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AGREEMENT AND PLAN OF MERGER
BY
AND
AMONG
TOWNE SERVICES, INC.
TSI ACQUISITION ONE, INC.
FORSEON CORPORATION
AND
CERTAIN OF THE STOCKHOLDERS OF FORSEON CORPORATION
Dated as of March 25, 1999
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TABLE OF CONTENTS
Page
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ARTICLE 1 - THE MERGER............................................................................................1
1.1 The Merger..........................................................................................1
1.2 Closing.............................................................................................2
1.3 Effective Time of the Merger........................................................................2
1.4 Articles of Incorporation; Bylaws...................................................................2
1.5 Directors and Officers of the Surviving Corporation.................................................2
ARTICLE 2 - CONSIDERATION AND CONVERSION AND EXCHANGE OF
SHARES................................................................................................2
2.1 Consideration.......................................................................................2
2.1(a) Company Common Stock....................................................................3
2.1(b) Treasury Shares.........................................................................3
2.1(c) Merger Sub Common Stock.................................................................3
2.1(d) Escrow of Certain Shares................................................................3
2.2 No Fractional Shares................................................................................3
2.3 Surrender and Exchange of Certificates Representing Company Common
Stock...........................................................................................4
2.3(a) Exchange Agent..........................................................................4
2.3(b) Surrender of Certificates...............................................................4
2.3(c) Lost Certificates.......................................................................5
2.3(d) No Interest.............................................................................5
2.3(e) Dividends on Parent Common Stock........................................................5
2.3(f) No Liability............................................................................5
2.4 Share Calculations..................................................................................5
2.5 Stock Transfer Books................................................................................5
2.6 Company Stock Options and Other Securities..........................................................5
2.7 Adjustments.........................................................................................6
ARTICLE 3 - RULES OF CONSTRUCTION.................................................................................7
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE
MANAGEMENT STOCKHOLDERS...............................................................................9
4.1 Corporate Organization.............................................................................10
4.2 Capitalization.....................................................................................10
4.3 Authority; No Violation............................................................................12
4.4 Financial Statements...............................................................................13
4.5 Broker's and Other Fees............................................................................14
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4.6 Absence of Certain Changes or Events..............................................................14
4.7 Legal Proceedings.................................................................................16
4.8 Taxes and Tax Returns.............................................................................16
4.9 Benefit Plans.....................................................................................17
4.10 Compliance with Applicable Laws...................................................................21
4.11 Certain Contracts.................................................................................22
4.12 Properties and Insurance..........................................................................23
4.13 Environmental Matters.............................................................................25
4.14 Intellectual Property.............................................................................25
4.15 Adequacy of Technical Documentation...............................................................27
4.16 Third-Party Components in Software................................................................27
4.17 Third-Party Interests or Marketing Rights in Software.............................................27
4.18 No Parachute Payments.............................................................................28
4.19 Absence of Certain Agreements and Practices.......................................................28
4.20 Major Vendors and Customers.......................................................................29
4.21 Accounts Receivable...............................................................................29
4.22 Sufficiency of Rights.............................................................................29
4.23 Solvency..........................................................................................29
4.24 Combinations Involving Company....................................................................29
4.25 Bank Accounts.....................................................................................30
4.26 Labor Relations...................................................................................30
4.27 Year 2000 Matters.................................................................................30
4.28 Change in Control Provisions......................................................................30
4.29 Pooling-of-Interests..............................................................................30
4.30 No Prior Convictions..............................................................................31
4.31 Statements; Proxy Statement/Prospectus............................................................31
4.32 Disclosure........................................................................................31
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT STOCKHOLDERS........................................32
5.1 Ownership of Shares...............................................................................32
5.2 Authorization.....................................................................................32
5.3 Absence of Violations or Conflicts................................................................32
5.4 No Consents Required..............................................................................33
5.5 No Claims Against Company.........................................................................33
5.6 Litigation Related to this Agreement..............................................................33
5.7 Resales of Parent Common Stock....................................................................33
5.8 Tax Advice........................................................................................34
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................34
6.1 Corporate Organization............................................................................34
6.2 Capitalization....................................................................................35
6.3 Authority; No Violation...........................................................................36
6.4 Parent SEC Reports; Financial Statements..........................................................37
6.5 Broker's and Other Fees...........................................................................38
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6.6 Parent Common Stock................................................................................38
6.7 No Material Adverse Effect on Parent...............................................................38
6.8 Absence of Certain Changes or Events...............................................................39
6.9 Legal Proceedings..................................................................................39
6.10 Taxes and Tax Returns..............................................................................39
6.11 Compliance with Applicable Laws....................................................................40
6.12 Pooling-of-Interests...............................................................................40
6.13 Statements; Proxy Statement/Prospectus.............................................................40
6.14 Contract Default...................................................................................41
6.15 Disclosure.........................................................................................41
ARTICLE 7 - COVENANTS AND CERTAIN ACTIONS OF THE PARTIES..........................................................41
7.1 Conduct of Business................................................................................41
7.2 Negative Covenants.................................................................................45
7.3 No Solicitation....................................................................................42
7.4 Current Information................................................................................47
7.5 Access to Properties and Records; Confidentiality..................................................47
7.6 Governmental Matters; Consents; Cooperation, etc...................................................48
7.7 Parties' Efforts; Further Assurances; Cooperation..................................................48
7.8 Public Announcements...............................................................................49
7.9 Failure to Fulfill Conditions......................................................................49
7.10 Disclosure Supplements.............................................................................50
7.11 Affiliates.........................................................................................50
7.12 Pooling-of-Interests...............................................................................50
7.13 Employee Matters...................................................................................50
7.13(a) Employee Benefits......................................................................50
7.13(b) Employment Agreements..................................................................51
7.13(c) Certain Benefit Plan Matters...........................................................51
7.13(d) Stock Options..........................................................................52
7.14 Proxy Statement/Prospectus; Registration Statement; Other Filings..................................52
7.15 Company Stockholders' Meeting......................................................................53
7.16 Termination of Puts and Other Agreements...........................................................53
7.17 No Transfers.......................................................................................53
7.18 Tax Matters........................................................................................53
7.18(a) Transfer Taxes.........................................................................53
7.18(b) Cooperation and Exchange of Information................................................53
7.18(c) Tax-Free Transaction...................................................................54
7.19 Listing of Merger Consideration....................................................................54
7.20 Special Provisions with Respect to Company.........................................................54
7.21 Existing Indemnification Obligations...............................................................54
7.22 Solvency of Stockholders and Other Stockholder Matters.............................................55
7.23 Future Commission Reports..........................................................................55
ARTICLE 8 - CLOSING CONDITIONS....................................................................................55
8.1 Conditions of Each Party's Obligations Under this Agreement........................................55
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8.1(a) Authorizations and Governmental Filings................................................55
8.1(b) Suits and Proceedings..................................................................55
8.1(c) Escrow Agreement.......................................................................56
8.1(d) Effectiveness of Registration Statement................................................56
8.1(e) Pooling Letters........................................................................56
8.2 Conditions to the Obligations of Parent and Merger Sub Under this
Agreement......................................................................................56
8.2(a) Covenants and Agreements; Consents.....................................................56
8.2(b) Opinion of Counsel.....................................................................57
8.2(c) Certificates...........................................................................57
8.2(d) Management Stockholder Employment Agreements...........................................57
8.2(e) Employment Agreements..................................................................57
8.2(f) Resignations...........................................................................57
8.2(g) Remediation of Benefit Plans...........................................................57
8.2(h) Cancellation and Severance Agreements..................................................57
8.2(i) Fairness Opinion.......................................................................57
8.2(j) Nonsolicitation, Work Product and Confidentiality Agreements...........................57
8.2(k) Completion of Due Diligence on Company.................................................58
8.2(l) Stockholder Approval...................................................................58
8.2(m) No Material Adverse Change on Company..................................................58
8.3 Conditions to the Obligations of Company and the Management Stockholders
Under this Agreement...........................................................................59
8.3(a) Covenants and Agreements; Consents.....................................................59
8.3(b) Opinion of Counsel to Parent...........................................................59
8.3(c) Certificates...........................................................................59
8.3(d) Merger Consideration...................................................................60
8.3(e) No Material Adverse Change on Parent...................................................60
8.3(f) Management Stockholder Employment Agreements...........................................60
8.3(h) Tax Opinion............................................................................61
ARTICLE 9 - TERMINATION, AMENDMENT AND WAIVER...................................................................61
9.1 Termination.......................................................................................61
9.2 Effect of Termination.............................................................................62
9.3 Specific Performance..............................................................................62
9.4 Amendment.........................................................................................63
9.5 Extension; Waiver.................................................................................63
ARTICLE 10 - INDEMNIFICATION.....................................................................................63
10.1 Indemnification by Stockholders...................................................................63
10.2 Indemnification by Parent.........................................................................64
10.3 Claims for Indemnification........................................................................64
10.4 Matters Involving Third Parties...................................................................65
10.5 Settlement of Indemnification Claims After Closing................................................65
10.6 Manner of Indemnification by Stockholders.........................................................66
10.7 Indemnification Exclusive Remedy..................................................................66
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10.8 Certain Limitations...............................................................................66
ARTICLE 11 - STOCKHOLDERS' REPRESENTATIVE........................................................................67
11.1 Appointment; Acceptance...........................................................................67
11.2 Actions...........................................................................................67
11.3 Successors........................................................................................68
11.4 Effectiveness.....................................................................................68
ARTICLE 12 - MISCELLANEOUS.......................................................................................68
12.1 Expenses..........................................................................................68
12.2 Notices...........................................................................................68
12.3 Parties in Interest...............................................................................69
12.4 Entire Agreement..................................................................................70
12.5 Counterparts......................................................................................70
12.6 Governing Law and Venue...........................................................................70
12.7 Invalidity of any Part............................................................................70
12.8 Time of the Essence; Computation of Time..........................................................70
12.9 Arbitration.......................................................................................70
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EXHIBITS AND SCHEDULES
Exhibit No. Description
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Exhibit 2.1 Form of Escrow Agreement
Exhibit 2.3 Form of Company Stockholder Certificate
Exhibit 7.2 Form of Stockholder Employment Management Agreements
Exhibit 7.5 Confidentiality Agreement
Exhibit 7.11 Form of Affiliate Representation Letter
Exhibit 7.12 Pooling Conditions
Exhibit 7.13(b) Form of Employment Agreements
Exhibit 7.16 List of Puts and Other Agreements to be Terminated
Exhibit 8.2(h) Cancellation Agreements
Exhibit 8.2(j) Form of Noncompetition, Nonsolicitation and Confidentiality
Agreement
Exhibit 8.3(g) Form of Tax Opinion
Company
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Disclosure
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Schedule No. Description
- ------------ -----------
Schedule 4.1 Corporate Documents
Schedule 4.2 Company's Capitalization
Schedule 4.3 Company Approvals; Defaults; Conflicts and Liens Created
Schedule 4.4 Company Financial Statements
Schedule 4.5 Broker's and Other Fees
Schedule 4.6 Certain Changes and Events
Schedule 4.7 Legal Proceedings
Schedule 4.8 Taxes and Tax Returns
Schedule 4.9 Employee Benefit Plans
Schedule 4.10 Compliance with Applicable Laws
Schedule 4.11 Material Contracts
Schedule 4.12 Insurance Policies
Schedule 4.14 Intellectual Property
Schedule 4.14(a) Procedures for Copyright Protection
Schedule 4.14(b) Procedures for Trade Secret Protection
Schedule 4.14(d) Absence of Claims
Schedule 4.14(e) Patents, Patent Applications, Trade Names
Schedule 4.18 Parachute Payments
Schedule 4.19 Certain Agreements and Practices
Schedule 4.20 Major Vendors and Customers
Schedule 4.21 Accounts Receivable
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Schedule 4.21 Accounts Receivable
Schedule 4.22 Sufficiency of Rights
Schedule 4.23 Solvency
Schedule 4.25 Bank Accounts
Schedule 4.26 Labor Relations
Schedule 4.27 Year 2000 Matters
Schedule 4.28 Change in Control
Management
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Stockholder
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Disclosure
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Schedule No. Description
- ------------ -----------
Schedule 5.3 Absence of Violations or Conflicts
Schedule 5.4 Consents
Schedule 5.5 Claims
Parent Disclosure
Schedule No. Description
- ------------ -----------
Schedule 6.1 Parent's Subsidiaries; Corporate Documents
Schedule 6.2 Parent's Options and Warrants Outstanding
Schedule 6.3 Defaults; Conflicts and Liens Created
Schedule 6.4 Parent SEC Report Issues
Schedule 6.5 Broker's and Other Fees
Schedule 6.8 Absence of Certain Changes or Events
Schedule 6.9 Legal Proceedings
Schedule 6.10 Taxes Being Contested
Schedule 6.11 Compliance with Applicable Laws
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 25th day of March,
1999 (this "AGREEMENT"), is by and among Towne Services, Inc., a Georgia
corporation ("PARENT"), TSI Acquisition One, Inc., a Georgia corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), Forseon Corporation, a
Delaware corporation ("COMPANY"), and the stockholders of Company named on the
signature pages hereto (collectively, the "MANAGEMENT STOCKHOLDERS").
WHEREAS, this Agreement provides for the strategic combination of
Parent and Company in furtherance of the parties' long-term strategic plans;
WHEREAS, the combination will be accomplished by a merger of Merger
Sub with and into Company (the "MERGER") with Company surviving and the
stockholders of Company (including persons who have rights to acquire stock in
Company, collectively, the "COMPANY STOCKHOLDERS") receiving the consideration
hereinafter set forth;
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization within the meaning of Section
368(a) 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 Boards of Directors of Company, Parent and Merger Sub
have duly adopted and approved this Agreement and Merger Sub's sole holder has
approved the Agreement, and the Board of Directors of Company has resolved to
recommend this Agreement to the Company Stockholders;
NOW, THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
ARTICLE 1 - THE MERGER
1.1 The Merger. At the Effective Time (as defined below), Merger
Sub shall be merged with and into Company in accordance with the provisions of
this Agreement, the Georgia Business Corporation Code (the "GBCC") and the
Delaware General Corporation Law (the "DGCL"), and the separate existence of
Merger Sub shall thereupon cease, and Company, as the surviving corporation in
the Merger (sometimes referred to as the "SURVIVING CORPORATION"), shall
continue its corporate existence under the laws of the State of Delaware as a
wholly-owned subsidiary of Parent. The Merger shall have the effect provided
under applicable laws including, but not limited to, Section 14-2-1106 of the
GBCC and Subchapter IX, Sections 251, 252 and 259-261 of the DGCL.
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1.2 Closing. The consummation of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Nelson
Mullins Riley & Scarborough, L.L.P., 999 Peachtree Street, N.E., Suite 1400,
Atlanta, Georgia 30309 or at such other place as the parties agree at 10:00
a.m. on the first business day after all conditions set forth in Article 8
(other than the delivery of certificates, opinions and other instruments and
documents to be delivered at the Closing) have been satisfied or waived in
writing or at such other place and time as Parent and Company may agree (the
"CLOSING DATE"). The parties agree to use all commercially reasonable efforts
to hold the Closing on or before June 15, 1999. At the Closing, the parties
shall execute and deliver the certificates, opinions and other instruments and
documents referred to in Article 8.
1.3 Effective Time of the Merger. Contemporaneous with or
immediately following the Closing, the parties shall cause a certificate of
merger (the "CERTIFICATE OF MERGER") to be executed, delivered and filed with
the Secretary of State of the State of Georgia and with the Secretary of State
of the State of Delaware in accordance with the provisions of the GBCC and
DGCL. The Merger shall become effective at the close of business on the date of
such filing, unless a different effective time is specified in the Certificate
of Merger (the "EFFECTIVE TIME").
1.4 Articles of Incorporation; Bylaws. The Certificate of
Incorporation and Bylaws of Company shall be amended and restated so that the
Articles of Incorporation and Bylaws of Merger Sub as in effect immediately
prior to the Effective Time shall become the Certificate of Incorporation and
Bylaws of the Surviving Corporation, to the extent the provisions thereof are
permitted under the DGCL, until duly amended in accordance with applicable law.
1.5 Directors and Officers of the Surviving Corporation. At the
Effective Time, the persons who are directors and officers of Merger Sub at the
Effective Time will become the directors and officers of the Surviving
Corporation until such time as they may be replaced in accordance with the
Bylaws of the Surviving Corporation, except that Dan Paul and Allen Merrill
shall be the President, Forseon Division and Vice President of Finance,
respectively, of the Surviving Corporation.
ARTICLE 2 - CONSIDERATION AND CONVERSION AND EXCHANGE OF SHARES
2.1 Consideration. At the Effective Time, in consideration for
and fulfillment of the obligations, covenants, terms and conditions set forth
in this Agreement, by virtue of the Merger and without any action on the part
of any holder thereof:
(a) Company Common Stock. All of the then issued and
outstanding shares of common stock of Company, $0.01 par value per share (the
"COMPANY COMMON STOCK") calculated on a fully-diluted basis taking into account
the exercise or conversion of all Outstanding Options (as defined in Section
2.6) and all other rights to acquire Company
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Common Stock (an aggregate of 735,294 shares, excluding any shares held in the
treasury of Company) shall automatically be canceled and extinguished and shall
thereafter be converted into only the right to receive a total of 2,075,345
shares of common stock, without par value, of Parent (the "PARENT COMMON
STOCK"), subject to the escrow provided for in Section 2.1(d) below. Based upon
the foregoing, the conversion ratio is approximately 2.82 shares of Parent
Common Stock for each one issued and outstanding share of Company Common Stock.
(b) Treasury Shares. Each share of Company Common Stock
held in the treasury of Company, if any, shall be automatically canceled and
extinguished, and no payment shall be made in respect of such shares.
(c) Merger Sub Common Stock. Each issued and outstanding
share of Merger Sub common stock at the Effective Time shall be converted into
and shall thereafter represent one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation, which shall then constitute
all of the issued and outstanding shares of the Surviving Corporation.
(d) Escrow of Certain Shares. At the Closing, Parent
shall deliver (or cause to be delivered) to the escrow agent set forth in the
Escrow Agreement in the form of Exhibit 2.1 hereto (the "ESCROW AGREEMENT"),
one certificate for Parent Common Stock equal to ten percent (10%) of the
Parent Common Stock to be issued in connection with the Merger pursuant to
Section 2.1(a) (collectively, the "ESCROW SHARES") for the escrow established
pursuant to the Escrow Agreement. Until such Escrow Shares are disbursed under
the terms of the Escrow Agreement, the Company Stockholders and holders of the
Outstanding Options shall be entitled to vote such Escrow Shares according to
their pro rata interest, as provided in the Escrow Agreement. Dividends and
distributions, if any, paid with respect to the Escrow Shares during the escrow
period shall be held in escrow and disbursed under the Escrow Agreement in the
same manner as the Escrow Shares. Certificates for the remaining shares of
Parent Common Stock to be delivered in connection with the Merger shall be
delivered to Company Stockholders in accordance with Section 2.3 below.
2.2 No Fractional Shares. No scrip or fractional shares of Parent
Common Stock shall be issued in the Merger upon conversion of Company Common
Stock as provided in Section 2.1(a). In lieu of the issuance of any such
fractional shares, Parent shall pay to each Company Stockholder who would
otherwise be entitled to receive a fractional share of Parent Common Stock
(after taking into account all Parent Common Stock into which such
Stockholder's Company Common Stock was converted pursuant to this Agreement) an
amount in cash (rounded to the nearest whole cent) determined by multiplying
(i) the fair market value (as hereinafter defined) of a share of Parent Common
Stock by (ii) the fraction of a share of Parent's Common Stock which such
holder would other wise be entitled to receive pursuant to this Article 3. The
fair market value of a share of Parent's Common Stock shall be the average of
the closing prices as reported on the National Association of Securities
Dealers Automated Quotation System for one (1) share of Parent Common Stock for
the last ten (10) consecutive
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trading days ending with the close of trading on the third business day
preceding the Closing Date.
2.3 Surrender and Exchange of Certificates Representing Company
Common Stock.
(a) Exchange Agent. Parent shall appoint First Union
National Bank or such other reputable bank or trust company as may be selected
by Parent to act as exchange agent for the Merger (the "EXCHANGE AGENT"). At
the Effective Time, Parent shall, pursuant to irrevocable instructions, direct
the Exchange Agent to deliver the number of shares of Parent Common Stock as
provided for in Section 2.1. The Parent Common Stock to be paid and issued to
the Company Stockholders and holders of the Outstanding Options hereunder shall
sometimes be referred to as the "MERGER CONSIDERATION."
(b) Surrender of Certificates. Prior to the Effective
Time, Parent shall use all commercially reasonable efforts to cause the
Exchange Agent to make available to each record holder as of the Effective Time
of an outstanding certificate or certificates which immediately prior to the
Effective Time represented Company Common Stock (the "CERTIFICATES"), a letter
of transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates for conversion thereof, which letter of
transmittal shall comply with all Applicable Laws and rules of The Nasdaq Stock
Market, Inc. ("NASDAQ"). Company shall promptly deliver to the Company
Stockholders and shall use all commercially reasonable efforts to cause each
Company Stockholder to execute and deliver to Parent and Merger Sub at or prior
to the Closing a certificate in substantially the form of Exhibit 2.3 attached
hereto, subject to such changes as Parent may approve. Upon surrender to the
Exchange Agent of the Certificates at the Closing or thereafter, together with
such letter of transmittal duly executed, the holder of such Certificates shall
be entitled to receive at the Closing (or promptly after such surrender if
after the Closing) in exchange therefor, one or more certificates as requested
by the holder (properly issued, executed and countersigned, as appropriate)
representing that number of whole shares of Parent Common Stock to which such
holder of Company Common Stock shall have become entitled pursuant to the
provisions of Section 2.1 and Certificates so surrendered shall forthwith be
canceled. From the Effective Time until surrender in accordance with the
provisions of this Section 2.3, each Certificate (other than Certificates
representing treasury shares) shall represent for all purposes only the right
to receive the Merger Consideration. All payments in respect of Company Common
Stock that are made in accordance with the terms hereof shall be deemed to have
been made in full satisfaction of all rights pertaining to such securities.
(c) Lost Certificates. In the case of any lost,
misplaced, stolen or destroyed Certificate, the holder thereof may be required,
as a condition precedent to delivery to such holder of the Merger
Consideration, to deliver to Parent an indemnity agreement and a bond in such
reasonable sum as Parent may direct as indemnity against any claim that may be
made against the Exchange Agent, Parent or the Surviving Corporation with
respect to the Certificate alleged to have been lost, misplaced, stolen or
destroyed.
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(d) No Interest. No interest shall be paid or accrued on
any portion of the Merger Consideration regardless of the cause for delay in
payment of the Merger Consideration.
(e) Dividends on Parent Common Stock. No holder of a
Certificate shall be entitled to delivery of any dividend or other distribution
from Parent having a record date after the Effective Time until surrender of
such holder's Certificate pursuant to this Section 2.3. Upon such surrender,
there shall be paid to the holder the amount of any dividends or other
distributions (without interest) that theretofore became payable by Parent, but
were not paid by reason of the foregoing with respect to the number of whole
shares of Parent Common Stock represented by the Certificate or Certificates
issued upon such surrender. From and after the Effective Time, Parent shall,
however, be entitled to treat any such Certificate that has not yet been
surrendered for exchange as evidencing the ownership of the aggregate Merger
Consideration into which the Company Common Stock represented by such
Certificate shall have been converted, notwithstanding any failure to surrender
such Certificate.
(f) No Liability. Neither Parent nor the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock for
any Parent Common Stock (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any abandoned property, escheat or
similar law.
2.4 Share Calculations. Prior to the Effective Time, Company
shall prepare and deliver to Parent (subject to the Parent's review and
approval) a complete list of the number of shares of Parent Common Stock to be
issued to each Company Stockholder in accordance with the provisions of Section
2.1(a) in connection with the Merger.
2.5 Stock Transfer Books. From and after the Effective Time, no
transfer of Company Common Stock outstanding prior to the Effective Time shall
be registered on the stock transfer books of the Surviving Corporation. If,
after the Effective Time, certificates for Company Common Stock are presented
to the Surviving Corporation for transfer, such certificates shall be canceled
and exchanged for the appropriate portion of the Merger Consideration.
2.6 Company Stock Options and Other Securities.
(a) Prior to or contemporaneously with the Closing,
Company shall convert into Company Common Stock or cancel all outstanding
options, restricted stock awards, stock appreciation rights, warrants and other
securities convertible into or exchangeable for shares of Company Common Stock
or other securities of Company (collectively, the "OUTSTANDING OPTIONS")
pursuant to the change in control and exercise provisions of (i) the Company's
1987 Incentive Stock Option Plan and Nonstatutory Stock Option Plan, as
amended; (ii) the Company's 1997 Stock Option Plan; and (iii) all other
agreements related to the Outstanding Options (collectively, with the plans
referenced in clauses (i) and (ii) above, the "STOCK OPTION PLANS"); provided,
however, that no such conversions shall affect the total Merger Consideration
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to be paid by Parent and Merger Sub in connection with the Merger. Copies of
all Outstanding Options are attached as part of Seller Disclosure Schedule 4.2.
(b) Each of the Outstanding Options remaining after the
Company performs its obligations under paragraph (a) above shall be converted
into the right to receive shares of Parent Common Stock as of the Effective
Time in accordance with the provisions of Section 2.1.
(c) At or prior to the Closing, Company shall amend the
Stock Option Plans so that no further shares of Company Common Stock or Parent
Common Stock may be issued thereunder, subject to amendment, modification,
suspension, abandonment or termination as provided therein, and the Stock
Option Plans as so continued (i) shall relate only to the issuance of Parent
Common Stock as provided in this Section 2.6, and (ii) Parent and its Stock
Option Committee shall be substituted for Company and the Committee of
Company's Board of Directors (including, if applicable, the entire Board of
Directors of Company) administering such Company Stock Option Plans.
(d) Prior to the Closing, Company shall collect and
withhold all required employment and other withholding taxes applicable or
relating to the exercise of, or any other action, omission or other thing
relating to, the Outstanding Options, regardless of whether any such
withholding tax arises prior to, contemporaneously with, or after the Closing.
2.7 Adjustments. In the event that at any time after the date
hereof and prior to the Effective Time, Parent shall declare, set a record date
for, or effect (a) a dividend or other distribution with respect to Parent
Common Stock payable in Parent Common Stock or other property (other than
cash), including the common stock, preferred stock or other securities of a
Parent Subsidiary, (b) a combination or conversion of outstanding Parent Common
Stock into a smaller number of such Parent Common Stock, or (c) any
reorganization or reclassification, or any consolidation or merger of Parent,
with another corporation, or the sale of all or substantially all of its assets
to another corporation, in such a way that holders of outstanding Parent Common
Stock shall be entitled to receive (either directly or upon subsequent
liquidation) stock, securities or other property with respect to or in exchange
for such Parent Common Stock (any such event described in (a)-(c) above
referred to as a "DILUTING EVENT"), then, as a condition of such Diluting
Event, lawful and adequate provision shall be made whereby the Company
Stockholders shall thereafter be entitled to receive (under the same terms
otherwise applicable to their receipt of Parent Common Stock), in addition to
or in lieu of (as the case may be) the number of shares of Parent Common Stock
to which such Company Stockholders are entitled immediately prior to such
Diluting Event, such shares of stock, securities or other property as may be
issued or payable with respect to or in exchange for that number of shares of
Parent Common Stock to which the Company Stockholders were so entitled, and in
any case appropriate provision shall also be made with respect to such Company
Stockholders' rights and interests to the end that the provisions of this
Section 2.7 shall thereafter be applicable in relation to any shares of stock,
securities or other property thereafter deliverable to such Company
Stockholders pursuant to the provisions hereof.
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ARTICLE 3 - RULES OF CONSTRUCTION
In the interpretation of this Agreement, unless otherwise provided or
the context otherwise requires:
(a) The singular includes the plural and vice versa and, in
particular (but without limiting the generality of the foregoing), any word or
expression defined in the singular has the corresponding meaning used in the
plural and vice versa;
(b) Any reference to any gender includes the other genders;
(c) Any reference to an Article, Section, Exhibit, clause,
subclause, paragraph, subparagraph, Schedule or recital is a reference to an
Article, Section, Exhibit, clause, subclause, paragraph, subparagraph, Schedule
or recital of this Agreement;
(d) Any reference to any agreement, instrument or other document
(i) shall include all appendices, exhibits and schedules thereto and all
agreements, documents or other writings incorporated by reference therein, and
(ii) shall be a reference to such agreement, instrument or other document as
amended, supplemented, modified, suspended, restated or novated from time to
time;
(e) Any reference to any statute shall be construed as including
all statutory provisions consolidating, amending or replacing such statute and
all governmental regulations and rules promulgated thereunder;
(f) Any reference to "writing" includes printing, typing,
lithography and other means of reproducing words in a visible form;
(g) Any reference to a time or date or to a local time or date is
a reference to the time and date in Atlanta, Georgia;
(h) Any reference to "dollars" and the symbol "$" means dollars
constituting legal tender for the payment of public and private debts in the
United States of America;
(i) The headings and Article, Section and paragraph numbering
contained in this Agreement are used solely for convenience and do not
constitute a part of this Agreement, nor shall such headings and numbering be
used in any manner to aid in the construction of this Agreement;
(j) The term "APPLICABLE LAWS" means all applicable (i) statutes,
ordinances or other legislative enactments of the United States of America or
other country or foreign government, or of any state or agency thereof, (ii)
rules, regulations, orders, permits, directives or other
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actions or approvals of any Governmental Authority, and (iii) judgments,
awards, orders, decrees, writs and injunctions of any court, Governmental
Authority or arbitrator.
(k) References in this Agreement to the "COMPANY DISCLOSURE
SCHEDULES" shall mean the disclosure schedules, dated as of the date of this
Agreement, which have been delivered on the date of this Agreement by Company
to Parent, and references to a numbered Company Disclosure Schedule shall mean
that portion of the Company Disclosure Schedules that refers to the specific
section or subsection of Article 4 of this Agreement;
(l) References in this Agreement to the "MANAGEMENT STOCKHOLDER
DISCLOSURE SCHEDULES" shall mean the disclosure schedules, dated as of the date
of this Agreement, which have been delivered on the date of this Agreement by
the Management Stockholders to Parent, and references to a numbered Management
Stockholder Disclosure Schedule shall mean that portion of the Management
Stockholder Disclosure Schedules that refers to the specific section or
subsection of Article 5 of this Agreement;
(m) References in this Agreement to the "PARENT DISCLOSURE
SCHEDULES" shall mean the disclosure schedules, dated as of the date of this
Agreement, which have been delivered on the date of this Agreement by Parent to
Company, and references to a numbered Parent Disclosure Schedule shall mean
that portion of the Parent Disclosure Schedules that refers to the specific
section or subsection of Article 6 of this Agreement;
(n) The term "DISCLOSED BY PARENT" shall mean, with respect to
information concerning any event, fact or circumstance, information contained
in Parent's SEC Reports (as defined below), annual and other reports furnished
by Parent to its shareholders as a group, and press releases of Parent
disseminated to (i) the Dow Jones News Service, Associated Press, United Press,
Business Wire or other national newswire service, or (ii) the Nasdaq or a
United States national securities exchange, as well as information disclosed in
writing directly to Company or the Management Stockholders by Parent in this
Agreement or otherwise;
(o) The term "GAAP" means generally accepted accounting
principles and practices as in force in the United States from time to time.
(p) The term "GOVERNMENTAL AUTHORITY" means any United States
federal, state or local, or any foreign governmental, governmental or
administrative authority, agency, department, board, investigative body or
commission or any court, tribunal, or judicial or arbitral body;
(q) The term "KNOWLEDGE" means actual knowledge and, as used with
respect to Parent and Merger Sub means the actual knowledge of the chief
executive officer, president and chief financial officer of Parent and Merger
Sub; and, as used with respect to Company means the actual knowledge of the
Management Stockholders and the information which, after reasonable
consideration and inquiry by the Management Stockholders (recognizing the
confidentiality associated with the execution and delivery of this Agreement),
would be
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recognized by reasonable persons of similar experience in such positions as
relevant to the matter(s) qualified by the words "to the Knowledge of" or
"known to" such person.
(r) The term "MATERIAL ADVERSE EFFECT" with respect to a person
or entity means (unless otherwise indicated) any circumstance, change in, or
effect on the business and affairs of such person or entity or any Subsidiary
thereof that, individually or in the aggregate with any other circumstances,
changes in, or effects on, the business and affairs of such person or entity
and its Subsidiaries: (i) is, or would reasonably be expected to be, materially
adverse to the business, operations, assets or liabilities, prospects, results
of operations or financial condition of such person or entity and its
Subsidiaries, taken as a whole, or (ii) would reasonably be expected to
materially adversely affect the ability of such person or entity and its
Subsidiaries to operate or conduct its or their business and affairs in the
manner in which they are currently operated or conducted or contemplated by
such person or entity to be operated or conducted; provided, however, that a
Material Adverse Effect with respect to Parent and Merger Sub shall not include
any decline in the trading price of Parent's Common Stock for any reason or any
event or circumstance arising from any such decline, including without
limitation, any change caused or arising from the failure by Parent for any
reason to achieve operating results in accordance with market expectations or
any market factors such as volatility, fluctuations in the market price of
stocks generally or general economic factors;
(s) The term "PARENT SUBSIDIARY" means any Subsidiary of Parent;
(t) The term "SUBSIDIARY" means any corporation, partnership,
joint venture or other legal entity in which a specified person or entity,
directly or indirectly, owns or controls the voting of at least a 50% share or
other equity interest or for which such person or entity, directly or
indirectly, acts as a general partner;
(u) The terms "hereof," "hereby," "hereunder" and similar terms
shall refer to this Agreement as a whole;
(v) The term "including" shall mean "including, without
limitation"; and
(w) Each party and its counsel have had the opportunity to
negotiate the terms and provisions of this Agreement. This Agreement,
therefore, shall be construed without regard to any presumption or other rule
requiring construction against the party causing the Agreement to be drafted.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF COMPANY
AND THE MANAGEMENT STOCKHOLDERS
Company hereby represents and warrants to Parent and Merger Sub
(except as set forth on the Company Disclosure Schedules) as follows and as to
the specified portions of Sections 4.2(b), 4.6(a), 4.6(b), 4.7, 4.8(b), 4.10,
4.11(e), 4.12(c), 4.13(c), 4.22, 4.29, 4.30, 4.31 and
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4.32 Company and the Management Stockholders hereby represent and warrant,
jointly and severally, to Parent and Merger Sub as follows:
4.1 Corporate Organization.
(a) Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Except
as set forth on Company Disclosure Schedule 4.1, Company has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on Company.
(b) Company Disclosure Schedule 4.1 sets forth the full
name and jurisdiction of organization of the sole Subsidiary of Company (the
"COMPANY SUBSIDIARY") as well as all trade names used by Company and the
Company Subsidiary currently or at any time during the past five years. The
Company Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the state or other jurisdiction of its
organization. Except as set forth on Company Disclosure Schedule 4.1, the
Company Subsidiary has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business and is in good
standing in each jurisdiction in which the nature of the business conducted by
it or the character or location of the properties and assets owned or leased by
it makes such licensing or qualification necessary, except where the failure to
be so licensed, qualified or in good standing would not have a Material Adverse
Effect on Company.
(c) Company Disclosure Schedule 4.1 sets forth copies of
the Certificate of Incorporation and bylaws of Company and the Company
Subsidiary. Company's and the Company Subsidiary's bylaws, stock book and
minute books are complete and correct in all material respects and contain all
amendments thereto to date, a record of all corporate proceedings of the
Company and such Subsidiary, and a record of all stock issuances and transfers
of the Company and such Subsidiary.
(d) Except as set forth in Company Disclosure Schedule
4.1, Company and the Company Subsidiary do not own or control, directly or
indirectly, any equity interest in any corporation, company, association,
partnership, joint venture, organization or other entity.
4.2 Capitalization.
(a) As of the date of this Agreement, the authorized
capital stock of Company consists solely of 5,000,000 shares of Company Common
Stock and no shares of preferred stock or any other capital stock. As of the
date of this Agreement, there are 642,069 shares of Company Common Stock issued
and outstanding and 93,225 shares of Company Common Stock
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are reserved for issuance pursuant to the exercise or conversion of Outstanding
Options. Company Disclosure Schedule 4.2 sets forth the number of shares of
Company Common Stock owned by each of the Company Stockholders, together with
(to Company's Knowledge) the correct residence address of each such Company
Stockholder and provides the same information for the Company Subsidiary.
Except as set forth on Company Disclosure Schedule 4.2, no shares of Company
Common Stock or capital stock of the Company Subsidiary are outstanding. All
issued and outstanding shares of Company Common Stock and capital stock of the
Company Subsidiary have been duly authorized and validly issued and are fully
paid and nonassessable, were not issued in violation of any preemptive rights
and were issued in material compliance with and under available exemptions from
all applicable federal and state securities laws. All of the outstanding shares
of capital stock of the Company Subsidiary are owned by Company and are free
and clear of any liens, encumbrances, charges, restrictions or rights of third
parties.
(b) Except as set forth on Company Disclosure Schedule
4.2, neither Company nor the Company Subsidiary has granted or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character (except for this Agreement) calling for the transfer,
purchase, subscription or issuance of any shares of capital stock of Company or
the Company Subsidiary or any securities representing the right to purchase,
subscribe or otherwise receive any shares of such capital stock or any
securities convertible into any such shares, and there are no agreements or
understandings to which Company or the Company Subsidiary is a party or
otherwise to Company's Knowledge with respect to voting of any such shares. To
Company's and the Management Stockholders' Knowledge, no Company Stockholder
has granted or is bound by any of the foregoing agreements. Company Disclosure
Schedule 4.2 sets forth copies of the plans and agreements pursuant to which
Company and the Company Subsidiary granted any of the foregoing securities and
a list of each such outstanding security, together with a schedule of the
persons entitled to any of the foregoing.
(c) All transactions whereby Company or the Company
Subsidiary repurchased, redeemed, canceled or reacquired shares of its capital
stock and the solicitation of stockholder consents in connection with the
Merger have been or will be effected in compliance with all applicable
corporate and securities laws, and documentation prepared by or on behalf of
the Company or the Company Subsidiary in connection therewith did not and will
not include any untrue statement of any material fact or omit to state any
material fact necessary to make the statements made therein correct and
complete.
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4.3 Authority; No Violation.
(a) Except for the filing of the Proxy Statement (as
defined in Section 7.14) under the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), the effectiveness of the Registration Statement (as defined
in Section 7.14) and satisfaction of other requirements under the Securities
Act of 1933, as amended (the "1933 ACT"), approval of the Merger by the
affirmative vote of the holders of a majority in interest of the Company Common
Stock, Nasdaq listing approval requirements for the Merger Consideration
shares, and the filing of the Certificate of Merger in accordance with the GBCC
and the DGCL, and except as set forth on Company Disclosure Schedule 4.3
(collectively, the "COMPANY APPROVALS"), no consents, approvals,
authorizations, clearances or orders of, filings or registrations with or
notices to (collectively, the "AUTHORIZATIONS") any third party or any
Governmental Authority are necessary on behalf of Company or, to Company's
Knowledge, any of the Company Stockholders, in connection with (i) the
execution and delivery by Company and the Company Stockholders of this
Agreement and all other documents, certificates and agreements executed
pursuant to or in connection with this Agreement (collectively, the "MERGER
DOCUMENTS") and (ii) the consummation by Company and the Company Stockholders
of the Merger and the other transactions contemplated by this Agreement and the
other Merger Documents. Subject to receipt of the Company Approvals, Company
has the full corporate power and authority to execute and deliver this
Agreement and to consummate the Merger and the other transactions contemplated
by this Agreement and the other Merger Documents in accordance with the terms
of this Agreement and the other Merger Documents. The execution and delivery of
this Agreement and the other Merger Documents have been duly and validly
approved by the Board of Directors of Company and by the Management
Stockholders in accordance with the Certificate of Incorporation and bylaws of
Company and with Applicable Laws. Except for the Company Approvals, no other
corporate proceedings on the part of Company are necessary for Company and the
Management Stockholders to execute and deliver this Agreement and for Company
and the Company Stockholders be bound by the terms of this Agreement and, when
executed and delivered, the other Merger Documents. This Agreement has been
duly and validly executed and delivered by Company and the Management
Stockholders and constitutes the valid and binding obligation of Company and
the Management Stockholders enforceable against Company and the Management
Stockholders in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium or similar laws affecting the enforcement of
creditors' rights generally, and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding may be brought.
(b) Neither the execution and delivery of this Agreement
by Company or the Management Stockholders, nor the consummation by Company and
the Company Stockholders of the Merger and the other transactions contemplated
by this Agreement in accordance with the terms of this Agreement and the other
Merger Documents, nor compliance by Company and the Company Stockholders with
any of the terms or provisions of this Agreement or the other Merger Documents,
will: (i) assuming the Company Approvals are duly obtained, violate any
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provision of Company's Certificate of Incorporation or bylaws; (ii) assuming
that the Company Approvals are duly obtained, violate any Applicable Laws; or
(iii) except as set forth in Company Disclosure Schedule 4.3, violate, conflict
with, result in a breach of any provisions of, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance required by, or
result in the creation of any lien, mortgage, security interest, pledge,
charge, other right of third parties or other encumbrance (collectively,
"LIENS") upon any of the respective properties or assets of Company under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Company is a party, or by which they or any of their respective
properties or assets may be bound or affected except, with respect to (ii) and
(iii) above, such as individually or in the aggregate will not have a Material
Adverse Effect on Company, and which will not prevent or delay the consummation
of the Merger and the other transactions contemplated by this Agreement and the
other Merger Documents.
4.4 Financial Statements.
(a) Company Disclosure Schedule 4.4 sets forth copies of
the following (collectively, together with the related notes and any additional
financial statements set forth on such Schedule, the "COMPANY FINANCIAL
STATEMENTS"): (i) the consolidated balance sheet of Company as of June 30,
1998, 1997 and 1996 and the consolidated statements of operations,
shareholders' equity and cash flows for the period ended June 30, 1998, 1997
and 1996, together with the audit reports thereon of KPMG Peat Marwick LLP, and
(ii) the interim financial statements of Company (balance sheet and income
statement) as of December 31, 1998 and for the six month period ended December
31, 1998. Except as set forth on Company Disclosure Schedule 4.4, the Company
Financial Statements have been prepared in accordance with GAAP and present
fairly, in all material respects, the consolidated financial position of
Company as of the respective dates set forth in the Company Financial
Statements, and the consolidated results of Company's operations and its cash
flows for the respective periods set forth in the Company Financial Statements;
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments, lack footnote disclosures, and do
not include statements of cash flow or stockholders equity, nor do they take
into account accounting pronouncements effective after June 30, 1998, all of
which adjustments, footnote disclosures, statements and pronouncements are not,
in the aggregate, believed by Company or by the Management Stockholders to be
material and adverse to the information presented in the interim Company
Financial Statements, business or operations of Company when taken as a whole.
(b) The books and records of Company have been
maintained in compliance with applicable legal and accounting requirements and
in accordance with GAAP. Except as set forth on Company Disclosure Schedule
4.4, the corporate record books (including the share records) of Company are
complete, accurate and up to date in all material respects and set forth all
meetings and actions taken by the Company Stockholders and directors of Company
and all transactions involving the shares of Company (and contain all necessary
signatures and all canceled share certificates).
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(c) Except as and to the extent reflected, disclosed or
reserved against in the Company Financial Statements, or as disclosed in
Company Disclosure Schedule 4.4, as of December 31, 1998, Company had no
material liabilities or obligations of any kind, whether absolute, accrued,
direct, indirect, contingent or otherwise ("LIABILITIES"). Except as set forth
on Company Disclosure Schedule 4.4, since December 31, 1998, Company has not
incurred, created, assumed or guaranteed any Liabilities except in the ordinary
course of business and consistent with past practice other than Liabilities
incurred in connection with this Agreement. Further, at the Effective Time
Company shall have no Liabilities other than trade payables due and owing for
periods consistent with Company's past practices in the ordinary course of
business, capitalized leases for equipment, and other liabilities in the
ordinary course of business consistent with past practices and which are not
material in amount other than Liabilities incurred in connection with this
Agreement.
4.5 Broker's and Other Fees. Except as disclosed in Company
Disclosure Schedule 4.5, neither Company nor, to Company's Knowledge, any
Company Stockholder, has employed any broker or finder or incurred any
liability for any broker's or finder's fees or commissions in connection with
any of the transactions contemplated by this Agreement. Except as disclosed in
Company Disclosure Schedule 4.5, there are no fees payable to any consultants,
including lawyers and accountants, in connection with this Agreement or the
transactions contemplated by this Agreement or which would be triggered by
consummation of this Agreement or the transactions contemplated by this
Agreement or the termination of the services of such consultants by Company or
otherwise pursuant to the Merger.
4.6 Absence of Certain Changes or Events.
(a) Except as disclosed in Company Disclosure Schedule
4.6, there has been no Material Adverse Effect on Company since December 31,
1998 and to Company's and the Management Stockholders' Knowledge, no facts or
conditions exist which will cause (or may be reasonably likely to cause) a
Material Adverse Effect on Company, including after the Merger.
(b) Except as set forth in Company Disclosure Schedule
4.6, and except for execution of this Agreement, since December 31, 1998
Company has conducted its business only in the ordinary course, consistent with
past practice, and has not (and to the Management Stockholders' Knowledge,
Company has not):
(i) suffered any physical damage, destruction
or casualty loss (whether or not such loss or damage shall
have been covered by insurance) which materially and
adversely affects the properties, business or prospects of
Company, or suffered any deterioration in the operating
condition of any material physical assets of Company, normal
wear and tear excepted;
(ii) materially increased, or made any material
change in any assumptions underlying the method of
calculating, any bad debt, contingency or other reserves;
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(iii) made any material change in the method of
valuing assets included in the Company Financial Statements;
(iv) made any material change in any method of
accounting or keeping its books of account or accounting
practices or systems of internal accounting controls;
(v) paid, discharged or satisfied any
Liability, other than by payment, discharge or satisfaction
in the ordinary course of business;
(vi) permitted or allowed any of its material
assets (real, personal or mixed, tangible or intangible) to
be subjected to any Lien;
(vii) written down the value of any inventory or
written off as uncollectible any notes or accounts
receivable, except for write-downs and write-offs in the
ordinary course of business;
(viii) canceled or waived any claims or rights, or
sold, transferred, distributed or otherwise disposed of any
assets or properties, except in the ordinary course of
business;
(ix) declared or paid any dividend or
distribution on or in respect of the Company Common Stock, or
directly or indirectly redeemed, purchased, or otherwise
acquired any shares of its capital stock, any securities
convertible into or exchangeable for its capital stock, or
any options, warrants or other rights to purchase any of the
foregoing, or authorized the issuance of, or issued, sold or
committed to sell (or granted any options or rights to
purchase) any additional shares of its capital stock, or
sold, issued or incurred any debt security (except for and in
connection with issuances of stock pursuant to the exercise
(whether cashless or otherwise) of outstanding options or
pursuant to the ESOP (as defined in Section 4.9));
(x) experienced any strike, walkout, similar
labor trouble or other similar event;
(xi) increased the salaries or other
remuneration payable or to become payable to, or made any
advance (excluding advances for ordinary business expenses)
or loan to, any officer, director, employee or shareholder
(except normal merit increases made in the ordinary course of
business, consistent with past practice and previously
disclosed to Parent in Company's budget), or established,
made any increase in, or any addition to, other benefits
(including, without limitation, any Benefit Plans, as
hereinafter defined) to which any of them may be entitled, or
made any payments to any Benefit Plans, except payments in
the ordinary course of business and consistent with past
practice, or entered into any agreement, arrangement or
transaction with any such person not in the ordinary
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course of business, or failed to make any required payment
under any Benefit Plans; or
(xii) entered into, terminated, modified or
amended any agreement with any director, officer or other
"affiliate" of such director or officer, as that term is
defined in Section 14A of the 1934 Act (an "AFFILIATE").
4.7 Legal Proceedings. Except as disclosed in Company Disclosure
Schedule 4.7, neither Company nor either of the Management Stockholders is a
party to any, and there is no pending or, to Company's or the Management
Stockholders' Knowledge, threatened legal, administrative, arbitral or other
proceeding, claim, action or governmental investigation of any nature against
Company, that if determined adversely to Company could reasonably be expected
to have a Material Adverse Effect on Company. Except as disclosed in Company
Disclosure Schedule 4.7, Company is not a party to any order, judgment or
decree entered in any lawsuit or proceeding that is reasonably likely to have a
Material Adverse Effect on Company. Without limiting the foregoing, except as
disclosed in Company Disclosure Schedule 4.7, no actions, suits, demands,
notices, claims, investigations or proceedings that are reasonably likely to
have a Material Adverse Effect on Company are pending or, to Company's or the
Management Stockholders' Knowledge, threatened against or otherwise involving,
directly or indirectly, any officer, director, employee or agent of Company (in
connection with such officer's, director's, employee's or agent's activities on
behalf of Company or that otherwise relate, directly or indirectly, to Company
or its properties or securities) including without limitation any notices,
demand letters or requests from any Governmental Authority relating to such
potential Liabilities, nor, to the Knowledge of Company or the Management
Stockholders, are there any circumstances which could lead to such actions,
suits, demands, notices, claims, investigations or proceedings.
4.8 Taxes and Tax Returns. Except as disclosed in Company
Disclosure Schedule 4.8:
(a) Company has duly filed (and until the Effective Time
will so file) all returns, declarations, reports, information returns and
statements ("RETURNS") required to be filed by it in respect of any United
States federal, state or local Taxes and has duly paid (and until the Effective
Time will so pay) all such Taxes due and payable as finally determined by the
applicable Governmental Authority, other than Taxes which are being contested
in good faith (and disclosed to Parent in writing). As used in this Agreement,
"TAX" or "TAXES" means and includes any and all taxes, fees, levies,
assessments, duties, tariffs, imposts, and other charges of any kind (together
with any and all interest, penalties, additions to tax and additional amounts
imposed with respect thereto) imposed by any Governmental Authority, including,
without limitation: foreign, domestic, central, local, state or other
jurisdictional taxes or other charges on or with respect to income, estimated
income, franchises, business, occupation, windfall or other profits, gross
receipts, property, sales, use, capital stock, payroll, employment, social
security, workers' compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad valorem, stamp,
transfer, value added, or gains taxes; license,
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registration and documentation fees; and customs duties, tariffs, and similar
charges. Company has established (and until the Effective Time will establish)
on its books and records reserves that are adequate for the payment of all
Taxes not yet due and payable, but that are incurred in respect of Company
through such date.
(b) Neither Company nor the Management Stockholders have
received any notice that any of the Returns of Company has been examined by the
United States Internal Revenue Service (the "IRS"), or any other United States
federal or state Governmental Authority within the past six years. There are no
audits or other Governmental Authority proceedings currently pending, nor any
other disputes pending with respect to, nor, to the Knowledge of Company and
the Management Stockholders claims asserted for, Taxes upon Company greater
than $250 individually or $10,000 in the aggregate; nor has Company given any
currently outstanding waivers or comparable consents regarding the application
of any statute of limitations with respect to any Taxes or Returns. There are
no Liens for Taxes upon the assets of Company, except for Liens for Taxes not
yet due and payable or being properly contested. Any Taxes being properly
contested are disclosed on Company Disclosure Schedule 4.8. Company has
complied (and until the Effective Time will comply) in all material respects
with all Applicable Laws relating to the payment and withholding of Taxes.
(c) Company (i) has not requested any extension of time
within which to file any Return which Return has not since been filed; (ii) is
not a party to any agreement providing for the indemnification, allocation or
sharing of Taxes; (iii) is not required to include in income any adjustment by
reason of a voluntary change in accounting method initiated by Company (nor
does Company have any Knowledge that any Governmental Authority has proposed
any such adjustment or change of accounting method); (iv) has not filed a
consent with any Governmental Authority pursuant to which Company has agreed to
recognize gain (in any manner) relating to or as a result of this Agreement or
the transactions contemplated by this Agreement; or (v) has not been a member
of an affiliated group other than one of which Company was the common parent.
4.9 Benefit Plans.
(a) Certain definitions used in this Section are as
follows:
"CODE" shall mean the Internal Revenue Code of 1986,
as amended, together with the regulations promulgated
thereunder.
"DOL" shall mean the United States Department of
Labor.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA AFFILIATE" shall mean, with respect to a
Person, any other Person which is required to be aggregated
with such Person under Code Section 414(b), (c), (m) and/or
(o) at any time prior to the Closing.
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"PBGC" shall mean the Pension Benefit Guaranty
Corporation established under Title IV of ERISA.
"PERSON" shall include, but is not limited to, an
individual, a trust, an estate, a partnership, an
association, a company, a corporation, a sole proprietorship,
a professional corporation or a professional association.
(b) Company Disclosure Schedule 4.9 lists (i) each
pension, retirement, profit-sharing, cash or deferred, deferred compensation,
stock option, phantom stock, stock appreciation rights, employee stock
ownership, severance pay, vacation, paid time off, education-reimbursement,
bonus, incentive, and other or similar plan, program or other arrangement, (ii)
each cafeteria, Section 125, medical, vision, dental, disability, death
benefit, life insurance, health and/or accident plan, program or other
arrangement, (iii) each material written or unwritten employee or other similar
program, arrangement, agreement or understanding, whether arrived at through
collective bargaining or otherwise, and (iv) each other employee benefit plan,
voluntary employees' beneficiary association, fringe benefit plan, and other
similar plan, program or other arrangement, agreement or understanding,
including, without limitation, each "employee benefit plan," as that term is
defined in Section 3(3) of ERISA, which is currently maintained, sponsored in
whole or in part, required to be contributed by, or contributed to by Company
or any ERISA Affiliate of Company, for the benefit of, providing any
remuneration or benefits to, or covering any current or former employee,
retiree, dependent, spouse or other family member or beneficiary of such
employee or retiree, director, independent contractor, stockholder, officer or
consultant or other beneficiary of Company or any ERISA Affiliate of Company or
under (or in connection with) which Company or an ERISA Affiliate of Company
has any contingent or noncontingent liability of any kind, whether or not
probable of assertion (all of the items set forth in clauses (i) through (iv)
above, collectively, the "BENEFIT PLANS," and each a "BENEFIT PLAN"). Any of
the Benefit Plans which is an "employee pension benefit plan," as that term is
defined in Section 3(2) of ERISA, or an "employee welfare benefit plan," as
that term is defined in Section 3(1) of ERISA, is referred to herein as an
"ERISA PLAN."
(c) Company Disclosure Schedule 4.9 also lists, with
respect to all Benefit Plans listed therein: (i) all trust agreements or other
funding arrangements, including insurance contracts, all annuity contracts,
financial contributions, actuarial statements or valuations, fidelity bonds,
fiduciary liability policies, investment manager or advisory contracts,
corporate resolutions or memoranda, administrative committee minutes or
memoranda or records, and all amendments (if any) thereto, (ii) where
applicable, with respect to any such plans or plan amendments, the most recent
determination letters issued by the IRS, (iii) all material communications or
other correspondence issued within the last six (6) years by any Governmental
Authority, including without limitation, the IRS, DOL and the PBGC with respect
to such Benefit Plan, (iv) annual reports or returns and audited or unaudited
financial statements for the most recent three plan years and any amendments
thereto, and (v) the most recent summary plan descriptions, any material
modifications thereto, and all material employee communications with respect to
such Benefit Plans other than routine disclosures as required by statute. Prior
to or contemporaneous with the delivery of Company Disclosure Schedule 4.9,
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Company has delivered a true and complete copy of all such Benefit Plans,
agreements, letters, rulings, opinions, letters, reports, returns, financial
statements and summary plan descriptions described in this Section 4.9.
(d) Except as set forth on Company Disclosure Schedule
4.9, all the Benefit Plans and any related trusts subject to ERISA comply in
all material respects with and have been administered in compliance in all
material respects with the provisions of ERISA, all applicable provisions of
the Code relating to qualification and tax exemption under Code Sections 401(a)
and 501(a) or otherwise necessary to secure intended tax consequences, all
applicable state or federal securities laws and all other applicable laws,
rules and regulations and collective bargaining agreements, and Company has not
received any notice from any Governmental Authority or instrumentality
questioning or challenging such compliance. All available material governmental
approvals for the Benefit Plans have been obtained, including, but not limited
to, timely determination letters on the qualification of the ERISA Plans and
tax exemption of, related trusts, as applicable, under the Code and timely
registration and disclosure under applicable securities laws, and all such
governmental approvals continue in full force and effect. No event has occurred
that will or could give rise to disqualification of any such Benefit Plan under
Sections 401(a) or 501(a) of the Code or to a tax under Section 511 of the
Code.
(e) Neither Company nor any administrator or fiduciary
of any such Benefit Plan (or agent or delegate of any of the foregoing) has
engaged in any transaction or acted or failed to act in any manner that could
subject Company to any direct or indirect material liability (by indemnity or
otherwise) for a breach of any fiduciary, co-fiduciary or other duty under
ERISA. No oral or written representation or communication with respect to any
aspect of the Benefit Plans has been or will be made to employees of Company
prior to the Closing that is not in accordance with the written or otherwise
preexisting terms and provisions of such Benefit Plans in effect immediately
prior to the Closing, except for any amendments or terminations required by the
terms of this Agreement. There are no unresolved claims or disputes under the
terms of, or in connection with, the Benefit Plans other than routine claims
and benefits and no action, legal or otherwise, has been commenced with respect
to any claim.
(f) All annual reports or returns, audited or unaudited
financial statements, actuarial valuations, summary annual reports and summary
plan descriptions issued, and all records and data maintained by Company with
respect to the Benefit Plans are correct, complete and accurate in all material
respects as of the dates thereof; and there have been no amendments filed to
any of such reports, returns, statements, valuations or descriptions or
required to make the information therein true and accurate.
(g) Neither Company nor any other "party in interest"
(as defined in Section 3(14) of ERISA) or "disqualified person" (as defined in
Section 4975(e)(2) of the Code) of any Benefit Plan has engaged in any
"prohibited transaction" (within the meaning of Sections 503(b) or 4975(c) of
the Code or Section 406 of ERISA) with respect to such Benefit Plan, for which
there is no statutory, Governmental or individual or class exemption. There has
been no (a) "reportable event" (as defined in Section 4043 of ERISA), or event
described in Section 4062(f)
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or Section 4063(a) of ERISA or (b) termination or partial termination,
withdrawal or partial withdrawal with respect to any of the ERISA Plans that
Company or any ERISA Affiliate of Company maintains or contributes to or has
maintained or contributed to or was required to maintain or contribute to for
the benefit of employees of Company or any ERISA Affiliate of Company now or
formerly in existence.
(h) For any ERISA Plan that is an employee pension
benefit plan as defined in ERISA Section 3(2), the fair market value of such
Benefit Plan's assets equals or exceeds the present value of all benefits
(whether vested or not) accrued to date by all participants in such Benefit
Plan. For this purpose the assumptions prescribed by the PBGC for valuing plan
assets or liabilities upon plan termination shall be applied and the term
"benefits" shall include the value of any early retirement or ancillary
benefits (including shutdown benefits) provided under any Benefit Plan. As of
the Closing, full payment will have been made of all amounts which Company is
required to have made at or prior to such time, under any Applicable Laws, as a
contribution to any Benefit Plan of Company or of an ERISA Affiliate of
Company, and no accumulated funding deficiency (as defined in ERISA Section 302
or Code Section 412), whether or not waived, will exist with respect to any
Benefit Plan.
(i) Except as described on Company Disclosure Schedule
4.9, as of the Closing, Company will have no material current or future
liability with respect to any events or matters occurring, arising or accruing
on or prior to such date under any Benefit Plan (A) that was not reflected in
the Company Financial Statements or (B) that represents contributions required
to be made under written terms of such Benefit Plan as of the Closing.
(j) Company does not maintain any Benefit Plan providing
deferred or stock based compensation which is not reflected in the Company
Financial Statements.
(k) Except as disclosed on Company Disclosure Schedule
4.9, neither Company nor any ERISA Affiliate of Company has maintained, and
neither now maintains, a Benefit Plan providing welfare benefits (as defined in
ERISA Section 3(1)) to employees after retirement or other separation of
service except to the extent required under Part 6 of Title I of ERISA and Code
Section 4980B.
(l) Except as set forth on Company Disclosure Schedule
4.9, the consummation of the Merger and the other transactions contemplated by
this Agreement will not (i) entitle any current or former employee (or any
spouse, dependent or other family member of such employee) of Company or any
ERISA Affiliate of Company to severance pay, unemployment compensation or any
payment contingent upon a change in control or ownership of Company, or (ii)
accelerate the time of payment or vesting, or increase the amount, of any
compensation due to any such employee or former employee (or any spouse,
dependent or other family member of such employee).
(m) All Benefit Plans subject to Section 4980B of the
Code, as amended from time to time, or Part 6 of Title I of ERISA or both have
been maintained in good faith
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compliance with the requirements of such laws and any regulations (proposed or
otherwise) issued thereunder.
(n) No liability to the PBGC has been incurred as of the
Closing by Company or any ERISA Affiliate of Company, except for PBGC insurance
premiums, and all such insurance premiums incurred or accrued up to and
including the Closing have been timely paid.
(o) Neither Company nor any ERISA Affiliate of Company
maintains or has maintained, has contributed to or has been required to
contribute to, a multi-employer plan (as defined in Section 3(37) of ERISA). No
amount is due or owing from Company on account of a multi-employer plan (as
defined in Section 3(37) of ERISA) on account of any withdrawal therefrom.
(p) All annual reports (as described in Section 103 of
ERISA) and all Forms 5500 relating to the applicable provisions of the Code
required to be filed in connection with one or more of the Benefit Plans have
been timely and properly filed in accordance with Applicable Laws.
(q) Under the Forseon Corporation Employee Stock
Ownership Plan ("ESOP") and Applicable Laws (including, without limitation, all
U.S. Treasury and U.S. Department of Labor regulations and pronouncements), in
the event that the portion of a Participant's Account which is or was not
Vested is required to be restored, as a result of a restoration contemplated by
Section 8.8(c) of the ESOP, a termination of the ESOP or otherwise, each and
every such restoration is required in an amount which is not greater than the
value of such portion of such Account which is not Vested at the time such
Participant received or is deemed to have received a distribution from the
ESOP. For purposes of the preceding sentence, the terms "Participant,"
"Account," and "Vested" shall have the same meaning as set forth under the
ESOP.
(r) There is no loan or other debt obligation relating
to the ESOP or secured by stock owned by the ESOP or its trustee.
(s) Except as set forth on Company Disclosure Schedule
4.9, there is no put option relating to stock which has been distributed from
the ESOP in respect of more than 7,000 shares of Company Common Stock.
4.10 Compliance with Applicable Laws. Except as set forth in
Company Disclosure Schedule 4.10, Company and the Company Subsidiary hold all
licenses, franchises, permits, consents and authorizations ("LICENSES")
necessary for the lawful conduct of their business, except where the failure to
hold any License would not have a Material Adverse Effect on Company. No
proceeding is pending or, to the Knowledge of Company or the Management
Stockholders, threatened seeking the revocation or suspension of any License.
Except as set forth on Company Disclosure Schedule 4.10, Company and the
Company Subsidiary are and have been in compliance in all respects with all
Applicable Laws, except where the failure to be in compliance would not have a
Material Adverse Effect on Company. There is no outstanding
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or, to the Knowledge of Company and Management Stockholders, threatened order,
writ, injunction, or decree of Governmental Authority against Company or the
Company Subsidiary affecting, involving, or relating to their business or
assets.
4.11 Certain Contracts.
(a) Company Disclosure Schedule 4.11 lists the following
written agreements (collectively, the "MATERIAL CONTRACTS"), to which Company
or the Company Subsidiary is a party or by which Company or the Company
Subsidiary or any of its or their properties or assets is bound:
(i) all written agreements that involve an
annual commitment or payment by any party thereto of more than $25,000
individually or $100,000 in the aggregate or which have a fixed term extending
more than 12 months from the date of this Agreement (there being no oral
agreements of this kind);
(ii) all joint venture, sales agency, sales
representative or distributorship, broker, franchise, license or similar
agreements;
(iii) all leases relating to real property or to
other material assets used in Company's business;
(iv) all notes, bonds, mortgages, security
agreements, and other agreements and instruments for or relating to any lending
or borrowing by Company or the Company Subsidiary in any amount (exclusive of
advances to employees for expenses and trade payables incurred in the ordinary
course of business);
(v) all powers of attorney, guarantees,
suretyships or similar agreements; and
(vi) all other written agreements the breach of
or default under which would or would be reasonably likely to have a Material
Adverse Effect on Company.
(b) Each of the Material Contracts is valid, binding and
enforceable on the parties thereto in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought.
(c) Except as disclosed in Company Disclosure Schedule
4.11, (i) Company is not a party to or bound by any agreement or understanding
(whether written or oral) with respect to the employment (on any basis other
than at-will) of any officers, employees, directors, consultants or other
persons, and (ii) the consummation of the transactions contemplated by this
Agreement will not (either alone or upon the occurrence of any additional acts
or events) result in
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any payment (whether of severance pay or otherwise) becoming due from Company
to any officer, employee, director, consultant or other person. Company
Disclosure Schedule 4.11 sets forth true and correct copies of all written
severance or employment agreements with officers, directors, employees, agents,
consultants and other persons to which Company is a party. Except as set forth
on Company Disclosure Schedule 4.11, Company is not a party to any oral
agreements of the kind referred to in the preceding sentence.
(d) Except as disclosed in Company Disclosure Schedule
4.11, no agreement or understanding to which Company or, to Company's
Knowledge, any Company Stockholder is a party or by which Company, any of its
Affiliates or any Company Stockholder is bound limits the freedom of Company,
any of its Affiliates or any Company Stockholder to compete in any line of
business or with any person.
(e) Except as disclosed in Company Disclosure Schedule
4.11, neither Company nor the Company Subsidiary nor, to the Knowledge of
Company and the Management Stockholders, any other party thereto, is in default
under any of the Material Contracts to which Company or the Company Subsidiary
is a party or to which Company, the Company Subsidiary or its or their
properties is bound; no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default thereunder entitling any party to terminate a Material
Contract; and the continuation, validity and effectiveness of all such Material
Contracts under the current terms thereof and the current rights and
obligations of Company or any Subsidiary thereunder will in no way be affected,
altered or impaired by the consummation of the transactions contemplated by
this Agreement. To the Knowledge of Company and the Management Stockholders,
except as disclosed in Company Disclosure Schedule 4.11, upon consummation of
the Merger, the Surviving Corporation will be entitled to enjoy the advantages
and benefits of the business arrangements, opportunities and relationships as
enjoyed by Company and its Subsidiary prior to the date of this Agreement
without interference or interruption.
4.12 Properties and Insurance.
(a) Except as disclosed in the Company Financial
Statements or in Company Disclosure Schedule 4.12, Company and the Company
Subsidiary have good and, as to owned real property, marketable title to all
assets and properties, whether real or personal, tangible or intangible,
reflected in the Company Financial Statements as of December 31, 1998 or owned
and acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of in the ordinary course of business since such
date), subject to no Liens except (i) statutory liens for amounts not yet
delinquent or which are being contested in good faith; (ii) such Liens and
title imperfections that do not in the aggregate have a Material Adverse Effect
on Company; (iii) statutory liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords, and other like
persons for labor, materials, supplies, or rentals, if any; (iv) Liens
resulting from deposits made in connection with workers' compensation,
unemployment insurance, social security and like laws; and (v) Liens of banks
and financial institutions with respect to funds on deposit therewith or other
property in
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possession thereof. Company and the Company Subsidiary as lessee have the right
under valid and subsisting leases to occupy, use, possess and control all real
property leased by Company and its Subsidiary as currently occupied, used,
possessed and controlled by Company and its Subsidiary or necessary in the
operation of their business as currently conducted.
(b) The business operations and all insurable properties
and assets of Company and the Company Subsidiary are insured for their benefit
against all risks which, in the reasonable judgment of the Company and the
Company Subsidiary, should be insured against, in each case under policies or
bonds issued by insurers of recognized responsibility, in such amounts with
such deductibles and against such risks and losses as are in the opinion of the
Company adequate for the businesses engaged in by it and the Company
Subsidiary. Certificates of insurance with respect to all such policies as in
effect on the date of this Agreement are attached hereto as Company Disclosure
Schedule 4.12. Neither Company nor the Company Subsidiary has received any
written notice of cancellation or written notice of a material amendment of any
such insurance policy or bond, and Company and the Company Subsidiary are not
in default under any such policy or bond, no coverage thereunder is being
disputed and all material claims thereunder have been filed in a timely
fashion.
(c) No person other than Company and the Company
Subsidiary is currently entitled to possession of or other right to any of the
properties of Company and the Company Subsidiary, whether owned or leased by
Company or the Company Subsidiary. To the Knowledge of Company, the real
property, buildings, structures and improvements owned or leased by Company and
the Company Subsidiary conform to all Applicable Laws, including zoning
regulations, none of which would upon consummation of the transactions
contemplated by this Agreement materially and adversely interfere with the use
of such properties, buildings, structures or improvements for the purposes for
which they are now utilized. Neither Company nor either of the Management
Stockholders has received written notice, nor does Company or the Management
Stockholders have Knowledge of (i) any pending or contemplated condemnation or
eminent domain proceeding affecting the properties owned or leased by Company
or the Company Subsidiary, (ii) any proposal for materially increasing the
assessed value of any such properties for state, county, local or other ad
valorem Taxes or (iii) any pending or contemplated proceedings or public
improvements that would result in the levy of any special Tax or assessment
against any such properties; and there are no outstanding requirements or
recommendations by Company's and the Company Subsidiary's insurance providers
requiring or recommending any repairs or work to be done with reference to any
such properties. The properties and assets owned or leased by Company and the
Company Subsidiary are adequate for the conduct of their business as currently
conducted and are in good repair and operating condition, normal wear and tear
excepted. The properties and assets owned or leased by Company and the Company
Subsidiary constitute all of the property and assets that Company and the
Company Subsidiary use or may reasonably need in connection with the operation
of their business as currently conducted, and the consummation of the
transactions contemplated by this Agreement will not impair the ability of
Parent to use such properties and assets.
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4.13 Environmental Matters.
(a) The operations of Company and the Company Subsidiary
comply, and have complied, in all material respects with all applicable
Environmental Laws (as defined below).
(b) Company and the Company Subsidiary have obtained all
material environmental, health and safety Licenses and other authorizations
necessary for the operation of its and their business, all of which are valid
and in good standing and are not subject to any modification or revocation
proceeding, and Company and the Company Subsidiary are in compliance in all
material respects with all terms and conditions thereof.
(c) Neither Company nor either of the Management
Stockholders has received any written notice of any pending or threatened
investigation, proceeding or claim to the effect that Company is or may be
liable to any person or entity, or responsible or potentially responsible for
the costs of any remedial or removal action or other cleanup costs, as a result
of noncompliance with any Environmental Laws or arising out of the presence,
generation, storage or disposal of hazardous waste, including liability under
the United States Comprehensive Environmental Response, Compensation and
Liability Act, as amended, any state superfund law or any Environmental Law,
and there is no past or present action, activity, condition or circumstance
that could be expected to give rise to any such liability on the part of
Company to any person or entity or for any such cleanup costs.
(d) The term "ENVIRONMENTAL LAWS" shall mean all
Applicable Laws relating to pollution or protection of the environment.
4.14 Intellectual Property. Company and the Company Subsidiary
have developed and conduct an active program of licensing certain proprietary
application software products and systems and provide inventory data processing
services using such products and systems (the "SOFTWARE PROGRAMS"), and in
connection therewith the Company and the Company Subsidiary have developed
certain related technical documentation and user reference manuals (the
"DOCUMENTATION"). The Software Programs and the Documentation are collectively
referred to as the "SOFTWARE." The Software Programs and Documentation are
listed in Company Disclosure Schedule 4.14.
(a) Procedures for Copyright Protection. Company
Disclosure Schedule 4.14(a) sets forth the form and placement of the
proprietary legends and copyright notices displayed in or on the Software,
including screen displays. In no instance has the eligibility of the Software
for protection under copyright law been forfeited to the public domain.
(b) Procedures for Trade Secret Protection. Neither
Company nor the Company Subsidiary has ever disclosed the source code for the
Software to a third party other than the consultants and other persons
identified in Company Disclosure Schedule 4.14(b), each of which has executed a
nondisclosure agreement in favor of Company, and Company and the Company
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Subsidiary disclose source code to employees only on a need-to-know basis in
connection with the performance of their duties to Company and the Company
Subsidiary. Except as described in Company Disclosure Schedule 4.14(b), each
current and former employee of Company has executed and delivered a
nondisclosure and assignment agreement or an employment or other agreement
containing provisions for the protection of trade secrets and confidential
information of Company and the Company Subsidiary and the absolute ownership by
Company and the Company Subsidiary of all work resulting from the performance
of services by such employee. The form of such agreement is attached to Company
Disclosure Schedule 4.14(b) and there are no material deviations from that form
which have been executed. The source code and system documentation comprising
the Software have at all times been maintained by Company and the Company
Subsidiary in confidence, and Company and the Company Subsidiary have not taken
(nor have they failed to take) any action which would result in such source
code and system documentation not being protectable as a trade secret under
applicable law.
(c) Ownership of Software. All persons who have
contributed to or participated in the conception and development of the
Software have been full-time employees of Company or the Company Subsidiary
hired to prepare such works within the scope of employment, except for the
consultants identified in Company Disclosure Schedule 4.14(b). As a
consequence, Company and the Company Subsidiary have all ownership interests in
the Software.
(d) Absence of Claims. Except as set forth in Company
Disclosure Schedule 4.14(d), no claims have been asserted against Company or
the Company Subsidiary by any person to rights in the Software, and no valid
basis for any such claim exists. The use of the Software by Company, the
Company Subsidiary and their licensees does not infringe on the rights of any
person (whether arising under copyright, trade secret, patent, unfair
competition or other state or federal laws which protect intellectual property
rights).
(e) Company Disclosure Schedule 4.14(e) (i) lists and
describes all patents, patent applications, trade names, trademarks, service
marks, trademark and service mark registrations and applications, and all
patent, trademark and service mark licenses, (ii) describes all copyrights,
computer software, databases, and all other intellectual property that are
owned by or registered in the name of Company or the Company Subsidiary or to
which Company or the Company Subsidiary has any rights as licensee or otherwise
(except "off-the-shelf" computer software being used in accordance with the
standard license therefor), which list specifies which items are owned and to
which items Company or the Company Subsidiary has rights as a licensee or
otherwise; and (iii) lists and describes all contracts, agreements or
understandings pursuant to which Company or the Company Subsidiary has
authorized any person to use, or which any person otherwise has the right to
use, in any business or commercial activity, any of the items listed in clauses
(i) and (ii) above. All federal trademark or service mark registrations, and
all applications to register any trademarks or service marks or any trademark
register maintained by the United States government or any state or provincial
government are based on truthful affidavits or declarations of use.
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(f) All Necessary Property. The items listed or
described in Company Disclosure Schedule 4.14 pursuant to the preceding
subsections constitute or represent all of the intellectual property necessary
to the conduct of Company's and the Company Subsidiary's business, and
Company's and the Company Subsidiary's ownership and use rights with respect
thereto are free and clear of Liens.
(g) No Infringement. Company has not nor has the Company
Subsidiary infringed upon, and Parent's conduct of Company's and the Company
Subsidiary's business after the Closing as currently conducted will not
infringe upon, any patent, service mark, trade name, trademark, copyright,
trade secret or other intellectual property belonging to any other person or
entity; and, except as described in Company Disclosure Schedule 4.4(g), Company
has not nor has the Company Subsidiary agreed to indemnify any person or entity
for or against any infringement of or by the intellectual property set forth in
the Company Disclosure Schedule 4.14. To the Knowledge of Company, no person or
entity is infringing upon any of patents, patent applications, trade names,
trademarks, service marks, trademark and service mark registrations, licenses,
copyrights, computer software or other intellectual property of Company and the
Company Subsidiary. No claim has been asserted against Company or the Company
Subsidiary or otherwise to Company's Knowledge by any person to the effect that
any current or former employee of Company has violated the provisions of any
noncompete or nondisclosure agreement with such person, or has disclosed any
proprietary information of such person to Company, the Company Subsidiary or
any third party.
4.15 Adequacy of Technical Documentation. The Software includes
the source code, system documentation and statements of principles of operation
for all Software Programs, as well as any pertinent commentary or explanation
that may be reasonably necessary to render such materials understandable and
usable by a trained computer programmer. The Software also includes any program
(including compilers), workbenches, tools, and higher level language used for
the development, maintenance and implementation of a Software Program.
4.16 Third-Party Components in Software. Company and the Company
Subsidiary have validly obtained the right and license to use, copy, modify and
distribute any third-party programming and materials contained in the Software
pursuant to the contracts identified in Company Disclosure Schedule 4.14(e),
subject to no further license fee, royalty or other payment obligations, other
than software maintenance payments customarily associated therewith. The
Software contains no other programming or materials in which any third party
may claim superior, joint or common ownership, including any right or license.
The Software does not contain derivative works of any programming or materials
not owned in their entirety by Company and the Company Subsidiary.
4.17 Third-Party Interests or Marketing Rights in Software.
Company and the Company Subsidiary have not granted, transferred, or assigned
any right or interest in the Software to any person, except pursuant to the
contracts identified in Company Disclosure Schedule 4.14(e). There are no
contracts, agreements, licenses, commitments or arrangements in effect with
respect to the marketing, distribution, licensing or promotion of the Software
by any
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independent salesperson, distributor, sublicensor or other remarketer or sales
organization, except as set forth in Company Disclosure Schedule 4.14 (b) and
(e).
4.18 No Parachute Payments. Except as disclosed in Company
Disclosure Schedule 4.18, no officer, director, employee or agent (or former
officer, director, employee or agent) of Company or the Company Subsidiary is
entitled now, or will or may be entitled as a consequence of this Agreement or
the Merger, to any payment or benefit from Company or from Parent, which if
paid or provided would constitute an "excess parachute payment," as defined in
Section 280G of the Code.
4.19 Absence of Certain Agreements and Practices.
(a) Except as set forth in Company Disclosure Schedule
4.19 or in connection with customary transactions in the ordinary course of
business, no present or former Affiliate or Stockholder of Company or the
Company Subsidiary:
(i) owes money to Company or the Company
Subsidiary;
(ii) has any claim (as defined in Section 101 of
the U.S. Bankruptcy Code) or other right or cause of action against Company or
the Company Subsidiary;
(iii) has any interest in any property or assets
used by Company or the Company Subsidiary in their business;
(iv) has any benefits that are contingent on the
transactions contemplated by this Agreement, other than as stated in this
Agreement;
(v) has any agreement with Company or the
Company Subsidiary that is not terminable by Company or the Company Subsidiary
without penalty or notice;
(vi) has any agreement providing severance
benefits or other benefits, which are conditioned upon a change of control
after the termination of employment of such employee regardless of the reason
for such termination of employment; or
(vii) has any agreement or plan, any of the
benefits of which will be increased, vested or accelerated by the occurrence of
any of the transactions contemplated by this Agreement.
(b) Neither Company, the Company Subsidiary, nor their
directors, officers, agents, affiliates or employees, nor any other person
acting on behalf of Company or the Company Subsidiary, has (i) given or agreed
to give any gift or similar benefit having a value of $1,000 or more to any
customer, supplier or governmental employee or official or any other person,
for the purpose of directly or indirectly furthering the business of Company or
the Company Subsidiary, (ii) used any corporate funds for contributions,
payments, gifts or entertainment, or made any expenditures, relating to
political activities to government officials or
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others in violation of any Applicable Laws, or (iii) received any unlawful
contributions, payments, gifts or expenditures in connection with the business
of Company or the Company Subsidiary.
4.20 Major Vendors and Customers. Company Disclosure Schedule 4.20
sets forth a list of each licensor, developer, remarketer, distributor and
supplier of property or services to, and each licensee, end-user or customer
of, Company and the Company Subsidiary, to whom Company or the Company
Subsidiary paid or billed in the aggregate in excess of $25,000 from January 1,
1997 through December 31, 1998.
4.21 Accounts Receivable. Company Disclosure Schedule 4.21 sets
forth the accounts receivable of Company and the Company Subsidiary as of
December 31, 1998, as reflected in the Company Financial Statements as of that
date, together with an aging of these accounts. These accounts receivable arose
from, and all accounts receivable of Company and the Company Subsidiary created
after that date arose from, valid transactions in the ordinary course of
business, and except as disclosed in Company Disclosure Schedule 4.21, will be
good and collectible at the recorded amounts thereof. Except as disclosed in
Company Disclosure Schedule 4.21, no portion of the accounts receivable is
subject to counterclaim or setoff.
4.22 Sufficiency of Rights. Except as set forth in Company
Disclosure Schedule 4.22, and assuming the renewal or continuation of all
business arrangements, including goodwill, employment, customer, client and
vendor relationships currently in place (and, to Company's and the Management
Stockholders' Knowledge, no reason exists why such renewal or continuation in
favor of Parent could be diminished or obstructed), the assets of Company and
the Company Subsidiary as reflected in the Company Financial Statements
constitute all of the properties, rights, and privileges necessary for the
continuation of the conduct of Company's and the Company Subsidiary's business
by Parent for a reasonable period after Closing in substantially the same
manner as it has been operated by Company and the Company Subsidiary during the
12-month period preceding the Closing.
4.23 Solvency. Since January 1, 1991, except as set forth on
Company Disclosure Schedule 4.23, neither Company nor the Company Subsidiary
has been a party to any bankruptcy, insolvency or similar proceeding, whether
voluntary or involuntary, and no receiver, trustee or other similar party has
been appointed with respect to Company or the Company Subsidiary or any of
their assets. Company and the Company Subsidiary are solvent and, after giving
effect to the Merger contemplated by this Agreement will be solvent.
4.24 Combinations Involving Company. All mergers, consolidations
or other business combinations involving Company and its present or former
Subsidiaries, and all liquidations, purchases or other transactions by which
Company and the Company Subsidiary acquired any of their business and property
were conducted in all material aspects in accordance with applicable
certificates of incorporation, bylaws, any other applicable agreements,
instruments and documents and Applicable Laws.
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4.25 Bank Accounts. Company Disclosure Schedule 4.25 lists all
bank, internet, money market, savings and similar accounts and safe deposit
boxes of Company and the Company Subsidiary, specifying the account numbers,
the institutions where located and the authorized signatories or persons having
access to them. In addition, Company and the Company Subsidiary shall deliver
all passwords with respect to the foregoing accounts to Parent at Closing.
4.26 Labor Relations. Except as disclosed on Company Disclosure
Schedule 4.26, Company and the Company Subsidiary are in compliance in all
material respects with all Applicable Laws respecting employment and employment
practices, terms and conditions of employment, wages and hours, and is not
engaged in any unfair labor or unlawful employment practice. There is no
unlawful employment practice or discrimination charge pending before the Equal
Employment Opportunity Commission ("EEOC") or any EEOC recognized state
"referral agency." There is no unfair labor practice charge or complaint
against Company or the Company Subsidiary pending before the National Labor
Relations Board ("NLRB"). There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the Knowledge of Company or the Management
Stockholders, threatened against or involving or affecting Company or the
Company Subsidiary and no NLRB representation question exists respecting any of
its employees. No grievance, complaint, citation, investigation or arbitration
proceeding is pending and no written claim therefor exists. There is no
collective bargaining agreement that is binding on Company or the Company
Subsidiary.
4.27 Year 2000 Matters. Except as set forth on Company Disclosure
Schedule 4.27, the software, systems and computer programs listed on Company
Disclosure Schedule 4.14 are designed to be used prior to, during, and after
the calendar year 2000 AD, and such software and computer programs will operate
during each such time period without material error relating to date data,
specifically including any error relating to, or the product of, date data
which represents or references different centuries or more than one century or
any leap year. Except as set forth on Company Disclosure Schedule 4.27,
Company's internal operating and computer systems and software and the network
connections it maintains are adequately programmed to address the Year 2000
issue in all material respects.
4.28 Change in Control Provisions. Company Disclosure Schedule
4.28 contains a true and complete copy of all agreements in effect to which
Company, or the Company Subsidiary, is a party and which contain any provisions
which become effective upon a change in control, merger, consolidation, sale of
assets or other business combination involving Company or the Company
Subsidiary or otherwise require any payment or performance by Company, or any
officer or director thereof, now or in the future, in connection with or as a
result of any of the transactions contemplated by this Agreement.
4.29 Pooling-of-Interests. To Company's Knowledge and the
Knowledge of the Management Stockholders based on consultation with Company's
independent accountants, neither Company nor any of its directors, officers,
other Affiliates or stockholders has taken any
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action which would interfere with Parent's ability to account for the Merger as
a pooling-of-interests.
4.30 No Prior Convictions. No Management Stockholder or, to the
Knowledge of Company and the Management Stockholders, any other executive
officer or director of Company has been convicted, or has any action pending,
of a crime involving fraud, embezzlement or theft or any similar crime.
4.31 Statements; Proxy Statement/Prospectus. The information
supplied by Company for inclusion in the Registration Statement (as defined in
Section 7.14) shall not, at the time the Registration Statement is filed with
the Securities and Exchange Commission (the "COMMISSION"), at the time any
amendment or supplement thereto is filed and at the time it becomes effective
under the 1933 Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. The information supplied by Company
for inclusion in the Proxy Statement (as defined in Section 7.14) shall not, on
the date the Proxy Statement is first mailed to Company's Stockholders, at the
time of the Company Stockholders' meeting (as required by Section 7.15) and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders' meeting which has become
false or misleading. To the Knowledge of the Management Stockholders, the
representations made in the preceding two sentences are and shall be true,
accurate and complete in all material respects. The Proxy Statement will comply
as to form in all material respects with the provisions of the 1934 Act and the
rules and regulations thereunder. If, at any time prior to the Effective Time,
any event relating to Company or any of its Affiliates or the Company
Subsidiary should be discovered by Company or any Management Stockholder which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, Company and such Management Stockholder
shall promptly inform Parent. Notwithstanding the foregoing, Company and the
Management Stockholders make no representation or warranty with respect to any
information supplied by Parent which is contained in any of the foregoing
documents.
4.32 Disclosure. No representation, warranty or statement made by
Company in this Agreement or in any document or certificate furnished or to be
furnished to Parent pursuant to this Agreement contains or will contain any
untrue or incomplete statement or omits or will omit to state any fact
necessary to make the statements contained in this Agreement or in such
document or certificate not misleading in any material respect. All facts known
or reasonably available to Company that are material to the financial
condition, operation, or prospects of the business and assets of Company have
been disclosed to Parent. No representation, warranty or statement made by the
Management Stockholders in this Agreement or in any document or certificate
furnished or to be furnished to Parent pursuant to this Agreement contains or
will contain any untrue or incomplete statement or omits or will omit to state
any fact necessary to make the statements contained in this Agreement or in
such document or certificate not
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misleading in any material respect. To the Knowledge of the Management
Stockholders, all facts that are material to the financial condition,
operation, or prospects of the business and assets of Company have been
disclosed to Parent.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
OF THE MANAGEMENT STOCKHOLDERS
Each Management Stockholder, severally and not jointly, represents and
warrants to Parent, with respect to himself and his ownership of Company Common
Stock, as follows:
5.1 Ownership of Shares. The Management Stockholder owns of
record and beneficially all of the Company Common Stock set forth opposite his
name on Company Disclosure Schedule 4.2. The Management Stockholder owns all
right, title and interest in and to such Company Common Stock, free and clear
of all Liens (including those for federal or state estate or inheritance
taxes), options, rights of refusal or similar rights or other transfer
restrictions of any nature whatsoever (including any arising from any pending
or threatened litigation) other than restrictions on transfers arising out of
applicable federal and state securities laws, state community property laws,
and the agreements identified on Company Disclosure Schedule 4.2 (which
restrictions shall be terminated at or prior to the Closing). The Management
Stockholder owns no other securities of Company except for his interest in the
ESOP set forth in Company Disclosure Schedule 4.9 and the Outstanding Options
listed in Company Disclosure Schedule 4.2.
5.2 Authorization. With respect to this Agreement and any other
agreements, instruments and documents executed and delivered by the Management
Stockholder pursuant to this Agreement (this Agreement and such other
agreements, instruments and documents are collectively referred to as the
"STOCKHOLDER DELIVERED AGREEMENTS"): (i) the Management Stockholder has the
right, power and authority to enter into the Stockholder Delivered Agreements
executed and delivered by him and to consummate the transactions contemplated
by, and otherwise to comply with and perform his obligations under them; and
(ii) the Stockholder Delivered Agreements will, when delivered, constitute
valid and binding obligations of the Management Stockholder enforceable against
the Management Stockholder in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought.
5.3 Absence of Violations or Conflicts. Except as set forth on
Management Stockholder Disclosure Schedule 5.3, the execution and delivery of
the Stockholder Delivered Agreements and the consummation by the Management
Stockholder of the transactions
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contemplated by, or other compliance with the performance under them do not and
will not with the passing of time or giving of notice or both: (i) constitute a
violation of, be in conflict with, constitute a default or require any payment
under, permit a termination of, or result in the creation or imposition of any
Lien upon any assets of Company or any of the Company Common Stock under (A)
any contract, agreement, commitment, undertaking or understanding (including
rights of refusal or similar rights or other transfer restrictions) to which
the Management Stockholder is a party or to which he or his properties or
Company or its properties are subject or bound, or (B) any Applicable Law or
judgment, decree or order of any Governmental Authority to which the Management
Stockholder or his properties are subject or bound; or (ii) create, or cause
the acceleration of the maturity of, any debt, obligation or liability of the
Management Stockholder that would result in any Lien or other claim upon the
assets of Company.
5.4 No Consents Required. Except for the Company Approvals, and
except as set forth on Management Stockholder Disclosure Schedule 5.4, no
Authorization of or with any Governmental Authority or any other Authorization
of or with any other third party on the part of the Management Stockholder is
required in connection with his execution or delivery of the Stockholder
Delivered Agreements or the consummation of the transactions contemplated by,
or other compliance with the performance under, such Stockholder Delivered
Agreements by the Management Stockholder.
5.5 No Claims Against Company. Except as set forth on Management
Stockholder Disclosure Schedule 5.5, the Management Stockholder has no claim or
cause of action against Company or any of the Company Subsidiary, except for
accrued compensation and benefits and expenses or similar obligations incurred
in the ordinary course of business (including reimbursement of medical expenses
pursuant to the Benefit Plans disclosed pursuant to this Agreement), and except
as otherwise specifically provided in this Agreement.
5.6 Litigation Related to this Agreement. The Management
Stockholder is not a party to or subject to any judgment, decree or order
entered in any lawsuit or proceeding brought by any Governmental Authority or
other third party seeking to prevent the execution of this Agreement or the
consummation of the transactions contemplated by this Agreement.
5.7 Resales of Parent Common Stock. The Management Stockholder
will not make any sale, transfer or other disposition of the Parent Common
Stock in violation of the 1933 Act or any applicable state securities laws (the
"STATE ACTS"). Without limiting the foregoing, the Management Stockholder has
no current plan or intention to distribute any of the Parent Common Stock
issued to him pursuant to this Agreement. The Management Stockholder agrees
that there will be placed on the certificate or other evidence of the Parent
Common Stock issued to any "affiliate" of Company for purposes of Rule 145 of
the 1933 Act, or any substitutions therefor, the following:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE
"SECURITIES") MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED OTHER THAN UPON RECEIPT BY THE ISSUER OF
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EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT
AND THE APPLICABLE SECURITIES LAWS OF ANY OTHER JURISDICTION.
THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF COUNSEL
SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE
LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFER
RELATED TO POOLING-OF-INTERESTS SET FORTH IN AN AGREEMENT AND
PLAN OF MERGER (THE AGREEMENT) DATED AS OF MARCH 25, 1999
AMONG THE ISSUER, THE HOLDER OF THE SECURITIES AND OTHERS.
ANY ATTEMPTED TRANSFER IN VIOLATION OF THE AGREEMENT SHALL BE
NULL AND VOID. A COPY OF THE AGREEMENT OR A SUMMARY OF SUCH
RESTRICTIONS IS AVAILABLE FROM THE ISSUER UPON REQUEST.
5.8 Tax Advice. The Management Stockholder has reviewed with his
tax advisor the United States federal and state tax consequences of an
investment in the Parent Common Stock and the transactions contemplated by this
Agreement. The Management Stockholder is relying solely on such advisors and
not on any statements or representations of Parent, Company or the agent of
either, except for the Tax Opinion required in Section 8.3 to be delivered by
Parent's counsel (which shall not be considered personal tax advice provided to
such Management Stockholder) and except for the statements, representations and
covenants provided in this Agreement, and understands that he (and not Parent
or any other party) shall be responsible for his own tax liability that will
arise as a result of this investment or the transactions contemplated by this
Agreement.
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Company (except as disclosed by
Parent pursuant to this Agreement and in the Parent Disclosure Schedules) as
follows:
6.1 Corporate Organization.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia. Parent
has the corporate power and authority to own or lease all of its properties and
assets and to carry on its business as it is now being conducted, and is duly
licensed or qualified to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect on Parent.
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(b) All Subsidiaries of Parent are listed on Parent
Disclosure Schedule 6.1. Each Parent Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of its state or
other jurisdiction of incorporation. Each Parent Subsidiary has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted and is duly licensed or
qualified to do business and is in good standing in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed, qualified
or in good standing would not have a Material Adverse Effect on Parent. Parent
Disclosure Schedule 6.1 sets forth copies of the Articles of Incorporation and
bylaws, if any, as in effect on the date of this Agreement, of Parent and each
of the Parent Subsidiaries. Except as set forth in the Parent Disclosure
Schedule 6.1, Parent and its Subsidiaries do not own or control, directly or
indirectly, any equity interest in excess of five percent (5%) in any
corporation, company, association, partnership, joint venture or other entity.
6.2 Capitalization.
(a) As of the date of this Agreement, the authorized
capital stock of Parent consists of 50,000,000 shares of Parent Common Stock
and 20,000,000 shares of preferred stock, without par value ("PARENT PREFERRED
STOCK"). As of the date of this Agreement, there are 19,782,313 shares of
Parent Common Stock issued and outstanding, no shares of Parent Preferred Stock
issued and outstanding, and 4,120,113 shares of Parent Common Stock reserved
for issuance upon the exercise of outstanding stock options and warrants
("PARENT STOCK OPTIONS"). All issued and outstanding shares of Parent Common
Stock, and all issued and outstanding shares of capital stock of each of the
Parent Subsidiaries, have been duly authorized and validly issued and are fully
paid and nonassessable, were not issued in violation of any preemptive rights
and were issued in material compliance with all applicable federal and state
securities laws. All of the outstanding shares of capital stock of each Parent
Subsidiary are owned by Parent and are free and clear of any Liens.
(b) Except for the Parent Stock Options disclosed in
Parent Disclosure Schedule 6.2 or as otherwise disclosed by Parent in the
Parent SEC Reports (defined below), neither Parent nor any of the Parent
Subsidiaries has granted or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
transfer, purchase, subscription or issuance of any shares of capital stock of
Parent or any of the Parent Subsidiaries or any securities representing the
right to purchase, subscribe or otherwise receive any shares of such capital
stock or any securities convertible into any such shares, and there are no
agreements or understandings with respect to voting of any such shares.
(c) All transactions whereby Parent or the Parent
Subsidiaries repurchased, redeemed, canceled or reacquired shares of its
capital stock and the solicitation of stockholder consents in connection with
the Merger have been or will be effected in material compliance with all
applicable corporate and securities laws, and documentation prepared by or on
behalf of the Parent or the Parent Subsidiaries in connection therewith did not
and will not include any untrue
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statement of any material fact or omit to state any material fact necessary to
make the statements made therein correct and complete.
6.3 Authority; No Violation.
(a) Except for the filing of the Proxy Statement (as
defined in Section 7.14) under the 1934 Act, the effectiveness of the
Registration Statement (as defined in Section 7.14) and satisfaction of other
requirements under the 1933 Act, 1934 Act and any applicable State Acts, Nasdaq
listing approval requirements, and filing of the Certificate of Merger as
required by the GBCC and the DGCL (collectively, the "PARENT APPROVALS"), no
Authorization of any third party or any Governmental Authority is necessary on
behalf of Parent in connection with the execution and delivery by Parent of
this Agreement and the other Merger Documents and the consummation by Parent of
the Merger and the other transactions contemplated by this Agreement and the
other Merger Documents. Subject to receipt of the Parent Approvals, Parent has
the full corporate power and authority to execute and deliver this Agreement
and to consummate the Merger and the other transactions contemplated by this
Agreement and the other Merger Documents in accordance with the terms of this
Agreement and the other Merger Documents. The execution and delivery of this
Agreement and the other Merger Documents and the consummation of the Merger and
the other transactions contemplated by this Agreement and the other Merger
Documents have been duly and validly approved by the Board of Directors of
Parent in accordance with the Articles of Incorporation and bylaws of Parent
and Applicable Laws. Except for the Parent Approvals, no other corporate
proceedings on the part of Parent are necessary to consummate the Merger and
the other transactions contemplated by this Agreement and, when executed and
delivered, the other Merger Documents. This Agreement has been duly and validly
executed and delivered by Parent and constitutes the valid and binding
obligation of Parent enforceable against Parent in accordance with its terms.
(b) Neither the execution and delivery of this Agreement
by Parent and Merger Sub, nor the consummation by Parent and Merger Sub of the
Merger and the other transactions contemplated by this Agreement in accordance
with the terms of this Agreement and the other Merger Documents, nor compliance
by Parent and Merger Sub with any of the terms or provisions of this Agreement
or the other Merger Documents, will (i) assuming that the Parent Approvals are
duly obtained, violate any provision of Parent's or Merger Sub's Articles of
Incorporation or bylaws, (ii) assuming that the Parent Approvals are duly
obtained, violate any Laws applicable to Parent, any of the Parent
Subsidiaries, or any of their respective properties or assets, or (iii) except
as set forth in Parent Disclosure Schedule 6.3, violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in the
creation of any Lien upon any of the respective properties or assets of Parent
or the Parent Subsidiaries under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which Parent or any of the Parent
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected except, with respect to (ii) and (iii)
above, such as individually or in the aggregate will not have a Material
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Adverse Effect on Parent, and which will not prevent or delay the consummation
of the Merger and the other transactions contemplated by this Agreement and the
other Merger Documents.
(c) Subject to receipt of the Parent Approvals, Merger
Sub has the full corporate power and authority to execute and deliver this
Agreement and to consummate the Merger and the other transactions contemplated
by this Agreement and the other Merger Documents in accordance with the terms
of this Agreement and the other Merger Documents. The execution and delivery of
this Agreement and the other Merger Documents and the consummation of the
transactions contemplated by this Agreement and the other Merger Documents have
been duly and validly approved by the Board of Directors and the sole
Shareholder of Merger Sub in accordance with the Articles of Incorporation and
bylaws of Merger Sub and Applicable Laws. Except for the Parent Approvals, no
other corporate proceedings on the part of Merger Sub are necessary to
consummate the Merger and the other transactions contemplated by this Agreement
and the other Merger Documents. This Agreement has been duly and validly
executed and delivered by Merger Sub and constitutes the valid and binding
obligation of Merger Sub enforceable against Merger Sub in accordance with its
terms.
6.4 Parent SEC Reports; Financial Statements.
(a) Parent has timely filed all forms, reports and
documents required to be filed by it with the Commission, and has heretofore
made available to Company, in the form filed with the Commission (excluding any
exhibits thereto) (i) Parent's registration statement on Form S-1 as declared
effective by the Commission on July 30, 1998, (ii) its Annual Report on Form
10-K for the fiscal year ended December 31, 1998 (or the most recent draft
thereof), (iii) its Quarterly Reports on Form 10-Q for the periods ended June
30 and September 30, 1998, (iv) all proxy statements relating to Parent's
meetings of shareholders (whether annual or special) held since July 31, 1998,
(v) all Current Reports on Form 8-K since July 31, 1998, and (vi) all
amendments and restatements of the foregoing (collectively, the "PARENT SEC
REPORTS").
(b) Except as set forth in Parent Disclosure Schedule
6.4, the Parent SEC Reports (i) were prepared in all material respects in
accordance with the then-current requirements of the 1933 Act and the 1934 Act,
as the case may be, and the rules and regulations thereunder and (ii) did not
at the time they were filed (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) 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 made therein, in
light of the circumstances under which they were made, not misleading;
provided, that any pro forma financial statements contained in the Parent SEC
Reports are not necessarily indicative of the consolidated financial position
of Parent and the Parent Subsidiaries as of the respective date of such
financial statements nor are such pro forma financial statements necessarily
indicative of the consolidated results of operations and cash flows of Parent
and the Parent Subsidiaries for the periods indicated therein. No Subsidiary of
Parent is required to file any forms, documents or reports with the Commission
under the 1934 Act.
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(c) The Parent SEC Reports set forth copies of: (i) the
consolidated balance sheets of Parent and the Parent Subsidiaries as of
December 31, 1998, 1997 and 1996, and the consolidated statements of income,
shareholders' equity and cash flows for the periods ended December 31, 1998,
1997 and 1996, in each case accompanied by the audit report of Arthur Andersen
LLP, independent public accountants with respect to Parent and the Parent
Subsidiaries (collectively, together with the related notes and any additional
financial statements delivered pursuant to Section 7.4, the "PARENT FINANCIAL
STATEMENTS").
(d) The Parent Financial Statements have been prepared
in accordance with GAAP applied consistently during the periods involved
(except as may be indicated therein or in the notes thereto), and present
fairly, in all material respects, the consolidated financial position of Parent
and the Parent Subsidiaries as of the respective dates set forth therein, and
the consolidated results of Parent's and the Parent Subsidiaries' operations
and their cash flows for the respective periods set forth therein, in
accordance with GAAP (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not known or
reasonably expected, individually or in the aggregate, to be material in
amount); provided, that any pro forma financial statements contained in the
Parent SEC Reports are not necessarily indicative of the consolidated financial
position of Parent and the Parent Subsidiaries as of the respective dates of
such financial statements nor are such pro forma financial statements
necessarily indicative of the consolidated results of operations and cash flows
of Parent and the Parent Subsidiaries for the periods indicated therein.
(e) Except as and to the extent reflected, disclosed or
reserved against in the Parent Financial Statements, or as disclosed in Parent
Disclosure Schedule 6.4, neither Parent nor any of the Parent Subsidiaries has
had any Liabilities and, since December 31, 1998, Parent and the Parent
Subsidiaries have not incurred any Liabilities except in the ordinary course of
business and consistent with past practice (which, in the aggregate, are not
material) other than Liabilities incurred in connection with this Agreement.
6.5 Broker's and Other Fees. Other than as set forth on Parent
Disclosure Schedule 6.5, neither Parent nor any of the Parent Subsidiaries nor
any of their directors or officers has employed any broker or finder or
incurred any liability for any broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
6.6 Parent Common Stock. At the Effective Time, the Parent Common
Stock to be issued pursuant to the Merger will be duly authorized and validly
issued, fully paid and nonassessable, free of preemptive rights and free and
clear of all Liens created by or through Parent (except as set forth in this
Agreement and the other Merger Documents).
6.7 No Material Adverse Effect on Parent. From December 31, 1998
to the date of this Agreement, there has been no change, occurrence or
circumstance affecting the business, results of operations or financial
condition of Parent or any Parent Subsidiary that has had, individually or in
the aggregate, a Material Adverse Effect on Parent, other than changes,
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occurrences and circumstances referred to in any Parent SEC Reports or
otherwise disclosed by Parent on Parent Disclosure Schedule 6.7.
6.8 Absence of Certain Changes or Events. Except as set forth in
Parent Disclosure Schedule 6.8, since December 31, 1998, except for the
execution of this Agreement, and except as reflected in the Parent SEC Reports
and Parent Financial Statements, Parent has conducted its business only in the
ordinary course, consistent with past practice, and has not declared or paid
any dividend or distribution on or in respect of the Parent Common Stock.
6.9 Legal Proceedings. Except as disclosed in Parent Disclosure
Schedule 6.9 or the Parent SEC Reports, and except for normal debt collection
proceedings instituted in the ordinary course by Parent and the Parent
Subsidiaries, neither Parent nor any of the Parent Subsidiaries is a party to
any, and there are no pending or, to the Parent's Knowledge, threatened legal,
administrative, arbitral or other proceedings, claims, actions or governmental
investigations of any nature against Parent or any of the Parent Subsidiaries
which, if determined adversely to Parent could reasonably be expected to have a
Material Adverse Effect on Parent. Except as disclosed in Parent Disclosure
Schedule 6.9, the Parent SEC Reports or otherwise disclosed by Parent, neither
Parent nor any of the Parent Subsidiaries is a party to any order, judgment or
decree entered in any lawsuit or proceeding.
6.10 Taxes and Tax Returns. Except as disclosed in Parent
Disclosure Schedule 6.10:
(a) Each of Parent and Merger Sub has duly filed (and
until the Effective Time will so file) all Returns required to be filed by it
in respect of any United States federal, state or local Taxes and has duly paid
(and until the Effective Time will so pay) all such Taxes due and payable as
finally determined by the applicable Governmental Authority, other than Taxes
which are being contested in good faith (and disclosed to Company in writing).
Each of Parent and Merger Sub has established (and until the Effective Time
will establish) on its books and records reserves that are adequate for the
payment of all Taxes not yet due and payable, but that are incurred in respect
of Parent and Merger Sub through such date.
(b) None of the Returns of Parent or Merger Sub has been
examined by the IRS, or any other United States federal, state or local or any
foreign Governmental Authority within the past six years. To the Knowledge of
Parent and Merger Sub: there are no audits or other Governmental Authority
proceedings presently pending, nor any other disputes pending with respect to,
or claims asserted for, Taxes upon Parent or Merger Sub; nor has Parent or
Merger Sub given any currently outstanding waivers or comparable consents
regarding the application of any statute of limitations with respect to any
Taxes or Returns. There are no Liens for Taxes upon the assets of Parent or
Merger Sub, except for Liens for Taxes not yet due and payable or being
properly contested. Any Taxes being properly contested are disclosed on Parent
Disclosure Schedule 6.10. Parent has complied (and until the Effective Time
will comply) in all material respects with all Applicable Laws relating to the
payment and withholding of Taxes.
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(c) Neither Parent nor Merger Sub (i) has requested any
extension of time within which to file any Return which Return has not since
been filed; (ii) is a party to any agreement providing for the indemnification,
allocation or sharing of Taxes; (iii) is required to include in income any
adjustment by reason of a voluntary change in accounting method initiated by
Parent or Merger Sub (nor does Parent or Merger Sub have any Knowledge that any
Governmental Authority has proposed any such adjustment or change of accounting
method); (iv) has filed a consent with any Governmental Authority pursuant to
which Parent or Merger Sub has agreed to recognize gain (in any manner)
relating to or as a result of this Agreement or the transactions contemplated
by this Agreement; or (v) has been a member of an affiliated group other than
one of which Parent or Merger Sub was the common parent.
6.11 Compliance with Applicable Laws. Except as set forth in
Parent Disclosure Schedule 6.11, each of Parent and Merger Sub holds all
Licenses necessary for the lawful conduct of its business except where the
failure to hold any License would not have a Material Adverse Effect on Parent
or Merger Sub. No proceeding is pending or, to the Knowledge of Parent or
Merger Sub, threatened seeking the revocation or suspension of any License.
Each of Parent and Merger Sub is and has been in compliance in all material
respects with all Applicable Laws, except where the failure to be in compliance
would not have a Material Adverse Effect on Parent or Merger Sub; and neither
Parent nor Merger Sub has received any written notices from any Governmental
Authority of any allegation of any violation of any Applicable Laws or
Licenses. There is no outstanding or, to the Knowledge of Parent, threatened
order, writ, injunction or decree of any Governmental Authority against Parent
or the Parent Subsidiaries affecting, involving, or relating to their business
or material assets.
6.12 Pooling-of-Interests. To Parent's Knowledge, based on
consultation with its independent accountants, neither Parent nor the Parent
Subsidiaries nor any of their respective directors, officers, other Affiliates
or shareholders has taken any action which would interfere with Parent's
ability to account for the Merger as a pooling-of-interests.
6.13 Statements; Proxy Statement/Prospectus. The information
supplied by Parent for inclusion in the Registration Statement (as defined in
Section 7.14) shall not, at the time the Registration Statement is filed with
the Commission, at the time any amendment or supplement thereto is filed and at
the time it becomes effective under the 1933 Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading.
The information supplied by Parent for inclusion in the Proxy Statement (as
defined in Section 7.14) shall not, on the date the Proxy Statement is first
mailed to Company's Stockholders, at the time of the Company Stockholders'
meeting (as required by Section 7.15) and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' meeting which has become false or misleading. The Proxy
Statement will comply as to form in all material respects with the provisions
of the 1934 Act and the rules
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and regulations thereunder. If, at any time prior to the Effective Time, any
event relating to Parent or any of its Affiliates or Subsidiaries should be
discovered by Parent which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Parent shall
promptly inform Company. Notwithstanding the foregoing, Parent makes no
representation or warranty with respect to any information supplied by Company,
the Company Subsidiary or the Management Stockholders which is contained in any
of the foregoing documents.
6.14 Contract Default. Neither Parent nor any Parent Subsidiary
nor, to the Knowledge of Parent, any other party thereto, is in default under
any of the Material Contracts to which Parent or any Parent Subsidiaries is a
party or to which it or its properties is bound; no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence
of any other event) would constitute a default thereunder entitling any party
to terminate a Material Contract; and the continuation, validity and
effectiveness of all such Material Contracts under the current terms thereof
and the current rights and obligations of Parent or any Parent Subsidiary
thereunder will in no way be affected, altered or impaired by the consummation
of the transactions contemplated by this Agreement. "Material Contracts" of
Parent shall mean only those contracts listed as exhibits to Parent's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, but shall not
include those contracts listed as "form of" agreements.
6.15 Disclosure. No representation, warranty, or statement made by
Parent or Merger Sub in this Agreement or in any document or certificate
furnished or to be furnished by Parent or Merger Sub to Company or the
Company's Stockholders pursuant to this Agreement contains or will contain any
untrue or incomplete statement or omits or will omit to state any fact
necessary to make the statements contained in this Agreement or in such
document or certificate not misleading in any material respect. All facts known
or reasonably available to Parent or Merger Sub that are material to the
financial condition, operation, or prospects of the business and assets of
Parent and Merger Sub have been disclosed to Company and the Management
Stockholders.
ARTICLE 7 - COVENANTS AND CERTAIN ACTIONS OF THE PARTIES
7.1 Conduct of Business. Company and the Company Subsidiary agree
that from the date hereof to the Effective Time, Company and the Company
Subsidiary shall conduct their business only in the ordinary course and
consistent with prudent business practice and past practice, except for
transactions permitted hereunder or with the prior written consent of Parent,
which consent shall not be unreasonably withheld, conditioned or delayed.
Without limiting the generality of the foregoing, Company shall use all
commercially reasonable efforts to:
(a) maintain its and the Company Subsidiary's existence
and status in good standing in all jurisdictions in which they are required to
be qualified or registered to conduct
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their business, except where the failure to do so would not have a Material
Adverse Effect on Company;
(b) maintain all of its and the Company Subsidiary's
tangible assets in good operating condition and maintain the protection of all
intellectual property in substantially the same standing as exists on the date
hereof;
(c) continue performance in the ordinary course of its
obligations under its contracts and agreements;
(d) preserve its and the Company Subsidiary's business
organization intact, keep available its and the Company Subsidiary's present
officers, consultants and employees and preserve its and the Company
Subsidiary's present relationships with suppliers, customers and others having
business relationships with it and the Company Subsidiary; and
(e) maintain its and the Company Subsidiary's existing
insurance, subject to variations in amount required by the ordinary operations
of its and the Company Subsidiary's business.
7.2 Negative Covenants.
(a) Company agrees that from the date hereof to the
Effective Time, except as otherwise approved by Parent in writing or as
permitted or required by this Agreement, Company will not and will not permit
the Company Subsidiary to:
(i) change any provision of its Certificate of
Incorporation or bylaws;
(ii) except pursuant to the exercise or
conversion of currently outstanding options, warrants or
other securities convertible into or exchangeable for Company
Common Stock and pursuant to the terms of the ESOP, issue any
additional shares of Company Common Stock or other securities
or change the number of shares of its authorized or issued
capital stock or issue or grant any option, warrant, call,
commitment, subscription, right to purchase or agreement of
any character relating to the authorized or issued capital
stock of Company or the Company Subsidiary or any securities
convertible into shares of such stock, or split, combine or
reclassify any shares of its capital stock, or declare, set
aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in
respect of its capital stock;
(iii) directly or indirectly redeem, purchase or
otherwise acquire any of its capital stock except as required
by the terms of the ESOP or in connection with the exercise
of Outstanding Options;
(iv) grant any severance or termination pay
(other than pursuant to policies or contracts in effect on
the date hereof, that were not required to be
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modified or terminated pursuant to the terms hereof and that
have been disclosed to Parent pursuant hereto, totaling no
more than $125,000 in the aggregate) to, or enter into or
amend any employment or severance agreement with, any of its
directors, officers or employees (except for the Employment
Agreements with the Management Stockholders, copies of which
are attached hereto as Exhibit 7.2 (the "MANAGEMENT
STOCKHOLDER EMPLOYMENT AGREEMENTS"), the Employment
Agreements with the persons listed on Exhibit 7.13(b) (the
"Employment Agreements"), and the Nonsolicitation, Work
Product and Confidentiality Agreements executed pursuant to
Section 8.2(j) hereof (the "Nonsolicit Agreements")); adopt
any new employee benefit plan or arrangement of any type; or
award any increase in compensation or benefits to its
directors, officers or employees except with respect to
employee increases in the ordinary course of business and
consistent with past practices and policies and, with regard
to bonuses, in amounts that do not result in a material
variance from the amounts reserved for such payments through
the date of the most recent balance sheet included in the
Company Financial Statements;
(v) sell or dispose of any assets other than
in the ordinary course of business consistent with past
practices;
(vi) make any capital expenditures outside the
ordinary course of business;
(vii) acquire in any manner whatsoever any
business or entity;
(viii) enter into, terminate, modify or amend any
agreement or arrangement with any Affiliate, except for the
Management Stockholder Employment Agreements, the Employment
Agreements and the Nonsolicit Agreements;
(ix) make any material change in its accounting
methods or practices as shown in the Company Financial
Statements, other than changes required by GAAP or
Governmental Authorities;
(x) incur, create, assume or guarantee any
Liabilities except in the ordinary course of business and as
would not have a Material Adverse Effect on Company;
(xi) increase, or make any change in any
assumptions underlying the method of calculating any bad
debt, contingency or other reserves (other than making
reserves totaling no more than $200,000 in connection with
the refocusing of operations and similar matters in
connection with this Merger Agreement) from those reflected
in the Company Financial Statements;
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(xii) make any change in the method of valuing
assets included in the Company Financial Statements;
(xiii) pay, discharge or satisfy any Liabilities,
other than by payment, discharge or satisfaction in the
ordinary course of business;
(xiv) permit or allow any of its assets (real,
personal or mixed, tangible or intangible) to be subjected to
any Lien, except for Liens which are in existence on the date
hereof and which are disclosed on the Company Disclosure
Schedules and Liens for amounts not yet due and payable which
Liens are contested in good faith and for which adequate
reserves have been made;
(xv) write down the value of any inventory or
write off as uncollectible any notes or accounts receivable,
except for write-downs and write-offs in the ordinary course
of business;
(xvi) cancel or waive any claims or rights, or
sell, transfer, distribute or otherwise dispose of any assets
or properties, except in the ordinary course of business;
(xvii) declare, file or permit to be filed any
voluntary or involuntary bankruptcy, receivership, insolvency
or other similar proceeding or petition with any Governmental
Authority with respect to Company or the Company Subsidiary
or declare or file such proceeding against any Company
Stockholder;
(xviii) fail to perform its obligations under any
Material Contract (except those being contested in good
faith) or enter into, assume or amend any agreement that
would be a Material Contract other than agreements to provide
services entered into in the ordinary and usual course of
business;
(xix) take any action that would or could
reasonably be expected to result in (A) a Material Adverse
Effect on Company or (B) any of its representations and
warranties contained in Article 4 not being true and correct
in any material respect at the Effective Time, or that would
cause any of its conditions to Closing not to be satisfied;
or
(xx) directly or indirectly agree to do any of
the foregoing.
(b) Parent agrees that from the date hereof to the
Effective Time, except as otherwise approved by Company in writing, which
approval shall not be unreasonably withheld, conditioned or delayed, or as
permitted or required by this Agreement, it will not, nor will it permit any of
the Parent Subsidiaries to:
(i) declare, set aside or pay any dividend or
other distribution of cash or property (other than capital
stock) in respect of its capital stock other than
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pursuant to the private placement of up to $20.0 million of
securities of Parent pursuant to terms and conditions which
may include, among other things, the payment of dividends
(including securities convertible into Parent Common Stock);
(ii) make any material change in its accounting
methods or practices as shown in the Parent Financial
Statements, other than changes required by GAAP or by
Governmental Authorities;
(iii) take any action that would result or could
reasonably be expected to result in (A) a Material Adverse
Effect on Parent or (B) any of its representations and
warranties contained in Article 6 not being true and correct
in any material respect at the Effective Time, or that would
cause any of its conditions to Closing not to be satisfied;
or
(iv) directly or indirectly agree to do any of
the foregoing.
7.3 No Solicitation. From the date hereof to the Effective Time
or the earlier termination of this Agreement in accordance with its terms:
(a) Company and the Management Stockholders shall not,
and Company shall not allow the Company Subsidiary or its Affiliates,
employees, agents and representatives (including without limitation, any
investment banker, attorney or accountant retained by it) to: (a) directly or
indirectly initiate, solicit, or encourage any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to any of the Company Stockholders) with respect to any
proposed or potential: (i) sale of assets or transfer of liabilities of Company
or any of its present or future subsidiaries, divisions or other affiliates
(other than any such sale or transfer in the ordinary course of business); (ii)
issuance, purchase or sale of capital stock or debt or other securities of
Company or any of its present or future subsidiaries, divisions or other
affiliates (other than the incurrence of liabilities in the ordinary course of
its business or the issuance of stock pursuant to the ESOP or in connection
with the exercise of currently Outstanding Options); or (iii) merger,
consolidation, restructuring, recapitalization or other significant transaction
involving Company or any of its present or future subsidiaries, divisions or
other affiliates (any such proposal or offer being referred to herein as an
"ACQUISITION PROPOSAL"); or (b) except pursuant to paragraphs (b) and (c)
below, provide any confidential information to, participate in discussions or
negotiations relating to any such transaction with, or otherwise cooperate with
or assist or participate in any effort to take such action by any person or
entity (other than Parent or its Affiliates, employees, representatives and
agents).
(b) If, prior to the approval of the Merger by the
Company Stockholders: (i) the Board of Directors of Company shall receive
(after the date of this Agreement) a written proposal from a third party for an
Acquisition Proposal that was not initiated, solicited, encouraged or knowingly
facilitated by Company, the Management Stockholders or any of their
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Affiliates or agents in violation of paragraph (a) above; (ii) the Board of
Directors shall determine in good faith that such Acquisition Proposal, if
consummated, would constitute a materially superior Acquisition Proposal than
the Merger (after taking into account any counter proposal submitted by Parent
in writing pursuant to paragraph (c) of this section); and (iii) Company has
received from its outside counsel, Gibson, Dunn & Crutcher LLP, a written
opinion (a copy of which shall be promptly provided to Parent and its counsel)
that the failure to negotiate with and deliver information to such other person
would reasonably be expected to subject the members of Company's Board of
Directors to personal liability for breach of their fiduciary duty under law,
Company may terminate this Agreement without further liability and enter into a
binding letter of intent or definitive agreements for such third party
Acquisition Proposal upon payment by wire transfer on the date of such
termination to Parent of One Million Dollars ($1,000,000) and receipt by Parent
of a written acknowledgment from the third party making the Acquisition
Proposal and Company that such other party and Company permanently and
completely waive any and all rights to object to or otherwise contest such
payment. For purposes of this paragraph (b), a "materially superior"
Acquisition Proposal shall mean a bona fide written proposal which, if
consummated, would, in the good faith determination of Company's Board of
Directors (taking into account all legal, financial, regulatory, fiduciary and
other aspects), result in a transaction that (i) is materially more favorable
to the Company Stockholders than the Merger (including any proposed revisions
thereto pursuant to paragraph (c) below) and (ii) is reasonably capable of
being completed.
(c) Company and the Management Stockholders will notify
Parent immediately of the identity of any potential acquiror and the terms of
any Acquisition Proposals, whether or not permitted by this Section 7.3, and
shall not accept such proposal or deliver the confidential information
described in (a) above until Parent has had 10 business days to propose
modifications to the Merger that would make the Merger, as so modified, in the
best interests of the Company Stockholders.
(d) Company and the Management Stockholders shall not
take any other action or permit any of its Affiliates to take any action
contrary to the terms of the Confidentiality Agreement (as defined in Section
7.5).
(e) Company and the Management Stockholders will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and Company and the Management Stockholders will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this Section 7.3.
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7.4 Current Information.
(a) During the period from the date of this Agreement to
the Effective Time or the earlier termination of this Agreement in accordance
with its terms, on a frequent basis:
(i) each of Company and Parent will cause one
or more of its representatives to confer with representatives
of the other party regarding its business, operations,
properties, assets and financial condition;
(ii) each of Company and Parent will cause one
or more of its representatives to confer with representatives
of the other party regarding matters relating to the
completion of the transactions contemplated herein; and
(iii) each of Company and Parent will notify the
other party as soon as practicable after any determination or
discovery by it of any fact or circumstance relating to
either party which it has discovered through the course of
investigation and which represents, or is reasonably likely
to represent, a material breach of any representation,
warranty, covenant or agreement of either party or which has
or is reasonably likely to have a Material Adverse Effect on
either party.
(b) Prior to the Effective Time, as soon as practicable
after the end of every month (but in no event later than 25 days thereafter)
beginning with the month in which this Agreement is signed, Company will
deliver to Parent an unaudited balance sheet as of the end of such month, and
related statements of income and cash flows for such month, each certified by
the President and Chief Financial Officer of the Company as meeting the
standards for Company Financial Statements set forth in Section 4.4.
7.5 Access to Properties and Records; Confidentiality.
(a) Company shall permit Parent and its representatives
reasonable access to its and the Company Subsidiary's respective properties,
and shall disclose and make available to Parent and its representatives all
books, papers and records and information relating to it and the Company
Subsidiary, their respective assets, stock ownership, properties, operations,
obligations and liabilities, including, but not limited to, all books of
account (including the general ledger), tax records, minute books of directors'
and stockholders' meetings, organizational documents, agreements, filings with
any Governmental Authority, accountants' work papers, litigation files, plans
affecting employees, and any other records and information in which Parent and
its representatives may have a reasonable interest; provided that such
investigation shall be reasonably related to the transactions contemplated by
this Agreement and shall not interfere unnecessarily with the normal business
operations of Company and the Company Subsidiary.
(b) All information furnished by the parties hereto
previously in connection with transactions contemplated by this Agreement or
pursuant hereto shall be used solely for the purpose of evaluating the Merger
and shall be treated in accordance with the Confidentiality and Standstill
Agreement dated as of March 8, 1999 between the parties, a copy of which is
attached
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hereto as Exhibit 7.5 (" the "CONFIDENTIALITY AGREEMENT") and which is
incorporated herein by this reference. No investigation by the parties
heretofore or hereafter made shall affect the representations and warranties of
the other parties, and each of such representations and warranties shall
survive any such investigation, subject to Article 10.
7.6 Governmental Matters; Consents; Cooperation, etc.
(a) Each of the parties will promptly furnish each other
with copies of written communications received by them or any of their
respective Subsidiaries from, or delivered by any of the foregoing to, any
Governmental Authorities in respect of the transactions contemplated hereby.
(b) As soon as practicable following the date hereof,
Parent and Company will each use its commercially reasonable efforts to obtain
all material consents, waivers and other Company Approvals and Parent Approvals
under any of their respective, or their respective Subsidiaries', agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby.
(c) At or prior to the Closing, Company, if requested by
Parent, shall deliver to the IRS a notice that the Company Common Stock is not
a "U.S. Real Property Interest" as defined and in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2).
(d) Company acknowledges that Parent is or may be in the
process of acquiring other entities and that in connection with such
acquisitions, information concerning Company may be required to be included in
the registration statements, if any, for the sale of securities of Parent or in
Parent SEC Reports in connection with such acquisitions. Company shall provide
Parent with any information or other materials relating to Company as are
reasonably necessary to be included in such registration statements or in
Parent SEC Reports, including financial statements or in Parent SEC Reports,
which may be filed by Parent prior to the Effective Time. Company shall use its
reasonable efforts to cause its attorneys and accountants to provide Parent and
any underwriters for Parent with any consents, comfort letters, opinion
letters, reports or information which are necessary in connection therewith.
7.7 Parties' Efforts; Further Assurances; Cooperation. Subject to
the other provisions in this Agreement, the parties hereto shall in good faith
attempt to close the Merger on or before June 30, 1999 and perform their
obligations under this Agreement before, at and after the Effective Time, and
shall each use all commercially reasonable efforts to do, or cause to be done,
all things necessary, proper or advisable under Applicable Laws to obtain all
Authorizations and satisfy all conditions to the obligations of the parties
under this Agreement and to cause the transactions contemplated by this
Agreement to be carried out promptly in accordance with the terms hereof and
shall cooperate fully with each other and their respective officers, directors,
employees, agents, counsel, accountants and other designees in connection with
any steps required to be taken as part of their respective obligations under
this Agreement. Upon the execution of this Agreement and thereafter, each party
shall take such actions and execute and
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deliver such documents as may be reasonably requested by the other parties
hereto in order to consummate the transactions contemplated by this Agreement.
7.8 Public Announcements. Prior to the Effective Time or the
earlier termination of this Agreement in accordance with its terms, Company,
the Management Stockholders and Parent shall consult and cooperate with each
other as to the timing, content and form of any press release or other public
disclosure related to this Agreement or the transactions contemplated herein,
and will not issue a press release or make any such public disclosure without
the prior consent of the other party, which shall not be unreasonably withheld,
conditioned or delayed. After the Effective Time, none of the Management
Stockholders shall make any public announcement regarding any aspect of this
Agreement without Parent's prior written consent. Nothing in this Section 7.8
shall be deemed to prohibit any party from making any disclosure which its
outside counsel deems necessary in order to satisfy such party's disclosure
obligations imposed by Applicable Law or Governmental Authority.
7.9 Failure to Fulfill Conditions. In the event that Parent or
Company determines that a material condition to its or the other's obligation
to consummate the transactions contemplated hereby cannot be fulfilled on or
prior to July 31, 1999 (the "DEADLINE DATE"), it will promptly notify the other
party. Except for any acquisition or merger discussions Parent may enter into
with other parties, Company and Parent will promptly inform the other of any
facts applicable to Company or Parent that would be likely to prevent or
materially delay consummation of the Merger.
7.10 Disclosure Supplements.
(a) The parties acknowledge that, due to the confidentiality of
this Agreement and its terms, some of the Company Disclosure Schedules (as
expressly indicated thereon) are incomplete or fail to contain copies of
agreements or documents requested therein as of the date of this Agreement.
Notwithstanding the incomplete status of these schedules, however, Company
represents and warrants that none of the matters listed on such schedules as
being subject to undisclosed matters or items which are not capable of delivery
on the date of this Agreement would constitute or cause a material change in
the disclosures made by Company herein. As soon as possible after the date of
this Agreement and prior to the date of filing of the Registration Statement,
Company shall deliver revised or supplementary Company Disclosure Schedules to
Parent which contain complete and accurate information as of the date of this
Agreement, in order to enable Parent to confirm the accuracy of Company's
representations and warranties and otherwise to give full effect to the
provisions of this Agreement. Such revised or supplementary schedules shall not
modify or be deemed part of this Agreement (or otherwise modify the obligations
of the parties hereunder) unless agreed by Parent in writing with reference to
the specific schedules to be so treated.
(b) From time to time prior to the Effective Time, each party
hereto will promptly notify the other party of any inaccuracy in its respective
Disclosure Schedules delivered pursuant hereto including, without limitation,
any matter which, if existing, occurring or known at the date
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of this Agreement, would have been required to be set forth or described in
such Schedule or which is necessary to correct any information in such Schedule
that has been rendered inaccurate. Notwithstanding the foregoing, for the
purpose of determining satisfaction of the conditions set forth in Article 8,
no such notification shall be deemed to amend such Disclosure Schedules or
shall be deemed to be part hereof unless agreed to in writing by the other
party.
7.11 Affiliates. Promptly after the execution and delivery of this
Agreement and before that date which is 30 calendar days before the Closing
Date, Company shall take all commercially reasonable efforts to deliver to
Parent copies of letter agreements, each substantially in the form of Exhibit
7.11 and each previously executed by Parent, executed by all directors,
executive officers, Management Stockholders and by any other person who is an
"affiliate" of Company for purposes of Rule 145 under the 1933 Act providing
that such person will not sell, pledge, transfer or otherwise dispose of any
shares of Company Common Stock held by such "affiliate" and the shares of
Parent Common Stock to be received by such "affiliate" in the Merger: (i) in
the case of shares of Parent Common Stock only, except in compliance with the
applicable provisions of the 1933 Act and the rules and regulations thereunder;
(ii) during the periods during which any such sale, pledge, transfer or other
disposition would, under GAAP or the rules, regulations or interpretations of
the Commission, disqualify the Merger for pooling-of-interest accounting
treatment, except as permitted by Staff Accounting Bulletin No. 76 issued by
the Commission; and (iii) representing substantially the same matters as set
forth in Article 5 hereof. The certificates of Parent Common Stock issued to
such "affiliates" of Company (each, a "RULE 145 AFFILIATE") will bear an
appropriate legend reflecting the foregoing and Parent shall be entitled to
issue stop orders to the transfer agent for Parent Common Stock consistent with
the terms of such letters. The parties understand that such periods in general
encompass the period commencing 30 days prior to the Merger and ending at the
time of the publication of financial results covering at least 30 days of
combined operations of Parent and Company within the meaning of Section 201.01
of the Commission's Codification of Financial Reporting Policies. Parent
covenants and agrees that it will publish such financial results in accordance
with past practice as part of its applicable Form 10-Q or Form 10-K filing
covering such period.
7.12 Pooling-of-Interests. Each party shall use all commercially
reasonable efforts and shall in good faith attempt to cause the Merger to
qualify for pooling-of-interests accounting treatment. Each party represents
and warrants that its past transactions status conform to the conditions set
forth in Exhibit 7.12 hereto and covenants that it has no planned transactions
that would be contrary to any of the conditions set forth in Exhibit 7.12.
Exhibit 7.12 also sets forth copies of letters from KPMG Peat Marwick LLP and
Arthur Andersen LLP regarding such firm's belief that the Merger, when
completed pursuant to this Agreement, shall be properly accounted for as a
"pooling-of-interests."
7.13 Employee Matters.
(a) Employee Benefits. Parent shall take all commercially
reasonable action necessary or appropriate to permit the employees of Company
and the Company Subsidiary at the Effective Time who shall continue to be
employed by the Surviving Corporation thereafter
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(the "CONTINUING EMPLOYEES") to participate after the Effective Time in
Parent's employee benefit programs and to cause the Surviving Corporation to
take all commercially reasonable actions necessary or appropriate to adopt
Parent's employee benefit programs effective as of the Effective Time. Parent
shall cause to be waived all preexisting condition exclusions in connection
with the welfare plans and shall recognize expenses incurred and payments made
for purposes of applicable deductibles and co-payments required. Parent will
cause the Surviving Corporation to give each Continuing Employee full credit
for service with Company and the Company Subsidiary for purposes of eligibility
to participate in, vesting and payment of benefits under, and eligibility for
any subsidized benefit provided under (but not, except as provided in the
preceding sentence, for purposes of determining the amount of any benefit
under) any Parent employee benefit plan; provided, however, that nothing in
this Agreement (other than the terms of any written employment agreement that
may be entered into) shall be deemed to require Parent to cause to be continued
any employee's employment, responsibilities or officer title for any definite
period, or to change the terms or conditions of any existing employee benefit
program.
(b) Employment Agreements. On or prior to the Closing
Date, Company shall take all commercially reasonable efforts to cause all
agreements between Company and any of its employees (other than Analyst
Compensation Plan Agreements and those portions of agreements relating to
confidentiality, trade secret protection, non-solicitation of customers or
employees, ownership of inventions and materials and similar agreements
benefiting Company) to be canceled at no cost to Company. On or prior to the
Closing Date, Company shall take all commercially reasonably efforts to cause
Employment Agreements substantially in the form attached hereto as Exhibit
7.13(b) to be executed and delivered to Parent by each of the individuals named
on Exhibit 7.13(b) and any other employees of Company deemed by Parent to be
necessary or important to the continued business of the Surviving Corporation.
(c) Certain Benefit Plan Matters. Notwithstanding
anything in this Agreement to the contrary, Company and the Company
Stockholders do hereby agree and covenant that, (i) effective not later than
immediately before the Closing, each Applicable Benefit Plan (defined
hereinafter), except the ESOP, shall be terminated; (ii) under this Agreement,
Parent shall neither assume nor have any liability at any time in relation to
any Applicable Benefit Plan other than with respect to causing any action taken
after Closing to complete the termination and liquidation of Applicable Benefit
Plans (other than the ESOP); (iii) the law firm of Gibson, Dunn & Crutcher LLP
shall, both before and after Closing, oversee and render advice and counsel in
relation to all remediation (which shall be initiated by Company prior to
Closing) of all items set forth on Company Disclosure Schedule 4.9, and in
relation to the operation and administration of the ESOP and any termination
and liquidation of the ESOP which may be initiated after Closing (including,
without limitation, pursuit and obtainment of all appropriate IRS determination
letters); and (iv) Company prior to Closing shall cause the ESOP and Forseon
Corporation 401(k) Savings Plan to be amended to comply with legislation
enacted through 1998. For purposes of this Section 7.13(c) and Section 10.1,
the phrase "Applicable Benefit Plan" shall include, without limitation, each
and every Benefit Plan (for purposes of this Section 7.13(c) and Section 10.1,
the phrase "Benefit Plan" shall mean each and every "Benefit
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Plan," regardless of whether such applicable Benefit Plan is listed on Company
Disclosure Schedule 4.9) which, at any time up to the Closing, was sponsored
by, contributed to or required to be contributed to by, or was otherwise
connected with, Company, the Company Subsidiary, or both.
(d) Stock Options. The compensation or other relevant
committee of Company's Board of Directors shall have taken, or caused to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper, or advisable on behalf of Company to effect the conversion of all
Outstanding Options into rights with respect to Parent Common Stock, as
contemplated by Section 2.6 hereof, without any other change in the terms of
the Outstanding Options (other than changes contemplated by Section 2.6).
7.14 Proxy Statement/Prospectus; Registration Statement; Other
Filings. As promptly as practicable after the execution of this Agreement
(which the parties agree shall be targeted to be on or before April 15, 1999),
Company and Parent will prepare and file with the Commission a Proxy Statement
(the "PROXY STATEMENT"), and Parent will prepare and file with the Commission a
registration statement on Form S-4 (the "REGISTRATION STATEMENT") with respect
to the shares of Parent Common Stock to be issued to the Company Stockholders
and holders of the Outstanding Options pursuant to Article 2. Company and the
Management Stockholders shall cooperate fully in the preparation, filing,
amendment and completion of the Registration Statement. Each of Company and
Parent will respond to any comments of the Commission, will use its respective
commercially reasonable efforts to have the Registration Statement declared
effective under the 1933 Act as promptly as practicable after such filing and
will cause the Proxy Statement to be mailed to the Company Stockholders at the
earliest practicable time. As promptly as practicable after the date of this
Agreement, Company and Parent will prepare and file any other filings required
under the 1934 Act, the 1933 Act, any State Acts or any other federal or state
laws relating to the Merger and the transactions contemplated by this Agreement
(the "OTHER FILINGS"). Each of Company and Parent will notify the other
promptly upon the receipt of any comments from the Commission or its staff and
of any request by the Commission or its staff or any other government officials
for amendments or supplements to the Registration Statement, the Proxy
Statement or any Other Filing or for additional information and will supply the
other with copies of all correspondence between such party or any of its
representatives, on the one hand, and the Commission, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy
Statement, the Registration Statement and the Other Filings will comply in all
material respects with all applicable requirements of the 1933 Act, the 1934
Act, the State Acts and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement, the Registration Statement or any Other
Filing, Parent or Company, as the case may be, will promptly inform the other
of such occurrence and cooperate in filing with the Commission or any other
government entity, and/or mailing to the Company Stockholders and/or the
shareholders of Parent, such amendment or supplement. The Proxy Statement will
include the recommendation of the Board of Directors of Company and the
Management Stockholders in favor of adoption and approval of this Agreement and
approval of the Merger and other transactions contemplated herein.
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7.15 Company Stockholders' Meeting. As soon as practicable after
the effective date of the Registration Statement, Company shall hold a duly and
properly call a special meeting of the Company Stockholders for the purpose of
approving this Agreement, the Merger, and all other matters necessary to
consummate the transactions contemplated hereby, shall submit all of the
foregoing to its Company Stockholders for such approval as soon as reasonably
practicable, shall recommend such approval and shall use all reasonable
commercial efforts to obtain such approvals. In this regard, Company shall
fully cooperate in all respects with any and all actions and requests of the
Independent Manager of the ESOP necessary to carry out the Merger and other
transactions contemplated by this Agreement. Company and the Management
Stockholders shall use all commercially reasonable efforts to solicit proxies
in favor of the Merger and the other transactions contemplated by this
Agreement and shall take all other commercially reasonable actions necessary or
advisable to secure the vote or consent of the Company Stockholders required by
this Agreement and Applicable Law and to obtain Company Stockholders'
signatures on the certificate attached hereto as Exhibit 2.3.
7.16 Termination of Puts and Other Agreements. On or prior to the
Closing Date, Company shall take all commercially reasonable efforts, in
consultation with Parent, to cause all voting agreements, rights of first
refusal, voting trusts, co-sale or put rights and other similar agreements
among any of the Company Stockholders and Company relating to the Company
Common Stock (other than as required by the ESOP) to have been waived or
terminated at no cost to Company or the Company Subsidiary or any other
corporate party hereto, pursuant to agreements reasonably satisfactory to
Parent. Moreover, Company shall cause all agreements listed on Exhibit 7.16 to
have been canceled or modified in the manner set forth on such exhibit pursuant
to written agreements reasonably acceptable to Parent.
7.17 No Transfers. Except pursuant to this Agreement or with the
prior written consent of Parent, Company shall not and shall not permit any
Rule 145 Affiliates of Company to transfer, assign, convey or otherwise dispose
of any of the Company Common Stock or Subsidiary securities or any rights with
respect to such Company Common Stock or Subsidiary securities (including voting
and conversion or option rights) after the date of this Agreement and before
the Effective Time. This restriction shall not apply to transfers in the
ordinary course to the Rule 145 Affiliates under the ESOP or in connection with
exercise of the Outstanding Options.
7.18 Tax Matters
(a) Transfer Taxes. Company shall pay all stock transfer
and other similar Taxes and fees in respect of the exchange of the Company
Common Stock and shall be responsible for paying all the costs of filing all
Returns relating to such Taxes and fees.
(b) Cooperation and Exchange of Information. The
Management Stockholders, the Surviving Corporation and Parent agree to furnish,
or to cause to be furnished in good faith to each other, such cooperation and
assistance as is reasonably necessary to file any
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future returns, to respond to audits, to negotiate settlements with Tax
authorities and to prosecute and defend against Tax claims.
(c) Tax-Free Transaction. The parties hereto intend that
the Merger shall be treated as a tax-free reorganization under the Code, shall
report the Merger as such for federal and state income tax purposes, and shall
take no action after the Effective Time to adversely affect the status of the
Merger as a tax-free reorganization under the Code. In addition to the
foregoing, Parent (i) will not, for a two-year period following the Merger,
sell, transfer or otherwise dispose of any of the significant assets acquired
from Company in the Merger (or cause the Surviving Corporation to do the same),
except for dispositions made in the ordinary course of business or transfers of
assets to controlled corporations pursuant to Treasury Regulations Section
1.368-2(k)(2), (ii) will continue the historic business of Company or use a
significant portion of Company's historic business assets in a business
following the Merger, (iii) will not liquidate the Surviving Corporation within
two years of the Closing Date, (iv) will not, for a two-year period following
the Merger, sell, transfer or otherwise dispose of any of the stock of the
Surviving Corporation except for transfers to controlled corporations pursuant
to Section 368(a)(2)(C) of the Code and Treasury Regulations Section
1.368-2(k)(2), and (v) will not cause or allow the Surviving Corporation,
within a two-year period following the Merger, to issue additional shares of
stock that would cause Parent to no longer "control" the Surviving Corporation
within the meaning of Section 368(c) of the Code. None of the foregoing
limitations will apply if the Parent obtains a tax opinion from a reputable law
firm, which can be relied upon by the Company Stockholders, that the proposed
action will not cause the Merger to fail to qualify as a reorganization under
Section 368(a) of the Code.
7.19 Listing of Merger Consideration. Parent shall use all
commercially reasonable efforts to list the Merger Consideration on the Nasdaq
National Market and shall use all commercially reasonable efforts to cause such
listing to be approved prior to the Effective Time.
7.20 Special Provisions with Respect to Company. If the Effective
Time occurs as provided herein, then at that time all representations,
warranties, covenants and agreements in this Agreement (except for those set
forth in Section 4.9 and Section 7.13) to the extent made or adopted by Company
and the Management Stockholders in this Agreement (and only to such extent)
shall expire; provided, however, that such expiration of Company's and
Management Stockholders' representations, warranties, covenants and agreements
shall in no way limit the liability pursuant to Article 10 for breaches of
those representations, warranties, covenants and agreements or the ability of
Parent and Merger Sub to exercise any rights and remedies pursuant to this
Agreement, the other Merger Documents and Applicable Laws.
7.21 Existing Indemnification Obligations. Parent hereby agrees
that all rights to indemnification by Company now existing in favor of each
present and former director, officer, employee, consultant, trustee or agent of
Company, any past or present Subsidiary of Company, and Benefit Plan, and/or
the ESOP as provided in Company's or such Subsidiary's Certificate of
Incorporation, bylaws or existing indemnity agreements as of the date of this
Agreement or as otherwise provided by law shall survive the Merger with respect
to acts and other matters for
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which such persons may be indemnified thereunder arising prior to the Effective
Time. Company represents that all such indemnification rights and agreements
are disclosed in the Company Disclosure Schedules and that there currently
exist no claims to indemnification by Company or any other party to such
agreements and, to Company's knowledge, no basis for any such claim exists.
7.22 Solvency of Stockholders and Other Stockholder Matters.
Company and the Management Stockholders covenant and agree that, to the extent
any Company Stockholder has been a party to any bankruptcy, insolvency or
similar proceeding, whether voluntary or involuntary, and to the extent that
any shares of Company Common Stock are held by or subject to the provisions of
a decedent's estate, probate or other court proceeding or other similar
circumstance, they will take all commercially reasonable steps to coordinate
the surrender of shares of Company Common Stock by the receiver, trustee,
administrator or other similar party that has been appointed with respect any
Company Stockholder or any of its assets.
7.23 Future Commission Reports. Parent agrees and covenants that,
as long as it is subject to the reporting requirements of the 1934 Act, at all
times during which any Rule 145 Affiliate is subject to the resale restrictions
of Rule 144 and/or Rule 145 under the 1933 Act, Parent shall timely file all
reports required to be filed with the Commission under the 1933 Act and the
1934 Act (including Rule 12b-25 thereunder) in a manner that satisfies the
requirements of Rule 144(c)(1) under the 1933 Act.
ARTICLE 8 - CLOSING CONDITIONS
8.1 Conditions of Each Party's Obligations Under this Agreement.
The respective obligations of each party under this Agreement to consummate the
Merger shall be subject to the satisfaction, or, where permissible under
Applicable Law, waiver, at or prior to the Closing Date, of the following
conditions:
(a) Authorizations and Governmental Filings. All
necessary Authorizations of Governmental Authorities required to consummate the
transactions contemplated by this Agreement (other than the filing of the
Certificate of Merger in Delaware and Georgia) shall have been obtained without
any term or condition that would materially impair (i) the value of Company and
the Company Subsidiary, taken as a whole or (ii) the value of Parent and its
Subsidiaries, taken as a whole. All conditions required to be satisfied prior
to the Effective Time by the terms of such Authorizations shall have been
satisfied; and all statutory waiting periods in respect thereof shall have
expired.
(b) Suits and Proceedings. The consummation of the
transactions contemplated by this Agreement will not violate the provisions of
any Applicable Law with respect to Parent or Company or their respective
Affiliates. No suit or proceeding shall have been instituted by any person, or,
to the Knowledge of Parent or Company, shall have been
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threatened by any Governmental Authority, and not subsequently withdrawn,
dismissed or otherwise eliminated, which seeks (i) to prohibit, restrict or
delay consummation of the transactions contemplated by this Agreement or to
limit in any material respect the right of Parent to control any material
aspect of the business of Parent and the Parent Subsidiaries or Company and the
Company Subsidiary after the Effective Time, or (ii) to subject Parent or
Company or their respective Affiliates to material liability on the ground that
it or they have breached any Law or otherwise acted improperly in relation to
the transactions contemplated by this Agreement.
(c) Escrow Agreement. First Union National Bank, Parent,
Merger Sub, Company and the Stockholders' Representatives shall have executed
and delivered the Escrow Agreement relating to the shares of Parent Common
Stock to be placed in escrow pursuant to Article 2.
(d) Effectiveness of Registration Statement. The
Registration Statement shall have been declared effective by the Commission and
shall be effective at the Effective Time, and no stop order suspending
effectiveness shall have been issued, no proceeding by the Commission to
suspend the effectiveness thereof shall have been initiated and be continuing,
and all necessary authorizations from Nasdaq, under the State Acts, the 1933
Act or the 1934 Act relating to the issuance and trading of the Parent Common
Stock to be issued in connection with the Merger shall have been received,
subject to notice of issuance.
(e) Pooling Letters. Parent and Company shall have
received letters dated as of the Closing Date from KPMG Peat Marwick LLP,
Company's independent certified public accountants, to the effect that, from
Company's perspective, it is a "poolable" entity and the Merger will qualify to
be accounted for as a "pooling-of-interests," based upon Company's operations
and history, and from Arthur Andersen LLP, Parent's independent certified
public accountants, to the effect that, based upon such letter from KPMG, the
Merger will qualify for pooling-of-interests accounting treatment.
8.2 Conditions to the Obligations of Parent and Merger Sub Under
this Agreement. The obligations of Parent and Merger Sub under this Agreement
to consummate the Merger (in addition to the matters set forth in Section 8.1)
shall be subject to the satisfaction or waiver, at or prior to the Closing
Date, of the following conditions (with the effectiveness of all agreements
listed below being expressly conditioned upon consummation of the Merger):
(a) Covenants and Agreements; Consents. Each of Company
and the Management Stockholders shall have performed in all material respects
the agreements, covenants and obligations to be performed by it or them under
this Agreement and the other agreements contemplated hereby at or before the
Effective Time. All Authorizations of or with any nongovernmental third party
(including the Company Approvals) that are required for the execution and
delivery of this Agreement or the consummation of the transactions contemplated
by this Agreement by Company and the Management Stockholders shall have been
obtained or
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made, or waived by such third party, except where the failure to obtain any
such Authorization would not have a Material Adverse Effect on Company.
(b) Opinion of Counsel. Parent shall have received an
opinion of Gibson Dunn & Crutcher LLP, counsel to Company, dated the Closing
Date, in form and substance reasonably satisfactory to Parent and Parent's
counsel.
(c) Certificates. Company shall have furnished Parent
with such certificates of Company's officers or others and such other documents
described herein to evidence fulfillment of the conditions set forth in this
Article 8 and otherwise to consummate the transactions contemplated pursuant to
this Agreement as Parent may reasonably request.
(d) Management Stockholder Employment Agreements. Each
of the Management Stockholder Employment Agreements executed and delivered to
Parent as of the date of this Agreement shall remain in full force and effect
as of the Closing.
(e) Employment Agreements. Each of the individuals named
on Exhibit 7.13(b) shall have executed and delivered an Employment Agreement
with Surviving Corporation in substantially the form attached hereto as Exhibit
7.13(b).
(f) Resignations. Company shall have delivered to
Parent, to the extent requested by Parent, the written resignations and signed
severance agreements of the directors, officers and employees of Company and
the Company Subsidiary.
(g) Remediation of Benefit Plans. All matters required
to be performed or completed by Company pursuant to Section 7.13 shall have
been performed or completed in a manner reasonably satisfactory to Parent and
its Counsel and Company shall have delivered to Parent such certificates or
other evidence reasonably satisfactory to Parent to evidence such performance.
(h) Cancellation and Severance Agreements. At or prior
to Closing, Company shall deliver to Parent any and all documents and
agreements evidencing the cancellation of the agreements listed on Exhibit
8.2(h) and such other agreement as Parent may reasonably request. At or prior
to Closing, Company shall deliver to Parent Severance Agreements substantially
in the form attached hereto as Exhibit 8.2(h) with respect to the persons whose
positions with the Company will be eliminated as a result of the Merger.
(i) Fairness Opinion. Parent shall have received the
opinion of Rodgers Capital Group, L.P. that the Merger Consideration to be
provided by Parent to the Company Stockholders and holders of Outstanding
Options pursuant to this Agreement is fair from a financial point of view to
the shareholders of Parent.
(j) Nonsolicitation, Work Product and Confidentiality
Agreements. The Affiliates and key employees of Company reasonably required by
Parent shall have executed and delivered to Parent and Surviving Corporation
the Nonsolicit Agreements substantially in the
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form attached hereto as Exhibit 8.2(j), with the blanks therein properly
completed to the satisfaction of Parent and Surviving Corporation.
(k) Completion of Due Diligence on Company. Parent shall
have completed its review of Company and the Company Subsidiary and the results
of such review shall not have revealed any breach of any representation,
warranty or covenant made by Company or the Management Stockholders in this
Agreement and the other Merger Documents which Parent, in good faith, deems
material to the value to Parent of Company, Surviving Corporation or the
Merger.
(l) Stockholder Approval. The holders of at least 90% of
the Company Common Stock entitled to vote thereon shall have approved the
Merger in compliance with Applicable Laws.
(m) No Material Adverse Change as to Company. None of
the following events shall have occurred and no fact or circumstance shall have
arisen which is likely to cause any of the following events (each such event a
"Company Material Adverse Change") with respect to Company or the Company
Subsidiary:
(i) the revocation of authority to transact
business, dissolution, liquidation or other termination of
its existence or of a significant portion of the business or
operations of Company and the Company Subsidiary, taken as a
whole;
(ii) the declaration, filing or notice of intent
to declare or file any voluntary or involuntary bankruptcy,
receivership, insolvency or similar proceedings or petition
with any Governmental Authority;
(iii) the filing, initiation or receipt of notice
or written threat with respect to any litigation, lawsuit,
administrative proceeding, audit by any Governmental
Authority or other civil or criminal proceeding, claim or
action (1) alleging fraud, dishonesty, corruption or other
bad acts on the part of Company, the Company Subsidiary, or
any of their respective Affiliates, (2) stating a claim for
monetary damages or payments in excess of $1,000,000, (3)
seeking to restrain or enjoin the conduct of the business or
operations of Company and the Company Subsidiary, taken as a
whole, in any material respect, (4) seeking to revoke any
License the loss of which would have a Material Adverse
Effect as to Company, or (5) stating a claim that the
Software infringes upon the intellectual property or other
proprietary rights of any third party;
(iv) the creation of any Liabilities or Liens
since the date of this Agreement which, individually or in
the aggregate, result in or are reasonably likely to result
in a change of more than $1,000,000 in its financial
condition as reported in this Agreement;
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(v) the material restatement of the financial
condition or operating results of Company from its financial
position or operating results indicated in this Agreement; or
(vi) the termination, breach or other
modification, or notice of any termination, breach or
modification of one or more Material Contracts which,
individually or in the aggregate, results in or is reasonably
likely to result in the loss of greater than $1,000,000 in
revenues for any year or shorter period, greater than 10% of
the customer base of Company and the Company Subsidiary,
taken as a whole, or the payment or obligation to pay more
than $1,000,000.
(n) Compliance with Laws. Company shall have remedied
its failure to be in compliance in all respects with all Applicable Laws, as
referenced on Schedule 4.1 and on Schedule 4.10 (as it relates to disclosure on
Schedule 4.1), except where any remaining failures to be in compliance do not
have (or are not reasonably likely to have) a Material Adverse Effect on
Company as of the Closing.
8.3 Conditions to the Obligations of Company and the Management
Stockholders Under this Agreement. The obligations of Company and the
Management Stockholders under this Agreement to consummate the Merger (in
addition to the matters set forth in Section 8.1) shall be further subject to
the satisfaction or waiver, at or prior to the Closing Date, of the following
conditions (with the effectiveness of all agreements listed below being
expressly conditioned upon consummation of the Merger):
(a) Covenants and Agreements; Consents. Each of Parent
and Merger Sub shall have performed in all material respects the agreements,
covenants and obligations to be performed by it under this Agreement and the
other agreements contemplated hereby at or before the Effective Time. All
Authorizations of or with any nongovernmental third party that are required for
or in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement by Parent and
the Merger Sub shall have been obtained or made, except where the failure to
obtain any such Authorizations would not have a Material Adverse Effect on
Parent or the Parent Subsidiaries, taken as a whole.
(b) Opinion of Counsel to Parent. Company shall have
received an opinion of Nelson Mullins Riley & Scarborough, L.L.P., counsel to
Parent, dated the Closing Date, in form and substance reasonably satisfactory
to Company and its counsel.
(c) Certificates. Each of Parent and Merger Sub shall
have furnished Company with such certificates of their respective officers or
others and such other documents described herein to evidence fulfillment of the
conditions set forth in this Article 8 and otherwise to consummate the
transactions contemplated pursuant to this Agreement as Company may reasonably
request.
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(d) Merger Consideration. Parent shall have delivered to
the Exchange Agent and the Escrow Agent all of the Merger Consideration.
(e) No Material Adverse Change as to Parent. None of the
following events shall have occurred and no fact or circumstance shall have
arisen which is likely to cause any of the following events (each such event a
"Parent Material Adverse Change") with respect to Parent or any Parent
Subsidiary:
(i) the revocation of authority to transact
business, dissolution, liquidation or other termination of
its existence or of a significant portion of the business or
operations of Parent and its Subsidiaries, taken as a whole;
(ii) the declaration, filing or notice of intent
to declare or file any voluntary or involuntary bankruptcy,
receivership, insolvency or similar proceedings or petition
with any Governmental Authority;
(iii) the filing, initiation or receipt of notice
or written threat with respect to any litigation, lawsuit,
administrative proceeding, audit by any Governmental
Authority or other civil or criminal proceeding, claim or
action (1) alleging fraud, dishonesty, corruption or other
bad acts on the part of Parent, the Parent Subsidiary, or any
of their respective Affiliates, (2) stating a claim for
monetary damages or payments in excess of $1,000,000, (3)
seeking to restrain or enjoin the conduct of the business or
operations of Parent and the Parent Subsidiaries, taken as a
whole, in any material respect, or (4) seeking to revoke any
License the loss of which would have a Material Adverse
Effect as to Parent and its Subsidiaries, taken as a whole;
(iv) the creation of any Liabilities or Liens
since the date of this Agreement which, individually or in
the aggregate, result in or are reasonably likely to result
in a change of more than $1,000,000 in its financial
condition as reported in this Agreement;
(v) the material restatement of the financial
condition or operating results of Parent from its financial
position or operating results indicated in this Agreement of
Parent and its Subsidiaries, taken as a whole;
(vi) the termination, breach or other
modification, or notice of any termination, breach or
modification of one or more Material Contracts which,
individually or in the aggregate, results in or is reasonably
likely to result in the loss of greater than $1,000,000 in
revenues for any year or shorter period, greater than 10% of
the customer base of Parent and its Subsidiaries, taken as a
whole, or the payment or obligation to pay more than
$1,000,000.
(f) Management Stockholder Employment Agreements. Each
of the Management Stockholder Employment Agreements shall remain in full force
and effect as of the
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Closing and Surviving Company shall have executed and delivered an Employment
Agreement, in substantially the form attached thereto as Exhibit 7.13(b), with
each of the individuals listed on such Exhibit 7.13(b).
(g) Tax Opinion. Company shall have received the opinion
of Nelson Mullins Riley & Scarborough, L.L.P., dated as of the Closing Date,
substantially in the form attached hereto as Exhibit 8.3(g). Parent and Company
shall have delivered to their counsel such certificates of their respective
stockholders or shareholders as may reasonably be required by such counsel in
order to render such opinion.
ARTICLE 9 - TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated prior to the
Effective Time, whether before or after approval of this Agreement by the
Company Stockholders, only as follows:
(a) by mutual written consent of Parent and Company;
(b) by Parent or Company if the Effective Time shall not
have occurred on or prior to the Deadline Date or such later date as shall have
been approved by the Boards of Directors of Parent and Company; provided,
however, that the right to terminate this Agreement under this Section 9.1(b)
shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a willful and
material breach of this Agreement;
(c) by Parent if there has been a material breach of any
representation, warranty, covenant, agreement or obligation of Company or
either Management Stockholder hereunder in each case which either is not
capable of being remedied, or, if capable of being remedied, shall not have
been remedied within 20 calendar days after receipt by Company or the
Management Stockholders, as appropriate, of notice in writing from Parent
specifying the nature of such breach and requesting that it be remedied;
(d) by Company, if there has been a material breach in
any representation, warranty, covenant, agreement or obligation of Parent
hereunder in each case which either is not capable of being remedied, or, if
capable of being remedied, shall not have been remedied within 20 calendar days
after receipt by Parent of notice in writing from Company specifying the nature
of such breach and requesting that it be remedied;
(e) by Parent if any of the conditions set forth in
Section 8.1 or 8.2 is not satisfied and is no longer capable of being satisfied
by the Deadline Date or such later date as shall have been approved by the
Boards of Directors of Parent and Company, provided that Parent shall not have
materially breached any of its representations, warranties, agreements,
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obligations or covenants hereunder in a manner that shall have materially
contributed to the failure of such condition to be, or be capable of being, so
satisfied by such date;
(f) by Company if any of the conditions set forth in
Section 8.1 or 8.3 is not satisfied and is no longer capable of being satisfied
by the Deadline Date, or such later date as shall have been approved by the
Boards of Directors of Parent and Company, provided that Company and/or
Management Stockholders shall not have materially breached any of its or their
representations, warranties, agreements, obligations or covenants hereunder in
a manner that shall have materially contributed to the failure of such
condition to be, or be capable of being, so satisfied by such date; or
(g) by Company, pursuant to and in accordance with the
provisions of Section 7.3.
9.2 Effect of Termination.
(a) If either Parent or Company terminates and abandons
this Agreement pursuant to Section 9.1(a)-(g), this Agreement, other than
Sections 7.3(b), 7.5(b), 7.6(a) and (d), the relevant provisions of 7.14, this
Section 9.2, Section 9.3, Article 10, Section 12.1 and Section 12.2 (each of
which shall survive termination) shall forthwith become void and have no
effect, without any liability on the part of any party or its officers,
directors or shareholders except as provided in Section 9.2(b); provided,
however, that nothing contained in this Section 9.2, shall relieve any party
from any liability for any knowing, willful or bad faith breach of a
representation, warranty or covenant contained herein.
(b) If Company determines not to proceed with the Merger
pursuant to Section 9.1(d), then Parent shall reimburse Company for its out of
pocket expenses incurred in connection with the failed merger up to a maximum
of $100,000. If Parent determines not to proceed with the Merger pursuant to
9.1(c) or because the conditions set forth in Section 8.2(k) are not satisfied,
Company shall reimburse Parent for its out of pocket expenses incurred in
connection with the failed merger up to a maximum of $100,000. Any payment by
Parent or Company which is required by this Section 9.2(b) shall be required
within thirty (30) calendar days after receipt by Parent or Company, as the
case may be, of notice thereof from the other party to whom such payment is
owed.
9.3 Specific Performance. The parties acknowledge that many of
the rights of each party contemplated by this Agreement are special, unique,
and of extraordinary character, and that, in the event that any party violates
or fails or refuses to perform any covenant made by it in this Agreement
relating to nonmonetary matters for which an equitable remedy may be granted,
the other party or parties will be without an adequate remedy at law. Each
party agrees, therefore, that in the event that it violates, fails or refuses
to perform any covenant or agreement made by it in this Agreement that relates
to nonmonetary matters for which an equitable remedy may be granted, the other
party or parties, so long as it or they are not in breach of this Agreement,
may, in addition to the remedies set forth in Article 10, institute and
prosecute an
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action in a court of competent jurisdiction to enforce specific performance of
such covenant or agreement or seek any other equitable relief.
9.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties hereto.
9.5 Extension; Waiver. The parties may (a) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto; (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant thereto; or
(c) waive compliance with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party against which the waiver is sought to be enforced and
shall apply only to the specific condition, representation or warranty
identified by such writing as being waived, extended or modified.
ARTICLE 10 - INDEMNIFICATION
10.1 Indemnification by Stockholders. Subject to the terms of this
Article 10, Company, the Company Stockholders and the holders of Outstanding
Options (but after the consummation of the Merger, solely the Company
Stockholders and the holders of Outstanding Options, and not the Company) shall
indemnify, defend, save and hold harmless Parent, Merger Sub, Company (after
the consummation of the Merger) and their successors and assigns (collectively,
the "PARENT INDEMNIFIED PARTIES"), from and against any demands, claims (as
defined in Section 101 of the U.S. Bankruptcy Code), actions, losses, damages,
deficiencies, liabilities, Applicable Benefit Plan Costs (as defined below),
costs and expenses (including, without limitation, reasonable attorneys' and
accountants' fees and expenses), together with interest and penalties, if any,
awarded by court order or otherwise agreed to (collectively, "INDEMNIFIABLE
DAMAGES"), suffered by the Parent Indemnified Parties that arise out of or
result from any of the following (whether or not a third party initiates the
proceeding or claim giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations,
warranties, covenants or agreements made by Company or the Management
Stockholders in this Agreement;
(b) any breach of any representation, warranty, covenant
or agreement made by Company or any Management Stockholder in a document,
certificate or affidavit delivered by Company or the Management Stockholders at
the Closing; or
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(c) any remediation connected with any Applicable
Benefit Plan before or after Closing but which is initiated prior to Closing.
The term "Applicable Benefit Plan Costs" shall mean the aggregate of all
contributions, penalties, taxes, interest, costs, fees, expenses, charges and
other amounts in excess of $260,000 incurred in relation to all remediation
connected with each Applicable Benefit Plan before or after Closing but is
initiated prior to the Closing.
Any of the foregoing to the contrary notwithstanding, the Company
Stockholders' indemnification obligations in connection with the breach of any
provision of Article 5 shall be several and not joint.
10.2 Indemnification by Parent. Subject to the terms of this
Article 10, Parent shall indemnify, defend, save and hold harmless Company (but
after consummation of the Merger, solely the Company Stockholders and holders
of Outstanding Options, and not the Company) (collectively, the "COMPANY
INDEMNIFIED PARTIES"), from and against any Indemnifiable Damages suffered by
the Company Indemnified Parties that arise out of or result from any of the
following (whether or not a third party initiates the proceeding or claim
giving rise to such Indemnifiable Damages):
(a) any breach of any of the representations,
warranties, covenants and agreements made by Parent or Merger Sub in this
Agreement; or
(b) any breach of any representation, warranty, covenant
or agreement made by Parent or by Merger Sub in a document, certificate or
affidavit delivered by Parent or Merger Sub at the Closing.
10.3 Claims for Indemnification. The representations, warranties,
covenants and agreements in this Agreement shall survive the Closing subject to
the limitations set forth herein and shall not be affected by any investigation
made by the parties hereto prior to the date hereof or the Effective Time. The
party seeking indemnification (the "INDEMNIFIED PARTY") or their
representative, as the case may be, shall give the party from whom
indemnification is sought (the "INDEMNIFYING PARTY") a written notice ("NOTICE
OF CLAIM") within sixty (60) calendar days of the discovery of any loss,
liability, claim or expense in respect of which the right to indemnification
contained in this Article 10 may be claimed; provided, however, that the
failure to give such notice within such sixty (60) calendar day period shall
not result in the waiver or loss of any right to bring such claim hereunder
after such period unless, and only to the extent that, the Indemnifying Party
is actually prejudiced by such failure. In the event a claim is pending or
threatened or the Indemnified Party has a reasonable belief as to the validity
of the basis for such claim, the Indemnified Party may give written notice (a
"NOTICE OF POSSIBLE CLAIM") of such claim to the Indemnifying Party, regardless
of whether a loss has arisen from such claim. After the Effective Time, all
"general contingency" claims under Notices of Claim shall be resolved before
the date of the first audit of financial statements containing combined
operations for those items that would be expected to be encountered in the
audit process and before the first anniversary of the Effective Time for other
items. If the Effective Time fails to
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occur the parties shall use all commercially reasonable efforts to resolve all
claims within two years from the date of this Agreement. Any Notice of Claim or
Notice of Possible Claim shall set forth the representations, warranties,
covenants and agreements with respect to which the claim is made, the specific
facts giving rise to an alleged basis for the claim and the amount of liability
asserted or anticipated to be asserted by reason of the claim.
10.4 Matters Involving Third Parties.
(a) If any third party shall notify the Indemnified
Party as to any matter in respect of which the right to indemnification
contained in this Article 10 may be claimed (a "THIRD PARTY CLAIM"), the
Indemnified Party shall give the Indemnifying Party notice of such Third Party
Claim as provided in Section 10.3 above; and the Indemnifying Party will have
the right to defend the Indemnified Party against the Third Party Claim with
counsel of the Indemnifying Party's choice, so long as the Indemnifying Party
notifies the Indemnified Party in writing, within fifteen (15) days after the
Indemnified Party has given the Indemnifying Party notice of the Third Party
Claim pursuant to Section 10.3, that the Indemnifying Party will indemnify the
Indemnified Party from and against Indemnifiable Damages the Indemnified Party
may suffer resulting from, arising out of, relating to, in the nature of or
caused by the Third Party Claim.
(b) If the Indemnifying Party undertakes the defense of
any Third Party Claim pursuant to Section 10.4(a) above, the Indemnified Party
may retain separate co-counsel at its sole cost and expense (and such expenses
shall not be Indemnifiable Damages) and participate in the defense of such
Third Party Claim. The Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to any Third Party Claim
without the prior written consent of the Indemnifying Party (not to be withheld
unreasonably). The Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
that does not include a full release by the third party of the Indemnified
Party from all Indemnifiable Damages relating to such Third Party Claim,
without the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(c) The parties hereto shall provide, or cause their
appropriate employees or representatives to provide, to the other parties
hereto information or data in connection with the handling of the defense of
any Third Party Claim or litigation (including counterclaims filed by the
parties), and the party receiving such information or data shall reimburse the
other party for all of its reasonable costs and expenses in providing these
services, including, without limitation, (1) all out-of-pocket, travel and
similar expenses incurred by its personnel in rendering these services; and (2)
all fees and expenses for services performed by third parties engaged by or at
the request of such other party.
10.5 Settlement of Indemnification Claims After Closing. If the
Closing has occurred and a recipient of a Notice of Claim desires to dispute
such claim, it shall, within thirty (30) calendar days after receipt of the
Notice of Claim, give counternotice, setting forth the basis for disputing such
claim, to Parent or the Stockholders' Representative (as defined below), as the
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case may be. If no such counternotice is given within such thirty (30) calendar
day period, or if Parent, or the Stockholders' Representative (as defined
below), as the case may be, acknowledges liability for indemnification, then
the amount claimed shall be promptly satisfied as provided in Section 10.6. If,
within thirty (30) calendar days after the receipt of counternotice by Parent
or the Stockholders' Representative, as the case may be, the Stockholders'
Representative and Parent shall not have reached agreement as to the claim in
question, then the party disputing the claim shall satisfy any undisputed
amount as specified in Section 10.6 and the disputed amount of the claim of
indemnification shall be submitted to and settled by arbitration in accordance
with the then prevailing commercial arbitration rules of the American
Arbitration Association. Such arbitration shall be held in Kansas City,
Missouri (or such other locale as may be mutually agreed) before a panel of
three (3) arbitrators, one selected by each of the parties and the third
selected by mutual agreement of the first two, and all of whom shall be
independent and impartial under the rules of the American Arbitration
Association. The decision of the arbitrators shall be final and binding as to
any matter submitted under this Agreement. To the extent the decision of the
arbitrators is that a party shall be indemnified hereunder, the amount shall be
satisfied as provided in Section 10.6. Judgment upon any award rendered by the
arbitrators may be entered in any court of competent jurisdiction. The date of
the arbitrator's decision or the date a claim otherwise becomes payable
pursuant to this Section 10.5 is referred to as the "DETERMINATION DATE." The
full amount of any Indemnifiable Damages resulting from the foregoing
proceedings shall be paid by the Indemnifying Party within thirty (30) calendar
days of its final settlement or adjudication.
10.6 Manner of Indemnification by Stockholders. Where the Company
Stockholders are obligated to indemnify the Parent Indemnified Parties under
Section 10.1 after the Effective Time, such indemnity obligation must be
satisfied solely pursuant to the Escrow Agreement by the Company Stockholders,
to the extent they then hold Shares of Parent Common Stock, delivering to the
relevant Parent Indemnified Party such number of Shares of Parent Common Stock
(as adjusted to reflect share splits, reverse splits, dividends, consolidations
and proceeds with respect to the Parent Common Stock after the execution of
this Agreement), the value of which calculated at the "Value Per Share"
specified in the Escrow Agreement equals the amount of the Indemnifiable
Damages until such time as the aggregate amount of all indemnity obligations
satisfied in accordance with this provision equals ten percent (10%) of such
Value Per Share of all the Parent Common Stock transferred to the Company
Stockholders pursuant to Section 2.1.
10.7 Indemnification Exclusive Remedy. In the absence of fraud or
gross misrepresentations, and except for non-monetary equitable relief, if the
Closing occurs, indemnification pursuant to the provisions of this Article 10
shall be the sole and exclusive remedy of the parties for any breach of any
representation or warranty contained in this Agreement.
10.8 Certain Limitations. The foregoing indemnification
obligations are subject to the limitation that no Indemnifying Party shall have
any liability for indemnification to any Indemnified Party pursuant to this
Article 10 unless and until the total Indemnifiable Damages
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for which the Indemnifying Party would be liable exceed $100,000 in the
aggregate; provided that once such threshold is met, the Indemnifying Party
shall be liable for the total Indemnifiable Damages, not just the amount in
excess of such threshold. In no event shall the aggregate liability of Parent
or the Company Stockholders for Indemnifiable Damages under this Agreement and
the other Merger Documents exceed the total Value Per Share of all Escrow
Shares held by the escrow agent pursuant to Section 2.1(d) hereof and the
Escrow Agreement.
ARTICLE 11 -STOCKHOLDERS' REPRESENTATIVE
11.1 Appointment; Acceptance. At the Closing and by operation of
this Agreement, Dan Paul and Allen Merrill, and each of them, and each of their
successors, acting as hereinafter provided, are fully authorized and empowered
to act for and on behalf of the Company Stockholders in connection with the
transactions and agreements contemplated by this Agreement with respect to (i)
matters prior to the Closing Date, as specified herein, and (ii) matters
subsequent to the Closing Date (each a "STOCKHOLDERS' REPRESENTATIVE"), and
acknowledge that such appointment is coupled with an interest and is
irrevocable. In this regard (a) each Stockholder's Representative shall have
full and complete authorization, on behalf of the Company Stockholders to
authorize the Stockholders' Representative (i) to dispute or to refrain from
disputing any claim made by Parent under the Merger Documents, (ii) to
negotiate and compromise any dispute which may arise under, and to exercise or
refrain from exercising remedies available under the Merger Documents and to
sign any release or other document with respect to such dispute or remedy,
(iii) to give such instructions and to do such other things and refrain from
doing such other things as the Stockholders' Representative shall deem
necessary or appropriate to carry out the provisions of the Merger Documents,
(iv) to waive any condition to the Closing, and (v) to agree in his discretion
with Parent to amend this Agreement from time to time; and (b) all of the
Company Stockholders shall be bound by all agreements and determinations made
by and documents executed and delivered by either of the Stockholders'
Representatives under the Merger Documents. By executing this Agreement under
the heading "Stockholders' Representatives," Dan Paul and Allen Merrill each
hereby (i) accepts his appointment and authorization to act as Stockholders'
Representatives as attorney-in-fact and agent on behalf of the Company
Stockholders in accordance with the terms of this Agreement, and (ii) agrees to
perform his obligations under, and otherwise comply with, this Article 11.
11.2 Actions. The Proxy Statement shall also provide that each of
the Company Stockholders, by approval of this Agreement, expressly acknowledges
and agrees that the Stockholders' Representatives are authorized to act on his
or her behalf, notwithstanding any dispute or disagreement between the Company
Stockholders, and that Parent and any other person or entity shall be entitled
to rely on any and all actions taken by the Stockholders' Representatives are
under the Merger Documents without any liability to, or obligation to inquire
of, any of the Company Stockholders. Parent and any other person or entity is
hereby expressly authorized to rely on the genuineness of the signatures of the
Stockholders' Representatives, and upon receipt of any writing which reasonably
appears to have been signed by both Stockholders' Representatives, Parent and
any other person or entity may act upon the same without any further duty of
inquiry as to the genuineness of the writing.
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11.3 Successors. If either of the Stockholders Representatives
ceases to function in his capacity as a Stockholders' Representative for any
reason whatsoever, then Russell Oliver and thereafter H. Joe Smith shall be
appointed as his successor, and if both cease to function in such capacity for
any reason whatsoever, then the Company Stockholders, by action of the Company
Stockholders who formerly held a majority of the Company Common Stock
immediately prior to the Effective Time, shall have the right to appoint his
successor; provided, however, that if for any reason no successor has been
appointed pursuant to the foregoing within thirty (30) calendar days, then
Parent shall have the right to appoint a successor.
11.4 Effectiveness. The authorizations of the Stockholders'
Representatives shall be effective until their rights and obligations under
this Agreement terminate by virtue of the termination of any and all
obligations of the Company Stockholders to Parent and of Parent to the Company
Stockholders under this Agreement and the Escrow Agreement.
ARTICLE 12 - MISCELLANEOUS
12.1 Expenses.
(a) Except as otherwise expressly stated in this
Agreement, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated by this Agreement (including legal,
accounting and investment banking fees and expenses) shall be borne by the
party incurring such costs and expenses.
(b) Notwithstanding any provision in this Agreement to
the contrary, if either of the parties shall knowingly, willfully or in bad
faith breach its obligations hereunder, the non-defaulting party may pursue any
remedy available at law or in equity to enforce its rights and shall be paid by
the willfully defaulting party for all damages, costs and expenses, including
without limitation reasonable legal, reasonable accounting, reasonable
investment banking and reasonable printing expenses incurred or suffered by the
non-defaulting party in connection herewith or in the enforcement of its rights
hereunder.
12.2 Notices. All notices or other communications which are
required or permitted under this Agreement shall be in writing and sufficient
if delivered personally or by reputable overnight or express courier, sent by
registered or certified mail, postage prepaid, or by telefax (with subsequent
delivery via one of the two previous methods) as follows:
(a) If to Parent or Merger Sub, to:
Towne Services, Inc.
3295 River Exchange Drive
Suite 350
Norcross, Georgia 30092
Attn: Chief Executive Officer
Telecopy: (770) 582-8350
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With a copy (which shall not constitute notice) to:
Nelson Mullins Riley & Scarborough, L.L.P.
999 Peachtree Street, N.E.
Suite 1400
Atlanta, Georgia 30309
Attn: Susan L. Spencer, Esq.
Telecopy: (404) 817-6050
(b) If to Company, to:
Forseon Corporation
6600 Jurupa Avenue
Riverside, California 92504
Telecopy: (909) 689-4124
Attention: President
With a copy (which shall not constitute notice) to:
Gibson, Dunn & Crutcher LLP
4 Park Plaza
Irvine, California 92614
Telecopy: (949) 475-4665
Attention: Mark W. Shurtleff, Esq.
(c) If to the Stockholders' Representatives, to their
respective addresses as set forth on the signature page to this Agreement;
or to such other addresses and telefax numbers as shall be furnished in writing
by any party, and any such notice or communications shall be deemed to have
been given as of two business days after the date actually sent via overnight
or express courier, five days after mailed and upon telefax confirmation of
receipt to addressee by the sender.
12.3 Parties in Interest. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto, the Company Stockholders, the
holders of the Outstanding Options, the Parent Indemnified Parties, the Company
Indemnified Parties and their respective successors, representatives and
assigns. This Agreement (and the rights and interests in this Agreement) may
not be assigned by any party without the written consent of the other parties;
provided, however, Parent may assign its interests in this Agreement to a
purchaser or transferee of all or substantially all of the business or assets
of Parent or the Surviving Corporation, whether by sale of stock or assets,
merger or otherwise. Any attempted assignment in contravention of the foregoing
shall be null and void. Nothing in this Agreement is intended to confer,
expressly or
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by implication, upon any other person any rights or remedies under or by reason
of this Agreement.
12.4 Entire Agreement. This Agreement, which includes the
disclosure schedules and the other documents, agreements and instruments
executed and delivered pursuant to or in connection with this Agreement,
contains the entire agreement among the parties hereto with respect to the
transactions contemplated by this Agreement, and supersedes all prior
negotiations, arrangements or understandings, written or oral, with respect
thereto.
12.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, and each of which shall
constitute one and the same agreement. Any party may deliver an executed copy
of this Agreement and of any documents contemplated by this Agreement by
facsimile transmission to another party and such delivery shall have the same
force and effect as any other delivery of a manually signed copy of this
Agreement or of such other documents.
12.6 Governing Law and Venue. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND
THE STATE OF GEORGIA, EXCLUDING CHOICE OF LAW PRINCIPLES. The parties consent
to the exclusive jurisdiction and venue of the courts of any county in the
State of Georgia and the United States Federal District Courts of Georgia, in
any judicial proceeding brought to enforce this Agreement. The parties agree
that any forum other than the State of Georgia is an inconvenient forum and
that a lawsuit (or non-compulsory counterclaim) brought by one party against
another party, in a court of any jurisdiction other than the State of Georgia
should be forthwith dismissed or transferred to a court located in the State of
Georgia.
12.7 Invalidity of any Part. If any provision or part of this
Agreement shall for any reason be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Agreement and shall be construed as if such invalid,
illegal or unenforceable provision or part thereof had never been contained in
this Agreement, but only to the extent of its invalidity, illegality, or
unenforceability. Upon any such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto will
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated by this Agreement are consummated to the
extent possible.
12.8 Time of the Essence; Computation of Time. Time is of the
essence of each and every provision of this Agreement. Whenever the last day
for the exercise of any right or the discharge of any duty under this Agreement
shall fall upon Saturday, Sunday or a federal, public or legal holiday, the
party having such right or duty shall have until 5:00 p.m., Atlanta, Georgia
time on the next succeeding regular business day to exercise such right or to
discharge such duty.
12.9 Arbitration.
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(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or any other related documents, agreements,
certificates or other writing, or the breach, termination, construction,
validity or enforceability hereof or thereof, shall be settled by binding
arbitration in accordance with the rules of the American Arbitration
Association in force at the time and in the manner described in Section 10.5
(except as otherwise provided in this Section 12.9).
(b) Termination or limitation of Parent's rights in any
of its software, products, or any associated intellectual property rights or
documents may not be awarded under any circumstances. The right to demand
arbitration and to receive damages and obtain other available remedies as
provided hereunder shall be the exclusive remedy in the event an arbitration
demand is made, except that Parent shall be entitled to obtain equitable
relief, such as injunctive relief, from any court of competent jurisdiction to
protect its rights in any of its software products or any associated
intellectual property rights or documents while such proceeding is pending or
in support of any award made pursuant to such arbitration.
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IN WITNESS WHEREOF, Parent, Merger Sub, Company, the Management
Stockholders and the Stockholders' Representatives have caused this Agreement
to be executed by their duly authorized officers or themselves as of the day
and year first above written.
TOWNE SERVICES, INC.
By: /s/ Drew W. Edwards
------------------------------------
By: Drew W. Edwards
-------------------------------
Its: Chairman and CEO
------------------------------
TSI ACQUISITION ONE, INC.
By: /s/ Drew W. Edwards
------------------------------------
By: Drew W. Edwards
-------------------------------
Its: CEO
------------------------------
FORSEON CORPORATION
By: /s/ Dan Paul
------------------------------------
By: Dan Paul
-------------------------------
Its: President
------------------------------
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THE MANAGEMENT STOCKHOLDERS
/s/ Dan Paul
---------------------------------------
DAN PAUL
Address: 4820 Stonehaven
------------------------------
Yorba Linda, California 92887
------------------------------
/s/ Allen Merrill
---------------------------------------
ALLEN MERRILL
Address: /s/ Allen Merrill
------------------------------
6771 De Grazia Road
------------------------------
Riverside, CA 92506
STOCKHOLDERS' REPRESENTATIVE
/s/ Dan Paul
---------------------------------------
DAN PAUL
Address:
c/o Forseon Corporation
6600 Jurupa Avenue
Riverside, California 92504
/s/ Allen Merrill
---------------------------------------
ALLEN MERRILL
Address:
c/o Forseon Corporation
6600 Jurupa Avenue
Riverside, California 92504