to each of Morgan, Lewis & Bockius LLP, Arthur
Andersen LLP and Spencer Trask Securities, Incorporated, by wire transfer of
immediately available funds to accounts specified by each of them, the amount
owed by Target to each of them as evidenced by such invoices and statements. In
the event Deal Expenses are less than $700,000, the excess of $700,000 over Deal
Expenses shall be retained by the Exchange Agent until May 31, 1999 for the
benefit of the Target Shareholders and the former optionholders and
warrantholders receiving Cash Out Amount (such amount being referred to herein
as the "Excess Deal Expenses") for use at the Closing to satisfy any Closing
adjustments, including but not limited any amount required to be paid pursuant
to Section 2.3(c). Upon the satisfaction of all such Closing adjustments, any
remaining amount of Excess Deal Expenses shall continue to be held by the
Exchange Agent, for the benefit of the Target Shareholders and the former
optionholders and warrantholders receiving Cash Out Amount, to cover any
post-closing adjustments or any expenses relating to any claim asserted against
any of the Significant Target Shareholders for indemnification pursuant to this
Agreement. Any amount of Excess Deal Expenses remaining after all of the
foregoing adjustments shall be distributed, on May 31, 1999, pro rata to the
Target Shareholders and the former optionholders and warrantholders receiving
Cash Out Amount. In the event Deal Expenses are greater than $700,000, the
Merger Consideration shall be reduced by the difference between the Deal
Expenses and $700,000, such reduction to be made by reducing the Merger
Securities and the Cash Component in proportion to their respective percentages
of the Merger Consideration, with each share of Acquiror Common Stock valued at
the closing price of Acquiror Common Stock on the date immediately preceding the
Closing Date.
(c) Payoff of Outstanding Notes. At the Closing, Acquiror
shall pay to each Person identified on the attached Schedule 2.6(c), in
immediately available funds to the accounts specified by each of them in writing
prior to the Closing, the amounts required to pay off the outstanding principal
and interest on the promissory notes identified opposite each of their
respective names of such Schedule, which amounts shall be reflected on the
Closing Balance Sheet. In connection with Acquiror making such payments, the
Significant Target Shareholders agree to use their respective Best Efforts to
obtain a written acknowledgement from each such Person that such promissory
notes are paid in full and terminated in their entirety. Notwithstanding the
foregoing, under no circumstances shall Acquiror be required to pay such Persons
more than $400,000.00, plus accrued but unpaid interest on such promissory
notes, pursuant to this Section 2.6(c).
2.7. Target Shareholder Meeting. Target will, through its Board of
Directors, recommend to its shareholders approval of this Agreement and the
Merger (unless, in the written opinion of Target's independent counsel, such
recommendation is not consistent with the fiduciary duties of Target's Board of
Directors). Target shall take all steps necessary to duly call, give notice of,
convene, and hold the Target Shareholder Meeting as soon as is reasonable
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following the date on which this Agreement is signed. In no event, however,
shall Target shall distribute proxy materials to its shareholders until the date
on which the parties give the Mutual Press Release, as described in Section 10.2
hereof.
2.8. Newco Shareholder Action. Prior to the Effective Time, Acquiror,
as the sole shareholder of Newco, shall take all action proper or convenient for
the consummation of the Merger by Newco.
2.9. Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the IRC. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations.
3. THE CLOSING.
3.1. Closing Date. Subject to the terms and conditions hereof, the
Closing will take place at 10:00 a.m., Detroit, Michigan time, as soon as
possible following approval of the Target Shareholders, as set forth in Section
2.7 hereof, and the receipt of other required consents and the expiration of any
required notice periods, or such other time, date and place as the parties may
mutually agree to in writing (the "Closing Date"), at the offices of Miller,
Canfield, Paddock and Stone, P.L.C., Detroit, Michigan. All transactions
occurring and all documents executed and/or delivered at the Closing shall be
deemed to occur simultaneously, and no transaction shall be deemed to have
occurred and no document shall be deemed to have been executed or delivered
unless all transactions shall have occurred and all such documents shall have
been executed and delivered.
3.2. Further Assurances. From time to time subsequent to the Closing
Date, each party to this Agreement shall at the request of another party to this
Agreement execute and deliver such additional documents, instruments,
certifications, papers, and other assurances as may be requested by such party
as necessary, appropriate, convenient, useful, or desirable to effectively carry
out the intent of this Agreement.
4. REPRESENTATIONS AND WARRANTIES.
4.1. Representations and Warranties of Target. Target and the
Significant Target Shareholders, jointly and severally, hereby represent,
warrant and agree, as of the date of this Agreement and as of the Closing Date,
as follows, each of which shall be deemed to be independently material and to
have been relied upon by the Acquiror Companies:
4.1.1. Organization and Good Standing.
(a) Part 4.1.1 of the Target Disclosure Schedule contains a
complete and accurate list for Target of its name, its jurisdiction of
incorporation, and any other jurisdictions in which it is authorized to
do business. Target is a corporation duly organized, validly existing,
and in good standing under the laws of its jurisdiction of
incorporation, has all requisite power and authority (corporate and
other) to own, lease and operate the properties and assets that it
purports to own or use, to conduct its business as it is now being
conducted, and to perform all its obligations under Applicable
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Contracts. Target is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or
other jurisdiction listed in Part 4.1.1 of the Target Disclosure
Schedule, which constitute each state or other jurisdiction in which
the nature of its business or the ownership or leasing of its
properties makes such qualification necessary. Except as set forth in
Part 4.1.1 of the Target Disclosure Schedule, the Target has not used
or assumed any other name in connection with its business during the
past five years.
(b) Target has delivered to Acquiror copies of its
Organizational Documents, as currently in effect.
4.1.2. Capital Structure. The authorized equity securities of
Target consist of 20,000,000 shares of Target Stock, of which 7,854,534
shares are issued and outstanding, and 1,000,000 shares of preferred
stock, $0.01 par value per share, of which no shares are issued and
outstanding. All outstanding shares of Target Stock have been duly
authorized and validly issued and are fully paid and nonassessable. The
Target Shareholders set forth in Part 4.1.2 of the Target Disclosure
Schedule own of record and beneficially 100% of the outstanding capital
stock of the Target in the respective amounts set forth in Part 4.1.2
of the Target Disclosure Schedule. Except as set forth on Part 4.1.2 of
the Target Disclosure Schedule, there are no outstanding options,
rights, warrants or other commitments entitling any Person to purchase
or otherwise subscribe for or acquire any shares of capital stock of
the Target, nor is there presently outstanding any security convertible
into or exchangeable for shares of capital stock of the Target, nor has
the Target or any Significant Target Shareholder entered into any
agreement with respect to any of the foregoing. Immediately prior to
the Closing, there will be no outstanding options, rights, warrants or
other commitments entitling any Person to purchase or otherwise
subscribe for or acquire any shares of capital stock of Target.
4.1.3. Subsidiaries. The Target has no, nor has it ever had
any, Subsidiaries and does not own, nor has it ever owned, directly or
indirectly, any interest or investment in any other Person whatsoever.
4.1.4. Title and Authorization Relative to this Agreement.
Each Target Shareholder is the absolute owner of the Target Stock as
described in Part 4.1.2 of the Target Disclosure Schedule, free, clear
and discharged of and from any and all Encumbrances, and each
Significant Target Shareholder has the full right, power and authority
to execute and deliver this Agreement and the documents and instruments
to be executed and delivered by them pursuant hereto and to perform his
or her obligations hereunder and thereunder. Target has all requisite
corporate power and authority to enter into this Agreement and, subject
to approval of this Agreement by the Target Shareholders, to consummate
the transactions contemplated hereby and thereby and subject to the
state law rights given to shareholders to exercise their dissenter's
rights in connection with mergers. No approval or adoption of Target
Shareholders is required to consummate the Merger and the other
transactions contemplated hereby other than as specifically set forth
in Section 7.1.1. This Agreement and the documents and instruments to
be executed and delivered pursuant hereto are and will be duly executed
and delivered by the Target and the Significant Target Shareholders and
are and will be
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the legal, valid and binding obligations of the Target
and the Significant Target Shareholders, enforceable against each of
them in accordance with their terms, except to the extent to which
enforcement may be limited by bankruptcy, insolvency, moratorium or
similar laws relating to the enforcement of creditors rights and by
general principles of equity (regardless of whether brought in an
action at law, in equity, or otherwise).
4.1.5. Consents and Approvals; No Violation.
(a) Except as set forth in Part 4.1.5(a) of the Target
Disclosure Schedule, neither the execution and delivery of this
Agreement by Target or the Significant Target Shareholders nor the
consummation or performance by Target or the Target Shareholders of any
of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time):
(i) be, give rise to, or result in any Violation of any
provision of the Organizational Documents of Target;
(ii) be, give rise to, or result in any Violation of,
or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal
Requirement applicable to Target or any Order to which
Target, any Target Shareholder or any of the assets owned or
used by Target, may be subject; or
(iii) subject to obtaining or making the Consents and
filings referred to in paragraph (b) below, be, give rise
to, or result in any Violation of, or require the consent of
any other Person that is a party to any Applicable Contract.
(b) Except as set forth in Part 4.1.5(b) of the Target
Disclosure Schedule, neither Target nor any Target Shareholder 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,
except for: (i) the filing of the Certificate of Merger with the
Secretary of State for the State of Delaware and the Recorder of Deeds
of the County in Delaware in which the registered office in which the
Surviving Corporation is located; and (ii) the filing of appropriate
documents with the relevant Governmental Bodies of other states in
which Target is qualified to do business.
(c) Except as set forth in Part 4.1.5(c) of the Target
Disclosure Schedule, each Target Shareholder entitled to receive Merger
Securities pursuant to this Agreement will acquire such Merger
Securities for their own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act.
Each Significant Target Shareholder understands that the Merger
Securities have not been registered under the Securities Act for
purposes of the Contemplated Transactions. Absent an applicable
exemption, no Target Shareholder will make any distribution of any of
the Merger Securities without such registration and registration or
qualification under any state
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securities laws which may be applicable. Except as set forth in Part
4.1.5(c) of the Target Disclosure Schedule, each Target Shareholder is
an Accredited Investor.
4.1.6. Target Financial Statements. Target has delivered to
the Acquiror Companies true and complete copies of the Target Financial
Statements. The Target Financial Statements are true and correct in all
material respects, have been prepared in accordance with GAAP and
fairly present the financial position of Target as at the dates thereof
and the results of its operations and cash flows or changes in
financial position for the periods then ended.
4.1.7. No Undisclosed Liabilities. Except as set forth in Part
4.1.7 of the Target Disclosure Schedule, the Target 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 Target Financial
Statements and current liabilities incurred in the Ordinary Course of
Business since the respective dates thereof.
4.1.8. Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Part 4.1.8 of the Target
Disclosure Schedule:
(i) Target is, and at all times since its
incorporation has been, in compliance in all material respects
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;
(ii) to the Knowledge of the Target and the Significant
Target Shareholders, 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 Target of, or a failure
on the part of Target to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of Target
to undertake, or to bear all or any portion of the cost of,
any remedial action of any nature; and
(iii) Target has not received, at any time since its
incorporation, 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 Target to undertake, or to
bear all or any portion of the cost of, any remedial action of
any nature.
(b) Part 4.1.8(b) of the Target Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that is
held by Target or that otherwise relates to the business of, or to any
of the assets owned or used by, Target. Each Governmental Authorization
listed or required to be listed in Part 4.1.8 of the Target Disclosure
Schedule is valid and in full force and effect. Except as set forth in
Part 4.1.8(b) of the Target Disclosure Schedule:
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<PAGE> 23
(i) Target is, and at all times since its
incorporation has been, in full compliance with all of the
terms and requirements of each Governmental Authorization
identified or required to be identified in Part 4.1.8(b) of
the Target Disclosure Schedule;
(ii) to the Knowledge of the Target and the Significant
Target Shareholders, 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
Part 4.1.8(b) of the Target Disclosure Schedule, or (B) result
directly or indirectly in the revocation, withdrawal,
suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or
required to be listed in Part 4.1.8(b) of the Target
Disclosure Schedule;
(iii) Target has not received, at any time since its
incorporation, 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
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed or
required to be listed in Part 4.1.8(b) of the Target
Disclosure Schedule have been duly filed on a timely basis
with the appropriate Governmental Bodies, and all other
filings required to have been made with respect to such
Governmental Authorizations have been duly made on a timely
basis with the appropriate Governmental Bodies.
(c) The Governmental Authorizations listed in Part 4.1.8(b) of
the Target Disclosure Schedule collectively constitute all of the
material Governmental Authorizations necessary to permit Target to
lawfully conduct and operate its business in the manner it currently
conducts and operate such business and to permit the Target to own and
use its assets in the manner in which it currently own and use such
assets.
4.1.9. Legal Proceedings; Orders.
(a) Except as set forth in Part 4.1.9 of the Target Disclosure
Schedule, there is no pending Proceeding:
(i) that has been commenced by or against Target or
that otherwise relates to or may materially affect the
business of, or any of the assets owned or used by Target; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions.
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<PAGE> 24
To the Knowledge of Target and the Significant Target Shareholders, no
such Proceeding has been Threatened. Target has made available to
Acquiror copies of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Part 4.1.9 of the Target
Disclosure Schedule. The Proceedings listed in Part 4.1.9 of the Target
Disclosure Schedule will not have a Material Adverse Effect on the
business, operations, assets, condition, or prospects of Target.
(b) Except as set forth in Part 4.1.9 of the Target Disclosure
Schedule:
(i) there is no Order to which Target or any of the
assets owned or used by Target, is subject;
(ii) neither Target nor any of the Significant Target
Shareholders is subject to any Order that relates to the
business of, or any of the assets owned or used by, the
Target; and
(iii) no officer, director, agent, or employee of Target
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 Target.
(c) Except as set forth in Part 4.1.9 of the Target Disclosure
Schedule:
(i) Target is, and at all times since its
incorporation 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;
(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 Target, or any of the assets
owned or used by Target, is subject; and
(iii) Target has not received, at any time since its
incorporation, 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 Target, or any of the assets
owned or used by Target, is or has been subject.
4.1.10. Taxes.
(a) Target has filed or caused to be filed (on a timely basis
since its incorporation) all Tax Returns that are or were required to
be filed by or with respect it, either separately or as a member of a
group of corporations, pursuant to applicable Legal Requirements.
Target has delivered to Acquiror copies of, and Part 4.1.10 of Target
Disclosure Schedule contains a complete and accurate list of, all such
Tax Returns filed by Target since its incorporation. All such Tax
Returns were correct, and complete in all respects. Target 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 Target, except such Taxes, if any, as are
listed in Part 4.1.10 of
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the Target Disclosure Schedule and are being contested in good
faith and as to which adequate reserves (determined in accordance
with GAAP) have been provided in the Target Financial Statements.
No claim has ever been made by an authority in a jurisdiction where
the Target does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction. There are no Encumbrances on any
of the assets of the Target that arose in connection with any failure
(or alleged failure) to pay any Tax.
(b) Part 4.1.10 of the Target Disclosure Schedule contains a
complete and accurate list of all audits of all such Tax Returns,
including a reasonably detailed description of the nature and outcome
of each audit. All deficiencies proposed as a result of such audits
have been paid, reserved against, settled, or, as described in Part
4.1.10 of the Target Disclosure Schedule, are being contested in good
faith by appropriate proceedings. Part 4.1.10 of the Target Disclosure
Schedule describes all adjustments to the United States federal income
Tax Returns filed by the Target or any group of corporations including
the Target for all taxable years since its incorporation, and the
resulting deficiencies proposed by the IRS. Except as described in Part
4.1.10 of the Target Disclosure Schedule, Target has not given or been
requested to give waivers or extensions (or are 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 Target or for which
Target may be liable.
(c) The charges, accruals, and reserves with respect to Taxes
on the books of Target are adequate (determined in accordance with
GAAP) and are at least equal to liabilities for Taxes. There exists no
proposed tax assessment against Target except as disclosed in the
Target Financial Statements or in Part 4.1.10 of the Target Disclosure
Schedule. 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 the Target. All Taxes that the Target 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.
(d) All Tax Returns filed by (or that include on a
consolidated basis) Target are true, correct, and complete. There is no
tax sharing agreement that will require any payment by Target after the
date of this Agreement.
(e) The Target has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to
any employees independent contractor, creditor, stockholder or other
Person.
(f) No Significant Target Shareholder or director or officer
(or employee responsible for Tax matters) of Target expects any
authority to assess any additional Taxes against Target for any period
for which Tax Returns have been filed. There is no dispute or claim
concerning any Tax liability of the Target either (A) claimed or raised
by any authority in writing or (B) as to which any Significant Target
Shareholder or any director or officer (or employee responsible for Tax
matters) of the Target has Knowledge based upon personal contact with
any agent of such authority.
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(g) The Target has not filed a consent under IRC Section
341(f) concerning collapsible corporations. The Target has not
made any payments, is not obligated to make any payments, and is not a
party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under IRC Section
280G. The Target has not been a United States real property holding
corporation within the meaning of IRC Section 897(c)(2) during the
applicable period specified in IRC Section 897(c)(1)(A)(ii). The
Target has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of IRC Section 6662. The Target
is not a party to any Tax allocation or sharing agreement. The Target
(A) has not been a member of an affiliated group filing a consolidated
federal income Tax Return (other than a group the common parent of
which was the Target) or (B) has no liability for the Taxes of any
Person (other than the Target) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(h) Part 4.1.10 of the Target Disclosure Schedule sets forth
the following information with respect to the Target as of the most
recent practicable date (as well as on an estimated pro forma basis as
of the Closing giving effect to the consummation of the transactions
contemplated hereby): (A) the basis of the Target in its assets; (B)
the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Target; and (C) the amount of any
deferred gain or loss allocable to the Target arising out of any
deferred intercompany transaction.
(i) The unpaid Taxes of the Target (A) did not, as of the most
recent fiscal month end, exceed the reserve for Tax liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the
Closing Balance Sheet (rather than in any notes thereto) and (B) do not
exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the
Target in filing its Tax Returns.
4.1.11. Books and Records. The books of account, minute books,
stock record books, and other records of Target, all of which have been
made available to Acquiror, are complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute
books of the Target contain accurate and complete records of all
meetings held of, and corporate action taken by, the stockholders, the
Board of Directors, and committees of the Board of Directors of the
Target, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and
are not contained in such minute books. At the Closing, all of those
books and records will be in the possession of the Target.
4.1.12. Title to Properties; Encumbrances. Part 4.1.12 of the
Target Disclosure Schedule contains a complete and accurate list of all
real property, leaseholds, or other interests therein owned by Target.
Target has delivered or made available to Acquiror copies of the deeds
and other instruments (as recorded) by which the Target acquired such
real property and interests, and copies of all title insurance
policies, opinions,
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abstracts, and surveys in the possession of Target and relating
to such property or interests. Target owns (with good and
marketable title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and
assets (whether real, personal, or mixed and whether tangible or
intangible) that it purports to own, including all of the properties
and assets reflected in the Target Financial Statements (except for
assets held under capitalized leases disclosed or not required to be
disclosed in Part 4.1.12 of the Target Disclosure Schedule and personal
property sold since the date of the Target Financial Statements, as the
case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by Target since
the date of the Target Financial Statements (except for personal
property acquired and sold since the date of the Target Financial
Statements in the Ordinary Course of Business and consistent with past
practice). All material properties and assets reflected in the Target
Financial Statements are free and clear of all Encumbrances and are
not, in the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties
and assets, (a) mortgages or security interests shown on the Target
Financial Statements as securing specified liabilities or obligations,
with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) exists, (b) mortgages or
security interests incurred in connection with the purchase of property
or assets after the date of the Target Financial Statements (such
mortgages and security interests being limited to the property or
assets so acquired), with respect to which no default (or event that,
with notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, and (d) with respect
to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or
impairs the use of the property subject thereto, or impairs the
operations of Target, and (ii) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the
property subject thereto. All buildings, plants, and structures owned
by Target lie wholly within the boundaries of the real property owned
by Target and do not encroach upon the property of, or otherwise
conflict with the property rights of, any other Person.
4.1.13. Condition and Sufficiency of Assets. The buildings,
plants and structures owned or used by Target are adequate for the uses
to which they are being put and, to the Knowledge of Target and the
Significant Target Shareholders, none of such buildings or structures
is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost or
maintenance or repairs for which a third party leasing such building or
structure to Target is solely responsible. The equipment (including
computer equipment) owned or used by Target is in good operating
condition and repair 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 building, plants, structures and
equipment of Target are sufficient for the continued conduct of
Target's business after the Closing in substantially the same manner as
conducted prior to the Closing.
4.1.14. Accounts Receivable. All accounts receivable of Target
that are reflected on the Target Financial Statements or on the
accounting records of Target as of the
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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 Target Financial Statements or on the accounting
records of Target 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 Target Financial Statements 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,
within ninety days after the day on which it first becomes due and
payable. There is no contest, claim, or right of set-off, other than
returns in the Ordinary Course of Business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of
such Accounts Receivable. Part 4.1.14 of the Target Disclosure Schedule
contains a complete and accurate list of all Accounts Receivable as of
the date of June 30, 1998, which list sets forth the aging of such
Accounts Receivable.
4.1.15. Inventory. All inventory of Target, whether or not
reflected in the Target Financial Statements, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except
for obsolete items and items of below-standard quality, all of which
have been written off or written down to net realizable value in the
Target Financial Statements or on the accounting records of Target as
of the Closing Date, as the case may be. The quantities of each item of
inventory (whether raw materials, work-in-process, or finished goods)
are not excessive, but are reasonable in the present circumstances of
Target.
4.1.16. [RESERVED]
4.1.17. Absence of Certain Changes or Events. Except as
disclosed in Part 4.1.17 of the Target Disclosure Schedule, since June
30, 1998, Target has conducted its business only in the Ordinary Course
of Business, and there has not been any:
(a) change in the authorized or issued capital stock; grant of
any stock option or right to purchase shares of capital stock; issuance
of any security convertible into such capital stock; grant of any
registration rights; purchase, redemption, retirement, or other
acquisition 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;
(b) amendment to the Organizational Documents;
(c) payment or increase 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;
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(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;
(e) damage to or destruction or loss of any asset or property,
whether or not covered by insurance, materially and adversely affecting
the properties, assets, business, financial condition, or prospects,
taken as a whole;
(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 of
at least $50,000;
(g) sale (other than sales of inventory in the Ordinary Course
of Business), lease, or other disposition of any asset or property of
any Acquired Company or mortgage, pledge, or imposition of any lien or
other Encumbrance on any material asset or property, including the
sale, lease, or other disposition of any of the Intellectual Property
Assets;
(h) cancellation or waiver of any claims or rights with a
value in excess of $25,000;
(i) material change in the accounting methods used; or
(j) agreement, whether oral or written, to do any of the
foregoing.
4.1.18. Contracts; No Defaults.
(a) Part 4.1.18(a) of the Target Disclosure Schedule contains
a complete and accurate list, and Target has delivered to Acquiror true
and complete copies of, each Applicable Contract for greater than
$5,000 and each amendment, supplement, and modification (whether oral
or written) in respect thereof. Target has delivered to Acquiror true,
complete and correct copies of all Applicable Contracts that are in
writing, and a written description setting forth reasonably complete
details concerning oral Applicable Contracts, including the parties to
such Contracts, the amount of the remaining commitment of Target under
such Contracts, and the Target's office where details relating to such
Contracts are located.
(b) Except as set forth in Part 4.1.18(b) of the Disclosure
Schedule:
(i) no Significant Target Shareholder or, to the
Knowledge of Target and the Significant Target Shareholders,
no Target Shareholder (and no Related Person of any
Significant Target Shareholder or any Target Shareholder) has
or may acquire any rights under, and no Significant Target
Shareholder and, to the Knowledge of Target and the
Significant Target Shareholders, no Target 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, Target; and
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(ii) no officer, director, agent, employee, consultant,
or contractor of Target 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 Target, or (B) assign to Target or to any other
Person any rights to any invention, improvement, or discovery.
(c) Except as set forth in Part 4.1.18(c) of the Target
Disclosure Schedule, each Contract identified or required to be
identified in Part 4.1.18(a) of the Target Disclosure Schedule is in
full force and effect and is valid and enforceable in accordance with
its terms.
(d) Except as set forth in Part 4.1.18(d) of the Target
Disclosure Schedule:
(i) Target is, and at all times since its
incorporation has been, in full compliance with all material
terms and requirements of each Contract under which Target has
or had any obligation or liability or by which Target or any
of the assets owned or used by Target is or was bound;
(ii) each other Person that has or had any obligation
or liability under any Contract under which Target has or had
any rights is, and at all times since its incorporation has
been, in full compliance with all applicable terms and
requirements of such Contract;
(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
Target or 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
(iv) Target has not given to or received from any other
Person, at any time since its incorporation, any notice or
other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach
of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate,
or outstanding rights to renegotiate any material amounts paid or
payable to Target under current or completed Contracts with any Person
and no such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture,
or provision of products or services by Target have been entered into
in the Ordinary Course of Business and have 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.
4.1.19. Employee Benefit.
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(a) As used in this Section 4.1.19, the following terms have
the meanings set forth below.
"Company Other Benefit Obligation" means an Other Benefit
Obligation owed, adopted, or followed by Target or an ERISA Affiliate
of Target.
"Company Plan" means all Plans of which Target or an ERISA
Affiliate of Target is or was a Plan Sponsor, or to which Target or an
ERISA Affiliate of Target otherwise contributes or has contributed, or
in which Target or an ERISA Affiliate of Target otherwise participates
or has participated. All references to Plans are to Company Plans
unless the context requires otherwise.
"ERISA Affiliate" means, with respect to Target, any other
person that, together with Target, 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 IRC Section 132.
"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).
"VEBA" means a voluntary employees' beneficiary association
under IRC Section 501(c)(9).
(b) Part 4.1.19(b) of the Target Disclosure Schedule contains
a complete and accurate list of (A) all Company Plans and Company Other
Benefit Obligations and (B) all ERISA Affiliates of Target.
(c) Part 4.1.19(c) of the Target Disclosure Schedule sets
forth the financial cost of all obligations owed under any Company Plan
or Company Other Benefit Obligation that is not subject to the
disclosure and reporting requirements of ERISA.
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(d) Target has delivered to Acquiror, or will deliver to
Acquiror within ten days of the date of this Agreement:
(i) all documents that set forth the terms of each
Company Plan or Company Other Benefit Obligation and of any
related trust, including all plan descriptions and summary
plan descriptions of Company Plans whether or not Target is
required to prepare, file, and distribute plan descriptions
and summary plan descriptions;
(ii) all personnel, payroll, and employment manuals
and policies;
(iii) all collective bargaining agreements pursuant
to which contributions have been made or obligations incurred
(including both pension and welfare benefits) by Target and
the ERISA Affiliates of Target, and all collective bargaining
agreements pursuant to which contributions are being made or
obligations are owed by such entities;
(iv) a written description of any Company Plan or
Company Other Benefit Obligation that is not otherwise in
writing;
(v) all insurance policies purchased by or to provide
benefits under any Company Plan;
(vi) all contracts with third party administrators,
actuaries, investment managers, consultants, and other
independent contractors that relate to any Company Plan or
Company Other Benefit Obligation;
(vii) all notifications to employees of their rights
under ERISA Section 601 et seq. and IRC Section 4980B;
(viii) the Form 5500 filed in each of the most recent
three plan years with respect to each Company Plan, including
all schedules thereto and the opinions of independent
accountants;
(ix) all notices that were given by Target or any
ERISA Affiliate of Target or any Company 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 4.1.19;
(x) all notices that were given by the IRS, the PBGC,
or the Department of Labor to Target, any ERISA Affiliate of
Target, or any Company Plan within the four years preceding
the date of this Agreement;
(xi) with respect to Qualified Plans, the most recent
determination letter for each Plan of Target that is a
Qualified Plan; and
(e) Except as set forth in Part 4.1.19(e) of the Target
Disclosure Schedule:
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(i) Target has performed all of its obligations under
all Company Plans and Company Other Benefit Obligations.
Target has made appropriate entries in its financial records
and statements for all obligations and liabilities under such
Plans and Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has been
made by Target 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 Target or to Acquiror.
(iii) Target, with respect to all Company Plans and
Company Other Benefits Obligations, is, and each Company Plan
and Company Other Benefit Obligation is, in full compliance
with ERISA, the IRC, and other applicable Laws including the
provisions of such Laws expressly mentioned in this Section
4.1.19, and with any applicable collective bargaining
agreement.
(iv) No transaction prohibited by ERISA Section 406
and no "prohibited transaction" under IRC Section 4975(c) have
occurred with respect to any Company Plan.
(v) Neither Target nor any Target Shareholder has any
liability to the IRS with respect to any Plan, including any
liability imposed by Chapter 43 of the IRC.
(vi) 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.
(vii) All contributions and payments made or accrued
with respect to all Company Plans and Company Other Benefit
Obligations are deductible under IRC Section 162 or Section
404. No amount, or any asset of any Company Plan, is subject
to tax as unrelated business taxable income.
(f) Each Company Plan can be terminated within thirty days,
without payment of any additional contribution or amount and without
the vesting or acceleration of any benefits promised by such Plan.
(g) No event has occurred or circumstance exists that could
result in a material increase in premium costs of Company Plans and
Company Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that are
self-insured.
(h) Other than claims for benefits submitted by participants
or beneficiaries, no claim against, or legal proceeding involving, any
Company Plan or Company Other Benefit Obligation is pending or, to
Target's or the Significant Target Shareholders' Knowledge, is
Threatened.
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(i) Each Qualified Plan of Target 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). No event has
occurred or circumstance exists that will or could give rise to
disqualification or loss of tax-exempt status of any such Plan or
trust.
(j) No Company Plan is subject to Title IV of ERISA, IRC
Section 412 or Part 3 of Title I of ERISA.
(k) Since the last valuation date for each Pension Plan of
Target and each ERISA Affiliate of Target, no event has occurred or
circumstance exists that would increase the amount of benefits under
any such Plan.
(l) Neither Target nor any ERISA Affiliate of Target 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 or any VEBA.
(m) No Multi-Employer Plan to which Target or any ERISA
Affiliate of Target contributes or has contributed is a party to any
pending merger or asset or liability transfer.
(n) Except to the extent required under ERISA Section 601 et
seq. and IRC Section 4980B, Target does not provide health or welfare
benefits for any retired or former employee or is obligated to provide
health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(o) Target has the right to modify and terminate benefits
(other than pensions) with respect to both retired and active
employees.
(p) Target has complied with the provisions of ERISA Section
601 et seq. and IRC Section 4980B.
(q) No payment that is owed or may become due to any director,
officer, employee, or agent of Target will be non-deductible to them or
subject to tax under IRC Section 280G or Section 4999; nor will Target
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.
(r) The consummation of the Contemplated Transactions will not
result in the payment, vesting, or acceleration of any benefit.
4.1.20. Environmental Matters. Except as set forth in Part
4.1.20 of the Target Disclosure Schedule:
(a) Target 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. Neither Target nor any Significant Target
Shareholder has any basis to expect, nor has any of them or any other
Person for whose conduct they are or may be held to be responsible
received, any actual or Threatened order, notice, or other
communication from (i) any
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Governmental Body or private citizen acting in the public interest, or
(ii) the current or prior owner or operator of any Facilities, of any
actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which Target
or the Target Shareholders have had an interest, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, refined, transferred, imported, used, or processed by the
Target Shareholders or Target, or any other Person for whose conduct
they are or may be held responsible, or from which Hazardous Materials
have been transported, treated, stored, handled, transferred, disposed,
recycled, or received.
(b) There are no pending or, to the Knowledge of the
Significant Target Shareholders or Target, Threatened claims,
Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of
the Facilities or any other properties and assets (whether real,
personal, or mixed) in the Target Shareholders or Target has or had an
interest.
(c) Neither Target nor any Significant Target Shareholder has
any basis to expect, nor has any of them or any other Person for whose
conduct they are or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning, or other
communication that relates to Hazardous Activity, Hazardous Materials,
or any alleged, actual, or potential violation or failure to comply
with any Environmental Law, or of any alleged, actual, or potential
obligation to undertake or bear the cost of any Environmental, Health,
and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which
the Target Shareholders or Target had an interest, or with respect to
any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by the
Target Shareholders, Target, or any other Person for whose conduct they
are or may be held responsible, have been transported, treated, stored,
handled, transferred, disposed, recycled, or received.
(d) Neither Target nor any Target Shareholders, or any other
Person for whose conduct they are or may be held responsible, has any
Environmental, Health, and Safety Liabilities with respect to the
Facilities or with respect to any other properties and assets (whether
real, personal, or mixed) in which the Target Shareholders or Target
(or any predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such
other property or assets.
(e) There are no Hazardous Materials present on or in the
Environment at the Facilities or at any geologically or hydrologically
adjoining property, including any Hazardous Materials contained in
barrels, above or underground storage tanks, landfills, land deposits,
dumps, equipment (whether moveable or fixed) or other containers,
either temporary or permanent, and deposited or located in land, water,
sumps, or any other part of the Facilities or such adjoining property,
or incorporated into any structure therein or thereon. Neither Target,
any Significant Target Shareholder, any other Person for whose
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conduct they are or may be held responsible, or any other Person, has
permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or
assets (whether real, personal, or mixed) in which the Target
Shareholders or Target has or had an interest.
(f) There has been no Release or, to the Knowledge of the
Significant Target Shareholders or Target, Threat of Release, of any
Hazardous Materials at or from the Facilities or at any other locations
where any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether
real, personal, or mixed) in which the Target Shareholders or Target
has or had an interest, or any geologically or hydrologically adjoining
property, whether by the Target Shareholders, Target, or any other
Person.
(g) Target has delivered to Acquiror true and complete copies
and results of any reports, studies, analyses, tests, or monitoring
possessed or initiated by the Significant Target Shareholders or Target
pertaining to Hazardous Materials or Hazardous Activities in, on, or
under the Facilities, or concerning compliance by the Target
Shareholders, Target, or any other Person for whose conduct they are or
may be held responsible, with Environmental Laws.
4.1.21. Employees.
(a) Part 4.1.21 of the Target Disclosure Schedule contains a
complete and accurate list of the following information for each
employee or director of Target, including each employee on leave of
absence or layoff status: employer; name; job title; current
compensation paid or payable and any change in compensation since the
date Target was incorporated; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under any
Acquired Company'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.
(b) No employee or director of Target 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 Target, or
(ii) the ability of Target to conduct its business, including any
Proprietary Rights Agreement with the Target Shareholders or Target by
any such employee or director. To the Significant Target Shareholders'
Knowledge, no director, officer, or other key employee of Target
intends to terminate his employment with Target.
(c) Part 4.1.21 of the Target Disclosure Schedule also
contains a complete and accurate list of the following information for
each retired employee or director of Target,
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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.
4.1.22. Labor Relations; Compliance. Since the date Target was
incorporated, Target has not been or is a party to any collective
bargaining or other labor Contract. Since the date Target was
incorporated, there has not been, there is not presently pending or
existing, and to the Significant Target Shareholders' Knowledge there
is not Threatened, (a) any strike, slowdown, picketing, work stoppage,
or employee grievance process, (b) any Proceeding against or affecting
Target 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, organizational activity, or other
labor or employment dispute against or affecting Target 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 Target, and no such action is
contemplated by Target. Target 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. Target is
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.
4.1.23. Insurance.
(a) Target has delivered to Acquiror:
(i) true and complete copies of all policies of
insurance to which Target is a party or under which Target, or
any director of Target, is or has been covered at any time
within the five years preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of Target
Financial Statements with regard to the adequacy of such
entity's coverage or of the reserves for claims.
All such policies are described in Part 4.1.23(a) of the Target
Disclosure Schedule.
(b) Part 4.1.23(b) of the Target Disclosure Schedule
describes:
(i) any self-insurance arrangement by or affecting
Target, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy
of insurance, for the transfer or sharing of any risk by
Target; and
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(iii) all obligations of Target to third parties with
respect to insurance (including such obligations under leases
and service agreements) and identifies the policy under which
such coverage is provided.
(c) Part 4.1.23(c) of the Target Disclosure Schedule sets
forth, by year, for the current policy year and each of the five
preceding policy years:
(i) a summary of the loss experience under each
policy;
(ii) a statement describing each claim under an
insurance policy for an amount in excess of $10,000, which
sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type
of insurance, and period of coverage; and
(C) the amount and a brief description of the
claim; and
(iii) a statement describing the loss experience for
all claims that were self-insured, including the number and
aggregate cost of such claims.
(d) Except as set forth on Part 4.1.23(d) of the Target
Disclosure Schedule:
(i) All policies to which Target is a party or that
provide coverage to any Target Shareholder, Target, or any
director or officer of Target:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially
sound and reputable;
(C) taken together, provide adequate insurance
coverage for the assets and the operations of Target
for all risks to which Target is normally exposed;
(D) are sufficient for compliance with all Legal
Requirements and Contracts to which Target is a party
or by which it is bound;
(E) will continue in full force and effect
following the consummation of the Contemplated
Transactions; and
(F) do not provide for any retrospective premium
adjustment or other experienced-based liability on
the part of Target.
(ii) No Significant Target Shareholder or Target has
received (A) any refusal of coverage or any notice that a
defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any
insurance policy is no longer in full force or effect or will
not be renewed or that
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the issuer of any policy is not willing or able to perform its
obligations thereunder.
(iii) Target has paid all premiums due, and have
otherwise performed all of its respective obligations, under
each policy to which it is a party or that provides coverage
to Target or director thereof.
(iv) Target has given notice to the insurer of all
claims that may be insured thereby.
4.1.24. Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual
Property Assets" includes:
(i) the name "REVIVE Technologies Incorporated", all
fictional business names, trading names, registered and
unregistered trademarks, service marks, and applications
(collectively, "Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively,
"Patents");
(iii) all copyrights in both published works and
unpublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights
in Mask Works");
(v) all know-how, trade secrets, confidential
information, customer lists, software, technical information,
data, process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); and
(vi) all in-process research and development, URLs,
Internet Web Sites, domain names, telephone numbers, and
electronic mail addresses owned, used, or licensed by Target
as licensee or licensor.
(b) Agreements. Part 4.1.24(b) of the Target Disclosure
Schedule contains a complete and accurate list of all Contracts
relating to the Intellectual Property Assets to which Target is a party
or by which Target is bound, except for any license implied by the sale
of a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $500 under which Target is
the licensee. There are no outstanding and, to Target Shareholders'
Knowledge, no Threatened disputes or disagreements with respect to any
such agreement.
(c) Know-How Necessary for the Business.
(i) The Intellectual Property Assets are all those
necessary for the operation of Target's business as they are
currently conducted. Target is the owner of all right, title,
and interest in and to each of the Intellectual Property
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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.
(ii) Except as set forth in Part 4.1.24(c) of the
Target Disclosure Schedule, all former and current employees
of Target have executed written Contracts with Target that
assign to Target all rights to any inventions, improvements,
discoveries, or information relating to the business of
Target, prohibit such former and current employees from
disclosing or using any Trade Secrets except in connection
with their work for Target and prohibit such former and
current employees from competing against Target for a period
of two (2) years following the termination of their
employment. No employee of Target 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 Target.
(d) Patents.
(i) Part 4.1.24(d) of the Target Disclosure Schedule
contains a complete and accurate list and summary description
of all Patents. Target is the owner of all right, title, and
interest in and to each of the Patents, free and clear of all
liens, security interests, charges, encumbrances, entities,
and other adverse claims.
(ii) All of the issued Patents are currently in
compliance with formal legal requirements (including payment
of filing, examination, and maintenance fees and proofs of
working or use), are valid and enforceable, and are not
subject to any maintenance fees or taxes or actions falling
due within ninety days after the Closing Date.
(iii) No Patent has been or is now involved in any
interference, reissue, reexamination, or opposition
proceeding. To the Significant Target Shareholders' Knowledge,
there is no potentially interfering patent or patent
application of any third party.
(iv) No Patent is infringed or, to Target
Shareholders' Knowledge, has been challenged or threatened in
any way. None of the products manufactured and sold, nor any
process or know-how used, by Target infringes or is alleged to
infringe any patent or other proprietary right of any other
Person.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
(e) Trademarks.
(i) Part 4.1.24(e) of Target Disclosure Schedule
contains a complete and accurate list and summary description
of all
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Marks. Target 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.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are currently in
compliance with all formal legal requirements (including the
timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Closing Date.
(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation and, to the
Significant Target Shareholders' Knowledge, no such action is
Threatened with the respect to any of the Marks.
(iv) To the Significant Target Shareholders'
Knowledge, there is no potentially interfering trademark or
trademark application of any third party.
(v) No Mark is infringed or, to the Significant
Target Shareholders' Knowledge, has been challenged or
threatened in any way. None of the Marks used by Target
infringes or is alleged to infringe any trade name, trademark,
or service mark of any third party.
(vi) All products and materials containing a Mark
bear the proper federal registration notice where permitted by
law.
(f) Copyrights.
(i) Part 4.1.24(f) of the Target Disclosure Schedule
contains a complete and accurate list and summary description
of all Copyrights. Target 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.
(ii) All the Copyrights have been registered and are
currently in compliance with formal legal requirements, are
valid and enforceable, and are not subject to any maintenance
fees or taxes or actions falling due within ninety days after
the date of Closing.
(iii) No Copyright is infringed or, to the
Significant Target 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.
(iv) All works encompassed by the Copyrights have
been marked with the proper copyright notice.
(g) Trade Secrets.
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(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.
(ii) The Significant Target Shareholders and Target
have taken all reasonable precautions to protect the secrecy,
confidentiality, and value of their Trade Secrets.
(iii) Target 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 have not been used, divulged, or appropriated
either for the benefit of any Person (other than Target) or to
the detriment of Target. No Trade Secret is subject to any
adverse claim or has been challenged or threatened in any way.
4.1.25. Other Assets. Except as disclosed in Part 4.1.25 of
the Target Disclosure Schedule, all other assets of Target that are
reflected in the Target Financial Statements are reflected in
accordance with GAAP.
4.1.26. Brokers and Finders. Except as disclosed in Part
4.1.26 of the Target Disclosure Schedule, neither Target nor the Target
Shareholders has any obligation or liability, contingent or otherwise,
for brokerage or finders' fees or commissions in connection with this
Agreement.
4.1.27. Certain Payments. Since the date Target was
incorporated, neither Target nor any director, officer, agent, or
employee of Target, or any other Person associated with or acting for
or on behalf of Target, has directly or indirectly (a) made any
contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any Person, private or public, regardless of form,
whether in money, property, or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for
business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of Target or any
Affiliate of Target, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded
in the books and records of Target.
4.1.28. Disclosure. Except as set forth in Part 4.1.28 of the
Target Disclosure Schedule, there is no fact known to any of the
Significant Target Shareholders or Target that has specific application
to the Target Shareholders or Target (other than general economic or
industry conditions) and that materially adversely affects the assets,
business, prospects, financial condition, or results of operations of
Target that has not been set forth in this Agreement or the Target
Disclosure Schedule.
4.1.29. Relationships With Related Persons. No Significant
Target Shareholder or any Related Person of a Significant Target
Shareholder or of Target, and, to the Knowledge of any Significant
Target Shareholder, no Target Shareholder, has, or has had, any
interest in any property (whether real, personal, or mixed and whether
tangible
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or intangible), used in or pertaining to Target's business. Except as
disclosed in Part 4.1.29 of the Target Disclosure Schedule, no
Significant Target Shareholder or any Related Person of the Significant
Target Shareholders or of Target, and, to the Knowledge of any
Significant Target Shareholder, no Target Shareholder, is, or has ever
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 Target, or (ii) engaged in competition with Target with respect to
any line of the products or services of Target (a "Competing Business")
in any market presently served by Target. Except as set forth in Part
4.1.29 of the Target Disclosure Schedule, no Target Shareholder or any
Related Person of the Target Shareholders or Target is a party to any
Contract with, or has any claim or right against, Target.
4.1.30. Year 2000 Matters. Except as disclosed in Part 4.1.30
of the Target Disclosure Schedule:
(a) All software (including microcode, firmware, application
programs, files, and databases) used and which is critical to
the business of Target or which has been developed by Target,
when operated on the computer hardware now used for that
purpose:
(i) will operate before, during, and after the calendar
year 2000 A.D. without any errors relating to data,
including any error relating to date data which
represents or references different centuries or more
than one century;
(ii) will not abnormally end or provide incorrect results
as a result of date data which represents or
references different centuries or more than one
century;
(iii) recognizes the century in date data and performs all
date calculations in a manner which accommodates
multi-century formulas and date values;
(iv) includes an indication of century in all date-related
user interfaces and data interfaces;
(v) recognizes and correctly processes dates and date
data involving leap years;
(vi) displays and prints all date data in four-digit
format; and
(vii) performs all sorting operations that include a year
category on the basis of four-digit dates.
4.1.31. Suppliers and Customers.
(a) A complete and accurate list of all suppliers or
vendors of products or services to Target (other than legal or
accounting services) aggregating more than $10,000 (at cost)
annually during Target's last fiscal year, and the address of
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such supplier or vendor and the amount sold to Target during
that period, is set forth in Part 4.1.31(a) of the Target
Disclosure Schedule.
(b) A complete and accurate list of each of Target's
customers aggregating more than $10,000 in revenues to Target
annually during the last fiscal year, the address of each such
customer and the dollar amount paid or payable by such
customer as a result of work performed by Target during the
last fiscal year is set forth in Part 4.1.31(b) of the Target
Disclosure Schedule.
(c) A complete and accurate list of each Person that
during the last fiscal year of Target was not a customer of
Target but which Target believes in good faith is likely to
become a customer of Target within one (1) year of the date of
this Agreement (collectively, "Pipeline Target Customers") is
set forth in Part 4.1.31(c) of the Target Disclosure Schedule,
together with a reasonable approximation of the dollar amount
of work to be performed by Target for each such Pipeline
Target Customer during such one (1) year period; provided
however, that there is no assurance that any Pipeline Target
Customers will become a customer of Target or any of the
Acquired Companies.
(d) Neither Target nor any of the Significant Target
Shareholders have Knowledge that any customer or supplier of
Target intends to cease purchasing from, selling to, or
dealing with Target, or intends to alter, in any material
respect, the amount of purchases or sales or the extend of its
dealings with Target, or would do any of the foregoing in the
event the Contemplated Transactions are consummated.
4.1.32. REVIVE Worx. REVIVE Worx currently converts
ADABAS/Natural to Cobol and DB2. On or before March 31, 1999, REVIVE
Worx will convert both IDMS/ADSO and Datacom/Ideal to Cobol and DB2 at
a research and development cost not to exceed $1,236,225, assuming
Acquiror causes Target to handle research and development activities in
a manner reasonably consistent with the manner in which Target has
handled research and development activities in the past.
4.1.33. Business Information Systems, Inc.. Each of the
representations and warranties set forth in Sections 4.1.9, 4.1.10,
4.1.19 and 4.1.20 are true and correct in all material respects with
respect to Business Information Systems, Inc., an Indiana corporation
and the former parent of Target which was merged with and into Target
effective May 30, 1997 ("BIS"); provided, however, that each of such
representations and warranties, when applied to BIS, shall be deemed to
relate back only to April 1, 1995 and not to any period prior to that
time.
4.2. Representations and Warranties of the Acquiror Companies. The
Acquiror Companies, jointly and severally, represent and warrant to Target and
the Significant Target Shareholders, as follows:
4.2.1. Organization, Standing, and Power. Each of the Acquiror
Companies is a corporation duly incorporated, validly existing, and in
good standing under the laws of its
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jurisdiction of incorporation, has all requisite power and authority
(corporate and other) to own, lease and operate its respective
properties and to carry on its respective business as now being
conducted and each is duly qualified and in good standing to do
business in each state or jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary, other than in such states or jurisdictions
where the failure to so qualify would not have a Material Adverse
Effect on the Acquiror Companies. True and complete copies of the
Organizational Documents of each of the Acquiror Companies as currently
in effect have been delivered to Target with the Acquiror Disclosure
Schedule.
4.2.2. Capital Structure.
(a) The authorized capital stock of Acquiror consists solely
of 100,000,000 shares of Acquiror Common Stock and 10,000,000 shares of
Acquiror Preferred Stock. As of July 30, 1998, 4,513,004 shares of
Acquiror Common Stock were issued and outstanding. As of March 31,
1998, 217,646 shares of Acquiror Preferred Stock were issued and
outstanding. All outstanding shares of Acquiror Stock have been duly
authorized and validly issued and are fully paid and nonassessable and
not subject to any preemptive rights.
(b) The authorized capital stock of Newco consists solely of
3,000 shares of Newco Stock. As of the date of this Agreement, 100
shares of Newco Stock are issued and outstanding, all of which is owned
by Acquiror. All outstanding shares of Newco Stock have been duly
authorized and validly issued and are fully paid and nonassessable and
not subject to any preemptive rights. No shares of Newco Stock are held
by Newco as treasury shares.
(c) Neither of the Acquiror Companies has outstanding any
Voting Debt.
(d) Except for this Agreement, and except as disclosed in the
Acquiror SEC Documents or in Section 4.2.2(d) of the Acquiror
Disclosure Schedule, Acquiror has no outstanding options, warrants,
calls, rights, commitments, or agreements of any character to which it
is a party or is bound obligating it to issue, deliver, or sell, or to
cause to be issued, delivered, or sold, additional shares of capital
stock, any Voting Debt, or any other security with voting rights in
Acquiror or obligating Acquiror to grant, extend, or enter into any
such option, warrant, call, right, commitment, or agreement. There are
no outstanding contractual obligations of Acquiror to repurchase,
redeem, or otherwise acquire any shares of its capital stock. Acquiror
is not required to, and no shareholder of Acquiror has any right to
require Acquiror to, redeem, repurchase, or otherwise acquire or to
offer to redeem, repurchase, or otherwise acquire any shares of its
capital stock in connection with or as a result of the Merger or the
other transactions contemplated in this Agreement.
4.2.3. Authority.
(a) The Acquiror Companies have all requisite corporate power
and authority to enter into this Agreement and, subject to approval of
this Agreement by the
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shareholders of Target, to consummate the Contemplated Transactions.
The execution and delivery of this Agreement and the consummation of
Contemplated Transactions have been duly authorized by all necessary
corporate action on the part of the Acquiror Companies. No approval or
adoption by the shareholders of Acquiror is required to consummate the
Merger and the other Contemplated Transactions. This Agreement has been
duly executed and delivered by the Acquiror Companies and constitutes
legal, valid, and binding obligations of the Acquiror Companies,
enforceable against the Acquiror Companies in accordance with its
terms, except as enforceability may be limited by general principles of
equity, whether considered at law or in equity, and bankruptcy,
insolvency, and similar laws affecting creditors' rights and remedies
generally.
(b) Except as set forth in Section 4.2.3(b) of the Acquiror
Disclosure Schedule, neither the execution and delivery of this
Agreement by the Acquiror Companies nor the consummation or performance
by the Acquiror Companies of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) be, give rise to, or result in any Violation of
any provision of the Organizational Documents of either of the
Acquiror Companies;
(ii) be, give rise to, or result in any Violation of,
or give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to exercise
any remedy or obtain any relief under, any Legal Requirement
applicable to the Acquiror Companies or any Order to which the
Acquiror Companies, or any of the assets owned or used by the
Acquiror Companies, may be subject; or
(iii) subject to obtaining or making the Consents and
filings referred to in paragraph (c) below, be, give rise to,
or result in any Violation of, or require the Consent of any
other Person that is a party to any material Contract with
Acquiror.
(c) Except as set forth in Section 4.2.3(c) of the Acquiror
Disclosure Schedule, the Acquiror Companies will not 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, except for: (i)
the filing of the Certificate of Merger with the Secretary of State for
the State of Delaware and the Recorder of Deeds of the County in
Delaware in which the registered office in which the Surviving
Corporation is located and (ii) the filing of appropriate documents
with the relevant Governmental Bodies of other states in which Target
is qualified to do business.
4.2.4. The Merger Consideration. Each of the shares of
Acquiror Common Stock to be issued as part of the Merger Consideration
has been duly authorized, will be issued in compliance with applicable
securities laws and, when issued in accordance with this Agreement,
will be validly issued, fully paid, and nonassessable.
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4.2.5. Brokers and Finders. Neither of the Acquiror Companies
nor any of their directors, officers, or employees has employed any
broker or finder or incurred any liability for any financial advisory
fees, brokerage fees, commissions, or similar payments in connection
with the transactions contemplated by this Agreement.
4.2.6. Certain Proceedings. There is no pending Proceeding
that has been commenced or, to the Knowledge of Acquiror, Threatened
against Acquiror or its Subsidiaries and that challenges, or may have
the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
4.2.7. Governmental Authorizations. Acquiror and its
Subsidiaries hold all Governmental Authorizations which are necessary
for the operation of the businesses of Acquiror and its Subsidiaries.
Acquiror and its Subsidiaries are in compliance in all material
respects with the terms of such Governmental Authorizations, except for
possible violations which, individually or in the aggregate, would not
have a Material Adverse Effect on Acquiror. The businesses of Acquiror
and its Subsidiaries are not being conducted in violation of any Legal
Requirement, except for possible violations which, individually or in
the aggregate, would not have a Material Adverse Effect on Acquiror. No
investigation by any governmental entity with respect to Acquiror or
any of its Subsidiaries is pending or, to the knowledge of Acquiror,
threatened, other than, in each case, those the outcome of which will
not have a Material Adverse Effect on Acquiror.
4.2.8. Legal Proceedings; Orders. There is no pending
Proceeding that has been commenced by or against Acquiror or its
Subsidiaries as to which there is a reasonable possibility of an
adverse determination and which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on
Acquiror, nor is there any judgment, decree, injunction, rule or order
of any governmental entity or arbitrator outstanding against either of
the Acquiror Companies having, or which could have, such effect on
Acquiror.
5. COVENANTS.
5.1. Covenants of Target. During the period from the date of this
Agreement and continuing until the Closing Date, Target and the Significant
Target Shareholders agree that, except as expressly contemplated or permitted by
this Agreement or to the extent that Acquiror shall otherwise consent in
writing:
5.1.1. Access and Investigation. Between the date of this
Agreement and the Closing Date, Target will: (a) afford Acquiror full
and free access to Target's personnel, properties (including the
opportunity to perform subsurface testing at Acquiror's expense),
Contracts, books and records, and other documents and data; (b) furnish
Acquiror with copies of all such Contracts, books and records, and
other existing documents and data as Acquiror may reasonably request;
and (c) furnish Acquiror with such additional financial, operating, and
other data and information as Acquiror may reasonably request.
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5.1.2. Operation of the Business of Target. Except as set
forth in Section 5.1.2 of the Target Disclosure Schedule or elsewhere
in this Agreement, between the date of this Agreement and the Closing
Date, Target will:
(a) conduct the business of Target only in the Ordinary Course
of Business;
(b) use its Best Efforts to preserve intact the current
business organization of Target, keep available the services of the
current officers, employees, and agents of Target, and maintain the
relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships
with Target; and
(c) report periodically to Acquiror concerning the status of
the business, operations, and finances of Target.
5.1.3. Required Approvals. As promptly as practicable after
the date of this Agreement, Target will make all filings required to
obtain the Requisite Regulatory Approvals. Between the date of this
Agreement and the Closing Date, Target will: (a) cooperate with
Acquiror with respect to all filings that Acquiror elects to make or
are required to obtain the Requisite Regulatory Approvals; and (b)
cooperate with Acquiror in obtaining all consents identified in the
Acquiror's Disclosure Schedule.
5.1.4. Notification. Between the date of this Agreement and
the Closing Date, Target and the Significant Target Shareholders will
promptly notify Acquiror in writing if any of them becomes aware of any
fact or condition that causes or constitutes a Breach of any of
Target's or the Significant Target Shareholders' representations and
warranties as of the date of this Agreement, or if Target or any of the
Significant Target Shareholders 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
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 Target Disclosure Schedule if the Target Disclosure Schedule
were dated the date of the occurrence or discovery of any such fact or
condition, Target and the Significant Target Shareholders will promptly
deliver to Acquiror a supplement to the Target Disclosure Schedule
specifying such change. All representations or warranties of the
Significant Target Shareholders which survive the Closing shall, from
and after the Closing, be interpreted so as to give effect to all
disclosures contained in any such supplements in addition to the
disclosures contained in the original Target Disclosure Schedule.
During the same period, Target and the Significant Target Shareholders
will promptly notify Acquiror of the occurrence of any event that may
make the satisfaction of any of the conditions in Section 7 impossible.
5.1.5. No Negotiation. Subject in all cases to the fiduciary
duty of the Board of Directors of Target as determined by it in good
faith after consultation with legal counsel, until such time, if any,
as this Agreement is terminated pursuant to Section 8.1, Target will
not, and will not authorize or permit any of its officers, directors,
or employees or any investment banker, financial advisor, attorney,
accountant, or other representative or
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agent retained by it to participate in any negotiations for any
Takeover Proposal or provide third parties with any information
relating to any such proposal.
5.1.6. Best Efforts. Between the date of this Agreement and
the Closing Date, Target will use its Best Efforts to cause the
conditions in Section 7 to be satisfied.
5.1.7. Target Disclosure Schedules. On the date of this
Agreement, Target and the Significant Target Shareholders shall deliver
to Acquiror the Target Disclosure Schedules.
5.2. Covenants of Acquiror Companies. During the period from the date
of this Agreement and continuing until the Closing Date, the Acquiror Companies
agree that, except as expressly contemplated or permitted by this Agreement or
to the extent that Target shall otherwise consent in writing:
5.2.1. Dividends and Distributions. Acquiror shall not, and
shall not propose to: (a) declare or pay any dividends on or make other
distributions in respect of the Acquiror Stock other than cash
dividends in amounts determined in accordance with prior practice; or
(b) split, combine, or reclassify the Acquiror Stock or issue or
authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for shares of the Acquiror Stock.
5.2.2. Organizational Document Amendments. Neither of the
Acquiror Companies shall amend its Organizational Documents so as to
adversely affect the rights of holders of Acquiror Stock. If an
Acquiror Company amends its Organizational Documents it shall promptly
deliver a copy of such amendment to Target.
5.2.3. Approvals of Governmental Bodies. As promptly as
practicable after the date of this Agreement, the Acquiror Companies
will make all filings required to obtain the Requisite Regulatory
Approvals. Between the date of this Agreement and the Closing Date, the
Acquiror Companies will: (a) cooperate with Target with respect to all
filings that Target elects to make or are required to obtain the
Requisite Regulatory Approvals; and (b) cooperate with Target in
obtaining all consents identified in Part 4.1.3(c) of the Target
Disclosure Schedule.
5.2.4. Other Actions. Acquiror will not issue any shares of
Acquiror Stock for less than fair value except pursuant to employee
stock option plans described in the Acquiror SEC Documents or in Part
5.2.4 of the Acquiror Disclosure Schedule.
5.2.5. Best Efforts. Between the date of this Agreement and
the Closing Date, the Acquiror Companies will use their respective Best
Efforts to cause the conditions in Section 7 to be satisfied.
5.2.6. Notification. Between the date of this Agreement and
the Closing Date, Acquiror will promptly notify Target in writing if
Acquiror becomes aware of any fact or condition that causes or
constitutes a Breach of any of Acquiror's representations and
warranties as of the date of this Agreement, or if Acquiror becomes
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as
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expressly contemplated by this Agreement) cause or constitute a Breach
of any such representation or warranty had such representation 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 Acquiror Disclosure Schedule if the Acquiror Disclosure Schedule
were dated the date of the occurrence or discovery of any such fact or
condition, Acquiror will promptly deliver to Target a supplement to the
Acquiror Disclosure Schedule specifying such change. All
representations or warranties of Acquiror which survive the Closing
shall, from and after the Closing, be interpreted so as to give effect
to all disclosures contained in any such supplements in addition to the
disclosures contained in the original Acquiror Disclosure Schedule.
During the same period, Acquiror will promptly notify Target of the
occurrence of any event that may make the satisfaction of the
conditions in Section 7 impossible.
5.2.7. Acquiror Disclosure Schedules. On the date of this
Agreement, Acquiror shall deliver to Target the Acquiror Disclosure
Schedules.
6. ADDITIONAL AGREEMENTS.
6.1. Regulatory Matters.
6.1.1. Registration Statement. No later than May 31, 1999,
Acquiror shall prepare and file with the SEC the Registration
Statement; provided, however, that Acquiror shall have no obligation to
file the Registration Statement if the representations and warranties
set forth in Sections 4.1.24 (with respect to REVIVE Worx) and Section
4.1.32 are not true and accurate in all repects as of May 31, 1999.
6.1.2. General.
(a) The parties hereto shall cooperate with each other and use
their Best Efforts to promptly prepare and file all necessary
documentation, to effect all necessary applications, notices,
petitions, filings, and other documents, to obtain as promptly as
practicable all Governmental Authorizations and Consents of all other
Persons necessary or advisable to consummate the Contemplated
Transactions. Target and Acquiror shall have the right to review in
advance, and to the extent practicable each will consult the other on,
in each case subject to applicable laws relating to the exchange of
information, all the information relating to Target or the Acquiror
Companies, which appears in any filing made with, or written materials
submitted to, any third Person or any Governmental Body in connection
with the transactions contemplated by this Agreement.
(b) Target and each of the Acquiror Companies shall, upon
request, use their Best Efforts to furnish each other with all
information concerning themselves, their directors, officers, and
shareholders, all financial information or other information, including
accountant comfort letters relating thereto, certificates, and
consents, and such other matters as may be reasonably necessary or
advisable in connection with any statement, filing, notice, or
application made by or on behalf of Target or either of the Acquiror
Companies to any Governmental Body or any other Person in connection
with the Contemplated Transactions.
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(c) Target and each of the Acquiror Companies shall promptly
furnish each other with copies of written communications received by
any of them or any of their respective affiliates or associates (as
such terms are defined in Rule 12b-2 under the Exchange Act as in
effect on the date hereof) from, or delivered by any of the foregoing
to, any Governmental Body in respect of the transactions contemplated
hereby.
6.1.3. Form D. Within 15 days of the Closing Date, Acquiror
shall file with the SEC a Form D to the effect that the issuance of the Merger
Securities in connection with the Merger was made in reliance on an exemption
under Rule 506 promulgated under the Securities Act.
6.2. Legal Conditions to Mergers. Each of Target and the Acquiror
Companies shall use their Best Efforts: (a) to take, or cause to be taken, all
actions necessary to comply promptly with any Legal Requirement which may be
imposed on such party with respect to the Merger and, subject to the conditions
set forth in Section 7, to consummate the Contemplated Transactions; and (b) to
obtain (and to cooperate with the other party to obtain) any Governmental
Authorization or Consent of any other Person which is required to be obtained or
made by such party in connection with the Merger and the Contemplated
Transactions. Each of the parties will promptly cooperate with and furnish
information to the other in connection with any such condition or restriction
suffered by, or requirement imposed upon, any of them in connection with the
foregoing.
6.3. Expenses. Subject to Section 2.6(b) with respect to Deal Expenses,
all costs and expenses incurred in connection with the Contemplated
Transactions, including legal, accounting and broker fees, shall be paid by the
party incurring the same.
6.4. Additional Agreements; Best Efforts. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use its Best
Efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the Contemplated Transactions,
including, without limitation, cooperating fully with the other parties hereto,
providing the other parties hereto with any appropriate information, and making
all necessary filings in connection with the Requisite Regulatory Approvals.
6.5. Addition to Acquiror Board of Directors. Subject to any limitation
under the DGCL or under Acquiror's Organizational Documents and also subject to
any applicable fiduciary duties, (i) promptly following the Closing the Board of
Directors of Acquiror shall take all action required to cause Joseph J. Porfeli
to be added to the Board of Directors of Acquiror, and (ii) the Board of
Directors shall nominate Joseph J. Porfeli for election to Acquiror's Board of
Directors at the next annual meeting of the shareholders of Acquiror.
6.6. Directors and Officers Insurance. Promptly following the Closing,
Acquiror shall secure directors and officers liability insurance coverage for
the benefit of the members of its Board of Directors, and shall maintain such
coverage in place so long as Joseph J. Porfeli is a member of Acquiror's Board
of Directors. Such coverage shall be customary for a public company of similar
size and character of Acquiror.
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6.7. Tax Matters. The following provisions shall govern the allocation
of responsibility as between Acquiror, Surviving Corporation and Target for
certain tax matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Acquiror
shall prepare or cause to be prepared and file or cause to be filed all
Tax Returns for Target for all periods ending on or prior to the
Closing Date which are filed after the Closing Date. Acquiror shall
permit the Significant Target Shareholders to review and comment on
each such Tax Return described in the preceding sentence prior to
filing. The Significant Target Shareholders shall reimburse Acquiror
for Taxes of Target with respect to such periods within fifteen (15)
days after payment by Acquiror or the Surviving Corporation of such
Taxes to the extent such Taxes are not reflected in the reserve for Tax
liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) shown on the
face of the Closing Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing
Date. Acquiror shall prepare or cause to be prepared and file or cause
to be filed any Tax Returns of Target for Tax periods which begin
before the Closing Date and end after the Closing Date (the "Short
Period Returns"). The Significant Target Shareholders shall pay to
Acquiror within fifteen (15) days after the date on which Taxes are
paid with respect to such periods an amount equal to the portion of
such Taxes which relates to the portion of such taxable period ending
on the Closing Date to the extent such Taxes are not reflected in the
reserve for Tax liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet. For purposes of this
Section, in the case of any Taxes that are imposed on a periodic basis
and are payable for a Taxable period that includes (but does not end
on) the Closing Date, the portion of such Tax which relates to the
portion of such Taxable period ending on the Closing Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income
or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the
number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable
period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the
relevant Taxable period ended on the Closing Date. Any credits relating
to a Taxable period that begins before and ends after the Closing Date
shall be taken into account as though the relevant Taxable period ended
on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior
practice of Target.
(c) Cooperation on Tax Matters.
(i) Acquiror, the Surviving Corporation, Target and
the Significant Target Shareholders shall cooperate
fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax
Returns pursuant to this Section and any audit,
litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and
(upon the other party's request) the provision of
records and information which
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are reasonably relevant to any such audit, litigation
or other proceeding and making individuals available
on a mutually convenient basis to provide additional
information and explanation of any material provided
hereunder. The Significant Target Shareholders,
Acquiror and the Surviving Corporation agree (A) to
retain all books and records with respect to Tax
matters pertinent to Target relating to any taxable
period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the
extent notified by Acquiror or the Significant Target
Shareholders, any extensions thereof) of the
respective taxable periods, and to abide by all
record retention agreements entered into with any
taxing authority, and (B) to give the other party
reasonable written notice prior to transferring,
destroying or discarding any such books and records
and, if the other party so requests, the Significant
Target Shareholders, Acquiror and the Surviving
Corporation, as the case may be, shall allow the
other party to take possession of such books and
records.
(ii) The Significant Target Shareholders, Acquiror
and the Surviving Corporation further agree, upon
request, to use their Best Efforts to obtain any
certificate or other document from any Governmental
Body or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect
to the transactions contemplated hereby).
(iii) The Significant Target Shareholders, Acquiror
and the Surviving Corporation further agree, upon
request, to provide the other party with all
information that either party may be required to
report pursuant to Section 6043 of the IRC and all
Treasury Regulations promulgated thereunder.
(d) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any
penalties and interest) incurred in connection with this Agreement,
shall be paid by the Significant Target Shareholders when due, and the
Significant Target Shareholders will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such
transfer, documentary, sales, use, stamp, registration and other Taxes
and fees, and, if required by applicable law, Acquiror will, and will
cause its Affiliates to, join in the execution of any such Tax Returns
and other documentation.
6.8. Target Employees. On or before the Closing Date, Acquiror or the
Surviving Corporation shall have offered employment to each of the individuals
whose names are set forth on Schedule 4.1.21 to this Agreement (except for the
Persons executing Assignments of Employment Agreements), such offers to be for a
position on an at-will basis and having salary and benefits at least equivalent
to the salary and benefits paid to such employees by Target immediately
preceding the Closing Date.
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7. CONDITIONS PRECEDENT.
7.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction prior to the Effective Time of the following conditions:
7.1.1. Shareholder Approval. This Agreement and the Merger
shall have been duly approved by the requisite vote of the Target
Shareholders entitled to vote thereon.
7.1.2. Requisite Regulatory Approvals. All Requisite
Regulatory Approvals shall have been accomplished or obtained and shall
be in full force and effect.
7.1.3. No Restrictions or Restraints; Illegality. No Order
issued by any Governmental Body of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the
Contemplated Transactions shall be in effect, nor shall any Proceeding
by any Governmental Body seeking any of the foregoing be pending, nor
shall any Proceeding be pending or threatened against any of Target,
either of the Acquiror Companies, or any of their respective directors
seeking substantial damages in connection with the Contemplated
Transactions. No statute, rule, regulation, order, injunction, or
decree shall have been enacted, entered, promulgated, or enforced by
any Governmental Body which prohibits, restricts or makes illegal
consummation of the Merger.
7.1.4. Assignments. The Assignments of Employment Agreements
and the Assignments of Noncompete, Nondisclosure and Assignment of
Inventions Agreements shall have been executed and delivered.
7.1.5. Escrow Agreement. The Escrow Agreement shall have been
executed and delivered.
7.1.6. Completion of Due Diligence. Acquiror's inspection of
Target's books, records and assets and discussions with Target's
shareholders, directors, officers and employees and such other "due
diligence" investigations and audits deemed appropriate by Acquiror
shall not reveal any material violations of this Agreement, or any
facts or circumstances that could have a Material Adverse Effect on
Target. If this condition is not satisfied, the parties agree to enter
into good faith discussions to determine whether the Merger
Consideration should be adjusted.
7.1.7. Consents of Allied Capital Corporation and NBD Bank.
Acquiror shall have received the written consent of Allied Capital
Corporation and NBD Bank to the Contemplated Transactions.
7.1.8. Value of Merger Securities. The total value of the
shares of Acquiror Common Stock included in the Merger Securities must
be greater than or equal to the sum of the Cash Component, plus the
aggregate amount of Cash Out Amounts and Deal Expenses payable at the
Closing. For purposes of this provision, each share of Acquiror Common
Stock shall be deemed to have a value equal to the closing price of
Acquiror
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Common Stock on the NASDAQ on the day immediately preceding the
Closing Date.
7.2. Conditions to Obligations of the Acquiror Companies. The
obligation of the Acquiror Companies to effect the Merger is also subject to the
satisfaction or waiver by the Acquiror Companies prior to the Effective Time of
the following conditions:
7.2.1. Representations and Warranties. The representations and
warranties of Target and the Significant Target Shareholders set forth
in this Agreement shall be true and correct in all material respects as
of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Effective Time (without taking into account any supplements to the
Target Disclosure Schedule) as though made on and as of such time,
except as otherwise contemplated by this Agreement, and the Acquiror
Companies shall have received a certificate signed on behalf of Target
by its Chief Financial Officer to such effect, and signed by the
Significant Target Shareholders to such effect.
7.2.2. Performance of Obligations of Target. Target shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and the Acquiror Companies shall have received a certificate signed on
behalf of Target by its Chief Financial Officer to such effect.
7.2.3. Consents Under Agreements. Each of the Consents
identified in Part 4.1.5(b) of the Target Disclosure Schedule, each
Consent identified in the Acquiror Disclosure Schedule, and consents to
the assignment of the following contracts must have been obtained and
must be in full force and effect: (a) IBM Subcontractor Agreement and
Statement of Work under IBM Subcontractor Agreement (regarding work to
be performed under the STARS & GPSA Projects), (b) Commercial Lease
dated October 21, 1997 between J.W. Partnership and Target (relating to
property located at 230 East Main Street, Carnegie, PA), and (c) Office
Lease dated December 18, 1997 between 3000 Coliseum Investors L.L.C.
and Target (relating to property located at 2990 East Coliseum
Boulevard, Fort Wayne, IN). In addition to the foregoing, Target and
the Significant Target Shareholders shall use their respective Best
Efforts to obtain consents to assignments of, or equivalent
replacements for, each of the following prior to the Closing: (w) each
of the leases and licenses set forth in Part 4.1.12 of the Target
Disclosure Schedule, (x) each of the contracts set forth in Part 4.1.18
of the Target Disclosure Schedule (but excluding any of the contracts
with Spencer Trask Securities, Incorporated), (y) all of the insurance
policies and employee benefit plans set forth in Part 4.1.19 of the
Target Disclosure Schedule, and (z) the insurance policies set forth in
Part 4.1.23 of the Target Disclosure Schedule.
7.2.4. Accredited Investors. No Target Shareholder who is not
an Accredited Investor and who has selected in such Target
Shareholder's Preference Specification to receive Merger Securities,
shall have been granted such preference by Target.
7.2.5. Tax Opinion. The Acquiror Companies shall have received
the opinion of Miller, Canfield, Paddock and Stone, P.L.C., dated the
Effective Time, to the effect that
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the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the IRC.
7.2.6. Legal Opinion. The Acquiror Companies shall have
received the opinion of Morgan, Lewis & Bockius LLP, counsel to Target,
dated the Effective Time, as to such matters as are customary for
transactions of this type and in form and substance reasonably
acceptable to the Acquiror Companies.
7.2.7. Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving Target shall be
terminated as of the Closing Date and, after the Closing Date, Acquiror
and the Surviving Corporation shall not be bound thereby or have any
liability thereunder.
7.2.8. Termination of Agreements with Spencer Trask
Securities, Incorporated. The Acquiror Companies shall have received
from Target documentation, in form reasonably acceptable to Acquiror,
signed by Spencer Trask Securities, Incorporated and Target terminating
all agreements and obligations between Target and Spencer Trask
Securities, Incorporated.
7.2.9. Cancellation Agreements. The Acquiror Companies shall
have received from Target duly executed Cancellation Agreements in form
and substance reasonably satisfactory to Acquiror from each Person to
whom Cash Out Amount would, but for such Cancellation Agreement, be
payable pursuant to Section 2.6(a).
7.2.10. Good Standing. The Acquiror Companies shall have
received a certificate of the Secretary of State of Delaware and each
other appropriate governmental official of each of the states set forth
in Part 4.1.1 of the Target Disclosure Schedule, dated as of a date
reasonably near to the Closing Date, listing all corporate documents
relating to Target on file and certifying that Target is a corporation
duly organized and in good standing under the laws of such state.
7.2.11. Lien Searches. The Acquiror Companies shall have
received Uniform Commercial Code lien searches for the states of
Pennsylvania, Colorado, New York, Illinois and Indiana, each dated as
of a date reasonably near the Closing Date, and each reflecting that
the assets of Target are subject to no Encumbrances other than purchase
money security interests for fixed assets purchased by Target in the
Ordinary Course of Business.
7.2.12. Representation and Warranty from Target Shareholders.
The Acquiror Companies shall have received a certificate duly executed
by each Target Shareholder in which each Target Shareholder represents
and warrants to Target and to the Acquiror Companies as follows:
(a) Such Target Shareholder is the absolute owner of the
Target Stock described in such certificate, free,
clear and discharged of and from any and all
Encumbrances.
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(b) Such Target Shareholder will acquire the Merger
Securities for its own account and not with a view to
their distribution within the meaning of Section
2(11) of the Securities Act. Such Target Shareholder
is an Accredited Investor and understands that the
Merger Securities have not been registered under the
Securities Act for purposes of the Contemplated
Transactions. Absent an applicable exemption, no
Target Shareholder will make any distribution of any
of the Merger Securities without such registration
and registration or qualification under any state
securities laws which may be applicable.
7.2.13. Material Adverse Effect. There shall not have been any
changes in the business, operations, affairs, properties, assets,
liabilities, obligations, profits or condition (financial or otherwise)
of Target since the date hereof that are likely to have a Material
Adverse Effect on Target.
7.2.14. Termination of Stockholders' Agreement. The
Stockholders' Agreement among Target, each Management Stockholder (as
defined therein), each Investor (as defined therein), Spencer Trask
Securities Incorporated and ST Partners shall be terminated as of the
Closing Date and, after the Closing Date, and appropriate evidence
thereof shall have been delivered to Acquiror on or before the Closing
Date.
7.3. Conditions to Obligations of Target. The obligation of Target to
effect the Merger is also subject to the satisfaction or waiver by Target prior
to the Effective Time of the following conditions:
7.3.1. Representations and Warranties. The representations and
warranties of the Acquiror Companies set forth in this Agreement shall
be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Time (without taking
into account any supplements to the Acquiror Disclosure Schedule) as
though made on and as of such time, except as otherwise contemplated by
this Agreement, and Target shall have received a certificate signed on
behalf of Acquiror by its Chief Financial Officer to such effect.
7.3.2. Performance of Obligations of Acquiror Companies. The
Acquiror Companies shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and Target shall have received a
certificate signed on behalf of Acquiror by its Chief Financial Officer
to such effect.
7.3.3. Consents Under Agreements. Each of the Consents
identified in Part 4.1.5(b) of the Target Disclosure Schedule, and each
Consent identified in the Acquiror Disclosure Schedule, must have been
obtained and must be in full force and effect.
7.3.4. Legal Opinions. Target shall have received the opinion
of Miller, Canfield, Paddock and Stone, P.L.C., counsel to the Acquiror
Companies, dated the Effective Time, as to such matters as are
customary for transactions of this type and in
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form and substance reasonably acceptable to Target, including, without
limitation, that, assuming the Merger Securities are issued only to
Accredited Investors, the issuance of the Merger Securities in
connection with consummation of the Merger will be exempt from the
registration requirements of the Securities Act.
7.3.5. Material Adverse Effect. There shall not have been any
changes in the business, operations, affairs, properties, assets,
liabilities, obligations, profits or condition (financial or otherwise)
of Acquiror since the date hereof that are likely to have a Material
Adverse Effect on the Acquiror.
7.3.6. Tax Opinion. Target shall have received the opinion of
Miller, Canfield, Paddock and Stone, P.L.C., dated the Effective Time,
to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of
the IRC.
8. TERMINATION AND AMENDMENT.
8.1. Termination. This Agreement may be terminated by delivery of
written notice at any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the Target
Shareholders:
(a) by Acquiror or Newco if a material Breach of any provision
of this Agreement has been committed by Target or a Significant Target
Shareholder, or by Target if a material Breach of any provision of this
Agreement has been committed by Acquiror, and (in either such case)
such Breach has not been waived;
(b) (i) by Acquiror if any of the conditions in Sections 7.1
or 7.2 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 Acquiror to comply with its obligations under this
Agreement) and Acquiror has not waived such condition on or before the
Closing Date; or (ii) by Target if any of the conditions in Sections
7.1 or 7.3 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 Target or any Significant Target Shareholder to
comply with its obligations under this Agreement) and Target has not
waived such condition on or before the Closing Date;
(c) by mutual consent of Acquiror and Target; or
(d) by Target or Acquiror if any approval of the Target
Shareholders required for the consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at
the Target Shareholder Meeting, provided that any such notice of
termination must be given not later than 20 days after the conclusion
of the Target Shareholder Meeting or within such longer period as may
be agreed upon by the parties;
(e) by Acquiror if the Board of Directors of Target does not,
or shall indicate to Acquiror that it is unwilling or unable to,
recommend in the Proxy Statement/Prospectus that its shareholders
approve this Agreement, or if after
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recommending in the Proxy Statement/Prospectus that shareholders
approve this Agreement, the Board of Directors of Target shall have
withdrawn, modified, or amended such recommendation in any respect
materially adverse to the Acquiror Companies, provided that any such
notice of termination must be given not later than 20 days after the
date Acquiror shall have been advised by Target in writing that it is
unable or unwilling to so recommend in the Proxy Statement/Prospectus
or that it has withdrawn, modified, or amended such recommendation, or
such later date as may be agreed upon by Target and the Acquiror
Companies; or
(f) by Acquiror or Target if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with such party's obligations under this
Agreement) on or before September 4, 1998, or such later date as the
parties may agree upon.
8.2. Effect of Termination. In the event of termination of this
Agreement by Target or Acquiror as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect except (a) with respect to Sections
6.3, 8.2, 10.3, and 10.4, (b) in the event either of the Acquiror Companies
terminates this Agreement as a result of a Breach by Target or any of the
Significant Target Shareholders, Target and the Significant Target Shareholders,
jointly and severally, shall be required to pay to Acquiror the amount of actual
costs and attorneys' fees incurred by the Acquiror Companies in connection with
negotiating and otherwise preparing to consummate the Contemplated Transactions;
provided, however, that if such Breach was made intentionally or with gross
negligence, Target and the Significant Target Shareholers shall be, jointly and
severally, required to pay to Acquiror all loss, liability, claim, damage
(including incidental, consequential, special, punitive, exemplary and similar
damages, lost profits and expenses (including actual costs of investigation and
defense and actual attorneys' fees), arising, directly or indirectly, from or in
connection with such Breach, and (c) in the event Target terminates this
Agreement as a result of a Breach by either of the Acquiror Companies, Acquiror
shall be required to pay to Target the amount of actual costs and attorneys'
fees incurred by Target in connection with negotiating and otherwise preparing
to consummate the Contemplated Transactions; provided, however, that if such
Breach was made intentionally or with gross negligence, Acquiror shall be
required to pay to Target all loss, liability, claim, damage (including
incidental, consequential, special, punitive, exemplary and similar damages,
lost profits and expenses (including actual costs of investigation and defense
and actual attorneys' fees), arising, directly or indirectly, from or in
connection with such Breach. Any amounts payable pursuant to this Section 8.2
shall not be subject to any limitation on liability set forth in Sections 9.2 or
9.4 of this Agreement.
8.3. Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of Target; provided, however, that after any such approval,
no amendment shall be made which by law requires further approval by such
shareholders, without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally
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allowed: (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto; (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto; and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party.
9. INDEMNIFICATION; REMEDIES.
9.1. Survival. Subject to the time limitations set forth in Section
9.5, all representations, warranties, covenants, and obligations in this
Agreement, the Target Disclosure Schedule, the Acquiror Disclosure Schedule, the
supplements to the Target Disclosure Schedule, the Supplements to the Acquiror
Disclosure Schedule, the certificates delivered pursuant to Section 7.2.1 and
7.3.1 and any other certificate or document delivered pursuant to this Agreement
will survive the Closing. To the extent the Acquiror Companies are entitled to
indemnification pursuant to this Section 9, they may fulfill such claim for
indemnification, in whole or in part, from the Escrow Account (to the extent
thereof), by following the procedures set forth in the Escrow Agreement, or
directly against Target or the Significant Target Shareholders. Notwithstanding
anything else set forth in this Agreement, if the Closing occurs, neither of the
Acquiror Companies shall seek recovery against Target for any Breach of any
representation, warranty, covenant, or obligation in this Agreement, the Target
Disclosure Schedule, the supplements to the Target Disclosure Schedule, the
certificate delivered pursuant to Section 7.2.1 and any other certificate or
document delivered by Target pursuant to this Agreement; provided, however, that
the foregoing shall not limit the rights and remedies of the Acquiror Companies
against any other Person.
9.2. Indemnification and Payment of Damages By Target Shareholders. The
Significant Target Shareholders and Target, jointly and severally, will
indemnify and hold harmless the Acquiror Companies, their Subsidiaries and their
respective Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (excluding incidental,
consequential, special, punitive, exemplary or similar damages (including lost
profits)) or expense (including reasonable 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:
(a) any Breach of any representation or warranty made by the
Target Shareholders or Target in this Agreement (without giving effect
to any supplement to the Target Disclosure Schedule), the Target
Disclosure Schedule, the supplements to the Target Disclosure Schedule,
or any other certificate or document delivered by Target or the Target
Shareholders pursuant to this Agreement;
(b) any Breach of any representation or warranty made by the
Significant Target Shareholders or Target in this Agreement as if such
representation or warranty were made on and as of the Closing Date
without giving effect to any supplement to the Target Disclosure
Schedule, other than any such Breach that is disclosed in a supplement
to the Target Disclosure Schedule and is expressly identified in the
certificate delivered
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pursuant to Section 7.2.1 as having caused the condition specified in
Section 7.1 not to be satisfied;
(c) any Breach by any Significant Target Shareholder or Target
of any covenant or obligation in this Agreement;
(d) any product shipped or manufactured by, or any services
provided by, Target prior to the Closing Date;
(e) any matter disclosed in Part 4.1.9 of the Target
Disclosure Schedule;
(f) 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 any such Person with any
Target Shareholder or Target (or any Person acting on their behalf) in
connection with any of the Contemplated Transactions;
(g) any liability of Target for (i) Taxes of Target for any
taxable year or taxable period (or portion thereof) ending on or prior
to the Closing Date, (ii) one-half of the costs of preparing and filing
the Short Period Returns pursuant to Section 6.7(b), (iii) one-half of
any transfer taxes pursuant to Section 6.7(d), or (iv) any several
liability of Target under Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law for Taxes of any
Person other than Acquiror for any taxable year or tax period (or
portion thereof) ending on or prior to the Closing Date; or
(h) any claim by any Target Shareholder who is not an
Accredited Investor which claim relates to the failure of such Target
Shareholder to receive Merger Securities in connection with the Merger
even though such Target Shareholder elected to receive Merger
Securities in such Target Shareholder's Preference Specification.
Notwithstanding anything to the contrary set forth above in the definition of
"Damages" or in parts (a) and (b) of this Section 9.2, in the event of a Breach
of the representations and warranties set forth in Sections 4.1.24 (only if such
Breach relates to REVIVE Worx, including but not limited to the technology
incorporated in it, processes used by it, or source code incorporated in it),
4.1.31 or 4.1.32, for purposes of parts (a) and (b) of this Section 9.2 the term
"Damages" shall include incidental, consequential, special, punitive, and
exemplary damages, as well as lost profits, diminution of value and all other
items otherwise included in the definition of "Damages" set forth above in this
Section 9.2.
Notwithstanding the foregoing, in the event of a Breach of Section 4.1.32, the
Acquiror Companies and the Significant Target Shareholders agree as follows: (a)
if such Breach relates solely to the research and development costs exceeding
the amount set forth in Section 4.1.32, then the Damages available to the
Acquiror Companies with respect to such Breach shall be limited to the excess of
the amount spent by the Acquiror Companies on research and development for
REVIVE Worx from the Closing Date through and including the date on which the
Acquiror Companies completed such research and development over the dollar
amount set forth in Section 4.1.32; and (b) if such Breach results from the
failure of the Acquiror Companies to develop, on or before March 31, 1999,
REVIVE Worx such that it is able to convert both IDMS/ADSO and Datacom/Ideal to
Cobol and DB2, whether or not such Breach also results
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from the research and development costs exceeding the amount set forth in
Section 4.1.32, then the following procedures shall apply: (i) the Acquiror
Companies shall not institute any action or make any claim with respect to such
Breach until June 30, 1999, (ii) during the period beginning April 1, 1999 and
continuing through June 30, 1999, the Acquiror Companies shall continue their
research and development activities with respect to REVIVE Worx in a manner
consistent with the manner in which the Acquiror Companies handled such research
and development activities prior to April 1, 1999, (iii) in the event that, on
or before June 30, 1999, the Acquiror Companies have developed REVIVE Worx such
that it is able to convert both IDMS/ADSO and Datacom/Ideal to Cobol and DB2,
then the Damages available to the Acquiror Companies with respect to such Breach
shall be limited to the excess, if any, of the amount spent by the Acquiror
Companies on research and development for REVIVE Worx from the Closing Date
through and including the date on which the Acquiror Companies completed such
research and development over the dollar amount set forth in Section 4.1.32;
(iv) in the event that, on or before June 30, 1999, the Acquiror Companies have
not developed REVIVE Worx such that it is able to convert both IDMS/ADSO and
Datacom/Ideal to Cobol and DB2, then the Acquiror Companies shall be entitled to
pursue all rights it shall have with respect to such Breach under this
Agreement.
Subject to Section 8.2, the remedies provided in Sections 9.2 and 9.3 shall be
the exclusive monetary remedies available to the Acquiror Companies or the other
Indemnified Persons with respect to this Agreement and the Contemplated
Transactions, except that nothing in this Agreement shall limit in any way the
availability of specific enforcement, injunctive relief, or other equitable
remedies which a party might otherwise be entitled.
Damages subject to indemnification or reimbursement under this Section 9.2 or
under Section 9.3 shall be net of any insurance proceeds received by the
Indemnified Person.
9.3. Indemnification and Payment of Damages By Target and Significant
Target Shareholders--Environmental Matters. In addition to the provisions of
Section 9.2, the Significant Target Shareholders and Target, jointly and
severally, will indemnify and hold harmless the Acquiror Companies, their
Subsidiaries and the other Indemnified Persons for, and will pay to the Acquiror
Companies, their Subsidiaries and the other Indemnified Persons the amount of,
any Damages (including costs of cleanup, containment, or other remediation)
arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising
out of or relating to: (i) (A) the ownership, operation, or condition
at any time on or prior to the Closing Date of the Facilities or any
other properties and assets (whether real, personal, or mixed and
whether tangible or intangible) in which the Target Shareholders or the
Target has or had an interest, or (B) any Hazardous Materials or other
contaminants that were present on the Facilities or such other
properties and assets at any time on or prior to the Closing Date; or
(ii) (A) any Hazardous Materials or other contaminants, wherever
located, that were, or were allegedly, generated, transported, stored,
treated, Released, or otherwise handled by the Target Shareholders or
Target or by any other Person for whose conduct they are or may be held
responsible at any time on or prior to the Closing Date, or (B) any
Hazardous Activities that were, or were allegedly, conducted by the
Target Shareholders or Target or by any other Person for whose conduct
they are or may be held responsible; or
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(b) any bodily injury (including illness, disability, and
death, and regardless of when any such bodily injury occurred, was
incurred, or manifested itself), personal injury, property damage
(including trespass, nuisance, wrongful eviction, and deprivation of
the use of real property), or other damage of or to any Person,
including any employee or former employee of the Target Shareholders or
Target or any other Person for whose conduct they are or may be held
responsible, in any way arising from or allegedly arising from any
Hazardous Activity conducted or allegedly conducted with respect to the
Facilities or the operation of Target prior to the Closing Date, or
from Hazardous Material that was (i) present or suspected to be present
on or before the Closing Date on or at the Facilities (or present or
suspected to be present on any other property, if such Hazardous
Material emanated or allegedly emanated from any of the Facilities and
was present or suspected to be present on any of the Facilities on or
prior to the Closing Date) or (ii) Released or allegedly Released by
the Target Shareholders or Target or any other Person for whose conduct
they are or may be held responsible, at any time on or prior to the
Closing Date.
Acquiror will be entitled to control any Cleanup, any related
Proceeding, and, except as provided in the following sentence, any
other Proceeding with respect to which indemnity may be sought under
this Section 9.3. The procedure described in Section 9.8 will apply to
any claim solely for monetary damages relating to a matter covered by
this Section 9.3.
9.4. Indemnification and Payment of Damages by Acquiror. Acquiror will
indemnify and hold harmless Target, and will pay to Target the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Acquiror in this Agreement or
in any certificate delivered by Acquiror pursuant to this Agreement, (b) any
Breach by Acquiror of any covenant or obligation of Acquiror in this Agreement,
or (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 Acquiror (or any Person acting on its behalf) in
connection with any of the Contemplated Transactions.
Subject to Section 8.2, the remedies provided in this Section 9.4 shall be the
exclusive monetary remedies available to Target with respect to this Agreement
and the Contemplated Transactions, except that nothing in this Agreement shall
limit in any way the availability of specific enforcement, injunctive relief, or
other equitable remedies which a party might otherwise be entitled.
Damages subject to indemnification or reimbursement under this Section 9.4 shall
be net of any insurance proceeds received by the Indemnified Person.
9.5. Time Limitations.
(a) If the Closing occurs, the Significant Target Shareholders
will have no liability (for indemnification or otherwise) with respect
to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, other than those
in Sections 4.1.2, 4.1.4, 4.1.10, 4.1.19, 4.1.20, 4.1.24 and 4.1.33,
unless
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on or before August 31, 2001 Acquiror notifies the Significant Target
Shareholders of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Acquiror; a claim with
respect to Section 4.1.10 or 4.1.19 must be made within 3 months after
the expiration of the statute of limitations for the applicable tax
period or other applicable period; and a claim with respect to Sections
4.1.2, 4.1.4, 4.1.20, 4.1.24 or 4.1.33, or a claim for indemnification
or reimbursement not based upon any representation or warranty or any
covenant or obligation to be performed and complied with prior to the
Closing Date, may be made at any time.
(b) If the Closing occurs, the Acquiror Companies will have no
liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed
and complied with prior to the Closing Date, unless on or before August
31, 1999, the Significant Target Shareholders notify Acquiror of a
claim specifying the factual basis of that claim in reasonable detail
to the extent then known by the Significant Target Shareholders.
9.6. Limitations on Amount--Target and Significant Target Shareholders.
Target and the Significant Target Shareholders will have no liability (for
indemnification or otherwise) with respect to the matters described in Section
9.2 until the total of all Damages with respect to such matters exceeds
$100,000. Target and the Significant Target Shareholders will not be liable, in
the aggregate, for indemnification or otherwise to the Acquiror Companies, its
Subsidiaries or any other Indemnified Persons under this Agreement for more than
an aggregate of 20% of the total value of (i) the Merger Consideration, plus
(ii) the Deal Expenses paid by Acquiror at the Closing, plus (iii) the aggregate
amount of Cash Out Amounts paid by Acquiror at the Closing, with each share of
Acquiror Common Stock valued for purposes of this provision at the closing price
of Acquiror Common Stock on NASDAQ on the date immediately preceding the Closing
Date.
Notwithstanding the foregong, the limitations set forth in this Section
9.6 shall not apply to any of the following matters:
(i) any intentional or grossly negligent Breach of any of Target's or
the Significant Target Shareholders' representations and warranties, covenants
or obligations; provided, however, that only the party making such intentional
or grossly negligent Breach shall be liable for Damages with respect to such
Breach, and if more than one party is so responsible, then all parties
responsible for making such intentionaly or grossly negligent Breach shall be
jointly and severally liable for Damages with respect to such Breach;
(ii) any Breach of any of Target's or the Significant Target
Shareholders' representations and warranties set forth in Section 4.1.24, if
such Breach relates in any way to REVIVE Worx or the technology incorporated in
it, processes used by it, source code incorporated in it, or otherwise, or in
Section 4.1.32, provided, however, that Target and the Significant Target
Shareholders will not be liable, in the aggregate, for indemnification or
otherwise to the Acquiror Companies, its Subsidiaries or any other Indemnified
Persons with respect to such a Breach for more than an aggregate of 100% of the
total value of (i) the Merger Consideration paid to the Significant Target
Shareholders, collectively, plus (ii) the prorata portion of the Deal Expenses
attributable to the Significant Target Shareholders, collectively,
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plus (iii) the total amount of Cash Out Amount paid to the Significant Target
Shareholders, collectively, with each share of Acquiror Common Stock valued for
purposes of this provision at the closing price of Acquiror Common Stock on the
NASDAQ on the date immediately preceding the Closing Date;
(iii) any matter disclosed in Part 4.1.9 of the Target Disclosure
Schedule, provided, however, that Target and the Significant Target Shareholders
will have no liability with respect to such matter until the total of all
Damages with respect to such matter exceeds $10,000;
(iv) any claim by any Target Shareholder who is not an Accredited
Investor which claim relates to the failure of such Target Shareholder to
receive Merger Securities in connection with the Merger even though such Target
Shareholder elected to receive Merger Securities in such Target Shareholder's
Preference Specification; or
(v) any Breach of Section 4.1.20.
9.7. Limitations on Amount--Acquiror Companies. The Acquiror Companies
will have no liability (for indemnification or otherwise) with respect to the
matters described in Section 9.4 until the total of all Damages with respect to
such matters exceeds $100,000. The Acquiror Companies will not be liable, in the
aggregate, for indemnification or otherwise to Target or the Significant Target
Shareholders or any other Indemnified Persons under this Agreement for more than
an aggregate of 20% of the total value of (i) the Merger Consideration, plus
(ii) the Deal Expenses paid by Acquiror at the Closing, plus (iii) the aggregate
amount of Cash Out Amounts paid by Acquiror at the Closing, with each share of
Acquiror Common Stock valued for purposes of this provision at the closing price
of Acquiror Common Stock on NASDAQ on the date immediately preceding the
Closing.
9.8. Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under
Section 9.2, 9.4, or (to the extent provided in the last sentence of
Section 9.3) Section 9.3 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.
(b) If any Proceeding referred to in Section 9.8(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
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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 9 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 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).
(d) Target and the Target Shareholders hereby consent to the
non-exclusive jurisdiction 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 the Target or the Significant Target Shareholders with
respect to such a claim anywhere in the world.
9.9. 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.
9.10. Indemnification Payments Treated As Adjustment to Purchase Price.
All indemnification payments made pursuant to this Article 9 shall be treated
for Tax purposes as adjustments to the Merger Consideration (purchase price).
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<PAGE> 67
9.11. Merger Consideration. The parties hereto agree that the Merger
Consideration is being paid solely to acquire control of Target and, except as
otherwise required by law, none of them shall (or permit any Affiliate to)
report or treat any part of the Merger Consideration as allocable to anything
other than payment for Target Stock.
10. GENERAL PROVISIONS.
10.1. 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):
Target, Joseph J.
Porfeli or
Donald J. Currie: REVIVE Technologies Incorporated
230 East Main Street, Suite 200
Carnegie, PA 15106
Attention: Joseph J. Porfeli
Telecopy No.: (412) 276-6901
with a copy to: Morgan, Lewis & Bockius LLP
One Oxford Centre
Thirty-Second Floor
Pittsburgh, PA 15219-1417
Attention: Eric Kline
Telecopy No.: (412) 560-3399
Oshkim Limited
Partners, L.P. or
Kimberlin Family
Partners, L.P.: Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, NY 10022
Attention: Kevin Kimberlin
Telecopy No.: (
with a copy to:
Attention:
Telecopy No:
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<PAGE> 68
Acquiror or Newco: Enterprise Software, Inc.
38705 Seven Mile Road
Livonia, MI 48152
Attention: Robert A. Blay
Telecopy No.: (248) 380-5386
with a copy to: Miller, Canfield, Paddock and Stone, P.L.C.
150 West Jefferson Avenue, Suite 2500
Detroit, MI 48226
Attention: Bruce D. Birgbauer, Esq.
Telecopy No.: (313) 496-8451
10.2. Public Announcements. So long as this Agreement shall remain in
effect, 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 Acquiror and Target mutually determine (the "Mutual
Press Release"). Unless consented to in writing by the other parties in advance
or required by Legal Requirements, while this Agreement shall remain in effect
each party shall keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. Target and Acquiror will mutually
determine the means and timing by which Target and its employees, customers, and
suppliers and others having dealings with Target will be informed of the
Contemplated Transactions.
10.3. Confidentiality. Each party to this Agreement will maintain in
confidence, hold in trust for the other, and not use in any way except as
expressly permitted, any Information obtained from such other party or such
other party's Subsidiaries in connection with this Agreement or the Contemplated
Transactions, and each party to this Agreement will cause its respective
Subsidiaries, directors, officers, employees, agents, and advisers to do the
same, unless: (a) such Information is or becomes publicly available through no
fault of the party disclosing or using such Information; (b) the use of such
Information is necessary or appropriate in making any filing or obtaining any
Requisite Regulatory Approval; or (c) the furnishing or use of such Information
is required by or necessary or appropriate in connection with legal proceedings,
provided, however, that the responding party shall first have given notice to
the other party hereto and shall have made a reasonable effort to obtain a
protective order to limit the disclosure. Information will be disclosed only on
a need to know basis and will only be used to the extent required to accomplish
the Contemplated Transactions. Information shall not be reproduced in any form
except as required to accomplish the Contemplated Transactions. If the
Contemplated Transactions are not consummated, each party will return or destroy
such Information of the other party (and all copies or extracts) as the other
party may request in writing. Furthermore, no party will hire employees of
another party for a period of two (2) years from the date hereof. Each party
hereby acknowledges and agrees that in the event of any Breach of this Section
by the other party, including, without limitation, the actual or threatened
disclosure or unauthorized use of a disclosing party's Information, or hiring of
employees of the other party, in violation of this Section, the disclosing party
will suffer an irreparable injury, such that no remedy at law will afford it
adequate protection against, or appropriate compensation for, such injury.
Accordingly, each party hereby agrees that the other party shall be entitled to
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<PAGE> 69
specific performance of the receiving party's obligations under this Section as
well as such further relief as may be granted by a court of competent
jurisdiction.
10.4. Arbitration. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Southfield, Michigan under
the auspices of the AAA applying the Commercial Rules of the AAA in effect at
that time by three arbitrators--one appointed by Acquiror, one appointed by the
Significant Target Shareholders, and the third appointed by the first two. The
arbitrators shall hear and dispose of any dispute in such manner as they shall
determine, but in so doing they shall be required to receive the submissions of
the parties with respect to the dispute and shall be entitled to receive and
rely on expert testimony on an individual or individuals knowledgeable in the
area of technology and software development. The arbitrators shall base their
award with respect to the matter before them on the contents of this Agreement
and on applicable provisions law. The award of the arbitrators may be,
alternatively or cumulatively, for monetary damages, an order requiring the
performance of nonmonetary obligations, or any other appropriate order or
remedy. The award shall assign costs of the arbitration to one or more parties.
The decision of the arbitrators shall be rendered in writing with all reasonable
expedition, shall set out the reasons therefor, and shall be final and binding
on the parties. Judgment upon the arbitration award rendered may be entered in
any court having jurisdiction, or application may be made to any such court for
judicial acceptance of the award and an order of enforcement or execution, as
the case may be.
10.5. 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 waiver that may be given by a
party will be applicable except in the specific instance for which it is given;
and (b) 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.
10.6. Entire Agreement and Modification. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter and constitutes a complete and exclusive statement of the terms
of the agreement between the parties with respect to its subject matter;
provided, however, that this Agreement shall not supersede the Mutual
Non-Disclosure Agreement entered into between Acquiror and Target as of July 1,
1998. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
10.7. Assignments; Successors; No Third-Party Rights. No party may
assign any of its rights under this Agreement without the prior consent of the
other parties. Subject to the preceding sentence, this Agreement will apply to,
be binding in all respects upon, and inure to the benefit 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
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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.
10.8. Severability. If any provision of this Agreement is held invalid
or unenforceable 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.
10.9. 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. The parties acknowledge that this Agreement
has been the subject of substantial negotiation and that, for purposes of
construction of this Agreement, including but not limited to the indemnification
provisions, this Agreement shall be deemed to have been drafted by all of the
parties hereto and shall not be strictly construed against any of them.
10.10. Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
10.11. Governing Law. This Agreement will be governed by the laws of
the State of Michigan without regard to conflicts of laws principles.
10.12. 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.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the date first
above written.
REVIVE Technologies Incorporated
By /S/
---------------------
Name: Joseph J. Porfeli
Title: Chairman of the Board,
Chief Executive
Officer and President
Attest:
- --------------------
Name:
Title:
Enterprise Software, Inc.
By /S/
---------------------
Name: Andre A. Blay
Title: Chairman of the
Board and Chief
Executive Officer
Attest:
- --------------------
Name:
Title:
Software Acquisition Corporation
By /S/
---------------------
Name: Robert A. Blay
Title: President
Attest:
- --------------------
Name:
Title:
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Significant Target Shareholders:
/S/
---------------------
Joseph J. Porfeli
Witness:
- ---------------------
Name:
/S/
---------------------
Donald J. Currie
Witness:
- ---------------------
Name:
Oshkim Limited Partners, L.P.
By /S/
-----------------------
Name: Kevin Kimberlin
Title: General Partner
Attest:
- ---------------------
Name:
Title:
Kimberlin Family Partners, L.P.
By /S/
-----------------------
Name: Kevin Kimberlin
Title: General Partner
Attest:
- ---------------------
Name:
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREMISES........................................................................................................-1-
1. DEFINITIONS AND RULES OF CONSTRUCTION..................................................................-2-
1.1. Definitions...................................................................................-2-
"AAA".........................................................................................-2-
"Accredited Investor".........................................................................-2-
"Acquiror"....................................................................................-2-
"Acquiror Common Stock".......................................................................-2-
"Acquiror Company"............................................................................-2-
"Acquiror Disclosure Schedule"................................................................-2-
"Acquiror Preferred Stock"....................................................................-2-
"Acquiror SEC Documents"......................................................................-2-
"Acquiror Stock"..............................................................................-2-
"Agreement"...................................................................................-2-
"Applicable Contract".........................................................................-2-
"Assignments of Employment Agreements"........................................................-2-
"Assignments of Noncompete, Nondisclosure and Assignment of
Inventions Agreements"....................................................................-3-
"Best Efforts"................................................................................-3-
"Breach"......................................................................................-3-
"Cash Component"..............................................................................-3-
"CERCLA"......................................................................................-3-
"Certificate of Merger".......................................................................-3-
"Certificates"................................................................................-3-
"Closing".....................................................................................-3-
"Closing Balance Sheet".......................................................................-3-
"Closing Date"................................................................................-3-
"Consent".....................................................................................-3-
"Contemplated Transactions"...................................................................-4-
"Contract"....................................................................................-4-
"Damages".....................................................................................-4-
"Deal Expenses"...............................................................................-4-
"DGCL"........................................................................................-4-
"Effective Time"..............................................................................-4-
"Encumbrance".................................................................................-4-
"Environment".................................................................................-4-
"Environmental, Health, and Safety Liabilities"...............................................-4-
"Environmental Law"...........................................................................-5-
"ERISA".......................................................................................-6-
"Escrow Agreement"............................................................................-6-
"Exchange Act"................................................................................-6-
</TABLE>
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<TABLE>
<S> <C>
"Facilities"..................................................................................-6-
"GAAP"........................................................................................-6-
"Governmental Authorization"..................................................................-6-
"Governmental Body"...........................................................................-6-
"Hazardous Activity"..........................................................................-6-
"Hazardous Materials".........................................................................-7-
"Information".................................................................................-7-
"IRC".........................................................................................-7-
"IRS".........................................................................................-7-
"Knowledge"...................................................................................-7-
"Legal Requirement"...........................................................................-7-
"Material Adverse Effect".....................................................................-7-
"Merger"......................................................................................-8-
"Merger Consideration"........................................................................-8-
"Merger Securities"...........................................................................-8-
"Newco".......................................................................................-8-
"Newco Stock".................................................................................-8-
"Occupational Safety and Health Law"..........................................................-8-
"Order".......................................................................................-8-
"Ordinary Course of Business".................................................................-8-
"Organizational Documents"....................................................................-8-
"Person"......................................................................................-9-
"Preference Specification"....................................................................-9-
"Proceeding"..................................................................................-9-
"RCRA"........................................................................................-9-
"Registration Statement"......................................................................-9-
"Related Person"..............................................................................-9-
"Release"....................................................................................-10-
"Representative".............................................................................-10-
"Requisite Regulatory Approvals".............................................................-10-
"Returns"....................................................................................-10-
"SEC"........................................................................................-10-
"Securities Act".............................................................................-10-
"Significant Target Shareholders"............................................................-11-
"Subsidiary".................................................................................-11-
"Surviving Corporation"......................................................................-11-
"Takeover Proposal"..........................................................................-11-
"Target".....................................................................................-11-
"Target Disclosure Schedule".................................................................-11-
"Target Financial Statements"................................................................-11-
"Target Shareholder".........................................................................-11-
"Target Shareholder Meeting".................................................................-11-
"Target Stock"...............................................................................-11-
"Tax Return".................................................................................-11-
"Taxes"......................................................................................-12-
</TABLE>
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<TABLE>
<S> <C>
"Threat of Release"..........................................................................-12-
"Threatened".................................................................................-12-
"Violation"..................................................................................-12-
"Voting Debt"................................................................................-12-
1.2. Plurals......................................................................................-12-
1.3. Gender.......................................................................................-12-
2. THE MERGER AND RELATED TRANSACTIONS...................................................................-13-
2.1. Effective Time...............................................................................-13-
2.2. Effects of the Merger........................................................................-13-
2.3. Effect on Capital Stock......................................................................-13-
(a) Cancellation of Treasury Stock and Target-Owned Stock...............................-13-
(b) Conversion of Target Stock..........................................................-14-
(c) Adjustment of Merger Consideration..................................................-15-
(d) No Change in Newco Stock............................................................-16-
2.4. Escrow Amount................................................................................-16-
2.5. Exchange of Certificates.....................................................................-17-
(a) Exchange Agent......................................................................-17-
(b) Exchange Procedures.................................................................-17-
(c) Distributions with Respect to Unexchanged Shares; Voting............................-18-
(d) Transfers...........................................................................-18-
(e) Fractional Shares...................................................................-18-
(f) Termination of Exchange Fund........................................................-19-
(g) Withholding Rights..................................................................-19-
(h) Lost Certificate(s).................................................................-19-
2.6. Other Payments At Closing....................................................................-19-
(a) Payments to Option and Warrant Holders..............................................-19-
(b) Deal Expenses.......................................................................-20-
(c) Payoff of Outstanding Notes.........................................................-21-
2.7. Target Shareholder Meeting...................................................................-21-
2.8. Newco Shareholder Action.....................................................................-22-
2.9. Tax Consequences.............................................................................-22-
3. THE CLOSING...........................................................................................-22-
3.1. Closing Date.................................................................................-22-
3.2. Further Assurances...........................................................................-22-
4. REPRESENTATIONS AND WARRANTIES........................................................................-22-
4.1. Representations and Warranties of Target.....................................................-22-
4.1.1. Organization and Good Standing.......................................................-22-
4.1.2. Capital Structure....................................................................-23-
4.1.3. Subsidiaries.........................................................................-23-
4.1.4. Title and Authorization Relative to this
Agreement..................................................................-23-
4.1.5. Consents and Approvals; No Violation.................................................-24-
</TABLE>
-78-
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<TABLE>
<S> <C>
4.1.6. Target Financial Statements..........................................................-25-
4.1.7. No Undisclosed Liabilities...........................................................-25-
4.1.8. Compliance with Legal Requirements;
Governmental Authorizations................................................-25-
4.1.9. Legal Proceedings; Orders............................................................-27-
4.1.10. Taxes...............................................................................-28-
4.1.11. Books and Records...................................................................-30-
4.1.12. Title to Properties; Encumbrances...................................................-31-
4.1.13. Condition and Sufficiency of Assets.................................................-32-
4.1.14. Accounts Receivable.................................................................-32-
4.1.15. Inventory...........................................................................-33-
4.1.16. [RESERVED]..........................................................................-33-
4.1.17. Absence of Certain Changes or Events................................................-33-
4.1.18. Contracts; No Defaults..............................................................-34-
4.1.19. Employee Benefit....................................................................-35-
4.1.20. Environmental Matters...............................................................-40-
4.1.21. Employees...........................................................................-42-
4.1.22. Labor Relations; Compliance.........................................................-42-
4.1.23. Insurance...........................................................................-43-
4.1.24. Intellectual Property...............................................................-45-
4.1.25. Other Assets........................................................................-48-
4.1.26. Brokers and Finders.................................................................-49-
4.1.27. Certain Payments....................................................................-49-
4.1.28. Disclosure..........................................................................-49-
4.1.29. Relationships With Related Persons..................................................-49-
4.1.30. Year 2000 Matters...................................................................-50-
4.1.31. Suppliers and Customers.............................................................-50-
4.1.32. REVIVE Worx.........................................................................-51-
4.1.33. Business Information Systems, Inc...................................................-51-
4.2. Representations and Warranties of the Acquiror
Companies...........................................................................-51-
4.2.1. Organization, Standing, and Power....................................................-51-
4.2.2. Capital Structure....................................................................-52-
4.2.3. Authority............................................................................-53-
4.2.4. The Merger Consideration.............................................................-54-
4.2.5. Brokers and Finders..................................................................-54-
4.2.6. Certain Proceedings..................................................................-54-
4.2.7. Governmental Authorizations..........................................................-54-
4.2.8. Legal Proceedings; Orders............................................................-54-
5. COVENANTS.............................................................................................-55-
5.1. Covenants of Target..........................................................................-55-
5.1.1. Access and Investigation.............................................................-55-
5.1.2. Operation of the Business of Target..................................................-55-
5.1.3. Required Approvals...................................................................-55-
</TABLE>
-79-
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<TABLE>
<S> <C>
5.1.4. Notification.........................................................................-55-
5.1.5. No Negotiation.......................................................................-56-
5.1.6. Best Efforts.........................................................................-56-
5.1.7. Target Disclosure Schedules..........................................................-56-
5.2. Covenants of Acquiror Companies..............................................................-56-
5.2.1. Dividends and Distributions..........................................................-56-
5.2.2. Organizational Document Amendments...................................................-57-
5.2.3. Approvals of Governmental Bodies.....................................................-57-
5.2.4. Other Actions........................................................................-57-
5.2.5. Best Efforts.........................................................................-57-
5.2.6. Notification.........................................................................-57-
5.2.7. Acquiror Disclosure Schedules........................................................-58-
6. ADDITIONAL AGREEMENTS.................................................................................-58-
6.1. Regulatory Matters...........................................................................-58-
6.1.1. Registration Statement...............................................................-58-
6.1.2. General..............................................................................-58-
6.1.3. Form D...............................................................................-59-
6.2. Legal Conditions to Mergers..................................................................-59-
6.3. Expenses.....................................................................................-59-
6.4. Additional Agreements; Best Efforts..........................................................-59-
6.5. Addition to Acquiror Board of Directors......................................................-59-
6.6. Directors and Officers Insurance.............................................................-59-
6.7. Tax Matters..................................................................................-60-
6.8. Target Employees.............................................................................-62-
7. CONDITIONS PRECEDENT..................................................................................-62-
7.1. Conditions to Each Party's Obligation To Effect the Merger...................................-62-
7.1.1. Shareholder Approval.................................................................-62-
7.1.2. Requisite Regulatory Approvals.......................................................-62-
7.1.3. No Restrictions or Restraints; Illegality............................................-62-
7.1.4. Assignments..........................................................................-63-
7.1.5. Escrow Agreement.....................................................................-63-
7.1.6. Completion of Due Diligence..........................................................-63-
7.1.7. Consents of Allied Capital Corporation and
NBD Bank...................................................................-63-
7.1.8. Value of Merger Securities...........................................................-63-
7.2. Conditions to Obligations of the Acquiror Companies
-63-
7.2.1. Representations and Warranties.......................................................-63-
7.2.2. Performance of Obligations of Target.................................................-64-
7.2.3. Consents Under Agreements............................................................-64-
7.2.4. Accredited Investors.................................................................-64-
7.2.5. Tax Opinion..........................................................................-64-
7.2.6. Legal Opinion........................................................................-64-
</TABLE>
-80-
<PAGE> 78
<TABLE>
<S> <C>
7.2.7. Tax Sharing Agreements...............................................................-64-
7.2.8. Termination of Agreements with Spencer
Trask Securities, Incorporated.............................................-65-
7.2.9. Cancellation Agreements..............................................................-65-
7.2.10. Good Standing.......................................................................-65-
7.2.11. Lien Searches.......................................................................-65-
7.2.12. Representation and Warranty from Target
Shareholders...............................................................-65-
7.2.13. Material Adverse Effect.............................................................-66-
7.2.14. Termination of Stockholders' Agreement..............................................-66-
7.3. Conditions to Obligations of Target..........................................................-66-
7.3.1. Representations and Warranties.......................................................-66-
7.3.2. Performance of Obligations of Acquiror
Companies..................................................................-66-
7.3.3. Consents Under Agreements............................................................-66-
7.3.4. Legal Opinions.......................................................................-67-
7.3.5. Material Adverse Effect..............................................................-67-
7.3.6. Tax Opinion..........................................................................-67-
8. TERMINATION AND AMENDMENT.............................................................................-67-
8.1. Termination..................................................................................-67-
8.2. Effect of Termination........................................................................-68-
8.3. Amendment....................................................................................-69-
8.4. Extension; Waiver............................................................................-69-
9. INDEMNIFICATION; REMEDIES.............................................................................-69-
9.1. Survival.....................................................................................-69-
9.2. Indemnification and Payment of Damages By Target Shareholders................................-70-
9.3. Indemnification and Payment of Damages By Target and Significant Target
Shareholders--Environmental Matters..........................................................-72-
9.4. Indemnification and Payment of Damages by Acquiror...........................................-73-
9.5. Time Limitations.............................................................................-74-
9.6. Limitations on Amount--Target and Significant Target Shareholders............................-74-
9.7. Limitations on Amount--Acquiror Companies...........................................-75-
9.8. Procedure for Indemnification--Third Party Claims............................................-76-
9.9. Procedure for Indemnification--Other Claims..................................................-77-
9.10. Indemnification Payments Treated As Adjustment
to Purchase Price...................................................................-77-
9.11. Merger Consideration.........................................................................-77-
10. GENERAL PROVISIONS....................................................................................-77-
10.1. Notices........................................................................................-77-
10.2. Public Announcements...........................................................................-78-
10.3. Confidentiality................................................................................-79-
</TABLE>
-81-
<PAGE> 79
<TABLE>
<S> <C>
10.4. Arbitration....................................................................................-79-
10.5. Waiver.........................................................................................-80-
10.6. Entire Agreement and Modification..............................................................-80-
10.7. Assignments; Successors; No Third-Party Rights.................................................-80-
10.8. Severability...................................................................................-81-
10.9. Section Headings; Construction.................................................................-81-
10.10. Time of Essence...............................................................................-81-
10.11. Governing Law.................................................................................-81-
10.12. Counterparts..................................................................................-81-
</TABLE>
-82-
<PAGE> 80
EXHIBITS
1. Preference Specification
2. Accredited Investor Certificate
3. Assignment of Employment Agreement
4. Assignment of Noncompete, Nondisclosure and Assignment of Inventions
Agreement
<PAGE> 81
EXHIBITS 1 AND 2
PROXY AND PREFERENCE SPECIFICATION
REVIVE TECHNOLOGIES INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 24, 1998
SECTION A
The undersigned stockholder of REVIVE Technologies
Incorporated (the "Company") hereby appoints Stephen McMahon, as the attorney
and proxy of the undersigned, with full power of substitution, to vote all
shares of Common Stock, par value $.01 per share, of the Company which the
undersigned would be entitled to vote if personally present at the Special
Meeting of Stockholders of the Company, to be held at 230 East Main Street,
Suite 200, Carnegie, Pennsylvania 15106, on Monday, August 24, 1998,
commencing at 10:00 a.m., local time, and at any adjournment or postponement
thereof, as follows:
1. APPROVAL OF THE MERGER OF THE COMPANY WITH AND INTO SOFTWARE ACQUISITION
CORPORATION, PURSUANT TO AND IN ACCORDANCE WITH THE AGREEMENT OF MERGER DATED
AS OF AUGUST 4, 1998 BY AND AMONG ENTERPRISE SOFTWARE, INC., SOFTWARE
ACQUISITION CORPORATION, THE COMPANY AND CERTAIN STOCKHOLDERS.
/ / FOR* / / AGAINST* / / ABSTAIN*
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting.
UNLESS OTHERWISE SPECIFIED, THE SHARES OF COMMON STOCK REPRESENTED HEREBY
WILL BE VOTED "FOR" THE APPROVAL OF PROPOSAL 1.
*ALL STOCKHOLDERS, EXCEPT THOSE ASSERTING DISSENTERS RIGHTS, SHOULD COMPLETE
SECTIONS B AND C AND SIGN THIS PROXY CARD. IN ORDER TO AVOID BACK-UP
WITHHOLDING OF TAXES, YOU MUST ALSO CERTIFY AS TO YOUR TAX STATUS.
<PAGE> 82
SECTION B
(1) Please check ONE of the following preferences for the form of
consideration to be received in the proposed Merger:
____ All cash;
____ All shares of ESI common stock;
____ A combination of cash and ESI common stock.
The undersigned understands and acknowledges that, while the Company intends
to use its best efforts to honor the preference expressed, circumstances may
render deviating from such preference necessary and that the preference
specified above in no way binds the Company. IN MAKING THIS DETERMINATION (I)
NON-ACCREDITED INVESTORS, IF ANY, MAY ONLY RECEIVE CASH CONSIDERATION, (II)
THE MAXIMUM CASH CONSIDERATION AVAILABLE WILL BE PAID TO STOCKHOLDERS WHO
ELECT TO RECEIVE "ALL CASH," AND THE MAXIMUM STOCK CONSIDERATION AVAILABLE
WILL BE PAID TO STOCKHOLDERS WHO ELECT TO RECEIVE "ALL SHARES OF ESI STOCK",
AND (III) THOSE STOCKHOLDERS WHO ELECT TO RECEIVE "A COMBINATION OF CASH AND
ESI COMMON STOCK" WILL RECEIVE A PRO-RATED AMOUNT OF THE REMAINING CASH
CONSIDERATION AND STOCK CONSIDERATION, AFTER THE SATISFACTION OF (I) AND (II)
ABOVE.
(2) Please complete Part A or Part B, as applicable:
________ (A) By marking an "X" to in the space to the left, the undersigned
(hereinafter "Stockholder") hereby certifies that Stockholder is an
"accredited investor" as that term is defined in Regulation D adopted
pursuant to the Securities Act of 1933, as amended.
The specific category(s) of accredited investor applicable to Stockholder is
checked below (please check as many as are applicable):
_____ i. an individual whose individual net worth, or joint net
worth with that individual's spouse, exceeds $1,000,000
(including the value of homes, home furnishings and personal
automobiles);
_____ ii. an individual who had an individual income in excess of
$200,000 in the last two calendar years or joint income with
that person's spouse in excess of $300,000 in each of those
years and who reasonably expects to reach the same income
level in the current calendar year. For purposes of this
offering, individual income shall equal adjusted gross income,
as reported in the investor's federal income tax return, less
any income attributable to a spouse or to property owned by
the spouse, and as may be further adjusted in accordance with
the rules, regulations, and releases of the Commission;
_____ iii. a bank as defined in Section 3(a)(2) of the Federal Act,
or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Federal Act, whether
acting in its individual or fiduciary capacity; an insurance
company as defined in Section 2(13) of the Federal Act; an
investment company registered under the Investment Company Act
of 1940 (the "1940 Act") or a business development company as
defined in Section 2(a)(48) of the 1940 Act; a Small Business
Investment Company licensed by
<PAGE> 83
the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; or
an employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974
("ERISA"), if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of ERISA, which is
either a bank, savings and loan association, insurance
company or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000
or if a self-directed plan, with investment decisions made
solely by persons that are accredited investors;
_____ iv. a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940;
_____ v. an organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific
purpose of acquiring the Shares, with total assets in excess
of $5,000,000;
_____ vi. an individual who is a director or executive officer of
the Company; or
_____ vii. an entity in which all of the equity owners are
accredited investors as set forth above.
_________ (B) By marking an "X" in the space to the left, Stockholder hereby
certifies that Stockholder IS NOT an "accredited investor" as that term is
defined in Regulation D adopted pursuant to the Securities Act of 1933, as
amended.
<PAGE> 84
SECTION C
Each stockholder tendering REVIVE shares must certify as to the following to
REVIVE Enterprise Software, Inc. And Software Acquisition Corporation:
(1) The undersigned (hereinafter "Stockholder") is the absolute owner of shares
of Common Stock, par value $.01 per share, of REVIVE Technologies Incorporated,
free, clear and discharged from any and all charges, claims, community property
interests, conditions, equitable interests, liens, options, pledges, security
interests, rights of first refusal or other restrictions of any kind.
(2) The undersigned (i) will acquire shares of stock of ESI, if any, in the
proposed merger, for his or its own account and not with a view to their
distribution, and (ii) understands that the shares of ESI stock received have
not been registered under the Securities Act, and, as restricted shares, may not
be transferred absent a valid exemption under the Securities Act and applicable
state law.
(3) By signing this Proxy and Preference Specification, Stockholder hereby
acknowledges and agrees that, upon the consummation of the Merger and the
simultaneous dissolution of the Company, (i) the Registration Rights Agreement
by and among the Company and each stockholder shall terminate and be of no
further force and effect; (ii) the Stockholders' Agreement by and among the
Company, each Management Stockholder (as defined therein), each stockholder
signatory thereto, Spencer Trask Securities Incorporated and ST Partners shall,
pursuant to Section 7(b) thereof, automatically terminate; and (iii) there can
be no assurance that the Preference Specifications specified by the stockholder
will be honored in its entirety.
Dated: August ______, 1998
-------------------------------------
Signature of Stockholder
-------------------------------------
Signature of Stockholder
NOTE: Please sign this proxy exactly as your name(s) appear(s) on your stock
certificate. When signing as attorney-in-fact, executor, administrator, trustee
or guardian, please add your title as such, and if signing as a corporation,
please sign with full corporate name by a duly authorized officer or officers
and affix the corporate seal. Where stock is issued in the names of two (2) or
more persons, all such persons must sign. PLEASE SIGN, DATE AND RETURN THIS
PROXY NO LATER THAN AUGUST 23, 1998 TO JOSEPH J. PORFELI, CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT, REVIVE TECHNOLOGIES INCORPORATED, 230
EAST MAIN STREET, SUITE 200, CARNEGIE, PENNSYLVANIA 15106. RETURN ENVELOPES ARE
PROVIDED FOR YOUR CONVENIENCE.
<PAGE> 85
EXHIBITS 3 AND 4
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made as
of this 1st day of September 1998, by and between REVIVE Technologies
Incorporated, a Delaware corporation ("Assignor"), and Software Acquisition
Corporation, a Delaware corporation ("Assignee"), with respect to the following
recitals:
A. Assignor and Assignee are parties to an Agreement of Merger dated as
of August 4, 1998 (the "Merger Agreement;" all capitalized terms used but not
defined herein shall have the meanings assigned to them in the Merger
Agreement).
B. The Merger Agreement provides for the merger (the "Merger") of
Assignor with and into Assignee, which Merger contemplates the conveyance,
assignment, transfer and delivery to Assignee of, among other things the
Applicable Contracts listed on Part 4.1.18(a) of the Target Disclosure Schedule
(the "Agreements").
C. Assignor desires to assign to Assignee all of its right, title and
interest in and to each of the Agreements, and Assignee desires to accept the
assignment of Assignor's interest in each Agreement, in return for assuming
Assignor's obligations therein on the terms and subject to the conditions
contained in the Merger Agreement.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, and on the
terms and subject to the conditions contained in the Merger Agreement, Assignor
and Assignee hereby agree as follows:
1. Assignor hereby assigns, transfers and conveys to Assignee all
its right, title and interest in and to each of the
Agreements, and Assignee hereby assumes all obligations and
liabilities of Assignor (except to the extent otherwise
provided in the Merger Agreement) under the terms and
provisions of each of the Agreements, in each case arising on
and after the date of this Agreement.
2. This Agreement shall be deemed to constitute the assignments
described in Section 7.1.4 of the Merger Agreement.
3. This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original copy and all of
which, taken together, will be deemed to constitute one and
the same agreement.
IN WITNESS WHEREOF, Assignor and Assignee have executed and delivered this
Agreement as of the day and year first written above.
REVIVE TECHNOLOGIES INCORPORATED SOFTWARE ACQUISITION
CORPORATION
By: /S/ By: /S/
------------------------------- -------------------------------
Joseph J. Porfeli Robert A. Blay
Its: Chairman of the Board, Its: President
Chief Executive Officer
and President
<PAGE> 86
CONSENT TO ASSIGNMENT OF NONCOMPETE,
NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT
The undersigned ("Employee") hereby executes this CONSENT TO ASSIGNMENT
OF NONCOMPETE, NONDISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT (this
"Consent") as of this ___ day of __________, 1998.
WHEREAS, REVIVE Technologies Incorporated, a Delaware corporation
("REVIVE"), and Employee are party to a noncompete, nondisclosure and assignment
of inventions agreement (the "Noncompete Agreement");
WHEREAS, as of August 4, 1998, Enterprise Software, Inc., a Delaware
corporation, Software Acquisition Corporation, a Delaware corporation
("Software"), REVIVE and certain shareholders of REVIVE entered into an
agreement of merger whereby REVIVE will be merged with and into Software (such
transaction, the "Merger");
WHEREAS, the Merger is scheduled to be consummated not later than
September __, 1998 (such date of consummation, the "Effective Time");
WHEREAS, in connection with the Merger, REVIVE and Software are
entering into an Assignment and Assumption Agreement of even date herewith, by
which REVIVE assigns to Software all right, title and interest in and to certain
agreements including, without limitation, the Noncompete Agreement, and by which
Software assumes the obligations of REVIVE under such agreements, including
without limitation the Noncompete Agreement; and
WHEREAS, pursuant to Section 6 of the Noncompete Agreement, REVIVE has
the right to assign the Noncompete Agreement (such assignment, the
"Assignment");
NOW, THEREFORE, for good and valuable consideration, including without
limitation Software's willingness to offer employment to Employee, the receipt
and adequacy of which are hereby acknowledged, and intending to be legally bound
hereby, Employee hereby acknowledges and consents to the Assignment as of the
Effective Time and further acknowledges that such consent will relieve REVIVE
from any and all further liability that Employee may have as of and subsequent
to the Effective Time and that, from and following the Effective Date, the
Noncompete Agreement shall remain in full force and effect pursuant to the terms
thereof for the benefit of Software.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Consent as of the day and year first written above.
WITNESS: EMPLOYEE:
- ------------------------------ ------------------------------
Name: Name:
<PAGE> 87
CONSENT TO ASSIGNMENT OF EMPLOYMENT AGREEMENT
The undersigned ("Executive") hereby executes this CONSENT TO
ASSIGNMENT OF EMPLOYMENT AGREEMENT (this "Consent") as of this ___ day of
____________, 1998.
WHEREAS, REVIVE Technologies Incorporated, a Delaware corporation
("REVIVE"), and Executive are parties to an employment agreement dated as of
_____________ (the "Employment Agreement");
WHEREAS, as of August 4, 1998, Enterprise Software, Inc., a Delaware
corporation, Software Acquisition Corporation, a Delaware corporation
("Software"), REVIVE and certain shareholders of REVIVE entered into an
Agreement of Merger whereby REVIVE will be merged with and into Software (such
transaction, the "Merger");
WHEREAS, the Merger is scheduled to be consummated no later than
September __, 1998 (such date of consummation, the "Effective Time");
WHEREAS, in connection with the Merger, REVIVE and Software are
entering into an Assignment and Assumption Agreement of even date herewith, by
which REVIVE assigns to Software all right, title and interest in and to certain
agreements including, without limitation, the Employment Agreement, and by which
Software assumes the obligations of REVIVE under such agreements, including
without limitation the Employment Agreement; and
WHEREAS, REVIVE and Software desire to obtain Executive's consent to
the assignment and assumption of the Employment Agreement (such assignment and
assumption, the "Assignment and Assumption");
NOW, THEREFORE, for good and valuable consideration, including without
limitation Software's willingness to offer employment to Employee, the receipt
and adequacy of which are hereby acknowledged, and intending to be legally bound
hereby, Executive hereby acknowledges and consents to the Assignment and
Assumption of the Employment Agreement as of the Effective Time and further
acknowledges that such consent will (i) relieve REVIVE from any and all rights
and obligations under the Employment Agreement subsequent to the Effective Time
and (ii) bind Software and Executive to the terms of the Employment Agreement as
of and subsequent to the Effective Time.
<PAGE> 88
CONSENT TO ASSIGNMENT OF EMPLOYMENT AGREEMENT
The undersigned ("Executive") hereby executes this CONSENT TO
ASSIGNMENT OF EMPLOYMENT AGREEMENT (this "Consent") as of this ___ day of
____________, 1998.
WHEREAS, REVIVE Technologies Incorporated, a Delaware corporation
("REVIVE"), and Executive are parties to an employment agreement dated as of
_____________ (the "Employment Agreement");
WHEREAS, as of August 4, 1998, Enterprise Software, Inc., a Delaware
corporation, Software Acquisition Corporation, a Delaware corporation
("Software"), REVIVE and certain shareholders of REVIVE entered into an
Agreement of Merger whereby REVIVE will be merged with and into Software (such
transaction, the "Merger");
WHEREAS, the Merger is scheduled to be consummated no later than
September __, 1998 (such date of consummation, the "Effective Time");
WHEREAS, in connection with the Merger, REVIVE and Software are
entering into an Assignment and Assumption Agreement of even date herewith, by
which REVIVE assigns to Software all right, title and interest in and to certain
agreements including, without limitation, the Employment Agreement, and by which
Software assumes the obligations of REVIVE under such agreements, including
without limitation the Employment Agreement; and
WHEREAS, REVIVE and Software desire to obtain Executive's consent to
the assignment and assumption of the Employment Agreement (such assignment and
assumption, the "Assignment and Assumption");
NOW, THEREFORE, for good and valuable consideration, including without
limitation Software's willingness to offer employment to Employee, the receipt
and adequacy of which are hereby acknowledged, and intending to be legally bound
hereby, Executive hereby acknowledges and consents to the Assignment and
Assumption of the Employment Agreement as of the Effective Time and further
acknowledges that such consent will (i) relieve REVIVE from any and all rights
and obligations under the Employment Agreement subsequent to the Effective Time
and (ii) bind Software and Executive to the terms of the Employment Agreement as
of and subsequent to the Effective Time.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Consent as of the day and year first written above.
WITNESS: EXECUTIVE:
- ------------------------------ ------------------------------
Name: Name:
<PAGE> 1
EXHIBIT 2(b)
September 1, 1998
Enterprise Software, Inc. Software Acquisition Corporation
38705 Seven Mile Road 38705 Seven Mile Road
Livonia, Michigan 48152 Livonia, Michigan 48152
Attention: Andre A. Blay Attention: Robert A. Blay
Dear Andre and Robert:
Reference is made to the Agreement of Merger dated August 4, 1998
between Enterprise Software, Inc., Software Acquisition Corporation, the
Significant Target Shareholders and the undersigned corporation. Definitions in
the Agreement shall apply to this letter. In order to clarify certain provisions
and resolve possible disputes under the Agreement, it is agreed and acknowledged
as of today's Closing Date as follows:
(a) Notwithstanding the Closing Balance Sheet, the cash component of
the Merger Consideration referred to in Section 2.2(c) of the Agreement shall be
adjusted downward by $179,543, and no Notice of Disagreement shall be provided.
(b) The Escrow Amount in Section 2.4 of the Agreement shall be
$179,543, and shall be in the form of 23,939 shares of Acquiror Common Stock.
(c) In determining the Merger Consideration, the Merger Securities
shall be deemed to have a value of $7.50 which is equal to the closing price of
Acquiror Common Stock on the NASDAQ on the day immediately preceding today's
Closing Date.
(d) The representation and warranty in Section 4.1.32 of the Agreement
is clarified by adding "(i)" after "will" in line 2 and adding ", (ii) be
capable of converting two programs per day per technician, and (iii) achieve
such development" after "DB2" in line 3.
Please agree to and acknowledge the foregoing by signing and returning
a copy of this letter which may be signed in counterparts by you and the
Significant Target Shareholders.
Very truly yours,
REVIVE TECHNOLOGIES INCORPORATED
By: /S/
---------------------------------
Joseph J. Porfeli
Its Chairman of the Board, Chief
Executive Officer and President
-1-
<PAGE> 2
AGREED AND ACKNOWLEDGED AS OF THE ABOVE DATE:
ENTERPRISE SOFTWARE, INC. SOFTWARE ACQUISITION
CORPORATION
By: /S/ By: /S/
--------------------------- ----------------------------
Andre A. Blay Robert A. Blay
Its: Chairman of the Board and Its: President
Chief Executive Officer
SIGNIFICANT TARGET SHAREHOLDERS:
/S/ /S/
--------------------------- ----------------------------
Joseph J. Porfeli Donald J. Currie
OSHKIM LIMITED PARTNERS, L.P. KIMBERLIN FAMILY PARTNERS, L.P.
By: /S/ By: /S/
--------------------------- ----------------------------
Kevin Kimberlin Kevin Kimberlin
Its: General Partner Its: General Partner
-2-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this Form 8-K
of our report dated May 5, 1998 included in this Registration Statement. It
should be noted that we have not audited any financial statements of the company
subsequent to March 31, 1998 or performed any audit procedures subsequent to the
date of our report.
/s/ ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
September 15, 1998
<PAGE> 1
EXHIBIT 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
REVIVE Technologies Incorporated
We have audited the accompanying balance sheets of REVIVE Technologies
Incorporated (a Delaware corporation) as of March 31, 1998, and 1997,
and the related statements of operations, shareholder's investment and
cash flows for years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of REVIVE Technologies
Incorporated as of March 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations and has a retained earnings deficit which raise substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 1 which include obtaining
additional funding to continue to develop and expand the Company's operations.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable
to continue as a going concern.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
May 5, 1998
F-1
<PAGE> 2
REVIVE TECHNOLOGIES INCORPORATED
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 762,520 $ 2,886
Accounts receivable 222,636 103,868
Prepaid expenses 8,715 1,689
Other current assets 109,829 2,381
----------- -----------
Total current assets 1,103,700 110,824
----------- -----------
Property, plant, and equipment, net 232,585 36,556
Deferred software costs, net 8,460 78,760
----------- -----------
Total Assets $ 1,344,745 $ 226,140
=========== ===========
</TABLE>
F-2
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
REVIVE TECHNOLOGIES INCORPORATED
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S INVESTMENT 1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Note payable - $ 31,539
Notes payable due to related parties - 333,400
Capital lease obligations - 13,195
Accounts payable $ 176,225 34,870
Deferred compensation payable - 100,000
Accrued liabilities 42,631 82,037
Deferred revenues 191,457 187,386
---------- --------
Total current liabilities 410,313 782,427
---------- --------
LONG TERM LIABILITIES:
Notes payable $ 200,000 -
SHAREHOLDER'S INVESTMENT:
Preferred stock, $0.01 par value - 1,000,000 authorized - -
Common stock, $0.01 par value - 10,000,000 authorized: 79,388 9,500
7,938,774 and 950,000 issued and outstanding respectively
Paid-in-capital 3,655,307 11,688
Deferred compensation (99,653) -
Retained earnings (deficit) (2,900,610) (577,475)
---------- --------
Total shareholder's investment 734,432 (556,287)
---------- --------
$1,344,745 $226,140
---------- --------
</TABLE>
F-3
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
REVIVE TECHNOLOGIES INCORPORATED
STATEMENTS OF OPERATIONS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES 1,009,875 613,351
COSTS OF REVENUES 756,291 392,609
----------- ---------
Gross Profit 253,584 220,742
RESEARCH & DEVELOPMENT 270,740
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,341,934 275,463
----------- ---------
Income (loss) From Operations (2,359,090) (54,721)
INTEREST INCOME/(EXPENSE) Net 35,955 (94,822)
OTHER EXPENSE - (7,309)
----------- ---------
Loss Before Income Taxes (2,323,135) (156,852)
PROVISION FOR INCOME TAXES - -
NET LOSS $(2,323,135) $(156,852)
=========== =========
</TABLE>
F-4
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
REVIVE TECHNOLOGIES INCORPORATED
STATEMENTS OF SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
OUTSTANDING COMMON PAID IN DEFERRED RETAINED SHAREHOLDER
SHARES STOCK CAPITAL COMPENSATION EARNINGS INVESTMENT
----------- ------ ------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1996 950,000 $ 9,500 $ 11,888 ($420,623) ($399,435)
Net Loss - - (156,852) (158,852)
--------- ------- ---------- ----------- -----------
BALANCE, March 31, 1997 950,000 9,500 11,888 (577,475) (556,287)
Sale of Stock to Spencer Track 1,712,500 17,125 20,375 37,500
Sale of Stock to Management 740,000 7,400 7,400 14,800
Sale of Stock in Private Placement 3,500,000 35,000 3,465,000 3,500,000
Expenses and Fees of Private (521,437) (521,437)
Placement
Debt Converted to Stock 341,014 3,410 337,604 341,014
Stock issued to Management 298,960 2,990 146,490 (149,480) -
Stock issued to Founders 383,800 3,838 188,062 (191,900) -
Amortization of Deferred 241,727 241,727
Compensation
Sale of Stock Under Option 12,500 125 125 250
Plan --------- ------- ---------- ---------- ----------- -----------
Net Loss - - - - (2,323,135) (2,323,135)
--------- ------- ---------- ---------- ----------- -----------
BALANCE, March 31, 1998 7,938,774 $79,388 $3,855,307 ($99,653) ($2,900,810) $734,432
========= ======= ========== ========== =========== ===========
</TABLE>
F-5
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
REVIVE TECHNOLOGIES INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL CASH FLOWS FROM 1998 1997
----------- ---------
<S> <C> <C>
OPERATIONS:
Net loss $(2,323,135) $(156,852)
Adjustments:
Deferred compensation expense 241,727 100,000
Depreciation 30,937 8,866
Amortization of software costs 78,060 34,944
----------- ---------
(1,971,411) (13,042)
Working capital items:
Accounts receivable (118,768) (15,280)
Prepaid expenses (116,855) (218)
Other assets 2,381 430
Accounts payable 141,355 8,060
Accrued liabilities (139,406) 48,169
Deferred revenues 4,071 81,796
----------- ---------
Total cash flows from working capital (227,222) 122,957
items ----------- ---------
Total cash flows from operations (2,198,633) 109,915
INVESTING ACTIVITIES:
Deferred software costs (9,124) (15,308)
Additions to Furniture & Equipment (226,602) -
----------- ---------
Total cash used for investing activities (235,726) (15,308)
FINANCING ACTIVITIES:
Notes payable borrowings from related parties - 46,900
Notes payable repayments to related parties (164,939) (42,045)
Notes payable repayments - (86,493)
Capital lease payments (13,195) (11,202)
Sale of Stock 3,372,127 -
----------- ---------
Total cash provided by (used for) 3,193,983 (92,840)
financing activities ----------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 759,634 1,767
CASH AND CASH EQUIVALENTS, beginning of period 2,886 1,119
----------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 762,520 $ 2,886
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
Interest $ 34,962 $ 94,822
=========== =========
Income taxes - -
=========== =========
</TABLE>
F-6
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
REVIVE TECHNOLOGIES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. COMPANY ORGANIZATION AND OPERATIONS:
-----------------------------------
REVIVE Technologies Incorporated (the Company) formerly known as Business
Information Systems, Inc. (BIS) was founded in 1980. The Company is a
provider of conversion and migration services that assist its clients in
automating the transition from legacy computer software, databases and
operating system platforms to newer technologies. Legacy computer systems are
the historical, often outdated, software, databases and operating system
platforms utilized by an organization to carry out its business. The Company
has developed proprietary conversion tools, technologies, and methodologies to
assist the Company in the automatic conversion of its clients' legacy computer
systems to newer technologies while preserving the clients' business processes.
On May 30, 1997, Business Information Systems (BIS) was merged with REVIVE
Technologies Incorporated (RTI), a subsidiary of BIS, and reincorporated as a
Delaware corporation, with REVIVE Technologies Incorporated remaining as the
surviving corporation.
In accordance with this merger, each share of common stock of BIS that was
issued and outstanding prior to this merger was converted into 9,500 fully paid
and nonassessable shares of common stock of the surviving corporation (RTI).
RTI has authorized 10,000,000, par value $0.01, of common stock and 1,000,000,
par value $0.01, of preferred stock. As part of this merger all share and
shareholders investment amounts included in the Company financial statements
have been retroactively restated to reflect the effects of the merger for the
periods presented.
The Company has also entered into certain agreements with members of executive
management and a financial advisor and completed a private placement financing
as described in Note 9.
Management is currently contemplating another private placement to secure
additional equity funding. In the opinion of management, assuming the private
placement is successful, the influx of equity together with the expected
revenues will provide the Company with adequate working capital over the next
twelve months to continue to further develop its products and expand its
operations.
The financial statements have been prepared assuming that the Company will
continue as a going concern. As of March 31, 1998 and 1997, the Company has
incurred losses of $2,323,135 and $156,852, respectively, has a deficit in
retained earnings, and is reliant upon equity funding to fund its current level
of operations. Without additional investments, there is substantial doubt
about the Company's ability to continue as a going concern. Refer to
management's plans, described above, to provide for the Company's anticipated
working capital needs.
2. SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
The accompanying financial statements reflect the application of the following
significant accounting policies:
F-7
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
- ----------------
The Company considers all short-term investments with maturities of three
months or less when acquired to be cash equivalents at March 31, 1998 all
short-term investments are invested in Certificates of Deposits.
Property, Plant and Equipment
- -----------------------------
Additions to property, plant and equipment are recorded at cost. Depreciation
is provided using the straight line method by making periodic charges to income
over the estimated useful lives of the assets, which are as follows:
Office furniture and equipment 3 to 7 years
Computer software 5 years
Capitalized Software Development Costs
- --------------------------------------
Internally developed software utilized by the Company is capitalized subsequent
to completion of a working model and is amortized over the estimated useful life
of 5 years.
Revenue Recognition
- -------------------
Contract revenue consists of revenue from the conversion of software programs.
The Company primarily uses the percentage of completion method of accounting for
contract revenue. Under this method, portions of the total estimated contract
revenues and costs are reflected in income each period based on the proportion
of the contract work completed in each period. The Company uses number of
programs to be converted as the measure to determine the percentage complete.
The Company recognizes revenue on time and materials contracts for professional
services as the services are performed for customers. Revenue for professional
services were $115,490 and $32,000 in 1997 and 1996 respectively.
Income Taxes
- ------------
The Company provides for deferred income tax differences that arise when items
are reported for financial statement purposes in years different from those for
income tax reporting purposes in the accompanying balance sheet in conformity
with Statement of Financial Accounting Standards No. 109. "Accounting for
Income Taxes."
Fair Value of Financial Instruments
- -----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" requires disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the balance sheets of the Company, for which it is practicable
to estimate fair value.
F-8
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
The carrying value of the Company's financial instruments approximates the
related fair value, other than for the Company's debt obligations.
It is not practicable to estimate the fair value of the Company's debt due to
the fact that this debt is with related parties of the Company. The carrying
value of such debt is $200,000 and bears interest at rates ranging from 10.0%.
See Note 4.
3. RELATED PARTY TRANSACTIONS
The Company has various notes payable due to related parties as of March 31,
1998 and 1997. The Company regularly entered transactions with related
parties, including an outside provider of professional services and former
owner. Notes payable to the prior service provider were $200,000 and $333,400,
respectively.
The Company entered into an agreement with the related party lender whereby
$133,400 of the Company's debt to this lender plus accrued interest was repaid
upon close of the private placement and the remaining $200,000 of this related
party debt was converted to a two year subordinated note, bearing interest at
10%. In addition, this debt is convertible to common stock at the lender's
option at $2 per share at the earlier of an initial public offering or at the
end of the two year term.
The $100,000 due to the founder as of March 31, 1997 for unreimbursed
compensation and travel expenses was paid during the year ended March 31, 1998.
4. DEBT:
The Company has the following debt as of March 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Notes payable to related party, interest ranging from - $286,500
10.5% to 12%, due on demand.
Notes payable to related party, interest at 36.5%, due - 46,900
on demand, secured by accounts receivable
Note payable to Custom Factoring, interest at 36.5%, - 31,539
due on demand, secured by accounts receivable
Capital lease, interest at 18.82%, bearing monthly principal - 9,830
and interest payments of $900, maturity March 1998
secured by equipment
Capital lease interest at 19.68%, bearing monthly principal - 3,365
and interest payments of $382, maturity January 1998,
secured by equipment
10% Convertible Debenture Note to related party
due upon earlier of June 1, 1999 or the closing
of an initial public offering $200,000 -
-------- --------
200,000 378,134
</TABLE>
F-9
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
Less Current maturities - 378,134
-------- --------
$200,000 $ -
======== ========
During 1997 the Company factored, with recourse, certain trade receivables to
facilitate cash flow with both an external firm and related party. As such,
the Company bore the risk of any noncollection of these receivables from
customers. These factoring arrangements were at an interest rate of
1/10th of 1% per day.
LEASES:
-------
The Company acquired certain computer equipment through capital leases.
Remaining future minimum lease payments under capital leases approximate
$14,700, including $1,523 of interest through the remaining lease terms, the
latest ending March 31, 1998.
The Company leases 6,000 square feet of office space in Carnegie, Pennsylvania
and 4,000 square feet of space in Fort Wayne, Indiana. Future minimum payments
under long-term operating leases as of March 31, 1998 are:
Year ended March 31: 1999 $ 122,460
2000 $ 122,460
2001 $ 122,460
2002 $ 122,460
2003 $ 107,130
The Company has three out-of-state sales offices with short-term leases of up
to one year.
INCOME TAXES:
The Company conforms to the accounting policies of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes," which requires use
of an asset and liability method of accounting for income taxes.
The Company has, generated book losses for the years ended March 31, 1998 and
1997 and has net operating loss carryforwards of approximately $2,280,000 which
expire beginning from 2004 to 2013. The future utilization of these net
operating losses is limited as a result of the change in stockholders' ownership
discussed in Note 1. Except for the effects of the reversal of net deductible
tax differences, the Company is not aware of any factors which would cause
significant differences between book and taxable income in future years. Based
upon historic operations, there can be no assurances that the Company will
generate earnings or a specific level of continuing earnings, to assure that it
is more likely than not that the net deductible differences will reverse during
periods when the Company generates sufficient net taxable income to permit the
utilization of net deferred tax assets recorded at March 31, 1998. As such, the
Company has provided for a valuation allowance for the net deferred tax assets
recorded at March 31, 1998.
SALES TO MAJOR CUSTOMERS: DEPENDENCE UPON SERVICE PROVIDER PARTNERS:
--------------------------------------------------------------------
The Company typically provides software conversion services to customers through
a subcontract arrangement with major service provider partners. The Company
usually requires an advance deposit as a condition of performance. As of March
31, 1998 and 1997, there is no allowance for doubtful accounts.
The percentage of the Company's gross revenue attributable to its four largest
customers amounted to
F-10
The accompanying notes are an integral part of these financial statements.
<PAGE> 11
approximately 91% and 64% for the years ended March 31, 1998 and March 31, 1997
respectively. There were no other customers from which the Company derived 10%
or more of its revenue in either year.
The percentage of the Company's gross revenue attributable to its largest
service provider partner amounted to approximately 82% and 71% for the years
ended March 31, 1998 and March 31, 1997 respectively.
8. STOCK PURCHASE PLANS:
--------------------
The Company is authorized to grant, under the 1997 Stock Option Plan, rights to
purchase up to 500,000 shares of Common Stock to an employee, Director,
Consultant or Advisor. The exercise price and vesting are set by the Board of
Directors at the time of grant. Awards under the Plan may be in the form of
options which qualify as "incentive stock options" ("Incentive Stock Options")
within the meaning of Section 422 or any successor provision of the Code or
options which do not so qualify ("Nonqualified Options"). All options granted
to date have been at fair market value determined at the time by the Board of
Directors. Outstanding options have exercise prices between $0.02 and $0.50 per
share.
As of March 31, 1998, the status of the 1997 Stock Option Plan was:
Year Granted Forfeited Outstanding Exercised
---- ------- --------- ----------- ---------
1998 526,300 37,500 488,800 12,500
Had the compensation cost under the 1997 Stock Option Plan been recorded under
SFAS No. 123, the net operating loss would be increased by ($3.197) for the
year ended March 31, 1998.
9. FINANCINGS:
----------
In April of 1997, the Company entered into a stock subscription agreement with
an investor whereby 1,712,500 shares of common stock were purchased for $.02
per share. As part of this agreement, the Company agreed to provide the
founder-stockholders partial antidilution protection through the 1997 round of
financing. The founder stockholders were issued additional 383,800 shares
under this arrangement. As part of this arrangement, the Company recorded a
deferred compensation expense of $191,900 in the year ended March 31, 1998.
The Company also borrowed $337,500 under a convertible note with this investor,
bearing interest at 10%, repayable upon the earlier of the close of the private
placement or April 1998. The investor converted the note and accumulated
interest to 341,014 shares common stock of the Company at $1 per share.
In August of 1997, management completed a private placement to secure
additional equity. The Company issued 3,500,000 shares of Common Stock at a
purchase price of $1.00 per share less $521,437 in fees and expenses. As
additional compensation to the placement agents the Company issued warrants to
purchase 700,000 shares of Common Stock. These warrants have an exercise price
of $1.00 per share and are exercisable for seven years from date of issue or
three years after the date of an initial public offering, whichever is later.
F-11
The accompanying notes are an integral part of these financial statements.
<PAGE> 12
10. MANAGEMENT EMPLOYMENT AND STOCK AGREEMENTS:
------------------------------------------
In May of 1997, three management executives entered into agreements to purchase
common stock for $.02 per share. These agreements provided for partial
antidilution protection through the 1997 round of equity financing. The initial
number of shares purchased under this arrangement totaled 740,000. An
additional 298,960 shares were issued under the antidilution provision of these
agreements. As part of this arrangement, the Company recorded a deferred
compensation expense of $49,827 in the year ended March 31, 1998 with the
remaining amount of $99,653 to be recognized over the next three years. This
Common Stock is subject to the right of repurchase in decreasing amounts by the
Company, as defined, at the original cost if the individual is terminated or
resigns during the contract period.
The Company has entered employment agreements with seven management executives.
These renewable agreements provide for individual annual salary levels ranging
from $90,000 to $175,000 over one to three year terms and separation provisions
which provide a minimum of six months pay.
11. SUBSEQUENT EVENT:
-----------------
In May of 1998 the shareholders approved an amendment to the Certificate of
Incorporation which increased the number of authorized shares of Common Stock to
17,000,000. In addition, the Placement Agent approved an increase in the number
of shares authorized to be issued under the 1997 Stock Option Plan to 1,000,000
shares.
F-12
The accompanying notes are an integral part of these financial statements.
