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EXHIBIT 10.31
[CONFORMED COPY]
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PROLOGIC MANAGEMENT SYSTEMS, INC.
(AN ARIZONA CORPORATION),
BASIS ACQUISITION CORP.
(AN ARIZONA CORPORATION),
BASIS, INC.
(A CALIFORNIA CORPORATION),
AND
THE PRINCIPAL SHAREHOLDERS
OF BASIS, INC.
AS OF JUNE 1, 1996
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TABLE OF CONTENTS
ARTICLE I. THE MERGER; CLOSING; EFFECTIVE TIME........................................................ 1
Section 1.1 The Merger....................................................................... 1
Section 1.2 Closing.......................................................................... 1
Section 1.3 Effective Time................................................................... 1
ARTICLE II. ARTICLES OF INCORPORATION, BYLAWS AND
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION............................. 2
Section 2.1 Articles of Incorporation and Bylaws............................................. 2
Section 2.2 Officers and Directors........................................................... 2
ARTICLE III. CONSIDERATION FOR MERGER................................................................. 2
Section 3.1 Payment of Merger Consideration.................................................. 2
Section 3.2 Conversion of Shares............................................................. 2
Section 3.3 Contingent Merger Consideration. ............................................... 2
Section 3.4 Additional Consideration......................................................... 3
Section 3.5 Restricted Securities and Legends................................................ 4
Section 3.6 Underwriter's Restriction........................................................ 4
Section 3.7 Treatment of Options............................................................. 4
ARTICLE IV. EXCHANGE OF CERTIFICATES.................................................................. 4
Section 4.1 Exchange of Certificates......................................................... 4
Section 4.2 Surrender and Delivery of Securities............................................. 5
Section 4.3 Fractional Shares................................................................ 5
Section 4.4 Dissenting Shareholders.......................................................... 5
ARTICLE V. [INTENTIONALLY OMITTED.]................................................................... 5
ARTICLE VI. REPRESENTATIONS AND WARRANTIES............................................................ 5
Section 6.1 Representations and Warranties of BASIS.......................................... 5
a. Organization, Corporate Power and Good Standing of BASIS.................... 5
b. Capital Structure and Title to Shares....................................... 6
c. Authority................................................................... 6
d. Compliance with Applicable Laws............................................. 7
e. Litigation.................................................................. 7
f. Financial Statements........................................................ 7
g. Taxes....................................................................... 7
h. Certain Agreements.......................................................... 8
i. Subsidiaries................................................................ 8
j. Absence of Certain Changes or Events........................................ 8
k. Shareholder Approval Required............................................... 8
l. Broker's and Finder's Fees.................................................. 8
m. Corporate Records; Other Information........................................ 8
n. Books and Records........................................................... 8
o. Labor and Employment Matters................................................ 8
p. Employee Benefit Plans...................................................... 9
q. Insurance................................................................... 10
r. Contracts................................................................... 10
s. Patents, Trademarks and Other Intellectual Property Rights.................. 11
t. Environmental Condition and Governmental Authorizations..................... 13
u. Real Estate................................................................. 13
v. Tangible Property........................................................... 13
w. Inventories................................................................. 14
x. Accounts Receivable......................................................... 14
y. Suppliers and Customers..................................................... 14
z. Products; Warranty Policies................................................. 14
aa. Certain Transactions and Agreements......................................... 15
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ab. Complete Disclosure......................................................... 15
Section 6.2 Representations and Warranties of Prologic....................................... 15
a. Organization, Corporate Power and Good Standing............................. 15
b. Capital Structure........................................................... 15
c. Authority................................................................... 16
d. Compliance with Applicable Laws............................................. 16
e. Litigation.................................................................. 17
f. Financial Statements........................................................ 17
g. Taxes....................................................................... 17
h. Broker's and Finder's Fees.................................................. 17
i. Absence of Certain Changes or Events........................................ 17
j. No Shareholder Vote......................................................... 17
k. Securities Law Filings...................................................... 17
l. Books and Records........................................................... 18
m. Insurance................................................................... 18
n. Accounts Receivable......................................................... 18
o. Suppliers and Customers..................................................... 18
p. Complete Disclosure......................................................... 18
Section 6.3 Representations and Warranties of Principal Shareholders......................... 18
Section 6.4 Survival of Representations and Warranties....................................... 19
ARTICLE VII. COVENANTS OF THE PARTIES................................................................. 19
Section 7.1 Conduct of Business Pending the Merger........................................... 19
Section 7.2 Compensation Plans............................................................... 21
Section 7.3 Legal Conditions to Merger....................................................... 21
Section 7.4 Shareholders' Meeting............................................................ 22
Section 7.5 Notification of Certain Matters.................................................. 22
Section 7.6 Public Announcements............................................................. 22
Section 7.7 Tax Treatment.................................................................... 22
Section 7.8 Further Assurances............................................................... 23
Section 7.9 Securities Laws.................................................................. 23
Section 7.10 No Other Negotiations........................................................... 23
Section 7.11 Access to Information........................................................... 23
Section 7.12 Affiliates Agreements........................................................... 23
Section 7.13 Shareholders' Agreement......................................................... 23
Section 7.14 BASIS Representative............................................................ 23
Section 7.15 Release of Personal Guaranty.................................................... 24
Section 7.16 Benefit Arrangements............................................................ 24
Section 7.17 Reservation of Shares........................................................... 24
ARTICLE VIII. CONDITIONS TO THE CLOSING............................................................... 24
Section 8.1 Conditions to BASIS's and Prologic's Obligations................................. 24
a. Shareholder Approval........................................................ 24
b. Other Approvals............................................................. 24
c. No Injunctions, Restraints or Illegality.................................... 24
d. Employment Agreement........................................................ 25
e. California Securities Exemption............................................. 25
f. Adequate Financing.......................................................... 25
g. Tax Opinion................................................................. 25
Section 8.2 Conditions to Obligations of Prologic............................................ 25
a. Representations and Warranties.............................................. 25
b. Performance of Obligations of BASIS......................................... 25
c. No Adverse Developments..................................................... 25
d. Financial Statements........................................................ 25
e. Affiliate Agreements........................................................ 26
g. Shareholders' Agreement..................................................... 26
h. Requisite Vote.............................................................. 26
Section 8.3 Conditions to Obligations of BASIS and the BASIS Shareholders.................... 26
a. Representations and Warranties.............................................. 26
b. Performance of Obligations of Prologic and Merger Subsidiary................ 26
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c. No Adverse Developments..................................................... 26
d. Payment of Sequoia.......................................................... 26
e. Consents.................................................................... 26
f. Financial Statements........................................................ 26
g. No Burdensome Condition..................................................... 27
h. Other Documents............................................................. 27
ARTICLE IX. INDEMNIFICATION........................................................................... 27
Section 9.1 BASIS Indemnification............................................................ 27
Section 9.2 Reimbursement.................................................................... 27
Section 9.3 Prologic Indemnification......................................................... 28
Section 9.4 Reimbursement.................................................................... 28
Section 9.5 Notice........................................................................... 28
ARTICLE X. TERMINATION, AMENDMENT OR WAIVER........................................................... 29
Section 10.1 Termination. .................................................................. 29
Section 10.2 Effect of Termination........................................................... 29
Section 10.3 Amendment. .................................................................... 30
Section 10.4 Waiver.......................................................................... 30
ARTICLE XI. MISCELLANEOUS AND GENERAL................................................................. 30
Section 11.1 Definitions..................................................................... 30
Section 11.2 Fees and Expenses............................................................... 30
Section 11.3 Notices......................................................................... 30
Section 11.4 No Third-Party Beneficiaries.................................................... 30
Section 11.5 Governing Law................................................................... 30
Section 11.6 Entire Agreement................................................................ 30
Section 11.7 Attorneys' Fees................................................................. 31
Section 11.8 Severability.................................................................... 31
Section 11.9 Counterparts.................................................................... 31
Section 11.10 Headings....................................................................... 31
Section 11.11 Construction................................................................... 31
Section 11.12 Successors and Assigns......................................................... 31
Section 11.13 References..................................................................... 31
SCHEDULE A CALCULATION OF PRE-TAX EARNINGS
SCHEDULE B BASIS DISCLOSURE SCHEDULE
SCHEDULE C PROLOGIC DISCLOSURE SCHEDULE
SCHEDULE D KEY EMPLOYEES
SCHEDULE E OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
SCHEDULE F DEFINITIONS
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EXHIBIT A AGREEMENT OF MERGER
EXHIBIT B-1 OFFICER'S CERTIFICATE OF BASIS
EXHIBIT B-2 OFFICE CERTIFICATE OF PROLOGIC
EXHIBIT C [INTENTIONALLY OMITTED]
EXHIBIT D [INTENTIONALLY OMITTED]
EXHIBIT E AFFILIATE AGREEMENT
EXHIBIT F SHAREHOLDERS' AGREEMENT
EXHIBIT G NOTICE INFORMATION
EXHIBIT H OWNERSHIP OF BASIS STOCK
EXHIBIT I UNDERWRITERS RESTRICTIONS ON SALE OF PROLOGIC STOCK
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of this 1st day of June, 1996, by Prologic Management Systems,
Inc., an Arizona corporation ("Prologic"), BASIS Acquisition Corp., an Arizona
corporation and a newly formed, wholly-owned subsidiary of Prologic ("Merger
Subsidiary"), BASIS, Inc., a California corporation ("BASIS"), Patricia F.
Shanks and J. Merrill Shanks (together, the "Principal Shareholders").
RECITALS:
WHEREAS, Prologic desires to acquire BASIS, and BASIS is willing to be
acquired by Prologic, pursuant to a merger in which BASIS will merge with and
into Merger Subsidiary (the "Merger") and the shareholders of BASIS will receive
certain consideration in accordance with the terms and conditions set forth in
this Agreement; and
WHEREAS, to effect the Merger, Prologic desires to adopt a plan of
reorganization in accordance with Section 368(a) of the Internal Revenue Code of
1986, as amended, and the regulations thereunder.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements, and conditions contained in this Agreement,
the parties agree as follows:
ARTICLE I. THE MERGER; CLOSING; EFFECTIVE TIME
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement and the Agreement of Merger attached hereto as Exhibit "A" and
entitled Articles of Amendment and Merger (and the Plan of Merger attached
thereto) (the "Agreement of Merger"), at the Effective Time, BASIS shall merge
with and into Merger Subsidiary and the separate corporate existence of BASIS
shall cease. Merger Subsidiary (which this Agreement sometimes refers to as the
"Surviving Corporation") shall survive the Merger and shall be governed by the
laws of the State of Arizona. At and after the Effective Time, Merger Subsidiary
shall retain and possess all rights, privileges, immunities, and franchises, and
be subject to all the restrictions, disabilities, debts, liabilities and duties,
of each of BASIS and Merger Subsidiary. The Merger shall have the effects
specified in Section 10-1106 of the Arizona Business Corporation Act ("Arizona
BCA") and Section 1107 of the California General Corporation Law ("California
GCL") with respect to BASIS and Merger Subsidiary. Upon the consummation of the
Merger, the Surviving Corporation shall change its name to BASIS, Inc.
Section 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at the offices of Brown & Bain, P.A., 2901 North Central Avenue,
Phoenix, Arizona 85012, commencing at 10:00 a.m. Arizona time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the parties to consummate the Merger set forth in Article VIII
(other than conditions with respect to actions the respective parties will take
at the Closing itself) or such other date as Prologic and BASIS shall mutually
determine ("Closing Date").
Section 1.3 Effective Time. As soon as practicable following
fulfillment or waiver of the conditions specified in Article VIII and provided
that this Agreement has not been terminated or abandoned pursuant to Article X,
each of BASIS, Prologic and Merger Subsidiary will cause the documents required
under the California GCL and Arizona BCA ("Merger Filing Documents") to be filed
with the Secretary of State of the State of California ("California Secretary")
and the Corporation Commission of the State of Arizona ("Arizona Commission"),
as provided in Section 1103 of the California GCL and Section 10-1105 of the
Arizona BCA, respectively. The Merger shall become effective upon the filing of
Merger Filing Documents with the Arizona Commission, and this Agreement refers
to such time of filing as the "Effective Time." Solely for accounting purposes,
the Effective Time shall be deemed to be at 6:00 p.m. on June 30, 1996.
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ARTICLE II. ARTICLES OF INCORPORATION, BYLAWS AND
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
Section 2.1 Articles of Incorporation and Bylaws. The Articles of
Incorporation and Bylaws of Merger Subsidiary in effect at the Effective Time
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation,
until duly amended in accordance with their terms and the Arizona BCA.
Section 2.2 Officers and Directors. The directors and officers
specified on the attached Schedule E shall be the directors and officers,
respectively, of the Surviving Corporation from and after the Effective Time
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation, or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
ARTICLE III. CONSIDERATION FOR MERGER
Section 3.1 Payment of Merger Consideration. The "Merger Consideration"
payable to the shareholders of BASIS listed on Exhibit H hereto, together with
any other holder of BASIS Common Stock immediately prior to the Merger ("BASIS
Shareholders") in connection with the transactions contemplated herein shall be
payable as follows:
a. $500,000 payable by Prologic to the Exchange Agent at the
Closing, by certified or official bank check or by wire transfer of immediately
available funds to the account designated by the BASIS Representative at least
two business days prior to the Closing ("Cash Payment");
b. the conversion of securities at the Effective Time as set
forth in Section 3.2 (together with the Cash Payment, and any cash payments made
in lieu of fractional shares, the "Closing Merger Consideration"); and
c. the issuance of additional securities or cash to the BASIS
Shareholders as Contingent Merger Consideration on or before September 30, 1997
as set forth in Section 3.3.
Each payment of cash and each issuance of securities to BASIS Shareholders
pursuant to this Agreement shall be payable to or shall be issuable to
individual BASIS Shareholders in proportion to their respective ownership of
BASIS stock (the "Proportionate Share" as listed on and determined by reference
to Exhibit H hereto).
Section 3.2 Conversion of Shares. Pursuant to this Agreement, at the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any capital stock of BASIS, subject to the provisions of Article
IV, all the shares of common stock of BASIS (other than Dissenting Shares) shall
be converted into and become exchangeable for the number of shares of validly
issued, fully paid and non-assessable common stock, no par value, of Prologic
("Prologic Common Stock") equal to $1,400,000 divided by the Closing Price for
the Prologic Common Stock. "Closing Price" means the average of the closing
sales price of Prologic Common Stock as listed on NASDAQ Small Capital Market
for the ten trading days immediately preceding June 30, 1996 or, if earlier, the
two days prior to the Closing Date, provided, that if the Closing Price is less
than $4.00, the Closing Price used for this calculation shall be $4.00 and if
the Closing Price is more than $8.00, the Closing Price used for this
calculation shall be $8.00.
Section 3.3 Contingent Merger Consideration. Prologic shall pay the
BASIS Representative, for distribution to the BASIS Shareholders, the Contingent
Merger Consideration, which shall be the sum of the First Contingent Payment and
the Second Contingent Payment.
a. The "First Contingent Payment" shall be the number of
shares of Prologic Common Stock equal to $1,100,000 divided by the Closing
Price, provided, however, that if the Closing Price is less
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than $5.00, the Closing Price used for this calculation shall be $5.00 and if
the Closing Price is more than $7.00, the Closing Price used for this
calculation shall be $7.00. In the event pre-tax earnings of Merger Subsidiary
after the merger with BASIS for the twelve months ending June 30, 1997 (as
calculated in accordance with Schedule A and based on the audited balance sheet
of the Merger Subsidiary at such date) ("BASIS Earnings") is less than $500,000,
the First Contingent Payment shall be the number of shares of Prologic Common
Stock equal to $1,100,000 minus 4.4 times the amount by which BASIS Earnings are
less than $500,000, divided by the Closing Price. If BASIS Earnings are below
$250,000, the First Contingent Payment payable pursuant to this Section shall be
0 shares.
b. The "Second Contingent Payment" shall be the number of shares
of Prologic Common Stock equal to $500,000 divided by the Contingent Price. The
"Contingent Price" means the average of the closing sales price of Prologic
Common Stock as listed on the NASDAQ Small Capital Market for the ten trading
days immediately preceding June 30, 1997 or the date of a Transfer governed by
Section 3.3(d), provided, that if the Closing Price is less than $5.00, the
Closing Price used for this calculation shall be $5.00 and if the Closing Price
is more than $10.00, the Closing Price used for this calculation shall be
$10.00. In the event BASIS Earnings are more than $500,000, the Second
Contingent Payment shall be the number of shares equal to $500,000 minus 2 times
the amount by which BASIS Earnings are less than $750,000, divided by the
Contingent Price. In the event that BASIS Earnings are less than $500,000, the
Second Contingent Payment payable pursuant to this provision shall be 0 shares.
c. Notwithstanding anything contained in this Section 3.3 to the
contrary, upon the written election of either Prologic or the BASIS
Representative, up to 40% of the Contingent Merger Consideration to be paid to
BASIS Shareholders shall be paid in cash rather than shares of Prologic Common
Stock. Any election under this Section 3.3 shall be made, if at all, by delivery
of written notice to the other party not less than ten business days prior to
the date of payment, provided, that no payment will be made in cash pursuant to
this Section or Section 3.4 if BASIS delivers an opinion of counsel reasonably
satisfactory to Prologic no less than five days prior to the date of payment
that the proposed payment will have a material adverse effect on the tax exempt
treatment of shares of Prologic Common Stock received in connection with the
transaction contemplated herein.
d. If at any time prior to June 30, 1997, Prologic sells or
otherwise transfers or disposes of voting control of BASIS, or sells or
otherwise disposes of any asset or assets of BASIS that could have a material
adverse impact on the achievement of BASIS Earnings (other than (a) a transfer
to Prologic, a parent of Prologic or a majority-owned subsidiary of Prologic, or
(b) in connection with the sale or transfer of all or substantially all of the
assets or shares of Prologic) ("Transfer"), then the formula by which BASIS will
be paid Contingent Payments will be modified by multiplying the revenue targets
set forth in Section 3.3(a) and (b) above by a fraction, the numerator of which
is the number of whole months then elapsed since the Effective Date of the
Merger and the denominator of which is twelve, and determining if BASIS has met
those reduced targets based on BASIS Earnings at the time of the event giving
rise to the modification; provided, however, that if notwithstanding such event,
BASIS nonetheless achieves BASIS Earnings such that it would be paid a higher
amount of Contingent Payments under the original formula at the end of the
original period then under the revised formula, then BASIS shall receive such
higher amount of Contingent Payments.
Section 3.4 Additional Consideration. If at any time prior to June 30,
1998, Prologic effects an asset transfer of any intellectual property that is an
asset of BASIS as of May 15, 1996 (other than (a) through licenses in the
ordinary course of business, (b) a transfer to Prologic, a parent of Prologic or
a majority-owned subsidiary of Prologic), (c) in connection with the sale or
transfer of all or substantially all of the assets or shares of the Surviving
Corporation or Prologic), then Prologic shall issue shares of Prologic Common
Stock to BASIS Shareholders based on their Proportionate Share in an amount
equivalent to thirty percent (30%) of the net consideration received or to be
received by Prologic for such assets ("Additional Consideration").
The number of shares to be paid under this Section shall be issued
within thirty business days of the receipt of any such payment and will be based
on the Average Share Price of the Prologic Common
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Stock determined as of the ten days prior to such receipt. Either Prologic or
the BASIS Representative may elect that up to 40% of the consideration received
pursuant to this section shall be paid in cash by providing written notice to
the other party no less than ten business days prior to the date of payment.
Section 3.5 Restricted Securities and Legends. It is understood that
the shares of Prologic Common Stock to be issued as Merger Consideration have
not been registered under the Securities Act and that the certificates
evidencing such Prologic Common Stock shall bear the following legend:
"These securities have not been registered under the United
States Securities Act of 1933, as amended (the "Securities Act"), or
the securities laws of any other jurisdiction. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a
registration statement in effect with respect to the securities under
the Securities Act (or its equivalent under the laws of any applicable
jurisdiction other than the United States) or, under certain
circumstances, an opinion of counsel satisfactory to the Company that
such transaction will not be in violation of applicable securities
laws. These securities are subject to certain limitations and
restrictions, such as a limitation on transferability, under the
Shareholders' Agreement, dated as of _____________, 1996, by and
between the Company, BASIS Acquisition Corp., BASIS, Inc., and the
shareholders of BASIS, Inc., and the Underwriting Agreement, dated as
of March 14, 1995, by and between the Company and Nutmeg Securities,
Ltd., copies of which may be obtained from the Company."
Section 3.6 Underwriter's Restriction. It is understood that the
certificates evidencing the Prologic Common Stock to be issued as Merger
Consideration are subject to certain restrictions on sale as set forth in
Exhibit I hereto.
Section 3.7 Treatment of Options. Without any action on the part of the
holders thereof, all outstanding stock options for shares of BASIS Common Stock
held by employees of BASIS pursuant to the BASIS Stock Option Agreements and
other stock options, warrants and other rights to acquire shares of BASIS Common
Stock held by all other Persons (together, the "BASIS Stock Plans") shall
automatically be terminated and cancelled upon the effectuation of the Merger.
Each holder of a stock option, warrant or other right shall thereafter cease to
have any rights with respect to such options, warrants or other rights.
ARTICLE IV. EXCHANGE OF CERTIFICATES
Section 4.1 Exchange of Certificates. On or prior to the Closing Date,
Prologic shall provide to the Exchange Agent the certificates representing
shares of Prologic Common Stock required to effect the conversions referred to
in Section 3.2. Prologic shall also make available to the Exchange Agent the
cash required to make the Cash Payments, and the cash payments in lieu of
fractional shares, referred to in Section 4.3 below. Shares of Prologic Common
Stock into which shares of BASIS Common Stock shall be converted in the Merger
shall be deemed to have been issued at the Effective Time.
From and after the Effective Time, each holder of a certificate that
immediately prior to the Effective Time represented outstanding shares of BASIS
Common Stock ("Cancelled Shares"), other than shares with respect to which
dissenters' rights, if any, are granted by reason of the Merger, shall be
entitled to receive in exchange therefor, upon surrender thereof to the Exchange
Agent a certificate or certificates representing their Proportionate Share of
shares of Prologic Common Stock into which shares of BASIS Common Stock were
converted pursuant to Section 3.2 and the Proportionate Share of the Cash
Payment pursuant to Section 3.2. From and after the Effective Time, Prologic
shall be entitled to treat the certificates which immediately prior to the
Effective Time represented shares of BASIS Common Stock and which have not yet
been surrendered for exchange as evidencing the ownership of the number of
shares of Prologic Common Stock (together with the Proportionate Share of the
Cash Payment) into which the shares of BASIS Common Stock represented by such
certificates shall have been converted pursuant to Section 3.2, notwithstanding
the failure to surrender such certificates. However,
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notwithstanding any other provision of this Agreement, until holders or
transferees of certificates which immediately prior to the Effective Time
represented shares of BASIS Common Stock have surrendered them for exchange as
provided herein, no dividends shall be paid with respect to any shares
represented by such certificates and no payment for fractional shares shall be
made. Upon surrender of a certificate which immediately prior to the Effective
Time represented outstanding shares of BASIS Common Stock, there shall be paid
to the holder of such certificate the amount of any dividends which theretofore
became payable, but which were not paid by reason of the foregoing, with respect
to the number of shares of Prologic Common Stock represented by the certificate
or certificates issued upon such surrender.
Section 4.2 Surrender and Delivery of Securities. Promptly after the
Effective Date, the Secretary of Prologic (the "Exchange Agent"), shall provide
to each holder of Cancelled Shares a letter of transmittal and instructions for
use in effecting the surrender of the certificates representing Cancelled
Shares. Subject to Article IV, upon any Person's surrender to the Exchange Agent
of such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions, Prologic shall cause the
Exchange Agent promptly to deliver to that Person a certificate in the name of
that Person representing the Merger Consideration set forth in Section 3.1(a)
and (b) to which such Person is entitled.
Section 4.3 Fractional Shares. Notwithstanding any other provision of
this Agreement, no certificates or scrip for fractional shares of Prologic
Common Stock shall be issued upon the surrender for exchange of Cancelled
Shares. In lieu of any such fractional shares, each holder of BASIS Common Stock
who would otherwise have been entitled to a fraction of a share of Prologic
Common Stock upon surrender of Cancelled Shares for exchange shall be entitled
to receive from the Exchange Agent a cash payment in lieu of such fractional
share equal to such fraction multiplied by the Closing Price.
Section 4.4 Dissenting Shareholders. In the event that a BASIS
Shareholder shall exercise rights with respect to the Merger pursuant to Section
1300 of the California GCL as a result of such holder not voting to approve the
Merger, the BASIS shares of such holder ("Dissenting Shares") shall be converted
into the right to receive such consideration as may be determined to be due to
such holder pursuant to Sections 1300 et seq. of the California GCL, unless such
holder effectively withdraws or forfeits such right to appraisal, at which time
the holder's Dissenting Shares shall be converted into and represent a right to
receive Merger Consideration in accordance with Section 3.1.
ARTICLE V. [INTENTIONALLY OMITTED.]
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of BASIS. BASIS represents
and warrants to Prologic that, except as disclosed in the corresponding section
of the BASIS Disclosure Schedule attached as Schedule B ("BASIS Disclosure
Schedule"):
a. Organization, Corporate Power and Good Standing of BASIS. BASIS is a
corporation duly organized, validly existing in good standing under the laws of
the State of California and has the corporate power and authority to carry on
its business as now conducted and to own or lease its properties and other
assets as now owned or leased. BASIS is duly qualified as a foreign corporation
and is in good standing under the laws of each jurisdiction where the nature of
its business or its ownership of property requires such qualification, except
for such jurisdictions (individually and in the aggregate) with respect to which
the failure to be so qualified and in good standing would not have a Material
Adverse Effect.
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b. Capital Structure and Title to Shares.
i. The authorized capital stock of BASIS consists of 2,000,000
shares of BASIS Common Stock. As of the date of this Agreement, 1,309,500 shares
of BASIS Common Stock are outstanding, and 103,500 shares are reserved for
issuance pursuant to the exercise of any BASIS Stock Options that are issued and
outstanding. All outstanding shares of BASIS Common Stock are validly issued,
fully paid and nonassessable and not subject to any preemptive rights, rights of
first refusal, or right of rescission, and have been offered, issued, sold and
delivered by BASIS in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. There are no bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any matter on which shareholders may
vote ("Voting Debt") of BASIS issued or outstanding.
ii. Except as described in subsection (iii) below, there are no
options, warrants, calls, rights, commitments or agreements of any character to
which BASIS is a party or by which it is bound, obligating it to issue, deliver
or sell, or cause to be issued, delivered or sold, any additional shares of
capital stock or any Voting Debt or obligating it to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. Immediately
after the Effective Time, there will be no option, warrant, call, right or
agreement obligating the Surviving Corporation to issue, deliver or sell, or
cause to be issued, delivered or sold, any shares of capital stock or any Voting
Debt it or obligating it to grant, extend or enter into any such option,
warrant, call, right or agreement (assuming no such right has been granted by
Prologic or any of its subsidiaries). There are no outstanding contractual
obligations of BASIS to repurchase, redeem or otherwise acquire any shares of
its capital stock.
iii. Attached as Section 6.1(b)(iii)(A) of the BASIS Disclosure
Schedule ("Shareholders List") is an accurate and complete list of each of the
shareholders of BASIS Common Stock, including the name and address of each such
shareholder, each capacity, if any, in which each shareholder presently serves
BASIS (or has served BASIS within the last six months), the number of shares of
BASIS Common Stock held by each shareholder, and the date on which such shares
were issued and the nature and amount of consideration paid for such shares.
Attached as Section 6.1(b)(iii)(B) of the BASIS Disclosure Schedule ("Options
List") is an accurate and complete list of each Person who has the right to
acquire shares of BASIS Common Stock from BASIS pursuant to any option, warrant,
call, right, commitment or agreement of any character, including, without
limitation, BASIS Options, including the name of each such Person, each capacity
in which such Person presently serves BASIS (or served BASIS at the time such
right became effective), the number of shares of BASIS Common Stock that such
Person has the right to acquire (both at this time and ultimately with the
passage of time) and the nature and amount of consideration payable to acquire
such shares, the date on which the right to acquire such shares became
effective, and the plan and/or agreement under which such right is memorialized.
c. Authority.
i. BASIS has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions that this Agreement
contemplates, subject to the approval and adoption of this Agreement and the
transactions it contemplates by the shareholders of BASIS. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate action on
the part of BASIS. This Agreement has been duly executed and delivered by BASIS
and constitutes a valid and legally binding obligation of BASIS, enforceable in
accordance with its terms (assuming the due execution and delivery hereof by
Prologic), subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and of general principles of equity.
ii. The execution and delivery of each of the Transaction
Agreements does not, and the consummation of the transactions contemplated by
each of the Transaction Agreements will not, (A) result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation, or
the loss of a material
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benefit, under, or the imposition of a Lien on any assets of BASIS pursuant to
(any such violation, default, right of termination, cancellation or
acceleration, loss or imposition, a "Violation"), any provision of the Articles
of Incorporation or Bylaws of BASIS; or (B) subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations, and
filings referred to in paragraph (iv) below, result in any Violation with
respect to any loan or credit agreement, note, mortgage, indenture, lease, or
other agreement, obligation, instrument, license, judgment, order, decree,
statute, law, rule or regulation presently in effect and applicable to BASIS or
any of the Principal Shareholders or its or their respective properties or
assets, which Violation could have (either individually or in the aggregate) a
Material Adverse Effect or impair the ability of BASIS or any Principal
Shareholder to perform any of its obligations under any of the Transaction
Agreements.
iii. The execution and delivery of each of the Transaction
Agreements, and the consummation of the transactions contemplated by each of the
Transaction Agreements, by BASIS or any of the BASIS Shareholders will require
no consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, or any other Person, except for the filing
of the Merger Filing Documents with the California Secretary and the Arizona
Commission, the filing of a Notice of Transaction, and related material,
pursuant to Rule 260.102.14 of the California Blue Sky Regulations and the
obtaining of the approval of the Merger by the shareholders of BASIS.
d. Compliance with Applicable Laws. BASIS holds all permits, licenses,
variances, exemptions, order and approvals of all Governmental Entities that are
material to the operation of the business of BASIS and the failure of which to
hold would have, individually or in the aggregate, a Material Adverse Effect
(the "BASIS Permits"). BASIS is in compliance with the terms of all applicable
BASIS Permits, except where the failure so to comply could not have (either
individually or in the aggregate) a Material Adverse Effect. The business of
BASIS has not been conducted and is not being conducted in violation of, and
BASIS is not or has not been in violation of, any Applicable Laws. BASIS has not
received any notice of any alleged violation of any Applicable Laws and no
investigation by any Governmental Entity with respect to BASIS is pending or, to
the knowledge of BASIS, threatened.
e. Litigation. There is no suit, action, proceeding, order or
investigation, at law or equity, pending or, to the knowledge of BASIS,
threatened against or affecting BASIS or any of its properties or other assets.
f. Financial Statements. BASIS has delivered to Prologic the balance
sheets of BASIS as at December 31, 1993 through 1995, and the related statements
of income, retained earnings and changes in financial position for the years
then ended compiled by Dillon & Gin, L.L.P., independent certified public
accountants, and the unaudited balance sheet of BASIS as at March 31, 1996 (the
"BASIS Balance Sheet"), and the related unaudited statements of income for the
three-month period then ended, prepared by the management of BASIS
(collectively, the "BASIS Financial Statements") together with all available
subsequent monthly financials. Each of the BASIS Financial Statements fairly
presents the financial condition and results of operation of BASIS as at the
respective date and for the respective periods; provided, however, such
financial statements as at, and for the period ended, March 31, 1996 and
thereafter are subject to normal recurring year end adjustments.
g. Taxes. BASIS has filed when due, or obtained an extension to file,
all tax returns, reports and information in respect of taxes required to be
filed by it or any of its subsidiaries, and has timely paid, or has set up an
adequate reserve for the payment of, all taxes required to be paid as shown on
such returns. All such returns, reports and other information with respect to
any material tax liability of BASIS are accurate and complete in all material
respects. BASIS has no liability for taxes in excess of the amounts paid or the
reserves established by BASIS. To the knowledge of BASIS, no deficiencies for
any material tax liability of BASIS have been proposed, asserted or assessed
against BASIS, except such deficiencies as are fully reserved by BASIS. There
are no pending or, to the knowledge of BASIS, threatened audits, investigations
or claims in respect of taxes payable by BASIS. None of the income tax returns
of BASIS has been examined by or settled with the federal or state tax
authorities, and no waiver extending the statute of limitations with respect to
any such return has been requested or granted.
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h. Certain Agreements. BASIS is not a party to any oral or written (i)
partnership or joint venture agreement, (ii) noncompetition or similar agreement
that restricts BASIS from engaging in any type of business, (iii) agreement with
any executive officer or other employee of BASIS, the benefits of which are
contingent, or the terms of which will change materially, upon the occurrence of
a transaction involving BASIS of the nature of the transactions contemplated by
this Agreement, (iv) agreement with respect to any executive officer of BASIS
providing any term of employment or compensation guaranty, or (v) agreement or
plan, including, without limitation, any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
i. Subsidiaries. BASIS has no subsidiaries and has no other interest,
direct or indirect, in any corporation, partnership, joint venture or other
business entity.
j. Absence of Certain Changes or Events. BASIS has not incurred any
material liability required by generally accepted accounting principles to be
included in the BASIS Balance Sheet which is not included therein. Since the
date of the BASIS Balance Sheet, there has been no change, or, to the knowledge
of BASIS, any change that is likely to occur in the business, assets, condition
(financial or otherwise) or results of operations of BASIS or any of its
subsidiaries that has had, or is reasonably likely to have, (either individually
or in the aggregate) a Material Adverse Effect.
k. Shareholder Approval Required. The affirmative vote of the holders
of the majority of the outstanding shares of BASIS Common Stock entitled to vote
is the only vote of the holders of any class or series of BASIS capital stock
necessary to approve this Agreement and the transactions it contemplates.
l. Broker's and Finder's Fees. Other than fees to be paid to Sequoia
Partners and to legal and accounting advisors acting as such, neither BASIS nor
anyone acting on their behalf, has paid or become obligated to pay any fee or
commission to any broker, finder, intermediary, financial advisor or consultant
or other Person in connection with the transactions contemplated by this
Agreement, and, except as stated above, no Person is entitled to receive from
BASIS any such fee or commission.
m. Corporate Records; Other Information. The minute books of BASIS made
available to Prologic constitute complete and accurate, in all material
respects, records of all meetings and actions taken by the Board of Directors,
committees of the Board of Directors and the shareholders of BASIS.
n. Books and Records. The books, records and accounts of BASIS (i) are
in all material respects accurate and complete, (ii) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(iii) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of BASIS, and (iv) accurately and
fairly reflect the basis for the BASIS Financial Statements.
o. Labor and Employment Matters.
i. BASIS is and has been in compliance in all material respects
with all Applicable Laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, and such laws respecting
employment discrimination, equal opportunity, affirmative action, worker's
compensation, occupational safety and health requirements and unemployment
insurance and related matters, and is not engaged in and has not engaged in any
unfair labor practice.
ii. BASIS is not delinquent or in arrears in payments to any of
its officers, directors, employees or agents for any wages, salaries,
commission, bonuses or other direct compensation for any services performed by
them or benefits required to be provided or amounts required to be reimbursed to
such officers, directors, employees or agents.
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iii. If the employment of any such officers, directors, employees
or agents terminates for any reason, neither BASIS, Prologic, Merger Subsidiary
nor the Surviving Corporation will, pursuant to any agreement in effect, or by
reason of any act or omission by BASIS before the Effective Time, be liable to
any of such officers, directors, employees or agents for so-called "severance
pay" or any other payments, benefits or damages.
iv. There is no material controversy pending or, to the knowledge
of BASIS, threatened between BASIS and any of its employees or consultants or
former employees or consultants.
v. BASIS (i) has never been and is not now subject to a union
organizing effort, (ii) is not subject to any collective bargaining agreement
with respect to any of its employees, and (iii) is not subject to any other
contract, written or oral, with any trade or labor union, employees' association
or similar organization. BASIS has good labor relations, and has no knowledge of
any facts indicating that the consummation of the transactions contemplated
hereby or by any of the other Transaction Agreements will have a material
adverse effect on such labor relations, and has no knowledge that any of its Key
Employees intends to leave its employ.
vi. BASIS has no employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions). To the knowledge of BASIS, no employee of BASIS is
in violation of any term of any employment contract, patent disclosure
statement, noncompetition agreement, or any other contract or agreement, or any
restrictive covenant, relating to the right of any such employee to be employed
thereby, or to use Proprietary Information of others, and the employment of such
employees does not subject BASIS to any claim by any other Person.
vii. A list of all employees, officers and consultants of BASIS
and their current compensation is set forth on Schedule 6.1(o)(vii) of the BASIS
Disclosure Schedule. Such list also describes any vested benefits, including,
without limitation, vacation or sick pay, which each Person on such list is
entitled to receive from BASIS.
p. Employee Benefit Plans.
i. Section 6.1(p) of the BASIS Disclosure Schedule lists each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement (written or oral) providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which (A) is not a BASIS Employee Plan,
(B) is entered into, maintained or contributed to, by BASIS and (C) covers any
employee or former employee of BASIS. Such contracts, plans and arrangements as
are described in this Section are herein referred to collectively as the "BASIS
Benefit Arrangements." Each BASIS Benefit Arrangement has been maintained in
substantial compliance with its terms and with the material requirements
prescribed by any and all Applicable Laws. BASIS has made available or delivered
to Prologic an accurate and complete copy or description of each BASIS Benefit
Arrangement.
ii. With respect to all employees and former employees of BASIS,
BASIS does not presently maintain, contribute to or have any liability
(including current or potential multi-employer plan withdrawal liability) under
any (A) non-qualified deferred compensation or retirement plan or arrangement
that is an "employee pension benefit plan" as defined in Section 3(2) of ERISA,
(B) qualified defined contribution retirement plan or arrangement that is an
employee pension benefit plan, (C) qualified defined benefit pension plan or
arrangement that is an employee pension benefit plan, (D) "multi-employer plan"
as defined in Section 3(37) of ERISA, (E) unfunded or funded medical, health or
life insurance plan or arrangement for present or future retirees or present or
future terminated
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employees that is an "employee welfare benefit plan" as defined in Section 3(1)
of ERISA, or (F) any other employee welfare benefit plan (collectively, the
"BASIS Employee Plans").
iii. All insurance contracts or funding agreements that implement
any of the employee benefit plans listed in the BASIS Disclosure Schedule are
fully insured or reserved in amounts sufficient to pay all claims incurred.
q. Insurance. BASIS maintains the insurance listed in the BASIS
Disclosure Schedule and has made copies of all policies available to Prologic.
All policies of insurance and fidelity or surety bonds insuring BASIS, or its
business, assets, employees, officers or directors, are in full force and
effect. BASIS is in compliance, in all material respects, with the terms of such
policies and instruments. As of the date of this Agreement, there are no claims
by BASIS under any such policy or instrument as to which any insurance company
is denying liability or defending under a reservation of rights clause. BASIS
has not been refused any insurance relating to its business, nor has any
insurance carrier to which BASIS has applied for insurance during the last three
years limited any coverage relating to its businesses.
r. Contracts. The BASIS Disclosure Schedule contains a complete and
correct list of all material agreements, contracts and commitments currently in
effect of the following types, written or oral, to which BASIS is a party on the
date of this Agreement and which is in effect on the date of this Agreement or,
pursuant to its terms, may be in effect in the future:
(A) mortgages, indentures, security agreements, guarantees,
pledges and other agreements and instruments relating in any way to the
borrowing of money or extension of credit (other than with respect to normal
payment terms for trade debt incurred in the ordinary course of its business);
(B) employment, consulting or agency agreements;
(C) collective bargaining agreements or contracts with any labor
union;
(D) bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, severance or other plans, trusts or funds for
the benefit of employees (whether or not legally binding and to the extent not
included in Section 6.1(p)(i) and (ii) of the BASIS Disclosure Schedule);
(E) sales, agency, dealer, manufacturer's representative or
distributorship agreements under which $15,000 or more was paid in the preceding
12 month period or is likely to be paid in the next 12-month period;
(F) agreements, orders or commitments for the purchase by BASIS
of raw materials, supplies or finished products exceeding or which is likely to
exceed $15,000 in any consecutive 12-month period;
(G) agreements, orders or commitments for the sale by BASIS of
its products exceeding or which is likely to exceed $15,000 in any consecutive
12-month period;
(H) licenses of patent, copyright, trademark or other rights
relating to any Intellectual Property and Proprietary Information, whether as a
licensor or licensee (other than standard "shrink-wrap", end-user license
agreements to which BASIS is a party, provided that any form of license
agreement under which BASIS is the licensor shall be included in the BASIS
Disclosure Schedule);
(I) leases of real or personal property requiring annual rental
payments of more than $15,000;
(J) contracts containing covenants purporting to limit BASIS's or
any of its subsidiaries' freedom to compete in any type of business in any
geographic area;
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(K) brokerage or finder's agreements;
(L) partnership or joint venture agreements or arrangements or
any other agreements that involve the sharing of profits with other persons;
(M) any agreement with any of its officers, directors or
shareholders or to the knowledge of BASIS, their respective affiliates or
relatives or any entity in which any of such Persons has an economic interest or
equity participation; or
(N) other agreements, contracts and commitments that involve or
are likely to involve payments or receipts of more than $15,000 in any
consecutive 12-month period or otherwise are material to BASIS.
BASIS has delivered or made available to Prologic accurate and complete copies
of all material written agreements, contracts and commitments, together with all
amendments, and accurate descriptions of all material oral agreements, listed in
Section 6.1(r) of the BASIS Disclosure Schedule. All such agreements, contracts
and commitments are in full force and effect and there are no events or
conditions that, after notice or lapse of time or both, would constitute a
default thereunder by BASIS. To the knowledge of BASIS, no such agreement,
contract or commitment has been breached or cancelled by the other party
thereto. BASIS has no knowledge of any expected breach or cancellation by any
other party of any such agreement, contract or commitment. Since the date of the
BASIS Balance Sheet, to the knowledge of BASIS, no customer or supplier of BASIS
has indicated that it will stop or decrease its business with BASIS. BASIS has
performed, in all material respects, all obligations that any of such
agreements, contracts or commitments require them to perform and has not
received any claim of default under any of such agreements, contracts or
commitments. BASIS has no knowledge or present expectation that it is unlikely,
in the future, to be able to perform any of its material obligations under any
such agreement, contract or commitment. BASIS has no material liability for
renegotiation of government contracts or subcontracts, if any.
s. Patents, Trademarks and Other Intellectual Property Rights.
i. Section 6.1(s) of the BASIS Disclosure Schedule sets forth an
accurate and complete list of all the following intellectual property rights
belonging to BASIS ("Intellectual Property"):
(A) all patents and patent applications owned or filed by
BASIS, and any amendment thereto, including in each case the country of filing,
filing number, date of issue, expiration date and title;
(B) all registered trademarks and trademark applications
owned or filed by BASIS, and any amendment thereto, including in each case the
country of filing, filing number, date of issue and expiration date;
(C) all registered copyrights owned or filed by BASIS and
any amendment thereto, including in each case the country of filing, filing
number, date of issue and expiration date;
(D) all other trademarks, service marks, trade names and
copyrights and all computer software and trade secrets owned by BASIS the
inability of which to use could have a Material Adverse Effect;
(E) all license or purchase agreements pursuant to which
BASIS acquired rights to any intellectual property (other than standard
"shrink-wrap," end-user license agreements) and all agreements, oral or written,
pursuant to which BASIS must pay royalties or other sums to any Person with
respect to any intellectual property (other than off-the-shelf, commercially
available software used in the ordinary course of BASIS's business), and any
amendment thereto, and
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(F) all license agreements, oral or written, pursuant to
which BASIS has granted any Person any rights with respect to any of its
intellectual property (other than standard "shrink-wrap," end-user license
agreements) and all agreements, oral or written, pursuant to which BASIS is
entitled to receive royalties or other sums from any Person with respect to any
intellectual property (other than such "shrink-wrap" licenses), and any
amendment thereto.
ii. BASIS has made available or delivered to Prologic and its
counsel accurate and complete copies of all patents, applications and agreements
referred to in Section 6.1(s)(i). The patents and patent applications and
registered copyrights and trademarks and applications therefor listed in the
BASIS Disclosure Schedule have been duly registered with, filed in or issued by,
as the case may be, each appropriate Governmental Entity. To the extent any
ownership of the Intellectual Property has been registered, BASIS also is the
registered owner, in each case free and clear of all Liens.
iii. BASIS owns, or possesses adequate rights to use, all the
Intellectual Property and Proprietary Information necessary for or material to
the conduct of its business, with no known conflict with or infringement of the
rights of any other Person, and free and clear of all Liens. The operation of
BASIS's business does not to BASIS's knowledge, materially infringe, violate or
misappropriate any patent, trademark, trade secret, copyright or other
intellectual property rights of any Person. BASIS is in full compliance, in all
material respects, with all agreements pursuant to which BASIS may have
acquired, by license or otherwise, any Intellectual Property or Proprietary
Information.
iv. BASIS has taken reasonable steps necessary to preserve the
confidential nature of all Proprietary Information. Each of the employees and
consultants of BASIS and any other Persons who, either alone or in concert with
others, developed, invented, discovered, derived, programmed or designed any
material trade secrets or other intellectual property rights of BASIS, or who
have knowledge of or access to material information relating to such
intellectual property rights, have executed confidentiality agreements and
assignments of intellectual property, in forms provided to Prologic, which,
among other provisions, put the other party to such agreement on notice that the
Proprietary Information is proprietary to BASIS and not to be divulged or
misused. To the knowledge of BASIS, the Proprietary Information has not been
used, divulged, or appropriated by, or for the material benefit of, any past or
present employees or consultants of BASIS or other Persons or to the material
detriment of BASIS.
v. To the knowledge of BASIS and each Principal Shareholder, no
third party is infringing upon any of the Intellectual Property or Proprietary
Information, no claim exists that any of the Intellectual Property or
Proprietary Information is not valid or enforceable or infringes any
intellectual property rights of any other Person, and none of the Intellectual
Property or Proprietary Information is subject to any outstanding order, ruling,
decree, judgment or stipulation by any Governmental Authority.
vi. To the knowledge of BASIS, BASIS has not, by action or
omission, waived any of its material rights respecting any Intellectual Property
or Proprietary Information. BASIS has the right to use, free and clear of any
royalties, claims or rights of others, all Intellectual Property and Proprietary
Information, other than the Intellectual Property described in Section
6.1(s)(i)(E) and Intellectual Property licensed by BASIS subject to a standard
"shrink-wrap", end-user license agreement.
vii. No licenses, sublicenses or other agreements relating to the
Intellectual Property or Proprietary Information would limit or restrict the
rights of the Surviving Corporation to operate the business conducted by BASIS
before the Closing Date.
viii. The rights of BASIS with respect to all Intellectual
Property are valid and enforceable. BASIS has the right to manufacture, market,
license, sell or otherwise use all Intellectual Property and Proprietary
Information in connection with its business. There are no oppositions,
cancellations or other similar proceedings pending or, to the knowledge of
BASIS, threatened with respect to any pending patent applications or copyright
or trade mark registrations of BASIS.
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ix. The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any Intellectual Property, will
not cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any Intellectual Property or impair the right of BASIS or the
Surviving Corporation to use, sell or license any Intellectual Property or
portion thereof. Neither the marketing, license, sale or intended use of any
product currently licensed or sold by BASIS or currently under development by
BASIS violates any license, contract or agreement between BASIS and any third
party or infringes any intellectual property right of any other party.
t. Environmental Condition and Governmental Authorizations.
i. All Premises are free from contamination from any Hazardous
Materials that have caused or could cause Environmental Damages. Neither BASIS
nor to its knowledge any other Person previously involved in operations at any
Premises caused or incurred any Environmental Damages with respect to the
Premises.
ii. Neither BASIS nor to its knowledge any prior owner or
occupant of the Premises has received notice of any alleged violation of
Environmental Requirements or notice of any alleged liability for Environmental
Damages with respect to the Premises. There exists no writ, injunction, decree,
order or judgment outstanding, nor any claim, suit, proceeding, citation, fine,
penalty, directive, summons or investigation, pending or, to the knowledge of
BASIS, threatened, relating to the ownership, use, maintenance or operation of
the Premises by any Person, any alleged violation of Environmental Requirements
respecting the Premises, or the suspected presence of any Hazardous Materials on
the Premises, nor to BASIS's knowledge does there exist any basis, for such
claim, suit, proceeding, citation, fine, penalty, directive, summons or
investigation.
iii. BASIS has not and to its knowledge there is not constructed,
generated, manufactured, placed, deposited, stored, disposed of or located on
any Premises any Hazardous Materials, or any transformers, capacitors, ballasts,
or other equipment which contains dielectric fluid containing polychlorinated
biphenyls, or any asbestos.
u. Real Estate. Section 6.1(u) of the BASIS Disclosure Schedule sets
forth a list and summary description of (i) all real property owned by BASIS and
all buildings and other structures located on such real property; (ii) all
leases, subleases or other agreements under which BASIS is lessor or lessee of
any real property; (iii) all options held by BASIS or contractual obligations to
purchase or acquire any interest in real property; and (iv) all options granted
by BASIS or contractual obligations to sell or dispose of any interest in real
property. BASIS is the owner of record, lessee under the leases or holder of the
options, as appropriate, of each of the items described in Section 6.1(u) of the
BASIS Disclosure Schedule. All leases, subleases and other agreements with
respect to such real property are in full force and effect and BASIS has not
received any notice of any default thereunder. The leasehold interests of BASIS
are subject to no Liens and enjoy a right of quiet possession as against any
Lien on the property. Each of the options described in Section 6.1(u) of the
BASIS Disclosure Schedule is in full force and effect and subject to no Lien.
Except as separately identified in Section 6.1(u) of the BASIS Disclosure
Schedule, no approval or consent of any person is needed in order that the
leases, options or other agreements described in Section 6.1(u) of the BASIS
Disclosure Schedule continue in full force and effect following the consummation
of the transactions contemplated by this Agreement. Neither such real property
nor any current use of such real property materially violates any local zoning
or similar land use laws or other governmental regulations. To the knowledge of
BASIS and each of the Principal Shareholders, no current use of any of the
properties or assets of BASIS depends on a nonconforming use or other permit,
the absence of which would materially limit the use of such properties or assets
as now being used. There do not exist any unsafe conditions on, material defects
in or need for material (either individually or in the aggregate) repairs to,
any Premises.
v. Tangible Property. Section 6.1(v) of the BASIS Disclosure Schedule
sets forth all interests owned or claimed by BASIS (including, without
limitation, all options) in or to the plant, machinery,
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equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
and other tangible property that is material to its business ("Tangible
Property"). To the knowledge of BASIS (i) all material leases, conditional sale
contracts, franchises or licenses pursuant to which BASIS may hold or use any
interest owned or claimed by BASIS (including, without limitation, all options)
in or to Tangible Property are in full force and effect and, with respect to the
performance of BASIS thereunder, there is no default or event of default or
event which, with notice or lapse of time or both, would constitute a default,
and (ii) all Tangible Property is in good operating condition and repair. During
the past three years, there has been no significant interruption of the
operations of BASIS due to inadequate maintenance of any Tangible Property. All
leases of personal property to which BASIS is a party are fully effective and
afford BASIS or the subsidiary peaceful and undisturbed possession of the
subject matter of the lease so long as it is not in default thereunder.
w. Inventories. The Inventory recorded on, and the Inventory created or
purchased since the date of, the BASIS Balance Sheet, in excess of applicable
reserves, consists of a quantity and quality usable and salable in the ordinary
course of business of BASIS, is not excessive and no material portion is
obsolete, as determined by generally accepted accounting principles, and is not
damaged or defective in any material respects, and meets, in all material
respects, all applicable material specifications therefor disseminated by BASIS.
x. Accounts Receivable. The Accounts Receivable reflected on the BASIS
Balance Sheet (except those collected since such date) and such additional
Accounts Receivable as are reflected on the books of BASIS are good and
collectible except to the extent of any reserves on the BASIS Balance Sheet, as
subsequently modified consistent with past practices. All such Accounts
Receivable have been generated in the ordinary course of business and reflect a
bona fide obligation for the payment of goods or services provided by BASIS.
y. Suppliers and Customers. Section 6.1(y) of the BASIS Disclosure
Schedule sets forth BASIS's 10 largest suppliers and 10 largest customers (in
each case by dollar volume) in 1994 and its 10 largest suppliers and 10 largest
customers (in each case by dollar volume) in 1995. BASIS has no material
disputes with any of its respective suppliers or customers. No supplier or
customer of BASIS, a loss of which could have a Material Adverse Effect, has
cancelled or terminated, or overtly threatened to cancel or terminate, its
relationship with BASIS or has decreased materially, or threatened to decrease
or limit materially, its services, supplies or materials to BASIS or its usage
or purchase of the Products or services of BASIS. BASIS has no knowledge that
any such supplier or customer intends to cancel or otherwise modify its
relationship with BASIS or to decrease materially or limit its services,
supplies or materials to BASIS or its usage or purchase of the Products or
services of BASIS. The consummation of the transactions contemplated by this
Agreement will not adversely affect the relationship of BASIS with any such
supplier or customer.
z. Products; Warranty Policies.
i. No Product Liability claims have been made to or, to the
knowledge of BASIS, threatened against BASIS relating to any Products designed,
manufactured or distributed by BASIS, and there is no legitimate basis for any
such claim known to BASIS.
ii. The Products (A) are, and at all times have been sold and
marketed in compliance in all material respects with all Applicable Laws; and
(B) are, and at all times have been, fit for the ordinary purposes for which
they were intended and (C) conform in all material respects to any
specifications, promises or affirmations of fact made or agreed to in writing by
BASIS, or with the authorization or consent of BASIS, on the Product's container
or label or in connection with its sale.
iii. BASIS has obtained and maintains all consents, approvals and
clearances necessary in order to market the Products in all geographic areas in
which they are marketed, the failure of any of which to obtain or maintain could
have a Material Adverse Effect.
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iv. Schedule 6.1(z) of the BASIS Disclosure Schedule sets forth
all of the express product warranty, repair and replacement policies and
obligations, formal and informal, of BASIS relating to the Products manufactured
or sold since January 1, 1993.
aa. Certain Transactions and Agreements. To the knowledge of BASIS, no
officer or director of BASIS or any "Affiliate" or "Associate" (as those terms
are defined in Rule 405 promulgated under the Securities Act) of any such Person
has had, either directly or indirectly, a material interest in: (i) any Person
which purchases or licenses from, or sells, licenses or furnishes to, BASIS any
goods, property, technology or intellectual or other property rights or
services; or (ii) any contract or agreement to which BASIS is a party or by
which it may be bound or affected in any material respect. To the knowledge of
BASIS, none of the officers of BASIS, nor any member of their immediate
families, has any direct or indirect ownership interest in any firm or
corporation that competes with BASIS (except with respect to any interest in
less than one percent of the stock of any corporation whose stock is publicly
traded). None of such officers or directors, or any member of their immediate
families, is directly or indirectly interested in any contract or informal
arrangement with BASIS, except for normal compensation for services as an
officer, director or employee thereof. None of such officers or directors or
family members has any interest in any property, real or personal, tangible or
intangible, including inventions, patents, copyrights, trademarks or trade names
or trade secrets, used in or pertaining to the business of BASIS, whether
existing or contemplated by BASIS, except for the normal rights of a
shareholder.
ab. Complete Disclosure. Neither this Agreement, nor any of the
certificates or documents required to be delivered by BASIS to Prologic under
this Agreement as a condition to closing (other than any projections), taken
together, contains a statement of a material fact that is untrue, in any
material respect, or omits to state any material fact necessary in order to make
the statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading in any material respect.
Section 6.2 Representations and Warranties of Prologic. Prologic
represents and warrants to BASIS and the Principal Shareholders that, except as
disclosed in the corresponding section of the Prologic Disclosure Schedule
attached hereto as Schedule C ("Prologic Disclosure Schedule"):
a. Organization, Corporate Power and Good Standing. Prologic and each
of its subsidiaries, including Merger Subsidiary, is a corporation duly
organized, validly existing in good standing under the laws of the State of
Arizona and has the corporate power and authority to carry on its business, as
now conducted, and to own or lease its properties and other assets as now owned
or leased.
b. Capital Structure.
i. As of the date of this Agreement, the authorized capital stock
of Prologic consists of 10,000,000 shares of Prologic Common Stock. As of June
1, 1996, 3,323,570 shares of Prologic Common Stock are outstanding and 100,000
shares of Prologic Common Stock are reserved for issuance upon the exercise of
outstanding stock options granted under its stock option plans (collectively,
the "Prologic Stock Plans"). All outstanding shares of Prologic Common Stock are
validly issued, fully paid and nonassessable and not subject to any preemptive
rights or rights of first refusal. As of the date hereof, no preferred stock
Voting Debt of Prologic has been issued or is outstanding.
ii. As of the date of this Agreement, the authorized capital
stock of Merger Subsidiary consists of 1,000 shares of Common Stock, all of
which are issued and outstanding and owned by Prologic.
iii. As of the date of this Agreement, except for this Agreement,
the Prologic Stock Plans and the Warrants, there are no options, warrants,
calls, rights, commitments or agreements of any character to which Prologic is a
party or by which it is bound, obligating Prologic to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or any
Voting Debt of Prologic or obligating Prologic to grant, extend or enter into
any such option, warrant, call, right, commitment or agreement. As of June 1,
1996, options to acquire an aggregate of 100,000 shares of Prologic Common
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Stock are outstanding, of such shares being vested. As of the date hereof, there
are no outstanding contractual obligations of Prologic to repurchase, redeem or
otherwise acquire any shares of capital stock of Prologic.
iv. Prologic owns all of the outstanding shares of capital stock
of each of its subsidiaries.
c. Authority.
i. Prologic and Merger Subsidiary each have all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Agreements, to perform its respective obligations hereunder and
thereunder, and to consummate the transactions contemplated thereby. The
execution and delivery of and the consummation of the transactions contemplated
by this Agreement and the other Transaction Agreements have been duly authorized
by all necessary corporate action on the part of Prologic and Merger Subsidiary.
This Agreement has been duly executed and delivered by Prologic and Merger
Subsidiary, the other Transaction Agreements, upon being executed and delivered
at the Closing, will be duly executed and delivered by Prologic and Merger
Subsidiary, and each of the Transaction Documents, when so executed and
delivered, will constitute a valid and binding obligation of Prologic and Merger
Subsidiary, as the case may be, enforceable in accordance with their respective
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and of general principles of equity.
ii. The execution and delivery of this Agreement and the other
Transaction Agreements does not, and the consummation of the transactions
contemplated hereby and thereby will not, (A) result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or the
loss of a material benefit under, or the creation of a Lien on any assets of
Prologic or Merger Subsidiary pursuant to, any provision of their respective
Articles of Incorporation or Bylaws, or (B) subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations, and
filings referred to in paragraph (iii) below, result in any Violation with
respect to any loan or credit agreement, note, mortgage, indenture, lease, or
other agreement, obligation, instrument, license, judgment, order, decree,
statute, law, rule or regulation presently in effect and applicable to Prologic,
Merger Subsidiary, or their respective properties or assets that would have a
material adverse effect on Prologic or impair the ability of Prologic to perform
its obligations under any of the Transaction Documents.
iii. The execution and delivery of this Agreement and the other
Transaction Agreements by Prologic or Merger Subsidiary, and the consummation of
the transactions contemplated by the Agreement and the other Transaction
Agreements, will require no consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or any other
Person except for (A) the filing of the Merger Filing Documents with the
Secretary of State of the State of California and the Corporation Commission of
the State of Arizona, (B) the filing with the California Commissioner of
Corporations of a Notice of Transaction and other related materials, in
connection with the issuance of Prologic Common Stock in the Merger, and (C) the
filing with the Securities and Exchange Commission of all registrations, filings
and other documents as required under the Exchange Act.
d. Compliance with Applicable Laws. Prologic and its subsidiaries holds
all permits, licenses, variances, exemptions, order and approvals of all
Governmental Entities which are material to the operation of the business of
Prologic and its subsidiaries and the failure of which to hold would have,
individually or in the aggregate, a material adverse effect on Prologic (the
"Prologic Permits"). Prologic and each of its subsidiaries is in compliance with
the terms of all applicable Prologic Permits, except where the failure so to
comply would not have a material adverse effect on Prologic. The business of
Prologic and its subsidiaries is not being conducted in violation of, and
neither Prologic nor any of its subsidiaries is in violation of, any Applicable
Law, except any such violation which, individually or in the aggregate, would
not have a material adverse effect on Prologic. As of the date of this
Agreement, neither Prologic nor any of its subsidiaries has received any notice
of any alleged violation of any
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Applicable Laws, a violation of which would have a material adverse effect on
Prologic. No investigation by any Governmental Entity with respect to Prologic
or any of its subsidiaries is pending or, to the knowledge of Prologic, is
threatened as of the date of this Agreement.
e. Litigation. As of the date of this Agreement, there is no suit,
action, proceeding, order or investigation, at law or equity pending or, to the
knowledge of Prologic, overtly threatened against or affecting Prologic or any
of its subsidiaries, the outcome of which could have a material adverse effect
on Prologic.
f. Financial Statements. Prologic has delivered to BASIS the audited
balance sheet of Prologic at December 31, 1995, and the related audited
statement of income for the period then ended, prepared by the management of
Prologic ("Prologic Financial Statements"). Such statements fairly present the
financial condition and results of operation of Prologic at such date and for
such period in accordance with generally accepted accounting principles
consistently applied throughout the periods covered thereby.
g. Taxes. Prologic has timely filed when due, or obtained an extension
to file, all tax returns, reports and information in respect of taxes required
to be filed by it or any of its subsidiaries, and has timely paid, or has set up
an adequate reserve for the payment of, all taxes required to be paid as shown
on such returns, in each case where the failure to do so would have a material
adverse effect on Prologic. All such returns, reports and other information with
respect to any material tax liability of Prologic are accurate and complete in
all material respects. Prologic has no material liability for taxes in excess of
the amounts paid or the reserves established by it. To the knowledge of
Prologic, no deficiencies with respect to any material tax liability of Prologic
have been proposed, asserted or assessed against Prologic, except such
deficiencies as are adequately reserved by Prologic. There are no pending or, to
the knowledge of Prologic, threatened audits, investigations or claims in
respect of taxes payable by Prologic or any of its subsidiaries. None of the
income tax returns of Prologic has been examined by or settled with the federal
or state tax authorities, and no waiver extending the statute of limitations has
been requested or granted with respect thereto.
h. Broker's and Finder's Fees. Except as contemplated under this
Agreement, other than fees to be paid to legal and accounting advisors acting as
such, neither Prologic nor any of its subsidiaries, nor anyone acting on their
behalf, has paid or become obligated to pay any fee or commission to any broker,
finder, intermediary, financial advisor or financial consultant or other person
in connection with the transactions contemplated by this Agreement and, except
as stated above, no Person is entitled to receive from Prologic or Merger
Subsidiary any such fee or commission.
i. Absence of Certain Changes or Events. Since the date of the Prologic
Balance Sheet, there has been no change, or, to the knowledge of Prologic, any
event involving prospective change, in the business, assets, condition
(financial or otherwise) or results of operations of Prologic or any of its
subsidiaries that has had, or is reasonably likely to have, (either individually
or in the aggregate) a material adverse change in the business, assets,
condition (financial or otherwise) or results of operations of Prologic.
j. No Shareholder Vote. Neither the Merger nor any of the other
transactions contemplated by this Agreement or any of the other Transaction
Agreements requires the approval of the shareholders of Prologic.
k. Securities Law Filings. Prologic has provided to BASIS a copy of
Prologic's Prospectus, dated March 14, 1996 (the "Prospectus"). The Prospectus,
at the time it was filed, did not contain a statement of a material fact that
was untrue, in any material respect, or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not materially misleading. Since the
date of the Prospectus, there has been no Material Adverse Change.
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l. Books and Records. The books, records and accounts of Prologic (A)
are in all material respects accurate and complete, (B) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(C) are stated in reasonable detail and accurately and fairly reflect the
transactions and dispositions of the assets of Prologic, and (D) accurately and
fairly reflect the basis for the Prologic Financial Statement.
m. Insurance. Prologic maintains the insurance listed in the Prologic
Disclosure Schedule and will make copies of all policies available to BASIS at
Prologic's office at the request of BASIS. All policies of insurance and
fidelity or surety bonds insuring Prologic, or its business, assets, employees,
officers or directors, are in full force and effect. Prologic is in compliance,
in all material respects, with the terms of such policies and instruments. As of
the date of this Agreement, there are no claims by Prologic under any such
policy or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause. Prologic has not been refused
any insurance relating to its business, nor has any insurance carrier to which
Prologic has applied for insurance during the last three years limited any
coverage relating to its businesses.
n. Accounts Receivable. The Accounts Receivable reflected on the
Prologic Balance Sheet (except those collected since such date) and such
additional Accounts Receivable as are reflected on the books of Prologic are
good and collectible except to the extent of any reserves on the Prologic
Balance Sheet, as subsequently modified consistent with past practices. All such
Accounts Receivable have been generated in the ordinary course of business and
reflect a bona fide obligation for the payment of goods or services provided by
Prologic.
o. Suppliers and Customers. Prologic has no material disputes with any
of its respective suppliers or customers. No supplier or customer of Prologic, a
loss of which could have a Material Adverse Effect, has cancelled or terminated,
or overtly threatened to cancel or terminate, its relationship with Prologic or
has decreased materially, or threatened to decrease or limit materially, its
services, supplies or materials to Prologic or its usage or purchase of the
Products or services of Prologic. Prologic has no knowledge that any such
supplier or customer intends to cancel or otherwise modify its relationship with
Prologic or to decrease materially or limit its services, supplies or materials
to Prologic or its usage or purchase of the Products or services of Prologic.
The consummation of the transactions contemplated by this Agreement will not
adversely affect the relationship of Prologic with any such supplier or
customer.
p. Complete Disclosure. Neither this Agreement, nor any of the
certificates or documents required to be delivered by Prologic to BASIS under
this Agreement as a condition to closing (other than any projections), taken
together, contains a statement of a material fact that is untrue in any material
respect, or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading in any material respect.
Section 6.3 Representations and Warranties of Principal Shareholders.
Each of the Principal Shareholders, jointly and severally, represent and warrant
to Prologic that:
a. Capital Structure and Title to Shares. (A) The description of the
shares of BASIS Common Stock owned by it on the Shareholders List is accurate
and complete, (B) it owns no other shares, and has no right to acquire shares,
of BASIS Common Stock, whether directly or indirectly from BASIS or any other
person (except as may be described on Options List), (C) it has good and
marketable title to such shares, free and clear of any Lien, of the BASIS
Shareholders has good and marketable title to such shares shown on the
Shareholders List as being owned by it, free and clear of any Lien, (D) to its
knowledge, no Person, other than BASIS, has the right to acquire, or has any
claim with respect to, any of such shares, and (E) to its knowledge, each of the
BASIS Shareholders is the record and beneficial owner of the shares of BASIS
Capital Stock shown on the Shareholders List as being owned by it.
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b. Authority. (A) BASIS and each of the Principal Shareholders has the
requisite legal capacity to execute and deliver the Transaction Agreements and
to perform their respective obligations under, and consummate the transactions
contemplated by, each of the Transaction Agreements. (B) Each of the Transaction
Agreements to which it is a party constitutes the valid and legally binding
obligations of such BASIS Shareholder (assuming the due execution and delivery
thereof by all other parties thereto), enforceable against such BASIS
Shareholder in accordance with its respective terms, subject to the effect of
any applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and of general principles of equity.
c. Litigation. There is no suit, action, proceeding, order or
investigation, at law or equity, pending or, to the knowledge of each Principal
Shareholder, threatened against or affecting such Principal Shareholder or any
of such Principal Shareholder's properties or other assets, the outcome of which
could impair the ability of such Principal Shareholder to perform any of its
obligations under any of the Transaction Agreements.
d. Representations and Warranties of BASIS. To the best of its
knowledge, the representations and warranties of BASIS set forth in Sections
6.1(c)(ii), (d), (e), (f), (g), (j), (o)(i), (r), (s), (t), and (ab) are true
and correct in all material respects.
Section 6.4 Survival of Representations and Warranties. Notwithstanding
any right of BASIS, or its Principal Shareholders, or Prologic to fully
investigate the affairs of the other party, and any knowledge of facts
determined or determinable by any of such parties pursuant to such investigation
or right of investigation, BASIS and its Principal Shareholders and Prologic
each has the right to rely fully upon the representations, warranties, covenants
and agreements of the other parties contained in this Agreement. All such
representations, warranties, covenants, and agreements shall survive the
execution and delivery of this Agreement and the Closing and, except as
otherwise specifically provided in this Agreement, shall remain in effect after
the Closing until three years after the Effective Date, but shall terminate if
the Closing does not occur.
ARTICLE VII. COVENANTS OF THE PARTIES
Section 7.1 Conduct of Business Pending the Merger. Each of Prologic
and BASIS, as applicable, agrees that, during the period from the date of this
Agreement and continuing until the Effective Time:
a. The business of BASIS shall be conducted only in the ordinary and
usual course of its business and consistent with past practices.
b. BASIS shall not:
i. amend its Articles of Incorporation or Bylaws;
ii. split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other distribution
payable in cash, stock or property in respect of its capital stock, or directly
or indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or other securities;
iii. authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver, or agree or commit to issue, sell, pledge, or deliver, any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class or exchangeable into shares of stock of any class or
any Voting Debt, except for the issuance of stock upon the exercise of existing
stock options under the BASIS Stock Plans;
iv. merge or consolidate with, or acquire, any entity or the
securities of any entity;
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v. acquire, sell, dispose of or otherwise transfer, lease,
license, mortgage, pledge or encumber any fixed or other assets material to it,
other than Inventory and then only in the ordinary and usual course of its
business and consistent with past practices;
vi. incur, assume or prepay any liability or obligation material
to it other than in the ordinary and usual course of its business and consistent
with past practices or modify or amend any existing contract, agreement,
commitment or arrangement with respect thereto;
vii. incur, assume or prepay any indebtedness or issue any debt
securities or modify or amend any existing contract, agreement, commitment or
arrangement with respect thereto;
viii. assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, except for the endorsement of checks and other negotiable
instruments and the undertaking of responsibilities as a reseller in the
ordinary and usual course of its business and consistent with past practices;
ix. enter into, extend or renew any real property lease or modify
or amend any existing real property lease;
x. modify or amend any of its other contracts, agreements,
licenses, commitments or arrangements other than in the ordinary and usual
course of its business and consistent with past practices and then only to the
extent such modifications to such contracts, agreements, licenses, commitments
or arrangements are not material to it;
xi. make any loans, advances or capital contributions to, or
investments in, any other Person, other than to its subsidiaries in the ordinary
and usual course of its business and consistent with past practices and other
than advances for travel and business expenses which are incurred in the
ordinary and usual course of its business consistent with past practices;
xii. fail to maintain insurance presently in place or materially
modify the nature or amount of the coverages under such insurance;
xiii. enter into any transaction not in the ordinary and usual
course of its business;
xiv. change any of its accounting methods or practices;
xv. fail to maintain its equipment and other tangible assets in
good working condition and repair pursuant to the standards it has maintained
prior to the Effective Date, subject only to ordinary wear and tear;
xvi. waive or release any material right or claim except in the
ordinary and usual course of its business and consistent with past practices;
xvii. license any of its intellectual property rights except in
the ordinary and usual course of its business and consistent with past
practices; or
xviii. enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing; or
xix. take any action which would materially alter its balance
sheet or the respective components thereof.
c. Each of BASIS and Prologic shall use its best efforts to preserve
intact the business organization of BASIS and Prologic, respectively, and to
keep available the services of all of its present officers and Key Employees.
Each of BASIS and Prologic will use its best efforts to carry on and preserve
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its business and its relationships with customers, suppliers and others in
substantially the same manner as it has prior to the date hereof. If any party
to this Agreement becomes aware of a material deterioration in its relationship
with any such customer, supplier or Key Employee, it will promptly bring such
information to the attention of the other party in writing and, if requested by
the other party, will exert its best efforts to restore the relationship.
d. Each of Prologic and BASIS shall not take any action that would
render, or be reasonably expected to render, untrue or inaccurate any
representation or warranty made by it in this Agreement.
e. Each of BASIS and Prologic, and their respective subsidiaries, shall
not knowingly take any action, or knowingly omit to take any action, to
jeopardize qualification of the Merger as a "reorganization" within the meaning
of Section 368(a) of the Code.
f. Prologic shall not (except to the extent disclosed in Section 7.1(f)
of the Prologic Disclosure Schedule):
i. amend its Articles of Incorporation or Bylaws in a manner
which shall materially adversely affect the BASIS Shareholders;
ii. split, combine or reclassify any shares of its outstanding
capital stock or declare, set aside or pay any dividend or other distribution
payable in cash, stock or property in respect of its capital stock, or directly
or indirectly redeem, purchase or otherwise acquire any shares of its capital
stock or other securities in a manner which shall materially adversely affect
the BASIS Shareholders;
iii. authorize for issuance, issue, sell, pledge, dispose of,
encumber, deliver, or agree or commit to issue, sell, pledge, or deliver, any
additional shares of, or rights of any kind to acquire any shares of, its
capital stock of any class or exchangeable into shares of stock of any class or
any Voting Debt in a manner which shall materially adversely affect the BASIS
Shareholders;
iv. merge or consolidate with, or acquire, any entity or the
securities of any entity;
Section 7.2 Compensation Plans. During the period from the date of this
Agreement and continuing until the Effective Time, BASIS will not, without the
prior written consent of Prologic (except as required by applicable law or
pursuant to existing contractual arrangements or other plans or commitments
disclosed to Prologic in writing under this Agreement): (a) enter into, adopt or
amend any bonus, profit sharing, compensation, stock option (except as provided
in Section 7.1(b)), pension, retirement, deferred compensation, employment,
severance, termination or other employee benefit, welfare or insurance plan,
agreement, trust, fund or other arrangement with any of its officers, directors
or employees (collectively, the "Compensation Plans"), (b) grant or become
obligated to grant any increase in the compensation or fringe benefits of its
directors, officers or employees (including any such increase pursuant to any
Compensation Plan), except, with respect to employees other than officers and
Key Employees, for increases in compensation in the ordinary and usual course of
its business and consistent with past practices; (c) enter into or amend any
employment, consulting or similar agreement or arrangement with any of its
directors, officers, employees or consultants, (d) enter into or renew any
contract, agreement, commitment or arrangement providing for the payment to any
of its directors, officers or employees of compensation or benefits contingent,
or materially alter the terms of such contract, agreement, commitment or
arrangement in favor of such individual, upon the occurrence of any of the
transactions contemplated by this Agreement or any of the other Transaction
Agreements, or (e) pay any bonus or other similar remuneration to any of its
directors, officers or employees.
Section 7.3 Legal Conditions to Merger. Prologic and BASIS shall (a)
take, or cause to be taken, all actions necessary to comply promptly with all
legal requirements which may be imposed on such party or its subsidiaries with
respect to the Merger and to consummate the transactions contemplated by this
Agreement and the other Transactions Agreements, subject to the appropriate vote
or consent of shareholders, and (b) obtain (and cooperate with the other party
in it obtaining) any other consent,
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authorization, order or approval of, or any exemption by, any Governmental
Entity or any other Person that the Merger and the other transactions
contemplated by this Agreement or any of the other Transaction Agreements may
require or necessitate.
Section 7.4 Shareholders' Meeting. As soon as practicable after the
date hereof, BASIS shall take all action necessary under all Applicable Laws and
its Articles of Incorporation and Bylaws to duly convene a meeting of its
shareholders for the purpose of voting on the adoption of this Agreement and the
Merger. BASIS shall use its best efforts to solicit proxies in favor of such
adoption and authorization and shall take all other actions reasonably necessary
or useful to secure the shareholder approval required to effect the Merger under
all Applicable Laws. In connection with obtaining such approval by its
shareholders, BASIS will provide to its shareholders, as soon as practicable
after the date hereof, such written materials concerning this Agreement and the
Merger and other transactions contemplated by the Transaction Agreements as is
required by Applicable Law (collectively, the "Solicitation Materials"). BASIS
will be solely responsible for any statement, information or omission in the
Solicitation Materials relating to BASIS or its affiliates. Prologic will be
solely responsible for any statement, information or omission in the
Solicitation Materials relating to Prologic and its affiliates. Each of Prologic
and BASIS will ensure that all of the information it provides for inclusion in
the Solicitation Materials includes no statement of a material fact which is
untrue, in any material respect, or omits to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not materially misleading.
Section 7.5 Notification of Certain Matters. Prologic shall give prompt
written notice to BASIS, and BASIS shall give prompt notice to Prologic, of (a)
the occurrence or nonoccurrence of any event, the occurrence or nonoccurrence of
which would, in the reasonable judgment of their respective management, be
likely to cause either (i) any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Effective Date, or (ii) any
condition to Closing set forth herein to be incapable of being satisfied, in any
material respect, by the Closing Date, and (b) any material failure of Prologic,
Merger Subsidiary, BASIS or any of the Principal Shareholders as the case may
be, or any of their respective officers, directors, employees or agents, to
comply with or satisfy any covenant, condition or agreement required by this
Agreement. The delivery of any notice under this Section 7.5 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
Section 7.6 Public Announcements. Except as provided in this Section,
neither Prologic, nor BASIS or any Principal Shareholder, shall make any press
release or public announcement, including, without limitation, announcements by
any party for general reception by or dissemination to employees, agents or
customers, with respect to this Agreement, the Merger or any of the transactions
contemplated by this Agreement or the other Transaction Agreements without the
prior written consent of Prologic, in the case of BASIS or any of the Principal
Shareholders, or BASIS, in the case of Prologic, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, Prologic may
make any disclosure or announcement that it must make, in the opinion of its
counsel, under any Applicable Laws or regulations of any national securities
exchange, but must inform BASIS of such disclosure or announcement before making
it.
Section 7.7 Tax Treatment. Prologic and BASIS shall each use its best
efforts to qualify the Merger, and its best efforts not to take any action to
cause the Merger not to qualify, as a reorganization within Section 368(a) of
the Code. From and after the Effective Date, (a) Prologic shall use its best
efforts to cause the Surviving Corporation to continue BASIS's historic business
or use a significant portion of BASIS's historic business assets in a business,
within the meaning of Treasury Regulation Section 1.368-1(d), and (b) Prologic
and Merger Subsidiary shall, and Prologic shall cause the Surviving Corporation
to, treat the Merger as a "reorganization" within the meaning of Section 368(a)
of the Code and shall file such information with its income tax return as may be
required by Treasury Regulation Section 1.368-3 or other applicable law.
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Section 7.8 Further Assurances. In the event that at any time after the
Effective Date any further action, including, without limitation, the execution
and delivery of further documents, is necessary or desirable to carry out the
purposes of this Agreement or any of the other Transaction Agreements, the
Principal Shareholders and the proper officers and shareholders, as required, of
BASIS, Prologic and Merger Subsidiary shall promptly take such action.
Section 7.9 Securities Laws. As soon as possible after this Agreement
has been executed by all of its parties, Prologic and BASIS shall file the
appropriate materials with the California Department of Corporations as required
under the California GCL for the Prologic Common Stock to be offered in
connection with the Merger.
Section 7.10 No Other Negotiations. From the date hereof until the
earlier of termination of this Agreement or the Effective Time, neither BASIS
nor Prologic will, or authorize or permit any of its officers, directors,
employees or affiliates, or any other Person on its behalf, to, directly or
indirectly, solicit or encourage any offer from any party or, subject to the
fiduciary obligations of its directors and officers, consider any inquiries or
proposals received from any other Person, participate in any negotiations
regarding, or furnish to any Person any information with respect to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by any
Person (other than Prologic, in the case of BASIS) concerning the possible
disposition of all or any substantial portion of its business, assets or capital
stock by merger, sale or any other means. Each of BASIS and Prologic will
promptly notify the other orally and in writing of any such inquiries or
proposals.
Section 7.11 Access to Information. Until the Closing, Prologic and
BASIS will each allow the other party and its agents reasonable access to its
files, books, records and offices and that of each of its subsidiaries,
including, without limitation, any and all information relating to taxes,
commitments, contracts, leases, licenses, real, personal and intangible property
and financial condition. Prologic and BASIS will each cause its accountants to
cooperate with the other party and its agents in making available all financial
information reasonably requested, including, without limitation, the right to
examine all working papers pertaining to all financial statements prepared or
audited by such accountants.
Section 7.12 Affiliates Agreements. To ensure that the issuance of
Prologic Common Stock in the Merger complies with the Securities Act
concurrently with the execution of this Agreement, BASIS and Prologic will each
deliver to the other a letter identifying all persons who are, in its reasonable
judgment, Affiliates of it at the time this Agreement is executed. Each of
Prologic and BASIS will provide the other with all information and documents
reasonably required to evaluate this list for compliance with securities laws.
Each of Prologic and BASIS will cause each of its affiliates to deliver to the
other, within five business days of the date of this Agreement, a written
agreement (the "Affiliate Agreement"), in substantially the applicable form
attached hereto as part of Exhibit E hereto, providing (a) that such Person (i)
has not made and will not make any disposition of capital stock of the
corporation with respect to which it is an affiliate in the 30 day period prior
to the Effective Time and (ii) will not offer to sell or otherwise dispose of
any of the Prologic Common Stock issued to such Person in the Merger in
violation of the Securities Act and Rule 145 promulgated thereunder, as they may
be amended from time to time.
Section 7.13 Shareholders' Agreement. To ensure that the Merger will
qualify as a Section 368(a) reorganization for federal income tax purposes, and
to provide certain representations and warranties and indemnification to
Prologic, BASIS will cause each of the BASIS Shareholders to execute, at or
before the Closing, an agreement in substantially the form of Exhibit F hereto
(the "Shareholders' Agreement").
Section 7.14 BASIS Representative. The Principal Shareholders, together
with the other BASIS Shareholders, have appointed Patricia F. Shanks, or a
successor designated by her, as their representative (the "BASIS
Representative"). In each instance in this Agreement and the other Transaction
Agreements where the BASIS Shareholders are to receive or send notices, Prologic
may send or accept such notices to the BASIS Representative and shall have no
obligation to send such notices to the other BASIS
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Shareholders. In each instance in this Agreement and the other Transaction
Agreements where the BASIS Shareholders are to take action, Prologic shall be
entitled to rely conclusively on the authority of the BASIS Representative in
taking such action without independent investigation until such time as Prologic
shall receive written notice of the appointment of a successor BASIS
Representative. The BASIS Shareholders may designate a successor BASIS
Representative at any time by written notice to Prologic and to BASIS
Representative signed by all of the BASIS Shareholders.
Section 7.15 Release of Personal Guaranty. Prologic shall use
reasonable efforts to cause Deutsche Financial Services to release Patricia F.
Shanks and J. Merrill Shanks ("the Shanks") from the Guaranty, dated March 31,
1995 in favor of Deutsche Financial Services Corporation guaranteeing the
payment and performance of all current and future liabilities owed by BASIS,
which was reaffirmed by an Acknowledgment, Consent and Reaffirmation, dated
November 24, 1995 ("Guaranty"). From and after the Closing Date until such time
as the Shanks is released from such Guaranty, Prologic shall indemnify the
Shanks from all losses, costs and expenses arising from the Guaranty after the
Closing Date until the date of such release.
Section 7.16 Benefit Arrangements. After the Closing, the Surviving
Corporation shall use reasonable efforts to provide all employees of BASIS who
continue employment with the Surviving Corporation benefits substantially
similar to those currently provided to them under the BASIS Benefit
Arrangements; provided, however, that nothing contained herein will prevent or
limit Prologic or the Merger Subsidiary from revising, amending or otherwise
changing the benefits that are generally provided the employees (including
former BASIS employees) of Prologic or Merger Subsidiary as a whole.
Section 7.17 Reservation of Shares. After the Closing, Prologic shall
reserve 25,000 shares of Prologic Common Stock under Prologic's Incentive Stock
Option Plan and make it available for issuance to eligible employees of BASIS
who continue employment with the Surviving Corporation, with partial or full
vesting commencing one year after the Effective Date, and Prologic shall
allocate such shares to such employees as the BASIS Representative and Prologic
shall mutually agree within six months of the Closing Date. In addition to the
25,000 shares referred to above, Prologic will grant options to Donald E.
Legnitto in accordance with Schedule D and Prologic will grant to Patricia F.
Shanks such options, if any, as Prologic and she shall agree.
ARTICLE VIII. CONDITIONS TO THE CLOSING
Section 8.1 Conditions to BASIS's and Prologic's Obligations. The
obligations of BASIS, the BASIS Shareholders, Prologic and Merger Subsidiary to
consummate the Merger are subject to the fulfillment, at or before the Closing,
of each of the following conditions, any or all of which Prologic and BASIS may
waive in whole or in part to the extent permitted by Applicable Laws:
a. Shareholder Approval. This Agreement shall have been approved and
adopted, pursuant to Applicable Laws, by the affirmative vote of the holders of
the requisite percentage, under Applicable Laws and BASIS's Articles of
Incorporation and Bylaws, of each class of BASIS capital stock.
b. Other Approvals. All authorizations, consents, orders or approvals
of, or declarations or filings with, and all expirations of waiting periods
imposed by, any Governmental Entity that are necessary or advisable for the
consummation of the Merger or any of the other transactions contemplated by this
Agreement or any of the Transaction Agreements, including any necessary
California documents, shall have been filed, occurred or been obtained, as the
case may be, (all such permits, approvals, filings and consents and the lapse of
all such waiting periods being referred to as the "Requisite Approvals") and all
Requisite Approvals shall be in full force and effect.
c. No Injunctions, Restraints or Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger or any of the other trans-
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actions contemplated by the Transaction Agreements shall be in effect, nor shall
there be any pending or threatened proceeding by any Governmental Entity or
other Person, seeking any of the foregoing. There shall not be any action taken,
or any Applicable Laws in effect, that makes illegal the consummation of the
Merger or any of the other transactions contemplated by the Transaction
Agreements.
d. Employment Agreement. Each of the Key Employees listed on Schedule D
shall have executed and delivered to Prologic and Prologic shall have executed
and delivered to each Key Employee an Employment Agreement in form and substance
satisfactory to Prologic and such employee, having the terms set forth in
Schedule D. Schedule D may be amended or supplemented to add additional
employees (and to state the terms of their employment) by the mutual consent of
BASIS and Prologic.
e. California Securities Exemption. The transaction contemplated herein
shall be exempt from the qualification or registration requirements of the Blue
Sky Laws of California.
f. Adequate Financing. The Surviving Corporation will be able to
maintain financing arrangements with Deutsche Financial Services Corporation or
comparable financing.
g. Tax Opinion. BASIS shall have received the opinion of its tax
advisor, dated as of the Closing Date and addressed to BASIS and Prologic, to
the effect that there is a reasonable basis to believe or there is substantial
authority to believe that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that BASIS and Prologic will each be a party to that reorganization within
the meaning of Section 368(a) of the Code. Prologic shall pay BASIS up to
$10,000 for the reasonable fees and expenses that BASIS incurs in connection
with obtaining such opinion. Prologic consents to the engagement of KPMG Peat
Marwick LLP by BASIS solely for the purposes of rendering such opinion.
Section 8.2 Conditions to Obligations of Prologic. The obligation of
Prologic to consummate the Merger is subject to the fulfillment, at or before
the Closing, of each of the following conditions, except to the extent waived by
Prologic:
a. Representations and Warranties. The representations and warranties
of BASIS and the BASIS Shareholders set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, and Prologic
shall have received a certificate, signed on behalf of BASIS by the President
and the Chief Financial Officer of BASIS and signed by each of the Principal
Shareholders, to such effect.
b. Performance of Obligations of BASIS. BASIS shall have performed all
obligations that this Agreement requires it to perform at or before the Closing
Date, and Prologic shall have received a certificate, signed on behalf of BASIS
by the President and the Chief Financial Officer of BASIS, to such effect.
c. No Adverse Developments. There shall be no actual or threatened
order, decree, or ruling by any court or Governmental Entity that, in the
reasonable judgment of the Board of Directors of Prologic, may have a Material
Adverse Effect. There shall have been no material adverse change (except as
disclosed in the BASIS Disclosure Schedules before the execution of this
Agreement) in the business, assets, condition (financial or otherwise) or
results of operations of BASIS or any of its subsidiaries since the date of the
BASIS Balance Sheet, and Prologic shall have received a certificate from BASIS
to such effect, signed by BASIS's President and Chief Financial Officer.
d. Financial Statements. BASIS shall have delivered to Prologic the
Financial Statements referred to in paragraph 6.1(f), and a certificate of its
Chief Financial Officer stating that such financial statements fairly present
the financial condition and results of operations of BASIS as of such date and
for such period; provided, however, such financial statements may be subject to
normal recurring year end audit adjustments and may not be accompanied by
footnotes.
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e. Affiliate Agreements. BASIS shall have delivered to Prologic a list
of each Person who is an Affiliate of BASIS, and each such Person shall have
executed, and delivered to Prologic, an Affiliate Agreement.
f. Payment of Sequoia. BASIS shall have paid Sequoia all Consulting and
Incentive Fees (other than the Minimum Incentive Fee) and other amounts due
under the Letter Agreement, dated August 1, 1995 between Sequoia Partners Inc.
and BASIS ("Letter Agreement").
g. Shareholders' Agreement. Each of the BASIS Shareholders shall
execute and deliver at or prior to the Closing the Shareholders' Agreement.
h. Requisite Vote. Shareholders of BASIS Common Stock representing at
least 90% of the aggregate voting power of the shares of BASIS Common Stock
outstanding immediately prior to the Effective Time shall have voted to approve
the Merger.
Section 8.3 Conditions to Obligations of BASIS and the BASIS
Shareholders. The obligation of BASIS and the BASIS Shareholders to consummate
the Merger is subject to the fulfillment, at or before the Closing, of each of
the following conditions, except to the extent waived by BASIS:
a. Representations and Warranties. The representations and warranties
of Prologic set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date,
as though made on and as of the Closing Date, and BASIS shall have received a
certificate, signed on behalf of Prologic by the President and the Chief
Financial Officer of Prologic, to such effect.
b. Performance of Obligations of Prologic and Merger Subsidiary.
Prologic and Merger Subsidiary shall have performed all obligations that this
Agreement requires them to perform at or before the Closing Date, and BASIS
shall have received a certificate, signed on behalf of Prologic by the President
and the Chief Financial Officer of Prologic, to such effect.
c. No Adverse Developments. There shall be no actual or threatened
order, decree, or ruling by any Governmental Entity that, in the reasonable
judgment of the Board of Directors of BASIS, would be likely to have a material
adverse effect on Prologic. There shall have been no material adverse change
(except as disclosed in the Prologic Disclosure Schedules before the execution
of this Agreement) in the business, assets, condition (financial or otherwise)
or results of operations of Prologic, since March 31, 1996, and BASIS shall have
received a certificate from Prologic to such effect signed by Prologic's
President and Chief Financial Officer.
d. Payment of Sequoia. Prologic shall have paid Sequoia the Minimum
Incentive Fee of $150,000 to be paid by BASIS to Sequoia under the Letter
Agreement.
e. Consents. Prologic shall have obtained the consent or approval of
each Person (other than Governmental Entities) (i) whose consent or approval may
be necessary so as not to impair, terminate or otherwise adversely affect, in
any material respect, any obligation, right or interest of Prologic or any of
its subsidiaries under any loan or credit agreement, note, mortgage, indenture,
lease, license or other agreement or instrument to which it is a party or bound
or by which any of its properties or assets may be affected, if such agreement
or instrument is material to Prologic or such impairment, termination or affect
could have a Material Adverse Effect, or (ii) the failure of which to obtain
could materially impair the ability of any Person to consummate or perform any
of its material obligations under any of the Transaction Agreements.
f. Financial Statements. Prologic shall have delivered to BASIS the
audited financial statements for the fiscal year ended March 31, 1996 of
Prologic and a certificate of its Chief Financial Officer stating that such
financial statements fairly present the financial condition and results of
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operations of Prologic as of such date and for such period in accordance with
generally accepted accounting principles consistently applied.
g. No Burdensome Condition. There shall not be any action taken by any
Governmental Entity or any other Person, or any Applicable Laws in effect that,
in connection with the grant of a Requisite Approval, imposes any condition or
restriction upon BASIS, including, without limitation, any requirements relating
to the disposition of assets, that could materially and adversely impact the
economic or business benefits to BASIS of the transactions contemplated by this
Agreement or any of the Transaction Agreements or could have a Material Adverse
Effect on BASIS.
h. Other Documents. BASIS shall have received all such other certified
resolutions, certificates, documents or other instruments as BASIS or its
counsel may reasonably request, in form and substance reasonably satisfactory to
BASIS or its counsel, to carry out the intent of this Agreement.
ARTICLE IX. INDEMNIFICATION
Section 9.1 BASIS Indemnification. For a period of three years after
the Effective Date, BASIS and each of the BASIS Shareholders shall jointly and
severally indemnify and hold harmless Prologic, Merger Subsidiary, and each of
the respective officers, directors, employees, agents, affiliates and associates
thereof, in their respective capacities as such (collectively, the "Indemnified
Persons"), to the fullest extent lawful, from and against: (a) any and all
actions, suits, claims, proceedings, costs, losses, liabilities, damages,
judgments, amounts paid in settlement in accordance with Section 9.5, and
reasonable expenses (including, without limitation, reasonable attorneys' fees
and disbursements) (collectively, a "Loss" or "Losses") suffered or incurred by
any Indemnified Person to the extent relating to or arising out of any
inaccuracy in, or any breach, violation or nonobservance of, any of the
representations, warranties, covenants or agreements made by BASIS or the
Principal Shareholders, or both, in this Agreement, any of the other Transaction
Agreements to which BASIS is a party or any written agreements or certificates
delivered by BASIS or a Principal Shareholder in connection with this Agreement;
(b) any and all Losses relating to or arising out of any other action or failure
to act by BASIS, or any of its employees, agents or affiliates, with respect to
the transactions contemplated by this Agreement or any of the other Transaction
Agreements; and (c) any and all Losses relating to or arising out of a claim,
action, suit or proceeding made or brought against an Indemnified Person, by
other than Prologic or any of its current or former shareholders (acting in such
shareholder capacity with respect to such claim, action, suit or proceeding),
with respect to any act by BASIS, or any of its officers, directors, employees
and agents (acting in that capacity), prior to the Effective Time, if the facts
giving rise to such Loss or the risk or possibility of such Loss is not
described, in reasonable detail, in the BASIS Disclosure Schedule and only to
the extent such claim, action, suit or proceeding is not with respect to any
projections or prospects of BASIS. Notwithstanding the foregoing, no BASIS
Shareholders shall be obligated to provide indemnification for Losses
aggregating in excess of the Merger Consideration and Additional Consideration
payable to such BASIS Shareholder in connection with the transactions
contemplated herein.
Section 9.2 Reimbursement. Subject to the requirements of Section 9.5,
each of the BASIS Shareholders shall reimburse the Indemnified Persons for all
Losses for which such BASIS Shareholder is obligated to provide indemnity under
Section 9.1 as such Losses are paid or incurred and promptly after such BASIS
Shareholders is given written notice of such Losses, in reasonable detail. Such
reimbursement shall be made by such BASIS Shareholder transferring to the
applicable Indemnified Person shares of Prologic Common Stock received in the
Merger with an aggregate value equal to the amount of such reimbursement, or, if
such BASIS Shareholder does not, at the time of such reimbursement, hold such
shares with an aggregate value equal to such reimbursement amount, all of such
shares then held by such BASIS Shareholder and cash in the amount by which such
aggregate value is less than such reimbursement amount up to and not exceeding
the total Merger Consideration and Additional Consideration payable to such
BASIS Shareholder. For purposes of this Section 9.2, each of such shares shall
be deemed to have a value equal to the Average Share Price of Prologic Common
Stock
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on the two days prior to the payment date (the "Applicable Value"). To the
extent that a BASIS Shareholder reimburses the Indemnified Persons for a Loss
and a court of competent jurisdiction subsequently determines, in a decision
from which there is no right to appeal or seek further judicial review, that the
Indemnified Persons are not entitled to such reimbursement, the Indemnified
Persons shall promptly refund to such Principal Shareholder an amount, in cash,
equal to the portion of such Loss that it reimbursed. The amount of each Loss
with respect to which Prologic is entitled to reimbursement hereunder (a) shall
be reduced, to the extent applicable, to take into account any tax benefit
derived by Prologic as a result of such Loss and shall be increased, to the
extent applicable, to take into account any additional taxes payable by Prologic
with respect to such reimbursement, and (b) shall be reduced, to the extent
applicable, to take into account any payment with respect to such Loss received
by Prologic from any insurer and shall be increased, to the extent applicable,
to take into account any additional taxes payable by Prologic with respect to
such payment.
Section 9.3 Prologic Indemnification. Prologic shall indemnify and hold
harmless the BASIS Shareholders (collectively, the "Indemnified Shareholders")
to the fullest extent lawful, from and against: (a) any and all Losses suffered
or incurred by any Indemnified Shareholder to the extent relating to or arising
out of any inaccuracy in, or any breach, violation or nonobservance of, any of
the representations, warranties, covenants or agreements made by Prologic in
this Agreement or in any of the other Transaction Agreements to which Prologic
or Merger Subsidiary is a party; (b) any and all Losses relating to or arising
out of any other action or failure to act by Prologic, or any of its employees,
agents or affiliates, with respect to the transactions contemplated by this
Agreement or any of the Transaction Agreements; and (c) any and all Losses
relating to or arising out of a claim, action, suit or proceeding made or
brought against an Indemnified Shareholder, by other than BASIS or any of its
current or former shareholders (acting in such shareholder capacity with respect
to such claim, action, suit or proceeding), with respect to any act by Prologic
or any of its subsidiaries, or any of their respective officers, directors,
employees and agents (acting in that capacity), subsequent to the Effective
Time, if the facts giving rise to such Loss or the risk or possibility of such
Loss is not described, in reasonable detail, in the Prologic Disclosure
Schedule.
Section 9.4 Reimbursement. Subject to the requirements of Section 9.5,
Prologic shall reimburse the Indemnified Shareholders, in cash, for all Losses
for which indemnity is available under Section 9.3 as such Losses are paid or
incurred and promptly after Prologic is given written notice of such Losses, in
reasonable detail. To the extent that Prologic reimburses the Indemnified
Shareholders for a Loss and a court of competent jurisdiction subsequently
determines, in a decision from which there is no right to appeal or seek further
judicial review, that the Indemnified Shareholders are not entitled to such
reimbursement, each of the Indemnified Shareholders with respect to such Loss
shall promptly refund to Prologic an amount, in cash, equal to the portion of
Prologic's reimbursement with respect to such Loss that it received. The amount
of each Loss with respect to which a Principal Shareholder is entitled to
reimbursement hereunder (a) shall be reduced, to the extent applicable, to take
into account any tax benefit derived by such Principal Shareholder as a result
of such Loss and shall be increased, to the extent applicable, to take into
account any additional taxes payable by such Principal Shareholder with respect
to such reimbursement, and (b) shall be reduced, to the extent applicable, to
take into account any payment with respect to such Loss received by such
Principal Shareholder from any insurer and shall be increased, to the extent
applicable, to take into account any additional taxes payable by such Principal
Shareholder with respect to such payment.
Section 9.5 Notice. An Indemnified Person shall provide written notice
to the BASIS Representative, and an Indemnified Shareholder shall provide
written notice to Prologic, of any claim with respect to which it seeks
indemnification hereunder promptly after discovering any matters giving rise to
such claim. The failure of any Indemnified Person or Indemnified Shareholder to
give notice as provided in this Section shall not relieve the BASIS Shareholders
or Prologic, respectively, of their obligations under this Article IX unless the
failure materially and adversely affects the ability of the BASIS Shareholders
or Prologic, as the case may be, to defend any related action, suit or
proceeding. In case any such action, suit, claim or proceeding is brought
against an Indemnified Person or an Indemnified Shareholder, the BASIS
Shareholders or Prologic, respectively, shall be entitled to participate
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in the defense and, at their election, assume control of the defense with
counsel reasonably acceptable to such Indemnified Person or Indemnified
Shareholder, by delivering written notice to such effect to the Indemnified
Person or Indemnified Shareholder. Upon delivery of such notice to the
Indemnified Person or Indemnified Shareholder and approval of such counsel by
the Indemnified Person or Indemnified Shareholder, the BASIS Shareholders will
not be liable under Sections 9.1 or 9.2, and Prologic will not be liable under
Section 9.3 or 9.4, respectively, for any legal or other expenses subsequently
incurred by such Indemnified Person or Indemnified Shareholder, respectively, in
connection with the defense of such action, suit, claim or proceeding unless
such Indemnified Person or Indemnified Shareholder and one of the BASIS
Shareholders or Prologic, respectively, are defendants and each of them have one
or more different defenses to the claims in such matter. The BASIS Shareholders
and Prologic shall not be liable for any settlement of any action, suit, claim
or proceeding with respect to an Indemnified Person or an Indemnified
Shareholder, respectively, effected without their prior written consent, such
consent not to be unreasonably withheld or delayed. The BASIS Shareholders shall
not, without the Indemnified Person's prior written consent, and Prologic shall
not, without prior written consent of the BASIS Representative, which consent
shall not be unreasonably withheld or delayed, settle or compromise or consent
to entry of any judgment in any action, suit, or proceeding in which such
Indemnified Person or Indemnified Shareholder is a defendant.
ARTICLE X. TERMINATION, AMENDMENT OR WAIVER
Section 10.1 Termination. This Agreement may be terminated at any time
before the Effective Time:
a. by the mutual written consent of BASIS and Prologic upon approval by
their respective Boards of Directors;
b. by either Prologic or BASIS upon written notice to the other party
if any Governmental Entity of competent jurisdiction shall have issued a final
permanent order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement or any of the other Transaction
Agreements and the time for each appeal or petition for reconsideration of such
order shall have expired without such appeal or petition being granted;
c. by either Prologic or BASIS upon written notice to the other if any
of the conditions to its performance hereunder set forth in Article VIII have
not been satisfied, or the Merger has not been consummated, on or before July
31, 1996, for reasons other than a breach of this Agreement by the party seeking
termination; or
d. by either Prologic or BASIS, upon written notice to the other, if
there is any Material Adverse Change in either the financial condition or
business of the other party.
Section 10.2 Effect of Termination.
a. If either Prologic or BASIS terminates this Agreement pursuant to
Section 10.1, this Agreement shall become void and there shall be no further
liability or obligation on the part of BASIS, Prologic, Merger Subsidiary or
their respective officers or directors or the BASIS Shareholders except (a) with
respect to Sections 6.1(l) and 6.2(h) (Broker's and Finder's Fees), provided,
however, that notwithstanding anything contained herein to the contrary,
Prologic shall not be obligated to pay Sequoia Partners Inc. the Minimum
Incentive Fee referenced in Section 8.3(e), 10.2 (Effect of Termination) and
11.2 (Fees and Expenses), and (b) with respect to any liabilities or damages
incurred or suffered by a party as a result of the breach by the other party of
any of its other representations, warranties, covenants or agreements set forth
in this Agreement.
b. Notwithstanding any implication to the contrary herein, if Prologic
terminates this Agreement pursuant to Section 10.1(b), (c) or (d) or if there is
a material breach of the representations
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and warranties set forth in Section 6.1 or the existence of any condition or
circumstance arising after May 30, 1996 or which could have been reasonably
discovered by Prologic prior to May 31, 1996 which precludes Prologic from
completing the acquisition in a timely manner, upon the written request of
Prologic, D.L. Verdeck Escrow Company, Inc. shall release to Prologic the
$75,000 escrow amount which was provided by Prologic as a good faith deposit in
connection with the transaction contemplated herein.
Section 10.3 Amendment. This Agreement may not be amended except by a
written instrument approved and executed by BASIS and Prologic.
Section 10.4 Waiver. No failure or delay on the part of any party in
exercising any right under this Agreement or under any of the other Transaction
Agreements shall operate as a waiver of such right; nor shall any single or
partial exercise of any such right preclude any other or future exercise of such
right or the exercise of any other such right. No waiver of any right or
obligation under this Agreement or under any of the other Transaction Agreements
shall be enforceable against a party unless made in a writing, specifying such
waiver, executed by such party; provided, however, the BASIS Shareholders shall
be deemed to have approved any waiver if BASIS Representative agrees to such
waiver.
ARTICLE XI. MISCELLANEOUS AND GENERAL
Section 11.1 Definitions. As used in this Agreement, capitalized terms
shall have the meanings set forth, or in the section specified by, the attached
Schedule F.
Section 11.2 Fees and Expenses. Each of BASIS, the BASIS Shareholders,
and Prologic shall pay all fees and expenses that it incurs in connection with
the Merger, this Agreement and the transactions contemplated by this Agreement
or the other Transaction Agreements, including, without limitation, all
professional and other fees (whether or not the Closing occurs) except as
provided in Section 8.2(g) and 8.3(f).
Section 11.3 Notices. All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing. Any notice, request,
demand, claim, or other communication under this Agreement shall be deemed duly
given (and shall be effective five business days after) if it is sent by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient at the address set forth on Exhibit G
hereto, subject to the provisions of Section 7.14 hereof. Any party may send any
notice, request, demand, claim or other communication to the intended recipient
at the address set forth above using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims, and other communications are to be
delivered by giving the other parties notice of such change in the manner set
forth in this Agreement.
Section 11.4 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the parties to this
Agreement and their respective successors and permitted assigns; provided,
however, that (a) the provisions in Article III concerning payment of the Merger
Consideration are intended to be for the benefit of the holders of the Cancelled
Shares and (b) the provisions in Article IX concerning indemnification are
intended to be for the benefit of the Indemnified Persons specified in Article
IX and their respective legal representatives.
Section 11.5 Governing Law. This Agreement shall be governed by the
laws of the State of Arizona (regardless of the laws that might be applicable
under principles of conflicts of law) as to all matters, including, without
limitation, matters of validity, construction, effect and performance.
Section 11.6 Entire Agreement. This Agreement (including the attached
Exhibits and Schedules) and the Shareholders' Agreement embodies the entire
agreement and understanding of the parties with
30
36
respect to the transactions it and they contemplate and supersedes all prior
written or oral commitments, arrangements or understandings with respect to such
matters. There are no other restrictions, agreements, promises, warranties,
covenants or undertakings with respect to the transactions contemplated by this
Agreement (including the attached Exhibits and Schedules).
Section 11.7 Attorneys' Fees. In the event that any action or
proceeding, including, without limitation, arbitration, is commenced by any
party for the purpose of enforcing any provision of this Agreement, the parties
to such action, proceeding or arbitration shall be entitled to recover, as part
of any award, judgment, decision or other resolution of such action, proceeding
or arbitration in their favor, their related reasonable attorneys' fees and
expenses.
Section 11.8 Severability. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected. To the extent permitted by Applicable Law, each party waives
any provision of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
Section 11.9 Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
Section 11.10 Headings. The Article, Section and Subsection headings
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not limit or otherwise affect any of the Agreement's
provisions.
Section 11.11 Construction. Each and every provision of this Agreement
and the other Transaction Agreements shall be construed as though all of the
parties participated equally in the drafting of the same. Consequently, the
parties acknowledge and agree that any rule of construction that a document is
to be construed against the drafting party shall not be applicable either to
this Agreement or such other agreements.
Section 11.12 Successors and Assigns. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns and shall
inure to the benefit of the parties to this Agreement. Notwithstanding the
foregoing, no party to this Agreement shall have any right to assign any of its
rights or obligations hereunder to any other Person.
Section 11.13 References. Unless otherwise specified, references in
this Agreement to "Sections," "Subsections" or "Articles" refer to the sections,
subsections or articles in this Agreement.
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37
IN WITNESS WHEREOF, each of the parties below have caused this
Agreement and Plan of Reorganization to be duly exercised as of the day and year
first above written.
PROLOGIC MANAGEMENT SYSTEMS, INC.
By: /s/ James M. Heim
----------------------------------------------------
Name: James M. Heim
Title: President and Chief Executive Officer
BASIS ACQUISITION CORP.
By: /s/ James M. Heim
----------------------------------------------------
Name: James M. Heim
Title: President
BASIS, INC.
By: /s/ Patricia F. Shanks
----------------------------------------------------
Name: Patricia F. Shanks
Title: President
PRINCIPAL SHAREHOLDERS
/s/ Patricia F. Shanks
----------------------------------------------------
Patricia F. Shanks
/s/ J. Merrill Shanks
----------------------------------------------------
J. Merrill Shanks
32
38
SCHEDULE A
CALCULATION OF PRE-TAX EARNINGS
The business of BASIS acquired pursuant to this Agreement will be operated in
such a manner (whether as subsidiary, division or otherwise) that its earnings
may be discreetly determined for the following purposes:
The format below specifies the method by which the BASIS earnings will be
calculated for purposes of determining earnings with respect to contingent
pay-outs under the Agreement. Gross sales are reduced by direct selling costs,
discounts and direct commissions. Net sales are reduced by direct costs of
materials and direct service costs in connection with the accounts. The
resultant gross margin is reduced by operating expenses for BASIS, i.e., those
expenses of BASIS which are under the direct control of BASIS management or are
contracted for by BASIS management. These operating expenses do not include any
allocation for corporate overhead. These expenses may include direct costs of
contracting for specific expense overhead. These expenses may include direct
costs of contracting for specific expense items which otherwise would be born by
BASIS. A footnote to the schedule provides for the elimination of certain
expenses otherwise allocable to BASIS.
Net Sales xxxxxxxxx.xx
Cost of Sales
Direct material cost xxxxx.xx
Direct Service cost xxxxx.xx
---------
Gross Margin xxxxxx.xx
Operating Expenses (Direct Controllable Expenses)
Development expense xxxxx.xx
Selling and Marketing expense xxxxx.xx
General and Administrative expenses xxxxx.xx
--------
Total operating expenses xxxxx.xx
Contribution* --------
xxxxx.xx
========
* The contribution is the basis for the calculation of the contingent
payments and is before any agreed upon strategic business development
funded by corporate, interest, other (non-operating) income and expense
items and income taxes.
The calculation of pre-tax earnings herein will be calculated in a manner
consistent with the memorandum from Prologic to BASIS dated June 17, 1996
attached hereto as Schedule A-Exhibit A.
39
SCHEDULE B
BASIS DISCLOSURE SCHEDULE
[INTENTIONALLY OMITTED]
40
SCHEDULE C
PROLOGIC DISCLOSURE SCHEDULE
[INTENTIONALLY OMITTED]
41
2
SCHEDULE D
KEY EMPLOYEES
Name: PATRICIA F. SHANKS
Term: Two year term with option to extend
Base Salary: $130,000
Bonus: Net Contribution Bonus and Consolidated Earnings Bonus based
on performance
Severance: Six months' salary
Non-Compete Term: During the Employment Period and for one year thereafter
Other: Qualified Incentive Stock Options for up to 30,000 shares
over the term of Employment Agreement
Name: DONALD E. LEGNITTO
Term: Two year term with option to extend
Base Salary: $120,000
Bonus: Quarterly Bonuses based on acheivement of performance
objectives established by Prologic
Severance: Six months' salary
Non-Compete Term: During the Employment Period
Other: Qualified Incentive Stock Options for up to 15,000 shares
over the term of Employment Agreement
42
SCHEDULE E
OFFICERS AND DIRECTORS
OF SURVIVING CORPORATION
[TO BE DETERMINED BY PROLOGIC]
43
SCHEDULE F
DEFINITIONS
The following terms shall have the meanings specified in the following
section of the Agreement:
Defined Word Section Where Defined
- ------------ ---------------------
Additional Consideration Section 3.4
Affiliate Section 6.1(aa)
Affiliate Agreement Section 7.12
Agreement Opening paragraph
Agreement of Merger Section 1.1
Applicable Value Section 9.2
Arizona BCA Section 1.1
Arizona Commission Section 1.3
Articles Section 11.13
Associate Section 6.1(aa)
BASIS Opening paragraph
BASIS Balance Sheet Section 6.1(f)
BASIS Benefit Arrangements Section 6.1(p)(i)
BASIS Disclosure Schedule Section 6.1
BASIS Earnings Section 3.3
BASIS Employee Plans Section 6.1(p)(ii)
BASIS Financial Statements Section 6.1(f)
BASIS Permits Section 6.1(d)
BASIS Representative Section 7.14
BASIS Shareholders Section 3.1
BASIS Stock Option Plan Section 3.2
BASIS Stock Plans Section 3.7
California GCL Section 1.1
California Secretary Section 1.3
Cancelled Shares Section 4.1
Cash Payment Section 3.1
Closing Section 1.2
Closing Date Section 1.2
Closing Merger Consideration Section 3.1
Closing Price Section 3.2
Compensation Plans Section 7.2
Contingent Price Section 3.3
Dissenting Shares Section 4.4
Effective Time Section 1.3
Escrow Amount Section 3.1(a)
Exchange Agent Section 4.2
fiduciary Section 5.1(p)
Guaranty Section 7.15
Indemnified Persons Section 9.1
Indemnified Shareholders Section 9.3
Injunction Section 8.1(c)
Intellectual Property Section 6.1(s)(i)
IRS Section 6.1(g)
Letter Agreement Section 8.2(h)
Loss and Losses Section 9.1
Merger Recitals
44
2
Defined Word Section Where Defined
- ------------ ---------------------
Merger Consideration Section 3.1
Merger Filing Documents Section 1.3
Merger Subsidiary Opening paragraph
Options List Section 6.1(b)(iii)
Principal Shareholders Opening Paragraph
Prologic Opening paragraph
Prologic Balance Sheet Section 6.2(h)
Prologic Common Stock Section 3.2
Prologic Disclosure Schedule Section 6.2
Prologic Permits Section 6.2(d)
Prologic Stock Plans Section 6.2(b)(i)
Proportionate Share Section 3.1
Proprietary Information Section 6.1(o)(vi)
Prospectus Section 6.2(j)
Registration Expenses Section 5.5(a)
Requisite Approvals Section 8.1(b)
Sections Section 11.13
Securities Act Section 3.5
severance pay Section 6.1(o)(iii)
Shareholders' Agreement Section 7.13
Shareholders List Section 6.1(b)(iii)
Solicitation Materials Section 7.4
Surviving Corporation Section 1.1
Tangible Property Section 6.1(v)
Transfer Section 3.3(d)
Violation Section 6.1(c)(iii)
Voting Debt Section 6.1(b)
45
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As used in this Agreement, the following terms shall have the meanings
specified below:
Accounts Receivable: means all notes and accounts receivable held
by BASIS and all notes, bonds and other evidences of indebtedness of any Person
held by BASIS relating to the business of BASIS.
Applicable Laws: means all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law), rules,
regulations, ordinances, permits, concessions, grants, franchises, licenses,
orders or other governmental authorization or approval of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions, judgments,
awards and decrees of or agreements with any Governmental Authority.
Average Share Price: means with respect to any date, the average of
the closing sale price of Prologic Common Stock as listed on the NASDAQ Small
Capital Market for the previous ten trading days.
BASIS Common Stock: means the common stock, no par value, of BASIS.
Business Day: means each weekday that is not a holiday under
federal or Arizona law.
Code: means the Internal Revenue Code of 1986, as amended, and all
rules and regulations promulgated under that Code.
Equipment: means all machinery, equipment, furniture, fixtures, and
tools used in connection with the manufacture, design and sales of the Products
and the administration of the business of BASIS.
Environmental Claim: means any claim based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of BASIS or the BASIS Shareholders contained in
this Agreement related to the environment.
Environmental Damages: means all claims, judgments, damages,
losses, penalties, fines, liabilities (including strict liability), costs and
expenses, including, without limitation, costs and expenses of defense of any
claim and of any settlement of claims, including, reasonable attorneys' fees and
expenses, that are incurred at any time as a result of the existence of
Hazardous Materials upon, about or beneath the Premises, migrating or
threatening to migrate to or from the Premises or arising in any manner
whatsoever out of any violation of Environmental Requirements pertaining to the
Premises or any activities on the Premises or from the past or present
operations of BASIS, including, without limitation:
(1) damages for personal injury, or injury to property or
natural resources, occurring upon or off of the Premises,
whether foreseeable or unforeseeable, including, without
limitation, claims brought by or on behalf of employees of
BASIS, lost profits, consequential damages, interest and
penalties;
(2) diminution in the value of the Premises and damages for the
loss of or restriction on the use of, or adverse impact on
the marketing of, the Premises or of any amenity of the
Premises;
(3) fees incurred for the services of attorneys, consultants,
contractors, experts, laboratories and all other costs and
liabilities (including, without limitation, liabilities to
indemnify any Person for costs) incurred in connection with
the investigation or remediation of Hazardous Materials or
violation of Environmental Requirements, including, without
46
4
limitation, the preparation of any feasibility studies or
reports or the performance of any cleanup, remedial,
removal, containment, restoration or monitoring work
required by any Governmental Authority, or reasonably
necessary to make full economic use of the Premises or any
other property or otherwise expended in connection with
such conditions; and
(4) damages and claims (including, without limitation, those of
the type described in clauses (i)-(iii) above) resulting
from the off-site disposal of Hazardous Materials derived
from the use, generation, storage, treatment,
transportation or disposal of Hazardous Materials by or on
behalf of BASIS.
Environmental Requirements: means all Applicable Laws relating to
the protection of human health or the environment, including, without
limitation:
(1) all requirements pertaining to reporting, licensing,
permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous
Materials into the air, surface, water, groundwater or
land, or relating to the manufacture, generation,
processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials; and
(2) all requirements pertaining to the protection of the health
and safety of employees or the public.
ERISA: means the Employee Retirement Income Security Act of 1974,
as amended.
Exchange Act: means the Securities and Exchange Act of 1934, as
amended.
General Claim: means any claim (other than an Environmental Claim,
Tax Claim or Product Liability Claim) based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of BASIS or any Principal Shareholders contained in this
Agreement.
Governmental Approval: means an authorization, consent, approval,
permit, license or exemption of registration or filing with, or report or notice
to, any Governmental Authority.
Governmental Authority or Governmental Entity: means any nation or
government, any state or other political subdivision and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of the
United States, any State of the United States, any political subdivision of any
State and any tribunal or arbitrator(s) of competent jurisdiction.
Hazardous Materials: means any substance:
(1) the presence of which requires investigation, removal or
remediation under any Applicable Law; or
(2) that is or becomes defined as a "hazardous waste" or
"hazardous substance" under any Applicable Law, including,
without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. section
9601 et seq.) and the Resource Conversation and Recovery
Act (42 U.S.C. section 6901 et seq.); or
47
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(3) that is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or becomes regulated by
any Governmental Authority or Applicable Law; or
(4) the presence of which causes or threatens to cause a
nuisance upon the Premises or to adjacent properties
or poses or threatens to pose a hazard to the
Premises or to the health or safety of any Person on
or about the Premises; or
(5) that contains gasoline, diesel fuel or other
petroleum hydrocarbons; or
(6) that contains PCBs or asbestos.
Inventory: means all inventories of raw materials, work in
progress, finished products and supplies of BASIS and its subsidiaries.
Key Employees: means each of the persons listed on the
attached Schedule D.
Knowledge of BASIS: means information known or should
reasonably be known by any officer of BASIS.
Lien: means any mortgage, pledge, adverse claim, security
interest, encumbrance, title defect, title retention agreement, voting trust
agreement, encumbrance, option, lien, charge or claim or interest of any kind.
Material Adverse Effect: means a material adverse effect on
the business, assets, prospects, condition (financial or otherwise) or results
of operation of BASIS or any of its subsidiaries.
Person: means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Authority or other entity.
Premises: means all real property at any time owned, leased,
occupied or operated by BASIS or any predecessor of BASIS.
Principal Shareholders: means Patricia F. Shanks and J.
Merrill Shanks.
Products: means all products manufactured, marketed or
distributed by BASIS.
Product Liability: means any liability to which Prologic, the
Surviving Corporation or any other successor to any business of BASIS may become
subject insofar as such liability arises out of or otherwise relates to any
express or implied representation, warranty, agreement or guaranty made or
claimed to have been made by BASIS, or imposed or asserted to be imposed by
operation of law, in connection with any Products sold by BASIS before the
Closing.
Product Liability Claim: means any claim, whether for
negligence, strict liability, breach of representation, breach of warranty,
misrepresentation or otherwise, based upon, arising out of or otherwise in
respect of any Products Liability.
Property Information: means all inventions, processes,
designs, formulae, techniques, trade secrets, know-how, proprietary processes
and formulae, masks and related rights, confidential information, customer lists
and other proprietary rights, including, without limitation, bills of material,
test plans, production drawings and method and operation sheets, all source and
object codes, algorithms,
48
6
architecture, structure, display screens, layouts, development tools,
procedures, tests and standards, together with all manufacturing prototypes,
blueprints, specifications, drawings, photomasters, documasters, engineering
data, and all recorded knowledge, documentation and media constituting,
describing, relating to or evidencing the same.
"Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act.
"Registrable Securities" means any shares of Prologic Common Stock
acquired by the BASIS Shareholders pursuant to the terms of this Agreement.
Securities Act: means the Securities Act of 1933, as amended.
Tax Claim: means any claim based upon, arising out of or otherwise
in respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of BASIS or the Principal Shareholders contained in this
Agreement related to taxes.
tax, taxes, taxable: means, except where the context otherwise
requires, all Federal, state, local and foreign income, profit, franchise, gross
receipts, payroll, sales, employment, worker's compensation, use, property,
withholding, excise, occupancy, environmental, and other taxes, duties or
assessments of any nature whatsoever, together with all interest, penalties and
additions imposed with respect to such amounts.
Transaction Agreements: means this Agreement and the Shareholders'
Agreement.
Warrants: means the warrants to shares of Prologic Common Stock
issued and outstanding on the date of this Agreement, including the Redeemable
Warrants to purchase 1,050,000 shares of Prologic Common Stock, and the
Representative Unit Warrants to purchase 105,000 shares of Prologic Common Stock
and Redeemable Warrants to purchase 105,000 Shares of Prologic Common Stock.
49
EXHIBIT A
ARTICLES OF AMENDMENT AND MERGER
OF
BASIS ACQUISITION CORP.
These Articles of Merger are delivered to the Arizona Corporation
Commission for filing under Section 10-1105 of the Arizona Revised Statutes by
BASIS Acquisition Corp., an Arizona corporation.
FIRST: The name and state of incorporation of each of the constituent
corporations of the merger is as follows: BASIS Acquisition Corp., an Arizona
Corporation; BASIS, Inc., a California corporation.
SECOND: Basis Acquisition Corp., with a place of business located at 2731
East Elvira, Suite 151, Tucson, Arizona 85706-7124, shall be the surviving
corporation of the merger and shall change its name to BASIS, Inc.
THIRD: The name and address of the initial statutory agent of Basis
Acquisition Corp. shall be: CSC Lawyers Incorporating Services, F.N., 3636 North
Central Avenue, Phoenix, Arizona 85012.
FOURTH: The number of shares issued, outstanding and entitled to vote
separately on the Plan of Merger attached hereto as Exhibit "1" (the "Plan") at
the time of approval by the respective shareholders was:
BASIS, Inc. ____________ shares common stock
____________ par value
BASIS Acquisition Corp. 1,000 shares common stock,
no par value
FIFTH: Paragraph 1 of the Articles of Incorporation of BASIS Acquisition
Corp. is amended as follows:
"1. Name. The name of the corporation shall be BASIS, Inc."
SIXTH: All of the issued and outstanding shares of both constituent
corporations were voted in favor of the plan; therefore the Plan was approved by
the respective shareholders. [If not unanimous, will insert number of votes for
and against the Plan by each voting group].
IN WITNESS WHEREOF, BASIS Acquisition Corp. has caused these Articles of
Amendment and Merger to be executed by its duly authorized officers on this ____
day of ________________, 1996.
BASIS ACQUISITION CORP.
an Arizona corporation
By:___________________________________
James M. Heim, President
By:___________________________________
William E. Wallin, Secretary
50
2
STATE OF ARIZONA )
) ss.
County of _______________ )
The foregoing instrument was acknowledged before me this ____ day of
_____________, 1996, by _______________________, the President of BASIS
ACQUISITION CORP., an Arizona corporation, for and on behalf of the Corporation.
___________________________
Notary Public
My Commission Expires:
_____________________
STATE OF ARIZONA )
) ss.
County of _______________ )
The foregoing instrument was acknowledged before me this ____ day of
___________, 1996, by ____________________, the Secretary of BASIS ACQUISITION
CORP., an Arizona corporation, for and on behalf of the Corporation.
___________________________
Notary Public
My Commission Expires:
_____________________
51
EXHIBIT 1
TO
ARTICLES OF
AMENDMENT AND MERGER
PLAN OF MERGER
OF
BASIS, INC.
INTO
BASIS ACQUISITION CORP.
Pursuant to the provisions of Section 10-1101 of the Arizona Revised
Statutes, by this Plan of Merger, BASIS, Inc., a California corporation
("BASIS"), and BASIS Acquisition Corp., an Arizona corporation ("Merger
Subsidiary"), state, confirm and agree as follows:
FIRST: BASIS shall merge with and into Merger Subsidiary, a wholly owned
subsidiary of Prologic Management Systems, Inc., an Arizona corporation
("Prologic"), with Merger Subsidiary being the surviving corporation upon the
effectiveness of the merger ("Surviving Corporation").
SECOND: The separate identity, existence and corporate organization of
BASIS shall cease to exist except as otherwise provided by applicable law.
Surviving Corporation shall succeed to and possess all the properties, accounts,
rights, privileges, powers, franchises and immunities of a public as well as a
private nature, and be subject to, and responsible for, all the debts,
liabilities, obligations, restrictions, disabilities and duties, of BASIS all
without further act, deed or other transfer.
THIRD: The consideration for the merger payable to the holders of BASIS
capital stock immediately prior to the merger (the "BASIS Shareholders") shall
be as follows:
A. Cash Payment. Upon the effectiveness of the merger, Prologic
shall pay to the Secretary of Prologic ("Exchange Agent") the sum of
$500,000 for distribution to the BASIS Shareholders;
B. Conversion of Securities. Upon the effectiveness of the merger,
all the shares of common stock of BASIS (other than shares held by
shareholders dissenting to the merger), shall be converted into and become
exchangeable for the number of shares of validly issued, fully paid and
non-assessable common stock, no par value, of Prologic ("Prologic Common
Stock") equal to $1,400,000 divided by the Closing Price for the Prologic
Common Stock. "Closing Price" means the average of the closing sales price
of Prologic Common Stock as listed on NASDAQ Small Capital Market for the
ten trading days immediately preceding June 30, 1996 or, if earlier, the
two days prior to the Closing Date. Each holder of outstanding
certificates which prior to the merger represented BASIS Common Stock, may
surrender the same to the Exchange Agent, at its principal offices located
at 2731 East Elvira, Suite 151, Tucson, Arizona 85706-7124. Upon
surrender, such holder shall be entitled to receive, in exchange therefor,
certificates representing the shares of Prologic Common Stock specified in
this Article THIRD. Until surrendered, each certificate which prior to the
merger represented BASIS shares shall be deemed for the purposes to
evidence ownership of the number of Prologic shares into which the same
shall have been converted and exchanged. Upon submission or surrender of
any certificates which prior to the merger represented BASIS shares, the
same shall be immediately cancelled ("Cancelled Shares"). No certificates
or scrip for fractional shares of Prologic Common Stock shall be issued
upon the surrender for exchange of Cancelled Shares. In lieu of any such
fractional shares, each holder of BASIS Common Stock who would otherwise
have been entitled to a fraction of a share of Prologic Common Stock upon
surrender of Cancelled Shares for exchange shall be entitled to receive
from the Exchange Agent a cash payment in lieu of such
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fractional share equal to such fraction multiplied by the Closing Price.
C. Contingent Payments. On or before September 30, 1997, Prologic
shall pay to the representative of the BASIS Shareholders, for
distribution to them, the following contingent merger consideration
("Contingent Payments"):
1. The "First Contingent Payment" shall be the number of
shares of Prologic Common Stock equal to $1,100,000 divided by the
Closing Price, provided, that if the Closing Price is less than
$5.00, the Closing Price used for this calculation shall be $5.00
and if the Closing Price is more than $7.00, the Closing Price used
for this calculation shall be $7.00. In the event pre-tax earnings
of Merger Subsidiary after the merger with BASIS for the twelve
months ending June 30, 1997 is less than $500,000 ("BASIS
Earnings"), the First Contingent Payment shall be the number of
shares of Prologic Common Stock equal to $1,100,000 minus 4.4 times
the amount by which BASIS Earnings are less than $500,000, divided
by the Closing Price. If BASIS Earnings are below $250,000, the
First Contingent Payment payable pursuant to this Section shall be
0 shares.
2. The "Second Contingent Payment" shall be the number of
shares of Prologic Common Stock equal to $500,000 divided by the
Contingent Price. The "Contingent Price" means the average of the
closing sales price of Prologic Common Stock as listed on the
NASDAQ Small Capital Market for the ten trading days immediately
preceding June 30, 1997, or the date of a Transfer provided, that
if the Closing Price is less than $5.00, the Closing Price used for
this calculation shall be $5.00 and if the Closing Price is more
than $10.00, the Closing Price used for this calculation shall be
$10.00. In the event BASIS Earnings are more than $500,000, the
Second Contingent Payment shall be the number of shares equal to
$500,000 minus 2 times the amount by which BASIS Earnings are less
than $750,000 divided by the Contingent Price. In the event that
BASIS Earnings are less than $500,000, the Second Contingent
Payment payable pursuant to this provision shall be 0 shares.
3. Notwithstanding anything contained in this Section C to the
contrary, upon the written election of either Prologic or the BASIS
Representative, up to 40% of the Contingent Payments to be paid to
BASIS Shareholders shall be paid in cash rather than shares of
Prologic Common Stock. Any election under this Section shall be
made, if at all, by delivery of written notice to the other party
not less than ten business days prior to the date of payment,
provided, that no payment will be made in cash pursuant to this
Section or Section D hereof if BASIS delivers an opinion of counsel
reasonably satisfactory to Prologic no less than five days prior to
the date of payment that the proposed payment will have a material
adverse effect on the tax exempt treatment of shares of Prologic
Common Stock received in connection with the transaction
contemplated herein.
4. If at any time prior to June 30, 1997, Prologic sells or
otherwise transfers or disposes of voting control of BASIS, or
sells or otherwise disposes of any asset or assets of BASIS that
could have a material adverse impact on the achievement of BASIS
Earnings (other than (a) a transfer to Prologic, a parent of
Prologic or a majority-owned subsidiary of Prologic, or (b) in
connection with the sale or transfer of all or substantially all of
the assets or shares of Prologic) ("Transfer"), then the formula by
which BASIS will be paid Contingent Payments will be modified by
multiplying the revenue targets set forth in Section C.3 above by a
fraction, the numerator of which is the number of whole months then
elapsed since the date on which the merger is effective and the
denominator of which is twelve, and determining if BASIS has met
those reduced targets based on BASIS Earnings at the time of the
event giving rise to the modification; provided, however, that if
notwithstanding such
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event, BASIS nonetheless achieves BASIS Earnings such that it would
be paid a higher amount of Contingent Payments under the original
formula at the end of the original period then under the revised
formula, then BASIS shall receive such higher amount of Contingent
Payments.
D. Additional Consideration. If at any time prior to June 30, 1998,
Prologic effects an asset transfer of any intellectual property that is an
asset of BASIS as of May 15, 1996 (other than (a) through licenses in the
ordinary course of business, (b) a transfer to Prologic, a parent of
Prologic or a majority-owned subsidiary of Prologic), (c) in connection
with the sale or transfer of all or substantially all of the assets or
shares of the Merger Subsidiary or Prologic, (d) a transfer covered by
Section C.4 above), then Prologic shall issue cash and/or shares of
Prologic Common Stock to BASIS Shareholders in an amount equivalent to
thirty percent (30%) of the net consideration received or to be received
by Prologic for such assets ("Additional Consideration"). The number of
shares to be paid under this Section shall be issued within thirty
business days of the receipt of any such payment and will be based on the
Average Share Price of the Prologic Common Stock determined as of the ten
days prior to such transfer. Either Prologic or the BASIS Representative
may elect that up to 40% of this consideration shall be paid in cash by
providing written notice to the other party no less than ten business days
prior to the date of payment.
FOURTH: Without any action on the part of the holders thereof, all
outstanding stock options for shares of BASIS Common Stock held by employees of
BASIS pursuant to the BASIS Stock Option Agreements and other stock options,
warrants and other rights to acquire shares of BASIS Common Stock held by all
other Persons shall automatically be terminated and cancelled upon the
effectuation of the Merger. Each holder of a stock option, warrant or other
right shall thereafter cease to have any rights with respect to such options,
warrants or other rights.
FIFTH: The Articles of Incorporation and Bylaws of Merger Subsidiary in
effect immediately prior to the effective time of the merger shall be the
Articles of Incorporation and Bylaws of the Surviving Corporation unless and
until amended as provided by applicable law and the Articles of Incorporation of
the Merger Subsidiary, provided, however, that immediately upon the merger,
Paragraph 1 of the Articles of Incorporation of the Surviving Corporation shall
be amended as follows:
"1. Name. The name of the Corporation shall be BASIS, Inc."
SIXTH: The directors and officers of Merger Subsidiary immediately prior
to the merger shall remain as directors and officers of the Surviving
Corporation upon the merger until their successors are duly elected and
qualified.
SEVENTH: The officers of each corporation shall be authorized to do all
acts and things necessary and proper to effect the merger.
EIGHTH: The merger shall be effective upon the filing of the Articles of
Merger with, and the acceptance for filing by, the Corporation Commission of the
State of Arizona.
NINTH: This Plan of Merger may be amended, supplemented or modified by
mutual consent of the Boards of Directors of BASIS and Merger Subsidiary or
their respective duly authorized officers, in any manner and at any time agreed
upon by them in writing; provided, however, that no such amendment, supplement
or modification may materially adversely affect the rights of the shareholders
of BASIS or Merger Subsidiary.
TENTH: Anything to the contrary herein notwithstanding, this Plan of
Merger may be terminated
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and the transactions provided for herein may be abandoned by the Boards of
Directors of BASIS or Merger Subsidiary in their sole discretion, but not later
than the effective date of the merger described in Article EIGHTH.
ELEVENTH: Subject to applicable law, this Plan of Merger and the Articles
of Merger may be amended, modified or supplemented as necessary to conform to
the requirements of the Corporation Commission of the State of Arizona for
filing without the approval of the board of directors or shareholders of either
BASIS or Merger Subsidiary.
TWELFTH: The Plan shall be governed in all respects, including validity,
interpretation, and effect, by the laws of the State of Arizona without regard
to that state's choice of law doctrine.
IN WITNESS WHEREOF, BASIS Inc. and BASIS Acquisition Corp. have caused
this Plan of Merger to be executed by their respective duly authorized officers
on this ____ day of ____________, 1996.
BASIS, Inc.,
a California corporation
By:_____________________________________
Patricia F. Shanks, President
By:_____________________________________
_________________, Secretary
BASIS Acquisition Corp.,
an Arizona corporation
By:_____________________________________
James M. Heim, President
By:_____________________________________
William E. Wallin, Secretary
55
EXHIBIT B-1
CERTIFICATE OF OFFICER
OF
BASIS, INC.
The undersigned officer of BASIS, Inc., a California corporation
("BASIS"), on behalf of BASIS, after consulting with legal counsel and financial
auditors regarding the meaning of and the factual support for the following
representations, hereby represents in connection with the proposed merger of
BASIS with and into BASIS Acquisition Corp., an Arizona corporation ("Sub"), in
a statutory merger and related transactions (the "Merger") pursuant to that
certain Agreement and Plan of Reorganization among BASIS, Sub, Prologic
Management Systems, Inc., an Arizona corporation and parent of Sub ("Parent")
and the Principal Shareholders (as defined therein), dated as of June 1, 1996,
and exhibits thereto (the "Reorganization Agreement"), with Sub surviving the
Merger, that as of the time this certificate is executed, the following facts
are now true and will continue to be true as of the Closing Date and thereafter
where relevant. Capitalized terms not otherwise defined herein shall have the
meanings given to them in the Reorganization Agreement.
1. Neither Parent nor any Parent affiliate owns, or has owned during the
past five (5) years, directly or indirectly, any shares of BASIS common stock,
or the right to acquire or vote any such stock.
2. BASIS is not an investment company within the meaning of section
368(a)(2)(F) of the Code.
3. Parent, Sub, BASIS and the shareholders of BASIS will each pay
separately their own expenses incurred in connection with the Merger except as
otherwise provided in Section 11.2 of the Reorganization Agreement; provided,
however, that to the extent any expenses relating to the Merger are funded
directly or indirectly by a party other than the incurring party, such expenses
will be within the guidelines established in Revenue Ruling 73-54, 1973-1 C.B.
187 and Revenue Ruling 76-365, 1976-2 C.B.110.
4. The assumption by Sub of the liabilities of BASIS pursuant to the
Merger is for a bona fide business purpose, and the principal purpose of such
assumption is not the avoidance of federal income tax on the transfer of assets
of BASIS to Sub pursuant to the Merger.
5. The liabilities of BASIS assumed by Sub and the liabilities to which
the transferred assets of BASIS are subject were incurred by BASIS in the
ordinary course of its business. No liabilities of any person other than BASIS
will be assumed by Sub or Parent in the Merger, and none of the shares of BASIS
to be surrendered in exchange for Parent common stock will be subject to any
liabilities.
6. There is no intercorporate indebtedness existing between Parent and
BASIS or between Sub and BASIS that was issued, acquired or will be settled at a
discount.
7. None of the service-related compensation payments received by
shareholders of BASIS, if any, will be separate consideration for, or allocable
to, any of their shares of BASIS stock; none of the shares of Parent common
stock received by any shareholder of BASIS will be separate consideration for,
or allocable to, any employment agreement, consulting agreement, any covenants
not to compete, or otherwise for the performance of services; and the
compensation paid to any shareholder of BASIS was for services actually rendered
and was less than or commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
8. BASIS knows of no plan or intention by any shareholder of BASIS to
sell, exchange, transfer by gift, or otherwise dispose of any of the shares of
Parent common stock to be received by them in the Merger. In addition, BASIS is
not aware of any transfers of BASIS stock by any holders thereof prior
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to the effective date that were made in contemplation of the Merger.
9. On the date of the Merger, the fair market value of the assets of BASIS
will exceed the sum of its liabilities (including any liabilities to which its
assets are subject).
10. The payment of cash in lieu of fractional shares as set out in section
4.3 of the Reorganization Agreement was not separately bargained for
consideration and is being made to spare Parent the expense and inconvenience of
issuing fractional shares.
11. As a result of the Merger, BASIS will transfer to Sub at least ninety
percent (90%) of the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets of BASIS held by it
immediately prior to the Merger. For this purpose, amounts used to pay
dissenters or to pay reorganization expenses, and all redemptions and
distributions (except for regular common normal dividends) made by BASIS
immediately prior to the Merger, will be considered as assets held by BASIS
immediately prior to the Merger. BASIS has not redeemed any of the BASIS stock,
made any distribution with respect to any of the BASIS stock, or disposed of any
of its assets, in anticipation of or as part of a plan for the acquisition of
BASIS by Parent and Sub.
12. The undersigned is ________________ of BASIS and is authorized to make
all of the representations set forth herein.
The undersigned recognizes that counsel to and accountants for Parent and
Sub and counsel to and accountants for BASIS will rely upon the foregoing
representations in evaluating the federal income tax consequences of the Merger.
_________________________________________
BASIS, INC.
Dated: _______________, 1996
57
EXHIBIT B-2
CERTIFICATE OF OFFICER
OF
PROLOGIC MANAGEMENT SYSTEMS, INC. AND BASIS
ACQUISITION CORP.
The undersigned officer of Prologic Management Systems, Inc., an Arizona
corporation ("Parent"), and its wholly owned subsidiary BASIS Acquisition Corp.,
an Arizona corporation ("Sub"), on behalf of Parent and Sub, after consulting
with legal counsel and financial auditors regarding the meaning of and the
factual support for the following representations, hereby represents in
connection with the proposed merger of BASIS, Inc., a California corporation
("BASIS"), with and into Sub, in a statutory merger and related transactions
(the "Merger") pursuant to that certain Agreement and Plan of Reorganization
among BASIS, Sub, Parent and the Principal Shareholders as defined therein,
dated as of June 1, 1996, and exhibits thereto (the "Reorganization Agreement"),
with Sub surviving the Merger, that as of the time this certificate is executed,
the following facts are now true and will continue to be true as of the Closing
Date and thereafter where relevant. Capitalized terms not otherwise defined
herein shall have the meanings given to them in the Reorganization Agreement.
1. Prior to the Merger, Parent will be in control of Sub within the
meaning of section 368(c) of the Internal Revenue Code of 1986, as amended (the
"Code").
2. Immediately following the Merger, Parent will be in control of Sub
within the meaning of section 368(c) of the Code. Parent has no plan or
intention to cause Sub to issue, after the Merger, additional shares of Sub
stock (or rights to acquire shares of Sub common stock) that would result in
Parent losing control of Sub within the meaning of section 368(c) of the Code.
3. Parent has no plan or intention to reacquire any of its stock issued in
the Merger. Parent's and Sub's principal reasons for participating in the Merger
are for bona fide business reasons, within the meaning ascribed thereto under
applicable federal tax law and regulations.
4. Parent has no plan or intention to: (i) cause or permit Sub to sell,
transfer or otherwise dispose of any of its assets or of any of the assets
acquired from BASIS except for dispositions made in the ordinary course of
business; (ii) liquidate Sub; (iii) merge or consolidate Sub with or into
another corporation, including Parent or its affiliates; (iv) make any
extraordinary distributions in respect of its stock in Sub; or (v) sell,
distribute or otherwise dispose of the stock of Sub.
5. Parent intends that, following the Merger, Sub will continue BASIS'
historic business or use a significant portion of BASIS' historic business
assets in a business.
6. Neither Parent nor any Parent affiliate owns, or has owned during the
past five (5) years, directly or indirectly, any shares of BASIS common stock,
or the right to acquire or vote any such stock.
7. Neither Parent nor Sub is an investment company within the meaning of
section 368(a)(2)(F) of the Code.
8. To the knowledge of Parent or Sub, no shareholder of BASIS is acting as
agent for or representative of Parent or Sub in connection with the Merger or
approval thereof.
9. Stock of Sub will be issued only to Parent in connection with the
Merger.
10. Parent, Sub, BASIS and the shareholders of BASIS will each pay
separately their own expenses incurred in connection with the Merger except as
otherwise provided in Section 11.2 of the
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Reorganization Agreement; provided, however, that to the extent any expenses
relating to the Merger are funded directly or indirectly by a party other than
the incurring party, such expenses will be within the guidelines established in
Revenue Ruling 73-54, 1973-1 C.B. 187 and Revenue Ruling 76-365, 1976-2 C.B.
110.
11. The assumption by Sub of the liabilities of BASIS pursuant to the
Merger is for a bona fide business purpose, and the principal purpose of such
assumption is not the avoidance of federal income tax on the transfer of assets
of BASIS to Sub pursuant to the Merger.
12. To the knowledge of Parent or Sub, no liabilities of any person other
than BASIS will be assumed by Sub or Parent in the Merger.
13. There is no intercorporate indebtedness existing between Parent and
BASIS or between Sub and BASIS that was issued, acquired or will be settled at a
discount.
14. To the best of the knowledge of Parent and Sub, on the date of the
Merger, the fair market value of the assets of BASIS will exceed the sum of its
liabilities (including any liabilities to which its assets are subject).
15. None of the service-related compensation payments received by
shareholders of BASIS, if any, will be separate consideration for, or allocable
to, any of their shares of BASIS stock; none of the shares of Parent common
stock received by any shareholder of BASIS will be separate consideration for,
or allocable to, any employment agreement, consulting agreement, any covenants
not to compete, or otherwise for the performance of services; and the
compensation paid to any shareholder of BASIS was for services actually rendered
and was less than or commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
16. Neither Parent nor Sub know of any plan or intention by any
shareholder of BASIS to sell, exchange, transfer by gift, or otherwise dispose
of any of the shares of Parent common stock to be received by them in the
Merger. In addition, neither Parent nor Sub is aware of any transfers of BASIS
stock by any holders thereof prior to the effective date that were made in
contemplation of the Merger.
17. The payment of cash in lieu of fractional shares as set out in section
4.3 of the Reorganization Agreement was not separately bargained for
consideration and is being made to spare Parent the expense and inconvenience of
issuing fractional shares.
18. To the best of the knowledge of Parent and Sub, as a result of the
Merger, BASIS will transfer to Sub at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of the fair
market value of the gross assets of BASIS held by it immediately prior to the
Merger. For this purpose, amounts used to pay dissenters or to pay
reorganization expenses, and all redemptions and distributions (except for
regular common normal dividends) made by BASIS immediately prior to the Merger,
will be considered as assets held by BASIS immediately prior to the Merger. To
the best of the knowledge of Parent and Sub, BASIS has not redeemed any of the
BASIS stock, made any distribution with respect to any of the BASIS stock, or
disposed of any of its assets, in anticipation of or as part of a plan for the
acquisition of BASIS by Parent and Sub.
19. The undersigned is ________________ of both Parent and Sub and is
authorized to make all of the representations set forth herein.
The undersigned recognizes that counsel to and accountants for Parent and
Sub and counsel to and accountants for BASIS will rely upon the foregoing
representations in evaluating the federal income tax
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consequences of the Merger.
_________________________________ _________________________________
PROLOGIC MANAGEMENT SYSTEMS, INC. BASIS ACQUISITION CORP.
Dated: _______________, 1996 Dated: _______________, 1996
60
EXHIBIT E
AFFILIATE AGREEMENT
Prologic Management Services, Inc.
2731 East Elvira
Tucson, Arizona 85706-7124
Ladies and Gentlemen:
I have prepared this letter as required by Section 7.12 of the Agreement
and Plan of Reorganization dated as of June 1, 1996 among Prologic Management
Systems, Inc., an Arizona corporation ("Prologic"), Basis Acquisition Corp.
("Merger Subsidiary") and Basis, Inc., a California corporation ("Basis"). I am
furnishing this letter so that Prologic and Merger Subsidiary may ensure that
the issuance of Prologic Common Stock in the merger contemplated by the
Reorganization Agreement (the "Merger") complies with the Securities Act of
1933, as amended (the "Act"). I understand that Prologic and Merger Subsidiary
will rely on the representations, warranties and undertakings in this letter in
concluding the Merger, and I agree that Prologic and Merger Subsidiary may so
rely and that their reliance is reasonable.
1. I acknowledge that I may be considered an "affiliate" of Basis as that
term is used in Rule 145(c) promulgated under the Act.
2. I agree that I will not make any sale, transfer or other disposition of
any Prologic capital stock in the thirty days ending at the "Effective Time" for
the Merger.
3. I understand that Prologic will issue the shares of Prologic Common
Stock that I will receive in the Merger (the "Shares") based on an exemption
from the Act's registration requirements in Section 4(2) of the Act. I also
understand that, because I may be an affiliate of Basis, any resale of the
Shares will require: (i) an effective registration statement filed in compliance
with the Act; (ii) compliance with Rule 145 promulgated under the Act; or (iii)
the availability of another exemption from the Act's registration requirements.
4. I agree that Prologic may refuse to permit me to sell, transfer or
dispose of any of the Shares in the absence of either (i) an effective
registration statement under the Act covering such sale, transfer or other
disposition, (ii) a sale in compliance with Rule 145(d) under the Act, as
determined prior to such sale by Prologic after receiving such documentation
with respect to such proposed sale as it may reasonably request, or (iii) an
opinion of counsel or a copy of a "no action" letter or other definitive ruling
from the Securities and Exchange Commission, in either case satisfactory to
Prologic's counsel, to the effect that I may effect such sale, transfer or other
distribution without registration, together with such other documentation as
Prologic's counsel reasonably may request. I also agree that Prologic may place
a legend on any certificates evidencing the Shares or issue stop transfer
instructions to its transfer agent to give effect to the restrictions contained
in this paragraph.
5. I represent and warrant that I am acquiring the Shares for my own
account, and with no intention to make any resale or distribution thereof. In
the absence of an effective registration statement covering the sale of the
Shares, I will resell the Shares only under and in compliance with Rule 145(d)
according to the following terms:
(i) I will not sell the Shares at any time during which adequate current
public information (as defined by Rule 144 under the Act) about Prologic is not
available. To permit me to sell the Shares in accordance with Rule 145(d) under
the Act, Prologic will use its best efforts to file on a timely basis all
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reports that Section 13 of the Securities Exchange Act of 1934, as amended,
referred to in paragraph (c)(1) of Rule 144 under the Act, require it to file.
(ii) In any three consecutive months, I will not sell any of the Shares
representing more than the greater of (a) one percent of the total number of
shares of Prologic common stock outstanding during such period, or (b) the
average weekly reported volume of trading in Prologic common stock during the
four full weeks immediately preceding the week during which I enter my order to
sell. In computing the number of shares sold for purposes of this paragraph, I
will include any shares sold by certain immediate family members, other related
persons and persons with whom I may act in concert, all in accordance with Rule
144 under the Act.
(iii) I will sell the Shares only in broker's transactions that comply
with Rule 144(f) and (g) under the Act, and I will neither solicit nor arrange
for the solicitation of orders to buy any of the Shares or make any payment in
connection with the offer or sale of the Shares to any person other than the
broker who executes the order to sell the Shares.
(iv) Upon Prologic's request at any time, I will report to Prologic the
amount, time and manner of all sales of the Shares by me.
(v) Notwithstanding the foregoing, I understand that I may make
unrestricted resales of Shares pursuant to (a) Rule 145(d)(2) under the Act if
(1) I have beneficially owned (within the meaning of Rule 144(d) under the Act)
the Shares for at least two years after the date of the Merger, (2) I am not an
affiliate of Prologic, and (3) Prologic meets the current public information
requirements of Rule 144(c) under the Act, or (b) Rule 145(d)(3) under the Act
if (1) I have beneficially owned the Shares for at least three years after the
date of the Merger, and (2) I am not, and have not been for at least three
months, an affiliate of Prologic.
__________________________________
62
EXHIBIT F
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (the "Agreement") is made and entered into as
of this ____ day of ________, 1996, by Prologic Management Systems, Inc., an
Arizona corporation ("Prologic"), BASIS Acquisition Corp., an Arizona
corporation and a newly formed, wholly-owned subsidiary of Prologic ("Merger
Subsidiary"), and the shareholders of BASIS who are listed as signatories to
this Agreement (the "BASIS Shareholders").
RECITALS:
WHEREAS, Prologic desires to acquire BASIS, and BASIS is willing to be
acquired by Prologic, pursuant to a merger in which BASIS will merge with and
into Merger Subsidiary (the "Merger") and the shareholders of BASIS, Inc., a
California corporation ("BASIS") will receive certain consideration in
accordance with the terms and conditions set forth in this Agreement and Plan of
Reorganization, dated as of June 1, 1996 by and among Prologic Merger
Subsidiary, BASIS and the other parties thereto (the "Merger Agreement"); and
WHEREAS, all capitalized terms used herein without definition shall have
the meanings ascribed to them in the Merger Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements, and conditions contained in this Agreement
and the Merger Agreement, the parties agree as follows:
ARTICLE I. REGISTRATION RIGHTS
Section 1.1 Registration Upon Demand. Subject to the provisions of this
Article I, if market, legal and other considerations permit, at any one time
after twenty-four (24) months from the Closing, upon the written request of the
BASIS Representative requesting that Prologic effect the registration under the
Securities Act for the number of shares of its Registrable Securities which
shall be no less than the lesser of 50% of the Prologic Common Stock issued at
Closing or such number of shares of Prologic Common Stock having a value equal
to $5,000,000 (based on the average closing sales price for such shares as
listed on NASDAQ Small Capital Market for the ten days immediately preceding the
time such request is made) (which request shall specify the intended method of
distribution thereof), Prologic shall use its best efforts to register under the
Securities Act (a "Demand Registration") the Registrable Securities which
Prologic has been requested to register.
Section 1.2 "Piggy-Back" Registrations. Subject to the provisions of this
Article I, as market, legal and other considerations permit, at any time after
six (6) months following the Closing and prior to September 30, 1999, Prologic
will take steps to register any securities under the Securities Act in
connection with an offering of its securities, whether or not for its own
account (other than a registration statement filed with respect to the issuance
of Prologic Common Stock, or securities convertible into or exchangeable for
Prologic Common Stock, or rights to acquire Prologic Common Stock, on (a) Form
S-4 or otherwise in connection with an acquisition, merger or other transaction
or (b) Form S-8 granted or to be granted to employees of Prologic), and, if
subject to the foregoing limitations, Prologic proposes to register any
securities under the Securities Act, Prologic shall furnish prompt written
notice to the BASIS Representative of its intention to effect such registration
and the intended method of distribution in connection therewith. On three
occasions, upon the written request of the BASIS Representative made
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to Prologic within 20 days after the receipt of such a notice, Prologic shall,
subject to this Article I, include in such registration such amount of the
Registrable Securities as the BASIS Representative shall notify Prologic in
writing (a "Piggy-Back Registration").
Section 1.3 Obligations of the Company. Whenever Prologic is required
under this Article I to effect the registration of any Registrable Securities,
Prologic shall, as expeditiously as may be practicable:
a. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and keep such registration statement
effective for up to 60 days.
b. Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
applicable law with respect to the disposition of all securities covered by such
registration statement.
c. Furnish to the BASIS Representative such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of applicable law, and such other documents as it may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by the holders of the Registrable Securities.
d. Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under applicable blue sky
laws; provided that Prologic shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such jurisdictions.
e. In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. The BASIS Shareholders
shall also enter into and perform their respective obligations under such an
agreement.
f. Notify the BASIS Representative, at any time when a prospectus
relating thereto is required to be delivered under applicable law, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
Section 1.4 Furnish Information. It shall be a condition precedent to the
obligation of Prologic to take any action pursuant to this Article I that each
BASIS Shareholder named in the Registration Statement shall furnish to Prologic
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be reasonably
required to effect the registration of the Registrable Securities.
Section 1.5 Expenses of Registration.
a. With respect to a Demand Registration, holders of Registrable
Securities whose securities are actually registered shall pay a portion of
out-of-pocket expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations made
pursuant to Section 1.1, including, without limitation, all registration,
filing, and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for Prologic and counsel for the BASIS Shareholders
(the "Registration Expenses") incurred by or on behalf of a selling holder for
its benefit pro
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rata based on the percentage of the aggregate number of shares registered
pursuant to such registration which are represented by the Registrable
Securities of such holder.
b. With respect to a Piggy-Back Registration, Prologic shall bear
and pay all Registration Expenses, but excluding underwriting discounts and
commissions relating to Registrable Securities.
Section 1.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of Prologic's capital stock, Prologic shall
not be required under Section 1.2 to include any of the securities of a BASIS
Shareholder in the registration of the securities to be included in such
underwriting, or in such underwriting itself, unless the BASIS Shareholder
accepts the terms of the underwriting as agreed upon between Prologic and the
underwriters selected by it, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by Prologic. If the total amount of securities, including registrable
securities requested by shareholders to be included in such offering, whether
upon exercise of registration rights or otherwise (collectively, "secondary
securities"), exceeds the number of secondary securities that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then Prologic shall be required to include in the offering only such
number of secondary securities, including Registrable Securities, as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering. The secondary securities so included shall be apportioned among
the BASIS Shareholder and such other selling shareholders pro rata in proportion
to the total number of secondary securities, including Registrable Securities,
owned by them, respectively, or in such other proportion as may be agreed to by
such shareholders and the BASIS Shareholder.
Section 1.7 Delay of Registration. The BASIS Shareholders shall not have
any right to obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article I.
Section 1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Article I:
a. To the extent permitted by law, Prologic will indemnify and hold
harmless the BASIS Shareholders, any underwriter (as defined in the Securities
Act or other applicable law) for the BASIS Shareholders and each Person, if any,
who controls the BASIS Shareholder or underwriter within the meaning of the
Securities Act, the Exchange Act or other applicable law, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act or other Applicable Law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations by Prologic (collectively, a "SEC Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading or (iii) any
violation or alleged violation by the company of the Securities Act or other
applicable law, or any rule or regulation promulgated under the securities Act
or other applicable law; and Prologic will pay to each BASIS Shareholder,
underwriter or controlling Person any reasonable legal or other expenses
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, that the indemnity agreement
contained in this Section 1.8 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of Prologic (which consent shall not be
unreasonably withheld), nor shall Prologic be liable in any such case for any
such loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon an SEC Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by
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the BASIS Shareholder or such underwriter or controlling Person.
b. To the extent permitted by law, each BASIS Shareholder will
indemnify and hold harmless Prologic, each of its directors, each of its
officers who has signed the registration statement, each Person, if any, who
controls Prologic within the meaning of the Securities Act or other applicable
law, any underwriter, and any controlling Person of any such underwriter,
against any losses, claims, damages, or liabilities (joint or several) to which
any of the foregoing Persons may become subject, under the Securities Act or
other applicable law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any SEC
Violation, in each case to the extent (and only to the extent) that such SEC
Violation occurs in reliance upon and in conformity with written information
furnished by each BASIS Shareholder expressly for use in connection with such
registration; and the BASIS Shareholder will pay any reasonable legal or other
expenses incurred by any Person to be indemnified pursuant to this Section 1.8,
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, that the indemnity agreement contained in this
Section 1.8 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the BASIS Shareholder, which consent shall not be unreasonably
withheld.
c. Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, that an indemnified party (together with
all other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.8, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this Section 1.8.
d. The obligations of Prologic and each BASIS Shareholder under
this Section 1.8 shall survive the completion of any offering of Registrable
Securities under a registration statement pursuant to this Article I, and
otherwise.
Section 1.9 "Market Stand-Off" Agreement. Each BASIS Shareholder hereby
agrees that, during the duration of the period specified by Prologic and an
underwriter of Prologic Common Stock or other securities of Prologic following
the effective date of a registration statement of Prologic, it shall not, to the
extent requested by Prologic and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of any securities
of Prologic held by such BASIS Shareholder at any time during such period except
Prologic Common Stock included in such registration ("Limitation"). In order to
enforce the foregoing covenant, Prologic may impose stop-transfer instructions
with respect to the Registrable Securities of the BASIS Shareholders (and the
shares or securities of every other Person subject to the foregoing restriction)
until the end of such period. Prologic will undertake to procure comparable
Limitation from its officers and directors and any subsequent holders who
receive Prologic Common Stock as consideration for an acquisition or merger
substantially similar to the transaction contemplated under
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the Merger Agreement.
Section 1.10 Termination of Registration Rights. As to any particular
shares of Registrable Securities, the rights provided for in this Article I
shall terminate upon the transfer of the Registrable Securities (other than the
initial issuance of Registrable Securities upon the effectiveness of the
Merger), and BASIS Shareholders shall not be entitled to exercise any right
provided for in this Article I after September 30, 1999 except for the right to
Indemnification provided in Section 1.8. As used in this Section 1.10, the term
"transfer" shall include any voluntary or involuntary transfer or other
disposition of registrable securities, other than the transfer of such
securities to a trust of which the transferor is a beneficiary or a transfer
pursuant to a qualified domestic relations order.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of BASIS Shareholders. Each of
the BASIS Shareholders, jointly and severally, represent and warrant to Prologic
that:
a. To the best knowledge of each BASIS shareholder, attached as Section
6.1(b)(iii)(A) of the BASIS Disclosure Schedule to the Merger Agreement
("Shareholders List") is an accurate and complete list of each of the
shareholders of BASIS Common Stock, including the name and address of each such
shareholder, each capacity, if any, in which each shareholder presently serves
BASIS (or has served BASIS within the last six months), the number of shares of
BASIS Common Stock held by each shareholder, and the date on which such shares
were issued and the nature and amount of consideration paid for such shares.
Attached as Section 6.1(b)(iii)(B) of the BASIS Disclosure Schedule ("Options
List") is an accurate and complete list of each Person who has the right to
acquire shares of BASIS Common Stock from BASIS pursuant to any option, warrant,
call, right, commitment or agreement of any character, including, without
limitation, BASIS Options, including the name of each such Person, each capacity
in which such Person presently serves BASIS (or served BASIS at the time such
right became effective), the number of shares of BASIS Common Stock that such
Person has the right to acquire (both at this time and ultimately with the
passage of time) and the nature and amount of consideration payable to acquire
such shares, the date on which the right to acquire such shares became
effective, and the plan and/or agreement under which such right is memorialized.
b. Capital Structure and Title to Shares. (i) The description of the
shares of BASIS Common Stock owned by it on the Shareholders List is accurate
and complete, (ii) it owns no other shares, and has no right to acquire shares,
of BASIS Common Stock, whether directly or indirectly from BASIS or any other
person (except as may be described on Options List), (iii) it has good and
marketable title to such shares, free and clear of any Lien, of the BASIS
Shareholders has good and marketable title to such shares shown on the
Shareholders List as being owned by it, free and clear of any Lien, (iv) to its
knowledge, no Person, has the right to acquire, or has any claim with respect
to, any of such shares, and (v) each of the BASIS Shareholders is the record and
beneficial owner of the shares of BASIS Common Stock shown on the Shareholders
List as being owned by it.
c. Authority. (i) It has the requisite legal capacity to execute and
deliver the Transaction Agreements and to perform the respective obligations
under, and consummate the transactions contemplated by, each of the Transaction
Agreements. (ii) Each of the Transaction Agreements to which it is a party
constitutes the valid and legally binding obligations of such BASIS Shareholder
(assuming the due execution and delivery thereof by all other parties thereto),
enforceable against such BASIS Shareholder in accordance with its respective
terms, subject to the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and of general principles of equity.
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d. Litigation. There is no suit, action, proceeding, order or
investigation, at law or equity, pending or, to the knowledge of each BASIS
Shareholder, threatened against or affecting such basis Shareholder or any of
such BASIS Shareholder's properties or other assets, the outcome of which could
impair the ability of such BASIS Shareholder to perform any of its obligations
under any of the Transaction Agreements.
Section 2.2 Survival of Representations and Warranties. Notwithstanding
any right of Prologic to fully investigate the affairs of BASIS and the BASIS
Shareholders, and any knowledge of facts determined or determinable by any of
such parties pursuant to such investigation or right of investigation, Prologic
has the right to rely fully upon the representations, warranties, covenants and
agreements of BASIS and the BASIS Shareholders contained in this Agreement and
the Merger Agreement. All such representations, warranties, covenants, and
agreements shall survive the execution and delivery of this Agreement and the
Closing and, except as otherwise specifically provided in this Agreement, shall
remain in effect after the Closing until within two years after the Closing
Date; provided, (a) that the representations and warranties contained in
Sections 2.1(a) and 2.1(b) of this Agreement shall survive without limitation,
and (b) that the representations and warranties contained in Section 6.1 of the
Reorganization Agreement shall survive for so long as any period covered by such
representations and warranties remain open, in whole or in part, and subject to
audit and/or adjustment including, without limitation, by reason of wavier of
any statute of limitations.
ARTICLE III. LIMITATIONS IN DISPOSITION
Section 3.1 Underwriter's Restriction. It is understood that the
certificates evidencing the Prologic Common Stock to be issued as Merger
Consideration are subject to certain restrictions on sale as set forth in the
Underwriting Agreement, dated as of March 14, 1995 between the Company and
Nutmeg Securities, Ltd.
Section 3.2 Limitations on Disposition. Each BASIS Shareholder agrees not
to make any sale or disposition of all or any portion of the Prologic Common
Stock unless and until:
(i) There is then in effect a registration statement under the
Securities Act or the applicable law of any jurisdiction outside the United
States covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(ii) (A) The BASIS Shareholder shall have notified Prologic of the
proposed disposition and shall have furnished Prologic with a detailed statement
of the circumstances surrounding the proposed disposition and (B) the BASIS
Shareholders shall have furnished Prologic with an opinion of counsel,
reasonably satisfactory to Prologic, that such disposition is not in violation
of applicable securities law. It is agreed that, except in unusual
circumstances, Prologic will not require opinions of counsel for transactions
subject to, and made pursuant to, Rule 144 of the Securities Act.
Section 3.3 Restricted Securities and Legends. It is understood that the
shares of Prologic Common Stock to be issued as Merger Consideration have not
been registered under the Securities Act and are subject to certain other
restrictions and that the certificates evidencing such Prologic Common Stock
shall bear the following legend:
"These securities have not been registered under the United States
Securities Act of 1933, as amended (the "Securities Act"), or the
securities laws of any other jurisdiction. They may not be sold, offered
for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under the Securities
Act (or its equivalent under the laws
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of any applicable jurisdiction other than the United States) or, under
certain circumstances, an opinion of counsel satisfactory to the Company
that such transaction will not be in violation of applicable securities
laws. These securities are subject to certain limitations and
restrictions, such as a limitation on transferability, under the
Shareholders' Agreement, dated as of _______________, 1996, by and between
the Company, BASIS Acquisition Corp., and the shareholders of BASIS, Inc.,
and the Underwriting Agreement, dated as of March 14, 1995, between the
Company and Nutmeg Securities, Ltd., copies of which may be obtained from
the Company."
ARTICLE IV. INDEMNIFICATION
Section 4.1 BASIS Indemnification. For a period of three years after the
Effective Date, BASIS and each of the BASIS Shareholders shall jointly and
severally indemnify and hold harmless Prologic, Merger Subsidiary, and each of
the respective officers, directors, employees, agents, affiliates and associates
thereof, in their respective capacities as such (collectively, the "Indemnified
Persons"), to the fullest extent lawful, from and against: (a) any and all
actions, suits, claims, proceedings, costs, losses, liabilities, damages,
judgments, amounts paid in settlement in accordance with Section 4.5, and
reasonable expenses (including, without limitation, reasonable attorneys' fees
and disbursements) (collectively, a "Loss" or "Losses") suffered or incurred by
any Indemnified Person to the extent relating to or arising out of any
inaccuracy in, or any breach, violation or nonobservance of, any of the
representations, warranties, covenants or agreements made by BASIS or any of the
BASIS Shareholders, or both, in this Agreement, any of the other Transaction
Agreements or any written agreements or certificates delivered by BASIS or a
BASIS Shareholder in connection with the Merger; (b) any and all Losses relating
to or arising out of any other action or failure to act by BASIS, or any of its
employees, agents or affiliates, with respect to the transactions contemplated
by the Merger or any of the other Transaction Agreements; and (c) any and all
Losses relating to or arising out of a claim, action, suit or proceeding made or
brought against an Indemnified Person, by other than Prologic (except with
respect to 4.1(a) above) or any of its current or former shareholders (acting in
such shareholder capacity with respect to such claim, action, suit or
proceeding), with respect to any act by BASIS, or any of its officers,
directors, employees and agents (acting in that capacity), prior to the
Effective Time, if the facts giving rise to such Loss or the risk or possibility
of such Loss is not described, in reasonable detail, in the BASIS Disclosure
Schedule and only to the extent such claim, action, suit or proceeding is not
solely with respect to any projections or prospects of BASIS. Notwithstanding
the foregoing, no BASIS Shareholder shall be obligated to provide
indemnification for Losses aggregating in excess of the Merger Consideration and
Additional Consideration payable to such BASIS Shareholder in connection with
the transactions contemplated herein and in the Merger Agreement.
Section 4.2 Reimbursement. Subject to the requirements of Section 4.5,
each of the BASIS Shareholders shall reimburse the Indemnified Persons for all
Losses for which such BASIS Shareholder is obligated to provide indemnity under
Section 4.1 as such Losses are paid or incurred and promptly after such BASIS
Shareholders is given written notice of such Losses, in reasonable detail. Such
reimbursement shall be made by such BASIS Shareholder transferring to the
applicable Indemnified Person shares of Prologic Common Stock received in the
Merger with an aggregate value equal to the amount of such reimbursement, or, if
such BASIS Shareholder does not, at the time of such reimbursement, hold such
shares with an aggregate value equal to such reimbursement amount, all of such
shares then held by such BASIS Shareholder and cash in the amount by which such
aggregate value is less than such reimbursement amount up to and not exceeding
the total Merger Consideration and Additional Consideration payable to such
BASIS Shareholder. For purposes of this Section 4.2, each of such shares shall
be deemed to have a value equal to the Average Share Price of Prologic Common
Stock on the two days prior to the payment date for such losses (the "Applicable
Value"). To the extent that a BASIS
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Shareholder reimburses the Indemnified Persons for a Loss and a court of
competent jurisdiction subsequently determines, in a decision from which there
is no right to appeal or seek further judicial review, that the Indemnified
Persons are not entitled to such reimbursement, the Indemnified Persons shall
promptly refund to such BASIS Shareholder an amount, in cash, equal to the
portion of such Loss that it reimbursed. The amount of each Loss with respect to
which Prologic is entitled to reimbursement hereunder (a) shall be reduced, to
the extent applicable, to take into account any tax benefit derived by Prologic
as a result of such Loss and shall be increased, to the extent applicable, to
take into account any additional taxes payable by Prologic with respect to such
reimbursement, and (b) shall be reduced, to the extent applicable, to take into
account any payment with respect to such Loss received by Prologic from any
insurer and shall be increased, to the extent applicable, to take into account
any additional taxes payable by Prologic with respect to such payment.
Section 4.3 Prologic Indemnification. Prologic shall indemnify and hold
harmless the BASIS Shareholders (collectively, the "Indemnified Shareholders")
to the fullest extent lawful, from and against: (a) any and all Losses suffered
or incurred by any Indemnified Shareholder to the extent relating to or arising
out of any inaccuracy in, or any breach, violation or nonobservance of, any of
the representations, warranties, covenants or agreements made by Prologic in
this Agreement or in any of the other Transaction Agreements to which Prologic
or Merger Subsidiary is a party; (b) any and all Losses relating to or arising
out of any other action or failure to act by Prologic, or any of its employees,
agents or affiliates, with respect to the transactions contemplated by this
Agreement or any of the Transaction Agreements; and (c) any and all Losses
relating to or arising out of a claim, action, suit or proceeding made or
brought against an Indemnified Shareholder, by other than BASIS or any of its
current or former shareholders (acting in such shareholder capacity with respect
to such claim, action, suit or proceeding), with respect to any act by Prologic
or any of its subsidiaries, or any of their respective officers, directors,
employees and agents (acting in that capacity), subsequent to the Effective
Time, if the facts giving rise to such Loss or the risk or possibility of such
Loss is not described, in reasonable detail, in the Prologic Disclosure
Schedule.
Section 4.4 Reimbursement. Subject to the requirements of Section 4.5,
Prologic shall reimburse the Indemnified Shareholders, in cash, for all Losses
for which indemnity is available under Section 4.3 as such Losses are paid or
incurred and promptly after Prologic is given written notice of such Losses, in
reasonable detail. To the extent that Prologic reimburses the Indemnified
Shareholders for a Loss and a court of competent jurisdiction subsequently
determines, in a decision from which there is no right to appeal or seek further
judicial review, that the Indemnified Shareholders are not entitled to such
reimbursement, each of the Indemnified Shareholders with respect to such Loss
shall promptly refund to Prologic an amount, in cash, equal to the portion of
Prologic's reimbursement with respect to such Loss that it received. The amount
of each Loss with respect to which an Indemnified Shareholder is entitled to
reimbursement hereunder (a) shall be reduced, to the extent applicable, to take
into account any tax benefit derived by such Indemnified Shareholder as a result
of such Loss and shall be increased, to the extent applicable, to take into
account any additional taxes payable by such Indemnified Shareholder with
respect to such reimbursement, and (b) shall be reduced, to the extent
applicable, to take into account any payment with respect to such Loss received
by such Indemnified Shareholder from any insurer and shall be increased, to the
extent applicable, to take into account any additional taxes payable by such
Indemnified Shareholder with respect to such payment.
Section 4.5 Notice. An Indemnified Person shall provide written notice to
the BASIS Representative, and an Indemnified Shareholder shall provide written
notice to Prologic, of any claim with respect to which it seeks indemnification
hereunder promptly after discovering any matters giving rise to such claim. The
failure of any Indemnified Person or Indemnified Shareholder to give notice as
provided in this Section shall not relieve the Principal Shareholders or
Prologic, respectively, of their obligations under this Article I unless the
failure materially and adversely affects the ability of the
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Principal Shareholders or Prologic, as the case may be, to defend any related
action, suit or proceeding. In case any such action, suit, claim or proceeding
is brought against an Indemnified Person or an Indemnified Shareholder, the
BASIS Shareholders or Prologic, respectively, shall be entitled to participate
in the defense and, at their election, assume control of the defense with
counsel reasonably acceptable to such Indemnified Person or Indemnified
Shareholder, by delivering written notice to such effect to the Indemnified
Person or Indemnified Shareholder. Upon delivery of such notice to the
Indemnified Person or Indemnified Shareholder and approval of such counsel by
the Indemnified Person or Indemnified Shareholder, the BASIS Shareholders will
not be liable under Sections 4.1 or 4.2, and Prologic will not be liable under
Section 4.3 or 4.4, respectively, for any legal or other expenses subsequently
incurred by such Indemnified Person or Indemnified Shareholder, respectively, in
connection with the defense of such action, suit, claim or proceeding unless
such Indemnified Person or Indemnified Shareholder and one of the BASIS
Shareholders or Prologic, respectively, are defendants and each of them have one
or more different defenses to the claims in such matter. The BASIS Shareholders
and Prologic shall not be liable for any settlement of any action, suit, claim
or proceeding with respect to an Indemnified Person or an Indemnified
Shareholder, respectively, effected without their prior written consent, such
consent not to be unreasonably withheld or delayed. The BASIS Shareholders shall
not, without the Indemnified Person's prior written consent, and Prologic shall
not, without prior written consent of the BASIS Representative, which consent
shall not be unreasonably withheld or delayed, settle or compromise or consent
to entry of any judgment in any action, suit, or proceeding in which such
Indemnified Person or Indemnified Shareholder is a defendant.
ARTICLE V. COVENANTS
Section 5.1 Principal Shareholder Letter. To ensure that the Merger will
qualify as a "tax-free" reorganization for federal income tax purposes, the
Principal Shareholders shall execute at or before the Closing a representation
letter in substantially the form set forth in Exhibit A attached hereto, with
such changes as may reasonably be requested.
Section 5.2 Affiliate Agreement. To ensure that the issuance of Prologic
Common Stock in the Merger complies with the Securities Act, the BASIS
Shareholders shall execute at or before the Closing a letter in substantially
the form set forth in Exhibit E to the Merger Agreement.
ARTICLE VI. AMENDMENT OR WAIVER
Section 6.1 Amendment. This Agreement may not be amended except by a
written instrument approved and executed by the BASIS Representative and
Prologic.
Section 6.2 Waiver. No failure or delay on the part of any party in
exercising any right under this Agreement or under any of the other Transaction
Agreements shall operate as a waiver of such right; nor shall any single or
partial exercise of any such right preclude any other or future exercise of such
right or the exercise of any other such right. No waiver of any right or
obligation under this Agreement or under any of the other Transaction Agreements
shall be enforceable against a party unless made in a writing, specifying such
waiver, executed by such party; provided, however, the BASIS Shareholders shall
be deemed to have approved any waiver if BASIS Representative agrees to such
waiver.
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ARTICLE VII. MISCELLANEOUS AND GENERAL
Section 7.1 Definitions. As used in this Agreement, capitalized terms
shall have the meanings set forth, or in the section specified by, the Merger
Agreement.
Section 7.2 BASIS Representative. The Principal Shareholders, together
with the other BASIS Shareholders, have appointed Patricia F. Shanks, or a
successor designated by her, as their representative (the "BASIS
Representative"). In each instance in this Agreement and in other Transaction
Agreements where the BASIS Shareholders are to receive or send notices, Prologic
may send or accept such notices to the BASIS Representative and shall have no
obligation to send such notices to the other BASIS Shareholders. In each
instance in this Agreement and the other Transaction Agreements where the BASIS
Shareholders are to take action, Prologic shall be entitled to rely conclusively
on the authority of the BASIS Representative in taking such action without
independent investigation until such time as Prologic shall receive written
notice of the appointment of a successor BASIS Representative. The BASIS
Shareholders may designate a successor BASIS Representative at any time by
written notice to Prologic and to BASIS Representative signed by all of the
BASIS Shareholders.
Section 7.3 Fees and Expenses. Each of the BASIS Shareholders shall pay
all fees and expenses that it incurs in connection with the Merger, this
Agreement and the transactions contemplated by this Agreement or the other
Transaction Agreements, including, without limitation, all professional and
other fees (whether or not the Closing occurs).
Section 7.4 Notices. All notices, requests, demands, claims, and other
communications under this Agreement shall be in writing. Any notice, request,
demand, claim, or other communication under this Agreement shall be deemed duly
given (and shall be effective five business days after) if it is sent by
registered or certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient at the address set forth on the signature
page of this Agreement. Any party may send any notice, request, demand, claim or
other communication to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications are to be delivered by giving the other parties
notice of such change in the manner set forth in this Agreement.
Section 7.5 No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the parties to this Agreement
and their respective successors and permitted assigns; provided, however, that
the provisions in Section 1.8, Article IV concerning indemnification are
intended to be for the benefit of the Indemnified Persons specified in Section
1.8, Article IV and their respective legal representatives.
Section 7.6 Governing Law. This Agreement shall be governed by the laws of
the State of Arizona (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters, including, without
limitation, matters of validity, construction, effect and performance.
Section 7.7 Entire Agreement. This Agreement, together with the Merger
Agreement, embodies the entire agreement and understanding of the parties with
respect to the transactions it and they contemplate and supersedes all prior
written or oral commitments, arrangements or understandings with respect to such
matters. There are no other restrictions, agreements, promises, warranties,
covenants or undertakings with respect to the transactions contemplated by this
Agreement or the Merger Agreement.
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Section 7.8 Attorneys' Fees. In the event that any action or proceeding,
including, without limitation, arbitration, is commenced by any party for the
purpose of enforcing any provision of this Agreement, the parties to such
action, proceeding or arbitration shall be entitled to recover, as part of any
award, judgment, decision or other resolution of such action, proceeding or
arbitration in their favor, their related reasonable attorneys' fees and
expenses.
Section 7.9 Severability. If any one or more of the provisions of this
Agreement are held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected. To the extent permitted by Applicable Law, each party waives
any provision of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
Section 7.10 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
Section 7.11 Headings. The Article, Section and Subsection headings herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not limit or otherwise affect any of the Agreement's provisions.
Section 7.12 Construction. Each and every provision of this Agreement and
the other Transaction Agreements shall be construed as though all of the parties
participated equally in the drafting of the same. Consequently, the parties
acknowledge and agree that any rule of construction that a document is to be
construed against the drafting party shall not be applicable either to this
Agreement or such other agreements.
Section 7.13 Successors and Assigns. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns and shall inure
to the benefit of the parties to this Agreement. Notwithstanding the foregoing,
no party to this Agreement shall have any right to assign any of its rights or
obligations hereunder to any other Person.
Section 7.14 References. Unless otherwise specified, references in this
Agreement to "Sections," "Subsections" or "Articles" refer to the sections,
subsections or articles in this Agreement.
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IN WITNESS WHEREOF, each of the parties below have caused this
Shareholders' Agreement to be duly exercised as of the day and year first above
written.
PROLOGIC MANAGEMENT SYSTEMS, INC.
By:_______________________________________________
Name: James M. Heim
Title: President and Chief Executive Officer
BASIS ACQUISITION CORP.
By:_______________________________________________
Name: James M. Heim
Title: President
BASIS SHAREHOLDERS
___________________________________________________
Patricia F. Shanks
783 Contra Costa Avenue
Berkeley, CA 94707
___________________________________________________
J. Merrill Shanks
783 Contra Costa Avenue
Berkeley, CA 94707
___________________________________________________
Barbara C. Kleet
2308 King's Lake Blvd.
Naples, FL 33962
___________________________________________________
Arch B. Kleet
2308 King's Lake Blvd.
Naples, FL 33962
___________________________________________________
William Michael Denney
548 Hayes Street
Richmond, CA 94804
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___________________________________
Carol Ann Hart
2324 East Forest Heights Drive
Flagstaff, AZ 86004
___________________________________
David M. Shanks
1176 19th Street, #2
Oakland, CA 94607
___________________________________
Susan M. Taylor
1175 Colusa Avenue
Berkeley, CA 94707
___________________________________
Robert S. Fabry
1175 Colusa Avenue
Berkeley, CA 94707
___________________________________
Avery F. Crounse
22049 Bob's Road
Long Beach, MS 39560
___________________________________
Steven E. Fabry
P.O. Box 2300
Silverdale, WA 98383-2300
___________________________________
Betty M. Fabry
P.O. Box 2300
Silverdale, WA 98383-2300
___________________________________
Betsy Toriumi Morton
5369 Locksley Avenue
Oakland, CA 94618
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___________________________________
Michaelene Skronski
2025 Carquinez Avenue
El Cerrito, CA 94530
___________________________________
Marc H. Monheimer
1099 22nd Street, N.W., #608
Washington, D.C. 20037
___________________________________
Louise Stoll Monheimer
1099 22nd Street, N.W., #608
Washington, D.C. 20037
___________________________________
George A. Lavendar
3714 Lake Shore Avenue
Oakland, CA 94610
___________________________________
Claire L. Ungar
3714 Lake Shore Avenue
Oakland, CA 94610
___________________________________
Viviana Norma Magee
2508 Norwalk Court
Martinez, CA 94553
___________________________________
Rosario N. Morales
2508 Norwalk Court
Martinez, CA 94553
___________________________________
Eliot B. Simon
3172 N. Cambridge Avenue, Apt. 3
Chicago, IL 60657
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___________________________________
Ellen R. Monheimer
1856 Cannon Drive
Walnut Creek, CA 94596
___________________________________
Paul W. Monheimer
1669 Oak Street
Lake Oswego, OR 97034
___________________________________
Bennett K. Falk
1320 Evelyn
Berkeley, CA 94702
___________________________________
Margaret Moreland
1320 Evelyn
Berkeley, CA 94702
___________________________________
Herbert W. Cowan
1491 Vernal Avenue
Fremont, CA 94539
___________________________________
Mark W. Chandler
923 Taylor Avenue N.
Seattle, WA 98109
___________________________________
Donald E. Legnitto
30 Bothin Road
Fairfax, CA 94930
77
EXHIBIT A
TO SHAREHOLDERS' AGREEMENT
[FORM OF PRINCIPAL SHAREHOLDER LETTER]
Prologic Management Services, Inc.
2731 East Elvira
Tucson, Arizona 85706-7124
Ladies and Gentlemen:
I have prepared this letter as required by Section 5.1 of the
Shareholders' Agreement as of ______________, 1996 (the "Shareholders'
Agreement") among Prologic Management Systems, Inc., an Arizona corporation
("Prologic"), BASIS Acquisition Corp. ("Sub") and the shareholders of BASIS,
Inc. ("BASIS") ("BASIS Shareholders"). I am furnishing this letter to enable
Prologic and its attorneys and accountants to ensure that the Merger
contemplated by the Agreement and Plan of Reorganization, dated as of June 1,
1996 ("Reorganization Agreement") by and among Prologic, Sub, BASIS, and the
Principal Shareholders (as defined therein) will qualify as a "tax-free"
reorganization for federal income tax purposes. I understand that Prologic will
rely on the information in this letter in concluding the Merger and that
Prologic and Basis' respective accountants will rely on the information in this
letter in giving the tax opinion contemplated by Section 8.1(d) of the
Reorganization Agreement. I agree that Prologic, Basis, and their respective
accountants may so rely and that their reliance is reasonable. Capitalized terms
not otherwise defined herein shall have the meanings given to them in the
Reorganization Agreement.
I have no plan or intention (a "Plan") to sell, transfer, exchange, pledge
or otherwise dispose of or in any other way reduce the risk of ownership or
investment in (each, a "Sale") shares of Prologic Common Stock that I will
receive in the Merger (the "Merger Shares") if such Sale would reduce the fair
market value of the Prologic Common Stock (measured as of the Closing Date)
retained by me (the "Retained Shares") to an amount less than fifty percent
(50%) of the fair market value of the BASIS stock held by me immediately prior
to the Merger. I further agree not to engage in a Sale of any of the Merger
Shares within two (2) years of the Merger if such Sale would reduce the fair
market value of the Retained Shares to an amount less than fifty percent (50%)
of the fair market value of the BASIS stock held by me immediately prior to the
Merger unless I first obtain an opinion of counsel reasonably satisfactory to
Prologic that such transfer will not violate the continuity of interest
requirement set forth in Treasury Regulation Section 1.368-1.
For purposes of this letter, a Sale shall not include a distribution by a
venture capital partnership to its partners, as long as the partnership does not
know of any Plan by any of its partners to effect a Sale. Shares of BASIS stock
with respect to which either dissenter's rights are exercised or a Sale occurs
before the Merger in a Related Transaction shall be considered to be shares of
BASIS stock that are converted to shares of Prologic Common Stock and then
disposed of pursuant to a Plan. Any Sale of shares of Prologic Common Stock
shall be considered to have occurred pursuant to a Plan if, among other things,
the Sale occurs in a Related Transaction. A "Related Transaction" shall mean a
transaction in contemplation of or pursuant to the Merger.
I am not acting as an agent for or representative of Prologic or Merger
Subsidiary in connection with the Merger or approval thereof.
Dated:____________________ __________________________________
78
EXHIBIT G
NOTICE INFORMATION
To the BASIS Representative or any BASIS shareholder:
Patricia F. Shanks
BASIS, Inc.
5758 Hollis Street
Emeryville, California 94608-2514
with copy to:
Gregory L. Beattie, Esq.
Mendelson & Brown
Suite B
1040 Marina Village Parkway
Alameda, California 94501
To the Merger Subsidiary or Prologic:
James M. Heim
President
Chief Executive Officer
Prologic Management Systems, Inc.
Suite 151
2731 East Elvira
Tucson, Arizona 85706-7124
with copy to:
Stephen W. Craig, Esq.
Brown & Bain, P.A.
2901 N. Central Avenue
Phoenix, Arizona 85012
79
EXHIBIT H
BASIS SHAREHOLDERS OWNERSHIP INFORMATION
June 18, 1996
# of % of
Name Shares Shares Position
- --------------------------------------------------------------------------------------------------------------
Patricia F. Shanks 478,500 36.5% *President,
783 Contra Costa Avenue Secretary, Chief
Berkeley, CA 94707 Financial
Officer/Treasurer
and Director
J. Merrill Shanks 65,000 5.0% Director
783 Contra Costa Avenue
Berkeley, CA 94707
Patricia F. Shanks & 73,000 5.6%
J. Merrill Shanks
Barbara C. Kleet 400,000 30.5%
2308 King's Lake Blvd.
Naples, FL 33962
Arch B. Kleet 140,000 10.7%
2308 King's Lake Blvd.
Naples, FL 33962
William Michael Denney 12,000 0.9% *Vice President,
548 Hayes Street Director
Richmond, CA 94804
Carol Ann Hart 14,000 1.1%
2324 East Forest Heights Drive
Flagstaff, AZ 86004
David M. Shanks 14,000 1.1%
1176 19th Street, #2
Oakland, CA 94607
Susan M. Taylor & 25,000 1.9%
Robert S. Fabry
1175 Colusa Avenue
Berkeley, CA 94707
Robert S. Fabry 25,000 1.9%
Avery F. Crounse 10,000 0.8%
22049 Bob's Road
Long Beach, MS 39560
Steven E. & Betty M. Fabry 13,000 1.0%
P.O. Box 2300
Silverdale, WA 98383-2300
Betsy Toriumi Morton 11,000 0.8%
5369 Locksley Avenue
Oakland, CA 94618
80
2
# of % of
Name Shares Shares Position
- --------------------------------------------------------------------------------------------------------------
Michaelene Skronski 5,000 0.4%
2025 Carquinez Avenue
El Cerrito, CA 94530
Marc H. & Louise Stoll Monheimer 5,000 0.4%
1099 22nd Street, N.W., #608
Washington, D.C. 20037
George A. Lavender & 4,000 0.3%
Claire L. Ungar
3714 Lake Shore Avenue
Oakland, CA 94610
Viviana Norma Magee & 5,000 0.4%
Rosario N. Morales
2508 Norwalk Court
Martinez, CA 94553
Eliot B. Simon 0 0.0%
3172 N. Cambridge Avenue
Apt. 3
Chicago, IL 60657
Ellen R. Monheimer 2,000 0.2%
1856 Cannon Drive
Walnut Creek, CA 94596
Paul W. Monheimer 1,000 0.1%
1669 Oak Street
Lake Oswego, OR 97034
Bennett K. Falk & 1,000 0.1%
Margaret Moreland
1320 Evelyn
Berkeley, CA 94702
Herbert W. Cowan 1,000 0.1%
1491 Vernal Avenue
Fremont, CA 94539
Mark W. Chandler 1,000 0.1%
923 Taylor Avenue N.
Seattle, WA 98109
Donald E. Legnitto 4,000 0.3%
30 Bothin Road
Fairfax, CA 94930
TOTAL SHARES 1,309,500 100.2%
20 shareholders (by IRS rules for Sub
S Corps)
WBE Ownership: 972,000 74.2%
MBE Ownership: 15,000 1.1%
81
EXHIBIT I
Section 3(a) of the Underwriting Agreement, dated March 14, 1996, between
Prologic and Nutmeg Securities, Ltd. ("Underwriter") sets forth the following:
Neither the Company nor any officer, director or 5% or greater
shareholder or any other shareholder who enters into an agreement
referred to in Section 3(a)(xxvii) [Lockup Agreements], shall not,
without the Underwriter's prior written consent, sell or offer to sell
any shares of Common Stock for eighteen (18) months after the effective
date including other equity securities or warrants or options to
purchase any shares of Common Stock or equity securities except (i) the
Company may offer or sell its securities 12 months after the closing
unless the Underwriter consents to an earlier date, and may issue
Common Stock or other equity securities or warrants or options
including the options under any Stock Option Plan to purchase any
shares of Common Stock which are authorized to be issued prior to the
Initial Closing Date or which may be issued by the Company in
connection with any equipment lease financing, and (ii) any outside
directors options.