AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PROBUSINESS SERVICES, INC.
RUNWAY ACQUISITION CORP.,
CLEMCO, INC.,
AND, WITH RESPECT TO ARTICLE VII ONLY,
THOMAS CLEMENTS AND CHARLES JOHNSON,
AS STOCKHOLDER REPRESENTATIVES, AND,
WITH RESPECT TO SECTION 7.7 ONLY,
THOMAS CLEMENTS, BRADLEY ZEITLIN AND ROBERT ANDES
AND
U.S. BANK TRUST, N.A.,
AS ESCROW AGENT
DATED AS OF APRIL 27, 1999
INDEX OF EXHIBITS
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit A Form of Delaware Certificate of Merger
Exhibit B Form of Georgia Certificate of Merger
Exhibit C Form of Letter of Transmittal
Exhibit D Form of Affiliate Agreement
Exhibit E Form of Registration Rights Agreement
Exhibit F-1 Form of Legal Opinion of Counsel to the Parent
Exhibit F-2 Form of Legal Opinion of Counsel to the Company
Exhibit G Form of Noncompetition Agreement
Exhibit H Form of Stockholder Certificate
Exhibit I Escrow Agent Fee Schedule
TABLE OF CONTENTS
PAGE
ARTICLE I - THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . 2
1.4 Certificate of Incorporation; Bylaws. . . . . . . . . . . . . . 2
1.5 Directors and Officers. . . . . . . . . . . . . . . . . . . . . 3
1.6 Effect of Merger on the Capital Stock of the
Constituent Corporations. . . . . . . . . . . . . . . . . . . . 3
1.7 Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . 6
1.8 Surrender of Certificates . . . . . . . . . . . . . . . . . . . 6
1.9 No Further Ownership Rights in Company Capital Stock. . . . . . 8
1.10 Dissenting Shares After Payment of Fair Value . . . . . . . . . 8
1.11 Tax and Accounting Consequences . . . . . . . . . . . . . . . . 8
1.12 Taking of Necessary Action; Further Action. . . . . . . . . . . 8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . 9
2.1 Organization of the Company . . . . . . . . . . . . . . . . . . 9
2.2 Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Company Capital Structure . . . . . . . . . . . . . . . . . . . 10
2.4 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.7 Company Financial Statements. . . . . . . . . . . . . . . . . . 12
2.8 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 13
2.9 No Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.10 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 Restrictions on Business Activities . . . . . . . . . . . . . . 16
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment. . . . . . . . . . . . . . . . . . . . . 17
2.13 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 18
2.14 Agreements, Contracts and Commitments . . . . . . . . . . . . . 22
2.15 Interested Party Transactions . . . . . . . . . . . . . . . . . 23
2.16 Governmental Authorization. . . . . . . . . . . . . . . . . . . 23
2.17 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.18 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . 23
2.19 Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.20 Brokers' and Finders' Fees; Third Party Expenses. . . . . . . . 24
2.21 Employee Benefit Plans and Compensation . . . . . . . . . . . . 24
2.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.23 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 28
2.24 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . 28
-i-
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB . . . . . . 28
3.1 Organization, Standing and Power. . . . . . . . . . . . . . . . 28
3.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3 Merger Shares . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4 SEC Documents; Parent Financial Statements. . . . . . . . . . . 29
3.5 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.6 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.7 Pooling of Interests. . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE IV - [INTENTIONALLY LEFT BLANK]. . . . . . . . . . . . . . . . . . 30
ARTICLE V - ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . 30
5.1 Sale of Shares. . . . . . . . . . . . . . . . . . . . . . . . . 30
5.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . 30
5.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.4 FIRPTA Compliance . . . . . . . . . . . . . . . . . . . . . . . 30
5.5 Affiliate Agreements. . . . . . . . . . . . . . . . . . . . . . 31
5.6 Additional Documents and Further Assurances . . . . . . . . . . 31
5.7 Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . 31
5.8 Pooling Accounting. . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI - DELIVERIES AT CLOSING . . . . . . . . . . . . . . . . . . . . 31
6.1 Deliveries to the Company . . . . . . . . . . . . . . . . . . . 31
6.2 Deliveries to Parent. . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 Survival of Representations and Warranties. . . . . . . . . . . 32
7.2 Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . 33
7.3 Parent Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 38
7.4 Stockholder Representatives . . . . . . . . . . . . . . . . . . 38
7.5 Third Party Claim . . . . . . . . . . . . . . . . . . . . . . . 39
7.6 Exclusive Remedy. . . . . . . . . . . . . . . . . . . . . . . . 40
7.7 Limitations on Representations and Warranties . . . . . . . . . 41
ARTICLE VIII - [INTENTIONALLY LEFT BLANK]. . . . . . . . . . . . . . . . . 41
ARTICLE IX - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . 41
-ii-
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.4 Entire Agreement; Assignment. . . . . . . . . . . . . . . . . . 44
9.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.6 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 44
9.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.8 Rules of Construction . . . . . . . . . . . . . . . . . . . . . 44
9.9 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
-iii-
EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of April 27, 1999 among ProBusiness Services, Inc., a
Delaware corporation ("PARENT"), Runway Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Parent ("SUB"), Clemco, Inc., a
Georgia corporation (the "COMPANY"), and, with respect to Article VII only,
Thomas Clements and Charles Johnson, as Stockholder Representatives, and,
with respect to Section 7.7 only, Thomas Clements, Bradley Zeitlin and Robert
Andes and U.S. Bank Trust, N.A. as Escrow Agent.
RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Sub with and into the Company (the "MERGER") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company and all outstanding
warrants and other rights to receive shares of the Company's capital stock
shall be converted into the right to receive shares of common stock of Parent.
C. A portion of the shares of common stock of Parent otherwise
issuable by Parent in connection with the Merger shall be placed in escrow by
Parent for purposes of satisfying damages, losses, expenses and other similar
charges which result from breaches of the representations, warranties and
covenants of the Company contained herein.
D. The parties intend that the Merger shall (i) constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE") and (ii) qualify for accounting treatment as
a pooling of interests.
E. The Company, on the one hand, and Parent and Sub, on the other
hand, desire to make certain representations, warranties, covenants and other
agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in SECTION 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE
LAW") and the applicable provisions of the Georgia Business Corporation Code
("GEORGIA LAW"), Sub shall be merged with and into the Company, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The
surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. The closing of the Merger (the "CLOSING") will
take place simultaneously with the execution of this Agreement at the offices
of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill
Road, Palo Alto, California, unless another place is agreed to in writing by
Parent and the Company. The date upon which the Closing actually occurs is
herein referred to as the "CLOSING DATE." On the Closing Date, the parties
hereto shall cause the Merger to be consummated by (i) filing a Certificate
of Merger (or like instrument) substantially in the form attached hereto as
EXHIBIT A (the "DELAWARE CERTIFICATE OF MERGER") with the Secretary of State
of the State of Delaware, in accordance with the applicable provisions of
Delaware Law and (ii) filing a Certificate of Merger, in substantially the
form attached hereto as EXHIBIT B (the "GEORGIA CERTIFICATE OF MERGER"), with
the Secretary of State of Georgia in accordance with the applicable
provisions of Georgia Law (the later of the time of acceptance by the
Secretary of State of the State of Delaware of the Delaware Certificate of
Merger and the time of acceptance by the Secretary of State of the State of
Georgia of the Georgia Certificate of Merger being referred to herein as the
"EFFECTIVE TIME").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law and
Georgia Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers
and franchises of the Company and Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of the Company
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
-2-
1.5 DIRECTORS AND OFFICERS. The directors of the Surviving
Corporation immediately after the Effective Time shall be the directors of
Sub immediately prior to the Effective Time, each to hold the office of
director of the Surviving Corporation in accordance with the provisions of
the applicable laws of the State of Delaware and the Certificate of
Incorporation and Bylaws of the Surviving Corporation until their successors
are duly qualified and elected. The officers of the Surviving Corporation
immediately after the Effective Time shall be the officers of Sub immediately
prior to the Effective Time, each to hold office in accordance with the
provisions of the Bylaws of the Surviving Corporation.
1.6 EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
(a) CERTAIN DEFINITIONS. For all purposes of this Agreement,
the following terms shall have the following meanings:
"CLOSING PRICE" shall mean $39.30, which equals the average
closing sale price of the Parent Common Stock as reported on the Nasdaq
National Market for the ten (10) consecutive trading days ending on the
second business day prior to the date hereof.
"COMMON SHARE EQUIVALENT NUMBER" means the aggregate of
Company Options and Company Warrants outstanding immediately prior to the
Effective Time, a number equal to 760,442.
"COMPANY CAPITAL STOCK" means the total of 15,733,600 shares
of common stock of the Company, no par value, outstanding immediately prior
to the Effective Time.
"COMPANY OPTIONS" shall mean all issued and outstanding
options or other rights (other than Company Warrants) to acquire or receive
from the Company Shares of Company Capital Stock (whether or not vested).
"COMPANY WARRANTS" shall mean all issued and outstanding
warrants to acquire Company Capital Stock.
"EXCHANGE RATIO" shall be equal to 0.109, which represents
the quotient obtained by dividing (i) the Merger Shares (as defined below) by
(ii) the sum of (A) the total number of shares of Company Capital Stock that
are issued and outstanding immediately prior to the Effective Time and (B)
the Common Share Equivalent Number.
"KNOWLEDGE" or "KNOWLEDGE" means the actual knowledge of
such person, and, if such person is a corporation, means the actual knowledge
of such corporation's officers and directors and if such person is a limited
partnership means the actual knowledge of such limited partnership's general
partners.
-3-
"MERGER SHARES" means 1,797,932, which represents the number
of shares of Parent Common Stock equal to the quotient obtained by dividing
the Total Consideration by the Closing Price.
"PARENT COMMON STOCK" shall mean shares of the common stock,
par value $0.001 per share, of Parent.
"PRINCIPAL STOCKHOLDER" shall mean Thomas Clements, Brad
Zeitlin, and Rob Andes, individually.
"STOCKHOLDER" shall mean each holder of any Company Capital
Stock immediately prior to the Effective Time.
"TOTAL CONSIDERATION" shall mean an amount equal to
$70,659,725.
(b) EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of Sub, the Company or the
Stockholders, each share of Company Capital Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares (as
defined in SECTION 1.7)) will be canceled and extinguished and be converted
automatically into the right to receive, upon surrender of the certificate
representing such share of Company Capital Stock in the manner provided in
SECTION 1.8(c), a fraction of a share of Parent Common Stock equal to the
Exchange Ratio.
(c) STOCK OPTIONS.
(i) ASSUMPTION OF COMPANY OPTIONS. At the Effective
Time, each Company Option under the Company's Stock Incentive Plan (the
"OPTION PLAN"), whether vested or unvested, will, in connection with the
Merger, be assumed by Parent. Each Company Option so assumed by Parent under
this Agreement shall continue to have, and be subject to, the same terms and
conditions, including vesting, set forth in the Option Plan and as provided
in the respective option agreements immediately prior to the Effective Time,
except that (A) such assumed Company Option will be exercisable for that
number of whole shares of Parent Common Stock equal to the product obtained
by multiplying the number of shares of Company Capital Stock that were
issuable upon exercise in full of such assumed Company Option immediately
prior to the Effective Time by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock and (B) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise
of such assumed Company Option shall be equal to the quotient obtained by
dividing the exercise price per share of Company Capital Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent; PROVIDED, HOWEVER, that
each Company Option assumed by Parent pursuant to this Agreement shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, reverse split, stock dividend or other similar
transaction subsequent to the Effective Time.
-4-
(ii) ASSUMPTION AGREEMENT. Promptly following the
Effective Time, Parent will issue to each holder of an outstanding Company
Option a document evidencing the foregoing assumption of such Company Option
by Parent. Parent agrees to use its reasonable efforts to file with the
Securities and Exchange Commission (the "SEC") within 30 business days after
the Closing Date a registration statement on Form S-8 or other appropriate
form under the Securities Act of 1933, as amended (the "SECURITIES ACT"), to
register the shares of Parent Common Stock issuable upon exercise of assumed
Company Options.
(d) Company Warrants.
(i) SUBSTITUTION OF COMPANY WARRANTS. At the Effective
Time, each outstanding Company Warrant will, in connection with the Merger,
automatically be canceled and simultaneously with such cancellation a new
warrant (a "NEW WARRANT") to acquire Parent Common Stock shall automatically
be substituted therefor. Each New Warrant so substituted by Parent under
this Agreement shall have, and be subject to, the same terms and conditions
set forth in the respective Company Warrant and as provided in the respective
warrant agreements immediately prior to the Effective Time, except that (A)
such New Warrant will be exercisable for that number of whole shares of
Parent Common Stock equal to the product obtained by multiplying the number
of shares of Company Capital Stock that were issuable upon exercise in full
of such substituted Company Warrant immediately prior to the Effective Time
by the Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and (B) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such substituted Company
Warrant shall be equal to the quotient obtained by dividing the exercise
price per share of Company Capital Stock at which such Company Warrant was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
(ii) SUBSTITUTION AGREEMENT. Promptly following the
Effective Time, Parent will issue to each holder of an outstanding Company
Warrant a document evidencing the substitution of such Company Warrant by
Parent.
(e) CAPITAL STOCK OF SUB. Each share of common stock, $.001 par
value per share, of Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, no par value per share,
of the Surviving Corporation. Each stock certificate of Sub evidencing
ownership of any such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
(f) ADJUSTMENT TO PARENT COMMON STOCK. The number of shares of
Parent Common Stock issuable hereunder shall be adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Parent Common Stock
or Company Capital Stock), reorganization, recapitalization or other like
change with respect to Parent Common Stock or Company Capital Stock occurring
after the date hereof.
-5-
(g) FRACTIONAL SHARES. No fractional share of Parent Common
Stock shall be issued in the Merger. In lieu thereof, any fractional share
shall be rounded up to the nearest whole share of Parent Common Stock.
1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock issued and outstanding
immediately prior to the Effective Time that are held by a Stockholder who
has exercised and perfected appraisal rights for such shares in accordance
with Article 13 of the Georgia Law and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights ("DISSENTING SHARES"),
shall not be converted into or represent a right to receive Parent Common
Stock pursuant to SECTION 1.6, but the holder thereof shall only be entitled
to such rights as are granted by Georgia Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose (through
failure to perfect or otherwise) his or her appraisal rights, then, as of the
later of Effective Time and the occurrence of such event, such holder's
shares shall automatically be converted into and represent only the right to
receive the shares of Parent Common Stock to which such Stockholder would
otherwise be entitled under SECTION 1.6(c) (less the number of shares
allocable to such Stockholder that have been deposited into the Escrow Fund
on such holder's behalf pursuant to Article VII), upon surrender of the
certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any
written demand for appraisal received by the Company pursuant to the
applicable provisions of Georgia Law and (ii) the opportunity to participate
in all negotiations and proceedings with respect to such demands. The
Company shall not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any such demands or offer to
settle or settle any such demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The Corporate Secretary of Parent shall
serve as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I the shares of Parent Common Stock
issuable pursuant to SECTION 1.6(b) in exchange for all the outstanding
shares of Company Capital Stock; PROVIDED, HOWEVER, that on behalf of the
Stockholders, pursuant to SECTION 7.2 hereof, Parent shall deposit into an
escrow account ten percent (10%) of the Merger Shares issued to the Escrow
Agent on behalf of the Stockholders pursuant to SECTION 1.6(b) (the "ESCROW
AMOUNT"). The portion of the Escrow Amount contributed on behalf of each
Stockholder shall be in proportion to the aggregate number of Merger Shares
which such Stockholder would
-6-
otherwise be entitled to receive in the Merger by virtue of ownership of
outstanding shares of Company Capital Stock.
(c) EXCHANGE PROCEDURES. On the Closing Date, the Stockholders
will surrender the certificates representing their Company Capital Stock (the
"COMPANY CERTIFICATES") to the Exchange Agent for cancellation together with
a Letter of Transmittal in substantially the form attached hereto as EXHIBIT
C. Upon surrender of a Company Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent,
together with such Letter of Transmittal and a Stockholder Certificate in the
form of EXHIBIT F hereto, duly completed and validly executed in accordance
with the instructions thereto, the Exchange Agent will promptly deliver to
the holder of such Company Certificate in exchange therefor a certificate
representing the number of whole shares of Parent Common Stock (less the
number of shares of Parent Common Stock to be deposited in the Escrow Fund on
such holder's behalf pursuant to SECTION 1.8(b) and Article VII) to which
such Stockholder is entitled pursuant to SECTION 1.6, and the Company
Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Company Certificate that, prior to the
Effective Time, represented shares of Company Capital Stock will be deemed
from and after the Effective Time, for all corporate purposes, other than the
payment of dividends, to evidence only the right to receive the number of
full shares of Parent Common Stock into which such shares of Company Capital
Stock shall have been converted pursuant to this Article I. As soon as
practicable after the Effective Time, and subject to and in accordance with
the provisions of Article VII hereof, Parent shall cause to be distributed to
the Escrow Agent (as defined in Article VII) a certificate or certificates
representing that number of shares of Parent Common Stock equal to the Escrow
Amount, which shall be registered in the name of the Escrow Agent. Such
shares shall be beneficially owned by the holder on whose behalf such shares
were deposited in the Escrow Fund and shall be available to compensate Parent
as provided in Article VII.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions declared or made after the Effective Time
with respect to Parent Common Stock with a record date after the Effective
Time will be paid to any holder of any unsurrendered Company Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Company Certificate shall surrender such Company
Certificate. Subject to applicable law, following surrender of any such
Company Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Company Certificate surrendered in exchange therefor is registered, it will
be a condition to the issuance thereof that the Company Certificate so
surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to
Parent or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Parent Common Stock in
any
-7-
name other than that of the registered holder of the Company Certificate
surrendered, or established to the satisfaction of Parent or any agent
designated by it that such tax has been paid or is not payable.
(f) LOST, STOLEN OR DESTROYED COMPANY CERTIFICATES. In the
event any Company Certificates shall have been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Company Certificates, upon the making of an affidavit of that fact by the
holder thereof, the number of shares of Parent Common Stock, if any, as may
be required pursuant to SECTION 1.6; PROVIDED, HOWEVER, that Parent may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed Company Certificates to deliver a
bond in such sum as it may reasonably direct against any claim that may be
made against Parent or the Exchange Agent with respect to the certificates
alleged to have been lost, stolen or destroyed.
(g) NO LIABILITY. Notwithstanding anything to the contrary in
this SECTION 1.8, none of the Exchange Agent, the Surviving Corporation or
any party hereto shall be liable to a holder of shares of Parent Common Stock
or Company Capital Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All shares
of Parent Common Stock issued upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof shall be deemed to
be full satisfaction of all rights pertaining to such shares of Company
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Capital Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Company Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article I.
1.10 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE. Dissenting Shares,
if any, after payments of fair value in respect thereto have been made to
dissenting Stockholders of the Company pursuant to Georgia Law, shall be
canceled.
1.11 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the
meaning of Section 368 of the Code and (ii) qualify for accounting treatment
as a pooling of interests. Each party has consulted with, and is relying
exclusively upon, its own tax advisors and accountants with respect to the
tax and accounting consequences, respectively, of the Merger.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary to carry out the purposes
of this Agreement and to vest the Surviving Corporation with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of the Company and Sub, the officers and directors of the Company,
Parent and Sub are
-8-
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject to
such exceptions as are specifically disclosed in the disclosure schedule
(referencing the appropriate section and paragraph numbers) supplied by the
Company to Parent (the "DISCLOSURE SCHEDULE"), and dated as of the date
hereof that on the date hereof and as of the Effective Time as though made at
the Effective Time as follows:
2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Georgia. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified
or licensed to do business and is in good standing as a foreign corporation
in each jurisdiction in which it conducts business, except where the failure
to be so qualified or licensed or to be in good standing would not reasonably
be expected to have a Material Adverse Effect. For purposes of this
Agreement "MATERIAL ADVERSE EFFECT" means a material adverse effect on the
financial condition, results of operations or business of the Company and the
Subsidiary, taken as a whole. The Company has delivered a true and correct
copy of its articles of incorporation and bylaws, each as amended to date and
in full force and effect on the date hereof, to Parent.
2.2 SUBSIDIARY. Conduit Software, Inc. (the "SUBSIDIARY") is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Georgia. The Subsidiary has the corporate power to own
its properties and to carry on its business as now being conducted. The
Subsidiary is duly qualified or licensed to do business and in good standing
as a foreign corporation in each jurisdiction in which it conducts business,
except where the failure to be so qualified or licensed or to be in good
standing would not reasonably be expected to have a Material Adverse Effect.
A true and correct copy of the Subsidiary's charter documents and bylaws,
each as amended to date, has been made available to Parent. Other than the
Subsidiary, the Company does not have any subsidiaries. All of the shares
of capital stock of the Subsidiary are owned of record and beneficially by
the Company. There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Subsidiary is a
party or by which it is bound obligating the Subsidiary to issue, deliver,
sell, repurchase or redeem, or cause to be issued, sold, repurchased or
redeemed, any shares of the capital stock of the Subsidiary or obligating the
Subsidiary to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to the Subsidiary.
-9-
2.3 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of (i)
50,000,000 shares of Common Stock, of which 15,733,600 shares are issued and
outstanding as of the date hereof, and (ii) 3,000,000 shares of Series A
Preferred Stock, none of which are issued and outstanding as of the date
hereof, (iii) 2,097,585 shares of Series B Preferred Stock, none of which are
issued and outstanding as of the date hereof, (iv) 416,667 shares of Series C
Preferred Stock, none of which are issued and outstanding as of the date
hereof, and (v) 5,103,743 shares of Series D Preferred Stock, none of which
are issued and outstanding as of the date hereof. As of the date hereof, the
capitalization of the Company is as set forth in SECTION 2.3(a) of the
Disclosure Schedule. The Company Capital Stock is held by the persons in the
amounts set forth in SECTION 2.3(a) of the Disclosure Schedule. All
outstanding shares of Company Capital Stock are duly authorized, validly
issued, fully paid and non-assessable and not subject to preemptive rights
created by statute, the articles of incorporation or bylaws of the Company,
or any agreement to which the Company is a party or by which it is bound, and
have been issued in compliance with federal and state securities laws. There
are no declared but unpaid dividends, and no stockholder of the Company is
entitled to the payment of any dividends, with respect to any shares of
Company Capital Stock.
(b) The Company has delivered to Parent true and complete copies
of (i) all stock option agreements pursuant to which there are outstanding
Company Options and (ii) all warrant agreements pursuant to which there are
outstanding Company Warrants. SECTION 2.3(b) of the Disclosure Schedule sets
forth for each outstanding Company Option, the name of the record holder of
such option and the number of shares of Company Common Stock issuable upon
the exercise of such option, the exercise price of such option, the vesting
schedule for such option, including the extent vested to date and whether the
vesting of such option will be accelerated by the transactions contemplated
by this Agreement, and whether such option is intended to qualify as an
incentive stock option as defined in Section 422 of the Code. SECTION 2.3(b)
of the Disclosure Schedule sets forth for each outstanding Company Warrant
the name of the holder of such Company Warrant and the number of shares of
Company Common Stock issuable upon the exercise of such Company Warrant.
Except for the Company Options and the Company Warrants or as set forth in
SECTION 2.3(b) of the Disclosure Schedule, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral,
to which the Company is a party or by which it is bound obligating the
Company to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
the Company or obligating the Company to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. No Company Options or
other rights to acquire the Company Capital Stock will arise, accelerate or
vest upon consummation of the transactions contemplated by this Agreement.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or other similar rights with respect to the Company.
Except as contemplated hereby or as set forth in SECTION 2.3(b) of the
Disclosure Schedule, there are no voting trusts, proxies, or other agreements
or understandings with respect to the voting stock of the Company. As a
result of the Merger, and assuming Parent owns all outstanding shares of Sub
and
-10-
all rights to acquire any shares of Sub, Parent will be the sole record and
beneficial holder of all issued and outstanding Company Capital Stock and all
rights to acquire or receive any shares of Company Capital Stock, whether or
not such shares of Company Capital Stock are outstanding.
2.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and any Related Agreements (as
hereinafter defined in this SECTION 2.4) to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and any Related Agreements to which the
Company is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of the Company, and no further action is required on the
part of the Company to authorize the Agreement and any Related Agreements to
which it is a party and the transactions contemplated hereby and thereby.
Stockholders holding at least ninety percent (90%) of the Company Capital
Stock have approved this Agreement, the Merger and the transactions
contemplated hereby and thereby, and no holder of Company Capital Stock has
exercised any appraisal, dissenters or similar rights under applicable law
with respect to their Company Capital Stock by virtue of the Merger. This
Agreement and the Merger have been approved by the Board of Directors of the
Company. This Agreement and each of the Related Agreements to which the
Company is a party have been duly executed and delivered by the Company, and,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by principles of public
policy and subject to the laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies. For all purposes
of this Agreement, the term "RELATED AGREEMENTS" shall mean the Delaware
Certificate of Merger, the Georgia Certificate of Merger, the Registration
Rights Agreement, the Affiliate Agreements and the Lock-Up Agreements.
2.5 NO CONFLICT. The execution and delivery by the Company of this
Agreement and any Related Agreement to which the Company is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
result in any violation of or default under (with or without notice or lapse
of time, or both) or give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of any benefit under
(any such event, a "CONFLICT") (i) any provision of the articles of
incorporation or bylaws of the Company or the Subsidiary, (ii) any mortgage,
indenture, lease, material contract, or other material agreement or any
instrument, permit, franchise or license (each a "CONTRACT" and collectively
the "CONTRACTS") to which the Company or the Subsidiary or any of their
respective properties or assets (including intangible assets) is subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or the Subsidiary or any of their
properties (tangible and intangible) or assets other than in the case of
clauses (ii) and (iii) such Conflicts that would not reasonably be expected
to have a Material Adverse Effect. The Company and the Subsidiary are in
compliance with and have not breached, violated or defaulted under, or
received notice that either has breached, violated or defaulted under, any of
the terms or conditions of any Contract, nor is the Company aware of any
event that would constitute such a breach, violation or default with the
lapse of time, giving of notice
-11-
or both, in each case other than a breach, violation or default that would
not reasonably be expected to have a Material Adverse Effect. Each Contract
is in full force and effect and neither the Company nor the Subsidiary is
subject to any default thereunder, nor to the Knowledge of the Company is any
party obligated to the Company or the Subsidiary pursuant to any such
Contract subject to any default thereunder except for those defaults which,
if not satisfied or obtained, would not reasonably be expected to have a
Material Adverse Effect. Following the Effective Time, the Company or the
Subsidiary, as the case may be, will be permitted to exercise all of their
respective rights under the Contracts without the payment of any additional
amounts or consideration other than ongoing fees, royalties or payments which
the Company or the Subsidiary, as the case may be, would otherwise be
required to pay pursuant to the terms of such Contracts had the transactions
contemplated by this Agreement not occurred.
2.6 CONSENTS. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with any court, administrative
agency or commission or other federal, state, county, local or other foreign
governmental authority, instrumentality, agency or commission (each, a
"GOVERNMENTAL ENTITY") or any third party, including a party to any agreement
with the Company and/or the Subsidiary (so as not to trigger any Conflict)
(collectively, "CONSENTS"), is required by or with respect to the Company or
the Subsidiary in connection with the execution and delivery of this
Agreement and any Related Agreement to which the Company or the Subsidiary is
a party or the consummation of the transactions contemplated hereby and
thereby, except for (i) such Consents as may be required under applicable
securities laws, (ii) the filing of the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware, (iii) the filing of the
Georgia Certificate of Merger with the Secretary of the State of Georgia,
(iv) the Consents listed in Section 2.6 of the Disclosure Schedule and (v)
such Consents which, if not satisfied or obtained, would not reasonably be
expected to have a Material Adverse Effect.
2.7 COMPANY FINANCIAL STATEMENTS. SECTION 2.7 of the Disclosure
Schedule sets forth (i) the Company's and Subsidiary's audited consolidated
balance sheets as of December 31, 1998, and the related audited consolidated
statements of operations, cash flow and shareholders' equity for the twelve
(12) month period then ended, in each case including related notes thereto
(collectively, the "YEAR-END FINANCIALS"), and (ii) the Company's and
Subsidiary's unaudited consolidated balance sheet as of March 31, 1999, and
the related unaudited consolidated statements of operations, cash flow and
shareholders' equity for the three-month period then ended (the "INTERIM
FINANCIALS"). The Year-End Financials and the Interim Financials have been
prepared in accordance with GAAP consistently applied on a basis consistent
throughout the periods indicated and consistent with each other (except that
the Interim Financials do not contain footnotes and other presentation items
that may be required by GAAP). The Year-End Financials and Interim
Financials present fairly in all material respects the financial condition,
operating results and cash flows of the Company and the Subsidiary as of the
dates and during the periods indicated therein. The Company's unaudited
balance sheet as of March 31, 1999 is referred to hereinafter as the "CURRENT
BALANCE SHEET." The Company and the Subsidiary have each maintained proper
accounting books and records in which all assets, liabilities, transactions,
minutes and registers, and other information used to prepare financial
statements, have been recorded and presented in conformity with GAAP.
-12-
2.8 NO UNDISCLOSED LIABILITIES. Neither the Company nor the
Subsidiary has any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP) except for
Liabilities that (i) have been reflected in the Current Balance Sheet, or
(ii) have arisen in the ordinary course of business consistent with past
practices since the date of the Current Balance Sheet, or (iii) would not
reasonably be expected to have a Material Adverse Effect.
2.9 NO CHANGES. Since March 31, 1999, except as disclosed in Section
2.9 of the Disclosure Schedule, there has not been, occurred or arisen any:
(a) transaction by the Company or the Subsidiary except in the
ordinary course of business as conducted on that date and consistent with
past practices;
(b) capital expenditure or commitment by the Company or the
Subsidiary exceeding $25,000 individually or $100,000 in the aggregate;
(c) payment, discharge or satisfaction, in any amount in excess
of $25,000 in any one case, or $100,000 in the aggregate, of any claim,
liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against
in the Current Balance Sheet or arising after the date thereof;
(d) destruction of, material damage to or the loss of any
material assets, material business or material customer of the Company or the
Subsidiary (whether or not covered by insurance);
(e) collective work stoppage or labor strike or claim of
wrongful discharge or other unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by the Company or
the Subsidiary other than as required by GAAP;
(g) change in any material election in respect of Taxes (as
defined below), adoption or change in any accounting method in respect of
Taxes, agreement or settlement of any claim or assessment in respect of
Taxes, or extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(h) revaluation by the Company or the Subsidiary of any of their
respective assets;
(i) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Capital Stock or any split,
-13-
combination or reclassification in respect of any shares of Company Capital
Stock or any issuance or authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of Company
Capital Stock, or any direct or indirect repurchase, redemption, or other
acquisition by the Company of any shares of Company Capital Stock or by the
Subsidiary of Subsidiary Capital Stock (or options, warrants or other rights
convertible into, exercisable or exchangeable therefor), except in accordance
with the agreements evidencing Company Options or Company Warrants;
(j) increase in the salary or other compensation payable or to
become payable by the Company or the Subsidiary to any of its officers,
directors, employees or advisors (other than, in the case of employees who
are not officers or directors, increases in salary in the ordinary course
consistent with past practice that do not exceed $5,000 per year), or the
declaration, payment or commitment or obligation of any kind for the payment,
by the Company or the Subsidiary, of a severance payment, termination
payment, bonus or other additional salary or compensation to any such person;
(k) other than those entered into in the ordinary course of
business consistent with past practice, any material agreement, contract,
covenant, instrument, lease, license or commitment to which the Company or
the Subsidiary is a party or by which it or any of its assets (including
intangible assets) are bound or any termination, extension, amendment or
modification the terms of any material agreement, contract, covenant,
instrument, lease, license or commitment to which the Company or Subsidiary
is a party or by which they or any of their assets are bound;
(l) sale, lease, license or other disposition of any of the
material assets or material properties of the Company or the Subsidiary or
any creation of any security interest in such material assets or material
properties;
(m) loan by the Company or the Subsidiary to any person or
entity, incurring by the Company or the Subsidiary of any indebtedness,
guaranteeing by the Company or the Subsidiary of any indebtedness, issuance
or sale of any debt securities of the Company or the Subsidiary or
guaranteeing of any debt securities of others, except for advances to
employees for travel and business expenses in the ordinary course of business
consistent with past practices;
(n) waiver or release of any right or claim of the Company or
the Subsidiary, including any write-off or other compromise of any account
receivable of the Company or the Subsidiary;
(o) any event or condition of any character that has had or is
reasonably likely to have a Material Adverse Effect; or
(p) agreement by the Company, the Subsidiary or any officer or
employees on behalf of the Company or the Subsidiary to do any of the things
described in the preceding clauses (a)
-14-
through (u) of this SECTION 2.9 (other than negotiations with Parent and its
representatives regarding the transactions contemplated by this Agreement).
2.10 TAX MATTERS.
(a) DEFINITION OF TAXES. For the purposes of this Agreement,
the term "TAX" or, collectively, "TAXES" shall mean (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties
and additions imposed with respect to such amounts, (ii) any liability for
the payment of any amounts of the type described in clause (i) of this
SECTION 2.10(a) as a result of being a member of an affiliated, consolidated,
combined or unitary group for any period, and (iii) any liability for the
payment of any amounts of the type described in clauses (i) or (ii) of this
SECTION 2.10(a) as a result of any express or implied obligation to indemnify
any other person or as a result of any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) As of the Effective Time, each of the Company and
the Subsidiary will have prepared and timely filed all required federal,
state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to any and all Taxes concerning or attributable
to the Company or the Subsidiary or their operations and such Returns are
true, complete and correct in all material respects.
(ii) As of the Effective Time, each of the Company and
the Subsidiary (A) will have paid all Taxes it is required to pay and will
have withheld with respect to its employees all federal and state income
taxes, Federal Insurance Contribution Act ("FICA"), Federal Unemployment Tax
Act ("FUTA") and other Taxes required to be withheld, and (B) will have
accrued on the Current Balance Sheet all Taxes attributable to the periods
preceding the Current Balance Sheet and will not have incurred any liability
for Taxes for the period commencing after the date of the Current Balance
Sheet and ending immediately prior to the Effective Time, other than in the
ordinary course of business.
(iii) The Company or the Subsidiary has not been
delinquent in the payment of any Tax, nor is there any Tax deficiency
outstanding, assessed or proposed against the Company or the Subsidiary, nor
has the Company or the Subsidiary executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the
Company or the Subsidiary is presently in progress, nor has the Company or
the Subsidiary been notified of any request for such an audit or other
examination.
-15-
(v) Neither the Company nor the Subsidiary has any
liabilities for unpaid federal, state, local and foreign Taxes which have not
been accrued or reserved on the Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has not incurred any
liability for Taxes since the date of the Current Balance Sheet other than in
the ordinary course of business.
(vi) The Company has made available to Parent or its
legal counsel, copies of all foreign, federal, state and local income and all
state and local sales and use Returns for the Company and the Subsidiary
filed for the past three years.
(vii) There are (and immediately following the Effective
Time there will be) no liens, pledges, charges, claims, restrictions on
transfer, mortgages, security interests or other encumbrances of any sort
(collectively, "LIENS") on the assets of the Company or the Subsidiary
relating to or attributable to Taxes other than Liens for Taxes not yet due
and payable.
(viii) None of the Company's or the Subsidiary's assets is
treated as "tax-exempt use property," within the meaning of Section 168(h) of
the Code.
(ix) Neither the Company nor the Subsidiary has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(4) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by the Company.
(x) Neither the Company nor the Subsidiary is a party to
any tax sharing, indemnification or allocation agreement nor does the Company
owe any amount under any such agreement.
(xi) Neither the Company nor the Subsidiary has been a
"United States Real Property Holding Corporation" within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(1)(A)(ii) of the Code.
(xii) No adjustment relating to any Return filed by the
Company or the Subsidiary has been proposed formally or, to the Knowledge of
the Company, informally by any tax authority to the Company or the Subsidiary
or any representative thereof.
(c) EXECUTIVE COMPENSATION TAX. There is no contract,
agreement, plan or arrangement to which the Company or the Subsidiary is a
party, including, without limitation, the provisions of this Agreement,
covering any employee or former employee of the Company, which, individually
or collectively, could give rise to the payment of any amount that would not
be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 RESTRICTIONS ON BUSINESS ACTIVITIES. Except for the Company's
agreements with Infinium Software, Inc., Buck Consultants, Inc., Cyborg
Systems, Inc. and InterVoice, Inc., there is
-16-
no agreement (non-compete or otherwise), commitment, judgment, injunction,
order or decree to which the Company or the Subsidiary is a party or
otherwise binding upon the Company or the Subsidiary which has or may
reasonably be expected to have the effect of prohibiting or impairing any
business practice of the Company or the Subsidiary, any acquisition of
property (tangible or intangible) by the Company or the Subsidiary, the
conduct of business by the Company or the Subsidiary or otherwise limiting
the freedom of the Company or the Subsidiary to engage in any line of
business or to compete with any person. Without limiting the generality of
the foregoing, except as aforesaid, neither the Company nor the Subsidiary
has entered into any agreement under which the Company or the Subsidiary is
restricted from selling, licensing or otherwise distributing any of its
technology or products to or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.12 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION
OF EQUIPMENT.
(a) Neither the Company nor the Subsidiary owns any real
property nor has either ever owned any real property. SECTION 2.12(a) of the
Disclosure Schedule sets forth a list of all real property currently leased
by the Company or the Subsidiary, the name of the lessor, the date of the
lease and each amendment thereto and, with respect to any current lease, the
aggregate annual rental payable under any such lease. All such current
leases are in full force and effect, are valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default) by the Company or, to the
Company's knowledge, any other party thereto, except for such defaults or
events of default as would not reasonably be expected to have a Material
Adverse Effect.
(b) Each of the Company and the Subsidiary have good and valid
title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its tangible properties and assets, real, personal and
mixed, used or held for use in its business, free and clear of any Liens,
except (i) as reflected in the Current Balance Sheet, (ii) Liens for Taxes
assessments and other similar governmental charges not yet due and payable,
(iii) mechanic's, carrier's, worker's, warehouseman's, materialman's,
repairman's or other Liens arising or incurred in the ordinary course of
business, (iv) Liens listed or described in SECTION 2.12 of the Disclosure
Schedule and (v) such imperfections of title or encumbrances, if any, which
do not materially detract from the value or materially interfere with the
present use of the property subject thereto or affected thereby.
(c) All material items of equipment (the "EQUIPMENT") owned or
leased by the Company or the Subsidiary is (i) adequate for the conduct of
the business of the Company and the Subsidiary as currently conducted, and
(ii) in good operating condition, regularly and properly maintained, subject
to normal wear and tear.
(d) Each of the Company and the Subsidiary has sole and
exclusive ownership, free and clear of any Liens, of all customer lists,
customer contact information, customer correspondence and customer licensing
and purchasing histories relating to its current and former
-17-
customers (the "CUSTOMER INFORMATION"). No person other than the Company or
the Subsidiary possesses any claims or rights with respect to use of the
Customer Information.
2.13 INTELLECTUAL PROPERTY.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"INTELLECTUAL PROPERTY" shall mean any or all of the
following (i) works of authorship including, without limitation, computer
programs, source code and executable code, whether embodied in software,
firmware or otherwise, documentation, designs, files, records, data and mask
works, (ii) inventions (whether or not patentable), improvements, and
technology, (iii) proprietary and confidential information, trade secrets and
know how, (iv) databases, data compilations and collections and technical
data, (v) logos, trade names, trade dress, trademarks and service marks, (vi)
domain names, web addresses and sites, (vii) tools, methods and processes,
and (viii) all instantiations of the foregoing in any form and embodied in
any media.
"INTELLECTUAL PROPERTY RIGHTS" shall mean worldwide common
law and statutory rights associated with (i) patents and patent applications,
(ii) copyrights, copyrights registrations and copyrights applications and
"moral" rights, (iii) the protection of trade and industrial secrets and
confidential information, (iv) other proprietary rights relating to
intangible intellectual property, (v) trademarks, trade names and service
marks, (vi) analogous rights to those set forth above, and (vii) divisions,
continuations, renewals, reissuances and extensions of the foregoing (as
applicable).
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property and Intellectual Property Rights that are owned by or exclusively
licensed to the Company or the Subsidiary.
"REGISTERED INTELLECTUAL PROPERTY RIGHTS" shall mean
Intellectual Property Rights that have been registered with, or are the
subject of application for registration, filed, certified or otherwise
perfected by recordation with any state, government or other public legal
authority.
(b) SECTION 2.13(b) of the Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed in the name of, the
Company or the Subsidiary (the "COMPANY REGISTERED INTELLECTUAL PROPERTY")
and lists any proceedings or actions before any court, tribunal (including
the United States Patent and Trademark Office (the "PTO") or equivalent
authority anywhere in the world) to which Company or Subsidiary is a party or
of which either Company or Subsidiary has knowledge and which are related to
any of the Company Registered Intellectual Property Rights.
(c) Each item of Company Intellectual Property, including all
Company Registered Intellectual Property listed in SECTION 2.13(b) of the
Disclosure Schedule and, to the knowledge of the Company, all Intellectual
Property licensed to the Company or the Subsidiary, is free and clear of any
-18-
Liens or other encumbrances. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property.
(d) To the extent that any Intellectual Property has been
developed or created independently or jointly by any person other than the
Company or the Subsidiary or employees of the Company or Subsidiary for which
the Company or the Subsidiary has, directly or indirectly, paid, the Company
has a written agreement with such person with respect thereto, and the
Company thereby has obtained ownership of, and is the exclusive owner of, all
such Intellectual Property therein and associated Intellectual Property
Rights by operation of law or by valid assignment.
(e) Neither the Company nor the Subsidiary has transferred
ownership of, or granted any exclusive license of or exclusive right to use,
or authorized the retention of any exclusive rights to use or joint ownership
of, any Intellectual Property or Intellectual Property Rights that is or was
Company Intellectual Property, to any other person.
(f) The Company Intellectual Property constitutes all the
Intellectual Property and Intellectual Property Rights used in and/or
necessary to the conduct of the business of the Company or the Subsidiary as
it currently is conducted, including, without limitation, the design,
development, manufacture, use, import and sale of products, technology and
services (including products, technology or services currently under
development). The Subsidiary owns all Intellectual Property Rights in and to
the software products listed on SCHEDULE 2.13(f) hereto.
(g) Other than (i) "shrink-wrap" and similar widely available
commercial end-user licenses and (ii) other licenses and related agreements
with respect thereto of the Company's products to end-users pursuant to
written agreements that have been entered into in the ordinary course of
business that do not materially differ in substance from the Company's
standard form(s) of end-user license including attachments (which is or are
included in SECTION 2.13(g) of the Disclosure Schedule), SECTION 2.13(g) of
the Disclosure Schedule lists all contracts, licenses and agreements to which
the Company or the Subsidiary is a party with respect to any Intellectual
Property and Intellectual Property Rights. Except as provided in Schedule
2.13(g), no person who has licensed Intellectual Property or Intellectual
Property Rights to the Company or the Subsidiary has ownership rights or
license rights to improvements which the Company or the Subsidiary has made
in or to such Intellectual Property which has been licensed to the Company or
the Subsidiary.
(h) Other than (i) "shrink-wrap" and similar widely available
commercial end-user licenses and (ii) other licenses and related agreements
with respect thereto of the Company's products to end-users pursuant to
written agreements that have been entered into in the ordinary course of
business that do not materially differ in substance from the Company's
standard form(s) of end-user license including attachments (which is or are
included in SECTION 2.13(g) of the Disclosure Schedule), SECTION 2.13(h) of
the Disclosure Schedule lists all contracts, licenses and agreements between
the Company or the Subsidiary and any other person wherein or whereby the
Company or the Subsidiary has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume
or incur any obligation or liability or provide a right of rescission with
-19-
respect to the infringement or misappropriation by the Company or the
Subsidiary or such other person of the Intellectual Property Rights of any
person other than the Company or the Subsidiary.
(i) The operation of the business of the Company and the
Subsidiary as it currently is conducted by the Company and the Subsidiary,
including but not limited to the design, development, use, import,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of the Company
and the Subsidiary does not and will not infringe or misappropriate the
Intellectual Property Rights of any person, violate the rights of any person
(including rights to privacy or publicity), or constitute unfair competition
or trade practices under the laws of any jurisdiction, and neither the
Company nor the Subsidiary have received notice which is currently pending
from any person claiming that such operation or any act, product, technology
or service (including products, technology or services currently under
development) of the Company or the Subsidiary infringes or misappropriates
the Intellectual Property Rights of any person or constitutes unfair
competition or trade practices under the laws of any jurisdiction (nor is the
Company or the Subsidiary aware of any basis therefor).
(j) Each item of Company Registered Intellectual Property is in
full force and subsisting, and all necessary registration, maintenance and
renewal fees in connection with such Company Registered Intellectual Property
have been paid if due and all necessary documents and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes
of maintaining such registrations of Registered Intellectual Property.
Except as disclosed in Section 2.13(j) of the Disclosure Schedule, there are
no deadlines within sixty (60) days after the Closing Date by which the
Company or Subsidiary must make payment of any registration, maintenance or
renewal fees or the filing of any documents, applications or certificates for
the purposes of maintaining or renewing the registration of any Registered
Intellectual Property Rights. In each case in which either the Company or
the Subsidiary has acquired any Intellectual Property rights from any person,
the Company or the Subsidiary, as the case may be, has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Intellectual Property and the associated Intellectual Property Rights
(including the right to seek past and future damages with respect thereto) to
the Company or the Subsidiary as the case may be and, to the maximum extent
provided for by, and in accordance with, applicable laws and regulations, the
Company has recorded each such assignment that relates to Registered
Intellectual Property Rights with the relevant governmental authorities,
including the PTO, the U.S. Copyright Office, or their respective equivalents
in any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the
Company or the Subsidiary and any other person with respect to Company
Intellectual Property under which there is any pending dispute known to the
Company regarding the scope of such agreement, or performance under such
agreement including with respect to any payments to be made or received by
the Company or the Subsidiary thereunder. Without limiting the foregoing,
the Company has terminated any agreements that it has had with Clarus
Corporation ("Clarus") and is not subject to any obligations
-20-
with respect to Clarus and will have no liability to Clarus. Except as
expressly provided in Schedule 2.13(k), Clarus has no rights with respect to any
Company Intellectual Property.
(l) To the Knowledge of the Company, no person is infringing or
misappropriating any Company Intellectual Property.
(m) Each of the Company and the Subsidiary has taken reasonable
steps to protect the Company's rights in confidential information and trade
secrets of the Company and the Subsidiary or provided by any other person to the
Company or the Subsidiary under a written confidentiality agreement or
obligation of confidentiality. Without limiting the foregoing, each of the
Company and the Subsidiary has, and enforces, a policy requiring each employee
to execute proprietary information, confidentiality and assignment agreements
substantially in the Company's standard forms, and all current and former
employees of the Company or the Subsidiary have executed such an agreement in
substantially the Company's standard form.
(n) Except as provided in Schedule 2.13(n), no Company
Intellectual Property, Intellectual Property Rights or service of the Company or
the Subsidiary is subject to any proceeding or outstanding decree, order,
judgment or settlement agreement or stipulation to which the Company or the
Subsidiary is a party or of which either the Company or the Subsidiary has
knowledge that restricts in any manner the use, transfer or licensing thereof by
the Company or the Subsidiary or may affect the validity, use or enforceability
of such Company Intellectual Property.
(o) To the Knowledge of the Company, no (i) product, technology,
service or publication of the Company or the Subsidiary, (ii) material published
or distributed by the Company or the Subsidiary, or (iii) conduct or statement
of Company or the Subsidiary constitutes obscene material, a defamatory
statement or material, false advertising or otherwise violates any law or
regulation.
(p) All of the Company's and the Subsidiary's products (including
products currently under development) (i) will record, store, process, calculate
and present calendar dates falling on and after (and if applicable, spans of
time including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same functionality,
data integrity and performance, as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"YEAR 2000 COMPLIANT"), provided that any third party software or hardware that
interacts with or otherwise functions with such products are themselves Year
2000 compliant, (ii) will lose no functionality with respect to the introduction
of records containing dates falling on or after January 1, 2000, and (iii) will
be interoperable with other products used and distributed by Parent that may
reasonably deliver records to the Company's or Subsidiary's products or receive
records from the Company's or Subsidiary's products, or interact with the
Company's or Subsidiary's products, including but not limited to back-up and
archived data, provided that any Parent software or hardware that interacts or
otherwise functions with such products are themselves Year 2000 Compliant. To
the Company's Knowledge, all of the Company's or Subsidiary's
-21-
Information Technology (as defined below) is Year 2000 Compliant, and will not
cause an interruption in the ongoing operations of the Company's or Subsidiary's
business on or after January 1, 2000. For purposes of the foregoing, the term
"INFORMATION TECHNOLOGY" shall mean and include all software, hardware,
firmware, telecommunications systems, network systems, embedded systems and
other systems, components and/or services (other than general utility services
including gas, electric, telephone and postal) that are owned or used by the
Company or Subsidiary in the conduct of its business, or purchased by the
Company or Subsidiary from third party suppliers.
2.14 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as set forth in or excepted from (by virtue of the
specific exclusions contained in SECTIONS 2.13(g) or 2.13(h) of the Disclosure
Schedule) SECTIONS 2.13(g) and 2.13(h) of the Disclosure Schedule, or as set
forth in SECTION 2.14(a) of the Disclosure Schedule, neither the Company nor the
Subsidiary is a party to nor are any of them bound by:
(i) any employment or consulting agreement,
(ii) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of 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;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property having a value in excess
of $25,000 individually or $50,000 in the aggregate;
(v) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $25,000
individually or $100,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets with a value in excess of $100,000 or any
interest in any business enterprise outside the ordinary course of the Company's
or the Subsidiary's business;
(vii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit;
(viii) any purchase order or contract for the purchase of
materials involving in excess of $25,000 individually or $100,000 in the
aggregate;
(ix) any construction contracts;
-22-
(x) any dealer, distribution, joint marketing or
development agreement;
(xi) any sales representative, original equipment
manufacturer, value added, remarketer, reseller or independent software vendor
or other agreement for use or distribution of the Company's or the Subsidiary's
products, technology or services; or
(xii) any other agreement, contract or commitment that
involves $25,000 individually or $100,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
2.15 INTERESTED PARTY TRANSACTIONS. Except as set forth in SECTION 2.15
of the Disclosure Schedule, no officer of the Company (nor any affiliate of such
persons), has (i) an interest in any entity which competes with the Company or
the Subsidiary, (ii) any interest in any entity that purchases from or sells or
furnishes to the Company or the Subsidiary, any goods or services in excess of
$25,000, or (iii) a beneficial material interest in any Contract to which the
Company or the Subsidiary is a party; PROVIDED, HOWEVER, that employment
relationships and ownership of no more than five percent (5%) of the outstanding
voting stock of a publicly traded corporation shall not be deemed to be an
"interest in any entity" for purposes of this SECTION 2.15.
2.16 GOVERNMENTAL AUTHORIZATION. Each consent, license, permit, grant or
other authorization from a Governmental Entity which is required for
the operation of the Company's business as currently conducted (collectively,
"COMPANY AUTHORIZATIONS") has been issued or granted to the Company and the
Subsidiary, except where the failure to have such Company Authorization would
not reasonably be expected to have a Material Adverse Effect. Each consent,
license, permit, grant or other authorization from a governmental entity that
has been issued or granted to the Company and the Subsidiary is in full force
and effect.
2.17 LITIGATION. Except as set forth in SECTION 2.17 of the Disclosure
Schedule, there is no action, suit, claim or proceeding of any nature ("LEGAL
PROCEEDINGS") pending, or to the Knowledge of the Company threatened, against
the Company or the Subsidiary, its properties (tangible or intangible) or any of
its officers or directors, nor to the Knowledge of the Company is there any
reasonable basis therefor. There is no investigation or other proceeding
pending or to the Knowledge of the Company threatened, against the Company, the
Subsidiary, any of their properties (tangible or intangible) or any of their
officers or directors by or before any Governmental Entity, nor to the Knowledge
of the Company is there any reasonable basis therefor. No Governmental Entity
has at any time challenged or questioned the legal right of the Company or the
Subsidiary to conduct its operations as presently or previously conducted.
2.18 ACCOUNTS RECEIVABLE.
(a) The Company has made available to Parent a list of all
accounts receivable of the Company and the Subsidiary as of March 31, 1999,
together with a range of days elapsed since invoice.
-23-
(b) All of the Company's and the Subsidiary's accounts receivable
arose in the ordinary course of business, are carried at values determined in
accordance with GAAP consistently applied, and are collectible except to the
extent of reserves therefor set forth in the Current Balance Sheet or, for
receivables arising subsequent to March 31, 1999, as reflected on the books and
records of the Company and the Subsidiary (which are prepared in accordance with
GAAP). No person has any Lien on any of the Company's or the Subsidiary's
accounts receivable and no request or agreement for deduction or discount has
been made with respect to any of the Company's or the Subsidiary's accounts
receivable.
2.19 MINUTE BOOKS. The minutes of the Company and the Subsidiary made
available to counsel for Parent are the only minutes of the Company and the
Subsidiary and contain materially accurate summaries of all meetings of the
Board of Directors (or committees thereof) of the Company and the Subsidiary and
their shareholders or actions by written consent since the time of incorporation
of the Company or the Subsidiary, as the case may be.
2.20 BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Neither the
Company nor the Subsidiary has incurred, nor will they incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with the Agreement or any transaction
contemplated hereby. SECTION 2.21 of the Disclosure Schedule sets forth the
Company's current reasonable estimate of all Third Party Expenses (as defined in
SECTION 5.4 hereof) expected to be incurred by the Company or the Subsidiary in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby.
2.21 EMPLOYEE BENEFIT PLANS AND COMPENSATION.
(a) DEFINITIONS. For all purposes of this Agreement, the
following terms shall have the following respective meanings:
"AFFILIATE" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Code, and the regulations issued thereunder.
"COMPANY EMPLOYEE PLAN" shall mean any material plan, program,
policy, practice or, contract, agreement or other material arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
-24-
"DOL" shall mean the United States Department of Labor.
"EMPLOYEE" shall mean any current or former employee,
consultant or director of the Company or any Affiliate.
"EMPLOYEE AGREEMENT" shall mean each material management,
employment, severance, consulting, or relocation contract between the Company or
any Affiliate and any Employee.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"FMLA" shall mean the Family Medical Leave Act of 1993, as
amended.
"IRS" shall mean the United States Internal Revenue Service.
"PBGC" shall mean the United States Pension Benefit Guaranty
Corporation.
"PENSION PLAN" shall mean each Company Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) SCHEDULE. SECTION 2.21(b) of the Disclosure Schedule contains
an accurate and complete list of each Company Employee Plan and each Employee
Agreement. Neither the Company nor the Subsidiary has any obligation to
establish any new Company Employee Plan or Employee Agreement or to modify any
Company Employee Plan or Employee Agreement (except to the extent required by
law or to conform any such Company Employee Plan or Employee Agreement to the
requirements of any applicable law or as required by this Agreement).
(c) DOCUMENTS. The Company has made available to Parent
(i) correct and complete copies of all documents embodying each Company Employee
Plan and each Employee Agreement including, without limitation, all amendments
thereto and all related trust documents, (ii) the three (3) most recent annual
reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Company Employee Plan, (iii) if the Company Employee Plan is funded, the most
recent annual and of Company Employee Plan assets, (iv) the most recent summary
plan description together with the summary(ies) of material modifications
thereto, if any, required under ERISA with respect to each Company Employee
Plan, (v) all material written agreements and contracts relating to each Company
Employee Plan, including, without limitation, administrative service agreements
and group insurance contracts, (vi) all communications material relating to any
Company Employee Plan (vii) all correspondence to or from any governmental
agency relating to any Company Employee Plan, (viii) all COBRA forms and related
notices, (ix) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Company Employee Plan, (x) all discrimination tests for
each
-25-
Company Employee Plan for the most recent plan year, and (xi) all annual reports
(Form 11-K and all attachments thereto) and prospectuses prepared in connection
with each Company Employee Plan.
(d) EMPLOYEE PLAN COMPLIANCE. Each of the Company and the
Subsidiary has performed all obligations required to be performed by it under,
is not in default or violation of, and has no Knowledge of any default or
violation by any other party to each Company Employee Plan, each Company
Employee Plan has been established and maintained in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code except such
noncompliance as would not reasonably be expected to have a Material Adverse
Effect. To the Knowledge of the Company and the Subsidiary, no "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Company Employee Plan. There are no actions, suits or
claims pending, or to the Knowledge of the Company threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan other than
actions, suits or claims which would not reasonably be expected to have a
Material Adverse Effect. There are no audits, inquiries or proceedings pending
or to the Knowledge of the Company or any Affiliates, threatened by the IRS or
DOL with respect to any Company Employee Plan. Neither the Company nor any
Affiliate is subject to any material penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code.
(e) NO PENSION PLANS. Neither the Company nor the Subsidiary nor
any other Affiliate has ever maintained, established, sponsored, participated
in, or contributed to, any (i) Pension Plans subject to Title IV of ERISA, or
(ii) "multiemployer plan" within the meaning of Section (3)(37) of ERISA.
(f) NO POST-EMPLOYMENT OBLIGATIONS. Except as set forth in
SECTION 2.21 of the Disclosure Schedule, no Company Employee Plan provides
retiree life insurance, retiree health or other retiree employee welfare
benefits to any person for any reason, except as may be required by COBRA or
other applicable statute, and, except as set forth in SECTION 2.21 of the
Disclosure Schedule, neither the Company nor the Subsidiary has ever
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(g) COBRA. The Company and each Affiliate has, prior to the
Effective Time, materially complied with the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.
(h) EFFECT OF TRANSACTION. The execution of this Agreement and
the consummation of the transactions contemplated hereby will not (either alone
or upon the occurrence of any additional or subsequent events) constitute an
event under any Company Employee Plan, Employee Agreement, trust or loan that
will result in any payment (whether of severance pay or otherwise),
-26-
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee, except as
expressly required by this Agreement.
(i) EMPLOYMENT MATTERS. To the extent that each of the Company
and the Subsidiary: (i) has failed to be in compliance with all applicable
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees, (ii) has failed to withhold or report all
amounts required by law or by agreement to be withheld and reported with respect
to wages, salaries and other payments to Employees, (iii) is liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing, or (iv) is liable for any payment to any trust or other fund
governed by or maintained by or on behalf of any governmental authority, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice) such failures and
liabilities would not have a Material Adverse Effect on the Company. There are
no pending or to the Knowledge of the Company threatened claims or actions
against the Company or the Subsidiary under any worker's compensation policy or
long-term disability policy.
(j) LABOR. No work stoppage or labor strike against the Company
or the Subsidiary is pending or to the Knowledge of the Company threatened. The
Company does not know of any activities or proceedings of any labor union to
organize any current employee of the Company. Neither the Company nor the
Subsidiary is presently, nor have they been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees.
(k) NO INTERFERENCE OR CONFLICT. To the Knowledge of the Company,
no shareholder, officer, employee or consultant of the Company or the Subsidiary
is obligated under any contract or agreement subject to any judgment, decree or
order of any court or administrative agency that would materially interfere with
such person's efforts to promote the interests of the Company or the Subsidiary
or that would materially interfere with the Company's or Subsidiary's business.
Neither the execution nor delivery of this Agreement, nor the carrying on of the
Company's or the Subsidiary's business as presently conducted nor any current
activity of such officers, directors, employees or consultants in connection
with the carrying on of the Company's or the Subsidiary's business as presently
conducted, will to the Knowledge of the Company conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract or agreement under which any of such officers, directors, employees
or consultants is now bound that is reasonably likely to have a Material Adverse
Effect.
2.22 INSURANCE. SECTION 2.22 of the Disclosure Schedule lists all
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company or any
Affiliate. There is no material claim by the Company or any Affiliate pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid, and the
Company and its Affiliates are otherwise in material compliance with the terms
of such policies and bonds (or other policies and bonds providing
-27-
substantially similar insurance coverage). The Company does not have any
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies.
2.23 COMPLIANCE WITH LAWS. Each of the Company and the Subsidiary has
complied with, is not in violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
2.24 POOLING OF INTERESTS. To the Knowledge of the Company, neither the
Company nor any of its directors, officers, affiliates or stockholders has taken
any action which would preclude the Parent's and Company's ability to account
for the Merger as a pooling of interests.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company that on the date hereof
and as of the Effective Time as though made at the Effective Time as follows:
3.1 ORGANIZATION, STANDING AND POWER. Each of Parent and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of Parent and Sub has the corporate power to own
its properties and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which it conducts business, except where the
failure to be so qualified or licensed or to be in good standing would not
reasonably be expected to have a material adverse effect on the business, assets
or condition of Parent and its subsidiaries, taken as a whole.
3.2 AUTHORITY. Each of Parent and Sub has all requisite corporate power
and authority to enter into this Agreement and any Related Agreements to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and any Related
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Sub, and no further action is
required on the part of Parent or Sub to authorize this Agreement, any Related
Agreements to which it is a party and the transactions contemplated hereby and
thereby. This Agreement and each Related Agreement to which Parent or Sub is a
party have been duly executed and delivered by Parent or Sub and, assuming the
due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of Parent or Sub,
enforceable against each such party in accordance with their respective terms,
except as such enforceability may be limited by principles of public policy and
subject to the laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies.
-28-
3.3 MERGER SHARES. The shares of Parent Common Stock to be issued
pursuant to the Merger will be duly authorized, validly issued, fully paid,
non-assessable.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished
the Company with a true and complete copy of all of its filings with the SEC
since June 30, 1998 (the "SEC DOCUMENTS"). As of their respective filing dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as
amended, as applicable and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed document with the SEC. The SEC Documents
contain an audited consolidated balance sheet of Parent as of June 30, 1998 (the
"PARENT BALANCE SHEET") and the related audited consolidated statements of
income and cash flow for the year then ended (the "PARENT FINANCIALS"). The
Parent Financials have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other. The
Parent Financials present fairly in all material respects the consolidated
financial condition and operating results and cash flows of Parent and its
subsidiaries as of the dates and during the periods indicated therein. Since
the date of the Parent Balance Sheet and until the date of this Agreement, there
has not occurred any material adverse change in the business, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole.
3.5 NO CONFLICT. The execution and delivery of this Agreement by Parent
or Sub and any Related Agreement to which Parent or Sub is a party, and the
consummation of the transactions contemplated hereby and thereby, will not
result in a Conflict with (i) any provision of the Certificate of Incorporation
or Bylaws of Parent or Sub, (ii) any mortgage, indenture, lease, or other
material agreement or any instrument, permit, franchise or license to which
Parent or Sub or any of their respective properties or assets (including
intangible assets) is subject or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or Sub or their
respective properties (tangible or intangible) or assets, other than for clause
(ii) and (iii) such Conflicts which would not reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of Parent and its subsidiaries, taken as a whole.
3.6 CONSENTS. No consent is required by or with respect to Parent or
Sub in connection with the execution and delivery of this Agreement and any
Related Agreements to which Parent or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such Consents as
may be required under applicable securities laws; (ii) the filing of the
Delaware Certificate of Merger with the Secretary of State of the State of
Delaware; (iii) the filing of the Georgia Certificate of Merger with the
Secretary of State of the State of Georgia, and (iv) such Consents which, if not
satisfied or obtained, would not reasonably be expected to have a material
adverse effect on the business, financial condition or results of operation of
Parent and its subsidiaries, taken as a whole.
-29-
3.7 POOLING OF INTERESTS. To the Knowledge of Parent or Sub, no
director, officer, affiliate Parent or stockholder of Parent has taken any
interest which would preclude the Parent's and Company's ability to account for
the Merger as a pooling of interests.
ARTICLE IV
[INTENTIONALLY LEFT BLANK]
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 SALE OF SHARES. The parties hereto acknowledge and agree that the
shares of Parent Common Stock issuable to the Stockholders pursuant to
SECTION 1.6 shall constitute "restricted securities" within the meaning of
Rule 144 under Securities Act. The certificates for the shares of Parent Common
Stock to be issued in the Merger shall bear appropriate legends to identify such
privately placed shares as being restricted under the Securities Act, to comply
with applicable state securities laws and, if applicable, to notice the
restrictions on transfer of such shares. It is acknowledged and understood that
Parent is relying upon certain written representations made by the Stockholders
in the Stockholder Certificates in substantially the form attached hereto as
EXHIBIT I.
5.2 CONFIDENTIALITY. Each of the parties hereto hereby agrees that the
information obtained pursuant to the negotiation and execution of this Agreement
or the effectuation of the transaction contemplated hereby shall be governed by
the terms of any confidentiality agreement between the Company and Parent.
5.3 EXPENSES. If the Merger is not consummated, all fees and expenses
incurred in connection with the Merger including, without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("THIRD PARTY EXPENSES") incurred by a party in connection with
the negotiation and effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby, shall be the obligation of the
respective party incurring such fees and expenses. If the Merger is
consummated, Parent agrees to pay the reasonable Third Party Expenses incurred
by the Company. Within five (5) business days after the Closing, Parent and Sub
agrees to pay those expenses of the Company required by this SECTION 5.3.
5.4 FIRPTA COMPLIANCE. On the date hereof, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.5 AFFILIATE AGREEMENTS. SECTION 5.5 of the Disclosure Schedule sets
forth those persons who, in the Company's reasonable judgment, are or may be
"affiliates" of the Company within the
-30-
meaning of Rule 145 (each such person, an "AFFILIATE") promulgated under the
Securities Act ("RULE 145"). The Company has delivered to Parent, from each of
the Affiliates of the Company, an executed Affiliate Agreement in the form
attached hereto as EXHIBIT D, each of which is in full force and effect. Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.6 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. After the Closing,
each party hereto, at the request of another party hereto, shall execute and
deliver such other instruments and do and perform such other acts and things as
may be necessary for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.7 TAX-FREE REORGANIZATION. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under Section 368 of the
Code. The parties shall not take a position on any tax return inconsistent with
this SECTION 5.7. From and after the Effective Time, neither Parent, Sub nor
the Company shall take any action that could reasonably be expected to cause the
Merger not to be treated as a reorganization within the meaning of Section 368
of the Code.
5.8 POOLING ACCOUNTING. Parent and the Company shall each use their
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Each of Parent and the Company
shall use their best efforts to cause its Affiliates (as defined in SECTION 5.5)
not to take any action that would adversely affect the ability of Parent to
account for the business combination to be effected by the Merger as a pooling
of interests.
5.9 REGISTRATION RIGHTS. The parties have entered into a Registration
Rights Agreement substantially in the form attached hereto as EXHIBIT E.
ARTICLE VI
DELIVERIES AT CLOSING
6.1 DELIVERIES TO THE COMPANY. The Company shall receive at the Closing
the following documents:
(a) LEGAL OPINION. The Company shall receive a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, legal counsel to
Parent, substantially in the form of EXHIBIT F-1 hereto.
(b) TAX OPINION. The Company shall receive a written opinion from
its tax counsel, Dechert Price & Rhoads, substantially similar to the form of
opinion of counsel referred to in
-31-
SECTION 6.2(c), to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
6.2 DELIVERIES TO PARENT. The Parent shall receive at the Closing the
following documents:
(a) THIRD PARTY CONSENTS. Parent shall receive all executed
consents, waivers, assignments and approvals listed in the Disclosure Schedule.
(b) LEGAL OPINION. Parent shall receive a legal opinion from
Dechert Price & Rhoads, legal counsel to the Company, substantially in the form
of EXHIBIT F-2 hereto.
(c) TAX OPINION. Parent shall receive a written opinion from its
tax counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation,
substantially similar to the form of opinion of counsel referred to in
SECTION 6.1(b), to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code.
(d) NONCOMPETITION AND NONSOLICITATION AGREEMENTS. The Principal
Stockholders each have executed and delivered to Parent a Noncompetition
Agreement in the form attached hereto as EXHIBIT G and all of such
Noncompetition Agreements are in full force and effect.
(e) STOCKHOLDER CERTIFICATE. Each Stockholder has executed and
delivered to Parent a Stockholder Certificate in substantially the form attached
hereto as EXHIBIT H.
(f) OPINION OF ACCOUNTANTS. Parent shall receive letters from
Ernst & Young LLP and KPMG LLP, dated within two (2) business days prior to the
date hereof, regarding their concurrence with Parent's and the Company's
managements' conclusions as to the appropriateness of pooling of interest
accounting for the Merger under Accounting Principles Board Opinion No. 16.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Merger and continue until (a) with
respect to general management representations that are subject to resolution
through the audit process, the date that is the earlier of the date of the
auditor's report for the Parent's financial statements first following the
Closing Date or one year following the Closing Date (the "EXPIRATION DATE") or
(b) with respect to all other representations and warranties, the date that is
one year following the Closing Date; PROVIDED, HOWEVER, that the representations
and warranties set forth in Section 2.3 shall not terminate. All of Parent's
and Sub's representations and warranties contained herein or in any instrument
delivered pursuant to this Agreement shall survive the Merger and continue until
the Expiration Date.
-32-
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. As security for the indemnity provided for in
this Article VII and by virtue of this Agreement, the Stockholders will be
deemed to have received and deposited with the Escrow Agent (as defined
below) the Escrow Amount (plus any additional shares as may be issued upon
any stock split, stock dividend or recapitalization effected by Parent after
the Effective Time with respect to the Escrow Amount) without any act of any
Stockholder. As soon as practicable after the Effective Time, the Escrow
Amount, without any act of any Stockholder, will be deposited with U.S. Bank
Trust, N.A. (or other institution acceptable to Parent and the Stockholder
Representative (as defined in SECTION 7.4) as Escrow Agent (the "ESCROW
AGENT"), such deposit to constitute an escrow fund (the "ESCROW FUND") to be
governed by the terms set forth herein. The portion of the Escrow Amount
contributed on behalf of each Stockholder shall be in proportion to the
aggregate Parent Common Stock which such holder would otherwise be entitled
under SECTION 1.6. The Stockholders jointly agree to indemnify and hold
Parent and its officers, directors and affiliates (the "INDEMNIFIED PARTIES")
harmless against all claims, losses, liabilities, damages, deficiencies,
costs and expenses, including reasonable attorneys' fees and expenses of
investigation, (hereinafter individually a "LOSS" and collectively "LOSSES")
incurred by Parent, its officers, directors, or affiliates (including the
Surviving Corporation) directly or indirectly as a result of (i) any
inaccuracy or breach of a representation or warranty of the Company contained
in this Agreement, or (ii) any failure by the Company to perform or comply
with any covenant contained in this Agreement; PROVIDED, HOWEVER, that,
except as set forth in SECTION 7.6, the aggregate amount for which the
Stockholders are required to indemnify the Indemnified Parties shall not
exceed the amount deposited in the Escrow Fund. Parent may not receive any
shares from the Escrow Fund unless and until Officer's Certificates (as
defined in paragraph (d) below) identifying Losses in the aggregate exceeding
$500,000 (the "BASKET AMOUNT") have been delivered to the Escrow Agent as
provided in paragraph (d) below, in which case Parent shall be entitled to
recover only those Losses exceeding the Basket Amount. No Stockholder shall
have any right to contribution from the Company for any claim made by Parent
after the Effective Time.
(b) DISTRIBUTION OF ESCROW FUNDS. The Escrow Agent shall deliver
to the Stockholders, pro rata in proportion to their respective contributions to
the Escrow Fund as set forth in SECTION 2.3(a) of the Disclosure Schedule,
(i) on the date that is the 180th day after the Closing Date, an amount equal to
one-half of the Escrow Amount, less any amount that has been paid out of the
Escrow Fund pursuant to this Article VII is then in dispute with respect to
claims set forth in one or more Officer's Certificates, and (ii) on the
Expiration Date, an amount equal to the Escrow Amount then remaining in the
Escrow Fund, LESS any amount that is then in dispute with respect to claims set
forth in one or more Officer's Certificate, and, if on the Expiration Date any
claims set forth in an Officer's Certificate are then in dispute, then
thereafter on the date after any such claims are resolved, such portion of the
Escrow Fund as is not required to satisfy such claim.
(c) PROTECTION OF ESCROW FUND.
-33-
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("NEW SHARES") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the record holders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the record holders thereof.
(iii) Each Stockholder shall have voting rights and the right
to distributions of dividends with respect to the shares of Parent Common Stock
contributed to the Escrow Fund by such Stockholder (and on any voting securities
added to the Escrow Fund in respect of such shares of Parent Common Stock). As
the record holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of the Stockholders having the beneficial
interest therein and shall promptly deliver copies of all proxy solicitation
materials to such Stockholders.
(d) CLAIMS UPON ESCROW FUND.
(i) Subject to subsection (e) below, thirty (30) days after
receipt by the Escrow Agent at any time on or before the last day of the Escrow
Period of a certificate signed by any officer of Parent (an "OFFICER'S
CERTIFICATE"): (A) stating that Parent has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses with respect to
an Indemnity Matter (as defined below), and (B) specifying in reasonable detail
the individual items of Losses included in the amount so stated, the date each
such item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related, and (C) a request that the Escrow Agent
deliver to Parent the relevant number of shares of Parent Common Stock out of
the Escrow Fund. The Escrow Agent shall, subject to the provisions of
SECTION 7.2(e) hereof, deliver to Parent out of the Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the Escrow Fund with a value
equal to such Losses. For purposes of this Agreement, "INDEMNITY MATTER" shall
mean any matter for which any Indemnified Party is entitled to indemnification
pursuant to SECTION 7.2(a).
(ii) For the purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund as
indemnity pursuant to SECTION 7.2(d)(i) hereof, the shares of Parent Common
Stock shall be valued at the Closing Price, which the parties shall certify to
the Escrow Agent in writing.
-34-
(e) OBJECTIONS TO CLAIMS. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Stockholder Representatives, and for a period of
thirty (30) days after such delivery, the Escrow Agent shall make no delivery to
Parent of any Escrow Amounts pursuant to SECTION 7.2(d) hereof unless the Escrow
Agent shall have received written authorization from the Stockholder
Representatives to make such delivery. After the expiration of such thirty (30)
day period, the Escrow Agent shall make delivery of shares of Parent Common
Stock from the Escrow Fund in accordance with SECTION 7.2(d) hereof; PROVIDED,
HOWEVER, that no such payment or delivery may be made if the Stockholder
Representatives shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) RESOLUTION OF CONFLICTS; ARBITRATION.
(i) In case the Stockholder Representatives shall object in
writing to any claim or claims made in any Officer's Certificate, the
Stockholder Representatives and Parent shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If
the Stockholder Representatives and Parent should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on
any such memorandum and distribute shares of Parent Common Stock from the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached within 30 days of
Escrow Agent's receipt of a Stockholder Representative's objection, then such
dispute shall be submitted for arbitration unless the amount of the damage or
Loss is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to Parent
and the Stockholder Representatives. In the event that within forty-five (45)
days after submission of any dispute to arbitration, Parent and the Stockholder
Representatives cannot mutually agree on one arbitrator, Parent and the
Stockholder Representatives shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing the
parties an opportunity, adequate in the sole judgement of the arbitrator or
majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator or a majority of the three arbitrators, as the case may be, shall
rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the extent as a
competent court of law or equity, should the arbitrators or a majority of the
three arbitrators, as the case may be, determine that discovery was sought
without substantial justification or that discovery was refused or objected to
without substantial justification. The decision of the arbitrator or a majority
of the three arbitrators, as the case may be, as to the validity and amount of
any claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact
-35-
and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Cook County, Illinois, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
(g) ESCROW AGENT'S DUTIES.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Stockholder Representatives, and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties.
The Escrow Agent shall not be liable for any act done or omitted hereunder as
Escrow Agent while acting in good faith and in the exercise of reasonable
judgment, and any act done or omitted pursuant to the advice of counsel shall be
conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey final orders, judgments or decrees
of any court. In case the Escrow Agent obeys or complies with any such final
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for negligence or willful misconduct on the part of the Escrow Agent.
The Escrow Agent shall not incur any such liability for (A) any act or failure
to act made or omitted in good faith, or (B) any action taken or omitted in
-36-
reliance upon any instrument, including any written statement of affidavit
provided for in this Agreement that the Escrow Agent shall in good faith
believe to be genuine, nor will the Escrow Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any
representative authority. In addition, the Escrow Agent may consult with the
legal counsel in connection with Escrow Agent's duties under this Agreement
and shall be fully protected in any act taken, suffered, or permitted by
him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock and may wait for
settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
Parent Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the interpleader
action and which the parties jointly and severally agree to pay. Upon
initiating such action, the Escrow Agent shall be fully released and discharged
of and from all obligations and liability imposed by the terms of this
Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, including allocated costs of
in-house counsel and disbursements that may be imposed on Escrow Agent or
incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any Litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; PROVIDED, HOWEVER, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent. The successor escrow agent shall execute
and deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow agent.
Upon appointment of a successor escrow agent, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
-37-
(h) FEES. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent in accordance with the standard fee
schedule of the Escrow Agent attached hereto as EXHIBIT I. It is understood
that the fees and usual charges agreed upon for services of the Escrow Agent
shall be considered compensation for ordinary services as contemplated by this
Agreement. In the event that the conditions of this Agreement are not promptly
fulfilled, or if the Escrow Agent renders any service not provided for in this
Agreement, or if the parties request a substantial modification of its terms, or
if any controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to the Escrow Fund or its subject
matter, the Escrow Agent shall be reasonably compensated for such extraordinary
services and reimbursed for all costs, attorney's fees, including allocated
costs of in-house counsel, and expenses occasioned by such default, delay,
controversy or litigation.
(i) CONSEQUENTIAL DAMAGES. In no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Escrow Agent
has been advised of the likelihood of such loss or damage and regardless of the
form of action.
(j) SUCCESSOR ESCROW AGENTS. Any corporation into which the
Escrow Agent in its individual capacity may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.3 PARENT INDEMNITY. Parent shall indemnify and hold the Stockholders
or their affiliates (the "STOCKHOLDER PARTIES") harmless against all Losses
incurred by them directly or indirectly which exceed in aggregate $500,000 as a
result of (i) any inaccuracy or breach of a representation or warranty or Parent
of Sub contained in this Agreement, or (ii) any failure by Parent or Sub to
perform or comply with any covenant contained in this Agreement.
7.4 STOCKHOLDER REPRESENTATIVES.
(a) In the event that the Merger is approved, effective upon such
vote, and without further act of any Stockholder, each of Tom Clements and Skip
Maner shall be appointed as agent and attorney-in-fact (acting jointly the
"STOCKHOLDER REPRESENTATIVE") for each Stockholder, for and on behalf of the
Stockholders, to give and receive notices and communications, to authorize
delivery to Parent of shares of Parent Common Stock from the Escrow Fund in
satisfaction of claims by Parent, to object to such deliveries, to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Stockholder Representative for the accomplishment of the foregoing. Such agency
may be changed by a meeting of the Stockholders from time to time upon not less
than thirty (30) days prior written notice to Parent; PROVIDED, HOWEVER, that
the Stockholder Representative may not be removed unless
-38-
Stockholders with a majority in interest in the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Stockholder Representative may be filled by approval of the holders
of a majority in interest in the Escrow Fund. No bond shall be required of the
Stockholder Representative, and the Stockholder Representative shall not receive
compensation for his or her services. Notices or communications to or from the
Stockholder Representative shall constitute notice to or from each of the
Stockholders.
(b) The Stockholder Representative shall not be liable for any act
done or omitted hereunder as Stockholder Representative while acting in good
faith and in the exercise of reasonable judgment. The Stockholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall severally
indemnify the Stockholder Representative and hold the Stockholder Representative
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Stockholder Representative and arising out of or in
connection with the acceptance or administration of the Stockholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Stockholder Representative.
(c) A decision, act, consent or instruction of the Stockholder
Representative shall constitute a decision of all Stockholders for whom a
portion of the Escrow Amount otherwise issuable to them are deposited in the
Escrow Fund and shall be final, binding and conclusive upon each of such
Stockholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Stockholder Representative as being the
decision, act, consent or instruction of each and every such Stockholder. The
Escrow Agent and Parent are hereby relieved from any liability to any person for
any acts done by them in accordance with such decision, act, consent or
instruction of the Stockholder Representative.
7.5 THIRD PARTY CLAIMS.
(a) Subject to subclause (b) below, in the event that a party
seeking indemnity pursuant to this Agreement ("Indemnitee") shall become aware
of a third-party claim with respect to any matter as to which the other party
("Indemnitor") has agreed to indemnify Indemnitee under the provisions of this
Agreement (a "Third Party Claim"), Indemnitee shall give notice thereof in
writing to Indemnitor together, in each instance, with a statement of such
information respecting such Third Party Claim as Indemnitee shall then have.
Indemnitor reserves the right to contest and defend by all appropriate legal or
other proceedings any Third Party Claim with respect to which it has been called
upon to indemnify Indemnitee under the provisions of this Agreement; provided,
however, that notice of the intention so to contest shall be delivered to
Indemnitee within twenty (20) calendar days from the date of receipt by
Indemnitor of notice of the Third Party Claim. If Indemnitor assumes such
defense, Indemnitee shall have the right to participate in, but not control, the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by Indemnitor. If Indemnitor shall have assumed the defense of
any claim, Indemnitee shall not admit any liability with respect to, or settle,
compromise or discharge, such claim without Indemnitor's prior written consent.
If Indemnitor has not so assumed the defense of and Indemnitee settles,
compromises or discharges
-39-
any claim without Indemnitor's consent, such settlements, compromise of
discharge shall not be conclusive as to the amount of Indemnitee's Losses, if
any, with respect to such claim.
(b) In the event Parent becomes aware of a Third-Party Claim in an
amount exceeding the amount then held in the Escrow Fund which Parent believes
is reasonably likely to result in a demand in excess of the Escrow Fund, Parent
shall notify the Stockholder Representatives of such claim, and the Stockholder
Representatives shall be entitled, at its expense, to participate in any defense
of such claim. Parent shall have the right in its sole discretion to settle any
such claim; PROVIDED, HOWEVER, that except with the consent of the Stockholder
Representative, no settlement of any such claim with third-party claimants shall
be determinative of the amount of any claim against the Escrow Fund. In the
event that the Stockholder Representative has consented to any such settlement,
the Stockholders shall have no power or authority to object under any provision
of this Article VII to the amount of any claim by Parent against the Escrow Fund
with respect to such settlement; provided that in no event shall any such claim
expose the Stockholders to liability in excess of the Escrow Fund.
(c) If the Stockholders Representatives shall have assumed the
defense of any Third Party Claim, the Stockholders Representatives shall notify
the Company and the Escrow Agent in writing of the amount of cash that is
reasonably expected to be necessary for the management and resolution of such
Third Party Claim, specifying in reasonable detail the individual items included
in the amount. Unless the Company objects to such amount within 5 days of
receiving such notice, the Escrow Agent shall deliver to the Stockholders
Representatives out of the Escrow Fund, as promptly as practicable, shares of
Parent Common Stock held in the Escrow Fund with a value equal to the amount
requested in the notice. If the Company objects to the requested amount, the
Company and the Stockholders Representatives shall negotiate in good faith to
resolve such dispute and after such dispute is resolved, the Escrow Agent shall
deliver to the Stockholders Representatives out of the Escrow Fund, as promptly
as practicable, shares of Parent Common Stock held in the Escrow Fund with a
value equal to the amount requested in the notice. For purposes of determining
the number of shares of Parent Common Stock to be delivered to Parent out of the
Escrow Fund pursuant to this Section 7.5(c), the shares of Parent Common Stock
shall be valued at the Closing Price, which the parties shall certify to the
Escrow Agent in writing.
7.6 EXCLUSIVE REMEDY.
(a) The maximum amount Parent may recover from the Stockholders pursuant
to the indemnity set forth in this Article VII for breaches by the Company of
the representations and warranties or covenants contained in this Agreement
shall be limited to the amount of the Escrow Fund; PROVIDED, HOWEVER, that the
maximum amount Parent may recover from any Principal Stockholder in respect of
Losses arising out of fraudulent or deceitful statements included in the
representations and warranties of the Company contained in this Agreement of
which the Principal Stockholder had knowledge shall not be limited with respect
to such Principal Shareholder who had such knowledge, but shall be limited with
respect to each other Stockholder, but Parent shall seek recovery first from the
Escrow Fund.
-40-
(b) Following the Closing, the rights to indemnification under this
Article VII shall be the exclusive remedy for the parties with respect to any
Losses and none of the parties shall be entitled to pursue, and each hereby
expressly waives as of the Closing, any and all other rights that may
otherwise be available to them either at law or in equity with respect
thereto, including all claims and causes of action, known and unknown,
foreseen and unforeseen, which exist or may arise in the future, or which it
otherwise might assert, under common law, federal or state securities laws,
trade regulation laws, or Environmental Laws (including CERCLA or any other
statutes now or hereafter in effect) by reason of this Agreement, the events
giving rise to this Agreement and the transactions provided for herein or
contemplated hereto or thereby (other than in respect of any confidentiality
agreement between the parties). The parties hereby agree that all rights
under Section 1542 of the Civil Code of the State of California are hereby
waived to the extent necessary under California law to waive unknown or
unsuspected claims waived in this SECTION 7.6(b). Section 1542 provides as
follows: "A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his settlement
with the debtor."
7.7 LIMITATIONS ON REPRESENTATIONS AND WARRANTIES. Each of the
parties is a sophisticated legal entity that was advised by experienced
counsel and, to the extent it deemed necessary, other advisors in connection
with this Agreement. Accordingly, each of the parties hereby acknowledges
that (i) no party has relied or will rely in respect of this Agreement or the
transactions contemplated hereby upon any document or written or oral
information previously furnished to or discovered by it or its
representative, other than this Agreement including the schedules and
exhibits hereto, (ii) there are no representations or warranties by or on
behalf of any party hereto or any of its respective affiliates or
representatives other than those expressly set forth in this Agreement and
(iii) the party's respective rights and obligations with respect to this
Agreement and the events giving rise thereto will be solely as set forth in
this Agreement.
ARTICLE VIII
[INTENTIONALLY LEFT BLANK]
ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice), PROVIDED,
HOWEVER, that notices sent by mail will not be deemed given until received:
-41-
(a) if to Parent or Sub, to:
ProBusiness Services, Inc.
4125 Hopyard Road
Pleasanton, California 94588
Attention: Thomas Sinton
Telephone No.: (925) 737-3500
Facsimile No: (925) 463-3844
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Alan K. Austin, Esq.
Brian C. Erb, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to
Clemco, Inc.
5000 Peachtree Industrial Boulevard
Suite 150
Norcross, Georgia 30341
Attention: Tom Clements
Telephone No.: (770) 446-4060
Facsimile No.: (770) 466-4070
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Henry N. Nassau
Telephone No.: (215) 994-4000
Facsimile No.: (215) 994-2222
-42-
(c) if to the Principal Stockholders, to:
Thomas Clements
5000 Peachtree Industrial Boulevard
Suite 150
Norcross, Georgia 30341
Bradley Zeitlin
4248 Wievca Overlook
Atlanta, GA 30342
Robert Andes
5000 Peachtree Industrial Boulevard
Suite 150
Norcross, Georgia 30341
(d) if to the Stockholder Representatives to:
Tom Clements
5000 Peachtree Industrial Boulevard
Suite 150
Norcross, Georgia 30341
Charles Johnson
c/o Noro-Moseley Partners
4200 Northside Parkway, NW
Building 9
Atlanta, GA 30327
(e) if to the Escrow Agent, to:
U.S. Bank Trust, N.A.
One California Street, 4th Floor
San Francisco, CA 94111
Attention: Barbara Wise
Telephone No.: (415) 273-4530
Facsimile No.: (415) 273-4593
9.2 INTERPRETATION. The words "include," "includes" and "including"
when used herein shall be deemed in each case to be followed by the words
"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
-43-
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, the Exhibits
hereto, the Disclosure Schedule, and the documents and instruments and other
agreements among the parties hereto referenced herein: (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings both written and oral,
among the parties with respect to the subject matter hereof; (b) are not
intended to confer upon any other person any rights or remedies hereunder;
and (c) shall not be assigned (other than by operation of law), except that
Parent and Sub may assign their respective rights and delegate their
respective obligations hereunder to their respective affiliates.
9.5 SEVERABILITY. In the event that any provision of this Agreement
or the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.6 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of any court within Cook County, State of Illinois, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in
any manner authorized by the laws of the State of Illinois for such persons
and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction, venue and such process.
9.8 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefor, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.9 AMENDMENT. This Agreement may be amended at any time by execution
of an instrument in writing signed on behalf of each of the Company, Parent,
Sub and the Stockholder Representatives; PROVIDED, HOWEVER, that if such
amendment relates to SECTION 7.2 then the Escrow
-44-
Agent must be a party to such amendment and if such amendment relates to
SECTION 7.5 each Principal Stockholder must be a party to such amendment.
-45-
IN WITNESS WHEREOF, Parent, Sub, the Company, the Principal
Stockholders, the Stockholder Representative and the Escrow Agent have caused
this Agreement to be signed, all as of the date first written above.
PROBUSINESS SERVICES, INC. CLEMCO, INC.
By: /s/ Thomas H. Sinton By: /s/ Thomas Clements
--------------------------------- ---------------------------------
RUNWAY ACQUISITION CORP. PRINCIPAL STOCKHOLDERS
(AS TO SECTION 7.7 ONLY AND ON A
SEVERAL (AND NOT JOINT) BASIS)
By: /s/ Steven E. Klei
---------------------------------
/s/ Thomas Clements
-------------------------------------
STOCKHOLDER REPRESENTATIVES /s/ Bradley Zeitlin
(AS TO THE PROVISIONS OF -------------------------------------
ARTICLE VII ONLY)
/s/ Thomas Clements
- -------------------------------------
/s/ Charles Johnson
- -------------------------------------
ESCROW AGENT
(AS TO THE PROVISIONS OF
ARTICLE VII ONLY)
By: /s/ Barbara L. Wise
---------------------------------
Name: Barbara Wise
Title: Vice President
DISCLOSURE SCHEDULE
Section 2.3(a)
COMPANY CAPITAL STRUCTURE
See attached Capitalization Table.
-iv-
Section 2.3(b)
COMPANY CAPITAL STRUCTURE
See attached Pre-Merger Conduit Options
Vesting Schedule:
Holders of options may exercise their options with respect to the percentage
of shares set forth below only after completing the following periods of
continuous service following the date of grant:
a. After twenty-four (24) months of continuous service, up to fifty percent
(50%) of the shares;
b. After thirty-six (36) months of continuous service, up to seventy-five
percent (75%) of the shares; and
c. After forty-eight (48) months of continuous service, up to one hundred
percent (100%) of the shares.
The vesting of options will not be accelerated by the transactions
contemplated by this Agreement.
Some options are granted that specify full vesting upon completion of a
specific goal or goals. If the goal or goals are not met, the options
terminate without vesting. On this basis there are currently 17,400 options
which are fully vested:
Adams 1200
Andes 5000
Armstrong 5000
Arun 1200
Funke 5000
Warrants:
Name of Holder Number of Shares
- -------------- ----------------
Croft & Bender, LLC 100,000
Noro-Moseley Partners III, L.P. 45,750
Thomas J. Clements 2,000
Brad Zeitlin 2,250
TL Ventures III Offshore L.P. 62,495
CONVERSION RIGHTS OF PREFERRED STOCKHOLDERS
The Amended and Restated Articles of Incorporation of Clemco, Inc. provide
that the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock (collectively, the "Preferred
Stock") shall be
-v-
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, into shares of common stock. Furthermore, should
the holders of at least two-thirds of the then outstanding shares of all
Preferred Stock so elect, each and every outstanding share of Preferred Stock
shall automatically be converted into common stock. As of this Closing Date,
all of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock have been converted into Common
Stock.
VOTING TRUSTS, PROXIES, AGREEMENTS AND UNDERSTANDINGS
There is an arrangement between Tom Clements and Brad Zeitlin whereby Tom
Clements has the power to exercise the voting rights of the shares of Brad
Zeitlin.
-vi-
Section 2.6
CONSENTS
Pursuant to Clemco, Inc.'s Designations of Preferences, Limitations, and
Relative Rights of Preferred Stock (the "Certificate of Designations"), the
affirmative vote of two-thirds (2/3) of the holders of Series A Preferred
Stock and Series D Preferred Stock, each series voting as a separate class,
is required before Clemco, Inc. can take any action to effect a Sale or
Merger (as each term is defined in the Certificate of Designations), or to
issue or sell twenty percent (20%) or more of Clemco, Inc.'s capital stock.
The affirmative vote of at least two-thirds of the holders of Series A
Preferred Stock and Series D Preferred Stock approving the Merger has been
obtained.
-vii-
Section 2.7
COMPANY FINANCIAL STATEMENTS
See attached Financial Statements
-viii-
Section 2.9
CHANGES
1. Payment in the amount of $201,176.26 has been made to Bryan C. Toney in
satisfaction of a certain Promissory Note dated August 31, 1994, as evidenced by
a Release and Acknowledgment dated April 1, 1999 signed by Bryan C. Toney.
2. As described in greater detail in Section 2.12(a) of this Disclosure
Schedule, Conduit Software, Inc. intends to amend their current lease to extend
the term of the lease through June 14, 2002.
3. The following options have been committed but not issued:
R. Folk 2500
L. Mayer 2500
F. Ni 2500
J. Rodriguez 2500
M. Dwiggins (new hire 5/3/99) 2500
4. As of this Closing Date, all shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have
been converted into Common Stock.
5. Salary Increases:
EMPLOYEE EFFECTIVE DATE INCREASE NEW COMPENSATION
- -------- -------------- -------- ----------------
T. Ahart 4/1/99 $11,700.00 $101,700.00
R. Andes 5/1/99 $15,000.00 $135,000.00
R. Arun 4/1/99 $5,312.80 $58,990.80
D. Berry 4/1/99 $8,500.00 $72,000.00
S. Cullen 4/1/99 $9,000.00 $56,000.00
P. Ferrari 5/1/99 $35,000.00 $125,000.00
J. Sulsona 4/1/99 $7,500.00 $55,500.00
B. Zeitlin 5/1/99 $25,000.00 $150,000.00
6. Two employees, J. Turcotte and M. Hamilton, were terminated April 14,
1999. Each will receive severance pay for three months.
7. One employee, C. Wilkinson, was terminated April 19, 1999. He will
receive severance pay for two weeks.
-ix-
Section 2.11
RESTRICTIONS ON BUSINESS ACTIVITIES
None.
-x-
Section 2.12(a)
LEASED REAL PROPERTY
REAL PROPERTY 5000 Peachtree Industrial Boulevard
Suite 150
Norcross, Georgia 30071
LESSOR Regency Holdings, Inc.
LESSEE Conduit Software, Inc. f/k/a Information Management,
Inc.
DATE OF LEASE March 6, 1997
TERM OF LEASE April 15, 1997 - June 14, 1999
1998 AGGREGATE RENT PAID $167,071 (base rent of $144,358 plus additional
Common Area surcharge)
CURRENT 1999 BASE RENT $150,132 (prorated through June 14, 1999) plus
additional Common Area surcharge.
Conduit Software, Inc. intends to enter into a First Amendment to Lease which
would extend the term of the Lease through June 14, 2002. The Annual Base Rent
for the first 12 months beginning June 15, 1999 would increase to $157,563.00
-xi-
Section 2.12(b)
LIENS
Conduit Software, Inc. ("Conduit Software") has entered into an Accounts
Receivable Purchase Agreement (the "Agreement") dated August 27, 1998 between
Silicon Valley Financial Services ("Silicon Valley") and Conduit Software.
Pursuant thereto, Conduit Software has granted Silicon Valley a continuing lien
upon and security interest in Conduit Software's accounts, equipment, general
intangibles, inventory and other property and assets. The security interest is
to secure the prompt payment and performance to Silicon Valley of all
obligations of Conduit Software under the Agreement.
Conduit Software, Inc. has entered into the following lease agreements, each of
which grant a continuing lien upon and security interest in the leased
equipment, inventory, property and/or assets for which each respective agreement
was made:
Equipment Lease Agreement dated August 1, 1997 between Conduit Software, Inc.
and Affiliated Corporate Services, Inc.
Business Equipment Lease dated June 17, 1997 between Conduit Software, Inc. and
ACI Financial, Inc.
Lease Agreement dated May 12, 1998 between Conduit Software, Inc. and ACI
Financial, Inc.
Lease Agreement dated May 19, 1998 between Conduit Software, Inc. and ACI
Financial, Inc.
-xii-
Section 2.13(b)
REGISTERED INTELLECTUAL PROPERTY RIGHTS
CONDUIT SOFTWARE, INC.
INTENT-TO-USE APPLICATIONS:
MARK SERIAL NO. APPLICATION DATE
- ---- ---------- -----------------
APPRECIATING THE HUMAN ASSET 75/400,437 December 5, 1997
HRCONNECT 75/600,324 December 7, 1998
Conduit Software, Inc. has a pending patent application for "Networked System
for Processing Database Information."
DOMAIN NAME REGISTRATIONS:
NAME CREATION DATE
- ---- -------------
INFOMAN.COM July 7, 1992
CONDUITSOFT.COM April 18, 1997
CLEMCO, INC.
INTENT-TO-USE APPLICATIONS:
MARK SERIAL NO. APPLICATION DATE
- ---- ---------- ----------------
CONDUIT SOFTWARE Pending April 16, 1997
-xiii-
Section 2.13(f)
PRODUCTS OF THE COMPANY
HR Connect - (Suite of web-based manager and employee self-service applications)
Intranet Application System (IAS) - (Robust internet based deployment
architecture designed to facilitate the delivery of web based business
processes)
Business Process Designer (BPD) - (Visual environment for rapidly developing and
reconfiguring web based business processes)
-xiv-
Section 2.13(g)
CONTRACTS, LICENSES AND AGREEMENTS WITH RESPECT TO INTELLECTUAL PROPERTY
Consulting Services Agreement dated May 14, 1998 between Conduit Software, Inc.
and Buck Consultants.
Letter Agreement for Software Demonstration and Support Services dated May 6,
1998 between Conduit Software, Inc. and Buck Consultants, Inc.
Customization and License Agreement dated December 8, 1998 between Conduit
Software, Inc. and Buck Consultants, Inc.
Software License Agreement dated September 15, 1998 between Conduit Software,
Inc. and Compuware Corporation, as amended by the Amendment dated September 11,
1998
5. Consulting Services Agreement dated September 15, 1998 between Conduit
Software, Inc. and Compuware Corporation, as amended by the Amendment dated
September 11, 1998
Support and Maintenance Services Agreement dated September 15, 1998 between
Conduit Software, Inc. and Compuware Corporation, as amended by the Amendment
dated September 11, 1998.
Business Partner Agreement dated August 25, 1998 between Cyborg Systems, Inc.
and Conduit Software, Inc.
Customization and License Agreement dated October 16, 1998 between Conduit
Software, Inc. and Cyborg Systems, Inc.
9. Software License Agreement dated March 3, 1998 between Conduit Software,
Inc. and Fujitsu Computer Products of America, Inc.
Industry Anchor License Agreement dated December 11, 1997 between Genentech,
Inc. and Conduit Software, Inc., as amended by Amendment #1 dated December 16,
1997.
Referral Partner Program Agreement dated September 8, 1998 between Infinium
Software, Inc. and Conduit Software, Inc.
12. Customization and License Agreement dated March 10, 1998 between Conduit
Software, Inc. and Infinium Software, Inc.
13. Distribution Agreement dated September 25, 1998 between Infinium
Software, Inc. and Conduit Software, Inc.
14. Customization and License Agreement dated August 25, 1998 between
Conduit Software, Inc. and InterVoice, Inc.
15. Industry Anchor Software License Agreement dated October 8, 1997 between
The Santa Cruz Operation, Inc. and Conduit Software, Inc.
16. OEM Software License Agreement dated May 19, 1998 between Clarus
Corporation f/k/a SQL Financials International, Inc. and Conduit Software, Inc.
Business Partner Agreement dated January 8, 1999 between Conduit Software, Inc.
and Cambridge Technology Partners.
18. Industry Anchor License Agreement dated July 1, 1997 between Conduit
Software, Inc. and Fujitsu America, Inc.
-xv-
19. Agreement for Provision of Consulting Services dated February 5, 1999
between Core Concept, Inc. and Conduit Software, Inc.
20. A series of Consulting Services Contracts/Proposals dated July 17, 1998,
September 22, 1998, October 2, 1998, February 1, 1999 and February 25, 1999,
respectively, between Conduit Software, Inc. and Gardner Consulting, Inc.
21. Services Engagement Form and related Statement of Work dated March 4,
1999 between Cambridge Technology Partners, Inc. and Conduit Software, Inc.
(Project: Buck Deployment).
22. Services Engagement Form and related Statement of Work dated March 4,
1999 between Cambridge Technology Partners, Inc. and Conduit Software, Inc.
(Project: Conduit Internal Development).
23. Confidentiality and Assignment Agreement between Conduit Software, Inc.
and Leslie M. Robertson, d/b/a Robert Scribe, Inc.
24. (i) Confidentiality and Assignment Agreement between Conduit Software,
Inc., Paul Gardner, d/b/a Paul Gardner Consulting, and Robert Rogan, Alan
Conover, James Daly, Charles Morris, and Victor Randy Lucia.
(ii) Work for Hire Agreement between INTRAbase Solutions, Inc. and
Intermind Consulting, Inc. dated March 1, 1998 signed by Charles Morris and Jim
Daly.
(iii) Work for Hire Agreement between Gardner Consulting, Inc. and Alan
Conover dated September 28, 1998.
(iv) Work for Hire Agreement between Gardner Consulting, Inc. and Robert
Rogan dated September 28, 1998.
25. Confidentiality and Assignment Agreement between Conduit Software, Inc.,
Nandu Nandakumar, d/b/a Core Concept, Inc. and Pavan Kondur.
26. Confidentiality and Assignment Agreement between Conduit Software, Inc.
and Lawrence M. Proman, d/b/a LMP Software, Inc.
27. (i) Consultant Employment Agreement between JVC Technologies, Inc. and
Liza Pierro-Pulsifer dated March 2, 1998.
(ii) Professional Services Agreement between JVC Technologies, Inc. and
Conduit Software, Inc. dated March 3, 1998.
28. (i) Confidentiality and Assignment Agreement between Conduit Software,
Staffing Technologies L.L.C., d/b/a STAFF Tech, Inc., Liza Pulsifer and Robert
Wen.
(ii) Agreement Between Supplier Employee and Conduit Software dated
February 2, 1999 signed by Liza Pulsifer.
(iii) Agreement Between Supplier Employee and Conduit Software dated March
24, 1999 signed by Robert Wen.
29. Consulting Agreement between Information Management, Inc. and Bryan C.
Toney dated August 31, 1994.
30. Services Engagement Form and related Statement of Work dated April 26,
1999 between Cambridge Technology Partners, Inc. and Conduit Software, Inc.
-xvi-
Section 2.13(h)
OBLIGATIONS AND DUTIES WITH RESPECT TO INTELLECTUAL PROPERTY RIGHTS
1. Customization and License Agreement dated December 8, 1998 between
Conduit Software, Inc. and Buck Consultants, Inc.
2. Software License Agreement dated September 15, 1998 between Conduit
Software, Inc. and Compuware Corporation, as amended by the Amendment dated
September 11, 1998.
3. Software License Agreement dated March 3, 1998 between Conduit Software,
Inc. and Fujitsu Computer Products of America, Inc.
4. Customization and License Agreement dated March 10, 1998 between Conduit
Software, Inc. and Infinium Software, Inc.
5. Customization and License Agreement dated August 25, 1998 between
Conduit Software, Inc. and InterVoice, Inc.
6. OEM Software License Agreement dated May 19, 1998 between Clarus
Corporation f/k/a SQL Financials International, Inc. and Conduit Software, Inc.
-xvii-
Section 2.13(j)
DEADLINES POST-CLOSING WITH RESPECT TO INTELLECTUAL PROPERTY
None.
-xviii-
Section 2.13(k)
CLARUS RIGHTS TO HR CONNECT
Pursuant to the Settlement and License Agreement between Conduit Software,
Inc. and Clarus Corporation dated April 27, 1999, Conduit has granted Clarus
a non-exclusive license to use the demonstration version of the HR Connect
Software Product, subject to certain restrictions (the "Self Service Demo").
Conduit has acknowledged that Clarus has been exposed to certain Confidential
Information of Conduit, and Conduit waives its rights to any claims of
infringement or misuse or misappropriation of such Confidential Information
against Clarus insofar as Clarus creates a competitive product with the
features and functionality of the Self Service Demo.
-xix-
Section 2.14(a)
AGREEMENTS, CONTRACTS AND COMMITMENTS
Conduit Software, Inc. has entered into the following consulting agreements:
Agreement for Provision of Consulting Services dated February 5, 1999 between
Core Concept, Inc. and Conduit Software, Inc.
A series of Consulting Services Contracts/Proposals dated July 17, 1998,
September 22, 1998, October 2, 1998, February 1, 1999 and February 25, 1999,
respectively, between Conduit Software, Inc. and Gardner Consulting, Inc.
Services Engagement Form and related Statement of Work dated March 4, 1999
between Cambridge Technology Partners, Inc. and Conduit Software, Inc.
(Project: Buck Deployment).
4. Services Engagement Form and related Statement of Work dated March 4,
1999 between Cambridge Technology Partners, Inc. and Conduit Software, Inc.
(Project: Conduit Internal Development).
5. Consulting Agreement between Information Management, Inc. and Bryan C.
Toney dated August 31, 1994.
Clemco, Inc. has adopted the Clemco, Inc. Stock Incentive Plan (the "Plan"), has
entered into Clemco, Inc. Stock Incentive Plan Exercise and Shareholder
Agreements with various Employees and Key Persons (each as defined in the Plan)
and has issued Clemco, Inc. Stock Incentive Plan Stock Option Grant Certificates
in accordance with the Plan.
Conduit Software, Inc. has entered into the following lease agreements for lease
of personal property:
Equipment Lease Agreement dated August 1, 1997 between Conduit Software, Inc.
and Affiliated Corporate Services, Inc.
Business Equipment Lease dated June 17, 1997 between Conduit Software, Inc. and
ACI Financial, Inc.
Lease Agreement dated May 12, 1998 between Conduit Software, Inc. and ACI
Financial, Inc.
Lease Agreement dated May 19, 1998 between Conduit Software, Inc. and ACI
Financial, Inc.
Conduit Software, Inc. has entered into the following accounts receivable
purchase agreement:
Accounts Receivable Purchase Agreement dated August 27, 1998 between Silicon
Valley Financial Services and Conduit Software, Inc.
Conduit Software, Inc. has entered into the following material agreements with
its customers:
Consulting Services Agreement dated May 14, 1998 between Conduit Software, Inc.
and Buck Consultants.
Letter Agreement for Software Demonstration and Support Services dated May 6,
1998 between Conduit Software, Inc. and Buck Consultants, Inc.
Customization and License Agreement dated December 8, 1998 between Conduit
Software, Inc. and Buck Consultants, Inc.
Software License Agreement dated September 15, 1998 between Conduit Software,
Inc. and Compuware Corporation, as amended by the Amendment dated September 11,
1998
-xx-
5. Consulting Services Agreement dated September 15, 1998 between Conduit
Software, Inc. and Compuware Corporation, as amended by the Amendment dated
September 11, 1998
Support and Maintenance Services Agreement dated September 15, 1998 between
Conduit Software, Inc. and Compuware Corporation, as amended by the Amendment
dated September 11, 1998.
Business Partner Agreement dated August 25, 1998 between Cyborg Systems, Inc.
and Conduit Software, Inc.
Customization and License Agreement dated October 16, 1998 between Conduit
Software, Inc. and Cyborg Systems, Inc.
9. Software License Agreement dated March 3, 1998 between Conduit Software,
Inc. and Fujitsu Computer Products of America, Inc.
Industry Anchor License Agreement dated December 11, 1997 between Genentech,
Inc. and Conduit Software, Inc., as amended by Amendment #1 dated December 16,
1997.
Referral Partner Program Agreement dated September 8, 1998 between Infinium
Software, Inc. and Conduit Software, Inc.
12. Customization and License Agreement dated March 10, 1998 between Conduit
Software, Inc. and Infinium Software, Inc.
13. Distribution Agreement dated September 25, 1998 between Infinium
Software, Inc. and Conduit Software, Inc.
14. Customization and License Agreement dated August 25, 1998 between
Conduit Software, Inc. and InterVoice, Inc.
15. Industry Anchor Software License Agreement dated October 8, 1997 between
The Santa Cruz Operation, Inc. and Conduit Software, Inc.
16. OEM Software License Agreement dated May 19, 1998 between Clarus
Corporation f/k/a SQL Financials International, Inc. and Conduit Software, Inc.
Business Partner Agreement dated January 8, 1999 between Conduit Software, Inc.
and Cambridge Technology Partners.
18. Industry Anchor License Agreement dated July 1, 1997 between Conduit
Software, Inc. and Fujitsu America, Inc.
-xxi-
Section 2.17
LITIGATION
None.
-xxii-
Section 2.20
THIRD PARTY EXPENSES
ESTIMATES
Legal: Fees $130,000
Costs $4,170
Accounting: $49,000-$50,000
-xxiii-
Section 2.21(b)
COMPANY EMPLOYEE PLANS AND EMPLOYEE AGREEMENTS
1. Clemco, Inc. Stock Incentive Plan
2. Conduit Software, Inc. 401(k) Plan
-xxiv-
Section 2.22
INSURANCE POLICIES
Master Insurance Policy - Policy No. 1 MP 301086841 04 through Poe & Brown of
Georgia, Inc.
Workers' Compensation Policy - Policy No. 0217123988 through Poe & Brown of
Georgia, Inc.
3. Thomas J. Clements Life Insurance Policy - Policy No. 14054746 through
Northwestern Mutual Life Insurance
-xxv-
Section 5.5
AFFILIATES
1. Thomas Clements
2. Noro-Moseley Partners III L.P.
3. TL Ventures III L.P.
4. TL Ventures III Offshore L.P.
5. TL Ventures III Interfund L.P.
6. Walter P. Maner, IV
7. David Hanna
8. Charles A. Johnson
9. Dr. Jac Fitz-Enz
-xxvi-