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As filed with the Securities and Exchange Commission on May 16, 1995
------------------------------------
Registration No. 33-58877
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE REYNOLDS AND REYNOLDS COMPANY
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of incorporation or organization)
31-0421120
(I.R.S. Employer Identification No.)
115 South Ludlow Street
Dayton, Ohio 45402
(513) 443-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
ADAM M. LUTYNSKI, ESQ.
The Reynolds and Reynolds Company
115 South Ludlow Street
Dayton, Ohio 45402
(513) 443-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the Registration Statement
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of each Amount to be Proposed Proposed Amount of
class of registered maximum maximum registration
securities to offering price aggregate fee*
be registered per share* offering
price
- --------------------------------------------------------------------------------
Class A Common
Shares 261,322 shares $ 27.5625 $ 7,202,687.60 $ 2,483.49
$.625 par value
- -----------------------------------
* Calculated pursuant to Section 6 of the Securities Act of 1933, as amended,
and Rule 457(c) promulgated thereunder based upon the average of the high and
low prices of the Class A Common Shares $.625 par value, on the New York Stock
Exchange on May 9, 1995, as reported in The Wall Street Journal.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
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THE REYNOLDS AND REYNOLDS COMPANY
115 SOUTH LUDLOW STREET
DAYTON, OHIO 45402
(513)443-2000
261,322 Class A Common Shares
($.625 par value)
PROSPECTUS
This Prospectus covers the resale of 261,322 Class A Common Shares, $.625 par
value ("Shares"), of The Reynolds and Reynolds Company (the "Company"), from
time to time on the New York Stock Exchange or in the over-the-counter market
at prices current at the time of sale by Henry W. Donald; Leslie W. Donald;
Duty Trust, Lynn Duty Donald, Trustee; Lynn Duty Donald; and Thomas Donald (the
"Selling Shareholders"). See "Selling Shareholders." The Shares include
rights to purchase from the Company a unit consisting of one one-thousandth of
a share of the Company's Series A Participating Preferred Shares, without par
value, at a price of $80, subject to adjustments under certain circumstances
(individually, a "Right" and collectively, the "Rights"). Since May 17,
1991, the Company issues one Right with each Class A Common Share that becomes
outstanding. The Selling Shareholders hereunder have not entered into any
arrangement or agreements with any broker or dealer for the offering or sale of
the Shares. In any transaction, a Selling Shareholder may be deemed an
"underwriter" as defined in the Securities Act of 1933, as amended. The
Company will receive no part of the proceeds of any such resales.
The Shares are traded on the New York Stock Exchange ("NYSE"). On May 9,
1995, the reported high and low sale prices of the Class A Common Shares on
the NYSE were $27.75 and $27.375 per share.
No person has been authorized in connection with this offering to give any
information or to make any representations, other than as contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon. This Prospectus is not an offer or solicitation in any
jurisdiction to any person to whom such offer may not lawfully be made.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________
The date of this Prospectus is May , 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and at 7 World Trade Center, Suite 1300, New York, New York 10048; and
copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Company's Class A Common Shares are listed on the New York Stock
Exchange and reports, proxy and information statements and other information
concerning the Company can be inspected at such exchange at 20 Broad Street,
New York, New York 10005.
A Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, has been filed by the Company with the Commission with respect to the
Shares. This Prospectus does not contain all the information set forth in such
registration statement, amendments thereto and exhibits thereto which the
Company has filed with the Commission. For further information with respect to
the Company and the securities to which this Prospectus relates, reference is
made to such Registration Statement including the exhibits thereto.
The Company's principal executive offices are located at 115 South Ludlow
Street, Dayton, Ohio 45402, and its telephone number at that address is
513/443-2000.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, all of which have been filed with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "1934 Act"),
are incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K (including financial
statements together with the independent auditor's report thereon) for
the fiscal year ended September 30, 1994 (File Number 0-132).
(b)(1) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1994 (File Number 0-132).
(b)(2) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1995 (File Number 0-132), which was filed on
May 15, 1995.
(c)(1) The "Description of Registrant's Securities to be Registered" on pages
2 and 3 of the Company's Registration Statement on Form 8-A which
became effective on January 12, 1989 (File No. 1-10147).
(c)(2) The "Description of Registrant's Securities to be Registered" on pages
2 through 6 of the Company's Registration Statement on Form 8-A which
was filed on May 8, 1991 (File No. 1-10147).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act, subsequent to the date of this Prospectus and prior to
the termination of the offering of the Shares hereunder, shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of any such document. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified by or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
A copy of any document or part thereof incorporated by reference in the
registration statement of which this Prospectus constitutes a part (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that the registration statement incorporates)
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shall be provided without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon written or oral
request made to the Company at 115 South Ludlow Street, Dayton, Ohio 45402,
Attention: General Counsel and Secretary, (513) 443-2000.
SELLING SHAREHOLDERS
On May 10, 1995, SC Acquisition Corp., an Ohio corporation wholly-owned by
the Company ("SAC") merged into Salcris Corporation, an Alabama corporation
("Salcris"); in accordance with the terms of such merger, Salcris became a
wholly-owned subsidiary of the Company and the former shareholders of Salcris
received Class A Common Shares of the Company. In addition, one former
shareholder and a previous President and shareholder of Salcris who has served
as a consultant to Salcris received Class A Common Shares of the Company as
consideration for non-competition agreements. Resales of such Class A Common
Shares by such persons (the "Selling Shareholders") are, to the extent
disclosed in the table below, covered by this Prospectus.
The Selling Shareholders named herein have informed the Company that they
desire to be in a position to sell the Shares set forth opposite their names
from time to time on the NYSE or in the over-the-counter market at prices
current at the time of sale. The Selling Shareholders have not entered into
any arrangements or agreements with any broker or dealer for the offering or
sale of the Shares.
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER OF NUMBER OF
SHARES OWNED SHARES TO BE
AS OF MAY OFFERED FOR OWNER'S
10, 1995(1) ACCOUNT (1)
Henry W. Donald(2) 5229 Kirkwall Lane
Birmingham, Alabama 35242 125,403 125,403
Duty Trust,
Lynn D. Donald,
Trustee 2651 Rillwood Road
Birmingham, Alabama 35243 105,840 105,840
Lynn D. Donald(3)(4) 2651 Rillwood Road
Birmingham, Alabama 35243 11,760 11,760
Thomas Donald(3)(5) 2651 Rillwood Road
Birmingham, Alabama 35243 18,318 18,318
</TABLE>
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(1) Certain of these Shares are subject to escrow provisions and may not
be sold until released from such escrow arrangements in the future.
(2) Henry W. Donald served as Vice President of Research & Development and
Director of Salcris and as a Director of its wholly owned subsidiary,
MediSpense, Inc. ("MediSpense"), for more than the past three years.
Mr. Donald entered in on Employment Agreement with the Company,
effective at the time of the merger, for a period of eighteen months.
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(3) Thomas Donald and Lynn D. Donald are husband and wife.
(4) Lynn D. Donald served as Secretary of Salcris until April, 1993. Lynn
D. Donald was the holder of a Promissory Note dated June 23, 1993,
from MediSpense in the original principal amount of $148,071.01,
payable in monthly installments of $3,540 plus interest at 2% over
prime (assigned to her by the original payee, Thomas Donald, on
January 31, 1994). The Note represented amounts loaned by Thomas
Donald to MediSpense to cover operating expenses. Such Note was paid
in full at the time of the merger.
(5) Thomas Donald served as President and a Director of Salcris from May,
1979 to May, 1993. Thomas Donald was the holder of a Promissory Note
dated June 23, 1993, from Salcris in the original principal amount
of $93,276, payable in monthly installments of $2,000 plus interest
at 2% over prime. Such Note represented amounts payable for past
services as well as consideration for a settlement of certain claims
against Salcris. Such Note was paid in full at the time of the merger.
Thomas Donald served as a consultant to the Company pursuant to an
Agreement Concerning Consultation Services and Settlement of Disputes,
dated June 23, 1993, among Thomas Donald, Lynn D. Donald, Henry W.
Donald and the Company, for which he received variable compensation.
This agreement was terminated upon consummation of the merger.
RECENT DEVELOPMENTS
On May 10, 1995, SAC merged into Salcris. In accordance with the terms of
such merger, Salcris became a wholly-owned subsidiary of the Company and the
former shareholders of Salcris (the "Selling Shareholders") received Class A
Common Shares of the Company, subject to certain escrow arrangements described
below. The number of shares utilized to consummate the merger was determined
by dividing (a) $7,325,000, less (i) actual Salcris transaction expenses up to
$350,000, and (ii) $562,000 representing certain bonuses payable of Salcris,
by (b) the average per share closing price on the NYSE for the 20 days
immediately preceding the 5th trading day prior to May 22, 1995. If a closing
balance sheet prepared within 30 days after closing reveals a net worth of
Salcris less than $1,295,000, the deficiency will be paid to Reynolds by the
Selling Shareholders and recipients of the $562,000 in bonuses referred to
above. Salcris is a provider of information management systems and services
to physician group practices and other medical services providers. A total of
22,744 Shares was deposited into escrow as security for the obligations of the
Shareholders of Salcris to indemnify the Company from any breach of
representations and warranties.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Annual Report
on Form 10-K have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
With respect to the unaudited interim financial information for the periods
ended December 31, 1994 and March 31, 1995, which is incorporated herein by
reference, Deloitte & Touche LLP has applied limited procedures in accordance
with professional standards for a review of such information. However, as
stated in their reports included in the Company's Quarterly Report on Form 10-Q
for the quarters ended December 31, 1994 and March 31, 1995, and incorporated
by reference herein, they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted in light of the limited
nature of the review procedures applied. Deloitte & Touche LLP is not subject
to the liability provisions of Section 11 of the Securities Act of 1933 for
their reports on the unaudited interim financial information because those
reports are not "reports" or a "part" of the Registration Statement prepared or
certified by an accountant within the meaning of Sections 7 and 11 of the Act.
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INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
An estimate of such expenses, none of which shall be borne by the Selling
Shareholders, is as follows:
Registration fee - Securities and Exchange Commission $ 2,546
Accountants' fees and expenses $ 3,000
Legal fees and expenses $ 6,000
Financial printer fees $ 500
Total $ 12,046
The Selling Shareholders shall bear brokerage fees incurred in connection with
the resale of the registered securities, as well as any federal or state income
taxes on the proceeds of any such resale.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 1701.13(E) of the Ohio Revised Code, the Company is
permitted to indemnify any director, officer, employee or agent of the Company
against costs and expenses incurred in connection with any action, suit or
proceeding brought against any such person by reason of his having served the
Company in such capacity, provided that he meets certain "good faith" tests
provided by law, and provided further that, with respect to suits brought on
behalf of the Company, he is not adjudged to be liable for negligence or
misconduct unless the relevant court finds indemnification to be nevertheless
appropriate in view of all the circumstances. The statute also provides that
in the event an officer or director has been successful on the merits in
defense of any such action, suit or proceeding, such officer or director shall
be indemnified by the Company against actual and reasonable expenses in
connection therewith.
Article Ninth of the Company's Amended Articles of Incorporation provides that,
as more specifically set forth in the Company's Consolidated Code of
Regulations, the Company may provide to any director, officer, other employee
or agent of the Company or any person who serves at the request of the Company
as a director, trustee, other employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, the maximum
indemnification permitted under Section 1701.13(E) of the Ohio Revised Code,
including amendments thereto, or any comparable provisions of any future Ohio
statute.
Paragraph B of Section 1 of Article IX of the Company's Consolidated Code of
Regulations provides for indemnification of directors, officers and employees
of the Company, and persons who, at the request of the Company, act as a
director, trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
actually and reasonably incurred in connection with any action as to which he
was or is or may be made a party by reason of his acting in such capacity,
involving a matter as to which it shall be determined, as provided therein,
that he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal matter or proceeding, in addition, that he had no reasonable cause to
believe that his conduct was unlawful; provided, however, that in the case of
an action by or in the right of the Company to procure a judgment in its favor,
no such indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged liable for negligence or
misconduct in the performance of his duty to the Company unless, and only to
the extent that, the Court of Common Pleas or other court where such action was
brought shall determine such indemnification to be proper.
ITEM 16. EXHIBITS
See Exhibit Index on page 9.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which,
individually or in the aggregate, represent a
fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the
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registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are
incorporated by reference in this registration
statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Pre-Effective
Amendment No. 1 to Registration Statement No. 33-58877 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dayton,
State of Ohio, on May 15, 1995.
THE REYNOLDS AND REYNOLDS COMPANY
By /s/ David R. Holmes
_____________________________________
David R. Holmes, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to Registration Statement No. 33-58877 has been signed by
the following persons in the capacities and on the dates indicated.
/s/ David R. Holmes
- -------------------------------------- May 15, 1995
David R. Holmes, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ Dale L. Medford
- -------------------------------------- May 15, 1995
Dale L. Medford, Vice President,
Corporate Finance and Chief Financial
Officer (Principal Financial and
Accounting Officer) and Director
* * * * * *
Joseph N. Bausman, President, Automotive Systems Division and Director
Dr. David E. Fry, Director
Richard H. Grant, Jr., Chairman of the Steering Committee and Director
Richard H. Grant, III, Director
Robert C. Nevin, President, Business Forms Division and Director
Gayle B. Price, Jr., Director
William H. Seall, Director
Kenneth W. Thiele, Director
Martin D. Walker, Director
The undersigned, by signing his name hereto, executes this Pre-Effective
Ammendment No. 1 to Registration Statement No. 33-58877 pursuant to Powers of
Attorney executed by the above-named directors and filed with the Securities
and Exchange Commission.
/s/ Adam M. Lutynski May 15, 1995
- ------------------------------
Adam M. Lutynski,
Their Attorney-in-Fact
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<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
<S> <C>
(1) Inapplicable
(2) Acquisition Agreement and Plan of Merger dated May 10, 1995, among The Reynolds and Reynolds Company;
Salcris Corporation; Salcris Acquisition Corp.; Henry W. Donald; Leslie W. Donald; Duty Trust, Lynn Duty
Thomas C. Donald; Mark A. Griffin; and John H. Eads.
(4)(a) Specimen Certificate for Class A Common Shares ($.625 par value) of the Company incorporated
by reference to Exhibit (4)(c) to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on March 4, 1992 (Registration No. 33-46222).
(4)(b) Amended and Restated Articles of Incorporation of the Company, incorporated by reference to
Exhibit A to the Company's definitive proxy statement dated January 5, 1995, and filed with
the Securities and Exchange Commission.
(4)(c) Consolidated Code of Regulations of the Company, incorporated by reference to Exhibit B to
the Company's definitive proxy statement dated January 8, 1990, and filed with the
Securities and Exchange Commission.
(4)(d) Shareholder Rights Plan incorporated by reference to Exhibit 1 to the Company's Form 8-A
(File No. 1-10147), which was adopted on May 6, 1991, and filed with the Securities and
Exchange Commission on May 8, 1991.
(5) Opinion of Coolidge, Wall, Womsley & Lombard Co., L.P.A., regarding legality of securities
(8) Inapplicable
(12) Inapplicable
(15) Letter on interim financial information 10
(23)(a) Consent of Coolidge, Wall, Womsley & Lombard (incorporated by reference to Exhibit 5
hereto).
(23)(b) Consent of Deloitte & Touche LLP, independent auditors 11
(24) Inapplicable
(25) Inapplicable
(26) Inapplicable
(27) Inapplicable
(28) Inapplicable
(99) Inapplicable
_________________________________________
* - To be filed by amendment
</TABLE>
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Exhibit 2
ACQUISITION AGREEMENT
among
THE REYNOLDS AND REYNOLDS COMPANY
and
SALCRIS CORPORATION,
SC ACQUISITION CORP.,
HENRY W. DONALD,
LYNN D. DONALD, Individually and as
Trustee of the Duty Trust,
THOMAS C. DONALD,
MARK A. GRIFFIN
and
JOHN H. EADS
dated as of May 10, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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1. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Manner and Basis for Converting Shares . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Delivery of Reynolds Shares, Escrow Shares and Management Bonuses. . . . . . . . . 6
1.7 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.8 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.9 Issuance and Registration of Reynolds Shares . . . . . . . . . . . . . . . . . . . 8
2. REPRESENTATIONS AND WARRANTIES OF SALCRIS . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Corporate Action; Corporate Power and Authority . . . . . . . . . . . . . . . . . 8
2.2 No Conflict With Other Agreements or Laws . . . . . . . . . . . . . . . . . . . . 9
2.3 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 The Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Section 368(a) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 Accounts and Notes Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.8 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.9 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.10 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.11 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.12 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.13 Litigation; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.14 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.15 Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.17 Title to Properties; Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . 16
2.18 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.19 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.20 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.21 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.22 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.23 Corporate Documents, Books and Records . . . . . . . . . . . . . . . . . . . . . . 21
2.24 Officers and Directors and Certain Authorized Persons . . . . . . . . . . . . . . 22
2.25 Environmental Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.26 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.27 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.28 Additional Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE BENEFICIAL PARTIES . . . . . . 28
3.1 Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2 Voting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3 Salcris' Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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3.5 Beneficial Parties Representations . . . . . . . . . . . . . . . . . . . . . . . . 30
4. REPRESENTATIONS AND WARRANTIES OF REYNOLDS AND NEWCO . . . . . . . . . . . . . . . . . . . 30
4.1 Corporate Action; Corporate Power and Authority . . . . . . . . . . . . . . . . . 30
4.2 No Conflict With Other Agreements or Laws . . . . . . . . . . . . . . . . . . . . 30
4.3 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4 Section 368(a) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.1 Conduct of Business Prior to the Effective Time . . . . . . . . . . . . . . . . . 31
5.2 Notification of Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . 31
5.3 Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4 Consents, Waivers and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5 Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.6 Additional Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.7 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10 Reynolds' Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.11 Shareholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.12 Satisfaction of Salcris Obligations and Termination Payments . . . . . . . . . . . 34
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF REYNOLDS AND NEWCO . . . . . . . . . . . . . . . . 34
6.1 Salcris Representations True at Closing . . . . . . . . . . . . . . . . . . . . . 34
6.2 Shareholder and Beneficial Parties Representations True at Closing . . . . . . . . 34
6.3 Covenants of Salcris . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.4 Covenants of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
6.5 No Injunction, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.6 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.7 Incumbency; Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Consents, Waivers and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9 Absence of Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . 35
6.10 Certified Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.11 Basic Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.12 Certificate and Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . 35
6.13 Payment of Affiliate Receivables/Payables. . . . . . . . . . . . . . . . . . . . . 36
6.14 Termination of Restrictions on Salcris Shares . . . . . . . . . . . . . . . . . . 36
6.15 Escrow Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.16 Reynolds' Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.17 Salcris Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.18 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.19 Agreements Not to Compete. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.20 Termination and Release of Agreements . . . . . . . . . . . . . . . . . . . . . . 36
6.21 Outstanding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.22 Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.23 Transaction Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.24 TeleClaims Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
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6.25 Assignment of Third Party Software . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Representations True at Closing . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2 Covenants of the Reynolds Companies . . . . . . . . . . . . . . . . . . . . . . . 37
7.3 Certified Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.5 No Injunction, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6 Consents, Waivers and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7 Incumbency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.8 Escrow Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.9 Certificate and Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . 38
7.10 Absence of Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 Tax Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.2 Transactions at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.3 Default at Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10. EMPLOYEES OF SALCRIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.1 Identification of Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.2 Evaluation of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10.3 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 41
13. CONFIDENTIALITY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15. TRANSACTION EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
15.2 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
15.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.1 Indemnification of the Reynolds Companies and the Surviving Corporation by the
Shareholders and the Beneficial Parties. . . . . . . . . . . . . . . . . . . . . . 43
16.2 Indemnification of Salcris by the Reynolds Companies and the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
16.3 Procedures for Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 44
16.4 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . 45
16.5 Settlement of Third Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . 46
16.6 Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
17. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.1 Accounting Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.2 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
17.3 Assignment; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
17.4 Headings; Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . 50
17.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
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17.6 Integration of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.7 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.9 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.10 Partial Illegality or Unenforceability . . . . . . . . . . . . . . . . . . . . . . 51
17.11 Right to Proceed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
17.12 Effect of Investigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.13 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
17.14 "Knowledge". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.1 Indemnification by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.2 Indemnification By Reynolds . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
18.3 Calculation of Indemnity Payment . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.4 Tax Contests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.5 Time of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
18.6 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT is made this 10th day of May, 1995 by and among
THE REYNOLDS AND REYNOLDS COMPANY ("REYNOLDS"), SC ACQUISITION CORP. ("NEWCO"),
SALCRIS CORPORATION ("SALCRIS"), HENRY W. DONALD, LYNN D. DONALD, both
individually and as trustee of the Duty Trust (collectively, the
"SHAREHOLDERS"), MARK A. GRIFFIN, JOHN H. EADS (collectively, the "MANAGEMENT"),
and THOMAS C. DONALD. The Management and Thomas C. Donald shall be collectively
referred to as the "BENEFICIAL PARTIES". The Shareholders and Thomas C. Donald
shall be collectively referred to as the "DONALD SHAREHOLDERS".
RECITALS
Salcris is a duly organized and incorporated Alabama corporation, and its
authorized capital stock consists of 1000 shares of common stock, no par value
(the "SALCRIS SHARES"), 967 of which are issued and outstanding on the date of
this Acquisition Agreement (the "AGREEMENT").
Newco is a duly organized and incorporated Ohio corporation, and its
authorized capital stock consists of 850 shares of common stock, no par value
(the "NEWCO SHARES"), 100 of which are issued and outstanding as of the date of
this Agreement and all of which are owned by Reynolds.
The respective boards of directors of Salcris and Newco (i) have approved
the merger of Newco with and into Salcris upon the terms and conditions of this
Agreement (the "MERGER"), the Escrow Agreement attached as Schedule 1 (the
"ESCROW AGREEMENT") and the Escrow Agreement attached as Schedule 2 (the "DONALD
ESCROW AGREEMENT"), and (ii) deem the Merger to be in the best interests of
their respective shareholders.
This Agreement has been approved by Reynolds as the sole shareholder of
Newco and will be considered by the shareholders of Salcris at a meeting to be
held on or about May 10, 1995.
The parties intend that this Agreement constitute a plan of reorganization
and that the transactions contemplated herein qualify for federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE").
A portion of the Reynolds Shares (as defined below) will be placed in an
escrow by Reynolds to be maintained by The Land Title Company of Alabama in
Birmingham, Alabama (the "ESCROW AGENT") and will be subject to possible return
to Reynolds under conditions specified in the Escrow Agreement and in this
Agreement as a mechanism to secure the performance by Salcris and the
Shareholders of their obligations to Reynolds under this Agreement. A portion of
the Reynolds Shares (excluding any of the Reynolds Shares transferred in
consideration of the Non-compete Agreements (as
<PAGE> 7
hereinafter defined) (the "NON-COMPETE SHARES") will be placed in an escrow for
two years by Reynolds to be maintained by The Land Title Company of Alabama in
Birmingham, Alabama (the "DONALD ESCROW AGENT") and will be released to the
Donald Shareholders in accordance with the terms of the Donald Escrow Agreement.
The Donald Shareholders and Management shall bear fifty percent (50%) of the
expense of any costs associated with the Escrow Agreement and the Donald Escrow
Agreement, and Reynolds shall bear fifty percent (50%) of the costs associated
with the Escrow Agreement and the Donald Escrow Agreement.
The parties intend that notwithstanding such escrow arrangements, after
the Closing (as defined below), the Donald Shareholders shall be considered the
beneficial owners of the escrowed Reynolds Shares for federal income tax
purposes so that the Reynolds Shares will be treated as received by the Donald
Shareholders at that time for federal income tax purposes. The Escrow Agreement
and the Donald Escrow Agreement will provide for the immediate distribution to
the Donald Shareholders of any dividends or other distributions paid by Reynolds
on the Reynolds Shares held in escrow (except as a result of any stock split,
reverse stock split, stock dividend, reclassification, recapitalization or other
similar change in Reynolds Shares) and the distribution to Management of any
interest paid on the cash held in escrow. The Donald Shareholders will be
entitled to exercise all voting rights associated with such shares as if they
held the Reynolds Shares free of any obligations under the Escrow Agreement.
The parties intend that by virtue of utilizing such escrow arrangements,
no interest income will be imputed under Section 483 (or any other provision) of
the Code to the Donald Shareholders upon receipt of the Reynolds Shares out of
escrow.
1. THE MERGER.
1.1 Surviving Corporation. At the Effective Time (as defined below),
Newco shall be merged with and into Salcris (sometimes referred to in this
Agreement as the "SURVIVING CORPORATION"), which shall continue to be governed
by the laws of the state of Alabama under the name "Salcris Corporation", and
the separate corporate existence of Newco shall thereupon cease. The Merger
shall be completed pursuant to and shall have the effect provided in the Ohio
General Corporation Law and the Alabama Business Corporation Act, Section
10-2B-11.01 et seq. (the "BCA").
1.2 Articles of Incorporation and Bylaws.
(a) At the Effective Time, the Articles of Incorporation of the
Surviving Corporation shall be amended and restated in their entirety to read as
set forth in the attached Exhibit 1.2(a).
2
<PAGE> 8
(b) At the Effective Time, the Bylaws of the Surviving Corporation
shall be amended and restated in their entirety to read as set forth in the
attached Exhibit 1.2(b).
1.3 Directors and Officers. The directors and officers of Newco holding
office immediately prior to the Effective Time shall become the directors and
officers of the Surviving Corporation until their successors are duly elected in
accordance with the BCA.
1.4 Manner and Basis for Converting Shares.
(a) At the Effective Time, the issued shares of capital stock of
Newco and Salcris shall, automatically and without any action on the part of the
respective holders thereof, convert into shares of stock of the Surviving
Corporation as follows:
(i) Each outstanding Salcris Share (excluding any shares held
in Salcris' treasury) shall be converted into and become the right to receive
the number of shares of Reynolds' class A common shares, $0.625 par value (the
"REYNOLDS SHARES") determined by dividing (A) the quotient obtained by dividing
(x) $7,325,000 (the "BASE VALUE"), less the Adjustment Amount (as defined in
this Section) (such quotient being referred to as the "ADJUSTED BASE VALUE"), by
(y) the Base Price (as defined in this Section), rounded up to the next whole
number by (B) 967. "BASE PRICE" means the average closing price for a Reynolds
Share on the New York Stock Exchange for the twenty (20) trading days
immediately preceding the fifth (5th) trading day prior to the Closing, minus
$0.035 per share, subject to adjustment as provided in Section 1.5.
(ii) The Base Value shall be reduced by an amount (the
"ADJUSTMENT AMOUNT") equal to (a) $275,000 plus $287,000, which amounts
represent, respectively, the aggregate amount payable to Mark Griffin and John
Eads in accordance with the terms of their respective employment agreements with
Salcris as a result of the Merger (the "MANAGEMENT BONUSES") plus (b) the actual
amount of Transaction Expenses (as defined below) in an amount not to exceed
$350,000, plus (c) $205,000, which amount represents the aggregate adjustments
set forth in Exhibit 1.5(a).
Such Salcris Shares as so converted will be referred to in this Agreement as
the "MERGED SHARES";
(iii) Each outstanding Newco Share shall be converted into one
common share of the Surviving Corporation, and the shares resulting from such
conversion shall be the only issued and outstanding shares of the Surviving
Corporation, all of which will be held by Reynolds; and
(iv) Each Salcris Share held in the treasury of Salcris and
each option to acquire from Salcris any Salcris Shares shall be canceled, and no
payment in respect thereof shall be made.
3
<PAGE> 9
(b) At the Closing, holders of the Merged Shares shall be entitled
to receive Reynolds Shares in an amount determined in accordance with Section
1.4(a) promptly upon surrender to Reynolds of certificates representing the
Merged Shares, accompanied by a letter of transmittal in the form attached
hereto as Exhibit 1.4(b) (the "TRANSMITTAL LETTER"). The Transmittal Letter will
be prepared and ready for signature at the Closing. Until so surrendered, each
outstanding certificate representing Merged Shares shall, after the Closing, be
deemed for all purposes to represent only the right to receive payment therefor
as previously provided; provided that customary procedures allowing for the
surrender and exchange of Merged Shares represented by lost or destroyed
certificates shall be provided.
(c) Notwithstanding the foregoing, neither the Escrow Agent, the
Donald Escrow Agent, nor any party hereto shall be liable to any holder of
Salcris Shares for any amount paid to any public official pursuant to any
applicable abandoned property, escheat or similar law.
(d) After the Effective Time, no transfer of any Salcris Shares
outstanding prior to the Effective Time shall be made on the stock transfer
records of the Surviving Corporation.
1.5 Adjustments. The consideration payable pursuant to Section 1.4(a)(i)
shall be adjusted as follows:
(a) Salcris shall deliver to Reynolds, not later than thirty (30)
days after the Closing Date, a balance sheet (the "CLOSING BALANCE SHEET") for
Salcris as of April 30, 1995. The Closing Balance Sheet shall be prepared in
accordance with generally accepted accounting principles ("GAAP") and in a
manner consistent with the manner that Salcris has historically prepared its
balance sheets, taking into account the adjustments to the March 31, 1995
balance sheet that have previously been agreed to between Salcris and Reynolds
as set forth in Exhibit 1.5(a). Nothwithstanding the above, the Closing Balance
shall reflect all activities of the Business during the month of April, 1995 and
will reflect all liabilities required to be recorded in accordance with GAAP.
The Closing Balance Sheet shall be accompanied by a determination of the amount
of the adjustment, if any, to the Reynolds Shares required by Section 1.5(c).
(b) Reynolds shall have thirty (30) days from receipt of the Closing
Balance Sheet to object to the Closing Balance Sheet or determinations by
written notice to the Shareholders. If the Shareholders do not receive notice of
an objection within such time, the Closing Balance Sheet and determinations
prepared by Salcris shall be final and binding on the parties. If the Reynolds
timely notifies the Shareholders of an objection, Reynolds and the Shareholders
shall have ten (10) days from the date of Reynolds' notice to resolve the
objection. If Reynolds and the Shareholders do not resolve the objection within
such time, the certified public
4
<PAGE> 10
accounting firm of Arthur Andersen & Co. (the "INDEPENDENT AUDITORS"), shall
resolve the objection within thirty (30) days after expiration of such 10-day
period and such resolution shall be final and binding on the parties. In the
event the Independent Auditors resolve substantially all objections in the
manner proposed by one of the parties, the fees and expenses of the Independent
Auditors shall be paid solely by the other party. In all other events, the
Shareholders and Reynolds shall each bear fifty percent (50%) of such fees and
expenses.
(c) The Base Value and the Management Bonuses shall be reduced pro
rata by the amount the net worth of Salcris on the Closing Balance Sheet is less
than $1,295,000 (computed in accordance with GAAP, except as noted on Exhibit
1.5(a), exclusive of the after tax effects of the Adjustment Amount. "NET WORTH"
shall mean total assets less total liabilities. The Adjusted Base Value shall be
recalculated using the Base Value and Management Bonuses as adjusted, and shall
be used to recalculate the number of Reynolds Shares issuable pursuant to
Section 1.4(a)(i). There shall be no adjustment to the Base Value and the
Management Bonuses if the Net Worth is greater than $1,295,000.
(d) Upon final determination of the amount of the adjustment pursuant
to Section 1.5(c) (whether by unanimous agreement of the Shareholders and
Reynolds, the Shareholders' failure to object to Reynolds' determination or
decision of the Independent Auditors), Reynolds shall notify Escrow Agent (with
a copy to the Shareholders, Mark Griffin and John Eads) of the amount of the
adjustment (the "ADJUSTMENT CLAIM"), even if $0. Escrow Agent shall distribute
the amount of Reynolds Shares and Management Bonuses required as a result of the
Adjustment Claim to Reynolds pursuant to the Escrow Agreement. If the amount of
the Escrow Shares (as defined in the Escrow Agreement) and the Management
Bonuses held in escrow is insufficient to satisfy the Adjustment Claim, the
holders of the Merged Shares shall remain jointly and severally liable for the
balance and shall pay the balance to Reynolds on demand, subject to the
limitations on liabilities set forth in Section 16.6.
(e) If the registration statement filed in accordance with Section
1.9(c) has not been declared effective by the Securities and Exchange Commission
(the "SEC") as of the Closing, immediately after the registration statement has
been declared effective, Reynolds shall use the Adjusted Base Value (as defined
in this Section) to recalculate the number of Reynolds Shares determined in
accordance with Section 1.4(a)(i) and the number of Reynolds Shares delivered
under Section 1.6(d) (such recalculated number of Reynolds Shares shall be
referred to collectively as the "ADJUSTED REYNOLDS SHARES"). "ADJUSTED BASE
PRICE" means the average closing price for a Reynolds Share on the New York
Stock Exchange for the twenty (20) trading days immediately preceding the fifth
(5th) trading day prior to May 22, 1995, minus $0.035 per share. In the event
that the total number of Reynolds Shares
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delivered at Closing under Section 1.6 is greater than the number of Adjusted
Reynolds Shares, the excess Reynolds Shares shall be returned to Reynolds by the
Donald Shareholders, the Escrow Agent and the Donald Escrow Agent in proportion
to the number of Reynolds Shares that were delivered to each under Section 1.6
at Closing. In the event that the number of Adjusted Reynolds Shares is greater
than the total number of Reynolds Shares delivered at Closing under Section 1.6,
the excess Reynolds Shares shall be delivered by Reynolds to the Donald
Shareholders, the Escrow Agent and the Donald Escrow Agent in proportion to the
number of Reynolds Shares that were delivered to each under Section 1.6 at
Closing. If the registration statement has not been declared effective as of
June 1, 1995, interest will begin accruing from the Closing Date at the monthly
rate of one percent (1%) of the number of Adjusted Reynolds Shares (but only if
the number of Adjusted Reynolds Shares is greater than the total number of
Reynolds Shares delivered at Closing under Section 1.6) until the date of
effectiveness of the registration statement, at which time the accrued interest
shall be payable by Reynolds in Reynolds Shares, together with the number of
excess Reynolds Shares calculated above, to the Donald Shareholders, the Escrow
Agent and the Donald Escrow Agent in proportion to the number of Reynolds Shares
that were delivered to each under Section 1.6 at Closing. To the extent that the
effective date of the registration statement has been delayed by any action or
failure to act on the part of any Donald Shareholder, the June 1, 1995 date
referred to above shall be delayed on a day-for-day basis.
1.6 Delivery of Reynolds Shares, Escrow Shares and Management Bonuses.
(a) At the Closing, upon the receipt of all of the duly executed
Transmittal Letters from the holders of the Merged Shares, Reynolds and Newco
shall deliver to the holders of the Merged Shares one share less than 50% of the
Reynolds Shares determined in accordance with Section 1.4(a)(i), rounded down to
the next whole number of shares.
(b) At the Closing, Reynolds and Newco shall deliver to the Escrow
Agent 10% of the total number of Reynolds Shares determined in accordance with
Section 1.4(a)(i), rounded down to the next whole number of shares, which shall
be held and distributed in accordance with the Escrow Agreement.
(c) At the Closing, Reynolds and Newco shall deliver to the holders
of the Merged Shares one share more than 40% of the total number of Reynolds
Shares determined in accordance with Section 1.4(a)(i), rounded down to the next
whole number of shares, which shares shall be delivered immediately by the
holders of the Merged Shares to the Donald Escrow Agent to be held and
distributed in accordance with the Donald Escrow Agreement.
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(d) At the Closing, in consideration for their execution of the
Non-compete Agreements (as defined below), Reynolds and Newco shall deliver to
Thomas D. Donald the total number of Reynolds Shares determined by dividing (i)
$500,000 by (ii) the Base Price, rounded up to the next whole number of shares;
and shall deliver to Henry W. Donald the total number of Reynolds Shares
determined by dividing (A) $425,000 by (B) the Base Price, rounded up to the
next whole number of shares.
(e) At the Closing, Reynolds and Newco shall cause the Surviving
Corporation to pay to the Escrow Agent 10% of the Management Bonuses in
immediately available funds, which shall be held and distributed in accordance
with the Escrow Agreement. No taxes will be withheld by Newco, however the
Escrow Agent will withhold taxes from any payment of the escrowed amount to Mark
A. Griffin and John H. Eads.
(f) At the Closing, Reynolds and Newco shall cause the Surviving
Corporation to pay to Mark A. Griffin and John H. Eads 90% of the Management
Bonuses, less required withholding taxes, in immediately available funds.
(g) No fractional Reynolds Shares shall be issued in connection with
the Merger. Any Reynolds Shares determined in accordance with Section 1.4(a)(i)
remaining after calculating the number of shares to be delivered in connection
with Sections 1.6 (a), (b) and (c), rounded up to the next whole number of
shares, shall be delivered by Reynolds and Newco to the Donald Escrow Agent to
be held and distributed in accordance with the Donald Escrow Agreement.
1.7 Effective Time. Immediately after the Closing, Salcris and Newco will
file with the Ohio Secretary of State a certificate of merger in accordance with
Section 1701.81 of the Ohio Revised Code and articles of merger with the Alabama
Secretary of State in accordance with Section 10-2B-11.05 of the BCA in the
forms attached as Exhibit 1.7. The Merger shall be effective at the time of
issuance of the certificate of merger by the Secretary of State of Alabama (the
"EFFECTIVE TIME").
1.8 Effect of the Merger. After the Effective Time and pursuant to the
BCA, the Surviving Corporation shall possess all rights, privileges, immunities,
powers and purposes of each of Newco and Salcris; all of the property, real and
personal, including causes of action and every other asset of Newco and Salcris
shall vest in the Surviving Corporation without further act or deed; and the
Surviving Corporation shall assume and be liable for all the liabilities,
obligations and penalties of Newco and Salcris. No liability or obligation due
or to become due and no claim or demand for any cause existing against either
Newco or Salcris, or any shareholder, officer or director thereof, shall be
released or impaired by the Merger and no proceeding, whether civil or criminal,
then pending by or against Newco or Salcris, or any
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shareholder, officer or director thereof, shall abate or be discontinued by the
Merger, but may be enforced, prosecuted, settled or compromised as if the Merger
had not occurred, or the Surviving Corporation may be substituted in any such
action or proceeding in place of Newco or Salcris.
1.9 Issuance and Registration of Reynolds Shares.
(a) The Reynolds Shares may be newly issued or treasury shares, at
Reynolds' election, provided that Reynolds will comply with the following
provisions of this Section 1.9. In any event, all of the Reynolds Shares so
issued will be duly and validly authorized and issued, fully paid and
nonassessable and covered by an effective listing application with the New York
Stock Exchange.
(b) Salcris acknowledges that the parties intend that the issuance
of the Reynolds Shares pursuant to Section 1.6 shall qualify as an exempt
transaction under (i) Section 4(2) of the Securities Act of 1933, as amended,
and (ii) applicable state securities laws (collectively, the "EXEMPTIONS"). All
certificates for the Reynolds Shares shall bear the legends restricting the
sale, transfer or disposition of the Reynolds Shares necessary to assure
compliance with the Exemptions. Such restrictions shall be removed as soon as
the listing application and registration statement contemplated by this Section
1.9 become effective.
(c) Reynolds shall, at its expense, prepare and file with the SEC a
registration statement and any amendments (including post-effective amendments
thereto or supplements to any prospectus contained herein), relating to the
resale of the Reynolds Shares and will use its best efforts to cause such
registration statement and prospectus to become and remain effective for a
period of not less than three (3) years from the Closing Date.
(d) Salcris and the Donald Shareholders will cooperate with Reynolds
and provide such information in connection with any registration statement,
report of sale or other document reasonably required by Reynolds in the
performance of its obligations under this Section 1.9.
2. REPRESENTATIONS AND WARRANTIES OF SALCRIS. Salcris represents and warrants
to Reynolds and Newco as follows:
2.1 Corporate Action; Corporate Power and Authority. This Agreement has
been duly approved by the board of directors of Salcris. Salcris has taken all
other action required by its Articles of Incorporation and Bylaws or otherwise
to authorize the execution and consummation of this Agreement, except for
obtaining the approval of the shareholders of Salcris. Subject to obtaining such
shareholder approval, this Agreement and each other agreement contemplated
hereby which is executed by Salcris will constitute the valid and legally
binding obligations of Salcris, enforceable in accordance with their terms,
except that enforceability may be
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limited by applicable equitable principles or bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors rights generally. Salcris has the
power and authority to execute and consummate this Agreement and each other
agreement contemplated hereby.
2.2 No Conflict With Other Agreements or Laws. The execution and
consummation by Salcris of this Agreement and each other agreement contemplated
hereby will not (a) violate the terms of Salcris's Articles of Incorporation or
Bylaws or any instrument, agreement, judgment or decree to which Salcris is a
party, or by which Salcris or any of its properties is bound, (b) except as set
forth in Exhibit 2.2, be in conflict with, result in a breach of or constitute
(with giving of notice or lapse of time or both) a default under any such
instrument, agreement, judgment or decree, (c) result in the creation or
imposition of any lien upon Salcris or its properties or assets, or (d) violate
any applicable federal, state, local or foreign law, regulation or order if the
result of such violation, conflict, breach, default or lien would have a
material adverse affect on Salcris or the Business.
2.3 Organization and Qualification.
(a) Salcris is the owner of 100% of the issued and outstanding
capital stock of MediSpense Incorporated ("MEDISPENSE").
(b) Salcris and MediSpense shall be collectively referred to as the
"SALCRIS COMPANIES" and individually as a "SALCRIS COMPANY". Each of the Salcris
Companies is a corporation duly organized, validly existing and in good standing
under the laws of Alabama and has full power and authority to carry on its
business as it is now being conducted and to own or lease the properties and
assets which it now owns or leases. Each of the Salcris Companies is duly
qualified to transact business and is in good standing as a foreign corporation
in each jurisdiction in which the ownership of its property or the conduct of
its business requires it to be so qualified as a foreign corporation, except for
jurisdictions in which such failure to be so qualified or in good standing would
not in the aggregate have a material adverse effect on such Salcris Company.
Those jurisdictions in which the Salcris Companies are qualified to transact
business as a foreign corporation are identified in Exhibit 2.3.
2.4 The Business.
(a) As a result of the Merger provided for herein, (i) the Surviving
Corporation will acquire direct or indirect beneficial ownership of all of
Salcris' right, title and interest in and to the assets owned or used by Salcris
in its operations involving the direct and indirect provision, to physician
group practices and other medical services providers, of information management
systems and services, including without limitation,
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equipment, software, databases, communications, equipment maintenance, software
support, data interchange and other related items and services (the "SALCRIS
BUSINESS") and (ii) the Surviving Corporation will acquire direct or indirect
beneficial ownership of all of MediSpense's right, title and interest in and to
the assets owned or used by MediSpense in its operations involving the sale of
business forms and supplies and the printing of statements and invoices for
customers (the "MEDISPENSE BUSINESS"). The Salcris Business and the MediSpense
shall be collectively referred to as the "BUSINESS".
(b) No assets of the Salcris Companies (or interests therein) have
been sold, leased or licensed since September 30, 1994, other than in the
ordinary course of business, and (ii) no assets of the Salcris Companies (or
interests therein) will be sold, leased or licensed prior to the Effective Time,
other than in the ordinary course of business.
(c) Except for (i) marketable securities (ii) instruments issued by
financial institutions and (iii) the capital stock of MediSpense, Salcris does
not own any securities of or investment or interest in any other entity or
person. Except for (i) marketable securities and (ii) instruments issued by
financial institutions, MediSpense does not own any securities of or investment
or interest in any other entity or person.
2.5 Financial Statements.
(a) Attached as Exhibit 2.5(a) hereto are copies of (i) the Salcris
Companies' consolidated and consolidating unaudited balance sheet as of March
31, 1995 (the "3/31/95 BALANCE SHEET") and an unaudited profit and loss
statement for the Salcris Companies for the period from September 30, 1994 to
the close of business on March 31, 1995 (the 3/31/95 Balance Sheet and the
profit and loss statement and the notes to each of them confirming the changes
(or absences thereof) in accounting method or estimate, shall be referred to
herein as the "3/31/95 FINANCIAL STATEMENTS"), and (ii) the Salcris Companies'
consolidated audited financial statements for the fiscal year ended September
30, 1994 (the "AUDITED FINANCIAL STATEMENTS"). The 3/31/95 Financial Statements
and the Audited Financial Statements shall be collectively referred to as the
"FINANCIAL STATEMENTS"). The Financial Statements (i) are true and correct in
all material respects, (ii) have been prepared in accordance with GAAP, except
as set forth in Exhibit 1.5(a), (iii) fairly present the financial condition of
the Salcris Companies on a consolidating basis as of the respective dates
thereof and the results of operation of the Salcris Companies for such periods,
and (iv) disclose all material liabilities of the Salcris Companies of the
nature required by GAAP to be set forth on a balance sheet or in the footnotes
thereto, whether absolute, contingent, accrued, or otherwise, except that the
unaudited financial statements do not contain the specific provisions for annual
year end adjustments identified in Exhibit 2.5(a). Except
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as disclosed in Exhibit 2.5(a), the Financial Statements do not contain any
items of nonrecurring income or loss or other income or loss not earned or
incurred in the ordinary course of business.
(b) Except as disclosed in Exhibit 2.5(b) hereto and except for (i)
the liabilities of Salcris disclosed or reserved against in the 3/31/95 Balance
Sheet, and (ii) current liabilities incurred in the ordinary course of business
since March 31, 1995, Salcris has not incurred any material liability or
obligation, whether accrued, absolute, contingent or otherwise.
(c) Except as disclosed in Exhibit 2.5(b) hereto, no default exists
as to any of the material (either individually or in the aggregate) liabilities
of Salcris or MediSpense.
2.6 Section 368(a) Tax Matters.
(a) Except as set forth in Exhibit 2.6(a), all Salcris liabilities
were incurred in the ordinary course of Salcris' business.
(b) As of the Closing, the fair market value of the Salcris' assets
will equal or exceed the total amount of Salcris liabilities.
(c) The Donald Shareholders have no plan or intention to sell,
exchange, or otherwise dispose of a number of Reynolds Shares received pursuant
to this Agreement in exchange for Salcris Shares (excluding Non-compete Shares)
that would reduce the ownership by the Donald Shareholders of the Reynolds
Shares to a number of shares having a value, as of the Closing Date, of less
than 50 percent of the value of all the formerly outstanding shares of Salcris
as of the same date.
(d) Immediately after the transaction contemplated by this
Agreement, Salcris will hold at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
held by Salcris immediately prior to the transactions contemplated in this
Agreement. For purposes of this representation, amounts used by Salcris to pay
its reorganization expenses, if any, and all redemptions and distributions
(except for regular, normal dividends) made by the Salcris immediately preceding
the transactions contemplated in this Agreement will be included as assets of
Salcris held immediately prior to the transactions contemplated in this
Agreement.
(e) The Surviving Corporation and the Donald Shareholders will pay
their respective expenses, if any, incurred in connection with the transactions
contemplated in this Agreement.
(f) Seller is not an "investment company" as defined in Section
368(A)(2)(F) of the Code.
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2.7 Accounts and Notes Receivable. Except as set forth on Exhibit 2.7
hereto, all of the accounts and notes receivable reflected on the 3/31/95
Balance Sheet have been generated in the ordinary course of business and
represent valid debts due and owing to the applicable Salcris Company. Except as
set forth in Exhibit 2.7, to the best of Salcris' knowledge, no account or note
receivable of Salcris or MediSpense is subject to any counterclaim or any right
of setoff. A true and correct detailed aging of the accounts receivable of the
Salcris Companies (as of March 31, 1995) for periods of 30, 60, 90 and 120 days
or more, respectively, has been delivered to Reynolds. Accounts and notes
receivable have been acquired only in bone fide transactions entered into in the
ordinary course of business. All of the accounts and notes receivable will be
collected on or before July 15, 1995. Reynolds shall attempt to collect all
accounts and notes receivable in the normal course before and after July 15,
1995, unless assigned to the Shareholders as described below. In the event that
any such receivables have not been collected by July 15, 1995, Reynolds shall so
notify the Shareholders. The Shareholders shall have the right to collect such
receivables pursuant to an assignment to them of such receivables, provided that
Reynolds may, in lieu of permitting the Shareholders to bring an action against
the account debtor by assigning the receivables, waive its right to seek
indemnification by the Shareholders for any uncollected amount. Reynolds shall
apply all amounts received from account debtors to outstanding invoices in
chronological order, beginning with the oldest outstanding invoice, unless the
account debtor specifically allocates the payment to a particular invoice or for
a particular item or service.
2.8 Inventory. The inventory of each of Salcris and MediSpense is of a
quality and quantity usable and saleable (or leasable, as appropriate) in the
ordinary course of business, subject to a reserve for obsolescence of spare
parts as of the Effective Time calculated in the manner described in Exhibit
2.8. Such inventory (a) has been acquired only in bona fide transactions entered
into in the ordinary course of business and (b) is reflected in Salcris' books
and records at the lower of cost (determined on a first-in, first-out method) or
market value.
2.9 Equipment.
(a) Exhibit 2.9(a) hereto sets forth a true and correct list of all
items of furniture, fixtures, vehicles, machinery and equipment owned or leased
by Salcris or MediSpense pursuant to a capitalized lease, and, in either case,
used in connection with the Business.
(b) Exhibit 2.9(b) hereto sets forth a true and correct list of all
items of furniture, fixtures, vehicles, machinery and equipment leased by
Salcris or MediSpense pursuant to an operating lease and used in connection with
the Business.
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(c) Except as identified in Exhibit 2.9(c) and except for normal
wear and tear, each item of furniture, fixtures, vehicles, machinery and
equipment owned or leased by Salcris or MediSpense is in working condition with
no material latent defects. Each item required to be disclosed in Exhibit 2.9(a)
or 2.9(b) which is leased, subleased or on loan to or under a similar
arrangement with a customer is so identified in the applicable Exhibit. Reynolds
shall maintain insurance coverage for the equipment described in this Section
2.9 at levels no less favorable than those in place as of the Closing and shall
seek recovery under said coverage for any losses.
2.10 Real Property. Exhibit 2.10 hereto sets forth a true and correct list
of all real property owned or leased by Salcris or MediSpense and used in
connection with the Business. Except as set forth in Exhibit 2.10, all
improvements thereon are in good working condition with no material latent
defects, normal wear and tear excepted, and there exist no material patent or
material latent defects. To Salcris' knowledge, such improvements and the use to
which they and such real property are put are in substantial compliance with all
applicable laws, ordinances, regulations, covenants or restrictions (including
without limitation, those relating to occupational safety and health,
Environmental Laws, the Americans with Disabilities Act and zoning). Reynolds
shall maintain insurance coverage for the leasehold improvements described in
this Section 2.10 at levels no less favorable than those in place as of the
Closing and shall seek recovery under said coverage for any losses.
2.11 Capitalization.
(a) Exhibit 2.11 sets forth the following: (i) the authorized
capital stock and other securities of each of Salcris and MediSpense
(collectively, the "SECURITIES"); and (ii) a list of all issued and outstanding
Securities and the holders of each the same (collectively, the "HOLDERS").
(b) All of the Securities have been validly authorized and issued
and are fully paid and nonassessable. All options or other rights to acquire
Securities (whether from Salcris, MediSpense or a shareholder) are identified in
Exhibit 2.11 and all Securities have been issued in compliance with all
applicable federal, state and foreign securities laws. Except as set forth in
Exhibit 2.11, (i) neither Salcris Company has issued and outstanding shares of
capital stock or other equity interests of any class or preference, (ii) neither
Salcris Company has issued any security or instrument exchangeable, convertible
or exercisable for or into, whether or not for any additional consideration, any
Securities, and (iii) there are no outstanding options, warrants, calls,
commitments, or plans by Salcris or MediSpense to issue any additional
Securities, or to pay any dividends on its capital stock or other equity
interests or to purchase, redeem or retire any Securities or to issue any
securities or investments exchangeable,
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convertible or exercisable for or into, whether or not for any additional
consideration, any Securities.
(c) The documents and instruments containing the terms of all
Securities are identified in Exhibit 2.11 and complete copies of each have been
delivered to Reynolds. All shareholder, repurchase, buy-sell, voting, redemption
or other agreements or commitments relating to the ownership, transfer or voting
of any of the Securities are identified in Exhibit 2.11 and complete and correct
copies of each have been delivered to Reynolds.
2.12 Affiliates.
(a) Except as set forth in Exhibit 2.12, none of the Holders, nor
any subsidiary or Affiliate (as defined in Exhibit 2.12) of any Holder owns, of
record, or beneficially, any outstanding voting securities or other equity
interests, or any other securities exchangeable, convertible or exercisable for
or into, whether or not for any additional consideration, any voting securities
or other equity interests, in any corporation, partnership, joint venture or
other entity which is involved in or related to the Business, except for
securities or interests which do not represent more than five percent (5%) of
the voting power of any such corporation, partnership, joint venture or other
entity.
(b) Except as set forth in Exhibit 2.12, neither Salcris Company is
indebted to any Holder, any Affiliate of any Holder, or to any shareholder,
director, officer, employee or agent of either Salcris Company except for
amounts due as normal salaries, wages, benefits or reimbursement of ordinary
current business expenses, and no Holder, Affiliate of any Holder or any
shareholder, director, officer, employee or agent of either Salcris Company is
indebted to either Salcris Company except for ordinary business expense
advances.
2.13 Litigation; Compliance with Laws.
(a) Except as set forth in Exhibit 2.13, there is no action, claim
or investigation pending, or, to Salcris' knowledge, threatened, against either
Salcris or MediSpense, nor is there any judgment of any court, governmental
agency, instrumentality, or arbitration outstanding against Salcris or
MediSpense.
(b) Neither Salcris Company has received any notice of any violation
of any law, regulation or ordinance applicable to such Salcris Company, its
properties or assets (whether owned or leased) or the Business. Except as set
forth in Exhibit 2.13, Salcris and MediSpense have complied in all material
respects with all applicable laws, regulations and ordinances (including without
limitation, Environmental Laws, laws relating to occupational health and safety
and the terms and conditions of those licenses, permits, approvals and
authorizations which are identified on Exhibit 2.15), except where the failure
to comply would likely not
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have a material adverse effect on the Salcris Companies or the Business.
2.14 Labor Relations. Except as set forth in Exhibit 2.14:
(a) no labor union represents or purports to represent any employees
of either Salcris Company, and there are no material controversies pending
between either Salcris Company and any of its employees, nor, to Salcris'
knowledge, are any such material respective controversies threatened;
(b) each Salcris Company has complied with all laws and regulations
relating to employment, including any provisions thereof relating to wages,
hours, collective bargaining, discrimination in employment and the payment of
social security, withholding and similar taxes, except where the failure to
comply would not have a material adverse effect on the Salcris Companies or the
Business;
(c) neither Salcris Company is liable for any arrears of wages or
taxes or any penalties for failure to comply with any of the foregoing;
(d) neither Salcris Company is a party to nor does it have any
obligations under any written, oral or implied agreement with any person or
party regarding the salary, rates of pay, benefits, or working conditions of any
employees and all of the employees of Salcris and MediSpense are terminable at
will;
(e) neither Salcris Company has a policy or past practice relating
to payment of any severance or similar benefit upon termination of employment;
(f) neither Salcris Company is involved in any transaction or other
situation with any employee, officer, director or Affiliate of such Salcris
Company which may be generally characterized as a "conflict of interest",
including, but not limited to, direct or indirect interests in the business of
competitors, suppliers or customers of the Business, and no situations exist
with respect to the Business which involved or involves (i) the use of any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses related to political activity or otherwise, (ii) the making of
any direct or indirect unlawful payments to government officials or others from
corporate funds or the establishment or maintenance of any unlawful or
unrecorded funds, (iii) the receipt of any illegal discounts or rebates, or (iv)
any investigation by the Securities and Exchange Commission or any other
federal, foreign, state or local government agency or authority; and
(g) Neither Salcris Company has any liability or obligation arising
out of or relating to any former employee of such Salcris Company, including
without limitation, any liability
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or obligation for unpaid wages or benefits, breach of employment agreement or
wrongful termination.
2.15 Licenses and Permits. The Salcris Companies hold all licenses and
permits from all appropriate federal, state, foreign and other public
authorities, necessary for the conduct of the Business except where the failure
to hold any such license or permit would not have a material adverse effect on
the Salcris Companies or the Business. Exhibit 2.15 sets forth a list and brief
description of each such license or permit related to the conduct of the
Business.
2.16 Contracts.
(a) All contracts, commitments, agreements, leases and licenses
related to the Business to which Salcris or MediSpense is a party (collectively,
the "CONTRACTS") are identified in Exhibits 2.9, 2.10, 2.15, 2.16, 2.18 and
2.19.
(b) Exhibit 2.16 contains copies of the standard form customer
agreements employed by the Business with its Digital Equipment Corporation
LSI-11, Motorola 68000, Intel 386, 486, Pentium and IBM RS-6000 platforms.
Except as set forth on Exhibit 2.16, there is no material commitment to any
customer of the Business, whether or not set forth in a written agreement, to
enhance, modify, change or develop any software or system or otherwise provide
any product or service other than as currently provided by the Business, or
limiting the ability of Salcris or MediSpense to change prices for any of their
products or services.
(c) Except as set forth in Exhibit 2.16, all Contracts are in full
force and effect and are valid and binding obligations enforceable against the
parties thereto, except as may be limited by applicable equitable principles or
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally. Correct and complete copies of all Contracts have been
delivered or made available to Reynolds. Except as set forth in Exhibit 2.16,
neither Salcris Company is in default under and no condition exists with respect
to such Salcris Company which, with notice or the passage of time, or both,
would constitute a default by such Salcris Company under any of the Contracts.
Except as set forth in Exhibit 2.16, the validity and effectiveness of the
Contracts will not be adversely affected by this Agreement or its consummation
and no consent, waiver or approval from any party is required to continue the
Contracts on the same terms and conditions after the Effective Time. Except as
disclosed in Exhibit 2.16, neither Salcris Company is subject to any agreement
related to the Business requiring it to obtain all or substantially all of its
supply of any goods, services or other tangible or intangible property used in
the Business from another person.
2.17 Title to Properties; Encumbrances. Each Salcris Company has good
title to all of the properties and assets owned by it and
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used in the Business, whether real or personal, tangible or intangible,
including, without limitation, the properties and assets reflected on the
3/31/95 Balance Sheet, free and clear of any liens or encumbrances except (a)
those items disclosed on Exhibit 2.17; and (b) liens for current personal and
real property taxes assessed but not yet due and payable.
2.18 Patents, Trademarks, Trade Names, etc.
(a) The following items are described more fully in Exhibit 2.18 and
true and correct copies of documents reflecting such items have been provided to
Reynolds:
(i) all United States, common law and foreign patents,
trademarks, trade names, service marks and copyrights (including without
limitation, applications, registrations, and, if applicable, goodwill for all of
the foregoing), trade secrets, disclosures, know-how, formulations, trade dress,
designs, drawings, logos, technology, mailing lists, inventions, uses of ideas,
software rights, databases, compilations, confidential information, industrial
and commercial property, in each case used in or related to the Business,
whether any of the foregoing is owned, licensed or held for use, all without
geographical limitation and including, without limitation, the right to
infringement and other claims related thereto (collectively, the "INTELLECTUAL
PROPERTY INTANGIBLES"); and
(ii) all registered, assumed or fictitious names under which
the Salcris Companies are conducting the Business; and
(iii) all agreements to which either Salcris Company is a party
relating to Intellectual Property Intangibles.
(b) Salcris further warrants and represents as follows:
(i) Except as listed on Exhibit 2.18, all right, title and
interest to the Owned Intellectual Property Intangibles and all right and
interest in the Used Intellectual Property Intangibles are owned by Salcris or
MediSpense without limitation or encumbrance.
(ii) Except as set forth in Exhibit 2.18, all Intellectual
Property Intangibles are without any challenge.
(iii) The Trademarks have been in continuous use since the date
of their adoption and first use as shown in Exhibit 2.18.
(iv) All copyrights described in Exhibit 2.18 are original
works of authorship of Salcris or MediSpense or Salcris or MediSpense has
acquired rights thereto.
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(v) Any trademarks, service marks or trade names which have
been obtained through transfer or assignment include the associated goodwill.
(vi) Salcris has no knowledge of any infringement or unlawful
use of any of the Intellectual Property Intangibles or any use of the same or
similar item so as to create a likelihood of confusion.
(vii) Except as set forth in Exhibit 2.18, to the best of
Salcris' knowledge after due inquiry, no infringement of any Intellectual
Property Intangibles has occurred or results from operation of the Business.
(viii) Except as set forth in Exhibit 2.18, neither Salcris
Company has received notice of, or has knowledge of any basis for, a claim
against Salcris or MediSpense that the Intellectual Property Intangibles or
their use in the Business infringes any intellectual property rights of others.
(ix) No proceedings or claims are pending or, to Salcris'
knowledge, threatened, with respect to the validity or ownership of the
Intellectual Property Intangibles.
(x) Except as set forth in Exhibit 2.18, no person or entity
other than employees of Salcris or MediSpense has performed any development or
other work for Salcris or MediSpense in connection with any software used in the
Business.
(xi) The Patent has not been used, sold or licensed by Salcris
since 1987. The Patent is not currently used, directly or indirectly, in
connection with the Business.
(xii) None of the source code contained in the software
licensed by Salcris from Cipher Corporation in 1982 is present in any of the
products presently offered for sale or license by Salcris or MediSpense, or in
any of the products previously sold or licensed by Salcris or MediSpense, that
are still subject to an agreement or understanding between Salcris or MediSpense
and the owner or licensee of such product.
(xiii) All programming modifications to the ProMed software that
will be required to effect the changeover at January 1, 2000 can be completed in
400 person-hours or less.
(xiv) There are no provisions in any Salcris or MediSpense
customer contract requiring the delivery of the MedCept records product that
have not been satisfied.
2.18 Employee Benefit Plans.
(a) Exhibit 2.19 contains a list of all material plans, policies and
arrangements and contracts, whether written or oral
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("EMPLOYEE PLANS"), including, without limitation, all employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA") in effect at the date hereof providing or relating to any retirement,
profit sharing, stock bonus, stock option,incentive compensation, deferred
compensation, fringe benefit or welfare benefit to or on behalf of employees or
former employees of either Salcris Company. Salcris has provided Reynolds with
summary plan or other descriptions of the Employee Plans, and will, prior to the
Closing, make available to Reynolds, upon request, copies of the Employee Plans
and any related documents, including, without limitation, agreements with
third-party service providers. Each summary plan description, Employee Plan or
other document provided or made available pursuant to the preceding sentence is
correct and complete in all material respects. With respect to the 401K Profit
Sharing Retirement Trust, at Closing, Henry W. Donald and John H. Eads will
resign as trustees and Reynolds will choose and appoint a successor to serve in
such capacity.
(b) Except as disclosed in Exhibit 2.19: (i) each of the Employee
Plans is and has been at all times in compliance with ERISA, the Internal
Revenue Code of 1986, as amended (the "CODE"), and all other applicable laws,
except for violations thereof which would not in the aggregate give rise to a
material obligation to pay money; (ii) each Employee Plan intended to be
qualified under Section 401(a) of the Code is so qualified; (iii) no Employee
Plan subject to Section 302 of ERISA or Section 412 of the Code has incurred for
any prior plan year and will not for its current plan year incur an accumulated
funding deficiency under Section 302 of ERISA or Section 412 of the Code; (iv)
the assets of the Salcris Corporation 401(k) Profit Sharing Retirement Plan (the
"PLAN") shall be sufficient such that if the Plan were terminated as of the
Closing, such assets would be equal to the amount of plan expenses that would be
properly payable from the Plan plus the amount of all benefits that would be
properly payable from the Plan, (v) no claims are pending against Salcris or
MediSpense in respect of an Employee Plan except for payment of benefits in the
normal course of business, and no employee of Salcris or MediSpense and no
beneficiary or dependent of an employee has pending or to Salcris' knowledge has
threatened any appeal or litigation regarding any denial of benefits under any
Employee Plan; (vi) neither Salcris Company nor any corporation or other trade
or business (whether or not incorporated) which together with the Salcris
Companies is an "employer" as defined in Section 4001(a) of ERISA (an "ERISA
AFFILIATE") has engaged in any transaction prohibited by Section 406 of ERISA or
Section 4975 of the Code; (vii) no reportable event (as defined in Section 4043
of ERISA) has occurred with respect to any Employee Plan or any other employee
benefit plan covered by Title IV of ERISA maintained by either Salcris Company
or any ERISA Affiliate; (viii) neither Salcris Company nor any ERISA Affiliate
has incurred any liability under Title IV of ERISA which remains outstanding,
nor has the Pension Benefit Guaranty Corporation or any "multiemployer plan" as
defined in Section
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4001(a)(3) of ERISA asserted or threatened to assert any liability against
either Salcris Company or any ERISA Affiliate, other than the payments which
have become due and are unpaid; (ix) with respect to each Employee Plan subject
to Title IV of ERISA, if such plan were terminated on the Closing Date, neither
the Salcris Companies nor any ERISA Affiliate would incur any liability under
Title IV of ERISA as a result of such termination and the assets of each such
plan are sufficient to pay all of the benefit liabilities determined on a
termination basis for that plan; and (x) Salcris and MediSpense have complied
with the health care continuation coverage requirements of Section 4980(B) of
the Code in respect of employees and former employees of Salcris and MediSpense
and their dependents and beneficiaries.
(c) Except as set forth in Exhibit 2.19, no person has asserted any
claim under which Salcris or MediSpense has any liability under any health
insurance, sickness, life insurance, disability, medical, surgical, hospital,
death benefit, or any other Employee Plan (whether or not disclosed on Exhibit
2.19) maintained by Salcris or MediSpense or to which Salcris or MediSpense is a
party or may be bound, or under any worker's compensation or similar law, which
is not fully covered by insurance maintained with responsible insurers or
reserved for under the 3/31/95 Balance Sheet.
(d) Except as otherwise required by COBRA or disclosed on Exhibit
2.19, neither Salcris Company provides benefits to retirees or former employees.
2.19 Conduct of Business. Since March 31, 1995, Salcris has used its best
efforts to conduct the Business in such manner as to maintain and preserve its
and MediSpense's assets and business organization, to retain customers,
suppliers and employees and to promote customer goodwill, to keep and maintain
MediSpense's and its properties and assets in good working condition and to keep
the Contracts in full force and effect.
2.20 Consents and Approvals. Except as set forth in Exhibit 2.21, no
waiver, consent or approval from or filing with any party (governmental or
otherwise) is required to consummate this Agreement.
2.21 Customers and Suppliers.
(a) Salcris has delivered to Reynolds a list of the customers of the
Business. Except as identified on Exhibit 2.22, Salcris has no knowledge that
any of such customers intends to reduce or has threatened to reduce its business
dealings with Salcris, whether by reason of the consummation of this Agreement
or otherwise.
(b) Salcris has delivered to Reynolds a list of the ten (10) largest
(based on dollar volume of purchases for the last
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fiscal year) suppliers of the Business. Except as identified on Exhibit 2.22,
Salcris has no knowledge that any of such suppliers intend to alter or has
threatened to alter their relationship with Salcris, whether by reason of the
consummation of this Agreement or otherwise.
(c) Exhibit 2.22 identifies the four technology platforms used by
the Business and the number of customers of the Business on each of those
platforms.
2.22 Warranties. Except under the standard form customer agreements or as
otherwise specifically identified in Exhibit 2.16, there are no other warranties
or guaranties now in effect issued by Salcris or MediSpense or outstanding with
respect to the products or services of the Business. Except as set forth on
Exhibit 2.23: (a) there are no existing, or, to Salcris' knowledge, threatened
claims against Salcris or MediSpense related to products or services of the
Business which have been alleged to be defective or which are otherwise alleged
to have caused any third party any damage; (b) neither Salcris Company has
received a notice by any governmental or regulatory body stating that any of the
products or services of the Business are defective or otherwise have caused any
third party any damages; (c) there have been no recalls ordered by any such
governmental or regulatory body with respect to any products sold by or services
rendered by Salcris or MediSpense in the Business; and (d) to Salcris' knowledge
there is no (i) fact relating to any of the such products or services that may
impose upon Salcris or MediSpense a duty to recall any such products or
services, a duty to warn customers of a defect in any such products or services
or (ii) latent or overt defects (other than normal and customary defects
commonly referred to in the trade as "bugs" which do not materially effect the
functionality of the software) in any such products or services, in each such
case not fully reflected in the 3/31/95 Balance Sheet. For purposes of this
Section "PRODUCT" shall include software and shall include products manufactured
or developed by third parties and sold, leased or licensed by Salcris (whether
incorporated into products or services sold by Salcris or MediSpense or as stand
alone products).
2.23 Corporate Documents, Books and Records. Complete and correct copies
of the Articles of Incorporation and Bylaws and all amendments thereto, of
Salcris and MediSpense have been previously delivered to Reynolds by Salcris and
no changes in such documents shall be made on or before the Effective Time
except as necessary to perform this Agreement (copies of the documents
evidencing such changes shall be delivered to Reynolds for approval which shall
not be unreasonably withheld prior to Closing). The minute books of Salcris and
MediSpense, which shall be delivered to Reynolds at the Closing, contain true
and complete copies of all minutes of all meetings and consents in lieu of
meetings of the Boards of Directors (and their committees) or those exercising
similar functions and voting shareholders (or other holders of ownership
interests) of Salcris and MediSpense. The books and records of
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Salcris and MediSpense to be delivered to Reynolds at the Closing will fairly
reflect the transactions to which Salcris and MediSpense are parties or by which
their respective properties are subject or bound and such books and records have
been properly kept and maintained and, with respect to financial statements
contained therein, have been prepared in accordance with GAAP.
2.24 Officers and Directors and Certain Authorized Persons. Exhibit 2.25
sets forth a complete and accurate list of: (i) the names of all Directors of
each Salcris Company; (ii) the names and offices of all officers of each Salcris
Company; (iii) the names of all persons authorized to borrow money or incur or
guarantee indebtedness on behalf of each Salcris Company; and (iv) the names of
all persons authorized by proxies, powers of attorney or other instruments to
act on behalf of each Salcris Company (except in connection with any marketable
securities or instruments issued by financial institutions which securities or
instruments are owned by either Salcris Company). Except as identified on
Exhibit 2.25, there are no safes, vaults, safe deposit boxes or bank accounts
maintained by or on behalf of either Salcris Company or in which their
respective property is held.
2.25 Environmental Protection.
(a) Except as set forth on Exhibit 2.26, each Salcris Company has,
or as of the Effective Time will have, obtained all permits, licenses and other
authorizations which are required under federal, state and local laws,
regulations or orders (collectively, the "ENVIRONMENTAL LAWS") relating to
pollution or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants or hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
or nuisance and the transactions contemplated hereby will not alter or impair
any such permits, licenses and authorizations. Except as set forth in Exhibit
2.26, each Salcris Company is in compliance with all terms and conditions of
such permits, licenses and authorizations and has complied with all other
Environmental Laws to the extent applicable to the Business.
(b) There are no circumstances or plans by either Salcris Company
which would be reasonably likely to interfere with or prevent compliance or
continued compliance with any Environmental Laws, or which may give rise to any
material liability under any Environmental Law, including, without limitation,
liability under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") or similar state or local laws, or otherwise form the
basis of any material claim, notice of violation, or investigation, based on or
related to a violation of any Environmental Laws or the manufacture,
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processing, distribution, use, treatment, storage, disposal, transport or
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutant, contaminant, chemical or industrial, toxic or
hazardous material, substance or waste. Without in any way limiting the
foregoing, no release, emission or discharge into the environment of any
hazardous substance (as that term is currently defined under CERCLA or any
applicable analogous state law) has occurred or is currently occurring in
connection with the conduct of the Business by either Salcris Company or
predecessor or on the properties used in the operations of the Business by
either Salcris Company or predecessor, or to Salcris' knowledge, any site to
which such substances from either Salcris Company may have been taken at any
time in the past.
(c) Neither Salcris Company has received any notification from any
government or political subdivision thereof that any of the properties, assets
or operations owned or used by such company ar in violation of any Environmental
Laws.
2.26 Intentionally Omitted.
2.27 Absence of Changes. Except for those items disclosed on Exhibit 2.28,
since September 30, 1994, neither Salcris nor MediSpense has:
(a) entered into or consummated any transaction, or engaged in any
activity or suffered any event other than in the ordinary course, including
without limitation, the sale, transfer or conveyance of any assets or the making
of or committing to make any capital expenditures in an aggregate amount greater
than $10,000;
(b) suffered any material adverse change in the Business, and no
fact or condition exists, or to Salcris' knowledge, has been threatened, which
is reasonably likely to cause a material adverse change in the Business in the
future;
(c) declared or made any distribution or other payment to its
security holders, or issued any additional securities or redeemed, purchased or
otherwise acquired any of its securities, or made any change whatsoever in its
capital structure;
(d) paid any bonus to or granted any increase in the rates of pay or
any increase in the pension, retirement or other benefits of its directors,
officers or other employees, other than normal cost-of-living and merit salary
increases made in accordance with regular Salcris policies;
(e) incurred or agreed to incur any material indebtedness or entered
into any material capitalized leases;
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(f) incurred the imposition of any material lien, encumbrance or
claim upon any of its assets or engaged in a material conveyance to secure debt,
except for any lien with respect to personal property taxes or real property
taxes not yet due and payable;
(g) discharged or reduced any material lien or encumbrance other
than as required by its terms, or paid any material liability other than current
liabilities incurred in the ordinary course of business and paid in accordance
with their terms;
(h) incurred any default in any material liability (accrued or
otherwise);
(i) made any change materially adverse to it in the terms of any
agreement or instrument to which it is a party;
(j) made any material change in the terms of any insurance policy,
or cancelled or allowed any such insurance policy or coverage thereunder to
lapse without replacement with equivalent coverage;
(k) introduced any new method of accounting, with the exception of a
new method of accounting for research and development expenses and also with the
exception of any adjustments described in Exhibit 1.5(a);
(l) entered into any material Contract (as defined below), except
in the ordinary course of business; or
(m) delayed payment of any material account payable or other
material liability of the Business beyond its due date.
2.28 Additional Tax Matters.
(a) Definitions. For purposes of this Section 2.29;
(i) The term "Taxes" means all federal, state, local,
foreign, and other net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or 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, and the term "Tax" means any one
of the foregoing Taxes;
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(ii) The term "Returns" means all returns, declarations,
reports, statements, and other documents required to be filed
in respect of Taxes, and the term "Return" means any one of the
foregoing Returns; and
(iii) The term "Code" means the Internal Revenue Code of
1986, as amended. All citations to the Code or to the
regulations promulgated thereunder shall include any amendments
or any substitute or successor provisions thereto.
(b) Except as disclosed in Exhibit 2.29(b), Salcris hereby
represents and warrants the following with respect to the Salcris Companies:
(i) Filing of Returns. All Returns required to be filed on
or prior to the date hereof have been properly completed and
filed on a timely basis and in correct form. As of the time of
filing, the foregoing Returns correctly reflected the facts
regarding the income, business, assets, operations, activities,
status, or other matters of the Salcris Companies or any other
information required to be shown thereon. In particular, the
foregoing returns are not subject to penalties under Section
6662 of the Code, relating to accuracy-related penalties (or
any corresponding provision of the state, local or foreign Tax
law) or any predecessor provision of law. An extension of time
within which to file any Return that has not been filed has not
been requested or granted.
(ii) Payment of Taxes. With respect to all amounts in
respect of Taxes imposed on the Salcris Companies or for which
the Salcris Companies are or could be liable, whether to taxing
authorities (as, for example, under law) or to other persons or
entities (as, for example, under tax allocation agreements),
with respect to all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax laws
and agreements have been fully complied with, and all such
amounts required to be paid by the Salcris Companies to taxing
authorities or others on or before the date hereof have been
paid.
(iii) Audit History. No waivers of statutes of limitation
with respect to the Returns have been given by or requested
from the Salcris Companies. Except to the extent shown on
Exhibit 2.29(b), all deficiencies asserted or assessments made
as a result of any examinations have been fully paid, or
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are fully reflected as a liability in the Financial Statements,
or are being contested and an adequate reserve therefor has
been established and is fully reflected in the Financial
Statements.
(iv) Liens. No liens exist for Taxes (other than for
current Taxes not yet due and payable) on the assets of the
Salcris Companies.
(v) Tax-Sharing or Allocation Agreements. Neither Salcris
Company is a party to or bound by (nor will either Salcris
Company become a party to or be bound by) any tax-indemnity,
tax-sharing, or tax-allocation agreement.
(vi) Prior Affiliated Groups. Except for the group of which
Salcris is presently a member, Salcris has never been a member
of an affiliated group of corporations, within the meaning of
Section 1504 of the Code, other than as a common parent
corporation, and MediSpense has never been a member of an
affiliated group of corporations, within the meaning of Section
1504 of the Code, except where Salcris was the common parent
corporation of such affiliated group.
(vii) Tax Elections. All material elections with respect to
Taxes affecting the Salcris Companies as of the date hereof are
set forth in Exhibit 2.29(b). After the date hereof, no
election with respect to Taxes will be made without the written
consent of Reynolds.
(viii) Section 341(f) Consent. Neither Salcris Company has
filed a consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding
provision of state, local, or foreign income tax law) or agreed
to have Section 341(f)(2) of the Code (or any corresponding
provision of state, local, or foreign income tax law) apply to
any disposition of any asset owned by it.
(ix) Safe Harbor Lease Property. None of the assets of
either Salcris Company is property that such Salcris Company is
required to treat as being owned by any other person pursuant
to the "safe harbor lease" provisions of former Section
168(f)(8) of the Code.
(x) Security for Tax-Exempt Obligations. None of the
assets of the Salcris Companies directly or indirectly secures
any debt the
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interest on which is tax-exempt under Section 103(a) of the
Code.
(xii) Tax-Exempt Use Property. None of the assets of the
Salcris Companies is "tax-exempt use property" within the
meaning of Section 168(h) of the Code.
(xiii) Deemed Dividend and Consent Dividend Elections.
Neither Salcris Company has made or will make a deemed dividend
election under Regulations Section 1.1502-32(f)(2) or a consent
dividend election under Section 565 of the Code.
(xiv) Adjustments Under Section 481. Neither Salcris
Company has agreed to make nor is it required to make any
adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(xv) International Boycott. Neither Salcris Company has
participated in and neither will participate in an
international boycott within the meaning of Section 999 of the
Code.
(xvi) Parachute Payment. Neither Salcris Company is a
party to any agreement, contract, arrangement, or plan that has
resulted or would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code.
(xvii) U.S. Real Property Holding Corporation. Neither
Salcris Company is or has been a United States real property
holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(xviii) Foreign Person. Neither Salcris Company is a person
other than a United States person within the meaning of the
Code.
(xix) No Withholding. The transaction contemplated
herein is not subject to the tax withholding provisions of
Section 3406 of the Code, or of Subchapter A of Chapter 3 of
the Code, or of any other provision of law.
(xx) Permanent Establishment. Neither Salcris Company
has or has had a permanent establishment in any foreign
country, as defined in any applicable
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tax treaty or convention between the United States and such
foreign country.
(xxi) Existing Partnerships. Except as set forth in Exhibit
2.29(b), neither Salcris Company is a party to any joint
venture, partnership, or other arrangement or contract that
could be treated as a partnership for federal income tax
purposes.
(xxii) Basis and Excess Loss Accounts in Subsidiaries.
Salcris' basis and excess loss account, if any, in each
subsidiary is set forth on Exhibit 2.29(b). The earnings and
profits (and any adjustment required by Section 1503(e) of the
Code) for each subsidiary are set forth on Exhibit 2.29(b).
(xxiii) Unpaid Tax. The unpaid Taxes of either Salcris
Company do not exceed the reserve for tax liability (excluding
any reserve for deferred Taxes established to reflect timing
differences between book and tax income) set forth or included
in the Financial Statements, as adjusted for the passage of
time through the Closing Date, in accordance with the past
custom and practice of the Salcris Companies.
3. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS AND THE BENEFICIAL
PARTIES. The Shareholders jointly and severally (except as otherwise set forth
below) represent to Reynolds and Newco as follows:
3.1 Stock Ownership. Each of the Shareholders represents severally, but
not jointly, that he or she is the legal and beneficial owner, with full power
to vote, of Salcris Shares set forth opposite his or her name below:
467 Shares Henry W. Donald
450 Shares Duty Trust, Lynn D. Donald Trustee
50 Shares Lynn D. Donald
In the aggregate, these 967 Salcris Shares are all of the Salcris Shares issued,
outstanding and entitled to vote. There are 33 Salcris Shares held in treasury.
The Shareholders hold no options or other rights to acquire additional Salcris
Shares. This Agreement has been duly and validly executed by each Shareholder
and, assuming its binding effect upon the other parties hereto, constitutes the
valid and binding agreement of each Shareholder, enforceable against such
Shareholder in accordance with its terms.
3.2 Voting Agreement. Each of the Shareholders agrees to vote all of his
or her Salcris Shares, in at least the amounts listed in Section 3.1 hereof, in
favor of the Merger. The
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obligations of the Shareholders so to vote shall apply to any Salcris Shares in
addition to those listed in Section 3.1 acquired by any of them prior to the
Effective Date. No Shareholder shall exercise rights of dissent as provided for
in Section 10-2B-13.01 et seq. of the BCA.
3.3 Salcris' Representations. The Shareholders each individually make to
Reynolds and Newco the same representations and warranties as made by Salcris in
Section 2.
3.4 Investment Intent. The Donald Shareholders acknowledge that the
Reynolds Shares to be issued pursuant to Section 1.4(a)(i) and Section 1.6(d)
will be issued pursuant to the Exemptions, and that Reynolds is relying on the
representations and warranties of the Donald Shareholders in this Section 3.4 as
the basis for Reynolds' determination that the Exemptions are available.
Accordingly, the each of the Donald Shareholders represents severally, but not
jointly, that:
(a) Each Donald Shareholder is acquiring the Reynolds' Shares for
investment purposes only and without a view to the resale thereof until such
time as such resale has been registered (or exemptions from registration
perfected) under the Act and all applicable state securities laws, and each
Donald Shareholder will not sell, encumber, dispose or otherwise transfer
(collectively, "TRANSFER") any right or interest in the Reynolds Shares, whether
voluntarily, by gift, operation of law, testamentary disposition or otherwise,
except for the surrender of Reynolds' Shares to Reynolds in satisfaction of an
Adjustment Claim or in accordance with Section 1.5(d), unless such Transfer has
been registered (or an exemption from registration has been perfected) under the
Act and applicable state securities laws.
(b) Each Donald Shareholder is an experienced investor and is aware
of the risks inherent in an investment in the Reynolds Shares.
(c) Each Donald Shareholder has had access to such information about
Reynolds and its operations (including Reynolds' most recent filings on Forms
10-K and 10-Q, Reynolds' proxy statement for its 1995 annual meeting of
shareholders and Reynolds' annual report to shareholders for the fiscal year
ended September 30, 1994) as he or she deems necessary to evaluate fully an
investment in the Reynolds Shares and each Donald Shareholder is relying solely
on the information provided by his or her advisors and information publicly
available regarding Reynolds and its operations and not upon any statement of or
information supplied by any employee, agent, contractor or representative of
Reynolds.
(d) Each Donald Shareholder is a resident of the State of Alabama.
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3.5 Beneficial Parties Representations. The Beneficial Parties each
individually make to Reynolds and Newco the same representations and warranties
made by Salcris in Section 2.
4. REPRESENTATIONS AND WARRANTIES OF REYNOLDS AND NEWCO. Reynolds and Newco
(collectively, the "REYNOLDS COMPANIES", and individually, a "REYNOLDS COMPANY")
hereby represent and warrant to Salcris as follows:
4.1 Corporate Action; Corporate Power and Authority. Each Reynolds Company
has taken all action required by its Articles of Incorporation and Code of
Regulations or otherwise to authorize the execution and consummation of this
Agreement. This Agreement and each other agreement contemplated hereby which is
executed by either Reynolds Company constitute the valid and legally binding
obligations of the applicable Reynolds Company, enforceable in accordance with
their terms, except that enforceability may be limited by applicable equitable
principles or bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors rights generally. The Reynolds Companies have the power and
authority to execute and consummate this Agreement and each other agreement
contemplated hereby.
4.2 No Conflict With Other Agreements or Laws. The execution and
consummation by the Reynolds Companies of this Agreement and each other
agreement contemplated hereby will not (a) violate the terms of either Reynolds
Company's Articles of Incorporation or Code of Regulations or any instrument,
agreement, judgment or decree to which either Reynolds Company is a party, or by
which either Reynolds Company or any of its properties is bound, (b) be in
conflict with, result in a breach of or constitute (with giving of notice or
lapse of time or both) a default under any such instrument, agreement, judgment
or decree, (c) result in the creation or imposition of any lien upon either
Reynolds Company or its properties or assets, or (d) violate any applicable
federal, state, local or foreign law, regulation or order if the result of such
violation, conflict, breach, default or lien would have a material adverse
affect on the applicable Reynolds Company.
4.3 Organization. Each Reynolds Company is a corporation duly organized,
validly existing and in good standing under the laws of the state of Ohio and
has full power and authority to carry on its business as it is now being
conducted, to own and lease the properties and assets which it now owns or
leases and to consummate this Agreement.
4.4 Section 368(a) Tax Matters.
(a) Following the transactions contemplated in this Agreement,
Reynolds has no plan or intention to discontinue the historic business of
Salcris or to discontinue use of a significant portion of Salcris' historic
business assets in a business following the transactions contemplated in this
Agreement.
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(b) Reynolds is not an "investment company" as defined in Section
386(a)(2)(F) of the Code.
(c) The Reynolds Shares issued pursuant to this Agreement will
constitute "voting stock" within the meaning of Section 368(a) of the Code.
(d) Reynolds has no plan or intention to redeem or otherwise
reacquire any of the Reynolds' Shares except (i) as may occur pursuant to the
terms and conditions of the Escrow Agreement and (ii) as may occur through
Reynolds' ongoing program of repurchasing its stock from unidentified sellers in
the open market, which program will not be specifically directed at the Donald
Shareholders.
(e) Purchaser has no plan or intention to sell or otherwise dispose
of any of the Surviving Corporation's assets, except for sales or dispositions
in the ordinary course of business and payment of liabilities.
5. COVENANTS. The parties hereby covenant and agree as follows:
5.1 Conduct of Business Prior to the Effective Time. Until the Closing,
and unless Reynolds shall otherwise consent in writing, Salcris shall take the
following actions:
(i) operate the Business substantially as previously operated
and only in the ordinary course and use its best efforts to preserve intact the
goodwill, reputation and relationships of the Business;
(ii) maintain its assets and cause MediSpense to maintain its
assets in good working condition, reasonable wear and use excepted, and maintain
all applicable policies of insurance coverage in effect on the date hereof;
(iii) pay the accounts payable and attempt to collect the
accounts receivable of the Business in accordance with prudent business
practices;
(iv) comply with all laws applicable to the conduct of the
Business where the failure to comply would likely have a material adverse effect
on Salcris, MediSpense or the Business; and
(v) maintain the books and records of the Business in the
ordinary manner on a basis consistent with past practices.
5.2 Notification of Material Adverse Changes. Between the date hereof and
the Effective Time, Salcris shall promptly notify Reynolds in writing of any
material adverse change in the representations and warranties made by Salcris in
this Agreement.
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5.3 Other Transactions. Salcris shall deal exclusively and in good faith
with Reynolds regarding the sale of the Salcris Shares or the acquisition or
merger of Salcris or substantially all of either Salcris Company's assets (a
"SALE TRANSACTION") and will not, and will direct its officers, partners,
directors, financial advisors, accountants, agents and counsel not to, (i)
solicit submission of offers from any person relating to a Sale Transaction,
(ii) participate in any discussions or negotiations regarding, or furnish any
nonpublic information to any person regarding any Sale Transaction by any person
other than Reynolds, or (iii) enter into any agreement or understanding, whether
oral or written, that would have the effect of preventing consummation of this
Agreement. If the Salcris Companies or their representatives or agents should
receive any proposal for a Sale Transaction or any inquiry regarding such
proposal from a third party, Salcris will promptly so inform Reynolds.
5.4 Consents, Waivers and Approvals. Salcris shall use its best efforts to
obtain prior to the Closing all consents, waivers, approvals, and releases of
liens, mortgages or encumbrances necessary to permit the Merger and the
operation of the Business after the Effective Time in the ordinary course
substantially as operated prior to Closing, free and clear of any and all liens
or encumbrances except those permitted encumbrances identified in Exhibit 5.4.
All such consents, waivers, releases and approvals will be in writing and in
form and substance satisfactory to Reynolds, and executed counterparts thereof
will be delivered to Reynolds promptly after receipt thereof but in no event
later than the Closing. Failure to obtain any such consents, waivers, approvals
and releases of liens, mortgages or encumbrances shall not result in the
termination of this Agreement and shall not result in any liability to Salcris,
the Shareholders or the Beneficial Parties, unless such failure would be likely
to have a material adverse effect on the Business.
5.5 Supplemental Disclosure. Salcris shall have the continuing obligation
up to and including the Effective Time to supplement promptly or amend the
Exhibits with respect to any matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or listed in the Exhibits. For the purpose of the rights and
obligations of the parties hereunder, any such supplemental disclosure shall be
deemed to have been disclosed as of the date of this Agreement if Reynolds
proceeds with the Merger following receipt of such supplemental or amended
Exhibits.
5.6 Additional Reports. Promptly after they become available, Salcris will
deliver to Reynolds copies of all management and control reports (including
agings of accounts receivable, listings of accounts payable and inventory
control reports) related to the Business and financial statements for the
Business furnished to the management of Salcris.
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5.7 Conditions Precedent. Salcris shall use its best efforts in good
faith to satisfy the conditions enumerated in Section 6 hereof.
5.8 Releases. Salcris shall take and cause MediSpense to take all such
actions as may be required to obtain the execution prior to the Effective Time,
of a release and hold harmless by each of the Shareholders and the Beneficial
Parties in the form attached as Exhibit 5.8 (the "RELEASES"), which shall
provide for the release and hold harmless of Salcris, MediSpense and its
successors from any liabilities of Salcris and MediSpense. Each of Salcris, the
Shareholders, Beneficial Parties, Leslie W. Donald, Sarah H. Donald and T.
Christopher Donald shall receive and execute mutual releases for the benefit of
each other party to the release, provided that nothing contained therein shall
prohibit any of the parties from enforcing their rights under the terms and
conditions of this Agreement.
5.9 Intentionally Omitted.
5.10 Reynolds' Due Diligence. Salcris shall give Reynolds and its counsel,
accountants and other representatives full access during normal business hours
to all of the books, records, files, documents, assets, properties, contracts,
and commitments of the Salcris Companies provided that such examinations shall
be conducted in such a manner so as not to disrupt normal business operations of
the Salcris Companies, and Salcris shall furnish Reynolds with such information
concerning the affairs of the Salcris Companies which Reynolds may reasonably
request, so that Reynolds may have a full opportunity to verify the
representations and warranties contained in this Agreement and to ascertain such
other matters concerning the financial condition, operations, employees,
business or prospects of the Salcris Companies as Reynolds may deem necessary or
appropriate. Salcris shall deliver to Reynolds correct and complete copies of
all documents referred to in the Exhibits.
5.11 Shareholders Meeting. As soon as practicable after the date of this
Agreement, Salcris shall take all action necessary under its Articles of
Incorporation and Bylaws and applicable law to convene a meeting of Salcris'
shareholders for the purpose of voting on the adoption of this Agreement and
approval of the Merger and any other transactions contemplated by this Agreement
requiring action on the part of such shareholders. Salcris shall observe and
comply with all requirements, including those relating to notification of
shareholders, under Article 13 of the BCA as they relate to dissenters' rights.
The Board of Directors of Salcris will solicit proxies for such approval and
include in all proxy solicitation and other materials provided to shareholders a
recommendation to vote in favor of this Agreement and the Merger. All such proxy
solicitation and other materials provided to the shareholders in connection with
their consideration of this Agreement shall be subject to Reynolds' prior
written consent.
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5.12 Satisfaction of Salcris Obligations and Termination Payments.
Immediately after the Closing, Reynolds shall cause the Surviving Corporation to
repay Salcris' liabilities for the outstanding loans by Salcris to Thomas C.
Donald in the amount of $61,955.08, and shall cause MediSpense to repay
MediSpense's liability for the outstanding loans by MediSpense to each of Lynn
D. Donald and Sarah Hollis Donald in the amounts of $89,521.51 and $10,931.86,
respectively. Reynolds shall cause the Surviving Corporation to obtain, as soon
as practicable after Closing, the release of certain assets owned by one or more
of the Donald Shareholders and the release of the personal guarantees of the
Donald Shareholders which secure the repayment of Salcris indebtedness to First
Commercial. At the Closing, Reynolds shall cause the Surviving Corporation to
satisfy Salcris' liability to each of Mark Griffin and John Eads for the
Management Bonuses.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF REYNOLDS AND NEWCO. The obligation of
Reynolds and Newco to consummate this Agreement shall be subject to the
satisfaction, on or before the Effective Time, of the following conditions, all
or any of which may be waived by Reynolds (the consequences of Reynolds' waiver
shall be as described in Section 17.11).
6.1 Salcris Representations True at Closing. The representations and
warranties made by Salcris in Section 2 hereof shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties had been made on such date (except for changes permitted by this
Agreement) and Salcris shall deliver to Reynolds a certificate dated as of the
Closing Date to the foregoing effect.
6.2 Shareholder and Beneficial Parties Representations True at Closing.
The representations and warranties made by the Shareholders and Beneficial
Parties in Section 3 hereof shall be true and correct in all material respects
on the Closing Date as though such representations and warranties had been made
on such date (except for changes permitted by this Agreement) and the
Shareholders and Beneficial Parties shall deliver to Reynolds a certificate
dated as of the Closing Date to the foregoing effect.
6.3 Covenants of Salcris. Salcris shall have duly performed all of the
covenants, acts and undertakings to be performed by it on or prior to the
Closing Date, and Salcris shall deliver to Reynolds a certificate dated as of
the Closing Date to the foregoing effect.
6.4 Covenants of Shareholders and Beneficial Parties. The Shareholders and
Beneficial Parties shall have duly performed all of the covenants, acts and
undertakings to be performed by them on or prior to the Closing Date, and the
Shareholders and Beneficial Parties shall deliver to Reynolds a certificate
dated as of the Closing Date to the foregoing effect.
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6.5 No Injunction, Etc. No proceeding, investigation, or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, or prohibit, or to obtain substantial
damages in respect of this Agreement, or which is related to Salcris, MediSpense
or arises out of the Business, which, in the reasonable judgment of Reynolds,
would make it inadvisable to consummate this Agreement.
6.6 Opinion of Counsel. An opinion of counsel for Salcris, the
Shareholders and the Beneficial Parties shall have been delivered to Reynolds,
dated as of the Closing Date, in form and substance reasonably satisfactory to
Reynolds and its counsel and containing the opinions identified in Exhibit 6.6.
6.7 Incumbency; Resignations. Salcris shall have delivered a certificate
of incumbency executed by the president and secretary of each Salcris Company
listing each officer and director of such Salcris Company and shall further have
delivered the written resignation, effective as of the Effective Time, of each
officer and director of each Salcris Company.
6.8 Consents, Waivers and Approvals. Reynolds shall have received a true
and correct copy of each consent, waiver or approval identified in Exhibit 2.21
hereto or otherwise required pursuant to Section 5.4.
6.9 Absence of Material Adverse Changes. Since September 30, 1994, neither
Salcris Company shall have suffered any change in its financial condition,
business, property or assets which materially and adversely affects the
Business.
6.10 Certified Resolutions. Salcris shall have delivered to Reynolds a
certificate executed by a duly authorized officer of Salcris containing true and
correct copies of the resolutions duly adopted by the board of directors and
shareholders of Salcris approving and authorizing this Agreement and its
consummation and the other transactions and actions required of Salcris. Such
officers shall also certify that such resolutions have not been revoked or
modified and remain in full force and effect.
6.11 Basic Corporate Documents. Salcris shall have delivered to Reynolds
copies of Salcris's Articles of Incorporation, certified as of a date within 30
days prior thereto by the Secretary of State of Alabama, Salcris' Bylaws,
certified as of such a date by Salcris' Secretary, and certificates of good
standing (long-form where available) or authority from the Secretary of State of
Alabama and those other jurisdictions identified in Exhibit 2.3.
6.12 Certificate and Articles of Merger. Salcris shall have delivered to
Reynolds the Certificate of Merger and Articles of Merger described in Section
1.7.
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6.13 Payment of Affiliate Receivables/Payables. Except for the obligations
of Salcris described in Section 5.12, all amounts payable by Salcris or
MediSpense to any shareholder, officer, director or subsidiary (direct or
indirect) of Salcris, or to any Affiliate of any of the foregoing (except for
amounts due as normal salaries, wages, benefits or reimbursement of ordinary
current business expenses) and all amounts payable to Salcris by any such
persons shall have been paid.
6.14 Termination of Restrictions on Salcris Shares. Salcris shall have
delivered to Reynolds evidence reasonably satisfactory to Reynolds of the
termination of all restrictions on transfer or rights of purchase or provisions
relating to voting regarding the Salcris Shares whether contained in Salcris'
Articles of Incorporation, Bylaws, a written or oral agreement or otherwise.
6.15 Escrow Agreements. The Escrow Agreement and Donald Escrow Agreement
shall have been executed.
6.16 Reynolds' Due Diligence. Reynolds shall have completed its due
diligence review with results satisfactory to Reynolds.
6.17 Salcris Shareholder Approval. This Agreement and each of the
transactions contemplated by this Agreement requiring approval by the
shareholders of Salcris shall have been duly and validly approved by the
shareholders of Salcris, no holders of Salcris Shares shall have exercised
dissenters' rights, and the period for exercise of such rights shall have
expired.
6.18 Employment Agreements. Mark Griffin, Henry W. Donald, Thomas A.
Wilcox and John H. Eads shall have executed employment agreements in the form
attached as Exhibit 6.18 (collectively, the "EMPLOYMENT AGREEMENTS").
6.19 Agreements Not to Compete. Henry W. Donald and Thomas C. Donald shall
have executed agreements not to compete in the form attached as Exhibit 6.19
(the "NON-COMPETE AGREEMENTS").
6.20 Termination and Release of Agreements. Salcris shall have delivered
evidence satisfactory to Reynolds of termination of (i) the Employment
Agreement, dated January 1993, between Mark A. Griffin and Salcris, (ii) the
Employment Agreement, dated November 15, 1994 between Thomas A. Wilcox and
Salcris, (iii) the Employment Agreement, dated April 14, 1994 between John H.
Eads and Salcris, (iv) the consulting agreement between Thomas C. Donald and
Salcris set forth in the Agreement Concerning Consultation Services and
Settlement of Disputes, dated June 23, 1993, among Thomas C. Donald, Lynn D.
Donald, Henry W. Donald and Salcris, and (v) the service agreement, dated May
16, 1993, between Altamont Capital Corporation and Salcris.
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6.21 Outstanding Obligations. Salcris shall have delivered written
confirmations of the amounts payable in full satisfaction of the outstanding
obligations for indebtedness of Salcris and MediSpense. Such confirmations shall
be in substantially the form of Exhibit 6.21.
6.22 Releases. Salcris shall have delivered written evidence satisfactory
to Reynolds of the Releases required by Section 5.8.
6.23 Transaction Expenses. Salcris shall have delivered to Reynolds a
written confirmation and release in the form of Exhibit 6.23 from each person to
whom any of the Salcris Companies are obligated with respect to the Transaction
Expenses.
6.24 TeleClaims Contract. Salcris and TeleClaims shall have executed an
amendment to the Preferred Provider/Non-Compete Agreement, dated March 24, 1992,
between Salcris and TeleClaims on terms which are acceptable to Reynolds.
6.25 Assignment of Third Party Software. Salcris shall have delivered to
the Surviving Corporation assignments, in form and substance acceptable to
Reynolds, of all rights in and to any software owned by Salcris or MediSpense
and used in the Business that has been developed by or with the assistance of
any person or entity other than an employee of Salcris or MediSpense in the
course of their employment.
6.26 Release by Sarah Hollis and Chris Donald. Reynolds shall have
received releases from each of Sarah Hollis and Chris Donald with respect to any
liability of Salcris and MediSpense and their successors, including without
limitation, liability for employee benefits.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF SALCRIS. The obligation of Salcris
to consummate this Agreement shall be subject to the satisfaction, on or before
the Effective Time, of the following conditions, all or any of which may be
waived by Salcris (the consequences of Salcris's waiver shall be as described in
Section 17.11).
7.1 Representations True at Closing. The representations and warranties
made by the Reynolds Companies in Section 4 hereof shall be true and correct in
all material respects on the Closing Date with the same force and effect as
though such representations and warranties had been made on and as of such date
(except for matters permitted by this Agreement) and Reynolds shall deliver to
Salcris a certificate dated as of the Closing Date to the foregoing effect for
each of the Reynolds Companies.
7.2 Covenants of the Reynolds Companies. The Reynolds Companies shall
have duly performed all of the covenants, acts or undertakings to be performed
by them on or before the Closing Date, and Reynolds shall deliver to Salcris
certificates dated as of the
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Closing Date to the foregoing effect for each of the Reynolds Companies.
7.3 Certified Resolutions. Reynolds shall have delivered to Salcris
certificates executed by a duly authorized officer containing a true and correct
copy of resolutions duly adopted by Newco's Board of Directors and sole
shareholder and by Reynolds' Board of Directors approving and authorizing this
Agreement and its consummation. Such officers shall also certify that such
resolutions have not been revoked or modified and remain in full force and
effect.
7.4 Opinion of Counsel. An opinion of counsel for Reynolds and Newco shall
have been delivered to Salcris, dated as of the Closing Date, in form and
substance reasonably satisfactory to Salcris and its counsel, and containing the
opinions identified in Exhibit 7.4.
7.5 No Injunction, Etc. No proceeding, investigation or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, or prohibit, or to obtain substantial
damages in respect of this Agreement, which, in the reasonable judgment of
Salcris, would make it inadvisable to consummate this Agreement.
7.6 Consents, Waivers and Approvals. Salcris shall have received a true
and correct copy of each consent, waiver or approval obtained by the Reynolds
Companies and required for the Reynolds Companies' execution and consummation of
this Agreement.
7.7 Incumbency. Reynolds shall have delivered certificates of incumbency
for each of the Reynolds Companies executed by a duly authorized officer listing
the officers executing this Agreement and any other agreements or documents
contemplated hereunder.
7.8 Escrow Agreements. The Escrow Agreement and Donald Escrow Agreement
shall have been executed.
7.9 Certificate and Articles of Merger. Newco shall have delivered to
Salcris the Certificate of Merger and Articles of Merger described in Section
1.7.
7.10 Absence of Material Adverse Change. Reynolds shall not have suffered
any change in its financial condition, business, property or assets which
materially and adversely affects its business.
7.11 Transmittal Letters. Reynolds shall have delivered at the Closing
Transmittal Letters in a form ready for execution.
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8. MUTUAL COVENANTS.
8.1 Representations and Warranties. Each of the parties hereto shall
refrain from taking any action which would render any representation or warranty
contained in Sections 2, 3 or 4 of this Agreement inaccurate as of the Effective
Time. Each party shall promptly notify the other of any action or proceeding
that shall be instituted or threatened against such party to restrain, prohibit
or otherwise challenge the legality of any transaction contemplated by this
Agreement. Salcris shall promptly notify Reynolds of any lawsuit, claim or
investigation that may be threatened or brought against Salcris or MediSpense
which would have been listed on Exhibit 2.13 if such lawsuit, claim or
investigation had arisen prior to the date hereof. Each party shall promptly
notify the other parties of any material adverse change in any representation or
warranty made by such party in this Agreement.
8.2 Tax Reporting. The parties will file their respective income tax
returns on the basis that (i) this transaction qualifies as a "reorganization"
under Section 368(a) of the Code and (ii) no interest is imputed under Section
483 (or any other provision) of the Code to the Shareholders upon receipt of the
Escrow Shares out of escrow. The parties will not take a tax return position
inconsistent with the foregoing tax return positions unless such inconsistent
position shall arise out of or through an audit of such returns by the Internal
Revenue Service or other taxing authority. The Shareholders shall cooperate with
Reynolds to enable Reynolds to identify the Salcris tax attributes and tax basis
information and shall provide Reynolds with all relevant records related
thereto.
9. CLOSING.
9.1 Time and Place. The closing for the Merger (the "CLOSING") shall be
held at the offices of Bradley, Arant, Rose and White, 2001 Park Place, Suite
1400, Birmingham, Alabama on May 10, 1995, at 10:00 a.m., or at such other place
or on such other date as the parties hereto may mutually agree. The date on
which the Closing is held is referred to in this Agreement as the "CLOSING
DATE."
9.2 Transactions at the Closing. At the Closing, each of the following
transactions shall occur:
(a) Salcris' Performance. At the Closing, Salcris shall deliver to
Reynolds the following:
(i) the certificates, agreements, opinions and documents
described in Section 6;
(ii) the updated Exhibits required by Section 5.5;
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(iii) the certificate of Salcris described in Section 17.12; and
(iv) such other evidence of the performance of all covenants and
satisfaction of all conditions required of Salcris by this Agreement, at or
prior to the Closing, as Reynolds or its counsel may reasonably require.
(b) Performance by the Reynolds Companies. At the Closing, the
Reynolds Companies shall deliver to Salcris, the holders of the Merged Shares,
the Escrow Agent or certain other parties, as applicable, the following:
(i) stock certificates representing the Reynolds Shares
required to be delivered under Sections 1.6(a) and (d) shall be delivered to the
Donald Shareholders in the denominations specified by the Donald Shareholders in
writing to Reynolds no later than two (2) days prior to the Closing;
(ii) stock certificates representing the Reynolds Shares
required to be delivered under Section 1.6(b) shall be delivered to the Escrow
Agent for deposit pursuant to the Escrow Agreement;
(iii) stock certificates representing the Reynolds Shares
required to be delivered under Section 1.6(c) shall be delivered to the Donald
Escrow Agent for deposit pursuant to the Donald Escrow Agreement;
(iv) the certificates, agreements, opinions and documents
described in Section 6;
(v) the certificates of Reynolds described in Sections 17.11
and 17.12;
(vi) a certificate of good standing of Reynolds from the
Secretary of State of Ohio and a certificate of good standing of Newco from the
Secretary of State of Ohio, each as of the most recent practicable date; and
(vii) such other evidence of the performance of all covenants
and satisfaction of all conditions required of the Reynolds Companies by this
Agreement, at or prior to the Closing, as Salcris or its counsel may reasonably
require.
9.3 Default at Closing. Notwithstanding the provisions of Section 1, if
either Reynolds or the Donald Shareholders shall fail or refuse to consummate
the transactions set forth in this Agreement on or prior to the Closing Date,
and if the other party shall not then be in material breach under terms of this
Agreement, all other conditions to the Closing shall have been satisfied and the
non-breaching party shall stand ready, willing and able to make tender of their
deliveries required under Section 8.2, then, in
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addition to any other remedies available to it, the non-breaching party may
invoke any equitable remedies to cause the Merger hereunder, including, without
limitation, an action or suit for specific performance.
10. EMPLOYEES OF SALCRIS.
10.1 Identification of Employees. Exhibit 10.1 lists all employees of
Salcris and MediSpense.
10.2 Evaluation of Employees. From the date hereof to the Closing, Salcris
will use its best efforts to maintain existing relations with its and
MediSpense's employees and not to alter current personnel policies and practices
with respect to such employees.
10.3 General. Except as set forth in the Employment Agreements, nothing in
this Agreement shall be construed as or deemed to be an undertaking by the
Reynolds Companies to retain any employees of Salcris or MediSpense after the
Effective Time, for any period of time, or under any particular terms and
conditions, all of such matters to be at the Reynolds Companies' discretion.
None of Salcris, the Shareholders or the Beneficial Parties will be liable for
any violation of an implied employment agreement or under similar common law
theory of recovery as a result of Reynolds terminating or failing to continue
the employment of any employees of Salcris or MediSpense after the Closing in
the absence of tangible evidence that the liability was created by Salcris or
MediSpense prior to the Closing.
11. FURTHER ASSURANCES. If, after the Effective Time, the Surviving Corporation
determines that any further documents or assurances are necessary or desirable
to vest, perfect or confirm in the Surviving Corporation title to any property
or rights of Newco or Salcris vested in the Surviving Corporation as a result of
the Merger, Newco and Salcris agree to execute and deliver all such documents in
law and do all things necessary or desirable to vest, perfect or confirm title
to such property or rights in the Surviving Corporation and otherwise to carry
out the purpose of this Agreement. The officers and directors of Salcris and the
officers and directors of Newco are fully authorized in the name of Salcris or
otherwise to take any and all such action.
12. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations and
warranties made by Salcris, the Shareholders, the Beneficial Parties or the
Reynolds Companies shall survive for a period of one (1) year after the Closing
(except for the representations and warranties in Section 2.6 and 2.29 which
shall survive for the periods of the applicable statutes of limitation;
provided, however, that no claim for a breach of a representation or warranty,
including without limitation a claim for indemnification pursuant to Section 16,
may be brought under this Agreement by any person unless written notice of the
claim shall
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have been given on or prior to the last day of the applicable survival period
(in which event each representation and warranty with respect to any asserted
claim shall survive until such claim is finally resolved and all obligations
with respect thereto are fully satisfied). Indemnification under the provisions
of this Agreement shall be the sole remedy for the breach of the representations
and warranties made under this Agreement. The individual representations and
warranties made by the holders of the Merged Shares in the Transmittal Letters
shall survive forever.
13. CONFIDENTIALITY OF INFORMATION. The provisions of the Disclosure Agreement
between Salcris and Reynolds executed by Reynolds and Salcris on March 1, 1995
shall survive execution of this Agreement and are incorporated by reference in
this Agreement as if written in this Agreement. The Donald Shareholders
acknowledge that certain confidential and proprietary information (the "REYNOLDS
INFORMATION") regarding the business operations of Reynolds will be disclosed to
the Salcris Companies in connection with the Merger. The Donald Shareholders
agree to hold such Reynolds Information in confidence pursuant to the referenced
Confidentiality Agreement. The obligations of confidentiality contained in this
Section shall survive the Closing or termination of this Agreement for any
reason.
14. TERMINATION. This Agreement may be terminated, and the transactions
contemplated herein abandoned (a) by the mutual written consent of Salcris and
the Reynolds Companies; (b) by either Salcris or the Reynolds Companies upon the
failure of the other to comply substantially with its or their conditions
precedent to Closing and other obligations set forth herein on or before the
Closing Date; or (c) automatically at 5:00 p.m. Dayton, Ohio time on May 31,
1995, if the Closing has not been completed by that time. Termination pursuant
to this Section shall relieve the parties of their obligations hereunder with
each party responsible for its own, fees, costs and expenses; provided, however
that if the Agreement is terminated pursuant to (b) or (c) above because one
party fails to use its reasonable best efforts to fulfill its obligations
hereunder, such party shall remain liable to the other party for all losses,
costs, expenses (including attorney's fees) and liabilities incurred by such
other party as a result of such failure.
15. TRANSACTION EXPENSES.
15.1 Certain Transaction Expenses. Reynolds shall cause the Surviving
Corporation to pay Salcris' liability for professional expenses related solely
and directly to this Agreement and the transactions contemplated hereby which
are incurred by Salcris (as opposed to such expenses incurred by the
Shareholders or any employees of Salcris), up to $350,000 (the "TRANSACTION
EXPENSES").
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15.2 Brokers. Reynolds and Salcris each represent and warrant to the other
that no broker or finder has acted for it or them in connection with this
Agreement, except that Salcris has retained Porter, White & Company, Inc. in
connection with this Agreement.
15.3 Expenses. Except for the Transaction Expenses covered under Section
5.1, all expenses incurred by the parties in connection with or related to the
authorization, preparation, execution and consummation of this Agreement,
including without limitation, all fees and expenses of agents, representatives,
investment bankers, printers, counsel and accountants employed by any such
party, and any severance, bonus or other employee-related expenses resulting
from the Merger shall be borne solely by the party which has incurred the same.
16. INDEMNIFICATION.
16.1 Indemnification of the Reynolds Companies and the Surviving
Corporation by the Shareholders and the Beneficial Parties. Salcris, the
Shareholders and the Beneficial Parties agree to indemnify, defend and hold
harmless the Reynolds Companies and the Surviving Corporation from and against
any and all losses, damages, costs, expenses (including reasonable attorneys'
fees), interest, penalties and liabilities (a "LOSS") incurred by the Reynolds
Companies or the Surviving Corporation arising out of (a) the breach of any of
the warranties, representations, covenants or agreements of Salcris, the
Shareholders or the Beneficial Parties in this Agreement or in any certificate
or document delivered to Reynolds in connection with this Agreement or any of
the transactions contemplated hereby or (b) the solicitation of proxies from the
Shareholders of Salcris in connection with any of the transactions provided for
in this Agreement, including the Merger. Reynolds has the duty to mitigate
damages resulting from any Loss. In no event shall Reynolds be entitled to
recover its (as opposed to a third party's) lost profits or punitive damages.
Salcris shall have the benefit of any insurance proceeds actually received as a
result of any Loss, provided that Reynolds shall decide in its sole discretion
whether to seek recovery against its insurers, and Reynolds will not have any
rights of subrogation against such benefits.
16.2 Indemnification of Salcris by the Reynolds Companies and the
Surviving Corporation. The Reynolds Companies and the Surviving Corporation
jointly and severally agree to indemnify, defend and hold harmless the holders
of the Merged Shares from and against any Loss incurred by them arising out of
the breach of any of the warranties, representations, covenants or agreements of
Reynolds in this Agreement or in any certificate or document delivered to
Salcris in connection with this Agreement or any of the transactions
contemplated hereby. The holders of the Merged Shares have the duty to mitigate
damages resulting from any Loss. In no event shall the holders of the Merged
Shares be entitled to recover their (as opposed to a third party's) lost profits
or
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<PAGE> 49
punitive damages. Reynolds shall have the benefit of any insurance proceeds
actually received as a result of any Loss, provided that the holders of the
Merged Shares shall decide in their sole discretion whether to seek recovery
against their insurers, and such holders will not have any rights of subrogation
against such benefits.
16.3 Procedures for Indemnification. "INDEMNITOR" shall mean the party
against whom indemnity is sought, and "INDEMNITEE" shall mean the party seeking
indemnification.
(a) A claim for indemnification hereunder ("INDEMNIFICATION CLAIM")
shall be made by Indemnitee by delivery of a written declaration to Indemnitor
(with a copy being contemporaneously forwarded to the Escrow Agent if the
Indemnitor is a Shareholder or Beneficial Party) requesting indemnification and
specifying the basis on which indemnification is sought and the amount of
asserted Losses and, in the case of a Third Party Claim (as defined in Section
16.4 hereof), containing such other information as Indemnitee shall have
concerning such Third Party Claim.
(b) If the Indemnification Claim involves a Third Party Claim the
procedures set forth in Section 16.4 hereof shall be observed by Indemnitee and
Indemnitor.
(c) If the Indemnification Claim involves a matter other than a
Third Party Claim, the Indemnitor shall have thirty (30) days (or such lesser
period as Indemnitee requests so as to avoid prejudice to the underlying claim)
to object to such Indemnification Claim by delivery of a written notice of such
objection to Indemnitee (with a copy being forwarded contemporaneously to the
Escrow Agent if the Indemnitor is a Shareholder or Beneficial Party) specifying
in reasonable detail the basis for such objection. Failure to timely so object
shall constitute acceptance of the Indemnification Claim by the Indemnitor and
the Indemnification Claim shall be paid in accordance with Section 16.3(d). If
any objection is timely interposed by the Indemnitor and the dispute is not
resolved within fifteen (15) days from the date Indemnitee (and the Escrow Agent
if the Indemnitor is a Shareholder or Beneficial Party) receives such objection,
such dispute will be resolved as provided in Section 17.13 of this Agreement.
(d) Upon determination of the amount of an Indemnification Claim,
whether by agreement between Indemnitor and Indemnitee, by an arbitration award
or otherwise, Indemnitor shall pay the amount of such Indemnification Claim
within fifteen (15) days of the date such amount is determined; provided,
however, if the Indemnitor is a Shareholder or Beneficial Party and such amount
has not otherwise been paid, such Indemnitor shall cause the Escrow Agent to pay
the amount of such claim to the Indemnitee in accordance with the Escrow
Agreement from the applicable Escrow
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Fund, and if the amount of such Indemnification Claim exceeds the amount then
remaining in the applicable Escrow Fund, the excess amount of such
Indemnification Claim shall be promptly paid by the Indemnitor.
16.4 Defense of Third Party Claims. Should any claim be made, or suit or
proceeding (including, without limitation, a binding arbitration or an audit by
any taxing authority) be instituted against Indemnitee which, if prosecuted
successfully, would be a matter for which Indemnitee is entitled to
indemnification under this Agreement (a "THIRD PARTY CLAIM"), the obligations
and liabilities of the parties with respect to such Third Party Claim shall be
subject to the following terms and conditions.
(a) For all Third Party Claims, the procedures in this Section
16.4(a) shall apply.
The Indemnitee shall give the Indemnitor written notice of any Third
Party Claim promptly after receipt by the Indemnitee of actual notice thereof.
Indemnitor shall then have fifteen (15) days after receipt of Indemnitee's
notice within which to notify Indemnitee in writing (i) whether or not
Indemnitor disputes liability hereunder with respect to the Third Party Claim,
and (ii) whether or not Indemnitor desires, at its sole cost and expense, to
defend Indemnitee against such Third Party Claim; provided, however, that if
Indemnitor notifies Indemnitee that Indemnitor desires to defend pursuant to
clause (ii) and at the conclusion of that defense there remains any obligation
to the party asserting the Third Party Claim, that shall constitute an admission
by Indemnitor of Indemnitee's right to indemnification with respect to the Third
Party Claim. Failure to notify Indemnitee within such 5-day period under clause
(i) in the preceding sentence shall constitute an admission by Indemnitor of
Indemnitee's right to indemnification with respect to the Third Party Claim, and
failure by Indemnitor to notify Indemnitee within such 5-day period under clause
(ii) in the preceding sentence shall give Indemnitee the right to settle or
defend the Third Party Claim at Indemnitee's sole election. In the event
Indemnitor notifies Indemnitee within such 15-day period that Indemnitor desires
to defend the Third Party Claim, Indemnitor shall have the right to undertake
and control defense of the Third Party Claim by appropriate proceedings with
attorneys of Indemnitor's own choosing, which proceedings shall be settled or
diligently prosecuted by Indemnitor in good faith to a final conclusion (i.e.,
agreement between a Shareholder or Beneficial Party and Reynolds, final judgment
or arbitration award or settlement with the party asserting the Third Party
Claim). If Indemnitee desires to participate in, but not control, any such
defense or settlement, Indemnitee may do so at Indemnitee's sole cost and
expense. If under any circumstance Indemnitee controls defense of the matter,
Indemnitor shall have the right to participate in that defense at Indemnitor's
sole cost and expense. If the Indemnitor fails or refuses to undertake the
defense of the Third Party Claim within the 5-day period described
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<PAGE> 51
in the second sentence of this paragraph, the Indemnitee shall have the right to
defend, compromise and, subject to Section 16.5, settle such Third Party Claim
with counsel of its own choosing.
In the event a Shareholder or Beneficial Party is the Indemnitor,
upon expiration of the 5-day period described in the second sentence of the
preceding paragraph, Reynolds shall file with the Escrow Agent a notice pursuant
to the Escrow Agreement (provided that payment of the Indemnification Claim
shall not be due until determination of the amount of the Loss by agreement
between such Indemnitor and Reynolds, a binding arbitration award, a final
judgment or a settlement between Indemnitor and the third party claimant).
Notwithstanding anything to the contrary in this Section 16.4(a), if
the Third Party Claim is a tax audit which involves issues related to parties
other than a Shareholder or Beneficial Party and Reynolds is the Indemnitee,
Indemnitee shall retain the right to defend, compromise and settle (subject to
Section 16.5) the Third Party Claim. If Indemnitee defends such a Third Party
Claim, Indemnitor shall be entitled to participate in the defense, compromise
and settlement of the Third Party Claim with counsel of Indemnitor's own
choosing but at Indemnitor's cost and expense.
(b) The Indemnitee and Indemnitor shall cooperate with each other
in all reasonable respects in connection with the defense of any Third Party
Claim, including making available records relating to such claim and furnishing,
without expense to the Indemnitor, management and clerical employees of the
Indemnitee as may be reasonably necessary for the preparation of the defense of
any such claim or for testimony as a witness in any proceeding relating to such
claim.
16.5 Settlement of Third Party Claims. No settlement of a Third Party
Claim shall be made without the prior written consent of the Indemnitor, which
consent shall not be unreasonably withheld or delayed. Consent shall be presumed
in the case of settlements of $5,000 or less where the Indemnitor has not
responded within five (5) days of notice of a proposed settlement.
16.6 Limitations.
(a) Notwithstanding anything to the contrary herein, no Shareholder
or Beneficial Party, as an Indemnitor, shall have any obligation until the
aggregate of all Losses payable by such Indemnitors to the Indemnitee exceeds
$82,500. Upon the aggregate of all Losses payable by any and all Shareholders
and Beneficial Parties, as Indemnitors, exceeding $82,500, such Indemnitors
shall be liable to the Indemnitee for the amount of such Losses in excess of
$82,500. In addition, such Indemnitors shall not be liable for Losses arising in
connection with a breach of the representation set forth in (a) Section 2.7
until the aggregate of all Losses payable thereunder exceeds $60,000, (b)
Section 2.8 until the
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aggregate Losses payable thereunder exceed $200,000 and (c) Section 2.9 until
the aggregate Losses payable thereunder exceed $60,000; nor shall such
Indemnitors be liable for Losses arising in connection with (i) unpaid sales tax
liabilities until the aggregate Losses payable exceed $240,000, (ii) unpaid use
tax liabilities until the aggregate Losses payable exceed $24,950, (iii) unpaid
vacation liabilities until the aggregate Losses payable exceed $43,000 and (iv)
unpaid training liabilities until the aggregage Losses payable exceed $130,000.
(b) Notwithstanding anything to the contrary herein, the Reynolds
Companies and the Surviving Corporation, as Indemnitors, shall not have any
obligation until the aggregate of all Losses payable to the Indemnitee exceeds
$82,500. Upon the aggregate of all Losses payable by the Reynolds Companies and
the Surviving Corporation, as Indemnitors, exceeding $82,500, such Indemnitors
shall be liable to the Indemnitee for the amount of such Losses in excess of
$82,500.
(c) Notwithstanding anything to the contrary herein, the liability
of each of Mark A. Griffin and John H. Eads under this Agreement shall not
exceed 10% of the Management Bonuses received by each of them.
(d) The payment of any Loss hereunder shall constitute an
additional adjustment to the consideration paid for the Merged Shares. Any
indemnification obligation of Reynolds shall be satisfied by the delivery of
Reynolds Shares, and the number of shares to be delivered shall be computed on
the basis of the Base Price.
(e) Notwithstanding anything in this Section 16 to the contrary,
the rights and obligations of the parties with respect to indemnification for
any and all Taxes shall be determined under Section 18.
(f) Notwithstanding anything to the contrary herein, except for the
obligations under Section 16.1(a) with respect to breaches of the
representations, warranties, covenants and agreements contained in Sections
2.3(a), 2.11, 3.1, 3.2 and 3.4, the liability of the Donald Shareholders under
Section 16 shall in no event exceed the following aggregate limits:
(i) $7,189,000 with respect to breaches, individually and in
the aggregate, of the representations, warranties, covenants and agreements
contained in Sections 2.4, 2.5, 2.6, 2.13(b), 2.17, 2.18, 2.20, 2.22, 2.24,
2.25, 2.28, 2.29, 4.4, 18.1 and 18.2 regardless of whether the breaching party
had knowledge of the accuracy thereof, and breaches of the representations,
warranties, covenants and agreements listed in Sections 16.6(f)(ii) and (iii) as
to which the breaching party had knowledge of the accuracy thereof, (the "100%
LIMITATION");
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(ii) $3,594,500 with respect to breaches, individually and in
the aggregate, of the representations, warranties, covenants and agreements
contained in Sections 2.2, 2.3(b), 2.12, 2.13(a), 2.14, 2.16(b), 2.16(c), 2.19,
2.21, 2.23, 2.26, 4.2 and 4.3 as to which the breaching party had no knowledge
of the accuracy thereof (the "50% LIMITATION"); and
(iii) $718,900 with respect to breaches, individually and in
the aggregate, of the representations, warranties, covenants and agreements
contained in Sections 2.1, 2.7, 2.8, 2.9, 2.10, 2.15, 2.16(a) and 4.1 as to
which the breaching party had no knowledge of the accuracy thereof (the "10%
LIMITATION").
In no event shall the individual liability of any of the Donald Shareholders
exceed (a) for breaches by such party that are subject to the 100% Limitation,
100% of the consideration received from Reynolds by such party in connection
with the Merger and the Noncompete Agreements, (b) for breaches by such party
that are subject to the 50% Limitation, 50% of the consideration received from
Reynolds by such party in connection with the Merger and the Non-compete
Agreements, and (c) for breaches by such party that are subject to the 10%
Limitation, 10% of the consideration received from Reynolds by such party in
connection with the Merger and the Non-compete Agreements.
Notwithstanding anything to the contrary herein, the liability of the Reynolds
Companies under Section 16 shall in no event exceed the limitations set forth in
Sections 16.6(f)(i), (ii) and (iii) with respect to breaches of the
representations identified in such sections made by the Reynolds Companies.
The liability of the parties under Section 16 with respect to (x) breaches
subject to the 100% Limitation, the 50% Limitation and the 10% Limitation shall
not exceed, individually or in the aggregate, $7,189,000 and (y) breaches
subject to the 50% Limitation and the 10% Limitation shall not exceed,
individually or in the aggregate, $3,594,500.
(g) To the extent that any party indemnified hereunder actually
realizes a net tax benefit as a result of any Loss as to which it has been fully
indemnified hereunder (except to the extent that its right to recover has been
subject to the provisions of Sections 16.6(f) (ii) or (iii) above), such party
shall reimburse the Indemnitor for the amount of any such net tax benefit that
has been determined by its certified public accountant to be realizable by such
party, but not until after such benefit has been realized by the indemnified
party. In the event that the Indemnitee's realization of a tax benefit is
successfully challenged by the relevant taxing authority, the Indemnitor shall
return the amount of net tax benefit received from the Indemnitee, together with
interest at the rate of prime plus 1% per annum, from the date upon which the
Indemnitor received the net tax benefit reimbursement.
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17. MISCELLANEOUS.
17.1 Accounting Records. After the Closing Date, the holders of the Merged
Shares and their representatives shall have reasonable access to all of the
books and records of the Salcris Companies to the extent that such access may
reasonably be required by such persons in connection with matters relating to or
affected by the operations of Salcris prior to the Effective Time. Such access
shall be afforded by Reynolds upon receipt of reasonable advance notice and
during normal business hours. The holders of the Merged Shares shall be solely
responsible for any costs or expenses incurred by them pursuant to this Section,
including with respect to Reynolds, all reimbursable out-of-pocket costs.
17.2 Notice. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given and received (a) on the
date of delivery when delivered by hand or when transmitted by confirmed
simultaneous telecopy, (b) on the following business day when sent by receipted
overnight courier, or (c) three (3) business days after deposit in the United
States Mail when mailed by registered or certified mail, return receipt
requested, first class postage prepaid, as follows:
(a) If to Salcris (prior to the Effective Time) to:
Salcris Corporation
800 Concourse Parkway
Birmingham, AL 35244
Attn: Mr. Mark A. Griffin
Fax: (205) 444-5595
With a copy to:
Thomas N. Carruthers, Esq.
Bradley, Arant, Rose & White
2001 Park Place, Suite 1400
Birmingham, AL 35203
Fax: (205) 252-0264
(b) If to Shareholders or Beneficial Parties to:
Henry W. Donald
Salcris Corporation
800 Concourse Parkway
Birmingham, AL 35244
Fax: (205) 444-5595
Mark A. Griffin
Salcris Corporation
800 Concourse Parkway
Birmingham, AL 35244
Fax: (205) 444-5595
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John H. Eads
Salcris Corporation
800 Concourse Parkway
Birmingham, AL 35244
Fax: (205) 444-5595
Thomas C. and Lynn D. Donald
P. O. Box 43288
Birmingham, AL 43288
With a copy to:
Mark D. McKnight, Esq.
3000 Riverchase Galleria, Suite 490
Birmingham, AL 35244
Fax: (205) 985-3711
In each case with a copy to:
Thomas N. Carruthers, Esq.
Bradley, Arant, Rose & White
2001 Park Place, Suite 1400
Birmingham, AL 35203
Fax: (205) 252-0264
(c) If to Reynolds to:
The Reynolds and Reynolds Company
800 Germantown Street
Dayton, Ohio 45407
Attn: Mr. Jack Proud
FAX (513) 443-2080
With a copy to:
The Reynolds and Reynolds Company
Karen J. Blackwell, Esq.
800 Germantown Street
Dayton, Ohio 45407
FAX (513) 443-2094
Any party may change the address to which notices are to be sent to it by giving
written notice of such change of address to the other parties in the manner
above provided for giving notice.
17.3 Assignment; Binding Effect. This Agreement may not be assigned by any
of the parties hereto without the prior written consent of the other parties
hereto. This Agreement shall be binding upon the parties hereto and their
respective permitted successors, assigns and transferees.
17.4 Headings; Exhibits and Schedules. The Section, Subsection and other
headings in this Agreement are inserted solely
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as a matter of convenience and for reference, and are not a part of this
Agreement. The Exhibits and Schedules attached hereto are a material part of
this Agreement and are incorporated herein by this reference.
17.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one counterpart has been signed by each party and
delivered to the other party hereto.
17.6 Integration of Agreement. Except for the other agreements to be
signed in connection with this Agreement, this Agreement supersedes all prior
agreements, oral and written, between the parties hereto with respect to the
subject matter hereunder. Neither this Agreement, nor any provision hereof, may
be changed, waived, discharged, supplemented or terminated orally, but only by
an agreement in writing signed by the party against which the enforcement of
such change, waiver, discharge or termination is sought.
17.7 Time of Essence. Time is of the essence in this Agreement.
17.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Ohio.
17.9 Disclosure. Reynolds and Salcris each agree not to issue any press
release or make any public announcement or other disclosure to competitors,
customers, employees or any other person (except to employees and agents on a
need-to-know basis in order to complete transactions and who agree not to make
any unauthorized disclosure) concerning this Agreement except as required by law
or with the advance written approval of the other party, which approval shall
not be unreasonably withheld.
17.10 Partial Illegality or Unenforceability. Wherever possible, each
provision hereof shall be interpreted in such manner as to be effective under
applicable law, but in case any one or more of the provisions contained herein
shall, for any reason, be held to be illegal or unenforceable in any respect,
such illegality or unenforceability shall not affect any other provisions of
this Agreement, and this Agreement shall be construed as if such illegal or
unenforceable provision or provisions had never been contained herein unless the
deletion of such provision or provisions would result in such a material change
as to cause completion of the transactions contemplated hereby to be
unreasonable.
17.11 Right to Proceed. If any of the conditions specified in Section 6
hereof have not been satisfied (provided that such conditions are specified in
the certificate delivered pursuant to Section 17.12), Reynolds shall have the
right to proceed with the transactions contemplated hereby, but Reynolds shall
be deemed to
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have waived its rights hereunder with respect to such failed conditions. If any
of the conditions specified in Section 7 hereof have not been satisfied
(provided that such conditions are specified in a certificate delivered at
Closing by Reynolds pursuant to Section 17.12), Salcris shall have the right to
proceed with the transactions contemplated hereby, but Salcris shall be deemed
to have waived its rights hereunder with respect to such failed conditions.
17.12 Effect of Investigation. Any inspection, preparation or compilation
of information or Exhibits or audit of the inventories, properties, financial
condition or other matters relating to Salcris or the Business conducted by or
on behalf of Reynolds pursuant to this Agreement shall in no way limit, affect
or impair the ability of Reynolds to rely upon the representations, warranties,
covenants and agreements of Salcris set forth herein. Notwithstanding the
foregoing sentence, each of Reynolds and Salcris shall deliver at Closing a
certificate identifying with specificity any breaches to their respective
knowledge (or events which with notice, lapse of time or both would become
breaches) of the representations, warranties, covenants or agreements of Salcris
or the Reynolds Companies and any of the conditions specified in Section 6 or
Section 7 which have not been satisfied. Such certificates shall set forth all
material facts related to such breaches, conditions or events. If Reynolds
proceeds with the Closing, Reynolds shall be deemed to have waived its rights
hereunder with respect to all breaches, conditions or events.
17.13 Arbitration.
(a) Any controversy, dispute or claim arising out of or relating to
this Agreement shall be submitted to arbitration in accordance with the
commercial rules of the American Arbitration Association ("AAA"), by which each
party will be bound.
(b) If the parties have not agreed during their negotiations on a
single arbitrator to whom the controversy, dispute or claim will be submitted,
either party may select an arbitrator and send written notice to the other party
of the selection. The party receiving such notice will have 10 days from the
date such party receives such notice of such selection to select a second
arbitrator and send notice of such to the party who selected the first
arbitrator. Failure to select the second arbitrator and to send timely notice,
as provided above, empowers the arbitrator first selected to resolve the
controversy. If both arbitrators have been duly named, they will as soon as is
reasonably practicable (but within 30 days from the date the latter of the two
arbitrators is named) name a third arbitrator who shall not be from the Dayton,
Ohio or Birmingham, Alabama metropolitan areas. The provisions of the Federal
Rules of Civil Procedure which provide for discovery shall be applicable to any
such arbitration. The parties agree that such discovery must be
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completed within six (6) months after the claim has been filed with the AAA and
service on the other party effected.
(c) Any arbitration proceedings will be conducted in Nashville,
Tennessee unless the parties otherwise agree.
(d) The parties agree to be bound by the decision of the arbitrator
and the decision thereof to be entered into any appropriate court or other
jurisdiction. Unless otherwise provided in this Agreement, the prevailing party
in the arbitration shall be promptly reimbursed for its reasonable costs and
fees (including attorneys' fees) incurred in connection with the arbitration and
shall not be responsible for the costs of arbitration.
17.14 "Knowledge". For purposes of this Agreement, "to the best of
________'s knowledge" or "to ______________'s knowledge" shall mean the actual
knowledge of the subject party; provided, however, that each person which is not
a natural person shall be charged with the actual knowledge of its directors,
officers and any other person who has represented such party in the transaction
contemplated herein and Salcris shall also be charged with the actual knowledge
of the Shareholders and the Beneficial Parties.
17.15 "Owned Intellectual Intangibles". For purposes of this Agreement,
"Onwed Intellectual Intangibles" shall mean (a) those designated on Exhibit 2.18
as being owned, and (b) disclosures which are owned by either of the Salcris
Companies.
17.16 "Used Intellectual Property Intangibles". For purposes of this
Agreement, "Used Intellectual Property Intangibles" shall mean (a) those
designated on Exhibit 2.18 as being licensed, (b) disclosures which are used by,
but not owned by a Salcris Company, and (c) know-how.
18. TAX INDEMNIFICATION.
18.1 Indemnification by Shareholders. The Shareholders jointly and
severally agree to indemnify, defend, and hold harmless Reynolds, including in
its capacity, if any, as a transferee or successor of Salcris, and its
successors and assigns from and against: (a) any and all Taxes and Tax Losses
(as defined in Section 18.6) that arise out of the breach of any representation
or warranty set forth in Sections 2.6 and 2.29, and (b) any and all Taxes
imposed on Salcris for all taxable periods or portions thereof ending on or
before the Closing Date and all related Tax Losses incurred by Reynolds.
18.2 Indemnification By Reynolds. Reynolds agrees to indemnify, defend, and
hold harmless the Shareholders from and against any and all Taxes and Tax Losses
imposed on the Shareholders if a court of competent jurisdiction determines, or
Reynolds enters into a settlement agreement with the Internal Revenue Service,
that Reynolds' acquisition of Salcris' Shares does
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not qualify as a reorganization under Section 368(a) of the Code solely by
reason of Reynolds' breach of any of the representations and warranties set
forth in Section 4.4.
18.3 Calculation of Indemnity Payment. Notwithstanding anything to the
contrary herein, the amount of any indemnification payable under this Section 18
shall be an amount which is equal to the sum of (i) the applicable Tax imposed
and (ii) the Tax Losses associated with such Tax.
18.4 Tax Contests.
(a) After the Closing, Reynolds shall notify Shareholders, and
Shareholders shall notify Reynolds, as the case may be, in writing of any
written notice of a proposed assessment of Tax or claim for Tax raised in an
audit or administrative or judicial proceeding that, if determined adversely to
the taxpayer, would be grounds for indemnification under this Section 18. Any
failure of one party to give timely notice to the other pursuant to this Section
18.4 shall preclude any claim for indemnification for such Tax if such failure
materially prejudices such other.
(b) In the event of a proposed assessment of Tax described in
Section 18.1, Reynolds shall have the right to participate in and control the
audit or other proceeding for the determination of such Tax. The Shareholders
shall have the right at their expense to participate in such audit or
proceeding, but shall not have any right to control all or any portion of such
audit or proceeding.
(c) In the event of a proposed assessment of Tax described in
Section 18.2, the Shareholders shall have the right to participate in and
control the audit or proceeding for the determination of such Tax. Reynolds
shall have the right, at its expense, to participate in such audit or
proceeding, but shall not have any right to control all or any portion of such
audit or proceeding. Notwithstanding any of the foregoing, the Shareholders
shall not settle, compromise or abandon without Reynolds' prior written consent
to any claim for Tax described in Section 18.2.
(d) The Shareholders and Reynolds agree to cooperate in the defense
against or the compromise of a proposed assessment of Tax described in Section
18.1 or Section 18.2.
18.5 Time of Payment. Payment of any Tax or any Tax Losses for which a
party is entitled to indemnification under Section 18.1 or Section 18.2 shall be
made on or before the later to occur of (a) five (5) business days following an
agreement between Shareholders and Reynolds that one party is obligated to
indemnify the other for such Tax, and (b) five (5) business days before the due
date of or the payment of such Tax to the relevant taxing authority.
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18.6 Definitions. For purposes of this Section 18, the following terms
shall have the following meanings:
(a) "TAX" or "TAXES" shall have the meanings set forth in Section
2.29.
(b) "TAX LOSS" means all costs and expenses (including reasonable
attorneys' fees through all appellate levels) directly incurred with respect to
any Taxes for which a party is entitled to indemnification under Sections 18.1
and 18.2. Notwithstanding the above, a Tax Loss shall not arise from a sale or
disposition of the Reynolds Shares by any of the Donald Shareholders at any time
beginning one year after the Closing Date.
The parties have executed this Agreement as of this 10th day of May, 1995.
"Salcris":
SALCRIS CORPORATION
By
------------------------------------------
Mark A. Griffin
President
"Reynolds":
THE REYNOLDS AND REYNOLDS COMPANY
By
-----------------------------------------
H. John Proud
President, Healthcare Systems Division
"Newco":
SC ACQUISITION CORP.
By
-----------------------------------------
H. John Proud
President
-------------------------------------------
HENRY W. DONALD
-------------------------------------------
LYNN D. DONALD, Individually
55
<PAGE> 61
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LYNN D. DONALD, as Trustee of
the Duty Trust
-------------------------------------------
MARK A. GRIFFIN
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JOHN H. EADS
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THOMAS C. DONALD
648000\551BLS7.ACQ
5-10-95-8
56
<PAGE> 1
COOLIDGE
WALL 600 IBM Building
WOMSLEY & 33 West FIfth Street
LOMBARD Dayton, Ohio 45402-1289
513-223-8177
A Legal Professional Telecopier: 513-223-6705
Association Cable: COOL-LAW
Direct Dial Number
Exhibit (5)
May 16, 1995
The Reynolds and Reynolds Company
115 South Ludlow Street
Dayton, Ohio 45402
Gentlemen:
As counsel for The Reynolds and Reynolds Company (the "Company"), we are
familiar with the Amended Articles of Incorporation of the Company under the
laws of the State of Ohio, its Consolidated Code of Regulations, and the
respective actions taken by the Shareholders and by the Board of Directors in
connection therewith, and all subsequent corporate proceedings with respect
thereto.
In addition, we are familiar with the preparation of the Form S-3 Registration
Statement currently being filed with the Securities and Exchange Commission.
We are also acquainted with the business activities of the Company and have
examined corporate minute books, records and such other documents as we have
deemed necessary in order to render to you the following opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly organized and is a validly existing
corporation in good standing under the laws of the State of Ohio.
2. As of May 16, 1995, the 261,322 Class A Common Shares proposed to
be sold by the Selling Shareholders, as defined in such Registration
Statement have been duly authorized and validly issued, and are fully
paid and nonassessable as described in such Registration Statement.
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The Reynolds and Reynolds Company
May 16, 1995
Page 2
We hereby consent to the references to our firm in the Registration Statement
on Form S-3 and in the Prospectus constituting a part thereof, and to the use
of this opinion as an exhibit to such Registration Statement.
Very truly yours,
GLB:BLS:[___]
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EXHIBIT 15
The Reynolds and Reynolds Company
115 South Ludlow Street
Dayton, Ohio 45402
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The Reynolds and Reynolds Company and subsidiaries for the
periods ended December 31, 1994 and March 31, 1995, as indicated in our reports
dated February 7, 1995 and May 11, 1995; because we did not perform an audit,
we expressed no opinion on that information.
We are aware that our reports referred to above, which were included in your
Quarterly Reports on Form 10-Q for the quarters ended December 31, 1994 and
March 31, 1995, are incorporated by reference in Pre-Effective Amendment No. 1
to Registration Statement No. 033-58877 on Form S-3.
We also are aware that the aforementioned reports, pursuant to Rule 436(c) under
the Securities Act of 1933, are not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 11, 1995
10
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EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective Amendment
No. 1 to Registration Statement No. 033-58877 of The Reynolds and Reynolds
Company on Form S-3 of our report dated November 14, 1994, which includes an
explanatory paragraph concerning a change in the method of accounting for
post-retirement benefits other than pensions in 1993 and a change in the method
of accounting for income taxes in 1992, appearing in the Annual Report on Form
10-K of The Reynolds and Reynolds Company for the year ended September 30,
1994, and to the reference to us under the heading "Experts" in the Prospectus,
which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 11, 1995
11
