Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
among:
HALIS, Inc., a Georgia corporation,
SMG Acquisition Co., a Georgia corporation,
Software Manufacturing Group, Inc., a Georgia corporation,
and
the Shareholders of Software Manufacturing Group, Inc.
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Dated as of January 24, 1997
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TABLE OF CONTENTS
Page
SECTION 1. DESCRIPTION OF TRANSACTION........................................ 1
1.1 Merger of SMG into the Subsidiary................................. 1
1.2 Effect of Merger.................................................. 1
1.3 Closing; Effective Time........................................... 1
1.4 Articles of Incorporation and Bylaws; Directors and Officers...... 2
1.5 Conversion of Shares.............................................. 2
1.6 Closing of SMG Transfer Books..................................... 2
1.7 Exchange of Certificates.......................................... 3
1.8 Merger Consideration.............................................. 4
1.9 Tax Consequences.................................................. 6
1.10 Further Action.................................................... 6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SMG AND THE SHAREHOLDERS........ 6
2.1 Due Organization; No Subsidiaries; Etc............................ 6
2.2 Articles of Incorporation and Bylaws; Records..................... 7
2.3 Capitalization, Etc............................................... 7
2.4 Financial Statements.............................................. 8
2.5 Absence of Changes................................................ 8
2.6 Title to Assets................................................... 10
2.7 Bank Accounts; Receivables; Customers............................. 10
2.8 Equipment; Leasehold.............................................. 11
2.9 Proprietary Assets................................................ 11
2.10 Contracts......................................................... 13
2.11 Liabilities....................................................... 15
2.12 Compliance with Legal Requirements................................ 15
2.13 Governmental Authorizations....................................... 15
2.14 Tax Matters....................................................... 16
2.15 Employee and Labor Matters; Benefit Plans......................... 17
2.16 Environmental Matters............................................. 19
2.17 Sale of Products; Performance of Services......................... 20
2.18 Insurance......................................................... 20
2.19 Related Party Transactions........................................ 20
2.20 Legal Proceedings; Orders......................................... 21
2.21 Authority; Binding Nature of Agreement............................ 21
2.22 Non-Contravention; Consents....................................... 22
2.23 Software.......................................................... 22
2.24 Full Disclosure................................................... 23
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HALIS AND THE SUBSIDIARY........ 23
3.1 SEC Filings; Financial Statements; Private Placement Memorandum .. 24
3.2 Authority; Binding Nature of Agreement............................ 24
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3.3 Valid Issuance.................................................... 24
3.4 Investment Intent................................................. 25
3.5 Articles of Incorporation and Bylaws of Subsidiary................ 25
3.6 Organization and Business of Subsidiary........................... 25
3.7 Ownership of SMG.................................................. 25
SECTION 4. CERTAIN COVENANTS OF SMG AND THE SHAREHOLDERS..................... 25
4.1 Access and Investigation.......................................... 25
4.2 Operation of SMG's Business....................................... 25
4.3 Notification; Updates to Disclosure Schedule...................... 27
4.4 No Negotiation.................................................... 28
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES............................... 28
5.1 Filings and Consents.............................................. 28
5.2 Public Announcements.............................................. 29
5.3 Best Efforts...................................................... 29
5.4 Employment and Noncompetition Agreements.......................... 29
5.5 Release........................................................... 29
5.6 FIRPTA Matters.................................................... 29
5.7 Employee Retention................................................ 29
5.8 Capital Contribution.............................................. 30
5.9 Information Statement............................................. 30
5.10 Assistance in Stock Sales......................................... 30
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF
HALIS AND THE SUBSIDIARY.......................................... 30
6.1 Accuracy of Representations....................................... 30
6.2 Performance of Covenants.......................................... 30
6.3 Consents.......................................................... 31
6.4 Agreements and Documents.......................................... 31
6.5 No Material Adverse Change........................................ 31
6.6 FIRPTA Compliance................................................. 31
6.7 Rule 506.......................................................... 31
6.8 No Restraints..................................................... 31
6.9 No Legal Proceedings.............................................. 32
6.10 Completion of Due Diligence....................................... 32
6.11 Shareholder Investment Certifications............................. 32
6.12 Existing Bank Indebtedness........................................ 32
6.13 Existing Cone Indebtedness........................................ 32
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SMG
AND THE SHAREHOLDERS.............................................. 32
7.1 Accuracy of Representations....................................... 32
7.2 Performance of Covenants.......................................... 32
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7.3 Consents.......................................................... 32
7.4 Agreements and Documents.......................................... 33
7.5 No Restraints..................................................... 33
7.6 Stock Price....................................................... 33
7.7 No Material Adverse Change........................................ 33
7.8 Releases.......................................................... 33
SECTION 8. TERMINATION....................................................... 33
8.1 Termination Events................................................ 33
8.2 Termination Procedures............................................ 34
8.3 Effect of Termination............................................. 34
SECTION 9. INDEMNIFICATION, ETC.............................................. 34
9.1 Survival of Representations and Warranties........................ 34
9.2 Shareholders' Indemnity Agreement................................. 35
9.3 Indemnity Agreement of HALIS and the Surviving Corporation........ 36
9.4 Indemnification Procedure......................................... 36
9.5 Set-off........................................................... 37
9.6 Limitations on Liability of the Shareholders...................... 37
SECTION 10. REGISTRATION OF SHARES............................................ 38
10.1 Certain Definitions............................................... 38
10.2 Registration Under Securities Act, Etc............................ 39
10.3 Incidental Registration........................................... 41
10.4 Registration Procedures........................................... 42
10.5 Underwritten Offerings............................................ 44
10.6 Preparation; Reasonable Investigation............................. 46
10.7 Indemnification................................................... 47
10.8 Amendments and Waivers............................................ 49
10.9 Nominees for Beneficial Owners.................................... 49
SECTION 11. MISCELLANEOUS PROVISIONS.......................................... 49
11.1 Shareholders' Agent............................................... 49
11.2 Further Assurances................................................ 49
11.3 Fees and Expenses................................................. 50
11.4 Attorneys' Fees................................................... 50
11.5 Notices........................................................... 50
11.6 Confidentiality................................................... 51
11.7 Time of the Essence............................................... 51
11.8 Headings.......................................................... 51
11.9 Counterparts...................................................... 52
11.10 Governing Law; Venue.............................................. 52
11.11 Successors and Assigns............................................ 52
11.12 Remedies Cumulative; Specific Performance......................... 52
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11.13 Waiver............................................................ 53
11.14 Amendments........................................................ 53
11.15 Severability...................................................... 53
11.16 Parties in Interest............................................... 53
11.17 Entire Agreement.................................................. 53
11.18 Construction...................................................... 54
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EXHIBITS
Exhibit A - Shareholders
Exhibit B - Certain Definitions
Exhibit C - Directors and Officers of Surviving Corporation
Exhibit D - Forms of Employment Agreement and Noncompetition Agreement
Exhibit E - Form of Release
Exhibit F - Persons to execute Estoppel Certificates
Exhibit G - Form of Shareholder Investment Certification
** Certain schedules and exhibits are not included with this filing. A copy of
any omitted exhibit or schedule will be furnished supplementally to the
Commission upon request. **
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AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of January 24, 1997, by and among: HALIS, INC., a
Georgia corporation ("HALIS"); SMG ACQUISITION CO., a Georgia corporation and a
wholly owned subsidiary of HALIS (the "Subsidiary"); SOFTWARE MANUFACTURING
GROUP, INC., a Georgia corporation ("SMG"); and the parties identified on
Exhibit A, who are all the shareholders of SMG (the "Shareholders"). Certain
capitalized terms used in this Agreement are defined in Exhibit B.
RECITALS
X. XXXXX, SMG and the Subsidiary intend to effect a merger of SMG
into the Subsidiary in accordance with this Agreement and the Georgia Business
Corporation Code (the "Merger"). Upon consummation of the Merger, SMG will
cease to exist, and the Subsidiary will continue to exist as the surviving
corporation of the Merger.
B. It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
C. This Agreement has been adopted and approved by the respective
boards of directors of HALIS, SMG and the Subsidiary.
D. The capitalization of SMG consists of 100,000 shares of the voting
common stock, no par value per share, of which 5,120 shares are issued and
outstanding (the "SMG Common Stock") as of the date of this Agreement.
AGREEMENT
The parties to this Agreement agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF SMG INTO THE SUBSIDIARY. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), SMG shall be merged with and into the Subsidiary, and the separate
existence of SMG shall cease. The Subsidiary will continue as the surviving
corporation in the Merger (the "Surviving Corporation").
1.2 EFFECT OF MERGER. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the Georgia Business
Corporation Code.
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxx, Xxxxxxxx & Xxxxxxx, 0000 Xxxxxxxxx Xxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx
00000, at 10:00 a.m. local time on January 24, 1997, or at such other time and
date during the period from January 24, 1997 through February 15, 1997, as the
parties shall designate (the "Scheduled Closing Time"). (The date on which the
Closing actually takes place is referred to in this Agreement as the "Closing
Date.") Contemporaneously with or as promptly as practicable after the Closing,
a properly executed certificate of merger for the merger of SMG into the
Subsidiary, conforming to the requirements of the Georgia Business Corporation
Code, shall be filed with the Secretary of State of the State of Georgia. The
Merger shall take effect at the time such certificate of merger is filed with
the Secretary of State of the State of Georgia (the "Effective Time").
1.4 ARTICLES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. Unless
the parties agree otherwise prior to the Effective Time:
(a) the Articles of Incorporation of the Subsidiary shall continue as
the Articles of Incorporation of the Surviving Corporation;
(b) the Bylaws of the Subsidiary shall continue as the Bylaws of the
Surviving Corporation;
(c) the directors and officers of the Surviving Corporation
immediately after the Effective Time shall be the individuals identified on
Exhibit C; and
(d) as soon as practicable after the Closing Date, the name of the
Surviving Corporation shall be changed to Software Manufacturing Group, Inc.
1.5 CONVERSION OF SHARES.
(a) Subject to Sections 1.7(b), at the Effective Time, by virtue of
the Merger and without any further action on the part of HALIS, SMG, the
Subsidiary or any Shareholder, each share of SMG Common Stock outstanding
immediately prior to the Effective Time shall be canceled and retired and
converted into the right to receive a pro rata share of the aggregate Merger
Consideration described in Section 1.8.
(b) If any shares of SMG Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk of
forfeiture or other condition under any restricted stock purchase agreement or
other agreement with SMG, then the shares of HALIS Common Stock issued in
exchange for such shares of SMG Common Stock will be unvested and subject to the
same repurchase option, risk of forfeiture or other condition, and the
certificates representing such shares of HALIS Common Stock may accordingly be
marked with appropriate legends.
1.6 CLOSING OF SMG TRANSFER BOOKS. At the Effective Time, the holders of
certificates representing shares of SMG Common Stock that were outstanding
immediately prior to the Effective Time shall cease to have any rights as
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Shareholders of SMG, and the stock transfer books of SMG shall be closed with
respect to all shares of such SMG Common Stock outstanding immediately prior to
the Effective Time. No further transfer of any such shares of SMG capital stock
shall be made on such stock transfer books after the Effective Time. If, after
the Effective Time, a valid certificate previously representing any of such
shares of SMG Common Stock (an "SMG Stock Certificate") is presented to HALIS,
such SMG Stock Certificate shall be canceled and shall be exchanged as provided
in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) At the Closing, each Shareholder shall surrender its respective
SMG Stock Certificate(s) to the Surviving Corporation, together with such
transmittal documents as the Surviving Corporation may reasonably require, and
the Surviving Corporation shall deliver to such Shareholder a certificate of
HALIS Common Stock representing such Shareholder's pro rata share of the
aggregate Merger Consideration to be paid at Closing pursuant to Section 1.8.
(b) No fractional shares of HALIS Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional shares
shall be issued. In lieu of such fractional shares, any Shareholder who would
otherwise be entitled to receive a fraction of a share of HALIS Common Stock
(after aggregating all fractional shares of HALIS Common Stock issuable to such
holder) shall, upon surrender of such Shareholder's SMG Stock Certificate(s), be
paid in cash at a rate of $2.00 per share in lieu of such fractional shares.
(c) Until surrendered as contemplated by this Section 1.7, each SMG
Stock Certificate shall be deemed, from and after the Effective Time, to
represent only the right to receive a pro rata share of the Merger
Consideration. If any SMG Stock Certificate shall have been lost, stolen or
destroyed, HALIS may, in its discretion and as a condition precedent to the
issuance of any certificate representing HALIS Common Stock, require the owner
of such lost, stolen or destroyed SMG Stock Certificate to provide an
appropriate affidavit and to deliver a bond (in such sum as HALIS may reasonably
direct) as indemnity against any claim that may be made against HALIS with
respect to such SMG Stock Certificate.
(d) The shares of HALIS Common Stock to be issued in the Merger shall
be characterized as "restricted securities" for purposes of Rule 144 under the
Securities Act, and each certificate representing any of such shares shall bear
a legend identical or similar in effect to the following legend (together with
any other legend or legends required by applicable state securities laws or
otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
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OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(e) HALIS shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable to any holder or former holder of
SMG Common Stock pursuant to this Agreement such amounts as HALIS may be
required to deduct or withhold therefrom under the Code or under any provision
of state, local or foreign tax law. To the extent such amounts are so deducted
or withheld, such amounts shall be treated for all purposes under this Agreement
as having been paid to the Person to whom such amounts would otherwise have been
paid.
(f) HALIS shall not be liable to any holder or former holder of SMG
Common Stock for any shares of HALIS Common Stock (or dividends or distributions
with respect thereto), or for any cash amounts, delivered to any public official
pursuant to, and in compliance with, any applicable abandoned property, escheat
or similar law.
1.8 MERGER CONSIDERATION.
(a) The aggregate merger consideration to be paid by HALIS to the
Shareholders in consideration of the Merger ("Merger Consideration") shall
consist of the Initial Merger Consideration and, subject to subparagraphs
1.8(c), (d), (e), (f) and (g) below, the Contingent Merger Consideration, each
as hereinafter defined.
(b) The Initial Merger Consideration shall consist of 3,072,000 shares of
HALIS Common Stock. The Initial Merger Consideration shall be paid to the
Shareholders on a pro-rata basis determined by the number of outstanding shares
of SMG Common Stock on the Closing Date. Certificates representing the Initial
Merger Consideration shall be delivered to the Shareholders at Closing or at
such later date as the Shareholders may agree.
(c) The Contingent Merger Consideration shall consist of shares of HALIS
Common Stock having an aggregate value calculated in accordance with
subparagraph 1.8(e) below. Certificates representing the Contingent Merger
Consideration, if any, will be delivered to the Shareholders not later than 30
days after the final Cash Flow, Net Income and Revenues Determination (as
defined in subparagraph 1.8(g)) in accordance with subparagraph 1.8(g).
(d) The Contingent Merger Consideration shall be payable to the
Shareholders only if all of the following conditions are met:
(i) the Surviving Corporation shall have positive Cash Flow (as
defined in subparagraph 1.8(f)) for the fiscal year ending December 31,
1997 (the "Determination Period");
(ii) the Surviving Corporation shall have Net Income (as defined in
subparagraph 1.8(f)) of at least $1.00 for the Determination Period; and
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(iii) the Surviving Corporation shall have Revenues (as defined in
subparagraph 1.8(f)) of more than $2,800,000 for the Determination Period.
(e) If all the conditions set forth in subparagraph 1.8(d) above are met,
the Contingent Merger Consideration shall be calculated as follows. The
Contingent Merger Consideration shall equal that number of shares of HALIS
Common Stock having an aggregate value, based on a per share price equal to the
higher of (i) $1.75 or (ii) the average bid and ask price of HALIS Common Stock
for the final ten trading days of calendar year 1997, equal to the product of
(Y) the amount by which Revenues of the Surviving Corporation for the
Determination Period exceeds $2,800,000, multiplied by (Z) two.
(f) For purposes of calculation of the Contingent Merger Consideration,
the following definitions shall apply:
(i) "Cash Flow" shall mean all cash funds derived from operations,
without reduction for any non-cash charges, but less funds used to pay
current operating expenses, determined in accordance with generally
accepted accounting principles;
(ii) "Net Income" shall mean net income, determined in accordance with
generally accepted accounting principles; and
(iii) "Revenues" shall mean total income on an accrual basis,
determined in accordance with generally accepted accounting principles.
For purposes of calculation of the Contingent Merger Consideration only,
Cash Flow, Net Income and Revenues of the Surviving Corporation shall also
include the Cash Flow, Net Income and the Revenues for SMG from and after
January 1, 1997 through the Closing Date.
(g) For purposes of calculation of the Contingent Merger Consideration,
the Cash Flow, Net Income and Revenues of the Surviving Corporation for the
Determination Period shall be determined by the Surviving Corporation's
independent certified public accountants within 120 days following the end of
the Determination Period (the "Cash Flow, Net Income and Revenues
Determination"). Within five business days after receiving the Cash Flow, Net
Income and Revenues Determination, HALIS shall deliver same to the Shareholders'
Agent (as defined in Section 11.1). If the Shareholders' Agent does not deliver
a list of written objections to the Cash Flow, Net Income and Revenues
Determination ("Objection Notice") to HALIS within 30 days following delivery to
the Shareholders' Agent, the Cash Flow, Net Income and Revenues Determination
shall become final and binding upon the parties. If the Shareholders' Agent
delivers an Objection Notice within such 30-day period, the parties will
endeavor to reconcile any differences and agree upon a final Cash Flow, Net
Income and Revenues Determination. If the parties are unable to agree upon a
final Cash Flow, Net Income and Revenues Determination within 30 days following
delivery of the Objection Notice, at the request of either party the outstanding
matters shall be submitted for resolution by a mutually acceptable accounting
firm of recognized national or regional standing with offices in the Atlanta
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area. If the parties are unable to agree upon a mutually acceptable accounting
firm, one will be selected by HALIS at random from a list of the ten largest
Atlanta offices of certified public accounting firms having no prior affiliation
with HALIS, SMG, the Surviving Corporation or the Shareholders. Each of HALIS
and the Shareholders shall bear 50% of the fees and expenses of the accounting
firm so selected. Such accounting firm shall promptly prepare a final Cash Flow,
Net Income and Revenues Determination and its conclusions shall be final and
binding upon the parties.
1.9 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Treasury Regulations.
1.10 FURTHER ACTION. If, at any time after the Effective Time, any
further action is reasonably determined by HALIS to be necessary or desirable to
carry out the purposes of this Agreement or to vest Subsidiary with full right,
title and possession of and to all rights and property of SMG, the officers and
directors of HALIS shall be fully authorized (in the name of SMG and otherwise)
to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF SMG AND THE SHAREHOLDERS
SMG and the Shareholders (other than Xxxxx X. Xxxxxxx) jointly and
severally represent and warrant, to and for the benefit of HALIS and the
Subsidiary, as follows as of the date hereof and as of the Closing Date:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES; ETC.
(a) SMG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Georgia and has all necessary power and
authority: (i) to conduct its business in the manner in which its business is
currently being conducted and in the manner in which its business is proposed to
be conducted; (ii) to own and use its assets in the manner in which its assets
are currently owned and used and in the manner in which its assets are proposed
to be owned and used; and (iii) to perform its obligations under all Contracts
by which it is bound.
(b) SMG has not conducted any business under or otherwise used, for
any purpose or in any jurisdiction, any fictitious name, assumed name, trade
name or other name, other than the names "OPMS" and "Software Manufacturing
Group."
(c) SMG is not and has not been required to be qualified, authorized,
registered or licensed to do business as a foreign corporation in any
jurisdiction other than the jurisdictions identified in Part 2.1(c) of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Material Adverse Effect
on SMG. SMG is in good standing as a foreign corporation in each of the
jurisdictions identified in Part 2.1(c) of the Disclosure Schedule.
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(d) Part 2.1(d) of the Disclosure Schedule accurately sets forth (i)
the names of the members of the SMG's board of directors, (ii) the names of the
members of each committee of SMG's board of directors, and (iii) the names and
titles of SMG's officers.
(e) SMG has no subsidiaries, and has never owned, beneficially or
otherwise, any shares or other securities of, or any direct or indirect interest
of any nature in, any other Entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS; RECORDS. SMG has delivered to
HALIS accurate and complete copies of: (i) SMG's articles of incorporation and
bylaws, including all amendments thereto; (ii) the stock records of SMG; and
(iii) the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or otherwise without a meeting)
of the shareholders of SMG, the board of directors of SMG and all committees of
the board of directors of SMG. There have been no meetings or other
proceedings or actions of the shareholders of SMG, the board of directors of
SMG or any committee of the board of directors of SMG that are not fully
reflected in such minutes or other records. There has not been any violation of
any of the provisions of SMG's articles of incorporation or bylaws or of any
resolution adopted by SMG's shareholders, SMG's board of directors or any
committee of SMG's board of directors. The books of account, stock records,
minute books and other records of SMG are accurate, up-to-date and complete, and
have been maintained in accordance with prudent business practices and all
applicable Legal Requirements.
2.3 CAPITALIZATION, ETC.
(a) The authorized capital stock of SMG consists of 100,000 shares of
common stock, of which 5,120 shares have been issued and are outstanding. There
are no shares of capital stock held in SMG's treasury. Part 2.3(a) of the
Disclosure Schedule sets forth the names of SMG shareholders and the number of
shares of SMG common stock owned of record by each of such shareholders. All of
the outstanding shares of SMG common stock have been duly authorized and validly
issued, and are fully paid and non-assessable, and none of such shares is
subject to any repurchase option or restriction on transfer.
(b) There is no: (i) outstanding subscription, option, call, warrant
or right (whether or not currently exercisable) to acquire, or otherwise
relating to, any shares of the capital stock or other securities of SMG; (ii)
outstanding security, instrument or obligation that is or may become convertible
into or exchangeable for any shares of the capital stock or other securities of
SMG; (iii) Contract under which SMG is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities; or (iv)
condition or circumstance that may give rise to or provide a basis for the
assertion of a claim by any Person to the effect that such Person is entitled to
acquire or receive any shares of capital stock or other securities of SMG.
Except as set forth in Part 2.3(b) of the Disclosure Schedule, SMG has never
issued or granted any option, call, warrant or right to acquire, or otherwise
relating to, any shares of its capital stock or other securities.
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(c) All outstanding shares of SMG Common Stock have been issued in
compliance with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
(d) Except as set forth in Part 2.3(d) of the Disclosure Schedule, SMG
has never repurchased, redeemed or otherwise reacquired any shares of capital
stock or other securities. All securities so reacquired by SMG were reacquired
in compliance with (i) the applicable provisions of the Georgia Business
Corporation Code and all other applicable Legal Requirements, and (ii) any
requirements set forth in applicable Contracts.
2.4 FINANCIAL STATEMENTS.
(a) SMG has delivered to HALIS the following financial statements
(collectively, the "Company Financial Statements"):
(i) the balance sheet of SMG as of December 31, 1995, and the
related statements of income, shareholders' equity and cash flow of SMG for
the year then ended; and
(ii) the unaudited balance sheet of SMG as of October 31, 1996
(the "Interim Balance Sheet"), and the related unaudited statements of
income, shareholders' equity and cash flow of SMG for the ten-month period
then ended.
(b) The Company Financial Statements are accurate and complete in all
material respects and present fairly the financial position of SMG as of the
respective dates thereof and the results of operations and cash flows of SMG for
the periods covered thereby. The Company Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered except that the Company
Financial Statements do not contain footnotes and are subject to normal and
recurring year-end audit adjustments, which will not, individually or in the
aggregate, be material in magnitude.
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Disclosure
Schedule, since October 31, 1996:
(a) there has not been any material adverse change in SMG's business,
condition, assets, liabilities, operations, financial performance or prospects,
and no event has occurred that will, or could reasonably be expected to, have a
Material Adverse Effect on SMG;
(b) there has not been any material loss, damage or destruction to, or
any material interruption in the use of, any of SMG's assets (whether or not
covered by insurance);
(c) SMG has not declared, accrued, set aside or paid any dividend or
made any other distribution in respect of any shares of capital stock, and has
not repurchased, redeemed or otherwise reacquired any shares of capital stock or
other securities;
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(d) SMG has not sold, issued or authorized the issuance of (i) any
capital stock or other security, (ii) any option, call, warrant or right to
acquire, or otherwise relating to, any capital stock or any other security, or
(iii) any instrument convertible into or exchangeable for any capital stock or
other security;
(e) there has been no amendment to SMG's articles of incorporation or
bylaws, and SMG has not effected or been a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(f) SMG has not formed any subsidiary or acquired any equity interest
or other interest in any other Entity;
(g) SMG has not made any capital expenditure which, when added to all
other capital expenditures made by SMG since October 31, 1996, exceeds $25,000
in the aggregate;
(h) SMG has not (i) entered into or permitted any of the assets owned
or used by it to become bound by any Material Contract (as defined in Section
2.10(a)), or (ii) amended or prematurely terminated, or waived any material
right or remedy under, any Material Contract to which it is or was party or
under which it has or has had any rights or obligations;
(i) SMG has not (i) acquired, leased or licensed any right or other
asset from any other Person, (ii) sold or otherwise disposed of, or leased or
licensed, any right or other asset to any other Person, or (iii) waived or
relinquished any right, except for rights or other assets acquired, leased,
licensed or disposed of in the ordinary course of business and consistent with
SMG's past practices;
(j) SMG has not written off as uncollectible, or established any
extraordinary reserve with respect to, any account receivable or other
indebtedness;
(k) SMG has not made any pledge of any of its assets or otherwise
permitted any of its assets to become subject to any Encumbrance, except for
pledges of immaterial assets made in the ordinary course of business and
consistent with SMG's past practices;
(l) SMG has not (i) lent money to any Person, or (ii) incurred or
guaranteed any indebtedness for borrowed money, except for loans from Xxxxxxx
Xxxx, Xx. ("Cone") for working capital in an aggregate amount not to exceed
$25,000;
(m) SMG has not (i) established, adopted or amended any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar payment
to, or increased the amount of the wages, salary, commissions, fringe benefits
or other compensation or remuneration payable to, any of its directors, officers
or employees, or (iii) hired any new employee;
9
(n) SMG has not changed any of its methods of accounting or accounting
practices in any respect;
(o) SMG has not made any Tax election;
(p) SMG has not commenced or settled any legal Proceeding;
(q) SMG has not entered into any material transaction or taken any
other material action outside the ordinary course of business or inconsistent
with its past practices; and
(r) SMG has not agreed or committed to take any of the actions
referred to in clauses "(c)" through "(q)" above.
2.6 TITLE TO ASSETS.
(a) SMG owns, and has good, valid and marketable title to, all assets
purported to be owned by it, including: (i) all assets reflected on the Interim
Balance Sheet; (ii) all assets referred to in Parts 2.7(b), 2.8 and 2.9 of the
Disclosure Schedule and all of SMG's rights under the Contracts identified in
Part 2.10(a) of the Disclosure Schedule; and (iii) all other assets reflected in
SMG books and records as being owned by SMG. Except as set forth in Part 2.6(a)
of the Disclosure Schedule, all of said assets are owned by SMG free and clear
of any liens or other Encumbrances, except for (i) any lien for current taxes
not yet due and payable, and (ii) minor liens that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of SMG.
(b) Part 2.6(b) of the Disclosure Schedule identifies all assets that
are being leased or licensed to SMG.
2.7 BANK ACCOUNTS; RECEIVABLES; CUSTOMERS.
(a) Part 2.7(a) of the Disclosure Schedule provides accurate and
complete information with respect to each account maintained by or for the
benefit of SMG at any bank or other financial institution.
(b) Part 2.7(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of SMG as of October 31, 1996. Except as set forth in Part
2.7(b) of the Disclosure Schedule, all existing accounts receivable of SMG
(including those accounts receivable reflected on the Interim Balance Sheet that
have not yet been collected and those accounts receivable that have arisen since
October 31, 1996 and have not yet been collected) (i) represent valid
obligations of customers of SMG arising from bona fide transactions entered into
in the ordinary course of business, and (ii) are current and will be collected
in full, without any counterclaim or set off, when due net of an allowance for
doubtful accounts not to exceed $10,000 in the aggregate.
10
(c) Part 2.7(c) of the Disclosure Schedule accurately identifies, and
provides an accurate and complete breakdown of the revenues received from, each
customer or other Person that (together with such Person's affiliates) accounted
for more than two percent (2%) of the net revenues of SMG in 1995 or 1996.
Except as disclosed in Part 2.7(c) of the Disclosure Schedule, SMG has not
received any notice or other communication indicating that any customer or other
Person identified in Part 2.7(c) of the Disclosure Schedule intends or expects
to cease dealing with SMG or to reduce the volume of business transacted by such
Person with SMG below historical levels.
(d) Part 2.7(d) of the Disclosure Schedule provides a list of all
pending and unfilled orders as of the date specified received by SMG for
products, systems and services.
2.8 EQUIPMENT; LEASEHOLD.
(a) Part 2.8 of the Disclosure Schedule provides a list of all
material items of equipment, fixtures, leasehold improvements and other tangible
assets owned by or leased to SMG. The assets identified in Part 2.8 of the
Disclosure Schedule are adequate for the uses to which they are being put, are
in good condition and repair (ordinary wear and tear excepted) and are adequate
for the conduct of SMG's business in the manner in which such business is
currently being conducted and in the manner in which such business is proposed
to be conducted.
(b) SMG does not own any real property or any interest in real
property, except for the leasehold(s) created under the real property lease(s)
identified in Part 2.10(a) of the Disclosure Schedule.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(1) of the Disclosure Schedule sets forth, with respect
to each Company Proprietary Asset that has been registered, recorded or filed
with any Governmental Body or with respect to which an application has been
filed with any Governmental Body, (i) a brief description of such Company
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration, recordation, filing or application. Part 2.9(a)(2) of
the Disclosure Schedule identifies and provides a brief description of all other
material Company Proprietary Assets owned by SMG. Part 2.9(a)(3) of the
Disclosure Schedule identifies and provides a brief description of each Company
Proprietary Asset that is owned by any other Person and that is licensed to or
used by SMG (except for any Company Proprietary Asset that is licensed to SMG
under any third party software license generally available to the public at a
cost of less than $1,000), and identifies the license agreement or other
agreement under which such Company Proprietary Asset is being licensed to or
used by SMG. Except as set forth in Part 2.9(a)(4) of the Disclosure Schedule,
SMG has good, valid and marketable title to all of the Proprietary Assets
identified in Parts 2.9(a)(1) and 2.9(a)(2) of the Disclosure Schedule, free and
clear of all liens and other Encumbrances, and has a valid right to use all
Proprietary Assets identified in Part 2.9(a)(3) of the Disclosure Schedule.
Except as set forth in Part 2.9(a)(5) of the Disclosure Schedule and except for
11
any Company Proprietary Asset licensed to SMG under any third party license
generally available to the public, SMG is not obligated to make any payment to
any Person for the use of any Company Proprietary Asset. Except as set forth in
Part 2.9(a)(6) of the Disclosure Schedule, SMG is free to use, modify, copy,
distribute, sell, license or otherwise exploit each of the Company Proprietary
Assets on an exclusive basis.
(b) SMG has taken commercially reasonable measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all Company
Proprietary Assets (except Company Proprietary Assets whose value would be
unimpaired by public disclosure) and otherwise to maintain and protect the value
of all Company Proprietary Assets. Except as set forth in Part 2.9(b) of the
Disclosure Schedule, SMG has not disclosed or delivered or permitted to be
disclosed or delivered to any Person, and no Person (other than SMG, or
consultants or independent contractors listed in Part 2.9(f)(2) of the
Disclosure Schedule) has access to or has any rights with respect to, the source
code, or any portion or aspect of the source code, of any Company Proprietary
Asset.
(c) To the best knowledge of SMG and the Shareholders, none of the
Company Proprietary Assets infringes or conflicts with any Proprietary Asset
owned or used by any other Person. To the best knowledge of SMG and the
Shareholders, SMG is not infringing, misappropriating or making any unlawful use
of, and SMG has not at any time infringed, misappropriated or made any unlawful
use of, any Proprietary Asset owned or used by any other Person. SMG has not
received any notice or other communication of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of SMG
and the Shareholders, no other Person is infringing, misappropriating or making
any unlawful use of, and no Proprietary Asset owned or used by any other Person
infringes or conflicts with, any Company Proprietary Asset.
(d) Except as set forth in Part 2.9(d) of the Disclosure Schedule: (i)
each Company Proprietary Asset conforms in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided with respect thereto by or on behalf of SMG; and (ii) there has
not been any material claim by any customer or other Person alleging that any
Company Proprietary Asset does not conform in all material respects with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of SMG, and, to the best of the knowledge of
SMG and the Shareholders, there is no basis for any such claim.
(e) The Company Proprietary Assets constitute all the Proprietary
Assets necessary to enable SMG to conduct its business in the manner in which
such business has been conducted and in the manner in which such business is
proposed to be conducted. Except as set forth in Part 2.9(e) of the Disclosure
Schedule, (i) SMG has not licensed any of the Company Proprietary Assets to any
Person on an exclusive basis, and (ii) SMG has not entered into any covenant not
to compete or Contract limiting its ability to exploit fully any of its
Proprietary Assets or to transact business in any market or geographical area or
with any Person.
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(f) Except as set forth in Part 2.9(f)(1) of the Disclosure Schedule,
all current and former employees of SMG have executed and delivered to SMG's
employee handbook containing written employee confidentiality requirements that
are substantially identical to the form attached to the Disclosure Schedule as
Appendix 2.9(f)(1). Except as set forth in Part 2.9(f)(2) of the Disclosure
Schedule, SMG has never engaged or received services from any consultant or
independent contractor in connection with the design or development of any
Proprietary Asset, and each such consultant or independent contractor so engaged
has executed and delivered to SMG written confidentiality agreements that are
substantially identical to the form attached to the Disclosure Schedule as
Appendix 2.9(f)(2).
2.10 CONTRACTS.
(a) Part 2.10(a) of the Disclosure Schedule identifies each Company
Contract presently in force that constitutes a "Material Contract." For
purposes of this Agreement, each of the following shall be deemed to constitute
a "Material Contract":
(i) any Contract relating to the employment or engagement of, or
the performance of services by, any employee, consultant or independent
contractor;
(ii) any Contract relating to the acquisition, transfer, use,
development, sharing or license of any technology or any Proprietary Asset;
(iii) any Contract imposing any restriction on SMG's right or
ability (A) to compete with any other Person, (B) to acquire any product or
other asset or any services from any other Person, to sell any product or
other asset to or perform any services for any other Person or to transact
business or deal in any other manner with any other Person, or (C) to
develop or distribute any technology;
(iv) any Contract creating or involving any agency relationship,
distribution arrangement or franchise relationship;
(v) any Contract relating to the acquisition, issuance or
transfer of any securities;
(vi) any Contract creating or relating to the creation of any
Encumbrance with respect to any asset owned or used by SMG;
(vii) any Contract involving or incorporating any guaranty, any
pledge, any performance or completion bond, any indemnity, any right of
contribution or any surety arrangement;
(viii) any Contract creating or relating to any partnership or
joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
13
(ix) any Contract relating to the purchase or sale of any product
or other asset by or to, or the performance of any services by or for, any
Related Party (as defined in Section 2.19);
(x) any Contract to which any Governmental Body is a party or
under which any Governmental Body has any rights or obligations, or
involving or directly or indirectly benefiting any Governmental Body
(including any subcontract between SMG and any contractor or subcontractor
to any Governmental Body);
(xi) any Contract entered into outside the ordinary course of
business or inconsistent with SMG past practices;
(xii) any Contract that has a term of more than 60 days and that
may not be terminated by SMG (without penalty) within 60 days after the
delivery of a termination notice by SMG; and
(xiii) any Contract that contemplates or involves (A) the payment
or delivery of cash or other consideration in an amount or having a value
in excess of $5,000 in the aggregate, or (B) the performance of services
having a value in excess of $5,000 in the aggregate.
(b) SMG has delivered to HALIS accurate and complete copies of all
Contracts identified in Part 2.10(a) of the Disclosure Schedule, including all
amendments thereto. Each Contract identified in Part 2.10(a) of the Disclosure
Schedule is valid and in full force and effect, and is enforceable by SMG in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Disclosure Schedule:
(i) SMG has not violated or breached, or committed any default
under, any Company Contract, which violation, breach or default would have
a Material Adverse Effect, and, to the best of the knowledge of SMG and the
Shareholders, no other Person has violated or breached, or committed any
default under, any Company Contract;
(ii) to the best of the knowledge of SMG and the Shareholders, no
event has occurred, and no circumstance or condition exists, that (with or
without notice or lapse of time) will, or could reasonably be expected to,
(A) result in a violation or breach of any of the provisions of any Company
Contract, (B) give any Person the right to declare a default or exercise
any remedy under any Company Contract, (C) give any Person the right to
accelerate the maturity or performance of any Company Contract, or (D) give
any Person the right to cancel, terminate or modify any Company Contract;
14
(iii) SMG has not received any notice or other communication
regarding (A) any actual or possible violation or breach of, or default
under, any Company Contract, or (B) any actual or possible termination of
any Company Contract; and
(iv) SMG has not waived any of its material rights under any
Contract.
(d) No Person is renegotiating, or has the right to renegotiate, any
amount paid or payable to SMG under any Company Contract or any other term or
provision of any Company Contract.
(e) The Contracts identified in Part 2.10(a) of the Disclosure
Schedule collectively constitute all of the Material Contracts necessary to
enable SMG to conduct its business in the manner in which its business is
currently being conducted and in the manner in which its business is proposed to
be conducted.
(f) Part 2.10(f) of the Disclosure Schedule identifies and provides a
brief description of each proposed Contract as to which any pending bid, offer
or proposal has been submitted or received by SMG.
2.11 LIABILITIES.
(a) SMG has no accrued, contingent or other liabilities of any nature,
either matured or unmatured (whether or not required to be reflected in
financial statements in accordance with generally accepted accounting
principles, and whether due or to become due), except for: (i) liabilities
identified as such in the "liabilities" column of the Interim Balance Sheet;
(ii) accounts payable or accrued salaries that have been incurred by SMG since
October 31, 1996, in the ordinary course of business and consistent with SMG's
past practices; and (iii) the liabilities identified in Part 2.11(a) of the
Disclosure Schedule.
(b) Part 2.11(b) of the Disclosure Schedule provides an accurate and
complete breakdown of SMG "deferred support revenue," all related obligations
and other liabilities of SMG, and all liabilities other than accounts payable
and accrued salaries that have been incurred by SMG in the ordinary course of
business consistent with past practices since October 31, 1996.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. SMG is, and has at all times
since January 7, 1986 been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have in any individual case or in the aggregate, a
Material Adverse Effect on SMG. Except as set forth in Part 2.12 of the
Disclosure Schedule, since January 7, 1986, SMG has not received any notice or
other communication from any Governmental Body regarding any actual or possible
violation of, or failure to comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS. Part 2.13 of the Disclosure Schedule
identifies each material Governmental Authorization held by SMG, and SMG has
15
delivered to HALIS accurate and complete copies of all Governmental
Authorizations identified in Part 2.13 of the Disclosure Schedule. The
Governmental Authorizations identified in Part 2.13 of the Disclosure Schedule
are valid and in full force and effect, and collectively constitute all
Governmental Authorizations necessary to enable SMG to conduct its business in
the manner in which its business is currently being conducted and in the manner
in which its business is proposed to be conducted. SMG is, and at all times
since January 7, 1986 has been, in compliance with the material terms and
requirements of the respective Governmental Authorizations identified in Part
2.13 of the Disclosure Schedule. Since January 7, 1986, SMG has not received any
notice or other communication from any Governmental Body regarding (i) any
actual or possible violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (ii) any actual or possible
revocation, withdrawal, suspension, cancellation, termination or modification of
any Governmental Authorization.
2.14 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of SMG with
any Governmental Body with respect to any transaction occurring or any taxable
period ending on or before the Closing Date (the "Company Returns") (i) have
been or will be filed when due, and (ii) have been, or will be when filed,
accurately and completely prepared in compliance with all applicable Legal
Requirements. All amounts shown on the Company Returns to be due on or before
the Closing Date have been or will be paid on or before the Closing Date. SMG
has delivered to HALIS accurate and complete copies of all Company Returns filed
since January 1, 1991.
(b) The Company Financial Statements fully accrue all actual and
contingent liabilities for state sales and use taxes with respect to all periods
through the dates thereof in accordance with generally accepted accounting
principles. SMG will establish, in the ordinary course of business and
consistent with its past practices, reserves adequate for the payment of all
Taxes for the period from October 31, 1996, through the Closing Date, and SMG
will disclose the dollar amount of such reserves to HALIS on or prior to the
Closing Date.
(c) Each Company Return relating to income Taxes that has been filed
with respect to any period ended on or prior to January 1, 1991, by virtue of
the expiration of the limitation period under applicable Legal Requirements, is
no longer subject to examination and audit by any Governmental Body. Except as
set forth in Part 2.14(c) of the Disclosure Schedule, there has been no
examination or audit of any Company Return, and no such examination or audit has
been proposed or scheduled by any Governmental Body. SMG has delivered to HALIS
accurate and complete copies of all audit reports and similar documents (to
which SMG has access) relating to the Company Returns. Except as set forth in
Part 2.14(c) of the Disclosure Schedule, no extension or waiver of the
limitation period applicable to any of the Company Returns has been granted (by
SMG or any other Person), and no such extension or waiver has been requested
from SMG.
(d) Except as set forth in Part 2.14(d) of the Disclosure Schedule, no
claim or Legal Proceeding is pending or has been threatened against or with
16
respect to SMG in respect of any Tax. There are no unsatisfied liabilities for
Taxes (including liabilities for interest, additions to tax and penalties
thereon and related expenses) with respect to any notice of deficiency or
similar document received by SMG. There are no liens for Taxes upon any of the
assets of SMG, except liens for current Taxes not yet due and payable. SMG has
not entered into or become bound by any agreement or consent pursuant to Section
341(f) of the Code. SMG has not been, and SMG will not be, required to include
any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 of 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions or events occurring, or
accounting methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of SMG that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code.
SMG is not, and has never been, a party to or bound by any tax indemnity
agreement, tax sharing agreement, tax allocation agreement or similar Contract.
2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Disclosure Schedule contains a list of all
salaried employees of SMG as of the date of this Agreement, and correctly
reflects their salaries, any other compensation payable to them (including
compensation payable pursuant to bonus, deferred compensation or commission
arrangements), their dates of employment and their positions. SMG is not a
party to any collective bargaining contract or other Contract with a labor union
involving any of its employees.
(b) Part 2.15(b) of the Disclosure Schedule identifies each employee
of SMG who is not fully available to perform work because of disability or other
leave, and sets forth the basis of such leave and the anticipated date of return
to full service.
(c) Part 2.15(c) of the Disclosure Schedule identifies each salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement (individually referred to as a "Plan" and collectively
referred to as the "Plans") sponsored, maintained, contributed to or required to
be contributed to by SMG for the benefit of any current or former employee of
SMG.
(d) Except as set forth in Part 2.15(d) of the Disclosure Schedule,
SMG does not maintain, sponsor or contribute to, and, to the best of the
knowledge of SMG and the Shareholders, SMG has not at any time in the past
maintained, sponsored or contributed to, any employee pension benefit plan (as
defined in Section 3(2)) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), whether or not excluded from coverage under specific
Titles or Merger Subtitles of ERISA) for the benefit of employees or former
employees of SMG (a "Pension Plan").
17
(e) SMG does not maintain, sponsor or contribute to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA, whether or not
excluded from coverage under specific Titles or Merger Subtitles of ERISA) for
the benefit of employees or former employees of SMG (a "Welfare Plan") except
for those Welfare Plans described in Part 2.15(e) of the Disclosure Schedule,
none of which is a multiemployer plan (within the meaning of Section 3(37) of
ERISA).
(f) With respect to each Plan, SMG has delivered to HALIS:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report (if
required under ERISA) with respect to such Plan for each of 1994 and 1995;
(iii) an accurate and complete copy of (A) the most recent
summary plan description, together with each Summary of Material
Modifications (if required under ERISA) with respect to such Plan, and (B)
each material employee communication relating to such Plan;
(iv) if such Plan is funded through a trust or any third party
funding vehicle, an accurate and complete copy of the trust or other
funding agreement (including all amendments thereto) and accurate and
complete copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to
such Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and recordkeeping
agreements; and
(vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with
respect to such Plan (if such Plan is intended to be qualified under
Section 401(a) of the Code).
(g) SMG is not required to be, and, to the best of the knowledge of
SMG and the Shareholders, SMG has never been required to be, treated as a single
employer with any other Person under Section 4001(b)(1) of ERISA or Section
414(b), (c), (m) or (o) of the Code. SMG has never been a member of an
"affiliated service group" within the meaning of Section 414(m) of the Code. To
the best of the knowledge of SMG and the Shareholders, SMG has never made a
complete or partial withdrawal from a "multiemployer plan" (as defined in
Section 3(37) of ERISA) resulting in "withdrawal liability" (as defined in
Section 4201 of ERISA), without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA.
18
(h) SMG does not have any plan or commitment to create any additional
Welfare Plan or any Pension Plan, or to modify or change any existing Welfare
Plan or Pension Plan (other than to comply with applicable law).
(i) Except with respect to health and medical benefits provided to
Xxxxx X. Xxxxxxxx, no Welfare Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee of SMG
after any such employee's termination of service (other than (i) benefit
coverage mandated by applicable law, including coverage provided pursuant to
Section 4980B of the Code, (ii) deferred compensation benefits accrued as
liabilities on the Interim Balance Sheet, and (iii) benefits the full cost of
which are borne by current or former employees of SMG (or their beneficiaries)).
(j) With respect to each of the Welfare Plans constituting a group
health plan within the meaning of Section 4980B(g)(2) of the Code, the
provisions of Section 4980B of the Code ("COBRA") have been complied with in all
material respects.
(k) Each of the Plans has been operated and administered in all
material respects in accordance with applicable Legal Requirements, including
ERISA and the Code.
(l) Each of the Plans intended to be qualified under Section 401(a) of
the Code has received a favorable determination from the Internal Revenue
Service, and neither SMG nor any Shareholder is aware of any reason why any such
determination letter should be revoked.
(m) Except as set forth in Part 2.15(m) of the Disclosure Schedule,
neither the execution, delivery or performance of this Agreement, nor the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, will result in any bonus payment, golden parachute payment, severance
payment or other payment to any current or former employee or director of SMG
(whether or not under any Plan), or materially increase the benefits payable
under any Plan, or result in any acceleration of the time of payment or vesting
of any such benefits.
(n) SMG is in compliance in all material respects with all applicable
Legal Requirements and Contracts relating to employment, employment practices,
employee compensation, wages, bonuses and terms and conditions of employment.
(o) SMG has good labor relations, and neither SMG nor any of the
Shareholders has any knowledge of any facts indicating that (i) the consummation
of the Merger or any of the other transactions contemplated by this Agreement
will have a Material Adverse Effect on SMG's labor relations, or (ii) any of
SMG's employees intends to terminate his or her employment with SMG.
2.16 ENVIRONMENTAL MATTERS. SMG is and has at all times been in
compliance, in all material respects, with all applicable Environmental Laws.
SMG possesses all permits and other Governmental Authorizations required under
applicable Environmental Laws, and SMG is and has at all times been in
compliance with the terms and requirements of all such Governmental
19
Authorizations. SMG has not received any notice or other communication (whether
from a Governmental Body, citizens group, employee or otherwise) that alleges
that SMG is not in compliance with any Environmental Law, and, to the best of
the knowledge of SMG and the Shareholders, there are no circumstances that could
reasonably be expected to prevent or interfere with SMG compliance with any
Environmental Law in the future. To the best of the knowledge of SMG and the
Shareholders, no current or prior owner of any property leased or controlled by
SMG has received any notice or other communication (whether from a Governmental
Body, citizens group, employee or otherwise) that alleges that such current or
prior owner or SMG is not or was not in compliance with any Environmental Law.
All Governmental Authorizations currently held by SMG pursuant to Environmental
Laws are identified in Part 2.16 of the Disclosure Schedule.
2.17 SALE OF PRODUCTS; PERFORMANCE OF SERVICES.
(a) Other than normal returns for refunds in the ordinary course of
business at levels consistent with past experience under SMG's standard return
policy, SMG will not incur or otherwise become subject to any material liability
arising from (i) any product, system, program, Proprietary Asset or other asset
designed, developed, manufactured, assembled, sold, supplied, installed,
repaired, licensed or made available by SMG on or prior to the Closing Date, or
(ii) any consulting services, installation services, programming services,
repair services, maintenance services, training services, support services or
other services performed by SMG on or prior to the Closing Date.
(b) Except as set forth in Part 2.17(b) of the Disclosure Schedule, no
customer or other Person has, at any time since January 1, 1991, asserted or
threatened to assert any claim against SMG (other than claims that have been
resolved satisfactorily at no material cost to SMG) under or based upon (i) any
warranty provided by or on behalf of SMG, or (ii) any services performed by
SMG.
2.18 INSURANCE. Part 2.18 of the Disclosure Schedule provides a
summary description with respect to each insurance policy maintained by, at the
expense of or for the benefit of SMG and with respect to any claims made
thereunder. SMG has delivered to HALIS accurate and complete copies of the
insurance policies identified in Part 2.18 of the Disclosure Schedule. Each of
the insurance policies identified in Part 2.18 of the Disclosure Schedule is in
full force and effect. Since January 1, 1991, SMG has not received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
2.19 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.19 of
the Disclosure Schedule: (a) no Related Party has, and no Related Party has at
any time since January 7, 1986 had, any direct or indirect interest in any
material asset used in or otherwise relating to the business of SMG; (b) no
Related Party is, or has at any time since January 7, 1986 been, indebted to SMG
; (c) since January 7, 1986, no Related Party has entered into, or has had any
direct or indirect financial interest in, any material Contract, transaction or
20
business dealing involving SMG; (d) no Related Party is competing, or has at
any time since January 7, 1986 competed, directly or indirectly, with SMG; and
(e) no Related Party has any claim or right against SMG (other than rights to
receive compensation for services performed as an employee of SMG ). For
purposes of this Section 2.19, each of the following shall be deemed to be a
"Related Party": (i) each of the Shareholders; (ii) each individual who is, or
who has at any time since January 7, 1986 been, an officer or director of SMG;
(iii) each individual who is, or who at any time since January 7, 1986 has been,
a member of the immediate family of any of the individuals referred to in
clauses "(i)" and "(ii)" above; and (iv) any trust or other Entity (other than
SMG ) in which any one of the individuals referred to in clauses "(i)," "(ii)"
and "(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary or
equity interest.
2.20 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.20(a) of the Disclosure Schedule,
there is no pending Legal Proceeding, and, to the best of the knowledge of SMG
and the Shareholders, no Person has threatened to commence any Legal Proceeding:
(i) that involves SMG or any of the assets owned or used by SMG; or (ii) that
challenges, or that may have the effect of preventing, delaying, making illegal
or otherwise interfering with, the Merger or any of the other transactions
contemplated by this Agreement. To the best of the knowledge of SMG and the
Shareholders, except as set forth in Part 2.20(a) of the Disclosure Schedule, no
event has occurred, and no claim, dispute or other condition or circumstance
exists, that will, or that could reasonably be expected to, give rise to or
serve as a basis for the commencement of any such Legal Proceeding.
(b) Except as set forth in Part 2.20(b) of the Disclosure Schedule, no
Legal Proceeding has ever been commenced by, and no Legal Proceeding has ever
been pending against, SMG.
(c) There is no order, writ, injunction, judgment or decree to which
SMG, or any of the assets owned or used by SMG, are subject. Neither the
Shareholders nor SMG is subject to any order, writ, injunction, judgment or
decree that relates to SMG business or to any of the assets owned or used by
SMG. To the best of the knowledge of SMG and the Shareholders, no officer or
other employee of SMG is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to SMG's business.
2.21 AUTHORITY; BINDING NATURE OF AGREEMENT. The Shareholders and SMG have
the absolute and unrestricted right, power and authority to enter into and to
perform their respective obligations under this Agreement; and the execution,
delivery and performance by SMG of this Agreement has been duly authorized by
all necessary action on the part of SMG and its board of directors and
shareholders. This Agreement constitutes the legal, valid and binding
obligation of the Shareholders and SMG, enforceable against the Shareholders
and SMG in accordance with its terms, subject to (i) laws of general application
21
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of
law governing specific performance, injunctive relief and other equitable
remedies.
2.22 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.22 of
the Disclosure Schedule, neither (i) the execution, delivery or performance of
this Agreement or any of the other agreements referred to in this Agreement, nor
(ii) the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will directly or indirectly (with or without
notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any of
the provisions of SMG's articles of incorporation or bylaws, or (ii) any
resolution adopted by SMG's shareholders, or SMG's board of directors or any
committee of SMG's board of directors;
(b) contravene, conflict with or result in a violation of, or give any
Governmental Body or other Person the right to challenge any of the transactions
contemplated by this Agreement or to exercise any remedy or obtain any relief
under, any Legal Requirement or any order, writ, injunction, judgment or decree
to which SMG, or any of the assets owned or used by SMG, is subject;
(c) contravene, conflict with or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by SMG or that otherwise relates to SMG's business or to any of the
assets owned or used by SMG;
(d) contravene, conflict with or result in a violation or breach of,
or result in a default under, any provision of any Company Contract, or give any
Person the right to (i) declare a default or exercise any remedy under any
Company Contract, (ii) accelerate the maturity or performance of any Company
Contract, or (iii) cancel, terminate or modify any Company Contract; or
(e) result in the imposition or creation of any lien or other
Encumbrance upon or with respect to any asset owned or used by SMG (except for
minor liens that will not, in any case or in the aggregate, materially detract
from the value of the assets subject thereto or materially impair the operations
of SMG).
Except as set forth in Part 2.22 of the Disclosure Schedule, SMG is not and will
not be required to make any filing with or given any notice to, or to obtain any
Consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement, or (y) the consummation of the Merger or any of the other
transactions contemplated by this Agreement.
2.23 SOFTWARE. Part 2.23 of the Disclosure Schedule contains a complete
list of all computer software which is material to SMG's business and which has
been designed specifically for use, license or sale by SMG or as to
22
which SMG claims any proprietary rights (the "Software"). Part 2.23 of the
Disclosure Schedule lists all employees and independent contractors who
participated materially in the creation or material modification of the
Software. Except as described in Part 2.23 of the Disclosure Schedule, SMG is
the exclusive owner or licensee of all patents, copyrights, trademarks,
intellectual property rights, trade secrets and other proprietary information,
processes, and formulae used in connection with the Software. All development or
other work performed by employees, independent contractors or others in
connection with the Software on behalf of SMG has been either (i) pursuant to a
"work-for-hire" arrangement or agreement with SMG in accordance with applicable
state and federal law, that has accorded SMG full, effective, exclusive and
original ownership of all tangible and intangible property arising thereby or
(ii) subject to an executed instrument of assignment in favor of SMG that has
conveyed to SMG full, effective and exclusive ownership of all tangible and
intangible property arising in connection with the work performed. SMG has
exclusive ownership, possession and control of all source codes, system
documentation, statements of principles of operation, and schematics for all the
Software that may be necessary to render such materials understandable and
usable by a trained computer programmer. The Software is not in the public
domain. SMG has taken adequate measures consistent with industry practice to
safeguard the confidentiality of any confidential information or trade secrets
relating to the Software. There are no licenses, covenants not to compete or
other agreements or arrangements which restrict in any way SMG's right to
further develop, market, license and use the Software. The Software performs in
all material respects in accordance with the documentation and other written
material used in connection with the Software and is free from material defects
in programming or operation. To the knowledge of SMG and the Shareholders, SMG
is not infringing or otherwise acting adversely to the right of any party under
or in respect to the Software. There is no claim for damages or any proceeding
pending, or to the knowledge of SMG and the Shareholders threatened, with
respect thereto, and SMG and the Shareholders have no knowledge that any third
party is infringing or otherwise acting adversely to the right of SMG under or
in respect to any Software owned by SMG. All Software owned or developed by SMG
that is licensed to third parties has been distributed pursuant to license
agreements, substantially in the form attached on Part 2.23 of the Disclosure
Schedule, and no person has been given or permitted to use any such Software
unless such persons have executed a license agreement substantially in the form
attached on Part 2.23 of the Disclosure Schedule.
2.24 FULL DISCLOSURE. This Agreement (including the Disclosure
Schedule) does not, and Shareholders' Closing Certificate (as defined in Section
6.4(f)) will not, (i) contain any representation, warranty or information that
is false or misleading with respect to any material fact, or (ii) omit to state
any material fact necessary in order to make the representations, warranties and
information contained and to be contained herein and therein not false or
misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF HALIS AND THE SUBSIDIARY
HALIS and the Subsidiary, jointly and severally, represent and warrant
to SMG and the Shareholders as follows:
23
3.1 SEC FILINGS; FINANCIAL STATEMENTS; PRIVATE PLACEMENT MEMORANDUM.
(a) HALIS has delivered to SMG accurate and complete copies (excluding
copies of exhibits) of each report, registration statement (on a form other than
Form S-8) and definitive proxy statement filed by HALIS with the SEC between
January 1, 1995 and the date of this Agreement (the "HALIS SEC Documents"). As
of the time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing): (i) each
of the HALIS SEC Documents complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act (as the case may be); and
(ii) none of the HALIS SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) The consolidated financial statements contained in the HALIS SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited statements) as permitted
by Form 10-Q of the SEC, and except that unaudited financial statements may not
contain footnotes and are subject to normal and recurring year-end audit
adjustments (which will not, individually or in the aggregate, be material in
magnitude); and (iii) fairly present the consolidated financial position of
HALIS as of the respective dates thereof and the consolidated results of
operations of HALIS for the periods covered thereby.
(c) HALIS has delivered to SMG accurate and complete copies of its
Private Placement Memorandum, dated September 11, 1996, and supplements thereto
dated October 31, 1996, November 19, 1996 and January 16, 1997 (as supplemented,
the "Placement Memorandum"). The Private Placement Memorandum contains no untrue
statement of a material fact, nor does it omit to state a material fact to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they made, not misleading.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. HALIS and the Subsidiary each
have the absolute and unrestricted right, power and authority to perform their
respective obligations under this Agreement; and the execution, delivery and
performance by HALIS and the Subsidiary of this Agreement have been duly
authorized by all necessary action on the part of HALIS and the Subsidiary and
their respective boards of directors. This Agreement shall constitute the
legal, valid and binding obligation of HALIS and the Subsidiary, enforceable
against each of them in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.3 VALID ISSUANCE. The HALIS Common Stock to be issued as Merger
Consideration will, when issued in accordance with the provisions of this
Agreement, be validly issued, fully paid and nonassessable.
24
3.4 INVESTMENT INTENT. HALIS is acquiring the stock of SMG pursuant to
the Merger for its own accounts, with the intention of holding such stock for
investment and not with the intention of participating directly in any resale or
distribution of such stock.
3.5 ARTICLES OF INCORPORATION AND BYLAWS OF SUBSIDIARY. True, complete
and correct copies of the Articles of Incorporation and the Bylaws of the
Subsidiary, together with all amendments through the date hereof, have been
delivered to Cone.
3.6 ORGANIZATION AND BUSINESS OF SUBSIDIARY. The Subsidiary was
incorporated on December 16, 1996, for the specific purpose of the Merger
contemplated pursuant to this Agreement. The Subsidiary has before the date
hereof, and through the Closing Date will have, conducted no operations, no
assets other than its initial capital, and incurred no liabilities. After the
Closing Date through the Determination Period, unless Cone shall have otherwise
consented in writing, the only business of the Surviving Corporation shall be
the business of SMG substantially as conducted immediately prior to the Closing
Date.
3.7 OWNERSHIP OF SMG. HALIS owns all the issued and outstanding stock of
the Subsidiary, and shall maintain the Subsidiary as the wholly owned subsidiary
during the Determination Period. For a period of two years from the Closing
Date, HALIS shall vote its shares of stock to elect Xxxxxxx Xxxx, Xx. and a
nominee of Xxxxxxx Xxxx to the Board of Directors of the Surviving Corporation.
During said two year period, the number of directors for the Surviving
Corporation shall be five.
SECTION 4. CERTAIN COVENANTS OF SMG AND THE SHAREHOLDERS
4.1 ACCESS AND INVESTIGATION. During the period from the date of this
Agreement through the Effective Time (the "Pre-Closing Period"), SMG shall, and
shall cause its Representatives to: (a) provide HALIS and HALIS's
Representatives with reasonable access to SMG's Representatives, personnel and
assets and to all existing books, records, Tax Returns, work papers and other
documents and information relating to SMG; and (b) provide HALIS and HALIS's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to SMG, and with such
additional financial, operating and other data and information regarding SMG,
as HALIS may reasonably request. Notwithstanding the provisions of Section
11.17, paragraph 7 of the letter agreement between SMG and HALIS dated July 29,
1996 ("Letter of Intent") shall remain in effect through the Closing Date and
shall bind HALIS with respect to any Evaluation Material (as defined in the
Letter of Intent) provided to HALIS or its Representatives during the Pre-
Closing Period.
4.2 OPERATION OF SMG'S BUSINESS. During the Pre-Closing Period, unless
HALIS otherwise consents in writing:
(a) Other than increasing its sales efforts and targeting more sales
efforts to professional groups, SMG shall conduct its business and operations in
25
the ordinary course and in substantially the same manner as such business and
operations have been conducted prior to the date of this Agreement;
(b) SMG shall use reasonable efforts to preserve intact its current
business organizations, keep available the services of its current officers and
employees and maintain its relations and goodwill with all suppliers, customers,
landlords, creditors, employees and other Persons having business relationships
with SMG;
(c) SMG shall keep in full force all insurance policies identified in
Part 2.18 of the Disclosure Schedule;
(d) SMG shall cause its officers to report regularly to HALIS
concerning the status of SMG's business;
(e) SMG shall not declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, and shall
not repurchase, redeem or otherwise reacquire any shares of capital stock or
other securities;
(f) SMG shall not sell, issue or authorize the issuance of (i) any
capital stock or other security, (ii) any option, call, warrant or right to
acquire, or relating to, any capital stock or other security, or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security;
(g) neither SMG, nor any of the Shareholders shall amend or permit the
adoption of any amendment to SMG articles of incorporation or bylaws, or effect
or permit SMG to become a party to any Acquisition Transaction,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction;
(h) SMG shall not form any subsidiary or acquire any equity interest
or other interest in any other Entity;
(i) SMG shall not make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on behalf
of SMG during the Pre-Closing Period, do not exceed $25,000 in the aggregate;
(j) SMG shall not (i) enter into or become bound by, or permit any of
the assets owned or used by it to become bound by, any Material Contract, or
(ii) amend or prematurely terminate, or waive any material right or remedy
under, any Material Contract;
(k) SMG shall not, other than in the ordinary course of business
consistent with past practice (i) acquire, lease or license any right or other
asset from any other Person, (ii) sell or otherwise dispose of, or lease or
license, any right or other asset to any other Person, or (iii) waive or
relinquish any right, except for immaterial assets acquired, leased, licensed or
disposed of by SMG pursuant to Contracts that are not Material Contracts;
26
(l) SMG shall not (i) lend money to any Person, or (ii) incur or
guarantee any indebtedness, except that SMG may make routine borrowings in the
ordinary course of business under its respective existing lines of credit or for
operating capital from Cone not to exceed $25,000.
(m) SMG shall not (i) establish, adopt or amend any Employee Benefit
Plan, (ii) pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees, or (iii) hire any new employee or employees whose aggregate annual
compensation is expected to exceed $50,000;
(n) SMG shall not change any of its methods of accounting or
accounting practices in any respect;
(o) SMG shall not make any Tax election;
(p) SMG shall not commence or settle any Legal Proceeding;
(q) SMG shall not enter into any material transaction or take any
other material action outside the ordinary course of business or inconsistent
with its past practices; and
(r) SMG shall not agree or commit to take any of the actions described
in clauses "(e)" through "(q)" of this Section 4.2.
4.3 NOTIFICATION; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, SMG and the Shareholders shall
promptly notify HALIS in writing of:
(i) the discovery by SMG or any of the Shareholders of any event,
condition, fact or circumstance that occurred or existed on or prior to the
date of this Agreement and that caused or constitutes an inaccuracy in or
breach of any representation or warranty made by SMG or any of the
Shareholders in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause or
constitute an inaccuracy in or breach of any representation or warranty
made by SMG or any of the Shareholders in this Agreement if (A) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance, or
(B) such event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of SMG or any of
the Shareholders; and
27
(iv) any event, condition, fact or circumstance that would make
the timely satisfaction of any of the conditions set forth in Section 6 or
Section 7 impossible or unlikely.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the Disclosure
Schedule, or if any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of the date of the
occurrence, existence or discovery of such event, condition, fact or
circumstance, then SMG or the Shareholders shall promptly deliver to HALIS an
update to the Disclosure Schedule specifying such change. No such update shall
be deemed to supplement or amend the Disclosure Schedule for the purpose of (i)
determining the accuracy of any of the representations and warranties made by
SMG or any of the Shareholders in this Agreement, or (ii) determining whether
any of the conditions set forth in Section 6 has been satisfied.
4.4 NO NEGOTIATION. During the Pre-Closing Period, neither SMG nor any of
the Shareholders shall, directly or indirectly:
(a) solicit or encourage the initiation of any inquiry, proposal or
offer from any Person (other than HALIS) relating to a possible Acquisition
Transaction;
(b) participate in any discussions or negotiations or enter into any
agreement with, or provide any non-public information to, any Person (other than
HALIS) relating to or in connection with a possible Acquisition Transaction; or
(c) consider, entertain or accept any proposal or offer from any
Person (other than HALIS) relating to a possible Acquisition Transaction.
SMG shall promptly notify HALIS in writing of any inquiry, proposal or offer
relating to a possible Acquisition Transaction that is received by SMG or any of
the Shareholders during the Pre-Closing Period.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FILINGS AND CONSENTS. As promptly as practicable after the execution
of this Agreement, each party to this Agreement (a) shall make all filings (if
any) and give all notices (if any) required to be made and given by such party
in connection with the Merger and the other transactions contemplated by this
Agreement, and (b) shall use his, its or their best efforts to obtain each
Consent (if any) required to be obtained (pursuant to any applicable Legal
Requirement or Contract, or otherwise) by such party in connection with the
Merger or any of the other transactions contemplated by this Agreement. SMG
shall promptly deliver to HALIS a copy of each such filing made, each such
notice given and each such Consent obtained by SMG during the Pre-Closing
Period. HALIS shall promptly deliver to SMG a copy of each such filing made,
each such notice given and each such consent obtained by HALIS during the Pre-
Closing Period.
28
5.2 PUBLIC ANNOUNCEMENTS.
(a) During the Pre-Closing Period, (a) neither SMG nor any of the
Shareholders shall (and SMG shall not permit any of its Representatives to)
issue any press release or make any public statement regarding this Agreement or
the Merger, or regarding any of the other transactions contemplated by this
Agreement, without HALIS's prior written consent, and (b) HALIS will use
reasonable efforts to consult with SMG prior to issuing any press release or
making any public statement regarding the Merger.
(b) During the Pre-Closing Period, neither HALIS nor the Subsidiary
shall (and neither HALIS nor the Subsidiary shall permit any of their
Representatives to) issue and press release or make any public statement
regarding this Agreement for the Merger, or regarding any of the other
transactions contemplated by this Agreement, without SMG's prior written
consent, which consent shall not be unreasonably withheld; provided, however,
HALIS may make such public statements and press releases as it may be required
to make pursuant to any applicable securities laws if HALIS gives reasonable
prior written notice of its intent to make such an announcement to SMG.
5.3 BEST EFFORTS. During the Pre-Closing Period, (a) SMG and the
Shareholders shall diligently attempt to cause the conditions set forth in
Section 6 to be satisfied on a timely basis, and (b) HALIS shall diligently
attempt to cause the conditions set forth in Section 7 to be satisfied on a
timely basis.
5.4 EMPLOYMENT AND NONCOMPETITION AGREEMENTS. At the Closing, Xxxxxxx
Xxxx, Xx. shall execute and deliver to HALIS an Employment Agreement in the form
of Exhibit D-1 (the "Employment Agreement") and a Noncompetition Agreement in
the form of Exhibit D-2 (the "Noncompetition Agreement").
5.5 RELEASE. At the Closing, each of the Shareholders shall execute and
deliver to HALIS a Release in the form of Exhibit E (the "Release").
5.6 FIRPTA MATTERS. At the Closing, (a) SMG shall deliver to HALIS a
statement (in such form as may be reasonably requested by counsel to HALIS)
conforming to the requirements of Section 1.897-2(h)(1)(i) of the United States
Treasury Regulations, and (b) SMG shall deliver to the Internal Revenue Service
the notification required under Section 1.897-2(h)(2) of the United States
Treasury Regulations.
5.7 EMPLOYEE RETENTION. At the Closing, HALIS shall deliver to Xxx
Xxxxxxx, Xxxxx Xxxxxxx, Xxxx Xxxx and Cone, in such respective amounts as Cone
shall designate to HALIS in writing, non-qualified options to purchase an
aggregate of 100,000 shares of HALIS Common Stock (the "Employee Options"),
having an exercise price equal to the average of the bid and ask price of HALIS
Common Stock on the Date of Closing, vesting in equal annual increments over a
period of four years, and expiring in ten years.
29
5.8 CAPITAL CONTRIBUTION. At or prior to the Closing, Cone shall deliver
to HALIS a business plan (the "Surviving Corporation Business Plan") containing,
among other things, projections of Cash Flow, Net Income and Revenues of the
Surviving Corporation for the fiscal year ending December 31, 1997. If the
Surviving Corporation Business Plan is reasonably acceptable to HALIS, HALIS
agrees that it will make a capital contribution to the Surviving Corporation of
not less than $200,000, which contribution shall be made on a schedule mutually
agreed upon by HALIS and Cone. HALIS further agrees that during the
Determination Period, (i) the Surviving Corporation shall operate its business
in substantially the same manner as conducted by SMG immediately prior to the
Closing Date, (ii) HALIS shall not require the Surviving Corporation to enter
into any agreements with HALIS, any affiliate of HALIS, or with any third party,
except such contracts as may occur in the ordinary course of business of the
Surviving Corporation and only upon terms that would occur in an arm's length
transaction between unrelated third parties, and (iii) subject to the reasonable
policies and directives of the Board of Directors of the Surviving Corporation,
Cone shall be given the freedom to manage the Surviving Corporation in
accordance with the Surviving Corporation Business Plan or such other budget as
may be mutually agreed upon by HALIS and Cone.
5.9 INFORMATION STATEMENT. As promptly as practicable after the execution
of this Agreement, HALIS and SMG shall jointly prepare an Information Statement
relating to the approval of the Merger by the shareholders of SMG (the
"Information Statement").
5.10 ASSISTANCE IN STOCK SALES. HALIS agrees that subsequent to the
Closing, HALIS will use commercially reasonable efforts to assist the
Shareholders in selling shares of HALIS Common Stock received by the
Shareholders pursuant to this Agreement having an aggregate value of up to
$350,000, including but not limited to allowing the Shareholders to participate
on a pro rata basis in the next private placement conducted by HALIS.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF HALIS AND THE SUBSIDIARY
The obligations of HALIS and the Subsidiary to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of each of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by SMG and the Shareholders in this Agreement and in each of the
other agreements and instruments delivered to HALIS in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement, and shall be accurate in all respects
as of the Scheduled Closing Time as if made at the Scheduled Closing Time
(without giving effect to any update to the Disclosure Schedule).
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that SMG or any
of the Shareholders is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all respects.
30
6.3 CONSENTS. All Consents required to be obtained in connection with the
Merger and the other transactions contemplated by this Agreement (including the
Consents identified in Part 2.22 of the Disclosure Schedule) shall have been
obtained and shall be in full force and effect.
6.4 AGREEMENTS AND DOCUMENTS. HALIS shall have received the following
agreements and documents, each of which shall be in full force and effect:
(a) the Employment Agreement and the Noncompetition Agreement,
executed by Xxxxxxx Xxxx, Xx.;
(b) a Release, executed by each of the Shareholders;
(c) the statement referred to in Section 5.6, executed by SMG;
(d) estoppel certificates, each dated as of a date not more than five
days prior to the Closing Date and satisfactory in form and content to HALIS,
executed by the Persons identified on Exhibit F and by such other Persons as
HALIS may reasonably specify;
(e) a legal opinion of Holland & Knight, dated as of the Closing Date,
satisfactory in form and substance to HALIS and its counsel; and
(f) a certificate executed by SMG and the Shareholders and containing
the representation and warranty of SMG and the Shareholders that each of the
representations and warranties set forth in Section 2 is accurate in all
material respects as of the Closing Date as if made on the Closing Date and that
the conditions set forth in Sections 6.1, 6.2, 6.3, 6.4 and 6.5 have been duly
satisfied (the "SMG and Shareholders' Closing Certificate"); and
6.5 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in SMG's business, condition, assets, liabilities, operations, financial
performance or prospects since the date of this Agreement.
6.6 FIRPTA COMPLIANCE. SMG shall have filed with the Internal Revenue
Service the notification referred to in Section 5.6.
6.7 RULE 506. All applicable requirements of Rule 506 under the
Securities Act shall have been satisfied.
6.8 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger illegal.
31
6.9 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the Merger or seeking to
prohibit or limit the exercise by SMG of any material right pertaining to its
ownership of stock of the Surviving Corporation.
6.10 COMPLETION OF DUE DILIGENCE. HALIS shall have completed its due
diligence investigation of SMG and shall have been satisfied with the results
thereof.
6.11 SHAREHOLDER INVESTMENT CERTIFICATIONS. Shareholder Investment
Certifications in the forms of Exhibit G executed by each of the Shareholders
shall have been delivered to HALIS.
6.12 EXISTING BANK INDEBTEDNESS. All existing indebtedness of SMG to
Fidelity National Bank shall have been paid in full.
6.13 EXISTING CONE INDEBTEDNESS. Cone shall have subscribed for
additional shares of SMG Common Stock in consideration of the cancellation of
all indebtedness (including unpaid principal and accrued interest to the date of
subscription) of SMG to Cone.
SECTION 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SMG AND THE
SHAREHOLDERS.
The obligations of SMG and the Shareholders to effect the Merger and
otherwise consummate the transactions contemplated by this Agreement are subject
to the satisfaction, at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by HALIS and the Subsidiary in this Agreement and in each of the
other agreements and instruments delivered to SMG in connection with the
transactions contemplated by this Agreement shall have been accurate in all
respects as of the date of this Agreement, and shall be accurate in all respects
as of the Scheduled Closing Time as if made at the Scheduled Closing Time.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
HALIS is required to comply with or to perform at or prior to the Closing shall
have been complied with and performed in all respects.
7.3 CONSENTS. All Consents required to be obtained in connection with
the merger and the other transactions contemplated by this Agreement shall have
been obtained and shall be in full force and effect.
32
7.4 AGREEMENTS AND DOCUMENTS.
(a) HALIS and the Subsidiary shall have entered into the Employment
Agreement described in Section 6.4(a);
(b) SMG and the Shareholders shall have received a legal opinion of
Xxxxx, Xxxxxxxx & Xxxxxxx in form and substance satisfactory to SMG and its
counsel;
(c) SMG and the Shareholders shall have received a certificate
executed by HALIS and the Subsidiary, and containing the representation and
warranty of HALIS and the Subsidiary that each of the representations and
warranties set forth in Section 3 are accurate in all material respects as of
the Closing Date as if made on the Closing Date and that the conditions set
forth in Sections 7.1, 7.2, 7.3 and 7.4 have been duly satisfied (the "HALIS
Closing Certificate"); and
(d) HALIS shall have delivered to the beneficiaries thereof the
Employee Options pursuant to Section 5.7.
7.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger by
SMG shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by SMG illegal.
7.6 STOCK PRICE. The average of the bid and ask price for HALIS Common
Stock for the ten trading days ending two days prior to the Closing Date shall
be not less than $1.00.
7.7 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in HALIS's business, condition, assets, liabilities, operations,
financial performance or prospects, as described in the HALIS SEC Documents and
the Private Placement Memorandum.
7.8 RELEASES. Cone shall have received releases with respect to all
guaranties by Cone of indebtedness of SMG.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated prior to the
Closing:
(a) by HALIS if HALIS reasonably determines that the timely
satisfaction of any condition set forth in Section 6 has become impossible
(other than as a result of any failure on the part of HALIS to comply with or
perform any covenant or obligation of HALIS set forth in this Agreement);
33
(b) by SMG if SMG reasonably determines that the timely satisfaction
of any condition set forth in Section 7 has become impossible (other than as a
result of any failure on the part of SMG or any of the Shareholders to comply
with or perform any covenant or obligation set forth in this Agreement or in any
other agreement or instrument delivered to HALIS);
(c) by HALIS at or after the Scheduled Closing Time if any condition
set forth in Section 6 has not been satisfied by the Scheduled Closing Time;
(d) by SMG at or after the Scheduled Closing Time if any condition
set forth in Section 7 has not been satisfied by the Scheduled Closing Time;
(e) by HALIS if the Closing has not taken place on or before
February 15, 1997 (other than as a result of any failure on the part of HALIS to
comply with or perform any covenant or obligation of HALIS set forth in this
Agreement);
(f) by SMG if the Closing has not taken place on or before February
15, 1997 (other than as a result of the failure on the part of SMG or any of
the Shareholders to comply with or perform any covenant or obligation set forth
in this Agreement or in any other agreement or instrument delivered to HALIS);
(g) by the mutual consent of HALIS and SMG; or
(h) by HALIS under the circumstances described in Section 4.3(b).
8.2 TERMINATION PROCEDURES. If HALIS wishes to terminate this Agreement
pursuant to Section 8.1(a), Section 8.1(c) or Section 8.1(e), HALIS shall
deliver to SMG a written notice stating that HALIS is terminating this Agreement
and setting forth a brief description of the basis on which HALIS is terminating
this Agreement. If SMG wishes to terminate this Agreement pursuant to Section
8.1(b), Section 8.1(d) or Section 8.1(f), SMG shall deliver to HALIS a written
notice stating that SMG is terminating this Agreement and setting forth a brief
description of the basis on which SMG is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 8.1, all further obligations of the parties under this Agreement shall
terminate; provided, however, that: (a) no party shall be relieved of any
obligation or liability arising from any prior breach by such party of any
provision of this Agreement; (b) the parties shall, in all events, remain bound
by and continue to be subject to the provisions set forth in Section 11, as well
as paragraph 7 of the Letter of Intent.
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the SMG Shareholders, HALIS and the Subsidiary
contained in this Agreement shall survive the Closing and shall continue for a
period of two years following the Closing Date; except
34
that representations and warranties contained in Sections 2.6, 2.9, 2.14 and
2.15 shall survive until expiration of the applicable statutes of limitation for
breach of such representations and warranties. The expiration of any
representation or warranty shall not affect any party's right to claim
indemnification for a breach of such representation or warranty, provided such
party gives notice of such claim in accordance with the provisions of this
Section 9 prior to the expiration of such representation or warranty.
9.2 SHAREHOLDERS' INDEMNITY AGREEMENT. Subject to the provisions of
Section 9.6 hereof, the Shareholders (other than Xxxxx X. Xxxxxxx), shall
defend, indemnify and hold harmless HALIS and the Surviving Corporation (and
their respective directors, officers, employees, agents, affiliates, successors
and assigns) from and against any and all direct or indirect requests, demands,
claims, payments, defenses, obligations, recoveries, deficiencies, fines,
penalties, interest, assessments, actions, liens, causes of action, suits,
proceedings, judgments, losses, Damages, liabilities, costs, and expenses of any
kind (including without limitation (i) interest, penalties and reasonable
attorneys' fees and expenses, (ii) attorneys' fees and expenses necessary to
enforce their rights to indemnification hereunder, and (iii) consultants' fees
and other costs of defending or investigating any claim hereunder), and interest
on any amount payable as a result of the foregoing, whether accrued, absolute,
contingent, known, unknown, or otherwise as of the Closing Date or thereafter
asserted against, imposed upon or incurred by HALIS, the Surviving Corporation
or any of their respective directors, officers, employees, agents, affiliates,
successors or assigns (a "Loss of HALIS") by reason of, resulting from, arising
out of, based upon, awarded or asserted against or otherwise in respect of:
(a) any period or periods of SMG ending prior to the Closing and which
involve any claims against HALIS, SMG, the Surviving Corporation or their
respective properties or assets, relating to actions or inactions of SMG or its
respective officers, directors, shareholders, employees or agents prior to
Closing, or the operation of the business of SMG prior to the Closing unless
such liability was disclosed on the Company Financial Statements and adequate
reserves were established therefor;
(b) any breach of any representation and warranty contained in this
Agreement or any misrepresentation in or omission on the part of SMG or the
Shareholders contained in any certificate furnished or to be furnished to HALIS
by SMG or the Shareholders pursuant to this Agreement;
(c) any breach or nonfulfillment on the part of SMG or any of the
Shareholders of any covenant contained in this Agreement;
(d) the failure of SMG or any of the Shareholders to obtain, prior to
the Closing Date, any consents, approvals and waivers of governmental agencies
or entities, lessors, landlords, suppliers, and other third parties as may be
necessary to permit the consummation of the Merger and to permit the Surviving
Corporation to continue to operate the business of SMG in the manner presently
conducted after the Closing Date;
35
(e) the failure of the Surviving Corporation to collect any accounts
receivable of SMG existing on the Closing Date, net of reserve for bad debts set
forth in the Financial Statements, within 180 days following the Closing Date;
provided however, that upon receipt of full payment from Shareholders, the
Surviving Corporation shall reassign to the Shareholders any such account
receivable;
(f) any federal, state, local or foreign taxes, including any interest
and penalties thereon, due from SMG or the Shareholders with respect to any
period prior to the Closing Date, other than amounts accrued therefor on the
Financial Statements.
9.3 INDEMNITY AGREEMENT OF HALIS AND THE SURVIVING CORPORATION. HALIS and
the Surviving Corporation shall indemnify and hold harmless the Shareholders
(and their respective successors and assigns) from and against any and all
direct or indirect requests, demands, claims, payments, defenses, obligations,
recoveries, deficiencies, fines, penalties, interest, assessments, actions,
liens, causes of action, suits, proceedings, judgments, losses, Damages,
liabilities, costs, and expenses of any kind (including without limitation (i)
interest, penalties and reasonable attorneys' fees and expenses, (ii) attorneys'
fees and expenses necessary to enforce their rights to indemnification
hereunder, and (iii) consultants' fees and other costs of defending or
investigating any claim hereunder, and interest on any amount payable as a
result of the foregoing) whether accrued, absolute, contingent, known, unknown
or otherwise as of the Closing Date or thereafter asserted against, imposed upon
or incurred by Shareholders or its respective representatives or assigns, (a
"Loss of Shareholders") by reason of, resulting from, arising out of, based
upon, awarded or asserted against in respect of or otherwise in respect of:
(a) any period or periods of the Surviving Corporation beginning after
the Closing and which involve any claims against the Shareholders or their
respective assets relating to actions or inactions of HALIS or the Surviving
Corporation or their respective officers, directors, shareholders, employees or
agents after the Closing, or the operation of the Surviving Corporation after
the Closing (except to the extent any of the foregoing arise from the acts or
omissions of the Shareholders); and
(b) any breach of any representation and warranty or nonfulfillment of
any covenant or agreement on the part of HALIS or the Subsidiary contained in
this Agreement, or any misrepresentation in or omission from or nonfulfillment
of any covenant on the part of the HALIS or the Subsidiary contained in any
certificate furnished or to be furnished to the Shareholders by HALIS or the
Subsidiary pursuant to this Agreement.
9.4 INDEMNIFICATION PROCEDURE.
(a) Upon obtaining knowledge thereof, the party to be indemnified
hereunder (the "Indemnitee") shall promptly notify the indemnifying party
hereunder (the "Indemnitor") in writing of any damage, claim, loss, liability or
expense or other matter which the Indemnitee has determined has given or could
give rise to a claim for which indemnification rights are granted hereunder
(such written notice referred to as the "Notice of Claim"). The Notice of Claim
shall specify, in all
36
reasonable detail, the nature and estimated amount of any such claim giving rise
to a right of indemnification, to the extent the same can reasonably be
estimated. Any failure on the part of an Indemnitee to give timely notice to
the Indemnitor of a claim shall not affect the right of the Indemnitee to obtain
indemnification from the Indemnitor with respect to such claim unless the
Indemnitor is actually harmed by such failure to notify, and only to the extent
of such actual harm.
(b) With respect to any matter set forth in a Notice of Claim relating
to a third party claim the Indemnitor shall defend, in good faith and at its
expense, any such claim or demand, and the Indemnitee, at its expense, shall
have the right to participate in the defense of any such third party claim. So
long as Indemnitor is defending, in good faith, any such third party claim, the
Indemnitee shall not settle or compromise such third party claim. The
Indemnitee shall make available to the Indemnitor or its representatives all
records and other materials reasonably required by them for use in contesting
any third party claim and shall cooperate fully with the Indemnitor in the
defense of all such claims. If the Indemnitor does not defend any such third
party claim or if the Indemnitor does not provide the Indemnitee with prompt and
reasonable assurances that the Indemnitor will satisfy the third party claim,
the Indemnitee may, at its option, elect to defend any such third party claim,
at the Indemnitor's expense. An Indemnitor may not settle or compromise any
claim without obtaining a full and unconditional release of the Indemnitee,
unless the Indemnitee consents in writing to such settlement or compromise.
Notwithstanding the foregoing, if there is a reasonable probability that a third
party claim for which the HALIS or the Surviving Corporation has indemnification
rights against Cone hereunder will materially and adversely affect HALIS or the
Surviving Corporation other than as a result of money damages or other payments,
HALIS or the Surviving Corporation shall be entitled to conduct the defense of
such claim at Cone's expense.
9.5 SET-OFF. HALIS and the Surviving Corporation shall have the right to
set-off and apply against any other amounts owing from HALIS or the Surviving
Corporation to the Shareholders under any other agreement between HALIS or the
Surviving Corporation and Shareholders, all sums in respect of which the
Shareholders may be liable pursuant to Section 9.2 hereof, such right of set-off
to be in addition to and not in lieu of or an election against any and all other
remedies available to HALIS and the Surviving Corporation under this Agreement
or at law or in equity.
9.6 LIMITATIONS ON LIABILITY OF THE SHAREHOLDERS.
(a) The Shareholders shall have no liability with respect to Losses of
HALIS arising under subparagraphs (a), (b), or (d) of Section 9.2 until the
total of all Losses of HALIS with respect thereto exceeds $100,000. If the
aggregate Losses of HALIS exceed such $100,000 threshold, SMG and the
Shareholders shall be liable for all Losses of HALIS to the extent (and only to
the extent) Losses of HALIS exceed such $100,000 threshold.
(b) Notwithstanding anything to the contrary within this Agreement,
the obligations of the Shareholders to indemnify HALIS, SMG, the Subsidiary and
the Surviving Corporation (and their respective directors, officers, employees,
agents, affiliates, successors and
37
assigns) are subject to the following provisions. The amount of any
indemnification which may be claimed from the Shareholders hereunder shall be
calculated to be the cost or loss to such party after giving effect to: (i) any
insurance proceeds receivable by such party in relation to the matter which is
the subject of such claim and (ii) the value of any related, determinable tax
benefits realized, or which will (with reasonable certainty) be realized within
a two year period following the date of incurring such loss or cost in relation
to the matter which is the subject of such claim. HALIS agrees that it shall
cause the Surviving Corporation to purchase and maintain for a period of at
least two years after the Closing Date general comprehensive liability insurance
(which shall contain endorsements providing for product liability insurance)
with deductibles and limits of coverage equal or better to that presently
maintained by SMG with an insurance company reasonably satisfactory to the
Shareholders, providing coverage for claims arising from occurrences or matters
occurring prior to the Closing Date.
(c) Notwithstanding any of the other provisions of this Agreement or
any Agreement, certificate or other document made in order to carry out the
transactions contemplated herein, the maximum aggregate liability of the
Shareholders in respect of all claims pursuant to this Agreement, whether for
breach of representation and warranty, indemnification or otherwise, will be
limited to an amount equal to the aggregate value of the Merger Consideration,
determined as of the respective dates of issuance of the Initial Merger
Consideration and the Contingent Merger Consideration, if any.
SECTION 10. REGISTRATION OF SHARES
10.1 CERTAIN DEFINITIONS. As used in this Section 10, the following
terms shall have the following respective meanings:
"Registrable Securities" shall mean any of the HALIS Common Stock to be
----------------------
issued to the Shareholders in the Merger.
"Initiating Holders" shall mean any holder or holders who in the aggregate
------------------
own not less than 50% of the aggregate number of Registrable Securities then
existing, which have not previously been sold to the public.
The terms "register", "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by HALIS in
---------------------
complying with this Section 10, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel for HALIS,
blue sky fees and expenses, and accountants' expenses including without
limitation any special audits or "comfort" letters incident to or required by
any such registration, and any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, but excluding underwriting
discounts and commissions, and, as to any
38
registration effected pursuant to Section 10.3, the reasonable fees and
disbursements of one special counsel retained by the Holders of the Registrable
Securities being registered.
10.2 REGISTRATION UNDER SECURITIES ACT, ETC.
Registration on Request.
-----------------------
(a) Request. At any time during the period commencing January 1,
-------
1998 and ending December 31, 1998, if HALIS has not caused the registration of
all the Registrable Securities pursuant to Section 10.3 below, upon the written
request of one or more Initiating Holders, requesting that HALIS effect the
registration under the Securities Act of all or part of such Initiating Holders'
Registrable Securities (but not less than 25% of the Registrable Securities
outstanding) and specifying the intended method or methods of disposition
thereof, HALIS will promptly, but in any event within 10 business days, give
written notice of such requested registration to all holders of Registrable
Securities and thereupon will use its best efforts to effect the registration
under the Securities Act of:
(i) the Registrable Securities which HALIS has been so requested
to register by such Initiating Holders, for disposition in accordance
with the intended method or methods of disposition stated in such
request,
(ii) all other Registrable Securities which HALIS has been requested
to register by the holders thereof by written request delivered to HALIS
within 10 days after the giving of such written notice by HALIS (which
request shall specify the intended method or methods of disposition of
such Registrable Securities), and
(iii) all shares of HALIS Common Stock which HALIS may elect to
register for its own account in connection with the offering of
Registrable Securities pursuant to this Section 10.2,
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered, provided that HALIS shall not be required to effect more than one
--------
registration pursuant to this Section 10.2.
(b) Registration Statement Form. Each registration requested
---------------------------
pursuant to this Section 10.2 shall be effected by the filing of a registration
statement on any form which HALIS is eligible to use, such form to be selected
by HALIS, after consultation with counsel and after notice of such selection of
such form is delivered to the holders of all Registrable Securities electing to
participate in such registration; provided, however, that if the holders of at
least a majority of the Registrable Securities as to which registration has been
requested pursuant to this Section 10.2 shall so request, HALIS shall file such
registration statement pursuant to the SEC's Rule 415, or any successor rule or
regulation thereto, so as to permit the continuous or delayed offering of the
Registrable Securities in accordance with the intended method of disposition
specified in the Initiating Holder's notice pursuant to sub-section (a) of this
Section 10.2, but in no event shall
39
HALIS be required to maintain the effectiveness of such registration beyond the
period specified in Section 10.4(b).
(c) Expenses. Except as otherwise prohibited by applicable law, HALIS
--------
will pay all Registration Expenses in connection with the registration of
Registrable Securities requested pursuant to this Section 10.2.
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 10.2 shall not be deemed to be effected unless it has
been declared effective by the SEC or otherwise becomes effective, provided that
--------
a registration which does not become effective after HALIS has substantially
prepared and has filed or is in a position to file a registration statement with
respect thereto solely by reason of the refusal to proceed of all of the
Initiating Holders (other than any refusal to proceed based upon the advice of
their counsel that the registration statement, or the prospectus contained
therein, contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing) shall be
deemed to have been effected by HALIS pursuant to this Section 10.2.
(e) Registration Rights Exclusive. HALIS will not register securities
-----------------------------
for sale for the account of any person other than the holders of Registrable
Securities, and will not, in any event, register any securities other than
Registrable Securities, in any registration of Registrable Securities requested
by one or more holders pursuant to this Section 10.2 (except for shares to be
registered by or on behalf of HALIS where the underwriter, if any, does not
object to the inclusion of such Company shares in the registration), unless, in
each such case, permitted to do so by the written consent of such holders
representing at least 51% (by number of shares) of the Registrable Securities as
to which registration has been requested by such holders. HALIS will not grant
to any Person the right to request a registration of securities prohibited by
this subdivision (e).
(f) Separate Transferability of Demand Registration Rights. In
------------------------------------------------------
connection with the transfer of any portion or portions of the Registrable
Securities, any Shareholder may, at its sole election, transfer the demand
registration entitlement granted by this Section 10.2 to and for the exclusive
benefit of the Registrable Securities so transferred or may retain one or both
of such demand registration entitlements for the exclusive benefit of the
holders of the retained Registrable Securities. In such event, the terms
"Initiating Holders" and "Registrable Securities" shall, for the purposes of
this Section 10.2, refer exclusively to the Registrable Securities for whose
benefit such rights have been transferred or retained, as the case may be. Such
Shareholders shall effect the transfer or retention of demand registration
rights hereunder by giving notice to HALIS concurrently with any transfer of
Registrable Securities. Once the Shareholder has made a transfer of Registrable
Securities without retaining the exclusive benefit of such rights to its
retained Registrable Securities, it shall not thereafter, without the express
written consent of the subsequent holders of such transferred Registrable
Securities, purport to grant or retain demand registration rights to the
exclusive benefit of any subset of the Registrable Securities. Nothing
contained in this Section 10.2(f) shall be construed to require HALIS to effect
more than one such demand registration pursuant to Section 10.2.
40
10.3 INCIDENTAL REGISTRATION. (a) Right to Include Registrable
----------------------------
Securities. If, at any time on or before December 31, 1997, HALIS proposes to
----------
register any of its equity securities under the Securities Act, whether or not
for sale for its own account, or if either Xxxxx Xxxxxx or Xxxx Xxxxxxxx
proposes to register any of their HALIS Common Stock under the Securities Act
for sale for his own account (HALIS, Xxxxxx or Xxxxxxxx, as the case may be,
hereinafter in this Section 10 referred to as the "Registering Party"), on a
form and in a manner which would permit registration of Registrable Securities
held by any Shareholder for sale to the public under the Securities Act, the
Registering Party will each such time give prompt written notice to all holders
of Registrable Securities of his or its intention to do so, describing such
securities and specifying the form and manner and the other relevant facts
involved in such proposed registration, and upon the written request of any such
holder delivered to the Registering Party within ten (10) business days after
the giving of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method or
methods of disposition thereof), the Registering Party will use its best efforts
to effect the registration under the Securities Act of all Registrable
Securities which the Registering Party has been so requested to register by the
holders of Registrable Securities (hereinafter "Requesting Holder"), to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
provided that:
--------
(i) if, at any time after giving such written notice of its intention
to register any of its securities and prior to the effective date of the
registration statement filed in connection with such registration, the
Registering Party shall determine for any reason not to register such
securities, the Registering Party may, at its election, give written notice
of such determination to each holder of Registrable Securities and
thereupon shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith as
provided in subdivision (b) of this Section 10.3);
(ii) if (A) the registration so proposed by the Registering Party
involves an underwritten offering of the securities so being registered,
whether or not for sale for the account of HALIS, to be distributed by or
through one or more underwriters of recognized standing under underwriting
terms appropriate for such a transaction, (B) the Registering Party
proposes that the securities to be registered in such underwritten offering
will include all of the Registrable Securities requested to be so included,
and (C) the managing underwriter of such underwritten offering shall advise
the Registering Party in writing that, in its judgment, the distribution of
all or a specified portion of such Registrable Securities concurrently with
the securities being distributed by such underwriters will materially
adversely affect the distribution of such securities by such underwriters
(such written advice to state the reasons therefor), then the Registering
Party will promptly furnish each such holder of Registrable Securities with
a copy of such opinion and may require, by written notice to each such
holder accompanying such written advice, that the distribution of all or a
specified portion of such Registrable Securities be excluded from such
distribution. In the case of an exclusion of a portion of such Registrable
Securities for a registration by HALIS
41
of its securities for its own account, HALIS shall cause the portion of the
Registerable Securities to be excluded (together with all other securities
to be registered by holders other than the Shareholders) to be allocated
among the Shareholders (and such other holders) in proportion to the
respective number of shares of Registrable Securities and shares of other
securities so requested to be registered by the Shareholders and such other
holders. In the case of an exclusion of a portion of such Registrable
Securities in the case of a registration by either Xxxxx Xxxxxx or Xxxx
Xxxxxxxx of securities for their own account, Xxxxx Xxxxxx or Xxxx
Xxxxxxxx, as the case may be, shall reduce the number of shares they wish
to register, and the reduction of shares to be registered shall be
allocated in proportion to the respective number of shares of Registrable
Securities so requested to be registered by the Shareholders and the number
of shares attempted to be registered by Xxxxx Xxxxxx or Xxxx Xxxxxxxx; and
(iii) HALIS shall not be obligated to effect any registration of
Registrable Securities under this Section 10.3 incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, dividend reinvestment plans or stock option
or other employee benefit plans or incidental to the registration of any
non-equity securities not convertible into equity securities.
(b) Expenses. Except as otherwise prohibited by applicable law, the
--------
Registering Party will pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to this Section 10.
10.4 REGISTRATION PROCEDURES. If and whenever HALIS is required to
use its best efforts to effect the registration of any Registrable Securities
under the Securities Act as provided in Section 10.2, HALIS will promptly:
(a) prepare and (in any event within sixty (60) days of the last date
on which the holders of Registrable Securities may notify HALIS of their request
to include their Registrable Securities in such registration in accordance
herewith) file with the SEC a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities and other securities covered by such registration
statement until the earlier of such time as all of such Registrable Securities
and securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement or the expiration of one hundred twenty (120) days after such
registration statement becomes effective; and will furnish, upon request, to
each such seller and each Requesting Holder prior to the filing thereof a copy
of any amendment or supplement to such registration statement or prospectus and
shall not file any such amendment or supplement to which any such seller or
holder shall have reasonably objected on the grounds that such
42
amendment or supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations thereunder;
(c) furnish to each seller of such Registrable Securities and each
Requesting Holder such number of conformed copies of such registration statement
and of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such documents, if any,
incorporated by reference in such registration statement or prospectus, and such
other documents, as such seller or Requesting Holder may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or blue sky laws of the states of the United States as
each seller shall reasonably request, to keep such registration or qualification
in effect for so long as such registration statement remains in effect, and do
any and all other acts and things which may be necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement, except that HALIS
shall not for any such purpose be required to qualify generally to do business
as a foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subsection (d) be obligated to be so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent general
service of process in any such jurisdiction;
(e) upon request, furnish to each seller of Registrable Securities and
each Requesting Holder a signed counterpart, addressed to such seller and such
holder, of (i) an opinion of counsel for HALIS, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), and (ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have certified
HALIS's financial statements included in such registration statement, covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letters delivered to underwriters in underwritten public offerings of securities
and, in the case of the accountants' letter, such other financial matters, as
the principal underwriter for such sellers or such holders may reasonably
request;
(f) immediately notify each seller of Registrable Securities covered
by such registration statement and each Requesting Holder, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, which
untrue statement or omission requires amendment of the
43
registration statement or supplementation of the prospectus, and at the request
of any such seller or holder, prepare and furnish to such seller and holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing; provided, however, that each
holder of Registrable Securities registered pursuant to such registration
statement agrees that he or it will not sell any Registrable Securities pursuant
to such registration statement during the time that HALIS is preparing and
filing with the SEC a supplement to or an amendment of such prospectus or
registration statement.
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its securities holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve (12) months, but not more than eighteen (18) months, beginning
with the first month of the first fiscal quarter after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(h) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration statement;
and
(i) use its best efforts to list all Common Stock covered by such
registration statement on each securities exchange on which any of the HALIS
Common Stock is then listed or, if HALIS Common Stock is not then quoted on
NASDAQ or listed on any national securities exchange, use its best efforts to
have such HALIS Common Stock covered by such registration statement quoted on
NASDAQ or, at the option of HALIS, listed on a national securities exchange.
HALIS may require each seller of Registrable Securities as to which any
registration is being effected to furnish HALIS such information regarding such
seller and the distribution of such securities as HALIS may from time to time
reasonably request in writing and as shall be required by law or by the SEC in
connection therewith.
10.5 UNDERWRITTEN OFFERINGS.
(a) Underwritten Offerings Exclusive. Whenever a registration
--------------------------------
requested by one or more Holders pursuant to Section 10.2 is for an underwritten
offering, only shares of Registrable Securities which are to be distributed by
the underwriters designated by such holders may be included in such
registration, unless such holders shall have permitted other securities to be
included in such registration as provided in Section 10.2(e). If such holders
shall determine that the number of shares of Registrable Securities and any such
other securities to be sold in any such underwritten offering should be limited
due to market conditions or otherwise, HALIS shall include in such registration
to the extent of the number which HALIS is so advised can be sold in such
offering (i) first, Registrable Securities requested to be included in such
registration, pro rata among the
44
holders of such Registrable Securities on the basis of the number of shares of
such securities requested to be included by such holders, and (ii) second, other
securities of HALIS proposed to be included in such registration, in accordance
with the priorities, if any, then existing among HALIS and the holders of such
securities.
(b) Underwriting Agreement. If requested by the underwriters for any
----------------------
underwritten offering of Registrable Securities on behalf of a holder or holders
of Registrable Securities pursuant to a registration requested under Section
10.2, HALIS will enter into an underwriting agreement reasonably acceptable to
HALIS with such underwriters for such offering, such agreement to contain such
representations and warranties by HALIS and such other terms and provisions as
are customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities to the effect and to
the extent provided in Section 10.2. The holders of Registrable Securities on
whose behalf Registrable Securities are to be distributed by such underwriters
shall be parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, HALIS to and for the
benefit of such underwriters, shall also be made to and for the benefit of such
holders of Registrable Securities. Such holders of Registrable Securities shall
not be required by HALIS to make any representations or warranties to or
agreements with HALIS or the underwriters other than reasonable representations,
warranties or agreements (including indemnity agreements customary in secondary
offerings) regarding such holder, such holder's Registrable Securities and such
holder's intended method or methods of disposition and any other representation
required by law.
(c) Incidental Underwritten Offerings. If a Registering Party at any
---------------------------------
time proposes to register any of its securities under the Securities Act as
contemplated by Section 10.3 and such securities are to be distributed by or
through one or more underwriters, the Registering Party will use its best
efforts, if requested by any holder of Registrable Securities who requests
incidental registration of Registrable Securities in connection therewith
pursuant to Section 10.3, to arrange for such underwriters to include the
Registrable Securities to be offered and sold by such holder among the
securities to be distributed by or through such underwriters, provided that, for
--------
purposes of this sentence, best efforts shall not require the Registering Party
to reduce the amount or sale price of such securities proposed to be distributed
by or through such underwriters. The holders of Registrable Securities to be
distributed by such underwriters shall be parties to the underwriting agreement
between the Registering Party and such underwriters and the representations and
warranties by, and the other agreements on the part of, the Registering Party to
and for the benefit of such underwriters, shall also be made to and for the
benefit of such holders of Registrable Securities, and the Registering Party
will cooperate with such holders of Registrable Securities to the end that the
conditions precedent to the obligations of such holders of Registrable
Securities under such underwriting agreement shall not include conditions that
are not customary in underwriting agreements with respect to combined primary
and secondary distributions and shall be otherwise satisfactory to such holders.
Such holders of Registrable Securities shall not be required by the Registering
Party to make any representations or warranties to or agreements with the
Registering Party or the underwriters other than reasonable representations,
warranties or agreements (including indemnity agreements customary in secondary
offerings) regarding such
45
holder, such holder's Registrable Securities and such holder's intended method
or methods of distribution and any other representation required by law.
(d) Selection of Underwriters. Whenever a registration requested
-------------------------
pursuant to Section 10.2 is for an underwritten offering, the holders of a
majority of the Registrable Securities included in such registration shall have
the right to select the managing underwriter(s) to administer the offering,
after consulting with HALIS as to such selection and subject to the approval of
HALIS, which approval will not be unreasonably withheld. If HALIS at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are to be distributed by or through one or
more underwriters, the selection of the managing underwriter(s) shall be made by
HALIS and notice of the selection thereof delivered to the holders of all
Registrable Securities eligible to participate in such registration.
(e) Holdback Agreements. (i) If any registration pursuant to Section
-------------------
10.2 or 10.3 shall be in connection with an underwritten public offering, each
holder of Registrable Securities agrees by acquisition of such Registrable
Securities, if so required by the managing underwriter, not to effect any public
sale or distribution of Registrable Securities (other than as part of such
underwritten public offering) within seven days prior to the effective date of
such registration statement or 120 days after the effective date of such
registration statement.
(ii) HALIS agrees (A) not to effect any public sale or distribution of
any of its equity securities or securities convertible into or exchangeable or
exercisable for any of such securities during the seven days prior to and the
earlier of 90 days after any underwritten registration pursuant to Section 10.2
or 10.3 has become effective and the date on which all securities under such
registration statement are sold, except as part of such underwritten
registration and except pursuant to registrations on Form S-8 or any successor
thereto, and (B) use its best efforts to cause each holder of its equity
securities or any securities convertible into or exchangeable or exercisable for
any of such securities, in each case purchased from HALIS at any time after the
date of this Agreement (other than in a public offering) to agree not to effect
any such public sale or distribution of such securities during such period.
10.6 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, HALIS will give the holders of Registrable
Securities on whose behalf such Registrable Securities are to be so registered
and their underwriters, if any, each Requesting Holder, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
SEC and each amendment thereof or supplement thereto, and will give each of them
such access to its books and records and such opportunities to discuss the
business of HALIS with its officers and the independent public accountants who
have certified its financial statements as shall be necessary in the opinion of
such holders and such underwriters or their respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. To minimize
disruption and expense to HALIS during the course of the registration process,
sellers of Registrable Securities to be covered by any such
46
registration statement shall coordinate their investigation and due diligence
efforts hereunder and, to the extent practicable, will act through a single set
of counsel and a single set of accountants.
10.7 INDEMNIFICATION.
(a) Indemnification by HALIS. In the event of any registration of any
------------------------
securities of HALIS under the Securities Act, HALIS will, and hereby does (or in
the case of a registration by Xxxxx Xxxxxx and Xxxx Xxxxxxxx for their own
account, Xxxxxx and Xxxxxxxx will and hereby do), indemnify and hold harmless in
the case of any registration statement filed pursuant to Section 10.2 or 10.3,
the seller of any Registrable Securities covered by such registration statement,
its directors, trustees and officers, each other person who participates as an
underwriter in the offering or sale of such securities and each other person, if
any, who controls such seller or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such seller or Requesting Holder or any such director
or officer or participating or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any document incorporated by reference therein, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the case may be) will reimburse such
seller, Requesting Holder and each such director, trustee, officer,
participating person and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, provided that HALIS (or Xxxxx
--------
Xxxxxx or Xxxx Xxxxxxxx, as the case may be) shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense (or
action or proceeding in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to HALIS (or Xxxxx Xxxxxx or Xxxx
Xxxxxxxx, as the case may be) through an instrument duly executed by such seller
or such Requesting Holder or any such director, trustee, officer, participating
person or controlling person specifically stating that it is for use in the
preparation thereof. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such seller or such
Requesting Holder or any such director, officer, participating person or
controlling person and shall survive the transfer of such securities by such
seller. HALIS shall agree to make provision for contribution relating to such
indemnity as shall be reasonably requested by any seller of Registrable
Securities or the underwriters.
(b) Indemnification by the Sellers. HALIS may require (or in the case
------------------------------
of a registration by Xxxxx Xxxxxx or Xxxx Xxxxxxxx for their own account, Xxxxxx
and Xxxxxxxx may require), as a condition to including any Registrable
Securities in any registration statement filed pursuant to sections 10.2 or
10.3, that HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the case may be)
47
shall have received an undertaking satisfactory to it from the prospective
seller of such securities, to indemnify and hold harmless (in the same manner
and to the same extent as set forth in subdivision (a) of this section 10.7)
HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the case may be), each director of
HALIS, each officer of HALIS who shall sign such registration statement and each
other person, if any, who controls HALIS within the meaning of the Securities
Act, with respect to any statement in or omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the case may be)
through an instrument only executed by such seller specifically stating that it
is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of HALIS or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.
(c) Notice of Claims, etc. Promptly after receipt by an indemnified
----------------------
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this section 10.7, such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
--------
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 10.7. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that it may
wish, with counsel reasonable satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding subdivisions of this section 10.7 (with appropriate
modifications) shall be given by HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the
case may be) and each seller of Registrable Securities with respect to any
required registration or other qualification of such Registrable Securities
under any federal or state law or regulation of governmental authority other
than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
------------------------
section 10.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
48
10.8 AMENDMENTS AND WAIVERS. The provisions of this Section may be
amended and HALIS (or Xxxxx Xxxxxx or Xxxx Xxxxxxxx, as the case may be) may
take any action herein prohibited, or omit to perform any act herein required to
be performed by it, only if HALIS shall have obtained the written consent to
such amendment, action or omission to act, of the holder or holders of 51% or
more of the shares of Registrable Securities (and, in the case of any amendment,
action or omission to act which adversely affects any specific holder of
Registrable Securities or a specific group of holders of Registrable Securities,
the written consent of each such holder or holders of 51% or more of the
Registrable Securities held by such group). Each holder of any Registrable
Securities at the time shall be bound by any consent authorized by this section
10.8, whether or not such Registrable Securities shall have been marked to
indicate such consent.
10.9 NOMINEES FOR BENEFICIAL OWNERS. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the holder of
such Registrable Securities for purposes of any request or other action by any
holder or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
HALIS (or Xxxxxx or Xxxxxxxx, as the case may be) may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
SECTION 11. MISCELLANEOUS PROVISIONS
11.1 SHAREHOLDERS' AGENT. The Shareholders hereby irrevocably appoint
Xxxxxxx Xxxx, Xx. as their agent for purposes of Sections 1.8, 9 and 11.10(c)
(the "Shareholders' Agent"), and Xxxxxxx Xxxx, Xx. hereby accepts this
appointment as the Shareholders' Agent. HALIS shall be entitled to deal
exclusively with the Shareholders' Agent on all matters relating to Sections
1.8, 9 and 11.10(c), and shall be entitled to rely conclusively (without further
evidence of any kind whatsoever) on any document executed or purported to be
executed on behalf of any Shareholder by the Shareholders' Agent, and on any
other action taken or purported to be taken on behalf of any Shareholder by the
Shareholders' Agent, as fully binding upon such Shareholder. If the
Shareholders' Agent shall die, become disabled or otherwise be unable to fulfill
his responsibilities as agent of the Shareholders, then the Shareholders shall,
within ten (10) days after such death or disability, appoint a successor agent
and, immediately thereafter, shall notify HALIS of the identity of such
successor. Any such successor shall become the "Shareholders' Agent" for
purposes of Sections 1.8, 9 and 11.10(c). If for any reason there is no
Shareholders' Agent at any time, all references herein to the Shareholders'
Agent shall be deemed to refer to the Shareholders.
11.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
49
11.3 FEES AND EXPENSES. Subject to Section 9, all fees, costs and
expenses (including legal fees and accounting fees) that have been incurred or
that are incurred in the future by such party in connection with the
transactions contemplated by this Agreement, including all fees, costs and
expenses incurred by such party in connection with or by virtue of (a) any
investigation and review conducted by such party of the other parties' business
(and the furnishing of information in connection with such investigation and
review), (b) the negotiation, preparation and review of this Agreement
(including the Disclosure Schedule) and all agreements, certificates, opinions
and other instruments and documents delivered or to be delivered in connection
with the transactions contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or given in connection
with any of the transactions contemplated by this Agreement, and the obtaining
of any Consent required to be obtained in connection with any of such
transactions, and (d) the consummation of the Merger shall be paid: (i) by
HALIS, if incurred by HALIS or the Subsidiary; and (ii) by SMG, if incurred by
SMG or the Shareholders; provided, however, that SMG shall not incur any
additional debt, defer the payment of any expenses, or take any other action not
in the ordinary course of business for the purpose of providing funds for the
payment of such expenses. Notwithstanding anything to the contrary in this
agreement, any such expenses paid by SMG, whether before or after the Closing
Date, shall not be an expense or charge, and shall not be included as such, in
the calculation of Cash Flow, Net Income or Revenues for purposes of Section
1.8(d).
11.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
11.5 NOTICES. Any notice or other communication required or permitted
to be delivered to any party under this Agreement shall be in writing and shall
be deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath the name of such party
below (or to such other address or facsimile telephone number as such party
shall have specified in a written notice given to the other parties hereto):
if to HALIS:
HALIS, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx 00000
Attention: President
Facsimile: (000) 000-0000
50
with a copy to:
Xxxxx, Xxxxxxxx & Xxxxxxx
0000 Xxxxxxxxx Xxxx, X.X.
Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
if to SMG :
Software Manufacturing Group, Inc.
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxx Xxxx, Xx.
(000) 000-0000
with a copy to:
Xxxxxxx & Xxxxxx
Xxxxx 0000
Xxx Atlantic Center
0000 Xxxx Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
(000) 000-0000
if to any of the Shareholders:
c/o Xxxxxxx Xxxx, Xx.
0000 Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxx 00000
11.6 CONFIDENTIALITY. On and at all times after the Closing Date, SMG
and each Shareholder shall keep confidential, and shall not use or disclose to
any other Person, any non-public document or other non-public information in SMG
or such Shareholder's possession that relates to the business of HALIS or the
Subsidiary.
11.7 TIME OF THE ESSENCE. Time is of the essence of this Agreement.
11.8 HEADINGS. The bold-faced Section headings contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.
51
11.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
11.10 GOVERNING LAW; VENUE.
(a) This Agreement shall be construed in accordance with, and
governed in all respects by, the internal laws of the State of Georgia (without
giving effect to principles of conflicts of laws).
(b) Any legal action or other legal proceeding relating to this
Agreement or the enforcement of any provision of this Agreement may be brought
to or otherwise commenced in any state or federal court located in Xxxx County,
Georgia. Each party to this Agreement:
(i) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in Xxxx County,
Georgia (and each appellate court located in the State of Georgia) in
connection with any such legal proceeding;
(ii) agrees that each state and federal court located in Xxxx
County, Georgia shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in Xxxx County, Georgia, any claim that such party is not
subject personally to the jurisdiction of such court, that such legal
proceeding has been brought in an inconvenient forum, that the venue of
such proceeding is improper or that this Agreement or the subject matter of
this Agreement may not be enforced in or by such court.
(c) The Shareholders irrevocably constitute and appoint the
Shareholders' Agent as their agent to receive notices hereunder and service of
process in connection with any legal proceeding relating to this Agreement or
the enforcement of any provision of this Agreement.
11.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
SMG and its successors and assigns (if any); the Shareholders and their
respective personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any); HALIS and its successors and assigns (if any);
and the Subsidiary and its successors and assigns (if any). This Agreement
shall inure to the benefit of: SMG; the Shareholders; HALIS; the Subsidiary;
and the respective successors, heirs personal representatives and assigns (if
any) of the foregoing. Following the Merger, HALIS may freely assign any or all
of its rights under this Agreement (including its indemnification rights under
Section 9), in whole or in part, to any other Person without obtaining the
consent or approval of any other party hereto or of any other Person.
11.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that,
52
in the event of any breach or threatened breach by any party to this Agreement
of any covenant, obligation or other provision set forth in this Agreement for
the benefit of any other party to this Agreement, such other party shall be
entitled (in addition to any other remedy that may be available to it) to (a) a
decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
11.13 WAIVER.
(a) No failure on the part of any party to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
party in exercising any power, right, privilege or remedy under this Agreement,
shall operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy shall
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No party shall be deemed to have waived any claim arising out of
this Agreement, or any power, right, privilege or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly
set forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
11.14 AMENDMENTS. Subject to Section 10.9, this Agreement may not be
amended, modified, altered or supplemented other than by means of a written
instrument duly executed and delivered on behalf of all of the parties hereto.
11.15 SEVERABILITY. In the event that any provision of this Agreement,
or the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to the fullest extent
permitted by law.
11.16 PARTIES IN INTEREST. Except for the provisions of Sections 9 and
10, none of the provisions of this Agreement is intended to provide any rights
or remedies to any Person other than the parties hereto and their respective
successors, heirs, personal representatives and assigns (if any).
11.17 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof, including without limitation the Letter
of Intent (other than paragraph 7 thereof, which shall survive to the extent
provided herein).
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11.18 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context requires:
the singular number shall include the plural, and vice versa; the masculine
gender shall include the feminine and neuter genders; the feminine gender shall
include the masculine and neuter genders; and the neuter gender shall include
the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, but
rather shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement
to "Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
[SIGNATURES ON FOLLOWING PAGES]
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The parties hereto have caused this Agreement to be executed and delivered
as of the date first above written.
"HALIS"
HALIS, INC., a Georgia corporation
By: /s/ Xxxxx Xxxxxx
------------------------------
Its:
------------------------------
"SUBSIDIARY"
SMG Acquisition Co., a Georgia corporation
By: /s/ Xxxxx Xxxxxx
------------------------------
Title:
----------------------------
"SMG"
Software Manufacturing Group, Inc.,
a Georgia corporation
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------
Its: President
------------------------------
"THE SHAREHOLDERS"
/s/ Xxxxxxx Xxxx, Xx. (SEAL)
----------------------------------
Xxxxxxx Xxxx, Xx.
/s/ Xxxxx Xxxxxxx (SEAL)
----------------------------------
Xxxxx Xxxxxxx
/s/ Xxxxx X. Xxxxxxx (SEAL)
----------------------------------
Xxxxx X. Xxxxxxx
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
55
/s/ W. Xxxxx Xxxx (SEAL)
----------------------------------
W. Xxxxx Xxxx
/s/ Xxxxx X. Xxxxxxxx (SEAL)
----------------------------------
Xxxxx X. Xxxxxxxx
SOLELY WITH RESPECT TO THE PROVISIONS OF
SECTION 10 APPLICABLE TO XXXX X. XXXXXXXX
AND XXXXX XXXXXX, AGREED TO AND ACCEPTED
AS OF THE DATE AND YEAR FIRST ABOVE WRITTEN.
/s/ Xxxx X. Xxxxxxxx
---------------------------------
Xxxx X. Xxxxxxxx
/s/ Xxxxx Xxxxxx
---------------------------------
Xxxxx Xxxxxx
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EXHIBIT A
Shareholders of Software Manufacturing Group, Inc.
Names
-----
Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxx
W. Xxxxx Xxxx
Xxxxx Xxxxxxx
Xxxxxxx Xxxx, Xx.
EXHIBIT B
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean any
transaction involving:
(a) the sale, license, disposition or acquisition of all or a material
portion of SMG's business or assets;
(b) the issuance, disposition or acquisition of (i) any capital stock
or other equity security of SMG or HALIS, as the case may be; (ii) any
option, call, warrant or right (whether or not immediately exercisable) to
acquire, or otherwise relating to, any capital stock or other equity
security of SMG or HALIS, as the case may be; or (iii) any security,
instrument or obligation that is or may become convertible into or
exchangeable for any capital stock or other equity security of SMG or
HALIS, as the case may be; or
(c) any merger, consolidation, business combination, share exchange,
reorganization or similar transaction involving SMG or HALIS, as the case
may be.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit B is attached (including the Disclosure
Schedule), as it may be amended from time to time.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which SMG is a party; (b) by which SMG or any of its assets are or may become
bound or under which SMG has, or may become subject to, any obligation; or (c)
under which SMG has or may acquire any right or interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to SMG or otherwise used by SMG.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan, or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
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DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to HALIS on behalf of SMG and the
Shareholders.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall have the meaning
specified in Section 3(3) of ERISA.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security), any restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local or
foreign Legal Requirement relating to pollution or protection of human health or
the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city, local or other political subdivision.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
examination or investigation commenced, brought, conducted or heard by
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or before, or otherwise involving, any court or other Governmental Body or any
arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitute, principle of common
law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed to
have a "Material Adverse Effect" on SMG if such violation or other matter
(considered together with all other matters that would constitute exceptions to
the representations and warranties set forth in the Agreement or in the
Shareholders' Closing Certificate but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) would have a material adverse effect on
SMG's business, condition, assets, liabilities, operations, financial
performance or prospects.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
include chemicals, pollutants, contaminants, wastes, toxic substances, asbestos,
PCBs, petroleum and petroleum products and any other substance that is now or in
the future regulated by any Environmental Law or that is otherwise a danger to
health, reproduction or the environment.)
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service xxxx (whether
registered or unregistered), service xxxx application, copyright (whether
registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, source code, computer program, invention, design, blueprint,
engineering drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (b) right to use or exploit
any of the foregoing.
REPRESENTATIVES "Representatives" shall mean officers, directors,
employees, agents, attorneys, accounts, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any
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fine, penalty or interest), imposed, assessed or collected by or under the
authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
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