<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
---------------
<TABLE>
<S> <C>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
</TABLE>
FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER:
33-45417
THE BISYS GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3532663
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
150 CLOVE ROAD
LITTLE FALLS, NEW JERSEY 07424
(Address of principal executive offices)
(Zip Code)
201-812-8600
(Registrant's telephone number, including area code)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
(Title of Class)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.02 PAR VALUE
(Title of Class)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
State the aggregate market value of voting stock held by nonaffiliates of
the Registrant as of September 18, 1996: $925,692,712.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of September 18, 1996: 24,949,731.
------------------------
DOCUMENTS INCORPORATED BY REFERENCE: List the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) Any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
FISCAL 1996 ANNUAL REPORT to Shareholders--Part I, II and IV; PROXY STATEMENT
for November 14, 1996 Annual Meeting--Part III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE BISYS GROUP, INC.
FORM 10-K
JUNE 30, 1996
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Part I
Item 1. Business................................................................................. 1
Item 2. Properties............................................................................... 9
Item 3. Legal Proceedings........................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...................................... 9
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 10
Item 6. Selected Financial Data.................................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 10
Item 8. Financial Statements and Supplementary Data.............................................. 10
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..... 10
Part III.................................................................................................. 10
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 10
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
The BISYS-Registered Trademark- Group, Inc. and its wholly-owned
subsidiaries ("BISYS" or the "Company") provide information and investment
outsourcing solutions to and through more than 5,000 financial organizations and
corporate clients. BISYS believes that it provides one of the financial services
industry's most technologically advanced family of image and data processing
outsourcing solutions and pricing analysis for account, item and loan
application processing, and competitive product pricing support. BISYS designs,
administers and distributes proprietary mutual funds and provides 401(k)
administration services to some of the nation's leading investment management
companies and provides life insurance services to the financial services
industry.
BISYS seeks to be the single source of all relevant outsourcing solutions
for its clients in order to improve the performance, profitability and
competitive position of all types of financial services organizations. BISYS
also endeavors to expand the scope of its services through focused account
management, emphasizing services with recurring revenues and long-term
contracts. It increases its business base through (i) direct sales to new
clients, (ii) sales of additional products and services to existing clients, and
(iii) acquisitions of businesses that provide complementary outsourcing
solutions to financial organizations.
BISYS was organized in August 1989 to acquire certain banking and thrift
data processing operations of Automatic Data Processing, Inc. ("ADP"). BISYS
traditional business was established in 1966 by United Data Processing, Inc.,
the predecessor of the banking and thrift data processing operations of ADP.
Accordingly, together with its predecessors, BISYS has been providing
outsourcing solutions to the financial services industry for more than 30 years.
BISYS is incorporated under the laws of Delaware and has its principal executive
office at 150 Clove Road, Little Falls, New Jersey 07424 (telephone
201-812-8600).
Since its founding in 1989, BISYS has completed various acquisitions and
mergers. During fiscal years 1994 through 1996, BISYS acquired or merged with
the following businesses:
July 1993--The Barclay Group, Inc., now part of BISYS Plan Services,
provides 401(k) marketing, administrative support and participant
recordkeeping to client companies;
September 1993--Assets and certain liabilities of the Meyer Interest
Rate Survey, now part of BISYS Research Services, gathers specific
information on deposit and loan products offered by banking institutions and
markets such information to clients;
October 1993--The Winsbury Companies, now part of BISYS Fund Services,
creates, markets, and administers proprietary mutual funds, primarily for
banks;
March 1994--SunTrust Data Systems, Inc., now part of BISYS
TOTALPLUS-Registered Trademark- business, provides information services for
correspondent community banks of SunTrust Banks, Inc.;
March 1995--Concord Holding Corporation ("Concord"), now part of BISYS
Fund Services, creates, markets and administers proprietary mutual funds,
primarily for banks;
May 1995--Document Solutions, Inc. ("DSI"), now known as BISYS Document
Solutions, offers check and document imaging solutions to banks;
April 1996--Strategic Solutions Group, Inc. ("SSG"), now known as BISYS
Creative Solutions, designs, develops and provides automated marketing
solutions to financial organizations, including the automated processing of
consumer loan requests and prequalification of home buyers for mortgage
loans (see "Recent Developments"); and
June 1996--T.U.G., Inc. ("TUG"), now part of BISYS Insurance Services,
provides life insurance services to the financial services industry (see
"Recent Developments").
1
<PAGE>
RECENT DEVELOPMENTS
On April 22, 1996, BISYS acquired SSG through the merger of SSG with and
into a wholly-owned subsidiary of BISYS. The transaction was completed through
the issuance of 520,599 shares of BISYS common stock, $0.02 par value ("Common
Stock"), in exchange for all outstanding shares of SSG common stock.
On June 27, 1996, BISYS and Furman Selz, LLC ("Furman Selz") entered into an
outsourcing alliance agreement pursuant to which BISYS will offer mutual fund
distribution, administration, fund accounting, transfer agency and other support
services to Furman Selz mutual fund clients.
On June 28, 1996, BISYS acquired TUG through the merger of a wholly-owned
subsidiary of BISYS with and into TUG. The transaction was completed through the
issuance of 491,314 shares of Common Stock in exchange for all outstanding
shares of TUG common stock.
Although the acquisitions of SSG and TUG have been accounted for as poolings
of interests, historical financial statements have not been restated, since the
financial statement impact is not material.
COMPANY STRATEGY
Financial organizations today are consistently challenged to compete more
effectively, improve productivity and maximize profits during periods of both
economic growth and decline. Outsourcing providers such as BISYS provide viable
alternatives for automating critical tasks and functions and provide specific
expertise and experience to financial organizations. BISYS outsourcing solutions
deliver to its clients operational and bottom line benefits as well as the
resources to generate incremental revenues. At the same time, BISYS realizes
certain economies of scale in providing client service, operations support and
product development for its diverse client base.
BISYS objectives are to increase its client base and to expand the services
it offers to them. The BISYS mission is to be the premier, full-service
outsourcing business partner and catalyst for growth for the financial services
industry, and to build shareholder value by consistently increasing both
revenues and earnings per share through a combination of internal growth, new
sales and strategic acquisitions. Six key principles have guided BISYS since its
formation and continue to shape its business growth plan:
FOCUS ON SERVING CLIENTS. BISYS seeks to strengthen business
relationships with clients by offering new products and services designed to
be technologically advanced solutions for improving client performance,
growth and competitive position in a changing market.
LEVERAGE TECHNOLOGICAL ADVANCEMENTS. BISYS seeks to maintain its
leadership position in providing competitive, value-added outsourcing
solutions through investment in new technology and the further integration
of BISYS system capabilities.
GROW INTERNALLY AND SELL AGGRESSIVELY. BISYS seeks to grow internally
by aggressively selling services to new clients and cross-selling additional
services to existing clients through focused sales in growth markets. BISYS
also seeks to develop and sell new services to clients that help them retain
existing customers, and attract additional customers from new markets. BISYS
focuses its sales activities to target growing markets.
OPTIMIZE HUMAN RESOURCES. BISYS seeks to attract and retain executives,
technical staff and financial services professionals with the expertise
required to enable BISYS to explore and develop new opportunities that will
sustain its growth and market leadership position.
EXPLOIT BUSINESS AND PRODUCT STRATEGY. BISYS seeks to capitalize on the
synergies among its business units and to acquire complementary companies
that support its client relationships and long-term business objectives.
2
<PAGE>
MANAGE CONTEMPORARY ACQUISITION STRATEGY. Strategic acquisitions
represent an important growth tool for BISYS. To enhance shareholder value,
BISYS seeks to combine conservative valuation discipline and transition
experience to achieve market synergies and operating leverage.
BISYS provides outsourcing solutions for data processing operations of
banking institutions through an integrated family of services and products
offered under the registered service mark TOTALPLUS. Although the TOTALPLUS
family of services and products are adaptable to financial institutions of any
size, BISYS believes that the target market, based on assets, consists of small
and mid-sized institutions (commercial banks of $50 to $500 million in assets
and thrift institutions of $100 million to $2 billion in assets) and major
institutions (commercial banks of $500 million to $5 billion in assets and
thrift institutions of $2 billion to $15 billion in assets). The potential
revenues available from its target information services market are estimated to
be approximately $2 billion per year.
Using central site and client site solutions, TOTALPLUS supports most
aspects of a banking institution's data automation requirements. TOTALPLUS is a
comprehensive system, integrating innovative applications to provide bank-wide
automation that enables financial institutions to compete with super regionals,
banks serving a national marketplace, and non-bank competitors. The TOTALPLUS
family of products and services provides bank-wide automation, integrating
mainframe-based, central site and PC-based, client site applications. TOTALPLUS
provides diverse financial organizations with the ability to customize each
application to meet unique processing requirements and priorities.
BISYS currently has four major data processing centers located in the
Chicago, IL; Cincinnati, OH; Houston, TX; and Philadelphia, PA metropolitan
areas. These regional service centers are uniformly automated with multi-tasking
IBM (or equivalent) mainframe computer systems on which all TOTALPLUS host
computer functions and client data are resident. BISYS intends to consolidate
into two data processing centers during fiscal 1997. Each client's individual
operating parameters and data are maintained separately, and extensive
precautions are in place to ensure data security and privacy of communications
between the client and the host. Both internal and external backup resources are
maintained and regularly tested for BISYS own disaster recovery purposes.
Additionally, BISYS maintains uniformly automated document processing centers
which utilize IBM based mini-computer and reader/sorter capabilities. Document
processing centers are located in Austin, TX; Boston, MA; Cherry Hill, NJ;
Chicago, IL; Lake Success, NY; Oklahoma City, OK; and Richmond, VA.
BISYS is a leader in providing image-based technology software to financial
institutions. These imaging solutions convert traditional paper-based checks and
other documents into digital images that can be accessed electronically. BISYS
software has been installed in over 300 financial institutions representing
approximately 70% of all bank check imaging systems in the country for the
community bank market. This software product, designed to provide a fully
integrated image environment, uses microcomputer technology and supports the
majority of image processing equipment available today. This product family
includes image capture and archive, image statements, image proof of deposit,
return item/image processing, image signature verification, courtesy amount
recognition, CD-ROM image delivery and customer financial analysis.
BISYS provides low-cost automated marketing solutions to more than 300
financial organizations in an unattended service bureau environment on a seven
day, 24 hour basis, from its offices in Atlanta, Georgia. These services include
Loan Connection-TM-, which processes consumer loan requests, and Mortgage
Connection-TM-, which helps to prequalify home buyers for mortgage loans. To use
these services, borrowers enter numeric information on a touch tone telephone
and, based on this input, BISYS retrieves credit bureau information and applies
the individual financial organization's underwriting parameters and credit
scoring criteria to provide qualifying information to the financial organization
and the prospective borrower.
BISYS gathers information on deposit and loan products offered by more than
4,000 banks, thrifts and credit unions on a daily, weekly, or monthly basis.
BISYS markets and transmits this survey
3
<PAGE>
information in various formats and frequencies to over 1,250 client
institutions, including 23 of the nation's top 25 commercial banks. This data is
used by both money center and community banks to support their daily pricing
decisions.
BISYS designs, distributes and administers over 40 families of proprietary
mutual funds consisting of more than 400 individual portfolios and provides
401(k) plan marketing support, administration and recordkeeping services to 20
of the nation's leading bank and investment management companies.
BISYS is a leader in distributing and administering proprietary open-end
"mutual funds" registered under the Investment Company Act of 1940 (the
"Investment Company Act"), primarily for the bank managed mutual fund sector, a
rapidly growing sector in the mutual fund industry. BISYS provides distribution
services, including the development of joint and external sales and marketing
programs and administrative services, including responsibility for
administration, transfer agency, shareholder services, compliance and fund
accounting. BISYS provides distribution services through its various
wholly-owned broker/dealer subsidiaries. In order to assist its clients' mutual
fund sales efforts, BISYS maintains a distribution sales force to raise
additional assets for its clients' funds. The banking institution, or a
subsidiary or affiliate thereof, typically acts as investment advisor and
custodian to the fund.
BISYS integrates its banking and mutual fund expertise to provide a wide
array of specialized services. More than a traditional administrator and
distributor, BISYS takes a consultative approach to its client relationships,
offering innovative, fee-generating and cost-effective solutions to expand and
manage the banking institution's mutual fund business. BISYS offers its clients
a complete turnkey outsourcing solution for mutual fund operations which
includes comprehensive marketing, institutional sales, retail sales,
telemarketing, development of new products and markets and institutional and
retail shareholder servicing centers. BISYS designs, plans and implements
strategies to help mutual funds attain critical mass, reach new prospects and
markets and add value in an increasingly competitive market. BISYS services over
40 mutual fund families encompassing more than 400 individual portfolios with a
market value exceeding $100 billion in assets for mutual fund groups, as well as
common and collective bank investment funds.
BISYS provides outsourcing solutions to financial organizations and
corporate clients for marketing and sales support and administration and
participant recordkeeping services for corporate sponsored 401(k) plans. BISYS
maintains partnerships with financial organizations including banks and
investment and insurance companies and provides marketing and proposal support
for their sale of their 401(k) plan investment products. BISYS markets to and
builds systems linkage with these investment manager partners and enables them
to concentrate on selling 401(k) plans while having BISYS provide the
administrative and recordkeeping functions for a sponsoring company. On an
ongoing basis, BISYS performs 401(k) participant recordkeeping and other
services including daily valuation of participant balances, administering 401(k)
loans, discrimination testing, participant statements and participant
communications. BISYS provides marketing and sales support to its 18 financial
organization partners and administrative and participant recordkeeping services
for more than 600,000 eligible participants in over 4,500 sponsoring companies
nationwide.
BISYS outsources life insurance services to the financial services industry.
BISYS is a full-service distributor and administrator of life insurance services
and employs strategic alliances with major insurance companies and national
producer groups to provide outsourcing services for life insurance product
distribution. BISYS services a network of, and markets products and services
through, more than 30,000 insurance agents and brokers nationwide. BISYS offers
a full-service, single source solution to support banks' initiatives to offer
life insurance services to their customer bases. BISYS allows clients to use
their distribution channels to offer life insurance products and services,
ranging from annuities and commodity term products to estate planning products.
In addition to product solutions, BISYS provides clients with the systems
necessary to support their sale of insurance products, including licensing
management, marketing and proposal support, application processing and advanced
underwriting and commission accounting and processing.
4
<PAGE>
CONTRACTS
Services are provided to BISYS clients, for the most part, on the basis of a
contract which renews for successive terms, unless terminated by either party.
BISYS management has pursued a policy of obtaining renewal terms equal to or
exceeding the original contract terms.
Contracts for distribution services to mutual funds, as required by the
Investment Company Act, provide that such contracts may continue for a period
longer than two years only if such continuance is specifically approved at least
annually by both a majority of the disinterested directors and either the other
members of the board of directors or the holders of a majority of the
outstanding shares of the fund.
BISYS fee structure for data processing clients is based primarily on number
of accounts, loans, participants and/or transactions handled for each service,
in some cases, subject to minimum charges, plus additional charges for special
options, services and features. BISYS fee structure for mutual fund services
clients is based primarily on the average daily net asset value of the fund, in
some cases, subject to minimum charges. BISYS 401(k) fee structure is based upon
the number of eligible participants in a plan subject to certain minimums. BISYS
check imaging software is licensed subject to a one-time fee with recurring
maintenance fees. BISYS telephone loan support services are provided based on a
one-time implementation fee plus a per-transaction fee. Contracts with insurance
carriers providing products for BISYS customers provide for compensation based
on a percentage of premiums paid and transaction charges and are generally
cancelable at the discretion of the parties.
BISYS believes that the contractual nature of its businesses, combined with
its historical renewal experience, provides a high level of recurring revenues.
CLIENT BASE
BISYS clients are located in all 50 states. BISYS provides outsourcing
solutions to commercial banks, mutual savings institutions, thrift
organizations, mutual funds, insurance companies, insurance producer groups,
corporate clients and other financial organizations including investment
counselors and brokerage firms.
DISASTER RECOVERY SYSTEMS
Where appropriate, BISYS has implemented a comprehensive disaster recovery
system. The key restoration services includes off-site storage and rotation of
critical files, availability of a third-party "hot site" and telecommunications
recovery capability. BISYS believes that its single product and consistent
platform approach to data processing and communications and other operating
procedures enable it to achieve greater efficiencies in maintaining and
enhancing its disaster recovery system, the capabilities of which are regularly
tested by BISYS with the cooperation of its clients. BISYS has also developed
and markets a microcomputer-based client site disaster recovery planning product
that is specifically designed to meet the compliance needs of its financial
institution clients.
SALES, MARKETING AND CLIENT SUPPORT
BISYS sells its services directly to potential clients or supports insurance
agents and companies, brokerage firms and other entities in their endeavors to
gain new clients. In addition to direct sales, BISYS utilizes
reseller/distributors to sell its software. BISYS has a number of sales offices
throughout the United States, including California, Florida, Georgia,
Massachusetts, Michigan, New York, Oklahoma, Pennsylvania, Texas and Virginia.
BISYS utilizes an account executive staff which provides client account
management and support. In accordance with BISYS strategy of providing a single
source solution to its clients, the account executive staff also markets and
sells additional services to existing clients and manages the contract renewal
process. Using centralized resources, BISYS provides its direct sales staff and
account executives with marketplace
5
<PAGE>
data, presentation materials and telemarketing data. BISYS maintains client
support staff at its principal locations, which is responsible for day-to-day
interaction with clients and also markets BISYS products and services to
existing clients.
COMPETITION
BISYS believes the market for its services is highly competitive. BISYS
remains competitive due to several factors, including BISYS overall company
strategy and commitment, product quality, reliability of service, a
comprehensive and integrated product line, timely introduction of new products
and services, and competitive pricing. BISYS believes that, by virtue of its
range of product and service offerings and its overall commitment to client
service and relationships, it competes favorably in these categories. In
addition, BISYS believes that it has a competitive advantage as a result of its
position as an independent vendor, rather than as a cooperative, an affiliate of
a financial institution, a hardware vendor or as a competitor to its clients.
BISYS principal competitors are independent vendors of computer software and
services, in-house departments, affiliates of financial institutions or large
computer hardware manufacturers, processing centers owned and operated as user
cooperatives, insurance companies, third party administration firms, mutual
funds companies and brokerage firms. No single competitor offers the full range
of products and services that are offered by BISYS. Specific competitors include
Fiserv, M&I Data Services, Systematics, Federated Investors and SEI Corporation,
among others.
RESEARCH AND DEVELOPMENT
In order to meet the changing needs of the financial organizations that it
serves, BISYS continually evaluates, develops, maintains and enhances various
application software and other technology used in its business. During fiscal
1994, 1995 and 1996, BISYS spent approximately $8.9 million, $9.4 million and
$10.2 million, respectively, on research and development. Most of BISYS central
site application software has been developed internally, and a majority of the
client site application software is licensed from third parties and integrated
with BISYS existing systems.
PROPRIETARY RIGHTS
BISYS regards its software as proprietary and relies upon trade secret laws,
internal nondisclosure guidelines and contractual provisions for protection.
BISYS does not hold any registered patents or copyrights on its software. BISYS
believes that legal protection of its software is less significant than the
knowledge and experience of BISYS management and personnel and their ability to
develop, enhance and market new products and services. BISYS believes that it
holds all proprietary rights necessary for the conduct of its business.
Application software similar to that licensed by BISYS is generally
available from alternate vendors, and in instances where BISYS believes that
additional protection is required, the applicable license agreement provides
BISYS with the right to obtain the software source code upon the occurrence of
certain events.
GOVERNMENT REGULATION
Certain BISYS subsidiaries are registered as broker/dealers with the
Securities and Exchange Commission (the "SEC"). Much of the federal regulation
of broker/dealers has been delegated to self-regulatory organizations,
principally the National Association of Securities Dealers (the "NASD") and the
national securities exchanges. Broker/dealers are subject to regulation which
covers all aspects of the securities business including sales methods, trading
practices, use and safekeeping of customers' funds and securities, capital
structure, recordkeeping and the conduct of directors, officers and employees.
Additional legislation, changes in rules and regulations promulgated by the SEC,
the Municipal Securities
6
<PAGE>
Rulemaking Board, the Office of the Comptroller of the Currency ("OCC"), the
Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board (the
"FRB") and the self-regulatory organizations or changes in the interpretation of
enforcement of existing laws, rules and regulations, may directly affect the
mode of operations and profitability of broker/dealers. The SEC, the FRB, the
self-regulatory organizations, state securities law administrators, the OCC and
the FDIC may conduct regulatory proceedings for violations of applicable laws,
rules and regulations. Such violations can result in disciplinary actions (such
as censure, the imposition of fines, the issuance of cease-and-desist orders or
the suspension or revocation of registrations, memberships or licenses of a
broker/dealer or its officers, directors or employees), as well as civil and
criminal penalties. The principal purpose of such regulations generally is the
protection of the investing public and the integrity of securities markets,
rather than protection of securities firms or their creditors or stockholders.
In addition, BISYS broker/dealer subsidiaries are subject to SEC Rule 15c3-1
(commonly known as the "Net Capital Rule"). The Net Capital Rule, which
specifies the minimum amount of net capital required to be maintained by
broker/dealers, is designed to measure the general financial integrity and
liquidity of broker/dealers and requires that a certain part of broker/dealers'
assets be kept in relatively liquid form. Failure to maintain the required
minimum amount of net capital may subject a broker/dealer to suspension or
revocation of licenses, registration or membership with the New York Stock
Exchange, the SEC, the NASD, and various state securities law administrators and
may ultimately require liquidation of the broker/dealer. Under certain
circumstances, the Net Capital Rule also prohibits payment of cash dividends,
redemption or repurchase of stock, distribution of capital and prepayment of
subordinated indebtedness. Thus, compliance with the Net Capital Rule could
restrict BISYS ability to withdraw capital from its broker/dealer subsidiaries
which, in turn, could limit BISYS ability to pay cash dividends. At June 30,
1996, BISYS broker/dealer subsidiaries had net capital of approximately $5.1
million, which exceeded the net capital requirements by approximately $4.2
million.
Under the Investment Company Act, the distribution agreements between each
mutual fund and a BISYS subsidiary terminate automatically upon assignment of
the agreement. In addition, BISYS administration agreements with its bank
clients also terminate upon assignment pursuant to the terms thereof. The term
"assignment" includes direct assignments by BISYS as well as assignments which
may be deemed to occur, under certain circumstances, upon the transfer, directly
or indirectly, of a controlling block of BISYS voting securities. The Investment
Company Act presumes that any transfer of more than 25% of the voting securities
of any person represents a transfer of a controlling block of voting securities.
As a provider of services to banking institutions, BISYS is not directly
subject to federal or state banking regulations. However, BISYS subsidiary,
BISYS, Inc., may be subject to review from time to time by the FDIC, the
National Credit Union Association, the Office of Thrift Supervision, the OCC and
various state regulatory authorities. These regulators make certain
recommendations to BISYS regarding various aspects of its operations. In
addition, BISYS processing operations are reviewed annually by an independent
auditing firm.
Banks and other depository institutions doing business with BISYS are
subject to extensive regulation at the federal and state levels under laws,
regulations and other requirements specifically applicable to regulated
financial institutions, and are subject to extensive examination and oversight
by federal and state regulatory agencies. As a result, the activities of BISYS
client banks are subject to comprehensive regulation and examination, including
those activities specifically relating to the sale by or through them of mutual
funds and other investment products. BISYS is not presently aware of any facts
which would lead it to believe that any of its bank clients are not in
compliance with applicable federal and state laws, regulations and other
requirements concerning the administration and distribution of bank managed
mutual funds.
In this regard, the Glass-Steagall Act has been applied to prohibit banks
from engaging in the organization, sponsorship, underwriting and principal
distribution of mutual funds, but not to prohibit
7
<PAGE>
banks from providing investment advisory, administrative, selling and other
related services for, to or with respect to the sale of mutual funds shares to
their customers. Other depository institutions laws, regulations and
requirements do not impose substantive limitations of a material nature on the
activities which BISYS client banks now perform with respect to their
proprietary and other mutual funds, but regulate in various respects the manner
in which such activities may be performed. Nevertheless, future change in the
application or the interpretation of the Glass-Steagall Act or other banking
laws and regulations, or future legislative changes in existing banking laws,
may have a material and adverse impact on the ability of BISYS client banks to
engage in mutual fund activities, and consequently on the business relationships
between BISYS and its client banks. BISYS is not presently aware of any pending
regulatory developments, which, if approved, would adversely affect the ability
of its client banks to engage in mutual fund activities. In addition, future
changes in the Glass-Steagall Act may remove the existing prohibition on banks
engaging in the organization, sponsorship, underwriting and principal
distribution of mutual funds, permitting banks to perform certain functions now
required to be performed by third parties such as BISYS. Any such change could
affect BISYS in its provision of distribution services through clients choosing
to perform distribution functions independently.
Federal regulatory agencies have promulgated guidelines or other
requirements which apply to depository institutions subject to their respective
supervisory jurisdiction with respect to the sale of mutual funds and other
non-FDIC insured investment products to retail customers. These requirements
apply to, among other things, sales of investment products on bank premises by
or through the use of third-party service providers. These requirements
generally require banking institutions which contract to sell investment
products through the use of third-party service providers to implement
appropriate measures to ensure that such activities are being conducted in
accordance with applicable bank and securities regulatory requirements
(including the agencies' retail sales guidelines), and may in some instances
impose certain "due diligence" obligations on regulated depository institutions
with respect to the nature and the quality of services provided by such
third-party service providers. Such regulatory requirements may increase the
extent of oversight which federal regulatory agencies may require BISYS client
banks to exercise over the activities of BISYS.
Federal and state banking laws grant state and federal regulatory agencies
broad authority to take administrative enforcement and other adverse supervisory
actions against banks and other regulated depository institutions where there is
a determination that unsafe and unsound banking practices, violations of laws
and regulations, failures to comply with or breaches of written agreements,
commitments or undertakings entered into by such banks with their regulatory
agencies, or breaches of fiduciary and other duties exist. Banks engaged in,
among other things, mutual fund-related activities may be subject to such
regulatory enforcements and other adverse actions to the extent that such
activities are determined to be unlawful, unsound or otherwise actionable.
Certain operations of BISYS are subject to regulation by the insurance
departments of the states in which BISYS sells insurance products. Certain BISYS
employees are required to be licensed as insurance producers in certain states.
Under current law in most states, banks are prohibited from directly selling
insurance.
EMPLOYEES
As of June 30, 1996, BISYS employed approximately 1,800 employees. None of
its employees is represented by a union and there have been no work stoppages,
strikes or organization attempts. BISYS believes that its relations with its
employees are good.
The service nature of BISYS makes its employees an important corporate
asset. Most employees are not subject to employment agreements; however, certain
BISYS managers have such agreements.
8
<PAGE>
ITEM 2. PROPERTIES
The following table provides certain summary information with respect to the
principal properties that BISYS owns or leases:
<TABLE>
<CAPTION>
EXPIRATION
LOCATION FUNCTION TITLE SQ. FEET DATE
- ----------------- ------------------------------- --------- --------- ------------
<S> <C> <C> <C> <C>
Little Falls, NJ Corporate headquarters Leased 8,459 2000
Houston, TX Executive offices and data
processing center Leased 58,568 2001
Document processing center Leased 11,890 1996
Cherry Hill, NJ Data processing center Leased 31,350 2000
Lombard, IL Data processing center Leased 25,240 2000
Columbus, OH Mutual fund service center Leased 103,794 2005
Ambler, PA Data processing center Leased 53,605 1998
</TABLE>
In addition to the principal facilities listed above, BISYS also leases
certain other office and data processing facilities with leases expiring between
1996 and 2001.
BISYS owns or leases central processors and associated peripheral equipment
used in its data and item processing operations and communications network,
401(k) business and electronic banking business. BISYS believes that its
existing facilities and equipment, together with expansion in the ordinary
course of business, are adequate for its present and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
On August 23, 1994 and September 9, 1994, two purchasers of Concord's stock,
Seymour Lazar and Joshua Teitelbaum, on behalf of themselves and all others
similarly situated, filed class action complaints in the United States District
Court for the Northern District of California against Concord, its Board of
Directors and certain officers, Hambrecht & Quist Group, Bank of America, NT&SA
and Montgomery Securities alleging violations of the federal securities laws.
The complaints allege that these individuals and entities misrepresented
Concord's business and future prospects during Concord's initial public offering
and in subsequent statements in order to successfully consummate the offering
and to sustain an artificially inflated price for Concord's common stock.
Accordingly, the plaintiffs seek to recover losses allegedly sustained by a
class who purchased Concord's common stock between February 24, 1994 and June
17, 1994. The complaints do not specify the amount of damages sought. The two
cases have been consolidated. The parties have negotiated terms of a proposed
settlement of the litigation, which settlement would be within the reserves
established by the Company and the Company's insurance coverage. Any such
settlement is subject to the negotiation of a definitive settlement agreement
and to court approval. Regardless of any settlement, the Company's management
believes that the Company has adequate defenses, reserves and/or insurance
coverages against such litigation, and that the outcome of these proceedings
will not have a material effect upon the Company's financial position, results
of operations, or cash flows.
BISYS is involved in litigation arising in the ordinary course of business.
Management believes that BISYS has adequate defenses and/or insurance coverage
deemed probable against such litigation and that the outcome of these
proceedings, individually or in the aggregate, will not have a material adverse
effect upon BISYS financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of fiscal 1996.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required in Item 5 is incorporated herein by reference to
page 32 of the Company's 1996 Annual Report to Shareholders (the "Annual
Report") and Note 4 to the Company's consolidated financial statements included
therein. Portions of the Annual Report incorporated by reference in this report
are included in this report as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information requested in Item 6 is incorporated herein by reference to
page 17 of the Annual Report, included in this report as Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required in Item 7 is incorporated herein by reference to
pages 18 through 20 of the Annual Report, included in this report as Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required in Item 8 is incorporated herein by reference to
pages 21 through 31 of the Annual Report, included in this report as Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10 through 13 is incorporated by reference from the Company's definitive proxy
statement, which is expected to be filed pursuant to Regulation 14A within 120
days after the end of the Registrant's fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The consolidated financial statements of the Company as of June 30, 1996 and
1995 and for each of the three years in the period ended June 30, 1996, together
with the report of Coopers & Lybrand L.L.P. dated August 16, 1996, are
incorporated herein by reference to pages 17 through 32 of the Annual Report,
included in this report as Exhibit 13.
(a)(2) Financial Statement Schedules
All financial statement schedules are omitted for the reason that they are
either not applicable or not required or because the information required is
contained in the consolidated financial statements or notes thereto.
(a)(3) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
10
<PAGE>
(b) Exhibits:
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger dated as of December 9, 1994 among the Registrant,
BICON Acquisition Corp. and Concord Holding Corporation. (Incorporated by reference
to Exhibit 2.1 to the Registrant's Registration Statement No. 33-87474.)
2.2 --Amendment No. 1 to Agreement and Plan of Merger dated as of February 14, 1995 among
the Registrant, BICON Acquisition Corp. and Concord Holding Corporation.
(Incorporated by reference to the Registrant's Registration Statement No.
33-87474.)
2.3 --Agreement and Plan of Merger dated as of May 2, 1995 among the Registrant, BIDOC
Acquisition Corp., Document Solutions, Inc. ("DSI") and shareholders of DSI.
(Incorporated by reference to Exhibit 2.3 to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1995.)
3.1 --Amended and Restated Certificate of Incorporation of The BISYS Group, Inc.
(Incorporated by reference to the Registrant's Registration Statement No.
333-02932.)
3.2 --By-Laws of The BISYS Group, Inc. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement No. 33-45417.)
4.1 --Credit Agreement dated as of May 19, 1994 by and among BISYS, Inc., the Signatory
Banks thereto and The Bank of New York, as agent. (Incorporated by reference to
Exhibit 10.1 on Form 10-K for fiscal year ended June 30, 1994.)
4.2 --Security Agreement dated as of May 19, 1994 between BISYS, Inc. and The Bank of New
York, as agent. (Incorporated by reference to Exhibit 10.2 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.)
4.3 --BISYS Group Guaranty, Security and Subordination Agreement dated as of May 19, 1994
between the Registrant and The Bank of New York, as agent. (Incorporated by
reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994.)
4.4 --Affiliate/Subsidiary Guaranty, Security and Subordination Agreement dated as of May
19, 1994 among BISYS Document Processing, Inc., BISYS Loan Services, Inc.,
Tridatatron Software Services, Inc., BISYS Investment Services, Inc., The Winsbury
Corporation, WC Subsidiary Corporation, The Winsbury Service Corporation, BISYS
Survey, Inc., BISYS/ STDS, Inc. and The Bank of New York, as agent. (Incorporated
by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994.)
10.1 --Letter Agreement dated September 18, 1989 between the Registrant and Lynn J.
Mangum. (Incorporated by reference to Exhibit 10.18 of the Registrant's
Registration Statement No. 33-45417.)
10.2 --Letter Agreement dated October 10, 1989 between the Registrant and Paul Bourke.
(Incorporated by reference to Exhibit 10.19 of the Registrant's Registration
Statement No. 33-45417.)
10.3 --Letter Agreement dated May 12, 1995 between the Registrant and Lynn J. Mangum.
(Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.
10.4 --Letter Agreement dated May 12, 1995 between the Registrant and Paul H. Bourke.
(Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.)
10.5 --Letter Agreement dated May 12, 1995 between the Registrant and Robert J. McMullan.
(Incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 1995.)
10.6 --The BISYS Group, Inc. Amended and Restated Stock Option and Restricted Stock
Purchase Plan. (Incorporated by reference to Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.)
</TABLE>
11
<PAGE>
<TABLE>
<C> <S>
10.7 --BISYS 401(k) Savings Plan. (Incorporated by reference to Exhibit 10.23 of the
Registrant's Registration Statement No. 33-45417.)
10.8 --The BISYS Group, Inc. 1995 Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit A to the Registrant's proxy statement for its 1994 annual meeting of
stockholders, filed with the Securities and Exchange Commission on October 6,
1994.)
10.9 --The BISYS Group, Inc. Non-Employee Directors' Stock Option Plan. (Incorporated by
reference to Exhibit B to the Registrant's proxy statement for its 1994 annual
meeting of stockholders, filed with the Securities and Exchange Commission on
October 6, 1994.)
10.10 --Lease of Little Falls, New Jersey facility dated January 9, 1991. (Incorporated by
reference to Exhibit 10.24 of the Registrant's Registration Statement No.
33-45417.)
10.11 --Lease of Cherry Hill, New Jersey facility dated November 29, 1990. (Incorporated by
reference to Exhibit 10.25 of the Registrant's Registration Statement No.
33-45417.)
10.12 --Lease of Lombard, Illinois facility dated May 29, 1990. (Incorporated by reference
to Exhibit 10.27 of the Registrant's Registration Statement No. 33-45417.)
10.13 --Lease of Houston, Texas facility dated June 30, 1986. (Incorporated by reference to
Exhibit 10.28 of the Registrant's Registration Statement No. 33-45417.)
10.14 --Lease of Ambler, Pennsylvania facility dated April 4, 1989. (Incorporated by
reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1993.)
10.15 --Lease of Columbus, Ohio facility dated August 30, 1994 as amended by First
Amendment dated April 14, 1995. (Incorporated by reference to Exhibit 10.36 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.)
10.16 --Stock Purchase Agreement dated as of July 31, 1995 between Registrant and Enhance
Financial Services Group, Inc. (Incorporated by reference to Exhibit 10.45 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1995.)
10.17 --Employment Agreement dated as of December 9, 1994 between the Registrant and Dennis
R. Sheehan. (Incorporated by reference to Exhibit 10.47 to the Registrant's
Registration Statement No. 33-87474.)
10.18 --Affiliate Agreement dated as of December 9, 1994 among the Registrant and the
persons listed on Schedule I thereto. (Incorporated by reference to Exhibit 10.49
to the Registrant's Registration Statement No. 33-87474.)
10.19 --Registration Rights Agreement dated March 29, 1995 among the Registrant and the
several persons named on Schedule I thereto. (Incorporated by reference to Exhibit
10.9 to the Registrant's Report on Form 8-K filed on April 12, 1995.)
10.20* --Agreement and Plan of Merger dated April 22, 1996 among the Registrant, BISYS
Acquisition Corp., Strategic Solutions Group, Inc. ("SSG"), and the shareholders of
SSG (exhibits and schedules omitted and will be provided at the request of the
Securities and Exchange Commission.)
10.21* --Registration Rights Agreement dated April 22, 1996 among the Registrant and the
several persons named on Schedule I thereto.
10.22* --Agreement and Plan of Merger dated as of June 28, 1996 among the Registrant, BITUG
Acquisition Corp., T.U.G., Inc. ("TUG") and the shareholders of TUG (exhibits and
schedules omitted and will be provided at the request of the Securities and
Exchange Commission.)
10.23* --Registration Rights Agreement dated June 28, 1996 among the Registrant and the
several persons named on Schedule I thereto.
10.24 --The BISYS Group, Inc. 1995 Stock Option Plan. (Incorporated by reference to Exhibit
A to the Registrant's proxy statement for its 1995 annual meeting of stockholders,
filed with the Securities and Exchange Commission.)
</TABLE>
12
<PAGE>
<TABLE>
<C> <S>
10.25 --The BISYS Group, Inc. 1996 Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit B to the Registrant's proxy statement for its 1995 annual meeting of
stockholders, filed with the Securities and Exchange Commission.)
11.1* --Computation of Per Share Earnings.
13* --Pages 17-32 of the Registrant's 1996 Annual Report to Shareholders.
21* --List of subsidiaries of The BISYS Group, Inc.
23.1* --Consent of Coopers & Lybrand L.L.P.
23.2* --Consent of Price Waterhouse LLP.
27* --Financial Data Schedule.
99* --Report of Price Waterhouse LLP.
</TABLE>
- ------------------------
* Filed herewith.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE BISYS GROUP, INC.
Date: September 27, 1996 By: /s/ ROBERT J. MCMULLAN
-----------------------------------------
Robert J. McMullan
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 27th day of September 1996.
SIGNATURE TITLE
- ------------------------------ ---------------------------
Director, Chairman of the
/s/ LYNN J. MANGUM Board and Chief Executive
- ------------------------------ Officer (Principal
(Lynn J. Mangum) Executive Officer)
/s/ PAUL H. BOURKE Director, Chief Operating
- ------------------------------ Officer and President
(Paul H. Bourke)
Executive Vice President
/s/ ROBERT J. MCMULLAN and Chief Financial
- ------------------------------ Officer (Principal
(Robert J. McMullan) Financial and Accounting
Officer)
/s/ JAY W. DEDAPPER Director
- ------------------------------
(Jay W. DeDapper)
/s/ JOHN J. LYONS Director
- ------------------------------
(John J. Lyons)
/s/ THOMAS E. MCINERNEY Director
- ------------------------------
(Thomas E. McInerney)
/s/ NEIL P. MARCOUS Director
- ------------------------------
(Neil P. Marcous)
14
<PAGE>
INDEX TO EXHIBITS FILED HEREWITH
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.20 -- Agreement and Plan of Merger dated April 22, 1996 among the Registrant, BISYS Acquisition Corp.,
Strategic Solutions Group, Inc. ("SSG") and the shareholders of SSG (exhibits and schedules omitted
and will be provided at the request of the Securities and Exchange Commission).
10.21 -- Registration Rights Agreement dated April 22, 1996 among the Registrant and several persons named
on Schedule I thereto.
10.22 -- Agreement and Plan of Merger dated as of June 28, 1996 among the Registrant, BITUG Acquisition
Corp., T.U.G., Inc. ("TUG") and the shareholders of TUG (exhibits and schedules omitted and will be
provided at the request of the Securities and Exchange Commission).
10.23 -- Registration Rights Agreement dated June 28, 1996 among the Registrant and the several persons
named on Schedule 1 thereto.
11.1 -- Computation of Per Share Earnings.
13 -- Pages 17-32 of the Registrant's 1996 Annual Report to Shareholders.
21 -- List of subsidiaries of The BISYS Group, Inc.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Price Waterhouse LLP.
27 -- Financial Data Schedule.
99 -- Report of Price Waterhouse LLP.
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated April 22, 1996,
among THE BISYS GROUP, INC., a Delaware corporation, with an address at 150
Clove Road, Little Falls, New Jersey 07424 ("Parent"), BISYS ACQUISITION CORP.,
a Delaware corporation and a wholly-owned subsidiary of Parent, with an address
at 150 Clove Road, Little Falls, New Jersey 07424 ("Acquisition"), STRATEGIC
SOLUTIONS GROUP, INC., a Georgia corporation, with an address at 4 Concourse
Parkway, Suite 270, Atlanta, Georgia 30328 (the "Company"), CHARLES F. GOETZ,
with an address at 4395 Dunmore Road, Marietta, Georgia 30068 ("Goetz"), ROBERT
M. JONES, with an address at 231 Tara Trail, Atlanta, Georgia 30327 ("Jones"),
PAUL G. HENRY, with an address at 419 6th Street, N.E., Atlanta, Georgia 30308
("Henry") (Goetz, Jones and Henry are referred to herein from time to time as
the "Management Shareholders"), BYRON S. KOPMAN, with an address at 4502 Hampton
Woods Drive, Marietta, Georgia 30068 ("Kopman"), and LARRY STEELE, with an
address at 9335 Prestwick Club Drive, Duluth, Georgia 30136 ("Steele") (Kopman
and Steele are referred to herein from time to time, together with the
Management Shareholders, as the "Shareholders"). The Company and Acquisition
are hereinafter sometimes referred to as the "Constituent Corporations" and
Acquisition as the "Surviving Corporation."
WHEREAS, the Company is engaged in the business of designing,
distributing and supporting marketing-based services for the financial services
industries;
WHEREAS, Parent, Acquisition and the Company desire that the Company
merge with and into Acquisition (the "Merger"), upon the terms and conditions
set forth herein and in accordance with the General Corporation Law of the State
of Delaware (the "Delaware GCL") and the Georgia Business Corporation Code (the
"GBCC"), with the result that Acquisition shall continue as the surviving
corporation and the separate existence of the Company (except as it may be
continued by operation of law) shall cease;
WHEREAS, Parent, Acquisition and the Company desire that upon the
Merger, at the Effective Time (as hereinafter defined), all outstanding shares
of the capital stock of the Company be converted into the right to receive fully
paid and nonassessable shares of Common Stock, $.02 par value, of Parent
("Parent Common Stock"), as hereinafter provided;
WHEREAS, Parent, Acquisition and the Company desire that, immediately
after the Effective Time, Parent will own all the issued and outstanding shares
of the capital stock of the Surviving Corporation;
-1-
<PAGE>
WHEREAS, Parent, Acquisition and the Company desire that, immediately
after the Effective Time, the name of the Surviving Corporation be changed to
"BISYS Creative Solutions, Inc.";
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling-of-interests"; and
WHEREAS, the respective Boards of Directors of the Company,
Acquisition and Parent and the shareholders of the Company have approved the
Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time, in accordance with this Agreement, the
Delaware GCL and the GBCC, the Company shall be merged with and into
Acquisition, the separate existence of the Company (except as it may be
continued by operation of law) shall cease, and Acquisition shall continue as
the surviving corporation under the corporate name of "BISYS Creative Solutions,
Inc."
SECTION 1.02 EFFECT OF THE MERGER. Upon the effectiveness of the
Merger, the Surviving Corporation shall succeed to and assume all the rights and
obligations of the Company and Acquisition in accordance with the Delaware GCL
and the GBCC and the Merger shall otherwise have the effects set forth in
Section 259 of the Delaware GCL.
SECTION 1.03 CONSUMMATION OF THE MERGER. As soon as practicable
after the satisfaction or waiver of the conditions to the obligations of the
parties to effect the Merger set forth herein, provided that this Agreement has
not been terminated previously, the parties hereto will cause the Merger to be
consummated by filing (a) with the Secretary of State of the State of Delaware a
properly executed certificate of merger in accordance with the Delaware GCL, and
(b) with the Secretary of State of the State of Georgia a properly executed
certificate of merger in accordance with the GBCC. The Merger shall be
effective upon
-2-
<PAGE>
filing of such certificates or on such later date as may be specified therein,
but in no event shall such certificates be delivered for filing more than three
(3) Business Days (hereinafter defined) after satisfaction of all of the
conditions set forth in Article VIII hereof (the time of such effectiveness
being the "Effective Time"). For purposes of this Agreement, the term "Business
Day" shall mean a day of the year on which national banks are open for business
and are not required or authorized to close.
SECTION 1.04 CHARTER; BY-LAWS; DIRECTORS AND OFFICERS.
Immediately after the Effective Time, the Certificate of Incorporation of
Acquisition shall be amended to provide that the name of the Surviving
Corporation shall be "BISYS Creative Solutions, Inc." and, as so amended, shall
be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the provisions thereof and as provided by
the Delaware GCL. As of the Effective Time, the By-Laws of the Surviving
Corporation shall be the By-Laws of Acquisition as in effect immediately prior
to the Effective Time, until thereafter amended in accordance with the
provisions thereof and the Certificate of Incorporation of the Surviving
Corporation and as provided by the Delaware GCL. The initial directors and
officers of the Surviving Corporation shall be the directors and officers set
forth below, in each case until their respective successors are duly elected and
qualified.
Directors: Lynn J. Mangum
Robert J. McMullan
Officers: Lynn J. Mangum - Chairman
J. Robert Jones - Vice Chairman
Charles F. Goetz - President
Robert J. McMullan - Executive Vice
President and Treasurer
Mark J. Rybarczyk - Senior Vice President
Catherine T. Dwyer - Vice President and
Secretary
Robert M. Jones - Vice President
Paul G. Henry - Vice President
Annamaria Porcaro - Assistant Secretary
SECTION 1.05 FURTHER ASSURANCES. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of
-3-
<PAGE>
either of the Constituent Corporations, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of such Constituent
Corporation, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of such Constituent
Corporation and otherwise to carry out the purposes of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 CONVERSION OF SECURITIES OF THE COMPANY.
(a) By virtue of the Merger and without any action on the part of the
holders of the common stock of the Company ("Company Common Stock"), at the
Effective Time all outstanding shares of the Company Common Stock (subject to
Section 2.03(d) hereof) shall be converted into the right to receive an
aggregate of 520,599 shares of Parent Common Stock, and each outstanding share
of Company Common Stock shall be converted into the right to receive 2,863.5946
shares of Parent Common Stock, except as otherwise hereinafter set forth with
regard to the payment of cash in lieu of fractional shares.
(b) If, prior to the Effective Time, Parent should split or combine
the outstanding shares of Parent Common Stock, or pay a stock dividend or other
stock distribution in Parent Common Stock, then the determination of the
exchange value shall be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
(c) Each share of capital stock that is held in the treasury of the
Company shall be cancelled and retired and no capital stock of Parent, cash or
other consideration shall be paid or delivered in exchange therefor.
SECTION 2.02 ACQUISITION COMMON STOCK. At the Effective Time, each
share of Common Stock, $.01 par value, of Acquisition issued and outstanding
immediately prior to the Effective Time shall remain outstanding.
SECTION 2.03 EXCHANGE OF CERTIFICATES. (a) Promptly after the
Effective Time, each Shareholder shall deliver to Parent the certificate or
certificates representing its shares of Company Common Stock (each, a
"Certificate") in form sufficient for
-4-
<PAGE>
transfer and cancellation pursuant hereto. Upon surrender of a Certificate
for cancellation to Parent in form sufficient for transfer and cancellation
pursuant hereto and delivery to Parent of such other documents as may
reasonably be required by Parent to effect the transfer, each Shareholder
surrendering such Certificate shall be entitled to receive in exchange
therefor (i) a certificate evidencing that number of whole shares of Parent
Common Stock which such holder has the right to receive in respect of the
shares of Company Common Stock formerly evidenced by such Certificate (after
taking into account all shares of Company Common Stock then held of record by
such holder) and (ii) a check representing the amount of cash in lieu of
fractional shares of Parent Common Stock, if any, and unpaid dividends or
other distributions, if any, to which such holder is entitled pursuant to the
provisions of this Section 2.03, after giving effect to any applicable
withholding tax, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares and unpaid dividends and distributions, if any, payable to
the Shareholders.
(b) No dividends or other distributions declared after the Effective
Time with respect to Parent Common Stock shall be paid with respect to any
shares of Company Common Stock represented by a Certificate until such
Certificate is surrendered for exchange as provided herein. After surrender of
any such Certificate, there shall be paid to the holder of the certificate
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
declared with respect to such whole shares of Parent Common Stock and not paid,
less the amount of any applicable withholding taxes thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to the date of such surrender and
with a payment date subsequent to the date of such surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
applicable withholding taxes thereon.
(c) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a shareholder of Parent. Each holder of shares of Company
Common Stock who would otherwise have been entitled to receive in the Merger a
fraction of a share of Parent Common Stock (after taking into account all
certificates surrendered by such holder) shall be entitled to receive, in lieu
thereof, a check in an amount (without interest) equal to such fractional part
of a share of Parent Common Stock multiplied by $33.25.
-5-
<PAGE>
(d) From and after the date of this Agreement, the stock transfer
books of the Company shall be closed, and there shall be no further
registrations of transfers of shares of Company Common Stock on the records of
the Company except for the issuance of Company Common Stock to Steele in the
event of his exercise of the Steele Option (hereinafter defined).
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Parent shall issue in exchange
for such Certificate the shares of Parent Common Stock and cash in lieu of
fractional shares and unpaid dividends and distributions, if any, on shares of
Parent Common Stock deliverable in respect thereof as provided herein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE MANAGEMENT SHAREHOLDERS
Each of the Company and the Management Shareholders jointly and
severally hereby represents and warrants to Parent and Acquisition, knowing and
intending that each of Parent and Acquisition is relying hereon in entering into
the transactions contemplated hereby, as follows:
SECTION 3.01 AUTHORITY RELATIVE TO AGREEMENT. The Company has all
requisite power and authority to enter into and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors of the Company and the shareholders of
the Company, and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated hereby.
SECTION 3.02 SHAREHOLDERS' STOCK. The shares of Company Common
Stock identified on the signature page(s) hereof opposite the respective
Shareholders' names have been duly and validly issued to the respective
Shareholders. The shares of Company Common Stock owned by the Shareholders
represent, collectively, all of the issued and outstanding shares of capital
stock (or other equity interests) in the Company. Except as otherwise set forth
in SCHEDULE 3.02, the Shareholders are not parties to any shareholders'
agreement, buy-sell agreement or similar agreement or arrangement.
SECTION 3.03 ORGANIZATION, STANDING AND QUALIFICATION. The Company
is a corporation, duly organized, validly existing and
-6-
<PAGE>
in good standing under the laws of the State of Georgia and has the corporate
power and authority to own and hold its properties and conduct its business as
now owned, held and conducted in its state of incorporation and the states (or
other jurisdictions) in which it has qualified to do business as a foreign
corporation. The Company is qualified to do business as a foreign corporation
and is in good standing in all states (or other jurisdictions) in which such
qualification is required by reason of the nature or extent of business
conducted by the Company therein, except where the failure to be so qualified
would not have a Material Adverse Effect (as hereinafter defined) on the assets,
financial condition, operating results or business of the Company. Such states
(and jurisdictions) in which the Company is qualified to do business as a
foreign corporation are specified in SCHEDULE 3.03 attached hereto. As used in
this Agreement, "Material Adverse Effect" shall mean, with respect to any party,
a material adverse effect on the assets, financial condition, operating results
or business of such party and its subsidiaries, taken as a whole.
SECTION 3.04 STOCK OF THE COMPANY. (a) The authorized capital
stock of the Company consists in its entirety of One Thousand (1,000) shares of
Company Common Stock consisting of Five Hundred (500) shares of Class A Common
Stock and Five Hundred (500) shares of Class B Common Stock, of which One
Hundred and Sixty-One and Eight Tenths (161.8) shares of said Class A Common
Stock and Twenty (20) shares of said Class B Common Stock are validly issued and
outstanding, fully paid and nonassessable. The Company does not have any
outstanding obligations, options or rights entitling others to acquire shares of
capital stock of the Company, or any outstanding securities, options or other
instruments convertible into shares of capital stock of the Company.
(b) Except with respect to the shares of Company Common Stock
identified on the signature page(s) hereof opposite the respective Management
Shareholders' names, none of the Management Shareholders has any outstanding
claim against the Company or any right whatsoever with respect to any shares of
capital stock of the Company, including without limitation any option, warrant
or other right to acquire shares of the capital stock of the Company or any
securities, options or other instruments convertible or exchangeable into shares
of capital stock of the Company.
SECTION 3.05 SUBSIDIARIES AND OTHER INVESTMENTS. The Company has no
subsidiaries. There is no corporation, partnership, limited liability company,
joint venture, or other entity in which the Company has, directly or indirectly,
made any investment or to which the Company has made an advance of cash. The
Company is not under any obligation to acquire any securities from any person or
entity. The Company has all rights in and to and one hundred (100%) percent
interest in Broadcast Solutions Group, an indivisible part of the Company's
business, and no other person has
-7-
<PAGE>
any rights, claims or interests therein, other than certain liens disclosed on
SCHEDULE 3.15 hereto.
SECTION 3.06 ARTICLES OF INCORPORATION AND BY-LAWS. True and
complete copies of the Company's Articles of Incorporation and By-Laws (together
with any amendments thereto) are attached hereto as SCHEDULE 3.06. The Company
has provided to Parent true and complete copies of the Articles of Incorporation
and By-Laws, together with all amendments thereto.
SECTION 3.07 EXECUTION AND PERFORMANCE OF AGREEMENT; VALIDITY AND
BINDING NATURE. (a) The execution and delivery of this Agreement, and the
performance by the Company of the terms of this Agreement and the transactions
contemplated hereby, will not result in a material breach of any of the terms
of, or constitute a violation of or default under, the Articles of Incorporation
or By-Laws of the Company or any statute or contract, indenture or other
instrument by which the Company or any of its properties is bound. This
Agreement has been duly executed and delivered by the Company. This Agreement
is, and the documents and agreements executed and delivered by the Company
pursuant to the terms hereof, when duly executed and delivered by all parties
whose execution and delivery thereof is required, will be legal, valid, and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent that enforceability
may be limited by bankruptcy, receivership, moratorium, conservatorship,
reorganization or other laws of general application affecting the rights of
creditors generally or by general principles of equity.
(b) The execution and delivery of this Agreement, and the performance
by each of the Management Shareholders of the terms of this Agreement and the
transactions contemplated hereby, will not result in a material breach of any of
the terms of, or constitute a violation or default under, any statute or
contract, indenture or other instrument by which any Management Shareholder or
any of their respective properties are bound. This Agreement has been duly
executed and delivered by each of the Management Shareholders and, together with
the other documents and agreements to be executed by all parties whose execution
and delivery thereof is required, constitute the legal, valid and binding
obligations of each of the Management Shareholders, enforceable against the
Management Shareholders in accordance with their respective terms, except to the
extent that enforceability may be limited by bankruptcy, receivership,
moratorium, conservatorship, reorganization or other laws of general application
affecting the rights of creditors generally or by general principles of equity.
SECTION 3.08 FINANCIAL STATEMENTS. The Company has delivered to
Parent the unaudited balance sheet of the Company as of February 29, 1996 and
the audited balance sheets of the Company as of December 31, 1995, 1994 and
1993, respectively, and the re-
-8-
<PAGE>
lated audited statements of income and retained earnings and cash flows for the
fiscal years then ended, on a consolidated basis, where applicable (hereinafter
referred to collectively as the "Financial Statements"). Each of the Financial
Statements (a) is true and correct and has been prepared from the books and
records of the Company and Subsidiaries, (b) has been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis with prior periods covered thereby and (c) presents fairly the financial
position of the Company as of the respective dates and the results of the
operations and cash flow of the Company for such respective periods in all
respects, subject, in the case of interim financial statements, to normal
recurring year-end adjustments and the absence of notes. All prepaid expenses
included therein as assets represent payments theretofore made by the Company,
the benefit and advantage of which may be obtained and enjoyed by the Surviving
Corporation. The books and records of the Company have been kept, and will be
kept to the Effective Time, in reasonable detail and in accordance with the same
accounting principles heretofore consistently applied and will fairly and
accurately reflect to the Effective Time all of the transactions of the Company,
and are and will be complete and correct in all material respects. The balance
sheet of the Company as at February 29, 1996 is hereinafter sometimes referred
to as the "Balance Sheet".
SECTION 3.09 INTELLECTUAL RIGHTS. SCHEDULE 3.09 attached hereto
contains a complete and correct list and accurate description of all trademarks,
trade names, service marks, logos and other identifying symbols, names or marks,
copyrights, inventions, processes, designs, formulas, trade secrets, patents,
patent applications and other intellectual and/or proprietary rights or
interests (collectively, "Intellectual Rights") (i) owned by the Company, free
and clear of all licenses, liens, charges or encumbrances, except as specified
in such Schedule, or (ii) licensed to the Company under valid and enforceable
agreements, exclusive of the Software (hereinafter defined) identified on
SCHEDULE 3.29 hereof. The Company owns, or possesses adequate rights to use,
all Intellectual Rights necessary for the conduct of its business, and the
protection of patents is not material to the conduct of the Company's business.
The Company and the Management Shareholders are not aware of any infringements
by any third parties upon any Intellectual Rights or any conflict with or
infringement of asserted rights of others with respect to same.
SECTION 3.10 CONTRACT PARTIES. SCHEDULE 3.10 contains the names and
business addresses of the customers of the Company with which the Company has
contracts or arrangements to provide services (collectively, the "Contract
Parties"). SCHEDULE 3.20 identifies the respective contracts or arrangements
the Company has entered into with respect to the Contract Parties. True and
complete copies of those contracts or arrangements which are in writing have
been heretofore made available to Parent, and complete
-9-
<PAGE>
descriptions of those contracts or arrangements which are oral have been
heretofore made available to Parent. No Contract Party listed in SCHEDULE 3.10
has expressed to the Company or to any Management Shareholder its intention to
cancel or otherwise terminate its relationship with the Company, and, to the
best knowledge of the Company and each Management Shareholder, all of such
contracts and arrangements will continue in full force and effect after the
Effective Time and a continuing relationship with each such Contract Party is
not in jeopardy.
SECTION 3.11 MAJOR SUPPLIERS AND CONSULTANTS.
(a) SCHEDULE 3.11 contains the names and business addresses of all of
the suppliers or consultants from whom the Company purchased, during the twelve
(12) month period ending February 29, 1996, goods and/or services, the aggregate
cost of which exceeded Five Thousand Dollars ($5,000) or which suppliers or
consultants are in any event material to the continued operation of the
Company's business in the ordinary course (collectively, the "Major Suppliers").
Except as disclosed on SCHEDULE 3.11, the Company has no other suppliers or
consultants which are material to the business of the Company as presently
conducted. No Major Supplier listed in SCHEDULE 3.11 has expressed to the
Company or any Management Shareholder its intention to cancel or otherwise
terminate its relationship with the Company, and, to the best knowledge of the
Company and each Management Shareholder, a continuing relationship with each
such supplier is not in jeopardy.
(b) Mentat Corporation, a Georgia corporation ("Mentat"), is a Major
Supplier and a party to a certain Consulting Agreement dated July 1, 1994
between the Company and Mentat (the "Mentat Agreement"). The Mentat Agreement
is a valid and legally binding agreement between the parties thereto, is
enforceable in accordance with its terms and is in full force and effect on and
as of the date hereof. There is no default or threatened default by either
party to the Mentat Agreement, and each party thereto is in compliance with the
terms and conditions thereof. The Surviving Corporation will have all of the
rights of the Company under the Mentat Agreement after the Merger.
SECTION 3.12 EMPLOYMENT, DEFERRED COMPENSATION OR SIMILAR
AGREEMENTS; COLLECTIVE BARGAINING AGREEMENTS; EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed in SCHEDULE 3.12(a), the Company is not a
party to any agreement or employment contract or deferred compensation or
similar employment or incentive compensation arrangement with any of its
employees or former employees. There are no collective bargaining agreements or
any agreements with any labor union covering any employees of the Company. The
business of the Company is not affected by any present strike or other labor
-10-
<PAGE>
disturbance involving the employees of the Company nor, to the best knowledge of
the Company or any Management Shareholder, is any union attempting to represent,
as collective bargaining agent, any person employed by the Company.
(b) Except as disclosed in SCHEDULE 3.12(b), the Company does not
sponsor or maintain and is not otherwise a party to or liable under any plan,
program, fund or arrangement (whether or not qualified for Federal income tax
purposes), whether benefiting a single individual or multiple individuals, and
whether funded or not, that is an "employee pension benefit plan," or an
"employee welfare benefit plan," as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any other
benefit arrangement for its employees, their dependents and beneficiaries.
(c) The Company has not contributed nor does it contribute to any
multi-employer plan (as defined in Section 3(37) of ERISA), incurred any
liability under Section 4201 of ERISA for any complete or partial withdrawal
from any multi-employer plan or assumed any such liability by any prior owner of
any of its assets or properties.
(d) Each employee pension benefit plan maintained by the Company and
listed on SCHEDULE 3.12(b) complies in all material respects with the
requirements of ERISA. No "reportable event" within the meaning of Section 403
of ERISA has occurred with respect to any such plan and the Company has not
engaged in any "prohibited transaction"; within the meaning of Section 406(a) or
(b) of ERISA or of Section 4975(c) of the Code, with respect to any such plan;
and no such plan has been terminated in accordance with the procedures set forth
in Section 4041 or 4042 of ERISA.
(e) No liability has been incurred by the Company for any tax imposed
by Section 4975 of the Code with respect to any plan described in SCHEDULE
3.12(b). The Company, as applicable, has, and shall have, for all periods
ending on or prior to the Effective Time, administered each employee pension
benefit plan and each employee welfare benefit plan described in SCHEDULE
3.12(b) in all material respects in compliance with the reporting, disclosure
and all other requirements applicable thereto under ERISA, the Code or any other
applicable law.
SECTION 3.13 INVENTORY. Except as disclosed on SCHEDULE 3.13, the
Company owns no inventory. Maintenance of inventory is not significant to the
conduct of the Company's business.
SECTION 3.14 REAL ESTATE. The Company owns no real estate and is
not a party to any agreement involving the purchase, sale or lease of real or
personal property except as disclosed in this Agreement. SCHEDULE 3.14 contains
a true and correct list and
-11-
<PAGE>
description of all leases, subleases or other agreements under which the Company
is lessee or subtenant or lessor or sublessor of real estate. The Company has
provided to Parent true and complete copies of all such leases, subleases and
agreements as are in writing and descriptions of all oral leases, all of which
leases, subleases and agreements are valid, binding and enforceable. All such
leased real estate (and improvements thereon) is in good operating condition and
repair and conforms in all material respects with all applicable building,
zoning, planning and other regulations, ordinances or laws, and the Company has
the right to use all real estate necessary to the conduct of its business as
currently conducted.
SECTION 3.15 TITLE TO AND CONDITION OF PERSONAL PROPERTY. The
Company has merchantable title to all personal property reflected in the Balance
Sheet or acquired subsequent to the date of the Balance Sheet (other than
inventory disposed of since that date in the ordinary course of business), free
and clear of all liens or encumbrances, except as specifically disclosed on
SCHEDULE 3.15 hereto. All of the personal property owned by the Company is in
good operating condition and repair. The Company owns or has the right to use
all such properties necessary to the conduct of its respective business as
currently conducted.
SECTION 3.16 ACCOUNTS RECEIVABLE. Except as disclosed in SCHEDULE
3.16, the accounts receivable of the Company reflected in the Balance Sheet or
acquired by the Company subsequent to the date of the Balance Sheet (a) are
true, bona fide accounts receivable of the Company, created in the ordinary
course of business; (b) have been collected or are fully collectible in amounts
not less than the aggregate amount thereof, net of reserves established
therefor, on the books of the Company and reflected in the Balance Sheet; (c)
are not subject to any offsets, credits or counterclaims; and (d) have not at
any time been placed for collection with any attorney, collection agency or
similar individual or firm.
SECTION 3.17 CONSIGNMENT AND RETURN ITEMS. The Company has no
obligation (other than warranty obligations) to accept a return for credit of
any products shipped to customers or distributors or others prior to the date
hereof or to be shipped prior to the Effective Time.
SECTION 3.18 TAXES. Except as disclosed on SCHEDULE 3.18, the
Company has properly completed and filed all federal, state, county, municipal
and other tax returns, reports and declarations which are required to be filed
by it and has paid or accrued on its financial statements all taxes, penalties
and interest which have become (or may hereafter become) due pursuant thereto or
which became (or may hereafter become) due pursuant to assessments. Except as
set forth on SCHEDULE 3.18 hereto, the Company has not received any notice of
deficiency or assessment of additional taxes, and no tax audits are in process.
The last year
-12-
<PAGE>
for which the federal or state income taxes or other taxes of the Company have
been examined is set forth accurately and completely on SCHEDULE 3.18 hereto.
The Company has not granted any waiver of any statute of limitation with respect
to, or any extension of a period for the assessment of, any federal, state,
county, municipal or other tax. Except as disclosed in SCHEDULE 3.18, the
accruals and reserves for taxes reflected in the Balance Sheet are adequate to
cover all taxes (including interest and penalties, if any, thereon) due and
payable or accrued in accordance with generally accepted accounting principles
as a result of the operations of the Company for all periods prior to the date
of the Balance Sheet. The Company has not filed an election under Section
1362(a) of the Code to be taxed as an S Corporation.
SECTION 3.19 LITIGATION. Except as disclosed in SCHEDULE 3.19,
there is no litigation, investigation or proceeding pending or, to the best
knowledge of the Company and the Management Shareholders, threatened, involving
the Company or any of its properties. There are no outstanding orders, writs,
injunctions or decrees of any court, governmental agency or arbitration tribunal
materially affecting or materially limiting the conduct of the business of the
Company.
SECTION 3.20 MATERIAL CONTRACTS. SCHEDULE 3.20 lists all material
contracts to which the Company is a party, which contracts are not disclosed in
another Schedule hereto. Except as disclosed in a Schedule hereto, the Company
is not a party to and none of its properties are bound by any of the following
types of contracts or commitments, written or oral: (i) mortgages, indentures,
security agreements and other agreements and instruments relating to the
borrowing of money or extension of credit or imposition of an encumbrance on any
of the assets of the Company, (ii) sales agency, manufacturer's representative,
distributorship or supply agreements, (iii) other contracts and commitments
which in any case involve payments or receipts of more than $15,000, (iv) any
contract with any officer, director or with any employee of the Company (other
than agreements relating to current wage or salary payments terminable by the
Company on notice of thirty (30) days or less), (v) any contract or promissory
note or other instrument with any Affiliate (as hereinafter defined) of the
Company, or (vi) any guarantee or obligation to provide funds or assume the debt
of any person or entity. The Company has delivered to Parent complete and
correct copies of all written contracts and commitments, together with all
amendments thereto, and accurate descriptions of all material oral agreements,
described in SCHEDULE 3.20 or any other Schedule hereto. The Company is not in
default with respect to any such contract, and, to the best knowledge of the
Company and the Management Shareholders, no other party to any such contract is
in default with respect thereto. Except as specifically set forth on SCHEDULE
3.20, each such contract will continue in full force and effect after the
Effective Time without any right on the part of any party
-13-
<PAGE>
thereto, other than the Company, to terminate such contract as a result of the
occurrence of the Merger. For purposes of this Agreement, "Affiliate" of the
Company means (i) any corporation, partnership, trust or other entity in control
of, controlled by or under common control with the Company; and (ii) any
officer, director, trustee, general partner or employee of any corporation,
partnership, trust or other entity in control of, controlled by or under common
control with the Company and SCHEDULE 3.20 discloses all Affiliates of the
Company which are business entities currently in existence.
SECTION 3.21 LABOR RELATIONS. Except as disclosed in SCHEDULE 3.21,
the Company, in the conduct of its respective affairs, has complied in all
material respects with all applicable laws (including, without limitation, labor
laws) relating to the hiring and employment of employees and independent
contractors, including, without limitation, those related to discrimination,
wages, hours, collective bargaining, employee pension and welfare benefit plans,
and the payment of (and withholding for) income, Social Security and other
employment related taxes, and the Company is not liable for any penalties or
damages for failure to comply with any of the foregoing. There are no unfair
labor practice claims or charges pending or, to the best knowledge of the
Company and the Management Shareholders, threatened, involving the Company.
SECTION 3.22 INSURANCE. SCHEDULE 3.22 hereto contains a list and
description (including the name of the insurer, coverage and expiration date) of
all insurance policies maintained by the Company. SCHEDULE 3.22 further lists
all claims presently pending or, to the best knowledge of the Company,
threatened which are covered by such policies, other than routine claims for
benefits under the Company's welfare benefit plans. The Company has not
received notice of cancellation or non-renewal of any of such policies.
SECTION 3.23 CONDUCT OF BUSINESS AND ABSENCE OF CHANGES. Since
December 31, 1995, the Company has conducted its business in the regular and
ordinary course and has not (i) undergone any material adverse change in its
condition (financial or otherwise), assets, liabilities, business, or
operations, (ii) declared, set aside, made or paid any cash or stock dividend or
distribution or purchased, issued or sold any shares of its capital stock, (iii)
incurred any indebtedness for borrowed money or issued or sold any debt
securities (except as may have been advanced in the regular and ordinary course
under the Company's credit facility described in SCHEDULE 3.20), (iv) instituted
any increase in the compensation or bonuses payable or to become payable to any
officers or employees, except as disclosed in SCHEDULE 3.23, or any changes in
personnel policies or employees benefits, or (v) made any payment to any
Shareholder except for payments described in a Schedule hereto and regular
salary and ordinary and necessary business expense reimbursements.
-14-
<PAGE>
SECTION 3.24 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS.
Except as set forth in SCHEDULE 3.24 hereto, the Company is in compliance, in
all material respects, with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, governmental permits and other governmental
authorizations or approvals applicable to it or any of its properties, and all
governmental authorizations or approvals necessary in any material respect for
the conduct of its business have been duly and lawfully obtained and are in full
force and effect, and there are no proceedings pending or, to the best knowledge
of the Company and the Management Shareholders, threatened, which may result in
the revocation, cancellation or suspension, or any materially adverse
modification, of any thereof.
SECTION 3.25 OFFICERS, DIRECTORS AND DEPOSITORIES. SCHEDULE 3.25
hereto contains the names of all the officers and directors of the Company, the
names of all depositories of the funds of the Company and the names of the
officers and other persons empowered to sign instruments withdrawing funds from
said depositories.
SECTION 3.26 ENVIRONMENTAL MATTERS.
(a) No governmental agency has asserted any claim or given notice of
any possible claim or, to the knowledge of the Company or the Managing
Shareholders, threatened to assert any claim against the Company in respect of
its business, any assets owned or leased by it, real properties leased by it, or
the condition, use or operation thereof by it, arising out of any Federal, state
or local law, rule, regulation or directive pertaining to the environment.
(b) To the best knowledge of the Company and the Management
Shareholders, there are nowhere on any real property leased by, used by or
otherwise under the control of the Company any deposits, dumps, or tanks of
toxic or other poisonous, dangerous or noxious waste, fluids, solvents,
chemicals or effluents, all of which chemicals, fuels and fluids are properly
and safely stored, identified, labelled and maintained in accordance with
applicable industrial standards and all governmental or other laws or
regulations relating thereto. The Company does not discharge from any real
property leased, used or otherwise under its control, whether by effluent,
emission or other means, any noxious, toxic, hazardous or deleterious matter or
gases. All discharges of waste material and other substances from the operating
facilities of the Company are in full compliance with applicable law and covered
by valid permits and licenses, where required.
SECTION 3.27 THIRD PARTY AND GOVERNMENTAL CONSENTS. Except as
disclosed in SCHEDULE 3.27 hereto, no consent, waiver,
-15-
<PAGE>
authorization, approval, order, license, certificate or permit of or from, or
registration, declaration or filing with, any governmental authority or any
court or other tribunal or any other person, firm or entity, nor under any
contract, indenture, mortgage, lease, license or other agreement or instrument
to which the Company or any of the Shareholders is a party or by which the
Company or any of the Shareholders, or any of their respective assets or
properties, is subject or bound, is required by or with respect to the Company
or any of the Shareholders in connection with the execution, delivery or
performance of this Agreement or of any other agreement, document or instrument
to be executed and delivered by the Company or the Shareholders pursuant hereto
or in connection herewith or the consummation of the transactions contemplated
hereby. The Company has obtained all consents and waivers listed in SCHEDULE
3.27 on or prior to the date hereof.
SECTION 3.28 LICENSES AND PERMITS. Except as disclosed in SCHEDULE
3.28 hereto, the Company has obtained all consents, approvals, waivers and
permits from governmental authorities required in connection with the ownership
of the assets of the Company and the operation of the business of the Company as
presently and heretofore conducted (herein collectively referred to as the
"Licenses"). The Licenses are listed on SCHEDULE 3.28 hereto and, except as
otherwise set forth in SCHEDULE 3.28 hereto, no other licenses or permits are
required to conduct or operate the business of the Company as presently
conducted.
SECTION 3.29 SOFTWARE.
(a) SCHEDULE 3.29 hereto contains a true, complete and accurate list
and description of (i) all computer software and related programs owned by the
Company and (ii) all computer software and related programs licensed by the
Company for use in connection with the business of the Company, other than off-
the-shelf software licensed to the Company which is not material to the
operation of the Company's business or the services provided by the Company
(collectively, the "Software"). The Company either owns or has a valid license
to use and sublicense all of the Software, and upon consummation of the Merger
the Surviving Corporation shall have the right to use and authorize others to
use all of the Software, free from any claim, security interest or other lien or
encumbrance whatsoever, except as set forth on SCHEDULE 3.29(a). The Company is
the exclusive licensee of the Software indicated on SCHEDULE 3.29(a) as being
exclusively licensed by the Company. The Software constitutes the only computer
software or programs necessary for the operation of the Company's business as
presently conducted.
(b) The Company has provided to Parent true and complete copies of
all licenses, leases, contracts and other written instruments relating to any
Software and/or source codes thereof which are not owned by the Company
(collectively, the "Software
-16-
<PAGE>
Contracts"), all of which are legally valid and binding and enforceable in
accordance with their respective terms. Neither the Company, nor, to the
knowledge of the Company or the Management Shareholders, any other party
thereto, is in violation of any material term or provision of any Software
Contract. The use of the owned Software by the Company does not, and upon
consummation of the Merger the use of such owned Software by the Surviving
Corporation will not, in any manner infringe upon any rights of any third
parties. To the knowledge of the Management Shareholders, the use of any
source codes related to Software which is not owned by the Company, and the
exercise of the rights of the Company in and to such source codes, as
provided in any of the Software Contracts, does not, and upon consummation of
the Merger the use of any such source codes and exercise of such rights by
the Surviving Corporation pursuant to the terms of the Software Contracts
will not, in any manner infringe upon the rights of any third parties.
(c) All source codes relating to the Software which is owned by the
Company (the "Owned Source Codes") are in the possession of the Company and
constitute trade secret information of the Company, and, except as set forth on
SCHEDULE 3.29(c), no third party has any copy of any of the Owned Source Codes
or any right, title, interest or license, conditional or otherwise, with respect
to any of the Owned Source Codes under any circumstances whatsoever. Upon
consummation of the Merger, the Surviving Corporation shall own and have
possession of, and shall have the right to use, the Owned Source Codes, free
from any claim, security interest or other lien or encumbrance whatsoever.
SECTION 3.30 LOANS TO OR FROM SHAREHOLDERS OR EMPLOYEES. The
Company does not have outstanding any loans, advances or other indebtedness
incurred by any Shareholder or any employee of the Company or any member of
their respective families, and there are no loans or advances made to the
Company by or indebtedness incurred by the Company to any Shareholder or any
employee of the Company or any member of their respective families, except as
set forth in SCHEDULE 3.30 ("Related Party Loans"). True and complete copies of
all promissory notes or other agreements or documents evidencing the Related
Party Loans have been heretofore delivered to Parent.
SECTION 3.31 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to
the extent disclosed or accrued on the Financial Statements submitted to Parent
pursuant to the terms hereof, or incurred in the ordinary course of business
since the date of the Balance Sheet or disclosed on any SCHEDULE hereto, there
exist no liabilities or obligations of any nature whatsoever (whether absolute,
contingent or otherwise, matured or unmatured, or known or unknown) in respect
of the business or assets of the Company of the type customarily reflected in
financial statements prepared in accordance with GAAP. None of the Management
Shareholders knows after due inquiry of any basis for assertion against the
Company of
-17-
<PAGE>
any claim or liability of any nature in any amount not fully disclosed pursuant
to the terms hereof.
SECTION 3.32 REPRESENTATIONS AND WARRANTIES TRUE; NO MISLEADING
STATEMENTS. All of the representations and warranties set forth in this Article
III shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made herein in connection with the
transactions contemplated hereby and the operation of the Company's business and
in any Schedule, list or other document specifically referred to herein and
delivered by the Company or the Management Shareholders pursuant hereto do not
contain any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Parent and
Acquisition, as to itself, severally and not jointly, as follows, knowing and
intending that each of Parent and Acquisition is relying hereon in entering into
the transactions contemplated hereby:
SECTION 4.01 AUTHORITY AND CAPACITY RELATIVE TO AGREEMENT. Each
Shareholder has all requisite power, authority and legal capacity to enter into
and perform each of its obligations hereunder.
SECTION 4.02 EXECUTION AND PERFORMANCE OF AGREEMENT; VALIDITY AND
BINDING NATURE. The execution and delivery of this Agreement, and the
performance by each Shareholder of the terms of this Agreement and the
transactions contemplated hereby, will not result in a material breach of any of
the terms of, or constitute a violation or default under, any statute or
contract, indenture or other instrument by which such Shareholder or any of its
respective properties are bound, and no consent, approval, authorization or
order of any court or governmental authority is required in connection with the
execution and delivery of this Agreement by such Shareholder and the performance
by such Shareholder of the terms of this Agreement and the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
each Shareholder and, together with the other documents and agreements to be
executed by all parties whose execution and delivery thereof is required,
constitutes the legal, valid and binding obligations of such Shareholder,
enforceable against such Shareholder in accordance with their respective terms,
except to the extent that enforceability may be limited by bankruptcy,
receivership,
-18-
<PAGE>
moratorium, conservatorship, reorganization or other laws of general application
affecting the rights of creditors generally or by general principles of equity.
SECTION 4.03 STOCK OF THE COMPANY. The number of shares of Company
Common Stock beneficially owned by each Shareholder is as identified on the
signature page(s) hereof opposite the respective Shareholder's name. The shares
of Company Common Stock beneficially owned by each Shareholder are owned free
and clear of all liens, claims, options, encumbrances or restrictions
whatsoever, and such Shareholder has the full legal right and power and all
authorizations and approvals required by law or otherwise to sell, transfer and
deliver such shares hereunder and to make the representations, warranties and
agreements set forth in this Agreement. Except with respect to the shares of
the Company Common Stock identified on the signature page(s) hereof opposite the
respective Shareholder's name, such Shareholder has no outstanding claim against
the Company or any right whatsoever with respect to any shares of the capital
stock of the Company, including without limitation any option, warrant or other
right to acquire shares of the capital stock of the Company or any securities,
options or other instruments convertible or exchangeable into shares of capital
stock of the Company.
SECTION 4.04 ADDITIONAL REPRESENTATIONS AND COVENANTS OF
SHAREHOLDERS.
(a) Each Shareholder understands that the shares of Parent Common
Stock which are the subject of this Agreement are intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
by virtue of Section 4(2) and/or Section 4(6) thereof and the provisions of
Regulation D promulgated thereunder, based, in part, upon the representations,
warranties and agreements of each Shareholder contained in this Agreement.
(b) Neither the Securities and Exchange Commission (the "SEC") nor
any state securities commission has approved the Parent Common Stock or passed
upon or endorsed the merits of an investment therein or confirmed the accuracy
or adequacy of any information provided by Parent to the Shareholders or the
accuracy or adequacy of any of the representations, warranties and agreements of
Parent contained herein.
(c) Each Shareholder is acquiring Parent Common Stock solely for its
own account for investment and not with a view to resale or distribution
thereof, in whole or in part. No Shareholder has any agreement or arrangement,
formal or informal, written or oral, with any person to sell or transfer or
otherwise dispose of all or any part of the Parent Common Stock, and none has
any present plans to enter into any such agreement or arrangement.
-19-
<PAGE>
(d) No Shareholder became aware of the offer and sale of Parent
Common Stock through or as a result of any form of general solicitation or
general advertising including, without limitation, any article, notice,
advertisement or other communication published in any newspaper, magazine or
other media in connection with the offer and sale of Parent Common Stock
contemplated hereby and no Shareholder is purchasing Parent Common Stock through
or as a result of any seminar or meeting to which any Shareholder was invited.
(e) Each Shareholder meets the requirements of at least one of the
categories of an "accredited investor", as defined in Rule 501(a) of Regulation
D promulgated under the Securities Act and as set forth in the form of
Accredited Investor Certification attached hereto as EXHIBIT A. In connection
with the closing of the transactions contemplated by this Agreement, each
Shareholder shall certify to Parent, in the form of the certification set forth
in EXHIBIT A, as to which category (or categories) of accredited investor is
applicable to such Shareholder.
(f) Each Shareholder has such knowledge and experience in financial,
tax, and business matters in general, and investments in securities in
particular, so as to enable such Shareholder to evaluate the merits and risks of
an investment in Parent Common Stock and to make an informed investment decision
with respect thereto.
(g) Each Shareholder is familiar with the business, operations and
financial condition of the Company and Subsidiaries and is able to evaluate the
merits and risks of the conversion of Company Common Stock in the Merger for
Parent Common Stock as provided herein and to make an informed investment
decision with respect thereto.
(h) Each Shareholder recognizes that it must bear the substantial
economic risks of the investment in Parent Common Stock indefinitely, because
none of the Parent Common Stock may be sold, transferred, hypothecated or
otherwise disposed of unless such Parent Common Stock is registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available. Legends shall be placed on the certificates
representing Parent Common Stock issuable stating that the shares represented
thereby have not been registered under the Securities Act or applicable state
securities laws, and appropriate notations thereof will be made in Parent's
stock books.
(i) Each Shareholder has adequate means of providing for its current
financial needs and foreseeable contingencies and has no need for immediate
liquidity of its investment in Parent Common Stock. Each Shareholder's overall
commitment to investments which are not readily marketable is not excessive in
view of its net
-20-
<PAGE>
worth and financial circumstances and the purchase of the Parent Common Stock
will not cause such commitment to become excessive.
(j) No Shareholder is relying on Parent or any of its employees or agents
with respect to the legal, tax, economic and related considerations of an
investment in Parent Common Stock, other than as expressly contained in the
representations and warranties of Parent contained in Article V hereof. There
has been delivered to each Shareholder a copy of this Agreement and copies of
Parent's Annual Report on Form 10-K for the Fiscal Year Ended June 30, 1995,
Parent's 1995 Annual Report to Stockholders, Parent Quarterly Reports on Form
10-Q for the Quarters ended September 30, 1995 and December 31, 1995 and
Parent's Proxy Statement for its Annual Meeting held on November 14, 1995 (the
"Public Information"). Each Shareholder has read and fully understands each of
this Agreement and the Public Information.
(k) Each Shareholder (i) has had the opportunity to obtain all information
requested by him for the purposes of verifying the information contained in the
Agreement and Public Information or for any other purpose related hereto and
(ii) has had the opportunity to meet with representatives of Parent and the
Company and to have them answer any questions and provide such additional
information regarding the terms and conditions of the transactions contemplated
hereby, the information set forth in this Agreement and the Public Information
and the business and prospects of Parent deemed relevant by such Shareholder,
all of which questions have been answered and all of which requested information
has been provided to the full satisfaction of such Shareholder. Each
Shareholder is aware that an investment in Parent Common Stock is speculative
and involves significant risks, including, among other things, the risk of the
loss of such Shareholder's entire investment in Parent Common Stock.
(l) In evaluating the suitability of an investment in Parent, and in
deciding to enter into this Agreement, no Shareholder has relied upon any
representation or other information (whether oral or written) other than as set
forth in the representations and warranties of Parent contained in Article V of
this Agreement and in the Public Information. No oral or written
representations have been made, or oral or written information furnished, to any
Shareholder in connection with the offer and sale of Parent Common Stock that
are in any way inconsistent with the representations and warranties of Parent
contained herein or any of the information contained in the Public Information.
(m) Except as described in SCHEDULE 4.04(m) hereto, no Shareholder has any
beneficial interest, directly or indirectly, in any person, firm, corporation,
partnership or other entity which is or within the past two years has been a
supplier of any goods or services to the Company, including, without limitation,
any Major Supplier, or from which the Company has received fees, including,
-21-
<PAGE>
without limitation, any Contract Party, other than as the beneficial owner of 1%
or less of the voting securities of a publicly held corporation. The nature and
amount of any such beneficial interest is disclosed in SCHEDULE 4.04(m).
SECTION 4.05 ADDITIONAL REPRESENTATIONS AND COVENANTS OF STEELE. The
following representations contained in this Section 4.05 are made only by
Steele. Steele owns 100% of the equity interests and voting securities of
Mentat. The Mentat Agreement is a valid and legally binding agreement between
the parties thereto, is enforceable in accordance with its terms and is in full
force and effect on and as of the date hereof. There is no default or
threatened default by either party to the Mentat Agreement, and each party
thereto is in compliance with the terms and conditions thereof. The
consummation of the transactions contemplated by this Agreement does not require
the consent of Mentat under the Mentat Agreement and will not affect the
validity, enforceability or continuation of the Mentat Agreement in accordance
with its terms after the Merger. The Surviving Corporation will have all of the
rights of the Company under the Mentat Agreement after the Merger.
SECTION 4.06 REPRESENTATIONS AND WARRANTIES TRUE; NO MISLEADING
STATEMENTS. All of the representations and warranties set forth in this Article
IV shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made in this Article IV in connection with
the transactions contemplated hereby and the operation of the Company's business
and in any Schedule, list or other document specifically referred to in this
Article IV and delivered by the Company or the Shareholders pursuant hereto do
not contain any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company and each Shareholder as
follows:
SECTION 5.01 ORGANIZATION AND QUALIFICATION. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own or
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Parent is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse
-22-
<PAGE>
Effect on the assets, financial condition, operating results or business of
Parent and its subsidiaries, taken as a whole.
SECTION 5.02 ACQUISITION. Acquisition is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own or lease and operate
its properties and to carry on its business as it is now being conducted.
Acquisition is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction in which the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect on Parent. All the outstanding shares of capital stock of
Acquisition are validly issued, fully paid and nonassessable and are owned by
Parent.
SECTION 5.03 CAPITALIZATION. The authorized capital stock of Parent
consists of 80,000,000 shares of Parent Common Stock, and, as of December 31,
1995, 23,421,742 shares of Parent Common Stock were issued and outstanding, all
of which were validly issued and are fully paid and nonassessable. Except for
(i) options outstanding under Parent's Stock Option and Restricted Stock
Purchase Plan (the "1989 Plan"), (ii) options outstanding under Parent's 1995
Stock Option Plan, (iii) rights under Parent's 1996 Employee Stock Purchase Plan
and (iv) options outstanding under Parent's Non-Employee Director Stock Option
Plan, no subscription, warrant, option, convertible security, stock appreciation
or other right (contingent or other) to purchase or acquire any shares of any
class of capital stock of Parent is authorized or outstanding and there is not
any agreement of Parent to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets. Parent does not have any obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of its
capital stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. At the Effective Time, Parent will have
sufficient authorized and unissued shares of Parent Common Stock available for
issuance in accordance with Article II hereof. When issued to the Shareholders
hereunder, such shares of Parent Common Stock will have been duly authorized by
Parent and, upon receipt of consideration therefor in accordance with the terms
hereof, such shares will be validly issued, fully paid and nonassessable shares
of Parent Common Stock.
SECTION 5.04 AUTHORITY RELATIVE TO AGREEMENT. Parent has all requisite
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement by Parent
and the consummation by Parent of the transactions contemplated hereby
(including issuance of Parent Common Stock to the Shareholders pursuant to the
terms hereof) have been duly authorized by the Board of Directors of
-23-
<PAGE>
Parent, and no other corporate proceedings on the part of Parent are necessary
to authorize this Agreement and the transactions contemplated hereby (including
issuance of Parent Common Stock to the Shareholders pursuant to the terms
hereof). This Agreement has been duly executed and delivered by Parent and
constitutes the legal, valid and binding obligation of Parent, enforceable
against Parent in accordance with its terms, except to the extent that
enforceability may be limited by bankruptcy, receivership, moratorium,
conservatorship, reorganization or other laws of general application affecting
the rights of creditors generally or by general principles of equity.
SECTION 5.05 NON-CONTRAVENTION. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (i) conflict with any provision of the Certificate
of Incorporation or By-Laws of Parent or any of its subsidiaries or (ii) result
(with or without the giving of notice or the lapse of time or both) in any
violation of or default or loss of a benefit under, or permit the acceleration
of any obligation under, any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or any
of its subsidiaries or any of their respective properties, other than any such
violation, default, loss or acceleration that would not Materially Adversely
Affect the ability of Parent to consummate the transactions contemplated hereby
or to conduct the business of the Company and its subsidiaries after the
Effective Time.
SECTION 5.06 PUBLIC INFORMATION. The Public Information, the
representations and warranties made by Parent and Acquisition, respectively, in
Articles V and VI herein and in any schedule, list or other document
specifically referred to in Article V or Article VI, respectively, and delivered
by Parent or Acquisition, as the case may be, pursuant thereto does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The Public Information includes all Forms 10-K, 10-Q, 8-K and proxy
statements of the Company since June 30, 1995.
SECTION 5.07 FINANCIAL STATEMENTS. The consolidated financial statements
of Parent included in the Public Reports have been prepared in accordance with
GAAP consistently applied and consistent with prior periods, subject, in the
case of unaudited interim consolidated financial statements, to year-end
adjustments (which consist of normal recurring accruals) and the absence of
certain footnote disclosures. The consolidated balance sheets of Parent included
in the Public Information fairly present in all material respects the financial
position of Parent and its subsidiaries as of their respective dates, and the
related
-24-
<PAGE>
consolidated statements of operations, shareholders' equity and cash flows
included in the Public Information fairly present in all material respects the
results of operations of Parent and its subsidiaries for the respective periods
then ended, subject, in the case of unaudited interim financial statements, to
year-end adjustments (which consist of normal recurring accruals) and the
absence of certain footnote disclosures.
SECTION 5.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for the
issuance of Parent Common Stock pursuant to employee benefit plans of Parent
described in Section 5.03 above, or as otherwise disclosed in Parent's Quarterly
Report on Form 10-Q for the Quarter ended December 31, 1995, since January 1,
1996, Parent has not (i) issued any Parent Common Stock or securities or
obligations convertible into or exchangeable for Parent Common Stock, (ii)
incurred any material liabilities (absolute or contingent), except in the
ordinary course of business or (iii) suffered any Material Adverse Effect on
Parent and its consolidated subsidiaries taken as a whole.
SECTION 5.09 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Parent in connection with the execution and delivery of this
Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, except for (i) filings pursuant to the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated by the SEC thereunder, if applicable, (ii)
filings with state securities agencies under state securities or blue sky laws,
if applicable, (iii) the filing of a Certificate of Merger with the Secretary of
State of the State of Delaware in accordance with the Delaware GCL, (iv) the
filing of a Certificate of Merger with the Secretary of State of the State of
Georgia in accordance with the GBCC, (v) any licenses, permits, franchises or
other governmental authorizations pertaining to the business of the Company and
its subsidiaries that are required as a result of the consummation of the
transactions contemplated hereby and (vi) such consents, approvals, orders or
authorizations which if not obtained, or registrations, declarations or filings
which if not made, would not materially adversely affect the ability of Parent
to consummate the transactions contemplated hereby or to conduct the business of
the Company and its subsidiaries, if any, after the Effective Time.
SECTION 5.10 COMPLIANCE WITH LAW. Neither Parent nor any of its
subsidiaries is in default under any order of any court, governmental authority
or arbitration board or tribunal. Neither Parent nor any such subsidiary is in
material violation of or has received notice of any alleged violation of any
applicable laws, ordinances and governmental rules and regulations to which
Parent or any such subsidiary is subject, including, without limitation,
-25-
<PAGE>
federal securities and banking laws. Neither Parent nor any subsidiary has
failed to obtain any licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, except where the failure to obtain such licenses, permits,
franchises or other governmental authorizations would not have a Material
Adverse Effect on Parent.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF ACQUISITION
Acquisition represents and warrants to the Company and each Shareholder as
follows:
SECTION 6.01 ORGANIZATION AND QUALIFICATION. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. Acquisition is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of its properties owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on the financial condition,
operating results or business of Acquisition.
SECTION 6.02 CAPITALIZATION. The authorized capital stock of Acquisition
consists of 100 shares of common stock, $.01 par value. As of the date hereof,
100 shares of such common stock are validly issued and outstanding, fully paid
and nonassessable and are owned of record and beneficially by Parent, and no
shares of such common stock are held in the treasury of Acquisition. Acquisition
has no commitments to issue or sell any shares of such common stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from Acquisition, any shares of
such common stock, and no securities or obligations evidencing any such rights
are outstanding.
SECTION 6.03 AUTHORITY RELATIVE TO AGREEMENT. Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Acquisition and by Parent as its sole shareholder, and no other corporate
proceedings on the part of Acquisition are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by Acquisition and constitutes the legal, valid and binding
obligation of Acquisition,
-26-
<PAGE>
enforceable against Acquisition in accordance with its terms except to the
extent that enforceability may be limited by bankruptcy, receivership,
moratorium, conservatorship, reorganization or other laws of general application
affecting the rights of creditors generally or by principals of equity.
SECTION 6.04 NON-CONTRAVENTION. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby will not (i) conflict with any provision of the Certificate
of Incorporation or By-Laws of Acquisition or (ii) result (with the giving of
notice or the lapse of time or both) in any violation of or default or loss of a
benefit under, or permit the acceleration of any obligation under, any mortgage,
indenture, lease, agreement, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquisition or its properties, other
than any such violation, default, loss or acceleration that would not Materially
Adversely Affect the ability of Acquisition to consummate the transactions
contemplated hereby.
SECTION 6.05 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Acquisition in connection with the execution and delivery of
this Agreement by Acquisition or the consummation by Acquisition of the
transactions contemplated hereby, except for (i) the filing of a certificate of
merger with the Secretary of State of the State of Delaware in accordance with
the Delaware GCL and the Secretary of State of the State of Georgia in
accordance with the GBCC, (ii) any licenses, permits, franchises or other
governmental authorizations pertaining to the business of Acquisition that are
required as a result of the consummation of the transactions contemplated hereby
and (iii) such consents, approvals, orders or authorizations which if not
obtained, or registrations, declarations or filings which if not made, would not
Materially Adversely Affect the ability of Acquisition to consummate the
transactions contemplated hereby.
SECTION 6.06 OTHER MATTERS. Except as contemplated by this Agreement,
Acquisition has not conducted any business activities and does not have any
material liabilities or obligations. Acquisition is in compliance in all
material respects with all applicable laws.
ARTICLE VII
COVENANTS
SECTION 7.01 CONDUCT OF THE COMPANY'S BUSINESS. The Company and each
Management Shareholder covenants and agrees that, prior to the Effective Time,
unless Parent shall otherwise consent
-27-
<PAGE>
in writing or as otherwise expressly contemplated by this Agreement:
(a) the business of the Company shall be conducted only in, and the
Company shall not take any action except in, the normal and ordinary course
of business and consistent with past practice;
(b) the Company and the Management Shareholders shall use their best
efforts to preserve the goodwill of the business of the Company;
(c) the Company shall diligently pursue its qualification to do
business as a foreign corporation in the State of New York and shall take
all action necessary to obtain such qualification; and
(d) the Company shall not, directly or indirectly, do any of the
following:
(i) sell, pledge, dispose of or encumber any assets of the Company, except
inventory and immaterial assets in the ordinary course of business; (ii)
amend or propose to amend its Articles of Incorporation or By-Laws; (iii)
split, combine or reclassify any outstanding shares of its capital stock,
or declare, set aside or pay any dividend payable in cash, stock, property
or otherwise with respect to such shares; (iv) redeem, purchase, acquire or
offer to acquire any shares of its capital stock of any class; (v) enter
into any contract, agreement, commitment or arrangement with respect to any
of the matters set forth in this paragraph (b) or (vi) modify or amend the
Steele Option Agreement in any respect;
(e) the Company shall not (i) issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of, or
securities convertible or exchangeable for, or any options, warrants or
rights of any kind to acquire any shares of, its capital stock of any class
or other property or assets; (ii) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other
business organization or division thereof (except an existing wholly-owned
subsidiary); (iii) incur any indebtedness for borrowed money or issue any
debt securities in excess of $5,000 in the aggregate; (iv) enter into or
modify any contract, lease, agreement or commitment, except in the ordinary
course of business and consistent with past practice; (v) terminate,
modify, assign, waive, release or relinquish any contract rights or amend
any rights or claims not in the ordinary course of business or (vi)
-28-
<PAGE>
settle or compromise any claim, action, suit or proceeding pending or
threatened against the Company, or, if the Company may be liable or
obligated to provide indemnification, against the Company's directors or
officers, before any court, governmental agency or arbitrator; PROVIDED
that nothing herein shall require any action that might impair or otherwise
affect the obligation of any insurance carrier under any insurance policy
maintained by the Company;
(f) the Company shall not grant any increase in the salary or other
compensation of its employees, except pursuant to the terms of employment
agreements in effect on the date hereof and listed on a Schedule hereto, or
grant any bonus to any employee or enter into any employment agreement or
make any loan to or enter into any material transaction of any other nature
with any employee of the Company;
(g) the Company shall not take any action to institute any new
severance or termination pay practices with respect to any directors,
officers or employees of the Company or to increase the benefits payable
under its severance or termination pay practices;
(h) the Company shall not adopt or amend, in any respect, except as
contemplated hereby or as may be required by applicable law or regulation,
any collective bargaining, bonus, profit sharing, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund, plan or
arrangement for the benefit or welfare of any of its respective directors,
officers or employees; and
(i) the Company shall use its best efforts, to the extent not
prohibited by the foregoing provisions of this Section 7.01, to maintain
their relationships with their customers and suppliers, including, without
limitation, all Contract Parties, and if and as requested by Parent or
Acquisition, (i) the Company shall use its best efforts to make reasonable
arrangements for representatives of Parent or Acquisition to meet with the
customers and suppliers and the Company, as designated by Parent, in order
to ensure that the relationships of the Company with such customers and
suppliers will remain in force under substantially the same terms following
the Effective Time as are in effect on the date hereof, and (ii) the
Company shall schedule, and the management of the Company shall participate
in, meetings of representatives of Parent or Acquisition with employees of
the Company.
-29-
<PAGE>
SECTION 7.02 ACCESS TO INFORMATION. (a) The Company shall, and shall
cause each of its respective officers, directors, employees, representatives and
agents to, upon reasonable advance notice, afford, from the date hereof to the
Effective Time, the officers, employees, representatives and agents of Parent
reasonable access during regular business hours to its officers, employees,
agents, properties, books, records and workpapers, and shall furnish Parent all
financial, operating and other information and data as Parent, through its
officers, employees or agents, may reasonably request.
(b) Parent shall, and shall cause its subsidiaries, officers, directors,
employees, representatives and agents to, afford, from the date hereof to the
Effective Time, the officers, employees, representatives and agents of the
Company reasonable access during regular business hours to its officers,
employees, agents and properties, and shall furnish the Company all financial,
operating and other information and data as the Company, through its officers,
employees or agents, may reasonably request.
(c) No investigation pursuant to this Section 7.02 shall affect, add to or
subtract from any representations or warranties of the parties hereto or the
conditions to the obligations of the parties hereto to effect the Merger.
SECTION 7.03 FURTHER ASSURANCES. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings; PROVIDED that the foregoing shall not require Parent
to agree to make, or to permit the Company to make, any divestiture of a
significant asset in order to obtain any waiver, consent or approval.
SECTION 7.04 INQUIRIES AND NEGOTIATIONS; THIRD PARTY ACQUISITION. (a)
Unless the Effective Time shall not occur on or before May 12, 1996, and until
said date, neither the Company nor any of its affiliates, shareholders,
directors, officers, employees, representatives or agents, shall, directly or
indirectly, (i) solicit or initiate any discussions, submissions of proposals or
offers or negotiations with, or (ii) participate in any negotiations or
discussions with, or provide any information or data of any nature whatsoever
to, or otherwise cooperate in any other way with, or assist or participate in,
facilitate or encourage any effort or attempt by, any person, other than Parent
and its affiliates, representatives and agents, concerning any merger,
consolidation, sale of substantial assets, sale of shares
-30-
<PAGE>
of capital stock or other securities, recapitalization, debt restructuring or
similar transaction involving the Company or any division of the Company. The
Company shall immediately notify Parent if any proposal, offer, inquiry or other
contact is received by, any information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company in
respect of any such transaction, and shall, in any such notice to Parent,
indicate the identity of the offeror and the terms and conditions of any
proposals or offers or the nature of any inquiries or contacts, and thereafter
shall keep Parent informed of the status and terms of any such proposals or
offers. The Company shall not release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which the Company
is a party.
(b) If (i) (x) the Company or any of its affiliates, shareholders,
directors, officers, employees, representatives or agents shall breach the
provisions of Section 7.04(a) hereof or (y) this Agreement is terminated by the
Company or any of the Shareholders prior to May 12, 1996, and (ii) a Third Party
Acquisition (as hereinafter defined) shall occur within six (6) months after
the later to occur of such breach or such termination of this Agreement, then,
in such event, the Company and the Shareholders, jointly and severally, agree
that they shall pay to Parent, within ten days following consummation of such
Third Party Acquisition, a fee, in cash, equal to Three Million ($3,000,000)
Dollars, plus all reasonable out-of-pocket fees, costs and expenses of Parent
and Acquisition incurred in connection with this Agreement, the negotiation
hereof and the transactions contemplated hereby.
(c) "Third Party Acquisition" means the occurrence of any of the following
events: (i) the Company is acquired by merger or otherwise by any "person" (as
such term is defined in Section 13(d)(3) of the Exchange Act) other than
Acquisition or any affiliate thereof (a "Third Party"); (ii) a Third Party
acquires more than 20% of the total assets of the Company; (iii) a Third Party
acquires more than 20% of the outstanding shares of capital stock of the
Company; (iv) the Company adopts and implements a plan of liquidation or
extraordinary dividend relating to more than 20% of its total assets; or (v) the
Company repurchases more than 20% of the outstanding shares of Company Common
Stock.
SECTION 7.05 NON-COMPETITION AGREEMENTS. Simultane- ously with the
execution hereof, each Shareholder shall enter into and deliver to counsel to
the Company, with instructions to said counsel to deliver same immediately prior
to the Effective Time, a non-competition and confidentiality agreement,
effective as of the Effective Time, for the benefit of Parent and the Surviving
Corporation and with a term of four (4) years from the Effective Time,
substantially in the form of EXHIBIT B attached hereto (the "Non-Competition
Agreements").
-31-
<PAGE>
SECTION 7.06 CONTINUATION OF CERTAIN EMPLOYEES. (a) As of the Effective
Time, Parent shall cause Acquisition to continue the employment of all employees
of the Company listed on SCHEDULE 7.06(a) hereto (the "Company Employees") at
their rates of compensation in effect on March 31, 1996. For the purposes of
employee benefit plans of Parent, the time of service of such Company employees
shall include their time of service with the Company. After the Effective Time,
Parent shall evaluate the Company employees on the same basis as it evaluates
its own current employees for the purposes of determining whether or not to
grant any stock options to any of the Company Employees. Notwithstanding the
foregoing, nothing herein shall be construed or deemed to constitute any
employment contract by the Company or Acquisition or confer upon any of the
Company Employees any right to continue in the employ of Parent or the Surviving
Corporation or limit in any respect the right of Parent or the Surviving
Corporation to terminate such employment at any time.
(b) As of the Effective Time, Goetz, Jones and Henry each agree to be
employed on a full-time basis by Acquisition in consideration of compensation at
an annual rate, including additional bonus for achievement of targets
established by Parent and stock option grants, as set forth in SCHEDULE 7.06(b).
Each such stock option shall be granted as of the Effective Time pursuant to the
1989 Plan pursuant to a stock option agreement providing for the vesting of such
option 20% per year for a period of five years after the date of grant and
containing the same terms and conditions applicable to other employee-optionees
of Parent. Notwithstanding the foregoing, and except as expressly provided in
the Goetz Employment Agreement (hereinafter defined), nothing herein shall be
construed or deemed to constitute an employment contract by the Company or
Acquisition or confer upon any of Goetz, Jones or Henry any right to continue in
the employ of Parent or Acquisition or limit in any respect the right of Parent
or Acquisition to terminate their employment at any time pursuant to any
agreement or commitment by the Company or Acquisition to employ Goetz, Jones or
Henry for any particular period of time.
(c) Simultaneously with the execution hereof, Goetz and Parent shall
execute and deliver to counsel to the Company in the case of Goetz, and counsel
to Parent in the case of Parent, with instructions to said counsel to deliver
the same immediately prior to the Effective Time, a mutually agreeable written
employment agreement, which agreement shall be effective as of the Effective
Time (the "Goetz Employment Agreement").
SECTION 7.07 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Shareholders shall give prompt notice to Parent and Acquisition, and Parent and
Acquisition shall give prompt notice to the Company and the Shareholders, of (i)
the occurrence, or failure to occur, of any event that such party believes would
be likely to cause any of its representations or warranties contained in this
-32-
<PAGE>
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time and (ii) any material failure of the
Company, Parent or Acquisition, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER,
that failure to give such notice shall not constitute a waiver of any defense
that may be validly asserted.
SECTION 7.08 INDEMNIFICATION.
(a) Each Shareholder shall be jointly and severally liable to, and shall
jointly and severally indemnify, protect, defend and hold harmless Parent and
its successors and the Surviving Corporation and its successors, against any and
all claims, damages, liabilities and expenses (including reasonable attorneys'
fees) sustained by Parent or the Surviving Corporation, except to the extent
that such claims, damages, liabilities or expenses are in fact satisfied out of
insurance proceeds, resulting from or in connection with the breach of any
representation, warranty, covenant or other agreement made by the Company or
such Shareholder in or pursuant to this Agreement or any other agreement or
instrument executed and delivered by or on behalf of the Company and/or such
Shareholder pursuant hereto or in connection herewith and any and all damages
resulting from the Company's failure to be qualified to do business as a foreign
corporation in the State of New York and the State of California (such breaches
or failures being hereinafter referred to individually as an "Indemnifiable
Breach" and collectively as "Indemnifiable Breaches"); PROVIDED, HOWEVER, that
no Shareholder shall be required to pay Parent and/or the Surviving Corporation,
as the case may be, pursuant to this Section 7.08, an aggregate amount in excess
of the dollar value equivalent of Parent Common Stock as of the Effective Time
received by such Shareholder upon consummation of the Merger pursuant to the
terms hereof. The indemnification obligations of the Shareholders under this
Section 7.08(a) shall apply to claims, damages, liabilities and expenses
sustained by Parent and/or the Surviving Corporation in respect of each
Indemnifiable Breach or each group of related Indemnifiable Breaches if and when
the aggregate amount of such claims, damages, liabilities and expenses in
respect of such Indemnifiable Breach or group of related Indemnifiable Breaches
exceeds Five Thousand Dollars ($5,000), and in the event the aggregate amount of
the claims, damages, liabilities and expenses sustained by Parent and/or the
Surviving Corporation in respect of any such Indemnifiable Breach or group of
related Indemnifiable Breaches exceeds such amount, the indemnification
obligations of the Shareholders under this Section 7.08(a) shall apply to all
claims, damages, liabilities and expenses actually sustained by Parent and/or
the Surviving Corporation in respect of such Indemnifiable Breach or group of
related Indemnifiable Breaches. For purposes of this Section 7.08(a),
Indemnifiable Breaches shall be deemed to be a group of related Indemnifiable
Breaches if (i) they pertain to obligations of the Company or any Shareholder to
a single party or group of affiliated parties or obligations of a
-33-
<PAGE>
single party or group of affiliated parties to the Company or any Shareholder,
(ii) they pertain to the same or similar transactions, (iii) they involve the
same or similar legal or factual issues or (iv) they involve the failure of the
Company to be qualified as a foreign corporation in any jurisdiction or
jurisdictions.
(b) Parent and Acquisition shall be jointly and severally liable to, and
shall jointly and severally indemnify, protect, defend and hold harmless each
Shareholder and its respective successors against any and all claims, damages,
liabilities and expenses (including reasonable attorneys' fees) sustained by any
Shareholder, except to the extent that such claims, damages, liabilities or
expenses are in fact satisfied out of insurance proceeds, resulting from or in
connection with the breach of any representation, warranty, covenant or other
agreement made by Parent or Acquisition in or pursuant to this Agreement or any
other agreement or instrument executed and delivered by or on behalf of Parent
and/or Acquisition pursuant hereto or in connection herewith.
(c) The remedies set forth in this Section 7.08 are in addition to any to
which any party might otherwise be entitled under any other provision of this
Agreement or otherwise under law. In the event Parent and/or the Surviving
Corporation becomes entitled to any sums under the terms hereof, Parent and/or
the Surviving Corporation shall have the right but not the obligation to set off
such liabilities of the Shareholders against any existing or future liabilities
of Parent or the Surviving Corporation to the Shareholders or any of them
individually other than against amounts owed by the Company to any such
Shareholders as compensation for employment. The terms of this Section 7.08 are
intended to benefit the parties hereto and shall survive the consummation of the
Merger and the Effective Time until the publication of the first independent
audit report on the consolidated financial statements of Parent after the
Effective Time (the "Indemnification Termination Date"), PROVIDED, HOWEVER, that
any claims made on or prior to the Indemnification Termination Date shall
survive until final resolution thereof.
SECTION 7.09 CONFIDENTIALITY. Parent and Acquisition, on the one hand,
and the Company and each Shareholder, on the other, shall hold, and shall use
their respective best efforts to cause their respective officers, directors,
employees, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
other parties furnished to such party in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (i) previously known on a nonconfidential basis by such
party; (ii) in the public domain through no fault of such party; or (iii) later
lawfully acquired by such party from sources other than the other
-34-
<PAGE>
parties; PROVIDED THAT each party may disclose such information to its
affiliates and its affiliates' officers, directors, employees, consultants,
advisors and agents, lenders and other investors in connection with the
transactions contemplated by this Agreement so long as such persons are informed
by such party of the confidential nature of such information and are directed by
such party to treat such information confidentially. If the transactions
contemplated by this Agreement are abandoned, such confidentiality shall be
maintained and each party shall, and shall use its best efforts to cause its
respective officers, directors, employees, consultants, advisors and agents to,
destroy or deliver to the other party(s), upon request, all documents and other
materials, and all copies thereof, obtained by such party or on its behalf from
the other party(s) in connection with this Agreement that are subject to such
confidentiality. The terms of this Section 7.09 shall survive indefinitely.
SECTION 7.10 COVENANTS OF SHAREHOLDERS. (a) Each Shareholder hereby
agrees not to:
(i) sell, transfer, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding
with respect to the sale, transfer, pledge, encumbrance, assignment or
other disposition of, any shares of Company Common Stock owned by such
Shareholder, other than as provided herein;
(ii) grant any proxies or enter into a voting agreement or other
arrangement with respect to any shares of Company Common Stock owned by
such Shareholder; or
(iii) deposit any shares of Company Common Stock owned by such
Shareholder into a voting trust.
(b) Each Shareholder hereby agrees not to take any action that would make
any representation or warranty herein of such Shareholder or the Company untrue
or incorrect in any material respect or that would have the effect of preventing
or disabling such Shareholder from performing its obligations under this
Agreement.
(c) Each Shareholder hereby waives any and all dissenter's rights with
respect to Company Common Stock granted pursuant to Article 13 of the GBCC.
(d) Each Shareholder hereby agrees to surrender the Certificates owned by
such Shareholder in exchange for certificates representing shares of Parent
Common Stock and cash, if applicable, within one (1) business day after the
Effective Time.
(e) Simultaneously with the execution hereof, each Shareholder shall
execute and deliver to counsel to the Company,
-35-
<PAGE>
with instructions to said counsel to deliver same immediately prior to the
Effective Time, an Accredited Investor Certification in the form of EXHIBIT A
hereto which shall be deemed effective as of the Effective Time.
SECTION 7.11 TRANSFER RESTRICTIONS AFTER THE EFFECTIVE TIME. Each
Shareholder hereby agrees that, from and after the Effective Time:
(a) LOCK-UP. Such Shareholder shall not sell or otherwise reduce its
risk relative to any shares of Parent Common Stock received by it in the
Merger (within the meaning of Financial Reporting Policy, Section 201.01),
except as permitted by Staff Accounting Bulletin No. 76 issued by the SEC,
until 30 days after financial results have been published covering the
first fiscal quarter that includes results (including combined sales and
net income) for a period of at least 30 days of post-Merger operations.
(b) SECURITIES ACT COMPLIANCE. Such Shareholder shall not offer,
sell, or otherwise dispose of the shares of Parent Common Stock received by
such Shareholder in connection with the Merger other than (i) pursuant to
an effective registration statement under the Securities Act, or (ii)
otherwise pursuant to an exemption from the registration requirements of
the Securities Act.
SECTION 7.12 REGISTRATION RIGHTS AGREEMENTS. Simultaneously with the
execution hereof, Parent and each Shareholder shall execute and deliver to
counsel to Parent in the case of Parent, and counsel to the Company in the case
of each Shareholder, with instructions to said counsel to deliver the same
immediately prior to the Effective Time, a registration rights agreement in the
form of EXHIBIT C hereto, which agreement shall be effective as of the Effective
Time.
SECTION 7.13 CALIFORNIA QUALIFICATION. Prior to or simultaneously with
the execution hereof, the Company shall have qualified to do business as a
foreign corporation and shall be in good standing in the State of California,
which qualification and good standing shall remain in effect through the
Effective Time.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the condition that no
preliminary or
-36-
<PAGE>
permanent injunction or other order, decree or ruling issued by any court of
competent jurisdiction nor any statute, rule, regulation or order entered,
promulgated or enacted by any governmental, regulatory or administrative agency
or authority shall be in effect that would prevent the consummation of the
Merger as contemplated hereby.
SECTION 8.02 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Parent and Acquisition shall have performed and complied in all
material respects with all obligations and agreements required to be
performed and complied with by them under this Agreement at or prior to the
Effective Time;
(b) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such date,
except as otherwise contemplated or permitted by this Agreement;
(c) the Company shall have received a certificate from the Chief
Executive Officer of Parent, dated as of the Effective Time, to the effect
that the conditions set forth in paragraphs (a) and (b) above have been
satisfied;
(d) the Company shall have received the opinion of Shanley & Fisher,
P.C., counsel to Parent and Acquisition, substantially in the form of
EXHIBIT D attached hereto; and
(e) the Company shall have determined in its opinion that (i) the
Merger will constitute a reorganization for United States Federal income
tax purposes within the meaning of Section 368(a)(1)(A) of the Code, (ii)
Parent, Acquisition and the Company will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, (iii) no
gain or loss will be recognized by the Company pursuant to the Merger and
(iv) no gain or loss will be recognized by the Shareholders to the extent
their shares of the capital stock of the Company are converted into and
exchanged for solely Parent Common Stock (except to the extent that cash is
received in lieu of a fractional share interest or paid as the Advisor's
Fee (hereinafter defined)).
SECTION 8.03 CONDITIONS TO THE OBLIGATION OF PARENT AND ACQUISITION TO
EFFECT THE MERGER. The obligation of Parent and
-37-
<PAGE>
Acquisition to effect the Merger shall be subject to the fulfillment at or prior
to the Effective Time of the following additional conditions:
(a) the Company and each of the Shareholders shall have performed and
complied in all material respects with all obligations and agreements
required to be performed and complied with by it under this Agreement at or
prior to the Effective Time;
(b) the representations and warranties of the Company and of the
Shareholders contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time as if made at and as of
such date, except as otherwise contemplated or permitted by this Agreement;
(c) Parent shall have received a certificate from the President of
the Company, dated as of the Effective Time, to the effect that the
conditions set forth in paragraphs (a) and (b) above have been satisfied;
(d) Parent shall have determined in its opinion that the business
combination to be effected by the Merger is to be accounted for as a
pooling-of-interests by Parent for purposes of its consolidated financial
statements under GAAP and applicable SEC rules and regulations;
(e) Parent and Acquisition shall have received the opinion of Powell,
Goldstein, Frazer & Murphy, counsel to the Company, substantially in the
form of EXHIBIT E attached hereto; and
(f) Each Shareholder shall have obtained and shall have delivered to
Parent such spousal consent to the transactions contemplated by this
Agreement as shall be required by applicable law.
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.01 TERMINATION AND ABANDONMENT. This Agreement may be
terminated and the Merger may be abandoned prior to the Effective Time:
(a) by mutual action of the Boards of Directors of Parent and the
Company; or
(b) by either the Parent or the Company if the Effective Time shall
not have occurred on or before thirty (30) days after the signing of this
Agreement.
-38-
<PAGE>
SECTION 9.02 EFFECT OF TERMINATION. Except as provided in Section
7.04(b) with respect to payments following a Third Party Acquisition and except
as provided in Section 10.02 hereof with respect to expenses and certain
indemnities, in the event of the termination of this Agreement and the
abandonment of the Merger pursuant to Section 9.01, this Agreement shall
thereafter become void and have no effect, and no party hereto shall have any
liability to any other party hereto or its shareholders or directors or officers
in respect thereof, except that nothing herein shall relieve any party from
liability for any willful breach hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 SURVIVAL OF CERTAIN REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company and the Shareholders in this
Agreement and in any instrument delivered pursuant hereto shall survive the
Effective Time until the publication of the first independent audit report on
the consolidated financial statements of Parent after the Effective Time,
PROVIDED that this Section 10.01 shall not limit any other covenant or agreement
of the parties that by its terms contemplates performances beyond such period.
SECTION 10.02 ADVISOR'S FEE AND OTHER EXPENSES. (a) Except as otherwise
set forth below in subparagraphs (b) and (c), whether or not the transactions
contemplated by this Agreement are consummated, neither the Company and the
Shareholders, on the one hand, and Parent and Acquisition, on the other hand,
shall have any obligation to pay any of the fees and expenses of the other
incident to the negotiation, preparation and execution of this Agreement,
including, without limitations, the fees and expenses of counsel, accountants,
advisors, investment bankers and other experts, and Parent shall pay all such
fees and expenses incurred by Acquisition, except as otherwise provided in
Section 7.04(b) with respect to the obligations of the Company and the
Shareholders in the event of a Third Party Acquisition.
(b) Except for an advisor's fee in the aggregate amount of $585,000 (the
"Advisor's Fee"), which shall be accrued and paid as hereinafter set forth, no
person or entity is entitled to receive from the Company or Parent any
investment banking, brokerage or finder's fee or fees for financial consulting
or advisory services or other fees in connection with this Agreement or the
transactions contemplated hereby. The Advisor's Fee shall be accrued as a
Company expense and paid to Bock, Benjamin & Co. by Parent or the Surviving
Corporation if the Merger is consummated. The Company, on the one hand, and
Parent and Acquisition, on the other hand, shall indemnify the other and hold it
harmless from and against any claims for advisor's fees, finders' fees or
brokerage commissions, other than the Advisor's Fee, in relation to or in
connection with such transactions as a result of any agreement or understanding
between such indemnifying party and any third party.
-39-
<PAGE>
(c) The Company shall accrue the legal fees and other costs and expenses
of Powell, Goldstein, Frazer & Murphy with respect to the negotiation,
preparation and execution of this Agreement and other similar expenses, in the
amount of $105,000 ("Certain Corporate/Legal Expenses"), which Certain
Corporate/Legal Expenses shall be paid by the Surviving Corporation or Parent if
the Merger is consummated.
SECTION 10.03 REPAYMENT OF LOANS. Promptly following the Effective Time,
Parent or the Surviving Corporation shall repay all amounts outstanding under
the Related Party Loans and under the revolving credit loan and other loans
disclosed in a Schedule hereto with NationsBank, successor to Bank South (the
"NationsBank Loans"), and Parent or the Surviving Corporation shall cause the
credit agreement and any related loan documents executed in connection with the
NationsBank Loans, including, without limitation, that certain Guaranty dated
January 2, 1996 executed by Goetz, to be terminated as soon as practicable after
the Effective Time.
SECTION 10.04 PUBLICITY. The Company and the Shareholders and Parent
agree that they will not issue any press release or make any other public
announcement concerning this Agreement or the transactions contemplated hereby
without the prior consent of the other party, except that the Company or Parent
may make such public disclosure that it believes in good faith to be required by
law.
SECTION 10.05 EXECUTION IN COUNTERPARTS. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 10.06 NOTICES. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage prepaid, as follows:
If to Parent and/or Acquisition, to:
The BISYS Group, Inc.
Overlook at Great Notch
150 Clove Road
Little Falls, New Jersey 07424
Attention: Chairman and Chief Executive Officer
-40-
<PAGE>
with a copy to:
The BISYS Group, Inc.
Overlook at Great Notch
150 Clove Road
Little Falls, New Jersey 07424
Attention: General Counsel
If to the Company and/or the Shareholders, to:
Strategic Solutions Group, Inc.
3414 Peachtree Road, N.E.
238 Monarch Plaza
Atlanta, Georgia 30326
Attention: President
with a copy to:
Powell, Goldstein, Frazer & Murphy
191 Peachtree Street, N.W., 16th Floor
Atlanta, Georgia 30303
Attention: Steven G. Schaffer, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 10.07 WAIVERS. The Company, on the one hand, and Parent and
Acquisition, on the other hand, may, by written notice to the other, (i) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement; (ii) waive any inaccuracies in the representations
or warranties of the other contained in this Agreement or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any of the
conditions of the other contained in this Agreement; or (iv) waive performance
of any of the obligations of the other under this Agreement. Except as provided
in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 10.08 ENTIRE AGREEMENT. This Agreement, its Schedules and the
agreements and documents executed at the Effective Time in connection herewith
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral and written, among the parties hereto with respect to the subject matter
hereof. No representation, warranty,
-41-
<PAGE>
promise, inducement or statement of intention has been made by any party that is
not embodied in this Agreement or such other documents, and none of the parties
shall be bound by, or be liable for, any alleged representation, warranty,
promise, inducement or statement of intention not embodied herein or therein.
SECTION 10.09 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflict of laws.
SECTION 10.10 BINDING EFFECT, BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective permitted
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective permitted
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement; PROVIDED, HOWEVER, that the provisions of
Section 7.08 hereof shall accrue to the benefit of, and shall be enforceable by,
each of the current and former directors and officers of the Company.
SECTION 10.11 ASSIGNABILITY. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 10.12 AMENDMENTS. This Agreement may be modified, amended or
supplemented at any time by action of the respective Boards of Directors of the
Company, Parent and Acquisition, and the Shareholders. Without limiting the
generality of the foregoing, this Agreement may only be amended, varied or
supplemented by an instrument in writing, signed by the parties hereto.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
and Plan of Merger as of the day and year first above written.
THE BISYS GROUP, INC.
By:
-------------------------------
Lynn J. Mangum
Chairman and
Chief Executive Officer
[Signatures continued on next page]
-42-
<PAGE>
[Signatures continued from prior page]
BISYS ACQUISITION CORP.
By: /s/ Lynn J. Mangum
-------------------------------
Lynn J. Mangum
Chairman
STRATEGIC SOLUTIONS GROUP, INC.
By: /s/ Robert M. Jones
-------------------------------
Name: Robert M. Jones
Title: President
Number of
Shares of Company
Common Stock Owned: SHAREHOLDERS:
- -------------------
79 /s/ Charles F. Goetz
-----------------------------------
CHARLES F. GOETZ
78 /s/ Robert M. Jones
-----------------------------------
ROBERT M. JONES
14 /s/ Paul G. Henry
-----------------------------------
PAUL G. HENRY
3 /s/ Byron S. Kopman
-----------------------------------
BYRON S. KOPMAN
7.8 /s/ Larry Steele
-----------------------------------
LARRY STEELE
238828
-43-
<PAGE>
INDEX TO DEFINED TERMS
Section
Term Reference
- -------- ---------
"Accredited Investor Certification" 4.04(e)
"Acquisition" Recitals
"Advisor's Fee" 10.02(b)
"Affiliate" 3.20
"Balance Sheet" 3.08
"Business Day" 1.03
"Certain Corporate/Legal Expenses" 10.02(c)
"Certificate" 2.03(a)
"Code" Recitals
"Company" Recitals
"Company Common Stock" 2.01(a)
"Company Employees" 7.06(a)
"Constituent Corporations" Recitals
"Contract Parties" 3.10
"Delaware GCL" Recitals
"Effective Time" 1.03
"ERISA" 3.12(b)
"Exchange Act" 5.09
"Financial Statements" 3.08
"GAAP" 3.08
"GBCC" Recitals
"Goetz" Recitals
"Goetz Employment Agreement" 7.06(c)
"Henry" Recitals
"Indemnifiable Breach" 7.08(a)
"Indemnification Termination Date" 7.08(c)
"Intellectual Rights" 3.09
"Jones" Recitals
"Kopman" Recitals
"Major Suppliers" 3.11(a)
"Management Shareholders" Recitals
"Material Adverse Effect" 3.03
"Mentat" 3.11(b)
"Mentat Agreement" 3.11(b)
"Merger" Recitals
"NationsBank Loans" 10.03
"Non-Competition Agreements" 7.05
"Owned Source Codes" 3.29(c)
"Parent" Recitals
"Parent Common Stock" Recitals
"Public Information" 4.04(j)
"Related Party Loans" 3.30
"SEC" 4.04(b)
"Securities Act" 4.04(a)
"Shareholders" Recitals
"Software" 3.29(a)
"Software Contracts" 3.29(b)
"Shareholders" Recitals
"Surviving Corporation" Recitals
"Third Party" 7.04(c)
"Third Party Acquisition" 7.04(c)
"1989 Plan" 5.03
-v-
<PAGE>
[FORM OF]
REGISTRATION RIGHTS AGREEMENT
April 22, 1996
To the several persons named
on Schedule I hereto:
Dear Sirs:
This will confirm that, in consideration of the consummation of the
merger of Strategic Solutions Group, Inc. ("SSG") with and into BISYS
Acquisition Corp. ("Acquisition"), a wholly-owned subsidiary of The BISYS Group,
Inc. (the "Company"), pursuant to the Agreement and Plan of Merger dated April
22, 1996 among the Company, Acquisition, SSG and the shareholders of SSG named
therein, including you, in which an aggregate number of shares (the "Shares") of
Common Stock, $.02 par value, of the Company set forth on Schedule I hereto
opposite your name will be issuable to you upon conversion of shares of Class A
Common Stock, without par value, and/or Class B Common Stock, without par value,
of SSG held by you, the Company hereby covenants and agrees with each of you, as
follows:
I. CERTAIN DEFINITIONS. As used herein, the following terms shall
have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities
Act.
"COMMON STOCK" shall mean the Common Stock, $.02 par value, of
the Company, as constituted as of the date of this Agreement, subject
to adjustment pursuant to the provisions of Section 7 hereof.
"EFFECTIVE TIME" shall mean the Effective Time of the Merger, as
defined in the Merger Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"MERGER" shall mean the merger of SSG with and into Acquisition
pursuant to the Merger Agreement.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger
dated April 22, 1996 among the Company, Acquisition, SSG and each of
the shareholders of SSG named therein.
<PAGE>
"REGISTERABLE STOCK" shall mean any shares of Common Stock issued
to you in the Merger and not transferred in a public sale registered
under the Securities Act or in accordance with the provisions of Rule
144 under the Securities Act.
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 5 hereof.
"REGISTRATION PERIOD" shall mean the period commencing after the
termination of the restrictions imposed by Section 7.11 of the Merger
Agreement and ending on the second anniversary of the Effective Time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at
the time.
"SELLING EXPENSES" shall mean the expenses so described in
Section 5 hereof.
2. REQUIRED REGISTRATION.
(a) At any time during the Registration Period, any holder or
holders of the majority of the Registerable Stock may request the Company to
register under the Securities Act such Registerable Stock for public sale.
(b) Promptly following receipt of any notice under this Section
2, the Company shall notify any holders of Registerable Stock from whom notice
has not been received and shall use its best efforts to register under the
Securities Act for public sale the number of shares of Registerable Stock
specified in such notice (and in any notices received from other holders within
20 days after notice from the Company). The Company, at its sole option, may
elect to register such Registerable Stock for an underwritten public offering,
and, in such event, the Company shall designate the managing underwriter of such
offering. The Company shall not be obligated to effect registration of
Registerable Stock pursuant to this Section 2 on more than two occasions.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to take any action to effect any registration pursuant to this Section
2 hereof:
(i) within 180 days after the effective date of any
registration statement pertaining to an underwritten public offering
of securities of the Company for its own account;
-2-
<PAGE>
(ii) if the Company shall furnish to the holders of
Registerable Stock requesting such registration a certificate of the
Chief Executive Officer of the Company stating that in the good faith
determination of the Board of Directors of the Company it would be
significantly detrimental to the Company for a registration to be
effected as requested, in which case the Company may defer the filing
of a registration statement for a period of not more than 180 days
after receipt by the Company of the request for registration,
PROVIDED, HOWEVER, that the Company may not exercise its rights under
this clause (ii) more than once in any twelve-month period;
(iii) at any time that the Company has filed or is in good
faith planning to file within 90 days after receipt by the Company of
the request for registration a registration statement on Form S-4 or
any successor form pertaining to shares of Common Stock to be issued
in connection with any merger, consolidation, acquisition of assets
(outside of the ordinary course of business) or capital stock, or
other business combination involving the Company or any subsidiary of
the Company;
(iv) at any time that the Company has filed or is in good
faith planning to file a registration statement, the notice of which
would be required to be given to the holders of Registerable
Securities pursuant to Section 3; or
(v) at any time after the expiration of the Registration
Period.
3. INCIDENTAL REGISTRATION. If the Company at any time during the
Registration Period (other than pursuant to Section 2 hereof) proposes to
register any of its Common Stock under the Securities Act for sale to the
public, whether for its own account or for the account of other securityholders
or both (except with respect to registration statements on Forms S-4 or S-8 or
another form not available for-registering Registerable Stock for sale to the
public), it will give notice at such time to all holders of outstanding
Registerable Stock of its intention to do so. Upon the written request of any
such holder, given within 20 days after receipt of any such notice by the
Company, to register any of its Registerable Stock (which request shall state
the intended method of disposition thereof), the Company will use its best
efforts to cause the Registerable Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Registerable Stock so registered. In the event that
any
-3-
<PAGE>
registration pursuant to this Section 3 shall be an underwritten public offering
of Common Stock, the Registerable Stock to be included in such registration
shall be included on the same terms and conditions as the shares of Common Stock
otherwise being sold through underwriters under such registration.
Notwithstanding the foregoing, the number of shares of Registerable Stock to be
included in such an underwriting may be reduced (PRO RATA among the requesting
holders based upon the number of shares of Registerable Stock so requested to be
registered) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold therein by any other seller (including without limitation
the Company).
Notwithstanding anything to the contrary contained in this Section 3, in
the event that there is a firm commitment underwritten public offering of
securities of the Company pursuant to a registration covering Registerable
Stock, and a holder of Registerable Stock does not elect to sell his
Registerable Stock to the underwriters of the Company's securities in connection
with such offering, such holder shall refrain from selling such Registerable
Stock so registered pursuant to this Section 3 during the period of distribution
of the Company's securities by such underwriters and the period in which the
underwriting syndicate participates in the aftermarket.
4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Section 2 or Section 3 hereof to use its best efforts to
effect the registration of any of the Registerable Stock under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities (which shall be on Form S-3
if the Company is then eligible to use such form and otherwise on Form
S-1 or other form of general applicability acceptable to the Company),
and shall use its best efforts to cause such registration statement to
become and remain effective for the period of distribution set forth
hereinbelow;
(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 of distribution set forth
hereinbelow;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request in order
-4-
<PAGE>
to facilitate the public sale or other disposition of the Registerable
Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Registerable
Stock covered by such registration statement under the securities or
blue sky laws of a reasonable number of jurisdictions (provided that
the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required
to qualify but for this paragraph (d), (ii) subject itself to taxation
in any such jurisdiction or (iii) consent to general service of
process in any jurisdiction):
(e) promptly notify each seller of Registerable Stock and the
managing underwriters, if any, and (if requested by any such person)
confirm such advice in writing, (i) when such registration statement
or any amendment or supplement thereto or to the prospectus or
preliminary prospectus contained therein has been filed, (ii) of any
request by the Commission for amendments or supplements to such
registration statement or prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of such registration statement or the initiation of
proceedings for that purpose, or (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification
of the Registerable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for that purpose;
(f) immediately notify each seller under such registration
statement and each 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 a 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, and promptly thereafter prepare and file with the Commission
a supplement or amendment to such prospectus, such registration
statement or any document incorporated therein by reference, or make
such other filing, such that as thereafter delivered to the purchasers
of Registerable Stock, the prospectus will not contain an untrue
statement of material fact or omit to state any material fact
necessary to make the statements therein not misleading;
-5-
<PAGE>
(g) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement;
(h) in the case of an underwritten offering of Registerable
Stock, if requested by the managing underwriter or underwriters of
such offering or by any selling holder of Registerable Stock, promptly
incorporate in a prospectus supplement or post-effective amendment to
such registration statement such information as such managing
underwriter or underwriters shall agree should be included relating to
the plan of distribution of such Registerable Stock, including without
limitation information with respect to the number of shares of
Registerable Stock being sold to the underwriters, the purchase price
being paid therefor by the underwriters and other material terms of
such underwriting), and file with the Commission such supplement or
post-effective amendment as promptly as practicable after notification
of the information to be incorporated therein;
(i) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement and permit such seller, attorney, accountant or agent to
participate in the preparation of such registration statement.
For purposes of Section 4(a) and (b) above, the period of distribution of
Registerable Stock 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 the period of distribution of Registerable Stock
in any other registration shall be deemed to extend until the earlier to occur
of the sale of all Registerable Stock covered thereby or six months after the
effective date thereof.
In connection with each registration hereunder, the selling holders of
Registerable Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with federal and applicable
state securities laws.
-6-
<PAGE>
5. EXPENSES. All expenses incurred by the Company in complying with
Sections 2, 3 and 4 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes and fees of transfer agents and
registrars, but excluding any Selling Expenses (hereinafter defined), are herein
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registerable Stock are herein called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with the
registration statements filed pursuant to Section 2 or Section 3 hereof. All
Selling Expenses in connection with such registration statements, shall be borne
by the participating sellers in proportion to the number of shares sold by each,
or by such persons other than the Company (except to the extent the Company
shall be a seller) as they may agree.
6. INDEMNIFICATION. In the event of a registration of any of the
Registerable Stock under the Securities Act pursuant to Section 2 or Section 3
hereof, the Company will indemnify and hold harmless each seller of such
Registerable Stock thereunder, each partner, officer and director or each such
seller, each underwriter of Registerable Stock thereunder and each other person,
if any, who controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, partner, officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registerable Stock was registered under the Securities Act
pursuant to Section 2 or Section 3 hereof any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under any of the same in connection with the offering covered by such
registration statement, and the Company will reimburse each such seller,
partner, officer and director, each such underwriter and each such 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 Company 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
-7-
<PAGE>
alleged omission so made in reliance upon and in conformity with information
furnished by such seller or any of its partners, officers, directors, such
underwriter or such controlling person in writing specifically for use in such
registration statement or prospectus.
In the event of a registration of any of the Registerable Stock under
the Securities Act pursuant to Section 2 or Section 3 hereof, each seller of
such Registerable Stock thereunder, severally and not jointly, will indemnify
and hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Registerable Stock was registered under the Securities Act pursuant to Section 2
or Section 3 hereof, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, (ii) 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, or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under any of the same
in connection with the offering covered by such registration statement, and each
such seller will reimburse the Company 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 such seller 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 made in reliance upon
and in conformity with information furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus.
Notwithstanding the foregoing, (i) no seller shall be liable for payments of
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of such seller (which consent
shall not be unreasonably withheld), and (ii) in no event shall the liability of
any seller of Registerable Stock under this Section 6 in connection with any
registration exceed the proceeds received by such seller from the sale of shares
of Registerable Stock in such registration.
-8-
<PAGE>
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 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 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 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, 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 which 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, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses 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.
Notwithstanding the foregoing, any indemnified party shall have the
right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees and
disbursements of more than one separate firm qualified in such jurisdiction to
act as counsel for the indemnified party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
-9-
<PAGE>
If the indemnification provided for in the first two paragraphs of
this Section 6 is unavailable or insufficient to hold harmless an indemnified
party under such paragraphs in respect of any losses, claims, damages or
liabilities or actions in respect thereof referred to therein, 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
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the sellers of such Registerable Stock, 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 notice under the third
paragraph of this Section 6. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the underwriters and the sellers of such Registerable Stock, on the
other, and to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by PRO RATA allocation (even if all
of the sellers of such Registerable Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
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. Notwithstanding the provisions of this paragraph, the sellers
of such Registerable Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common Stock
sold by each of them was offered to the public exceeds the amount of any damages
which they would have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
The indemnification of underwriters provided for in this Section 6
shall be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters, and the indemnification of the sellers
of Registerable Stock in such underwriting shall, at the sellers' request, be
modified to conform to such terms and conditions.
-10-
<PAGE>
7. CHANGES IN COMMON STOCK. If, and as often as, there are any
changes in the Common Stock by way of stock split, stock dividend, combination
or reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
8. CURRENT PUBLIC INFORMATION. The Company agrees with you as
follows:
(a) The Company shall use its best efforts to make and keep
public information available, as those terms are understood and
defined in Rule 144 under the Securities Act, at all times from and
after the date hereof.
(b) The Company shall use its best efforts to file with the
Commission in a timely manner all reports and other documents as the
Commission may prescribe under Section 13(a) or 15(d) of the Exchange
Act.
(c) The Company shall furnish to such holder of Registerable
Stock forthwith upon request (i) a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any
time from and after the date it first becomes subject to such
reporting requirements, and of the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly
report of the Company, and (iii) such other reports and documents so
filed as a holder may reasonably request to avail itself of any rule
or regulation of the Commission allowing a holder of Registerable
Stock to sell any such securities without registration.
9. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become
effective at the Effective Time. If the Effective Time shall not occur, this
Agreement shall be of no force and effect.
10. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not, PROVIDED, HOWEVER, that except as provided in Section 10(b) hereof the
obligations of the Company hereunder shall inure only to the benefit of you and
a person who shall become a holder of Registerable Stock by will or the laws of
descent and distribution,
-11-
<PAGE>
and the term "Registerable Stock" as used herein shall be limited to
Registerable Stock held by you or any such person.
(b) Notwithstanding the provisions of Section 10(a) hereof, the
obligations of the Company hereunder, shall inure to the benefit of one, but not
more than one, trust established by each of the several persons named on
Schedule I hereto as grantor, provided that (i) the trust is established
pursuant to a written trust agreement, a certified copy of which is delivered to
the Company, (ii) the grantor of the trust is a trustee of the trust and (iii)
the life beneficiary or beneficiaries of the trust is the grantor of the trust
and/or members of such grantor's immediate family. The term "Registerable
Stock" as used herein, except in Section 3 hereof, shall include Registerable
Stock held by any such trust.
(c) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class registered
mail, postage prepaid, addressed as follows:
if to the Company, to it at Overlook at Great Notch, 150
Clove Road, Little Falls, New Jersey 07424, Attention: Chairman
and Chief Executive Officer;
if to any holder of Registerable Stock, at its address as
set forth in Annex I hereto;
if to any subsequent holder of Registerable Stock pursuant
to Section 10(b) hereof to it at such address as may have been
furnished to the Company in writing by such holder;
or, in any case, at such other address or addresses as shall have
been furnished in writing to the Company (in the case of a holder
of Registerable Stock or to such holders of Registerable Stock
(in the case of the Company).
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
(e) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and may not be modified or
amended except in writing signed by the holders of not less than a majority of
the Registerable Stock.
(f) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
-12-
<PAGE>
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this letter (herein
sometimes called "this Agreement") shall be a binding agreement between the
Company and you.
Very truly yours,
THE BISYS GROUP, INC.
By:/s/ Lynn J. Mangum
----------------------------
Name: Lynn J. Mangum
Title: Chairman and Chief
Executive Officer
AGREED TO AND ACCEPTED
as of the date first
above written.
/s/ Charles F. Goetz
- ------------------------------
Charles F. Goetz
/s/ Robert M. Jones
- ------------------------------
Robert M. Jones
/s/ Paul G. Henry
- ------------------------------
Paul G. Henry
/s/ Byron S. Kopman
- ------------------------------
Byron S. Kopman
/s/ Larry Steele
- ------------------------------
Larry Steele
-13-
<PAGE>
SCHEDULE I
Number of Shares
Name and Address of Common Stock
- ---------------- ----------------
Charles F. Goetz 226,223
4395 Dunmore Road
Marietta, Georgia 30068
Robert M. Jones 223,360
231 Tara Trail
Atlanta, Georgia 30327
Paul G. Henry 40,090
419 6th Street, N.E.
Atlanta, Georgia 36308
Byron S. Kopman 8,590
4502 Hampton Woods Drive
Marietta, Georgia 30068
Larry Steele 22,336
9335 Prestwick Club Drive
Duluth, Georgia 30136
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 28,
1996, among THE BISYS GROUP, INC., a Delaware corporation, with an address at
150 Clove Road, Little Falls, New Jersey 07424 ("Parent"), BITUG ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of Parent, with an
address at 150 Clove Road, Little Falls, New Jersey 07424 ("Acquisition"),
T.U.G., INC., a Pennsylvania corporation, with an address at 4251 Crums Mill
Road, Harrisburg, Pennsylvania 17112 (the "Company"), and the shareholders of
the Company, whose names and addresses are set forth on the signature pages
hereto (all of said persons, subject to the following sentence of this Preamble,
are referred to herein individually as a "Shareholder", and collectively as the
"Shareholders"). Notwithstanding anything in this Preamble to the contrary,
none of said persons shall be deemed a "Shareholder" for purposes of this
Agreement and the transactions contemplated hereby if such person has not, prior
to the Effective Time (hereinafter defined), (i) duly approved the Merger
(hereinafter defined) and (ii) duly executed and delivered this Agreement.
Messrs. Anthony A. Pascotti ("Pascotti"), J. Randall Grespin ("Grespin") and
Gary D. Weller ("Weller") are hereinafter sometimes referred to collectively as
the "Management Shareholders." The Company and Acquisition are hereinafter
sometimes referred to as the "Constituent Corporations" and the Company as the
"Surviving Corporation."
WHEREAS, the Company is a life insurance brokerage general agency;
WHEREAS, Parent, Acquisition and the Company desire that Acquisition
merge with and into the Company (the "Merger"), upon the terms and conditions
set forth herein and in accordance with the Business Corporation Law of the
Commonwealth of Pennsylvania (the "Pennsylvania BCL") and the General
Corporation Law of the State of Delaware (the "Delaware GCL"), with the result
that the Company shall continue as the Surviving Corporation and the separate
existence of Acquisition (except as it may be continued by operation of law)
shall cease;
WHEREAS, Parent, Acquisition and the Company desire that upon the
Merger, at the Effective Time (as hereinafter defined), the outstanding shares
of the capital stock of the Company be converted into the right to receive fully
paid and nonassessable shares of Common Stock, $.02 par value, of Parent
("Parent Common Stock"), and the outstanding shares of Acquisition be converted
into the right to receive fully paid and nonassessable shares of the Common
Stock, $.01 par value, of the Surviving Corporation, as hereinafter provided;
WHEREAS, Parent, Acquisition and the Company desire that, immediately
after the Effective Time, Parent will own all the issued and outstanding shares
of the capital stock of the Surviving Corporation;
<PAGE>
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling-of-interests"; and
WHEREAS, the respective Boards of Directors of the Company,
Acquisition and Parent have approved the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Subject to the terms and conditions of
this Agreement, at the Effective Time, in accordance with this Agreement, the
Pennsylvania BCL and the Delaware GCL, Acquisition shall be merged with and into
the Company, the separate existence of Acquisition (except as it may be
continued by operation of law) shall cease, and the Company shall continue as
the Surviving Corporation.
SECTION 1.02 EFFECT OF THE MERGER. Upon the effectiveness of the
Merger, the Surviving Corporation shall succeed to and assume all the rights and
obligations of the Company and Acquisition in accordance with the Pennsylvania
BCL and the Delaware GCL and the Merger shall otherwise have the effects set
forth in Chapter 19, Subchapter C, of the Pennsylvania BCL.
SECTION 1.03 CONSUMMATION OF THE MERGER. As soon as practicable
after the satisfaction or waiver of the conditions to the obligations of the
parties to effect the Merger set forth herein, provided that this Agreement has
not been terminated previously, the parties hereto will cause the Merger to be
consummated by filing (a) with the Department of State of the Commonwealth of
Pennsylvania a properly executed articles of merger in accordance with the
Pennsylvania BCL, and (b) with the Secretary of State of the State of Delaware a
properly executed certificate of merger in accordance with the Delaware GCL.
The Merger shall be effective upon filing of such certificates or on such later
date as may be specified therein, but in no event shall such certificates be
delivered for filing more than three (3) Business Days (hereinafter defined)
after satisfaction of all of the conditions set forth in Article VIII hereof
(the time of such effectiveness being the "Effective Time"). For purposes of
this Agreement, the term "Business Day" shall mean a day of the year on which
national
-2-
<PAGE>
banks are open for business and are not required or authorized to close.
SECTION 1.04 CHARTER; BY-LAWS; DIRECTORS AND OFFICERS. As of the
Effective Time, the Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation unless and until
thereafter amended or restated in accordance with the provisions thereof and as
provided by the Pennsylvania BCL. As of the Effective Time, the By-Laws of the
Company shall be the By-Laws of the Surviving Corporation, unless and until
thereafter amended in accordance with the provisions thereof and as provided by
the Pennsylvania BCL. The initial directors and officers of the Surviving
Corporation shall be the directors and officers set forth below, in each case
until their respective successors are duly elected and qualified.
Directors: Lynn J. Mangum
Robert J. McMullan
Officers: Lynn J. Mangum - Chairman
Anthony A. Pascotti - President
Robert J. McMullan - Executive Vice President
and Treasurer
J. Randall Grespin - Executive Vice President
Mark J. Rybarczyk - Senior Vice President
Gary D. Weller - Senior Vice President
Catherine T. Dwyer - Vice President and Secretary
Annamaria Porcaro - Assistant Secretary
SECTION 1.05 FURTHER ASSURANCES. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of such Constituent Corporation, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise to carry out
the purposes of this Agreement.
-3-
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 CONVERSION OF SECURITIES OF THE COMPANY.
(a) By virtue of the Merger and without any action on the part of the
holders of the common stock, par value $.01, of the Company ("Company Common
Stock"), at the Effective Time all outstanding shares of the Company Common
Stock (subject to Section 2.03(c) hereof) shall be converted into the right to
receive an aggregate of 491,314 shares of Parent Common Stock, constituting the
number of shares of Parent Common Stock determined by dividing the sum of
$16,000,000 by $32.566, which is the average of the daily last sale prices of a
share of Parent Common Stock, as reported on the Nasdaq National Market, for the
period March 22, 1996 to April 22, 1996, and each outstanding share of Company
Common Stock shall be converted into the right to receive .2077 shares of Parent
Common Stock, except as otherwise hereinafter set forth with regard to the
payment of cash in lieu of fractional shares.
(b) If, prior to the Effective Time, Parent should split or combine
the outstanding shares of Parent Common Stock, or pay a stock dividend or other
stock distribution in Parent Common Stock, then the determination of the
exchange value shall be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
(c) Each share of capital stock that is held in the treasury of the
Company shall be cancelled and retired and no capital stock of Parent, cash or
other consideration shall be paid or delivered in exchange therefor.
SECTION 2.02 ACQUISITION COMMON STOCK. At the Effective Time, each
share of Common Stock, $.01 par value, of Acquisition issued and outstanding
immediately prior to the Effective Time shall be converted into a right to
receive One (1) share of the common stock of the Surviving Corporation, which
shall constitute all of the issued and outstanding shares of the Surviving
Corporation after the Effective Time.
SECTION 2.03 EXCHANGE OF CERTIFICATES. (a) At the Effective Time,
each Shareholder shall deliver to Parent the certificate or certificates
representing its shares of Company Common Stock (each, a "Certificate") in form
sufficient for transfer and cancellation pursuant hereto. Upon surrender of a
Certificate for cancellation to Parent in form sufficient for transfer and
cancellation pursuant hereto and delivery to Parent of such other documents as
may reasonably be required by Parent to effect the transfer, each Shareholder
surrendering such Certificate shall be entitled to receive in exchange therefor
(i) a certificate evidencing that number of whole shares of Parent Common Stock
which such holder has the right to receive in respect of the shares of
-4-
<PAGE>
Company Common Stock formerly evidenced by such Certificate (after taking into
account all shares of Company Common Stock then held of record by such holder)
and (ii) a check representing the amount of cash in lieu of fractional shares of
Parent Common Stock, if any, and unpaid dividends or other distributions, if
any, to which such holder is entitled pursuant to the provisions of this Section
2.03, after giving effect to any applicable withholding tax, and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or
accrued on the cash in lieu of fractional shares and unpaid dividends and
distributions, if any, payable to the Shareholders.
(b) No dividends or other distributions declared after the Effective
Time with respect to Parent Common Stock shall be paid with respect to any
shares of Company Common Stock represented by a Certificate until such
Certificate is surrendered for exchange as provided herein. After surrender of
any such Certificate, there shall be paid to the holder of the certificate
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore
declared with respect to such whole shares of Parent Common Stock and not paid,
less the amount of any applicable withholding taxes thereon, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to the date of such surrender and
with a payment date subsequent to the date of such surrender payable with
respect to such whole shares of Parent Common Stock, less the amount of any
applicable withholding taxes thereon.
(c) No certificates or scrip representing fractional shares of Parent
Common Stock shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner thereof to vote
or to any rights of a shareholder of Parent. Each holder of shares of Company
Common Stock who would otherwise have been entitled to receive in the Merger a
fraction of a share of Parent Common Stock (after taking into account all
certificates surrendered by such holder) shall be entitled to receive, in lieu
thereof, a check in an amount (without interest) equal to such fractional part
of a share of Parent Common Stock multiplied by $32.566.
(d) From and after the date of this Agreement, the stock transfer
books of the Company shall be closed, and there shall be no further
registrations of transfers of shares of Company Common Stock on the records of
the Company.
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, Parent shall issue in exchange
for such Certificate the shares of Parent Common Stock and cash in lieu of
fractional shares
-5-
<PAGE>
and unpaid dividends and distributions, if any, on shares of Parent Common Stock
deliverable in respect thereof as provided herein.
(f) Promptly after the Effective Time, the Surviving Corporation
shall issue to Parent a certificate representing One Hundred (100) shares of the
common stock of the Surviving Corporation, and Parent shall cause the
certificate representing its shares of the capital stock of Acquisition to be
cancelled.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE MANAGEMENT SHAREHOLDERS
Each of the Company and each of the Management Shareholders, jointly
and severally, hereby represents and warrants to Parent and Acquisition, knowing
and intending that each of Parent and Acquisition is relying hereon in entering
into the transactions contemplated hereby, as follows:
SECTION 3.01 AUTHORITY RELATIVE TO AGREEMENT. The Company has all
requisite power and authority to enter into and to perform its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by the Board of Directors and shareholders of the Company, and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the transactions contemplated hereby.
SECTION 3.02 SHAREHOLDERS' STOCK. The shares of Company Common
Stock identified on the signature page(s) hereof opposite the respective names
of the holders thereof have been duly and validly issued to the respective
holders. The shares of Company Common Stock owned by them represent,
collectively, all of the issued and outstanding shares of capital stock (or
other equity interests) in the Company.
SECTION 3.03 ORGANIZATION, STANDING AND QUALIFICATION. Each of the
Company and each corporation, partnership, limited liability company, joint
venture or other entity in which the Company has an equity interest of twenty
percent (20%) or more or an interest in the income, profits and losses of twenty
percent (20%) or more (individually, a "Subsidiary" and, collectively, the
"Subsidiaries"), each of which is listed in SCHEDULE 3.03 hereto, is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has the power and
authority to own and hold its properties and conduct its business as now owned,
held and conducted in its state of incorporation or organization and the states
(or other jurisdictions) in which it has qualified to do business. The Company
and each Subsidiary is qualified to do business and is in good standing in all
states (or other jurisdictions) in which such qualification is required by
reason of the nature or extent of
-6-
<PAGE>
business conducted by the Company or such Subsidiary therein, except where the
failure to be so qualified would not have a Material Adverse Effect (hereinafter
defined) on the assets, financial condition, operating results or business of
the Company or such Subsidiary. Such states (and jurisdictions) in which the
Company or any Subsidiary is qualified to do business are specified in SCHEDULE
3.03 attached hereto. As used in this Agreement, a "Material Adverse Effect"
shall mean, with respect to any party, a material adverse effect on the assets,
financial condition, operating results or business of such party and its
subsidiaries, taken as a whole.
SECTION 3.04 STOCK OF THE COMPANY. (a) The authorized capital
stock of the Company consists in its entirety of Ten Million (10,000,000) shares
of Company Common Stock, of which Two Million Three Hundred Sixty Five Thousand
Five Hundred and Thirty-Four (2,365,534) shares of Company Common Stock are
validly issued and outstanding, fully paid and nonassessable. The Company does
not have any outstanding obligations, options or rights entitling others to
acquire shares of capital stock of the Company, or any outstanding securities,
options or other instruments convertible into shares of capital stock of the
Company.
(b) Except with respect to the shares of Company Common Stock
identified on the signature page(s) hereof, none of the Shareholders or any
other person or entity has any outstanding claim against the Company or any
right whatsoever against the Company with respect to any shares of capital stock
of the Company, including, without limitation, any option, warrant or other
right to acquire from the Company shares of the capital stock of the Company or
any securities, options or other instruments convertible into or exchangeable
for shares of capital stock of the Company.
SECTION 3.05 SUBSIDIARIES AND OTHER INVESTMENTS. The Subsidiaries
are listed in SCHEDULE 3.03 hereto. Except as listed in SCHEDULE 3.03, there is
no corporation, partnership, limited liability company, joint venture or other
entity in which the Company or any Subsidiary has, directly or indirectly, made
any investment or to which the Company or any Subsidiary has made an advance of
cash. Neither the Company nor any Subsidiary is under any obligation to acquire
any securities, including, without limitation, Company Common Stock, from any
person or entity, and neither the Company nor any Subsidiary is under any
obligation to make any investment or to advance any cash to any person or
entity. All of the capital stock or other equity interests of each Subsidiary
has been duly and validly issued to the parties indicated in SCHEDULE 3.03 and
is fully paid and nonassessable. The Company owns, directly or indirectly
through a wholly-owned Subsidiary, 100% of the issued and outstanding shares of
the capital stock of each Subsidiary which is a corporation. There is shown in
SCHEDULE 3.03 the number of issued and outstanding shares of capital stock or
other outstanding equity interests of each Subsidiary and the beneficial owner
thereof, and there are no outstanding obligations, options or rights entitling
others to
-7-
<PAGE>
acquire shares of the capital stock or other equity interests of any Subsidiary,
or outstanding securities, options or other instruments convertible into or
exchangeable for shares of the capital stock or other equity interests of any
Subsidiary.
SECTION 3.06 CERTIFICATE OF INCORPORATION AND BY-LAWS. True and
complete copies of the Company's Certificate of Incorporation and By-Laws
(together with any amendments thereto) are attached hereto as SCHEDULE 3.06.
The Company has provided to Parent true and complete copies of the Certificate
of Incorporation and By-Laws of the Company and the Certificate of Incorporation
and By-Laws or other organizational agreements and documents of each Subsidiary,
together with all amendments thereto.
SECTION 3.07 EXECUTION AND PERFORMANCE OF AGREEMENT; VALIDITY AND
BINDING NATURE. (a) The execution and delivery of this Agreement, and the
performance by the Company of the terms of this Agreement and the transactions
contemplated hereby, will not result in a breach of any of the terms of, or
constitute a violation of or default under, the Certificate of Incorporation or
By-Laws of the Company or the Certificate of Incorporation or By-Laws or other
organizational agreements or documents of any Subsidiary or any statute or
contract, indenture or other instrument by which the Company or any Subsidiary
or any of their respective properties is bound. This Agreement has been duly
executed and delivered by the Company. This Agreement is, and the documents and
agreements executed and delivered by the Company pursuant to the terms hereof,
when duly executed and delivered by all parties whose execution and delivery
thereof is required, will be legal, valid, and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except to the extent that enforceability may be limited by bankruptcy,
receivership, moratorium, conservatorship, reorganization or other laws of
general application affecting the rights of creditors generally or by general
principles of equity.
(b) The execution and delivery of this Agreement, and the performance
by each of the Management Shareholders of the terms of this Agreement and the
transactions contemplated hereby, will not result in a breach of any of the
terms of, or constitute a violation or default under, any statute or contract,
indenture or other instrument by which any Management Shareholder or any of
their respective properties are bound. This Agreement has been duly executed
and delivered by each of the Management Shareholders and, together with the
other documents and agreements to be executed by all parties whose execution and
delivery thereof is required, constitute the legal, valid and binding
obligations of each of the Management Shareholders, enforceable against the
Management Shareholders in accordance with their respective terms, except to the
extent that enforceability may be limited by bankruptcy, receivership,
moratorium, conservatorship,
-8-
<PAGE>
reorganization or other laws of general application affecting the rights of
creditors generally or by general principles of equity.
SECTION 3.08 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent (i) the unaudited
consolidated balance sheet of the Company and its consolidated subsidiaries as
of March 31, 1996 and the related unaudited consolidated statements of income,
stockholders' equity and cash flows for the period then ended, and notes
thereto, (ii) the unaudited consolidated balance sheets of the Company and its
consolidated subsidiaries as of December 31, 1995 and the related unaudited
consolidated statements of income, stockholders' equity and cash flows and the
accompanying schedule of other operating expenses for the fiscal years then
ended, and notes thereto, and (iii) the consolidated balance sheets of the
Company and its consolidated subsidiaries as of December 31, 1994, 1993 and 1992
and the related consolidated statements of income, stockholders' equity and cash
flows and the accompanying schedule of other operating expenses for the years
then ended, each compiled by Brown, Schultz, Snyder & Plesic, certified public
accountants, and notes thereto, (hereinafter referred to collectively as the
"Financial Statements"). Each of the Financial Statements (i) is true and
correct and has been prepared from the books and records of the Company and its
consolidated subsidiaries, (ii) has been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis with prior
periods covered thereby and (iii) presents fairly the consolidated financial
position of the Company and its consolidated subsidiaries as of the respective
dates and the consolidated results of the operations and cash flow of the
Company and its consolidated subsidiaries for such respective periods in all
respects, subject, in the case of interim financial statements, to normal
recurring year-end adjustments and the absence of notes. All prepaid expenses
included therein as assets represent payments theretofore made by the Company or
a consolidated subsidiary included therein, the benefit and advantage of which
may be obtained and enjoyed by the Surviving Corporation. The books and records
of the Company and its consolidated subsidiaries have been kept, and will be
kept to the Effective Time, in reasonable detail and in accordance with the same
accounting principles heretofore consistently applied and will fairly and
accurately reflect to the Effective Time all of the transactions of the Company
and its consolidated subsidiaries, and are and will be complete and correct in
all material respects. The unaudited consolidated balance sheet of the Company
as at March 31, 1996 is hereinafter sometimes referred to as the "Balance
Sheet".
(b) The Company has delivered to Parent the unaudited balance sheets
of each Subsidiary which is not a consolidated subsidiary of the Company as of
December 31, 1995 and May 31, 1996 and the related unaudited statements of
income (other than for A/A Realty Associates) for the periods then ended
(hereinafter referred to collectively as the "Subsidiary Financial Statements").
Each of the Subsidiary Financial Statements (i) is a true and correct and
-9-
<PAGE>
has been prepared from the books and records of the applicable Subsidiary, (ii)
has been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis with prior periods covered thereby and
(iii) presents fairly the financial position of the applicable Subsidiary as of
the respective dates and the results of the operations and cash flow of the
applicable Subsidiary for such respective periods in all respects, subject, in
the case of interim financial statements, to normal recurring year-end
adjustments and subject to the absence of notes. All prepaid expenses included
therein as assets represent payments theretofore made by the applicable
Subsidiary, the benefit and advantage of which may be obtained and enjoyed by
such Subsidiary after the Effective Time. The books and records of each such
Subsidiary have been kept, and will be kept to the Effective Time, in reasonable
detail and in accordance with the same accounting principles heretofore
consistently applied and will fairly and accurately reflect to the Effective
Time all of the transactions of each such Subsidiary, and are and will be
complete and correct in all material respects. The unaudited balance sheet of
each such Subsidiary as at May 31, 1996 is hereinafter sometimes referred to as
a "Subsidiary Balance Sheet."
SECTION 3.09 INTELLECTUAL RIGHTS. SCHEDULE 3.09 attached hereto
contains a complete and correct list and accurate description of all trademarks,
trade names, service marks, logos and other identifying symbols, names or marks,
copyrights, inventions, processes, designs, formulas, trade secrets, patents,
patent applications and other intellectual and/or proprietary rights or
interests (collectively, "Intellectual Rights") (a) owned by the Company or any
Subsidiary, all of which are owned by the Company or such Subsidiary, free and
clear of all licenses, liens, charges or encumbrances, except as specified in
such Schedule, or (b) licensed to the Company or any Subsidiary under valid and
enforceable agreements, exclusive of the Software (hereinafter defined)
identified in SCHEDULE 3.29(a) hereof. The Company or a Subsidiary owns, or
possesses adequate rights to use, all Intellectual Rights necessary for the
conduct of the business of the Company or any Subsidiary, and the protection of
patents is not material to the conduct of the business of the Company and each
Subsidiary. The Company and the Management Shareholders are not aware of any
infringements by any third parties upon any Intellectual Rights or any conflict
with or infringement of asserted rights of others with respect to same.
SECTION 3.10 CONTRACTS AND CONTRACT PARTIES. SCHEDULE 3.10 contains
a complete list of (a) each contract, selling agreement, service agreement or
other arrangement, whether written or oral, to which the Company or any
Subsidiary is a party, and under which the Company or any Subsidiary provides
insurance brokerage, distribution, or general agency services to independent
insurance agents, so-called premier groups of insurance agencies or other
persons or entities, (b) each joint venture, co-marketing, co-brokerage or
similar contract or arrangement, whether written or oral, to which the Company
or any Subsidiary is a party, (c) each
-10-
<PAGE>
contract or arrangement, whether written or oral, with an insurance company,
general insurance agency, distributor or broker to which the Company or any
Subsidiary is a party, and under which the Company is authorized or obligated to
sell or broker insurance or related products or services, (d) each contract or
arrangement, whether written or oral, under which the Company or any Subsidiary
receives commissions or other income in connection with the conduct of its
business, (e) each lease or capital lease of equipment or other personal
property, whether written or oral, to which the Company or any Subsidiary is a
party and (f) each consulting or similar agreement, whether written or oral, to
which the Company or any Subsidiary is a party, all of the foregoing including
the names and addresses of each party thereto other than the Company or a
Subsidiary (collectively, the "Contract Parties"). True and complete copies of
those contracts or arrangements which are in writing have been heretofore made
available to Parent, and complete descriptions of those contracts or
arrangements which are oral have been heretofore made available to Parent.
Except as described in SCHEDULE 3.10, none of the contracts or arrangements
listed in SCHEDULE 3.10 require the Company or any Subsidiary to purchase any
product or service exclusively from a Contract Party, require the Company or any
Subsidiary to deal exclusively with a Contract Party with respect to any
customer or class of customers of the Company or any Subsidiary, or otherwise
limit the Company or any Subsidiary from selling or purchasing any product or
service to or from any person or entity. No Contract Party listed in SCHEDULE
3.10 has expressed to the Company or any Subsidiary or any Management
Shareholder its intention to cancel or otherwise terminate its relationship with
the Company, and, to the best knowledge of the Company and each Management
Shareholder, all of such contracts and arrangements will continue in full force
and effect after the Effective Time and a continuing relationship with each such
Contract Party is not in jeopardy.
SECTION 3.11 MAJOR SUPPLIERS. SCHEDULE 3.11 contains the names and
business addresses of all of the suppliers from whom the Company or any
Subsidiary purchased, during the twelve (12) month period ending March 31, 1996,
goods and/or services, the aggregate cost of which exceeded Five Thousand
Dollars ($5,000) or which suppliers or consultants are in any event material to
the continued operation of the business of the Company or any Subsidiary in the
ordinary course (collectively, the "Major Suppliers"). Except as disclosed in
SCHEDULE 3.11, neither the Company nor any Subsidiary has other suppliers or
consultants which are material to the business of the Company or any Subsidiary
as presently conducted. No Major Supplier listed in SCHEDULE 3.11 has expressed
to the Company or any Subsidiary or any Management Shareholder its intention to
cancel or otherwise terminate its relationship with the Company, and, to the
best knowledge of the Company and each Management Shareholder, a continuing
relationship with each such supplier is not in jeopardy.
-11-
<PAGE>
SECTION 3.12 EMPLOYMENT, DEFERRED COMPENSATION OR SIMILAR
AGREEMENTS; COLLECTIVE BARGAINING AGREEMENTS; EMPLOYEE BENEFIT PLANS.
(a) Except as disclosed in SCHEDULE 3.12(a), neither the Company nor
any Subsidiary is a party to any agreement or employment contract or deferred
compensation or similar employment or incentive compensation arrangement with
any of its respective employees or former employees. There are no collective
bargaining agreements or any agreements with any labor union covering any
employees of the Company or any Subsidiary. The business of the Company is not
affected by any present strike or other labor disturbance involving the
employees of the Company or any Subsidiary nor, to the best knowledge of the
Company or any Shareholder, is any union attempting to represent, as collective
bargaining agent, any person employed by the Company or any Subsidiary.
(b) Except as disclosed in SCHEDULE 3.12(b), neither the Company nor
any Subsidiary sponsors or maintains or is otherwise a party to or liable under
any plan, program, fund or arrangement (whether or not qualified for Federal
income tax purposes), whether benefiting a single individual or multiple
individuals, and whether funded or not, that is an "employee pension benefit
plan," or an "employee welfare benefit plan," as such terms are defined in the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any
other benefit arrangement for its employees, their dependents and beneficiaries.
(c) Neither the Company nor any Subsidiary has contributed nor does
it contribute to any multi-employer plan (as defined in Section 3(37) of ERISA),
incurred any liability under Section 4201 of ERISA for any complete or partial
withdrawal from any multi-employer plan or assumed any such liability by any
prior owner of any of its assets or properties.
(d) Each employee pension benefit plan maintained by the Company or
any Subsidiary and listed in SCHEDULE 3.12(b) complies in all material respects
with the requirements of ERISA. No "reportable event" within the meaning of
Section 403 of ERISA has occurred with respect to any such plan and neither the
Company nor any Subsidiary engaged in any "prohibited transaction" within the
meaning of Section 406(a) or (b) of ERISA or of Section 4975(c) of the Code,
with respect to any such plan; and no such plan has been terminated in
accordance with the procedures set forth in Section 4041 or 4042 of ERISA.
(e) No liability has been incurred by the Company or any Subsidiary
for any tax imposed by Section 4975 of the Code with respect to any plan
described in SCHEDULE 3.12(b). The Company or a Subsidiary, as applicable, has,
and shall have, for all periods ending on or prior to the Effective Time,
administered each employee pension benefit plan and each employee welfare
benefit
-12-
<PAGE>
plan described in SCHEDULE 3.12(b) in all material respects in compliance with
the reporting, disclosure and all other requirements applicable thereto under
ERISA, the Code or any other applicable law.
SECTION 3.13 INVENTORY. Except as disclosed in SCHEDULE 3.13,
neither the Company nor any Subsidiary owns any inventory, and the ownership and
maintenance of inventory is not significant to the conduct of the business of
the Company or any Subsidiary.
SECTION 3.14 REAL ESTATE.
(a) SCHEDULE 3.14(a) contains a true and correct list of all real
estate owned by the Company or any Subsidiary and all real estate in which the
Company or any Subsidiary has an ownership interest, directly or indirectly.
All such real estate is owned in fee simple free and clear of all liens and
encumbrances except (i) those described in SCHEDULE 3.14(a); and (ii) liens of
current taxes not yet due and payable. Neither the Company nor any Subsidiary
is party to any agreement involving the purchase or sale of real or personal
property except as disclosed in this Agreement.
(b) SCHEDULE 3.14 (b) contains a true and correct list and
description of all leases, subleases or other agreements under which the Company
or any Subsidiary is lessee or subtenant or lessor or sublessor of real estate.
The Company has provided to Parent true and complete copies of all such leases,
subleases and agreements, all of which leases, subleases and agreements are
valid, binding and enforceable. The Company has no oral leases of real estate.
(c) All owned real property or leased real property (and improvements
thereon) described in SCHEDULE 3.14(a) or SCHEDULE 3.14(b) is in good operating
condition and repair and conforms in all material respects with all applicable
building, zoning, planning and other regulations, ordinances or laws, and the
Company and each Subsidiary has the right to use all real estate necessary to
the conduct of its business as currently conducted.
SECTION 3.15 TITLE TO AND CONDITION OF PERSONAL PROPERTY. The
Company or a Subsidiary has merchantable title to all personal property
reflected in the Balance Sheet or acquired subsequent to the date of the Balance
Sheet, free and clear of all liens or encumbrances, except as specifically
disclosed in SCHEDULE 3.15 hereto. All of the personal property owned by the
Company or any Subsidiary is in good operating condition and repair. The
Company and each Subsidiary owns or has the right to use all such properties
necessary to the conduct of their respective businesses as currently conducted.
-13-
<PAGE>
SECTION 3.16 ACCOUNTS AND NOTES RECEIVABLE. Except as disclosed in
SCHEDULE 3.16, the accounts and notes receivable of the Company and each
Subsidiary reflected in the Balance Sheet or a Subsidiary Balance Sheet, as
applicable, or acquired by the Company or a Subsidiary subsequent to the date of
the Balance Sheet or Subsidiary Balance Sheet, as applicable, (a) are true, bona
fide accounts or notes receivable of the Company or such Subsidiary created in
the ordinary course of business; (b) have been collected or are fully
collectible in amounts not less than the aggregate amount thereof, net of
reserves established therefor, on the books of the Company or a Subsidiary and
reflected in the Balance Sheet or Subsidiary Balance Sheet, as applicable; (c)
are not subject to any offsets, credits or counterclaims; and (d) have not at
any time been placed for collection with any attorney, collection agency or
similar individual or firm.
SECTION 3.17 MARKETABLE SECURITIES AND OTHER INVESTMENTS. SCHEDULE
3.17 lists all of the marketable securities and other investments shown on the
Balance Sheet or any Subsidiary Balance Sheet, as applicable (the "Company
Investments"), all of which are owned by the Company or a Subsidiary free and
clear of any liens, encumbrances or claims, except as shown in SCHEDULE 3.17.
The value of each of the Company Investments shown on the Balance Sheet or
Subsidiary Balance Sheet, as applicable, reflect the fair market value thereof
on the date of the Balance Sheet or a Subsidiary Balance Sheet, as applicable,
and the Financial Statements and Subsidiary Financial Statements are in
conformity with the requirements of Financial Accounting Standards Board
Statement No. 115. All of the Company Investments are readily marketable except
as described in SCHEDULE 3.17, and, since the date of the Balance Sheet or a
Subsidiary Balance Sheet, as applicable, there has been no material decline in
the aggregate market value of the Company Investments.
SECTION 3.18 TAXES. Each of the Company and each Subsidiary has
properly completed and filed all federal, state, county, municipal and other tax
returns, reports and declarations which are required to be filed by it and has
paid or accrued on its financial statements all taxes, penalties and interest
which have become (or may hereafter become) due pursuant thereto or which became
(or may hereafter become) due pursuant to asserted deficiencies or assessments.
Except as set forth in SCHEDULE 3.18 hereto, neither the Company nor any
Subsidiary has received any notice of deficiency or assessment of additional
taxes, all such deficiencies or assessments set forth in SCHEDULE 3.18 are being
contested in good faith and through appropriate proceedings, and no tax audits
are in process. The last year for which the federal or state income taxes or
other taxes of the Company and/or any Subsidiary have been examined is set forth
accurately and completely on SCHEDULE 3.18 hereto. Neither the Company nor any
Subsidiary has granted any waiver of any statute of limitation with respect to,
or any extension of a period for the assessment of, any
-14-
<PAGE>
federal, state, county, municipal or other tax. Except as disclosed in SCHEDULE
3.18, the accruals and reserves for taxes reflected in the Balance Sheet are
adequate to cover all taxes (including interest and penalties, if any, thereon)
due and payable or accrued in accordance with generally accepted accounting
principles as a result of the operations of the Company and Subsidiaries for all
periods prior to the date of the Balance Sheet. Neither the Company nor any
Subsidiary has filed an election under Section 1362(a) of the Code to be taxed
as an S Corporation.
SECTION 3.19 LITIGATION. Except as disclosed in SCHEDULE 3.19,
there is no litigation, investigation or proceeding pending or, to the best
knowledge of the Company and the Shareholders, threatened, involving the
Company, any Subsidiary or any of their respective properties. There are no
outstanding orders, writs, injunctions or decrees of any court, governmental
agency or arbitration tribunal materially affecting or materially limiting the
conduct of the business of the Company or any Subsidiary.
SECTION 3.20 OTHER MATERIAL CONTRACTS AND COMMITMENTS. SCHEDULE
3.20 lists all contracts or commitments to which the Company or any Subsidiary
is a party, which contracts are material to the business of the Company or any
Subsidiary and are not disclosed in another Schedule hereto. Except as
disclosed in SCHEDULE 3.20 or another Schedule hereto, neither the Company nor
any Subsidiary is a party to and none of their respective properties are bound
by any of the following types of contracts or commitments, written or oral: (a)
mortgages, indentures, security agreements and other agreements and instruments
relating to the borrowing of money or extension of credit or imposition of an
encumbrance on any of the assets of the Company or a Subsidiary; (b) other
contracts and commitments which in any case involve payments or receipts of more
than $15,000; (c) any contract with any officer, director or with any employee
of the Company or any Subsidiary (other than agreements relating to current wage
or salary payments terminable by the Company or a Subsidiary on notice of thirty
(30) days or less); (d) any contract or promissory note or other instrument with
any Affiliate (as hereinafter defined) of the Company or any Subsidiary; (e) any
guarantee of the obligations of any person or entity or obligation to provide
funds or assume the debt of any person or entity; or (f) any option or right to
acquire any assets of the Company outside of the ordinary course of business.
The Company has delivered to Parent complete and correct copies of all written
contracts and commitments, together with all amendments thereto, and accurate
descriptions of all oral contracts and commitments described in SCHEDULE 3.20 or
any other Schedule hereto. Neither the Company nor any Subsidiary, as
applicable, is in default with respect to any such contract or commitment, and,
to the best knowledge of the Company and the Management Shareholders, no other
party to any such contract or commitment is in default
-15-
<PAGE>
with respect thereto. Except as specifically set forth on SCHEDULE 3.20, each
such contract will continue in full force and effect after the Effective Time
without any right on the part of any party thereto, other than the Company or a
Subsidiary, to terminate such contract or commitment as a result of the
occurrence of the Merger. For purposes of this Agreement, "Affiliate" of the
Company or a Subsidiary means (a) any corporation, partnership, trust or other
entity in control of, controlled by or under common control with the Company or
such Subsidiary; and (b) any officer, director, trustee, general partner or
employee of any corporation, partnership, trust or other entity in control of,
controlled by or under common control with the Company or a Subsidiary.
SECTION 3.21 LABOR RELATIONS. Except as disclosed in SCHEDULE 3.21,
the Company and each Subsidiary, in the conduct of their respective affairs,
have complied in all material respects with all applicable laws (including,
without limitation, labor laws) relating to the hiring and employment of
employees and independent contractors, including, without limitation, those
related to discrimination, wages, hours, collective bargaining, employee pension
and welfare benefit plans, and the payment of (and withholding for) income,
Social Security and other employment related taxes, and neither the Company nor
any Subsidiary is liable for any penalties or damages for failure to comply with
any of the foregoing. There are no unfair labor practice claims or charges
pending or, to the best knowledge of the Company and the Management
Shareholders, threatened, involving the Company or any Subsidiary.
SECTION 3.22 INSURANCE. SCHEDULE 3.22 hereto contains a list and
description (including the name of the insurer, coverage and expiration date) of
all insurance policies maintained by the Company or any Subsidiary. SCHEDULE
3.22 further lists all claims presently pending or, to the best knowledge of the
Company and the Management Shareholders, threatened which are covered by such
policies, other than routine claims for benefits under the welfare benefit plans
of the Company or any Subsidiary. Neither the Company nor any Subsidiary has
received notice of cancellation or non-renewal of any of such policies.
SECTION 3.23 CONDUCT OF BUSINESS AND ABSENCE OF CHANGES. Since
December 31, 1995, the Company and each Subsidiary has conducted its business in
the regular and ordinary course and has not (a) undergone any material adverse
change in its condition (financial or otherwise), assets, liabilities, business,
or operations, (b) declared, set aside, made or paid any cash or stock dividend
or distribution or purchased, issued or sold any shares of its capital stock,
(c) incurred any indebtedness for borrowed money or issued or sold any debt
securities (except as may have been advanced in the regular and ordinary course
under the Company's line of credit facilities described in SCHEDULE 3.20), (d)
instituted any increase in the compensation or bonuses payable or to become
payable to any officers or employees, except as disclosed
-16-
<PAGE>
in SCHEDULE 3.23, or any changes in personnel policies or employees benefits, or
(e) made any payment to any Shareholder except for payments described in a
Schedule hereto and regular salary and ordinary and necessary business expense
reimbursements.
SECTION 3.24 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS.
Except as set forth in SCHEDULE 3.24 hereto, the Company and each Subsidiary is
in compliance with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, governmental licenses or permits and other
governmental licenses, permits, authorizations or approvals applicable to it or
any of its properties, and all governmental licenses, permits, authorizations or
approvals necessary in any material respect for the conduct of its business have
been duly and lawfully obtained and are in full force and effect, and there are
no proceedings pending or, to the best knowledge of the Company and the
Management Shareholders, threatened, which may result in the revocation,
cancellation or suspension, or any materially adverse modification, of any
thereof.
SECTION 3.25 OFFICERS, DIRECTORS AND DEPOSITORIES. SCHEDULE 3.25
hereto contains the names of all the officers and directors of the Company and
the names of all officers, directors, managing general partners or persons
occupying similar positions of each Subsidiary, the names of all depositories of
the funds of the Company and each Subsidiary and the names of the officers and
other persons empowered to sign instruments withdrawing funds from said
depositories.
SECTION 3.26 ENVIRONMENTAL MATTERS.
(a) No governmental agency has asserted any claim or given notice of
any possible claim or, to the knowledge of the Company or the Management
Shareholders, threatened to assert any claim against the Company or any
Subsidiary in respect of its business, any assets owned or leased by any of
them, real properties owned or leased by any of them, or the condition, use or
operation thereof by any of them, arising out of any Federal, state or local
law, rule, regulation or directive pertaining to the environment.
(b) To the best knowledge of the Company and the Management
Shareholders, there are nowhere on any real property owned or leased by, used by
or otherwise under the control of the Company or any Subsidiary any deposits,
dumps, or tanks of toxic or other poisonous, dangerous or noxious waste, fluids,
solvents, chemicals or effluents, all of which chemicals, fuels and fluids are
properly and safely stored, identified, labelled and maintained in accordance
with applicable industrial standards and all governmental or other laws or
regulations relating thereto. Neither the Company nor any Subsidiary discharges
from any real property owned, leased, used or otherwise under its control,
whether by effluent, emission or other means, any noxious, toxic,
-17-
<PAGE>
hazardous or deleterious matter or gases. All discharges of waste material and
other substances from the operating facilities of the Company and each
Subsidiary are in full compliance with applicable law and covered by valid
permits and licenses, where required.
SECTION 3.27 THIRD PARTY AND GOVERNMENTAL CONSENTS. Except as
disclosed in SCHEDULE 3.27 hereto, no consent, waiver, authorization, approval,
order, license, certificate or permit of or from, or registration, declaration
or filing with, any governmental authority or any court or other tribunal or any
other person, firm or entity, nor under any contract, indenture, mortgage,
lease, license or other agreement or instrument to which the Company, any
Subsidiary or any Shareholder is a party or by which the Company, any Subsidiary
or any Shareholder, or any of their respective assets or properties, is subject
or bound, is required by or with respect to the Company, any Subsidiary or, to
the knowledge of any Management Shareholder, any Shareholder, in connection with
the execution, delivery or performance of this Agreement or of any other
agreement, document or instrument to be executed and delivered by the Company,
any Subsidiary or any Shareholder pursuant hereto or in connection herewith or
the consummation of the transactions contemplated hereby. The Company or a
Subsidiary or a Shareholder, as applicable, has obtained all consents and
waivers listed in SCHEDULE 3.27 on or prior to the date hereof.
SECTION 3.28 LICENSES AND PERMITS. Except as disclosed in SCHEDULE
3.28 hereto, the Company or a Subsidiary has obtained all consents, approvals,
waivers, licenses and permits from governmental authorities required in
connection with the ownership of the assets of the Company and Subsidiaries and
the operation of the business of the Company and Subsidiaries as presently and
heretofore conducted, including, without limitation, all required insurance
producer and similar licenses (herein collectively referred to as the "Company
Licenses"). Except as disclosed in SCHEDULE 3.28 hereto, each employee and
agent of the Company or any Subsidiary has obtained all approvals, licenses and
permits from governmental authorities required in connection with the operation
of the business of the Company or any Subsidiary and the services provided by
such employee or agent to the Company or any Subsidiary, including, without
limitation, insurance producer licenses and similar licenses (herein
collectively referred to as the "Employee and Other Licenses"). The Company
Licenses and the Employee and Other Licenses are listed on SCHEDULE 3.28 hereto
and, except as otherwise set forth in SCHEDULE 3.28 hereto, no other licenses
or permits are required to conduct or operate the business of the Company or any
Subsidiary as presently conducted. None of the Company Licenses or the Employee
and Other Licenses are threatened to be revoked or suspended, and there are no
disciplinary proceedings pending, or to the knowledge of the Company or any
Management Shareholder, threatened by, any issuer of
-18-
<PAGE>
any such license or any other governmental authority against the holder thereof.
SECTION 3.29 SOFTWARE.
(a) SCHEDULE 3.29(a) hereto contains a true, complete and accurate
list and description of (i) all computer software and related programs owned by
the Company or any Subsidiary and (ii) all computer software and related
programs licensed by the Company or any Subsidiary for use in connection with
the business of the Company or any Subsidiary, other than off-the-shelf software
licensed to the Company or any Subsidiary which is not material to the operation
of the business of the Company or a Subsidiary or the services provided by the
Company or a Subsidiary (collectively, the "Software"). The Company or a
Subsidiary either owns or has a valid license to use and sublicense all of the
Software, and upon consummation of the Merger the Surviving Corporation shall
have the right to use and authorize others to use all of the Software, free from
any claim, security interest or other lien or encumbrance whatsoever, except as
set forth on SCHEDULE 3.29(a). The Company or a Subsidiary, as the case may be,
is the exclusive licensee of the Software indicated on SCHEDULE 3.29(a) as being
exclusively licensed by the Company or a Subsidiary. The Software constitutes
the only computer software or programs necessary for the operation of the
business of the Company and each Subsidiary as presently conducted.
(b) The Company has provided to Parent true and complete copies of
all licenses, leases, contracts and other written instruments relating to any
Software and/or source codes thereof which are not owned by the Company or a
Subsidiary (collectively, the "Software Contracts"), all of which are legally
valid and binding and enforceable in accordance with their respective terms.
Neither the Company nor any Subsidiary, nor, to the knowledge of the Company or
any Management Shareholder, any other party thereto, is in violation of any
material term or provision of any Software Contract. The use of the owned
Software by the Company or a Subsidiary does not, and upon consummation of the
Merger the use of such owned Software by the Surviving Corporation will not, in
any manner infringe upon any rights of any third parties. To the knowledge of
the Company and each Management Shareholder, the use of any source codes related
to Software which is not owned by the Company or a Subsidiary, and the exercise
of the rights of the Company or a Subsidiary in and to such source codes, as
provided in any of the Software Contracts, does not, and upon consummation of
the Merger the use of any such source codes and exercise of such rights by the
Surviving Corporation pursuant to the terms of the Software Contracts will not,
in any manner infringe upon the rights of any third parties.
(c) All source codes relating to the Software which is owned by the
Company or a Subsidiary (the "Owned Source Codes") are
-19-
<PAGE>
in the possession of the Company or such Subsidiary and constitute trade secret
information of the Company or such Subsidiary, and, except as set forth in
SCHEDULE 3.29(c), no third party has any copy of any of the Owned Source Codes
or any right, title, interest or license, conditional or otherwise, with respect
to any of the Owned Source Codes under any circumstances whatsoever. Upon
consummation of the Merger, the Surviving Corporation shall own and have
possession of, and shall have the right to use, all of the Owned Source Codes,
free from any claim, security interest or other lien or encumbrance whatsoever.
SECTION 3.30 LOANS TO OR FROM SHAREHOLDERS OR EMPLOYEES. Neither
the Company nor any Subsidiary has outstanding any loans, advances or other
indebtedness incurred by any Shareholder or any employee, former employee or
former shareholder of the Company or any Subsidiary, or any member of their
respective families, and there are no loans or advances made to the Company or
any Subsidiary by or indebtedness incurred by the Company or any Subsidiary to
any Shareholder or any employee, former employee or former shareholder of the
Company or any Subsidiary, or any member of their respective families, except as
set forth in SCHEDULE 3.30 ("Related Party Loans"). True and complete copies of
all promissory notes or other agreements or documents evidencing the Related
Party Loans ("Related Party Notes") have been heretofore delivered to Parent.
SECTION 3.31 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to
the extent disclosed or accrued on the Financial Statements or the Subsidiary
Financial Statements, as applicable, or incurred in the ordinary course of
business since the date of the Balance Sheet or a Subsidiary Balance Sheet, as
applicable, or disclosed on any Schedule hereto, there exist no liabilities or
obligations of any nature whatsoever (whether absolute, contingent or otherwise,
matured or unmatured, or known or unknown) in respect of the business or assets
of the Company or any Subsidiary of the type customarily reflected in financial
statements prepared in accordance with GAAP. Neither the Company nor any
Management Shareholder knows, after due inquiry, of any basis for assertion
against the Company or any Subsidiary of any claim or liability of any nature in
any amount not fully disclosed pursuant to the terms hereof.
SECTION 3.32 SHAREHOLDERS' AND SIMILAR AGREEMENTS. Except as set
forth in SCHEDULE 3.32, neither any Shareholder, nor any other person or entity,
nor the Company are parties to any shareholders' agreement, buy-sell agreement,
stock rights agreement or any similar agreement or arrangement related to the
purchase and sale of any shares of Company Common Stock. As of the Effective
Time, the Company will have no obligation to any Shareholder or any other person
or entity for the purchase of any shares of Company Common Stock or for the
payment of any consideration in respect of
-20-
<PAGE>
the purchase, sale or other disposition of shares of Company Common Stock.
SECTION 3.33 INFORMATION PROVIDED FOR PRIVATE PLACEMENT MEMORANDUM.
All information, including, without limitation, all financial information,
provided by the Company for insertion in the Private Placement Memorandum
(hereinafter defined) does not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein, in the light of
the circumstances in which they were made, not misleading, it being understood
that such information has not been independently verified by Parent or
Acquisition.
SECTION 3.34 REPRESENTATIONS AND WARRANTIES TRUE; NO MISLEADING
STATEMENTS. All of the representations and warranties set forth in this
Article III shall be true and correct as of the Effective Time as if made at
that time. The representations and warranties made herein in connection with
the transactions contemplated hereby and the operation of the business of the
Company and each Subsidiary and in any Schedule, list or other document
specifically referred to herein and delivered by the Company or the Management
Shareholders pursuant hereto do not contain any untrue statements of a material
fact or omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each Shareholder hereby represents and warrants to Parent and
Acquisition, as to itself, severally and not jointly, as follows, knowing and
intending that each of Parent and Acquisition is relying hereon in entering into
the transactions contemplated hereby:
SECTION 4.01 AUTHORITY AND CAPACITY RELATIVE TO AGREEMENT. Each
Shareholder has all requisite power, authority and legal capacity to enter into
and perform each of its obligations hereunder.
SECTION 4.02 EXECUTION AND PERFORMANCE OF AGREEMENT; VALIDITY AND
BINDING NATURE. The execution and delivery of this Agreement, and the
performance by each Shareholder of the terms of this Agreement and the
transactions contemplated hereby, will not result in a material breach of any of
the terms of, or constitute a violation or default under, any statute or
contract, indenture or other instrument by which such Shareholder or any of its
respective properties are bound, and no consent, approval, authorization or
order of any court or governmental authority is required in
-21-
<PAGE>
connection with the execution and delivery of this Agreement by such Shareholder
and the performance by such Shareholder of the terms of this Agreement and the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each Shareholder and, together with the other documents and
agreements to be executed by all parties whose execution and delivery thereof is
required, constitutes the legal, valid and binding obligations of such
Shareholder, enforceable against such Shareholder in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, receivership, moratorium, conservatorship, reorganization or other
laws of general application affecting the rights of creditors generally or by
general principles of equity.
SECTION 4.03 STOCK OF THE COMPANY. The number of shares of Company
Common Stock beneficially owned by each Shareholder is as identified on the
signature page(s) hereof opposite the respective Shareholder's name. The shares
of Company Common Stock beneficially owned by each Shareholder are owned free
and clear of all liens, claims, options, encumbrances or restrictions
whatsoever, and such Shareholder has the full legal right and power and all
authorizations and approvals required by law or otherwise to sell, transfer and
deliver such shares hereunder and to make the representations, warranties and
agreements set forth in this Agreement. Except with respect to the shares of
Company Common Stock identified on the signature page(s) hereof opposite the
respective Shareholder's name, such Shareholder has no outstanding claim against
the Company or any right whatsoever with respect to any shares of the capital
stock of the Company, including without limitation any option, warrant or other
right to acquire shares of the capital stock of the Company or any securities,
options or other instruments convertible or exchangeable into shares of capital
stock of the Company. No Shareholder has granted any option or other right to
acquire from such Shareholder any shares of Company Common Stock.
SECTION 4.04 ADDITIONAL REPRESENTATIONS AND COVENANTS OF
SHAREHOLDERS.
(a) Each Shareholder understands that the offer and sale of the
shares of Parent Common Stock in the Merger pursuant to this Agreement are
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act") by virtue of Section 4(2) thereof and the
provisions of Regulation D promulgated thereunder, based, in part, upon the
representations, warranties and agreements of each Shareholder contained in this
Agreement.
(b) Neither the Securities and Exchange Commission (the "SEC") nor
any state securities commission has approved the Parent Common Stock or passed
upon or endorsed the merits of an investment therein or confirmed the accuracy
or adequacy of any information
-22-
<PAGE>
provided by Parent to the Shareholders or the accuracy or adequacy of any of the
representations, warranties and agreements of Parent contained herein.
(c) Each Shareholder is acquiring Parent Common Stock solely for its
own account for investment and not with any present view to resale or
distribution thereof, in whole or in part, except as contemplated by the
registration rights agreement in the form of EXHIBIT C hereto. No Shareholder
has any agreement or arrangement, formal or informal, written or oral, with any
person to sell or transfer or otherwise dispose of all or any part of the Parent
Common Stock, and none has any present plans to enter into any such agreement or
arrangement other than the registration rights agreement in the form of EXHIBIT
C hereto.
(d) No Shareholder became aware of the offer and sale of Parent
Common Stock through or as a result of any form of general solicitation or
general advertising including, without limitation, any article, notice,
advertisement or other communication published in any newspaper, magazine or
other media in connection with the offer and sale of Parent Common Stock
contemplated hereby and no Shareholder is purchasing Parent Common Stock through
or as a result of any seminar or meeting to which any Shareholder was invited.
(e) Each of Messrs. Pascotti, Arthur A. Kusic and Steven C. Leisher
meets the requirements of at least one of the categories of an "accredited
investor", and as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act and as set forth in the form of Accredited Investor Certification
attached hereto as EXHIBIT A. In connection with the closing of the
transactions contemplated by this Agreement, Messrs. Pascotti, Kusic and Leisher
shall each certify to Parent, in the form of the certification set forth in
EXHIBIT A, as to which category (or categories) of accredited investor is
applicable to such Shareholder.
(f) Each Shareholder, or each Shareholder together with the Purchaser
Representative (hereinafter defined), has such knowledge and experience in
financial, tax, and business matters in general, and investments in securities
in particular, so as to enable such Shareholder to evaluate the merits and risks
of an investment in Parent Common Stock and to make an informed investment
decision with respect thereto.
(g) Each Shareholder is familiar with the business, operations and
financial condition of the Company and Subsidiaries and is able to evaluate the
merits and risks of the conversion of Company Common Stock in the Merger for
Parent Common Stock as provided herein and to make an informed investment
decision with respect thereto.
-23-
<PAGE>
(h) Each Shareholder recognizes that it must bear the substantial
economic risks of the investment in Parent Common Stock indefinitely, because
none of the Parent Common Stock may be sold, transferred, hypothecated or
otherwise disposed of unless such Parent Common Stock is registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available. Legends shall be placed on the certificates
representing Parent Common Stock issuable stating that the shares represented
thereby have not been registered under the Securities Act or applicable state
securities laws, and appropriate notations thereof will be made in Parent's
stock books.
(i) Each Shareholder has adequate means of providing for its current
financial needs and foreseeable contingencies and has no need for immediate
liquidity of its investment in Parent Common Stock. Each Shareholder's overall
commitment to investments which are not readily marketable is not excessive in
view of its net worth and financial circumstances and the purchase of the Parent
Common Stock will not cause such commitment to become excessive.
(j) No Shareholder is relying on Parent or any of its employees or
agents with respect to the legal, tax, economic and related considerations of an
investment in Parent Common Stock, other than as expressly contained in the
representations and warranties of Parent contained in Article V hereof and in
the Private Placement Memorandum (hereinafter defined). Each Shareholder, or
each Shareholder together with the Purchaser Representative, has read and fully
understands each of this Agreement and the entire Private Placement Memorandum.
(k) Each Shareholder, or each Shareholder together with the Purchaser
Representative, (i) has had the opportunity to obtain all information requested
by him for the purposes of verifying the information contained in the Agreement
and Private Placement Memorandum or for any other purpose related hereto and
(ii) has had the opportunity to meet with representatives of Parent and the
Company and to have them answer any questions and provide such additional
information regarding the terms and conditions of the transactions contemplated
hereby, the information set forth in this Agreement and the Private Placement
Memorandum and the business and prospects of Parent deemed relevant by such
Shareholder, or such Shareholder together with the Purchaser Representative, all
of which questions have been answered and all of which requested information has
been provided to the full satisfaction of such Shareholder, or such Shareholder
together with the Purchaser Representative. Each Shareholder is aware that an
investment in Parent Common Stock is speculative and involves significant risks,
including, among other things, the risk of the loss of such Shareholder's entire
investment in Parent Common Stock.
(l) In evaluating the suitability of an investment in Parent, and in
deciding to enter into this Agreement, no
-24-
<PAGE>
Shareholder, nor any Shareholder together with the Purchaser Representative, has
relied upon any representation or other information (whether oral or written)
other than as set forth in the representations and warranties of Parent
contained in Article V of this Agreement and in the Private Placement
Memorandum. No oral or written representations have been made, or oral or
written information furnished, to any Shareholder in connection with the offer
and sale of Parent Common Stock that are in any way inconsistent with the
representations and warranties of Parent contained herein or any of the
information contained in the Private Placement Memorandum.
(m) Edward L. Vey, Senior Vice President, Private Banking Division,
Dauphin Deposit Bank and Trust Co., and Raymond Canilli, CPA, Private Banking
Division, Dauphin Deposit Bank and Trust Co., Harrisburg, Pennsylvania, are the
purchaser representatives for each Shareholder which is not an "accredited
investor", as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act, in connection with evaluating the merits and risks of the
transactions contemplated by this Agreement (collectively, the "Purchaser
Representative"). There is no existing relationship between Parent or any of
its Affiliates and Purchaser Representative or any of its Affiliates. Purchaser
Representative is not an Affiliate, director, officer or employee of Parent, or
beneficial owner of ten percent (10%) or more of Parent Common Stock. Purchaser
Representative has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the
transactions contemplated by this Agreement.
(n) All information, including, without limitation, financial
information and financial statements, provided by the Shareholder, does not,
and, to the knowledge of the Shareholder, all information, including, without
limitation, financial information and financial statements, provided by the
Company, for insertion in the Private Placement Memorandum, does not, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, it being understood and acknowledged that such information has not
been independently verified by Parent or Acquisition.
(o) Except as described in SCHEDULE 4.04(o) hereto, no Shareholder
has any beneficial interest, directly or indirectly, in any person, firm,
corporation, partnership or other entity which is or within the past two years
has been a supplier of any goods or services to the Company, including, without
limitation, any Major Supplier, or from which the Company has received fees,
including, without limitation, any Contract Party, other than as the beneficial
owner of 1% or less of the voting securities of a
-25-
<PAGE>
publicly held corporation. The nature and amount of any such beneficial
interest is disclosed in SCHEDULE 4.04(o).
SECTION 4.05 REPRESENTATIONS AND WARRANTIES TRUE; NO MISLEADING
STATEMENTS. All of the representations and warranties set forth in this Article
IV shall be true and correct as of the Effective Time as if made at that time.
The representations and warranties made in this Article IV do not, and to the
knowledge of the Shareholders, the representations and warranties of the Company
and the Management Shareholders made elsewhere in this Agreement and in any
Schedule, list or other document specifically referred to in this Agreement and
delivered by the Company or the Management Shareholders pursuant hereto, do not,
contain any untrue statements of a material fact or omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company and each Shareholder as
follows:
SECTION 5.01 ORGANIZATION AND QUALIFICATION. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own or lease and operate its properties and assets and to carry on its business
as it is now being conducted. Parent is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction in which the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect on the assets, financial condition,
operating results or business of Parent and its subsidiaries, taken as a whole.
SECTION 5.02 ACQUISITION. Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as it is now being
conducted. Acquisition is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction in which the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on Parent. All the outstanding shares of capital
stock of Acquisition are validly issued, fully paid and nonassessable and are
owned by Parent.
SECTION 5.03 CAPITALIZATION. The authorized capital stock of Parent
consists of 80,000,000 shares of Parent Common
-26-
<PAGE>
Stock, and, as of April 22, 1996, 24,196,415 shares of Parent Common Stock were
issued and outstanding, all of which were validly issued and are fully paid and
nonassessable. Except for (a) options outstanding under Parent's Stock Option
and Restricted Stock Purchase Plan (the "1989 Plan"), (b) options outstanding
under Parent's 1995 Stock Option Plan, (c) rights under Parent's 1996 Employee
Stock Purchase Plan and (d) options outstanding under Parent's Non-Employee
Director Stock Option Plan, no subscription, warrant, option, convertible
security, stock appreciation or other right (contingent or other) to purchase or
acquire any shares of any class of capital stock of Parent is authorized or
outstanding and there is not any agreement of Parent to issue any shares,
warrants, options or other such rights or to distribute to holders of any class
of its capital stock any evidences of indebtedness or assets. Parent does not
have any obligation (contingent or other) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. At the Effective
Time, Parent will have sufficient authorized and unissued shares of Parent
Common Stock available for issuance in accordance with Article II hereof. When
issued to the Shareholders hereunder, such shares of Parent Common Stock will
have been duly authorized by Parent and, upon receipt of consideration therefor
in accordance with the terms hereof, such shares will be validly issued, fully
paid and nonassessable shares of Parent Common Stock.
SECTION 5.04 AUTHORITY RELATIVE TO AGREEMENT. Parent has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Parent and the consummation by Parent of the transactions contemplated hereby
(including issuance of Parent Common Stock to the Shareholders pursuant to the
terms hereof) have been duly authorized by the Board of Directors of Parent, and
no other corporate proceedings on the part of Parent are necessary to authorize
this Agreement and the transactions contemplated hereby (including issuance of
Parent Common Stock to the Shareholders pursuant to the terms hereof). This
Agreement has been duly executed and delivered by Parent and constitutes the
legal, valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, receivership, moratorium, conservatorship, reorganization
or other laws of general application affecting the rights of creditors generally
or by general principles of equity.
SECTION 5.05 NON-CONTRAVENTION. The execution and delivery of this
Agreement by Parent and the consummation by Parent of the transactions
contemplated hereby will not (a) conflict with any provision of the Certificate
of Incorporation or By-Laws of Parent or any of its subsidiaries or (b) result
(with or without the giving of notice or the lapse of time or both) in any
violation of or default or loss of a benefit under, or permit the
-27-
<PAGE>
acceleration of any obligation under, any mortgage, indenture, lease, agreement
or other instrument, permit, concession, grant, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or any of its subsidiaries or any of their respective properties, other than any
such violation, default, loss or acceleration that would not have a Material
Adverse Effect with respect to Parent.
SECTION 5.06 PRIVATE PLACEMENT MEMORANDUM. Parent has delivered to
each Shareholder a copy of the confidential private placement memorandum,
including exhibits thereto, prepared in connection with the transactions
contemplated hereby (the "Private Placement Memorandum"). The Private Placement
Memorandum does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except as may be contained in information provided by
the Company or any Shareholder for insertion therein.
SECTION 5.07 FINANCIAL STATEMENTS. The consolidated financial
statements of Parent included in the Private Placement Memorandum have been
prepared in accordance with GAAP consistently applied and consistent with prior
periods, subject, in the case of unaudited interim consolidated financial
statements, to year-end adjustments (which consist of normal recurring accruals)
and the absence of certain footnote disclosures. The consolidated balance sheets
of Parent included in the Private Placement Memorandum fairly present in all
material respects the financial position of Parent and its subsidiaries as of
their respective dates, and the related consolidated statements of operations,
shareholders' equity and cash flows included in the Private Placement Memorandum
fairly present in all material respects the results of operations of Parent and
its subsidiaries for the respective periods then ended, subject, in the case of
unaudited interim financial statements, to year-end adjustments (which consist
of normal recurring accruals) and the absence of certain footnote disclosures.
SECTION 5.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except for the
issuance of Parent Common Stock pursuant to employee benefit plans of Parent
described in Section 5.03 above, the issuance of 520,599 shares of Parent Common
Stock in connection with the merger of Strategic Solutions Group, Inc. on April
22, 1996, or as otherwise disclosed in the Private Placement Memorandum or any
exhibit thereto, since March 31, 1996, Parent has not (a) issued any Parent
Common Stock or securities or obligations convertible into or exchangeable for
Parent Common Stock, (b) incurred any material liabilities (absolute or
contingent), except in the ordinary course of business or (c) suffered any
Material Adverse Effect.
-28-
<PAGE>
SECTION 5.09 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Parent in connection with the execution and delivery of this
Agreement by Parent or the consummation by Parent of the transactions
contemplated hereby, except for (a) filings pursuant to the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations promulgated by the SEC thereunder, if applicable, (b)
filings with state securities agencies under state securities or blue sky laws,
if applicable, (c) the filing of an Articles of Merger with the Department of
State of the Commonwealth of Pennsylvania in accordance with the Pennsylvania
BCL, (d) the filing of a Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the Delaware GCL, (e) any licenses,
permits, franchises or other governmental authorizations pertaining to the
business of the Company and its subsidiaries that are required as a result of
the consummation of the transactions contemplated hereby and (f) such consents,
approvals, orders or authorizations which if not obtained, or registrations,
declarations or filings which if not made, would not have a Material Adverse
Effect with respect to Parent.
SECTION 5.10 COMPLIANCE WITH LAW. Neither Parent nor any of its
subsidiaries is in default under any order of any court, governmental authority
or arbitration board or tribunal. Neither Parent nor any such subsidiary is in
material violation of or has received notice of any alleged violation of any
applicable laws, ordinances and governmental rules and regulations to which
Parent or any such subsidiary is subject, including, without limitation, federal
securities and banking laws. Neither Parent nor any subsidiary has failed to
obtain any licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its properties or to the conduct of its business,
except where the failure to obtain such licenses, permits, franchises or other
governmental authorizations would not have a Material Adverse Effect on Parent.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
Each of Parent and Acquisition, jointly and severally, represents and
warrants to the Company and each Shareholder, knowing and intending that the
Company and each Shareholder is relying thereon in entering into the
transactions contemplated hereby, as follows:
SECTION 6.01 ORGANIZATION AND QUALIFICATION. Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all
-29-
<PAGE>
requisite corporate power and authority to own or lease and operate its
properties and assets and to carry on its business as it is now being conducted.
Acquisition is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction in which the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not have a Material
Adverse Effect with respect to Acquisition.
SECTION 6.02 CAPITALIZATION. The authorized capital stock of
Acquisition consists of 100 shares of common stock, $.01 par value. As of the
date hereof, 100 shares of such common stock are validly issued and outstanding,
fully paid and nonassessable and are owned of record and beneficially by Parent,
and no shares of such common stock are held in the treasury of Acquisition.
Acquisition has no commitments to issue or sell any shares of such common stock
or any securities or obligations convertible into or exchangeable for, or giving
any person any right to subscribe for or acquire from Acquisition, any shares of
such common stock, and no securities or obligations evidencing any such rights
are outstanding.
SECTION 6.03 AUTHORITY RELATIVE TO AGREEMENT. Acquisition has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution and delivery of this Agreement
by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Acquisition and by Parent as its sole shareholder, and no other corporate
proceedings on the part of Acquisition are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly executed
and delivered by Acquisition and constitutes the legal, valid and binding
obligation of Acquisition, enforceable against Acquisition in accordance with
its terms except to the extent that enforceability may be limited by bankruptcy,
receivership, moratorium, conservatorship, reorganization or other laws of
general application affecting the rights of creditors generally or by principals
of equity.
SECTION 6.04 NON-CONTRAVENTION. The execution and delivery of this
Agreement by Acquisition and the consummation by Acquisition of the transactions
contemplated hereby will not (a) conflict with any provision of the Certificate
of Incorporation or By-Laws of Acquisition or (b) result (with the giving of
notice or the lapse of time or both) in any violation of or default or loss of a
benefit under, or permit the acceleration of any obligation under, any mortgage,
indenture, lease, agreement, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquisition or its properties, other
than any such violation, default, loss or acceleration that would not have a
Material Adverse Effect with respect to Acquisition.
-30-
<PAGE>
SECTION 6.05 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Federal,
state, local or foreign governmental or regulatory authority is required to be
made or obtained by Acquisition in connection with the execution and delivery of
this Agreement by Acquisition or the consummation by Acquisition of the
transactions contemplated hereby, except for (a) the filing of an Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania in
accordance with the Pennsylvania BCL, (b) the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with the
Delaware GCL, (c) any licenses, permits, franchises or other governmental
authorizations pertaining to the business of Acquisition that are required as a
result of the consummation of the transactions contemplated hereby and (d) such
consents, approvals, orders or authorizations which if not obtained, or
registrations, declarations or filings which if not made, would not have a
Material Adverse Effect with respect to Acquisition.
SECTION 6.06 OTHER MATTERS. Except as contemplated by this
Agreement, Acquisition has not conducted any business activities and does not
have any material liabilities or obligations. Acquisition is in compliance in
all material respects with all applicable laws.
ARTICLE VII
COVENANTS
SECTION 7.01 CONDUCT OF THE COMPANY'S BUSINESS. The Company and
each Management Shareholder covenants and agrees that, prior to the Effective
Time, unless Parent shall otherwise consent in writing or as otherwise expressly
contemplated by this Agreement:
(a) the business of the Company and each Subsidiary in which the
Company has a direct or indirect equity interest of fifty percent
(50%) or more (a "Restricted Subsidiary") shall be conducted only in,
and the Company and each Restricted Subsidiary shall not take any
action except in, the normal and ordinary course of business and
consistent with past practice;
(b) the Company and each Management Shareholder shall use their
best efforts to preserve the goodwill of the business of the Company
and each Subsidiary; and
(c) neither the Company nor any Restricted Subsidiary shall,
directly or indirectly, do any of the following:
-31-
<PAGE>
(i) sell, pledge, dispose of or encumber any of its assets except
immaterial assets in the ordinary course of business; (ii) amend or
propose to amend its Certificate of Incorporation or By-Laws or other
organization agreements or documents; (iii) split, combine or
reclassify any outstanding shares of its capital stock or other equity
interests, or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise with respect to its
shares of capital stock or other equity interests other than the
payment of any such dividend or distribution by a Restricted
Subsidiary to the Company; (iv) redeem, purchase, acquire or offer to
acquire any shares of its capital stock of any class or other equity
interests; or (v) enter into any contract, agreement, commitment or
arrangement with respect to any of the matters set forth in this
paragraph (c);
(d) neither the Company nor any Restricted Subsidiary shall (i)
issue, sell, pledge or dispose of, or agree to issue, sell, pledge or
dispose of, any additional shares of, or securities convertible or
exchangeable for, or any options, warrants or rights of any kind to
acquire, any shares of its capital stock of any class or other equity
interests, property or assets; (ii) acquire (by merger, consolidation
or acquisition of stock or assets) any corporation, partnership or
other business organization or division thereof (except an existing
wholly-owned subsidiary); (iii) incur any indebtedness for borrowed
money or issue any debt securities in excess of $5,000 in the
aggregate; (iv) enter into or modify any contract, lease, agreement or
commitment, except in the ordinary course of business and consistent
with past practice; (v) terminate, modify, assign, waive, release or
relinquish any contract rights or amend any rights or claims not in
the ordinary course of business or (vi) settle or compromise any
claim, action, suit or proceeding pending or threatened against the
Company or any Restricted Subsidiary, or, if the Company or any
Restricted Subsidiary may be liable or obligated to provide
indemnification, against the directors or officers or persons
occupying similar positions of the Company or any Restricted
Subsidiary, before any court, governmental agency or arbitrator;
PROVIDED that nothing herein shall require any action that might
impair or otherwise affect the obligation of any insurance carrier
under any insurance policy maintained by the Company or any Restricted
Subsidiary;
(e) neither the Company nor any Restricted Subsidiary shall
grant any increase in the salary or other compensation of any employee
or grant any bonus to any employee, except pursuant to the terms of
employment agreements in effect on the date hereof and listed on a
Schedule hereto, or enter into any new employment
-32-
<PAGE>
agreement or make any loan to or enter into any material transaction
of any other nature with any employee of the Company or any Restricted
Subsidiary;
(f) neither the Company nor any Restricted Subsidiary shall take
any action to institute any new severance or termination pay practices
with respect to any directors, officers or employees of the Company or
any Restricted Subsidiary or to increase the benefits payable under
its severance or termination pay practices;
(g) neither the Company nor any Restricted Subsidiary shall
adopt or amend, in any respect, except as contemplated hereby or as
may be required by applicable law or regulation, any collective
bargaining, bonus, profit sharing, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund,
plan or arrangement for the benefit or welfare of any of its
respective directors, officers or employees; and
(h) the Company and each Restricted Subsidiary shall use its
best efforts, to the extent not prohibited by the foregoing provisions
of this Section 7.01, to maintain the relationships of the Company and
each Subsidiary with their respective customers, co-brokers, co-
marketers, partners and joint venturers, including, without
limitation, all Contract Parties, and if and as requested by Parent or
Acquisition, (i) the Company shall use its best efforts to make
reasonable arrangements for representatives of Parent or Acquisition
to meet with the customers, suppliers, co-brokers, co-marketers,
partners and joint venturers of the Company and Subsidiaries, as
designated by Parent, in order to ensure that the relationships of the
Company with such customers, suppliers, co-brokers, co-marketers,
partners and joint venturers will remain in force under substantially
the same terms following the Effective Time as are in effect on the
date hereof, and (ii) the Company shall schedule, and the management
of the Company shall participate in, meetings of representatives of
Parent or Acquisition with employees of the Company and Subsidiaries.
At all such meetings, Parent and Acquisition shall conduct themselves
in a manner that is not disruptive to the business and operations of
the Company or any Restricted Subsidiary.
SECTION 7.02 ACCESS TO INFORMATION. (a) The Company shall, and
shall cause each of the Restricted Subsidiaries, and their respective officers,
directors, employees, representatives and agents to, upon reasonable advance
notice, and provided that
-33-
<PAGE>
the directors, officers, employees, representatives and agents of Parent conduct
themselves in a manner that is not disruptive to the business and operations of
Parent or any Restricted Subsidiary, afford, from the date hereof to the
Effective Time, the officers, employees, representatives and agents of Parent
reasonable access during regular business hours to its officers, employees,
agents, properties, books, records and workpapers, and shall furnish Parent all
financial, operating and other information and data as Parent, through its
officers, employees or agents, may reasonably request.
(b) Parent shall, and shall cause its subsidiaries, officers,
directors, employees, representatives and agents to, afford, from the date
hereof to the Effective Time, the officers, employees, representatives and
agents of the Company reasonable access during regular business hours to its
officers, employees, agents and properties, and shall furnish the Company all
financial, operating and other information and data as the Company, through its
officers, employees or agents, may reasonably request.
(c) No investigation pursuant to this Section 7.02 shall affect, add
to or subtract from any representations or warranties of the parties hereto or
the conditions to the obligations of the parties hereto to effect the Merger.
SECTION 7.03 FURTHER ASSURANCES. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings; PROVIDED that the foregoing shall not require Parent
to agree to make, or to permit the Company to make, any divestiture of a
significant asset in order to obtain any waiver, consent or approval.
SECTION 7.04 INQUIRIES AND NEGOTIATIONS. Neither the Company nor any
Restricted Subsidiary nor any of their respective Affiliates, shareholders,
directors, officers, employees, representatives or agents, shall, directly or
indirectly, (a) solicit or initiate any discussions, submissions of proposals or
offers or negotiations with, or (b) participate in any negotiations or
discussions with, or provide any information or data of any nature whatsoever
to, or otherwise cooperate in any other way with, or assist or participate in,
facilitate or encourage any effort or attempt by, any person, other than Parent
and its affiliates, representatives and agents, concerning any merger,
consolidation, sale of substantial assets, sale of shares of capital stock or
other securities or equity interests, recapitalization, debt restructuring or
similar transaction involving the Company, any Restricted Subsidiary, or any
division of the Company or any
-34-
<PAGE>
Restricted Subsidiary. The Company shall immediately notify Parent if any
proposal, offer, inquiry or other contact is received by, any information is
requested from, or any discussions or negotiations are sought to be initiated or
continued with, the Company or any Restricted Subsidiary in respect of any such
transaction, and shall, in any such notice to Parent, indicate the identity of
the offeror and the terms and conditions of any proposals or offers or the
nature of any inquiries or contacts, and thereafter shall keep Parent informed
of the status and terms of any such proposals or offers. Neither the Company
nor any Restricted Subsidiary shall release any third party from, or waive any
provision of, any confidentiality or standstill agreement to which the Company
or any Subsidiary is a party.
SECTION 7.05 NON-COMPETITION AGREEMENTS. Simultane- ously with the
execution hereof, each Management Shareholder shall enter into and deliver to
counsel to the Company, with instructions to said counsel to deliver same
immediately prior to the Effective Time, a non-competition and confidentiality
agreement, effective as of the Effective Time, for the benefit of Parent and the
Surviving Corporation and with a term of two (2) years from the Effective Time,
substantially in the form of EXHIBIT B attached hereto (the "Non-Competition
Agreements").
SECTION 7.06 RELATED PARTY NOTES AND PLEDGE AGREEMENTS.
Simultaneously with the execution hereof, (a) the Company shall deliver to
counsel to the Company, with instructions to said counsel to deliver same
immediately prior to the Effective Time, all of the original executed Related
Party Notes, identified in SCHEDULE 3.30, with any and all liens, pledges and
encumbrances with respect thereto, other than liens, pledges and encumbrances in
favor of the Company, having been discharged or released prior to the Effective
Time, and (b) each borrower identified in SCHEDULE 3.30 hereto who is a
Shareholder, and each Shareholder who is related to a borrower who is not a
Shareholder, shall enter into and deliver to counsel to the Company, with
instructions to said counsel to deliver same immediately prior to the Effective
Time, a pledge agreement, in form and substance satisfactory to Parent, granting
to Parent a security interest in shares of Parent Common Stock owned by such
borrower as security for such borrower's obligations under its respective
Related Party Note based on the number of shares of Parent Common Stock set
forth next to such borrower's name in SCHEDULE 3.30, which is the number of
shares of Parent Common Stock equal to the quotient determined by dividing (i)
the aggregate of (x) the outstanding principal amount of such Related Party Note
at the Effective Time plus (y) the amount of accrued and unpaid interest on such
outstanding principal amount by (ii) $32.566, and rounding up to the nearest
whole share.
-35-
<PAGE>
SECTION 7.07 CONTINUATION OF CERTAIN EMPLOYEES.
(a) As of the Effective Time, Parent shall cause the Surviving
Corporation to continue the employment of all employees of the Company listed on
SCHEDULE 7.07(a) hereto (the "Company Employees") at their rates of compensation
in effect on March 31, 1996. For the purposes of employee benefit plans of
Parent, the time of service of such Company employees shall include their time
of service with the Company. Notwithstanding the foregoing, nothing herein
shall be construed or deemed to constitute an employment contract by the Company
or the Surviving Corporation or confer upon any of the Company Employees any
right to continue in the employ of Parent or the Surviving Corporation or limit
in any respect the right of Parent or the Surviving Corporation to terminate
such employment at any time.
(b) Simultaneously with the execution hereof, the Management
Shareholders shall each execute and deliver to counsel to the Company, with
instructions to said counsel to deliver the same immediately prior to the
Effective Time, and Parent shall execute and deliver to counsel to Parent,
with instructions to said counsel to deliver the same immediately prior to
the Effective time, written three-year employment agreements mutually
acceptable to the parties thereto, which agreements shall be effective as of
the Effective Time.
SECTION 7.08 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Shareholders shall give prompt notice to Parent and Acquisition, and Parent and
Acquisition shall give prompt notice to the Company and the Shareholders, of (a)
the occurrence, or failure to occur, of any event that such party believes would
be likely to cause any of its representations or warranties contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date hereof to the Effective Time and (b) any material failure of the
Company, Parent or Acquisition, as the case may be, or any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER,
that failure to give such notice shall not constitute a waiver of any defense
that may be validly asserted.
SECTION 7.09 INDEMNIFICATION.
(a) Pascotti shall be liable to, and shall indemnify, protect, defend
and hold harmless Parent and its successors and the Surviving Corporation and
its successors against any and all claims, damages, liabilities and expenses
(including reasonable attorneys' fees) sustained by Parent or the Surviving
Corporation, except to the extent that such claims, damages, liabilities or
expenses are in fact satisfied out of insurance proceeds, resulting from or in
connection with (i) the breach of any representation or warranty made by the
Company and the Management Shareholders in
-36-
<PAGE>
Article III of this Agreement or any covenant made by the Company and the
Management Shareholders in Article VII of this Agreement and ii) the breach of
any representation, warranty, covenant or other agreement made by the Company
and the Management Shareholders in any other agreement or instrument executed
and delivered by or on behalf of the Company and the Management Shareholders
pursuant hereto.
(b) Each Shareholder, individually, shall be liable to, and shall
indemnify, protect, defend and hold harmless Parent and its successors and the
Surviving Corporation and its successors against any and all claims, damages,
liabilities and expenses (including reasonable attorneys' fees) sustained by
Parent or the Surviving Corporation, except to the extent that such claims,
damages, liabilities or expenses are in fact satisfied out of insurance
proceeds, resulting from or in connection with i) the breach of any
representation of warranty made by such Shareholder in Article IV of this
Agreement or any covenant made by such Shareholder in Article VII of this
Agreement and (b) the breach of any representation, warranty, covenant or
agreement made by such Shareholder in any other agreement or instrument executed
and delivered by such Shareholder pursuant hereto.
(c) No Shareholder shall be required to pay Parent and/or the
Surviving Corporation, as the case may be, pursuant to Section 7.09(a) and
Section 7.09(b) an aggregate amount in excess of the dollar value equivalent of
Parent Common Stock as of the Effective Date received by such Shareholder upon
consummation of the Merger pursuant to the terms hereof.
(d) Parent and Acquisition shall be jointly and severally liable to,
and shall jointly and severally indemnify, protect, defend and hold harmless
each Shareholder and its respective successors against any and all claims,
damages, liabilities and expenses (including reasonable attorneys' fees)
sustained by any Shareholder, except to the extent that such claims, damages,
liabilities or expenses are in fact satisfied out of insurance proceeds,
resulting from or in connection with the breach of any representation, warranty,
covenant or other agreement made by Parent or Acquisition in or pursuant to this
Agreement or any other agreement or instrument executed and delivered by or on
behalf of Parent and/or Acquisition pursuant hereto or in connection herewith.
(e) The remedies set forth in this Section 7.09 are in addition to
any to which any party might otherwise be entitled under any other provision of
this Agreement or otherwise under law. In the event Parent and/or the Surviving
Corporation becomes entitled to any sums under the terms hereof, Parent and/or
the Surviving Corporation shall have the right but not the obligation to set off
such liabilities of the Shareholders against any existing or future liabilities
of Parent or the Surviving
-37-
<PAGE>
Corporation to the Shareholders or any of them individually other than against
amounts owed by the Company to any such Shareholders as compensation for
employment. The terms of this Section 7.09 are intended to benefit the parties
hereto and shall survive the consummation of the Merger and the Effective Time
until the publication of the first independent audit report on the consolidated
financial statements of Parent after the Effective Time (the "Indemnification
Termination Date"), PROVIDED, HOWEVER, that any claims made on or prior to the
Indemnification Termination Date shall survive until final resolution thereof.
SECTION 7.10 CONFIDENTIALITY. Parent and Acquisition, on the one
hand, and the Company and each Shareholder, on the other, shall hold, and shall
use their respective best efforts to cause their respective officers, directors,
employees, consultants, advisors and agents to hold, in confidence, unless
compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning the
other parties furnished to such party in connection with the transactions
contemplated by this Agreement, except to the extent that such information can
be shown to have been (a) previously known on a nonconfidential basis by such
party; (b) in the public domain through no fault of such party; or (c) later
lawfully acquired by such party from sources other than the other parties;
PROVIDED THAT each party may disclose such information to its Affiliates and its
Affiliates' officers, directors, employees, consultants, advisors and agents,
lenders and other investors in connection with the transactions contemplated by
this Agreement so long as such persons are informed by such party of the
confidential nature of such information and are directed by such party to treat
such information confidentially. If the transactions contemplated by this
Agreement are abandoned, such confidentiality shall be maintained and each party
shall, and shall use its best efforts to cause its respective officers,
directors, employees, consultants, advisors and agents to, destroy or deliver to
the other party(s), upon request, all documents and other materials, and all
copies thereof, obtained by such party or on its behalf from the other party(s)
in connection with this Agreement that are subject to such confidentiality. The
terms of this Section 7.10 shall survive indefinitely.
SECTION 7.11 COVENANTS OF SHAREHOLDERS. (a) Each Shareholder
hereby agrees not to:
(i) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any shares of Company Common Stock
owned by such Shareholder, other than as provided herein;
-38-
<PAGE>
(ii) grant any proxies or enter into a voting agreement or
other arrangement with respect to any shares of Company Common Stock
owned by such Shareholder; or
(iii) deposit any shares of Company Common Stock owned by such
Shareholder into a voting trust.
(b) Each Shareholder hereby agrees not to take any action that would
make any representation or warranty herein of such Shareholder or the Company
untrue or incorrect in any material respect or that would have the effect of
preventing or disabling such Shareholder from performing its obligations under
this Agreement.
(c) Each Shareholder hereby waives any and all dissenter's rights
with respect to Company Common Stock granted pursuant to Article 15 of the
Pennsylvania BCL.
(d) Each Shareholder hereby agrees to surrender the Certificates
owned by such Shareholder in exchange for certificates representing shares of
Parent Common Stock and cash, if applicable, within one (1) Business Day after
the Effective Time.
(e) Simultaneously with the execution hereof, each Shareholder which
is an "accredited investor" shall execute and deliver to counsel to the Company,
with instructions to said counsel to deliver same immediately prior to the
Effective Time, an Accredited Investor Certification in the form of EXHIBIT A
hereto which shall be deemed effective as of the Effective Time.
SECTION 7.12 TRANSFER RESTRICTIONS AFTER THE EFFECTIVE TIME. Each
Shareholder hereby agrees that, from and after the Effective Time:
(a) LOCK-UP. Such Shareholder shall not sell or otherwise
reduce its risk relative to any shares of Parent Common Stock received
by it in the Merger (within the meaning of Financial Reporting Policy,
Section 201.01), except as permitted by Staff Accounting Bulletin No.
76 issued by the SEC, until Parent has filed with the SEC its
Quarterly Report on Form 10-Q for the fiscal quarter ending September
30, 1996.
(b) SECURITIES ACT COMPLIANCE. Such Shareholder shall not
offer, sell, or otherwise dispose of the shares of Parent Common Stock
received by such Shareholder in connection with the Merger other than
(i) pursuant to an effective registration statement under the
Securities Act, or (ii) otherwise pursuant to an exemption from the
registration requirements of the Securities Act.
-39-
<PAGE>
SECTION 7.13 REGISTRATION RIGHTS AGREEMENTS. Simultaneously with the
execution hereof, Parent and each Shareholder shall execute and deliver to
counsel to Parent in the case of Parent, and counsel to the Company in the case
of each Shareholder, with instructions to said counsel to deliver the same
immediately prior to the Effective Time, a registration rights agreement in the
form of EXHIBIT C hereto, which agreement shall be effective as of the Effective
Time.
SECTION 7.14 CERTAIN SHAREHOLDER SECURED LOAN ARRANGEMENTS.
Simultaneously with the execution and delivery hereof, each of J. Randall
Grespin, Gary D. Weller, William P. Ratz, Ronald J. Fulton, Alan H. Herman,
Robert S. Salva and Steven S. Wevodau shall enter into a written agreement with
Pennsylvania State Bank ("PSB"), in form and substance satisfactory to Parent,
providing (a) that such Shareholder shall, as of the Effective Time, substitute
for shares of Company Common Stock held by PSB as collateral security for such
Shareholder's loan from PSB evidenced by the certain promissory notes evidencing
such loans and the certain Pledge Priority Agreements, dated April 5, 1995 in
the case of Gary D. Weller and March 14, 1995 in the case of the other such
Shareholders, such number of shares of Parent Common Stock issued to such
Shareholder pursuant to this Agreement as PSB shall require, (b) that PSB shall,
upon the delivery to PSB by Parent of certificates representing such number of
shares of Parent Common Stock issuable to such Shareholder pursuant to this
Agreement as PSB shall require as substituted collateral, deliver to Parent the
certificates representing such Shareholder's shares of Company Common Stock held
by PSB as collateral, free and clear of all liens, claims and encumbrances of
PSB, and (c) that, upon such substitution of collateral, PSB will terminate the
Company's guarantee of said loan. Simultaneously with the execution hereof,
each such Shareholder shall execute and deliver to Parent such stock powers,
allonge endorsements or other instruments and documents as shall be required by
PSB and/or Parent to effectuate said substitution of collateral.
SECTION 7.15 TERMINATION OF SHAREHOLDERS' AGREEMENTS.
Simultaneously with the execution and delivery hereof, the Company and each
Shareholder which is a party to a shareholders' or similar agreement disclosed
in SCHEDULE 3.32 shall enter into a written agreement, in form and substance
satisfactory to Parent, terminating such agreements, as of the Effective Time
without further obligation of the Company or the Surviving Corporation
thereunder.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to
-40-
<PAGE>
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the condition that no preliminary or permanent injunction or
other order, decree or ruling issued by any court of competent jurisdiction nor
any statute, rule, regulation or order entered, promulgated or enacted by any
governmental, regulatory or administrative agency or authority shall be in
effect that would prevent the consummation of the Merger as contemplated hereby.
SECTION 8.02 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT
THE MERGER. The obligation of the Company to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Parent and Acquisition shall have performed and complied in
all material respects with all obligations and agreements required to
be performed and complied with by them under this Agreement at or
prior to the Effective Time;
(b) the representations and warranties of Parent and Acquisition
contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such
date, except as otherwise contemplated or permitted by this Agreement;
(c) the Company shall have received a certificate from the Chief
Executive Officer of Parent, dated as of the Effective Time, to the
effect that the conditions set forth in paragraphs (a) and (b) above
have been satisfied;
(d) the Company shall have received the opinion of Shanley &
Fisher, P.C., counsel to Parent and Acquisition, substantially in the
form of EXHIBIT D attached hereto; and
(e) the Company shall have received the opinion of Eckert
Seamans Cherin & Mellott, counsel to the Company, that (i) the Merger
will constitute a reorganization for United States Federal income tax
purposes within the meaning of Section 368(a)(1)(A) of the Code, (ii)
Parent, Acquisition and the Company will each be a party to the
reorganization within the meaning of Section 368(b) of the Code, (iii)
no gain or loss will be recognized by the Company pursuant to the
Merger and (iv) no gain or loss will be recognized by the Shareholders
to the extent their shares of the capital stock of the Company are
converted into and exchanged for solely Parent Common Stock (except to
the extent that cash is received in lieu of a fractional share
interest).
-41-
<PAGE>
SECTION 8.03 CONDITIONS TO THE OBLIGATION OF PARENT AND ACQUISITION
TO EFFECT THE MERGER. The obligation of Parent and Acquisition to effect the
Merger shall be subject to the fulfillment at or prior to the Effective Time of
the following additional conditions:
(a) the Company and each of the Shareholders shall have
performed and complied in all material respects with all obligations
and agreements required to be performed and complied with by it under
this Agreement at or prior to the Effective Time;
(b) the representations and warranties of the Company and of the
Shareholders contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at
and as of such date, except as otherwise contemplated or permitted by
this Agreement;
(c) Parent shall have received a certificate from the President
of the Company, dated as of the Effective Time, to the effect that the
conditions set forth in paragraphs (a) and (b) above have been
satisfied;
(d) Parent shall have determined in its opinion that the
business combination to be effected by the Merger is to be accounted
for as a pooling-of-interests by Parent for purposes of its
consolidated financial statements under GAAP and applicable SEC rules
and regulations;
(e) Parent and Acquisition shall have received the opinion of
Eckert Seamans Cherin & Mellott, counsel to the Company, substantially
in the form of EXHIBIT E attached hereto;
(f) The Company shall have received and delivered to Parent, in
form and substance satisfactory to Parent, (i) the written waiver by
Traditional Equinet Business Corporation ("TRAEBCO") of its right to
purchase or otherwise acquire the Company pursuant to the Agreement
dated September 1, 1987 among TRAEBCO, the Company, Underwriters
Service of Maryland, Inc. and the certain other parties thereto, as
amended, and the consent of TRAEBCO to the Merger, (ii) the written
waiver by The Mutual Life Insurance Company of New York ("MONY") of
its right to purchase or otherwise acquire the Company pursuant to the
Agreement dated January 1, 1990 between MONY and the Company, as
amended, and the consent of MONY to the Merger and (iii) the written
waiver by The Decter Group, Inc. ("Decter") of its rights to require
the Company to purchase all of the outstanding capital stock
-42-
<PAGE>
of Decter in exchange for Company Common Stock pursuant to the Joint
Venture Agreement dated January 2, 1992 between Decter and the
Company, and the consent by Decter to the Merger;
(g) Parent shall have received satisfactory evidence of the
approval of the Merger by the holders of at least ninety-one (91%)
percent of the outstanding shares of Company Common Stock and each
such holder shall have executed and delivered this Agreement;
(h) Parent shall have received reasonable assurance that all
material relationships with Contract Parties shall remain in force and
effect after the Effective Time upon substantially the same terms in
effect prior to the Effective Time; and
(i) Each Shareholder shall have obtained and shall have
delivered to Parent such spousal consent to the transactions
contemplated by this Agreement as shall be required by applicable law.
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.01 TERMINATION AND ABANDONMENT. This Agreement may be
terminated and the Merger may be abandoned prior to the Effective Time:
(a) by mutual action of the Boards of Directors of Parent and
the Company; or
(b) by either the Parent or the Company if the Effective Time
shall not have occurred on or before thirty (30) days after the
signing of this Agreement.
SECTION 9.02 EFFECT OF TERMINATION. Except as provided in Section
10.02 hereof with respect to expenses and certain indemnities, in the event of
the termination of this Agreement and the abandonment of the Merger pursuant to
Section 9.01, this Agreement shall thereafter become void and have no effect,
and no party hereto shall have any liability to any other party hereto or its
shareholders or directors or officers in respect thereof, except that nothing
herein shall relieve any party from liability for any willful breach hereof.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 SURVIVAL OF CERTAIN REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and the Shareholders in this
Agreement and in any instrument delivered pursuant hereto shall survive the
Effective Time until the
-43-
<PAGE>
publication of the first independent audit report on the consolidated financial
statements of Parent after the Effective Time, PROVIDED that this Section 10.01
shall not limit any other covenant or agreement of the parties that by its terms
contemplates performances beyond such period.
SECTION 10.02 FEES AND EXPENSES. (a) Whether or not the
transactions contemplated by this Agreement are consummated, neither the Company
and the Shareholders, on the one hand, and Parent and Acquisition, on the other
hand, shall have any obligation to pay any of the fees and expenses of the other
incident to the negotiation, preparation and execution of this Agreement,
including, without limitations, the fees and expenses of counsel, accountants,
advisors, investment bankers and other experts, and Parent shall pay all such
fees and expenses incurred by Acquisition.
(b) The Company, on the one hand, and Parent and Acquisition, on the
other hand, shall indemnify the other and hold it harmless from and against any
claims for advisor's fees, finders' fees or brokerage commissions, in relation
to or in connection with such transactions as a result of any agreement or
understanding between such indemnifying party and any third party.
SECTION 10.03 PUBLICITY. The Company and the Shareholders and Parent
agree that they will not issue any press release or make any other public
announcement concerning this Agreement or the transactions contemplated hereby
without the prior consent of the other party, except that the Company or Parent
may make such public disclosure that it believes in good faith to be required by
law.
SECTION 10.04 EXECUTION IN COUNTERPARTS. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 10.05 NOTICES. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered by hand or national
overnight courier service, transmitted by telecopy or mailed by registered or
certified mail, postage prepaid, as follows:
If to Parent and/or Acquisition, to:
The BISYS Group, Inc.
Overlook at Great Notch
150 Clove Road
Little Falls, New Jersey 07424
Attention: Chairman and Chief Executive Officer
-44-
<PAGE>
with a copy to:
The BISYS Group, Inc.
Overlook at Great Notch
150 Clove Road
Little Falls, New Jersey 07424
Attention: General Counsel
If to the Company and/or the Shareholders, to:
T.U.G., Inc.
4251 Crums Mill Road
Harrisburg, Pennsylvania 17112
Attention: President
with a copy to:
Eckert Seamans Cherin & Mellott
Market Square Building
213 Market Street
Harrisburg, Pennsylvania 17101
Attention: Christopher Cicconi, Esq.
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
SECTION 10.06 WAIVERS. The Company, on the one hand, and Parent and
Acquisition, on the other hand, may, by written notice to the other, (a) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement; (b) waive any inaccuracies in the representations or
warranties of the other contained in this Agreement or in any document delivered
pursuant to this Agreement; (c) waive compliance with any of the conditions of
the other contained in this Agreement; or (d) waive performance of any of the
obligations of the other under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
SECTION 10.07 ENTIRE AGREEMENT. This Agreement, its Schedules and
the agreements and documents executed at the Effective Time in connection
herewith constitute the entire agreement among the parties hereto with
-45-
<PAGE>
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, among the parties hereto with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by any party that is not embodied in this
Agreement or such other documents, and none of the parties shall be bound by, or
be liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein.
SECTION 10.08 APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to principles of conflict of laws.
SECTION 10.09 BINDING EFFECT, BENEFITS. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective permitted successors and assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement; PROVIDED, HOWEVER, that the
provisions of Section 7.09 hereof shall accrue to the benefit of, and shall be
enforceable by, each of the current and former directors and officers of the
Company.
SECTION 10.10 ASSIGNABILITY. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without the
prior written consent of the other parties hereto.
SECTION 10.11 AMENDMENTS. This Agreement may be modified, amended or
supplemented at any time by action of the respective Boards of Directors of the
Company, Parent and Acquisition, and the Shareholders. Without limiting the
generality of the foregoing, this Agreement may only be amended, varied or
supplemented by an instrument in writing, signed by the parties hereto.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
have executed and delivered this Agreement and Plan of Merger as of the day and
year first above written.
THE BISYS GROUP, INC.
By:/s/ Lynn J. Mangum
---------------------------
Lynn J. Mangum
Chairman and
Chief Executive Officer
[signatures continued on next page]
-46-
<PAGE>
[signatures continued from prior page]
BITUG ACQUISITION CORP.
By:/s/ Lynn J. Mangum
---------------------------
Lynn J. Mangum
Chairman
T.U.G., INC.
By:/s/ Anthony A. Pascotti
---------------------------
Name: Anthony A. Pascotti
Title: Chief Executive Officer
Number of
Shares of Company
Common Stock Owned: SHAREHOLDERS:
- -------------------
/s/ Anthony A. Pascotti
-------------------------------------
1,830,012 Anthony A. Pascotti
1205 Galloway Lane
Harrisburg, Pennsylvania 17111
/s/ J. Randall Grespin
-------------------------------------
197,928 J. Randall Grespin
34 Banbury Road
Hummelstown, Pennsylvania 17036
/s/ Gary D. Weller /s/ Susan A. Weller
-------------------------------------
133,92 Gary D. Weller and Susan A. Weller
131 Briarwood Court
Camp Hill, Pennsylvania 17011
/s/ Arthur A. Kusic
-------------------------------------
28,316 Arthur A. Kusic
6800 Cornell Road
Harrisburg, Pennsylvania 17110
/s/ Ronald J. Fulton
--------------------
25,974 Ronald J. Fulton
2307 Buckingham Avenue
Mechanicsburg, Pennsylvania 17055
[signatures continued on next page]
-47-
<PAGE>
[signatures continued from prior page]
Number of
Shares of Company
Common Stock Owned: SHAREHOLDERS:
- -------------------
/s/ Alan H. Herman
-------------------------------------
25,974 Alan H. Herman
5026 Inverness Drive
Mechanicsburg, Pennsylvania 17055
/s/ William P. Ratz
-------------------------------------
25,974 William P. Ratz
520 Devon Road
Camp Hill, Pennsylvania 17011
/s/ Crisa S. Hamilton
-------------------------------------
19,851 Crisa S. Hamilton
4419 St. Andrews Way
Harrisburg, Pennsylvania 17110
/s/ James V. Medici
-------------------------------------
19,851 James V. Medici
130 Rodney Lane
Camp Hill, Pennsylvania 17011
/s/ Robert S. Salva
-------------------------------------
19,851 Robert S. Salva
2600 Outerbridge Road
Harrisburg, Pennsylvania 17110
/s/ Steven C. Leisher
-------------------------------------
14,148 Steven C. Leisher
6550 Via Alcazar
Carlsbad, California 92009
/s/ Steven Wevodau & Judith A. Wevodau
-------------------------------------
11,227 Steven Wevodau & Judith A. Wevodau
6347 Locust Lane
Mechanicsburg, Pennsylvania 17055
[signatures continued on next page]
-48-
<PAGE>
[signatures continued from prior page]
Number of
Shares of Company
Common Stock Owned:
- -------------------
/s/ Patricia A. Heins
-------------------------------------
7,500 Patricia A. Heins
708 4th Street
New Cumberland, Pennsylvania 17055
/s/ Betty Fenicle
-------------------------------------
2,500 Betty Fenicle
29 Judy Lane
Harrisburg, Pennsylvania 17112
/s/ Lucille Greenwell
-------------------------------------
2,500 Lucille Greenwell
9823 Hollow Glen Place
Silver Spring, Maryland 20910
243206
-49-
<PAGE>
INDEX TO DEFINED TERMS
Term Section Reference
- -------- -----------------
"Accredited Investor Certification" 4.04(e)
"Acquisition" Preamble
"Affiliate" 3.20
"Balance Sheet" 3.08(a)
"Business Day" 1.03
"Certificate" 2.03(a)
"Code" Preamble
"Company" Preamble
"Company Common Stock" 2.01(a)
"Company Employees" 7.06(a)
"Company Investments" 3.17
"Company Licenses" 3.28
"Constituent Corporations" Preamble
"Contract Parties" 3.10
"Decter" 8.03(f)
"Delaware GCL" Recitals
"Effective Time" 1.03
"Employee and Other Licenses" 3.28
"Employment Agreement" 7.06(b)
"ERISA" 3.12(b)
"Exchange Act" 5.09
"Financial Statements" 3.08(a)
"GAAP" 3.08(a)
"Grespin" Preamble
"Indemnification Termination Date" 7.09(e)
"Intellectual Rights" 3.09
"Major Suppliers and Consultants" 3.11
"Management Shareholders" Preamble
"Material Adverse Effect" 3.03
"Merger" Recitals
"MONY" 8.03(f)
"Non-Competition Agreements" 7.05
"Owned Source Codes" 3.29(c)
"PSB" 7.14
"Parent" Preamble
"Parent Common Stock" Recitals
"Pascotti" Preamble
"Pennsylvania BCL" Recitals
"Private Placement Memorandum" 5.06
"Public Information" 4.04(j)
"Purchaser Representative" 4.04(m)
"Related Party Loans" 3.30
"Related Party Notes" 3.30
"Restricted Subsidiary" 7.01(a)
"SEC" 4.04(b)
"Securities Act" 4.04(a)
"Securities Exchange Act" 5.09
"Shareholders" Preamble
"Software" 3.29(a)
"Software Contracts" 3.29(b)
"Shareholders" Recitals
"Subsidiary" 3.03
<PAGE>
"Subsidiary Balance Sheet" 3.08(b)
"Subsidiary Financial Statements" 3.08(b)
"Surviving Corporation" Preamble
"TRAEBCO" 8.03(f)
"Weller" Preamble
"1989 Plan" 5.03
<PAGE>
REGISTRATION RIGHTS AGREEMENT
June 28, 1996
To each of the persons
named on Schedule I hereto:
Dear Sirs:
This will confirm that, in consideration of the consummation of the merger
of BITUG Acquisition Corp. ("Acquisition"), a wholly-owned subsidiary of The
BISYS Group, Inc. (the "Company"), with and into T.U.G., Inc. ("TUG"), pursuant
to the Agreement and Plan of Merger dated as of June 28, 1996 among the Company,
Acquisition, TUG and the shareholders of TUG named therein, including you, in
which an aggregate number of shares of Common Stock, $.02 par value, of the
Company (the "Shares"), set forth on Schedule I hereto opposite your name will
be issuable to you upon conversion of shares of common stock, par value $.01
per share of TUG held by you, the Company hereby covenants and agrees with each
of you, as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms shall have
the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock, $.02 par value, of the
Company, as constituted as of the date of this Agreement, subject to
adjustment pursuant to the provisions of Section 6 hereof.
"EFFECTIVE TIME" shall mean the Effective Time of the Merger, as
defined in the Merger Agreement.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"MERGER" shall mean the merger of Acquisition with and into TUG
pursuant to the Merger Agreement.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger dated
as of June 28, 1996 among the Company, Acquisition, TUG and each of the
shareholders of TUG.
"REGISTERABLE STOCK" shall mean any shares of Common Stock issued to
you in the Merger, including the shares
<PAGE>
of Common Stock pledged to the Company and to Pennsylvania State Bank
pursuant to Sections 7.06 and 7.19 of the Merger Agreement, and not
transferred in a public sale registered under the Securities Act or in
accordance with the provisions of Rule 144 under the Securities Act.
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 5 hereof.
"REGISTRATION PERIOD" shall mean the period commencing upon the
termination of the restrictions imposed by Section 7.12(a) of the Merger
Agreement and ending on the third anniversary of the Effective Time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean the expenses so described in Section 5
hereof.
2. REQUIRED REGISTRATION.
(a) At any time during the Registration Period, any holder or holders
of the majority of the Registerable Stock may request the Company to register
under the Securities Act such Registerable Stock for public sale.
(b) Promptly following receipt of any notice under this Section 2,
the Company shall notify any holders of Registerable Stock from whom notice has
not been received and shall use its best efforts to register under the
Securities Act for public sale the number of shares of Registerable Stock
specified in such notice (and in any notices received from other holders within
20 days after notice from the Company). The Company, at its sole option, may
elect to register such Registerable Stock for an underwritten public offering,
and, in such event, the Company shall designate the managing underwriter of such
offering. The Company shall not be obligated to effect registration of
Registerable Stock pursuant to this Section 2 on more than one occasion.
(c) Notwithstanding the foregoing, the Company shall not be obligated
to take any action to effect any registration pursuant to this Section 2 hereof:
(i) within 180 days after the effective date of any registration
statement pertaining to an underwritten public offering of securities of
the Company for its own account;
-2-
<PAGE>
(ii) at any time that the Company has filed or is in good faith
planning to file within 120 days after receipt by the Company of the
request for registration a registration statement on Form S-4 or any
successor form pertaining to shares of Common Stock to be issued in
connection with any merger, consolidation, acquisition of assets (outside
of the ordinary course of business) or capital stock, or other business
combination involving the Company or any subsidiary of the Company; or
(iii) at any time after the expiration of the Registration
Period.
3. INCIDENTAL REGISTRATION. If the Company at any time during the
Registration Period (other than pursuant to Section 2 hereof) proposes to
register any of its Common Stock under the Securities Act for sale to the
public, whether for its own account or for the account of other securityholders
or both (except with respect to registration statements on Forms S-4 or S-8 or
another form not available for-registering Registerable Stock for sale to the
public), it will give notice at such time to all holders of outstanding
Registerable Stock of its intention to do so. Upon the written request of any
such holder, given within 20 days after receipt of any such notice by the
Company, to register any of its Registerable Stock (which request shall state
the intended method of disposition thereof), the Company will use its best
efforts to cause the Registerable Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Registerable Stock so registered. In the event that
any registration pursuant to this Section 3 shall be an underwritten public
offering of Common Stock, the Registerable Stock to be included in such
registration shall be included on the same terms and conditions as the shares of
Common Stock otherwise being sold through underwriters under such registration.
Notwithstanding the foregoing, the number of shares of Registerable Stock to be
included in such an underwriting may be reduced (PRO RATA among the requesting
holders based upon the number of shares of Registerable Stock so requested to be
registered) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold therein by any other seller (including without limitation
the Company).
Notwithstanding anything to the contrary contained in this Section 3, in
the event that there is a firm commitment underwritten public offering of
securities of the Company pursuant to a registration covering Registerable
Stock, and a holder of
-3-
<PAGE>
Registerable Stock does not elect to sell his Registerable Stock to the
underwriters of the Company's securities in connection with such offering, such
holder shall refrain from selling such Registerable Stock so registered pursuant
to this Section 3 during the period of distribution of the Company's securities
by such underwriters and the period in which the underwriting syndicate
participates in the aftermarket.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 2 or Section 3 hereof to use its best efforts to
effect the registration of any of the Registerable Stock under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such securities (which shall be on Form S-3 if the Company
is then eligible to use such form and otherwise on Form S-1 or other form
of general applicability acceptable to the Company), and shall use its best
efforts to cause such registration statement to become and remain effective
for the period of distribution set forth hereinbelow;
(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 of distribution set forth hereinbelow;
(c) furnish to each seller and to each underwriter, if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request in order to
facilitate the public sale or other disposition of the Registerable Stock
covered by such registration statement;
(d) use its best efforts to register or qualify the Registerable
Stock covered by such registration statement under the securities or blue
sky laws of a reasonable number of jurisdictions (provided that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
jurisdiction):
(e) promptly notify each seller of Registerable Stock and the
managing underwriters, if any, and (if requested by any such person)
confirm such advice in
-4-
<PAGE>
writing, (i) when such registration statement or any amendment or
supplement thereto or to the prospectus or preliminary prospectus contained
therein has been filed, (ii) of any request by the Commission for
amendments or supplements to such registration statement or prospectus or
for additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of such registration statement or
the initiation of proceedings for that purpose, or (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification of the Registerable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for that purpose;
(f) immediately notify each seller under such registration statement
and each 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 a 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, and promptly thereafter prepare and file with
the Commission a supplement or amendment to such prospectus, such
registration statement or any document incorporated therein by reference,
or make such other filing, such that as thereafter delivered to the
purchasers of Registerable Stock, the prospectus will not contain an untrue
statement of material fact or omit to state any material fact necessary to
make the statements therein not misleading;
(g) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement;
(h) in the case of an underwritten offering of Registerable Stock, if
requested by the managing underwriter or underwriters of such offering or
by any selling holder of Registerable Stock, promptly incorporate in a
prospectus supplement or post-effective amendment to such registration
statement such information as such managing underwriter or underwriters
shall agree should be included relating to the plan of distribution of such
Registerable Stock, including without limitation information with respect
to the number of shares of Registerable Stock being sold to the
underwriters, the purchase price being paid therefor by the underwriters
and other material terms of such underwriting), and file
-5-
<PAGE>
with the Commission such supplement or post-effective amendment as promptly
as practicable after notification of the information to be incorporated
therein;
(i) make available for inspection by each seller, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by such seller or
underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors
and employees to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement and permit such seller, attorney, accountant or
agent to participate in the preparation of such registration statement.
For purposes of Section 4(a) and (b) above, the period of distribu-tion of
Registerable Stock 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 the period of distribution of Registerable Stock
in any other registration shall be deemed to extend until the earlier to occur
of the sale of all Registerable Stock covered thereby or eighteen months after
the effective date thereof.
In connection with each registration hereunder, the selling holders of
Registerable Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as shall be
reasonably necessary in order to assure compliance with federal and applicable
state securities laws.
5. EXPENSES. All expenses incurred by the Company in complying with
Sections 2, 3 and 4 hereof, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes and fees of transfer agents and
registrars, but excluding any Selling Expenses (hereinafter defined), are herein
called "Registration Expenses." All underwriting discounts and selling
commissions applicable to the sale of Registerable Stock are herein called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with the
registration statements filed pursuant to Section 2 or Section 3 hereof. All
Selling Expenses in connection with such registration statements, shall be borne
by the participating sellers in proportion to the number of shares sold by
-6-
<PAGE>
each, or by such persons other than the Company (except to the extent the
Company shall be a seller) as they may agree.
6. INDEMNIFICATION. In the event of a registration of any of the
Registerable Stock under the Securities Act pursuant to Section 2 or Section 3
hereof, the Company will indemnify and hold harmless each seller of such
Registerable Stock thereunder, each partner, officer and director or each such
seller, each underwriter of Registerable Stock thereunder and each other person,
if any, who controls such seller or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such seller, partner, officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registerable Stock was registered under the Securities Act
pursuant to Section 2 or Section 3 hereof any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation promulgated
under any of the same in connection with the offering covered by such
registration statement, and the Company will reimburse each such seller,
partner, officer and director, each such underwriter and each such 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 Company 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 reliance upon and in conformity with information
furnished by such seller or any of its partners, officers, directors, such
underwriter or such controlling person in writing specifically for use in such
registration statement or prospectus.
In the event of a registration of any of the Registerable Stock under the
Securities Act pursuant to Section 2 or Section 3 hereof, each seller of such
Registerable Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Securities
Act, against all losses, claims, damages or liabilities, joint or several, to
which the Company or such officer or director or underwriter or controlling
-7-
<PAGE>
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such
Registerable Stock was registered under the Securities Act pursuant to Section 2
hereof, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, (ii) 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, or (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under any of the same in connection with
the offering covered by such registration statement, and each such seller will
reimburse the Company 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 such seller 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 made in reliance upon
and in conformity with information furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus.
Notwithstanding the foregoing, (i) no seller shall be liable for payments of
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of such seller (which consent
shall not be unreasonably withheld), and (ii) in no event shall the liability of
any seller of Registerable Stock under this Section 6 in connection with any
registration exceed the proceeds received by such seller from the sale of shares
of Registerable Stock in such registration.
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 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 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 6 for any
legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof
-8-
<PAGE>
other than reasonable costs of investigation and of liaison with counsel so
selected; PROVIDED, HOWEVER, that, 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 which 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, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses 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.
Notwithstanding the foregoing, any indemnified party shall have the right
to retain its own counsel in any such action, but the fees and disbursements of
such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party shall have failed to retain counsel for the indemnified
person as aforesaid or (ii) the indemnifying party and such indemnified party
shall have mutually agreed to the retention of such counsel. It is understood
that the indemnifying party shall not, in connection with any action or related
actions in the same jurisdiction, be liable for the fees and disbursements of
more than one separate firm qualified in such jurisdiction to act as counsel for
the indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
If the indemnification provided for in the first two paragraphs of this
Section 6 is unavailable or insufficient to hold harmless an indemnified party
under such paragraphs in respect of any losses, claims, damages or liabilities
or actions in respect thereof referred to therein, 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 appropriate to reflect the
relative fault of the Company, on the one hand, and the underwriters and the
sellers of such Registerable Stock, 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 notice under the third paragraph of this
Section 6. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
relates to information supplied by the Company, on the one hand, or the
underwriters and the sellers of such Registerable Stock, on the
-9-
<PAGE>
other, and to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each of you agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by PRO rata allocation (even if all
of the sellers of such Registerable Stock were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
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. Notwithstanding the provisions of this paragraph, the sellers
of such Registerable Stock shall not be required to contribute any amount in
excess of the amount, if any, by which the total price at which the Common Stock
sold by each of them was offered to the public exceeds the amount of any damages
which they would have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
The indemnification of underwriters provided for in this Section 6 shall be
on such other terms and conditions as are at the time customary and reasonably
required by such underwriters, and the indemnification of the sellers of
Registerable Stock in such underwriting shall, at the sellers' request, be
modified to conform to such terms and conditions.
7. CHANGES IN COMMON STOCK. If, and as often as, there are any changes
in the Common Stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.
8. CURRENT PUBLIC INFORMATION. The Company agrees with you as follows:
(a) The Company shall use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule
144 under the Securities Act, at all times from and after the date hereof.
(b) The Company shall use its best efforts to file with the
Commission in a timely manner all reports and
-10-
<PAGE>
other documents as the Commission may prescribe under Section 13(a) or
15(d) of the Exchange Act.
(c) The Company shall furnish to such holder of Registerable Stock
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from
and after the date it first becomes subject to such reporting requirements,
and of the Securities Act and the Exchange Act (at any time after it has
become subject to such reporting requirements), (ii) a copy of the most
recent annual or quarterly report of the Company, and (iii) such other
reports and documents so filed as a holder may reasonably request to avail
itself of any rule or regulation of the Commission allowing a holder of
Registerable Stock to sell any such securities without registration.
9. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall become
effective at the Effective Time. If the Effective Time shall not occur, this
Agreement shall be of no force and effect.
10. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not, PROVIDED, HOWEVER, that the obligations of the Company hereunder shall
inure only to the benefit of you and a person who shall become a holder of
Registerable Stock by will or the laws of descent and distribution, and the term
"Registerable Stock" as used herein shall be limited to Registerable Stock held
by you or any such person.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by first class registered
mail, postage prepaid, addressed as follows:
if to the Company, to it at Overlook at Great Notch, 150 Clove
Road, Little Falls, New Jersey 07424, Attention: Chairman and Chief
Executive Officer;
if to any holder of Registerable Stock, at its address as set
forth in Annex I hereto;
if to any subsequent holder of Registerable Stock pursuant to
Section 10(b) hereof to it at such address as may have been furnished
to the Company in writing by such holder;
-11-
<PAGE>
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of
Registerable Stock or to such holders of Registerable Stock (in the
case of the Company).
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware.
(d) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except in writing signed by the holders of not less than a majority of the
Registerable Stock.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this letter (herein sometimes
called "this Agreement") shall be a binding agreement between the Company and
you.
Very truly yours,
THE BISYS GROUP, INC.
By: /s/ Lynn J. Mangum
--------------------------
Name: Lynn J. Mangum
Title: Chairman and Chief
Executive Officer
AGREED TO AND ACCEPTED
as of the date first
above written.
/s/ Anthony A. Pascotti
- ------------------------------
Anthony A. Pascotti
/s/ J. Randall Grespin
- ------------------------------
J. Randall Grespin
[signatures continued on next page]
-12-
<PAGE>
[signatures continued from preceding page]
/s/ Gary D. Weller /s/ Susan A. Weller
- ----------------------------------------
Gary D. Weller and Susan A. Weller
/s/ Arthur A. Kusic
- ----------------------------------------
Arthur A. Kusic
/s/ Ronald J. Fulton
- ----------------------------------------
Ronald J. Fulton
/s/ Alan H. Herman
- ----------------------------------------
Alan H. Herman
/s/ William P. Ratz
- ----------------------------------------
William P. Ratz
/s/ Crisa S. Hamilton
- ----------------------------------------
Crisa S. Hamilton
/s/ James V. Medici
- ----------------------------------------
James V. Medici
/s/ Robert S. Salva
- ----------------------------------------
Robert S. Salva
Steven C. Leisher
- ----------------------------------------
Steven C. Leisher
/s/ Steven Wevodau /s/ Judith A. Wevodau
- ----------------------------------------
Steven Wevodau and Judith A. Wevodau
/s/ Patricia A. Heins
- ----------------------------------------
Patricia A. Heins
/s/ Betty Fenicle
- ----------------------------------------
Betty Fenicle
/s/ Lucille Greenwell
- ----------------------------------------
Lucille Greenwell
-13-
<PAGE>
SCHEDULE I
Number of Shares
Name and Address of Common Stock
- ---------------- ----------------
Anthony A. Pascotti 380,093
1205 Galloway Lane
Harrisburg, PA 17111
J. Randall Grespin 41,109
34 Banbury Road
Hummelstown, PA 17036
Gary D. Weller and Susan A. Weller 27,816
131 Briarwood Court
Camp Hill, PA 17011
Arthur A. Kusic 5,881
6800 Cornell Road
Harrisburg, PA 17110
Ronald J. Fulton 5,394
2307 Buckingham Avenue
Mechanicsburg, PA 17055
Alan H. Herman 5,394
5026 Inverness Drive
Mechanicsburg, PA 17055
William P. Ratz 5,394
520 Devon Road
Camp Hill, PA 17011
Crisa S. Hamilton 4,123
4419 St. Andrews Way
Harrisburg, PA 17110
James V. Medici 4,123
130 Rodney Lane
Camp Hill, PA 17011
Robert S. Salva 4,123
2600 Outerbridge Road
Harrisburg, PA 17110
Steven C. Leisher 2,938
6550 Via Alcazar
Carlsbad, CA 92009
Steven Wevodau and Judith A. Wevodau 2,331
6347 Locust Lane
Mechanicsburg, PA 17055
Patricia A. Heins 1,557
708 4th Street
New Cumberland, PA 17055
<PAGE>
Number of Shares
Name and Address of Common Stock
- ---------------- ----------------
Betty Fenicle 519
29 Judy Lane
Harrisburg, PA 17112
Lucille Greenwell 519
9823 Hollow Glen Place
Silver Spring, MD 20910
<PAGE>
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
THE BISYS GROUP, INC. AND SUBSIDIARIES
For the Years Ended June 30, 1996, 1995 and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
Primary:
- ----------
<S> <C> <C> <C>
Net earnings (loss) attributable to common stock $18,024 ($6,484) $18,891
-------- -------- --------
-------- -------- --------
Weighted average number of common shares outstanding 23,704 22,819 20,249
Common shares issuable under stock option plans 2,944 2,694 2,725
Less shares assumed repurchased with proceeds (1,580) (1,332) (502)
-------- -------- --------
Weighted average number of common and common
equivalent shares outstanding 25,068 24,181 22,472
-------- -------- --------
-------- -------- --------
Net earnings (loss) per common share $0.72 ($0.27) $0.84
-------- -------- --------
-------- -------- --------
Fully Diluted:
- --------------
Net earnings (loss) attributable to common stock $18,024 ($6,484) $18,891
-------- -------- --------
-------- -------- --------
Weighted average number of common shares outstanding 23,704 22,819 20,249
Common shares issuable under stock option plans 2,944 2,694 2,725
Less shares assumed repurchased with proceeds (1,256) (1,332) (502)
-------- -------- --------
Weighted average number of common and common
equivalent shares outstanding 25,392 24,181 22,472
-------- -------- --------
-------- -------- --------
Net earnings (loss) per common share $0.71 ($0.27) $0.84
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
- ------------------------
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
FOR YEARS ENDED JUNE 30, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Revenues $247,061 $200,527 $170,799 $112,413 $ 88,253
-----------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 131,708 105,163 83,567 49,963 40,479
General and administrative 39,980 46,953 33,843 23,062 19,346
Selling and conversion 9,248 8,988 13,592 9,046 6,339
Research and development 10,176 9,392 8,895 7,359 6,024
Amortization of intangibles 3,811 5,095 3,097 653 21,041
Merger expenses and other charges 22,250 28,340 _ 9,138 9,323
-----------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) 29,888 (3,404) 27,805 13,192 (14,299)
Interest (income) expense (372) 649 887 (722) 4,892
-----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income tax provision 30,260 (4,053) 26,918 13,914 (19,191)
Income tax provision 12,236 2,431 8,027 6,791 1,505
-----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before extraordinary item and
cumulative effect of change in accounting principle 18,024 (6,484) 18,891 7,123 (20,696)
Extraordinary item - - - - 16
Cumulative effect of change in accounting principle _ _ _ 13,700 _
-----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 18,024 (6,484) 18,891 20,823 (20,680)
Preferred stock dividends accrued _ _ _ _ 1,149
-----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable
to common stockholders $ 18,024 $ (6,484) $ 18,891 $ 20,823 $(21,829)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Earnings (loss) before cumulative effect of change
in accounting principle per common share $ 0.72 $ (0.27) $ 0.84 $ 0.34 $ (1.46)
Cumulative effect of change in accounting principle
per common share _ _ _ 0.65 _
-----------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.72 $ (0.27) $ 0.84 $ 0.99 $ (1.46)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 25,068 24,181 22,472 21,030 14,979
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
JUNE 30,
Working capital $ 40,448 $ 5,326 $ 30,888 $ 46,131 $ 4,147
Total assets 214,625 165,338 181,394 98,036 42,144
Long-term debt and capital lease obligations,
including current maturities 1,974 8,405 36,049 456 12,203
Stockholders' equity 143,172 114,627 117,368 74,404 14,141
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The BISYS Group, Inc. and subsidiaries (the "Company") provides
outsourcing solutions to and through financial organizations and reports
as a single segment. The operating margins for each business unit of the
Company are not significantly different. The following table presents the
percentage of revenues represented by each item in the Company's
consolidated statement of operations for the periods indicated:
1996 199 1994
Revenues 100.0% 100.0% 100.0%
------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 53.3 52.5 48.9
General and administrative 16.2 23.4 19.8
Selling and conversion 3.8 4.5 8.0
Research and development 4.1 4.7 5.2
Amortization of intangibles 1.5 2.5 1.8
Merger expenses and other charges 9.0 14.1 _
------------------------------------------------------------------------
Operating earnings (loss) 12.1 (1.7) 16.3
Interest (income) expense (0.2) 0.3 0.5
------------------------------------------------------------------------
Earnings (loss) before income tax provision 12.3 (2.0) 15.8
Income tax provision 5.0 1.2 4.7
------------------------------------------------------------------------
Net earnings (loss) 7.3% (3.2)% 11.1%
------------------------------------------------------------------------
------------------------------------------------------------------------
Revenues increased $46.5 million in fiscal 1996 and $29.7 million in
fiscal 1995, representing increases of 23.2% and 17.4%, respectively.
Growth in fiscal 1996 and 1995 was derived from sales to new clients,
existing client growth, and cross-sales to existing clients partially
offset by lost business. In fiscal 1996, revenues from acquired
businesses were offset by the sale of the Loan Services business.
Service and operating expenses increased $26.5 million in fiscal 1996 and
$21.6 million in fiscal 1995, representing percentage increases of 25.2%
and 25.8%, respectively. Service and operating expenses increased as a
percentage of revenues in fiscal 1996 by 0.8% to 53.3%, and by 3.6% to
52.5% in fiscal 1995. The increases resulted from additional costs
associated with greater revenues, both acquired and internally generated,
and newly acquired businesses having a slightly greater percentage of
service and operating expenses.
General and administrative expenses decreased $7.0 million, or 14.9%, and
decreased as a percentage of revenues by 7.2% to 16.2% in fiscal 1996 and
increased $13.1 million, or 38.7%, in fiscal 1995. The decrease in
fiscal 1996 resulted from synergies gained from the consolidation of
acquired businesses and from further utilization of existing general and
administrative support resources. The increase in fiscal 1995 was a
result of added general and administrative expenses associated with
acquired businesses and additional costs associated with the merger of
Concord Holdings, Inc. ("Concord"), including legal, compensation and
other.
Selling and conversion expenses increased $0.3 million, or 2.9%, and
decreased as a percentage of revenues by 0.7% to 3.8% in fiscal 1996, and
decreased $4.6 million, or 33.9%, and decreased as a percentage of
revenues by 3.5% to 4.5% in fiscal 1995. The decreases in fiscal 1995
resulted from improved utilization of selling and conversion resources
and recent acquisitions having lower selling and conversion components.
Research and development expenses increased $0.8 million to $10.2
million, or 8.3%, in fiscal 1996 and decreased as a percentage of
revenues by 0.6% to 4.1%. In fiscal 1995 such expenses increased from
$8.9 million to $9.4 million or 5.6% and decreased as a percentage of
revenues by 0.5% to 4.7%. The dollar increases resulted from increased
personnel expenses to support greater research and development
activities, and the reduction in percentage of revenues was a result of
acquiring and merging with businesses which do not require substantial
research and development to produce revenues.
Amortization of intangible assets was $3.1 million in fiscal 1994
increasing to $5.1 million in fiscal 1995 and decreasing to $3.8 million
in fiscal 1996. As a percentage of revenues, amortization increased from
1.8% to 2.5% and decreased to 1.5% over the same years. The decrease in
fiscal 1996 amortization and the increase in fiscal 1995
18
<PAGE>
amortization was primarily due to the accelerated amortization in fiscal
1995 of $1.3 million of the goodwill associated with the BISYS loan
services business, which was sold in August 1995.
In fiscal 1996, merger expenses and other charges aggregated $22.2
million. This included transaction related expenses arising from
Strategic Solutions Group, Inc. (Creative Solutions) and T.U.G., Inc.
mergers and commissions and other expenses associated with the
outsourcing alliance with the mutual fund division of Furman Selz, LLC
which, in total, aggregated $15.7 million. The Company also recorded a
charge of $6.0 million to integrate these new operations and to combine
certain TOTALPLUS-Registered Trademark- data center operations and
certain offices of BISYS Document Solutions. Additionally, the Company
wrote off the remaining deferred financing costs of $0.5 million in
conjunction with the expiration of its term loan facility.
In fiscal 1995, merger expenses and other charges aggregated $32.3
million, including $4.0 million which is included in general and
administrative. In conjunction with the Concord merger in March 1995,
the Company incurred the following expenses: merger transaction expenses
of $3.3 million (legal and financial); $12.5 million in costs to combine
operations (severance, facilities write-offs, fixed asset and leasehold
write-offs and other expenses); $4.0 million related to a contract
adjustment due to a change of terms; and a $3.0 million charge-off of an
investment in an affiliate due to impairment of its carrying value. In
connection with the Document Solutions Inc. ("Document Solutions") merger
in May 1995, the transaction expenses were $5.6 million.
Operating earnings increased by $33.3 million to $29.9 million in fiscal
1996 and increased as a percentage of revenues from a loss of 1.7% to
12.1%. The increases were primarily due to revenue gains and the
synergies realized from consolidation of the acquired businesses.
Operating earnings decreased $31.2 million in fiscal 1995, to a loss of
$3.4 million, and decreased as a percentage of revenues from 16.3% to a
loss of 1.7%. The primary reasons for the decrease were the costs
associated with the mergers of Concord and Document Solutions and the
accelerated amortization of impaired goodwill associated with the BISYS
loan services business.
Interest income was $0.4 million in fiscal 1996 compared to interest
expense of $0.6 million in fiscal 1995. In August 1995, the Company paid
off all of its outstanding term loan indebtedness. The existing debt at
fiscal year- end 1996 relates to a newly acquired business. In fiscal
1995, interest expense decreased to $0.6 million from $0.9 million in
fiscal 1994. This resulted from lower levels of outstanding borrowings.
The provision for income taxes decreased from $8.0 million in fiscal 1994
to $2.4 million in fiscal 1995 and increased to $12.2 million in fiscal
1996. The fiscal 1995 provision primarily resulted from the tax benefit
of $1.4 million associated with the pre-tax loss, offset by the tax
effect of nondeductible amortization and merger related expenses totaling
$4.4 million, reduced by a decrease in the valuation allowance of $1.3
million. The fiscal 1996 provision reflects an effective tax rate of
40.4% and includes the impact of the decrease in the valuation allowance
of $2.0 million, the effect of nondeductible amortization, merger related
expenses, and other expenses totaling $2.1 million, and state taxes of
$1.5 million. Management has evaluated the recoverability of the
deferred tax asset balance at June 30, 1996 and believes that future
revenues under existing contracts will provide sufficient future taxable
income to realize the net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents of $39.3
million and working capital of $40.4 million. The Company has been able
to satisfy its cash requirements through its cash flows from operations.
In addition, the Company has a $10.0 million revolving line of credit
including a $5.0 million letter of credit sub-facility available to
finance working capital requirements. At June 30, 1996, the Company had
$0.2 million outstanding in the form of letters of credit. The interest
rate on outstanding long-term borrowings of $1.7 million at June 30,
1996 was 7.75%.
For the year ended June 30, 1996, operating activities provided cash of
$39.7 million, primarily as a result of net income of $18.0 million plus
several noncash items including depreciation and amortization of $10.0
million, deferred income taxes of $2.3 million and changes in net
operating assets and liabilities of $9.4 million. Investing activities
used $3.2 million, primarily $6.8 million in proceeds from the sale of
short-term investments, offset by capital expenditures of $12.7 million.
Financing activities
19
<PAGE>
used $4.5 million, $16.1 million being the repayment of debt, offset by
$6.8 million in proceeds from borrowings and $4.8 million in payments for
shares of common stock issued of which $4.1 million was in connection
with the exercise of stock options.
For the years ended June 30, 1995 and 1994, operating activities provided
cash of $15.5 million and $20.5 million, respectively, investing
activities provided $6.2 million and used $99.4 million, respectively,
and financing activities used $25.9 million and provided $56.8 million,
respectively.
The Company's strategy includes the acquisition of complementary
businesses financed by a combination of internally generated funds,
long-term debt and common stock.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Except for the historical information contained herein, the matters
discussed in this annual report are forward-looking statements which
involve risks and uncertainties, including but not limited to economic,
competitive, governmental and technological factors affecting the
Company's operations, markets, services and related products, prices,
and other factors discussed in the Company's prior filings with the
Securities and Exchange Commission.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." At the current time, the Company does not plan
to adopt the expense recognition provisions of this Standard; therefore,
the adoption of this Standard will have no effect on the Company's
financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125,"Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The
impact of adopting this standard, which is effective for transactions
occuring after December 31, 1996, is not expected to have a material
impact on the Company's consolidated financial position and results of
operations.
-----------------------
-----------------------
MANAGEMENT'S STATEMENT
OF RESPONSIBILITY
The management of the Company assumes responsibility for the integrity
and objectivity of the information in the fiscal 1996 Annual Report. The
information was prepared in conformity with generally accepted accounting
principles and reflects the best judgement of management.
To provide reasonable assurance that transactions authorized by
management are recorded and reported properly and that assets are
safeguarded, the Company maintains a system of internal controls. The
concept of reasonable assurance implies that the cost of such a system is
weighted against the benefits to be derived therefrom.
Coopers and Lybrand L.L.P., independent accountants, audits the financial
statements of the Company in accordance with generally accepted auditing
standards. Such audit considers the Company's internal control structure
and includes a communication of recommendations for improvements in the
Company's internal control structure.
The Audit Committee of the Board of Directors ensures that management is
properly discharging its financial reporting responsibilities. In
performing this function, the Committee meets with management and the
independent accountants throughout the year. Additional access to the
committee is provided to the independent accountants on an unrestricted
basis, allowing discussion of audit results, internal accounting
controls, and financial reporting.
/s/ Lynn J. Mangum
LYNN J. MANGUM
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
20
<PAGE>
- ---------------------------------
- ---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
The BISYS Group, Inc.:
We have audited the accompanying consolidated balance sheet of The BISYS Group,
Inc. and subsidiaries as of June 30, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1996. 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 did not audit
the 1994 financial statements of Concord Holding Corporation, a wholly-owned
subsidiary, which statements reflect total revenues of $29.6 million for the
year ended March 31, 1994. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to these
1994 amounts, is based solely on the report of the other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of The BISYS Group, Inc. and subsidiaries as
of June 30, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996,
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
HOUSTON, TEXAS
AUGUST 16, 1996
21
<PAGE>
- -------------------------------------
- -------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1996 1995 1994
<S> <C> <C> <C>
Revenues $247,061 $200,527 $170,799
-----------------------------------------------------------------------------------------
Operating costs and expenses:
Service and operating 131,708 105,163 83,567
General and administrative 39,980 46,953 33,843
Selling and conversion 9,248 8,988 13,592
Research and development 10,176 9,392 8,895
Amortization of intangibles 3,811 5,095 3,097
Merger expenses and other charges 22,250 28,340 _
-----------------------------------------------------------------------------------------
Operating earnings (loss) 29,888 (3,404) 27,805
Interest (income) expense (372) 649 887
-----------------------------------------------------------------------------------------
Earnings (loss) before income tax provision 30,260 (4,053) 26,918
Income tax provision 12,236 2,431 8,027
-----------------------------------------------------------------------------------------
Net earnings (loss) $ 18,024 $ (6,484) $ 18,891
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Net earnings (loss) per common share $ 0.72 $ (0.27) $ 0.84
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Weighted average common and common
equivalent shares outstanding 25,068 24,181 22,472
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
22
<PAGE>
- ---------------------------------
- ---------------------------------
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,284 $ 7,296
Short-term investments _ 6,645
Accounts receivable, net 47,846 31,128
Deferred tax asset 12,159 5,003
Prepaid expenses and other 5,126 4,814
------------------------------------------------------------------------------------------------------
Total current assets 104,415 54,886
Property and equipment, net 25,264 16,364
Intangible assets, net 80,850 84,614
Other assets 4,096 5,385
Deferred tax asset _ 4,089
------------------------------------------------------------------------------------------------------
Total assets $214,625 $ 165,338
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 306 $ 8,405
Accounts payable 7,277 7,173
Accrued liabilities 56,384 33,982
------------------------------------------------------------------------------------------------------
Total current liabilities 63,967 49,560
Long-term debt and capital lease obligations 1,668 _
Deferred tax liability 5,425 _
Other liabilities 393 1,151
------------------------------------------------------------------------------------------------------
Total liabilities 71,453 50,711
------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6 and 9)
STOCKHOLDERS' EQUITY
Common stock, $0.02 par value, 80,000,000 and 40,000,000 shares authorized,
24,782,101 and 23,106,550 shares issued and outstanding at June 30, 1996
and 1995, respectively 496 462
Additional paid-in capital 145,788 136,656
Accumulated deficit (3,112) (22,491)
------------------------------------------------------------------------------------------------------
Total stockholders' equity 143,172 114,627
------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $214,625 $165,338
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
23
<PAGE>
- -------------------------------------
- -------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR YEARS ENDED JUNE 30, 1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $18,024 $ (6,484) $18,891
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 9,965 11,009 7,296
Losses from and advances to affiliates _ (1,561) (978)
Charge-off of investment in affiliate _ 2,949 _
Adjustments to carrying value of property and equipment _ 1,814 373
Deferred income tax provision (benefit) 2,324 (1,648) 4,147
Change in assets and liabilities, net of effects from acquisitions:
Accounts receivable, net (15,614) (4,538) (2,292)
Prepaid expenses and other 371 (269) (1,592)
Accounts payable (508) 1,953 4,067
Accrued liabilities 23,412 12,310 (6,074)
Other assets 1,849 962 (3,140)
Other liabilities (103) (1,002) (208)
--------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,720 15,495 20,490
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired _ _ (77,176)
Net cash acquired in other acquisitions and dispositions 3,024 _ _
Capital expenditures (12,698) (9,210) (7,830)
Purchase of short-term investments _ (5,523) (23,363)
Proceeds from sales and maturities of investments 6,796 21,208 9,875
Purchase of intangible assets (367) (322) (944)
--------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (3,245) 6,153 (99,438)
--------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt and capital lease obligations 6,800 _ 40,000
Repayment of subordinated liability _ _ (2,550)
Repayment of debt and capital lease obligations (16,073) (27,572) (4,530)
Exercise of stock options 4,113 808 287
Issuance of common stock 673 693 23,580
Other _ 221 44
--------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (4,487) (25,850) 56,831
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 31,988 (4,202) (22,117)
Cash and cash equivalents at beginning of year 7,296 11,498* 34,665
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $39,284 $ 7,296 $12,548
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 664 $ 2,377 $ 1,585
Income taxes $ 6,391 $ 4,517 $ 3,658
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
* CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR IS NOT THE SAME AT END
OF PRIOR YEAR DUE TO ADJUSTMENT TO CONFORM REPORTING PERIODS RESULTING
FROM MERGERS (SEE NOTE 2).
24
<PAGE>
- ---------------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE
FOR YEARS ENDED JUNE 30, 1994, COMMON STOCK PAID-IN FOR STOCK ACCUMULATED
1995 AND 1996 SHARES AMOUNT CAPITAL ISSUED DEFICIT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 20,041 $401 $108,789 $(273) $(34,512)
Exercise of stock options 192 4 445 -- --
Issuance of common stock (net of issuance costs of $800) 2,406 48 23,531 -- --
Repurchase and retirement of common stock (12) -- (8) -- --
Payment on notes receivable for stock -- -- -- 52 --
Net earnings -- -- -- -- 18,891
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1994 22,627 453 132,757 (221) (15,621)
- ----------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 417 8 924 -- --
Issuance of common stock 44 1 692 -- --
Tax benefit of stock options exercised and other -- -- 2,127 -- --
Adjustment to conform reporting periods (Note 2) 19 -- 156 -- (386)
Payment on notes receivable for stock -- -- -- 221 --
Net loss -- -- -- -- (6,484)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 23,107 462 136,656 -- (22,491)
- ----------------------------------------------------------------------------------------------------------------------------
Exercise of stock options 630 13 4,661 -- --
Issuance of common stock 33 1 672 -- --
Tax benefit of stock options exercised -- -- 3,549 -- --
Common stock issued in acquisitions 1,012 20 250 -- 1,355
Net earnings -- -- -- -- 18,024
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1996 24,782 $496 $145,788 $ -- $ (3,112)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
25
<PAGE>
- ------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The BISYS Group, Inc. and subsidiaries ("BISYS" or the "Company") is a
leading national provider of outsourcing solutions to and through financial
organizations.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of The BISYS
Group, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid debt instruments purchased
with original maturities of three months or less, including $12.7 million of
overnight repurchase agreements at June 30, 1996. The Company maintains cash
deposits in banks which from time to time exceed the amount of deposit insurance
available. Management periodically assesses the financial condition of the
institutions and believes that any potential credit loss is minimal.
SHORT-TERM INVESTMENTS
Management determines the appropriate classification of investments in debt
and equity securities at the time of purchase. Marketable debt and equity
securities available for sale are carried at market based upon quoted market
prices. Unrealized gains or losses on available for sale securities are
accumulated as an adjustment to stockholders' equity, net of related deferred
income taxes. Realized gains or losses are computed based on specific
identification of the securities sold. Realized and gross unrealized gains and
losses on short-term investments were not significant for the fiscal years ended
June 30, 1996 and 1995. At June 30, 1995, all short-term investments are
classified as "available for sale".
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight line method over the estimated useful lives of the assets as
follows:
ESTIMATED
USEFUL LIVES
(YEARS)
BUILDINGS AND IMPROVEMENTS 5 - 40
DATA COMMUNICATIONS EQUIPMENT 2 - 5
COMPUTER EQUIPMENT AND SYSTEMS 2 - 5
FURNITURE AND FIXTURES 3 - 12
LEASEHOLD IMPROVEMENTS LEASE TERM
CAPITALIZED EQUIPMENT LEASES 3 - 5
SOFTWARE DEVELOPMENT COSTS 3 - 5
- ------------------------------------------------------------
Depreciation expense for the years ended June 30, 1996, 1995 and 1994 was
$6,154,000, $5,914,000 and $4,199,000, respectively.
Expenditures for major renewals and improvements are capitalized, while minor
replacements, maintenance and repairs which do not improve or extend the life of
such assets are charged to expense as incurred. Disposals are removed at cost
less accumulated depreciation with the resulting gain or loss being reflected in
operations. Maintenance and repairs amounted to approximately $4,286,000,
$4,198,000, and $3,282,000 for the years ended June 30, 1996, 1995 and 1994,
respectively.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight line basis over the estimated
useful lives as follows:
ESTIMATED
USEFUL LIVES
(YEARS)
COST IN EXCESS OF NET ASSETS ACQUIRED 10 - 40
CUSTOMER RELATIONSHIPS 30
OTHER 1 - 7
- ------------------------------------------------------------
Accumulated amortization of intangible assets was $12,642,000 and $9,404,000 at
June 30, 1996 and 1995, respectively.
The Company evaluates, for impairment, the carrying value of intangible assets
by comparing the carrying value of intangible assets including goodwill, to the
anticipated future undiscounted cash flows from the businesses whose acquisition
gave rise to the asset. If an intangible asset is impaired the asset is written
down to fair value. Intangible assets resulting from acquired customer
26
<PAGE>
relationships are evaluated in light of actual customer attrition rates to
ensure that the carrying value of these intangible assets is recoverable. In
fiscal 1995, the Company accelerated the amortization of $1,342,000 of goodwill
associated with the BISYS loan services business, which was sold in August 1995.
INTERNALLY GENERATED COMPUTER SOFTWARE
The Company charges to operations routine maintenance of software, design
costs and development costs incurred prior to the establishment of a product's
technological feasibility. Costs incurred subsequent to the establishment of a
product's technological feasibility are capitalized and amortized over the
expected useful life of the related product. For the years ended June 30, 1996,
1995 and 1994, the Company did not capitalize any internal costs related to the
development of new software.
REVENUE RECOGNITION
The Company records revenue as earned as evidenced by contracts or invoices
for its services at prices established by contract, price list and/or fee
schedule less applicable discounts. The Company is not subject to returns in its
businesses.
A majority of the Company's receivables are from financial institutions and
investment companies which approximated $30.6 million and $11.8 million,
respectively, at June 30, 1996. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral for accounts
receivable. The Company's credit losses have been minimal. At June 30, 1996 and
1995, the Company's allowance for doubtful accounts was approximately $2,146,000
and $1,351,000, respectively.
PER SHARE DATA
Per share data is computed using the weighted average number of common and
common equivalent shares outstanding during each year presented. Fully diluted
and primary earnings per share are approximately the same for each year
presented. Common equivalent shares consist of stock options and are computed
using the treasury stock method.
INCOME TAXES
The liability method is used in accounting for income taxes whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws.
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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 revenue and expenses during the reporting
period. The most significant estimates are related to the allowance for
doubtful accounts, intangible assets, merger expenses and other charges, income
taxes and contingencies. It is reasonably possible that actual results could
differ from these estimates in the near term.
DISCLOSURE REGARDING FINANCIAL INSTRUMENTS
For all financial instruments, including cash and cash equivalents,
receivables, accounts payable and long- term debt, the carrying value is
considered to approximate fair value.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." At the current time, the Company does not plan to adopt the
expense recognition provisions of this Standard; therefore, the adoption of this
Standard will have no effect on the Company's financial condition or results of
operations.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." The impact of adopting
this standard, which is effective for transactions occuring after December 31,
1996, is not expected to have a material impact on the Company's consolidated
financial position and results of operations.
2. BUSINESS COMBINATIONS
On April 22, 1996, the company merged with Strategic solutions group, Inc.
("SSG" doing business as Creative Solutions) by exchanging 520,599 shares of
BISYS common stock for all the outstanding shares of SSG. On June 28, 1996, the
Company merged with T.U.G., Inc. ("TUG") by exchanging 491,314 shares of BISYS
common stock for all the outstanding shares of TUG. The acquisitions of SSG and
TUG have been accounted for as poolings of interests, although historical
financial statements have not been restated due to immateriality. The Company
27
<PAGE>
incurred a charge of $1,750,000 in the year ended June 30, 1996 for costs
associated with these mergers. (See Note 10).
On March 29, 1995, BISYS merged with Concord Holding Corporation ("Concord") by
exchanging 5,926,009 shares of BISYS common stock for all of the outstanding
Concord shares. On May 15, 1995 BISYS merged with Document Solutions, Inc. by
exchanging 1,765,287 shares of BISYS common stock for all the outstanding
Document Solutions shares. The mergers were each accounted for as poolings of
interests. These consolidated financial statements reflect the financial
position and results of operations of the combined companies for all periods
presented. Historically, BISYS has a fiscal year ended June 30 and Concord and
Document Solutions had fiscal years ended March 31. The consolidated statements
of operations, stockholders' equity and cash flows for fiscal 1994 include
BISYS' results for the twelve months ended June 30, 1994 and Concord's and
Document Solution's results for the twelve months ended March 31, 1994. Due to
the different fiscal year ends of the merged companies, the results of Concord
and Document Solutions for the three months ended June 30, 1994 have been
reported as an adjustment to conform reporting periods in the consolidated
statement of stockholders' equity. Such amounts are summarized as follows (in
thousands):
THREE MONTHS ENDED
DOCUMENT
JUNE 30, 1994 CONCORD SOLUTIONS TOTAL
NET REVENUES $5,689 $2,009 $7,698
NET EARNINGS (LOSS) (433) 47 (386)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
A charge of $32,329,000 was recorded in the year ended June 30, 1995 for costs
associated with the mergers of Concord and Document Solutions (See Note 10).
The Company also completed several acquisitions during the year ended June 30,
1994. On July 1, 1993 the Company acquired all the outstanding stock of The
Barclay Group, Inc., now known as BISYS Plan Services, for total cash
consideration of $10,000,000 in a transaction accounted for as a purchase. On
October 1, 1993 the Company acquired the partnership interests and outstanding
common stock of The Winsbury Companies, now known as BISYS Fund Services for
total cash consideration of $63,000,000 including expenses, in a transaction
accounted for as a purchase.
3. DETAIL OF CERTAIN FINANCIAL STATEMENT ACCOUNTS
(IN THOUSANDS):
1996 1995
SHORT-TERM INVESTMENTS:
MUNICIPAL BONDS $ - $ 2,406
MUTUAL FUNDS - 4,239
- --------------------------------------------------------------------------
$ - $ 6,645
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET:
LAND $ 271 $ 90
BUILDINGS AND IMPROVEMENTS 4,271 1,587
DATA COMMUNICATION EQUIPMENT 1,249 2,086
COMPUTER EQUIPMENT AND SYSTEMS 24,642 21,326
FURNITURE AND FIXTURES 14,425 9,191
LEASEHOLD IMPROVEMENTS 1,655 1,664
CAPITALIZED EQUIPMENT LEASES 1,198 1,604
SOFTWARE DEVELOPMENT COSTS 307 502
- --------------------------------------------------------------------------
48,018 38,050
ACCUMULATED DEPRECIATION
AND AMORTIZATION (22,754) (21,686)
- --------------------------------------------------------------------------
$25,264 $16,364
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
INTANGIBLE ASSETS, NET:
COST IN EXCESS OF NET ASSETS ACQUIRED $63,698 $63,443
CUSTOMER RELATIONSHIPS 28,000 28,000
OTHER 1,794 2,575
- --------------------------------------------------------------------------
93,492 94,018
LESS: ACCUMULATED AMORTIZATION (12,642) (9,404)
- --------------------------------------------------------------------------
$80,850 $84,614
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
ACCRUED LIABILITIES:
MERGER COSTS AND OTHER $ 9,984 $13,169
COMMISSIONS 13,760 -
COMPENSATION 5,600 4,297
DEFERRED INCOME 6,003 3,836
INCOME TAXES 1,299 2,127
MARKETING 12,046 4,573
OTHER 7,692 5,980
- --------------------------------------------------------------------------
$56,384 $33,982
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
4. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1996 and 1995 (in
thousands):
1996 1995
MORTGAGE NOTES PAYABLE $1,726 $ -
TERM LOAN - 8,368
OTHER BORROWINGS 178 -
LESS CURRENT MATURITIES (243) (8,368)
- --------------------------------------------------------------------------
$1,661 $ -
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
INTEREST RATES AT JUNE 30 7.75% 6.90%
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
28
<PAGE>
As a result of the merger with TUG, mortgage notes payable of $1,726,000 were
acquired and require monthly principal and interest payments of $16,525 and are
collateralized by real estate. The interest rate is fixed at 7.75% through May
1998 and fluctuates based on certain market conditions subsequent to that date.
Maturities of the mortgage notes payable are $65,000 in fiscal 1997, $72,000 in
fiscal 1998, $78,000 in fiscal 1999, $84,000 in fiscal 2000, and $1,427,000
thereafter.
In May 1994, a Company subsidiary established a $10,000,000 revolving credit
facility (including a $5,000,000 letter of credit facility) to support working
capital requirements and a $90,000,000 multiple draw acquisition term loan
facility to fund the Company's future acquisitions. In May 1996, the multiple
draw acquisition facility expired and the remaining debt issuance costs of
$513,000 were charged to expense. The Company is in discussions to renew its
revolving credit facility and to establish a new term loan facility.
Outstanding borrowings under the credit facility bear interest at prime plus a
margin not to exceed 0.75% or, at the Company's option, LIBOR plus a margin not
to exceed 2.0% based upon the Company's ratio of the indebtedness to
stockholders' equity (the "Pricing Formula"). The credit agreement requires the
Company to pay an agent fee of $50,000 per year and a commitment fee ranging
between 0.25% and 0.50%, based upon the Pricing Formula, on the unused portion
of the revolving credit, and is collateralized by the stock and partnership
interests of all present and future subsidiaries of the Company (except
broker-dealer entities).
The credit agreement requires, among other things, the Company to maintain
certain financial covenants and limits the Company's ability to incur additional
indebtedness. Additionally, the credit agreement limits the ability of
subsidiaries to pay dividends or to make loans and advances to the parent. As of
June 30, 1996, no amounts were permitted for the payment of dividends.
The Company may borrow under the terms of its revolving credit line through May
1997 up to $10,000,000 reduced by the amount of outstanding letters of credit
($155,000 at June 30, 1996). At June 30, 1996 the Company had approximately
$9,845,000 available for borrowing under the terms of the revolving credit
facility. All borrowings under the revolving credit facility must be repaid by
May 1997.
5. INCOME TAXES
The significant components of the Company's net deferred tax asset as of June
30, 1996 and 1995 are as follows (in thousands):
1996 1995
TAX EFFECTS OF:
PROPERTY AND EQUIPMENT $3,281 $ 7,973
IDENTIFIABLE INTANGIBLE ASSETS (8,851) (10,609)
ACCRUED LIABILITIES 9,909 6,605
NET OPERATING LOSS CARRYFORWARDS - 4,670
TAX CREDIT CARRYFORWARDS 1,589 1,296
OTHER 2,125 2,463
- --------------------------------------------------------------------------
DEFERRED TAX ASSET 8,053 12,398
LESS VALUATION ALLOWANCE (1,319) (3,306)
- --------------------------------------------------------------------------
NET DEFERRED TAX ASSET $6,734 $ 9,092
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
The Company periodically evaluates the deferred tax asset and adjusts the
related valuation allowance on the deferred tax asset to an amount which is more
likely than not to be realized through future taxable income. Management
believes that future revenues from existing contracts will provide sufficient
future taxable income to realize the net deferred tax asset recorded at June 30,
1996.
The components of the income tax provision for the years ended June 30, 1996,
1995, and 1994 are as follows (in thousands):
1996 1995 1994
CURRENT $ 9,912 $4,079 $3,880
DEFERRED 2,324 (1,648) 4,147
- --------------------------------------------------------------------------
$ 12,236 $2,431 $8,027
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
A reconciliation of the Company's income tax provision and the amount computed
by applying the statutory federal income tax rate to earnings (loss) before
income tax provision for the years ended June 30, 1996, 1995 and 1994 are as
follows (in thousands):
1996 1995 1994
FEDERAL INCOME TAX
AT STATUTORY RATE $10,591 $(1,419) $9,421
AMORTIZATION AND
CHARGE-OFF OF NON-DEDUCTIBLE
INTANGIBLE ASSETS 664 1,165 87
CHANGE IN VALUATION
ALLOWANCE (1,987) (1,344) (1,350)
CHANGE IN FEDERAL TAX RATE - - (746)
NON-DEDUCTIBLE MERGER
RELATED EXPENSES 490 3,219 -
STATE TAXES 1,513 440 905
OTHER, NET 965 370 (290)
- --------------------------------------------------------------------------
$12,236 $ 2,431 $8,027
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
29
<PAGE>
At June 30, 1996 the Company had tax credit carryforwards of $1,589,000 which
expire in 2005.
6. LEASES
The Company leases various office space under noncancellable operating leases
with remaining terms of up to ten years. The Company also leases certain office
and computer equipment under operating leases expiring through 2002. Rental
expense associated with these operating leases for the years ended June 30,
1996, 1995 and 1994 were $15,892,000, $13,846,000, and $10,075,000,
respectively.
The future minimum rental payments under noncancellable operating leases for the
years ending after June 30, 1996 are as follows (in thousands):
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
1997 $13,181 $70
1998 12,160 7
1999 9,002 -
2000 5,188 -
2001 2,705 -
Thereafter 3,006 -
- ------------------------------------------------------------
TOTAL MINIMUM LEASE PAYMENTS $45,242 $77
- ----------------------------------------------
- ----------------------------------------------
LESS AMOUNTS REPRESENTING INTEREST (7)
- ------------------------------------------------------------
PRESENT VALUE OF MINIMUM
LEASE PAYMENTS $70
- ------------------------------------------------------------
- ------------------------------------------------------------
7. SUPPLEMENTAL CASH FLOW INFORMATION
In fiscal 1996 and 1995, the Company recorded a deferred tax asset related to
tax benefits associated with stock options of approximately $3,549,000 and
$1,333,000, respectively, with a corresponding adjustment to additional paid in
capital. Also in fiscal 1995, Document Solutions recorded compensation expense
in the amount of $794,000 in connection with common stock awarded to employees
of Document Solutions by a shareholder with a corresponding adjustment to
additional paid in capital. These noncash transactions have been excluded from
the consolidated statement of cash flows.
The Company completed several acquisitions during the year ended June 30, 1994.
The most significant transactions were the purchases of all the capital stock of
The Barclay Group, Inc., The Winsbury Companies and SunTrust Data Systems, Inc.
for $80,746,000. Of this total consideration, $79,146,000 was for cash and
$1,600,000 was in the form of future payment commitments. A summary of the
purchase prices paid, fair value of assets acquired and liabilities assumed are
as follows during the year ended June 30, 1994 (in thousands):
1994
ASSETS ACQUIRED $88,654
CONSIDERATION PAID (80,746)
- ------------------------------------------------------------
LIABILITIES ASSUMED $ 7,908
- ------------------------------------------------------------
- ------------------------------------------------------------
The Company also paid contingent merger consideration in cash based upon the
resolution of contingencies of $216,000, $971,000 and $2,436,000, for the years
ended June 30, 1996, 1995 and 1994, respectively. The recipients of such
payments are not employees of the Company.
During the years ended June 30, 1996, 1995 and 1994, the Company received
proceeds of $4,113,000, $808,000, and $287,000, and recorded a deduction to
deferred compensation liability of $561,000, $124,000, and $162,000,
respectively, with offsetting increases in additional paid in capital relating
to the exercise of stock options.
8. RETIREMENT SAVINGS PLAN
The Company has a contributory retirement and savings plan which covers all
employees and meets the requirements of Section 401(k) of the Internal Revenue
Code. Employees may contribute up to 15% of their basic compensation to the plan
which is matched 50% by the Company up to 6% of the employee's base compensation
not to exceed $2,400.
The Company may, at the discretion of the Board of Directors, make additional
contributions to the plan. The Company's matching contribution vests 40% with
the employee after two years and 20% per year thereafter. The Company's expense
to match employee contributions for the years ended June 30, 1996, 1995 and
1994, was approximately $1,069,000, $1,087,000, and $1,001,000, respectively.
9. CONTINGENCIES
On August 23, 1994 and September 9, 1994, two purchasers of Concord's stock,
Seymour Lazar and Joshua Teitelbaum, on behalf of themselves and all others
similarly situated, filed class action complaints in the United States District
Court for the Northern District of California against Concord, its Board of
Directors and certain officers, Hambrecht & Quist Group, Bank of America NT&SA
and Montgomery Securities alleging violations of the Federal securities laws.
The complaints allege that these individuals and entities misrepresented
Concord's business and future prospects during Concord's initial public offering
and in subsequent statements in order to successfully consummate the offering
and to sustain an artificially inflated price for Concord's common stock.
Accordingly, the plaintiffs seek to recover losses allegedly sustained by a
class who purchased Concord's common stock between February 24, 1994 and June
17, 1994. The complaints do not specify the amount of damages sought.
The two cases have been consolidated. No trial date has been scheduled. The
Company is involved in other litigation arising in the ordinary course of
business. Manage- ment believes that the Company has adequate defenses and/or
insurance coverage against litigation and that the
30
<PAGE>
outcome of these proceedings, individually or in the aggregate, will not have a
material adverse effect upon the Company's financial position, results of
operations, or cash flows. The Company only considers insurance deemed
probable when evaluating loss contingencies.
10. MERGER EXPENSES AND OTHER CHARGES
As discussed in Note 2, the Company recorded a charge of $1,750,000 in
connection with the acquisitions of SSG and TUG. In June 1996, the Company also
entered into an outsourcing alliance agreement with the mutual fund division of
Furman Selz, LLC and incurred estimated commission and other expenses of
$13,960,000. The Company also recorded a charge of $6,027,000 in fiscal 1996 to
integrate these new operations and to combine certain data center operations and
certain offices of Document Solutions. Total merger expenses and other charges
recorded in fiscal 1996 consist of (in thousands):
MERGER TRANSACTION EXPENSES (LEGAL AND FINANCIAL) $ 1,750
COSTS TO COMBINE OPERATIONS:
COMPENSATION RELATED 3,320
FACILITIES RELATED 1,862
OTHER 845
COMMISSIONS AND OTHER EXPENSES INCURRED IN
CONNECTION WITH OUTSOURCING ALLIANCE 13,960
WRITE-OFF OF DEFERRED FINANCING COSTS 513
- --------------------------------------------------------------------------
$22,250
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
As of June 30, 1996, $797,000 of merger transaction expenses have been paid.
The remaining costs of $20,940,000 are included in accrued liabilities on the
accompanying balance sheet. It is expected that the actions to combine
operations will be substantially completed by June 30, 1997.
As discussed in Note 2, the Company recorded a charge of $32,329,000 during
fiscal 1995, for costs associated with the mergers of Concord and Document
Solutions which consisted of the following (in thousands):
MERGER TRANSACTION EXPENSES (LEGAL AND FINANCIAL) $ 8,877
COSTS TO COMBINE OPERATIONS:
COMPENSATION RELATED 5,700
FACILITIES RELATED 5,500
OTHER 1,314
GENERAL AND ADMINISTRATIVE 3,989
CONTRACT ADJUSTMENT 4,000
CHARGE-OFF OF INVESTMENT IN AFFILIATE 2,949
- --------------------------------------------------------------------------
$32,329
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
During the year ended June 30, 1996, the following costs were paid and charged
against the merger related accrual of $13,169,000 at June 30, 1995 (in
thousands):
MERGER TRANSACTION EXPENSES $ 3,446
COMPENSATION RELATED COSTS 4,100
FACILITIES RELATED COSTS 1,368
OTHER 1,451
- --------------------------------------------------------------------------
$10,365
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
At June 30, 1996, $2,804,000 of estimated costs to combine operations of Concord
are unpaid and included in accrued liabilities on the accompanying balance
sheet.
11. STOCK OPTION PLAN
The Company has stock option and restricted stock purchase plans which provide
for the granting of options and/or restricted stock for 5,487,500 shares of
common stock to certain key employees. The options vest over a five-year period
at each anniversary date of the grant. These options expire following
termination of employment or within ten years of the date of the grant,
whichever comes first. A summary of stock options is provided below.
<TABLE>
<CAPTION>
FISCAL YEAR
1996 1995 1994
<S> <C> <C> <C>
OUTSTANDING AT BEGINNING OF YEAR 2,670,607 2,484,064 1,199,331
GRANTED AT $1.88 - $23.25 PER SHARE - - 1,891,617
GRANTED AT $8.89 - $21.88 PER SHARE - 586,560 -
GRANTED AT $24.88 - $37.38 PER SHARE 1,300,000 - -
CANCELLED (175,747) (202,692) (400,000)
EXERCISED AT $0.67 - $24.88 PER SHARE (628,768) (197,325) (206,884)
- ------------------------------------------------------------------------------------------
OUTSTANDING AT END OF YEAR 3,166,092 2,670,607 2,484,064
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
EXERCISABLE AT END OF YEAR 870,138 997,601 609,548
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
The range of option prices for options outstanding at June 30, 1996, 1995 and
1994 were $0.67 - $37.38, $0.67 - $22.38, and $0.67 - $22.38, respectively.
31
<PAGE>
- ------------------------
MARKET PRICE INFORMATION
(UNAUDITED)
The following information relates to the Company's $0.02 par value common stock
which trades in the over-the-counter market and is quoted in the NASDAQ
National Market System under the symbol BSYS. Price information of the Company's
common stock is presented below:
FISCAL 1996
QUARTER ENDED HIGH LOW
September 30, 1995 $29 $21 3/4
December 31, 1995 30 3/4 24 13/16
March 31, 1996 33 1/8 27 1/2
June 30, 1996 38 3/4 32
- --------------------------------------------------------------------------
FISCAL 1995
QUARTER ENDED HIGH LOW
September 30, 1994 $22 3/8 $18 3/4
December 31, 1994 22 1/4 19
March 31, 1995 22 5/8 17 5/8
June 30, 1995 22 7/8 19
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
At June 30, 1996, the Company's common stock was held by approximately 7,200
stockholders of record or through nominee or street name accounts with brokers.
CONSOLIDATED QUARTERLY RESULTS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL 1996
- ---------------------------------------------------------------------------------------------------------
QUARTERS ENDED SEP 30 DEC 31 MAR 31 JUN 30
<S> <C> <C> <C> <C>
Revenues $52,272 $55,943 $65,923 $72,923
Operating earnings (loss) 8,856 11,039 15,004 (5,011)
Earnings (loss) before income tax provision 8,742 11,051 15,214 (4,747)
Net earnings (loss) 5,421 6,851 9,444 (3,692)
Net earnings (loss) per common share 0.22 0.28 0.38 (0.14)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Weighted average common and
common equivalent shares outstanding 24,366 24,676 24,923 26,088
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
FISCAL 1995
- ---------------------------------------------------------------------------------------------------------
QUARTERS ENDED SEP 30 DEC 31 MAR 31 JUN 30
Revenues $46,288 $48,392 $51,145 $54,702
Operating earnings (loss) 5,642 5,659 (19,109) 4,404
Earnings (loss) before income tax provision 5,520 5,428 (19,414) 4,413
Net earnings (loss) 3,950 4,060 (15,123) 629
Net earnings (loss) per common share 0.17 0.17 (0.62) 0.03
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Weighted average common and
common equivalent shares outstanding 23,925 24,081 24,208 24,293
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 21 - LIST OF SUBSIDIARIES OF THE BISYS GROUP, INC.
1. BISYS Document Processing, Inc., a Delaware corporation.
2. BISYS, Inc., a Delaware corporation.
3. BISYS Qualified Plan Services, Inc., a Delaware corporation.
4. BISYS Research Services, Inc., a Delaware corporation.
5. BISYS Fund Services, Inc., a Delaware corporation ("Fund Serv ices").
(a) WC Subsidiary Corp., a Delaware corporation (a subsidiary of Fund
Services).
(b) BISYS Fund Services Ohio, Inc., an Ohio corporation (a subsidiary of
Fund Services).
(c) BISYS Fund Services L.P., an Ohio limited partnership (Fund Services
is the sole general partner).
6. BISYS/STDS, Inc., a Georgia corporation.
7. CHS Insurance Services, Inc., a Delaware corporation.
8. The One Group Services Company, a Delaware corporation.
9. Document Solutions, Inc., a Delaware corporation.
10. Concord Holding Corporation, a Delaware corporation ("Concord").
(a) BNY Hamilton Distributors, Inc., a Delaware corporation (a subsidiary
of Concord).
(b) Concord Discount Brokerage, Inc., a New York corporation (a subsidiary
of Concord).
(c) Concord Financial Services, Inc., a Delaware corporation (a subsidiary
of Concord).
(d) Concord Financial Group, Inc., a Delaware corporation (a subsidiary of
Concord).
(e) BISYS Fund Services (Ireland) Limited, an Ireland corporation (a
subsidiary of Concord).
(f) Emerald Asset Management, Inc., a Florida corporation (a subsidiary of
Concord).
(g) Infinity Advisers, Inc., a Delaware corporation (a subsidiary of
Concord).
(h) Pilot Fund Distributors, Inc., a Delaware corporation (a subsidiary of
Concord).
(i) The 231 Broker-Dealer Services, Inc., a Delaware corporation (a
subsidiary of Concord).
(j) UST Distributors, Inc., a Delaware corporation (a subsidiary of
Concord).
(k) Victory Broker-Dealer Services, Inc., a Delaware corporation (a
subsidiary of Concord).
(l) Vista Fund Distributors, Inc., a Delaware corporation (a subsidiary of
Concord).
(m) Concord (Cayman Islands) Limited, a Cayman Islands corporation (a
subsidiary of Concord).
11. T.U.G., Inc., a Pennsylvania corporation.
12. BISYS Creative Solutions, Inc., a Delaware corporation.
13. ASO Services Co., Inc., a Delaware corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
The BISYS Group, Inc. on Forms S-8 (File Nos. 33-91666, 33-91672, 33-91676, 333-
2932 and 333-2966) and in the Registration Statement of The BISYS Group, Inc. on
Form S-3 (File No. 33-98894) of our report dated August 16, 1996 on our audits
of the consolidated financial statements of The BISYS Group, Inc. and
subsidiaries as of June 30, 1996 and 1995, and for each of the three years in
the period ended June 30, 1996, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND, L.L.P.
Houston, Texas
September 26, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-91666, 33-91672, 33-91676, 333-2932 and 333-2966) and the
Registration Statement on Form S-3 (File No. 33-98894) of The BISYS Group, Inc.
of our report dated April 29, 1994 appearing in Exhibit 99 of this Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
September 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 39,284
<SECURITIES> 0
<RECEIVABLES> 49,992
<ALLOWANCES> 2,146
<INVENTORY> 0
<CURRENT-ASSETS> 104,415
<PP&E> 48,018
<DEPRECIATION> 22,754
<TOTAL-ASSETS> 214,625
<CURRENT-LIABILITIES> 63,967
<BONDS> 1,668
0
0
<COMMON> 496
<OTHER-SE> 142,676
<TOTAL-LIABILITY-AND-EQUITY> 214,625
<SALES> 0
<TOTAL-REVENUES> 247,061
<CGS> 0
<TOTAL-COSTS> 131,708
<OTHER-EXPENSES> 13,987
<LOSS-PROVISION> 765
<INTEREST-EXPENSE> 676
<INCOME-PRETAX> 30,260
<INCOME-TAX> 12,236
<INCOME-CONTINUING> 18,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,024
<EPS-PRIMARY> .72
<EPS-DILUTED> .71
</TABLE>
<PAGE>
EXHIBIT 99
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF
CONCORD HOLDING CORPORATION
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, changes in shareholders' equity and cash flows (not
presented separately herein) present fairly, in all material respects, the
financial position of Concord Holding Corporation and its subsidiaries at March
31, 1994, and the results of their operations and their cash flows for each of
the two years in the period ended March 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
April 29, 1994
