<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
TYLER CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
12,000,000
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$5.28125, average of reported high and low prices on 11/7/97
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$95,125,000
- --------------------------------------------------------------------------------
(5) Total fee paid:
$19,025
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
PRELIMINARY COPIES
(LOGO)
, 1998
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the
"Special Meeting") of Tyler Corporation (the "Company") to be held on ,
, 1998, at , Dallas, Texas, commencing at a.m.
The Company has entered into agreements for the acquisitions of Business
Resources Corporation, a Texas corporation (referred to herein as "Resources"),
and The Software Group, Inc., a Texas corporation (referred to herein as "TSG").
In connection with these acquisitions, at the Special Meeting the stockholders
of the Company will be asked to consider and vote upon (i) the proposed
acquisition of Resources through a merger with a newly formed and wholly owned
subsidiary of the Company, (ii) the proposed acquisition of TSG through a merger
with a newly formed and wholly owned subsidiary of the Company, and (iii) a
proposed amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock, $.01 par value per
share, of the Company from 50,000,000 to 100,000,000 shares. The acquisitions of
Resources and TSG are subject to a number of conditions, including approval by
the stockholders of the Company.
Details of the proposed acquisitions, the respective merger agreements, the
amendment to the Company's Certificate of Incorporation, and other important and
related information are set forth in the accompanying Notice of Special Meeting
and the Proxy Statement. In view of the importance of these matters, please read
carefully the enclosed materials.
The Board of Directors of the Company has unanimously approved the matters
to come before the Special Meeting and recommends that you vote for their
approval.
It is important that your shares be represented at the Special Meeting
whether or not you plan to attend. I urge you to mark, date, and sign the
enclosed proxy and return it in the enclosed postage pre-paid envelope as soon
as possible. If you attend the Special Meeting, you may revoke the proxy and
vote in person if you so desire, even if you have previously returned your
proxy. Your prompt cooperation will be greatly appreciated.
Yours very truly,
LOUIS A. WATERS
Chairman of the Board
<PAGE> 3
PRELIMINARY COPIES
TYLER CORPORATION
------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
------------------
To the Stockholders of
TYLER CORPORATION:
Tyler Corporation (the "Company") will hold a special meeting of
stockholders (the "Special Meeting") on , , 1998, at
, Dallas, Texas, commencing at a.m., Dallas, Texas time, for the
following purposes:
(1) To consider and vote upon a proposal to approve and adopt a Second
Amended and Restated Agreement and Plan of Merger (the "Resources Merger
Agreement"), dated as of December 29, 1997, and effective as of October 8,
1997, among the Company, T1 Acquisition Corporation, a newly formed Texas
corporation and wholly owned subsidiary of the Company ("T1"), Business
Resources Corporation, a Texas corporation (referred to herein as
"Resources"), and William D. Oates, pursuant to which Resources will be
merged with and into T1, which will be the surviving corporation ("Proposal
No. 1);
(2) To consider and vote upon a proposal to approve and adopt an
Amended and Restated Agreement and Plan of Merger (the "TSG Merger
Agreement"), dated as of December 29, 1997, and effective as of October 8,
1997, among the Company, T2 Acquisition Corporation, a newly formed Texas
corporation and wholly owned subsidiary of the Company ("T2"), The Software
Group, Inc., a Texas corporation (referred to herein as "TSG"), Glenn A.
Smith, and Brian B. Berry, pursuant to which T2 will be merged with and
into TSG, which will be the surviving corporation and become a wholly owned
subsidiary of the Company ("Proposal No. 2");
(3) To consider and vote upon a proposed amendment to the Company's
Restated Certificate of Incorporation to increase the number of authorized
shares of Common Stock, $.01 par value per share, of the Company ("Common
Stock") from 50,000,000 shares to 100,000,000 shares ("Proposal No. 3");
and
(4) To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
The Board of Directors of the Company has unanimously approved Proposal No.
1, Proposal No. 2, and Proposal No. 3. Accordingly, the Board of Directors
unanimously recommends that you vote FOR approval of each of the proposals.
Information concerning each of the proposals is set forth in the accompanying
Proxy Statement.
Approval of Proposal No. 1 and Proposal No. 2 will each require the
affirmative vote of a majority of votes cast at the Special Meeting, provided
that the total votes cast represent over 50% in interest of the shares issued
and outstanding and entitled to vote thereon at the Special Meeting. Approval of
Proposal No. 3 will require the affirmative vote of the holders of record of a
majority of the shares of the Common Stock issued and outstanding and entitled
to vote thereon at the Special Meeting. Consummation of each of the Resources
Merger Agreement and the TSG Merger Agreement is conditioned upon consummation
of the other. If the stockholders do not approve both of the transactions,
neither transaction will be consummated and each of the merger agreements will
be terminated unless consummation of the other transaction is waived by the
appropriate party or parties.
Only stockholders of record at the close of business on , 1998
are entitled to notice of, and to vote at, the Special Meeting or any
postponements or adjournments thereof. A list of stockholders entitled to vote
at the Special Meeting will be available for examination at the offices of Tyler
Corporation, 2121 San Jacinto Street, Suite 3200, Dallas, Texas, during regular
business hours for ten days before the Special Meeting.
<PAGE> 4
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE MARK, DATE,
AND SIGN THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE
COMPANY, AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE. No postage is required
if the proxy is mailed in the United States. Prompt response by our stockholders
will reduce the time and expense of solicitation. You may revoke the proxy at
any time before the proxy is exercised by delivering written notice of
revocation to the Secretary of the Company, by delivering a subsequently dated
proxy, or by attending the Special Meeting, withdrawing the proxy, and voting
your shares personally.
By Order of the Board of Directors,
JAMES E. RUSSELL
Secretary
Dallas, Texas
, 1998
<PAGE> 5
PRELIMINARY COPIES
TYLER CORPORATION
PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
GENERAL INFORMATION......................................... 1
General................................................... 1
Outstanding Capital Stock................................. 1
Quorum and Voting......................................... 1
Action to be Taken at the Meeting......................... 2
Recommendations of the Tyler Board........................ 3
Persons Making the Solicitation........................... 3
Forward-Looking Statements................................ 3
THE COMPANY................................................. 4
RECENT DEVELOPMENTS......................................... 5
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA............ 6
The Company--Historical and Pro Forma Financial Data...... 6
Resources--Historical Financial Data...................... 7
TSG--Historical Financial Data............................ 8
COMPARATIVE DATA............................................ 9
THE ACQUISITIONS (PROPOSAL NO. 1 AND PROPOSAL NO. 2)........ 11
General................................................... 11
Background of the Acquisitions............................ 11
Reasons for the Acquisitions; Recommendation of the Tyler
Board.................................................. 14
Terms of the Acquisitions................................. 17
Acquisition Financing..................................... 24
HSR Act................................................... 24
Limitations on Transferability of Common Stock............ 24
Accounting Treatment...................................... 25
Federal Income Tax Consequences........................... 25
No Appraisal Rights....................................... 26
Comparison of Rights of Holders of Stock.................. 26
MARKET PRICES AND DIVIDENDS................................. 27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS................................................ 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF RESOURCES.................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TSG.......................... 40
INFORMATION CONCERNING RESOURCES AND TSG.................... 42
Overview.................................................. 42
Resources................................................. 42
TSG....................................................... 46
MANAGEMENT.................................................. 50
The Company............................................... 50
New Resources............................................. 51
TSG....................................................... 52
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
OF THE COMPANY............................................ 53
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON.... 55
</TABLE>
i
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AMENDMENT TO THE CHARTER (PROPOSAL NO. 3)................... 57
ACCOUNTANTS................................................. 58
STOCKHOLDER PROPOSALS....................................... 58
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 58
INDEX TO FINANCIAL STATEMENTS............................... F-1
Appendix A--SECOND AMENDED AND RESTATED AGREEMENT AND PLAN
OF MERGER AMONG THE COMPANY, T1 ACQUISITION CORPORATION,
BUSINESS
RESOURCES CORPORATION, AND WILLIAM D. OATES............... A-1
Appendix B--AMENDED AND RESTATED AGREEMENT AND PLAN OF
MERGER AMONG THE COMPANY, T2 ACQUISITION CORPORATION, THE
SOFTWARE GROUP, INC., GLENN A. SMITH,
AND BRIAN B. BERRY........................................ B-1
Appendix C--CERTIFICATE OF AMENDMENT TO RESTATED CERTIFICATE
OF INCORPORATION.......................................... C-1
ii
<PAGE> 7
TYLER CORPORATION
2121 SAN JACINTO STREET
SUITE 3200
DALLAS, TEXAS 75201
---------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1998
---------------------------
GENERAL INFORMATION
GENERAL
This Proxy Statement is being furnished to stockholders of Tyler
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation of proxies on behalf of the board of directors of the Company (the
"Tyler Board") for use at a special meeting of stockholders (the "Special
Meeting") to be held on , 1998, and at any postponements or adjournments
thereof. Proxies in the form enclosed will be voted at the Special Meeting if
properly executed, returned to the Company before the Special Meeting, and not
revoked. You may revoke your proxy at any time before it is exercised by
delivering written notice of revocation to the Secretary of the Company, by
delivering a subsequently dated proxy, or by attending the Special Meeting,
withdrawing your proxy, and voting your shares personally. The approximate date
on which this Proxy Statement and the enclosed proxy card will first be sent to
stockholders is , 1998.
OUTSTANDING CAPITAL STOCK
The record date for stockholders entitled to notice of, and to vote at, the
Special Meeting is the close of business on , 1998 (the "Record
Date"). At the close of business on the Record Date, the Company had
shares of Common Stock, $.01 par value per share ("Common Stock"), issued and
outstanding and entitled to vote at the Special Meeting. The Common Stock is the
only class of outstanding voting securities of the Company.
QUORUM AND VOTING
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the shares of Common Stock issued and outstanding and entitled
to vote at the Special Meeting is necessary to constitute a quorum to transact
business. Each share represented at the Special Meeting in person or by proxy
will be counted for purposes of determining whether a quorum is present. In
deciding all questions, a holder of Common Stock is entitled to one vote, in
person or by proxy, for each share held in his name on the record date. Approval
of Proposal No. 1 and Proposal No. 2 (each as described herein) will each
require the affirmative vote of a majority of votes cast at the Special Meeting,
provided that the total votes cast, either for or against the respective
proposal, plus abstentions, collectively represent over 50% in interest of the
shares issued and outstanding and entitled to vote thereon at the Special
Meeting. Broker non-votes (as described below) will not be included in vote
totals for and will not be counted as votes cast on Proposal No. 1 or Proposal
No. 2. Approval of Proposal No. 3 (as described herein) will require the
affirmative vote of the holders of record of a majority of the shares of the
Common Stock issued and outstanding and entitled to vote thereon at the Special
Meeting.
Abstentions will be treated as shares of Common Stock that are present and
entitled to vote for purposes of determining the presence of a quorum.
Abstentions will be included in vote totals and thus will have the same effect
on each proposal as a negative vote. If a proxy is returned by a broker or other
stockholder who does not have authority to vote, does not give authority to a
proxy to vote, or withholds authority to vote on one or more matters as to any
shares of Common Stock, such shares will be considered present at the Special
Meeting for purposes of determining a quorum, but will not be included in vote
totals. With respect to
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Proposal No. 1 and Proposal No. 2, such broker non-votes will have no effect on
the vote. With respect to Proposal No. 3, such broker non-votes will have the
effect of negative votes.
ACTION TO BE TAKEN AT THE MEETING
Proposal No. 1. The Company has entered into a Second Amended and Restated
Agreement and Plan of Merger (the "Resources Merger Agreement"), dated as of
December 29, 1997, and effective as of October 8, 1997, among the Company, T1
Acquisition Corporation, a newly formed Texas corporation and wholly owned
subsidiary of the Company ("T1"), Business Resources Corporation, a Texas
corporation (referred to herein as "Resources"), and William D. Oates, for the
purpose of acquiring Resources. Pursuant to the Resources Merger Agreement, and
the transactions contemplated therein, Resources will be merged with and into T1
(the "Resources Acquisition"). The surviving corporation will be a wholly owned
subsidiary of the Company. As used in this Proxy Statement, "Resources" refers,
as the context may require, to Business Resources Corporation or to Business
Resources Corporation and its subsidiaries, including Government Records
Services, Inc. ("GRS"), on a consolidated basis.
Proposal No. 2. The Company has also entered into an Amended and Restated
Agreement and Plan of Merger (the "TSG Merger Agreement"), dated as of December
29, 1997, and effective as of October 8, 1997, among the Company, T2 Acquisition
Corporation, a newly formed Texas corporation and wholly owned subsidiary of the
Company ("T2"), The Software Group, Inc., a Texas corporation ("TSG"), Glenn A.
Smith, and Brian B. Berry, for the purpose of acquiring TSG. Pursuant to the TSG
Merger Agreement, and the transactions contemplated therein, T2 will be merged
with and into TSG (the "TSG Acquisition"). The surviving corporation will also
be a wholly owned subsidiary of the Company. The Resources Acquisition and the
TSG Acquisition are sometimes collectively referred to in this Proxy Statement
as the "Acquisitions."
The Tyler Board has unanimously approved the Resources Merger Agreement and
the TSG Merger Agreement.
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote upon the proposals to approve and adopt the Resources Merger
Agreement and the TSG Merger Agreement. Stockholder approval of the Resources
Merger Agreement and the TSG Merger Agreement is required under the rules of the
New York Stock Exchange due to the aggregate number of shares of Common Stock to
be issued if the Acquisitions are consummated. The affirmative vote of the
Company's stockholders is also a condition to the closing of each of the
Acquisitions. Consummation of each of the Acquisitions is also conditioned upon
consummation of the other Acquisition. If the stockholders do not approve both
of the Acquisitions, neither Acquisition will be consummated and both the
Resource Merger Agreement and the TSG Merger Agreement will be terminated unless
consummation of the other Acquisition is waived by the appropriate party or
parties.
Proposal No. 3. The Tyler Board has also unanimously approved a proposed
amendment to the Company's Restated Certificate of Incorporation (the "Charter")
to increase the number of authorized shares of Common Stock from 50,000,000
shares to 100,000,000 shares. At the Special Meeting, the stockholders of the
Company will also be asked to consider and vote upon the proposed amendment.
Required Vote to Approve the Proposals. Approval of Proposal No. 1 and
Proposal No. 2 will require the affirmative vote of a majority of votes cast at
the Special Meeting, provided that the total votes cast with respect to the
respective proposal represent over 50% in interest of the shares issued and
outstanding and entitled to vote thereon at the Special Meeting. Approval of
Proposal No. 3 will require the affirmative vote of the holders of record of a
majority of the shares of the Common Stock issued and outstanding and entitled
to vote thereon at the Special Meeting.
Treatment of Proxies. When a stockholder has appropriately specified how
its proxy is to be voted, the proxy will be voted accordingly. Unless the
stockholder otherwise specifies in the proxy, the proxy will be voted (i) for
Proposal No. 1, (ii) for Proposal No. 2, (iii) for Proposal No. 3, and (iv) at
the discretion of the proxy holders on any other matter that may properly come
before the Special Meeting or any postponements or adjournments thereof. Only
proxies voting for Proposal No. 1, Proposal No. 2, and Proposal No. 3 may be
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voted to adjourn the Special Meeting, if adjournment is presented for
consideration at the Special Meeting. The Tyler Board knows of no such other
matter.
RECOMMENDATIONS OF THE TYLER BOARD
THE TYLER BOARD HAS UNANIMOUSLY APPROVED THE RESOURCES MERGER AGREEMENT.
THE TYLER BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL
NO. 1.
THE TYLER BOARD HAS UNANIMOUSLY APPROVED THE TSG MERGER AGREEMENT. THE
TYLER BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR PROPOSAL NO.
2.
THE TYLER BOARD HAS UNANIMOUSLY APPROVED AND HAS DECLARED THE ADVISABILITY
OF THE AMENDMENT OF THE COMPANY'S CHARTER TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK. THE TYLER BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR PROPOSAL NO. 3.
PERSONS MAKING THE SOLICITATION
The accompanying proxy is being solicited on behalf of the Tyler Board. The
Company will bear the expense of preparing, printing, and mailing the proxy
solicitation material and the form of proxy. No other person or persons will
bear such costs either directly or indirectly. In addition to the use of the
mail, proxies may be solicited by personal interview, telephone, telegram,
facsimile, or other means of communication by directors, officers, and employees
of the Company. The Company may also engage the services of a proxy solicitation
firm to assist in the solicitation of proxies. The Company estimates that the
fee of any such firm will not exceed $15,000 plus reimbursement of reasonable
out-of-pocket expenses. In addition, the Company has requested brokerage firms
and other custodians, nominees, and fiduciaries to forward copies of the proxy
solicitation material and form of proxy to the beneficial owners of Common Stock
held of record by such persons and to request authority for execution of the
proxies. The Company will reimburse such record holders for their reasonable
out-of-pocket expenses in doing so.
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements other than historical or current facts,
including, without limitation, statements about the business, financial
condition, business strategy, plans and objectives of management, and prospects
of the Company, Resources, or TSG, are forward-looking statements. Although the
Company and, with respect only to statements about Resources and TSG,
respectively, Resources and TSG believe that the expectations reflected in such
forward-looking statements are reasonable, such forward-looking statements are
subject to risks and uncertainties that could cause actual results to differ
materially from these expectations. Such risks and uncertainties include,
without limitation, changes in product demand, turnover in the sales force, the
availability of products, changes in competition, economic conditions, various
inventory risks due to changes in market conditions, decrease in demand for
information management services or record services generally or by governmental
authorities, new technological developments, changes in tax and other
governmental rules and regulations applicable to the Company, or to Resources or
TSG, and other risks indicated in the Company's filings with the Securities and
Exchange Commission (the "Commission"). These risks and uncertainties are beyond
the ability of the Company, Resources or TSG to control and, in many cases, the
Company, Resources or TSG cannot predict the risks and uncertainties that could
cause actual results to differ materially from those indicated by the
forward-looking statements. When used in this Proxy Statement, the words
"believes," "plans," "estimates," "expects," "anticipates," "intends," and
similar expressions as they relate to the Company, Resources or TSG or their
respective managements are intended to identify forward-looking statements.
3
<PAGE> 10
THE COMPANY
Since its inception in 1966, the Company has provided products and services
to clients in a variety of industries through its ownership of various operating
companies. The acquisitions of Resources and TSG represent a shift in the
Company's direction and entry into a new industry. As part of its business
strategy to build value for its stockholders, the Company has reviewed entry
into various industries, whether as a start-up operation or through
acquisitions. Based on this review, the Company has focused on the information
management industry, both because of the growth opportunities the Company
believes exist and because of the opportunity to acquire Resources and TSG, two
service companies with excellent reputations in the industry generally and
specifically in the county government services market. The Company believes that
it, Resources, and TSG possess compatible and complementary management
philosophies and strategic objectives. In addition, the Company expects that
consolidating Resources and TSG as part of the Company and capitalizing on these
natural synergies will enhance existing business relationships, increase market
share, and provide a base for future acquisitions.
Resources and TSG provide information management solutions to approximately
200 county governments, principally located in the Southwestern United States.
County governments are one of the fastest growing government sectors. There are
over 3,000 county governments in the United States, and county governments are
experiencing growth estimated at approximately 5% to 10% per year. The need for
traditional county services continues to grow, and counties increasingly face
service requirements to respond to new issues or to matters previously handled
at the state or federal levels. At the same time, there is pressure to provide
county services efficiently and on a cost-effective basis. For example, one of
the biggest challenges facing counties is the growing requirement for criminal
and civil court administration and jail management.
The annual expenditure by county governments for information technologies
and resources, excluding personnel costs, was estimated in 1992 at over $23
billion, with approximately $10 billion spent annually on information services
and data processing. The Company's growth in this market will be enhanced
through long-standing relationships with county governments and agencies that
have been cultivated and maintained by Resources and TSG. The Company expects
that the combination of Resources and TSG will position the Company as a leading
provider of information management solutions to county governments and related
entities.
The Company believes that the information management industry today is
fragmented and that the county government and related markets are primarily
served by small, private companies. Given these industry characteristics and
Resources' established ability to identify suitable acquisition candidates and
complete acquisitions, the Company intends to pursue a consolidation strategy
that, if successful, could lead to significant revenue growth for the Company.
The acquisitions of Resources and TSG will position the Company to grow rapidly
through consolidating acquisitions and give it the opportunity to obtain a
larger share of the information management market. The Company intends to pursue
aggressively this consolidation strategy through an acquisition program focused
on entry into new geographic markets, expansion within existing geographic
markets, and development of related services and systems. The Company believes
the management teams of Resources and TSG will be instrumental in identifying
and negotiating with future acquisition candidates and will supplement the
substantial acquisition experience of the Tyler Board and the Company's senior
management.
Resources provides a wide range of information management outsourcing
services, primarily to county and local governments. Resources' current
outsourcing services include records management, micrographic reproduction,
computerized indexing, and imaging of real property records maintained by county
clerks and recorders, the largest component of its business, as well as
information management outsourcing and professional services required by other
county and local government units and agencies. Resources also provides title
plant update services to title companies in Texas.
Resources' primary emphasis since its inception has been supplying records
management, document workflow, and imaging products and services to county clerk
and district clerk offices in Texas. Resources is, however, currently expanding
its property records management services business to Cook County, Illinois, as a
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result of a recent agreement with the Cook County, Illinois recorder's office
and intends to expand aggressively its businesses into other geographic regions,
either by acquisition or internal growth.
TSG provides county governments with software systems and services to serve
their information technology and automation needs. TSG integrates its own
products with computer equipment from hardware vendors, third-party database
management applications, and office automation software. TSG assists a county
with all aspects of its software and hardware selection, network design and
management, installation and training, and on-going support and related
services.
The Company continues to operate through Forest City Auto Parts Company
("Forest City"), a retailer of automotive parts and supplies. Forest City
specializes in selling mechanical and electrical hard parts, such as brake
parts, rack-and-pinion steering and fuel injectors, to do-it-yourself customers.
Forest City also stocks a wide variety of maintenance items, fluids, and
accessories. Forest City currently has 70 locations in the Great Lakes area of
the United States, each of which maintains average inventories of 16,000 parts
for both domestic and foreign cars and light trucks. Quality customer service
provided by knowledgeable store personnel is fundamental to Forest City's
strategy.
RECENT DEVELOPMENTS
On December 17, 1997 the Company entered into two definitive agreements to
acquire Interactive Computer Design, Inc. and a related company in Lubbock,
Texas (collectively, "INCODE") for $1.25 million and 250,000 shares of Common
Stock. INCODE provides integrated information management services, systems and
outsourcing to 225 cities throughout Texas, Oklahoma, and Missouri as well as
certain additional cities in contiguous states. INCODE serves cities having
populations of up to 100,000, with an average size of 12,000. The INCODE
acquisition is subject to customary conditions to closing, including the
completion of a satisfactory due diligence review of INCODE by the Company. In
addition, consummation of the INCODE acquisition is subject to the consummation
of each of the Acquisitions. Subject to satisfaction or waiver of each of the
closing conditions, the Company anticipates that the INCODE acquisition will
close simultaneously with or shortly after the closing of the Acquisitions.
Effective October 15, 1997, the Company sold all of the capital stock of
its subsidiary, Institutional Financing Services, Inc. ("IFS"), to I.F.S.
Acquisition Corporation for approximately $8.3 million, which resulted in a loss
on disposal of approximately $2.5 million. This estimated loss on disposal
includes estimates regarding the value of certain assets that are subject to
change. Management does not expect these estimates to have a significant impact
on the estimated loss on disposal. Proceeds consisted of approximately $5.8
million in cash paid at closing and approximately $2.5 million payable on
January 31, 1998. The receipt of the $2.5 million is subject to a subordination
agreement between the Company and I.F.S. Acquisition Corporation's lender and
the timing of the payment could be adversely affected should IFS not achieve
certain financial performance parameters. Management does not currently
anticipate any such delays in payment.
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THE COMPANY -- HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical consolidated financial data of the
Company for the five years ended December 31, 1996 are derived from the
consolidated financial statements of the Company which have been audited by
Ernst & Young LLP, independent auditors. The selected historical consolidated
financial data as of September 30, 1997, and for the nine months ended September
30, 1996 and 1997, are derived from unaudited consolidated financial statements
of the Company. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring accruals, that the Company
considers necessary for a fair presentation of the results of operations and
financial position for these periods. Operating results for the nine months
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 1997. The selected
historical consolidated financial data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information of the Company incorporated by reference herein. See "Incorporation
of Certain Information by Reference." The selected pro forma consolidated data
presented below are derived from the Unaudited Pro Forma Consolidated Financial
Statements included elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------------------- ---------------------------
HISTORICAL PRO HISTORICAL PRO
-------------------------------------------------- FORMA ----------------- FORMA
1992 1993 1994 1995 1996 1996(1) 1996 1997 1997(1)
------- ------- -------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................ $78,453 $84,464 $ 91,849 $ 86,893 $ 85,074 $115,932 $65,852 $58,172 $83,729
Costs and expenses:
Costs of revenues................. 43,973 46,566 53,626 51,126 49,275 64,409 37,799 33,216 45,019
Selling, general and
administrative(2)............... 31,745 33,695 36,229 34,531 41,162 46,391 25,916 22,830 26,544
Amortization of goodwill.......... 1,073 1,092 1,111 1,112 1,101 2,931 826 -- 1,372
Depreciation...................... 339 770 895 1,060 1,368 3,859 796 1,483 4,126
Interest (income) expense, net.... 122 85 678 1,003 (277) 2,058 (214) (613) 1,543
Goodwill and other intangibles
impairment
charge.......................... -- -- -- -- 14,789 14,789 -- -- --
Other income and expense, net..... -- -- -- -- -- 11 -- -- --
------- ------- -------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing
operations before
taxes............................. 1,201 2,256 (690) (1,939) (22,344) (18,516) 729 1,256 5,125
Income tax (benefit)................ 455 1,308 (24) (497) (3,037) (921) 898 454 2,360
------- ------- -------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing
operations........................ $ 746 $ 948 $ (666) $ (1,442) $(19,307) $(17,595) $ (169) $ 802 $ 2,765
======= ======= ======== ======== ======== ======== ======= ======= =======
Income (loss) per common share:
Continuing operations............. $ 0.04 $ 0.05 $ (0.03) $ (0.07) $ (0.97) $ (0.55) $ (0.01) $ 0.04 $ 0.09
======= ======= ======== ======== ======== ======== ======= ======= =======
Weighted average number of common
shares outstanding................ 20,779 20,556 19,925 19,869 19,876 31,876 19,875 20,145 32,145
OTHER DATA:
EBITDA(3)........................... $ 2,735 $ 4,203 $ 1,994 $ 1,236 $ (5,363) $ 5,121 $ 2,137 $ 2,126 $12,166
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
------------------
AS OF DECEMBER 31, PRO
---------------------------------------------------- FORMA
1992 1993 1994 1995 1996 1997 1997(1)
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $146,231 $143,171 $197,800 $118,512 $ 54,390 $56,271 $139,779
Long-term debt................... -- -- 63,500 -- -- -- 22,040
Shareholders' equity............. 122,343 117,964 110,298 93,362 32,041 32,057 80,207
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating
activities........................ $12,127 $19,183 $ (4,343) $ 16,226 $ 7,306 $ 2,288 1,478
Cash flows from investing
activities........................ (9,949) (10,982) (72,970) 48,083 5,440 3,873 (1,370)
Cash flows from financing
activities........................ (319) (2,116) 60,535 (62,663) 9 -- 3,705
</TABLE>
- ---------------------
(1) Gives effect (i) for the year ended December 31, 1996, to the Acquisitions
of Resources (including the Title Acquisition (as defined herein) by
Resources) and TSG as if they had occurred on January 1, 1996, (ii) for the
nine months ended September 30, 1997, to the Acquisitions of Resources
(including the Title Acquisition by Resources) and TSG as if they had
occurred on January 1, 1996, and (iii) as of September 30, 1997, to the
Acquisitions of Resources and TSG as if they occurred on September 30, 1997.
(2) 1996 includes pretax restructuring and other charges of $7,250.
(3) EBITDA consists of income from continuing operations before interest, income
taxes, depreciation, amortization, and the goodwill impairment charge.
Although EBITDA is not calculated in accordance with generally accepted
accounting principles, the Company believes that EBITDA is widely used as a
measure of operating performance. Nevertheless, this measure should not be
considered in isolation or as a substitute for operating income, cash flows
from operating activities, or any other measure for determining the
Company's operating performance or liquidity that is calculated in
accordance with generally accepted accounting principles. EBITDA does not
take into account the Company's debt service requirements and other
commitments and, accordingly, EBITDA is not necessarily indicative of
amounts that may be available for reinvestment in the Company's business or
other discretionary uses. In addition, since all companies do not calculate
EBITDA in the same manner, this measure may not be comparable to similarly
titled measures reported by other companies.
6
<PAGE> 13
RESOURCES -- HISTORICAL FINANCIAL DATA
The selected historical consolidated financial data presented below are
derived from the consolidated financial statements of Resources. The
consolidated financial statements of Resources as of December 31, 1994, 1995 and
1996, and for the years then ended have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected historical consolidated
financial data as of December 31, 1992 and 1993, and for the years then ended
are derived from the unaudited consolidated financial statements of Resources,
which, in the opinion of Resources' management, include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the results of operations and financial condition of Resources
for the unaudited periods. The selected historical consolidated financial data
should be read in conjunction with the consolidated financial statements,
including the notes thereto, and other financial information of Resources
appearing elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------ ----------------------------------------------------
NINE MONTHS
YEARS ENDED JANUARY 1, DECEMBER 1, YEARS ENDED ENDED
DECEMBER 31, 1994 THROUGH 1994 THROUGH DECEMBER 31, SEPTEMBER 30,
--------------- NOVEMBER 30, DECEMBER 31, ----------------- -----------------
1992 1993 1994 1994 1995 1996 1996 1997(1)
------ ------ ------------ ------------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Revenues.................................. $2,653 $3,668 $4,514 $ 366 $ 7,545 $14,729 $11,035 $13,997
Cost of revenues.......................... 1,715 2,387 3,156 252 6,091 8,461 6,247 7,792
------ ------ ------ ------ ------- ------- ------- -------
Gross margin.............................. 938 1,281 1,358 114 1,454 6,268 4,788 6,205
Selling, general and administrative
expenses................................ 770 1,072 1,263 268 2,687 2,790 2,064 2,744
------ ------ ------ ------ ------- ------- ------- -------
Operating income (loss)................... 168 209 95 (154) (1,233) 3,478 2,724 3,461
Interest expense, net..................... 48 61 33 -- 157 463 346 388
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes..................... 120 148 62 (154) (1,390) 3,015 2,378 3,073
Income tax expense (benefit).............. -- (56) (17) (13) (444) 1,125 880 52
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from continuing
operations.............................. 120 204 79 (141) (946) 1,890 1,498 3,021
Discontinued operations:
Income (loss) from discontinued
operations, net of income taxes in
1994 of $200 -- Predecessor and
$18 -- Successor, and income tax
benefit of $422 in 1995............... -- -- 388 35 (819) -- -- --
Gain from disposal of discontinued
operations, net of income taxes of
$379.................................. -- -- -- -- 737 -- -- --
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before extraordinary item... 120 204 467 (106) (1,028) 1,890 1,498 3,021
Extraordinary item -- extinguishment of
debt, net of income taxes of $53........ $ -- $ -- $ (104) $ -- $ -- $ -- $ -- $ --
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)......................... $ 120 $ 204 $ 363 $ (106) $(1,028) $ 1,890 $ 1,498 $ 3,021
====== ====== ====== ====== ======= ======= ======= =======
Pro forma income data(3):
Net earnings as reported................ 3,021
Pro forma adjustment to provide for
income taxes.......................... (1,198)
-------
Pro forma net earnings.................. $ 1,823
=======
Income (loss) per share (historical):
Continuing operations................... $ 1.20 $ 2.04 $ .79 $(1.41) $ (9.46) $ 18.90 $ 14.98
Discontinued operations................. -- -- 3.88 .35 (.82) -- --
Extraordinary item...................... -- -- (1.04) -- -- -- --
------ ------ ------ ------ ------- ------- -------
Net income (loss) per share....... $ 1.20 $ 2.04 $ 3.63 $(1.06) $(10.28) $ 18.90 $ 14.98
====== ====== ====== ====== ======= ======= =======
Pro forma income per share................ $ 18.23
Average shares used in per share
computation(4).......................... 100 100 100 100 100 100 100 100
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
AS OF DECEMBER 31, -------------------
------------------------------------------ PRO FORMA
1992 1993 1994 1995 1996 1997 1997(3)
---- ------ ------ ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................................ $537 $1,817 $2,596 $10,745 $11,250 $18,046 $18,265
Long-term debt, excluding current portion................... 427 762 -- 5,256 3,884 7,090 7,090
Stockholders' equity (deficit).............................. 21 (144) 2,405 1,527 3,417 6,438 3,357
</TABLE>
- ---------------
(1) The results presented only include the Title Acquisition, which was
completed on July 31, 1997, for two months during the nine months ended
September 30, 1997.
(2) Prior to December 1, 1994, the net assets of GRS, which is Resources'
largest subsidiary and conducts primarily all business operations for
Resources, were part of American Title Group, Inc. The financial information
for the periods through November 30, 1994, reflects the historical cost of
the assets and liabilities of GRS and its operating results and is referred
to herein as "Predecessor."
(3) Resources changed from being taxed as a C corporation to being taxed as an S
corporation effective January 1, 1997. The September 30, 1997 pro forma
consolidated balance sheet (unaudited) has been adjusted to reflect (i) the
payment of dividends in 1997 to the Class A Holder (as defined herein) in
the estimated amount of $3,300 in respect of the remaining federal tax
liabilities attributable to the Resources' historical S corporation earnings
for the nine months ended September 30, 1997, on a pro forma basis, and (ii)
the establishment of deferred income tax assets of $219 that would have been
required if Resources had terminated its S corporation status as of
September 30, 1997. The pro forma consolidated income statement for the nine
months ended September 30, 1997, reflects an income tax provision as if
Resources terminated its S corporation status as of January 1, 1997. See
"Unaudited Pro Forma Condensed Consolidated Financial Statements."
(4) In December 1997, Resources increased its authorized, issued and outstanding
shares of common stock from 1 to 100 shares. The effect of this
recapitalization has been applied retroactively for all periods presented
herein.
7
<PAGE> 14
TSG -- HISTORICAL FINANCIAL DATA
The selected historical financial data presented below are derived from the
financial statements of TSG. The financial statements of TSG as of October 31,
1996 and 1997, and for the years then ended have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The selected historical
consolidated financial data as of October 31, 1993, 1994 and 1995, and for the
years then ended, are derived from the unaudited financial statements of TSG,
which, in the opinion of TSG's management, include all adjustments, consisting
only of normal recurring adjustments necessary for a fair presentation of the
results of operations and financial condition of the TSG for the unaudited
periods. The selected historical financial data should be read in conjunction
with the financial statements, including the notes thereto, and other financial
information of TSG appearing elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
---------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $7,403 $9,552 $10,793 $11,052 $11,571
Cost of revenues.................................... 3,533 5,034 5,728 5,157 4,568
------ ------ ------- ------- -------
Gross margin........................................ 3,870 4,518 5,065 5,895 7,003
Selling, general and administrative expenses........ 3,928 4,390 5,030 5,054 5,313
------ ------ ------- ------- -------
Operating income (loss)............................. (58) 128 35 841 1,690
Interest income..................................... 26 14 39 56 87
Other expense....................................... -- (1) (12) (11) --
------ ------ ------- ------- -------
Income (loss) before taxes.......................... (32) 141 62 886 1,777
Income tax expense.................................. 144 189 36 339 658
------ ------ ------- ------- -------
Net income (loss)................................... (176) (48) 26 547 1,119
Adjustment to fair market value of shares subject to
redemption........................................ -- (9) (94) -- (22)
------ ------ ------- ------- -------
Net income (loss) available to common
shareholders...................................... $ (176) $ (57) $ (68) $ 547 $ 1,097
====== ====== ======= ======= =======
Income (loss) per share............................. $(0.08) $(0.03) $ (0.03) $ 0.26 $ 0.53
====== ====== ======= ======= =======
Average common and common share equivalent shares
used in per share computation..................... 2,154 2,154 2,143 2,145 2,078
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................... $2,830 $2,646 $3,084 $4,059 $5,493
Long-term debt......................................... 5 -- -- -- --
Redeemable common stock................................ 323 332 427 427 --
Stockholders' equity................................... 1,448 1,370 1,727 2,224 3,321
</TABLE>
8
<PAGE> 15
COMPARATIVE DATA
The following tables set forth certain per share data for the Company,
Resources, and TSG on a historical and pro forma basis, giving effect to the
Acquisitions using the purchase method of accounting, as well as equivalent pro
forma per share data for Resources and TSG. Historical per share data is also
provided for Resources, which has one shareholder, and TSG, which has three
shareholders. The unaudited pro forma per share data provided below is not
necessarily indicative of the results of operations or the financial position
which would have occurred had the Acquisitions been consummated on the indicated
dates or which may be attained in the future and should be read in conjunction
with the historical consolidated financial statements of the Company, which are
incorporated by reference in this Proxy Statement, the historical consolidated
financial statements of Resources and TSG, which are included elsewhere in this
Proxy Statement, and "Unaudited Pro Forma Condensed Consolidated Financial
Statements."
THE COMPANY -- HISTORICAL
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Per share data:
Book value................................................ $ 1.61 $1.46
Cash dividends declared................................... -- --
Income (loss) from continuing operations.................. $(0.97) $0.04
</TABLE>
RESOURCES -- HISTORICAL
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Per share data:
Book value................................................ $34.17 $64.38
Cash dividends declared................................... -- --
Net income................................................ $18.90 $30.21
</TABLE>
TSG -- HISTORICAL
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED YEAR ENDED NINE MONTHS ENDED
OCTOBER 31, 1996 OCTOBER 31, 1997 JULY 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per share data:
Book value................................ $1.16 $1.73 $1.58
Cash dividends declared................... $0.02 -- --
Net income................................ $0.26 $0.53 $0.39
</TABLE>
9
<PAGE> 16
THE COMPANY, RESOURCES, AND TSG -- PRO FORMA
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Per share data:
Book value................................................ N/A $2.36
Cash dividends declared................................... N/A --
Income (loss) from continuing operations.................. $(0.55) $0.09
</TABLE>
RESOURCES -- EQUIVALENT PRO FORMA
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Per share data(1):
Book value................................................ N/A $236.00
Cash dividends declared................................... $ -- $ --
Net income (loss)......................................... $(55.00) $ 9.00
</TABLE>
TSG -- EQUIVALENT PRO FORMA
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
Per share data(2):
Book value................................................ N/A $2.28
Cash dividends declared................................... $ -- $ --
Net income (loss)......................................... $(0.53) $0.09
</TABLE>
- ---------------
(1) Equivalent pro forma Resources amounts are calculated by multiplying the
consolidated pro forma amounts per share by the exchange ratio so that the
per share amounts are equated to the respective amounts for one share of
Resources common stock. The exchange ratio is determined by dividing the
10,000,000 shares of Common Stock to be issued by the 100,000 shares of
outstanding Resources common stock.
(2) Equivalent pro forma TSG amounts are calculated by multiplying the
consolidated pro forma amounts per share by the exchange ratio so that the
per share amounts are equated to the respective amounts for one share of TSG
common stock. The exchange ratio is determined by dividing the 2,000,000
shares of Common Stock to be issued by the 1,921,000 shares of outstanding
TSG common stock and 150,000 shares of TSG common stock to be acquired upon
the exercise of stock options immediately prior to the closing of the TSG
Acquisition.
10
<PAGE> 17
THE ACQUISITIONS
(PROPOSAL NO. 1 AND PROPOSAL NO. 2)
GENERAL
Pursuant to the terms of the Resources Merger Agreement, Resources will be
merged with and into T1, a newly formed, wholly owned subsidiary of the Company.
As a result, the separate corporate existence of Resources will cease and T1
will be the surviving corporation (referred to herein as "New Resources")
succeeding to and assuming all of the rights and obligations of Resources in
accordance with the Texas Business Corporation Act ("TBCA"). Upon consummation
of the Resources Acquisition pursuant to the Resources Merger Agreement, the
holders of all of the issued and outstanding shares of Resources class A common
stock and class B common stock will be entitled to receive in the aggregate
$15,250,000 in cash and 10,000,000 shares of Common Stock at the Effective Time
(as defined herein) and, subject to achievement of certain criteria, the holder
of all of Resources class A common stock may be entitled to receive up to
$4,500,000 on or before December 31, 1999.
Pursuant to the terms of the TSG Merger Agreement, T2, a newly formed,
wholly owned subsidiary of the Company, will be merged with and into TSG. As a
result, the separate corporate existence of T2 will cease and TSG will be the
surviving corporation as a wholly owned subsidiary of the Company in accordance
with the TBCA. Upon consummation of the TSG Acquisition pursuant to the TSG
Merger Agreement, all of the issued and outstanding shares of TSG common stock
will be converted into the right to receive in the aggregate $12,000,000 in cash
and 2,000,000 shares of Common Stock at the Effective Time.
BACKGROUND OF THE ACQUISITIONS
In the fourth quarter of 1996, the Company began exploring ways to redirect
its business into complementary or new industries. Over several months, the
Company examined a number of alternatives. One of the industries the Company
reviewed was information management services. C. A. Rundell, Jr., the Company's
President and Chief Executive Officer, had known William D. Oates, the Chairman
of the Board, President, Chief Executive Officer, and sole holder of Resources
class A common stock ("Mr. Oates" or the "Class A Holder"), for over 14 years
and was generally familiar with Resources' business. In 1983, Mr. Rundell was
the Chief Executive Officer of Cronus Industries, Inc. ("Cronus"), a former
subsidiary of the Company which was spun-off from the Company in 1977 and is now
known as BRC Holdings, Inc., a publicly traded company (together with its
subsidiaries, "Holdings"), when Cronus acquired Business Records Corporation
("Records"). Mr. Oates was a co-founder and the principal shareholder of
Records. Between 1986 and 1996, Mr. Rundell served from time to time as a
consultant for Mr. Oates and certain of his companies with respect to various
proposed transactions.
On June 24, 1997, Mr. Rundell, then the Company's Chairman of the Board,
introduced Mr. Oates to Bruce Wilkinson, the then President and Chief Executive
Officer of the Company, and discussed, very generally, the Company's possible
interest in a transaction with Resources.
On July 17, 1997, at a meeting of the Tyler Board, Mr. Rundell described
strategic alternatives for the growth of the Company, including entry into
numerous industries, including information management services, especially with
respect to county government records.
On July 25, 1997, Mr. Rundell and Louis A. Waters, who became a director of
the Company in August 1997 and was elected Chairman of the Board of the Company
in October 1997, met with Mr. Oates, Glenn A. Smith, the President and a
principal shareholder of TSG, and Brian B. Berry, the Vice President and a
principal shareholder of TSG, to discuss possible acquisitions of Resources and
TSG by the Company.
On July 30, 1997, Messrs. Rundell, Oates, and Berry met at the headquarters
of Resources. Mr. Berry presented Messrs. Rundell and Oates with a proposed
letter of intent for the Company's purchase of TSG's common stock in exchange
for $12,000,000 in cash and 2,000,000 shares of Common Stock. The acquisition
proposed by Mr. Berry was contingent upon the Company's acquisition of
Resources. The proposed letter of intent was not executed.
11
<PAGE> 18
Effective July 31, 1997, Resources acquired the title services division of
Holdings. This acquisition added title plant update and maintenance services to
Resources' county property records management business, together with a
long-term customer base of title insurance companies and agents, which enhanced
the value of Resources as an acquisition candidate for the Company.
On August 5, 1997, Mr. Rundell met with Mr. Oates and formally proposed the
acquisition of Resources by the Company. Thereafter, on August 15, 1997, Mr.
Rundell provided Resources with the Company's written term sheet for the
acquisition of Resources for a purchase price of approximately $37,500,000
consisting of $22,500,000 in cash and, based on the closing sale price per share
of the Common Stock on August 4, 1997, a total of 6,000,000 shares of Common
Stock.
On August 15, 1997, Mr. Berry delivered a revised draft letter of intent to
Mr. Rundell. The financial terms and acquisition structure set forth therein
remained unchanged from the initial draft of July 30, 1997.
From mid-August 1997 through early September 1997, several conversations
and meetings were held between the principals of the Company and Resources
regarding the material terms of the proposed acquisition, including the amount
of the purchase price to be paid in cash versus shares of Common Stock, the
number of stock options or other incentives to be granted by the Company or by
Mr. Oates to certain employees of Resources, and the disposition of the
Resources headquarters, which is owned by Mr. Oates and currently leased to
Resources. On August 19, 1997, Messrs. Rundell and Oates, John D. Woolf, the
Executive Vice President and Chief Financial Officer of Resources, and a
representative of Gardere & Wynne, L.L.P. ("Gardere & Wynne"), as counsel to
Resources, met at Resources' headquarters to discuss the terms of the proposed
acquisitions based on the previous negotiations.
On August 20, 1997, the parties agreed in principle to a term sheet based
on the closing sale price per share of the Common Stock on August 4, 1997. The
purchase price set forth therein was $38,250,000, consisting of $13,250,000 in
cash and 10,000,000 shares of Common Stock. The term sheet provided for Mr.
Oates to retain the headquarters building and to grant options to certain
Resources' employees to purchase shares of Common Stock to be acquired by Mr.
Oates in the proposed acquisition. Since Resources is an S corporation for
federal income tax purposes, the term sheet also contemplated a maximum amount
of distributions, not to exceed $1,000,000, that could be made to the Class A
Holder prior to the closing of the acquisition. The parties also agreed to
prepare the definitive agreement using the previously negotiated terms and
conditions of the agreement for the 1983 acquisition of Records by Cronus with
such changes as might be necessary to reflect the specific terms of the proposed
acquisition and changes in the law since 1983.
In August 1997, the Company retained Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P. ("Liddell Sapp"), as special counsel to represent the Company in
connection with negotiations with Resources and TSG and preparation of the
respective definitive acquisition agreements
From August 20, 1997, through September 9, 1997, the principals of the
Company and Resources and their respective counsel continued to have discussions
regarding the structure of the proposed acquisition and further refinement of
the material terms. At the end of August 1997, the Company and Resources began
their formal due diligence inquiries. On September 9, 1997, the parties agreed
to reduce the purchase price to $36,250,000, consisting of $13,750,000 in cash
and 9,000,000 shares of Common Stock. The reduction in the purchase price
reflected the Company's agreement to permit Resources, instead of Mr. Oates, to
make certain employee payments, totaling $2,000,000, and to incur additional
indebtedness for that purpose if necessary. The Company also contemplated
purchasing the Resources headquarters facility directly from Mr. Oates.
On September 12, 1997, Liddell Sapp distributed a first draft of the
Resources Merger Agreement to Resources and Gardere & Wynne, as counsel to
Resources. On September 16, 1997, a drafting session was held in Gardere &
Wynne's office in Dallas, Texas, with Messrs. Rundell, Waters, Oates, and Woolf
and representatives of Liddell Sapp and Gardere & Wynne to discuss the initial
drafts of the Resources Merger Agreement. The primary purpose of the drafting
session was to agree on those matters that could vary from the 1983 acquisition
agreement and to negotiate the terms of those matters.
From September 17, 1997, through October 7, 1997, the parties, directly and
through their respective counsel, continued to negotiate the various aspects of
the proposed acquisition, including the tax treatment,
12
<PAGE> 19
the status of the headquarters building, the amount of distributions to Mr.
Oates as the sole shareholder of Resources prior to closing of the acquisition,
the registration rights to be granted to Mr. Oates and his optionees, and the
amount and nature of the additional merger consideration that may be paid to the
Class A Holder. During this period, the Company, Resources, and Mr. Oates agreed
that Mr. Oates would transfer the headquarters building to Resources. Based on
the cumulative effect of these changes, the parties agreed to increase the
purchase price to $40,250,000, consisting of $15,250,000 in cash and 10,000,000
shares of Common Stock. The parties also agreed that (i) Mr. Oates would
contribute the Resources headquarters facility to Resources prior to closing,
(ii) the permissible amount of distributions that could be made to Mr. Oates
prior to closing would be increased to $3,300,000, (iii) the Company and Mr.
Oates would both grant stock options to certain employees of Resources, and (iv)
Resources would transfer certain unrelated real property to Mr. Oates prior to
closing.
In late September 1997, the Company and Liddell Sapp provided a draft of
the proposed Resources Merger Agreement to Messrs. Smith and Berry and TSG's
counsel, Andrews & Barth, P.C. ("Andrews & Barth"). On September 30, 1997, Mr.
Berry met with a representative of Andrews & Barth to review the proposed
Resources Merger Agreement as a model for negotiating a merger agreement for the
proposed TSG Acquisition. Later that same day, representatives of Andrews &
Barth and Liddell Sapp held a telephone conference to negotiate changes
applicable to the proposed TSG Acquisition.
On October 1, 1997, Messrs. Rundell and Waters met with Messrs. Smith and
Berry and a representative of Andrews & Barth to finalize substantially the
terms and conditions of the proposed TSG Merger Agreement. The financial terms
and acquisition structure did not change from the terms set forth in the August
15, 1997, draft letter of intent.
On October 7, 1997, the board of directors and Mr. Oates, then the sole
shareholder of Resources, unanimously approved the original Resources Merger
Agreement by joint unanimous written consent.
On October 8, 1997, the board of directors and shareholders of TSG
unanimously approved the original TSG Merger Agreement by unanimous written
consents.
A special meeting of the Tyler Board was held on October 8, 1997, in
Dallas, Texas. The meeting was attended by all of the directors of the Company,
the Company's Chief Financial Officer and the Company's Controller, a
representative of Liddell Sapp as special counsel, and a representative of
Gardere & Wynne as outside legal counsel to the Company. Mr. Rundell reviewed in
detail the proposed Acquisitions and the proposed Resources Merger Agreement and
proposed TSG Merger Agreement, which had previously been distributed to the
Tyler Board. The proposed Acquisitions and the respective merger agreements were
then discussed in detail by the directors and other persons present at the
meeting. After due deliberation, the Tyler Board unanimously approved both the
original Resources Merger Agreement and the original TSG Merger Agreement,
directed the officers of the Company to execute and deliver the original
Resources Merger Agreement and the original TSG Merger Agreement, recommended
approval of the original Resources Merger Agreement and the original TSG Merger
Agreement to the stockholders of the Company, and directed that the original
Resources Merger Agreement and the original TSG Merger Agreement be submitted to
a vote of the stockholders of the Company for their approval and adoption at a
special meeting of the stockholders called for that purpose.
The original Resources Merger Agreement was thereafter executed in
counterparts by the Company, T1, Resources, and Mr. Oates, and the original TSG
Merger Agreement was thereafter executed in counterparts by the Company, T2,
TSG, and Messrs. Smith and Berry. The execution of the original Resources Merger
Agreement and the original TSG Merger Agreement was announced on October 8,
1997, by issuance of a press release by the Company.
On November 4, 1997, an Amended and Restated Agreement and Plan of Merger,
dated as of October 8, 1997, was entered into by the Company, T1, Resources, and
Mr. Oates in order to amend the original Resources Merger Agreement to provide
that the consummation of the TSG Acquisition is a condition precedent to the
closing obligations of both the Company and Resources and to make certain
technical
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corrections. At a special meeting of the Tyler Board held on November 4, 1997,
the Tyler Board unanimously approved the amendment and restatement of the
original Resources Merger Agreement.
In late November 1997, representatives of the Company, Resources, and TSG
began discussing possible amendments of the respective Merger Agreements to
restructure the contemplated stock option grants. The original and the amended
and restated Resources Merger Agreement and the original TSG Merger Agreement
respectively provided for grants of stock options by the Company to certain
employees of Resources and TSG, and by Mr. Oates to certain employees of
Resources, priced as of the original execution date but not effective until the
consummation of the respective Acquisitions. The parties subsequently determined
that it would be more desirable for the Company's grants to be incentive stock
options made at the date of consummation of the respective Acquisitions with an
exercise price per share equal to the market value per share of the Common Stock
on that date. Mr. Oates also determined with the Company's concurrence that he
would cause his shares of Resources common stock to be reclassified into a class
A common stock having voting rights and a non-voting, class B common stock, and
would transfer the shares of class B common stock to certain Resources employees
in lieu of the previously contemplated option grants to purchase shares of
Common Stock he is to receive in the Resources Acquisition. Mr. Oates completed
the transfers in December 1997 and early January 1998. In addition, the Company,
Resources, and Mr. Oates agreed that Mr. Oates would contribute the Resources
headquarters facility directly to T1, instead of Resources, upon closing of the
contemplated merger.
At a special meeting of the Tyler Board held on December 12, 1997, the
Tyler Board unanimously approved the further amendment and restatement of the
Resources Merger Agreement and the amendment and restatement of the original TSG
Merger Agreement to reflect the above described changes and authorized the
Company's Chief Executive Officer to complete the negotiation and execution of
the Resources Merger Agreement and the TSG Merger Agreement.
The Resources Merger Agreement, as amended and restated, was approved by a
joint unanimous written consent on December 29, 1997 of the board of directors
and shareholders of Resources.
The TSG Merger Agreement, as amended and restated, was approved by the
board of directors and shareholders of TSG by unanimous written consents on
December 29, 1997.
On December 29, 1997, the Resources Merger Agreement was entered into by
the Company, T1, Resources, and Mr. Oates, and the TSG Merger Agreement was
entered into by the Company, T2, TSG, and Messrs. Smith and Berry.
REASONS FOR THE ACQUISITIONS; RECOMMENDATION OF THE TYLER BOARD
The Tyler Board has unanimously approved the Acquisitions. THE TYLER BOARD
UNANIMOUSLY RECOMMENDS TO THE STOCKHOLDERS THAT THEY VOTE FOR THE PROPOSALS TO
ADOPT THE RESOURCES MERGER AGREEMENT AND THE TSG MERGER AGREEMENT. In
determining to approve the Acquisitions, the Tyler Board considered, among
others, the following positive factors:
(1) Opportunity for Revenue Growth. The Acquisitions provide the
Company with the opportunity for growth. Resources and TSG provide
information management solutions to approximately 200 county governments,
principally in the Southwestern United States. The Company expects that the
Acquisitions will provide the Company with a substantial amount of
recurring revenues through existing agreements and long-standing customer
relationships of Resources and TSG and additional revenues resulting from
coordinated sales and marketing of Resources' and TSG's services and
systems. County governments are one of the most rapidly growing government
sectors. In addition, even though county government services are affected
by economic downturns, services must generally be maintained at a constant
or increasing level. Service requirements generally continue to grow
regardless of the economy and budget constraints, thus creating additional
pressure for outsourcing and the use of cost-effective technology
solutions. This targeted county government information management market
presents the opportunity for continued internal growth by both Resources
and TSG, as well as the ability to capitalize on TSG's development and
marketing of technological innovations for information management. The
Company believes that the
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county government information management market is fragmented and that,
given Resources established ability to identify suitable acquisition
candidates and complete acquisitions, the Company will be able to pursue a
consolidation strategy that could also lead to significant revenue growth
for the Company. Many of the services and systems offered by Resources and
TSG also can be marketed to municipal governments.
(2) Increased Profitability. The Company believes that the
Acquisitions will result in revenue growth and provide the opportunity for
increased economies of scale and cost savings. These factors will assist
the Company in fulfilling its long-term objective of increasing its overall
profitability and rewarding shareholders
(3) Leveraging Existing Relationships. The Company's growth
opportunities will be enhanced through long-standing relationships with
county governments and agencies that have been cultivated and maintained by
Resources and TSG. These relationships will be utilized to enhance the
position of the Company in executing its consolidation strategy. The
Company's size and visibility, overall as a New York Stock Exchange listed
corporation and within the information management industry after completion
of the Acquisitions, will increase the awareness and interest of potential
acquisition candidates in the Company and the benefits of further
consolidation.
(4) Market Presence and Penetration. The Company intends to use the
Acquisitions as building blocks to position itself as a leading provider of
information management solutions to county government and related entities.
The Company believes it will be able to increase market penetration through
expanded and coordinated marketing of Resources' and TSG's information
management solutions. As a result of the Acquisitions, the Company will
have both the financial resources and the market position to compete more
effectively in the growing information management industry than any of the
Company, Resources, or TSG could do individually.
(5) Complementary Businesses and Managements. The Company believes
that Resources, with its focus on outsourcing of property records
management, and TSG, with a broad array of systems for other applications,
have complementary businesses and business strategies and that a natural
synergy exists between their respective services and systems. Both
Resources and TSG provide superior levels of service and possess compatible
and complementary management philosophies and strategic objectives. Both
companies have focused their marketing efforts on providing information
management solutions to county governments located primarily in the
Southwest. In addition, Resources and TSG have each developed proprietary
software products for this market. The Company expects that consolidating
Resources and TSG as part of the Company and capitalizing on these
synergies between Resources and TSG will enhance existing business
relationships, increase market share, promote new business generation, and
stimulate the development of additional proprietary products.
(6) Industry Consolidation Opportunities. The information management
industry is fragmented, and the county government and related markets are
primarily served by small, private companies. The Company foresees
substantial opportunities for consolidation in the near future. The Company
believes that no single or small group of firms has significant market
share nationwide in the county government or related markets. The
acquisitions of Resources and TSG will position the Company to grow rapidly
through consolidating acquisitions and give it the opportunity to obtain a
significant share of these markets. The Company intends to pursue
aggressively this consolidation strategy through an acquisition program
focused on entry into new geographic markets, expansion within existing
geographic markets, and development of related services and systems. The
Company believes there are significant opportunities to expand through
acquisitions in geographic markets where the Company will not initially
have a strong presence by acquiring companies that are regional leaders.
The Company believes the management teams of Resources and TSG will be
instrumental in identifying and completing future acquisitions, and will
supplement the substantial acquisition experience of the Tyler Board and
the Company's senior management.
(7) Continuity of Management; Management Experience. William D. Oates,
the founder of Resources, will be the Chief Executive Officer of New
Resources and join the Tyler Board following the
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consummation of the Resources Acquisition. Mr. Oates brings vast experience
in information management services to the Company, as well as a strong
acquisition background in this area. Glenn A. Smith and Brian B. Berry,
co-founders of TSG, will also continue to manage the operations of TSG
after the closing of the TSG Acquisition, thus giving the Company the
benefit of their significant information management technology experience
and expertise.
(8) Financial Performance. The Tyler Board reviewed the historical and
current financial conditions, results of operations, prospects, and
businesses of the Company, Resources, and TSG, both before and after giving
effect to the Acquisitions. Both Resources and TSG have achieved
profitability by providing information management solutions primarily to
county governments. Resources' and TSG's historical results of operations
reflect increasing revenue growth and operating margins. The Company
believes financial results will be further enhanced through completion of
the Acquisitions and consolidation of Resources and TSG as part of the
Company.
(9) Share Price and Market Value. Based on its analysis of the growth
strategy implemented by the Company, the terms of the Acquisitions, and the
business operations of Resources and TSG, the Tyler Board believes that
completion of the Acquisitions will have a positive impact on the value,
and thus the price per share, of the Company's Common Stock and will
benefit the Company's stockholders.
(10) Alternatives to the Acquisitions. The Tyler Board considered the
effect of the Acquisitions on stockholder value compared to the impact of
alternative growth strategies. Alternative growth strategies considered by
the Tyler Board included, among others, expansion within existing business
segments, start-up entry into the information management industry or other
industries, or acquisitions of other companies in the information
management industry or other industries. The Tyler Board determined that
the Acquisitions presented the best present opportunity for maximizing
stockholder value and achieving the Company's other strategic objectives.
(11) Significant Barriers to Entry. Significant barriers to entry
exist in the information management industry. Outsourcing and purchasing
decisions often require extensive and lengthy bidding, review, and approval
processes. As a result, government decision makers and vendors both prefer
to enter into long-term contractual relationships, thereby avoiding
frequent bidding and approval delays. County governments frequently select
single vendor solutions, employing one low-cost or total-solution provider,
as opposed to several competing vendors for the same products or services.
New entrants in the industry are likely to be effectively restricted from
competition for the business of county governments and related entities
that have recognized the need for information management products or
services, since contracts are bid infrequently or require vendors to
compete as low-cost or total-solution providers. In addition, significant
investments in hardware and software would be necessary for any new
entrant, and the lack of access to proprietary technology tailored to the
county government and related markets would hamper such entry. The Company
believes that the Acquisitions represent a cost-effective entry into the
information management industry. The Company may face increasing
competition in the information management industry, however, if existing
and new entrants pursue consolidation strategies similar to the Company's.
(12) Due Diligence Review. The Tyler Board reviewed the results of the
due diligence investigations of Resources and TSG conducted by the
Company's management and its representatives.
In reviewing the proposed Acquisitions, the Tyler Board also considered
other factors, some of which may be viewed as negative, including the following:
(1) Goodwill. The Acquisitions will result in the Company's
recognition of approximately $58.9 million of goodwill. The amortization of
this goodwill will reduce reported earnings for the Company for an extended
period of time.
(2) Dilution. The Acquisitions will result in the issuance of a
substantial number of additional shares of Common Stock, which some of the
Company's stockholders may perceive as dilutive to their existing holdings.
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(3) Assumption of Debt; Financial Requirements. As of September 30,
1997, the Company had no long-term or short-term debt outstanding. After
giving pro forma effect to the Acquisitions including new indebtedness
incurred to pay cash dividends and bonuses under the Resources Merger
Agreement, as of September 30, 1997, the Company will assume approximately
$15.0 million of Resources' long-term debt, including the current portion
of long-term debt. In addition, after giving effect to the Acquisitions, as
of September 30, 1997, the Company intends to finance approximately $9.3
million of the cash consideration in the Acquisitions through new bank
financing. Although the Company believes that cash flow from operations
will be sufficient to service the additional debt, the additional debt may
restrict the Company's access to other sources of debt or equity capital
and limit future acquisition financing alternatives. In addition, the new
bank financing will place restrictions on the ability of the Company to pay
dividends to its stockholders.
(4) Control. The Acquisitions will result in one shareholder, Mr.
Oates, owning approximately 25.8% of the outstanding shares of Common
Stock. As long as Mr. Oates owns a significant percentage of the shares of
Common Stock, he may retain substantial influence over the affairs of the
Company through the election of directors and otherwise.
(5) Regulatory and Third Party Approvals. The proposed transactions
are subject to regulatory and third party approvals, including compliance
with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"). Although the Company believes that such approvals
will be obtained, delays could prevent the timely closing of the
Acquisitions and result in additional expenditures by the Company.
(6) Integration. The Tyler Board also considered a number of other
risks associated with the Resources and TSG Acquisitions prior to its
approval thereof, including integration of corporate cultures and
organizational models and retention of key employees of both companies.
After taking into consideration the factors described above, on October 8,
1997, November 4, 1997, and December 12, 1997, the Tyler Board unanimously
approved the original Resources Merger Agreement and the original TSG Merger
Agreement and the various amendments and restatements of those agreements. In
view of the variety of factors considered in connection with its evaluation of
the Acquisitions, the Board of Directors did not find it practicable to, and did
not, quantify or otherwise assign relative strengths to the specific factors
considered in reaching its determination.
THE TYLER BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR THE PROPOSAL TO ADOPT THE RESOURCES MERGER AGREEMENT.
THE TYLER BOARD UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE
FOR THE PROPOSAL TO ADOPT THE TSG MERGER AGREEMENT.
TERMS OF THE ACQUISITIONS
The following summary of the terms and conditions of the Acquisitions as
set forth in the Resources Merger Agreement and the TSG Merger Agreement is
intended to be a description of all material information relating to the
Acquisitions. This summary is, however, qualified in its entirety by reference
to the full terms of the Resources Merger Agreement and the TSG Merger
Agreement, which are attached hereto as Appendix A and Appendix B, respectively,
and are hereby incorporated herein by reference.
The terms and conditions of the Resources Merger Agreement and the TSG
Merger Agreement are similarly structured. This summary describes the similar
terms and conditions of the Resources Merger Agreement and the TSG Merger
Agreement (which are sometimes collectively referred to herein as the "Merger
Agreements") and, where different, the specific terms and conditions of each of
the Merger Agreements.
Effective Time. Each Acquisition shall become effective following the
closing thereof (the closing of each Acquisition being referred to herein as the
"Closing") when the Articles of Merger, executed in accordance with the TBCA,
are filed with the Secretary of State of Texas or at such other time specified
in the
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Articles of Merger. It is anticipated that the Articles of Merger with respect
to the Acquisitions will be filed with the Secretary of State of Texas at the
same time or otherwise provide for the same effective time. The time each
Acquisition becomes effective is referred to herein as the "Effective Time."
General Effects of the Acquisitions. At the Effective Time, (i) Resources
will merge with and into T1, which will be the surviving corporation and a
wholly owned subsidiary of the Company, (ii) Mr. Oates will contribute the
Resources headquarters facility in Dallas, Texas, to T1, and (iii) T2 will merge
with and into TSG, which will be the surviving corporation and a wholly owned
subsidiary of the Company. After the Effective Time, the Articles of
Incorporation and Bylaws of T1 in effect immediately prior to the Effective
Time, which shall be identical to the Articles of Incorporation and Bylaws of
Resources, shall constitute the Articles of Incorporation and Bylaws of New
Resources. At the Effective Time, the Articles of Incorporation and Bylaws of
TSG shall be the Articles of Incorporation and Bylaws of the surviving
corporation of the TSG Acquisition.
At the Effective Time, the stockholders of Resources shall be entitled to
receive in the aggregate $15,250,000 in cash and 10,000,000 shares of Common
Stock. The Class A Holder at the Effective Time will be entitled to receive
$15,250,000 in cash (of which $5,500,000 has been allocated to the transfer of
the Resources headquarters facility) and a total of 8,765,000 shares of Common
Stock; the holders of Resources class B common stock at the Effective Time will
be entitled to receive an aggregate of 1,235,000 shares of Common Stock on a pro
rata basis. In addition, the Class A Holder at the Effective Time may be
entitled to receive additional merger consideration up to an aggregate amount of
$4,500,000 on or before December 31, 1999. See "-- Additional Consideration."
With respect to the TSG Acquisition, all of the issued and outstanding shares of
common stock of TSG at the Effective Time shall be converted into the right to
receive in the aggregate $12,000,000 in cash and 2,000,000 shares of Common
Stock on a pro rata basis. Each option outstanding at the Effective Time to
purchase shares of the common stock of TSG, which is not otherwise extinguished
pursuant to the TSG Merger Agreement, shall be exercised prior to the Closing
and converted into cash and shares of Common Stock as described above. No
fractional shares of Common Stock will be issued in the Acquisitions and, in
lieu thereof, a cash payment will be paid equal in value to any such fractional
share based on the closing price per share of the Common Stock on the last
trading day prior to the Effective Time. If there is any change in the Company's
capitalization, such as a stock split, stock dividend, or similar change, or a
change in the capitalization of Resources or TSG, respectively, then the amount
of cash to be paid and the number of shares of Common Stock per share of common
stock of Resources and TSG will be correspondingly adjusted.
After the Effective Time, upon surrender of the appropriate certificate or
certificates to the respective surviving corporation for cancellation, each
holder of common stock of Resources or common stock of TSG shall be entitled to
receive a certificate or certificates representing the number of shares of
Common Stock into which such surrendered shares shall have been converted. Until
surrendered, each outstanding certificate that prior to the Effective Time
represented shares of common stock of Resources or common stock of TSG shall
only evidence the right to receive that amount of cash or shares of Common Stock
into which such Resources or TSG shares shall be converted.
Representations and Warranties of Resources and TSG. The Merger Agreements
contain various representations and warranties of Resources and TSG and their
respective shareholders who executed the Merger Agreements, which must be true
and correct in all material respects at the Closing, except as otherwise
provided in the respective Merger Agreements. The joint and several
representations and warranties of Resources and Mr. Oates and of TSG and Messrs.
Smith and Berry include customary representations and warranties with respect to
corporate organization and authority, qualification, and capitalization. The
Merger Agreements also contain representations and warranties by the parties
regarding (i) compliance and absence of conflict with laws and other
instruments, (ii) financial statements, (iii) absence of certain changes since
July 31, 1997, for Resources, and August 31, 1997, for TSG, (iv) liabilities,
(v) title to properties, (vi) assets, (vii) accounts receivable, (viii)
inventory, (ix) intellectual property, (x) contracts, (xi) litigation and
claims, (xii) compensation and benefit plans, (xiii) labor relations, (xiv)
insurance, (xv) related party contracts, (xvi) revenue recognition, (xvii)
broker's and finder's fees, (xviii) environmental matters, and (xix) the
accuracy of the information furnished. The Resources Merger Agreement also
includes representations and
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warranties of Resources and Mr. Oates in connection with the characterization of
the Resources Acquisition as a tax-free reorganization. With respect to any
subsidiary of Resources for any periods prior to the subsidiary's acquisition by
Resources, Resources and Mr. Oates' representations and warranties are expressly
limited to their respective knowledge. Substantially all of the representations
and warranties made by Resources and Mr. Oates and by TSG and Messrs. Smith and
Berry survive the Closing and continue in full force and effect for two years
thereafter. Representations and warranties with respect to taxes and
capitalization of Resources and TSG, including representations and warranties as
to the title and percentage ownership of the shares of common stock of each of
Resources and TSG, survive until the expiration of all applicable statutes of
limitation.
Representations and Warranties of the Company. The Merger Agreements also
contain representations and warranties of the Company and T1 or T2,
respectively. In addition to customary representations and warranties with
respect to corporate organization and authority, qualification, and
capitalization, the Merger Agreements contain representations and warranties by
the Company and the respective subsidiary regarding (i) compliance and absence
of conflict with laws and other instruments, (ii) documents filed by the Company
with the Commission, (iii) absence of certain changes since June 30, 1997, (iv)
broker's and finder's fees, (v) litigation and claims, (vi) no interim
operations of the respective subsidiary, and (vii) the accuracy of the
information furnished.
Conduct of Business. During the period prior to the Closing, Resources and
Mr. Oates and TSG and Messrs. Smith and Berry have agreed to certain affirmative
and negative covenants relating to the business of Resources and TSG,
respectively. These parties will cause Resources and TSG to: (i) use reasonable
efforts to conduct their respective operations in the ordinary course and
substantially the same manner as previously conducted; (ii) maintain marketing
organizations intact and to preserve the goodwill of their respective employees,
representatives, suppliers, and customers; and (iii) notify the Company of any
material emergency or other change in the normal course of their respective
businesses and of any governmental complaints, investigations, or hearings. The
negative covenants require Resources and Mr. Oates and TSG and Messrs. Smith and
Berry, prior to the Closing, not to: (i) issue, sell, pledge, or dispose of any
capital stock or, other than in the ordinary course of business, any assets;
(ii) amend or propose to amend the respective charter or bylaws; (iii) split,
combine, or reclassify any outstanding capital stock; (iv) redeem, purchase,
acquire, or offer to acquire any outstanding capital stock of the respective
companies or any subsidiary; or (v) enter into any contract, agreement,
commitment, or arrangement with respect to any of these matters. In addition,
the parties covenant that they shall take no action that would cause or permit,
and shall not fail to use their reasonable efforts to take any action the
failure to take which would cause or permit, their representations and
warranties set forth in the respective Merger Agreements to become untrue in any
material respect.
Other Covenants. Pursuant to the Resources Merger Agreement, Resources and
Mr. Oates have agreed that until the Closing, or March 31, 1998 if the Resources
Merger Agreement is terminated without closing, Resources and Mr. Oates shall
not, either directly or indirectly through an agent, representative, or other
person, solicit, or authorize any person to solicit, or initiate or encourage,
directly or indirectly, any proposal for the acquisition of all or any material
part of the capital stock, assets, or business of Resources or any of its
subsidiaries, or for the merger, consolidation, or other combination of
Resources or any of its subsidiaries with any other person or entity, or enter
into any discussions or negotiations for any such proposal, or provide any
person with information or assistance in furtherance of any such proposal.
Resources and Mr. Oates must promptly notify the Company in writing of all such
proposals received. The TSG Merger Agreement contains a substantially similar
covenant of TSG and Messrs. Smith and Berry.
The Resources Merger Agreement permits Resources to distribute cash
dividends to Mr. Oates in the aggregate not exceeding $3,300,000 on or before
the Closing. Resources is also permitted to pay employees of Resources and a
consultant to Resources certain cash bonuses for past services rendered, which
in the aggregate shall not exceed $2,400,000. The TSG Merger Agreement permits
TSG to pay employees of TSG certain cash bonuses for past services rendered,
which in the aggregate shall not exceed $200,000. Pursuant to the Resources
Merger Agreement, Resources was permitted to incur new indebtedness prior to the
Closing to
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the extent necessary to make the cash dividends and pay the bonuses. Resources
paid the permitted bonuses and dividends in December 1997.
Concurrently with the Closing, Mr. Oates shall contribute to T1, by special
warranty deed, the real property and fixtures that form the headquarters
facility for Resources. The Company, Resources, and Mr. Oates have agreed that
$5,500,000 of the cash portion of the consideration to be received by the Class
A Holder at the Effective Time pursuant to the Resources Merger Agreement is
allocable to Mr. Oates' contribution of the Resources headquarters facility for
federal income tax purposes. In addition, Resources shall transfer to Mr. Oates,
subject to any indebtedness incurred thereon, the title to certain real property
not currently used in Resources' business.
The TSG Merger Agreement provides that the Company, TSG, and Messrs. Smith
and Berry may, pursuant to a written amendment, change the form of the TSG
Acquisition to a merger of TSG with and into T2, provided such a revised form of
merger would qualify as a reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended.
The Merger Agreements also contain certain covenants of the Company. The
Company and T1 or T2, respectively, agree that all rights to indemnification
existing in the articles of incorporation, bylaws or other organizational
documents of Resources and TSG shall continue in full force and effect for six
years after the Closing. The Company also agrees to obtain the absolute and
unconditional release of all guarantees of the indebtedness of Resources and TSG
made by the respective shareholders.
Loan by the Company to Resources. Pursuant to the Resources Merger
Agreement, on December 30, 1997, the Company loaned $5,700,000 to Resources for
working capital purposes. The loan, which is unsecured, is evidenced by a
promissory note from Resources, bears interest at 8.5% per annum, payable
quarterly, and matures on September 30, 1999, unless the Resources Merger
Agreement is terminated prior to consummation of the Resources Acquisition. The
loan matures 90 days after termination if the Resources Merger Agreement is
terminated by the Company because of the failure of one or more conditions to
the Company's obligations to consummate the Resources Acquisition regarding
compliance with covenants by Resources, representations and warranties of
Resources, delivery of an opinion of counsel of Resources, delivery of certain
employment, confidentiality, and noncompetition agreements, approval of the
Resources Merger Agreement by the shareholders of Resources, or the absence of
dissenting shareholders of Resources. The loan matures 18 months after
termination if the Resources Merger Agreement is terminated by Resources or Mr.
Oates because of the failure of one or more conditions to Resources' obligations
to consummate the Resources Acquisition regarding compliance with covenants by
the Company, representations and warranties of the Company, delivery of an
opinion of counsel of the Company, or approval of the Resources Merger Agreement
by the stockholders of the Company. The loan matures one year after termination
if the Resources Merger Agreement is terminated for any other reason.
The loan by the Company to Resources is in replacement of certain
indebtedness Resources was permitted to incur and have outstanding at the
Closing.
Registration Rights. The Merger Agreements include the Company's grant of
certain registration rights to the Resources and TSG shareholders with respect
to the shares of Common Stock to be received by them in the Acquisitions. The
Resources Merger Agreement provides that on two occasions prior to October 8,
2003, Mr. Oates may request that the Company register under the Securities Act
the shares of Common Stock he receives in the Resources Acquisition; provided,
however, that the number of shares to be so registered in an offering, whether
registered on behalf of Mr. Oates, the Company or any other selling shareholder,
shall not be in the aggregate less than 3,000,000 shares. In addition, if the
Company proposes to register any of its securities under the Securities Act at
any time prior to October 8, 2003, Mr. Oates shall have the opportunity to
include in such registration any of the shares of Common Stock Mr. Oates
receives in the Resources Acquisition. These "demand" and "piggyback"
registration rights are subject to certain restrictions and limitations. The TSG
shareholders may request the "piggyback" registration of the shares of Common
Stock received in the TSG Acquisition in any registration of securities by the
Company occurring within one year after the Closing.
20
<PAGE> 27
Additional Consideration. The Class A Holder at the Effective Time may be
entitled to receive additional merger consideration up to an aggregate amount of
$4,500,000 in cash if certain contingencies set forth in a separate letter dated
as of October 8, 1997, are achieved on or before December 31, 1999. These
contingencies relate to the acquisition of specified businesses of the same
types currently engaged in by Resources and TSG for purposes of geographic
expansion. Although Resources has had preliminary discussions from time to time
with the owner or owners of these businesses regarding possible acquisition by
Resources, Resources has not yet received any favorable response to its
inquiries. Neither Resources nor the Company are currently in negotiations or
have entered into any agreements with the owner or owners of these businesses.
There can be no assurances that Resources or the Company will be able to
consummate the acquisition of any or all of these businesses at all or on terms
favorable to Resources and the Company.
Employment Agreements. Pursuant to the Resources Merger Agreement, the
Company and Resources will enter into an employment and noncompetition agreement
with Mr. Oates (the "Oates Employment Agreement"), which is described herein
under the caption "Interests of Certain Persons in Matters to be Acted Upon."
The Resources Merger Agreement includes the Company's guarantee of full and
prompt payment of all amounts that become due and payable to Mr. Oates pursuant
to the Oates Employment Agreement. Resources and Mr. Oates have also agreed in
the Resources Merger Agreement to use their reasonable best efforts to cause
eight key employees or consultants of Resources to terminate their current
employment or consulting agreements and enter into new employment,
confidentiality, and noncompetition agreements with Resources in a form
acceptable to the Company.
Pursuant to the TSG Merger Agreement, the Company and TSG will enter into
an employment and noncompetition agreement with each of Messrs. Smith and Berry
(collectively, the "TSG Employment Agreements"), which are described herein
under the caption "Interests of Certain Persons in Matters to be Acted Upon."
The TSG Merger Agreement includes the Company's guarantee of full and prompt
payment of all amounts that become due and payable to Messrs. Smith and Berry
pursuant to the TSG Employment Agreements. Messrs. Smith and Berry have also
agreed in the TSG Merger Agreement to use their best efforts to cause seven key
employees of TSG to terminate their current employment agreements and enter into
new employment, confidentiality, and noncompetition agreements with TSG in a
form acceptable to the Company.
Stock Options. Pursuant to the Resources Merger Agreement, effective upon
the Closing the Company has agreed to grant options under the Tyler Corporation
Stock Option Plan ("Stock Option Plan") to employees of Resources designated by
Mr. Oates for the purchase of an aggregate of 400,000 shares of Common Stock.
Pursuant to the TSG Merger Agreement, effective upon the Closing the Company has
agreed to grant options under the Company's Stock Option Plan to employees of
TSG designated by Messrs. Smith and Berry for the purchase of an aggregate of
200,000 shares of Common Stock. The exercise price of the options to be granted
by the Company will be equal to the reported closing price of the Common Stock
on the New York Stock Exchange on the date of the Closing. The options to be
granted by the Company will be incentive stock options, vest in five equal
installments over five years, and have a term of ten years.
Conditions to Consummation of the Acquisitions. The respective obligations
of the parties to the Merger Agreements to consummate the Acquisitions are
subject to the satisfaction of certain joint conditions. First, all filings
required under the HSR Act shall have been made, and all waiting periods,
including any extension thereof, shall have expired or been waived or otherwise
terminated. Second, no governmental agency or authority shall have instituted or
threatened in writing to institute, any action or proceeding seeking to delay,
restrain, enjoin, or prohibit the consummation of the Acquisitions. Finally, the
respective obligations of the parties to consummate the Resources Acquisition
are conditioned upon consummation of the TSG Acquisition.
The obligations of Resources and Mr. Oates to consummate the Resources
Acquisition are subject to the following conditions, any of which may be waived
by Resources and Mr. Oates: (i) the Company shall have satisfied or complied
with or performed all terms, covenants, and conditions of the Resources Merger
Agreement; (ii) the representations and warranties made by the Company in the
Resources Merger
21
<PAGE> 28
Agreement, the Oates Employment Agreement, and all other certificates or other
agreements delivered by the Company shall be true and correct in all material
respects; (iii) Resources and Mr. Oates shall have received an opinion of
special counsel to the Company relating to the organization and good standing of
the Company, the authority of the Company to consummate the Resources
Acquisition, and the binding effect of the Resources Merger Agreement; (iv)
there shall have been no material adverse change in the businesses, properties,
assets, liabilities, results of operations, or condition of the Company; (v) the
stockholders of the Company shall have approved the Resources Acquisition on or
before March 31, 1998; (vi) the Company shall have obtained financing for the
Resources Acquisition acceptable to the Company; and (vii) Resources and Mr.
Oates shall have received a certificate or certificates executed by officers of
the Company to the effect that the conditions set forth in the Resources Merger
Agreement have been satisfied. The TSG Merger Agreement contains substantially
similar conditions to the obligations of TSG and Messrs. Smith and Berry. The
approval of the TSG Acquisition by the stockholders of the Company is not,
however, a condition to TSG's obligations to consummate the TSG Acquisition.
The obligations of the Company to consummate the Resources Acquisition are
subject to the following conditions, any of which may be waived by the Company:
(i) Resources and Mr. Oates shall have satisfied or complied with or performed
all terms, covenants, and conditions of the Resources Merger Agreement; (ii) all
of the representations and warranties made by Resources and Mr. Oates in the
Resources Merger Agreement and all certificates and other documents delivered by
Resources and Mr. Oates shall be true and correct in all material respects,
subject to certain limited exceptions; (iii) the issuance and delivery of the
shares of Common Stock in the Resources Acquisition shall comply with all
securities laws; (iv) the Company shall have received an opinion of counsel to
Resources and Mr. Oates relating to the organization and good standing of
Resources, the authority of Resources to consummate the Resources Acquisition,
and the binding effect of the Resources Merger Agreement; (v) there shall have
been no material adverse change in the businesses, properties, assets,
liabilities, results of operations, or condition of Resources, subject to
certain exceptions; (vi) the Company and Resources shall have received all
consents or approvals required to be obtained or necessary in connection with
the consummation of the acquisition; (vii) the Company's stockholders shall have
approved the Resources Acquisition on or before March 31, 1998; (viii) the
Company shall have obtained financing for the Resources Acquisition acceptable
to the Company; (ix) certain designated Resources employees shall have entered
into new employment, confidentiality, and noncompetition agreements with
Resources; (x) the Company shall have received a certificate or certificates,
executed on behalf of Resources and Mr. Oates, to the effect that all conditions
have been satisfied; (xi) the shareholders of Resources shall have approved the
Resources Acquisition on or before January 31, 1998; and (xii) no shareholder of
Resources shall have exercised his right to dissent from the Resources
Acquisition. The TSG Merger Agreement contains substantially similar conditions
precedent to the obligations of the Company. In addition, the obligation of the
Company to consummate the TSG Acquisition is subject to the consummation of the
Resources Acquisition.
Consummation of each of the Acquisitions is conditioned upon consummation
of the other Acquisition. If the Company's stockholders do not approve both of
the Acquisitions, neither Acquisition will be consummated and both Merger
Agreements will be terminated unless consummation of the other Acquisition is
waived by the appropriate party or parties.
Indemnification. Mr. Oates has agreed to indemnify and hold harmless the
Company from and against any claims, losses, obligations, damages, demands, and
liabilities arising from a breach by Mr. Oates of any representation, warranty,
or covenant contained in the Resources Merger Agreement or in any other
agreement executed pursuant thereto, other than certain customer claims (for
which a separate procedure is set forth in the Resources Merger Agreement).
Similarly, the Company agrees to indemnify and hold harmless Mr. Oates from and
against any and all claims, losses, expenses, obligations, demands, and
liabilities arising out of any breach by the Company of any representation,
warranty, or covenant contained in the Resources Merger Agreement or any
agreement executed pursuant thereto. Individual claims for indemnification of
less than $37,500 may not be made by either party. Claims of $37,500 or greater
may be made, but no claim may be pursued by the parties until the aggregate of
all such claims exceeds $300,000. The maximum aggregate liability for
indemnification by either Mr. Oates or the Company is $7,500,000; provided,
however,
22
<PAGE> 29
that claims made with regard to a breach of the representations as to
capitalization and tax matters shall not be subject to these restrictions. The
Resources Merger Agreement provides that the Company may offset against any
payments otherwise due Mr. Oates under the Resources Merger Agreement, the Oates
Employment Agreement, or any other agreement, amounts equal to liabilities and
costs incurred by the Company that are subject to indemnification by Mr. Oates.
The TSG Merger Agreement contains similar indemnification provisions by Messrs.
Smith and Berry and the Company. Individual claims for indemnification of less
than $18,750 may not be made by either party. Claims of $18,750 or greater may
be made, but no claim may be pursued by the parties until the aggregate of all
such claims exceeds $150,000. The maximum indemnification liability under the
TSG Merger Agreement is $3,000,000, subject to the same exclusions as described
above for the Resources Merger Agreement. The TSG Merger Agreement contains no
right of offset against future payments.
Amendment. The Merger Agreements may be amended only by an instrument in
writing signed by the parties against which enforcement of the amendment,
modification, or supplement is sought.
Termination. The Resources Merger Agreement may be terminated at any time
on or before the Closing (i) by mutual consent of the Company and Mr. Oates,
(ii) by the Company if there has been a material misrepresentation or breach of
any of the representations and warranties of Resources and Mr. Oates, or if
there has been a material failure on the part of Resources or Mr. Oates to
comply with their obligations under the Resources Merger Agreement, (iii) by Mr.
Oates if there has been a material misrepresentation or breach of the
representations and warranties of the Company or if there has been a material
failure on the part of the Company to comply with any of its obligations under
the Resources Merger Agreement, (iv) by either of the Company or Mr. Oates if
the transactions contemplated by the Resources Merger Agreement have not been
consummated by March 31, 1998, (v) by the Company or Mr. Oates if the conditions
precedent to their respective obligations have not been satisfied or waived, or
(vi) by the Company or Mr. Oates if the transactions contemplated by the
Resources Merger Agreement violate any order, decree, or judgment of any court
or governmental body. The termination provisions of the TSG Merger Agreement are
substantially similar.
Expenses. If the Resources Acquisition is not consummated, the Company and
Resources will each pay its own expenses incurred in connection with the
Resources Merger Agreement and the transactions contemplated thereby.
Notwithstanding this general statement, the Company will be obligated to pay the
actual legal, accounting, and other out-of-pocket expenses incurred by Resources
and Mr. Oates in connection with the negotiation, preparation, and execution of
the Resources Merger Agreement, the transactions contemplated thereby, and
Resources' due diligence examination of the Company if the Resources Merger
Agreement is terminated (i) by the Company for any reason other than failure of
one or more conditions to the Company's obligations to consummate the Resources
Acquisition regarding compliance with covenants by Resources, representations
and warranties of Resources, delivery of an opinion of counsel of Resources,
delivery of certain employment, confidentiality, and noncompetition agreements,
approval of the Resources Merger Agreement by the shareholders of Resources, or
the absence of dissenting shareholders of Resources, or (ii) by Resources or Mr.
Oates for any reason other than those enumerated above as justifying termination
by the Company. Similarly, if the TSG Acquisition is not consummated, the
Company and TSG will each pay its own expenses; provided, however, the Company
will be obligated to reimburse Messrs. Smith and Berry for their reasonable
out-of-pocket expenses in connection with the TSG Merger Agreement and the
transactions contemplated thereby in an amount not to exceed $30,000 if the TSG
Acquisition is not consummated because of the Company's failure to obtain
financing or to consummate the Resources Acquisition. In addition, with respect
to each of the Merger Agreements, if Tyler, on the one hand, or the shareholder
or shareholders executing the respective Merger Agreement, on the other hand,
discovers prior to Closing a breach of the other party's covenants or
representations and warranties or the existence of a material adverse change,
which is not cured prior to Closing, the discovering party is entitled to
terminate the respective Merger Agreement and recover from the other party or
parties to such Merger Agreement the discovering party's actual legal,
accounting, and other out-of-pocket expenses as liquidated damages.
Governing Law. The Merger Agreements are governed by Texas law.
23
<PAGE> 30
ACQUISITION FINANCING
The Company has obtained a written commitment from NationsBank, N.A.
("NationsBank") with respect to a senior revolving credit facility in an amount
not to exceed $50,000,000 (the "Senior Credit Facility") to be extended to the
Company by NationsBank, which satisfies the condition to the Closing for
financing acceptable to the Company. The Senior Credit Facility will be utilized
to finance a portion of the cash purchase price to be paid for the Acquisitions,
to finance other acquisitions, and for working capital, capital expenditures,
and other lawful corporate purposes. The following summary of the Senior Credit
Facility is based on the terms set forth in the written commitment.
The Senior Credit Facility will have a three-year term. Interest will be
calculated based on: (i) the London Interbank Offered Rate ("LIBOR") plus the
applicable margin of 1.00% to 2.00%; or (ii) the higher of the Federal Funds
rate plus 0.50% or the NationsBank prime rate, plus the applicable margin of
zero to 0.25%. The Senior Credit Facility is subject to an upfront fee of 0.625%
of the total commitment and an annual fee on the undrawn commitment ranging from
0.25% to 0.50%. The applicable margin will be determined each quarter and the
commitment fee will be determined annually, and in each case will be based on
the ratio of Indebtedness to Pro Forma EBITDA (each as defined in the Senior
Credit Facility). The Senior Credit Facility will be secured by a pledge of the
common stock of all present and future subsidiaries of the Company and will be
guaranteed by all such subsidiaries. The Senior Credit Facility will also
prohibit the Company and its subsidiaries from granting liens on any of their
assets, except as expressly permitted thereunder. The Senior Credit Facility
will include customary affirmative, negative, and financial covenants,
including, without limitation, requirements to maintain a ratio of Indebtedness
to Pro Forma EBITDA not greater than 3.00, a fixed charge coverage ratio to
Historical EBITDA (each as defined in the Senior Credit Facility) of not less
than 1.75 until March 31, 1998, 2.00 from April 1, 1998, through June 30, 1998,
and 2.25 thereafter, and a minimum consolidated net worth of not less than the
sum of (i) 90% of the Company's net worth as of December 31, 1997, plus (ii) 50%
of quarterly net income plus (iii) 100% of any equity proceeds. The Senior
Credit Facility will require prior approval of NationsBank for future
acquisitions, other than the Acquisitions, involving cash or indebtedness in
excess of $10,000,000 individually or $30,000,000 in the aggregate. In addition,
the Senior Credit Facility will restrict the ability of the Company to pay
dividends to its stockholders.
The Senior Credit Facility is subject to the execution of definitive
agreements and the satisfaction of customary closing conditions. There can be no
assurance that the Company will be successful in finalizing the definitive
agreements and obtaining the Senior Credit Facility or that, if obtained, the
Senior Credit Facility will be on the same terms as set forth in the written
commitment.
HSR ACT
The Resources Acquisition is subject to the requirements of the HSR Act,
which provides that certain acquisition transactions may not be consummated
until certain information has been furnished to the Antitrust Division of the
Department of Justice ("Antitrust Division") and the Federal Trade Commission
("FTC") and certain waiting period requirements have been satisfied. The Company
and Mr. Oates filed the required information and material with the Antitrust
Division and the FTC on November 20, 1997, and the waiting period was terminated
early on December 2, 1997. Satisfaction of the waiting period requirement will
not preclude the Antitrust Division, the FTC, or any other party either before
or after the Effective Time from challenging or seeking to delay or enjoin one
or both of the Acquisitions on antitrust or other grounds. There can be no
assurance that such a challenge, if made, would not be successful.
LIMITATIONS ON TRANSFERABILITY OF COMMON STOCK
The shares of Common Stock to be issued in the Acquisitions will be
unregistered securities. Such shares may not be transferred by the holders
thereof without registration under the Securities Act and applicable state
securities or blue sky laws or the availability of an appropriate exemption
under the Securities Act. In addition, the shares of Common Stock received by
certain persons deemed to be "affiliates" of the Company for purposes of Rule
145 under the Securities Act will be subject to the restrictions imposed by such
rule. In
24
<PAGE> 31
accordance with Rule 145, an affiliate of either Resources or TSG receiving
shares of Common Stock issued in the Acquisitions may not sell such shares
except pursuant to the volume and manner of sale limitations and other
requirements specified therein or pursuant to an effective registration
statement under the Securities Act. In general, directors, executive officers
and substantial beneficial owners of a corporation's securities may be deemed to
be "affiliates" of a corporation. Pursuant to the Merger Agreements, the Company
has granted certain registration rights to the Resources and TSG shareholders.
See "-- Terms of the Acquisitions -- Registration Rights."
ACCOUNTING TREATMENT
Resources. The Resources Acquisition is expected to be accounted for under
the "purchase" method of accounting in accordance with generally accepted
accounting principles ("GAAP") as a purchase of Resources' outstanding capital
stock by the Company. As such, the Company will record the acquired assets
(including identifiable intangible assets) and liabilities of Resources at their
respective fair values. The remainder of the purchase price over such fair
market value will be reflected on the Company's balance sheet as goodwill.
TSG. The TSG Acquisition is expected be accounted for under the "purchase"
method of accounting in accordance with GAAP as a purchase of TSG's outstanding
capital stock by the Company . As such, the Company will record the acquired
assets (including identifiable intangible assets) and liabilities of TSG at
their respective fair market values. The remainder of the purchase price over
such fair value will be reflected on the Company's balance sheet as goodwill.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the Acquisitions that are applicable to the Company. The
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed regulations
promulgated under the Code by the Treasury Department, and current
administrative rulings and court decisions, all of which are subject to changes.
Any such change, which may or may not be retroactive, could alter the tax
consequences to the Company or its stockholders or to Resources, TSG, or their
respective shareholders. This discussion does not address all aspects of United
States federal income taxation that may be relevant to a particular stockholder
of the Company, or the effects of state, local, or foreign income taxation. This
discussion also does not deal with tax consequences of the Acquisitions that may
be relevant to the shareholders of Resources or TSG.
The Resources Acquisition is intended to qualify as a reorganization within
the meaning of Section 368(a) of the Code, in which case no gain or loss will be
recognized by the Company or Resources as a result of the Resources Acquisition.
The TSG Acquisition is intended to be a taxable transaction to the
shareholders of TSG. Neither the Company nor TSG will realize any gain or loss
as a result of the TSG Acquisition.
The TSG Merger Agreement provides that the Company, TSG, and Messrs. Smith
and Berry may, pursuant to a written amendment, change the form of the TSG
Acquisition to a merger of TSG with and into T2, provided such a revised form of
merger would qualify as a reorganization under Section 368 of the Code.
It is expected that at the Closing the Company will receive a written
opinion (the "Tax Opinion") of Liddell Sapp substantially to the effect that, on
the basis of certain facts and representations, including but not limited to the
representations made in the Resources Merger Agreement and the TSG Merger
Agreement, (i) the Company will not recognize income, gain, or loss as a result
of the Acquisitions and (ii) no gain or loss will be recognized by stockholders
of the Company who were stockholders of the Company immediately prior to the
Effective Time with respect to their holdings of shares of Common Stock
immediately prior to the Effective Time. In connection with the Tax Opinion,
Liddell Sapp will make such factual assumptions as are customary in similar tax
opinions. The Tax Opinion cannot be relied upon if any such factual assumption
is, or later becomes, inaccurate. The Company has not requested, and will not
request, a ruling from the United
25
<PAGE> 32
States Internal Revenue Service with respect to the federal income tax
consequences of either of the Acquisitions and the Tax Opinion will not be
binding upon the Internal Revenue Service. Delivery of the Tax Opinion is not a
condition to consummation of either of the Acquisitions.
The foregoing summary of material federal income tax consequences is not
intended to constitute advice regarding the federal income tax consequences of
the Acquisitions to any holder of shares of Common Stock.
NO APPRAISAL RIGHTS
Holders of the Company's Common Stock are not entitled to dissenting
stockholders' appraisal rights in connection with the Acquisitions. On October
8, 1997, Mr. Oates, then the sole shareholder of Resources approved the original
Resources Merger Agreement by written consent. On December 29, 1997, the holders
of all of the Resources common stock approved the Resources Merger Agreement by
unanimous written consent. The shareholders of TSG unanimously approved the TSG
Merger Agreement by unanimous written consents on October 8 and December 29,
1997. Accordingly, no shareholders of Resources or TSG are entitled to
dissenting shareholders' appraisal rights.
COMPARISON OF RIGHTS OF HOLDERS OF STOCK
There will be no change in the rights and preferences of holders of the
Company's Common Stock as a result of the Acquisitions.
Resources has one Class A Holder and 18 holders of Resources class B common
stock, and TSG has three shareholders, while the Company has approximately 3,500
stockholders of record. Holders of Resources class B common stock have no voting
rights with respect to the election of directors and other regular matters, but
the holders of all classes of Resources common stock are entitled to vote upon
the Resources Acquisition. Thus, while the Class A Holder and the TSG
shareholders currently have the ability to exercise virtually complete control
over their respective companies, their individual ability to exercise control
over the Company will be more limited. Mr. Oates will, however, own
approximately 25.8% of the outstanding shares of Common Stock upon consummation
of the Resources Acquisition.
The Class A Holder and the TSG shareholders, among other things, will not
have the ability to call special stockholder meetings, amend the Company's
By-Laws, or control the election of directors. The charter and bylaws of each of
Resources and TSG contain provisions customary for privately held corporations
under the TBCA. The Company's Charter and By-Laws are substantially more
detailed and contain many provisions, such as antitakeover provisions, customary
among publicly traded corporations with many stockholders.
26
<PAGE> 33
MARKET PRICES AND DIVIDENDS
THE COMPANY
The Common Stock is traded on the New York Stock Exchange under the symbol
"TYL." At December 30, 1997, the Company had approximately 3,500 stockholders of
record. The following table sets forth for the calendar periods indicated the
high and low sales price per share of the Common Stock as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter............................................. $3 7/8 $2 3/4
Second Quarter............................................ 3 7/8 3
Third Quarter............................................. 3 1/4 2 5/8
Fourth Quarter............................................ 3 7/8 2 3/4
1996
First Quarter............................................. 3 2 1/4
Second Quarter............................................ 2 7/8 2 1/8
Third Quarter............................................. 2 3/4 1 3/8
Fourth Quarter............................................ 2 1/4 1 3/8
1997
First Quarter............................................. 2 3/8 1 1/2
Second Quarter............................................ 2 1/4 2 1/2
Third Quarter............................................. 3 3/4 2
Fourth Quarter (through December 29, 1997)................ 5 7/8 3 3/8
</TABLE>
The closing sale price for a share of Common Stock on October 7, 1997, the
last trading day preceding the announcement of the proposed Acquisitions, was
$3.50. No cash dividends were paid on the Common Stock in 1995, 1996, or during
the nine months ended September 30, 1997. In addition, the Senior Credit
Facility will restrict the Company's ability to pay dividends to its
stockholders.
RESOURCES
Resources is not publicly traded and no public market exists or is likely
to be created for its capital stock. Resources has one Class A Holder and 18
holders of Resources class B common stock and until December 1997 had not paid
cash dividends on its capital stock. Pursuant to the Resources Merger Agreement,
Resources declared and paid a cash dividend of $3,300,000 to the Class A Holder
in December 1997.
TSG
TSG is not publicly traded and no public market exists or is likely to be
created for its capital stock. TSG has three shareholders. TSG declared and paid
cash dividends on its common stock in the aggregate amount of $50,270 in the
fiscal year ended October 31, 1996. No cash dividends were paid on TSG's common
stock in the fiscal year ended October 31, 1995, or the fiscal year ended
October 31, 1997.
27
<PAGE> 34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth unaudited pro forma condensed consolidated
information for the Company. The unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 1996 and for the nine
months ended September 30, 1997, give effect to (i) the Acquisitions of
Resources (including Resources' acquisition of certain assets of Holdings
("Title Acquisition")) and TSG and (ii) the divestiture of IFS as if each had
occurred on January 1, 1996. The unaudited pro forma condensed consolidated
balance sheet as of September 30, 1997, has been prepared as if the Acquisitions
of Resources and TSG had occurred on September 30, 1997. There can be no
assurances that the Acquisitions will be consummated.
The unaudited pro forma condensed consolidated financial information does
not purport to present the actual results of operations or financial position of
the Company had the transactions and events assumed therein in fact occurred on
the dates indicated, nor is it necessarily indicative of the results of
operations that may be achieved in the future. The unaudited pro forma condensed
consolidated financial information is based on certain assumptions and
adjustments described in the notes thereto and should be read in conjunction
therewith. The unaudited pro forma condensed consolidated financial information
should also be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of the Company, Resources, and TSG.
28
<PAGE> 35
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
RESOURCES
------------------------------------ PRO FORMA
HISTORICAL PRO FORMA HISTORICAL PRO FORMA COMBINED
COMPANY HISTORICAL ADJUSTMENTS ADJUSTED TSG (1) ADJUSTMENTS COMPANY
---------- ---------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.... $19,232 $ 859 $ -- $ 859 $2,816 $ (19,500)(6) $ 3,207
(200)(4)
Accounts receivable, net..... 216 2,311 -- 2,311 1,236 -- 3,763
Merchandise inventories...... 17,693 -- -- -- -- -- 17,693
Other current
assets.................... 2,799 681 135(5) 816 492 -- 4,107
------- ------- ------- ------- ------ ---------- --------
39,940 3,851 135 3,986 4,544 (19,700) 28,770
Property, plant and equipment,
net.......................... 5,505 6,668 (506)(2) 7,193 547 4,469(6) 17,714
1,031(3)
Intangible assets.............. -- 6,689 -- 6,689 -- 15,911(6) 81,547
51,614(6)
7,133(7)
200(4)
Net assets of discontinued
operations................... 8,787 -- -- -- -- -- 8,787
Other assets................... 2,039 838 84(5) 922 -- -- 2,961
------- ------- ------- ------- ------ ---------- --------
$56,271 $18,046 $ 744 $18,790 $5,091 $ 59,627 $139,779
======= ======= ======= ======= ====== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses.................. $ 6,852 $ 1,718 $ (296)(3) $ 1,422 $ 527 $ -- $ 8,801
Current portion of long-term
debt...................... -- 2,253 (85)(2) 2,168 -- -- 2,168
Deferred revenue............. -- -- -- -- 1,212 -- 1,212
Other current liabilities.... 8,181 307 -- 307 295 -- 8,783
------- ------- ------- ------- ------ ---------- --------
15,033 4,278 (381) 3,897 2,034 -- 20,964
Long-term debt................. -- 7,090 5,700(4) 12,790 -- 9,250(6) 22,040
Deferred income
taxes........................ 5,064 -- -- -- 14 7,133(7) 12,211
Other liabilities.............. 4,117 240 -- 240 -- -- 4,357
Shareholders' equity........... 32,057 6,438 (421)(2) 1,863 3,043 43,244(6) 80,207
1,327(3)
(5,700)(4)
219(5)
------- ------- ------- ------- ------ ---------- --------
$56,271 $18,046 $ 744 $18,790 $5,091 $ 59,627 $139,779
======= ======= ======= ======= ====== ========== ========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
29
<PAGE> 36
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESOURCES
----------------------------------
PRO PRO
FORMA PRO FORMA FORMA
HISTORICAL ADJUST- HISTORICAL ADJUST- COMBINED
COMPANY HISTORICAL MENTS ADJUSTED TSG(1) MENTS COMPANY
---------- ---------- ------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $58,172 $13,997 $2,756(8) $16,753 $8,804 $ -- $83,729
Costs and expenses:
Cost of revenues........ 33,216 7,792 376(9) 8,238 3,565 -- 45,019
70(10)
Selling, general and
administrative....... 24,313 2,744 -- 2,744 3,972 (1,220)(13) 30,670
861(14)
Amortization of
goodwill............. -- -- -- -- -- 1,372(15) 1,372
Interest (income)
expense.............. (613) 388 723(11) 1,111 (69) 1,114(16) 1,543
------- ------- ------ ------- ------ ------- -------
56,916 10,924 1,169 12,093 7,468 2,127 78,604
Income from continuing
operations before
taxes................... 1,256 3,073 1,587 4,660 1,336 (2,127) 5,125
Income tax (benefit)...... 454 52 1,626(12) 1,678 494 (266)(17) 2,360
------- ------- ------ ------- ------ ------- -------
Income from continuing
operations.............. $ 802 $ 3,021 $ (39) $ 2,982 $ 842 $(1,861) $ 2,765
======= ======= ====== ======= ====== ======= =======
Income per share
from continuing
operations.............. $ 0.04 $ 0.09
======= =======
Weighted average number of
common shares
outstanding............. 20,145 12,000(6) 32,145
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
30
<PAGE> 37
TYLER CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
RESOURCES
------------------------------------ PRO
PRO FORMA PRO FORMA FORMA
HISTORICAL ADJUST- HISTORICAL ADJUST- COMBINED
COMPANY HISTORICAL MENTS ADJUSTED TSG(1) MENTS COMPANY
---------- ---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues........................ $ 85,074 $14,729 $5,077(8) $19,806 $11,052 $ -- $115,932
Costs and expenses:
Cost of revenues.................. 49,275 8,461 1,517(9) 9,978 5,156 -- 64,409
Selling, general and
administrative.................. 42,530 2,790 111(10) 2,901 5,054 (1,384)(13) 50,250
1,149(14)
Amortization of
goodwill........................ 1,101 -- -- -- -- 1,830(15) 2,931
Interest (income) expense......... (277) 463 1,079(11) 1,542 (56) 849(16) 2,058
Goodwill impairment charge........ 14,789 -- -- -- -- -- 14,789
Other income and expense -- net... -- -- -- -- 11 -- 11
-------- ------- ------ ------- ------- ------- --------
107,418 11,714 2,707 14,421 10,165 2,444 134,448
-------- ------- ------ ------- ------- ------- --------
Income (loss) from continuing
operations before taxes........... (22,344) 3,015 2,370 5,385 887 (2,444) (18,516)
Income tax (benefit)................ (3,037) 1,125 867(12) 1,992 339 (215)(17) (921)
-------- ------- ------ ------- ------- ------- --------
Income (loss) from continuing
operations........................ $(19,307) $ 1,890 $1,503 $ 3,393 $ 548 $(2,229) $(17,595)
======== ======= ====== ======= ======= ======= ========
Income (loss) per share from
continuing operations............. $ (0.97) $ (0.55)
======== ========
Weighted average number of common
shares outstanding................ 19,876 12,000(6) 31,876
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
31
<PAGE> 38
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(1) The fiscal year end for TSG is October 31. Accordingly, the balance sheet
presented for TSG is as of July 31, 1997. The historical statements of
operations presented for TSG are for the nine months ended July 31, 1997
and the twelve months ended October 31, 1996.
(2) Represents the distribution of certain real property not currently used in
Resources' business to the Class A Holder at its net book value of $506,
less related indebtedness of $85, resulting in a charge to equity of $421.
(3) Represents the transfer of the office building from the sole shareholder of
Resources at its net book value of $1,031 to T1 less deferred rent expense
related to the lease termination of $296 resulting in a credit to equity of
$1,327.
(4) Pursuant to the Resources Merger Agreement and the TSG Merger Agreement,
Resources may incur additional long-term debt to (i) pay a $3,300 dividend
to the Class A Holder and (ii) pay cash bonuses to employees and a
consultant of Resources totaling $2,400, and TSG may pay cash bonuses to
employees of TSG totaling $200. The pro forma balance sheet includes and
the pro forma statement of operations excludes those non-recurring cash
bonuses described in (ii) above which may be paid prior to the consummation
of the Resources Acquisition. In addition, the pro forma statement of
operations excludes the 12.35 shares of class B non-voting common stock
transferred by the Class A Holder to employees of Resources prior to the
consummation of the merger, which will be considered compensation expense
in the preacquisition operating results of Resources, and will have no
effect on the net assets of Resources at the date of the merger.
(5) To record the reinstatement of existing deferred tax assets of $219 related
to Resources changing from a C corporation to an S corporation, effective
January 1, 1997, and then revoking its S corporation status concurrent with
the merger.
(6) The proposed Acquisitions of Resources and TSG have been accounted for
using the purchase method of accounting. The purchase price and allocation
of purchase price to the assets acquired and liabilities assumed are
summarized below:
PURCHASE PRICE:
<TABLE>
<CAPTION>
RESOURCES(A) TSG TOTAL
------------ ------- -------
<S> <C> <C> <C>
Cash............................................. $15,250 $12,000 $27,250
Long-term debt, excluding current portion,
outstanding.................................... 12,790 -- 12,790
Estimated transaction costs...................... 1,200 300 1,500
Fair value of common stock issued (12,000 shares
at $4.0125(f) per share)....................... 40,125 8,025 48,150
------- ------- -------
$69,365 $20,325 $89,690
======= ======= =======
</TABLE>
32
<PAGE> 39
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ALLOCATION OF PURCHASE PRICE:
<TABLE>
<CAPTION>
RESOURCES/
PURCHASE RESOURCES TSG
PRICE HISTORICAL TSG ACQUISITIONS NET PRO FORMA
ALLOCATION AS ADJUSTED HISTORICAL FINANCING ADJUSTMENT
---------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Current assets......... $ 8,530 $(3,986) $(4,544) $(19,500)(d) $(19,500)
Property, plant and
equipment............ 12,209(b) (7,193) (547) -- 4,469
Intangible assets...... 22,600(c) (6,689) -- -- 15,911
Other assets........... 922 (922) -- -- --
Goodwill............... 51,614(g) -- -- -- 51,614
Current liabilities.... (5,931) 3,897 2,034 -- --
Long-term debt......... -- 12,790 -- (22,040)(e) (9,250)
Other liabilities...... (254) 240 14 -- --
Shareholders' equity... -- 1,863 3,043 (48,150)(f) (43,244)
------- ------- ------- -------- --------
$89,690 $ -- $ -- $(89,690) $ --
======= ======= ======= ======== ========
</TABLE>
- ---------------
(a) The purchase price for Resources does not include certain potential
additional consideration as the contingencies regarding such
additional consideration are not presently determinable beyond
reasonable doubt.
(b) This amount represents the fair value of the office building, land,
and improvements as well as the net book value of furniture and
equipment for Resources and TSG, which approximates fair value.
(c) Represents the fair value of the following intangible assets:
<TABLE>
<CAPTION>
RESOURCES TSG TOTAL
--------- ------ -------
<S> <C> <C> <C>
Title plant (non depreciable asset)............. $13,100 $ -- $13,100
Work force (10 year and 5 year estimated lives
for Resources and TSG, respectively).......... 2,200 600 2,800
Customer list (35 year estimated life).......... 1,300 2,300 3,600
Software (5 year estimated life)................ 1,000 2,100 3,100
------- ------ -------
$17,600 $5,000 $22,600
======= ====== =======
</TABLE>
The increase in the fair value of the title plant from the preliminary
allocation for the July 31, 1997, acquisition is attributable to the
bargain purchase price and the economic events that occurred subsequent
to that date, including (i) improved relationships with customers
following the Title Acquisition and (ii) anticipated increased demand
for title plants and updating services resulting from the passage of a
state constitutional amendment permitting home equity lending in Texas.
(d) Represents cash paid from the Company to Resources and TSG and
estimated transaction costs totaling $28,750, net of additional bank
debt of $9,250.
(e) Represents total long-term debt related to these Acquisitions, which
includes $12,790 in assumed long-term debt, excluding current portion,
from Resources and $9,250 in additional bank debt.
(f) Represents the issuance of 12,000 shares of common stock at an average
price of $4.0125 per share. The average price was calculated using the
average of the closing prices of the Company's Common Stock for the
five consecutive trading days beginning two trading days prior to the
public announcement by the Company of these acquisitions.
33
<PAGE> 40
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(g) Represents the excess purchase price over the fair value of the assets
acquired. Including the effect of the adjustment in note (7), goodwill
is estimated at $44,715 and $14,232 for Resources and TSG,
respectively. Goodwill will be amortized over 40 years and 20 years
for Resources and TSG, respectively.
(7) To record a $7,133 deferred tax liability and related goodwill related to
the tax effect of the difference between the financial statement carrying
amount and the tax basis of the acquired assets assuming a tax rate for the
Company of 35%.
(8) To give effect to the Title Acquisition as if it occurred on January 1,
1996.
(9) Represents the adjustments on Resources to cost of revenues for the
respective periods:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Title Acquisition(8)..................................... $ 846 $2,150
Office rent expense(3)................................... (470) (633)
----- ------
$ 376 $1,517
===== ======
</TABLE>
(10) Represents adjustments on Resources to record incremental depreciation and
amortization expense for the respective periods are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Title Acquisition property and equipment (title plant is
not depreciated)(8).................................... $ 64 $ 85
Unrelated real property(2)............................... (14) --
Office building(3)....................................... 20 26
---- ----
$ 70 $111
==== ====
</TABLE>
(11) Adjustments on Resources to record incremental interest expense for the
respective periods are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Title Acquisition indebtedness of $6,000 at an
approximate interest rate of 8.5%(8)................... $295 $ 506
Dividends and management bonus aggregating $5,700 at an
approximate interest rate of 8.5%(4)................... 364 485
Office building indebtedness of $1,031 at an approximate
interest rate of 8.5%(3)............................... 64 88
---- ------
$723 $1,079
==== ======
</TABLE>
(12) The net adjustment to tax expense for Resources for the year ended December
31, 1996 on the pro forma adjustments were estimated at 37%. The income tax
expense for the nine months ended September 30, 1997 represents 36% of
pre-tax pro forma income. Resources changed from a
34
<PAGE> 41
TYLER CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C corporation to an S corporation status effective January 1, 1997. These
adjustments were to adjust from an S corporation to C corporation status
for federal income tax purposes.
(13) Represents lower compensation expense for management subsequent to the
acquisition of Resources and TSG. Amounts have been determined based upon
specific employees' revised employment agreements.
(14) Adjustments to depreciation and amortization expense for the respective
periods are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Office building and improvements......................... $ 84 $ 112
Amortization of intangible assets other than goodwill.... 797 1,063
---- ------
881 1,175
Less: Resources adjustments(10).......................... (20) (26)
---- ------
$861 $1,149
==== ======
</TABLE>
(15) Amortization of goodwill is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Resources................................................ $ 838 $1,118
TSG...................................................... 534 712
------ ------
$1,372 $1,830
====== ======
</TABLE>
(16) Interest expense is calculated as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Long-term debt outstanding, including current portion.... $24,208 $24,208
======= =======
Interest expense at 8.5%................................. $ 1,543 $ 2,058
Less: Company historical, Resources pro forma and TSG
historical interest expense and income................. 429 (1,209)
------- -------
$ 1,114 $ 849
======= =======
</TABLE>
(17) Represents tax expense (benefit) related to reductions in selling, general
and administrative expenses offset by higher interest expense based on an
effective tax rate of 35%.
35
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF RESOURCES
The following discussion should be read in conjunction with the
consolidated financial statements, including the notes thereto, and other
financial information of Resources appearing elsewhere in this Proxy Statement.
GENERAL
Resources was formed by the Class A Holder in 1993 to serve as a holding
company. On December 1, 1994, Resources acquired GRS, its largest subsidiary,
and other business interests from American Title Group, Inc. ("American Title").
The Class A Holder had a non-controlling interest in American Title at the time
of the acquisition.
The results of operation for Resources for the years ended December 31,
1996, 1995 and 1994, are generally not comparable because of the impact of the
acquisition of the property records services business and government information
services business in Texas and the surrounding states from Holdings in September
1995 combined with the 1995 dispositions by Resources of its ballot card
production business and property tax information business. In addition,
Resources acquired the title services division of Holdings on July 31, 1997, and
began providing title services to title insurance companies throughout Texas,
principally in the Dallas-Fort Worth metropolitan area.
Effective January 1, 1997, Resources converted from a C corporation to an S
corporation for U.S. federal income tax purposes. The S corporation status will
be terminated on December 31, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Total revenues increased $3.0 million, or 27%, to $14.0 million for the
nine months ended September 30, 1997, compared to $11.0 million for the same
period of the prior year. Services revenues increased $3.5 million, or 36%, to
$13.3 million for the 1997 period compared to $9.8 million for the first nine
months of 1996 due primarily to the increase in revenues from re-creation
services. Re-creation services revenues increased to approximately $2.7 million
during the nine months ended September 30, 1997, from approximately $900,000
during the same period of the prior year, due primarily to revenues arising from
the introduction of a new service providing for the enhancement and duplication
of old photostat books maintained by county governments. Services revenues for
the nine months ended September 30, 1997, included total post-acquisition title
plant update services revenues of $900,000 for August and September 1997.
Revenues generated from the digital conversion of old county government records
increased almost $400,000 in the 1997 period when compared to the first nine
months of 1996. The remaining increase in services revenues was due primarily to
an increase in the base of customers and the services provided, including an
increase in revenues from services provided to appraisal districts.
Equipment sales decreased to $192,000 for the nine months ended September
30, 1997, from $734,000 during the same period of the prior year. The first nine
months of 1996 included approximately $500,000 in revenues derived from the sale
of computer equipment to the State of Louisiana for a voter signature
verification system.
Total cost of revenues increased $1.5 million, or 25%, to $7.8 million for
the nine months ended September 30, 1997, compared to $6.2 million for the same
period of the prior year. The increase in cost of revenues corresponds to the
increase in services revenues partially offset by the decrease in equipment
sales. The cost of services, as a percentage of services revenues, decreased
slightly from 58% to 57%. The cost of equipment decreased nearly $400,000, or
68% during the first nine months of 1997. The first nine months of 1996 included
higher cost of equipment due to the inclusion of costs related to the computer
equipment sale to the State of Louisiana.
The gross margin for the nine months ended September 30, 1997, increased
slightly to 44% from 43% compared to the same period of the prior year.
36
<PAGE> 43
Selling, general, and administrative expenses increased $680,000, or 33%,
to $2.7 million during the nine months ended September 30, 1997, compared to
$2.1 million for the same period of the prior year. The increase is due
principally to higher compensation expenses together with increased legal and
professional fees relating primarily to efforts to support proposed state
legislation that would have required the collection of additional filing fees at
the county government level to be used for the restoration and preservation of
old county records.
Income before income taxes was $3.1 million for the nine months ended
September 30, 1997, compared to $2.4 million for the same period of the prior
year. The $700,000, or 29%, increase reflected the higher level of revenues
during the first nine months of 1997. The effective tax rate decreased to 2% for
the nine months ended September 30, 1997, compared to 37% for the first nine
months of 1996 due primarily to the conversion of the tax status of Resources
for U.S. federal income tax purposes from a C corporation to an S corporation,
effective January 1, 1997.
1996 COMPARED TO 1995
Total revenues increased $7.2 million, or 95%, to $14.7 million for 1996
compared to $7.5 million for 1995 due primarily to the inclusion of revenues
attributable to the property records services and government information
services business acquired from Holdings in September 1995. Revenues from
services provided to county governments overall for 1996 increased approximately
$6.3 million, or 90%, over 1995 principally as a result of the 1995 acquisition
combined with certain price increases. This increase was only partially offset
by the decline in revenues in 1996 due to the 1995 dispositions of the ballot
card production business and the property tax information business.
Equipment sales nearly tripled, from $268,000 in 1995 to $792,000 in 1996
due to the computer equipment sale to the State of Louisiana.
Royalties income derived from the sale of property tax information for real
estate transactions more than doubled, from $273,000 in 1995 to $623,000 in 1996
due to the receipt of royalties for a full twelve months in 1996 versus only the
last six months of 1995.
Total cost of revenues increased $2.4 million, or 39%, to $8.5 million due
primarily to the higher level of revenues attributable to the business acquired
from Holdings in September 1995. Cost of services as a percentage of services
revenues decreased to 59% from 85% due to the increase in revenues resulting
from the business acquired from Holdings without a corresponding increase in
costs associated with services revenues. Contributing to the increase in total
cost of revenues was a $450,000 increase in cost of equipment due to the
computer equipment sale to the State of Louisiana.
Interest expense, net of interest income, increased $306,000 to $463,000,
almost tripling from the $157,000 incurred in 1995 due to (i) a full year's
interest expense related to the $1.7 million of promissory notes issued Holdings
in connection with the 1995 acquisition and (ii) higher average debt outstanding
during 1996 for working capital purposes.
Income from continuing operations was $3.0 million for 1996 compared to a
loss of $1.4 million for 1995, reflecting a positive turnaround of $4.4 million.
The improvement in income was primarily attributable to the increase in revenues
relating to the business acquired from Holdings in September 1995 less the
related increases in operating expenses and depreciation and amortization
expense. The improvement was further offset by an increase in interest expense
associated with the promissory notes issued in connection with the acquisition.
The effective tax rates for 1996 and 1995 were approximately 37% and 32%,
respectively, with the 1996 rate reflecting the net effect of state income taxes
on taxable income reportable in 1996.
In 1995, Resources elected to discontinue and sold operations relating to
certain lines of business, including (i) the production of ballot cards for
elections and (ii) the production of property tax information for real estate
transactions. Resources recorded a net loss from discontinued operations of
$83,000 in 1995.
37
<PAGE> 44
1995 COMPARED TO 1994
The following discussion compares financial information for all of calendar
year 1994, including the historical operating results of GRS, prior to its
acquisition by Resources on December 1, 1994.
Total revenues increased $2.7 million, or 55%, to $7.5 million for 1995
compared to $4.9 million for 1994 due primarily to the inclusion of services
revenues in 1995 attributable to the property records services and government
information services business acquired from Holdings in September 1995.
Equipment sales of $268,000 in 1995, compared to no equipment sales in
1994, accounted for approximately 10% of the increase in total revenues.
Royalties income derived from the sale of property tax information for real
estate transactions was $273,000 in 1995 compared to no royalties income in
1994. This income also accounted for approximately 10% of the increase in total
revenues and was earned and recorded during the last half of 1995.
Cost of revenues increased $2.7 million, or 79%, to $6.1 million due
primarily to the higher level of service revenues attributable to the business
acquired from Holdings in 1995. Costs of equipment of $137,000 relates to the
equipment sales of $268,000 in 1995.
Selling, general and administrative expenses increased $1.2 million, or
75%, to $2.7 million due primarily to a higher level of expenses combined with
transitional costs associated with the successful integration in 1995 of the
property records services and government information services business acquired
from Holdings.
Interest expense, net of interest income, increased $124,000 to $157,000 in
1995 compared to $33,000 in 1994. The substantial increase in 1995 is
attributable to (i) a partial year's interest expense related to the $1.7
million of promissory notes issued to Holdings in connection with the 1995
acquisition and (ii) higher average debt outstanding during 1995 for working
capital purposes.
Income from continuing operations reflects a loss of $1.4 million in 1995
compared to a loss of $93,000 in 1994. The higher loss is attributable to the
higher overall costs and expenses incurred during 1995 associated with the
business acquired from Holdings. The effective tax rates for 1995 and 1994 were
approximately 32% and 33%, respectively.
In 1995, Resources elected to discontinue and sold operations relating to
certain lines of business, including (i) the production of ballot cards for
elections and (ii) the production of property tax information for real estate
transactions. Resources recorded a net loss from discontinued operations of
$83,000 in 1995 compared to income from discontinued operations of $423,000 in
1994.
SEASONALITY
Because the volume of real estate transactions is greater from February
through October, revenues from property records services are somewhat seasonal.
In addition, certain economic and other factors that affect real estate sales in
its market area or nationwide may affect Resources' revenues in a similar
fashion.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, Resources had cash and cash equivalents of $859,000
compared to $247,000 at December 31, 1996. Working capital deficit was $427,000
at September 30, 1997, compared to a working capital deficit of $558,000 at
December 31, 1996. The increase in cash at September 30, 1997 is generally due
to the prepayment of two promissory notes receivable (the "TRW Notes") totaling
$938,000. The TRW Notes, which originally totaled $1,250,000 upon issuance by
TRW/REDI Property Data to Resources on June 1995 in connection with the purchase
of Resources' property tax information business, were being amortized by equal
quarterly payments of principal plus interest through July 1, 2000. There was no
prepayment penalty.
Net cash provided by operating activities was $3.1 million for the first
nine months of 1997 compared with $1.8 million provided by operating activities
in the same period of 1996. The increase was primarily due to the $1.5 million
increase in net income. Such increase in net income reflected a $700,000
increase in pretax
38
<PAGE> 45
income coupled with $800,000 reduction in income tax expense due to the
conversion from a C corporation to an S corporation, effective January 1, 1997.
Net cash provided by (used in) investing activities increased approximately
$1.4 million to $49,000 for the first nine months of 1997 compared to $1,384,000
used in investing activities for same period in 1996. The increase was primarily
due to the collection of the TRW Notes discussed above, combined with a $700,000
reduction in capital expenditures during the first nine months of 1997 compared
to the same period of 1996.
Net cash used in financing activities increased approximately $1.8 million
to $2.6 million during the first nine months of 1997 compared to $800,000 for
the same period of 1996. The increase is principally attributable to the
repayment of borrowed funds from (i) Comerica Bank-Texas ("Comerica") in the
amount of $900,000 and (ii) FirstBank in Dallas ("FirstBank") in the amount of
$500,000. The remaining portion of the increase related primarily to payments
made on notes payable to Holdings. The loan from Comerica had been secured by a
pledge of the TRW Notes that were prepaid in January 1997. The prepayment of the
TRW Notes required the repayment of the Comerica loan. The $500,000 payment to
FirstBank represented the repayment of the amount outstanding under a revolving
credit facility.
In November 1995, Resources entered into a revolving credit facility with
FirstBank providing for borrowings of up to $500,000. In April 1996, Resources
entered into an amended agreement that provides for borrowings of up to $1.0
million. The credit facility matured on April 10, 1997, and was renewed.
Borrowings under the amended credit facility are now due on April 19, 1998, and
bear interest at Bank One Texas N.A.'s prime rate. The amended agreement
contains various financial covenants and is secured by certain assets of
Resources. There was no amount outstanding under the credit facility at
September 30, 1997.
In December 1995, Resources borrowed $2.5 million from Comerica
collateralized by certain assets of Resources. The borrowed funds were used for
working capital and capital expenditures. The notes bear interest at Comerica's
prime rate plus 0.5% per annum and are payable monthly. The outstanding
principal balance was approximately $1.4 million at September 30, 1997.
At September 30, 1997, Resources had seller-financed acquisition debt
outstanding in the total amount of approximately $7.9 million. This outstanding
amount reflected the issuance by Resources, on July 31, 1997, of a $6.0 million
promissory note to Holdings in connection with the acquisition by Resources of
Holdings' title services division. This note is collateralized by certain assets
of Resources.
Resources likely will be required to arrange borrowings in addition to
those available under its credit facility to fund the payment of the employee
bonuses and shareholder dividends permitted by the Resources Merger Agreement.
Otherwise, Resources' management believes that available cash, together with
cash generated from operations and available borrowings under its credit
facility, will provide adequate funds for Resources' anticipated needs,
including working capital and capital expenditures. Management also believes
that cash provided from operations will be sufficient to satisfy all existing
debt obligations as they become due.
39
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF TSG
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, and other financial information of TSG
appearing elsewhere in this Proxy Statement.
OVERVIEW
TSG commenced operations in 1981 to serve the integrated information
management requirements of county and local governments. Since inception, net
sales for TSG have increased from $130,000 in fiscal 1981 to $11.6 million in
fiscal 1997.
TSG's revenues are derived from the sales and service of a wide range of
products to serve the automation needs of local government clients, including
appraisal districts, tax offices, courtrooms, jails, sheriff departments, and
financial/administrative offices. Approximately 33% of revenues represents
annual recurring revenues from service contracts with existing customers. Future
revenues can be achieved through obtaining new customers as well as selling
additional products or upgraded products to existing customers.
The primary operating expenses incurred by TSG are costs of equipment and
labor related to the sale and installation of systems and the costs of providing
additional services. TSG typically reinvests 8% to 10% of its revenues for costs
related to the development of new products, enhancements, and maintenance of
existing products.
TSG's fiscal year ends on October 31.
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues during the fiscal year ended October 31, 1997, totaled $11.6
million, a 5% increase from $11.1 million in the fiscal year ended October 31,
1996. This increase in revenues was primarily due to higher service and support
revenues. Service revenues continue to increase due to more systems being sold
to an expanding customer base and additional services being provided to existing
customers.
Although service and support revenues increased, cost of revenues decreased
$588,000 to $4.6 million in fiscal 1997 compared with $5.2 million in fiscal
1996. This decrease improved the gross margin to 61% during fiscal 1997 compared
with 53% for fiscal 1996. The decrease in cost of revenues was due to lower
service and support labor as well as lower costs for computer hardware.
Selling, general, and administrative expenses increased $259,000 or 5%, to
$5.3 million during fiscal 1997, compared with $5.1 million during fiscal 1996,
due primarily to higher management and administrative personnel payroll related
costs.
TSG's net income was $1.1 million for the fiscal year ended October 31,
1997, compared with $547,000 for the fiscal year ended October 31, 1996, an
increase of $572,000. The increase in net income was primarily due to higher
revenues and favorable sales margins during fiscal 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Total revenues during the fiscal year ended October 31, 1996, totaled $11.1
million, a 2% increase from $10.8 million in the fiscal year ended October 31,
1995. This increase in revenues was primarily due to an increase in service and
support revenues. Decreases in software license fees and hardware sales of
$202,000 and $190,000, respectively, were more than offset by a $651,000
increase in service and support revenues, reflecting a shift toward greater
demand for services and an expansion of the customer base.
Although revenues increased, cost of revenues decreased $572,000, or 10%,
to $5.2 million in fiscal 1996 from $5.7 million in fiscal 1995. This decrease
improved the gross profit margin to 53% during fiscal 1996 compared with 47% for
fiscal 1995. The decrease in cost of revenues is attributable to a shift in
higher margin services coupled with a slight reduction in staffing levels.
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Selling, general, and administrative expenses remained virtually unchanged
at $5.1 million in fiscal 1996, compared to $5.0 million in fiscal 1995, while
declining slightly as a percentage of revenues (from 47% in fiscal 1995 to 46%
in fiscal 1996).
TSG's net income was $547,000 for the fiscal year ended October 31, 1996,
compared with $26,000 for the fiscal year ended October 31, 1995, an increase of
$521,000. The increase in net income was primarily due to higher service and
support revenues and favorable sales margins during fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997, TSG had cash and cash equivalents of $2.8 million
compared with $1.8 million at October 31, 1996. Working capital was $2.5 million
at October 31, 1997, compared with $2.1 million at October 31, 1996.
TSG generated cash from operating activities of $1.7 million and $681,000
during the fiscal years ended October 31, 1997 and 1996, respectively. Capital
expenditures totaled $194,000 and $230,000 during fiscal 1997 and 1996,
respectively.
On January 31, 1997, TSG terminated The Software Group, Inc. Employee Stock
Ownership Plan ("ESOP") by redeeming 89,818 shares of TSG's common stock at a
value of $5.00 per share. The termination of the ESOP reduced cash and cash
equivalents by $449,000 during the fiscal year ended October 31, 1997.
TSG believes that available cash, together with cash generated from
operations, will provide adequate funds for TSG's cash requirements, including
working capital and capital expenditures.
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INFORMATION CONCERNING RESOURCES AND TSG
OVERVIEW
County and local governments have recognized the value of information
management services and systems to improve revenue collection, provide increased
access to information, and streamline delivery of government services. As a
result, information management services and systems have become primary vehicles
for county and local governments, and their respective agencies, seeking to
improve the delivery of goods and services to their constituents. From
integrated tax systems to integrated criminal justice information systems, many
county and local governments have benefitted significantly from the
implementation of jurisdiction-wide systems. These systems allow different
agencies to share data and provide a more comprehensive approach to information
management. Individual county and local government agencies also have
information management requirements, many of which must be tailored to the
services being provided. The annual expenditure by county governments for
information technologies and resources, excluding personnel costs, was estimated
in 1992 at over $23 billion, with approximately $10 billion spent annually on
information management services and data processing.
County governments were created over three centuries ago primarily to serve
the needs of rural areas. Today, county governments are the fastest growing form
of government. There are over 3,000 county governments in the United States,
plus 30 city-county governments, and county governments are experiencing growth
in expenditures estimated at approximately 5% to 10% per year. Texas, with 254
counties, has the largest number of any state. Overall spending by county
governments nationwide increased dramatically from approximately $115 billion in
the fiscal year ended in 1989 to approximately $148 billion in the fiscal year
ended in 1992.
Traditionally, counties performed state-mandated duties, including property
assessment, record keeping (i.e., property and vital statistics), road
maintenance, administration of election and judicial functions, and the
provision of welfare assistance. Today, a host of emerging and urgent issues are
confronting counties, each of which demands a service response. These areas
include solid waste disposal, clean air and water, transportation, criminal
justice and corrections, administration and finance, public safety, health and
human services, and public works. Transfers of responsibility from the federal
and state governments, while empowering county and local governments to address
issues and problems directly, also place additional service and financial
requirements on these governmental units. In addition, county governments are
typically comprised of numerous individual agencies, each fulfilling different
missions and each having its own information management requirements.
RESOURCES
Overview
Resources provides a wide range of information management outsourcing
services, primarily to county and local governments. Resources' current
outsourcing services include records management, micrographic reproduction,
computerized indexing, and imaging of real property records maintained by county
clerks and recorders, the largest component of its business, as well as
information management outsourcing and professional services required by other
county and local government units and agencies. Resources also provides title
plant update services to title companies in Texas.
Resources' primary emphasis since its inception has been supplying records
management, document workflow, and imaging products and services to county clerk
and district clerk offices in Texas. Resources is, however, currently expanding
its property records management services business to Cook County, Illinois, as a
result of a recent agreement with the Cook County, Illinois recorder's office
and intends to expand aggressively its businesses into other geographic regions,
either by acquisition or internal growth. See "-- Competition."
Mr. Oates formed Resources as a Texas corporation in 1993 to serve as a
holding company to acquire businesses that provide information management
outsourcing services to local and county governments. In December 1994,
Resources acquired GRS, its subsidiary that provides property records management
services, and other business interests from American Title in connection with
the sale of that title insurance holding
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company to an unaffiliated party. GRS was founded in 1990 by four current
Resources employees each of whom has worked in the government services business
for over 20 years. These key employees have long-term, established relationships
with Resources' customers and GRS has strong name recognition in Texas among
county and local governments. See "-- Sales, Marketing, and Customers." In
August 1995, Resources acquired the business and assets of a company that
provides government information services to tax appraisal districts in Texas. In
September 1995, Resources acquired the government outsourcing services business
of Holdings in Texas, Oklahoma, Louisiana, and New Mexico, making it the largest
provider of those services in Texas. In conjunction with that transaction,
Resources sold to Holdings a government records services operation in Georgia
and the surrounding states and an election voting card printing operation. On
July 31, 1997, Resources acquired the title services division of Holdings and
began providing title services to title insurance companies throughout Texas,
principally in the Dallas-Fort Worth metropolitan area.
Property Records Services
County and local governments are responsible for recording and indexing
real property transactions, maintaining archival copies of the filed documents,
and making those records available for public inspection and copying.
Historically, these governmental units have used manual methods to record deeds
and other title documents and to maintain alphabetical indexes of transactions.
Resources provides microfilm and optical recording and computer indexing
services to county and local governments (primarily county clerk and recorder
offices) to organize and automate the recording and indexing of deeds and other
title documents. Many of the records that are filed in a county clerk's office
are permanent records that form the basis of land ownership in the county (e.g.,
deeds, deeds of trust, liens, miscellaneous property records, and plats).
Therefore, in addition to being accessible to the public, these records must be
protected by a fail-safe backup procedure in the event of vandalism, fire, or
flood. These records are recorded by making paper copies, microfilm copies, or
imaging. Each record filed in the county clerk's or recorder's office pertaining
to a parcel of land in the county is recorded in one of these methods and a
county may have used different methods over time. In addition, these documents
vary by county and within a county as to shape, size, quality, and legibility.
Recording Services. Resources' archival print recording service creates a
high-quality film image of original documents on a custom-designed microfilm
camera owned by Resources and located in county offices. Either Resources or
trained county government personnel film the valuable records in a format
suitable for creating a two-sided paper copy. The film is then processed in
Resources' Kodak(R)-certified laboratory and printed double-sided on archive
quality, rag content paper using high fusing temperatures to permanently bond
the print to the paper. The finished pages are then returned to the county to be
placed in binders for public access and use. The original microfilm is stored in
the Resources' archival film storage vault allowing Resources to access the
microfilm and reproduce pages on short notice or reproduce entire volumes in the
event of a natural or other disaster resulting in a destruction or loss of
records.
Resources' 20/20 Perfect Vision System allows an imaging system to be
integrated with an indexing application as well as a cashiering system. This
system is designed to manage the document workflow in the county clerk's or
county recorder's office. The imaging, indexing, and cashiering applications can
stand alone, but are more powerful when integrated because of shared information
across the applications.
Indexing Services. In order to provide better service to the public and to
increase the ease of information access, many county clerk offices maintain
their grantor/grantee (i.e., buyer/seller) indices for property records in
computerized form. To accomplish this, information relating to the grantor,
grantee, and property description must by keyed into a database from the
recorded documents.
Resources provides two types of computerized indexing services: (i) data
entry performed by Resources personnel at a central location, allowing the
county either to reduce the number of employees required for records management
or to utilize employees on other tasks; and (ii) to a lesser extent, data entry
performed by a customer using Resources' microcomputers in the customer's
offices. With each type of indexing service, Resources provides periodic merged
updates of the cumulative grantor/grantee indices for each county, using
centralized computer and software systems located in Dallas, Texas.
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Resources has a large staff of qualified and well-trained data entry
operators specializing in creating consistent, quality indices. Based on its
property records experience, Resources believes that accuracy and consistency
are the keys to a reliable index. Resources requires its personnel to adhere to
strict data entry standards. Accuracy is ensured by having each document entered
twice in a process called "key verification" in which two operators separately
key the same information from a document and any discrepancies between the
entries are then verified both visually and by means of several computerized
edits.
As discussed above, the indexing application can be integrated with imaging
and cashiering applications through Resources' 20/20 Perfect Vision System to
manage the document workflow in the county clerk's or county recorder's office.
Re-creation Services. Resources also provides record re-creation services
to a number of customers. These services provide image-enhanced,
archival-quality reprints of old records, including photostatic prints, with
microfilm backup copies for improved security in case of loss by fire, theft,
water damage, or other catastrophe.
Other Services
Resources provides information management outsourcing and professional
services to numerous units and agencies of county and local governments other
than county clerks and recorders. These services concentrate on establishing and
maintaining a recurring revenue base built upon a foundation of quality service.
Information Management Outsourcing Services. Information is a critical part
of government, and the increasing difficulty of effectively managing that
information has caused many governmental units to consider outsourcing
alternatives. Through its information management outsourcing services, Resources
provides direct and complete facilities management of a county or local
government's financial, judicial, law enforcement, personnel, tax, clerical, and
administrative information by, in effect, becoming its information systems
department. Typically negotiated under a multi-year contract, outsourcing
provides a government entity with a more reliable method of controlling its data
processing budget while receiving greater automation benefits. Outsourcing also
typically results in controllable, long-term relationships with customers and
recurring annual revenues for Resources.
Under a typical outsourcing services contract, Resources assumes the role
of a customer's information systems department during the term of the contract.
In addition to operating and maintaining all centralized systems, Resources also
assumes responsibility for local area networks, client/server systems, and
personal computers, which often involve multiple users in multiple offices.
Software applications are also integrated for the benefit of the customer.
Resources' employees may either perform these services from Resources' Dallas,
Texas, office or from the customer's facilities, providing essentially the same
function as the customer's former in-house information systems personnel. Also,
Resources' management personnel become part of a strategic planning committee
along with the customer's representatives to set the goals and objectives to be
achieved during the contract.
Professional Services. Resources also provides professional services to
appraisal districts, counties, cities, and school districts. Under a
professional services agreement, Resources provides a variety of hardware and
specialized software for the customer's use to assist these government entities
in automating their property tax appraisal, assessment, and collections, and
voter registration processing. In addition to installing Resources' products in
the customer's locations, training, maintenance, and support are provided on an
ongoing basis along with optional services, including laser printing of tax
rolls, appraisal rolls, and voter certificates, media conversions, and data
entry activities. Resources receives monthly services fees from customers for
the use of these systems, resulting in recurring annual revenues.
Title Plant Services
Title companies in Texas are required to maintain extensive files of real
property data called "title plants." Title plants contain the information needed
to perform title searches in order to underwrite title insurance policies. In
Texas, a title plant must include at least a 25-year history of all land
transactions and
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documents affecting each lot and tract of land in a particular county, which
must be indexed so that the transactions and documents can be searched by
reference to the lot or tract.
Resources provides certain title insurance companies, primarily in the
Dallas-Fort Worth metropolitan area, with a variety of title plant update
services, including providing daily updates of their title plants. These updates
are offered in various formats, ranging from paper copies of each deed, deed of
trust, lien, plat, or other title document to installation of
microcomputer-based title plant storage products in the customer's office.
Resources owns title plants for Collin, Denton, Rockwall, and Tarrant Counties
in Texas, and may from time to time sell copies of these title plants to title
companies or other firms that need title search capabilities.
A recently approved Constitutional amendment in Texas, which permits second
liens on homes to secure general home equity loans, is expected to result in
increased demand for title plant services.
Sales, Marketing, and Customers
Resources markets its services through its direct sales and marketing
personnel. Resources typically enters into long-term contracts with larger
governmental units and title companies. Although most Resources customers are
small and do not have long-term contracts, they have long-term, continuing
relationships with Resources and its sales and marketing personnel. Many of
Resources' county government customers and title plant customers have been
served by Resources and its predecessors for more than 20 years, with some
customers dating back to 1962.
No single customer accounted for 10% or more of Resources' total revenues
in 1996 or the first nine months of 1997. The five largest customers of
Resources accounted for a total of 24% and 23% of Resources' total revenues in
1996 and for the first nine months of 1997, respectively. These customers are
currently under long-term contracts with Resources expiring in 1998 through
2002. Three of these five contracts permit early termination by the customer in
the following respective circumstances: (i) upon 10 days' notice to Resources
for any reason; (ii) at the end of a budget year; and (iii) upon 30 days' notice
if required for the "public good" or because of change in applicable laws.
Resources has a long-term contract expiring on April 30, 2000, with the
largest customer for its title plant update services, which is terminable at the
option of that customer on April 30, 1998, by giving 90 days prior written
notice. There can be no assurance that this customer will not exercise its
option for early termination.
Competition
A number of local and regional businesses provide or offer at least some of
the products and services provided by Resources. In addition to third-party
vendors, Resources occasionally competes with centralized information service
departments of county or local governments to provide products or services to
other departments and often must persuade the end-user department to discontinue
the service by its own personnel and outsource the service to Resources.
Competition typically is based on price, service, and technological capabilities
or the ability to modify the products and services to be provided to accommodate
the requirements of the customer. County and local governments, often are
required to put their contracts up for competitive bid on a periodic basis.
Competition may be increased if a customer seeks bids on only one aspect of its
system (such as imaging or indexing) rather than bidding all of the services as
an integrated whole. Single function bidding generally results in more bidders
and more intense price competition.
As a result of various acquisitions and sales of businesses by Resources,
it has contractual commitments not to compete in the property records services
business in the Southeastern United States until September 1998. Additionally,
in connection with Resources' acquisition of the title services division of
Holdings in July 1997, Resources acquired the Dallas, Texas, data processing
center of Holdings and agreed to provide to Holdings certain data entry services
for customers of property records services provided by Holdings. Resources also
agreed not to solicit these customers, which are located primarily in the
Northeastern and Southeastern United States, prior to August 1999.
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Facilities
The principal executive offices of Resources are located at 2800 W.
Mockingbird Lane, Dallas, Texas 75235 and the telephone number is 214-902-5000.
Resources leases the following facilities in Texas, all of which are used
for both office and processing purposes:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET OWNERSHIP
-------- ----------- ---------
<S> <C> <C>
Dallas, Texas (headquarters).................. 74,000 Lease expiring 12/31/2015(1)
Dallas, Texas (data center)................... 30,000 Lease expiring 12/31/1998
San Antonio, Texas............................ 4,300 Lease expiring 8/01/1999
Amarillo, Texas............................... 1,986 Lease expiring 3/31/1998
</TABLE>
- ---------------
(1) Pursuant to the Resources Merger Agreement, the Dallas headquarters land and
building will be transferred to T1 by Mr. Oates at the Closing.
Employees
At September 30, 1997, Resources had approximately 185 employees, of which
nine are considered management, 11 are in sales and marketing, 11 are in
software programming, and 154 perform support, maintenance, and other services.
None of these employees are covered by collective bargaining agreements.
Resources has strong employee retention with low turnover of personnel.
Resources believes that its relationships with its employees are good.
TSG
Overview
TSG provides county governments with software systems and services to serve
their information technology and automation needs. TSG integrates its own
products with computer equipment from hardware vendors, third-party database
management applications, and office automation software. TSG assists a county
with all aspects of its software and hardware selection, network design and
management, installation and training, and on-going support and related
services.
TSG historically has had low customer turnover. Maintenance and support
sales make up over one-half of TSG's revenues, and many orders for new systems
are from existing customers. In total, approximately 80% of revenues are
attributable to existing county customers. TSG considers its relationships with
these counties to be its most important asset.
TSG was formed as a Texas corporation in 1981 and currently services
approximately 1,000 county and local government units and agencies, primarily in
Texas.
Services
Judicial Information Management. TSG offers a complete suite of information
management products designed to meet the needs of various aspects of the
judicial system. While each of these products may be installed on a stand-alone
basis, most of the products are generally installed in the different government
offices located in and around a county courthouse to take full advantage of the
benefits of an integrated system of products. The ability to share information
between government offices eliminates some of the duplicate input and record
keeping and helps increase the efficiency of the offices.
Court System. TSG's Courts system is comprised of several integrated
products designed to track and manage the information involved in criminal and
civil cases. The criminal and civil case management applications track cases,
process fines and fees, generates judgement and sentencing paperwork (criminal)
or the numerous citations, notices, and forms required in a civil case, and
generally track the status of each criminal and civil case in the court system.
TSG's court administration application manages court calendars,
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coordinates judges' schedules, and generates court dockets. The criminal justice
information application accommodates local and state level reporting and
electronic submission of case dispositions. An application designed for Justices
of the Peace processes traffic tickets and other limited jurisdiction court
matters. Finally, TSG's applications for the district attorney or prosecutor of
a county automate the investigation, tracking, and filing of cases.
Law Enforcement System. The applications comprising TSG's Law Enforcement
system are designed to automate all aspects of a sheriff's agency. Applications
for jail management include booking and releases as well as the jail commissary.
The medical processing application tracks inmates' medical histories and
generates invoices to inmates or third parties. TSG's incident and offense
reporting application tracks officers' activities, categorizes reporting
obligations, and prepares state and federal Uniform Crime Reports. Finally, the
warrant tracking application helps a county sheriff's office track outstanding
and closed arrest warrants. In addition, TSG offers a Computer Aided
Dispatch/Emergency 911 system to track calls and the status of emergency
response vehicles, interface with local and state searches, and generally assist
dispatchers in processing emergency situations.
Other Judicial Information Products. TSG markets a variety of other
specialized products in conjunction with the Courts system and the Law
Enforcement system. Both systems are image-enabled using TSG's ableIMAGE
application and the Law Enforcement system is video-enabled using ableVIDEO. A
jury selection application assists election officials in the selection and
notification of jurors, processing of jury payments, and management of juror
histories. TSG's hot check processing application assists in the collection of
bad checks, tracking of payments and fines, and issuance of disbursements to
vendors. Applications relating to adult and juvenile probation track
probationers, collect fines and fees, maintain probation history, and generate
required state reporting.
Property Appraisal and Tax. TSG has a comprehensive system for the
automation of Texas Central Appraisal Districts and assessors' and appraisers'
offices in Oregon and Washington. The Automated Central Appraisal District
system (the "ACAD system") is designed to automate the appraisal and assessment
of real and personal property including record keeping, mass appraisal, inquiry
and protest tracking, appraisal and tax roll generation, tax statement
processing, and electronic state level reporting. The ACAD system can also be
image- and video-enabled using TSG's ableIMAGE and ableVIDEO products for the
storage of the many property related documents involved (including exemption
applications, personal property renditions, and agricultural or special use
application), as well as for the on-line storage of electronic photographs of
properties for use in defending values in protest situations.
TSG's ACAD system can be used in connection with TSG's Automated Tax
Collection system (the "ATC system"), which supports tax billing and collection
agencies, including counties and city, school tax offices, as well as special
collection agencies. The ATC system supports billing, collections, lock box
operations, mortgage company electronic payments, and provides daily, monthly,
and annual audit and distribution reporting.
Specialized Products. TSG markets an integrated fund accounting system that
conforms to government auditing and financial reporting requirements and
generally accepted accounting principles. This system includes modules for
accounts payable, budgetary accounting (general ledger), payroll/personnel,
purchase order, fixed assets, revenues, bank manager, and human resources. This
system can operate in any government agency, although it is primarily installed
in county auditor and county treasurer offices.
TSG also offers other specialized products that allow the government
offices in and around a courthouse to further integrate and automate their
operations. Through the child support application, TSG customers are able to
track child support cases, payments, and disbursements. The voter registration
application tracks registered voters, generates voter cards, prepares precinct
rolls in support of elections, and interfaces with other state systems. TSG also
offers an absentee voting application to assist in the management and tracking
of absentee voters, as well as an election night system to assist in the
tabulation of election results from various precincts. A motor vehicle
registration application is available from TSG to process fees and issue motor
vehicle registrations. Finally, TSG's indexing application allows government
officials to index all official public records such as deeds, birth and death
certificates and commissioner's court minutes.
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Imaging and Voice Products. TSG markets a variety of products that
interface and enhance its other products. TSG's ableIMAGE is an electronic
document imaging system that integrates the scanning, retrieval, and display of
document images into all of TSG's applications where needed. For example, the
ableIMAGE application integrates with both the Court and Law Enforcement systems
by allowing court related paperwork and documents to be scanned and stored as
part of an electronic case folder designed to improve access to documents and
reduce the need to distribute paper copies.
TSG's ableVIDEO application allows a customer to add an electronic video
imaging system which integrates the capture and display of pictures with all of
TSG's applications. For example, the Law Enforcement system applications are
video image-enabled using ableVIDEO to provide video mug shots of inmates at
critical locations for identification and to allow investigators to compile
electronic video line-ups.
The Interactive Voice Response system developed by TSG interfaces with the
ACAD system to allow retrieval of basic property information and interfaces with
the child support system to allow retrieval of child support payment information
using any touch-tone telephone.
In addition, appropriate TSG products support bar coding for tracking of
civil and criminal case folders, tracking of inmates, quick check-in of jurors,
and rapid processing of tax statements.
Internet Web Development. TSG has developed ableSERVE and a variety of
other specialized application database interfaces to allow the public records
portion of information contained in the various TSG systems to be made available
to the public via the Internet. TSG also provides both web site development and
web server hosting services for county customers.
Sales and Marketing
TSG's sales are primarily performed by its direct sales and marketing
personnel who are presently organized into five sales territories within the
states of Texas and Georgia. Sales for other states and national account
opportunities are managed by TSG's Marketing Manager except for the states of
Oregon and Washington which are currently handled by TSG's Northwest Manager.
Other in-house staff focus on add-on sales, forms, supplies, and professional
services.
The sales of most new systems are typically to other offices or
organizations in counties already using TSG applications and systems, but sales
are also generated from referrals from adjoining counties, relationships
established between a sales representative and county official, contacts at
trade shows, direct mailings, and direct contact from a prospect already
familiar with TSG.
TSG is active in virtually all state-level county government associations,
including annual meetings, trade shows, and educational events. In addition, TSG
generally hosts customer luncheons at larger, statewide meetings such as the
Texas Association of Appraisal Districts and the Texas County and District
Clerks Association. TSG also hosts a user's group meeting for all TSG customers
about once every 18 months, which provides an opportunity for customers to learn
more about TSG products and an opportunity for feedback.
Customers
TSG's customers consist primarily of county government offices, including
the auditor, treasurer, tax assessor/collector, county clerk, district clerk,
county and district court judges, probation officers, sheriff's office, and
county appraiser. No single customer (county government office) accounted for
more than 5% of total revenues for the fiscal year ending October 31, 1996, or
for the nine-month period ended July 31, 1997. No single county accounted for
more than 10% of total revenues for the fiscal year ended October 31, 1996, or
for the nine-month period ended July 31, 1997. Due to the nature of TSG's sales
as installation of countywide systems, a county customer representing a
significant portion of revenues in one year is generally not a source of
significant revenues the following year. Contracts for products and services are
generally implemented over six months to one year with annually renewing service
and software update agreements thereafter. Currently, approximately one-half of
TSG's revenues are attributable to ongoing support and maintenance agreements.
Although by the terms of these agreements either TSG or the customer are
entitled to terminate upon 90-
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days' notice after the first anniversary of the agreement, historically most
agreements are automatically renewed annually.
Competition
As with Resources, a large number of local and regional firms provide or
offer at least some of the products and services provided by TSG, and several
local and regional firms compete with TSG across its full range of products and
services. In addition to third-party vendors, TSG occasionally competes with
centralized information service departments of the county or local governmental
unit to provide products or services to other departments and often must
persuade the end-user department to discontinue service by its own personnel and
outsource the service to TSG. Competition typically is based on confidence in
the supplier, service, technological capabilities or the ability to modify the
products and services to be provided to accommodate the requirements of the
customer, and price. TSG's ability to offer an integrated system of applications
for several offices is often a factor in its favor.
County and local governmental units often are required to put their
contracts up for competitive bid on a periodic basis. Competition may be
increased if a customer seeks bids on only one aspect of its system (such as
only voter registration) rather than bidding all of the services as an
integrated whole. Single function bidding generally results in more bidders and
more intense price competition. TSG is a Qualified Information Systems Vendor
for the Texas General Services Commission on state purchasing contracts and, as
a result, in some cases county governments offices may contract with TSG
directly without a bid process.
Facilities
TSG leases a 25,000 square foot office at 1120 Jupiter Road, Plano, Texas
75023 and the telephone number is 972-424-1579. The office lease expires in
October 1999.
Employees
At September 1, 1997, TSG had approximately 80 employees, of which five are
considered management, seven are in sales and marketing, 24 are in software
programming, and 44 perform support, maintenance, and other services. None of
these employees are covered by collective bargaining agreements. TSG believes
that its relationships with its employees are good.
49
<PAGE> 56
MANAGEMENT
THE COMPANY
The following table sets forth certain information regarding the directors
and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Louis A. Waters........ 59 Director and Chairman of the Board
C.A. Rundell, Jr....... 65 Director, President, and Chief Executive Officer
James E. Russell....... 62 Director, Vice President, Chief Financial Officer, and Secretary
Brian K. Miller........ 39 Vice President and Chief Accounting Officer
Harold W. Parkison..... 48 President and Chief Executive Officer of Forest City
Ernest H. Lorch........ 65 Director
Frederick R. Meyer..... 69 Director
William D. Oates....... 56 Future Director (1)
</TABLE>
- ---------------
(1) Mr. Oates will be elected to the Tyler Board following the consummation of
the Resources Acquisition and will be a member of the Executive Committee.
Louis A. Waters. Mr. Waters was elected Chairman of the Board in October
1997 after becoming a director of the Company in August 1997. Mr. Waters is a
member of the Executive Committee, Audit Committee, and Compensation Committee
of the Tyler Board. Mr. Waters is one of the founders and was the first Chairman
of the Board of Browning-Ferris Industries, Inc. ("BFI"). He served as Chairman
and Chief Executive Officer from 1969 through 1980, Chairman of BFI's Executive
Committee from 1980 through 1988, and Chairman of the Finance Committee from
1988 to March 1997. Mr. Waters also directed BFI's international activities,
serving as Chairman and Chief Executive Officer of BFI International, Inc. from
1991 to March 1997 when he retired from full-time employment with BFI. During
Mr. Waters' tenure, BFI grew from a small Houston company in 1969 to a $5.8
billion international waste services company operating across North America and
11 other countries, including The Netherlands, Germany, and the United Kingdom.
This growth included over 2,000 acquisitions.
C. A. Rundell, Jr. Mr. Rundell was elected President and Chief Executive
Officer of the Company in October 1997. From October 1996 to October 1997, Mr.
Rundell served as Chairman of the Board and from October 1996 to March 1997
served as Interim Chief Executive Officer of the Company. Mr. Rundell has been a
director of the Company since 1966 and is a member of the Executive Committee of
the Tyler Board. Since 1988, Mr. Rundell has owned and operated Rundell
Enterprises, a venture capital and investments company engaged in providing
acquisition and financial consulting services to various business enterprises.
He has served as director and Chairman of the Board of NCI Building Systems,
Inc. since April 1989. From 1977 to 1988, Mr. Rundell was the President, Chief
Executive Officer, and a director of Cronus. In 1983, Cronus acquired Records,
which thereafter made over 15 acquisitions of other companies. He is also a
director of Dain Rauscher Corporation, a holding company for a full-service
regional brokerage and investment banking company, and Tandy Brands Accessories,
Inc., a manufacturer of accessories for men, women, and boys.
James E. Russell. Mr. Russell was elected Vice President, Chief Financial
Officer, and Secretary of the Company in November 1997. Mr. Russell has been a
director of the Company since May 1990. Mr. Russell has been associated with the
Company for approximately 30 years. He served as Vice President of the Company
from January 1992 to August 1995 and was Chairman of the Board of Tyler Pipe
Industries, Inc., a former subsidiary of the Company ("Tyler Pipe"), until his
retirement in August 1995. He was President and Chief Executive Officer of Tyler
Pipe from December 1988 to December 1991 and was President and Chief Operating
Officer of Tyler Pipe from February 1988 to December 1988.
Brian K. Miller. Mr. Miller has been Vice President and Chief Accounting
Officer of the Company since December 1997. From June 1986 through December
1997, Mr. Miller held various senior financial management positions at Metro
Airlines, Inc. ("Metro"), a regional airline holding company. Mr. Miller was
50
<PAGE> 57
Chief Financial Officer of Metro from May 1991 to December 1997 and also held
the office of President of Metro from January 1993 to December 1997. From March
1994 to November 1995, Mr. Miller also held the position of Vice President and
Chief Financial Officer of Lone Star Airlines, a regional airline. Mr. Miller is
a certified public accountant.
Harold W. Parkison. Mr. Parkison has been President and Chief Executive
Officer of Forest City since February 1997. Mr. Parkison had previously been
Vice President-International Store Development at Federal-Mogul Corp. since
March 1995. From 1993 to March 1995, he was Vice President-Merchandise Manager
at Auto Express. From 1991 to 1993, he held the position of Vice
President-Automotive for Kmart Corporation. Between 1971 and 1991, he held
various management positions at Goodyear Tire and Rubber Company.
Ernest H. Lorch. Mr. Lorch has been a director of the Company since October
1993 and is a member of the Audit Committee and Compensation Committee of the
Tyler Board. Mr. Lorch is counsel to the law firm of Whitman, Breed, Abbott &
Morgan, a position he has held since December 1992. He retired as Chairman of
the Board and Chief Executive Officer of Dyson-Kissner-Moran Corporation
("DKM"), a private investment company, in December 1992, a position he held
since January 1990. Mr. Lorch was President and Chief Operating Officer of DKM
from June 1984 to January 1990. He is also a director and Senior Chairman of the
Board of Varlen Corporation and a director of Dorsey Trailers, Inc.
Frederick R. Meyer. Mr. Meyer has been a director of the Company since 1967
and is a member of the Compensation Committee of the Tyler Board. Since July
1985, Mr. Meyer has been Chairman of the Board of Aladdin Industries, Inc., a
diversified company principally engaged in the manufacture of children's lunch
kits, thermosware, insulated food delivery systems and related products. He has
also been President and Chief Executive Officer of Aladdin Industries, Inc. from
October 1995 to present and from May 1987 to September 1994. He was President of
Tyler Corporation from August 1983 through December 1986. He is also a director
of Arvin Industries, Inc., Palm Harbor Homes, Inc., and Southwest Securities
Group, Inc.
William D. Oates. Mr. Oates has been Chairman of the Board and President of
Resources since its inception in 1993 and is the sole Class A Holder of
Resources. He has also served as a director and President of the wholly owned
subsidiaries of Resources from 1993 to the present. From 1987 through 1994, Mr.
Oates acquired or formed and served as President or a principal executive
officer of American Title Company of Dallas, Austin Title Company, Commercial
Abstract & Title Company and other title insurance agencies in Texas, as well as
a title insurance underwriting company. Mr. Oates held these companies through
American Title, of which he was the principal owner and President until his sale
of the company in November 1994. In that sale, Mr. Oates retained GRS, a
principal operating subsidiary of Resources. Between 1970 and 1986, Mr. Oates
served as a director and President of Records. Mr. Oates founded Records in 1970
principally to provide micrographics recording and computerized indexing of
public real property records for county governments. In October 1983, he sold
Records to Cronus, but remained President of Records until April 1987 and served
as a director of Cronus from October 1983 through April 1986.
NEW RESOURCES
The following table sets forth certain information regarding the directors
and executive officers of New Resources following the consummation of the
Resources Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William D. Oates............... 56 Director, Chairman of the Board, President, and Chief
Executive Officer
John D. Woolf.................. 52 Executive Vice President, Treasurer, and Secretary
Brian K. Miller................ 39 Chief Financial Officer
Brian B. Berry................. 42 Director
C.A. Rundell, Jr............... 65 Director
Glenn A. Smith................. 44 Director
</TABLE>
Information concerning the business experience of Messrs. Oates, Rundell,
and Miller is provided in the section entitled "Management -- The Company."
51
<PAGE> 58
John D. Woolf. Mr. Woolf has served as a director and Executive Vice
President and Chief Financial Officer of Resources since November 1994. From
1987 through 1994, Mr. Woolf served as a director and Executive Vice President
and Chief Financial Officer of American Title. Prior to that time, Mr. Woolf
served as Vice President-Finance and Treasurer of Records, working with Mr.
Oates in negotiating and consummating multiple acquisitions and mergers from
1984 through 1986. Mr. Woolf has also held finance and accounting positions with
the Company, including serving as Controller of Atlas Powder Company, a former
subsidiary of the Company, from 1977 through 1979.
Brian B. Berry. Mr. Berry is one of the original founders of TSG and has
served as an officer and director of TSG with various responsibilities since its
inception in 1981. Mr. Berry is Vice President and Treasurer of TSG and his
current responsibilities are primarily financial management, business
development, and contract negotiations. Prior to founding TSG, Mr. Berry was
employed at Management Decision Systems of Dallas, Texas, in a software
development project management capacity and, prior to that, at Texas Instruments
as a software developer.
Glenn A. Smith. Mr. Smith is one of the original founders of TSG and has
served as an officer and director of TSG with various responsibilities since its
inception in 1981. Mr. Smith is President of TSG and responsible for the
management of TSG. Prior to founding TSG, Mr. Smith was employed at Distributed
Data Systems of Raleigh, North Carolina, in a software development project
management capacity and, prior to that, at Texas Instruments as a software
developer.
TSG
The following table sets forth certain information regarding the directors
and executive officers of TSG following the consummation of the TSG Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
C.A. Rundell, Jr......................... 65 Director and Chairman of the Board
Glenn A. Smith........................... 44 Director, President, and Assistant Secretary
Brian B. Berry........................... 42 Director, Vice President, and Secretary
Brian K. Miller.......................... 39 Chief Financial Officer
William D. Oates......................... 56 Director
</TABLE>
Information concerning the business experience of Messrs. Oates, Rundell,
and Miller is provided in the section entitled "Management--The Company."
Information concerning the business experience of Messrs. Smith and Berry is
provided in the section entitled "Management--New Resources."
52
<PAGE> 59
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT OF THE COMPANY
The following table sets forth as of December 23, 1997 (the "Ownership
Date") (unless otherwise indicated), the amount and percentage of shares of
Common Stock that are deemed under the rules of the Commission to be
"beneficially owned" by (i) each director of the Company, (ii) the named
executive officers of the Company as of the end of 1996, (iii) all directors and
executive officers of the Company as a group and (iv) each person or "group" (as
such term is used in Section 13(d)(3) of the Exchange Act) known by the Company
to be the beneficial owner of more than 5% of the outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF BENEFICIAL APPROXIMATE
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) PERCENT OF CLASS
------------------------ --------------- ----------------
<S> <C> <C>
Ernest M. Lorch....................................... 50,000 *
Richard W. Margerison (3)............................. -- --
Joseph F. McKinney (4)................................ 412,539 1.9%
Frederick R. Meyer.................................... 227,349 1.0%
E. Peter Raisbeck (5)................................. 1,600 *
C.A. Rundell, Jr.(6).................................. 368,657 1.7%
James E. Russell...................................... 257,543 1.2%
Louis A. Waters(7).................................... 4,000,000 16.7%
All directors of the Company and executive officers as
a group (7 persons)(8).............................. 4,903,549 20.3%
5% STOCKHOLDERS:
Gabelli Funds, Inc.(9)................................ 2,625,900 12.0%
One Corporate Centre
Rye, New York 10580
Dimension Funds Advisors(10).......................... 1,094,100 5.0%
1299 Ocean Avenue
Santa Monica, California 90401
Richmond Partners, Ltd.(7)............................ 4,000,000 16.7%
10375 Richmond Avenue, Suite 1615
Houston, Texas 77042
</TABLE>
- ---------------
* Less than 1% of the outstanding Common Stock.
(1) Each share of Common Stock is accompanied by one Preferred Stock Purchase
Right. See "Interests of Certain Persons in Matters to be Acted
Upon -- Rights Agreement."
(2) Under the rules of the Commission, a person is deemed to be the beneficial
owner of a security if such person, directly or indirectly, has or shares
the power to vote or direct the voting of such security or the power to
dispose or direct the disposition of such security. A person is also deemed
to be a beneficial owner of any securities if that person has the right to
acquire beneficial ownership within 60 days of the Ownership Date.
Accordingly, more than one person may be deemed to be a beneficial owner of
the same securities. Unless otherwise indicated by footnote, the named
individuals have sole voting and investment power with respect to the
shares of the Common Stock beneficially owned.
(3) Richard W. Margerison resigned as President and Chief Operating Officer of
the Company in April 1997 and as a director of the Company in June 1997.
(4) Joseph F. McKinney resigned as a director, Chairman of the Board, and Chief
Executive Officer of the Company in October 1996.
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<PAGE> 60
(5) E. Peter Raisbeck was the Chairman and Chief Executive Officer of IFS. The
Company sold IFS effective October 15, 1997.
(6) Includes 167,288 shares subject to options granted under the Company's
Stock Option Plan that are exercisable within 60 days after the Ownership
Date.
(7) Includes 2,000,000 shares owned by Richmond Partners, Ltd. ("Richmond"),
and 2,000,000 shares subject to a warrant issued to Richmond that is
exercisable within 60 days after the Ownership Date at an exercise price of
$2.50 per share. Mr. Waters is the sole general partner of Richmond.
(8) Includes (i) 167,288 shares subject to options granted under the Company's
Stock Option Plan that are exercisable within 60 days after the Ownership
Date and (ii) 2,000,000 shares subject to a warrant that is exercisable
within 60 days after the Ownership Date.
(9) The number of shares is based on information as of November 19, 1997, and
filed with the Commission. Shares are held by Gabelli Funds, Inc., and its
affiliates, GAMCO Investors, Inc., and Gabelli Performance Partnership,
L.P. Also, Mr. Mario J. Gabelli is deemed to have beneficial ownership of
these shares. Includes 2,619,400 shares with sole voting and investment
power and 6,500 shares with sole investment power.
(10) The Company does not have current information to determine the number of
shares, if any, for which the holder may have other than sole voting and
investment power.
54
<PAGE> 61
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
RIGHTS AGREEMENT
Pursuant to the Rights Agreement dated as of March 14, 1993 (the "Rights
Agreement"), between the Company and The First National Bank of Boston as Rights
Agent, each share of Common Stock is accompanied by a right (a "Preferred Stock
Purchase Right") to purchase, under certain conditions set forth in the Rights
Agreement, one-hundredth of a share of Series A Junior Participating Preferred
Stock, $10.00 par value per share. The issuance of 10,000,000 shares of Common
Stock to Mr. Oates pursuant to the Resources Merger Agreement will trigger the
exercisability of the Preferred Stock Purchase Rights beginning after the close
of business on the fifteenth day (subject to extension by the Tyler Board) after
the Closing. The Tyler Board has, however, determined pursuant to the Rights
Agreement to cause the Company to redeem all of the outstanding Preferred Stock
Purchase Rights at a redemption price of $.01 per Preferred Stock Purchase Right
prior to the Preferred Stock Purchase Rights becoming exercisable. The Company's
Chief Executive Officer, as authorized by the Tyler Board, has set the Record
Date for the Special Meeting as the record date for determining the stockholders
of the Company whose Preferred Stock Purchase Rights are to be redeemed.
CONTROL OF THE COMPANY
Upon consummation of the Acquisitions, Mr. Oates will own approximately
25.8% of the outstanding shares of Common Stock. The issuance of shares of
Common Stock to Mr. Oates pursuant to the Resources Merger Agreement triggers
the exercisability of the Preferred Stock Purchase Rights pursuant to the Rights
Agreement. See "--Rights Agreement." As long as Mr. Oates owns a significant
percentage of the shares of Common Stock, he may retain substantial influence
over the affairs of the Company through the election of directors and otherwise.
Upon consummation of the Acquisitions, Messrs. Smith and Berry will own
approximately 2.7% and 2.3%, respectively, of the outstanding shares of Common
Stock.
OATES EMPLOYMENT AGREEMENT
Pursuant to the Resources Merger Agreement, the Company, New Resources, and
Mr. Oates will enter into the Oates Employment Agreement at or before the
Closing, to be effective at the Closing. Pursuant to the Oates Employment
Agreement, New Resources will employ Mr. Oates for a minimum period of three
years after the consummation of the Resources Acquisition. During his
employment, Mr. Oates will serve as President and Chief Executive Officer of New
Resources and will devote his full business time and efforts to the business of
New Resources. Mr. Oates will receive an annual base salary of $200,000 per year
and will be eligible to participate in performance bonus or incentive
compensation plans made available to comparable level employees of New
Resources, the Company, and the Company's subsidiaries. Mr. Oates will also
receive all employee fringe benefits and perquisites normally offered by New
Resources to its executive employees, including the use of a suitable
automobile, vacations, and sick leave. Pursuant to the Oates Employment
Agreement, Mr. Oates will agree that any discovery, invention, or improvement
made by him during the term of his employment or within six months thereafter
that relates to the business of New Resources or its subsidiaries is the
exclusive property of Resources. After expiration of the initial three-year
term, either New Resources or Mr. Oates may terminate Mr. Oates' employment with
New Resources at will and without any cause whatsoever by giving 30-days' prior
written notice of the intention to terminate. New Resources may at any time,
during the initial three-year term or thereafter, terminate the employment of
Mr. Oates for just cause as defined in the Oates Employment Agreement.
The Oates Employment Agreement also includes nonsolicitation and
noncompetition agreements by Mr. Oates that will remain effective until the
later of the fifth anniversary of the Resources Acquisition or the third
anniversary of the termination for any reason of Mr. Oates' employment with New
Resources and all of its affiliates. Mr. Oates will agree not to hire, solicit,
or seek to hire any employee of New Resources or any of its affiliates who is
party to a confidentiality agreement with Resources or has covenanted not to
compete with New Resources or any of its affiliates. Mr. Oates will also agree
that he will not directly or indirectly engage in any competitive business in
any state in which such products or services are being or were being provided by
55
<PAGE> 62
Resources or its affiliates as of October 8, 1997, or by New Resources or its
affiliates during the term of his employment by Resources or any of its
affiliates, including providing the same or similar products or services to any
person or entity that is or was a customer or affiliate of a customer of New
Resources or any of its affiliates at any time during the term of Mr. Oates'
employment.
TSG EMPLOYMENT AGREEMENTS
Pursuant to the TSG Merger Agreement, the Company, and New TSG on the one
hand, and Mr. Berry and Mr. Smith, on the other hand, will enter into the
respective TSG Employment Agreements at or before the Closing, to be effective
at the Closing. Pursuant to the TSG Employment Agreements, TSG will employ
Messrs. Berry and Smith for a minimum period of five years after the
consummation of the TSG Acquisition. During their employment, Mr. Smith will
serve as President and Mr. Berry will serve as Vice President and Secretary of
TSG. Both will devote their full business time and efforts to the business of
TSG. Messrs. Berry and Smith will receive an annual base salary of $200,000 per
year and will be eligible to participate in performance bonus or incentive
compensation plans made available to comparable level employees of TSG, the
Company, and the Company's subsidiaries. Messrs. Berry and Smith will also
receive all employee fringe benefits and perquisites normally offered by TSG to
its executive employees, including the use of suitable automobiles, vacations,
and sick leave. In addition, TSG will be obligated to maintain disability
insurance policies for Messrs. Berry and Smith. Pursuant to the TSG Employment
Agreements, Messrs. Berry and Smith will agree that any discovery, invention, or
improvement made by either of them during the term of their employment or within
six months thereafter that relates to the business of TSG or its subsidiaries is
the exclusive property of TSG. After expiration of the initial five-year term,
TSG or Mr. Berry or Mr. Smith may terminate their respective employment with TSG
at will and without any cause whatsoever by giving 30-days' prior written notice
of the intention to terminate. TSG may at any time, during the initial five-year
term or thereafter, terminate the employment of either Mr. Berry or Mr. Smith
for just cause as defined in the TSG Employment Agreements.
The TSG Employment Agreements also include nonsolicitation and
noncompetition agreements by Messrs. Berry and Smith that will remain effective
until the later of the fifth anniversary of the TSG Acquisition or the second
anniversary of the termination for any reason of their employment with TSG and
all of its affiliates. Messrs. Berry and Smith will agree not to hire, solicit,
or seek to hire any employee of TSG or any of its affiliates who is party to a
confidentiality agreement with TSG or has covenanted not to compete with TSG or
any of its affiliates. Messrs. Berry and Smith will also agree that they will
not directly or indirectly engage in any competitive business in any state in
which such products or services are being or were being provided by TSG or its
affiliates as of October 8, 1997, or by TSG or its affiliates during the term of
their employment by TSG or any of its affiliates, including providing the same
or similar products or services to any person or entity that is or was a
customer or affiliate of a customer of TSG or any of its affiliates at any time
during the term of their employment.
56
<PAGE> 63
AMENDMENT TO THE CHARTER
(PROPOSAL NO. 3)
The Tyler Board of Directors believes that it is desirable for the
stockholders to consider and act upon a proposed amendment to the Company's
Charter. Pursuant to the proposed amendment, the number of shares of Common
Stock authorized and available for issuance will be increased from 50,000,000 to
100,000,000.
Of the 50,000,000 currently authorized shares of Common Stock,
were issued as of the Record Date. Of the remaining authorized shares
of Common Stock, (i) 10,000,000 were reserved for issuance pursuant to the
Resources Merger Agreement, (ii) 2,000,000 were reserved for issuance pursuant
to the TSG Merger Agreement, (iii) were reserved for issuance in
connection with the Company's Stock Option Plan, and (iv) 2,000,000 were
reserved for issuance pursuant to outstanding warrants to purchase Common Stock.
Except for the foregoing, the Company does not have any present plan,
understanding, or agreement to issue additional shares of Common Stock. The
Tyler Board believes, however, that the proposed increase in authorized shares
of Common Stock is desirable to enhance the Company's flexibility in connection
with possible future actions, such as stock splits, stock dividends, finances,
corporate mergers, acquisitions of businesses or property, use in employee
benefit plans or stock option plans, or other corporate purposes. The Tyler
Board will determine whether, when, and on what terms the issuance of shares of
Common Stock may be appropriate in connection with any of the foregoing
purposes.
If the proposed amendment is approved, all or any of the additional
authorized shares of Common Stock may generally be issued without further action
by the stockholders and without first offering such shares to the stockholders
for subscription, unless required by law or any rules or regulations to which
the Company is subject. However, as long as the Common Stock is listed on the
New York Stock Exchange, the New York Stock Exchange would generally require
stockholder approval for the issuance of Common Stock when: (i) a stock option
or purchase plan is to be established or other arrangements made pursuant to
which Common Stock may be acquired by directors or officers, except for warrants
or rights issued generally to securityholders of the Company or broadly-based
plans or arrangements including other employees; (ii) a business, a company,
tangible or intangible assets or property, or securities representing any such
interest, is to be acquired, directly or indirectly, from a director, officer,
or substantial securityholder of the Company (including its subsidiaries,
affiliates, or other closely related persons) or from any company or party in
which one of such persons has a substantial direct or indirect interest if the
number of shares of Common Stock to be issued or the number of shares of Common
Stock into which the securities may be convertible exceeds one percent of the
number of shares of Common Stock, or 1% of the voting power, outstanding before
the issuance; (iii) Common Stock or securities convertible into or exercisable
for Common Stock are to be issued in any transaction or series of related
transactions, other than a public offering for cash, if (a) the Common Stock to
be issued has, or will have upon issuance, voting power equal to or in excess of
20% of the voting power outstanding before the issuance of such Common Stock or
securities convertible into or exercisable for Common Stock, or (b) the number
of shares of Common Stock to be issued is, or will be, equal to or in excess of
20% of the number of shares of Common Stock outstanding before the issuance of
the Common Stock; or (iv) the issuance would result in a change in control of
the Company. The additional shares of Common Stock to be authorized will not
have preemptive rights.
The issuance of Common Stock otherwise than on a pro rata basis to all
holders of such stock would reduce the proportionate interests of such
stockholders. The availability for issuance of the additional shares of Common
Stock and any issuance may be viewed as having the effect of discouraging an
unsolicited attempt by another person or entity to acquire control of the
Company. Although the Tyler Board has no present intention of doing so, the
Company's authorized but unissued Common Stock could be issued in one or more
transactions that would make a takeover of the Company more difficult or costly
and therefore less likely. The Company is not aware of any person or entity who
is seeking to acquire control of the Company. Holders of Common Stock do not
have any preemptive rights to acquire any additional securities issued by the
Company.
Other than increasing the authorized shares of Common Stock from 50,000,000
to 100,000,000, the proposed amendment in no way changes the Charter.
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<PAGE> 64
The Board has unanimously adopted resolutions setting forth the proposed
amendment to the Charter declaring its advisability, and directing that the
proposed amendment be submitted to the stockholders for their approval at the
Special Meeting. If adopted by the stockholders, the amendment will become
effective upon filing as required by the stockholders, the amendment will become
effective upon filing as required by the General Corporation Law of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED AMENDMENT TO
THE CHARTER AS DESCRIBED ABOVE.
ACCOUNTANTS
The firm of Ernst & Young LLP is the Company's independent public
accountant and has acted in this capacity in connection with the consolidated
financial statements of the Company incorporated herein by reference. A
representative of Ernst & Young LLP (i) is expected to be present at the Special
Meeting, (ii) will have the opportunity to make a statement if he desires to do
so, and (iii) is expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Any proposals that stockholders of the Company desire to have presented at
the 1998 annual meeting of stockholders must have been received by the Company
at its principal executive offices not later than November 12, 1997.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT INCORPORATES CERTAIN DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS
TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE WITHOUT CHARGE, TO ANY PERSON TO WHOM THIS PROXY
STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST, AND BY FIRST CLASS MAIL (OR
OTHER EQUALLY PROMPT MEANS) WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST.
REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO TYLER CORPORATION, ATTENTION:
CORPORATE SECRETARY, 2121 SAN JACINTO STREET, SUITE 3200, SAN JACINTO TOWER,
DALLAS, TEXAS 75201, 214-754-7861. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1998.
The information in the following documents filed by the Company with the
Commission (File No. 1-10485) pursuant to the Exchange Act, is incorporated by
reference in this Proxy Statement:
(a) Annual Report on Form 10-K for the year ended December 31, 1996,
filed with the Commission on March 10, 1997;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, filed with the Commission on May 12, 1997;
(c) Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the Commission on August 14, 1997;
(d) Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, filed with the Commission on November 7, 1997;
(e) Current Reports on Form 8-K, (i) dated and filed with the
Commission on September 2, 1997, (ii) dated October 16, 1997, and filed
with the Commission on October 17, 1997, (iii) dated and filed with the
Commission on October 30, 1997, and (iv) dated and filed with the
Commission on December 31, 1997; and
(f) Proxy Statement dated as of March 17, 1997, filed in definitive
form on March 10, 1997, with the Commission with respect to the information
required to be included herein by Items 401
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<PAGE> 65
(management), 402 (executive compensation) and 404 (certain relationships
and related transactions) of Regulation S-K promulgated under the
Securities Act and the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the Special Meeting shall be deemed to be incorporated by reference in
this Proxy Statement and to be a part hereof from the date of filing of such
documents.
Any statements made herein or in documents incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed documents which is also incorporated
or deemed to be incorporated by reference herein modified 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 Proxy
Statement.
The information relating to the Company contained in this Proxy Statement
should be read together with the information in the documents incorporated by
reference.
All information contained in this Proxy Statement relating to Resources or
TSG has been supplied by Resources or TSG, respectively, information regarding
the Acquisitions has been supplied by the Company, Resources, and/or TSG, and
all other information has been supplied by the Company.
By Order of the Board of Directors,
JAMES E. RUSSELL
Secretary
Dallas, Texas
, 1998
59
<PAGE> 66
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements -- Business Resources Corporation
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations..................... F-4
Consolidated Statements of Stockholders' Equity........... F-6
Consolidated Statements of Cash Flows..................... F-7
Notes to Consolidated Financial Statements................ F-9
Financial Statements -- The Software Group, Inc.
Independent Auditors' Report.............................. F-20
Balance Sheets............................................ F-21
Statements of Operations.................................. F-22
Statements of Stockholders' Equity........................ F-23
Statements of Cash Flows.................................. F-24
Notes to Financial Statements............................. F-26
</TABLE>
F-1
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Business Resources Corporation:
We have audited the accompanying consolidated balance sheets of Business
Resources Corporation and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows -- Predecessor for the period from January 1, 1994 to November 30, 1994
and -- Successor for the period from December 1, 1994 to December 31, 1994 and
for the years ended December 31, 1995 and 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Business
Resources Corporation and subsidiaries as December 31, 1995 and 1996, and the
results of their operations and their cash flows -- Predecessor for the period
from January 1, 1994 to November 30, 1994 and -- Successor for the period from
December 1, 1994 to December 31, 1994 and for the years ended December 31, 1995
and 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1997
F-2
<PAGE> 68
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997 (UNAUDITED)
------------------------- -------------------------------
1995 1996 HISTORICAL PRO FORMA
----------- ----------- -------------- --------------
(NOTE 1)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 472,472 $ 247,398 $ 859,023 $ 859,023
Accounts receivable, less allowance for
doubtful accounts of $76,000 in 1995,
$54,000 in 1996 and $85,000 in
1997................................. 1,910,355 2,335,869 2,311,322 2,311,322
Other current receivables (note 5)...... -- -- 580,393 580,393
Current portion of notes receivable
(note 5)............................. 250,000 250,000 -- --
Deferred income taxes (note 8).......... 701,244 -- -- 135,322
Prepaid expenses and other.............. 17,659 141,175 100,866 100,866
----------- ----------- ----------- -----------
Total current assets............ 3,351,730 2,974,442 3,851,604 3,986,926
Notes receivable, less current portion
(note 5)................................ 937,500 687,500 -- --
Noncurrent portion of other receivables
(note 5)................................ -- -- 728,115 728,115
Property and equipment, net (note 2)...... 5,387,379 6,227,234 6,667,988 6,667,988
Intangible assets, net of accumulated
amortization of $287,048 in 1995,
$482,809 in 1996 and $660,090 in 1997... 987,714 1,243,844 6,688,669 6,688,669
Deferred income taxes (note 8)............ -- -- -- 83,614
Other assets, net......................... 80,571 117,425 109,607 109,607
----------- ----------- ----------- -----------
$10,744,894 $11,250,445 $18,045,983 $18,264,919
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable........................ $ 729,015 $ 527,512 $ 307,473 $ 307,473
Accrued expenses (note 3)............... 1,649,687 855,172 1,410,513 1,410,513
Current installments of obligations
under capital leases (note 7)........ 129,511 177,156 179,155 179,155
Current portion of long-term debt (note
6)................................... 957,151 1,843,817 2,252,735 2,252,735
Deferred income taxes (note 8).......... -- 38,920 -- --
Income taxes payable.................... -- 90,206 128,465 128,465
Dividend payable (note 1)............... -- -- -- 3,300,000
----------- ----------- ----------- -----------
Total current liabilities....... 3,465,364 3,532,783 4,278,341 7,578,341
Deferred income taxes (note 8)............ 194,910 164,358 -- --
Obligations under capital leases,
excluding current installments (note
7)...................................... 301,882 252,841 239,774 239,774
Long-term debt, excluding current portion
(note 6)................................ 5,255,766 3,883,785 7,090,077 7,090,077
----------- ----------- ----------- -----------
Total liabilities............... 9,217,922 7,833,767 11,608,192 14,908,192
----------- ----------- ----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 100,000
shares authorized, issued and
outstanding.......................... 1,000 1,000 1,000 1,000
Additional paid-in capital.............. 2,660,056 2,660,056 2,660,056 2,660,056
Retained earnings (deficit)............. (1,134,084) 755,622 3,776,735 695,671
----------- ----------- ----------- -----------
Total stockholders' equity...... 1,526,972 3,416,678 6,437,791 3,356,727
Commitments (note 7)......................
----------- ----------- ----------- -----------
$10,744,894 $11,250,445 $18,045,983 $18,264,919
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 69
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR SUCCESSOR
------------ ------------ -------------------------
JANUARY 1, DECEMBER 1, YEARS ENDED
1994 THROUGH 1994 THROUGH DECEMBER 31,
NOVEMBER 30, DECEMBER 31, -------------------------
1994 1994 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Services................................ $4,514,557 $ 366,211 $ 7,003,776 $13,313,509
Equipment sales......................... -- -- 267,553 792,285
Royalties............................... -- -- 272,863 622,986
---------- --------- ----------- -----------
Total revenues....................... 4,514,557 366,211 7,544,192 14,728,780
---------- --------- ----------- -----------
Cost of revenues:
Cost of equipment....................... -- -- 137,390 588,291
Cost of services........................ 3,156,042 252,686 5,953,210 7,873,009
---------- --------- ----------- -----------
Total cost of revenue................ 3,156,042 252,686 6,090,600 8,461,300
---------- --------- ----------- -----------
Gross margin......................... 1,358,515 113,525 1,453,592 6,267,480
Selling, general and administrative....... 1,263,637 267,923 2,686,585 2,790,025
---------- --------- ----------- -----------
Operating income (loss).............. 94,878 (154,398) (1,232,993) 3,477,455
Other income (expense):
Interest income......................... -- -- 48,750 82,501
Interest expense........................ (33,239) -- (205,542) (545,432)
---------- --------- ----------- -----------
(33,239) -- (156,792) (462,931)
---------- --------- ----------- -----------
Income (loss) from continuing
operations before income taxes..... 61,639 (154,398) (1,389,785) 3,014,524
Income tax expense (benefit) (note 8)... (17,353) (13,302) (444,105) 1,124,818
---------- --------- ----------- -----------
Income (loss) from continuing
operations......................... 78,992 (141,096) (945,680) 1,889,706
Discontinued operations (note 9):
Income (loss) from discontinued
operations, net of income taxes in
1994 of $199,807 -- predecessor;
$18,164 -- successor and income tax
benefit of $422,004 in 1995.......... 387,786 35,253 (819,182) --
Gain from disposal of discontinued
operation, net of income taxes of
$379,471 in 1995..................... -- -- 736,621 --
---------- --------- ----------- -----------
Total income (loss) from discontinued
operations......................... 387,786 35,253 (82,561) --
---------- --------- ----------- -----------
Income (loss) before extraordinary
item............................... 466,778 (105,843) (1,028,241) 1,889,706
Extraordinary item -- extinguishment of
debt, net of income taxes of $53,488 in
1994.................................... (103,831) -- -- --
---------- --------- ----------- -----------
Net income (loss).................... $ 362,947 $(105,843) $(1,028,241) $ 1,889,706
========== ========= =========== ===========
Average shares used in per share
computation............................. 100,000 100,000 100,000 100,000
========== ========= =========== ===========
Income (loss) per share (historical):
Income (loss) continuing operations..... $ .79 $ (1.41) $ (9.46) $ 18.90
Discontinued operations................. 3.88 .35 (.82) --
Extraordinary item...................... (1.04) -- -- --
---------- --------- ----------- -----------
Net income (loss) per share.......... $ 3.63 $ (1.06) $ (10.28) $ 18.90
========== ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 70
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Services.................................................. $ 9,809,601 $13,294,945
Equipment sales........................................... 734,122 192,121
Royalties................................................. 491,537 509,822
----------- -----------
11,035,260 13,996,888
----------- -----------
Cost of revenues:
Cost of equipment......................................... 542,833 176,192
Cost of services.......................................... 5,704,141 7,615,379
----------- -----------
Total cost of revenues................................. 6,246,974 7,791,571
----------- -----------
Gross margin........................................... 4,788,286 6,205,317
----------- -----------
Selling, general and administrative......................... 2,064,486 2,744,142
----------- -----------
Operating income....................................... 2,723,800 3,461,175
----------- -----------
Other income (expense):
Interest income........................................... 63,751 41,220
Interest expense.......................................... (409,496) (429,322)
----------- -----------
(345,745) (388,102)
----------- -----------
Income before taxes.................................... 2,378,055 3,073,073
Income tax expense (note 8)............................... 879,880 51,960
----------- -----------
Net income............................................. $ 1,498,175 $ 3,021,113
=========== ===========
Average shares used in per share computation................ 100,000 100,000
=========== ===========
Pro forma income data (note 1):
Net earnings as reported.................................. $ 3,021,113
Pro forma adjustment to provide for income taxes.......... (1,197,965)
-----------
Pro forma net earnings.................................... $ 1,823,148
===========
Income per share (historical)............................... $ 14.98
===========
Pro forma income per share (note 1)......................... $ 18.23
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 71
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
PREDECESSOR
Balances at December 31, 1993................ $1,000 $2,720,605 $ (574,096) $ 2,147,509
Net income................................... -- -- 362,947 362,947
------ ---------- ----------- -----------
Balances at November 30, 1994................ $1,000 $2,720,605 $ (211,149) $ 2,510,456
====== ========== =========== ===========
SUCCESSOR
Formation of Business Resources
Corporation............................... 1,000 2,509,456 -- 2,510,456
Net loss..................................... -- -- (105,843) (105,843)
------ ---------- ----------- -----------
Balances at December 31, 1994................ 1,000 2,509,456 (105,843) 2,404,613
Contribution from shareholder................ -- 150,600 -- 150,600
Net loss..................................... -- -- (1,028,241) (1,028,241)
------ ---------- ----------- -----------
Balances at December 31, 1995................ 1,000 2,660,056 (1,134,084) 1,526,972
Net income................................... -- -- 1,889,706 1,889,706
------ ---------- ----------- -----------
Balances at December 31, 1996................ 1,000 2,660,056 755,622 3,416,678
Net income (unaudited)....................... -- -- 3,021,113 3,021,113
------ ---------- ----------- -----------
Balances at September 30, 1997 (unaudited)... $1,000 $2,660,056 $ 3,776,735 $ 6,437,791
====== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 72
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR SUCCESSOR
--------------- ------------ -------------------------
JANUARY 1, 1994 DECEMBER 1, YEARS ENDED
THROUGH 1994 THROUGH DECEMBER 31,
NOVEMBER 30, DECEMBER 30, -------------------------
1994 1994 1995 1996
--------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ 362,947 $(105,843) $(1,028,241) $ 1,889,706
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization..... 254,099 18,546 653,450 1,322,360
Write-off of notes receivable..... -- -- 203,876 --
Deferred income taxes............. -- (20,062) (486,638) 709,612
Gain from disposal of discontinued
operations..................... -- -- (1,116,092) --
(Gain) loss on sale of
equipment...................... -- -- 133,196 (31,400)
Changes in operating assets and
liabilities, net of the effect
of acquisitions and
divestitures:
Accounts receivable.......... (263,396) 95,890 (1,197,318) (425,514)
Prepaid expenses and other... 11,033 1,155 (6,100) (123,516)
Accounts payable............. (115,710) 67,223 563,826 (201,503)
Accrued expenses............. (228,730) 126,464 1,491,683 (704,309)
Other assets................. (75,659) (744) (20,365) (36,854)
--------- --------- ----------- -----------
Net cash provided by (used
in) operating
activities.............. (55,416) 182,629 (808,723) 2,398,582
--------- --------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired..... -- -- (611,170) (50,000)
Purchases of property and equipment.... -- -- (2,459,273) (1,960,216)
Proceeds from sale of equipment........ -- -- -- 122,444
Issuance of note receivables........... (31,500) -- (6,600) (10,000)
Proceeds received on notes
receivable.......................... -- -- 66,000 260,000
--------- --------- ----------- -----------
Net cash used in investing
activities.............. (31,500) -- (3,011,043) (1,637,772)
--------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable............ -- -- 5,750,000 170,000
Principal payments on notes payable.... -- -- (1,563,989) (987,557)
Principal payments on capital leases... -- -- (47,548) (168,327)
--------- --------- ----------- -----------
Net cash provided by (used
in) financing
activities.............. -- -- 4,138,463 (985,884)
--------- --------- ----------- -----------
Increase (decrease) in cash and cash
equivalents............................ (86,916) 182,629 318,697 (225,074)
Cash and cash equivalents at beginning of
period................................. 58,062 (28,854) 153,775 472,472
--------- --------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ (28,854) $ 153,775 $ 472,472 $ 247,398
========= ========= =========== ===========
Supplemental disclosures:
Cash paid during the period for
interest............................ $ 174,694 $ 15,881 $ 139,852 $ 627,439
========= ========= =========== ===========
Cash paid during the period for income
taxes............................... $ -- $ -- $ -- $ 325,000
========= ========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 73
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,498,175 $ 3,021,113
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 934,347 1,182,916
Deferred income taxes.................................. 899,944 (74,813)
Changes in operating assets and liabilities, net of the
effect of acquisitions and divestitures:
Accounts receivable.................................. (282,245) (1,249,335)
Prepaid expenses and other........................... (76,097) 40,309
Accounts payable..................................... (344,875) (220,904)
Accrued expenses..................................... (763,272) 416,285
Other assets......................................... (64,019) 7,818
----------- -----------
Net cash provided by operating activities......... 1,801,958 3,123,389
----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (50,000) --
Purchases of property and equipment....................... (1,602,525) (888,957)
Proceeds from sale of equipment........................... 91,043 --
Issuance of note receivables.............................. (10,000) --
Proceeds received on notes receivable..................... 187,500 937,500
----------- -----------
Net cash provided by (used in) investing
activities...................................... (1,383,982) 48,543
----------- -----------
Cash flows used in financing activities:
Proceeds from notes payable............................... 170,000 21,960
Principal payments on notes payable....................... (780,239) (2,458,250)
Principal payments on capital leases...................... (142,276) (124,017)
----------- -----------
Net cash used in financing activities............. (752,515) (2,560,307)
----------- -----------
Increase (decrease) in cash and cash equivalents............ (334,539) 611,625
Cash and cash equivalents at beginning of period............ 472,472 247,398
----------- -----------
Cash and cash equivalents at end of period.................. $ 137,933 $ 859,023
=========== ===========
Supplemental disclosures:
Cash paid during the period for interest.................. $ 585,769 $ 534,890
=========== ===========
Cash paid during the period for income taxes.............. $ -- $ 244,087
=========== ===========
Noncash financing activities:
Issuance of note payable relating to the acquisition of
title services division (see note 13).................. $ -- $ 6,000,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 74
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
(1) GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Business Resources Corporation and subsidiaries (the "Company") are engaged
in providing a full complement of advanced information management systems and
integrated applications, including data processing outsourcing, for county and
municipal governments. The majority of the Company's customers are located in
the Southwestern United States. Government Record Services, Inc. ("GRS") is the
largest subsidiary and conducts primarily all business operations for the
Company. GRS provides a comprehensive set of computerized client/server systems
on a number of computer hardware platforms to fully automate all functions
relating to county government operations.
Business Resources Corporation ("Resources") was formed by the sole class A
shareholder in 1993 to serve as a holding company. On December 1, 1994,
Resources acquired GRS and Reliable Tax Service ("RTS") from American Title
Group, Inc. ("ATG"). The sole class A shareholder in Resources held a non-
controlling interest in ATG at the time of the acquisition.
Prior to December 1, 1994, the net assets of GRS and RTS were part of ATG.
Effective December 1, 1994, these net assets were conveyed to the sole class A
shareholder of the Company in exchange for the ATG common stock held by the sole
class A shareholder and the forgiveness of certain notes payable to such
shareholder. The cost of acquisition of $2,510,456 was allocated on the basis of
the estimated fair values of the assets acquired and the liabilities assumed,
which approximated the net carrying values of GRS and RTS' net assets prior to
the acquisition. The financial information for the period from January 1, 1994
to November 30, 1994 reflects the historical cost of the assets and liabilities
of GRS and RTS and its operating results and has been referred to as
"Predecessor" in the accompanying consolidated financial statements.
(b) Principles of Consolidation
The consolidated financial statements include the operations of Business
Resources Corporation and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) Cash Equivalents
Cash equivalents consists of short-term highly liquid investment with
original maturities of three months or less. There were no cash equivalents at
December 31, 1994, 1995 and 1996.
(d) Property and Equipment
Property and equipment are recorded at cost and are depreciated over
estimated lives ranging from 5 to 20 years using the straight-line method.
Property and equipment held under capital leases and leasehold improvements are
amortized on the straight-line method over the shorter of the lease term or
estimated useful life of the asset.
(e) Income Taxes
Effective January 1, 1997, the Company converted from a C Corporation to an
S Corporation. As an S Corporation, the consequences of all profits and losses
are the responsibilities of the shareholder of the Company.
F-9
<PAGE> 75
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma provision for income taxes for the nine months
ended September 30, 1997 presented on the statement of operations represents the
estimated taxes that would have been recorded had the Company been a C
Corporation for income tax purposes for that period.
Prior to January 1, 1997 the Company used the asset and liability method of
accounting for deferred income taxes in its historical consolidated financial
statements. Deferred tax assets and liabilities are recognized with respect to
tax consequences attributable to the differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates expected to be
in effect when such amounts are realized or settled. The resulting deferred tax
assets and liabilities are adjusted to reflect changes in tax laws or rates in
the period of enactment.
(f) Intangible Assets
Intangible assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill..................................... $ 380,117 $ 430,117 $ 530,117
Noncompete agreements........................ 762,645 1,094,887 1,094,887
Other........................................ 132,000 201,649 243,755
Purchased title plant........................ -- -- 5,480,000
---------- ---------- ----------
1,274,762 1,726,653 7,348,759
Less accumulated amortization................ (287,048) (482,809) (660,090)
---------- ---------- ----------
$ 987,714 $1,243,844 $6,688,669
========== ========== ==========
</TABLE>
Goodwill, which represents the excess of purchase price over fair value of
identifiable net assets acquired, is amortized on a straight-line basis over the
expected periods to be benefited, generally up to 40 years. Goodwill
amortization of $17,892 and $27,285 was recorded for the years ended December
31, 1995 and 1996, respectively (none in 1994). The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash flows using
a discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
The cost of noncompete agreements are amortized straight-line over the
lives of the respective contracts. Amortization expense related to the
noncompete agreements amounted to $116,512 for the period from January 1, 1994
through November 30, 1994 (predecessor) and $10,592 for the period from December
1, 1994 through December 31, 1994 (successor) and $127,104 and $751,330 for the
years ended December 31, 1995 and 1996, respectively.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be
F-10
<PAGE> 76
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Adoption of
this Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
(h) Revenue
The Company recognizes service revenue when services are performed and
equipment sales when the products are shipped. Royalties relate to the current
activities of Professional Real Estate Tax Services, Inc. and RTS which were
sold in 1995, and are recognized as earned upon receipt of royalty payments by
the Company.
(i) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
(j) Income (Loss) per Share
Income (loss) per share is based upon the weighted averages common shares
outstanding. There were no common stock equivalents for any of the periods in
the three-year period ended December 31, 1996.
(k) Unaudited Interim Financial Information
Interim information for the nine months ended September 30, 1996 and 1997,
including such information in the notes to the financial statements, is
unaudited. This information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all adjustments, consisting of normal recurring adjustments considered necessary
for a fair presentation of the results of such period. Financial results for the
interim period are not necessarily indicative of the results for a full year.
(l) Pro forma Balance Sheet (Unaudited)
In connection with the proposed acquisition of the Company by Tyler
Corporation, the Company will terminate its S Corporation status (see note 14).
The September 30, 1997 pro forma consolidated balance sheet (unaudited) has
been adjusted to reflect (i) the payment of dividends to the Company's sole
class A shareholder in 1997 in the estimated amount of $3,300,000 in respect of
the remaining federal tax liabilities attributable to the Company's Subchapter S
earnings for the nine months ended September 30, 1997 and (ii) the establishment
of deferred income tax assets of $218,936 that would have been required if the
Company had terminated its S Corporation status as of September 30, 1997.
F-11
<PAGE> 77
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer hardware and software (note 7)...... $2,036,742 $ 3,124,415 $ 4,252,640
Property and equipment....................... 2,758,795 3,334,089 3,602,181
Leasehold improvements....................... 1,254,081 1,492,101 1,544,335
---------- ----------- -----------
6,049,618 7,950,605 9,399,156
Less accumulated depreciation and
amortization............................... (662,239) (1,723,371) (2,731,168)
---------- ----------- -----------
$5,387,379 $ 6,227,234 $ 6,667,988
========== =========== ===========
</TABLE>
(3) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
---------- --------
<S> <C> <C>
Contingent claims on discontinued operations................ $ 185,855 $ --
Deferred rent (notes 7 and 11).............................. 218,991 262,538
Payroll and related......................................... 485,100 --
Other....................................................... 759,741 592,634
---------- --------
$1,649,687 $855,172
========== ========
</TABLE>
(4) FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair value.
Based upon the borrowing rates available to the Company for bank loans with
similar terms and average maturities, the fair value of the notes payable and
long-term debt is $6,086,168 and $5,623,237 at December 31, 1995 and 1996,
respectively. The corresponding carrying value is $6,212,917 and $5,727,602 at
December 31, 1995 and 1996, respectively.
(5) NOTES AND OTHER RECEIVABLES
Notes receivable consists of five-year unsecured notes bearing interest at
8%, payable in quarterly installments with a total balance due of $1,187,500
(937,500 long-term) and $937,500 ($687,500 long-term) at December 31, 1995 and
1996, respectively. The notes receivable resulted from the sale of Professional
Real Estate Tax Services, Inc. and RTS (see note 9).
Unaudited -- Other receivables at September 30, 1997 of $1,308,508
($728,115 long-term) represent amounts due from various governmental units for
services performed that are not currently billable to the customer solely due to
the payment terms of their respective service agreements. Revenue related to the
services has been recognized as all of the related services have been performed,
and there are no future obligations or uncertainties remaining. The amount of
other receivables with payment terms greater than one year are discounted to
present value. The unamortized discount is amortized over the payment term. The
Company has evaluated the fiscal funding of the governmental agencies for which
the services have been performed and have determined the likelihood of
noncollection of the receivables as remote. The amounts are being paid monthly,
up to 84 months, and are noninterest bearing. The noninterest bearing
receivables have
F-12
<PAGE> 78
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
been discounted based upon an imputed interest rate range of 7.8% to 8.8% and
the unamortized discount as of September 30, 1997 was $153,084.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit facility...................... $ 500,000 $ 500,000 $ --
8% promissory note payable, payable in
quarterly installments through September
2000, collateralized by certain assets....... 405,000 317,941 261,675
8% promissory note payable, payable in
quarterly installments through September
2005, collateralized by certain assets....... 1,325,000 1,209,812 1,135,753
Installment notes, interest at the prime rate
plus .5%, 9% at September 30, 1997, due
1996-2000, collateralized by certain
assets....................................... 3,687,500 2,926,831 1,351,327
6.1% unsecured installment note payable, annual
installments August 1997-August 2002......... 230,906 230,906 209,986
7% promissory note payable, payable in annual
installments through August 1998,
collateralized by certain assets............. -- 170,000 85,000
10% unsecured installment notes payable,
monthly installments through May 2004........ -- 313,318 291,089
9% promissory note payable, payable in monthly
installments through February 2001,
collateralized by certain assets and the
capital stock of Title Records Corporation
and Government Records Services, Inc.,
wholly-owned subsidiaries of the Company
(note 13).................................... -- -- 5,895,000
Other.......................................... 64,511 58,794 112,982
---------- ----------- -----------
Total................................ 6,212,917 5,727,602 9,342,812
Less current portion........................... (957,151) (1,843,817) (2,252,735)
---------- ----------- -----------
Total long-term debt................. $5,255,766 $ 3,883,785 $ 7,090,077
========== =========== ===========
</TABLE>
In November 1995, the Company entered into a revolving credit facility with
a bank providing for borrowings of up to $500,000. In April 1996, the Company
entered into an amended agreement that provides for borrowings of up to
$1,000,000 and was scheduled to mature April 10, 1997 and bear interest at the
prime rate (8.25% at December 31, 1996).
The agreement contains various financial covenants and is secured by
certain assets of the Company.
Unaudited -- The credit facility matured on April 10, 1997 and was renewed.
Borrowings under the amended agreement are due on April 10, 1998 and bear
interest at the prime rate (8.5% on September 30, 1997).
F-13
<PAGE> 79
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1996 are as follows: 1997, $1,843,817; 1998,
$1,448,894; 1999, $907,032; 2000, $476,227; 2001, $235,301; thereafter,
$816,331.
(7) LEASES
Capital leases consist principally of leases for various computer
equipment. The gross amounts of property and equipment and related accumulated
amortization recorded under capital leases at December 31, 1995 and 1996 are as
follows:
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Furniture and fixtures...................................... $126,363 $ 130,426
Computer hardware and software.............................. 346,606 509,474
-------- ---------
472,969 639,900
Less accumulated amortization............................... (41,576) (209,903)
-------- ---------
$431,393 $ 429,997
======== =========
</TABLE>
The Company has also entered into various operating leases, including an
operating lease with the sole shareholder of the Company for its office building
(see note 11). Rent expense incurred in connection with operating leases was
approximately $88,000 for the period from January 1, 1994 through November 30,
1994 (predecessor) and $37,000 for the period from December 1, 1994 through
December 31, 1994 (successor) and $454,000 and $633,000 for the years ended
December 31, 1995 and 1996, respectively. The Company records rent expenses
relating to the building lease on a straight-line basis over the lease term. As
a result of certain lease escalations, the Company has recorded deferred rent of
approximately $218,000 and $263,000 at December 31, 1995 and 1996, respectively.
Future minimum payments, by year and in the aggregate, under the capital
leases and the operating lease consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31 LEASES LEASE
- ------------------------------------------------------------ --------- -----------
<S> <C> <C>
1997........................................................ $ 215,859 $ 588,480
1998........................................................ 150,548 588,480
1999........................................................ 78,374 588,480
2000........................................................ 59,218 588,480
2001........................................................ 7,685 625,260
Subsequent to 2001.......................................... -- 9,305,340
--------- -----------
Total minimum lease payments...................... 511,684 $12,284,520
===========
Less amounts representing interest (at rates ranging from 6%
to 8%).................................................... (81,687)
---------
Present value of minimum capital lease payments........ 429,997
Less current installments of obligations under capital
leases.................................................... (177,156)
---------
Obligations under capital leases, excluding current
installments........................................... $ 252,841
=========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation and amortization expense.
F-14
<PAGE> 80
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
Total income tax expense (benefit) is allocated as follows:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 1,
1994 TO 1994 TO YEARS ENDED DECEMBER 31,
NOVEMBER 30, DECEMBER 31, ------------------------
1994 1994 1995 1996
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations........................... $(17,353) $(13,302) $(444,105) $1,124,818
Discontinued operations................ 199,807 18,164 (42,533) --
Extraordinary item..................... 53,488 -- -- --
-------- -------- --------- ----------
$235,942 $ 4,862 $(486,638) $1,124,818
======== ======== ========= ==========
</TABLE>
Income tax expense (benefit) attributable to income (loss) from continuing
operations taxes before income taxes consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- ----------
<S> <C> <C> <C>
January 1, 1994 to November 30, 1994
U.S. Federal..................................... $ (5,996) $ (11,357) $ (17,353)
======== ========= ==========
December 1, 1994 to December 31, 1994
U.S. Federal..................................... $ (4,597) $ (8,705) $ (13,302)
======== ========= ==========
Year ended December 31, 1995:
U.S. Federal..................................... $ -- $(444,105) $ (444,105)
======== ========= ==========
Year ended December 31, 1996:
U.S. Federal..................................... $364,379 $ 622,745 $ 987,124
State taxes...................................... 50,827 86,867 137,694
-------- --------- ----------
$415,206 $ 709,612 $1,124,818
======== ========= ==========
</TABLE>
Prior to December 1, 1994, the results of operations of the Company were
included in the consolidated U.S. federal income tax return of ATG. Total
current and deferred income taxes were allocated to the Company as if the
Company had not been eligible to be included in the consolidated tax return of
ATG (that is, the Company on a stand-alone basis). The recognition and
measurement of current and deferred income taxes required certain assumptions,
allocations and significant estimates which management believes are reasonable
to measure the tax consequences as if the Company were a stand-alone taxpayer.
The Company's allocated income tax expense was determined in accordance with the
asset and liability method of accounting for income taxes.
Income tax expense (benefit) attributable to income (loss) from continuing
operations differs from the amount computed by applying the U.S. federal tax
rate of 34% to pretax income (loss) from continuing operations as follows:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 1, YEARS ENDED
1994 TO 1994 TO DECEMBER 31,
NOVEMBER 30, DECEMBER 31, ----------------------
1994 1994 1995 1996
------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit)......................... $ 20,957 $(52,495) $(472,527) $1,024,938
Effect of state and local taxes..... -- -- -- 90,435
Other............................... (38,310) 39,193 28,422 9,445
-------- -------- --------- ----------
$(17,353) $(13,302) $(444,105) $1,124,818
======== ======== ========= ==========
</TABLE>
F-15
<PAGE> 81
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1996 are presented below:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 666,400 $ --
Deferred rent............................................. 74,216 96,509
Other..................................................... 154,840 55,594
--------- ---------
Total deferred tax assets......................... 895,456 152,103
--------- ---------
Deferred tax liabilities:
Realized gain on sale of assets, recognized on installment
basis for tax purposes................................. (374,456) (340,715)
Other..................................................... (14,666) (14,666)
--------- ---------
Total deferred tax liabilities.................... (389,122) (355,381)
--------- ---------
Net deferred tax assets (liabilities)............. $ 506,334 $(203,278)
========= =========
</TABLE>
Deferred tax assets and liabilities are computed by applying the U.S.
federal income tax rate in effect to the gross amounts of temporary differences
and other tax attributes, such as net operating loss carryforwards. In assessing
the reliability of deferred tax assets, the Company considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Accordingly, management believes a valuation reserve is not considered
necessary at this time.
Unaudited -- The historical provision for income taxes for the nine months
ended September 30, 1997 of $51,960 consists of approximately $84,000 of state
income taxes, the elimination of existing deferred tax liabilities at January 1,
1997 of approximately $203,000 (the effective date when the Company changed from
C Corporation to S Corporation status) and a charge to 1997 operations for a
revision of 1996 estimated income taxes primarily attributable to tax effected
temporary differences and prior year rate adjustments.
F-16
<PAGE> 82
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) DISCONTINUED OPERATIONS
In 1995, the Company elected to discontinue operations relating to several
lines of business. A description of each discontinued operation and the income
(loss) from discontinued operations for the period from January 1, 1994 through
November 30, 1994 (predecessor) and the period from December 1, 1994 through
December 31, 1994 and the year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------ ----------------------------
JANUARY 1, DECEMBER 1,
1994 THROUGH 1994 THROUGH YEAR ENDED
NOVEMBER 30, DECEMBER 31, DECEMBER 31,
1994 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Computer Election Systems, Inc.: Provider of
ballot cards for elections. The related
assets were sold in 1995 in exchange for
certain assets of Business Records
Corporation (see note 10). Revenue was
$250,345 for the year ended December 31,
1995 and approximately the same in 1994..... $ -- $ -- $(213,035)
Professional Real Estate Tax Services, Inc.
and American Business Corporation dba
Reliable Tax Service: Primarily engaged in
the business of providing tax certificates.
The related assets were sold in 1995 in
exchange for notes receivable (see note 5).
Revenue was $1,514,924 for the year ended
December 31, 1995 and approximately in the
same in 1994. The Company recorded a gain on
disposal of $736,621, net of tax, relating
to the sale................................. 388,011 35,274 578,224
San Antonio Data, Inc.: Primarily engaged in
the business of updating information for a
title plant in Bexar County. The Company's
stock was exchanged for the stock of
Professional Real Estate Tax Services, Inc.
Revenue was $35,980 for the year ended
December 31, 1995 and $-0- in 1994.......... (225) (21) (470)
Nashoba Corporation: Primarily engaged in the
business of ranching and sale of cattle. The
related assets were sold to the sole
shareholder of the Company in 1995 (see note
11). Revenue was $103,116 for the year ended
December 31, 1995 and $-0- in 1994.......... -- -- (447,280)
-------- ------- ---------
$387,786 $35,253 $ (82,561)
======== ======= =========
</TABLE>
Operating results for 1994 and 1995 from each discontinued line of business
have been reclassified and included in discontinued operations.
(10) Acquisition
In September 1995, the Company acquired certain assets of an unrelated
third party, Business Records Corporation in exchange for the assets of its land
records business in the Southeastern United States and the assets of Computer
Election Systems, Inc., a provider of ballot cards for elections, and two notes
payable in
F-17
<PAGE> 83
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the total amount of $1,730,000. The operations acquired from Business Records
Corporation provide services to county and municipal governments similar to
those provided by GRS. For financial reporting purposes, the transaction has
been accounted for under the purchase method of accounting with the total
purchase price of approximately $2,337,000 allocated to the net assets acquired
on the estimated fair values of assets acquired and liabilities assumed.
Approximately $100,000 was recorded to goodwill as a result of the transaction.
The following summarizes the unaudited consolidated pro forma data as
though the acquisition of Business Records Corporation had occurred as of the
beginning of 1995:
<TABLE>
<CAPTION>
1995
--------------------------
HISTORICAL PRO FORMA
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues from continuing operations.................. $ 7,544,192 $10,644,193
Net loss............................................. (1,028,241) (775,240)
Net loss per share................................... (1,028) (775)
</TABLE>
(11) RELATED PARTY TRANSACTIONS
In 1995, the Company entered into a 246 month lease agreement with the sole
class A shareholder of the Company for its current office building. The lease
agreement is due to expire in December 2015. Rent expense under the lease
agreement amounted to approximately $316,000 and $632,700 in 1995 and 1996,
respectively.
In 1995, the Company operated a cattle ranch which was discontinued in 1995
with no gain or loss recorded as a result of the disposition of this operation
to the Company's sole shareholder. Results of operations in 1995 related to the
cattle ranch operations have been included in discontinued operations (see note
9).
(12) EXTRAORDINARY ITEM
In November 1994, the Company paid off certain notes payable associated
with certain noncompete agreements in advance of the scheduled payment term. The
premium associated with the extinguishment was $157,319 and represented the
incremental interest which would have been paid had the notes been paid
according to the original payment term. The Company has reported the
extinguishment of debt as an extraordinary item of $103,831, net of income tax
benefit of $53,488.
(13) ACQUISITION OF TITLE PLANT (UNAUDITED)
Effective July 31, 1997, the Company (through Title Records Corporation, a
wholly-owned subsidiary) acquired certain assets of the title services division
of Business Records Corporation. The acquisition was accounted for as a purchase
business combination and, accordingly, the purchase price of $6,000,000 was
allocated to the acquired assets based upon the estimated fair values of the
underlying assets. The purchase price was allocated, as follows:
<TABLE>
<S> <C>
Computer hardware and software.............................. $ 319,000
Property and equipment...................................... 181,000
Intangible assets:
Title plant............................................... 5,400,000
Goodwill.................................................. 141,896
----------
Total purchase price.............................. $6,041,896
==========
</TABLE>
Purchased title plant represents the allocation of purchase price based on
estimated fair value of certain assets acquired from Business Records
Corporation. A title plant constitutes a historical record of all matters
affecting title to parcels of land in a particular geographic region. In
accordance with SFAS No. 61,
F-18
<PAGE> 84
BUSINESS RESOURCES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"Accounting for Title Plant," the capitalized costs of the title plant are not
depreciated unless circumstances indicate that the value of the title plant has
been impaired.
The purchase price has been preliminarily allocated based primarily on
information furnished by management of the company from which the assets were
acquired. The final allocation of the purchase price will be determined within
one year of consummation of the purchase and will be based on the estimated fair
values of the assets acquired and the liabilities assumed. Accordingly, the
information presented herein may differ from the final purchase price
allocation.
The Company financed the acquisition through the issuance of a note payable
to Business Records Corporation for $6,000,000 (note 6). The remaining purchase
price of $41,896 relates to direct acquisition costs incurred by the Company.
(14) SUBSEQUENT EVENTS (UNAUDITED)
On October 8, 1997, the Company and the sole shareholder of the Company
entered into an agreement with Tyler Corporation ("Tyler"), a publicly-held
company listed on the New York Stock Exchange, whereby the Company will merge
into a newly-formed subsidiary of Tyler (the "Merger"). Under the terms of the
Merger and other related transactions, and as adjusted for the recapitalization
discussed below, the principal shareholder, who owns 87,650 shares of issued and
outstanding common stock, will receive $15,250,000 in cash and 8,765,000 shares
of common stock of Tyler. Certain key employees, who currently or are
anticipated to own 12,350 shares of the Company's remaining issued and
outstanding stock, will receive 1,235,000 shares of common stock of Tyler. The
Merger is subject to approval by the shareholders of Tyler and is expected to
close in January 1998.
In December 1997, the Company recapitalized its capital structure to
increase its authorized, issued and outstanding shares of common stock from
1,000 shares to 100,000 shares. The effects of the recapitalization have been
applied retroactively for all periods presented in the accompanying consolidated
financial statements. Of the 100,000 shares now issued and outstanding, 87,650
shares consist of class A common stock and 12,350 shares consist of class B
common stock. The class A and class B common stock have substantially equivalent
rights, except that the class B stock is non-voting stock. On December 15, 1997,
the sole class A shareholder of the Company transferred 10,000 shares of his
class B common stock to key employees of the Company and its subsidiaries. The
transfer of such shares was not subject to future service requirements. The
Company will record compensation expense related to this transfer in December,
1997 in the amount of $2,625,000. On January 2, 1998, the sole class A
shareholder of the Company expects to transfer an additional 2,350 shares of his
class B common stock to other key employees. The Company will record
compensation expense related to this transfer in January, 1998. The effects of
the transferring such shares to employees will be recorded in the preacquisition
results of operations of the Company and will not impact the net assets of the
Company.
On December 30, 1997, Tyler loaned $5,700,000 to the Company for working
capital purposes. The unsecured loan bears interest at 8.5%, payable quarterly,
and matures on September 30, 1999, unless the Merger is terminated, in which
case the loan becomes payable at various dates depending on the circumstances
causing the Merger to be terminated.
On December 31, 1997, the Company paid dividends to the Company's sole
class A shareholder of $3,300,000 relating to 1997 federal tax liabilities and
terminated its S Corporation status as of that date.
F-19
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Software Group, Inc.:
We have audited the accompanying balance sheets of The Software Group, Inc.
as of October 31, 1996 and 1997, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Software Group, Inc., as
of October 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
December 19, 1997
F-20
<PAGE> 86
THE SOFTWARE GROUP, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31, OCTOBER 31,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $1,782,874 $2,815,828 $2,807,322
Accounts receivable, net of allowance of $30,000 at
October 31, 1996 and July 31, 1997 and $90,000 at
October 31, 1997................................. 1,071,892 1,235,874 1,660,554
Contracts in progress............................... 193,170 72,552 48,938
Prepaid expenses and other current assets........... 35,798 19,160 37,351
Deferred income taxes (note 9)...................... 297,075 387,680 332,435
Income tax receivable............................... 63,769 -- --
---------- ---------- ----------
Total current assets........................ 3,444,578 4,531,094 4,886,600
Property, plant and equipment, net (note 2)........... 601,056 547,061 548,834
Other assets, net..................................... 12,967 12,967 12,967
Deferred income taxes (note 9)........................ -- -- 44,839
---------- ---------- ----------
$4,058,601 $5,091,122 $5,493,240
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 189,078 $ 232,155 $ 138,271
Accrued expenses (note 6)........................... 302,289 294,743 222,326
Income tax payable.................................. -- 294,923 565,094
Deferred revenue (note 5)........................... 901,923 1,211,552 1,246,094
---------- ---------- ----------
Total current liabilities................... 1,393,290 2,033,373 2,171,785
---------- ---------- ----------
Deferred income taxes (note 9)........................ 14,304 14,304 --
---------- ---------- ----------
Total liabilities........................... 1,407,594 2,047,677 2,171,785
---------- ---------- ----------
Redeemable common stock, at redemption value (note
10)................................................. 426,635 -- --
---------- ---------- ----------
Stockholders' equity:
Common stock, no par value, 5,000,000 shares
authorized; issued 2,010,818 shares in 1996 and
1,921,000 shares in 1997 less redeemable common
stock shown separately of 89,818 in 1996 and none
in 1997.......................................... 733,500 733,500 733,500
Retained earnings................................... 1,490,872 2,309,945 2,587,955
---------- ---------- ----------
Total stockholders' equity.................. 2,224,372 3,043,445 3,321,455
Commitments (notes 8 and 10)..........................
---------- ---------- ----------
Total liabilities and stockholders'
equity.................................... $4,058,601 $5,091,122 $5,493,240
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 87
THE SOFTWARE GROUP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED YEAR ENDED YEAR ENDED JULY 31,
OCTOBER 31, OCTOBER 31, OCTOBER 31, -----------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Service and support
revenue.................. $ 5,107,837 $ 5,759,062 $ 6,170,148 $4,491,202 $4,588,400
Software license fees....... 2,505,023 2,302,614 2,134,265 1,344,011 1,919,905
Hardware sales.............. 3,180,484 2,990,073 3,266,398 2,348,165 2,295,852
----------- ----------- ----------- ---------- ----------
Total revenues...... 10,793,344 11,051,749 11,570,811 8,183,378 8,804,157
Cost of revenues:
Cost of services and
support.................. 3,800,096 3,174,075 2,864,257 2,186,912 2,003,656
Cost of hardware............ 1,927,801 1,982,118 1,703,980 1,705,034 1,561,365
----------- ----------- ----------- ---------- ----------
Total cost of
revenues.......... 5,727,897 5,156,193 4,568,237 3,891,946 3,565,021
----------- ----------- ----------- ---------- ----------
Gross margin........ 5,065,447 5,895,556 7,002,574 4,291,432 5,239,136
Selling, general and
administrative.............. 5,030,701 5,053,721 5,312,680 3,313,411 3,971,982
----------- ----------- ----------- ---------- ----------
Operating income.... 34,746 841,835 1,689,894 978,021 1,267,154
Other income (expense):
Interest income............. 39,024 55,922 87,155 43,088 68,610
Other....................... (11,436) (11,434) -- (11,434) --
----------- ----------- ----------- ---------- ----------
Income before
taxes............. 62,334 886,323 1,777,049 1,009,675 1,335,764
Income tax expense (note 9)... 36,257 338,863 657,508 391,244 494,233
----------- ----------- ----------- ---------- ----------
Net income.......... 26,077 547,460 1,119,541 618,431 841,531
Adjustment to fair market
value of shares subject to
redemption (note 10)........ 94,308 -- 22,458 -- 22,458
----------- ----------- ----------- ---------- ----------
Net income (loss)
available to
common
shareholders...... $ (68,231) $ 547,460 $ 1,097,083 $ 618,431 $ 819,073
=========== =========== =========== ========== ==========
Income (loss) per share....... $ (.03) $ .26 $ .53 $ .29 $ .39
=========== =========== =========== ========== ==========
Average common and common
share equivalent shares used
in per share computation.... 2,143,067 2,145,029 2,078,069 2,145,029 2,085,554
=========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 88
THE SOFTWARE GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED OCTOBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON TOTAL
SHARES COMMON RETAINED STOCKHOLDERS'
ISSUED STOCK EARNINGS EQUITY
--------- -------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at October 31, 1994....................... 2,010,818 $308,500 $1,061,913 $1,370,413
Compensatory stock option grants (note 1)......... -- 425,000 -- 425,000
Change in market value of redeemable stock........ -- -- (94,308) (94,308)
Net income........................................ -- -- 26,077 26,077
--------- -------- ---------- ----------
Balance at October 31, 1995....................... 2,010,818 733,500 993,682 1,727,182
Dividends......................................... -- -- (50,270) (50,270)
Net income........................................ -- -- 547,460 547,460
--------- -------- ---------- ----------
Balance at October 31, 1996....................... 2,010,818 733,500 1,490,872 2,224,372
Net income........................................ -- -- 1,119,541 1,119,541
Change in market value of redeemable stock........ -- -- (22,458) (22,458)
Redemption of common stock........................ (89,818) -- -- --
--------- -------- ---------- ----------
Balance at October 31, 1997....................... 1,921,000 $733,500 $2,587,955 $3,321,455
========= ======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 89
THE SOFTWARE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------
1995 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 26,077 $ 547,460 $1,119,541
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 249,109 261,899 246,026
Loss on sale of equipment........................... 11,402 11,434 --
Deferred income taxes............................... (245,590) 127,359 (94,503)
Compensation expense related to stock options....... 425,000 -- --
Changes in operating assets and liabilities:
Accounts receivable............................... 142,903 (493,959) (588,662)
Contracts in progress............................. -- (193,170) 144,232
Prepaid expenses and other........................ 11,505 12,578 62,216
Accounts payable.................................. (112,403) 88,975 (50,807)
Accrued expenses.................................. 13,379 92,001 (79,953)
Income taxes payable.............................. (11,163) (46,711) 565,094
Deferred revenue.................................. (24,692) 273,388 344,171
---------- ---------- ----------
Net cash provided by operating activities...... 485,527 681,254 1,667,355
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment.................... (294,933) (229,916) (193,804)
Sale of investments.................................... 246,835 -- --
---------- ---------- ----------
Net cash used by investing activities.......... (48,098) (229,916) (193,804)
---------- ---------- ----------
Cash flows from financing activities:
Dividends.............................................. -- (50,270) --
Redemption of ESOP stock (note 10)..................... -- -- (449,093)
---------- ---------- ----------
Net cash used in financing activities.......... -- (50,270) (449,093)
---------- ---------- ----------
Net increase in cash and cash equivalents................ 437,429 401,068 1,024,458
Cash and cash equivalents at beginning of period......... 944,377 1,381,806 1,782,874
---------- ---------- ----------
Cash and cash equivalents at end of period............... $1,381,806 $1,782,874 $2,807,332
========== ========== ==========
Supplemental cash flow information -- income taxes
paid................................................... $ 261,834 $ 328,774 $ 186,918
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 90
THE SOFTWARE GROUP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
-----------------------
1996 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 618,431 $ 841,531
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 193,035 176,134
Loss on sale of equipment.............................. 11,434 --
Deferred income taxes.................................. 139,175 (90,605)
Changes in operating assets and liabilities:
Accounts receivable.................................. 103,989 (163,982)
Contracts in progress................................ (16,585) 120,618
Prepaid expenses and other........................... 71,943 80,407
Accounts payable..................................... (72,067) 43,077
Accrued expenses..................................... (37,513) (7,546)
Income taxes payable................................. (12,114) 294,923
Deferred revenue..................................... 95,473 309,629
---------- ----------
Net cash provided by operating activities......... 1,095,201 1,604,186
---------- ----------
Cash flows from investing activities -- purchases of
property and equipment.................................... (120,837) (122,139)
---------- ----------
Net cash used by investing activities............. (120,837) (122,139)
---------- ----------
Cash flows from financing activities -- redemption of ESOP
stock (note 10)........................................... -- (449,093)
---------- ----------
Net cash used in financing activities............. -- (449,093)
---------- ----------
Net increase in cash and cash equivalents................... 974,364 1,032,954
Cash and cash equivalents at beginning of period............ 1,381,806 1,782,874
---------- ----------
Cash and cash equivalents at end of period.................. 2,356,170 2,815,828
========== ==========
Supplemental cash flow information -- income taxes paid..... $ 266,104 $ 117,847
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 91
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 31, 1997 AND FOR THE NINE MONTHS ENDED
JULY 31, 1996 AND 1997 AND THE YEAR ENDED OCTOBER 31, 1995 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
(a) General Information
The Company's business consists predominantly of selling computer hardware,
software and support services to governmental entities within the United States.
The Company has a range of products to serve the automation needs of local
government clients, including appraisal districts, tax offices, court rooms,
jails, sheriff departments and financial administrative offices. The Company was
formed in 1981 as a C Corporation, and is incorporated in the state of Texas.
(b) Cash and Cash Equivalents
Cash equivalents consist of short-term highly liquid investments with
original maturities of three months or less. Cash equivalents at October 31,
1996 and 1997 consisted of money market accounts in the amount of $1,573,800 and
$2,659,314, respectively.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation on equipment is
calculated on a straight-line basis for furniture and fixtures and using
accelerated depreciation methods for other equipment over the estimated useful
lives of the assets.
(d) Revenue Recognition
The Company sells off-the-shelf software packages, and in a variety of
instances, computer equipment and related peripherals, installation, and
training. The Company recognizes revenue, including those arrangements which
entail a customer-specific installation solution, when all of the elements have
been delivered, training completed, all significant contractual obligations
satisfied and collection of the related receivable for the entire arrangement is
probable. The Company also provides maintenance, which is deferred based on
vendor specific evidence of fair value, and recognized ratably over the service
period. Incremental training is billable on a time and material basis and is
recognized as revenue when the related services are performed.
To the extent computer hardware and the related peripherals are drop
shipped to a customer before the end of an accounting period, the Company
records contracts in progress for the corresponding cost of such equipment.
(e) Concentration of Credit Risk
Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management expectations.
(f) Software Development Costs
In accordance with the provisions of Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," software development costs are expensed prior to
the establishment of technological feasibility of the software development
project. Costs incurred after that point are capitalized until the product is
available for general release. No such costs have been capitalized at October
31, 1996 and 1997.
F-26
<PAGE> 92
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(h) Income Taxes
The Company's income taxes are accounted for under the asset and liability
method for financial reporting purposes and the cash method for income tax
purposes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(i) Impairment of Long-Lived Assets and Assets to Be Disposed Of
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of on November 1, 1995. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this statement
did not have a material impact on the Company's financial position, results of
operations or liquidity.
(j) Net Income Per Common Share
Per share information was calculated based on the weighted average number
of shares of common stock and common stock equivalents, outstanding during the
respective periods. The common stock equivalents relate to stock options and
were computed using the treasury stock method.
(k) Unaudited Interim Financial Information
Interim information for the nine months ended July 31, 1996 and 1997,
including such information in the notes to the financial statements, is
unaudited. This information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all adjustments, consisting of normal recurring adjustments, considered
necessary for a fair presentation of the results of such period. Financial
results for the interim period are not necessarily indicative of the results for
a full year. Financial information as of and for the year ended October 31, 1995
is also unaudited.
(l) Stock Option Plan
The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
F-27
<PAGE> 93
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
market price of the underlying stock exceeded the exercise price. SFAS No. 123,
"Accounting for Stock-Based Compensation" allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made
subsequent to October 31, 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123. There were no stock options granted
subsequent to October 31, 1995. Consequently, no pro forma disclosure is
required.
(2) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
USEFUL OCTOBER 31, OCTOBER 31,
LIFE 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Furniture and fixtures............................ 3-7 years $ 979,707 $1,080,965
Computer hardware and software.................... 3-7 years 365,912 425,462
Transportation equipment.......................... 3-5 years 241,497 278,132
---------- ----------
1,587,116 1,784,559
Less accumulated depreciation..................... (986,060) (1,235,725)
---------- ----------
$ 601,056 $ 548,834
========== ==========
</TABLE>
(3) LINES OF CREDIT
Under a loan agreement with First Bank McKinney dated January 31, 1996, the
Company has a revolving line of credit secured by accounts receivable and
personal guarantees with a maximum limit of $400,000. Interest is due at
maturity, and the rate is 10%. The line of credit matured on January 31, 1997
and was not renewed. There was no outstanding balance on this line of credit as
of October 31, 1996.
(4) FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash equivalents,
accounts receivable, accounts payable and accrued expenses approximate their
fair value because of their short maturity.
(5) DEFERRED REVENUE
Deferred revenues represents billings on quarterly and annual rental
agreements and maintenance contracts with certain counties. Only one month's
revenue had been earned on the fourth quarter billings as of October 31, 1996
and 1997. Similar accounting is used for billings other than quarterly.
(6) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Accrued vacation............................... $119,937 $115,535
Other.......................................... 182,352 106,791
-------- --------
$302,289 $222,326
======== ========
</TABLE>
F-28
<PAGE> 94
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCK OPTION PLAN
The Company has a stock option plan (the "Option Plan") pursuant to which
the Company's Board of Directors may grant stock options to officers, key
employees and consultants. The Plan authorizes grants of options to purchase up
to 300,000 shares of authorized but unissued common stock.
The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB No. 25 "Accounting for Stock Issued to Employees," (APB
No. 25) and related interpretations. Accordingly, the Company is to record
expense in an amount equal to the excess of the market price of common stock on
the grant date over the option exercise price. Such expense is recognized at the
grant date for options fully vested.
In 1992, the Company granted 50,000 fully vested stock options with an
exercise price of $.50 per share, which had not been exercised at October 31,
1997.
In addition, in 1995, the Company granted 100,000 fully vested stock
options with an exercise price of $.50 per share, which had not been exercised
at October 31, 1997. The Company recorded $425,000 in compensation expense
during the year ended October 31, 1995 in connection with the 1995 grant. The
150,000 stock options were fully vested and outstanding at October 31, 1997.
There were no grants in 1996 or 1997.
(8) LEASES
The Company has entered into an operating lease for its office building.
Rent expense incurred in connection with operating leases was $129,673, $155,608
and $155,608 for the years ended October 31, 1995, 1996 and 1997, respectively.
Future minimum payments, by year and in the aggregate, under the operating
lease consisted of the following at October 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING
OCTOBER 31,
- -----------
<S> <C> <C>
1998.................................................................. $155,608
1999.................................................................. 155,608
Thereafter............................................................ --
--------
$311,216
========
</TABLE>
(9) INCOME TAXES
The provision for income taxes for the years ended October 31, 1995, 1996
and 1997 consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current tax expense:
Federal........................................... $ 250,671 $186,910 $691,238
State and local................................... 31,176 24,594 60,973
--------- -------- --------
281,847 211,504 752,211
Deferred tax (benefit) expense:
Federal........................................... (216,284) 125,364 (86,841)
State and local................................... (29,306) 1,995 (7,662)
--------- -------- --------
(245,590) 127,359 (94,503)
--------- -------- --------
$ 36,257 $338,863 $657,508
========= ======== ========
</TABLE>
F-29
<PAGE> 95
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense for the years ended October 31, 1995, 1996, and 1997
differs from the amount computed by applying the U.S. federal income tax rate of
34 percent to pretax income as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Computed "expected" tax expense..................... $21,193 $301,350 $604,197
State and local taxes, net of federal income tax
benefit........................................... 1,870 26,589 53,311
Other differences................................... 13,194 10,924 -
------- -------- --------
$36,257 $338,863 $657,508
======= ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and at October 31, 1996 and 1997 are
presented below:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred revenue.......................................... $ -- $ 59,221
Deferred rentals.......................................... 14,685 18,269
Accounts receivable reserve............................... 10,200 32,400
Accrued vacation.......................................... 53,501 42,748
Tax benefit attributed to stock options................... 256,225 256,225
-------- --------
Total deferred tax assets......................... 334,611 408,663
-------- --------
Deferred tax liabilities:
Contracts in progress and other........................... (38,090) (18,107)
Depreciation.............................................. (13,750) (13,482)
-------- --------
Total deferred tax liabilities.................... (51,840) (31,589)
-------- --------
Net deferred tax assets........................... $282,771 $377,274
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which these temporary differences become deductible. Management considers
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Management believes it is
more likely than not that the Company will fully realize the benefits of these
deferred tax assets.
(10) RETIREMENT PLANS
In November of 1983, the Company established The Software Group, Inc.
Employee Stock Ownership Plan (ESOP). The ESOP owned 89,818 shares of the
Company's common stock at October 31, 1995 and 1996. The ESOP plan covers all
eligible employees meeting age and length of service requirements. Under the
terms of the ESOP, contributions are at the discretion of the Board of Directors
up to the maximum allowable for tax purposes. The Company contributed $5,000 to
the ESOP for the year ended October 31, 1995. No contributions were made to the
ESOP for the years ended October 31, 1996 and 1997.
Under the provisions of the Company's ESOP, the Company is required to
repurchase upon the death, disability, retirement, or termination of a
participant, all shares of common stock issued to such participant under terms
of the ESOP, if so requested by the participant or his/her estate. Other
provisions of the ESOP require the Company to repurchase a portion of the
participant's total shares under specified terms and/or
F-30
<PAGE> 96
THE SOFTWARE GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
conditions. Repurchases under the ESOP are to be made at the value as determined
by the most recent valuation date (as defined by the ESOP) over a period not to
exceed six years.
Accounting standards under rules and regulations issued by the Securities
and Exchange Commission require that common stock subject to "put rights" (which
are exercisable under certain circumstances with the ESOP) be presented
separately from common stock which is not subject to "put rights" in order to
distinguish it from permanent capital in the legal sense. Further, such
accounting standards require the Company to present such ESOP shares on the
balance sheet at the amount which would be paid if redeemed. Accordingly, on the
balance sheet at October 31, 1996, the 89,818 shares in 1996 of common stock
owned by the ESOP are classified as redeemable common stock owned by the ESOP
are classified as redeemable common stock at redemption values of $426,635. A
change in the fair market value of shares subject to redemption is also
reflected as an adjustment to retained earnings. At October 31, 1996 and 1995,
the ESOP per share fair market value was $4.75.
The ESOP was terminated effective January 31, 1997, and the shares of the
stock were redeemed at a value of $5.00 per share, for a total redemption value
of $449,093. The Company subsequently retired the redeemed shares which resulted
in a corresponding decrease of 89,818 shares issued.
In 1990, the Company added a 401(k) retirement plan. The 401(k) provisions
cover all eligible employees of the Company who meet age and length of service
requirements. Employee contributions are by salary reduction and are at the
employee's discretion within the limits imposed by the 401(k) document
provisions and the Internal Revenue Code. Employer contributions are
discretionary and can be up to 2% of the total employee compensation. In fiscal
year 1996, the employer matched employee contributions fifty cents on the
dollar. Total employer contributions to the 401(k) plan were $62,933 and $54,428
for the years ended October 31, 1996 and 1997, respectively.
(11) DEFINITIVE MERGER AGREEMENT
On October 8, 1997, the Company reached a definitive agreement to be
acquired by the Tyler Corporation. Tyler Corporation will acquire the stock of
the Company in exchange for cash and shares of Tyler Corporation. The
acquisition is contingent upon regulatory and shareholder approvals.
F-31
<PAGE> 97
APPENDIX A
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
TYLER CORPORATION,
T1 ACQUISITION CORPORATION,
BUSINESS RESOURCES CORPORATION
AND
WILLIAM D. OATES
DATED AS OF
DECEMBER 29, 1997
AND EFFECTIVE AS OF
OCTOBER 8, 1997
A-1
<PAGE> 98
TABLE OF CONTENTS
ARTICLE 1
THE MERGER
<TABLE>
<S> <C> <C>
1.1 The Merger.................................................. A-6
1.2 Closing..................................................... A-6
1.3 Effective Time.............................................. A-6
1.4 Effects of the Merger....................................... A-6
1.5 Articles of Incorporation; Bylaws........................... A-7
1.6 Directors and Officers...................................... A-7
1.7 Conversion of Securities; Exchange; Fractional Shares....... A-7
1.8 Additional Merger Consideration............................. A-9
1.9 Adjustments to Prevent Dilution............................. A-9
1.10 Taking of Necessary Action; Further Action.................. A-9
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDER
2.1 Organization and Good Standing of Company................... A-9
2.2 Organization and Good Standing of Company Subsidiaries...... A-9
2.3 Other Investments........................................... A-9
2.4 Foreign Qualification....................................... A-9
2.5 Power and Authority to Conduct Business..................... A-10
2.6 Authority to Consummate Merger.............................. A-10
2.7 Binding Effect.............................................. A-10
2.8 Compliance with Other Instruments........................... A-10
2.9 Capitalization of Company................................... A-11
2.10 Capitalization of the Company Subsidiaries.................. A-11
2.11 Company Investments......................................... A-11
2.12 Company Financial Statements................................ A-12
2.13 Absence of Certain Changes.................................. A-12
2.14 No Material Undisclosed Liabilities......................... A-13
2.15 Tax Liabilities............................................. A-14
2.16 Title to Properties......................................... A-14
2.17 Condition of Tangible Assets................................ A-16
2.18 Accounts Receivable......................................... A-16
2.19 Inventory Good and Salable.................................. A-16
2.20 Patents, Trademarks, and Copyrights......................... A-16
2.21 Contracts................................................... A-17
2.22 Litigation and Claims....................................... A-18
2.23 Judgments, Decrees, and Orders in Restraint of Business..... A-18
2.24 No Violation of Any Instrument.............................. A-18
2.25 Compliance With Laws........................................ A-19
2.26 Compensation and Benefit Plans.............................. A-19
2.27 Labor Relations............................................. A-20
2.28 Adequate Insurance.......................................... A-20
2.29 Contracts with Affiliates and Others........................ A-20
2.30 Revenue Recognition......................................... A-21
2.31 Certain Fees................................................ A-21
2.32 Environmental Matters....................................... A-21
2.33 Section 368 Representations................................. A-21
</TABLE>
A-2
<PAGE> 99
2.34 Accuracy of Information Furnished........................... A-22
2.35 Representations Limited..................................... A-22
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TYLER
3.1 Organization and Good Standing of Tyler..................... A-23
3.2 Foreign Qualification....................................... A-23
3.3 Power and Authority to Conduct Business..................... A-23
3.4 Authority to Consummate Merger.............................. A-23
3.5 Binding Effect.............................................. A-23
3.6 Compliance with Other Instruments........................... A-23
3.7 Capitalization of Tyler..................................... A-24
3.8 Commission Filings; Financial Statements.................... A-24
3.9 Absence of Certain Changes.................................. A-25
3.10 No Material Undisclosed Liabilities......................... A-25
3.11 Litigation and Government Claims............................ A-25
3.12 No Violation of Any Instrument.............................. A-25
3.13 Certain Fees................................................ A-26
3.14 No Interim Operations of Sub................................ A-26
3.15 Accuracy of Information Furnished........................... A-26
3.16 Company Contract Bids....................................... A-26
ARTICLE 4
JOINT COVENANTS OF THE COMPANY, THE SHAREHOLDER AND TYLER
4.1 Access; Confidentiality..................................... A-26
4.2 Notice of any Material Change............................... A-27
4.3 Monthly Financial Statements................................ A-27
4.4 Antitrust Notification...................................... A-27
4.5 Tax Matters................................................. A-27
4.6 Cooperation Pending Closing................................. A-30
4.7 Non-competition Allocation.................................. A-30
ARTICLE 5
COVENANTS OF THE COMPANY AND THE SHAREHOLDER
5.1 Conduct of Business Prior to Closing Date................... A-30
5.2 Employment Agreement........................................ A-31
5.3 Noncompetition Agreements................................... A-31
5.4 Agreement Not to Negotiate.................................. A-31
5.5 Permitted Distributions of Cash and Condo................... A-31
5.6 Waiver of Adverse Claims.................................... A-31
5.7 Accuracy of Information Furnished........................... A-31
5.8 Pre-Closing Bonuses......................................... A-32
5.9 New Indebtedness............................................ A-32
5.10 Stock Grants................................................ A-32
5.11 Transfer of Headquarters Facilities......................... A-32
ARTICLE 6
COVENANTS OF TYLER
6.1 Conduct Prior to Closing Date............................... A-32
6.2 Proxy Statement............................................. A-32
6.3 Meetings of Stockholders.................................... A-32
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6.4 Stock Exchange Listing...................................... A-33
6.5 Guaranties of Company Obligations........................... A-33
6.6 Other Tyler Obligations..................................... A-33
6.7 Company Indemnification Obligations......................... A-33
6.8 Agreements Regarding Stock Options.......................... A-34
6.9 Release of Shareholder Guaranties........................... A-34
6.10 Tyler Loan.................................................. A-34
ARTICLE 7
JOINT CONDITIONS PRECEDENT TO CLOSING OBLIGATIONS
7.1 HSR Act..................................................... A-35
7.2 Absence of Litigation....................................... A-35
7.3 The Software Group.......................................... A-35
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE SHAREHOLDER
8.1 Compliance.................................................. A-35
8.2 Representations and Warranties.............................. A-35
8.3 Opinion..................................................... A-36
8.4 No Material Adverse Change.................................. A-36
8.5 Tyler Stockholder Approval.................................. A-36
8.6 Financing................................................... A-36
8.7 Certificates................................................ A-36
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLER
9.1 Compliance.................................................. A-36
9.2 Representations and Warranties.............................. A-36
9.3 Securities Law Compliance................................... A-36
9.4 Opinions.................................................... A-36
9.5 No Material Adverse Change.................................. A-37
9.6 Consents to Transaction..................................... A-37
9.7 Stockholder Approval........................................ A-37
9.8 Financing................................................... A-37
9.9 Noncompetition Agreements................................... A-37
9.10 Certificates................................................ A-37
9.11 Company Shareholder Approval................................ A-37
9.12 No Dissenting Shareholders.................................. A-37
ARTICLE 10
SECURITIES LAW REGISTRATION AND COMPLIANCE
10.1 Securities Law Compliance; Restrictions on Shares........... A-37
10.2 Demand Registration......................................... A-38
10.3 Piggyback Registration...................................... A-39
10.4 Registration Procedures..................................... A-39
10.5 Expenses.................................................... A-41
10.6 Indemnification............................................. A-42
10.7 No Transferability of Registration Rights................... A-43
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ARTICLE 11
INDEMNIFICATION AND REMEDIES
11.1 Indemnification by the Shareholder Based on Agreement....... A-43
11.2 Indemnification by Tyler Based on Agreement................. A-44
11.3 Customer Claims............................................. A-44
11.4 Claims Limitations.......................................... A-45
11.5 Maximum Liability........................................... A-45
11.6 Equitable Remedies.......................................... A-46
11.7 Remedies of the Surviving Corporation....................... A-46
11.8 Right of Offset............................................. A-46
11.9 Costs of Defense............................................ A-46
ARTICLE 12
MISCELLANEOUS
12.1 Breach Discovered Prior to Closing.......................... A-47
12.2 Termination................................................. A-47
12.3 Expenses.................................................... A-48
12.4 Disclosure Schedules........................................ A-48
12.5 Entire Agreement............................................ A-48
12.6 Survival.................................................... A-48
12.7 Counterparts................................................ A-48
12.8 Notices..................................................... A-48
12.9 Successors and Assigns...................................... A-49
12.10 Governing Law............................................... A-49
12.11 Waiver and Other Action..................................... A-49
12.12 Severability................................................ A-49
12.13 Knowledge................................................... A-50
EXHIBITS
Exhibit A Surviving Corporation Directors and Officers
Exhibit B Employment and Noncompetition Agreement
Exhibit C Form of Stock Transfer Agreement [Class B]
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SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDED AND RESTATED AGREEMENT, dated as of the 29th day of
December, 1997 and effective as of the 8th day of October, 1997, is entered into
by and among Tyler Corporation, a Delaware corporation ("Tyler"), T1 Acquisition
Corporation, a Texas corporation and wholly-owned subsidiary of Tyler ("Sub"),
Business Resources Corporation, a Texas corporation (the "Company"), and William
D. Oates, the principal shareholder of the Company (the "Shareholder").
WITNESSETH:
WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement, the respective Boards of Directors of Tyler, Sub and the Company, and
Tyler as sole shareholder of Sub, have approved the merger of the Company with
and into Sub (the "Merger"), including the acquisition of the Headquarters
Facilities (defined herein), as a result of which the holders of all the issued
and outstanding shares of common stock, par value $0.01 per share, of the
Company (the "Company Common Stock") not owned directly or indirectly by the
Company will receive in the aggregate $15,250,000 in cash and 10,000,000 shares
of common stock, par value $0.01 per share, of Tyler ("Tyler Common Stock"), in
the manner and subject to the adjustments provided herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the Texas Business Corporation Act (the
"TBCA"), at the Effective Time (as defined in Section 1.3) the Company shall be
merged with and into Sub. As a result of the Merger, the separate corporate
existence of the Company shall cease and Sub shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation") and
shall succeed to and assume all of the rights and obligations of the Company in
accordance with the TBCA.
1.2 Closing. The closing of the Merger and the transfer of the
Headquarters Facilities (the "Closing") shall take place at the offices of
Gardere & Wynne, L.L.P., 1601 Elm Street, Suite 3000, Dallas, Texas 75201 as
soon as practicable after the satisfaction or waiver of the conditions set forth
in Article V or at such other time and place and on such other date as Tyler and
the Company shall agree; provided, that the closing conditions set forth in
Article V shall have been satisfied or waived at or prior to such time. The date
on which the Closing occurs is herein referred to as the "Closing Date."
1.3 Effective Time. On the Closing Date, or as soon as practicable
thereafter, the Company and Sub will cause Articles of Merger (the "Articles of
Merger") to be filed with the Secretary of State of the State of Texas as
provided in Article 5.04 of the TBCA. The Merger will become effective at the
time that the Articles of Merger have been filed with the Secretary of State of
the State of Texas or at such other time specified in the Articles of Merger as
the effective time (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the TBCA.
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1.5 Articles of Incorporation; Bylaws. The Articles of Incorporation (the
"Articles") and Bylaws (the "Bylaws") of Sub, as in effect immediately prior to
the Effective Time, shall be identical to the Company's Articles of
Incorporation and Bylaws and shall be the articles of incorporation and bylaws
of the Surviving Corporation and thereafter shall continue to be its articles of
incorporation and bylaws until amended as provided therein and under the TBCA.
1.6 Directors and Officers. The persons specified as directors on Exhibit
A hereto shall be the initial directors of the Surviving Corporation, each to
hold office in accordance with the Articles and Bylaws, and the persons
specified as officers on Exhibit A hereto shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in accordance with the Articles and Bylaws.
1.7 Conversion of Securities; Exchange; Fractional Shares. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and the other transactions contemplated hereby, including the transfer of
the Headquarters Facilities as provided in Section 5.11, and without any action
on the part of the Company, Sub or Tyler:
(a) The holders of the Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than any shares of the
Company Common Stock to be canceled pursuant to Section 1.7(b), shall be
entitled to receive, subject to the provisions of this Section 1.7, without
interest, cash or shares of Tyler Common Stock as follows:
(i) The holder of Class A Common Stock, par value $0.01 per share,
of the Company ("Class A Common Stock") shall be entitled to receive (A)
$15,250,000 in cash, (B) 100 shares of Tyler Common Stock for each
outstanding share of Class A Common Stock outstanding at the Effective
Time, and (C) the Additional Merger Consideration, if any, that may
become payable after the Effective Time pursuant to Section 1.8; and
(ii) The holders of Class B Common Stock, par value $0.01 per
share, of the Company ("Class B Common Stock") shall be entitled to
receive 100 shares of Tyler Common Stock for each outstanding share of
Class B Common Stock outstanding at the Effective Time.
The cash and shares of Tyler Common Stock to which holders of Company
Common Stock shall be so entitled to receive at the Effective Time are
collectively referred to herein as the "Consideration". No fractional
shares of Tyler Common Stock shall be issued, and, in lieu thereof, a cash
payment shall be made in accordance with the procedure set forth in Section
1.7(g) hereof.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock held by Sub, Tyler or any
direct or indirect wholly-owned subsidiary of Tyler, or the Company
immediately prior to the Effective Time shall be canceled and extinguished
at the Effective Time without any conversion thereof and no payment shall
be made with respect thereto.
(c) Each share of common stock, par value $1.00 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall at the
Effective Time be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(d) At the Effective Time, each holder of an outstanding certificate
that prior thereto represented shares of Company Common Stock shall be
entitled to receive, upon surrender to the Surviving Corporation of such
certificate or certificates for cancellation and subject to any required
withholding of taxes, a certificate or certificates representing the number
of whole shares of Tyler Common Stock (of such denominations and registered
in such names as such holder may request) into which the shares of Company
Common Stock so surrendered shall have been converted. Each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Tyler Common Stock shall, upon surrender to the
Surviving Corporation of the certificates representing shares of Company
Common Stock held by such holder, be paid an amount in cash in accordance
with the provisions of Section 1.7(g). Until so surrendered, each
outstanding certificate that prior to the Effective Time represented shares
of Company Common Stock shall be deemed from and after the Effective Time
to evidence the
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right to receive that amount of cash, if any, and that number of full
shares of Tyler Common Stock into which such shares of Company Common Stock
shall have been converted pursuant to this Section 1.7, any dividends or
distributions contemplated or permitted by this Agreement and declared
concurrently with or prior to Closing, but which are unpaid as of Closing,
and any cash in lieu of fractional shares of Tyler Common Stock, subject to
any of required withholding of taxes. No interest shall be paid on the cash
payable upon surrender of the certificate or certificates evidencing shares
of Company Common Stock. Unless and until any such outstanding certificates
representing shares of Company Common Stock shall be surrendered, no
dividends or other distributions declared and payable to the holders of
Tyler Common Stock on or after the Effective Time shall be paid to the
holders of such outstanding certificates which prior to the Effective Time
represented shares of Company Common Stock; provided, however, that, upon
surrender and exchange of such outstanding certificates, there shall be
paid to the record holders of the certificates issued and exchanged
therefor the amount, without interest thereon, of dividends and other
distributions, if any, that theretofore were declared and became payable
since the Effective Time with respect to the number of full shares of Tyler
Common Stock issued to such holders.
(e) The cash, if any, and shares of Tyler Common Stock into which the
shares of Company Common Stock shall have been converted pursuant to this
Section 1.7 shall be issued in full satisfaction of all rights pertaining
to such converted shares of Company Common Stock except for the payment of
any dividends or distributions contemplated or permitted by this Agreement
and declared concurrently with or prior to Closing, but which are unpaid as
of Closing.
(f) If any certificate for shares of Tyler Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall have paid to Tyler or the Surviving Corporation any transfer
or other taxes required by reason of the issuance of a certificate for
shares of Tyler Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction
of Tyler or its transfer agent that such tax has been paid or is not
payable.
(g) No fraction of a share of Tyler Common Stock shall be issued, but
in lieu thereof each holder of shares of Company Common Stock who would
otherwise be entitled to a fraction of a share of Tyler Common Stock shall,
upon surrender to the Surviving Corporation of the certificate or
certificates representing the shares of Company Common Stock held by such
holder, be paid an amount in cash equal to the value of such fraction of a
share of Tyler Common Stock based upon the closing price of Tyler Common
Stock on the New York Stock Exchange on the last trading day prior to the
Effective Time. No interest shall be paid on such amount. All shares of
Company Common Stock held by a record holder shall be aggregated for
purposes of computing the number of shares of Tyler Common Stock to be
issued pursuant to this Section 1.7.
(h) At the Closing, Tyler shall provide each holder of certificates
which prior to the Effective Time represented shares of Company Common
Stock a letter of transmittal and other documentation enabling such holder
to effect the exchange of stock certificates as contemplated by Article 1
of this Agreement.
(i) Neither Tyler, the Surviving Corporation, nor any other person
shall be liable to any former holder of shares of Company Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(j) In the event any certificate formerly representing shares of the
Company Common Stock shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate
to be lost, stolen or destroyed and, if required by Tyler or the Surviving
Corporation, the posting by such person of a bond in customary amount as
indemnity against any claim that may be made against Tyler or the Surviving
Corporation with respect to such certificate, the Surviving Corporation
shall deliver in exchange for such lost, stolen or destroyed certificate
the cash and shares of Tyler Common Stock that would be deliverable
pursuant to this Article 1 upon due surrender of the shares of Company
Common Stock represented by such lost, stolen or destroyed certificate.
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1.8 Additional Consideration. In addition to the Consideration payable to
the holders of Company Common Stock pursuant to Section 1.7(a), the holders of
Class A Common Stock of the Company shall be entitled to receive additional
merger consideration ("Additional Merger Consideration") in an aggregate amount
up to $4,500,000 if certain performance objectives set forth in a letter dated
October 8, 1997 from Tyler to the Shareholder and the Company are achieved not
later than December 31, 1999. In such event each holder of record of Class A
Common Stock of the Company immediately prior to the Effective Time shall
receive for each share so held Additional Merger Consideration equal to the
quotient of $4,500,000 (or such lesser amount as may be payable) divided by the
number of shares of Class A Common Stock of the Company issued and outstanding
immediately prior to the Effective Time.
1.9 Adjustments to Prevent Dilution. In the event that the Company changes
the number of shares of the Company Common Stock or securities convertible or
exchangeable into or exercisable for shares of the Company Common Stock, or
Tyler changes the number of shares of Tyler Common Stock or securities
convertible or exchangeable into or exercisable for shares of Tyler Common
Stock, issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split or combination), stock
dividend or distribution, recapitalization, subdivision, or other similar
transaction, the Consideration shall be correspondingly adjusted.
1.10 Taking of Necessary Action; Further Action. The parties hereto shall
take all such reasonable and lawful action as may be necessary or appropriate in
order to effectuate the Merger as promptly as possible. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company or Sub, such corporations shall direct their
respective officers and directors to take, and the Shareholder shall take, all
such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDER
The Company and the Shareholder jointly and severally represent and warrant
to Tyler and Sub as follows:
2.1 Organization and Good Standing of Company. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas.
2.2 Organization and Good Standing of Company Subsidiaries. Section 2.2 of
the schedule delivered by the Company concurrently with the execution of this
Agreement (the "Company Disclosure Schedule") truly and correctly lists each
corporation in which either the Company or a Company Subsidiary is the record or
beneficial owner, directly or indirectly, of 50% or more of the capital stock
(each such corporation being referred to as a "Company Subsidiary"), the
jurisdiction of incorporation of each Company Subsidiary, the authorized number
of shares of capital stock of each Company Subsidiary, the number of outstanding
shares of capital stock of each Company Subsidiary and the number of shares
owned by the Company or a Company Subsidiary, and the jurisdictions in which the
Company and each Company Subsidiary are qualified or licensed to do business.
Each Company Subsidiary is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation.
2.3 Other Investments. Section 2.3 of the Company Disclosure Schedule
truly and correctly lists all corporations in which the Company or a Company
Subsidiary owns less than 50% of the capital stock and all partnerships, joint
ventures, and other entities in which the Company or a Company Subsidiary has an
equity, profit sharing, participation, or other interest (the "Company
Investments"), the form of organization of and the jurisdiction of incorporation
or organization of each Company Investment, the type and amount of the
investment, and the percentage interest owned by the Company or a Company
Subsidiary.
2.4 Foreign Qualification. The Company and each Company Subsidiary are
duly qualified or licensed to do business as foreign corporations and in good
standing in those jurisdictions set forth in Section 2.4 of the Company
Disclosure Schedule. The Company and the Company Subsidiaries are duly qualified
or licensed to
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do business as foreign corporations in every jurisdiction where the failure so
to qualify could have a material adverse effect on the businesses, operations,
assets or financial condition of the Company and the Company Subsidiaries, taken
as a whole. For purposes of this Section 2.4, no material adverse effect shall
be deemed to have occurred as a result of non-payment of state or local
franchise taxes not exceeding $75,000 in the aggregate.
2.5 Power and Authority to Conduct Business. The Company and the Company
Subsidiaries have the corporate power and authority, and possess all licenses
and permits required by governmental authorities, to own, lease, and operate
their properties and assets and to carry on its or their respective businesses
as currently being conducted, except where the failure to possess such license
or permit would not have a material adverse effect on the businesses,
operations, assets or financial condition of the Company and the Company
Subsidiaries, taken as a whole.
2.6 Authority to Consummate Merger. The Company has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and the other agreements or documents executed or required to be
executed by the Company in connection with this Agreement, and the execution,
delivery, and performance by the Company of this Agreement and the other
documents executed or required to be executed by the Company in connection with
this Agreement have been duly authorized by all necessary corporate action other
than approval by holders of the Class B Common Stock. The Shareholder has the
capacity and authority to execute, deliver and perform his obligations under
this Agreement, and the other agreements or documents executed or required to be
executed by him in connection herewith.
2.7 Binding Effect. This Agreement and the other agreements and documents
executed or required to be executed by the Company or the Shareholder in
connection with this Agreement have been or will have been duly executed and
delivered by the Company or the Shareholder, as appropriate, and are or will be,
when executed and delivered, the legal, valid, and binding obligations of the
Company or the Shareholder executing the same, enforceable in accordance with
their terms, except that:
(a) enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification under Section 10.6 may be limited by
considerations of public policy.
2.8 Compliance with Other Instruments. Except as disclosed in Section 2.8
of the Company Disclosure Schedule, neither the execution and delivery by the
Company or the Shareholder of this Agreement, or the other agreements or
documents executed or required to be executed by the Company or the Shareholder
in connection herewith, nor the consummation by the Company or the Shareholder
of the transactions contemplated hereby and thereby, will (i) conflict with the
articles of incorporation or bylaws of the Company or any Company Subsidiary,
(ii) assuming satisfaction of the requirements set forth in clause (iii) below,
violate any provision of law applicable to the Company or any of the Company
Subsidiaries; (iii) except for (A) requirements arising out of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), and (B)
the filing of articles of merger in accordance with the TBCA, require any
consent, authorization, permit, license or approval of, or declaration,
registration or filing with or notice to, any person or governmental body or
authority, domestic or foreign, under any provision of law applicable to the
Company or any of the Company Subsidiaries; or (iv) require any consent,
approval or notice under, violate, breach, be in conflict with, or constitute a
default (or an event that, with notice or lapse of time or both, would
constitute a default) under, or permit the termination or the acceleration of
maturity of, or result in the imposition of any lien, claim, or encumbrance upon
any property or asset of the Company, any Company Subsidiary, or the
Shareholder, pursuant to any note, bond, indenture, mortgage, deed of trust,
evidence of indebtedness, loan or lease agreement, or other agreement or
instrument (including with customers) listed or required to be listed in Section
2.21 of the Company Disclosure Schedule, or any judgment, order, injunction, or
decree by which the Company, any Company Subsidiary, or the Shareholder is
bound, to which any of them is a party, or to which any of their assets is
subject, where any such failure to obtain any consent, approval or notice, or
violation,
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breach, conflict or default would result in a material adverse effect on the
businesses, operations, assets or financial condition of the Company and the
Company Subsidiaries, taken as a whole.
2.9 Capitalization of Company.
(a) The authorized capital stock of the Company at December 29, 1997 is
100,000 shares of Company Common Stock, of which 87,650 shares consist of Class
A Common Stock and 12,350 shares consist of Class B Common Stock. All of the
authorized shares of Company Common Stock are issued and outstanding at December
29, 1997, have been duly authorized and are validly issued, fully paid and
nonassessable. There are and at the Closing will be no shares of the capital
stock of the Company held in its treasury or in the treasury of any Company
Subsidiary.
(b) At the Closing, Shareholder will be the lawful record and beneficial
owner of 87,650 shares of the Class A Common Stock, free and clear of all liens,
encumbrances, and claims of every kind, and the shares so owned by the
Shareholder will constitute 100% of the issued and outstanding shares of the
Class A Common Stock, which is the only class of Company Common Stock having
voting rights with respect to the election of directors and other regular
matters. The Shareholder has the right to vote or direct the vote of such shares
at his discretion on any matter submitted to a vote of the Company's
shareholders. Holders of the Class B Common Stock have no voting rights except
as may be required by law. Pursuant to the Texas Business Corporation Act,
holders of all classes of Company Common Stock, including the Class B Common
Stock, are or will be entitled to vote upon the Merger, with all holders of
Company Common Stock voting as a single class and all holders of Class A Common
Stock and Class B Common Stock each voting as separate classes. Each holder of
shares of Class A Common Stock and Class B Common Stock has voted or agreed to
vote such shares in favor of the Merger.
(c) There are no voting trusts, shareholder agreements, or other voting
arrangements among the shareholders of the Company, other than the agreements to
vote their shares in favor of the Merger described in the form of Stock Transfer
Agreement attached as Exhibit C.
(d) Except as described in Section 2.9 of the Company Disclosure Schedule,
there presently is no outstanding subscription, contract, convertible or
exchangeable security, option, warrant, call, or other right obligating the
Company, any Company Subsidiary, or the Shareholder to issue, sell, exchange, or
otherwise dispose of, or to purchase, redeem, or otherwise acquire, shares of,
or securities convertible into or exchangeable for, capital stock of the
Company; except as described in Section 2.9 of the Company Disclosure Schedule
or otherwise permitted by this Agreement, no such rights disclosed in Section
2.9 of the Company Disclosure Schedule will remain outstanding at the Closing.
No shareholder of the Company is entitled to any preemptive right.
2.10 Capitalization of the Company Subsidiaries. All of the outstanding
shares of capital stock of the Company Subsidiaries have been duly authorized
and validly issued and are fully paid and nonassessable and, except as described
in Section 2.10 of the Company Disclosure Schedule, the shares of capital stock
of the Company Subsidiaries indicated in Section 2.2 of the Company Disclosure
Schedule as owned by the Company or a Company Subsidiary are owned free and
clear of all liens, encumbrances, and claims of every kind. The Company owns of
record and beneficially all of the issued and outstanding shares of capital
stock of each Company Subsidiary. Except as described in Section 2.10 of the
Company Disclosure Schedule, there presently is no outstanding subscription,
contract, convertible or exchangeable security, option, warrant, call, or other
right obligating the Company, any Company Subsidiary, or the Shareholder to
issue, sell, exchange, or otherwise dispose of, or to purchase, redeem, or
otherwise acquire, shares of, or securities convertible into or exchangeable
for, capital stock of any Company Subsidiary.
2.11 Company Investments. Except as described in Section 2.11 of the
Company Disclosure Schedule, the interests in the Company Investments owned by
the Company or a Company Subsidiary are owned free and clear of all liens,
encumbrances and claims other than those contained in the agreements evidencing
such Company Investments. Except as described in Section 2.11 of the Company
Disclosure Schedule, there presently is no outstanding subscription, contract,
convertible or exchangeable security, option, warrant, call, or other right
obligating the Company or any Company Subsidiary to sell, exchange, or otherwise
dispose of,
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or to purchase, redeem, or otherwise acquire, any interest in the Company
Investments; no such rights disclosed in Section 2.11 of the Company Disclosure
Schedule will remain outstanding at the Closing.
2.12 Company Financial Statements.
(a) The Company has delivered to Tyler true, correct, and complete copies
of the following financial statements of the Company (the "Company Financial
Statements"), which are attached to Section 2.12 of the Company Disclosure
Schedule:
(i) the audited consolidated balance sheets of the Company and the
Company Subsidiaries as of December 31, 1996, 1995 and 1994 and the related
audited consolidated statements of operations, stockholder's equity, and
cash flows for the years then ended, with notes thereto, prepared in
accordance with United States generally accepted accounting principles,
reported upon without exception or qualification by KPMG Peat Marwick LLP,
independent certified public accountants ("Peat Marwick"), and
(ii) the audited consolidated balance sheet of the Company and the
Company Subsidiaries as of July 31, 1997 (the "Company Balance Sheet"), and
the related audited consolidated statements of operations, stockholder's
equity, and cash flows for the seven months then ended, with notes thereto,
prepared in accordance with United States generally accepted accounting
principles, reported upon without exception or qualification by Peat
Marwick.
The Company Financial Statements present fairly, in all respects, the
consolidated financial position of the Company and the Company Subsidiaries as
of the dates thereof and the consolidated results of operations and cash flows
for the periods then ended, in conformity with generally accepted accounting
principles applied, except as may be set forth in the notes thereto, on a
consistent basis throughout such periods.
(b) Since July 31, 1997, there has been no change in accounting principles
applicable to, or methods of accounting utilized by the Company, and the books
and records of Company and the Company Subsidiaries have been and are being
maintained in accordance with all applicable legal and accounting requirements
and what the shareholder believes in good faith to be good business practice,
reflect only valid transactions, are complete and correct in all material
respects, and accurately reflect in all material respects the basis for the
consolidated financial position and consolidated results of operations and cash
flows of the Company and the Company Subsidiaries set forth in the Company
Financial Statements.
2.13 Absence of Certain Changes. Since July 31, 1997 (or other date
indicated below), neither the Company nor any Company Subsidiary has (except as
may be contemplated by this Agreement or as may result from the transactions
contemplated by this Agreement):
(a) suffered any change in its businesses, results of operations,
working capital, assets, liabilities, or financial condition or the manner
of conducting its business other than changes that, individually or in the
aggregate, have not had a material adverse effect on the businesses,
operations, assets or condition (financial or otherwise) of the Company and
the Company Subsidiaries, taken as a whole;
(b) experienced a decline in the consolidated shareholder's equity of
the Company and the Company Subsidiaries from its consolidated
shareholder's equity shown on the Company Balance Sheet at July 31, 1997,
determined using the same accounting principles applied in the preparation
of the Company Financial Statements;
(c) except as disclosed in Section 2.13 of the Company Disclosure
Schedule, suffered any damage or destruction to or loss of its assets not
covered by insurance, or any loss of customers or suppliers, or terminated
or lost the services of any key employee (including any employee who had
agreed with the Company to maintain the confidentiality of proprietary or
technical information or know-how or to assign inventions, patents, or
copyrights) that has had, or in the good faith belief of the Shareholder is
likely to have, a material adverse effect on the businesses, operations,
assets, financial condition, or prospects of the Company and the Company
Subsidiaries, taken as a whole;
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(d) acquired or disposed of any material asset, or incurred, assumed,
guaranteed, endorsed, paid, or discharged any material indebtedness,
liability, or obligation, or subjected or permitted to be subjected any
material amount of assets to any lien, claim, or encumbrance of any kind,
except in the ordinary course of business or pursuant to agreements in
force at the date of this Agreement;
(e) forgiven, compromised, canceled, released, waived, or permitted to
lapse any material rights or claims;
(f) entered into or terminated any material agreement or commitment,
or agreed or made any changes in material leases or agreements, other than
renewals or extensions thereof and leases, agreements, and commitments
entered into, terminated, or modified in the ordinary course of business;
(g) increased its investment in any Company Investment or made new
Company Investments;
(h) written up, written down, or written off the book value of any
material amount of assets;
(i) declared, paid, or set aside for payment any dividend or
distribution with respect to its capital stock;
(j) redeemed, purchased, or otherwise acquired, or sold, granted, or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or
agreed to changes in the terms and conditions of any such rights;
(k) paid compensation, fees, bonuses or other payments to the
Shareholder or his family members or any of his affiliates or otherwise
paid or transferred any cash, property or assets to the Shareholder, his
family members or any of his affiliates, other than the base salary of
Shareholder, rent in accordance with the Lease (as defined in Section
5.11), and distributions permitted by this Agreement; or materially
increased the compensation of or paid any bonus to any other employee or
contributed to any employee benefit plan other than in accordance with
policies, practices or requirements established and in effect on December
31, 1996;
(l) Entered into any employment, compensation, or collective
bargaining agreement with any person or group or consulting agreement not
identified in Section 5.3 of the Company Disclosure Schedule, other than in
the ordinary course of business;
(m) Entered into, adopted, or materially amended any employee benefit
plan; or
(n) Entered into any other material commitment or transaction not
disclosed elsewhere herein or in the Company Disclosure Schedule, other
than in the ordinary course of business.
2.14 No Material Undisclosed Liabilities. To the knowledge of the Company
or the Shareholder, there is no liability or obligation of the Company and the
Company Subsidiaries of any nature, whether absolute, accrued, contingent, or
otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued,
or reserved against on the Company Balance Sheet, for which the reserves
are appropriate and reasonable, or incurred in the ordinary course of
business and consistent with past practices since July 31, 1997;
(b) the loss contingencies set forth in Section 2.14 of the Company
Disclosure Schedule;
(c) contractual liabilities or obligations of a nature not required to
be disclosed on a balance sheet prepared in accordance with generally
accepted accounting principles, but which, if material, are disclosed in
Section 2.14 of the Company Disclosure Schedule; and
(d) other liabilities and loss contingencies which are not material in
the aggregate to the business, operations, assets or condition (financial
or otherwise) of the Company and the Company Subsidiaries, taken as a
whole.
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The Company and the Company Subsidiaries are not signatories to, and are
not in any manner a guarantor, endorser, assumptor or otherwise primarily or
secondarily liable for or responsible for the payment of, any notes payable
other than those set forth in Section 2.21 of the Company Disclosure Schedule.
2.15 Tax Liabilities. The Company and each Company Subsidiary have filed
all material federal, state, county, local, and foreign tax returns and reports
required to be filed by them, including those with respect to income, payroll,
property, withholding, social security, unemployment, franchise, excise, use and
sales taxes, and have either paid in full all taxes that have become due as
reflected on any such return or report and any interest and penalties with
respect thereto or, as of July 31, 1997, they have fully accrued on their books
or have established adequate reserves for all taxes payable but not yet due,
except that at July 31, 1997, the unrecorded contingent liability of the Company
and the Company Subsidiaries with respect to payroll, withholding, social
security, unemployment, franchise, property, sales, use and excise taxes did not
exceed $75,000 in the aggregate for all such taxes. The total of all payments in
1997 of taxes, interest and penalties of the Company and the Company
Subsidiaries for periods ended prior to January 1, 1997 have not exceeded the
accrued liability for such items shown on the Company Financial Statements as of
July 31, 1997 for periods ended December 31, 1996; neither the Company nor any
Company Subsidiary has, subsequent to December 31, 1996, accrued or set aside
any reserves on its books and records for any taxes, interest or penalties for
any period ended prior to January 1, 1997 nor has any of them made any payments
in 1997 of taxes, interest or penalties for periods ended prior to January 1,
1997 that were not reflected in the accrued liability therefor (including
deferred taxes) shown on the Company Financial Statements as of July 31, 1997
for periods ended December 31, 1996. There are no reserves (other than for
deferred taxes) reflected in the Company Financial Statements as of July 31,
1997 for periods ended December 31, 1996 for taxes, interest or penalties in
excess of those shown to be due on any tax returns that have been filed for any
periods then ended. Neither the Internal Revenue Service nor any other taxing
authority has audited or is in the process of auditing the tax returns and
reports of the Company and the Company Subsidiaries, and no claim for additional
taxes, interest, or penalties for any fiscal year is pending. The Company and
the Company Subsidiaries have delivered to Tyler true, complete and correct
copies of (i) all federal and state income or franchise tax returns for the
Company and the Company Subsidiaries for all periods ending on and after
December 31, 1994 and (ii) relevant portions of income and franchise tax
examination reports, statements of deficiencies, closing or other agreements
received by, assessed against or agreed to by the Company or any of the Company
Subsidiaries, relating to such taxes, since December 31, 1994, if any. No
extension or waiver of any statute of limitations has been requested of or
granted by the Company or any Company Subsidiary with respect to any tax year,
and no extension or waiver of time within which to file any tax return has been
requested by or granted to the Company or any Company Subsidiary except with
respect to tax returns not yet filed but otherwise due. No unsatisfied
deficiency, delinquency, or default for any tax, assessment, or governmental
charge has been claimed or assessed, or to the knowledge of the Company and
Shareholder, proposed against the Company or any Company Subsidiary, nor has the
Company or any Company Subsidiary received notice of any such deficiency,
delinquency, or default, for any tax period. Neither the Company nor Shareholder
has any reason to believe that the Company or any Company Subsidiary has any
material contingent income tax liabilities other than those reflected on the
Company Balance Sheet and those arising in the ordinary course of business since
the date thereof, and those arising as a result of the transactions contemplated
hereby. The Company has qualified and elected to be taxed as a "small business
corporation" or "S corporation" under Section 1361, et seq., of the Code since
January 1, 1997.
2.16 Title to Properties.
(a) Section 2.16(a) of the Company Disclosure Schedule lists or depicts on
a map the location of the Headquarters Facilities (as defined in Section 5.11)
and each parcel of real property owned by the Company and the Company
Subsidiaries, summary descriptions of the real property and all improvements
located thereon, and the approximate acreage contained therein.
(b) Except as they have since been affected subsequent to July 31, 1997 by
transactions in the ordinary course of business and consistent with past
practices, and except for assets subject to financing leases required to be
capitalized under generally accepted accounting principles which are reflected
in the Company Balance Sheet or notes thereto, the Company and the Company
Subsidiaries have good and marketable title to the
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assets reflected in the Company Balance Sheet or otherwise on their books and
records as being owned as of July 31, 1997, or purchased or otherwise acquired
by any of them since July 31, 1997, and the Company has good and marketable
title to or valid licenses to use the assets described in Section 2.20 below and
to the following assets whether or not reflected in the Company Balance Sheet or
on such books and records:
(i) Title or abstract plants meeting the requirements of the Texas
Insurance Code for the Texas counties of Collin, Denton and Tarrant, and as
an integral part thereof the computer data files of and the magnetic tapes
containing information abstracted for title plant purposes from documents
maintained by county clerks or recorders or other governmental officials
and the microfilm of such documents created for title plant purposes;
(ii) The computer data files and magnetic tapes containing information
abstracted for purposes of preparing printed copies of indices provided as
a service to county clerks, recorders or other governmental officials from
documents maintained by such county clerks, recorders or other governmental
officials (but not the printed copies of such indices or the microfilm
created as a service to such officials);
(iii) The computer programs and applications software, in both object
code and source code form, and all documentation therefor (excluding
operating systems software leased by or licensed to the Company and the
Company Subsidiaries) utilized by the Company and the Company Subsidiaries
to provide on-line services to their title insurance company customers;
(iv) The computer programs and applications software, in both object
code and source code form, and all documentation therefor (excluding
operating systems software leased by or licensed to the Company and the
Company Subsidiaries) utilized by the Company and the Company Subsidiaries
for any other applications, including data entry, batch processing for
county customers, microcomputers installed at county offices, financial
applications and providing computer output microfilm; and
(v) The camera equipment installed at county offices which is
identified in Section 2.16(b) of the Company Disclosure Schedule.
(c) The assets identified in subsection (b) above and the assets described
in Section 2.20 below are owned by or licensed to the Company or the Company
Subsidiaries, and the Headquarters Facilities will be transferred by the
Shareholder to Sub, free and clear of any lien, claim or encumbrance except
those disclosed in the Company Balance Sheet or notes thereto or in Section
2.16(c) of the Company Disclosure Schedule and except for:
(i) Liens for taxes, assessments, or other governmental charges not
yet delinquent, or the validity of which are being contested in good faith
by appropriate proceedings listed in Section 2.16(c) of the Company
Disclosure Schedule;
(ii) Statutory liens incurred in the ordinary course of business that
are not yet delinquent, or the validity of which are being contested in
good faith by appropriate proceedings described in Section 2.16(c) of the
Company Disclosure Schedule;
(iii) The rights of customers of the Company or any Company Subsidiary
with respect to inventory or work in progress under purchase orders or
contracts entered into by the Company or a Company Subsidiary in the
ordinary course of business;
(iv) Liens, claims, or encumbrances consisting of leases of equipment
to customers entered into in the ordinary course of business;
(v) Liens, claims, or encumbrances described in real estate title
insurance binders or commitments, or abstracts of title to real estate,
furnished or to be furnished to Tyler in connection with the transactions
contemplated hereby, unless Tyler objects to the same in writing within
five business days after receipt of such title documents;
(vi) Restrictions and constraints set forth in the license agreements
described in Section 2.20 of the Company Disclosure Schedule; and
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(vii) Other liens, claims, or encumbrances that, in the aggregate, do
not materially detract from the value of, or materially interfere with the
present use of, such assets.
(d) Except for those assets acquired since the date of the Company Balance
Sheet, all tangible properties and assets material to the present operations of
the Company and the Company Subsidiaries are reflected on the Company Balance
Sheet and notes thereto in the manner and to the extent required by generally
accepted accounting principles. Immediately after the Closing, the Company and
the Company Subsidiaries will own or lease or otherwise possess the rights to
use all assets necessary to the conduct of the business conducted by Company and
the Company Subsidiaries immediately before the Closing.
2.17 Condition of Tangible Assets. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, the tangible assets of the Company and the
Company Subsidiaries which are material to the business, operations, assets or
financial condition of the Company and the Company Subsidiaries, taken as a
whole, are in good condition and repair and, in the good faith belief of the
Shareholder, are adequate for the uses to which they are being put in the
ordinary course of their respective businesses.
2.18 Accounts Receivable. To the knowledge of the Company and the
Shareholder, all accounts receivable reflected in the Company Balance Sheet or
arising since July 31, 1997 either have been collected or are enforceable and
collectible claims not subject to any valid defense, offset, or credit, except
to the extent of any reserves established for doubtful accounts in a manner
consistent with such practices in prior periods.
2.19 Inventory Good and Salable. To the knowledge of the Company and the
Shareholder, the inventories reflected in the Company Balance Sheet or acquired
after July 31, 1997 consist generally of items of a quantity and quality usable
and salable in the ordinary course of the business of the Company and the
Company Subsidiaries.
2.20 Patents, Trademarks, and Copyrights. Set forth in Section 2.20 of the
Company Disclosure Schedule is a true and correct description of:
(a) all material trademarks, trade names, service marks, patents,
copyrights, and applications therefor and all license, royalty, assignment,
and other similar agreements relating to the foregoing currently owned, in
whole or in part, by the Company or any Company Subsidiary;
(b) all material agreements relating to technology, know-how, or
processes that the Company or any Company Subsidiary is licensed or
authorized to use by others or licenses or authorizes others to use; and
(c) all computer programs and applications software utilized by the
Company or the Company Subsidiaries and all license, royalty, assignment,
and other similar agreements relating to the foregoing.
Except to the extent set forth in Section 2.20 of the Company Disclosure
Schedule, the Company or a Company Subsidiary has, to the knowledge of the
Company and the Shareholder, the sole and exclusive right to use the patents,
trademarks, trade names, copyrights, service marks, technology, know-how, and
processes identified in such Section 2.20 without infringing or violating the
rights of any other person, and to the knowledge of the Company and the
Shareholder no consent of third parties will be required for the use thereof by
the Company upon consummation of the Merger and there are no past due or
delinquent license fees, rents, royalties, or other charges that the Company is
required or obligated to pay with respect to any of the foregoing. Except as
disclosed in Section 2.20 of the Company Disclosure Schedule, no claim has been
asserted by any person to the ownership of or right to use any such patent,
trademark, trade name, copyright, service mark, technology, know-how, or process
or challenging or questioning the validity or effectiveness of any such license
or agreement, and the Company knows of no valid basis for any such claim. To the
knowledge of the Company and the Shareholder, except as disclosed in Section
2.20 of the Company Disclosure Schedule, each of the foregoing is valid and
subsisting, has not been canceled, abandoned, or otherwise terminated, and, if
applicable, has been duly issued or filed.
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2.21 Contracts. Set forth in Section 2.21 of the Company Disclosure
Schedule are complete and accurate lists of the following contracts and
commitments (including summaries of oral contracts) to which the Company or any
Company Subsidiary is a party or bound:
(a) Contracts with any labor union;
(b) Employee benefit plans or contracts;
(c) Employment or similar contracts, including confidentiality
agreements and agreements to assign inventions, patents and copyrights, and
consulting agreements (other than those entered into in the ordinary course
of business);
(d) Leases, whether as lessor or lessee, involving annual rental
payments in excess of $15,000, that are not terminable at will or upon
notice of 30 days or less by the Company or a Company Subsidiary;
(e) Loan agreements, mortgages, indentures, instruments of
indebtedness or commitments involving indebtedness for borrowed money or
money loaned to others in excess of $15,000, but excluding intercompany
items;
(f) Guaranty or suretyship, performance bond, indemnification, or
contribution agreements involving obligations in excess of $15,000, but
excluding intercompany items;
(g) Contracts with customers or suppliers that involve aggregate
payments to or by the Company or any Company Subsidiary of more than
$15,000, and that are not terminable at will or upon notice of 30 days or
less by the Company or a Company Subsidiary;
(h) Distribution, marketing, dealership, sales, or agency agreements
material to the Company and the Company Subsidiaries, taken as a whole,
that are not terminable at will or upon notice of 30 days or less by the
Company or a Company Subsidiary;
(i) Joint venture, partnership, or other agreements evidencing an
ownership interest or a participation in or sharing of profits;
(j) Contracts containing noncompetition covenants, covenants to
register securities, or negative or restrictive financial covenants that
are not terminable at will or upon notice of 30 days or less by the Company
or a Company Subsidiary;
(k) Voting agreements relating to securities of the Company or the
Company Subsidiaries (whether or not any of those entities is a party
thereto);
(l) Insurance policies involving annual premium payments of more than
$1,500;
(m) Powers of attorney;
(n) Contracts between the Company or any Company Subsidiary and the
Shareholder, his spouse, or any affiliate or relative thereof; and
(o) Other contracts not made in the ordinary course of business or
that, in the reasonable judgment of the Shareholder, are material to the
businesses, operations, assets, or financial condition of the Company and
the Company Subsidiaries, taken as a whole.
Included in the list of customers specified in subsection (g) above, and so
identified, are all contracts and commitments, whether written or oral, relating
to the purchase, sale or lease of abstract or title plants by the Company and
the Company Subsidiaries in 1996 and 1997. No contract or commitment listed in
Section 2.21 of the Company Disclosure Schedule has been amended or modified or
the rights and obligations evidenced thereby otherwise affected in a manner
materially adverse to the Company or the Company Subsidiaries, except by an
instrument which is also included in such listing, and each contract or
commitment, as so amended, modified or affected, contains all material
provisions with respect to the subject matter thereof. The Company and the
Shareholder have furnished or made available to Tyler accurate and complete
copies of all of the contracts, commitments or instruments listed in Section
2.21 of the Company Disclosure Schedule.
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Except as set forth in Section 2.21 of the Company Disclosure Schedule or with
respect to contracts not material to the businesses, operations, assets or
financial condition of the Company and the Company Subsidiaries, taken as a
whole, (i) to the knowledge of the Company and the Shareholder, all such
contracts are valid, binding, subsisting, and enforceable in all material
respects; (ii) to the knowledge of the Company and the Shareholder and in their
good faith belief the Merger will not affect the continuance in full force and
effect of such contracts; and (iii) there is no material dispute among the
parties to any such contract and no material penalty has been incurred with
respect thereto. Except as set forth in Section 2.21 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary nor the Shareholder has
received notice of any plan or intention of any other party to any such contract
or agreement to exercise any right to cancel or terminate any such contract or
agreement, and neither the Company nor any Company Subsidiary nor the
Shareholder knows of any fact that would justify the exercise of such right.
Neither the Company nor any Company Subsidiary nor the Shareholder currently
contemplates, or has any reason to believe any other person or entity currently
contemplates, any amendment or change to any of the contracts or agreements
referred to in Section 2.21 of the Company Disclosure Schedule. Except as
disclosed in Section 2.21 of the Company Disclosure Schedule, none of the
Company's or the Company Subsidiaries' customers or suppliers, that during the
year ended December 31, 1996 accounted for as much as 2% of consolidated sales
or purchases of the Company and the Company Subsidiaries, has refused, or
communicated that it will or may refuse, to purchase or supply goods or
services, as the case may be, or has communicated that it will or may
substantially reduce the amount of goods or services that it is willing to
purchase from, or sell to, the Company or any Company Subsidiary after the date
hereof.
2.22 Litigation and Claims. Neither the Company nor any Company Subsidiary
nor the Shareholder is a party to, and the businesses or assets of the Company
and the Company Subsidiaries are not the subject of or affected by, any pending
or to the knowledge of the Company or the Shareholder, threatened suit, claim,
action, or litigation with any party or any administrative, arbitration, or
other governmental proceeding, investigation, or inquiry, or any pending change
in any regulations, statutes or ordinances, which would, severally or in the
aggregate, have a material adverse effect on the businesses, results of
operations, assets, or the condition (financial or otherwise) of the Company and
the Company Subsidiaries, taken as a whole. To the knowledge of the Company or
the Shareholder, no suit, claim, action or demand is currently pending, has been
made or filed, or is or has been threatened or contemplated by any person or
entity, and there exists no judgment or order (whether or not the Company or a
Company Subsidiary is a party to any of the foregoing) regarding or affecting
the ownership, disclosure, copying, possession or utilization by the Company or
the Company Subsidiaries of the assets reflected in the books and records of the
Company or the Company Subsidiaries, or (whether or not so reflected) the
microfilm in the possession of the Company and the Company Subsidiaries of title
documents filed in any county clerk's or recorder's office with which they
conduct business, computer data files and magnetic tapes containing information
abstracted from such title documents, indices (other than copies of
grantor/grantee indices provided as a service to county clerks or recorders)
generated from such data files utilizing the computer systems of the Company and
the Company Subsidiaries, software programs used in their businesses, and the
computers and peripheral equipment and the other equipment and machines used in
their businesses.
2.23 Judgments, Decrees, and Orders in Restraint of Business. Neither the
Company nor any Company Subsidiary is a party to or subject to any judgment,
order, or decree entered in any suit or proceeding brought by any governmental
agency or by any other person enjoining it in respect of any business practice
or the acquisition of any property or the conduct of its business.
2.24 No Violation of Any Instrument. Neither the Company nor any Company
Subsidiary is in violation of or default under nor, to the knowledge of the
Company or the Shareholder, has any event occurred that, with or without the
giving of notice, lapse of time or the occurrence of any other event, would
constitute a violation of or default under, or permit the termination or the
acceleration of maturity of, or result in the imposition of a lien, claim, or
encumbrance upon any property or asset of the Company or any Company Subsidiary
pursuant to, the articles or certificate of incorporation or bylaws of the
Company or any Company Subsidiary or any note, bond, indenture, mortgage, deed
of trust, evidence of indebtedness, loan or lease agreement, or other agreement
or instrument (including with customers) listed or required to be listed in
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Section 2.21 of the Company Disclosure Schedule, or any judgment, order,
injunction, or decree, to which it is a party, by which it is bound, or to which
any of its assets is subject, which would have a material adverse effect on the
businesses, operations, assets or financial condition of the Company and the
Company Subsidiaries, taken as a whole.
2.25 Compliance With Laws. The Company and the Company Subsidiaries are
substantially in compliance with all laws applicable to their businesses, where
failure so to comply would have a material adverse effect on the businesses,
operations, assets, prospects, or financial condition of the Company and the
Company Subsidiaries, taken as a whole.
2.26 Compensation and Benefit Plans.
(a) Section 2.26 of the Company Disclosure Schedule includes a complete and
accurate list of all pension, profit sharing, Section 401(k), thrift-savings,
simplified employee pension, excess benefit plan, deferred compensation,
incentive compensation, stock bonus, stock option, restricted stock, cash bonus,
employee stock ownership, severance pay, golden parachute, cafeteria, flexible
compensation, life insurance, medical, dental, disability, welfare, or vacation
plans or arrangements of any kind and any other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan (as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) in which employees
or former employees of the Company or any Company Subsidiary participate
(collectively, the "Benefit Plans").
(b) Neither the Company nor any Company Subsidiary participates currently
in or has ever participated in, or is required currently to or has ever been
required to contribute to or otherwise participate in, any "multi-employer
plan," as defined in Sections 3(37)(A) and 4001(a)(3) of ERISA and Section
414(f) of the Code. Neither the Company nor any Company Subsidiary participates
currently in or has ever participated in, or is required currently to or has
ever been required to contribute to or otherwise participate in, any plan,
program or arrangement subject to Title IV of ERISA.
(c) No former employee of the Company or any Company Subsidiary is
entitled, and no current employee will be entitled after termination of
employment, to participate in any Employee Welfare Benefit Plan as defined in
ERISA, other than participation required to be permitted by the Company or any
Company Subsidiary under Section 4980B of the Code and Sections 601 to 609 of
ERISA.
(d) The Company and the Shareholder have delivered to Tyler true, correct
and complete copies of the Benefit Plans and each applicable summary plan
description and the most recent Form 5500s applicable to such Benefit Plans.
Section 2.26 of the Company Disclosure Schedule sets forth the costs
attributable to each Benefit Plan determined on an annual basis. Except as
reflected or reserved against on the Company Balance Sheet, there is no unfunded
liability with respect to any Benefit Plan. None of the assets of any of the
Company's or any Company Subsidiary's Benefit Plans are invested in any property
constituting employer real property or employer security within the meaning of
Section 407(d) of ERISA.
(e) Each Employee Pension Benefit Plan sponsored, maintained or contributed
to by the Company or any Company Subsidiary is qualified under Section 401(a) of
the Code; all related trusts are exempt from federal income tax under Section
501(a) of the Code; each such plan has received a determination letter from the
IRS stating that the plan is qualified under Section 401(a) of the Code and all
related trusts are exempt from federal income tax under Section 501(a) of the
Code (which determination letter includes all statutory and regulatory
provisions of the Tax reform Act of 1986 and subsequent legislation for which a
determination letter may be obtained); and to the knowledge of the Company,
nothing has occurred since the date of the last such determination which
resulted in, or is likely to result in, the revocation of such determination. A
copy of the latest determination letter applicable to any Employee Pension
Benefit Plan has been delivered to Tyler.
(f) Each of the Benefit Plans has been administered in material compliance
with its underlying documentation, the requirements of ERISA, the Code and all
other applicable laws. All returns required to be made under ERISA and the Code
with respect to the Benefit Plans have been timely filed and the Company or any
Company Subsidiary has made all contributions required under the terms of any
Benefit Plan (including, but in no way limited to, employer matching
contributions and non-elective contributions and the
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deposit of elective deferrals as such terms are defined in the Code) for all
periods through and including the date hereof.
(g) To the knowledge of the Company, there are not now, nor have there ever
been, any transactions involving the Benefit Plans or any fiduciary or
administrator thereof which are prohibited under ERISA or the Code or for which
an individual, class or statutory exemption is not available.
(h) There are no pending or, to the knowledge of the Company, any
threatened claims by or on behalf of the Benefit Plans, the United States
Department of Labor, the Internal Revenue Service, or any current or former
employee of the Company or any Company Subsidiary or beneficiary of such current
or former employee alleging a breach of any fiduciary duties or a violation of
applicable state or federal law which could result in liability on the part of
the Company, any Company Subsidiary or a Benefit Plan under ERISA or any other
law, nor, to the knowledge of the Company, is there any basis for such a claim
and neither the Company, any Company Subsidiary nor, to the knowledge of the
Company, any administrator or fiduciary of any Benefit Plan (or agent of the
foregoing) has engaged in any transaction or acted or failed to act in any
manner which would subject the Company to any liability for a breach of
fiduciary duty under ERISA. The transactions contemplated by this Agreement
(either alone or together with any other event) will not (i) terminate or modify
the provisions of any Benefit Plan or (ii) trigger an event under any Benefit
Plan or employer benefit arrangement or law that will result in any payment
(whether of severance pay or otherwise) becoming due from the Company or a
Company Subsidiary.
2.27 Labor Relations.
(a) To the knowledge of the Company or the Shareholder, the Company and the
Company Subsidiaries (i) are in substantial compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment (including occupational health and safety), nondiscrimination, and
wages and hours and (ii) are not engaged in any unfair labor practice, that in
any such case would have a material adverse effect on the businesses,
operations, assets or financial condition of the Company and the Company
Subsidiaries, taken as a whole.
(b) There is no unfair labor practice complaint against Company or any
Company Subsidiary pending or, to the knowledge of the Company or Shareholder,
threatened before the National Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, stoppage, or other
material interference with or impairment by labor of the business of the Company
and the Company Subsidiaries actually pending or, to the knowledge of the
Company or the Shareholder, threatened or contemplated against or directly
affecting the Company or any Company Subsidiary.
(d) To the knowledge of the Company or the Shareholder, no question of
union representation exists respecting the employees of the Company or any
Company Subsidiary and no union organizing activities are taking place.
(e) Since July 31, 1997, no key employees of the Company or the Company
Subsidiaries have been terminated or have resigned their employment.
2.28 Adequate Insurance. The Company and the Company Subsidiaries maintain
insurance coverage that the Company and the Shareholder believe is reasonably
adequate to protect the assets and operations of the Company and the Company
Subsidiaries, taken as a whole, and is sufficient for material compliance with
all requirements of law and all agreements to which the Company or any Company
Subsidiary is a party. No notice of any termination or threatened termination of
such policies has been received by the Company or any Company Subsidiary and, to
the knowledge of the Company or the Shareholder, such policies are valid,
binding, and enforceable.
2.29 Contracts with Affiliates and Others. No director or officer of the
Company or any Company Subsidiary, nor any person who is a spouse or descendant
of such director or officer, has any direct or indirect relationship with any
customer or supplier of, or other contracting party with, the Company or any
Company Subsidiary (other than as a director, officer, or shareholder of the
Company) that would be required to be
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disclosed in a proxy statement relating to the election of directors filed under
the Securities Exchange Act of 1934 (the "Exchange Act").
2.30 Revenue Recognition. The Company and the Company Subsidiaries have
not recognized and do not recognize revenues from customers in advance of
performing the services or furnishing the products for which the revenues were
or are received.
2.31 Certain Fees. Neither the Company nor any Company Subsidiary nor any
officer, director, or employee of the Company or any Company Subsidiary has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions, or finders' fees in connection with the transactions contemplated
hereby.
2.32 Environmental Matters. To the knowledge of the Company or the
Shareholder:
(a) The Company, the Company Subsidiaries, and their respective
property (whether real, personal, owned, leased, managed or operated)
(collectively, "Business Facilities") are in compliance with applicable
laws, rules, regulations, ordinances, orders or guidance documents now in
effect of any applicable governmental authority or any judicial or
administrative decision relating thereto that relate in any manner to
health, Materials of Environmental Concern, the environment, or a
community's right to know (collectively, "Environmental Laws");
(b) There are no Materials of Environmental Concern on any Business
Facility in any quantity or concentration exceeding any limitation or
standard established pursuant to Environmental Laws;
(c) There are no actual or threatened claims, demands, allegations,
actions, suits, investigations, notices, or proceedings against or relating
to the Company or any of its Company Subsidiaries or any of their Business
Facilities relating to or arising out of the use, presence, or handling of
Materials of Environmental Concern or compliance with Environmental Laws
(collectively, "Environmental Claims"), and there is no basis for any such
Environmental Claims; and
(d) There are no events, conditions, circumstances, facts, activities,
practices, incidents or plans relating to or arising out of the operations
of the Company or any of the Company Subsidiaries which will prevent or
interfere with compliance with Environmental Laws by Tyler after the
Closing, or which may give rise to any common law or statutory liability
under Environmental Laws or form the basis of an Environmental Claim
against the Company, any of the Company Subsidiaries, or any of their
respective Business Facilities.
"Materials of Environmental Concern" means: (i) those substances included
within the statutory and/or regulatory definitions of "hazardous substance,"
"hazardous waste," "extremely hazardous substance," "regulated substance,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction or constituent thereof, (B) asbestos, (C) polychlorinated biphenyls,
(D) formaldehyde, (E) explosives, or (F) radioactive materials (including NORM);
(iii) solid wastes (as defined under the Resource Conservation and Recovery Act,
42 U.S.C. sec.6901 et seq., and its implementing regulations) that post imminent
and substantial endangerment to health or the environment; (iv) any material,
waste or substance designated classified or regulated as a "Class I" or "Class
II" waste under Title 30 of the Texas Administrative Code; and (v) such other
substances, materials, or wastes that are or become classified or regulated as
hazardous or toxic under any applicable federal, state or local law or
regulation. To the extent that the laws or regulations of any applicable state
or local jurisdiction establish a meaning for any term defined herein through
reference to federal Environmental Laws which is broader than the meaning under
such federal Environmental Laws, such broader meaning shall apply.
2.33 Section 368 Representations. (a) There is no present plan, intention
or arrangement by the Shareholder to sell, exchange, transfer or otherwise
dispose of, or reduce the risk of loss relating to any of, the shares of Tyler
Common Stock received by him pursuant to the Merger that would reduce the
Shareholder's holdings, or risks incident to the ownership, of Tyler Common
Stock to a number of shares having a total fair market value at the Effective
Time of less than fifty percent (50%) of the total fair market value of all of
the
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Company's capital stock outstanding immediately prior to the Effective Time. For
purposes of this Section 2.33, shares of the Company's capital stock sold,
redeemed or otherwise disposed of prior or subsequent to and as a part of the
overall transaction contemplated by the Merger will be considered to be capital
stock of the Company outstanding immediately prior to the Merger.
(b) Neither the Company, Tyler, any Company Subsidiary nor any Tyler
Subsidiary will assume any debts or obligations of the Shareholder as part of
the Merger, other than the assumption by Tyler Sub, as the Surviving Corporation
in the Merger, of debts of the Company that are guaranteed by Shareholder.
(c) There have not been any sales or redemptions of the Company's capital
stock in contemplation of the Merger. There have been no transactions in the
capital stock of the Company during the past twelve months other than the grants
by Shareholder of shares of Class B Common Stock described in Section 5.10.
(d) The liabilities of the Company assumed by Tyler as a part of the Merger
and the liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the ordinary course of its business, other than
the funds borrowed to pay the bonuses to employees and make the distributions to
the Shareholder permitted pursuant to Sections 5.8 and 5.5 of this Agreement.
(e) The Company will pay the expenses incurred in connection with the
Merger by it and the Shareholder. Notwithstanding the foregoing, to the extent
any of the expenses relating to the Merger (or the "plan of reorganization"
within the meaning of the Department of Treasury Regulation Section 1.368-1(c)
with respect to the Merger) are funded directly or indirectly by a party other
than the party incurring such expense, such expenses will be within the
guidelines established in Revenue Ruling 73-54, 1973-1 C.B. 187.
(f) Other than dividends to the Shareholder for purposes of funding his
federal tax liabilities with respect to 1997 income of the Company, the Company
has not, and pursuant to this Agreement will not, distribute any assets (either
as a dividend or otherwise) constituting more than 10% of the fair market value
of all of its assets at any time either during the past twelve months or in
contemplation of the Merger.
(g) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(h) The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(i) None of the compensation to be received by the Shareholder under the
Employment Agreement (or any other employment, consulting or similar services
agreement, whether written or oral) will be separate consideration for, or
allocable to, any of his shares of Company Common Stock. None of the shares of
Tyler Common Stock to be received by the Shareholder will be separate
consideration for, or allocable, to the Employment Agreement (or any other
employment, consulting, or similar services agreement, whether written or oral).
2.34 Accuracy of Information Furnished. No representation or warranty by
the Company or the Shareholder in this Agreement (including the Company
Disclosure Schedule) or any other agreement or document executed or to be
executed by the Company or the Shareholder in connection herewith contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not false or misleading.
2.35 Representations Limited. Notwithstanding anything herein to the
contrary, representations or warranties with respect to any Company Subsidiary
with respect to periods prior to the time such Company Subsidiary (or its assets
if acquired as substantially all of the assets of another person) was acquired
by the Company are made to the knowledge of the Company or the Shareholder.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TYLER
Tyler and Sub jointly and severally represent and warrant to the Company
and the Shareholder as follows:
3.1 Organization and Good Standing of Tyler. Tyler is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas.
3.2 Foreign Qualification. Tyler is duly qualified or licensed to do
business as a foreign corporation and in good standing in those jurisdictions
set forth in Section 3.2 of the schedule delivered by Tyler concurrently with
the execution of this Agreement (the "Tyler Disclosure Schedule"). Tyler is duly
qualified or licensed to do business as a foreign corporation in every
jurisdiction where the failure so to qualify would have a material adverse
effect on the businesses, operations, assets, or financial condition of Tyler
and the Tyler Subsidiaries (as defined in Section 3.7), taken as a whole. For
purposes of this Section 3.2, no material adverse affect shall be deemed to have
occurred as a result of non-payment of state or local franchise taxes not
exceeding $75,000 in the aggregate.
3.3 Power and Authority to Conduct Business. Each of Tyler and Sub has the
corporate power and authority, and possess all licenses and permits, required by
governmental authorities to own, lease, and operate its properties and assets
and to carry on its business as currently being conducted, except where the
failure to possess such license or permit does not and would not have a material
adverse effect on the business, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.4 Authority to Consummate Merger. Each of Tyler and Sub has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the other agreements or documents executed or required
to be executed by it in connection with this Agreement and, subject to obtaining
approval of the stockholders of Tyler, the execution, delivery and performance
by each of Tyler and Sub of this Agreement and the other documents executed or
to be executed by it in connection with this Agreement have been duly authorized
by all necessary corporate action.
3.5 Binding Effect. This Agreement and the other documents executed or
required to be executed by Tyler or Sub in connection with this Agreement have
been or will have been duly executed and delivered by Tyler or Sub and are or
will be, when executed and delivered, the legal, valid, and binding obligations
of Tyler or Sub executing the same, enforceable in accordance with their terms
except that:
(a) enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification under Section 10.6 may be limited by
considerations of public policy.
3.6 Compliance with Other Instruments. Subject to obtaining the approval
of the stockholders of Tyler and except as disclosed in Section 3.6 of the Tyler
Disclosure Schedule, neither the execution and delivery by Tyler or Sub of this
Agreement or the other agreements or documents executed or required to be
executed by Tyler or Sub in connection herewith, nor the consummation by Tyler
or Sub of the transactions contemplated hereby and thereby will (i) conflict
with the articles of incorporation or bylaws of Tyler or Sub, (ii) assuming
satisfaction of the requirements set forth in clause (iii) below, violate any
provision of law applicable to Tyler or any of the Tyler Subsidiaries; (iii)
except for (A) requirements arising out of the HSR Act, (B) requirements of
federal and state securities laws, and (C) the filing of articles of merger in
accordance with the TBCA, require any consent, authorization, permit, license or
approval of, or declaration, registration or filing with or notice to, any
person or governmental body or authority, domestic or foreign, under any
provision of law applicable to Tyler or any of the Tyler Subsidiaries; or (iv)
require any consent, approval or notice under, violate, breach, be in conflict
with, or constitute a default (or an event that, with notice or lapse
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of time or both, would constitute a default) under, or permit the termination or
the acceleration of maturity of, or result in the imposition of any lien, claim,
or encumbrance upon any property or asset of Tyler or any Tyler Subsidiary
pursuant to any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or lease agreement, other agreement or instrument or any
judgment, order, injunction, or decree by which Tyler or any Tyler Subsidiary is
bound, to which any of them is a party, or to which any of their assets is
subject, except for those violations and breaches that would not have a material
adverse effect on the businesses, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.7 Capitalization of Tyler.
(a) The authorized capital stock of Tyler consists of 50,000,000 shares of
Tyler Common Stock, and 1,000,000 shares of preferred stock, par value $10.00
per share ("Tyler Preferred Stock"), of which 22,007,921 shares of Tyler Common
Stock and no shares of Tyler Preferred Stock were issued and outstanding as of
September 30, 1997 and 1,301,356 shares of Common Stock were held in treasury.
All of the issued and outstanding shares of Tyler Common Stock have been duly
authorized and are validly issued and are fully paid and nonassessable. There
are no shares of the capital stock of Tyler held in its treasury or in the
treasury of any corporation of which Tyler is the record or beneficial owner,
directly or indirectly, of 50% or more of the capital stock (each such
corporation being referred to as a "Tyler Subsidiary"). The shares of Tyler
Common Stock to be issued in the Merger, when issued and delivered, will be duly
authorized, validly issued, fully paid, and nonassessable.
(b) As of the date hereof, the authorized capital stock of Sub consists of
1,000 shares of common stock, par value $0.01 per share, all of which are
validly issued, fully paid and nonassessable and are owned by Tyler.
(c) Except as described in Section 3.7 of the Tyler Disclosure Schedule and
in the Tyler Financial Statements (as hereinafter defined), there is no
outstanding subscription, contract, convertible or exchangeable security,
option, warrant, call, or other right obligating Tyler or any Tyler Subsidiary
to issue, sell, exchange, or otherwise dispose of, or to purchase, redeem, or
otherwise acquire shares of, or securities convertible into or exchangeable for,
capital stock of Tyler.
3.8 Commission Filings; Financial Statements. Section 3.8 of the Tyler
Disclosure Schedule lists all reports, registration statements and other
filings, together with any amendments required to be made with respect thereto,
that Tyler has filed with the Securities and Exchange Commission (the
"Commission")under the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act since October 1, 1995. All reports, registration
statements and other filings filed by Tyler with the Commission since October 1,
1995 through the date of this Agreement, together with any amendments thereto,
are sometimes collectively referred to as the "Tyler Commission Filings." Tyler
has heretofore provided the Company and the Shareholder true, correct and
complete copies of the Tyler Commission Filings. As of the respective dates of
their filing with the Commission, the Tyler Commission Filings complied in all
material respects with the Securities Act, the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
Each of the consolidated financial statements (including any related notes
or schedules) included in or incorporated by reference into the Tyler Commission
Filings ("Tyler Financial Statements") was, and each of the consolidated
financial statements to be included in the Proxy Statement (as defined in
Section 6.2) (except for those financial statements of the Company and the
Company Subsidiaries furnished by or on behalf of the Company or the Shareholder
to Tyler specifically for use therein) will be, prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be noted therein or in the notes or schedules thereto), and fairly
present or will fairly present, as the case may be, the consolidated financial
position of Tyler and its consolidated subsidiaries as of the dates thereof and
the results of operations, cash flows and changes in stockholders' equity for
the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments). Since December 31, 1996,
there has been no change in accounting principles applicable to, or methods of
accounting utilized by, Tyler and the books and records of Tyler and the Tyler
Subsidiaries have been and are being maintained in
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accordance with all applicable legal and accounting requirements and good
business practice, reflect only valid transactions, are complete and correct in
all material respects, and accurately reflect in all material respects the basis
for the consolidated financial position and consolidated results of operations
and cash flows of Tyler and its consolidated subsidiaries set forth in the Tyler
Financial Statements.
3.9 Absence of Certain Changes. Since June 30, 1997, Tyler has not (except
as contemplated by this Agreement or as may result from the transactions
contemplated by this Agreement or as described in the Tyler Disclosure
Schedule):
(a) suffered any change in its business, results of operations,
working capital, assets, liabilities, or financial condition or the manner
of conducting its business other than changes that, individually or in the
aggregate, have not had a material adverse effect on the businesses,
operations, assets or financial condition of Tyler and the Tyler
Subsidiaries, taken as a whole;
(b) entered into any material commitment or transaction other than in
the ordinary course of business;
(c) written up, written down, or written off the book value of any
material amount of assets;
(d) declared, paid, or set aside for payment any dividend or
distribution with respect to the capital stock of Tyler; or
(e) redeemed, purchased, or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of the capital stock or
securities of Tyler or any rights to acquire such capital stock or
securities, other than normal or periodic purchases, sales and grants under
provisions of existing employee benefit plans and programs of Tyler.
3.10 No Material Undisclosed Liabilities. To the knowledge of Tyler, there
is no liability or obligation of Tyler and the Tyler Subsidiaries of any nature,
whether absolute, accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued,
or reserved against in the unaudited consolidated balance sheet of Tyler
and its consolidated subsidiaries as of June 30, 1997, for which the
reserves are appropriate and reasonable, or incurred in the ordinary course
of business and consistent with past practices since June 30, 1997;
(b) the loss contingencies set forth in Section 3.10 of the Tyler
Disclosure Schedule;
(c) contractual liabilities or obligations of a nature not required to
be disclosed on a balance sheet prepared in accordance with generally
accepted accounting principles; and
(d) other liabilities and loss contingencies which are not material in
the aggregate to the business, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.11 Litigation and Government Claims. Except as described in Section 3.11
of the Tyler Disclosure Schedule, neither Tyler nor any Tyler Subsidiary is a
party to, and the business or assets of Tyler and the Tyler Subsidiaries are not
the subject of, any pending or, to the knowledge of Tyler, threatened suit,
claim, action, or litigation with any party, or any administrative, arbitration,
or other governmental proceeding, investigation, or inquiry, in which the amount
involved and not covered by insurance exceeds $250,000. In the opinion of Tyler
and its management, none of such pending or threatened matters would, severally
or in the aggregate, have a material adverse effect on the business, operations,
assets or financial condition of Tyler and the Tyler Subsidiaries, taken as a
whole.
3.12 No Violation of Any Instrument. Except as disclosed in Section 3.12
of the Tyler Disclosure Schedule, neither Tyler nor any Tyler Subsidiary is in
violation of or default under nor, to the knowledge of Tyler, has any event
occurred that, with the lapse of time or the giving of notice or both, would
constitute a violation of or default under, or permit the termination or the
acceleration of maturity of, or result in the imposition of a lien, claim, or
encumbrance upon any property or asset of Tyler or any Tyler Subsidiary pursuant
to the articles or certificate of incorporation or bylaws of Tyler or any Tyler
Subsidiary or any note,
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bond, indenture, mortgage, deed of trust, evidence of indebtedness, loan or
lease agreement, or other agreement or instrument or any judgment, order,
injunction, or decree to which it is a party, by which it is bound, or to which
any of its assets is subject, which would have a material adverse effect on the
business, operations, assets or financial condition of Tyler and the Tyler
Subsidiaries, taken as a whole.
3.13 Certain Fees. Neither Tyler nor any officer, director, or employee of
Tyler has employed any broker or finder or incurred any liability for any
brokerage fees, commissions, or finders' fees in connection with the
transactions contemplated hereby.
3.14 No Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
3.15 Accuracy of Information Furnished. No representation or warranty by
Tyler or Sub in this Agreement (including the Tyler Disclosure Schedule) or any
other agreement or document executed or to be executed by Tyler or Sub in
connection herewith contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not false or misleading.
3.16 Company Contract Bids. Tyler acknowledges that, notwithstanding
Section 2.21, certain of the Company's contracts with governments or
governmental agencies may come up for bid in the ordinary course of business
(including Dallas County, Texas in late 1997) and that no guarantee can be made
that the Company will be the successful bidder for such contracts.
ARTICLE 4
JOINT COVENANTS OF THE COMPANY, THE SHAREHOLDER AND TYLER
4.1 Access; Confidentiality.
(a) During the period pending the Closing Date, the Company and the
Shareholder (with respect only to the properties to be leased by the Shareholder
to the Company after the Merger) shall afford to Tyler and its officers,
employees, accountants, counsel, and other authorized representatives, full
access to and the right to review and make copies of the Company's, the Company
Subsidiaries', the Company Investments' (to the extent practicable), and the
Shareholder's assets, properties, books, contracts, commitments, and records,
view their physical properties, and communicate with the key employees of the
Company and the Company Subsidiaries on a basis reasonably satisfactory to and
with the prior specific approval of the Shareholder, and will furnish and use
their reasonable best efforts to cause representatives to furnish promptly to
Tyler such additional financial and operating data and other documents and
information (certified if requested and reasonably susceptible to certification)
relating to the Company, the Company Subsidiaries', the Company Investments' (to
the extent practicable), and the Shareholder's businesses and properties as
Tyler or its duly authorized representatives may from time to time reasonably
request.
(b) During the period pending the Closing Date, Tyler shall afford to the
Company and the Shareholder and their accountants, counsel and other authorized
representatives the same rights of access to and inspection of the books,
records, properties, contracts and personnel of Tyler as those afforded to Tyler
and its representatives in Section 4.1(a) above.
(c) Notwithstanding any such investigation by Tyler, the Company, or the
Shareholder, or any information obtained pursuant thereto, it or he shall be
entitled to rely in full upon the accuracy of the representations and warranties
of the other party or parties contained in this Agreement and upon its or his
representations at Closing as to compliance with or performance of any covenants
made by it or him in this Agreement. Tyler, the Company, or the Shareholder
shall have no obligation to investigate any such matters and, if any such
matters are investigated, shall have no obligation to the other party or parties
with respect to information obtained thereby except as provided in Section 12.1
of this Agreement.
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(d) The rights and obligations of the Shareholder, the Company and Tyler
pursuant to the Confidentiality Agreement (the "Confidentiality Agreement")
dated September 24, 1997 by and among the Shareholder, the Company and Tyler
will survive the execution and delivery of this Agreement, and all information
obtained by the Shareholder, the Company and Tyler or any of their respective
Representatives (as defined in the Confidentiality Agreement) pursuant hereto
shall be deemed "Information" as that term is defined in the Confidentiality
Agreement, and shall be subject to the provisions of the Confidentiality
Agreement, except to the extent that Tyler is advised by counsel that disclosure
of any such Information, including the existence of the Confidentiality
Agreement, is required by law in connection with the Merger.
4.2 Notice of any Material Change. Each of the Company and Tyler shall,
promptly after the first notice or occurrence or failure to occur thereof but
not later than the Closing Date, supplement or amend its Disclosure Schedule to
disclose the occurrence of any event or the existence of any state of facts that
would:
(a) make any of its representations and warranties in this Agreement
untrue in any material respect or constitute a material failure of such
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder;
(b) make it necessary to amend the Proxy Statement in order to render
the statements therein not misleading or to comply with applicable law; or
(c) otherwise constitute a material adverse change in the respective
businesses, results of operations, working capital, assets, liabilities or
condition (financial or otherwise) of Tyler and the Tyler Subsidiaries,
taken as a whole, or the Company and the Company Subsidiaries, taken as a
whole. Subject to the provisions of Section 12.1 of this Agreement, no
supplement or amendment to any Disclosure Schedule shall have any effect
for the purpose of determining the satisfaction of or compliance with the
conditions to the obligations of the parties set forth elsewhere in this
Agreement.
4.3 Monthly Financial Statements. During the period pending the Closing
Date, each of Tyler and the Company shall furnish to the other its unaudited
consolidated balance sheet and related statements of operations, stockholders'
equity, and cash flows and any supporting schedules for the accounting periods
ending on or about the last day of each such month, promptly after they are
available, but not later than 30 days after the close of such accounting period.
4.4 Antitrust Notification. Within 10 days after the date hereof, Tyler
and the Shareholder shall each file with the Federal Trade Commission ("FTC")
and the Antitrust Division of the U.S. Department of Justice ("DOJ") the
Notification and Report Form required to be filed pursuant to the HSR Act, and
shall timely supply any supplemental information that may be reasonably
requested by the FTC or DOJ in connection therewith. The Company, the
Shareholder and Tyler shall furnish to each other such necessary information and
reasonable assistance as the other party may request in connection with the
preparation of its respective necessary submissions under the HSR Act. The
Company, the Shareholder and Tyler shall furnish to each other copies of all
correspondence, filings, or communications (or memoranda setting forth the
substance thereof), between them or their representatives and the FTC or DOJ.
4.5 Tax Matters.
(a) The Shareholder and the Company shall prepare and timely file all tax
returns and amendments thereto required to be filed by the Company and the
Company Subsidiaries on or before the Closing Date and all federal income tax
returns of the Company and the Company Subsidiaries that are due to be filed
after the Closing Date and relate to the tax periods of the Company and the
Company Subsidiaries ending on or before the Closing Date. Tyler shall have a
reasonable opportunity to review all such tax returns and amendments thereto.
The Company and the Company Subsidiaries, with the consent of the Shareholder,
shall be entitled in their discretion at any time prior to the Closing Date to
revoke their elections under Section 1362(a) of the Code to be treated as S
corporations.
(b) Tyler or the Surviving Corporation, as appropriate, shall prepare and
file all tax returns other than federal income tax returns of the Company and
the Company Subsidiaries that are due to be filed after the Closing Date and
shall pay all taxes shown on such returns as due and owing.
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(c) The Shareholder covenants and agrees that he will be fully responsible
for, and indemnifies and holds harmless Tyler, the Company and the Company
Subsidiaries from and against, any and all claims, demands, losses, obligations
and liabilities for income taxes of the Company and the Company Subsidiaries,
any penalties and interest with respect thereto, and any costs and expenses
(including reasonable attorneys' and accountants' fees) of Tyler, the Company or
a Company Subsidiary incurred as an incident thereto, relating to tax periods of
the Company and the Company Subsidiaries ending on or before the Closing Date.
Tyler agrees that the Shareholder shall have the sole right to contest, resolve
and defend, at his cost, against any assessment for additional income taxes,
notice of income tax deficiency or other adjustment of income taxes of the
Company or the Company Subsidiaries made or proposed by any taxing authority for
such periods. The Shareholder shall be entitled to retain such tax
representatives, subject to the consent of Tyler (which shall not be
unreasonably withheld), as he selects to represent him in resolving any such
income tax controversies or disputes for tax periods ending on or before the
Closing Date, and Tyler or the Company, as appropriate, shall execute and
deliver powers of attorney, limited to such tax periods, in favor of the
Shareholder or his tax representatives as necessary to effectuate the provisions
of this Section 4.5.
(d) Subject to Closing, and specifically reserving any rights or remedies
Tyler or the Surviving Corporation may have for breach of the representations
and warranties of the Shareholder contained in Article 2 of this Agreement,
Tyler covenants and agrees that either it or the Surviving Corporation, as
appropriate, will be fully responsible for, and Tyler indemnifies and holds
harmless the Shareholder from and against, any and all claims, demands, losses,
obligations and liabilities for income taxes of the Surviving Corporation and
the Company Subsidiaries, any penalties and interest with respect thereto, and
any costs and expenses (including reasonable attorneys' and accountants' fees)
of the Shareholder incurred as an incident thereto, relating to tax periods of
the Surviving Corporation and the Company Subsidiaries ending after the Closing
Date; such responsibility of and indemnity by Tyler shall include the amounts of
any and all tax consequences or liabilities attributable to any election by
Tyler or the Surviving Corporation after the Closing to change the tax
accounting methods utilized by the Company or the Company Subsidiaries
applicable to tax periods ending after the Closing Date. The Shareholder agrees
that Tyler or the Surviving Corporation, as appropriate, shall have the sole
right to contest, resolve and defend, at its cost, against any assessment for
additional income taxes, notice of income tax deficiency or other adjustments of
income taxes of the Surviving Corporation or the Company Subsidiaries made or
proposed by any taxing authority for tax periods ending after the Closing Date.
(e) All parties hereto agree if requested to reasonably cooperate with one
another and assist in the settlement, compromise, defense or other disposition
of any assessments for additional taxes, notices of deficiency, proposed
adjustments or other income tax disputes or controversies by or with taxing
authorities relating to the Company and the Company Subsidiaries. Tyler or the
Surviving Corporation, as appropriate, will provide to the Shareholder or his
tax representatives prompt written notification and copies of any communications
from or to any taxing authority received or made by either of them relating to
income tax liabilities of the Company or the Company Subsidiaries for any tax
periods ended on or before the Closing Date. The Shareholder or his tax
representatives will provide to Tyler prompt written notification and copies of
any communications from or to any taxing authority received or made by either of
them relating to income tax liabilities of the Company or the Company
Subsidiaries. Subsequent to any such notice, Tyler and the Shareholder shall
keep the other fully advised of the status and developments with respect to such
proposed or asserted income tax liability, and of the terms of any settlement or
other final resolution thereof. Failure by any party to notify any other party,
as provided herein, shall not relieve the party otherwise entitled to such
notice from its obligations contained in this Section 4.5 of this Agreement;
provided, however, that the party entitled to such notice may pursue other
remedies available to it at law or in equity for breach, if any, of the covenant
to notify contained herein.
(f) The Shareholder shall not, in any capacity, agree to any audit
adjustments by a taxing authority, or settle, compromise or otherwise agree to a
resolution of any dispute or controversy, with respect to the income tax
liability of the Company or the Company Subsidiaries if the effect of the
adjustment or the terms of the
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settlement increases the income tax liabilities (including loss of carry
forwards) of the Company and the Company Subsidiaries:
(i) for the taxable period commencing on January 1, 1997 and ending on
the Closing Date to an amount that, when added to the income taxes paid for
such period by Tyler or the Company in accordance with Section 4.5(b) above
(excluding the amount of any such income tax liability attributable to any
election by Tyler or the Company after the Closing to change tax accounting
methods utilized by the Company and the Company Subsidiaries applicable to
tax periods ending on or after January 1, 1997) exceeds the tax liability
(excluding deferred taxes) accrued on the books and records of the Company
and the Company Subsidiaries for the period commencing January 1, 1997 and
ending on the Closing Date; or
(ii) for taxable periods commencing after the Closing Date (but
including the amount of any such income tax liability attributable to any
election by Tyler or the Company after the Closing to change tax accounting
methods utilized by the Company and the Company Subsidiaries applicable to
tax periods ending on or after January 1, 1997), unless the Shareholder or
his tax representatives shall have in advance thereof consulted with Tyler
and shall have agreed on mutually acceptable terms to pay to Tyler or the
Surviving Corporation, as appropriate, the additional income taxes (subject
to the limitation set forth in Subsection (i) above) that would be owed by
Tyler or the Company for all periods subsequent to December 31, 1996 as a
result of such settlement. In any event, the Shareholder shall pay to Tyler
or the Surviving Corporation, as appropriate, the amount of any increase in
income tax liabilities (including loss of carry forwards) of the Company
and the Company Subsidiaries for all tax periods ending on or after the
Closing Date (subject to the limitation set forth in subsection (i) above)
that results from a final administrative or judicial determination
adjusting the income tax liabilities of the Company and the Company
Subsidiaries for any period ending on or before the Closing Date, and such
payment or payments shall be made at the time Tyler or the Surviving
Corporation files an income tax return with a taxing authority covering a
tax period that is affected by such increase in income tax liability.
(g) Tyler or the Surviving Corporation, as appropriate, shall pay to the
Shareholder the amount of any reduction in income tax liabilities of the Company
and the Company Subsidiaries for all tax periods ending on or after the Closing
Date that result from a corresponding adverse adjustment by a taxing authority
to the tax liability of the Company and the Company Subsidiaries for tax periods
ended on or before the Closing Date. Any such payment or payments shall be made
at the time Tyler or the Company files an income tax return with the taxing
authority covering a tax period that is benefitted by such reduction.
(h) The Shareholder agrees promptly to pay over to Tyler or the Surviving
Corporation, as appropriate, at the time of receipt by the Shareholder, all
proceeds he receives from any refund of income taxes arising out of any carry
back to prior tax periods of the Company and the Company Subsidiaries of any net
operating loss of Sub for tax periods ending on or after the Closing Date,
including any benefits derived from such carry backs to otherwise reduce an
income tax liability for such prior periods. At the request of Tyler or Sub and
at their expense, the Shareholder shall promptly file all necessary documents or
prosecute all other necessary proceedings to claim and recover such refunds.
Tyler or Sub, as appropriate, at the time of the receipt thereof, agree to
timely pay over to Shareholder all proceeds received by either of them from any
refund of income taxes as a result of an adjustment to the income tax liability
of the Company or any Company Subsidiary for tax periods ending on or before the
Closing Date. At the request of Shareholder and at his expense, Tyler or Sub, as
appropriate, shall promptly file all necessary documents or prosecute all other
necessary proceedings to claim and recover such refunds.
(i) At the request of the Shareholder, Tyler or the Company, as
appropriate, shall submit for filing with the Internal Revenue Service a Request
for Prompt Assessment of Income Taxes pursuant to Section 6501(d) of the
Internal Revenue Code for all open tax periods through the Closing Date for
which a federal income tax return or returns or amended return or returns have
been filed by the Company and the Company Subsidiaries.
(j) From and after the Closing Date, the Shareholder will not (a) extend
the statute of limitations; (b) make or change any elections affecting the
Company or the Company Subsidiaries; or (c) change a method of accounting, in
each instance with respect to tax liabilities of the Company Subsidiaries
relating to
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periods ending on or prior to the Closing Date, without the prior written
consent of Tyler (which consent shall not be unreasonably withheld).
(k) To the extent the provisions of this Section 4.5 and the provisions of
Article 11 of this Agreement are inconsistent or conflict, the provisions of
this Section 4.5 shall be determinative of the rights and obligations of the
parties hereto.
(l) Except as required by applicable law, the Shareholder, Tyler, the
Company and the Company Subsidiaries will not take or cause to be taken any
action which would prevent the transactions contemplated hereby from qualifying
as a reorganization under Section 368 of the Code.
4.6 Cooperation Pending Closing. Each of the parties hereto shall use its
reasonable best efforts to:
(a) proceed promptly to make or give the necessary applications,
notices, requests, and filings in an effort to obtain at the earliest
practicable date and, in any event, before the Closing Date, the approvals,
authorizations, and consents of third parties necessary to consummate the
transactions contemplated by this Agreement;
(b) cooperate with and keep the other informed in connection with this
Agreement; and
(c) take such actions as the other party may reasonably request to
consummate the transactions contemplated by this Agreement and use its
reasonable best efforts and diligently attempt to satisfy, to the extent
within its control, all conditions precedent to the obligations to close
this Agreement.
4.7 Non-competition Allocation. Each of the parties agree that $100,000 of
the cash portion of the Consideration to be received by Shareholder as the
holder of Class A Common Stock is in consideration of, and shall be allocated
to, the non-competition and non-solicitation covenants of the Shareholder in the
Employment Agreement (as defined herein).
ARTICLE 5
COVENANTS OF THE COMPANY AND THE SHAREHOLDER
5.1 Conduct of Business Prior to Closing Date. During the period pending
the Closing Date (or other indicated date), the Company and the Shareholder:
(a) shall, and shall cause each Company Subsidiary to, use its
reasonable best efforts to conduct the operations of the Company and the
Company Subsidiaries in the ordinary and usual course of business
consistent with past and current practices, and to maintain marketing
organizations intact and to preserve the goodwill of their employees,
representatives, suppliers, and customers;
(b) shall confer upon request of Tyler with one or more
representatives of Tyler to report material operational matters and the
general status of ongoing operations;
(c) shall notify Tyler of any emergency or other change in the normal
course of the Company's or the Company Subsidiaries' businesses and of any
governmental complaints, investigations, or hearings that are pending (or
that the same may be contemplated) if such emergency, complaint,
investigation, or hearing would be material to the Company's businesses or
properties and those of the Company Subsidiaries, taken as a whole;
(d) shall take no action that, and shall not fail to use reasonable
best efforts to take (without material cost) any action the failure to take
which, would cause or permit their representations and warranties contained
in this Agreement to be untrue in any material respect on the Closing Date;
and
(e) except as may be permitted or required by this Agreement, shall
not directly or indirectly do any of the following: (i) issue, sell,
pledge, dispose of or encumber, or permit any Company Subsidiary to issue,
sell, pledge, dispose of or encumber, (A) any capital stock of the Company
or any Company Subsidiary or (B) other than in the ordinary course of
business and consistent with past practice, any assets of the Company or
any Company Subsidiary; (ii) amend or propose to amend the respective
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charters or bylaws of the Company or any Company Subsidiary; (iii) split,
combine or reclassify any outstanding capital stock, or, except as provided
in Section 5.5 hereof, declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise with respect to
its capital stock whether now or hereafter outstanding; (iv) redeem,
purchase or acquire or offer to acquire, or permit any of the Company
Subsidiaries to redeem, purchase or acquire or offer to acquire, any of the
Company's or any Company Subsidiary's capital stock; or (v) enter into any
contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 5.1(e).
5.2 Employment Agreement. At or before the Closing the Shareholder and the
Company shall execute and deliver an Employment and Noncompetition Agreement in
substantially the form of Exhibit A hereto, with such changes therein prior to
execution as may be mutually approved by Tyler and the Shareholder (the
"Employment Agreement"), and providing for the employment of the Shareholder by
the Surviving Corporation after the Closing, covenants by the Shareholder not to
compete with the Surviving Corporation, and compensation, all as provided
therein.
5.3 Noncompetition Agreements. The Company and the Shareholder agree to
use their reasonable best efforts to cause the employees and consultants of the
Company and the Company Subsidiaries identified in Section 5.3 of the Tyler
Disclosure Schedule to terminate their current employment and consulting
agreements and, in the case of the employees, to execute and deliver employment
agreements with the Company acceptable to Tyler (the "Noncompetition
Agreements").
5.4 Agreement Not to Negotiate. Pending the Closing, and through the
period ending March 31, 1998 if this Agreement is terminated without closing by
the Company or the Shareholder, the Company and the Shareholder shall not,
either directly or indirectly through an agent, representative or other person,
solicit or authorize any person to solicit, or initiate or encourage, directly
or indirectly, any proposal for the acquisition of all or any material part of
the capital stock, assets, or business of the Company or any of the Company
Subsidiaries, or for the merger, consolidation, or other combination of the
Company or any of the Company Subsidiaries with any other person or entity, or
enter into any discussions or negotiations for any such proposal, or provide any
person with information or assistance in furtherance of any such proposal, and
shall promptly notify Tyler in writing of all proposals received with respect to
such matters.
5.5 Permitted Distributions of Cash and Condo. After June 30, 1997 and on
or before the Closing Date the Company shall be entitled to distribute to the
Shareholder aggregate cash dividends or other cash distributions not exceeding
$3,300,000. On or before the Closing Date, the Shareholder will cause the
Company or the appropriate Company Subsidiary to convey, transfer and assign to
the Shareholder or such other party as he determines, the record title to, and
all other rights of ownership of the Company or the Company Subsidiaries in Unit
900, Bridgeport Condominiums, 344 Padre Boulevard, South Padre Island, Texas
(the "Condo"), subject to any indebtedness incurred in connection with the
Condo, and shall obtain and provide to Tyler an absolute and unconditional
release, executed by the holders of any indebtedness, notes, mortgages, pledges,
security agreements or other similar obligations incurred in connection with the
Condo, releasing the Company and the Company Subsidiaries from any liability
with respect to any such obligations, whether as maker, endorser, surety,
obligor, guarantor or otherwise, or shall provide to Tyler the Shareholder's
agreement to indemnify Tyler, the Surviving Corporation and the Company
Subsidiaries against any such liability, which indemnification agreement shall
be reasonably acceptable to Tyler.
5.6 Waiver of Adverse Claims. The Shareholder releases, waives and
disclaims any ownership interest, right, title or other claim to any of the
assets, other than the Condo and the real property which is subject to the
Lease, which are or during the twelve months preceding the Closing Date have
been utilized by the Company or the Company Subsidiaries in the conduct of their
respective businesses.
5.7 Accuracy of Information Furnished. The information supplied by the
Shareholder to Tyler in writing expressly for inclusion in any documents
(including the Proxy Statement) filed with the Commission in connection with or
as a result of the transactions contemplated hereby, will, at the respective
times such documents are filed with the Commission, not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not false or misleading.
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5.8 Pre-Closing Bonuses. Prior to the Closing, the Company shall be
entitled to pay bonuses to employees of the Company for past services rendered
and to pay the consultant identified in Schedule 2.8 of the Company Disclosure
Schedule in connection with termination of his consulting arrangement, which
bonuses and payment shall not exceed an aggregate of $2,400,000.
5.9 New Indebtedness. The Company shall be entitled to incur additional
indebtedness to the extent necessary to make the cash distributions contemplated
by Section 5.5 or pay the bonuses contemplated by Section 5.8.
5.10 Stock Grants. Prior to the Closing, the Shareholder will transfer an
aggregate of 12,350 shares of the Class B Common Stock of the Company (the "Key
Employee Stock Grants") to key employees of the Company and the Company
Subsidiaries ("Key Employees") selected by the Shareholder, without any sales or
purchase price being paid therefor. The terms of the Key Employee Stock Grants
and any applicable restrictions on transfer of the shares so granted and
transferred shall be as set forth in the form of Stock Transfer Agreement
attached as Exhibit C hereto.
5.11 Transfer of Headquarters Facilities. Concurrently with the Closing,
the Shareholder shall transfer to Sub, by special warranty deed, good and
marketable title, free and clear of any lien, claim or encumbrance other than
those described in section 2.16(c) hereof, to all the real property facilities
and fixtures (the "Headquarters Facilities") leased by Government Records
Services, Inc. pursuant to that certain Lease Agreement dated July 1, 1995
between the Shareholder and Government Records Services, Inc. (the "Lease") and
as amended effective January 1, 1996. In connection therewith, Shareholder shall
obtain and provide to Tyler an absolute and unconditional release, executed by
First National Bank of Grapevine, of all mortgages, liens, deeds of trust or
other security interests in or to the Headquarters Facilities. The parties
acknowledge and agree that $5,500,000 of the cash portion of the Consideration
is allocable to the Headquarters Facilities for federal income tax purposes.
ARTICLE 6
COVENANTS OF TYLER
Tyler covenants and agrees with the Company and the Shareholder as follows:
6.1 Conduct Prior to Closing Date. Pending the Closing, Tyler shall:
(a) confer upon request of the Shareholder with one or more
representatives of the Shareholder to report material operational matters
and the general status of ongoing operations of Tyler and the Tyler
Subsidiaries; and
(b) take no action that, and shall not fail to use reasonable best
efforts to take (without material cost) any action the failure to take
which, would cause or permit its representations and warranties contained
in this Agreement to be untrue in any material respect at the Closing.
6.2 Proxy Statement. As promptly as practicable after the execution of
this Agreement, Tyler shall prepare and file with the Commission a proxy
statement (the "Proxy Statement") pursuant to the Exchange Act. Subject to the
fiduciary obligations of the Board of Directors of Tyler under applicable law,
the Proxy Statement shall contain the recommendation of the Board of Directors
of Tyler that the stockholders of Tyler vote to approve the Merger and this
Agreement.
6.3 Meetings of Stockholders. Tyler shall promptly take all action
reasonably necessary in accordance with the Delaware General Corporation Law,
the rules of the NYSE and its articles of incorporation and bylaws to convene a
meeting of its stockholders to consider and vote upon the adoption and approval
of the Merger and this Agreement (the "Tyler Stockholders Meeting"). Subject to
its fiduciary obligations under applicable law and in accordance with the
provisions of this Agreement, the Board of Directors of Tyler (i) shall
recommend at such meeting that the stockholders of Tyler vote to adopt and
approve the Merger and this Agreement; (ii) shall use its reasonable efforts to
solicit from stockholders of Tyler proxies in favor of
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such adoption and approval; and (iii) shall take all other action reasonably
necessary to secure a vote of its stockholders in favor of the adoption and
approval of the Merger and this Agreement.
6.4 Stock Exchange Listing. Tyler shall use its reasonable best efforts to
cause the shares of Tyler Common Stock to be issued upon consummation of the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date.
6.5 Guaranties of Company Obligations.
(a) From and after the Closing, Tyler guarantees to the Shareholder,
respectively, and his heirs, successors and assigns, the full and prompt payment
by the Company of all amounts that become due and payable to them under or
pursuant to the terms of the Employment Agreement, to be entered into between
the Company and the Shareholder as provided in Section 5.2 of this Agreement,
and the timely performance by the Company of all of the terms, conditions,
covenants and agreements to be performed by the Company under or pursuant to the
terms of said Employment Agreement.
(b) Payments by Tyler pursuant to Subsection (a) shall be reduced by any
amounts that either Tyler, the Company or a Company Subsidiary may be entitled
to offset pursuant to the provisions of Section 11.8 of this Agreement and any
comparable provisions contained in the Employment Agreement. The obligation of
Tyler to make any payments or render performance under this guaranty shall be
coextensive with the obligation of the Company or the Company Subsidiary to make
payment or render performance under the Employment Agreement, and Tyler shall be
entitled to assert as a defense to or excuse for or delay in any payment or
performance by it the same defenses or excuses for payment or performance as
would be available to the Company or such Company Subsidiary. Subject to the
foregoing, the guaranty by Tyler contained herein is absolute and unconditional.
(c) Tyler waives notice of acceptance of this agreement of guaranty, and
waives diligence or presentment on the part of the Shareholder in the
enforcement of any liability, obligation or duty guaranteed hereby.
(d) Tyler agrees that the validity of this agreement of guaranty shall not
in any way be terminated, affected or impaired by reason of any waiver of or
failure to enforce any of the rights or remedies of the Shareholder contained in
the Employment Agreement, or by reason of any extension of time or other
forbearance granted to the Company or a Company Subsidiary by the Shareholder.
(e) Tyler agrees that, at the option of the Shareholder, it may be joined
in any action or proceedings commenced against the Company or a Company
Subsidiary in connection with and based upon any provisions of the Employment
Agreement, and that recovery may be had against Tyler in such action or
proceedings, or in any independent action or proceedings against Tyler, without
requirement that the Shareholder or his successors or assigns, first assert,
prosecute, or exhaust any remedy or claim against the Company or the Company
Subsidiary.
(f) In the event of any bankruptcy, reorganization, winding up, or similar
proceedings with respect to the Company or a Company Subsidiary, no limitation
on its liability under the Employment Agreement which may now or hereafter be
imposed or permitted by any federal, state, or other statute, law regulation, or
judicial or administrative determination applicable to such proceedings, shall
in any way limit Tyler's obligations hereunder.
6.6 Other Tyler Obligations. At the Closing, if not theretofore
accomplished, Tyler will cause the Company to execute and deliver to the
Shareholder the Employment Agreement, against execution and delivery by the
Shareholder.
6.7 Company Indemnification Obligations.
(a) Tyler and Sub agree that all rights to indemnification existing in
favor of the present or former directors, officers, employees, fiduciaries and
agents of the Company or any Company Subsidiary (collectively, the "D&O
Indemnified Parties") as provided in the Company's or any Company Subsidiary's
Articles of Incorporation, Bylaws, or other organizational documents as in
effect as of the date hereof, shall survive the Merger and shall continue in
full force and effect for six years after the Effective Time (without
modification
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or amendment, except as required by applicable law), to the fullest extent
permitted by law, and shall be enforceable by the D&O Indemnified Parties
against the Surviving Corporation or applicable Company Subsidiary; provided
that in any event Tyler and the Surviving Corporation shall pay and reimburse
expenses in advance of the final disposition of any action or proceeding to each
D&O Indemnified Party to the fullest extent permitted by law.
(b) The provisions of this Section 6.7 shall survive the consummation of
the Merger and expressly are intended to benefit each of the D&O Indemnified
Parties. Each of the D&O Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(c) If the Surviving Corporation, applicable Company Subsidiary, or any of
their respective successors or assigns (i) reorganizes, amalgamates or
consolidates with or merges into any other person and is not the resulting,
continuing or surviving corporation or entity of such reorganization,
amalgamation, consolidation or merger, or (ii) liquidates, dissolves or
transfers all or substantially all of its properties and assets to any person or
persons, then, and in such case, proper provision will be made so that the
successors or assigns of the Surviving Corporation assume all of the obligations
of the Surviving Corporation set forth in this Section 6.7.
6.8 Agreements Regarding Stock Options. Effective on the Closing Date,
Tyler agrees to grant options, conditioned on the consummation of the
transactions contemplated hereby and Tyler stockholder approval of any required
increase in the number of shares of Tyler Common Stock which may be issued
pursuant to the Tyler Stock Option Plan, to purchase an aggregate of 400,000
shares of Tyler Common Stock to employees of the Company and the Company
Subsidiaries designated by the Shareholder. The selection by the Shareholder of
such employees and the number of option shares to be granted to each shall be
subject to the reasonable approval of Tyler. The exercise price of the options
shall be equal to the reported closing price of the Tyler Common Stock on the
New York Stock Exchange on the Closing Date. The options shall have a term of 10
years from the Closing Date and shall vest on each of the first five anniversary
dates at the rate of 20% of the original number of option shares granted. The
options shall be incentive stock options pursuant to the Tyler Stock Option
Plan, as amended, shall contain such other terms as are customary for options
granted under that plan, and shall be evidenced by option agreements
incorporating all of such terms.
6.9 Release of Shareholder Guaranties. At or prior to the Closing, Tyler
shall obtain and provide to the Shareholder an absolute and unconditional
release, executed by the holders of the indebtedness of the Company and the
Company Subsidiaries identified in Section 2.21 of the Company Disclosure
Schedule as guaranteed by the Shareholder and by the surety companies that
issued the performance bonds identified in such Section 2.21, from any liability
with respect to such indebtedness or performance bonds, whether as maker,
endorser, surety, obligor, guarantor or otherwise, or shall provide to the
Shareholder the agreement of Tyler to indemnify Shareholder against any such
liability, which indemnification agreement shall be reasonably acceptable to
Shareholder. If the Shareholder shall have personally guaranteed or become
obligated with respect to any indebtedness of the Company permitted by Section
5.9 to be incurred to fund cash bonuses and distributions, Tyler also shall
obtain and provide to the Shareholder an absolute and unconditional release from
any liability with respect to such indebtedness of the Company, executed by the
holders of such indebtedness.
6.10 Tyler Loan. At the request of the Company, on or before December 30,
1997, Tyler will lend to the Company up to $5,700,000 for working capital
purposes, and advance the requisite funds to the Company for such purposes. In
such event, the Company will evidence such advances and indebtedness by
executing and delivering to Tyler a promissory note providing for quarterly
payments of accrued interest at an annual rate of 8.5% with principal to be paid
in a single installment at maturity, and other commercially reasonable terms.
Such note will mature on September 30, 1999 or, if earlier:
(i) 90 days after termination of this Agreement, if this Agreement is
rightfully terminated by Tyler because of the failure of a condition
precedent to its obligations set forth in Section 9.1, 9.2, 9.4, 9.9, 9.11
or 9.12;
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(ii) 18 months after termination of this Agreement, if this Agreement
is rightfully terminated by the Company or Shareholder because of the
failure of a condition precedent to its obligations set forth in Section
8.1, 8.2, 8.3 or 8.5; and
(iii) one year after termination of this Agreement, if this Agreement
is rightfully terminated by Tyler, the Company or the Shareholder for any
other reason not specified in clauses (i) or (ii) above.
Loans by Tyler to the Company pursuant to this Section 6.10 shall be in
replacement of the indebtedness that the Company is permitted to incur and have
outstanding at the Closing, and which Tyler or Sub thereby would have assumed as
a result of the Merger. The borrowings the Company is permitted to incur
pursuant to Section 5.9 shall be reduced by the amount of its borrowings from
Tyler pursuant to this Section 6.10.
ARTICLE 7
JOINT CONDITIONS PRECEDENT TO CLOSING OBLIGATIONS
Except as may be waived by both Tyler and the Shareholder, the obligations
of the Company, the Shareholder, Tyler and Sub to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
7.1 HSR Act. All filings required under the HSR Act shall have been made,
and all waiting periods, including any extension thereof, that may be applicable
to the transactions contemplated by this Agreement under the provisions of the
HSR Act shall have expired or been waived or otherwise terminated.
7.2 Absence of Litigation. No governmental agency or authority shall have
instituted, or threatened in writing to institute, any action or proceeding
seeking to delay, restrain, enjoin, or prohibit the consummation of the
transactions contemplated by this Agreement, and no order, judgment, or decree
by any court or governmental agency or authority shall be in effect that
enjoins, restrains, or prohibits the same or, in the reasonable judgment of
Tyler, otherwise would materially interfere with the operation of the assets and
business of Tyler and the Tyler Subsidiaries or the Company and the Company
Subsidiaries after the Closing Date.
7.3 The Software Group. Tyler or a subsidiary of Tyler shall have acquired
all or substantially all of the outstanding capital stock or assets of The
Software Group, Inc., a Texas corporation ("TSG"), pursuant to that certain
Agreement and Plan of Merger dated as of October 8, 1997 among Tyler, T2
Acquisition Corporation, TSG, Brian B. Berry, and Glenn A. Smith, as such
agreement may be amended and/or restated from time to time.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDER
Except as may be waived by the Company and the Shareholder, the obligations
of the Company and the Shareholder to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction on or before the Closing
Date of each of the following conditions:
8.1 Compliance. Tyler shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by Tyler on or
before the Closing Date.
8.2 Representations and Warranties. All of the representations and
warranties made by Tyler in this Agreement, the Tyler Disclosure Schedule (prior
to supplementation or amendment thereto pursuant to Section 4.2 of this
Agreement), the Employment Agreement, and in all certificates and other
agreements delivered by Tyler to the Shareholder pursuant hereto or in
connection with the transactions contemplated hereby, shall have been true and
correct in all material respects as of the date hereof, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations
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and warranties had been made at and as of the Closing Date, except for changes
permitted or contemplated by this Agreement.
8.3 Opinion. The Company and the Shareholder shall have received an
opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"),
counsel for Tyler, dated the Closing Date, in form and substance reasonably
satisfactory to the Company, the Shareholder and their counsel, relating to the
matters set forth in the following Sections of this Agreement:
3.1; 3.4 (except the opinion shall contain no exception with respect
to shareholder approval); and 3.5 (except the opinion as to enforceability
may exclude the Employment Agreement and the Noncompetition Agreements).
8.4 No Material Adverse Change. There shall have occurred no material
adverse change in the businesses, properties, assets, liabilities, results of
operations or condition (financial or otherwise) of Tyler and the Tyler
Subsidiaries, taken as a whole.
8.5 Tyler Stockholder Approval. The stockholders of Tyler shall have
approved the Merger and this Agreement on or before March 31, 1998.
8.6 Financing. On or before thirty days after the date hereof, Tyler shall
have obtained financing for the transactions contemplated hereby acceptable to
Tyler.
8.7 Certificates. The Company and the Shareholder shall have received a
certificate or certificates, executed on behalf of Tyler by the President or any
Vice President of Tyler, to the effect that the conditions contained in Sections
7.1 and 7.2 hereof with respect to matters therein relating to Tyler, and in
Sections 8.1, 8.2, 8.4, 8.5 and 8.6 hereof, have been satisfied.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLER
Except as may be waived by Tyler, the obligations of Tyler and Sub to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions:
9.1 Compliance. The Company and the Shareholder shall have, or shall have
caused to be, satisfied or complied with and performed in all material respects
all terms, covenants, and conditions of this Agreement to be complied with or
performed by any of them on or before the Closing Date.
9.2 Representations and Warranties. All of the representations and
warranties made by the Company and the Shareholder in this Agreement, the
Company Disclosure Schedule (prior to any supplementation or amendment pursuant
to Section 4.2 of this Agreement), and in all certificates and other documents
delivered by the Company and the Shareholder pursuant hereto or in connection
with the transactions contemplated hereby, shall have been true and correct in
all material respects as of the date hereof, and shall be true and correct in
all material respects at the Closing Date with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement, and except to
the extent the Company or the Shareholder is unable to give such representation
or warranty due to any of the following: (a) loss of any title insurance
customer of Title Records Corporation, or (b) loss of Dallas County as a
customer due to the bidding process.
9.3 Securities Law Compliance. The issuance and delivery of shares of
Tyler Common Stock in the Merger shall have been registered or qualified under
the Securities Act and all applicable state securities laws or counsel for Tyler
shall be satisfied that an exemption from such registration or qualification is
available; no stop order suspending the effectiveness of any such registration
or qualification shall be in effect; and no proceeding for such purpose shall be
pending before any agency or authority having jurisdiction thereof.
9.4 Opinions. Tyler shall have received the opinion of Gardere & Wynne,
L.L.P. ("Gardere & Wynne"), counsel for the Company and the Shareholder, dated
as of the Closing Date, in form and substance
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satisfactory to Tyler and its counsel, relating to the matters set forth in the
following Sections of this Agreement:
2.1; 2.6; and 2.7 (except the opinion as to enforceability may exclude
the Employment Agreement and the Noncompetition Agreements).
9.5 No Material Adverse Change. There shall have occurred no material
adverse change in the businesses, properties, assets, liabilities, results of
operations, or condition (financial or otherwise), of the Company and the
Company Subsidiaries, taken as a whole. Tyler acknowledges and agrees that the
following shall not be deemed a material adverse effect: (a) loss of any title
insurance customer of Title Records Corporation, or (b) loss of Dallas County as
a customer due to the bidding process.
9.6 Consents to Transaction. Tyler and the Company shall have received all
consents or approvals, and made all applications, requests, notices, and filings
with, any person, governmental authority, or governmental agency required to be
obtained or made in connection with the consummation of the transactions
contemplated by this Agreement, excluding actions required under the HSR Act
(which are conditions precedent to closing under Section 7.1), but including the
consents of the lenders and third parties set forth in the Company Disclosure
Schedule and the Tyler Disclosure Schedule.
9.7 Stockholder Approval. The stockholders of Tyler shall have approved
the Merger and this Agreement on or before March 31, 1998.
9.8 Financing. On or before thirty days after the date hereof, Tyler shall
have obtained financing for the transactions contemplated hereby acceptable to
Tyler.
9.9 Noncompetition Agreements. Each of the Employees shall have duly
entered into Noncompetition Agreements with the Company acceptable to Tyler.
9.10 Certificates. Tyler shall have received a certificate or
certificates, executed on behalf of the Company by the President of the Company,
and by the Shareholder in his individual capacity, to the effect that the
conditions in Sections 7.1 and 7.2 hereof with respect to matters therein
relating to the Company, and Sections 9.1, 9.2, and 9.5 hereof, have been
satisfied.
9.11 Company Shareholder Approval. The shareholders of the Company shall
have approved the Merger and this Agreement on or before January 31, 1998.
9.12 No Dissenting Shareholders. No shareholder of the Company shall have
exercised his right to dissent from the Merger.
ARTICLE 10
SECURITIES LAW REGISTRATION AND COMPLIANCE
10.1 Securities Law Compliance; Restrictions on Shares. The Shareholder
acknowledges receipt of the Tyler Commission Filings and the Tyler Disclosure
Schedule and the opportunity to ask questions of and receive answers from
representatives of the management of Tyler concerning the terms and conditions
of the transactions contemplated hereby and to obtain all additional information
that Tyler possesses or could acquire without unreasonable expense that is
necessary to verify the accuracy of information furnished to him, and
acknowledges and agrees:
(a) The shares of Tyler Common Stock to be received by him as a result
of the Merger have not been registered under the Securities Act or any
applicable state securities law;
(b) Except for transfers pursuant to the Key Employee Options, the
Shareholder is acquiring the shares so to be received in the Merger for his
own account and not with a view to the distribution or resale thereof and
will not sell, pledge, hypothecate, or otherwise transfer the shares unless
they are registered under the Securities Act and applicable state
securities laws unless, prior thereto, the Shareholder shall have delivered
to Tyler an opinion, in form and substance reasonably satisfactory to
Tyler, of counsel
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experienced and competent in federal securities laws and acceptable to
Tyler, to the effect that an exemption from registration is available
therefor;
(c) Except as otherwise provided in this Agreement, Tyler has no
obligation to register any sales or transfers of the shares so received by
the Shareholder;
(d) Except pursuant to the Key Employee Options, during the year after
the Merger, the Shareholder will not be able to sell, transfer, or
otherwise dispose of the shares so received unless, prior thereto, the
Shareholder shall have delivered to Tyler an opinion, in form and substance
reasonably satisfactory to Tyler, of counsel experienced and competent in
federal securities laws and acceptable to Tyler, to the effect that an
exemption from registration under the Securities Act and applicable state
securities laws is at the time available (unless registered as elsewhere
provided in this Agreement), and thereafter any sales, transfers, or other
dispositions may be limited by the provisions of Rule 144 under the
Securities Act (or by other rules then in effect);
(e) In view of the foregoing, each Shareholder understands that he is
at economic risk with respect to his investment in the shares so received
in the Merger;
(f) Tyler may place an appropriate legend on the certificate
representing the shares so to be received restricting their transfer, and
stop-transfer instructions will be given to the transfer agent for the
Tyler Common Stock with respect to such certificates; and
(g) To provide such information as may be requested by Tyler in order
for Tyler to determine if the Shareholder is an accredited purchaser under
Regulation D of the Commission or otherwise can be qualified as a purchaser
under Rule 506 of such Regulation D.
10.2 Demand Registration.
(a) At any time after the Closing Date, the Shareholder may request Tyler
to register under the Securities Act, the shares of Tyler Common Stock received
in the Merger and held by the Shareholder ("Shares") for sale in accordance with
the intended methods of disposition described in the Shareholder's request for
registration; provided, however, that the number of Shares to be registered in
any such offering, whether registered on behalf of the Shareholder, Tyler or any
other selling shareholder, shall not be less than 3,000,000. Tyler is only
obligated to register Shares under this Section 10.2 on two occasions.
(b) Promptly following receipt of any notice under this Section 10.2, Tyler
shall file a registration statement under the Securities Act for the offering
and sale of the Shares specified in such notice from the Shareholder within 90
days of receipt of such notice; provided, however, that Tyler shall not be
required to maintain the effectiveness of any registration statement pursuant to
this Section 10.2 for a period in excess of the completion of the distribution
of such Shares as described in Section 10.4(g) hereof if such registration
statement relates to an underwritten public offering and, if not, a period not
in excess of the earlier of (i) two years after the effectiveness of such
registration statement, or (ii) such time as the Shareholder is free to sell his
Shares under Rule 144 under the Securities Act (or any successor rule then in
effect) without any volume restrictions. Tyler shall be obligated to register
Shares pursuant to this Section 10.2 on two occasions only; provided that no
request may be made more than six years after the date hereof; provided,
further, that a request shall be counted only when (i) all of the Shares
requested to be included in any such registration have been so included, (ii)
the corresponding registration statement has become effective under the
Securities Act, and (iii) the public offering has been consummated on the terms
and conditions specified therein or, if not consummated, such failure was not
attributable to an action taken, or a failure to take action, by Tyler in
connection with such registration. Notwithstanding anything to the contrary
contained herein, Tyler shall not be obligated to prepare and file any
registration statement pursuant to this Section 10.2, or prepare or file any
amendment or supplement thereto, and may suspend the Shareholder's rights to
make sales of Shares pursuant to an effective registration statement, at any
time when the Board of Directors of Tyler in good faith believes that the filing
thereof at the time requested, or the offering of securities pursuant thereto,
would not be in Tyler's best interests. The filing of a registration statement,
or any amendment or supplement thereto, by Tyler cannot be deferred, and the
Shareholder's rights to make sales pursuant to an effective registration
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statement cannot be suspended, pursuant to the provisions of the immediately
preceding sentence for more than 180 days after the date of the receipt of
notice under this Section 10.2.
(c) If the Shareholder proposes to register Shares for sale in an
underwritten public offering, Tyler shall be entitled to select, in its sole
discretion, the managing underwriter or underwriters for the offering by the
Shareholder. Tyler shall be entitled to include in any registration statement
filed pursuant to this Section 10.2 for an offering specified by the
Shareholder, securities of Tyler entitled generally to vote in the election of
directors (or any securities convertible into or exchangeable for or exercisable
for the purchase of securities so entitled generally to vote in the election of
directors) (collectively, the "Voting Securities") to be sold by Tyler for its
own account. Subject to the provisions of this Agreement, Tyler agrees to use
its reasonable efforts to cause all the Shares for which the Shareholder has
requested registration to be registered as soon as practicable under the
Securities Act to the extent required to permit the sale by the Shareholder of
such Shares; provided, that if the managing underwriter or underwriters believe
that the inclusion of all shares requested to be included in the proposed
underwritten public offering (including the Shares) would adversely affect the
marketing of such shares, then Tyler may first include in such registration all
securities Tyler proposes to sell, and in such event the Shareholder shall
accept a reduction (including a total elimination) in the number of Shares to be
included in such registration, pro rata with the other holders of Tyler Common
Stock making requests for registration, on the basis of the number of shares of
Tyler Common Stock so requested to be included by the Shareholder and the other
selling shareholders. In the event of any such reduction (or elimination) of the
number of Shares to be included in such registration, the request made by the
Shareholder under Section 10.2 shall not be counted.
10.3 Piggyback Registration. If Tyler proposes (whether or not for its own
account) to register any of its securities under the Securities Act (other than
pursuant to Section 10.2) for sale (other than on Form S-8, Form S-4, or Form
S-3 with respect to sales of securities acquired by employees or former
employees of Tyler or its subsidiaries upon exercise of options granted by the
Shareholder of Tyler) Tyler shall give written notice to the Shareholder of its
intention to effect such a registration not later than 15 days prior to the
anticipated date of filing with the Commission of a registration statement,
which notice shall offer the Shareholder the opportunity to include in such
registration statement any of the Shares the Shareholder may request (a
"Piggyback Registration"). Tyler's obligation under this Section 10.3 shall be
limited to registrations as to which a registration statement is to be filed on
or before six years after the date hereof. Subject to the provisions of this
Agreement, Tyler will use its reasonable efforts to cause all the Shares for
which the Shareholder has requested registration to be registered as soon as
practicable under the Securities Act to the extent required to permit the sale
by the Shareholder of such Shares; provided, that if the registration relates to
an underwritten public offering and the managing underwriter or underwriters
believe that the inclusion of all shares requested to be included in the
proposed registration would adversely affect the marketing of such shares, Tyler
may first include in such registration all securities Tyler proposes to sell,
and the Shareholder shall accept a reduction (including a total elimination) in
the number of shares to be included in such registration, pro rata with the
other holders of Tyler Common Stock making requests for registration, on the
basis of the number of shares of Tyler Common Stock so requested to be included
by the Shareholder and the other selling shareholders. Nothing in this section
shall limit Tyler's ability to withdraw a registration statement it has filed
either before or after effectiveness.
10.4 Registration Procedures. If and whenever Tyler is required by the
provisions of Section 10.2 to use its best efforts to effect the registration of
any of the Shares under the Securities Act, Tyler will:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period
specified in Section 10.2(b);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in Section 10.2(b) and as may
be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all Shares covered by such
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registration statement in accordance with the method of disposition set
forth in such registration statement for such period;
(c) furnish to the Shareholder and to any underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus and each document incorporated by
reference therein to the extent then required by the rules and regulations
of the Commission) as such persons may reasonably request in order to
facilitate the public sale or other disposition of the Shares covered by
such registration statement;
(d) use its best efforts to register or qualify the Shares covered by
such registration statement under the securities or blue sky laws of such
jurisdictions as the Shareholder or any managing underwriter shall
reasonably request and to take all necessary action to keep such
registration or qualification effective as required by this Section 10.4 as
to a registration statement filed with the Commission; provided, that Tyler
shall not be required to qualify to transact business as a foreign
corporation in any jurisdiction in which it would not otherwise be required
to be so qualified or to take any action which would subject it to general
service of process in any such jurisdictions in which it is not then so
subject;
(e) immediately notify the Shareholder and any underwriter, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing (in which case, Tyler shall promptly provide the Shareholder with
revised or supplemental prospectuses and if so requested by Tyler, the
Shareholder shall promptly take action to cease making any offers of the
Shares until receipt and distribution of such revised supplemental
prospectuses);
(f) furnish at the request of the Shareholder, (i) on the date that
the Shares are delivered to any underwriters for sale pursuant to such
registration statement, an opinion of counsel representing Tyler dated as
of such date for the purposes of such registration, addressed to the
underwriters and to the Shareholder, stating that such registration
statement has become effective under the Securities Act and that (A) to the
best knowledge of such counsel, no stop order suspending the effectiveness
thereof has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus, and each amendment or
supplement thereof, comply as to form in all material respects with the
requirements of the Securities Act and the applicable rules and regulations
thereunder (except that such counsel need express no opinion as to the
financial statements or any other financial or statistical data or any
engineering report contained or incorporated therein) and (C) to such other
effects as may reasonably be requested by counsel for the underwriters or
by the Shareholder or their counsel, and (ii) on the effective date of the
registration statement, the date that Shares are delivered to any
underwriters for sale pursuant to such registration statement and on the
effective date of each post-effective amendment to the registration
statement, a "comfort" letter dated such date from the regular independent
accountants retained by Tyler, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of Tyler included or incorporated by reference in the
registration statement or the prospectus, or any amendment or supplement
thereto, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the published rules and
regulations thereunder, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter) included in the
registration statement in respect of which such letter is being given as
the underwriters or the Shareholder may reasonable request;
(g) make available for inspection during normal business hours to the
Shareholder, any underwriter participating in any distribution pursuant to
such registration statement, and any attorney, accountant or other agent
retained by the Shareholder or underwriters, all financial and other
records, pertinent corporate documents and properties of Tyler and its
subsidiaries, and cause Tyler's officers, directors and employees to supply
all information reasonably requested by any such representative of the
Shareholder,
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underwriter, attorney, accountant or agent in connection with such
registration statement. For purposes of Section 10.2(b), the period of
distribution of Shares in a firm commitment underwritten public offering
shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it; and
(h) use its best efforts to keep effective and maintain any
registration, qualification, approval or listing obtained to cover the
Shares as may be necessary for the Shareholder to dispose of such Shares
during the period of distribution and shall from time to time amend or
supplement any prospectus used in connection therewith to the extent
necessary in order to comply with applicable law; provided that,
notwithstanding the foregoing, Tyler shall not be required to file or to
keep effective and maintain any such registration, qualification, approval
or listing for such period that would require it to cause an audit of Tyler
to be performed other than as is required by the rules and regulations of
the Commission with respect to reports required to be filed under the
Exchange Act.
In connection with any registration hereunder, the Shareholder will furnish
promptly to Tyler in writing such information (together with such supplements as
may be necessary from time to time) with respect to itself and the proposed
distribution by it as shall be reasonably necessary in order to ensure
compliance with federal and applicable state securities laws. Such information
shall not, at the time the registration statement is filed or becomes effective,
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not false or misleading.
In any registration relating to an underwritten public offering of Tyler
Common Stock or other Voting Securities, whether or not the Shareholder is
participating in such registered underwritten public offering, at the request of
the managing underwriter or underwriters, the Shareholder will agree not to
effect any sale or distribution, including any sale pursuant to Rule 144 (or any
successor provision) promulgated under the Securities Act of any Shares, and not
to effect any such sale or distribution of any other Tyler Common Stock or
Voting Securities (in each case, other than as part of such registration) for
such period of time as reasonably required by such managing underwriter or
underwriters ("Lockup Period"), but in no event shall the Shareholder be
required to agree to a Lockup Period longer than the Lockup Period to which any
other selling shareholder is subject.
In connection with any registration hereunder relating to an underwritten
public offering, Tyler agrees to enter into a written agreement with the
managing underwriter or underwriters, and condition the participation of any
other shareholder in such registration on such shareholder entering into such a
written agreement, in such form and containing such provisions as are customary
in the securities business for such an arrangement between underwriters and
companies of Tyler's size and investment stature, including, but not limited to,
indemnification and contribution provisions from the underwriters for the
benefit of Tyler and its controlling persons; provided that such agreement shall
not contain any such provisions applicable to Tyler that are inconsistent with
the provisions hereof; and further provided, that the time and place of the
closing under said agreement shall be as mutually agreed upon among Tyler, the
Shareholder and such managing underwriter or underwriters. The obligation of
Tyler set forth in the immediately preceding sentences shall apply on each
occasion of an underwritten public offering as may be contemplated by a request
for registration permitted by Section 10.2(a).
10.5 Expenses. In connection with any proposed registration of securities
by Tyler, whether or not effected or consummated, Tyler, the Shareholder, and
any other selling shareholders shall each pay their pro rata share of Tyler's
out of pocket expenses incurred in connection with a proposed registration under
either Section 10.2 or 10.3 in which Tyler is not selling any securities for its
own account, including, without limitation, all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for
Tyler. The Shareholder shall pay all of his expenses, including his attorney's
fees, and including the underwriting discount, selling commissions and all
expenses of the underwriters relating to his Shares incurred in connection with
each registration pursuant to Section 10.2 or 10.3.
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10.6 Indemnification.
(a) In the event of a registration of any of the Shares under the
Securities Act pursuant to Section 10.2 or 10.3, Tyler shall indemnify and hold
harmless the Shareholder and each underwriter of Shares thereunder and each
person who controls the Shareholder or underwriter within the meaning of the
Securities Act and the Exchange Act against any losses, claims, damages or
liabilities (including reasonable attorneys' fees), joint or several, to which
the Shareholder or underwriter or controlling person may become subject under
the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) or arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such Shares
were registered under the Securities Act pursuant to Section 10.2 or 10.3, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such Shareholder, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that Tyler will not be liable in any such case if and to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by the Shareholder, underwriter or
controlling person for use in such registration statement or prospectus;
provided, further, that Tyler will not be liable hereunder to any underwriter or
any person who controls any underwriter within the meaning of the Securities Act
and the Exchange Act for any loss, claim, damage or liability that arises out
of, or is based upon, any untrue statement or alleged untrue statement or any
omission or alleged omission contained in any preliminary prospectus that was
corrected by any subsequent prospectus, and the underwriter was required to
deliver but failed to deliver such prospectus as required by the Securities Act.
(b) In the event of a registration of any of the Shares under the
Securities Act pursuant to Section 10.2 or 10.3, the Shareholder shall indemnify
and hold harmless Tyler and each person who controls Tyler within the meaning of
the Securities Act and the Exchange Act, each officer of Tyler who signs the
registration statement, each director of Tyler, each underwriter and each person
who controls any underwriter within the meaning of the Securities Act and the
Exchange Act against all losses, claims, damages or liabilities, joint or
several, to which Tyler or such officer or director or underwriter or
controlling person may become subject under the Securities Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement under which such Shares were registered under the Securities Act
pursuant to Section 10.2 or 10.3, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein not misleading, and will reimburse Tyler and each
such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Shareholder will be liable hereunder in any such case if and only to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission relating to the Shareholder made in reliance upon and in
conformity with information pertaining to the Shareholder, as such, furnished in
writing to Tyler by the Shareholder for use in such registration statement or
prospectus ("Shareholder Information"); provided, further, that the Shareholder
will not be liable hereunder to any underwriter or any person who controls an
underwriter within the meaning of the Securities Act and the Exchange Act for
any loss, claim, damage or liability that arises out of, or is based upon, any
untrue statement or alleged untrue statement or any omission or alleged omission
in any Shareholder Information contained in any preliminary prospectus that was
corrected by any subsequent prospectus, and the underwriter was required to
deliver but failed to deliver such prospectus as required by the Securities Act.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
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hereunder, notify the indemnifying party in writing thereof, but the omission so
to notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party other than under this Section 10.6. In case
any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish, to
assume and undertake the defense thereof with counsel reasonably satisfactory to
such indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 10.6 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that (i) if the indemnifying party has failed to assume the defense and
employ counsel or (ii) if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
that are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified
party shall have the right to select a separate counsel and to assume such legal
defense and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) If the indemnification provided for in this Section 10.6 is unavailable
or insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities or actions in respect thereof, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of Tyler, on the one hand, and the
Shareholder, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions as well as any
other relevant equitable considerations, including the failure to give any
required notice. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Tyler, on the one hand, or the Shareholder, on the
other, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Tyler and the
Shareholder agree that it would not be just and equitable if contribution
pursuant to this Section 10.6(d) were determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to above in this Section 10.6(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or actions in respect thereof referred to above in this Section
10.6(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. No person guilty or fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
10.7 No Transferability of Registration Rights. Except with the prior
written consent of Tyler, the Shareholder's registration rights under Sections
10.2 and 10.3 shall not inure to the benefit of any person to whom any Shares
are transferred, other than the spouse or descendants of the Shareholder (his
"Relatives"), a trust solely for the benefit of the Shareholder or his
Relatives, or a partnership all of the equity interests in which are directly or
indirectly owned by the Shareholder or his Relatives.
ARTICLE 11
INDEMNIFICATION AND REMEDIES
11.1 Indemnification by the Shareholder Based on Agreement. The
Shareholder agrees to indemnify and hold harmless Tyler (and if the transactions
contemplated hereby are consummated, the Surviving Corporation), from and
against any and all claims, losses, obligations, damages, demands, and
liabilities (after giving effect to and reducing the same by (i) any net tax
benefits realized by Tyler or the Surviving
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Corporation as a result of such event, and (ii) the net amount of any insurance
proceeds received by Tyler or the Surviving Corporation as a result of such
event), including, without limitation, costs and expenses of litigation
(including reasonable attorneys' and accountants' fees) (collectively, "Tyler
Indemnified Losses"), based on, relating to, or arising out of, or any
allegation by any third party of, any facts or circumstances that would
constitute a breach by the Shareholder of any representation, warranty, or
covenant contained herein or in any agreement executed pursuant hereto; but
excluding from this covenant to indemnify any claims or liabilities separately
covered by Section 10.6 hereof or any Customer Claims (hereinafter defined) to
the extent and only while covered by the provisions of Section 11.3 hereof.
11.2 Indemnification by Tyler Based on Agreement. Tyler (and if the
transactions contemplated hereby are consummated, the Surviving Corporation)
agrees to indemnify and hold harmless the Shareholder from and against any and
all claims, losses, expenses, obligations, demands and liabilities (after giving
effect to and reducing the same by (i) any net tax benefits realized by the
Shareholder as a result of such event, and (ii) the net amount of any insurance
proceeds received by the Shareholder as a result of such event), including,
without limitation, costs and expenses of litigation and including reasonable
attorneys' and accountants' fees (collectively, "Shareholder Indemnified
Losses"), based on, relating to, or arising out of, or any allegation by any
third party of, any facts or circumstances that would constitute a breach by
Tyler of any representation, warranty, or covenant contained herein or in any
agreement executed pursuant hereto, but excluding from this covenant to
indemnify any claims or liabilities separately covered by the provisions of
Section 10.6 hereof.
11.3 Customer Claims. If any claim, demand, or cause of action of the type
referred to in Section 11.1 is asserted by a customer of the Company or a
Company Subsidiary ("Customer Claim"), the following provisions shall be
applicable until such time as the Customer Claim results in a filed and pending
lawsuit or other judicial proceeding (at which time the provisions of Section
11.1 shall be applicable):
(a) Tyler or the Surviving Corporation shall promptly notify the
Shareholder in writing that a Customer Claim has been made, describing the
nature of the Customer Claim to the extent then known.
(b) After receipt of Tyler's or the Surviving Corporation's written
notice, the parties hereto will fully cooperate with each other to
investigate the Customer Claim and determine whether the parties can agree
that the Customer Claim is an obligation or liability for which the
Shareholder is responsible. The investigation shall be conducted
expeditiously and with all reasonable due diligence, considering the
circumstances surrounding the Customer Claim.
(c) If, after an investigation, Tyler or the Surviving Corporation and
the Shareholder agree in writing that the Customer Claim is an obligation
or liability for which the Shareholder is responsible, the Shareholder and
Tyler or the Surviving Corporation agree to use their reasonable best
efforts to reach an agreement with the customer as to the terms and
conditions of settlement, compromise or satisfaction of the Customer Claim,
including, but not limited to, the amount that the Shareholder shall pay to
the customer for the damages, losses, costs or expenses incurred by it.
(d) If the provisions of this Section 11.3 are applicable, Tyler or
the Surviving Corporation shall conduct all communications and settlement
negotiations with the customer and shall convey to the customer any offers
of settlement or compromise by the Shareholder. Any amounts that the
Shareholder agrees so to pay in settlement of the Customer Claim shall be
paid by him to Tyler or the Surviving Corporation, as the case may be, in
trust for payment over to the customer. If Tyler or the Surviving
Corporation agrees to pay the customer an amount in excess of that offered
for settlement purposes by the Shareholder, the excess shall be paid by
Tyler or the Surviving Corporation, as the case may be, without any right
to indemnification therefor from the Shareholder. If the amounts so paid
and entrusted to Tyler or the Surviving Corporation are paid over to the
customer, the payment over shall be deemed to be a release by Tyler or the
Surviving Corporation of any further claim with respect to that Customer
Claim against the Shareholder and Tyler and the Surviving Corporation shall
indemnify and hold harmless the Shareholder from any further liability with
respect thereto.
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(e) In the absence of an agreement among the parties as to the
settlement of any Customer Claim not involving litigation, Tyler or the
Surviving Corporation may take such action with respect to the Customer
Claim as Tyler in its sole judgment may deem necessary or advisable under
the circumstances to settle, compromise or satisfy the Customer Claims
provided; however, neither Tyler nor the Surviving Corporation shall in any
such event be considered to have waived its right to pursue a judicial
action to determine its right against the Shareholder.
(f) An indemnified party shall give notice to the indemnifying party
or parties within 15 business days after actual receipt of service or
summons to appear in any action begun in respect of which indemnity may be
sought hereunder, or actual notice of assertion of a claim with respect to
which it seeks indemnification. Except as provided in Section 4.5, failure
so to notify the indemnifying party or parties shall cause the indemnified
party to lose its right to indemnification under this Article 11, but
failure so to notify the indemnifying party or parties shall not relieve
the indemnifying party or parties from any liability that they may have
other than on account of this Article 11. The indemnifying party or parties
may participate at their own expense and with their counsel in the defense
of such action.
Except as otherwise provided in Section 11.3(d), if the indemnifying party
or parties so elect within a reasonable time after receipt of such notice they
may assume the defense of such action with counsel chosen by the indemnifying
party or parties and approved by the indemnified party in such action, unless
the indemnified party reasonably objects to such assumption on the ground that
its counsel has advised it that there may be legal defenses available to it that
are different from or in addition to those available to the indemnifying party
or parties and counsel for the indemnifying party concurs in such advice, in
which case the indemnified party shall have the right to employ counsel approved
by the indemnifying party or parties. If the indemnifying party or parties
assume the defense of such action, the indemnifying party or parties shall not
be liable for fees and expenses of counsel for the indemnified party incurred
thereafter in connection with such action. In no event shall the indemnifying
party or parties be liable for the fees and expenses of more than one counsel
for the indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances unless, in the reasonable opinion of such
counsel, there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
indemnified parties.
11.4 Claims Limitations. Notwithstanding anything otherwise contained in
this Agreement, no party hereto shall assert any single claim or claims against
any other party hereto, including any right of offset by Tyler or Surviving
Corporation pursuant to Section 11.8 hereof, unless the single claim (after
giving effect to and reducing the same by (i) any net tax benefits realized by
the indemnified party as a result of such event, and (ii) the net amount of any
insurance proceeds received by the indemnified party as a result of such event)
exceeds the sum of $37,500, and the sum of all such single claims in the
aggregate exceeds $300,000; provided, that claims made by Tyler or Surviving
Corporation pursuant to Section 2.9 or 4.5 of this Agreement, or for breach of
the Employment Agreement or the Confidentiality Agreement shall not be subject
to the foregoing limitations; and provided further, that claims made by the
Shareholder pursuant to Section 3.7 or 4.5 of this Agreement, or for breach of
the Employment Agreement or the Confidentiality Agreement shall not be subject
to the foregoing limitations.
11.5 Maximum Liability. The maximum aggregate liability of the Shareholder
to Tyler or the Surviving Corporation for all claims made by Tyler or the
Company pursuant to this Agreement is $7,500,000; provided, that claims made by
Tyler or the Surviving Corporation pursuant to Sections 2.9 or 4.5 of this
Agreement, or for breach of the Employment Agreement or the Confidentiality
Agreement, shall not be subject to the foregoing limitation. The maximum
aggregate liability of Tyler or the Surviving Corporation to the Shareholder for
all claims made by the Shareholder pursuant to this Agreement is $7,500,000;
provided, that claims made by the Shareholder pursuant to Section 3.7 or 4.5 of
this Agreement, or for breach of the Employment Agreement or the Confidentiality
Agreement, shall not be subject to the foregoing limitation. Any claim based
upon facts and circumstances that would, if true, constitute a breach of any
representation, warranty or covenant contained in this Agreement shall be
subject to the limitations contained herein, notwithstanding the fact that such
claim is asserted by a cause of action or legal theory other than breach of
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contract. When calculating the amount of liability in a claim for damages for
purposes of this Section 11.5 (whether such calculation is through agreement of
the parties, litigation or otherwise) and the claim relates to the breach of a
representation as to the income of the Company for any period or periods prior
to the Closing Date, all of the parties hereto agree that, in determining the
amount involved in the claim, the damages shall be actual damages incurred and
proven and such actual damages shall not be computed by using a multiplier or
capitalization rate.
11.6 Equitable Remedies. The parties hereto acknowledge that a refusal by
a party to consummate the transactions contemplated hereby will cause
irreparable harm to the other parties, for which there may be no adequate remedy
at law. A party not in default at the time of such refusal shall be entitled, in
addition to other remedies at law or in equity, to specific performance of this
Agreement by the party that refused to consummate the transactions contemplated
hereby.
11.7 Remedies of the Surviving Corporation. After the Closing, the
Surviving Corporation shall have the same rights and benefits under this
Agreement as does Tyler with respect to the representations, warranties and
covenants of the Shareholder contained herein, as fully as if such
representations, warranties and covenants had been made to the Surviving
Corporation in lieu or in place of Tyler. In any proceeding by the Surviving
Corporation to assert or prosecute any claims under, or to otherwise enforce,
this Agreement on behalf of itself or Tyler, the Shareholder agrees that he
shall not assert as a defense or bar to recovery by the Surviving Corporation,
and hereby waives any right to so assert such defense or bar such recovery, that
(a) prior to Closing, the Company shall have had knowledge of the circumstances
giving rise to the claim being pursued by it; (b) prior to Closing, the Company
engaged in conduct or took action that caused or brought about the circumstances
giving rise to its claim, or otherwise contributed thereto; (c) the Company is
estopped from asserting or recovering upon its claim by reason of having joined
in the representations, warranties and covenants made by the Shareholder in this
Agreement; or (d) the Shareholder has a right of contribution from the Surviving
Corporation to the extent that there is any recovery against him.
11.8 Right of Offset. In addition to all other remedies at law or in
equity, after the Closing Tyler and Surviving Corporation (which for purposes of
this Section 11.8 shall mean the Surviving Corporation and Government Record
Services, Inc.) shall have the right to credit and offset against any payment
otherwise due the Shareholder under this Agreement, the Employment Agreement or
any other agreement or document, amounts equal to liabilities and costs incurred
or damages suffered by Tyler or the Surviving Corporation, directly or
indirectly (including payments made pending or subject to a final resolution of
any dispute or controversy with a third party and whether or not agreed to by
the Shareholder if necessary, in the judgment of Tyler, to protect business
relationships or assets) based on, relating to or arising out of, or any
allegation by a third party of, any breach, or any facts or circumstances which
would constitute a breach, by the Shareholder of any representation, warranty,
or covenant contained in this Agreement, the Employment Agreement or any other
agreement or document between the Shareholder, Tyler and/or the Surviving
Corporation executed pursuant hereto or thereto, unless (with respect to a third
party claimant) the Shareholder shall have specifically affirmed that he will
indemnify and hold Tyler and the Surviving Corporation harmless from such
liabilities, costs and damages pursuant to applicable provisions of this Article
11 and shall have undertaken the defense of such claim in accordance with this
Article 11. Tyler will give the Shareholder 30 days prior written notice of the
Surviving Corporation's intention to offset against any payment otherwise due
hereunder or under the Employment Agreement or other agreement or document. If
Tyler or the Surviving Corporation offsets any payment so due and, after final
determination, Tyler or Surviving Corporation is required to restore payment,
such payment shall bear interest from the day of initial offset until payment
restoration at a rate per annum which shall from day to day be the higher of 12%
or the prime rate of interest from time to time published or announced by Texas
Commerce Bank National Association or any successor thereto.
11.9 Costs of Defense. If any claim for which an indemnified party seeks
indemnification under this Article 11 results in a judgment that no damages are
due the claimant on a basis for which the indemnifying party is responsible
hereunder, then, as between the indemnifying and indemnified parties, the
indemnified parties shall be liable for any damages awarded and the costs
(including attorneys' fees) of defending such claim.
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ARTICLE 12
MISCELLANEOUS
12.1 Breach Discovered Prior to Closing.
(a) If, prior to the Time of Closing, Tyler has actual and certain
knowledge (as opposed to an opinion or belief) of any facts or circumstances
that it determines would constitute a failure to satisfy the conditions to the
obligations of Tyler to close this Agreement contained in Sections 9.1, 9.2 or
9.5 hereof, Tyler shall promptly give written notice to the Shareholder. If the
Shareholder fails to cure any such alleged defect within 15 days from the date
of notice, Tyler shall have the right either to (i) terminate this Agreement
pursuant to Section 12.2 below, in which case Tyler, shall, if not then in
default under this Agreement, be entitled to recover from the Company and the
Shareholder as liquidated damages the actual legal, accounting and other
out-of-pocket expenses incurred by it in connection with the negotiation,
preparation and execution of this Agreement and the other agreements and
instruments referred to herein, its investigation and examination of the affairs
of the Company and the Company Subsidiaries, and other actions taken preparatory
to consummating the transactions contemplated hereby, or (ii) waive such defect
as a condition to closing this Agreement, in which case Tyler shall not be
entitled to make any claims against the Shareholder pursuant to this Agreement
or to exercise any other remedial rights with respect to such alleged defect.
(b) If, prior to the Time of Closing, the Shareholder has actual and
certain knowledge (as opposed to an opinion or belief) of any facts or
circumstances that the Shareholder determines would constitute a failure to
satisfy the conditions to the obligations of the Company and the Shareholder to
close this Agreement contained in Sections 8.1, 8.2 and 8.4 hereof, the Company
and the Shareholder shall promptly give written notice to Tyler. If Tyler fails
to cure any such alleged defect, the Company and the Shareholder shall have the
right either to (i) terminate this Agreement pursuant to Section 12.2 below, in
which case the Company and the Shareholder shall, if not then in default under
this Agreement, be entitled to recover from Tyler as liquidated damages the
actual legal, accounting and other out-of-pocket expenses incurred by them (but
not including such expenses incurred to appropriately document the corporate
records and transactions of the Company, the Company Subsidiaries and the
Shareholder) in connection with the negotiation, preparation and execution of
this Agreement and the other agreements and instruments referred to herein,
their investigation and examination of the affairs of Tyler, and other actions
taken preparatory to consummating the transactions contemplated hereby, or (ii)
waive such defect as a condition to closing this Agreement, in which case the
Shareholder shall not be entitled to make any claims against Tyler or the
Surviving Corporation pursuant to this Agreement or to exercise any other
remedial rights with respect to such alleged defect.
12.2 Termination. This Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of Tyler and the Shareholder;
(b) by Tyler if there has been a material misrepresentation or breach
of warranty in the representations and warranties of the Company and the
Shareholder set forth herein or if there has been any material failure on
the part of the Company or the Shareholder to comply with their obligations
hereunder;
(c) by the Shareholder if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Tyler set
forth herein or if there has been any material failure on the part of Tyler
to comply with its obligations hereunder;
(d) by either Tyler or the Shareholder if the transactions
contemplated by this Agreement have not been consummated by March 31, 1998,
unless such failure of consummation is due to the failure of the
terminating party to perform or observe the covenants, agreements, and
conditions hereof to be performed or observed by it at or before the
Closing Date;
(e) by either Tyler or the Shareholder if the conditions precedent to
its or his obligations to close this Agreement have not been satisfied or
waived by it or him at or before the Closing Date; and
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(f) by either the Shareholder or Tyler if the transactions
contemplated hereby violate any nonappealable final order, decree, or
judgment of any court or governmental body or agency having competent
jurisdiction.
12.3 Expenses. If the transactions contemplated by this Agreement are not
consummated, each party hereto shall pay its own expenses incurred in connection
with this Agreement and the transactions contemplated hereby, except as
otherwise provided in Section 12.1. Notwithstanding the foregoing, Tyler shall
pay the actual legal, accounting and other out-of-pocket expenses incurred by
the Company and Shareholder in connection with the negotiation, preparation and
execution of this Agreement and the other agreements and instruments referred to
herein, their investigation and examination of the affairs of the Tyler, and
other actions taken preparatory to consummating the transactions contemplated
hereby if this Agreement is terminated by Tyler for any reason other than
failure of a condition precedent to its obligations set forth in Section 9.1,
9.2, 9.4, 9.9, 9.11 or 9.12 or rightfully terminated by the Company or the
Shareholder for any other reason (i.e., other than the failure of a condition
precedent to Tyler's obligations set forth in Section 9.1, 9.2, 9.4, 9.9, 9.11
or 9.12).
12.4 Disclosure Schedules. The Company Disclosure Schedule and the Tyler
Disclosure Schedule are incorporated herein by reference.
12.5 Entire Agreement. This Agreement and the Exhibits and Disclosure
Schedules hereto, the Confidentiality Agreement and the other agreements and
documents contemplated hereby, contain the complete agreement among the parties
with respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties with respect to such
transactions, including without limitation that certain Agreement and Plan of
Merger dated as of October 8, 1997 among Tyler, Sub, the Company, and
Shareholder, as the same was or has heretofore been amended and restated.
Section and other headings, the table of contents and indexes to the Disclosure
Schedules are for reference purposes only and shall not affect the
interpretation or construction of this Agreement. The parties hereto have not
made any representation or warranty except as expressly set forth in this
Agreement, the Employment Agreement, the Confidentiality Agreement, the
Noncompetition Agreements, the Company Disclosure Schedule, the Tyler Disclosure
Schedule or in any agreement, certificate or other document delivered pursuant
hereto or thereto. The obligations of any party under any agreement executed
pursuant to this Agreement shall not be affected by this Section.
12.6 Survival. All representations and warranties (except those contained
in Sections 2.9 and 2.15) of Tyler, Sub, the Company or the Shareholder
contained herein, in the Tyler Disclosure Schedule, in the Company Disclosure
Schedule, or in any exhibit, certificate, document or instrument delivered
pursuant to this Agreement shall survive the Closing and shall continue in full
force and effect for two years after the date of Closing. All representations
and warranties of the Shareholder contained in Section 2.9(b) above shall
survive the Closing and shall continue in full force and effect after the
Closing without time limitation. All representations and warranties of the
Shareholder contained in Sections 2.9(a), (c) and (d) above shall survive the
Closing and shall continue in full force and effect after the Closing until
expiration, in accordance with the laws of Texas, of the applicable time period
in which claims may be judicially asserted for breach of a written contract. All
representations and warranties of the Shareholder contained in Section 2.15
above shall survive the Closing and shall continue in full force and effect
after the Closing until expiration, in accordance with applicable law, of the
applicable time periods in which the taxing authority having jurisdiction may
assert a claim for failure of or deficiency in the payment of taxes. The
representations and warranties of the Company shall not survive the Closing.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
12.8 Notices. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and
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shall be mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by hand delivery, telegram, or
telecopy, addressed as follows:
(i) If to the Company or the Shareholder;
William D. Oates
Business Resources Corporation
2800 West Mockingbird Lane
Dallas, Texas 75235
Telecopy No.: (214) 902-0211
with a copy (which shall not constitute notice) to:
Gardere & Wynne, L.L.P.
1601 Elm Street
3000 Thanksgiving Tower
Dallas, Texas 75201-4761
Attention: John K. Sterling
Telecopy No.: (214) 999-4667
(ii) If to Tyler:
Tyler Corporation
2121 San Jacinto Street
3200 San Jacinto Tower
Dallas, Texas 75201
Attention: Chairman of the Board
Telecopy No.: (214) 754-7821
with a copy (which shall not constitute notice) to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002-3004
Attention: Gene G. Lewis
Telecopy No.: (713) 223-3717
Each party may designate by notice in writing a new address to which any
notice, demand, request, or communication may thereafter be so given, served, or
sent. Each notice, demand, request, or communication that is mailed, delivered,
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger, or (with respect to a telecopy) the confirmation being deemed
conclusive evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
12.9 Successors and Assigns. This Agreement and the rights, interests, and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
12.10 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas (except the choice of law rules
thereof).
12.11 Waiver and Other Action. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification, or supplement is sought.
12.12 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in
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full force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance (except to the extent such remaining
provisions constitute obligations of another party to this Agreement
corresponding to the unenforceable provision); and in lieu of such illegal,
invalid, or unenforceable provision, there shall be added automatically as part
of this Agreement, a provision as similar in its terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid, and
enforceable.
12.13 Knowledge. At any time there is a reference in a representation,
covenant or warranty of a party to this Agreement that is qualified by the
knowledge of such party, the terms "knowledge" or "knows" or "known", or
"belief" or "believes" shall mean (i) as to the Company and the Shareholder, the
knowledge or belief of the Shareholder or any of those certain individuals who
have executed or will execute Noncompetition Agreements pursuant to Section 5.3,
and (ii) as to Tyler, the knowledge or belief of its Chairman of the Board,
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Louis
A. Waters, or James E. Russell.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TYLER CORPORATION
By: /s/ C. A. RUNDELL, JR.
----------------------------------
C. A. Rundell, Jr., President and
Chief Executive Officer
T1 ACQUISITION CORPORATION
By: /s/ C. A. RUNDELL, JR.
----------------------------------
C.A. Rundell, Jr., President
BUSINESS RESOURCES CORPORATION
By: /s/ WILLIAM D. OATES
----------------------------------
William D. Oates, President
/s/ WILLIAM D. OATES
----------------------------------
William D. Oates, Individually
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APPENDIX B
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
TYLER CORPORATION,
T2 ACQUISITION CORPORATION,
THE SOFTWARE GROUP, INC.
BRIAN B. BERRY
AND
GLENN A. SMITH
DATED AS OF DECEMBER 29, 1997
AND EFFECTIVE AS OF
OCTOBER 8, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <S> <C>
ARTICLE 1
THE MERGER
1.1 The Merger.................................................. B-6
1.2 Closing..................................................... B-6
1.3 Effective Time.............................................. B-6
1.4 Effects of the Merger....................................... B-6
1.5 Articles of Incorporation; Bylaws........................... B-6
1.6 Directors and Officers...................................... B-7
1.7 Conversion of Securities; Exchange; Fractional Shares....... B-7
1.8 Adjustments to Prevent Dilution............................. B-8
1.9 Taking of Necessary Action; Further Action.................. B-8
ARTICLE 2
REPRESENTATIONS AND WARRANTS OF THE COMPANY
AND THE SHAREHOLDERS
2.1 Organization and Good Standing of Company................... B-9
2.2 No Company Subsidiaries..................................... B-9
2.3 No Other Investments........................................ B-9
2.4 Foreign Qualification....................................... B-9
2.5 Power and Authority to Conduct Business..................... B-9
2.6 Authority to Consummate Merger.............................. B-9
2.7 Binding Effect.............................................. B-9
2.8 Compliance with Other Instruments........................... B-10
2.9 Capitalization of Company................................... B-10
2.10 [Intentionally Omitted]..................................... B-10
2.11 [Intentionally Omitted]..................................... B-10
2.12 Company Financial Statements................................ B-11
2.13 Absence of Certain Changes.................................. B-11
2.14 No Material Undisclosed Liabilities......................... B-12
2.15 Tax Liabilities............................................. B-12
2.16 Title to Properties......................................... B-13
2.17 Condition of Tangible Assets................................ B-14
2.18 Accounts Receivable......................................... B-14
2.19 Inventories................................................. B-14
2.20 Patents, Trademarks, and Copyrights......................... B-14
2.21 Contracts................................................... B-15
2.22 Litigation and Claims....................................... B-16
2.23 Judgments, Decrees, and Orders in Restraint of Business..... B-16
2.24 No Violation of Any Instrument.............................. B-16
2.25 Compliance With Laws........................................ B-17
2.26 Compensation and Benefit Plans.............................. B-17
2.27 Labor Relations............................................. B-18
2.28 Adequate Insurance.......................................... B-18
2.29 Contracts with Affiliates and Others........................ B-18
2.30 Revenue Recognition......................................... B-18
2.31 Certain Fees................................................ B-19
2.32 Environmental Matters....................................... B-19
2.33 Accuracy of Information Furnished........................... B-19
</TABLE>
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TYLER
3.1 Organization and Good Standing of Tyler..................... B-20
3.2 Foreign Qualification....................................... B-20
3.3 Power and Authority to Conduct Business..................... B-20
3.4 Authority to Consummate Merger.............................. B-20
3.5 Binding Effect.............................................. B-20
3.6 Compliance with Other Instruments........................... B-20
3.7 Capitalization of Tyler..................................... B-21
3.8 Commission Filings; Financial Statements.................... B-21
3.9 Absence of Certain Changes.................................. B-22
3.10 No Material Undisclosed Liabilities......................... B-22
3.11 Litigation and Government Claims............................ B-22
3.12 No Violation of Any Instrument.............................. B-22
3.13 Certain Fees................................................ B-23
3.14 No Interim Operations of Sub................................ B-23
3.15 Accuracy of Information Furnished........................... B-23
ARTICLE 4
JOINT COVENANTS OF THE COMPANY, THE SHAREHOLDERS AND TYLER
4.1 Access; Confidentiality..................................... B-23
4.2 Notice of any Material Change............................... B-24
4.3 Monthly Financial Statements................................ B-24
4.4 Antitrust Notification...................................... B-24
4.5 Tax Matters................................................. B-24
4.6 Cooperation Pending Closing................................. B-26
ARTICLE 5
COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 Conduct of Business Prior to Closing Date................... B-26
5.2 Employment Agreement........................................ B-27
5.3 Noncompetition Agreements................................... B-27
5.4 Agreement Not to Negotiate.................................. B-27
5.5 Accuracy of Information Furnished........................... B-27
5.6 Regulation S-X Financial Statements......................... B-27
5.7 Termination of Shareholders Agreement....................... B-28
5.8 Pre-Closing Bonuses......................................... B-28
5.9 Form of Merger.............................................. B-28
ARTICLE 6
COVENANTS OF TYLER
6.1 Conduct Prior to Closing Date............................... B-28
6.2 Proxy Statement............................................. B-28
6.3 Meetings of Stockholders.................................... B-28
6.4 Stock Exchange Listing...................................... B-28
6.5 Guaranties of Company Obligations........................... B-29
6.6 Other Tyler Obligations..................................... B-29
6.7 Company Indemnification Obligations......................... B-29
6.8 Agreements Regarding Stock Options.......................... B-30
6.9 Release of Shareholder Guaranties........................... B-30
B-3
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ARTICLE 7
JOINT CONDITIONS PRECEDENT TO CLOSING OBLIGATIONS
7.1 HSR Act..................................................... B-30
7.2 Absence of Litigation....................................... B-30
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS
8.1 Compliance.................................................. B-30
8.2 Representations and Warranties.............................. B-31
8.3 Opinion..................................................... B-31
8.4 No Material Adverse Change.................................. B-31
8.5 Financing................................................... B-31
8.6 Certificates................................................ B-31
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLER
9.1 Compliance.................................................. B-31
9.2 Representations and Warranties.............................. B-31
9.3 Securities Law Compliance................................... B-31
9.4 Opinions.................................................... B-32
9.5 No Material Adverse Change.................................. B-32
9.6 Consents to Transaction..................................... B-32
9.7 Financing................................................... B-32
9.8 Noncompetition Agreements................................... B-32
9.9 Business Resources Corporation.............................. B-32
9.10 Stockholder Approval........................................ B-32
9.11 Certificates................................................ B-32
ARTICLE 10
SECURITIES LAW REGISTRATION AND COMPLIANCE
10.1 Securities Law Compliance; Restrictions on Shares........... B-32
10.2 Piggyback Registration...................................... B-33
10.3 Registration Procedures..................................... B-33
10.4 Expenses.................................................... B-34
10.5 Indemnification............................................. B-34
10.6 No Transferability of Registration Rights................... B-36
ARTICLE 11
INDEMNIFICATION AND REMEDIES
11.1 Indemnification by the Shareholders Based on Agreement...... B-36
11.2 Indemnification by Tyler Based on Agreement................. B-36
11.3 Customer Claims............................................. B-36
11.4 Claims Limitations.......................................... B-37
11.5 Maximum Liability........................................... B-38
11.6 Equitable Remedies.......................................... B-38
11.7 Remedies of the Surviving Corporation....................... B-38
11.8 Costs of Defense............................................ B-38
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ARTICLE 12
MISCELLANEOUS
12.1 Breach Discovered Prior to Closing.......................... B-39
12.2 Termination................................................. B-39
12.3 Expenses.................................................... B-40
12.4 Disclosure Schedules........................................ B-40
12.5 Entire Agreement............................................ B-40
12.6 Survival.................................................... B-40
12.7 Counterparts................................................ B-40
12.8 Notices..................................................... B-41
12.9 Successors and Assigns...................................... B-41
12.10 Governing Law............................................... B-41
12.11 Waiver and Other Action..................................... B-41
12.12 Severability................................................ B-41
12.13 Knowledge................................................... B-42
ANNEX I Shareholders and Optionholders............................. B-44
<TABLE>
<S> <C>
EXHIBITS
Exhibit
A Surviving Corporation Directors and Officers
Exhibit
B Employment and Noncompetition Agreement (Shareholders)
</TABLE>
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT, dated as of the 29th day of December,
1997 and effective as of the 8th day of October, 1997, is entered into by and
among Tyler Corporation, a Delaware corporation ("Tyler"), T2 Acquisition
Corporation, a Texas corporation and wholly-owned subsidiary of Tyler ("Sub"),
The Software Group, Inc., a Texas corporation, (the "Company"), Brian B. Berry
and Glenn Smith (each, a "Shareholder" and collectively, the "Shareholders").
WITNESSETH:
WHEREAS, subject to and in accordance with the terms and conditions of this
Agreement, the respective Boards of Directors of Tyler, Sub and the Company, and
Tyler as sole shareholder of Sub, have approved the merger of Sub with and into
the Company (the "Merger"), whereby all the issued and outstanding shares of
common stock, without par value, of the Company (the "Company Common Stock") not
owned directly or indirectly by the Company will be converted into the right to
receive in the aggregate $12,000,000 in cash and 2,000,000 shares of common
stock, par value $0.01 per share, of Tyler ("Tyler Common Stock"), as provided
herein;
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Subject to and in accordance with the terms and conditions
of this Agreement and in accordance with the Texas Business Corporation Act (the
"TBCA"), at the Effective Time (as defined in Section 1.3) Sub shall be merged
with and into Company. As a result of the Merger, the separate corporate
existence of the Sub shall cease and Company shall continue as the surviving
corporation (sometimes referred to herein as the "Surviving Corporation") and
shall succeed to and assume all of the rights and obligations of the Company in
accordance with the TBCA.
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
the offices of Gardere & Wynne, L.L.P., 1600 Elm Street, Suite 3000, Dallas,
Texas 75201 as soon as practicable after the satisfaction or waiver of the
conditions set forth in Article V or at such other time and place and on such
other date as Tyler and the Company shall agree; provided, that the closing
conditions set forth in Article V shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Effective Time. On the Closing Date, or as soon as practicable
thereafter, the Company and Sub will cause Articles of Merger (the "Articles of
Merger") to be filed with the Secretary of State of the State of Texas as
provided in Article 5.04 of the TBCA. The Merger will become effective at the
time that the Articles of Merger have been filed with the Secretary of State of
the State of Texas or at such other time specified in the Articles of Merger as
the effective time (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
the applicable provisions of the TBCA.
1.5 Articles of Incorporation; Bylaws. The Articles of Incorporation (the
"Articles") and Bylaws (the "Bylaws") of the Company, as in effect immediately
prior to the Effective Time, shall be the articles of incorporation and bylaws
of the Surviving Corporation and thereafter shall continue to be its articles of
incorporation and bylaws until amended as provided therein and under the TBCA.
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1.6 Directors and Officers. The persons specified as directors on Exhibit
A hereto shall be the initial directors of the Surviving Corporation, each to
hold office in accordance with the Articles and Bylaws, and the persons
specified as officers on Exhibit A hereto shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified in accordance with the Articles and Bylaws.
1.7 Conversion of Securities; Exchange; Fractional Shares. Subject to the
terms and conditions of this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of the Company, Sub or their
Shareholder:
(a) Each share of the Company Common Stock issued and outstanding
immediately prior to the Effective Time, other than any shares of the
Company Common Stock to be canceled pursuant to Section 1.7(b), shall be
converted, subject to the provisions of this Section 1.7, into the right to
receive, without interest, $5.7943 in cash and 0.965717 shares of Tyler
Common Stock (collectively, the "Merger Consideration"); provided that no
fractional shares of Tyler Common Stock shall be issued, and, in lieu
thereof, a cash payment shall be made in accordance with the procedure set
forth in Section 1.7(h) hereof.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock held by Sub, Tyler or any
direct or indirect wholly-owned subsidiary of Tyler, or the Company
immediately prior to the Effective Time shall be canceled and extinguished
at the Effective Time without any conversion thereof and no payment shall
be made with respect thereto.
(c) Each option outstanding at the Effective Time to purchase shares
of Company Common Stock (a "Stock Option") granted under (i) the 1988 Stock
Option Plan for Software Group, Inc., as amended (the "Company Stock Option
Plan"), or (ii) any other stock plan or agreement of the Company, which by
its terms is not extinguished in the Merger, shall be exercised prior to
the Closing and the holders of any such Stock Options agree to exercise
such Stock Options at or prior to the Closing.
(d) Each share of common stock, par value $1.00 per share, of Sub
issued and outstanding immediately prior to the Effective Time shall at the
Effective Time be converted into one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation.
(e) At the Effective Time, each holder of an outstanding certificate
that prior thereto represented shares of Company Common Stock shall be
entitled to receive, upon surrender to the Surviving Corporation of such
certificate or certificates for cancellation and subject to any required
withholding of taxes, a certificate or certificates representing the number
of whole shares of Tyler Common Stock (of such denominations and registered
in such names as such holder may request) into which the shares of Company
Common Stock so surrendered shall have been converted. Each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Tyler Common Stock shall, upon surrender to the
Surviving Corporation of the certificates representing shares of Company
Common Stock held by such holder, be paid an amount in cash in accordance
with the provisions of Section 1.7(h). Until so surrendered, each
outstanding certificate that prior to the Effective Time represented shares
of Company Common Stock shall be deemed from and after the Effective Time
to evidence the right to receive that amount of cash and that number of
full shares of Tyler Common Stock into which such shares of Company Common
Stock shall have been converted pursuant to this Section 1.7, and any cash
in lieu of fractional shares of Tyler Common Stock, subject to any of
required withholding of taxes. No interest shall be paid on the cash
payable upon surrender of the certificate or certificates evidencing shares
of Company Common Stock. Unless and until any such outstanding certificates
representing shares of Company Common Stock shall be surrendered, no
dividends or other distributions declared and payable to the holders of
Tyler Common Stock on or after the Effective Time shall be paid to the
holders of such outstanding certificates which prior to the Effective Time
represented shares of Company Common Stock; provided, however, that, upon
surrender and exchange of such outstanding certificates, there shall be
paid to the record holders of the certificates issued and exchanged
therefor the amount, without interest thereon, of dividends and other
distributions, if any, that theretofore
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<PAGE> 154
were declared and became payable since the Effective Time with respect to
the number of full shares of Tyler Common Stock issued to such holders.
(f) The cash and shares of Tyler Common Stock into which the shares of
Company Common Stock shall have been converted pursuant to this Section 1.7
shall be issued in full satisfaction of all rights pertaining to such
converted shares of Company Common Stock.
(g) If any certificate for shares of Tyler Common Stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange shall have paid to Tyler or the Surviving Corporation any transfer
or other taxes required by reason of the issuance of a certificate for
shares of Tyler Common Stock in any name other than that of the registered
holder of the certificate surrendered, or established to the satisfaction
of Tyler or its transfer agent that such tax has been paid or is not
payable.
(h) No fraction of a share of Tyler Common Stock shall be issued, but
in lieu thereof each holder of shares of Company Common Stock who would
otherwise be entitled to a fraction of a share of Tyler Common Stock shall,
upon surrender to the Surviving Corporation of the certificate or
certificates representing the shares of Company Common Stock held by such
holder, be paid an amount in cash equal to the value of such fraction of a
share of Tyler Common Stock based upon the closing price of one share of
Tyler Common Stock on the New York Stock Exchange, Inc. ("NYSE") on the
last trading day prior to the Effective Time. No interest shall be paid on
such amount. All shares of Company Common Stock held by a record holder
shall be aggregated for purposes of computing the number of shares of Tyler
Common Stock to be issued pursuant to this Section 1.7.
(i) At the Closing, Tyler shall provide each holder of certificates
which prior to the Effective Time represented shares of Company Common
Stock a letter of transmittal and other documentation enabling such holder
to effect the exchange of stock certificates as contemplated by Article 1
of this Agreement.
(j) Neither Tyler, the Surviving Corporation, nor any other person
shall be liable to any former holder of shares of Company Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(k) In the event any certificate formerly representing shares of the
Company Common Stock shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such certificate
to be lost, stolen or destroyed and, if required by Tyler or the Surviving
Corporation, the posting by such person of a bond in customary amount as
indemnity against any claim that may be made against Tyler or the Surviving
Corporation with respect to such certificate, the Surviving Corporation
shall deliver in exchange for such lost, stolen or destroyed certificate
the cash and shares of Tyler Common Stock that would be deliverable
pursuant to this Article 1 upon due surrender of the shares of Company
Common Stock represented by such lost, stolen or destroyed certificate.
1.8 Adjustments to Prevent Dilution. In the event that the Company changes
the number of shares of the Company Common Stock or securities convertible or
exchangeable into or exercisable for shares of the Company Common Stock, or
Tyler changes the number of shares of Tyler Common Stock or securities
convertible or exchangeable into or exercisable for shares of Tyler Common
Stock, issued and outstanding prior to the Effective Time as a result of a
reclassification, stock split (including a reverse split or combination), stock
dividend or distribution, recapitalization, subdivision, or other similar
transaction, the Merger Consideration shall be correspondingly adjusted.
1.9 Taking of Necessary Action; Further Action. The parties hereto shall
take all such reasonable and lawful action as may be necessary or appropriate in
order to effectuate the Merger as promptly as possible. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property,
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<PAGE> 155
rights, privileges, powers and franchises of the Company or Sub, such
corporations shall direct their respective officers and directors to take, and
the Shareholders shall take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
The Company and the Shareholders jointly and severally represent and
warrant to Tyler and Sub as follows:
2.1 Organization and Good Standing of Company. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas.
2.2 No Company Subsidiaries. The Company is not, and has never been, the
record or beneficial owner, directly or indirectly, of 50% or more of the
capital stock of any corporation.
2.3 No Other Investments. The Company does not own, and has never owned,
any capital stock of any other corporation or any equity, profit sharing,
participation, or other interest of any type in any partnership, joint venture,
and other entity.
2.4 Foreign Qualification. The Company is duly qualified or licensed to do
business as a foreign corporation and in good standing in those jurisdictions
set forth in Section 2.4 of the schedule delivered by the Company concurrently
with the execution of this Agreement (the "Company Disclosure Schedule"). The
Company is duly qualified or licensed to do business as a foreign corporation in
every jurisdiction where the failure so to qualify could have a material adverse
effect on the businesses, operations, assets or financial condition of the
Company. For purposes of this Section 2.4, no material adverse effect shall be
deemed to have occurred as a result of non-payment of state or local franchise
taxes not exceeding $37,500 in the aggregate.
2.5 Power and Authority to Conduct Business. The Company has the corporate
power and authority, and possesses all licenses and permits required by
governmental authorities, to own, lease, and operate their properties and assets
and to carry on its business as currently being conducted, except where the
failure to possess such license or permit would not have a material adverse
effect on the businesses, operations, assets or financial condition of the
Company.
2.6 Authority to Consummate Merger. The Company has the corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and the other agreements or documents executed or required to be
executed by the Company in connection with this Agreement, and the execution,
delivery, and performance by the Company of this Agreement and the other
documents executed or required to be executed by the Company in connection with
this Agreement have been duly authorized by all necessary corporate action. Each
Shareholder has the capacity and authority to execute, deliver and perform his
obligations under this Agreement, and the other agreements or documents executed
or required to be executed by him in connection herewith.
2.7 Binding Effect. This Agreement and the other agreements and documents
executed or required to be executed by the Company or the Shareholders in
connection with this Agreement have been or will have been duly executed and
delivered by the Company or the Shareholders, as appropriate, and are or will
be, when executed and delivered, the legal, valid, and binding obligations of
the Company or the Shareholders executing the same, enforceable in accordance
with their terms, except that:
(a) enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification under Section 10.5 may be limited by
considerations of public policy.
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<PAGE> 156
2.8 Compliance with Other Instruments. Except as disclosed in Section 2.8
of the Company Disclosure Schedule, neither the execution and delivery by the
Company or the Shareholders of this Agreement, or the other agreements or
documents executed or required to be executed by the Company or the Shareholders
in connection herewith, nor the consummation by the Company or the Shareholders
of the transactions contemplated hereby and thereby, will (i) conflict with the
articles of incorporation or bylaws of the Company; (ii) assuming satisfaction
of the requirements set forth in clause (iii) below, violate any provision of
law applicable to the Company; (iii) except for (A) requirements arising out of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), and
(B) the filing of articles of merger in accordance with the TBCA, require any
consent, authorization, permit, license or approval of, or declaration,
registration or filing with or notice to, any person or governmental body or
authority, domestic or foreign, under any provision of law applicable to the
Company; or (iv) require any consent, approval or notice under, violate, breach,
be in conflict with, or constitute a default (or an event that, with notice or
lapse of time or both, would constitute a default) under, or permit the
termination or the acceleration of maturity of, or result in the imposition of
any lien, claim, or encumbrance upon any property or asset of the Company or
either Shareholder, pursuant to any note, bond, indenture, mortgage, deed of
trust, evidence of indebtedness, loan or lease agreement, or other agreement or
instrument (including with customers) listed or required to be listed in Section
2.21 of the Company Disclosure Schedule, or any judgment, order, injunction, or
decree by which the Company or either Shareholder is bound, to which any of them
is a party, or to which any of their assets is subject, where any such failure
to obtain any consent, approval or notice, or violation, breach, conflict or
default would result in a material adverse effect on the businesses, operations,
assets or financial condition of the Company.
2.9 Capitalization of Company.
(a) The authorized capital stock of the Company is 5,000,000 shares of
Company Common Stock, of which 1,921,000 shares of Company Common Stock are
issued and outstanding at the date hereof and 150,000 shares are subject to
Stock Options. All of the issued and outstanding shares of Company Common Stock
have been duly authorized and are validly issued, fully paid and nonassessable.
There are and at the Closing will be no shares of the capital stock of the
Company held in its treasury or in the treasury.
(b) At the Closing, each Shareholder will be the lawful record and
beneficial owner of the shares of the Company Common Stock, set forth opposite
such Shareholder's name on Annex I, free and clear of all liens, encumbrances,
and claims of every kind, and the shares so owned by the Shareholders will
constitute 93% of the issued and outstanding shares of the Company capital
stock. Set forth on Annex I are the number of shares of Company Common Stock
outstanding and Company Common Stock subject to options. Each Shareholder has
the right to vote or direct the vote of his shares at his discretion on any
matter submitted to a vote of the Company shareholders.
(c) Except as disclosed in Section 2.9 of the Company Disclosure Schedule,
there are no voting trusts, shareholder agreements, or other voting arrangements
among the shareholders of the Company.
(d) Except as described in Section 2.9 of the Company Disclosure Schedule,
there presently is no outstanding subscription, contract, convertible or
exchangeable security, option, warrant, call, or other right obligating the
Company or any Shareholder to issue, sell, exchange, or otherwise dispose of, or
to purchase, redeem, or otherwise acquire, shares of, or securities convertible
into or exchangeable for, capital stock of the Company; no such rights disclosed
in Section 2.9 of the Company Disclosure Schedule will remain outstanding at the
Closing. No shareholder of the Company is entitled to any preemptive right.
2.10 [Intentionally Omitted].
2.11 [Intentionally Omitted].
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<PAGE> 157
2.12 Company Financial Statements.
(a) The Company has delivered to Tyler true, correct, and complete copies
of the following financial statements of the Company (the "Company Financial
Statements"), which are attached to Section 2.12 of the Company Disclosure
Schedule:
(i) the audited balance sheets of the Company as of October 31, 1996,
1995 and 1994 and the related audited statements of operations,
stockholder's equity, and cash flows for the years then ended, with notes
thereto, prepared in accordance with United States generally accepted
accounting principles, except as disclosed in the notes thereto; and
(ii) the unaudited balance sheet of the Company as of August 31, 1997
(the "Company Balance Sheet"), and the related unaudited statements of
operations, stockholder's equity, and cash flows for the ten months then
ended, with notes thereto, prepared in accordance with United States
generally accepted accounting principles, except as disclosed in the notes
thereto.
The Company Financial Statements present fairly, in all material respects, the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended, in conformity with
generally accepted accounting principles applied, except as may be set forth in
the notes thereto, on a consistent basis throughout such periods.
(b) Since August 31, 1997, there has been no change in accounting
principles applicable to, or methods of accounting utilized by the Company, and
the books and records of Company have been and are being maintained in
accordance with all applicable legal and accounting requirements and what the
Shareholders believe in good faith to be good business practice, reflect only
valid transactions, are complete and correct in all material respects, and
accurately reflect in all material respects the basis for the financial position
and results of operations and cash flows of the Company set forth in the Company
Financial Statements.
2.13 Absence of Certain Changes. Since August 31, 1997 (or other date
indicated below), the Company has not (except as may be contemplated by this
Agreement or as may result from the transactions contemplated by this
Agreement):
(a) except as disclosed in Section 2.13 of the Company Disclosure
Schedule, suffered any change in its businesses, results of operations,
working capital, assets, liabilities, or financial condition or the manner
of conducting its business other than changes that, individually or in the
aggregate, have not had a material adverse effect on the businesses,
operations, assets or condition (financial or otherwise) of the Company;
(b) experienced a decline in the shareholder's equity of the Company
from its shareholder's equity shown on the Company Balance Sheet at August
31, 1997, determined using the same accounting principles applied in the
preparation of the Company Financial Statements (but without giving effect
to the payment of pre-closing bonuses, if any, pursuant to Section 5.8
hereof);
(c) except as disclosed in Section 2.13 of the Company Disclosure
Schedule, suffered any damage or destruction to or loss of its assets not
covered by insurance, or any loss of customers or suppliers, or terminated
or lost the services of any key employee (including any employee who had
agreed with the Company to maintain the confidentiality of proprietary or
technical information or know-how or to assign inventions, patents, or
copyrights) that has had, or in the good faith belief of the Shareholders
is likely to have, a material adverse effect on the businesses, operations,
assets, financial condition, or prospects of the Company;
(d) acquired or disposed of any material asset, or incurred, assumed,
guaranteed, endorsed, paid, or discharged any material indebtedness,
liability, or obligation, or subjected or permitted to be subjected any
material amount of assets to any lien, claim, or encumbrance of any kind,
except in the ordinary course of business or pursuant to agreements in
force at the date of this Agreement;
(e) forgiven, compromised, canceled, released, waived, or permitted to
lapse any material rights or claims, except as disclosed in Section 2.13 of
the Company Disclosure Schedule;
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<PAGE> 158
(f) entered into or terminated any material agreement or commitment,
or agreed or made any changes in material leases or agreements, other than
renewals or extensions thereof and leases, agreements, and commitments
entered into, terminated, or modified in the ordinary course of business;
(g) written up, written down, or written off the book value of any
material amount of assets, except as disclosed in Section 2.13 of the
Company Disclosure Schedule;
(h) declared, paid, or set aside for payment any dividend or
distribution with respect to its capital stock;
(i) except as set forth in Section 2.13 of the Company Disclosure
Schedule, redeemed, purchased, or otherwise acquired, or sold, granted, or
otherwise disposed of, directly or indirectly, any of its capital stock or
securities or any rights to acquire such capital stock or securities, or
agreed to changes in the terms and conditions of any such rights;
(j) except as set forth in Section 2.13 of the Company Disclosure
Schedule, paid compensation, fees, bonuses or other payments to any
Shareholder or his family members or any of his affiliates, other than the
base salary of each Shareholder; or materially increased the compensation
of or paid any bonus to any other employee or contributed to any employee
benefit plan other than in accordance with policies, practices or
requirements established and in effect on October 31, 1996;
(k) Entered into any employment, compensation, or collective
bargaining agreement with any person or group or consulting agreement not
identified in Section 2.13 of the Company Disclosure Schedule, other than
in the ordinary course of business;
(l) Entered into, adopted, or materially amended any employee benefit
plan; or
(m) Entered into any other material commitment or transaction not
disclosed elsewhere herein or in the Company Disclosure Schedule, other
than in the ordinary course of business.
2.14 No Material Undisclosed Liabilities. To the knowledge of the Company
or the Shareholders, there is no liability or obligation of the Company of any
nature, whether absolute, accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued,
or reserved against on the Company Balance Sheet, for which the reserves
are appropriate and reasonable, or incurred in the ordinary course of
business and consistent with past practices since August 31, 1997;
(b) the loss contingencies set forth in Section 2.14 of the Company
Disclosure Schedule;
(c) contractual liabilities or obligations of a nature not required to
be disclosed on a balance sheet prepared in accordance with generally
accepted accounting principles, but which, if material, are disclosed in
Section 2.14 of the Company Disclosure Schedule; and
(d) other liabilities and loss contingencies which are not material in
the aggregate to the business, operations, assets or condition (financial
or otherwise) of the Company.
The Company is not a signatory to, and is not in any manner a guarantor,
endorser, assumptor or otherwise primary or secondarily liable for or
responsible for the payment of, any notes payable other than those set forth in
Section 2.21 of the Company Disclosure Schedule.
2.15 Tax Liabilities. The Company has filed all material federal, state,
county, local, and foreign tax returns and reports required to be filed by them,
including those with respect to income, payroll, property, withholding, social
security, unemployment, franchise, excise, use and sales taxes, and has either
paid in full all taxes that have become due as reflected on any such return or
report and any interest and penalties with respect thereto or, as of August 31,
1997, it has fully accrued on its books or has established adequate reserves for
all taxes payable but not yet due, except that at August 31, 1997 the unrecorded
contingent liability of the Company with respect to payroll, withholding, social
security, unemployment, franchise, property, sales, use and excise taxes did not
exceed $37,500 in the aggregate for all such taxes. The total of all payments
made in 1996 and in 1997 for taxes, interest and penalties of the Company for
periods ended prior to November 1, 1996
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have not exceeded the accrued liability for such items shown on the Company
Financial Statements as of August 31, 1997 for periods ended October 31, 1996;
the Company has not, subsequent to October 31, 1996, accrued or set aside any
reserves on its books and records for any taxes, interest or penalties for any
period ended prior to November 1, 1996 nor has the Company made any payments in
1996 or 1997 of taxes, interest or penalties for periods ended prior to November
1, 1996 that were not reflected in the accrued liability therefor (including
deferred taxes) shown on the Company Financial Statements as of August 31, 1997
for periods ended October 31, 1996. There are no reserves (other than for
deferred taxes) reflected in the Company Financial Statements as of August 31,
1997 for periods ended October 31, 1996 for taxes, interest or penalties in
excess of those shown to be due on any tax returns that have been filed for any
periods then ended. Except as disclosed on Section 2.15 of the Company
Disclosure Schedule, neither the Internal Revenue Service nor any other taxing
authority has audited or is in the process of auditing the tax returns and
reports of the Company, and no claim for additional taxes, interest, or
penalties for any fiscal year is pending. The Company has delivered to Tyler
true, complete and correct copies of (i) all federal and state income or
franchise tax returns for the Company for all periods ending on and after
October 31, 1994 and (ii) relevant portions of income and franchise tax
examination reports, statements of deficiencies, closing or other agreements
received by, assessed against or agreed to by the Company, relating to such
taxes, since October 31, 1994, if any. No extension or waiver of any statute of
limitations has been requested of or granted by the Company with respect to any
tax year, and no extension or waiver of time within which to file any tax return
has been requested by or granted to the Company except with respect to tax
returns not yet filed but otherwise due. No unsatisfied deficiency, delinquency,
or default for any tax, assessment, or governmental charge has been claimed or
assessed, or to the knowledge of the Company or the Shareholders, proposed
against the Company, nor has the Company received notice of any such deficiency,
delinquency, or default, for any tax period. Neither the Company nor either
Shareholder has any reason to believe that the Company has any material
contingent income tax liabilities other than those reflected on the Company
Balance Sheet and those arising in the ordinary course of business since the
date thereof, and those arising as a result of the transactions contemplated
hereby. The Company has not filed a consent under sec.341(f) of the Internal
Revenue Code of 1986, as amended (the "Code"), concerning collapsible
corporations. The Company has not made any material payments, is not obligated
to make any material payments, and is not a party to any agreement that under
certain circumstances could obligate it to make any material payments that will
not be deductible under Code sec.280G. The Company is not a party to any tax
allocation or sharing agreement. The Company (i) has not been a member of an
affiliated group filing a consolidated federal income tax return and (ii) does
not have any liability for the taxes of any person under Treasury Reg.
sec.1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor, by contract, or otherwise.
2.16 Title to Properties.
(a) The Company owns no real property.
(b) Except as disclosed in Section 2.16(b) of the Company Disclosure
Schedule and except as they have since been affected subsequent to August 31,
1997 by transactions in the ordinary course of business and consistent with past
practices, and except for assets subject to financing leases required to be
capitalized under generally accepted accounting principles which are reflected
in the Company Balance Sheet or notes thereto, the Company has good and
marketable title to the assets reflected in the Company Balance Sheet or
otherwise on their books and records as being owned as of August 31, 1997, or
purchased by it since August 31, 1997, and to the assets described in Section
2.20 below and to the following assets whether or not reflected in the Company
Balance Sheet or on such books and records:
The computer programs and applications software, in both object code and
source code form, and all documentation therefor (excluding operating systems
software leased by or licensed to the Company) utilized by the Company in its
business.
(c) The assets identified in subsection (b) above and the assets described
in Section 2.20 below are owned by or licensed to the Company free and clear of
any lien, claim or encumbrance except those disclosed
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in the Company Balance Sheet or notes thereto or in Section 2.16(c) of the
Company Disclosure Schedule and except for:
(i) Liens for taxes, assessments, or other governmental charges not
yet delinquent, or the validity of which are being contested in good faith
by appropriate proceedings listed in Section 2.16(c) of the Company
Disclosure Schedule;
(ii) Statutory liens incurred in the ordinary course of business that
are not yet delinquent, or the validity of which are being contested in
good faith by appropriate proceedings described in Section 2.16(c) of the
Company Disclosure Schedule;
(iii) The rights of customers of the Company with respect to inventory
or work in progress under purchase orders or contracts entered into by the
Company in the ordinary course of business;
(iv) Liens, claims, or encumbrances consisting of leases of equipment
to customers entered into in the ordinary course of business;
(v) Liens, claims, or encumbrances described in real estate title
insurance binders or commitments, or abstracts of title to real estate,
furnished or to be furnished to Tyler in connection with the transactions
contemplated hereby, unless Tyler objects to the same in writing within
five business days after receipt of such title documents;
(vi) Restrictions and constraints set forth in the license agreements
described in Section 2.20 of the Company Disclosure Schedule; and
(vii) Other liens, claims, or encumbrances that, in the aggregate, do
not materially detract from the value of, or materially interfere with the
present use of, such assets.
(d) Except for those assets acquired since the date of the Company Balance
Sheet, all tangible properties and assets material to the present operations of
the Company are reflected on the Company Balance Sheet and notes thereto in the
manner and to the extent required by generally accepted accounting principles.
Immediately after the Closing, the Company will own or lease or otherwise
possess the rights to use all assets necessary to the conduct of the business
conducted by the Company immediately before the Closing.
2.17 Condition of Tangible Assets. Except as set forth in Section 2.17 of
the Company Disclosure Schedule, the tangible assets of the Company which are
material to the business, operations, assets or financial condition of the
Company, are in good condition and repair and, in the good faith belief of each
Shareholder, are adequate for the uses to which they are being put in the
ordinary course of their respective businesses.
2.18 Accounts Receivable. To the knowledge of the Company or the
Shareholders, all accounts receivable reflected in the Company Balance Sheet or
arising since August 31, 1997 either have been collected or are enforceable and
collectible claims not subject to any valid defense, offset, or credit, except
to the extent of any reserves established for doubtful accounts in a manner
consistent with such practices in prior periods and except as set forth in
Section 2.18 of the Company Disclosure Schedule.
2.19 Inventories. The Company has no inventories.
2.20 Patents, Trademarks, and Copyrights. Set forth in Section 2.20 of the
Company Disclosure Schedule is a true and correct description of:
(a) all material trademarks, trade names, service marks, patents,
copyrights, and applications therefor and all license, royalty, assignment,
and other similar agreements relating to the foregoing currently owned, in
whole or in part, by the Company;
(b) all material agreements relating to technology, know-how, or
processes that the Company is licensed or authorized to use by others or
licenses or authorizes others to use; and
(c) all material trademarks, trade names, service marks, patents,
copyrights, and applications therefor and other similar and intangible
intellectual property and all license, royalty, assignment, and
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other similar agreements relating to the foregoing and all material
agreements relating to technology, know-how, or processes used in
connection with the business of the Company.
Except to the extent set forth in Section 2.20 of the Company Disclosure
Schedule, the Company has, to the knowledge of the Company and each Shareholder,
the sole and exclusive right to use the patents, trademarks, trade names,
copyrights, service marks, technology, know-how, and processes identified in
such Section 2.20 without infringing or violating the rights of any other
person, and to the knowledge of the Company and each Shareholder no consent of
third parties will be required for the use thereof by the Company upon
consummation of the Merger and there are no past due or delinquent license fees,
rents, royalties, or other charges that the Company is required or obligated to
pay with respect to any of the foregoing. Except as disclosed in Section 2.20 of
the Company Disclosure Schedule, no claim has been asserted by any person to the
ownership of or right to use any such patent, trademark, trade name, copyright,
service mark, technology, know-how, or process or challenging or questioning the
validity or effectiveness of any such license or agreement, and the Company
knows of no valid basis for any such claim. To the knowledge of the Company and
each Shareholder, except as disclosed in Section 2.20 of the Company Disclosure
Schedule, each of the foregoing is valid and subsisting, has not been canceled,
abandoned, or otherwise terminated, and, if applicable, has been duly issued or
filed.
2.21 Contracts. Set forth in Section 2.21 of the Company Disclosure
Schedule are complete and accurate lists of the following contracts and
commitments (including summaries of oral contracts) to which the Company is a
party or bound:
(a) Contracts with any labor union;
(b) Employee benefit plans or contracts;
(c) Employment or similar contracts, including confidentiality
agreements and agreements to assign inventions, patents and copyrights, and
consulting agreements (other than those entered into in the ordinary course
of business);
(d) Leases, whether as lessor or lessee, involving annual rental
payments in excess of $7,500, that are not terminable at will or upon
notice of 30 days or less by the Company;
(e) Loan agreements, mortgages, indentures, instruments of
indebtedness or commitments involving indebtedness for borrowed money or
money loaned to others in excess of $7,500, but excluding intercompany
items;
(f) Guaranty or suretyship, performance bond, indemnification, or
contribution agreements involving obligations in excess of $7,500, but
excluding intercompany items;
(g) Contracts with customers or suppliers that involve aggregate
payments to or by the Company of more than $15,000, and that are not
terminable at will or upon notice of 90 days or less by the Company;
(h) Distribution, marketing, dealership, sales, or agency agreements
material to the Company that are not terminable at will or upon notice of
30 days or less by the Company;
(i) Joint venture, partnership, or other agreements evidencing an
ownership interest or a participation in or sharing of profits;
(j) Contracts containing noncompetition covenants, covenants to
register securities, or negative or restrictive financial covenants that
are not terminable at will or upon notice of 30 days or less by the
Company;
(k) Voting agreements relating to securities of the Company (whether
or not the Company is a party thereto;
(l) Insurance policies involving annual premium payments of more than
$750;
(m) Powers of attorney; and
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(n) Contracts between the Company and any of the Shareholders, their
spouses or any affiliates or relatives thereof; and
(o) Other contracts not made in the ordinary course of business or
that, in the reasonable judgment of the Shareholders, are material to the
businesses, operations, assets, or financial condition of the Company.
No contract or commitment listed in Section 2.21 of the Company Disclosure
Schedule has been amended or modified or the rights and obligations evidenced
thereby otherwise affected in a manner materially adverse to the Company, except
by an instrument which is also included in such listing, and each contract or
commitment, as so amended, modified or affected, contains all material
provisions with respect to the subject matter thereof. The Company and the
Shareholders have furnished or made available to Tyler accurate and complete
copies of all of the contracts, commitments or instruments listed in Section
2.21 of the Company Disclosure Schedule. Except as set forth in Section 2.21 of
the Company Disclosure Schedule or with respect to contracts not material to the
businesses, operations, assets or financial condition of the Company, (i) to the
knowledge of the Company and the Shareholders, all such contracts are valid,
binding, subsisting, and enforceable in all material respects; (ii) to the
knowledge of the Company and the Shareholders and in their good faith belief the
Merger will not affect the continuance in full force and effect of such
contracts; and (iii) there is no material dispute among the parties to any such
contract and no material penalty has been incurred with respect thereto. Neither
the Company nor any Shareholder has received notice of any plan or intention of
any other party to any such contract or agreement to exercise any right to
cancel or terminate any such contract or agreement, and neither the Company nor
any Shareholder knows of any fact that would justify the exercise of such right.
Neither the Company nor any Shareholder currently contemplates, person or entity
currently contemplates, any amendment or change to any of the contracts or
agreements referred to in Section 2.21 of the Company Disclosure Schedule.
Except as disclosed in Section 2.21 of the Company Disclosure Schedule, none of
the Company's customers or suppliers, that during the fiscal year ended October
31, 1996 accounted for as much as 2% of consolidated sales or purchases of the
Company, has refused, or communicated that it will or may refuse, to purchase or
supply goods or services, as the case may be, or has communicated that it will
or may substantially reduce the amount of goods or services that it is willing
to purchase from, or sell to, the Company after the date hereof.
2.22 Litigation and Claims. Except as described in Section 2.22 of the
Company Disclosure Schedule, neither the Company nor any Shareholder is a party
to, and the businesses or assets of the Company are not the subject of or
affected by, any pending or to the knowledge of the Company or any Shareholder,
threatened suit, claim, action, or litigation with any party or any
administrative, arbitration, or other governmental proceeding, investigation, or
inquiry, or any pending change in any regulations, statutes or ordinances, which
would, severally or in the aggregate, have a material adverse effect on the
businesses, results of operations, assets, or the condition (financial or
otherwise) of the Company. Except as described in Section 2.22 of the Company
Disclosure Schedule, to the knowledge of the Company or any Shareholder, no
suit, claim, action or demand is currently pending, has been made or filed, or
is or has been threatened or contemplated by any person or entity, and there
exists no judgment or order (whether or not the Company is a party to any of the
foregoing) regarding or affecting the ownership, disclosure, copying, possession
or utilization by the Company of the assets reflected in the books and records
of the Company.
2.23 Judgments, Decrees, and Orders in Restraint of Business. The Company
is not a party to or subject to any judgment, order, or decree entered in any
suit or proceeding brought by any governmental agency or by any other person
enjoining it in respect of any business practice or the acquisition of any
property or the conduct of its business.
2.24 No Violation of Any Instrument. Except as disclosed in Section 2.24
of the Company Disclosure Schedule, the Company is not in violation of or
default under nor, to the knowledge of the Company or any Shareholder, has any
event occurred that, with or without the giving of notice, lapse of time or the
occurrence of any other event, would constitute a violation of or default under,
or permit the termination or the acceleration of maturity of, or result in the
imposition of a lien, claim, or encumbrance upon any property or asset of the
Company pursuant to, the articles or certificate of incorporation or bylaws of
the Company or any
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note, bond, indenture, mortgage, deed of trust, evidence of indebtedness, loan
or lease agreement, or other agreement or instrument (including with customers)
listed or required to be listed in Section 2.21 of the Company Disclosure
Schedule, or any judgment, order, injunction, or decree, to which it is a party,
by which it is bound, or to which any of its assets is subject, which would have
a material adverse effect on the businesses, operations, assets or financial
condition of the Company.
2.25 Compliance With Laws. The Company is substantially in compliance with
all laws applicable to their businesses, where failure so to comply would have a
material adverse effect on the businesses, operations, assets, prospects, or
financial condition of the Company.
2.26 Compensation and Benefit Plans.
(a) Section 2.26 of the Company Disclosure Schedule includes a complete and
accurate list of all pension, profit sharing, Section 401(k), thrift-savings,
simplified employee pension, excess benefit plan, deferred compensation,
incentive compensation, stock bonus, stock option, restricted stock, cash bonus,
employee stock ownership, severance pay, golden parachute, cafeteria, flexible
compensation, life insurance, medical, dental, disability, welfare, or vacation
plans or arrangements of any kind and any other Employee Pension Benefit Plan or
Employee Welfare Benefit Plan (as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended "ERISA") in which employees
or former employees of the Company participate (collectively, the "Benefit
Plans").
(b) The Company does not participate currently in and has never
participated in, and is not required currently to and has never been required to
contribute to or otherwise participate in, any "multi-employer plan," as defined
in Sections 3(37)(A) and 4001(a)(3) of ERISA and Section 414(f) of the Code. The
Company does not participate currently in and has never participated in, and is
not required currently to and has never been required to contribute to or
otherwise participate in, any plan, program or arrangement subject to Title IV
of ERISA.
(c) No former employee of the Company is entitled, and no current employee
will be entitled after termination of employment, to participate in any Employee
Welfare Benefit Plan as defined in ERISA, other than participation required to
be permitted by the Company under Section 4980B of the Code and Sections 601 to
609 of ERISA.
(d) The Company and the Shareholders have delivered to Tyler true, correct
and complete copies of the Benefit Plans and each applicable summary plan
description and the most recent Form 5500s applicable to such Benefit Plans.
Section 2.26 of the Company Disclosure Schedule sets forth the costs
attributable to each Benefit Plan determined on an annual basis. Except as
reflected or reserved against on the Company Balance Sheet, there is no unfunded
liability with respect to any Benefit Plan. None of the assets of the Company's
Benefit Plans are invested in any property constituting employer real property
or employer security within the meaning of Section 407(d) of ERISA.
(e) Each Employee Pension Benefit Plan sponsored, maintained or contributed
to by the Company is qualified under Section 401(a) of the Code; all related
trusts are exempt from federal income tax under Section 501(a) of the Code; each
such plan has received a determination letter from the IRS stating that the plan
is qualified under Section 401(a) of the Code and all related trusts are exempt
from federal income tax under Section 501(a) of the Code (which determination
letter includes all statutory and regulatory provisions of the Tax Reform Act of
1986 and subsequent legislation for which a determination letter may be
obtained); and to the knowledge of the Company, nothing has occurred since the
date of the last such determination which resulted in, or is likely to result
in, the revocation of such determination. A copy of the latest determination
letter applicable to any Employee Pension Benefit Plan has been delivered to
Tyler.
(f) Each of the Benefit Plans has been administered in material compliance
with its underlying documentation, the requirements of ERISA, the Code and all
other applicable laws. All returns required to be made under ERISA and the Code
with respect to the Benefit Plans have been timely filed and the Company has
made all contributions required under the terms of any Benefit Plan (including,
but in no way limited to, employer matching contributions and non-elective
contributions and the deposit of elective deferrals as such terms are defined in
the Code) for all periods through and including the date hereof.
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(g) To the knowledge of the Company, there are not now, nor have there ever
been, any transactions involving the Benefit Plans or any fiduciary or
administrator thereof which are prohibited under ERISA or the Code or for which
an individual, class or statutory exemption is not available.
(h) There are no pending or, to the knowledge of the Company, any
threatened claims by or on behalf of the Benefit Plans, the United States
Department of Labor, the Internal Revenue Service, or any current or former
employee of the Company or beneficiary of such current or former employee
alleging a breach of any fiduciary duties or a violation of applicable state or
federal law which could result in liability on the part of the Company, or a
Benefit Plan under ERISA or any other law, nor, to the knowledge of the Company,
is there any basis for such a claim and neither the Company, nor, to the
knowledge of the Company, any administrator or fiduciary of any Benefit Plan (or
agent of the foregoing) has engaged in any transaction or acted or failed to act
in any manner which would subject the Company to any liability for a breach of
fiduciary duty under ERISA. The transactions contemplated by this Agreement
(either alone or together with any other event) will not (i) terminate or modify
the provisions of any Benefit Plan or (ii) trigger an event under any Benefit
Plan or employer benefit arrangement or law that will result in any payment
(whether of severance pay or otherwise) becoming due from the Company.
2.27 Labor Relations.
(a) To the knowledge of the Company or the Shareholders, the Company (i) is
in substantial compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment (including occupational
health and safety), nondiscrimination, and wages and hours and (ii) are not
engaged in any unfair labor practice, that in any such case would have a
material adverse effect on the businesses, operations, assets or financial
condition of the Company.
(b) Except as disclosed in Section 2.27 of the Company Disclosure Schedule,
there is no unfair labor practice complaint against Company pending or, to the
knowledge of the Company or any Shareholder, threatened before the National
Labor Relations Board.
(c) There is no strike, labor dispute, slowdown, stoppage, or other
material interference with or impairment by labor of the business of the Company
actually pending or, to the knowledge of the Company or any Shareholder,
threatened or contemplated against or directly affecting the Company.
(d) To the knowledge of the Company or the Shareholders, no question of
union representation exists respecting the employees of the Company and no union
organizing activities are taking place.
(e) Since August 31, 1997, no key employees of the Company have been
terminated or have resigned their employment.
2.28 Adequate Insurance. The Company maintains insurance coverage that the
Company and the Shareholders believe is reasonably adequate to protect the
assets and operations of the Company, and is sufficient for material compliance
with all requirements of law and all agreements to which the Company is a party.
No notice of any termination or threatened termination of such policies has been
received by the Company and, to the knowledge of the Company or the
Shareholders, such policies are valid, binding, and enforceable.
2.29 Contracts with Affiliates and Others. Except as set forth in Section
2.29 of the Company Disclosure Schedule, no director or officer of the Company,
nor any person who is a spouse or descendant of such director or officer, has
any direct or indirect relationship with any customer or supplier of, or other
contracting party with, the Company (other than as a director, officer, or
shareholder of the Company) that would be required to be disclosed in a proxy
statement relating to the election of directors filed under the Securities
Exchange Act of 1934 (the "Exchange Act").
2.30 Revenue Recognition. The Company has not recognized and does not
recognize revenues from customers in advance of performing the services or
furnishing the products for which the revenues were or are received.
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2.31 Certain Fees. Except as disclosed in Section 2.31 of the Company
Disclosure Schedule, neither the Company nor any officer, director, or employee
of the Company has employed any broker or finder or incurred any liability for
any brokerage fees, commissions, or finders' fees in connection with the
transactions contemplated hereby. Tyler recognizes and acknowledges that,
subject to the Company's satisfaction of the representation and warranty in
Section 2.13(b) hereof, the fees shown in Section 2.31 of the Company Disclosure
Schedule shall be paid by the Company at Closing.
2.32 Environmental Matters. To the knowledge of the Company or the
Shareholders:
The Company and its property (whether real, personal, owned, leased,
managed or operated) (collectively, "Business Facilities") are in compliance
with applicable laws, rules, regulations, ordinances, orders or guidance
documents now in effect of any applicable governmental authority or any judicial
or administrative decision relating thereto that relate in any manner to health,
Materials of Environmental Concern, the environment, or a community's right to
know (collectively, "Environmental Laws"). There are no Materials of
Environmental Concern on any Business Facility in any quantity or concentration
exceeding any limitation or standard established pursuant to Environmental Laws.
There are no actual or threatened claims, demands, allegations, actions, suits,
investigations, notices, or proceedings against or relating to the Company or
any of its Business Facilities relating to or arising out of the use, presence,
or handling of Materials of Environmental Concern or compliance with
Environmental Laws (collectively, "Environmental Claims"), and there is no basis
for any such Environmental Claims. There are no events, conditions,
circumstances, facts, activities, practices, incidents or plans relating to or
arising out of the operations of the Company which will prevent or interfere
with compliance with Environmental Laws by Tyler after the Closing, or which may
give rise to any common law or statutory liability under Environmental Laws or
form the basis of an Environmental Claim against the Company, or any of their
respective Business Facilities.
"Materials of Environmental Concern" means: (i) those substances included
within the statutory and/or regulatory definitions of "hazardous substance,"
"hazardous waste," "extremely hazardous substance," "regulated substance,"
"hazardous materials," or "toxic substances," under any Environmental Law; (ii)
any material, waste or substance which is or contains: (A) petroleum, oil or a
fraction or constituent thereof, (B) asbestos, (C) polychlorinated biphenyls,
(D) formaldehyde, (E) explosives, or (F) radioactive materials (including NORM);
(iii) solid wastes (as defined under the Resource Conservation and Recovery Act,
42 U.S.C. sec.6901 et seq., and its implementing regulations) that post imminent
and substantial endangerment to health or the environment; (iv) any material,
waste or substance designated classified or regulated as a "Class I" or "Class
II" waste under Title 30 of the Texas Administrative Code; and (v) such other
substances, materials, or wastes that are or become classified or regulated as
hazardous or toxic under any applicable federal, state or local law or
regulation. To the extent that the laws or regulations of any applicable state
or local jurisdiction establish a meaning for any term defined herein through
reference to federal Environmental Laws which is broader than the meaning under
such federal Environmental Laws, such broader meaning shall apply.
2.33 Accuracy of Information Furnished. No representation or warranty by
the Company or the Shareholders in this Agreement (including the Company
Disclosure Schedule) or any other agreement or document executed or to be
executed by the Company or the Shareholders in connection herewith contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not false or misleading.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TYLER
Tyler and Sub jointly and severally represent and warrant to the Company
and the Shareholders as follows:
3.1 Organization and Good Standing of Tyler. Tyler is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware. Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas.
3.2 Foreign Qualification. Tyler is duly qualified or licensed to do
business as a foreign corporation and in good standing in those jurisdictions
set forth in Section 3.2 of the schedule delivered by Tyler concurrently with
the execution of this Agreement (the "Tyler Disclosure Schedule"). Tyler is duly
qualified or licensed to do business as a foreign corporation in every
jurisdiction where the failure so to qualify would have a material adverse
effect on the businesses, operations, assets, or financial condition of Tyler
and the Tyler Subsidiaries (as defined in Section 3.7), taken as a whole. For
purposes of this Section 3.2, no material adverse affect shall be deemed to have
occurred as a result of non-payment of state or local franchise taxes not
exceeding $37,500 in the aggregate.
3.3 Power and Authority to Conduct Business. Each of Tyler and Sub has the
corporate power and authority, and possess all licenses and permits, required by
governmental authorities to own, lease, and operate its properties and assets
and to carry on its business as currently being conducted, except where the
failure to possess such license or permit does not and would not have a material
adverse effect on the business, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.4 Authority to Consummate Merger. Each of Tyler and Sub has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the other agreements or documents executed or required
to be executed by it in connection with this Agreement and, subject to obtaining
the approval of the stockholders of Tyler, the execution, delivery and
performance by each of Tyler and Sub of this Agreement and the other documents
executed or to be executed by it in connection with this Agreement have been
duly authorized by all necessary corporate action.
3.5 Binding Effect. This Agreement and the other documents executed or
required to be executed by Tyler or Sub in connection with this Agreement have
been or will have been duly executed and delivered by Tyler or Sub and are or
will be, when executed and delivered, the legal, valid, and binding obligations
of Tyler or Sub executing the same, enforceable in accordance with their terms
except that:
(a) enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting creditors' rights;
(b) the availability of equitable remedies may be limited by equitable
principles of general applicability; and
(c) rights to indemnification under Section 10.5 may be limited by
considerations of public policy.
3.6 Compliance with Other Instruments. Subject to obtaining the approval
of the stockholders of Tyler and except as disclosed in Section 3.6 of the Tyler
Disclosure Schedule, neither the execution and delivery by Tyler or Sub of this
Agreement or the other agreements or documents executed or required to be
executed by Tyler or Sub in connection herewith, nor the consummation by Tyler
or Sub of the transactions contemplated hereby and thereby will (i) conflict
with the articles of incorporation or bylaws of Tyler or Sub, (ii) assuming
satisfaction of the requirements set forth in clause (iii) below, violate any
provision of law applicable to Tyler or any of the Tyler Subsidiaries; (iii)
except for (A) requirements arising out of the HSR Act, (B) requirements of
federal and state securities laws, and (C) the filing of articles of merger in
accordance with the TBCA, require any consent, authorization, permit, license or
approval of, or declaration, registration or filing with or notice to, any
person or governmental body or authority, domestic or foreign, under any
provision of law applicable to Tyler or any of the Tyler Subsidiaries; or (iv)
require any consent, approval or notice under, violate, breach, be in conflict
with, or constitute a default (or an event that, with notice or lapse
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of time or both, would constitute a default) under, or permit the termination or
the acceleration of maturity of, or result in the imposition of any lien, claim,
or encumbrance upon any property or asset of Tyler or any Tyler Subsidiary
pursuant to any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or lease agreement, other agreement or instrument or any
judgment, order, injunction, or decree by which Tyler or any Tyler Subsidiary is
bound, to which any of them is a party, or to which any of their assets is
subject, except for those violations and breaches that would not have a material
adverse effect on the businesses, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.7 Capitalization of Tyler
(a) The authorized capital stock of Tyler consists of 50,000,000 shares of
Tyler Common Stock, and 1,000,000 shares of preferred stock, par value $10.00
per share ("Tyler Preferred Stock"), of which 22,007,921 shares of Tyler Common
Stock and no shares of Tyler Preferred Stock were issued and outstanding as of
September 30, 1997 and 1,301,356 shares of Common Stock were held in treasury.
All of the issued and outstanding shares of Tyler Common Stock have been duly
authorized and are validly issued and are fully paid and nonassessable. There
are no shares of the capital stock of Tyler held in its treasury or in the
treasury of any corporation of which Tyler is the record or beneficial owner,
directly or indirectly, of 50% or more of the capital stock (each such
corporation being referred to as a "Tyler Subsidiary"). The shares of Tyler
Common Stock to be issued in the Merger, when issued and delivered, will be duly
authorized, validly issued, fully paid, and nonassessable.
(b) As of the date hereof, the authorized capital stock of Sub consists of
1,000 shares of common stock, par value $0.01 per share, all of which are
validly issued, fully paid and nonassessable and are owned by Tyler.
(c) Except as described in Section 3.7 of the Tyler Disclosure Schedule and
in the Tyler Financial Statements (as hereinafter defined), there is no
outstanding subscription, contract, convertible or exchangeable security,
option, warrant, call, or other right obligating Tyler or any Tyler Subsidiary
to issue, sell, exchange, or otherwise dispose of, or to purchase, redeem, or
otherwise acquire shares of, or securities convertible into or exchangeable for,
capital stock of Tyler.
3.8 Commission Filings; Financial Statements. Section 3.8 of the Tyler
Disclosure Schedule lists all reports, registration statements and other
filings, together with any amendments required to be made with respect thereto,
that Tyler has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act since October 1, 1995. All reports, registration
statements and other filings filed by Tyler with the Commission since October 1,
1995 through the date of this Agreement, together with any amendments thereto,
are sometimes collectively referred to as the "Tyler Commission Filings." Tyler
has heretofore provided the Company and the Shareholders true, correct and
complete copies of the Tyler Commission Filings. As of the respective dates of
their filing with the Commission, the Tyler Commission Filings complied in all
material respects with the Securities Act, the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
Each of the consolidated financial statements (including any related notes
or schedules) included in or incorporated by reference into the Tyler Commission
Filings ("Tyler Financial Statements") was, and each of the consolidated
financial statements to be included in the Proxy Statement (as defined in
Section 6.2) (except for those financial statements of the Company furnished by
or on behalf of the Company or the Shareholder to Tyler specifically for use
therein) will be, prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be noted therein or in
the notes or schedules thereto), and fairly present or will fairly present, as
the case may be, the consolidated financial position of Tyler and its
consolidated subsidiaries as of the dates thereof and the results of operations,
cash flows and changes in stockholders' equity for the periods then ended
(subject, in the case of the unaudited interim financial statements, to normal
year-end audit adjustments). Since December 31, 1996, there has been no change
in accounting principles applicable to, or methods of accounting utilized by,
Tyler and the books and records of Tyler and the Tyler Subsidiaries have been
and are being maintained in accordance with all
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applicable legal and accounting requirements and good business practice, reflect
only valid transactions, are complete and correct in all material respects, and
accurately reflect in all material respects the basis for the consolidated
financial position and consolidated results of operations and cash flows of
Tyler and its consolidated subsidiaries set forth in the Tyler Financial
Statements.
3.9 Absence of Certain Changes. Since June 30, 1997, Tyler has not (except
as contemplated by this Agreement or as may result from the transactions
contemplated by this Agreement or as described in the Tyler Disclosure
Schedule):
(a) suffered any change in its business, results of operations,
working capital, assets, liabilities, or financial condition or the manner
of conducting its business other than changes that, individually or in the
aggregate, have not had a material adverse effect on the businesses,
operations, assets or financial condition of Tyler and the Tyler
Subsidiaries, taken as a whole;
(b) entered into any material commitment or transaction other than in
the ordinary course of business;
(c) written up, written down, or written off the book value of any
material amount of assets;
(d) declared, paid, or set aside for payment any dividend or
distribution with respect to the capital stock of Tyler; or
(e) redeemed, purchased, or otherwise acquired, or sold, granted or
otherwise disposed of, directly or indirectly, any of the capital stock or
securities of Tyler or any rights to acquire such capital stock or
securities, other than normal or periodic purchases, sales and grants under
provisions of existing employee benefit plans and programs of Tyler.
3.10 No Material Undisclosed Liabilities. To the knowledge of Tyler, there
is no liability or obligation of Tyler and the Tyler Subsidiaries of any nature,
whether absolute, accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are fully reflected, accrued,
or reserved against in the unaudited consolidated balance sheet of Tyler
and its consolidated subsidiaries as of June 30, 1997, for which the
reserves are appropriate and reasonable, or incurred in the ordinary course
of business and consistent with past practices since June 30, 1997;
(b) the loss contingencies set forth in Section 3.10 of the Tyler
Disclosure Schedule;
(c) contractual liabilities or obligations of a nature not required to
be disclosed on a balance sheet prepared in accordance with generally
accepted accounting principles; and
3.11 Litigation and Government Claims. Except as described in Section 3.11
of the Tyler Disclosure Schedule, neither Tyler nor any Tyler Subsidiary is a
party to, and the business or assets of Tyler and the Tyler Subsidiaries are not
the subject of, any pending or, to the knowledge of Tyler, threatened suit,
claim, action, or litigation with any party, or any administrative, arbitration,
or other governmental proceeding, investigation, or inquiry, in which the amount
involved and not covered by insurance exceeds $250,000. In the opinion of Tyler
and its management, none of such pending or threatened matters would, severally
or in the aggregate, have a material adverse effect on the business, operations,
assets or financial condition of Tyler and the Tyler Subsidiaries, taken as a
whole.
3.12 No Violation of Any Instrument. Except as disclosed in Section 3.12
of the Tyler Disclosure Schedule, neither Tyler nor any Tyler Subsidiary is in
violation of or default under nor, to the knowledge of Tyler, has any event
occurred that, with the lapse of time or the giving of notice or both, would
constitute a violation of or default under, or permit the termination or the
acceleration of maturity of, or result in the imposition of a lien, claim, or
encumbrance upon any property or asset of Tyler or any Tyler Subsidiary pursuant
to the articles or certificate of incorporation or bylaws of Tyler or any Tyler
Subsidiary or any note, bond, indenture, mortgage, deed of trust, evidence of
indebtedness, loan or lease agreement, or other agreement or instrument or any
judgment, order, injunction, or decree to which it is a party, by which it is
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bound, or to which any of its assets is subject, which would have a material
adverse effect on the business, operations, assets or financial condition of
Tyler and the Tyler Subsidiaries, taken as a whole.
3.13 Certain Fees. Neither Tyler nor any officer, director, or employee of
Tyler has has employed any broker or finder or incurred any liability for any
brokerage fees, commissions, or finders' fees in connection with the
transactions contemplated hereby.
3.14 No Interim Operations of Sub. Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
3.15 Accuracy of Information Furnished. No representation or warranty by
Tyler or Sub in this Agreement (including the Tyler Disclosure Schedule) or any
other agreement or document executed or to be executed by Tyler or Sub in
connection herewith contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not false or misleading.
ARTICLE 4
JOINT COVENANTS OF THE COMPANY, THE SHAREHOLDERS AND TYLER
4.1 Access; Confidentiality.
(a) During the period pending the Closing Date, the Company shall afford to
Tyler and its officers, employees, accountants, counsel, and other authorized
representatives, full access to and the right to review and make copies of the
Company's assets, properties, books, contracts, commitments, and records, view
their physical properties, and communicate with the key employees of the Company
on a basis reasonably satisfactory to the Company, and will furnish and cause
representatives to furnish promptly to Tyler such additional financial and
operating data and other documents and information (certified if requested and
reasonably susceptible to certification) relating to the Company's businesses
and properties as Tyler or its duly authorized representatives may from time to
time reasonably request.
(b) During the period pending the Closing Date, Tyler shall afford to the
Company and the Shareholders and their accountants, counsel and other authorized
representatives the same rights of access to and inspection of the books,
records, properties, contracts and personnel of Tyler as those afforded to Tyler
and its representatives in Section 4.1(a) above.
(c) Notwithstanding any such investigation by Tyler, the Company, or the
Shareholders, or any information obtained pursuant thereto, it or he shall be
entitled to rely in full upon the accuracy of the representations and warranties
of the other party or parties contained in this Agreement and upon its or his
representations at Closing as to compliance with or performance of any covenants
made by it or him in this Agreement. Tyler, the Company, or the Shareholders
shall have no obligation to investigate any such matters and, if any such
matters are investigated, shall have no obligation to the other party or parties
with respect to information obtained thereby except as provided in Section 12.1
of this Agreement.
(d) The rights and obligations of the Shareholders, the Company and Tyler
pursuant to the Confidentiality Agreement (the "Confidentiality Agreement")
dated September 17, 1997 by and among the Shareholders, the Company and Tyler
will survive the execution and delivery of this Agreement, and all information
obtained by the Shareholders, the Company and Tyler or any of their respective
Representatives (as defined in the Confidentiality Agreement) pursuant hereto
shall be deemed "Information" as that term is defined in the Confidentiality
Agreement, and shall be subject to the provisions of the Confidentiality
Agreement, except to the extent that Tyler is advised by counsel that disclosure
of any such Information, including the existence of the Confidentiality
Agreement, is required by law in connection with the Merger.
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4.2 Notice of any Material Change. Each of the Company and Tyler shall,
promptly after the first notice or occurrence or failure to occur thereof but
not later than the Closing Date, supplement or amend its Disclosure Schedule to
disclose the occurrence of any event or the existence of any state of facts that
would:
(a) make any of its representations and warranties in this Agreement
untrue in any material respect or constitute a material failure of such
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder;
(b) make it necessary to amend the Proxy Statement in order to render
the statements therein not misleading or to comply with applicable law; or
(c) otherwise constitute a material adverse change in the respective
businesses, results of operations, working capital, assets, liabilities or
condition (financial or otherwise) of Tyler and the Tyler Subsidiaries,
taken as a whole, or the Company. Subject to the provisions of Section 12.1
of this Agreement, no supplement or amendment to any Disclosure Schedule
shall have any effect for the purpose of determining the satisfaction of or
compliance with the conditions to the obligations of the parties set forth
elsewhere in this Agreement.
4.3 Monthly Financial Statements. During the period pending the Closing
Date, each of Tyler and the Company shall furnish to the other its unaudited
consolidated balance sheet and related statements of operations, stockholders'
equity, and cash flows and any supporting schedules for the accounting periods
ending on or about the last day of each such month, promptly after they are
available, but not later than 30 days after the close of such accounting period.
4.4 Antitrust Notification. Within 10 days after the date hereof, Tyler
and the Company shall each file with the Federal Trade Commission ("FTC") and
the Antitrust Division of the U.S. Department of Justice ("DOJ") any
Notification and Report Form required to be filed pursuant to the HSR Act, and
shall timely supply any supplemental information that may be reasonably
requested by the FTC or DOJ in connection therewith. The Company and Tyler shall
furnish to each other such necessary information and reasons under the HSR Act.
The Company and Tyler shall furnish to each other copies of all correspondence,
filings, or communications (or memoranda setting forth the substance thereof),
between them or their representatives and the FTC or DOJ.
4.5 Tax Matters.
(a) Each Shareholder and the Company shall prepare and timely file all tax
returns and amendments thereto required to be filed by the Company on or before
the Closing Date. Tyler shall have a reasonable opportunity to review all such
tax returns of the Company and amendments thereto.
(b) Tyler or the Surviving Corporation, as appropriate, shall prepare and
file all tax returns of the Company that are due to be filed after the Closing
Date and relate to tax periods of the Company ending on or before the Closing
Date and shall pay all income taxes shown on such returns as due and owing. The
Shareholders shall reimburse Tyler for taxes of the Company with respect to such
periods within fifteen (15) days after payment by Tyler or the Company of such
taxes to the extent such taxes are not reflected in the reserve for tax
liability (other than any reserve for deferred taxes established to reflect
timing differences between book and tax income) shown on the face of the Company
Balance Sheet at Closing.
(c) Each Shareholder covenants and agrees that he will be fully responsible
for, and indemnifies and holds harmless Tyler and the Company from and against,
any and all claims, demands, losses, obligations and liabilities for income
taxes of the Company, any penalties and interest with respect thereto, and any
costs and expenses (including reasonable attorneys' and accountants' fees) of
Tyler or the Company incurred as an incident thereto, relating to tax periods of
the Company ending on or before the Closing Date. Tyler agrees that each
Shareholder shall have the sole right to contest, resolve and defend, at his
cost, against any of the Company made or proposed by any taxing authority for
such periods. Each Shareholder shall be entitled to retain such tax
representatives, subject to the consent of Tyler (which shall not be
unreasonably withheld), as he selects to represent him in resolving any such
income tax controversies or disputes for tax periods ending on or before the
Closing Date, and Tyler or the Company, as appropriate, shall execute and
deliver powers of
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attorney, limited to such tax periods, in favor of each Shareholder or his tax
representatives as necessary to effectuate the provisions of this Section 4.5.
(d) Subject to Closing, and specifically reserving any rights or remedies
Tyler or the Surviving Corporation may have for breach of the representations
and warranties of Shareholders contained in Article 2 of this Agreement, Tyler
covenants and agrees that either it or the Surviving Corporation, as
appropriate, will be fully responsible for, and Tyler indemnifies and holds
harmless each Shareholder from and against, any and all claims, demands, losses,
obligations and liabilities for income taxes of the Surviving Corporation, any
penalties and interest with respect thereto, and any costs and expenses
(including reasonable attorneys' and accountants' fees) of each Shareholder
incurred as an incident thereto, relating to tax periods of the Surviving
Corporation ending after the Closing Date; such responsibility of and indemnity
by Tyler shall include the amounts of any and all tax consequences or
liabilities attributable to any election by Tyler or the Surviving Corporation
after the Closing to change the tax accounting methods utilized by the Company
applicable to tax periods ending after the Closing Date. Each Shareholder agrees
that Tyler or the Surviving Corporation, as appropriate, shall have the sole
right to contest, resolve and defend, at its cost, against any assessment for
additional income taxes, notice of income tax deficiency or other adjustments of
income taxes of the Surviving Corporation made or proposed by any taxing
authority for tax periods ending after the Closing Date.
(e) All parties hereto agree if requested to reasonably cooperate with one
another and assist in the settlement, compromise, defense or other disposition
of any assessments for additional taxes, notices of deficiency, proposed
adjustments or other income tax disputes or controversies by or with taxing
authorities relating to the Company. Tyler or the Surviving Corporation, as
appropriate, will provide to each Shareholder or his tax representatives prompt
written notification and copies of any communications from or to any taxing
authority received or made by either of them relating to income tax liabilities
of the Company for any tax periods ended on or before the Closing Date. Each
Shareholder or his tax representatives will provide to Tyler prompt written
notification and copies of any communications from or to any taxing authority
received or made by either of them relating to income tax liabilities of the
Company. Subsequent to any such notice, Tyler and each Shareholder shall keep
the other fully advised of the status and developments with respect to such
proposed or asserted income tax liability, and of the terms of any settlement or
other final resolution thereof. Failure by any party to notify any other party,
as provided herein, shall not relieve the party otherwise entitled to such
notice from its obligations contained in this Section 4.5 of this Agreement;
provided, however, that the party entitled to such notice may pursue other
remedies available to it at law or in equity for breach, if any, of the covenant
to notify contained herein.
(f) No Shareholder shall, in any capacity, agree to any audit adjustments
by a taxing authority, or settle, compromise or otherwise agree to a resolution
of any dispute or controversy, with respect to the income tax liability of the
Company if the effect of the adjustment or the terms of the settlement increases
the income tax liabilities (including loss of carry forwards) of the Company:
(i) for the taxable period commencing on November 1, 1996 and ending
on the Closing Date to an amount that, when added to the income taxes paid
for such period by Tyler or the Company in accordance with Section 4.5(b)
above (excluding the amount of any such income tax liability attributable
to any election by Tyler or the Company after the Closing to change tax
accounting methods utilized by the Company applicable to tax periods ending
on or after November 1, 1996) exceeds the tax liability (excluding deferred
taxes) accrued on the books and records of the Company for the period
commencing November 1, 1996 and ending on the Closing Date; or
(ii) for taxable periods commencing after the Closing Date (but
including the amount of any such income tax liability attributable to any
election by Tyler or the Company after the Closing to change tax accounting
methods utilized by the Company applicable to tax periods ending on or
after November 1, 1996), unless the Shareholder or his tax representatives
shall have in advance thereof consulted with Tyler and shall have agreed on
mutually acceptable terms to pay to Tyler or the Surviving Corporation, as
appropriate, the additional income taxes (subject to the limitation set
forth in Subsection (i) above) that would be owed by Tyler or the Company
for all periods subsequent to October 31, 1996 as a result of such
settlement. In any event, each Shareholder shall pay to Tyler or the
Surviving Corporation, as
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appropriate, the amount of any increase in income tax liabilities
(including loss of carry forwards) of the Company for all tax periods
ending on or after the Closing Date (subject to the limitation set forth in
subsection (i) above) that results from a final administrative or judicial
determination adjusting the income tax liabilities of the Company for any
period ending on or before the Closing Date, and such payment or payments
shall be made at the time Tyler or the Surviving Corporation files an
income tax return with a taxing authority covering a tax period that is
affected by such increase in income tax liability.
(g) Each Shareholder agrees that, all proceeds received from any refund of
taxes arising out of any carry back to prior tax periods of any net operating
loss of the Company for tax periods ending on or after the Closing Date,
including any benefits derived from such carry backs to otherwise reduce an
income tax liability for such prior periods, shall belong to Tyler or the
Company. At the request of Tyler or the Company and at their expense, each
Shareholder shall promptly file any and all necessary documents or prosecute all
other necessary proceedings to claim and recover such refunds.
(h) At the request of any Shareholder, Tyler or the Company, as
appropriate, shall submit for filing with the Internal Revenue Service a Request
for Prompt Assessment of Income Taxes pursuant to Section 6501(d) of the
Internal Revenue Code for all open tax periods through the Closing Date for
which a federal income tax return or returns or amended return or returns have
been filed by the Company.
(i) From and after the Closing Date, no Shareholder will (a) extend the
statute of limitations; (b) make or change any elections affecting the Company;
(c) change a method of accounting, in each instance with respect to tax
liabilities of the Company relating to periods ending on or prior to the Closing
Date, without the prior written consent of Tyler (which consent shall not be
unreasonably withheld).
(j) To the extent the provisions of this Section 4.5 and the provisions of
Article 11 of this Agreement are inconsistent or conflict, the provisions of
this Section 4.5 shall be determinative of the rights and obligations of the
parties hereto.
(k) All tax sharing agreements or similar agreements with respect to or
involving the Company shall be terminated as of the Closing Date and, after the
Closing Date and the Company shall not be bound thereby or have any liability
thereunder.
4.6 Cooperation Pending Closing. Each of the parties hereto shall use its
reasonable best efforts to:
(a) proceed promptly to make or give the necessary applications,
notices, requests, and filings in an effort to obtain at the earliest
practicable date and, in any event, before the Closing Date, the approvals,
authorizations, and consents of third parties necessary to consummate the
transactions contemplated by this Agreement;
(b) cooperate with and keep the other informed in connection with this
Agreement; and
(c) take such actions as the other party may reasonably request to
consummate the transactions contemplated by this Agreement and use its
reasonable best efforts and diligently attempt to satisfy, to the extent
within its control, all conditions precedent to the obligations to close
this Agreement.
ARTICLE 5
COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
5.1 Conduct of Business Prior to Closing Date. During the period pending
the Closing Date (or other indicated date), the Company and the Shareholders.
(a) shall use its reasonable best efforts to conduct the operations of
the Company in the ordinary and usual course of business consistent with
past and current practices, and to maintain marketing organizations intact
and to preserve the goodwill of their employees, representatives,
suppliers, and customers;
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(b) shall confer upon request of Tyler with one or more
representatives of Tyler to report material operational matters and the
general status of ongoing operations;
(c) shall notify Tyler of any emergency or other change in the normal
course of the Company's businesses and of any governmental complaints,
investigations, or hearings that are pending (or that the same may be
contemplated) if such emergency, complaint, investigation, or hearing would
be material to the Company's businesses or properties;
(d) shall take no action that, and shall not fail to use reasonable
best efforts to take (without material cost) any action the failure to take
which, would cause or permit their representations and warranties contained
in this Agreement to be untrue in any material respect on the Closing Date;
and
(e) except as may be permitted or required by this Agreement, shall
not directly or indirectly do any of the following: (i) issue, sell,
pledge, dispose of or encumber, (A) any capital stock of the Company or (B)
other than in the ordinary course of business and consistent with past
practice, any assets of the Company; (ii) amend or propose to amend the
respective charters or bylaws of the Company; (iii) split, combine or
reclassify any outstanding capital stock, or, except as provided in Section
5.6 hereof, declare, set aside or pay any dividend or distribution payable
in cash, stock, property or otherwise with respect to its capital stock
whether now or hereafter outstanding; (iv) redeem, purchase or acquire or
offer to acquire any of the Company's capital stock; or (v) enter into any
contract, agreement, commitment or arrangement with respect to any of the
matters set forth in this Section 5.1(e).
5.2 Employment Agreement. At or before the Closing each of the
Shareholders and the Company shall execute and deliver an Employment and
Noncompetition Agreement in substantially the form of Exhibit B hereto, with
such changes therein prior to execution as may be mutually approved by Tyler and
each Shareholder (the "Employment Agreements"), and providing for the employment
of the Shareholders by the Surviving Corporation after the Closing, covenants by
the Shareholders not to compete with the Surviving Corporation, and
compensation, all as provided therein.
5.3 Noncompetition Agreements. Each Shareholder agrees to use his best
efforts to cause the key management and other employees of the Company
identified by Tyler in Section 5.3 of the Tyler Disclosure Schedule (the
"Employees") to execute and deliver employment, confidentiality and
noncompetition agreements with the Company in a form acceptable to Tyler (the
"Noncompetition Agreements").
5.4 Agreement Not to Negotiate. Pending the Closing, and through the
period ending March 31, 1998 if this Agreement is terminated without closing by
the Company or the Shareholders the Company and the Shareholders shall not,
either directly or indirectly through an agent, representative or other person,
solicit or authorize any person to solicit, or initiate or encourage, directly
or indirectly, any proposal for the acquisition of all or any material part of
the capital stock, assets, or business of the Company, or for the merger,
consolidation, or other combination of the Company with any other person or
entity, or enter into any discussions or negotiations for any such proposal, or
provide any person with information or assistance in furtherance of any such
proposal, and shall promptly notify Tyler in writing of all proposals received
with respect to such matters.
5.5 Accuracy of Information Furnished. The information supplied by each
Shareholder to Tyler in writing expressly for inclusion in any documents
(including the Proxy Statement) filed with the Commission in connection with or
as a result of the transactions contemplated hereby, will, at the respective
times such documents are filed with the Commission, not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not false or misleading.
5.6 Regulation S-X Financial Statements. Not later than October 10, 1997,
the Company shall cause to be prepared and shall deliver to Tyler audited
balance sheets of the Company as of October 31, 1996, 1995 and 1994 and the
related audited statements of operations, stockholder's equity, and cash flows
for the years then ended, with notes thereto, prepared in accordance with United
States generally accepted accounting principles and Regulation S-X ("Regulation
S-X") promulgated by the Securities and Exchange Commission, reported
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upon without exception or qualification by Bland Garvey Taylor Eads & Medlock;
and the unaudited balance sheet of the Company as of August 31, 1997, and the
related unaudited statements of operations, stockholder's equity, and cash flows
for the ten months then ended, with notes thereto, prepared in accordance with
United States generally accepted accounting principles and Regulation S-X,
reviewed by Bland Garvey Taylor Eads & Medlock.
5.7 Termination of Shareholders Agreement. The Shareholders agree to cause
that certain Shareholders Agreement among Glenn A. Smith, Brian B. Berry, Joane
Cogan and the Company to be terminated at or before the Closing. The
Shareholders hereby consent to, and waive any transfer restrictions under the
Shareholders Agreement that would limit, the transfer of all the outstanding
capital stock of the Company to Tyler pursuant to the Merger.
5.8 Pre-Closing Bonuses. Prior to the Closing, the Company shall be
entitled to pay bonuses to employees of the Company for past services rendered,
which bonuses shall not exceed an aggregate of $200,000.
5.9 Form of Merger. The Company, the Shareholders and Tyler may, pursuant
to written amendment to this Agreement, change the form of the Merger to a
merger of the Company with and into Sub, provided such a revised form of Merger
would qualify as a reorganization under Section 386 of the Code.
ARTICLE 6
COVENANTS OF TYLER
Tyler covenants and agrees with the Company and the Shareholders as
follows:
6.1 Conduct Prior to Closing Date. Pending the Closing, Tyler shall:
(a) confer upon request of the Shareholders with one or more
representatives of the Shareholders to report material operational matters
and the general status of ongoing operations of Tyler and the Tyler
Subsidiaries; and
(b) take no action that, and shall not fail to use reasonable best
efforts to take (without material cost) any action the failure to take
which, would cause or permit its representations and warranties contained
in this Agreement to be untrue in any material respect at the Closing.
6.2 Proxy Statement. As promptly as practicable after the execution of
this Agreement, Tyler shall prepare and file with the Commission a proxy
statement (the "Proxy Statement") pursuant to the Exchange Act. Subject to the
fiduciary obligations of the Board of Directors of Tyler under applicable law,
the Proxy Statement shall contain the recommendation of the Board of Directors
of Tyler that the stockholders of Tyler vote to approve the Merger and this
Agreement. Except to the extent required by law (and in any such case only after
three business days' prior notice to the Shareholders), Tyler shall not include
in the Proxy Statement or otherwise make public the amount of compensation
payable to any Shareholder.
6.3 Meetings of Stockholders. Tyler shall promptly take all action
reasonably necessary in accordance with the Delaware General Corporation Law,
the rules of the NYSE and its articles of incorporation and bylaws to convene a
meeting of its stockholders to consider and vote upon the adoption and approval
of the Merger and this Agreement (the "Tyler Stockholders Meeting"). Subject to
its fiduciary obligations under applicable law and in accordance with the
provisions of this Agreement, the Board of Directors of Tyler (i) shall
recommend at such meeting that the stockholders of Tyler vote to adopt and
approve the Merger and this Agreement; (ii) shall use its reasonable efforts to
solicit from stockholders of Tyler proxies in favor of such adoption and
approval; and (iii) shall take all other action reasonably necessary to secure a
vote of its stockholders in favor of the adoption and approval of the Merger and
this Agreement.
6.4 Stock Exchange Listing. Tyler shall use its reasonable best efforts to
cause the shares of Tyler Common Stock to be issued upon consummation of the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date.
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6.5 Guaranties of Company Obligations.
(a) From and after the Closing, Tyler guarantees to each Shareholder,
respectively, and his heirs, successors and assigns, the full and prompt payment
by the Company of all amounts that become due and payable to them under or
pursuant to the terms of any Employment Agreement, to be entered into between
the Company and the Shareholder as provided in Section 5.2 of this Agreement,
and the timely performance by the Company of all of the terms, conditions,
covenants and agreements to be performed by the Company under or pursuant to the
terms of said Employment Agreement.
(b) The obligation of Tyler to make any payments or render performance
under this guaranty shall be coextensive with the obligation of the Company to
make payment or render performance under any Employment Agreement, and Tyler
shall be entitled to assert as a defense to or excuse for or delay in any
payment or performance by it the same defenses or excuses for payment or
performance as would be available to the Company. Subject to the foregoing, the
guaranty by Tyler contained herein is absolute and unconditional.
(c) Tyler waives notice of acceptance of this agreement of guaranty, and
waives diligence or presentment on the part of any Shareholder in the
enforcement of any liability, obligation or duty guaranteed hereby.
(d) Tyler agrees that the validity of this agreement of guaranty shall not
in any way be terminated, affected or impaired by reason of any waiver of or
failure to enforce any of the rights or remedies of any Shareholder contained in
any Employment Agreement, or by reason of any extension of time or other
forbearance granted to the Company by any Shareholder.
(e) Tyler agrees that, at the option of any Shareholder, it may be joined
in any action or proceedings commenced against the Company in connection with
and based upon any provisions of the Employment Agreement, and that recovery may
be had against Tyler in such action or proceedings, or in any independent action
or proceedings against Tyler, without requirement that any Shareholder or his
successors or assigns, first assert, prosecute, or exhaust any remedy or claim
against the Company.
(f) In the event of any bankruptcy, reorganization, winding up, or similar
proceedings with respect to the Company, no limitation on its liability under
the Employment Agreement which may now or hereafter be imposed or permitted by
any federal, state, or other statute, law regulation, or judicial or
administrative determination applicable to such proceedings, shall in any way
limit Tyler's obligations hereunder.
6.6 Other Tyler Obligations. At the Closing, if not theretofore
accomplished, Tyler will cause the Company to execute and deliver to the
Shareholders the Employment Agreements, against execution and delivery by the
Shareholders.
6.7 Company Indemnification Obligations. (a) Tyler and Sub agree that all
rights to indemnification existing in favor of the present or former directors,
officers, employees, fiduciaries and agents of the Company (collectively, the
"D&O Indemnified Parties") as provided in the Company's Articles of
Incorporation, Bylaws, or other organizational documents as in effect as of the
date hereof, shall survive the Merger and shall continue in full force and
effect for six years after the Effective Time (without modification or
amendment, except as required by applicable law), to the fullest extent
permitted by law, and shall be enforceable by the D&O Indemnified Parties
against the Surviving Corporation; provided that in any event Tyler and the
Surviving Corporation shall pay and reimburse expenses in advance of the final
disposition of any action or proceeding to each D&O Indemnified Party to the
fullest extent permitted by law.
(b) The provisions of this Section 6.7 shall survive the consummation of
the Merger and expressly are intended to benefit each of the D&O Indemnified
Parties. Each of the D&O Indemnified Parties shall be entitled to enforce the
covenants contained herein.
(c) If the Surviving Corporation, or any of its successors or assigns (i)
reorganizes, amalgamates or consolidates with or merges into any other person
and is not the resulting, continuing or surviving corporation or entity of such
reorganization, amalgamation, consolidation or merger, or (ii) liquidates,
dissolves or transfers all or substantially all of its properties and assets to
any person or persons, then, and in such case,
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proper provision will be made so that the successors or assigns of the Surviving
Corporation assume all of the obligations of the Surviving Corporation set forth
in this Section 6.7.
6.8 Agreements Regarding Stock Options. Effective on the Closing Date,
Tyler agrees to grant options, conditioned on the consummation of the
transactions contemplated hereby and Tyler stockholder approval of any required
increase in the number of shares of Tyler Common Stock which may be issued
pursuant to the Tyler Stock Option Plan, to purchase an aggregate of 200,000
shares of Tyler Common Stock to employees of the Company designated by the
Shareholders. The selection by the Shareholders of such employees and the number
of option shares to be granted to each shall be subject to the reasonable
approval of Tyler. The exercise price of the options shall be equal to the
reported closing price of the Tyler Common Stock on the New York Stock Exchange
on the Closing Date. The options shall have a term of 10 years from the Closing
Date and shall vest on each of the first five anniversary dates at the rate of
20% of the original number of option shares granted. The options shall be
incentive stock options pursuant to the Tyler Stock Option Plan, as amended,
shall contain such other terms as are customary for options granted under that
plan, and shall be evidenced by option agreements incorporating all of such
terms.
6.9 Release of Shareholder Guaranties. At or prior to the Closing, Tyler
shall obtain and provide to the Shareholders an absolute and unconditional
release, executed by the holders of the indebtedness of the Company identified
in Section 2.21 of the Company Disclosure Schedule as guaranteed by the
Shareholders and by the surety companies that issued the performance bonds
identified in such Section 2.21, from any liability with respect to such
indebtedness or performance bonds whether as maker, endorser, surety, obligor,
guarantor or otherwise, or shall provide to the Shareholders the agreement of
Tyler to indemnify the Shareholders against any such liability, which
indemnification agreement shall be reasonably acceptable to the Shareholders.
ARTICLE 7
JOINT CONDITIONS PRECEDENT TO CLOSING OBLIGATIONS
Except as may be waived by both Tyler and the Shareholders, the obligations
of the Company, the Shareholders, Tyler and Sub to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
7.1 HSR Act. All filings required under the HSR Act shall have been made,
and all waiting periods, including any extension thereof, that may be applicable
to the transactions contemplated by this Agreement under the provisions of the
HSR Act shall have expired or been waived or otherwise terminated.
7.2 Absence of Litigation. No governmental agency or authority shall have
instituted, or threatened in writing to institute, any action or proceeding
seeking to delay, restrain, enjoin, or prohibit the consummation of the
transactions contemplated by this Agreement, and no order, judgment, or decree
by any court or governmental agency or authority shall be in effect that
enjoins, restrains, or prohibits the same or, in the reasonable judgment of
Tyler, otherwise would materially interfere with the operation of the assets and
business of Tyler and the Tyler Subsidiaries or the Company after the Closing
Date.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS
Except as may be waived by the Company and the Shareholders, the
obligations of the Company and the Shareholders to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction on or before
the Closing Date of each of the following conditions:
8.1 Compliance. Tyler shall have, or shall have caused to be, satisfied or
complied with and performed in all material respects all terms, covenants, and
conditions of this Agreement to be complied with or performed by Tyler on or
before the Closing Date.
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8.2 Representations and Warranties. All of the representations and
warranties made by Tyler in this Agreement, the Tyler Disclosure Schedule (prior
to supplementation or amendment thereto pursuant to Section 4.2 of this
Agreement), the Employment Agreements, and in all certificates and other
agreements delivered by Tyler to the Shareholders pursuant hereto or in
connection with the transactions contemplated hereby, shall have been true and
correct in all material respects as of the date hereof, and shall be true and
correct in all material respects at the Closing Date with the same force and
effect as if such representations and warranties had been made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement.
8.3 Opinion. The Company and the Shareholders shall have received an
opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell, Sapp"),
counsel for Tyler, dated the Closing Date, in form and substance reasonably
satisfactory to the Company, the Shareholders and their counsel, relating to the
matters set forth in the following Sections Of this Agreement:
3.1;
3.4; and
3.5 (except the opinion as to enforceability may exclude the
Employment Agreements and the Noncompetition Agreements).
8.4 No Material Adverse Change. There shall have occurred no material
adverse change in the businesses, properties, assets, liabilities, results of
operations or condition (financial or otherwise) of Tyler and the Tyler
Subsidiaries, taken as a whole.
8.5 Financing. On or before thirty days after the date hereof Tyler shall
have obtained financing for the transactions contemplated hereby acceptable to
Tyler.
8.6 Certificates. The Company and the Shareholders shall have received a
certificate or certificates, executed on behalf of Tyler by the President or any
Vice President of Tyler, to the effect that the conditions contained in Sections
7.1 and 7.2 hereof with respect to matters therein relating to Tyler, and in
Sections 8.1, 8.2, and 8.4 hereof, have been satisfied.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF TYLER
Except as may be waived by Tyler, the obligations of Tyler and Sub to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or before the Closing Date, of each of the following
conditions:
9.1 Compliance. The Company and each Shareholder shall have, or shall have
caused to be, satisfied or complied with and performed in all material respects
all terms, covenants, and conditions of this Agreement to be complied with or
performed by any of them on or before the Closing Date.
9.2 Representations and Warranties. All of the representations and
warranties made by the Company and the Shareholders in this Agreement, the
Company Disclosure Schedule (prior to any supplementation or amendment pursuant
to Section 4.2 of this Agreement), and in all certificates and other documents
delivered by the Company and the Shareholders pursuant hereto or in connection
with the transactions contemplated hereby, shall have been true and correct in
all material respects as of the date hereof, and shall be true and correct in
all material respects at the Closing Date with the same force and effect as if
such representations and warranties had been made at and as of the Closing Date,
except for changes permitted or contemplated by this Agreement.
9.3 Securities Law Compliance. The issuance and delivery of shares of
Tyler Common Stock in the Merger shall have been registered or qualified under
the Securities Act and all applicable state securities laws or counsel for Tyler
shall be satisfied that an exemption from such registration or qualification is
available; no
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stop order suspending the effectiveness of any such registration or
qualification shall be in effect; and no proceeding for such purpose shall be
pending before any agency or authority having jurisdiction thereof.
9.4 Opinions. Tyler shall have received the opinion of Andrews & Barth,
counsel for the Company and the Shareholder, dated as of the Closing Date, in
form and substance satisfactory to Tyler and its counsel, relating to the
matters set forth in the following Sections of this Agreement:
2.1;
2.6; and
2.7 (except the opinion as to enforceability may exclude the
Employment Agreements and the Noncompetition Agreements).
9.5 No Material Adverse Change. There shall have occurred no material
adverse change in the businesses, properties, assets, liabilities, results of
operations, or condition (financial or otherwise), of the Company.
9.6 Consents to Transaction. Tyler and the Company shall have received all
consents or approvals, and made all applications, requests, notices, and filings
with, any person, governmental authority, or governmental agency required to be
obtained or made in connection with the consummation of the transactions
contemplated by this Agreement, excluding actions required under the HSR Act
(which are conditions precedent to closing under Section 7.1), but including the
consents of the lenders and third parties set forth in the Company Disclosure
Schedule and the Tyler Disclosure Schedule.
9.7 Financing. On or before thirty days after the date hereof, Tyler shall
have obtained financing for the transactions contemplated hereby acceptable to
Tyler.
9.8 Noncompetition Agreements. Each of the Employees shall have duly
entered into Noncompetition Agreements with the Company acceptable to Tyler.
9.9 Business Resources Corporation. Tyler or a subsidiary of Tyler shall
have acquired all or substantially all of the outstanding capital stock or
assets of Business Resources Corporation ("BRC") pursuant to that certain
Agreement and Plan of Merger dated of even date herewith among Tyler, T1
Acquisition Corporation, BRC, and William D. Oates (the "BRC Merger Agreement").
9.10 Stockholder Approval. The stockholders of Tyler shall have approved
the Merger and this Agreement.
9.11 Certificates. Tyler shall have received a certificate or
certificates, executed on behalf of the Company by the President of the Company,
and by each Shareholder in his individual capacity, to the effect that the
conditions in Sections 7.1 and 7.2 hereof with respect to matters therein
relating to the Company, and Sections 9.1, 9.2, and 9.5 hereof, have been
satisfied.
ARTICLE 10
SECURITIES LAW REGISTRATION AND COMPLIANCE
10.1 Securities Law Compliance; Restrictions on Shares. Each Shareholder
and each other holder of Stock Options or Company Common Stock acknowledges
receipt of the Tyler Commission Filing, this Agreement and the Tyler Disclosure
Schedule and the opportunity to ask questions of and receive answers from
representatives of the management of Tyler concerning the terms and conditions
of the transactions contemplated hereby and to obtain all additional information
that Tyler possesses or could acquire without unreasonable expense that is
necessary to verify the accuracy of information furnished to him, and
acknowledges and agrees:
(a) The shares of Tyler Common Stock to be received by him as a result
of the Merger have not been registered under the Securities Act or any
applicable state securities law;
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(b) He is acquiring the shares so to be received in the Merger for his
own account and not with a view to the distribution or resale thereof and
will not sell, pledge, hypothecate, or otherwise transfer the shares unless
they are registered under the Securities Act and applicable state
securities laws unless, prior thereto, he shall have delivered to Tyler an
opinion, in form and substance reasonably satisfactory to Tyler, of counsel
experienced and competent in federal securities laws and acceptable to
Tyler, to the effect that an exemption from registration is available
therefor;
(c) Except as otherwise provided in this Agreement, Tyler has no
obligation to register any sales or transfers of the shares so received by
him;
(d) During the year after the Merger, he will not be able to sell,
transfer, or otherwise dispose of the shares so received unless, prior
thereto, the Shareholder shall have delivered to Tyler an opinion, in form
and substance reasonably satisfactory to Tyler, of counsel experienced and
competent in federal securities laws and acceptable to Tyler, to the effect
that an exemption from registration under the Securities Act and applicable
state securities laws is at the time available (unless registered as
elsewhere provided in this Agreement), and thereafter any sales, transfers,
or other dispositions may be limited by the provisions of Rule 144 under
the Securities Act (or by other rules then in effect);
(e) In view of the foregoing, he understands that he is at economic
risk with respect to his investment in the shares so received in the
Merger;
(f) Tyler may place an appropriate legend on the certificate
representing the shares so to be received restricting their transfer, and
stop-transfer instructions will be given to the transfer agent for the
Tyler Common Stock with respect to such certificates; and
(g) To provide such information as may be requested by Tyler in order
for Tyler to determine if he is an accredited purchaser under Regulation D
of the Commission or otherwise can be qualified as a purchaser under Rule
506 of such Regulation D.
10.2 Piggyback Registration. If within one year after the Closing Date
Tyler proposes (whether or not for its own account) to register any of its
securities under the Securities Act for sale in a firm commitment underwritten
public offering, Tyler shall give written notice to the Shareholders of its
intention to effect such a registration not later than 15 days prior to the
anticipated date of filing with the Commission of a registration statement,
which notice shall offer each Shareholder the opportunity to include in such
registration statement any of the shares of Tyler Common Stock received in the
Merger and held by such Shareholder ("Shares") that such Shareholder may request
(a "Piggyback Registration"). Tyler's obligation under this Section 10.2 shall
be limited to registrations as to which a registration statement is to be filed
on or before one year after the date hereof. Subject to the provisions of this
Agreement, Tyler will use its reasonable efforts to cause all the Shares for
which the Shareholders have requested registration to be registered under the
Securities Act to the extent required to permit the sale by the Shareholders of
such Shares; provided, that if the registration relates to an underwritten
public offering and the managing underwriter or underwriters believe that the
inclusion of all shares requested to be included in the proposed registration
would adversely affect the marketing of such shares, Tyler may first include in
such registration all securities Tyler proposes to sell, and the Shareholders
shall accept a reduction (including a total elimination) in the number of shares
to be included in such registration, pro rata with the other holders of Tyler
Common Stock making requests for registration, on the basis of the number of
shares of Tyler Common Stock so requested to be included by the Shareholders and
the other selling shareholders. Nothing in this section shall limit Tyler's
ability to withdraw a registration statement it has filed either before or after
effectiveness.
10.3 Registration Procedures.
(a) In connection with any registration hereunder, each Shareholder will
furnish promptly to Tyler in writing such information (together with such
supplements as may be necessary from time to time) with respect to itself and
the proposed distribution by it as shall be reasonably necessary in order to
ensure compliance with federal and applicable state securities laws. Such
information shall not, at the time the registration statement is filed or
becomes effective, contain any untrue statement of a material fact or omit to
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state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not false or misleading.
(b) In any registration relating to an underwritten public offering of
Tyler Common Stock or other securities of Tyler entitled generally to vote in
the election of directors (or any securities convertible into or exchangeable
for or exercisable for the purchase of securities so entitled generally to vote
in the election of directors) (collectively, the "Voting Securities"), whether
or not a Shareholder is participating in such registered underwritten public
offering, at the request of the managing underwriter or underwriters, each
Shareholder will agree not to effect any sale or distribution, including any
sale pursuant to Rule 144 (or any successor provision) promulgated under the
Securities Act of any Shares, and not to effect any such sale or distribution of
any other Tyler Common Stock or Voting Securities (in each case, other than as
part of such registration) for such period of time as reasonably required by
such managing underwriter or underwriters ("Lockup Period"), but in no event
shall the Shareholder be required to agree to a Lockup Period longer than the
Lockup Period to which any other selling shareholder is subject.
10.4 Expenses. In connection with any proposed registration of securities
by Tyler, whether or not effected or consummated, Tyler, each Shareholder, and
any other selling shareholders shall each pay their pro rata share of Tyler's
out of pocket expenses incurred in connection with a proposed registration under
Section 10.2 in which Tyler is not selling any securities for its own account,
including, without limitation, all registration and filing fees, printing
expenses, and fees and disbursements of counsel and accountants for Tyler. Each
Shareholder shall pay all of his expenses, including his attorney's fees, and
including the underwriting discount, selling commissions and all expenses of the
underwriters relating to his Shares incurred in connection with each
registration pursuant to Section 10.2.
10.5 Indemnification.
(a) In the event of a registration of any of the Shares under the
Securities Act pursuant to Section 10.2, Tyler shall indemnify and hold harmless
each Shareholder and each underwriter of Shares thereunder and each person who
controls the Shareholder or underwriter within the meaning of the Securities Act
and the Exchange Act against any losses, claims, damages or liabilities
(including reasonable attorneys' fees), joint or several, to which the
Shareholder or underwriter or controlling person may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) or arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Shares were registered
under the Securities Act pursuant to Section 10.2, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse each such Shareholder,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that Tyler will not be
liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by the Shareholder, underwriter or controlling person for
use in such registration statement or prospectus; provided, further, that Tyler
will not be liable hereunder to any underwriter or any person who controls any
underwriter within the meaning of the Securities Act and the Exchange Act for
any loss, claim, damage or liability that arises out of, or is based upon, any
untrue statement or alleged untrue statement or any omission or alleged omission
contained in any preliminary prospectus that was corrected by any subsequent
prospectus, and the underwriter was required to deliver but failed to deliver
such prospectus as required by the Securities Act.
(b) In the event of a registration of any of the Shares under the
Securities Act pursuant to Section 10.2, the Shareholder shall indemnify and
hold harmless Tyler and each person who controls Tyler within the meaning of the
Securities Act and the Exchange Act, each officer of Tyler who signs the
registration statement, each director of Tyler, each underwriter and each person
who controls any underwriter within the meaning of the Securities Act and the
Exchange Act against all losses, claims, damages or liabilities, joint or
several, to which Tyler or such officer or director or underwriter or
controlling person may become subject
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under the Securities Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Shares were
registered under the Securities Act pursuant to Section 10.2, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein not misleading, and
will reimburse Tyler and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Shareholder will be liable
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission relating to the
Shareholder made in reliance upon and in conformity with information pertaining
to the Shareholder, as such, furnished in writing to Tyler by the Shareholder
for use in such registration statement or prospectus ("Shareholder
Information"); provided, further, that the Shareholder will not be liable
hereunder to any underwriter or any person who controls an underwriter within
the meaning of the Securities Act and the Exchange Act for any loss, claim,
damage or liability that arises out of, or is based upon, any untrue statement
or alleged untrue statement or any omission or alleged omission in any
Shareholder Information contained in any preliminary prospectus that was
corrected by any subsequent prospectus, and the underwriter was required to
deliver but failed to deliver such prospectus as required by the Securities Act.
(c) Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party other than under this Section 10.5. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel reasonably satisfactory to such
indemnified party and, after notice from the indemnifying party to such
indemnified party of its election so to assume and undertake the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under this Section 10.5 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that (i) if the indemnifying party has failed to assume the defense and
employ counsel or (ii) if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
that are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, then the indemnified
party shall have the right to select a separate counsel and to assume such legal
defense and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(d) If the indemnification provided for in this Section 10.5 is unavailable
or insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities or actions in respect thereof, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or actions in such proportion as is
appropriate to reflect the relative fault of Tyler, on the one hand, and the
Shareholder, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or actions as well as any
other relevant equitable considerations, including the failure to give any
required notice. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by Tyler, on the one hand, or the Shareholder, on the
other, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Tyler and the
Shareholder agree that it would not be just and equitable if contribution
pursuant to this Section 10.5(d) were determined by pro rata allocation or by
any other method of allocation which does not
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take account of the equitable considerations referred to above in this Section
10.5(d). The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities or actions in respect thereof referred to
above in this Section 10.5(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty or
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
10.6 No Transferability of Registration Rights. Except with the prior
written consent of Tyler, the Shareholders' registration rights under Section
10.2 shall not inure to the benefit of any person to whom any Shares are
transferred, other than a spouse or descendant of a Shareholder ("Relative"), a
trust solely for the benefit of a Shareholder or Relative, or a partnership all
of the equity interests in which are directly or indirectly owned by a
Shareholder or Relative.
ARTICLE 11
INDEMNIFICATION AND REMEDIES
11.1 Indemnification by the Shareholders Based on Agreement. Each
Shareholder agrees jointly and severally to indemnify and hold harmless Tyler
(and if the transactions contemplated hereby are consummated, the Surviving
Corporation), from and against any and all claims, losses, obligations, damages,
demands, and liabilities (after giving effect to and reducing the same by (i)
any net tax benefits realized by Tyler or the Surviving Corporation as a result
of such event, and (ii) the net amount of any insurance proceeds received by
Tyler or the Surviving Corporation as a result of such event), including,
without limitation, costs and expenses of litigation (including reasonable
attorneys' and accountants' fees) (collectively, "Tyler Indemnified Losses"),
based on, relating to, or arising out of, or any allegation by any third party
of, any facts or circumstances that would constitute a breach by the
Shareholders of any representation, warranty, or covenant contained herein or in
any agreement executed pursuant hereto, but excluding from this covenant to
indemnify any claims or liabilities separately covered by Section 10.5 hereof or
any Customer Claims (hereinafter defined) to the extent and only while covered
by the provisions of Section 11.3 hereof.
11.2 Indemnification by Tyler Based on Agreement. Tyler (and if the
transactions contemplated hereby are consummated, the Surviving Corporation)
agrees to indemnify and hold harmless the Shareholders from and against any and
all claims, losses, expenses, obligations, demands and liabilities (after giving
effect to and reducing the same by (i) any net tax benefits realized by the
Shareholders as a result of such event, and (ii) the net amount of any insurance
proceeds received by the Shareholders as a result of such event), including,
without limitation, costs and expenses of litigation and including reasonable
attorneys' and accountants' fees (collectively, "Shareholder Indemnified
Losses"), based on, relating to, or arising out of, or any allegation by any
third party of, any facts or circumstances that would constitute a breach by
Tyler of any representation, warranty, or covenant contained herein or in any
agreement executed pursuant hereto, but excluding from this covenant to
indemnify any claims or liabilities separately covered by the provisions of
Section 10.5 hereof.
11.3 Customer Claims. If any claim, demand, or cause of action of the type
referred to in Section 11.1 is asserted by a customer of the Company ("Customer
Claim"), the following provisions shall be applicable until such time as the
Customer Claim results in a filed and pending lawsuit or other judicial
proceeding (at which time the provisions of Section 11.1 shall be applicable):
(a) Tyler or the Surviving Corporation shall promptly notify the
Shareholders in writing that a Customer Claim has been made, describing the
nature of the Customer Claim to the extent then known.
(b) After receipt of Tyler's or the Surviving Corporation's written
notice, the parties hereto will fully cooperate with each other to
investigate the Customer Claim and determine whether the parties can agree
that the Customer Claim is an obligation or liability for which the
Shareholders are responsible. The investigation shall be conducted
expeditiously and with all reasonable due diligence, considering the
circumstances surrounding the Customer Claim.
B-36
<PAGE> 183
(c) If, after an investigation, Tyler or the Surviving Corporation and
the Shareholders agree in writing that the Customer Claim is an obligation
or liability for which the Shareholders are responsible, the Shareholders
and Tyler or the Surviving Corporation agree to use their reasonable best
efforts to reach an agreement with the customer as to the terms and
conditions of settlement, compromise or satisfaction of the Customer Claim,
including, but not limited to, the amount that the Shareholders shall pay
to the customer for the damages, losses, costs or expenses incurred by it.
(d) If the provisions of this Section 11.3 are applicable, Tyler or
the Surviving Corporation shall conduct all communications and settlement
negotiations with the customer and shall convey to the customer any offers
of settlement or compromise by the Shareholders. Any amounts that the
Shareholders agree so to pay in settlement of the Customer Claim shall be
paid by them to Tyler or the Surviving Corporation, as the case may be, in
trust for payment over to the customer. If Tyler or the Surviving
Corporation agrees to pay the customer an amount in excess of that offered
for settlement purposes by the Shareholders, the excess shall be paid by
Tyler or the Surviving Corporation, as the case may be, without any right
to indemnification therefor from the Shareholders. If the amounts so paid
and entrusted to Tyler or the Surviving Corporation are paid over to the
customer, the payment over shall be deemed to be a release by Tyler or the
Surviving Corporation of any further claim with respect to that Customer
Claim against the Shareholders and Tyler and the Surviving Corporation
shall indemnify and hold harmless the Shareholders from any further
liability with respect thereto.
(e) In the absence of an agreement among the parties as to the
settlement of any Customer Claim not involving litigation, Tyler or the
Surviving Corporation may take such action with respect to the Customer
Claim as Tyler in its sole judgment may deem necessary or advisable under
the circumstances to settle, compromise or satisfy the Customer Claims
provided; however, neither Tyler nor the Surviving Corporation shall in any
such event be considered to have waived its right to pursue a judicial
action to determine its right against the Shareholders.
(f) An indemnified party shall give notice to the indemnifying party
or parties within 15 business days after actual receipt of service or
summons to appear in any action begun in respect of which indemnity may be
sought hereunder, or actual notice of assertion of a claim with respect to
which it seeks indemnification. Except as provided in Section 4.5, failure
so to notify the indemnifying party or parties shall cause the indemnified
party to lose its right to indemnification under this Article 11, but
failure so to notify the indemnifying party or parties shall not relieve
the indemnifying party or parties from any liability that they may have
other than on account of this Article 11. The indemnifying party or parties
may participate at their own expense and with their counsel in the defense
of such action.
Except as otherwise provided in Section 11.3(d), if the indemnifying party
or parties so elect within a reasonable time after receipt of such notice they
may assume the defense of such action with counsel chosen by the indemnifying
party or parties and approved by the indemnified party in such action, unless
the indemnified party reasonably objects to such assumption on the ground that
its counsel has advised it that there may be legal defenses available to it that
are different from or in addition to those available to the indemnifying party
or parties and counsel for the indemnifying party concurs in such advice, in
which case the indemnified party shall have the right to employ counsel approved
by the indemnifying party or parties. If the indemnifying party or parties
assume the defense of such action, the indemnifying party or parties shall not
be liable for fees and expenses of counsel for the indemnified party incurred
thereafter in connection with such action. In no event shall the indemnifying
party or parties be liable for the fees and expenses of more than one counsel
for the indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances unless, in the reasonable opinion of such
counsel, there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
indemnified parties.
11.4 Claims Limitations. Notwithstanding anything otherwise contained in
this Agreement, no party hereto shall assert any single claim or claims against
any other party hereto, unless the single claim (after giving effect to and
reducing the same by (i) any net tax benefits realized by the indemnified party
as a result of such event, and (ii) the net amount of any insurance proceeds
received by the indemnified party as a result
B-37
<PAGE> 184
of such event) exceeds the sum of $18,750, and the sum of all such single claims
in the aggregate exceeds $150,000; provided, that claims made by Tyler or the
Surviving Corporation pursuant to Section 2.9 or 4.5 of this Agreement, or for
breach of the Employment Agreement or the Confidentiality Agreement shall not be
subject to the foregoing limitations; and provided further, that claims made by
the Shareholders pursuant to Section 3.7 or 4.5 of this Agreement, or for breach
of the Employment Agreement or the Confidentiality Agreement shall not be
subject to the foregoing limitations.
11.5 Maximum Liability. The maximum aggregate liability of the
Shareholders to Tyler or the Surviving Corporation for all claims made by Tyler
or the Company pursuant to this Agreement is $3,000,000; provided, that claims
made by Tyler or the Surviving Corporation pursuant to Sections 2.9 or 4.5 of
this Agreement, or for breach of the Employment Agreement or the Confidentiality
Agreement, shall not be subject to the foregoing limitation. The maximum
aggregate liability of Tyler or the Surviving Corporation to the Shareholders
for all claims made by the Shareholders pursuant to this Agreement is
$3,000,000; provided, that claims made by the Shareholders pursuant to Section
3.7 or 4.5 of this Agreement, or for breach of the Employment Agreement or the
Confidentiality Agreement, shall not be subject to the foregoing limitation. Any
claim based upon facts and circumstances that would, if true, constitute a
breach of any representation, warranty or covenant contained in this Agreement
shall be subject to the limitations contained herein, notwithstanding the fact
that such claim is asserted by a cause of action or legal theory other than
breach of contract. When calculating the amount of liability in a claim for
damages for purposes of this Section 11.5 (whether such calculation is through
agreement of the parties, litigation or otherwise) and the claim relates to the
breach of a representation as to the income of the Company for any period or
periods prior to the Closing Date, all of the parties hereto agree that, in
determining the amount involved in the claim, the damages shall be actual
damages incurred and proven and such actual damages shall not be computed by
using a multiplier or capitalization rate.
11.6 Equitable Remedies. The parties hereto acknowledge that a refusal by
a party to consummate the transactions contemplated hereby will cause
irreparable harm to the other parties, for which there may be no adequate remedy
at law. A party not in default at the time of such refusal shall be entitled, in
addition to other remedies at law or in equity, to specific performance of this
Agreement by the party that refused to consummate the transactions contemplated
hereby.
11.7 Remedies of the Surviving Corporation. After the Closing, the
Surviving Corporation shall have the same rights and benefits under this
Agreement as does Tyler with respect to the representations, warranties and
covenants of the Shareholders contained herein, as fully as if such
representations, warranties and covenants had been made to the Surviving
Corporation in lieu or in place of Tyler or Sub. In any proceeding by the
Surviving Corporation to assert or prosecute any claims under, or to otherwise
enforce, this Agreement on behalf of itself or Tyler, each Shareholder agrees
that he shall not assert as a defense or bar to recovery by the Surviving
Corporation, and hereby waives any right to so assert such defense or bar such
recovery, that (a) prior to Closing, the Company shall have had knowledge of the
circumstances giving rise to the claim being pursued by it; (b) prior to
Closing, the Company engaged in conduct or took action that caused or brought
about the circumstances giving rise to its claim, or otherwise contributed
thereto; (c) the Company is estopped from asserting or recovering upon its claim
by reason of having joined in the representations, warranties and covenants made
by the Shareholders in this Agreement; or (d) the Shareholder has a right of
contribution from the Surviving Corporation to the extent that there is any
recovery against him.
11.8 Costs of Defense. If any claim for which an indemnified party seeks
indemnification under this Article 11 results in a judgment that no damages are
due the claimant on a basis for which the indemnifying party is responsible
hereunder, then, as between the indemnifying and indemnified parties, the
indemnified parties shall be liable for any damages awarded and the costs
(including attorneys' fees) of defending such claim.
B-38
<PAGE> 185
ARTICLE 12
MISCELLANEOUS
12.1 Breach Discovered Prior to Closing.
(a) If, prior to the Time of Closing, Tyler has actual and certain
knowledge (as opposed to an opinion or belief) of any facts or circumstances
that it determines would constitute a failure to satisfy the conditions to the
obligations of Tyler to close this Agreement contained in Sections 9.1, 9.2 or
9.5 hereof, Tyler shall promptly give written notice to the Shareholders. If the
Shareholders fail to cure any such alleged defect within 15 days from the date
of notice, Tyler shall have the right either to (i) terminate this Agreement
pursuant to Section 12.2 below, in which case Tyler, shall, if not then in
default under this Agreement, be entitled to recover from the Company and the
Shareholders as liquidated damages the actual legal, accounting and other
out-of-pocket expenses incurred by it in connection with the negotiation,
preparation and execution of this Agreement and the other agreements and
instruments referred to herein, its investigation and examination of the affairs
of the Company, and other actions taken preparatory to consummating the
transactions contemplated hereby, or (ii) waive such defect as a condition to
closing this Agreement, in which case Tyler shall not be entitled to make any
claims against the Shareholders pursuant to this Agreement or to exercise any
other remedial rights with respect to such alleged defect.
(b) If, prior to the Time of Closing, the Shareholders have actual and
certain knowledge (as opposed to an opinion or belief) of any facts or
circumstances that the Shareholders determine would constitute a failure to
satisfy the conditions to the obligations of the Company and the Shareholders to
close this Agreement contained in Sections 8.1, 8.2 and 8.4 hereof, the Company
and the Shareholders shall promptly give written notice to Tyler. If Tyler fails
to cure any such alleged defect, the Company and the Shareholders shall have the
right either to (i) terminate this Agreement pursuant to Section 12.2 below, in
which case the Company and the Shareholders shall, if not then in default under
this Agreement, be entitled to recover from Tyler as liquidated damages the
actual legal, accounting and other out-of-pocket expenses incurred by them (but
not including such expenses incurred to appropriately document the corporate
records and transactions of the Company and the Shareholders) in connection with
the negotiation, preparation and execution of this Agreement and the other
agreements and instruments referred to herein, their investigation and
examination of the affairs of Tyler, and other actions taken preparatory to
consummating the transactions contemplated hereby, or (ii) waive such defect as
a condition to closing this Agreement, in which case the Shareholders shall not
be entitled to make any claims against Tyler or the Surviving Corporation
pursuant to this Agreement or to exercise any other remedial rights with respect
to such alleged defect.
12.2 Termination. This Agreement and the transactions contemplated hereby
may be terminated at any time on or before the Closing Date:
(a) by mutual consent of Tyler and the Shareholders;
(b) by Tyler if there has been a material misrepresentation or breach
of warranty in the representations and warranties of the Company and the
Shareholders set forth herein or if there has been any material failure on
the part of the Company or the Shareholders to comply with their
obligations hereunder;
(c) by the Shareholders if there has been a material misrepresentation
or breach of warranty in the representations and warranties of Tyler set
forth herein or if there has been any material failure on the part of Tyler
to comply with its obligations hereunder;
(d) by either Tyler or the Shareholders if the transactions
contemplated by this Agreement have not been consummated by March 31, 1998,
unless such failure of consummation is due to the failure of the
terminating party to perform or observe the covenants, agreements, and
conditions hereof to be performed or observed by it at or before the
Closing Date;
(e) by either Tyler or the Shareholders if the conditions precedent to
its or their obligations to close this Agreement have not been satisfied or
waived by it or them at or before the Closing Date; and
B-39
<PAGE> 186
(f) by either the Shareholders or Tyler if the transactions
contemplated hereby violate any non-appealable final order, decree, or
judgment of any court or governmental body or agency having competent
jurisdiction.
12.3 Expenses. If the transactions contemplated by this Agreement are not
consummated, each party hereto shall pay its own expenses incurred in connection
with this Agreement and the transactions contemplated hereby, except as
otherwise provided in Section 12.1; provided, however, that if the transactions
contemplated hereby are not consummated because of the failure of either of the
conditions in Section 9.7 or 9.9 to be satisfied, Tyler shall reimburse the
Shareholders for their reasonable out-of-pocket expenses incurred in connection
with this Agreement and the transactions contemplated hereby, not to exceed
$30,000.
12.4 Disclosure Schedules. The Company Disclosure Schedule and the Tyler
Disclosure Schedule are incorporated herein by reference.
12.5 Entire Agreement. This Agreement and the Exhibits and Disclosure
Schedules hereto, the Confidentiality Agreement and the other agreements and
documents contemplated hereby, contain the complete agreement among the parties
with respect to the transactions contemplated hereby and supersede all prior
agreements and understandings among the parties with respect to such
transactions. Section and other headings, the table of contents and indexes to
the Disclosure Schedules are for reference purposes only and shall not affect
the interpretation or construction of this Agreement. The parties hereto have
not made any representation or warranty except as expressly set forth in this
Agreement, the Employment Agreement, the Confidentiality Agreement, and the
Noncompetition Agreements, the Company Disclosure Schedule, the Tyler Disclosure
Schedule or in any agreement, certificate or other document delivered pursuant
hereto or thereto. The obligations of any party under any agreement executed
pursuant to this Agreement shall not be affected by this Section.
12.6 Survival. All representations and warranties (except those contained
in Sections 2.9 and 2.15) of Tyler, Sub, the Company or the Shareholders
contained herein, in the Tyler Disclosure Schedule, in the Company Disclosure
Schedule, or in any exhibit, certificate, document or instrument delivered
pursuant to this Agreement shall survive the Closing and shall continue in full
force and effect for two years after the date of Closing. All representations
and warranties of the Shareholders contained in Section 2.9(b) above shall
survive the Closing and shall continue in full force and effect after the
Closing without time limitation. All representations and warranties of the
Shareholders contained in Sections 2.9(a), (c) and (d) above shall survive the
Closing and shall continue in full force and effect after the Closing until
expiration, in accordance with the laws of Texas, of the applicable time period
in which claims may be judicially asserted for breach of a written contract. All
representations and warranties of the Shareholders contained in Section 2.15
above shall survive the Closing and shall continue in full force and effect
after the Closing until expiration, in accordance with applicable law, of the
applicable time periods in which the taxing authority having jurisdiction may
assert a claim for failure of or deficiency in the payment of taxes. The
representations and warranties of the Company shall not survive the Closing.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
B-40
<PAGE> 187
12.8 Notices. All notices, demands, requests, or other communications that
may be or are required to be given, served, or sent by any party to any other
party pursuant to this Agreement shall be in writing and shall be mailed by
first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery, telegram, or telecopy, addressed as
follows:
(i) If to the Company or the Shareholders:
The Software Group, Inc.
Jupiter North Technology Park
1120 Jupiter Road, Suite 100
Plano, Texas 75074
Telecopy No.: (972) 516-2284
with a copy (which shall not constitute notice) to:
Andrews & Barth
8235 Douglas, Suite 1120
Dallas, Texas 75225
Attention: John C. Andrews, III
Telecopy No.: (214) 691-3070
(ii) If to Tyler:
Tyler Corporation
2121 San Jacinto Street
3200 San Jacinto Tower
Dallas, Texas 75201
Attention: Chairman of the Board
Telecopy No.: (214) 754-7821
with a copy (which shall not constitute notice) to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
600 Travis Street
Houston, Texas 77002-3004
Attention: Gene G. Lewis
Telecopy No.: (713) 223-3717
Each party may designate by notice in writing a new address to which any
notice, demand, request, or communication may thereafter be so given, served, or
sent. Each notice, demand, request, or communication that is mailed, delivered,
or transmitted in the manner described above shall be deemed sufficiently given,
served, sent and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt, the affidavit of
messenger, or (with respect to a telecopy) the confirmation being deemed
conclusive evidence of such delivery) or at such time as delivery is refused by
the addressee upon presentation.
12.9 Successors and Assigns. This Agreement and the rights, interests, and
obligations hereunder shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
12.10 Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas (except the choice of law rules
thereof).
12.11 Waiver and Other Action. This Agreement may be amended, modified, or
supplemented only by a written instrument executed by the parties against which
enforcement of the amendment, modification, or supplement is sought.
12.12 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal,
B-41
<PAGE> 188
invalid, or unenforceable provision were never a part hereof; the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
(except to the extent such remaining provisions constitute obligations of
another party to this Agreement corresponding to the unenforceable provision);
and in lieu of such illegal, invalid, or unenforceable provision, there shall be
added automatically as part of this Agreement, a provision as similar in its
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
12.13 Knowledge. At any time there is a reference in a representation,
covenant or warranty of a party to this Agreement that is qualified by the
knowledge of such party, the terms "knowledge" or "knows" or "known", or
"belief" or "believes" shall mean (i) as to the Company and the Shareholders,
the knowledge or belief of any Shareholder, and (ii) as to Tyler, the knowledge
or belief of its Chairman of the Board, Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer, Louis A. Waters, or James E. Russell.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TYLER CORPORATION
By: /s/ C.A. RUNDELL, JR.
----------------------------------
C. A. Rundell, Jr., President and
Chief Executive Officer
T2 ACQUISITION CORPORATION
By: /s/ C.A. RUNDELL, JR.
----------------------------------
C.A. Rundell, Jr., President
THE SOFTWARE GROUP, INC.
By: /s/ GLENN A. SMITH
----------------------------------
Glenn A. Smith, President
/s/ BRIAN B. BERRY
----------------------------------
Brian B. Berry, Individually
/s/ GLENN A. SMITH
----------------------------------
Glenn A. Smith, Individually
B-42
<PAGE> 189
The undersigned execute this Agreement solely to indicate their agreement
to Sections 1.7(c) and 10.1 hereof:
/s/ JOANE COGAN
------------------------------------
Joane Cogan
/s/ RICK HOFF
------------------------------------
Rick Hoff
/s/ DAVID LANDGREN
------------------------------------
David Landgren
B-43
<PAGE> 190
ANNEX I
<TABLE>
<CAPTION>
SHAREHOLDERS SHARES
------------ -------
<S> <C>
Brian B. Berry.............................................. 824,025
Joane Cogan................................................. 136,475
Glenn A. Smith.............................................. 960,500
</TABLE>
<TABLE>
<CAPTION>
SHARES
SUBJECT TO
OPTIONHOLDERS OPTIONS
------------- ----------
<S> <C>
Rick Hoff................................................... 75,000
David Landgren.............................................. 75,000
</TABLE>
B-44
<PAGE> 191
APPENDIX C
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
TYLER CORPORATION
Pursuant to the provisions of Section 242 of the General Corporation Law of
the State of Delaware ("DGCL"), Tyler Corporation, a corporation organized and
existing under and by virtue of the DGCL ("Corporation"), does hereby certify as
follows:
1. The Board of Directors of the Corporation, at a meeting duly called and
held, adopted a resolution setting forth and declaring advisable the following
proposed amendment to the Restated Certificate of Incorporation of the
Corporation.
Article Fourth, Section 1, of the Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"FOURTH: Section 1. Capitalization. The Corporation is authorized to
issue One Hundred One Million (101,000,000) shares of capital stock. One
Hundred Million (100,000,000) of the authorized shares shall be common
stock, one cent ($0.01) par value each ("Common Stock"), and One Million
(1,000,000) of the authorized shares shall be preferred stock, ten dollars
($10.00) par value each ("Preferred Stock").
"Each holder of shares of capital stock of the Corporation shall at
every meeting of the stockholders be entitled to one vote in person or by
proxy for each share of capital stock of the Corporation held by the
stockholder, unless otherwise specifically provided pursuant to this
Restated Certificate of Incorporation."
2. Pursuant to a resolution of the Board of Directors, the foregoing
amendment was presented to the stockholders of the Corporation at a special
meeting of the stockholders of the Corporation duly called and held for such
purpose, and the foregoing amendment was approved by the vote of a majority of
the shares of capital stock of the Corporation entitled to vote thereon in
accordance with the provisions of Section 242 of the DGCL.
3. Said amendment was duly adopted in accordance with the provisions of
Section 242 of the DGCL.
4. This Certificate of Amendment shall be effective upon the filing
thereof.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to its Restated Certificate of Incorporation to be executed on the
day of , 199 .
TYLER CORPORATION
By:
----------------------------------
C.A. Rundell, Jr.
President and Chief Executive
Officer
C-1
<PAGE> 192
- --------------------------------------------------------------------------------
TYLER CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby (1) acknowledges receipt of the Notice dated
, 1998, of the special meeting of stockholders of Tyler Corporation (the
"Company") to be held at , Dallas, Texas, on ,
1998, at a.m., Dallas time, and the Proxy Statement in connection therewith,
and (2) appoints Louis A. Waters and C.A. Rundell, Jr., and each of them, as
proxies with full power of substitution and revocation, for and in the name,
place, and stead of the undersigned, to vote upon and act with respect to all of
the shares of Common Stock of the Company standing in the name of the
undersigned or with respect to which the undersigned is entitled to vote and act
at said meeting and at any postponements or adjournments thereof, and the
undersigned directs that this proxy be voted as indicated on the reverse side
hereof. If only one of the above proxies shall be present in person or by
substitute at such meeting or at any postponements or adjournments thereof, that
proxy so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes, or any of them may lawfully do by virtue
hereof.
[X] Please mark votes as in this example
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW. IF NO SPECIFICATION IS MADE, THIS
PROXY WILL BE VOTED FOR THE MATTERS SPECIFICALLY REFERRED TO BELOW.
1. Approval and adoption of a Second Amended and Restated Agreement and Plan of
Merger, dated as of December 29, 1997, and effective as of October 8, 1997,
among the Company, T1 Acquisition Corporation, Business Resources
Corporation, and William D. Oates.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval and adoption of an Amended and Restated Agreement and Plan of
Merger, dated as of December 29, 1997, and effective as of October 8, 1997,
among the Company, T2 Acquisition Corporation, The Software Group, Inc.,
Glenn A. Smith, and Brian B. Berry.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED AND DATED ON OTHER SIDE)
PRELIMINARY COPIES
- --------------------------------------------------------------------------------
<PAGE> 193
- --------------------------------------------------------------------------------
3. Approval of the amendment to the Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 50,000,000 to
100,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In the discretion of the proxies on any other matter that may properly come
before the meeting or any postponements or adjournments thereof.
MARK HERE FOR
ADDRESS CHANGE [ ]
AND NOTE AT LEFT
Please date this proxy and sign
your name exactly as it appears
hereon. Where there is more then
one owner, each should sign.
When signing as an attorney,
administrator, executor,
guardian, or trustee, please add
your title as such if executed
by a corporation, the proxy
should be signed by a duly
authorized officer.
Please sign this proxy and
return it promptly whether or
not you expect to attend the
meeting. You may nevertheless
vote in person if you do attend.
--------------------------------
Signature Date
--------------------------------
Signature Date
- --------------------------------------------------------------------------------
