EX-2.1 AGREEMENT AND PLAN OF MERGER

 

TABLE OF CONTENTS

				Page
ARTICLE 1		THE MERGER		1
1.1		The Merger		1
1.2		Conversion of Securities		2
1.3		Preliminary Allocation of Merger Consideration		3
1.4		Exchange of Certificates		4
1.5		Escrow		5
1.6		Dissenters’ Rights		6
1.7		Withholding Rights		6
1.8		Articles of Incorporation		7
1.9		Bylaws		7
1.10		Directors and Officers		7
1.11		Appointment of Representative		7
1.12		CUNA Escrow		8
ARTICLE 2		MERGER CONSIDERATION; THE CLOSING		9
2.1		Merger Consideration		9
2.2		The Closing; Pre-Closing Operating Capital Adjustment		10
2.3		Post-Closing Adjustments to Merger Consideration		11
ARTICLE 3		CONDITIONS TO CLOSING		13
3.1		Conditions to Parent’s and the Merger Sub’s Obligations		13
3.2		Conditions to the Company’s Obligations		15
ARTICLE 4		REPRESENTATIONS AND WARRANTIES OF THE COMPANY		16
4.1		Organization and Corporate Power		16
4.2		Subsidiaries		16
4.3		Corporate Power; Authority		16
4.4		Consents and Approvals; No Breaches		17
4.5		Capital Stock		17
4.6		Financial Statements		17
4.7		Absence of Certain Developments		18
4.8		Title to Properties; Assets		19
4.9		Tax Matters		19
4.10		Contracts and Commitments		20
4.11		Intellectual Property; Software		21
4.12		No Undisclosed Liabilities		22
4.13		Litigation		22
4.14		Employee Benefit Plans		22
4.15		Insurance		24
4.16		Labor Relations Matters		24
4.17		Compliance with Laws; Permits and Approvals		24
4.18		Environmental Compliance and Conditions		25
4.19		Compensation and Related Employee Matters		25
4.20		Records		26
4.21		Receivables		26
4.22		Affiliated Transactions		26

ii

 

TABLE OF CONTENTS (Continued)

 

4.23		Interest in Customers, Suppliers and Competitors		26
4.24		Brokerage		26
4.25		Voting Requirements		26
4.26		Bank Accounts		27
4.27		Disclosure		27
4.28		Absence of Other Warranties		27
ARTICLE 5		REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUB		27
5.1		Organization and Corporate Power		27
5.2		Authorization		27
5.3		No Violation		28
5.4		Governmental Authorities; Consents		28
5.5		Litigation		28
5.6		Brokerage		28
5.7		Financing		28
5.8		No Reliance		28
5.9		No Prior Activities		28
ARTICLE 6		PRE-CLOSING COVENANTS OF THE COMPANY		28
6.1		Conduct of the Business		28
6.2		Access to Books and Records		30
6.3		Regulatory Filings		30
6.4		Conditions		30
6.5		Supplemental Disclosures; Effect		30
6.6		Dissenting Shares		31
6.7		Resignations of Directors		32
6.8		Shareholder Approval		32
ARTICLE 7		COVENANTS OF PARENT		32
7.1		Access to Books and Records		32
7.2		Notification		32
7.3		Director and Officer Liability and Indemnification		32
7.4		Regulatory Filings		33
7.5		Conditions		33
7.6		Contact with Employees, Customers and Suppliers		33
7.7		Employee Benefit Plans		33
ARTICLE 8		ADDITIONAL AGREEMENTS OF THE PARTIES		34
8.1		Public Announcements		34
8.2		Expenses		35
8.3		Disclosure Generally		35
8.4		Acknowledgment by Parent and the Merger Sub		35
8.5		Intentionally Omitted		35
8.6		Further Assurances		35
8.7		Unallocated Options		36
8.8		Transaction Bonuses		36

iii

 

TABLE OF CONTENTS (Continued)

 

8.9		No Solicitation		36
8.10		Lending Call Center Services, LLC		36
8.11		Collection and Payment of Accounts Receivable		36
ARTICLE 9		TERMINATION		37
9.1		Termination		37
9.2		Effect of Termination		38
ARTICLE 10		SURVIVAL; INDEMNIFICATION		38
10.1		Survival of Representations, Warranties and Covenants		38
10.2		Indemnification		38
10.3		Limits on Indemnification		42
10.4		Treatment of Indemnification Payments		42
10.5		No Contribution by the Surviving Corporation		43
ARTICLE 11		TAX MATTERS		43
11.1		Parent Tax Covenants		43
11.2		Preparation and Filing of Tax Returns		43
11.3		Cooperation on Tax Matters		44
11.4		Contests Related to Taxes		44
11.5		Miscellaneous		45
ARTICLE 12		DEFINITIONS		45
12.1		Definitions		45
12.2		Other Definitional Provisions		48
12.3		Cross-Reference of Other Definitions		49
ARTICLE 13		MISCELLANEOUS		51
13.1		Headings		51
13.2		Assignment		51
13.3		Severability		51
13.4		Notices		52
13.5		Amendment and Waiver		53
13.6		Complete Agreement		53
13.7		Construction		53
13.8		Third-Party Beneficiaries		53
13.9		Counterparts		53
13.10		Governing Law		54
13.11		Subsequent Actions		54
13.12		Arbitration		54
13.13		WAIVER OF JURY TRIAL		55

iv

 

 

EXHIBITS AND SCHEDULES
Exhibits
Exhibit A—Principal Shareholders Agreement
Exhibit 1.4(a)-1—Exchange Agreement
Exhibit 1.4(a)-2—Form of Option Cancellation Agreement
Exhibit 1.5(a)—Escrow Agreement
Exhibit 3.1(g)(v)—Form of Taylor, Porter, Brooks & Phillips, LLP Legal Opinion
Exhibit 3.2(i)—Form of Kilpatrick Stockton LLP Legal Opinion
Schedules
Schedule 1.2(d)—Company Options
Schedule 1.3—Preliminary Allocation Schedule
Schedule 1.5—Escrow Allocation Schedule
Schedule 2.3—General Ledger Accounts used for Balance Sheet Preparation
Schedule 3.1(c)—Third-Party Consents of Company
Schedule 3.2(c)—Third-Party Consents of Parent and Merger Sub
Schedule 6.1—Conduct of the Business
Schedule 7.7(a)—Continuing Employee Benefit Plans
Schedule 8.2—Transaction Expenses
Schedule 8.8—Transaction Bonuses

 

v

 

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “ Agreement ”), dated as of February 3, 2005, is made by and among Equifax Inc., a Georgia corporation (“ Parent ”), Laphroaig Acquisition Corporation, a Louisiana corporation and wholly-owned subsidiary of Parent (the “ Merger Sub ”), Appro Systems, Inc., a Louisiana corporation (the “ Company ”), and Shawmut Equity Partners, L.P., as Representative (the “ Representative ”). Capitalized terms used and not otherwise defined herein have the meanings set forth in Article 12 below.

WHEREAS, the respective Boards of Directors of Parent, the Merger Sub and the Company have each determined that it is in the best interests of their respective shareholders for the Merger Sub to merge with and into the Company (the “ Merger ”) pursuant to the terms and subject to the conditions of this Agreement and in accordance with the Louisiana Business Corporation Law, La. R.S. 12:1, et seq. (the “ LBCL ”), and, accordingly, each has approved this Agreement and the Merger;

WHEREAS, certain shareholders of the Company (collectively, the “ Principal Shareholders ”) have agreed, among other things, to vote all of their Shares in favor of this Agreement and the Merger in accordance with a Principal Shareholders Agreement, dated as of the date hereof, among the Principal Shareholders, Parent and the Merger Sub in the form attached hereto as Exhibit A (the “ Principal Shareholders Agreement ”); and

WHEREAS, upon the terms and subject to the conditions set forth herein and in accordance with the provisions of the LBCL, Parent, the Merger Sub and the Company are entering into a business combination pursuant to which the Merger Sub shall merge with and into the Company, in accordance with the LBCL, whereupon the separate existence of the Merger Sub shall cease, the Company shall be the surviving corporation to the Merger and the Surviving Corporation shall become a wholly-owned subsidiary of Parent, all upon the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

ARTICLE 1

THE MERGER

1.1   The Merger .

(a)   At the Effective Time (as defined in Section 1.1(b) ), the Merger Sub shall merge with and into the Company in accordance with the LBCL, whereupon the separate existence of the Merger Sub shall cease, the Company shall be the surviving corporation to the Merger (sometimes hereinafter referred to as the “ Surviving Corporation ”) and the Surviving Corporation shall become a wholly-owned subsidiary of Parent, all upon the terms and conditions set forth herein. The name of the Surviving Corporation shall be “APPRO Systems, Inc.”.

(b)   At the Closing (as defined in Section 2.2(a)  below), the Parties will cause the Merger to be consummated by filing a Certificate of Merger, together with any required related certificates or documents, with the Secretary of State of the State of Louisiana, in such form as required by, and in accordance with the applicable provisions of, the LBCL and in such form as approved by the Company and Parent prior to such filing. The Parties will make all other filings or recordings as required by the LBCL in connection with the Merger. The Merger shall become effective at such time as the Parties agree upon and designate in the Certificate of Merger as the Effective Time. The time at which the Merger becomes effective is referred to herein as the “ Effective Time ”.

(c)   From and after the Effective Time, the Surviving Corporation shall succeed to all the assets, rights, privileges, powers and franchises and be subject to all of the liabilities, restrictions, disabilities and duties of the Company and the Merger Sub, all as provided under the LBCL. The Merger shall have the effects set forth in this Agreement, the Certificate of Merger, and the applicable provisions of the LBCL.

 

1.2   Conversion of Securities .

(a)   Cancellation of Treasury Stock .    All shares of Common Stock that are owned as of the Effective Time by the Company as treasury stock will be cancelled and retired and will cease to exist and no consideration whatsoever shall be delivered in exchange therefore.

(b)   Conversion of Preferred Stock .    At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each share of Preferred Stock issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive cash in an amount equal to the Preferred Stock Cash Compensation Per Share (as defined below). As of the Effective Time, each holder of a certificate representing shares of Preferred Stock shall cease to have any rights with respect thereto, except the right to receive the Preferred Stock Cash Compensation Per Share for each share of Preferred Stock represented by such certificate in accordance with the terms and conditions of this Agreement, upon surrender of each such certificate in accordance with Section 1.4 below, without interest.

For purposes of this Agreement, the following capitalized terms shall have the meanings set forth below:

(i)    “ Preferred Stock Cash Compensation Per Share ” shall mean the sum of (x) $31.32 per share of Preferred Stock plus (y) an amount equal to all accrued and unpaid dividends per share of Preferred Stock up to and including the day of the Effective Time plus (z) the Common Stock Per Share Value (as defined below) for the number of shares of Common Stock issuable upon conversion of each share of Preferred Stock at the Preferred Stock Conversion Ratio (as defined below).

(ii)   “ Preferred Stock Preference Value Per Share ” shall mean the sum of (x) and (y) in the definition of Preferred Stock Cash Compensation Per Share in Section 1.2(b)(i)  above.

(iii)  “ Preferred Stock Common Stock Equivalents ” means the total number of shares of Common Stock issuable upon conversion of the total number of issued and outstanding shares of Preferred Stock at the per share conversion ratio of 1.63206 (the “ Preferred Stock Conversion Ratio ”).

(iv)  “ Fully Diluted Shares Outstanding ” means the sum of (A) the total number of issued and outstanding shares of Common Stock, (B) the total number of shares of Common Stock subject to all issued and outstanding Company Options (as defined below), and (C) the Preferred Stock Common Stock Equivalents, in each case issued and outstanding immediately prior to the Effective Time.

(v)    “ Preferred Stock Preference Value ” shall mean the product determined by multiplying (A) the Preferred Stock Preference Value Per Share times (B) the total issued and outstanding shares of Preferred Stock.

(vi)  “ Fully Diluted Per Share Value ” shall mean the quotient determined by dividing (A) the difference between (x) the Merger Consideration and (y) the Preferred Stock Preference Value by (B) the Fully Diluted Shares Outstanding.

(vii) “ Common Stock Merger Consideration ” shall mean the Merger Consideration less (A) the Preferred Stock Preference Value less (B) the Aggregate Company Option Consideration (as defined below).

(viii)     “ Common Stock Per Share Value ” shall mean the quotient determined by dividing (A) the Common Stock Merger Consideration by (B) the sum of (x) the number of shares of Common Stock issued and outstanding and (y) the Preferred Stock Common Stock Equivalents.

(c)   Conversion of Common Stock .    At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof, each share of Common Stock issued and outstanding

2

 

immediately prior to the Effective Time shall be automatically converted into the right to receive cash in an amount equal to the Common Stock Per Share Value (determined as of the Effective Time).  As of the Effective Time, each holder of a certificate representing such shares of Common Stock shall cease to have any rights with respect thereto, except the right to receive the Common Stock Per Share Value for each share of Common Stock represented by such certificate in accordance with the terms and conditions of this Agreement, upon surrender of such certificate in accordance with Section 1.4 below, without interest.

(d)   Conversion of Company Options .    Immediately prior to the Effective Time, each outstanding stock option (each, a “ Company Option ” and collectively, the “ Company Options ”) to purchase Common Stock shall be converted automatically into the right to receive, for each share of Common Stock subject to such Company Option, cash in an amount equal to the Company Option Consideration for such Company Options (determined as of the Effective Time). For purposes hereof, with respect to each Company Option, “ Company Option Consideration ” shall mean the amount by which the Fully Diluted Per Share Value exceeds the exercise price per share of each share of Common Stock subject to such Company Option. For purposes hereof, the term “ Aggregate Company Option Consideration ” shall mean the aggregate amount of Company Option Consideration for all Company Options. Each outstanding Company Option so converted shall, immediately following such conversion, be cancelled and the holder thereof shall have no further rights with respect to such Company Option other than the right to receive the Company Option Consideration applicable thereto for each share subject to such Company Options as determined in accordance with the terms of this Agreement upon surrender of proper documentation under Section 1.4 below, without interest. A schedule of Company Options outstanding on the date of this Agreement is attached to this Agreement as Schedule 1.2(d) . The Company shall amend and restate Schedule 1.2(d)  for purposes of the Closing to reflect any changes in such schedule between the date of this Agreement and the Closing Date.

(e)   Conversion of the Merger Sub Common Stock .    At the Effective Time, each share of common stock, $1.00 par value per share of the Merger Sub issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and become one validly issued, fully paid and nonassessable share of common stock, $1.00 par value per share of the Surviving Corporation.

1.3   Preliminary Allocation of Merger Consideration .    The Company has prepared a preliminary schedule of the allocation of the Merger Consideration payable to each holder of Preferred Stock and Common Stock (each such holder a “ Shareholder ” and collectively, the “ Shareholders ”) and Company Options (each, an “ Optionholder ” and collectively, the “ Optionholders ”, and together with the Shareholders, the “ Securityholders ” or singly, a “ Securityholder ”), which is attached to this Agreement as Schedule 1.3 (the “ Preliminary Allocation Schedule ”). The Parties acknowledge and agree that the Company will amend Schedule 1.3 as of the Effective Time to (i) reflect the actual adjustments and allocation of the Merger Consideration then required by the applicable provisions of this Agreement and (ii) instruct the Exchange Agent as to the portion of the Exchange Fund (as defined in Section 1.4(a)  below) payable as of the Effective Time to each of the Securityholders (such amended Schedule 1.3 defined herein as the “ Final Allocation Schedule ”). The Parties acknowledge that the aggregate dollar amount of the Merger Consideration and the portion thereof allocated to each of the Securityholders at the Closing may differ from the Preliminary Allocation Schedule based upon (i) the Pre-Closing Operating Capital Adjustment; (ii) the number of shares of Common Stock issued as of the Effective Time pursuant to Company Options and Preferred Stock of the Company exercisable for or convertible into, respectively, Shares; (iii) additional dividends accruing with respect to the Preferred Stock from the date of this Agreement through the Closing Date; (iv) the aggregate amount of Transaction Bonuses; (v) the aggregate amount of Transaction Expenses; and (vi) other applicable provisions of this Agreement.

3

 

1.4   Exchange of Certificates .

(a)   After approval of this Agreement in accordance with Section 6.8 below, and prior to the Effective Time, pursuant to an exchange agreement (the “ Exchange Agreement ”) in the form attached hereto as Exhibit 1.4(a)-1 , Parent will designate SunTrust Bank, a Georgia banking corporation, as exchange agent (the “ Exchange Agent ”) (i) to receive the Exchange Fund Amount in a segregated account (the “ Exchange Fund ”); (ii) to make a payment from the Exchange Fund of the Escrow Deposit in accordance with Section 2.2(c)  to the Escrow Agent; (iii) to make a payment from the Exchange Fund of the CUNA Escrow Deposit in accordance with Section 2.2(c)  to the Escrow Agent; (iv) to make a payment from the Exchange Fund to the Representative Fund in accordance with Section 2.2(c) ; (v) to make payments from the Exchange Fund of the Transaction Expenses set forth on Schedule 8.2 ; (vi) to make payments from the Exchange Fund in accordance with the Final Allocation Schedule to the Shareholders upon surrender of certificates held by such Shareholders that, immediately prior to the Effective Time, represented outstanding Shares that have been converted into a portion of the Merger Consideration pursuant to Sections 1.2(b)  and (c)  (“ Shareholder Certificates ”); (vii) to make the payments to the Optionholders from the Exchange Fund in accordance with the Final Allocation Schedule upon delivery of the proper documentation (which documentation shall include an Option Cancellation Agreement in the form attached hereto as Exhibit 1.4(a)-2 ) for the Company Options held by such Optionholders that, immediately prior to the Effective Time, represented outstanding Company Options that have been converted into a portion of the Merger Consideration pursuant to Section 1.2(d)  (such proper documentation of Company Options, the “ Optionholder Certificates ”, and together with the Shareholder Certificates, the “ Certificates ”, or singly, a “ Certificate ”); and (viii) to make required payments to Dissenting Shareholders, if any, from the Exchange Fund in accordance with Section 1.6 upon delivery of the proper documentation. On the Closing Date, Parent shall deliver the Exchange Fund Amount to the Exchange Agent by wire transfer, in trust for the benefit of the Securityholders, to be distributed as set forth in this Agreement and the Exchange Agreement.

(b)   If such Certificates are not surrendered at Closing by the registered holders thereof as contemplated by this Section 1.4 , as soon as practicable after the Effective Time (but in no event later than five (5) Business Days thereafter), Parent shall cause the Exchange Agent to send a notice and a transmittal form to each such Securityholder at the address of record with the Company advising such holder of the effectiveness of the Merger and the procedure for surrendering to the Exchange Agent their Certificates in exchange for the portion of the Merger Consideration payable pursuant to Section 2.1 . Each Securityholder, upon proper surrender thereof to the Exchange Agent in accordance with this Section 1.4 or the instructions in such notice, shall be entitled to receive in exchange therefor (without interest) the portion of the Merger Consideration payable to such Securityholder pursuant to Section 2.1 . Until properly surrendered, each Certificate shall be deemed for all purposes to evidence only the right to receive the portion of the Merger Consideration payable for such Certificate pursuant to Section 2.1 . Subject to Section 1.4(d), Securityholders shall not be entitled to receive the portion of the Merger Consideration to which they would otherwise be entitled until the applicable Certificates are properly surrendered in accordance with this Section 1.4 .

(c)   If any portion of the Merger Consideration is to be delivered to a Person other than the Person in whose name the Certificate surrendered in exchange therefor is registered or otherwise documented, it shall be a condition to the delivery of such portion of the Merger Consideration that (i) the Certificate so surrendered shall be transferable, and shall be properly assigned, endorsed (or accompanied by appropriate stock powers) with signatures guaranteed by a commercial bank or by a member firm of the New York Stock Exchange, (ii) such transfer shall otherwise be proper, and (iii) the Person requesting such transfer shall pay to the Exchange Agent any transfer or other taxes payable by reason of the foregoing or establish to the reasonable satisfaction of the Exchange Agent that such taxes have been paid or are not required to be paid. Notwithstanding the foregoing, neither the Exchange Agent nor any Party

4

 

shall be liable to a Securityholder for any portion of the Merger Consideration payable to such holder pursuant to Section 2.1 that are properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

(d)   If any Certificate shall have been lost, stolen or destroyed, upon the receipt of (i) an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, (ii) such security bond or indemnity as Parent may reasonably require, and (iii) any other documents necessary in the reasonable opinion of the Exchange Agent, to evidence and effect the bona fide exchange thereof, the Exchange Agent shall deliver in exchange for such lost, stolen or destroyed Certificate the portion of the Merger Consideration payable in exchange therefor pursuant to Section 2.1.

(e)   Any portion of the Exchange Fund that remains undistributed on the date that is six (6) months after the Effective Time shall be delivered to Parent, upon demand, and any Securityholder who has not previously complied with this Section 1.4 shall thereafter look only to Parent, as a general unsecured creditor, for payment of its portion of the Merger Consideration pursuant to Section 2.1 .

1.5   Escrow .

(a)   Subject to Section 6.5 , Parent shall cause $7,000,000 in cash (the “ Escrow Deposit ”) from the Merger Consideration to be deposited in immediately available funds on the Closing Date into the Escrow Account to be held, invested, released and distributed by the Escrow Agent pursuant to the terms of Section 1.5 (a)  through (d) , Section 2.3 and Section 10.3(a)  of this Agreement and the Escrow Agreement. The Escrow Deposit will be comprised of the following components:  (a) $1,500,000, which will be held for purposes of satisfying any Post-Closing Operating Capital Adjustment payable to Parent pursuant to Section 2.3(a)  (the “ Post-Closing Adjustment Fund ”); and (b) $5,500,000, which will be held for purposes of, and will serve as the sole and exclusive source for, satisfaction of any indemnification or other claims of Parent or the Merger Sub (including, after the Closing, the Surviving Corporation) under Sections 1.5(b)  and 8.11 and Article 10 (the “ Indemnity Fund ”); provided, however , that the foregoing sentence shall not further limit or otherwise constitute a defense of any claims that Parent or the Merger Sub (including, after the Closing, the Surviving Corporation) may have pursuant to the Principal Shareholders Agreement on the terms set forth therein. In addition, $500,000 (the “ Representative Amount ”) from the Merger Consideration shall be delivered by Parent to the Representative and held directly by the Representative in an account (the “ Representative Fund ”) for purposes of satisfying obligations of or to the Representative under Section 1.11(d)  and (e) . Each Securityholder’s percentage interest in the amounts deposited in each of the Post-Closing Adjustment Fund, the Indemnity Fund, the Representative Fund and the CUNA Escrow Account in the event any of such amounts may be ultimately released and distributed to the Securityholders will be set forth on the schedule which is attached to this Agreement as Schedule 1.5 (the “ Escrow Allocation Schedule ”).

(b)   If the Post-Closing Operating Capital Adjustment payable to Parent pursuant to Section 2.3(a)  exceeds the amount in the Post-Closing Adjustment Fund, Parent shall be entitled to receive payment of any excess amount from the Indemnity Fund and the Indemnity Fund shall be reduced by the amount of any such excess.

(c)   Releases from the Post-Closing Adjustment Fund shall be governed by Section 2.3(d)  below and the Escrow Agreement. Subject to establishing a reserve adequate for claims that have been asserted in good faith within such applicable time periods by Parent pursuant to Section 10.2 , the balance remaining in the Indemnity Fund not subject to such reserve shall be released and distributed to the Securityholders on April 30, 2006 and the balance subject to such reserve and not thereafter used for the related claims shall be released and distributed promptly as provided in the Escrow Agreement.

(d)   The remaining cash, if any, held by the Representative in the Representative Fund shall be delivered to the Securityholders in the relative percentages set forth on the Escrow Allocation Schedule by

5

 

the Representative at the Representative’s discretion; provided, however, that all such remaining cash shall be delivered to the Securityholders on the later of (i) December 31, 2006 and (ii) the date on which no claims against the Indemnity Fund or the Representative exist.

(e)   Any interest on the Escrow Deposit shall be paid as provided in the Escrow Agreement.

(f)    The CUNA Escrow Account, a separate escrow fund established solely with respect to the CUNA Consideration, shall be established as set forth in Section 1.12 below.

1.6   Dissenters’ Rights .   Shares of Common Stock that have been voted against adoption of this Agreement and against approval of the Merger and with respect to which the holder has validly exercised dissenters’ rights under Section 131 of the LBCL, La. R.S. 12:131 (“ Dissenting Shares ”) will not be converted into the right to receive the Common Stock Per Share Value for each share of Common Stock at or after the Effective Time unless and until the holder of such shares (a “ Dissenting Shareholder ”) fails to perfect or effectively withdraws or otherwise becomes ineligible for such right to dissent from the Merger in accordance with the LBCL. Each Dissenting Shareholder shall be entitled to receive only the payment provided by Section 131 of the LBCL with respect to shares of Common Stock owned by such Dissenting Shareholder. If a holder of Dissenting Shares so fails to perfect, effectively withdraws or otherwise becomes ineligible for such dissenters’ rights, then, as of the Effective Time or the occurrence of such event, whichever last occurs, each of such holder’s Dissenting Shares will cease to be a Dissenting Share and will be converted into and represent the right to receive the Common Stock Per Share Value, without interest, upon the surrender of the certificates representing such shares. The Company shall give Parent prompt written notice of any demands by Dissenting Shareholders received by the Company, withdrawals of such demands, and any other instruments served on the Company and any material correspondence received by the Company in connection with such demands. After the Effective Time, the Surviving Corporation shall conduct all negotiations and proceedings with respect to demands for dissenters’ rights under the LBCL. Prior to the Effective Time, the Company shall not, except with the prior written consent of Parent, make any payment with respect to any demands for dissenters’ rights of Dissenting Shares, compromise or offer to settle or settle any such demands or approve any withdrawal of any such demands. Any funds paid pursuant to Section 131 of the LBCL to Dissenting Shareholders shall be paid out of any funds then remaining in the Exchange Fund and, if greater than such amount, the excess shall be paid out of the assets of the Surviving Corporation.

1.7   Withholding Rights .   The Surviving Corporation or Parent, as the case may be, shall be entitled to instruct the Exchange Agent to deduct and withhold from the portion of the Merger Consideration otherwise payable pursuant to this Agreement to any Securityholder such Withholding Taxes as Parent is required to deduct and withhold with respect to the making of such payment. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Securityholder in respect of which such deduction and withholding were made. So long as a Securityholder has delivered to the Exchange Agent a properly completed and executed Substitute Form W-9, Form W-8 BEN or other Form W-8s as applicable prior to the date on which payment to a Securityholder is required to be made to such Securityholder, the Exchange Agent may not withhold the maximum amount of back-up Withholding Taxes required to be deducted from the portion of the Merger Consideration otherwise payable to such Securityholder from the Exchange Fund pursuant to this Agreement.

6

 

1.8   Articles of Incorporation .   The Company Articles of Incorporation in effect immediately prior to the Effective Time shall be amended and restated in their entirety to read substantially the same as the articles of incorporation of the Merger Sub, except that such articles of incorporation will state the name of the Surviving Corporation as “APPRO Systems, Inc.” and, as so amended and restated, will be the articles of incorporation of the Surviving Corporation (the “ Surviving Corporation Articles ”) until amended in accordance with the terms thereof and applicable law; provided, however , that the Surviving Corporation Articles shall allow for indemnification in respect of Continuing Indemnity Matters to the Surviving Corporation’s present and former directors and officers (including the directors and officers of the Company prior to the Merger).

1.9   Bylaws .   The Company Bylaws in effect immediately prior to the Effective Time shall be amended and restated in their entirety to read substantially the same as the bylaws of the Merger Sub and, as so amended and restated, will be the bylaws of the Surviving Corporation (the “ Surviving Corporation Bylaws ”) until amended in accordance with the terms thereof and applicable law; provided, however , that the Surviving Corporation Bylaws shall contain exculpatory and indemnification provisions that provide no less protection to the Surviving Corporation’s present and former directors and officers (including the directors and officers of the Company prior to the Merger) than the Company Bylaws in effect immediately prior to the Closing.

1.10 Directors and Officers .   From and after the Effective Time, until their successors are duly elected or appointed in accordance with applicable law, (i) the directors of the Merger Sub at the Effective Time shall constitute the directors of the Surviving Corporation and will hold office until his or her successor is duly appointed and qualified, or until his or her earlier death, resignation or removal in accordance with the Surviving Corporation Articles and Surviving Corporation Bylaws, and (ii) the officers of the Company at the Effective Time shall be the officers of the Surviving Corporation and will hold office until his or her successor is duly appointed and qualified, or until his or her earlier death, resignation or removal in accordance with the Surviving Corporation Articles and Surviving Corporation Bylaws.

1.11 Appointment of Representative .

(a)   The Representative is hereby appointed as, and the Representative hereby acknowledges and accepts such appointment, as the representative of the Shareholders and for each Optionholder executing an Option Cancellation Agreement for purposes of this Agreement, the Exchange Agreement and the Escrow Agreement (collectively, the “ Representative Agreements ”) at and after the Effective Time. The Representative may resign at any time, and the Representative may be removed with the consent of the Principal Shareholders that owned in the aggregate, immediately prior to the Effective Time, more than 50% of the Shares collectively owned by such Shareholders (a “ Majority in Interest ”). In the event that a Representative has resigned or been removed, a new Representative shall be appointed with the consent of a Majority in Interest, such appointment to become effective upon the written acceptance thereof by the new Representative. Each of the Principal Shareholders shall use its or his respective commercially reasonable efforts to appoint a new Representative and provide written notice to Parent of such new appointment as soon as practicable following such resignation or removal. No such resignation or appointment of a new Representative shall be effective as against Parent, the Merger Sub or the Surviving Corporation until such time as Parent shall have received written notice of the appointment of a new Representative. Subject to Section 1.11(b)  below, the Representative shall have the following non-exclusive powers at and after the Effective Time as the representative of the Shareholders and for each Optionholder executing an Option Cancellation Agreement:  (i) the power to act for such Securityholders with regard to the indemnification obligations hereunder; (ii) the power to compromise any claim on behalf of such Securityholders and to transact matters of litigation or arbitration, in connection with the Representative Agreements; (iii) the power to do or refrain from doing all such further acts and deeds on

7

 

behalf of such Securityholders that the Representative deems necessary or appropriate in its sole discretion consistent with the provisions of the Representative Agreements; (iv) the power to execute all such documents as the Representative shall deem necessary or appropriate in connection therewith; and (v) the power to receive service of process in connection with any claims hereunder; provided , however , that in no event shall the Representative have the power to act on behalf of such Securityholders under the Principal Shareholders Agreement.

(b)   The Representative shall have such powers and authority as are necessary to carry out the functions assigned to it under this Agreement. Parent, the Merger Sub, the Surviving Corporation and each of their respective Affiliates shall be entitled to conclusively rely upon any and all written actions and instructions delivered by the Representative on behalf of Securityholders under or pursuant to the Representative Agreements. The Representative shall be permitted to act on behalf of the Securityholders with respect to any matter under the Representative Agreements; provided , that a Majority in Interest (and GE Equity, in the case of a settlement or admission of any kind that specifically names GE Equity or any Affiliate thereof as having engaged in wrongful activity) consent to any release to Parent or the Merger Sub (including, after the Closing, the Surviving Corporation) from the Indemnity Fund, the Post-Closing Adjustment Fund or the CUNA Escrow Account by the Representative; and provided, however, that, notwithstanding anything set forth herein to the contrary, the Representative shall not be authorized to act on behalf of the Securityholders with respect to the Principal Shareholders Agreement. The Representative shall have no liability to any Securityholder with respect to actions taken or omitted to be taken in its capacity as Representative except with respect to the Representative’s willful misconduct. The Representative will at all times be entitled to rely on any directions received from (i) a Principal Shareholder or (ii) a Majority in Interest; provided, however , that the Representative shall not be required to follow any such direction, and shall be under no obligation to take any action in its capacity as Representative, unless the Representative has been provided with funds, security or indemnities which, in the sole determination of the Representative, are sufficient to protect the Representative against the costs, expenses and liabilities which may be incurred by the Representative in responding to such direction or taking such action. The Representative shall be entitled to engage such counsel, experts and other agents and consultants as it shall deem necessary in connection with exercising its powers and performing its functions hereunder and (in the absence of willful misconduct on the part of the Representative) shall be entitled to conclusively rely on the opinions and advice of such persons. Once no further funds exist in the Representative Fund, the Representative shall be entitled to reimbursement from the Securityholders (which reimbursement shall be paid by each Securityholder in accordance the percentages set forth on the Escrow Allocation Schedule) for all reasonable expenses, disbursements and advances (including fees and disbursements of its counsel, experts and other agents and consultants) incurred by the Representative in such capacity, and for indemnification against any loss, liability or expenses arising out of actions taken or omitted to be taken in its capacity as Representative (except for those arising out of the Representative’s willful misconduct), including the costs and expenses of investigation and defense of claims.

1.12 CUNA Escrow .

(a)   Parent shall cause a portion of the Merger Consideration equal to the CUNA Consideration (the “ CUNA Escrow Deposit ”) to be deposited into the CUNA Escrow Account to be held, invested and released by the Escrow Agent pursuant to the terms of this Section 1.12 and the Escrow Agreement. Each Securityholders’ percentage interest in the amounts deposited in the CUNA Escrow Account shall be set forth on the Escrow Allocation Schedule.

(b)   Upon receipt by the Surviving Corporation (or any of its Affiliates) of all or a portion of the CUNA Consideration, it shall provide immediate written notice thereof to the Escrow Agent and the Representative (such written notice to set forth the amount and date of receipt thereof). Within one (1) Business Day after its receipt of such notice, the Escrow Agent shall release and distribute to the

8

 

Securityholders from the CUNA Escrow Account an amount equal to the amount of the CUNA Consideration specified in the notice. Releases from the CUNA Escrow Account shall be governed solely by this Section 1.12 and the Escrow Agreement. The releases and distributions from the CUNA Escrow Account shall be made to the Securityholders in the relative percentages set forth on the Escrow Allocation Schedule.

(c)   From and after the Effective Time, Parent hereby covenants that it shall pursue and shall cause the Surviving Corporation to pursue any and all actions necessary to realize the full and timely payment from CUNA of the CUNA Consideration; provided, however , that the reasonable out-of-pocket expenses (up to a maximum of $20,000) of any such actions in pursuing payment shall be borne by the Securityholders, first through the Representative Fund, and to the extent the Representative Fund is exhausted, severally and not jointly by each Securityholder, in accordance with the respective percentages set forth on the Escrow Allocation Schedule. Any expenses in excess of the foregoing maximum shall require the advance consent of the Representative prior to being incurred, provided, however , that if Parent must act to preclude the expiration or forfeit of a right and the Representative has not granted its advance consent, Parent may exceed the foregoing maximum to the extent required to preserve any such right, without the advance consent of the Representative. Parent further covenants that neither Parent, nor the Surviving Corporation nor any of their Affiliates shall take any actions that would adversely impact the payment by CUNA of the CUNA Consideration. If CUNA has not paid the CUNA Consideration within one hundred fifty (150) days after the Closing Date, Parent and the Surviving Corporation shall assign to a Person designated by the Representative on behalf of the Securityholders all right to any claim Parent and the Surviving Corporation may have against CUNA for the payment of the CUNA Consideration. In addition, at the time of any such assignment, the CUNA Escrow Deposit shall be released to Parent in accordance with the terms of the Escrow Agreement. Following such assignment and release, Parent and the Surviving Corporation shall continue to cooperate with all reasonable requests from the Representative and take no action that that would adversely impact the payment by CUNA of the CUNA Consideration.

(d)   Prior to receipt by the Surviving Corporation of the entire CUNA Consideration and the distribution of the full amount in the CUNA Escrow Account to the Securityholders, if the Representative shall determine that a breach of the covenants set forth in Sections 1.12(c)  or 8.10 hereof shall have occurred, the Representative shall promptly provide written notice of such breach to Parent. Parent shall have twenty (20) days from receipt of the notice hereunder within which to cure such breach. In the event of a failure of Parent to cure the breach within such twenty-day period, or in the event such breach is not capable of being cured, Parent and the Representative shall attempt to resolve in good faith any disputes concerning the alleged breach for a period of ten (10) days. In the event Parent and the Representative are unable to reach a mutually satisfactory resolution, the Representative and Parent shall initiate, no later than the expiration of such ten-day period, arbitration proceedings under Section 13.12 of this Agreement. In the event that an arbitrator determines that a breach of Sections 1.12(c)  or 8.10 hereof shall have occurred, at any time after two (2) Business Days have elapsed from the time of such arbitrator’s decision, the Representative shall be entitled to provide written notice to the Escrow Agent of such decision, and thereupon the Escrow Agent shall immediately release and distribute to the Securityholders the balance of the CUNA Escrow Deposit in the respective percentages set forth on the Escrow Allocation Schedule.

ARTICLE 2

MERGER CONSIDERATION; THE CLOSING

2.1   Merger Consideration .

(a)   Aggregate Merger Consideration .   Subject to adjustment as set forth herein, the aggregate cash consideration to be delivered by Parent to or for the benefit of the Securityholders in connection with the

9

 

Merger (the “ Merger Consideration ”) shall be (i) $92,000,000; plus or minus (ii) any Pre-Closing Operating Capital Adjustment as determined at Closing in accordance with Section 2.2(b) ; plus or minus (iii) any Post-Closing Operating Capital Adjustment as determined in accordance with Section 2.3 .

(b)   Preferred Stock Closing Consideration .   The aggregate cash consideration to be delivered by Parent at the Closing to the Exchange Agent for the benefit of the holders of Preferred Stock (the “ Preferred Stock Closing Cash Consideration ”) shall be equal to the number of shares of Preferred Stock outstanding immediately prior to the Effective Time multiplied by the Preferred Stock Cash Compensation Per Share (as determined as of the Closing). The Preferred Stock Closing Cash Consideration shall be reduced by the Preferred Stock Portion of each of the CUNA Escrow Deposit, the Indemnity Fund, the Post-Closing Adjustment Fund, and the Representative Fund. The portion of the Preferred Stock Closing Cash Consideration payable to each holder of Preferred Stock shall be as set forth on the Final Allocation Schedule.

(c)   Common Stock Closing Consideration .   The aggregate cash consideration to be delivered by Parent at the Closing to the Exchange Agent for the benefit of the holders of Common Stock (the “ Common Stock Closing Cash Consideration ”) shall be equal to Merger Consideration (as determined as of Closing), minus the Preferred Stock Closing Cash Consideration, the Company Option Closing Cash Consideration, and the Common Stock Portion of each of the CUNA Escrow Deposit, the Indemnity Fund, the Post-Closing Adjustment Fund, and the Representative Fund. The portion of the Common Stock Closing Cash Consideration payable to each holder of Common Stock, other than with respect to Dissenting Shares, shall be as set forth on the Final Allocation Schedule.

(d)   Company Option Closing Consideration .   The aggregate cash consideration to be delivered by Parent at the Closing to the Exchange Agent for the benefit of the holders of outstanding Company Options (the “ Company Option Closing Cash Consideration ”) shall be equal to the Aggregate Company Option Consideration (as determined as of the Closing), minus the Company Option Portion of each of the CUNA Escrow Deposit, the Indemnity Fund, the Post Closing-Adjustment Fund, and the Representative Fund. The portion of the Company Option Closing Cash Consideration payable to each holder of Company Options shall be as set forth on the Final Allocation Schedule.

(e)   Post-Closing Operating Capital Adjustment .   To the extent any Post-Closing Operating Capital Adjustment is due to the Securityholders from Parent as provided for in Section 2.3 , then such amount shall increase the Merger Consideration and shall be paid by Parent to the Securityholders in the relative percentages set forth on the Escrow Allocation Schedule.

2.2   The Closing; Pre-Closing Operating Capital Adjustment .

(a)   Closing .   The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Kilpatrick Stockton LLP located at 1100 Peachtree Street, Suite 2800, Atlanta, GA 30309-4530 at 10:00 a.m., Atlanta, Georgia time, four (4) Business Days following full satisfaction or due waiver of all of the closing conditions set forth in Article 3 hereof (other than those to be satisfied at the Closing) or on such other date as is mutually agreeable to Parent and the Company. The date and time of the Closing are herein referred to as the “ Closing Date .”

(b)   Pre-Closing Operating Capital Adjustment .   At least five (5) Business Days prior to the Closing Date, the Company shall deliver to Parent (i) a projected balance sheet of the Company as of the Closing Date (the “ Projected Balance Sheet ”) and (ii) a statement setting forth in reasonable detail the projected Operating Capital of the Company as of the Closing Date based upon the Projected Balance Sheet (the “ Preliminary Closing Statement ”). The Projected Balance Sheet and the Preliminary Closing Statement shall be prepared in good faith and in accordance with GAAP, consistently applied based upon prior practice, and the Preliminary Closing Statement shall include only those general ledger accounts set forth on Schedule 2.3 . The difference between the projected Operating Capital set forth on the Preliminary

10

 

Closing Statement and $10,239,871 (the “ Target Operating Capital ”) shall be referred to herein as the “ Pre-Closing Operating Capital Adjustment . ” The Merger Consideration shall be, at Closing, (i) increased dollar for dollar by the amount, if any, by which the projected Operating Capital exceeds the Target Operating Capital, or (ii) decreased dollar for dollar by the amount, if any, by which the projected Operating Capital is less than the Target Operating Capital.

(c)   Closing Deliveries .   Subject to the terms and conditions set forth in this Agreement, the Parties shall consummate or cause to be consummated the following transactions on the Closing Date:

(i)    Parent shall deliver to the Exchange Agent by wire transfer of immediately available funds, for the benefit of the Securityholders, the Exchange Fund Amount;

(ii)   Parent shall cause the Exchange Agent to:

(A)   deliver to the Securityholders by wire transfer of immediately available funds, the amounts to be paid at Closing as set forth on the Final Allocation Schedule, subject to the provisions of Section 1.4 ;

(B)   pay the Transaction Expenses (to the extent not paid on or prior to the Closing Date) as set forth on Schedule 8.2 to the Persons entitled thereto;

(C)   deliver the Escrow Deposit and the CUNA Escrow Deposit by wire transfer of immediately available funds to the Escrow Account and the CUNA Escrow Account, respectively, to be held, invested, released and distributed by the Escrow Agent pursuant to the terms of the Escrow Agreement; and

(D)  deliver to the Representative the Representative Amount by wire transfer of immediately available funds to the Representative Fund as such account shall be designated in writing by the Representative.

(iii)  Parent and the Company shall make such other deliveries as are required by and in accordance with Article 3 hereof. Upon the wire transfer of the funds referred to in Section 2.2(c)(i) , the Merger Consideration shall be paid, and shall be deemed paid, for purposes of consummating the Merger.

2.3   Post-Closing Adjustments to Merger Consideration .

(a)   Post-Closing Adjustment .   Following the Closing, the Merger Consideration shall (i) increase dollar for dollar by the amount, if any, by which the Company’s Operating Capital on the Closing Date, as determined pursuant to Section 2.3(c) , exceeds the Operating Capital set forth on the Preliminary Closing Statement, or (ii) decrease dollar for dollar by the amount, if any, by which the Company’s Operating Capital on the Closing Date, as determined pursuant to Section 2.3(c) , is less than the Operating Capital set forth on the Preliminary Closing Statement (any such adjustment is hereinafter referred to as the “ Post-Closing Operating Capital Adjustment ” as such amount is finally determined as provided herein). The Post-Closing Operating Capital Adjustment shall be paid in accordance with Section 2.3(d) .

11

 

(b)   Closing Statement .   As soon as reasonably practicable, but in no event later than ninety (90) days after the Closing Date, Parent shall deliver to the Representative (i) an audited balance sheet of the Company as of the Closing Date audited by KPMG LLP (the “ Closing Financial Statement ”), (ii) a statement setting forth in reasonable detail the Operating Capital of the Company as of the Closing Date that shall include (x) only those general ledger accounts set forth on Schedule 2.3 and (y) (to the extent not included in (x)) an accrual for any Transaction Expenses of the Company (aa) that remain unpaid after the Effective Time through the preparation date of the Closing Financial Statement (excluding the amounts on Schedule 8.2 ) and (bb) that were not accrued on or otherwise reflected on the Preliminary Closing Statement (the “ Closing Statement ”), including a description in reasonable detail of all variations of the Operating Capital reflected on the Closing Statement from that reflected on the Preliminary Closing Statement and (iii) a calculation in reasonable detail of the amount of the Post-Closing Operating Capital Adjustment, if any, required pursuant to the provisions of Section 2.3(a)  (the “ Post-Closing Adjustment Calculation ”); provided , however, that, notwithstanding anything set forth herein to the contrary, neither the Preliminary Closing Statement nor any of the Final Financial Documents shall include any Transaction Expenses that have been paid prior to the Effective Time or for which payment has been directed to be made by the Company pursuant to Section 8.2 out of the Exchange Fund. The Final Financial Documents shall be prepared in good faith in accordance with GAAP, consistently applied based upon prior practice prior to the Closing. The approval by the Shareholders of this Agreement and the Merger shall constitute confirmation of the Shareholders’ obligation to cooperate with the Company’s or Parent’s independent accountants, as reasonably requested by Parent, in Parent’s efforts to produce the Closing Financial Statements, including, but not limited to, making available to the Company’s or Parent’s independent accountants relevant information, records or documents relating to the Company for periods prior to the Closing Date.

(c)   Resolution of Disputes Regarding the Post-Closing Adjustments .   Parent and the Surviving Corporation shall deliver or make available to the Representative and the Securityholders’ independent accountants, to be chosen by, and at the direction of the Representative, the books and records of the Company and the relevant working papers of Parent’s independent accountants (with the prior consent of such accountants, which shall not be unreasonably withheld) for the purpose of verifying the Final Financial Documents. The Representative shall have a period of up to thirty (30) days after receipt of the Final Financial Documents to present in writing to Parent any objections thereto on behalf of the Securityholders, setting forth the specific item to which each such objection relates and the specific basis for each such objection (to the extent the information necessary to make a specific objection is reasonably available to the Representative). The Final Financial Documents shall be deemed to be acceptable to the Securityholders and shall become final and binding on the Parties, except to the extent that the Representative shall have made a written objection thereto within such thirty-day period. If the Representative shall raise any such objection within such thirty-day period, then the Representative and Parent shall attempt in good faith to resolve any dispute concerning the item(s) subject to such objection. Upon failure to resolve any such dispute within twenty (20) days of Parent’s receipt of the Representative’s written objections, the same shall be submitted to Deloitte & Touche (the “ Independent Accounting Firm ”). The Independent Accounting Firm shall be instructed to use its best efforts to render a decision as to all items in dispute within thirty (30) days of submission, and the parties to this Agreement agree to cooperate with each other and each other’s authorized representatives and with the Independent Accounting Firm in order that any and all items in dispute shall be resolved as soon as practicable. The determination of the Independent Accounting Firm concerning any item in dispute shall be final and binding on the parties without further right of appeal. The fees and expenses of the Independent Accounting Firm incurred in the resolution of such dispute shall be allocated between the Securityholders and Parent in the same proportion that the aggregate amount of the items unsuccessfully disputed by each such party (as finally determined by the Independent Accounting Firm) bears to the total amount of all disputed items submitted to the Independent Accounting Firm. The fees, if any, to be paid on the

12

 

Securityholders’ behalf, shall be paid out of the Representative Fund, and thereafter, severally and not jointly by the Securityholders (in accordance with the relative percentages set forth on the Escrow Allocation Schedule). No later than one hundred fifty (150) days after the Closing Date, any amounts in the Post-Closing Adjustment Fund that are not subject to a good faith dispute among the parties to this Agreement shall be paid to either Parent or the Securityholders, as applicable, and Parent and the Representative shall jointly instruct the Escrow Agent to release such undisputed amounts to Parent or to the Securityholders (in accordance with the relative percentages set forth on the Escrow Allocation Schedule), as applicable.

(d)   Payment of Post-Closing Adjustment .   Within five (5) Business Days after the Post-Closing Adjustment is determined as provided in Section 2.3(c) , (i) in the event of an adjustment increasing the Merger Consideration, (x) the Representative and Parent shall jointly instruct the Escrow Agent to release to the Securityholders (in accordance with the respective percentages set forth on the Escrow Allocation Schedule) pursuant to the terms and conditions of the Escrow Agreement, the total amount of the Post-Closing Adjustment Fund from the Escrow Account by wire transfer of immediately available funds to an account or accounts of such Securityholders at one or more financial institutions in accordance with such instructions as the Securityholders may hereafter provide and (y) Parent shall cause to be paid to the Securityholders (in accordance with the relative percentages set forth on the Escrow Allocation Schedule) the amount by which the Post-Closing Operating Capital Adjustment exceeds the Post-Closing Adjustment Fund by wire transfer of immediately available funds to an account or accounts of such Securityholders at one or more financial institutions in accordance with such instructions as the Securityholders may hereafter provide; and (ii) in the event of an adjustment decreasing the Merger Consideration, the Representative and Parent shall jointly instruct the Escrow Agent to release to Parent, in accordance with the terms of the Escrow Agreement, the total amount of the Post-Closing Operating Capital Adjustment from the Post-Closing Adjustment Fund by wire transfer of immediately available funds in accordance with such instructions. If a balance remains in the Post-Closing Adjustment Fund after payment to Parent pursuant to this Section 2.3(d) , then concurrently with such payment to Parent, the Representative and Parent shall jointly instruct the Escrow Agent to, and the Escrow Agent shall, release to the Securityholders in accordance with the respective percentages set forth on the Escrow Allocation Schedule such balance by wire transfer of immediately available funds to an account or accounts of such Securityholders at one or more financial institutions in accordance with such instructions as the Securityholders may hereafter provide.

2.4   Closing of Transfer Books .   At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of Shares shall thereafter be made. If, after the Effective Time, Certificates formerly representing Shares or Company Options or the right to acquire Shares or Company Options effective at the Closing are presented to Parent or the Surviving Corporation, they shall be cancelled and exchanged for the right to receive a portion of the Merger Consideration in accordance with Section 2.1 .

ARTICLE 3

CONDITIONS TO CLOSING

3.1   Conditions to Parent’s and the Merger Sub’s Obligations .   The obligations of Parent and the Merger Sub to consummate the transactions contemplated by this Agreement are subject to the satisfaction, or waiver in writing by Parent, of the following conditions as of the Closing Date:

(a)   The representations and warranties of the Company set forth in Article 4 hereof shall be, with respect to those representations and warranties qualified by any materiality standard, true and correct in all respects at and as of the Closing Date, and with respect to all other representations and warranties, true and correct in all material respects at and as of the Closing Date, except, in both instances, to the extent such representations and warranties expressly relate to an earlier date or time (in which case such

13

 

representations and warranties shall be true and correct in all respects, or in all material respects, as appropriate, on and as of such earlier date);

(b)   The Company shall have performed in all material respects all of the covenants and agreements required to be performed by it under this Agreement at or prior to the Closing;

(c)   All third-party consents that are set forth on Schedule 3.1(c)  shall have been obtained;

(d)   The applicable waiting periods, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “ HSR Act ”) shall have expired or been terminated, and all other material governmental filings, consents, authorizations and approvals that are required for the consummation of the transactions contemplated hereby shall have been made and obtained;

(e)   No action or proceeding before any court or governmental body shall be pending wherein an unfavorable judgment, decree or order would prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement, cause such transactions to be rescinded or affect in a material adverse way the right of Parent to operate the businesses and control the Surviving Corporation following the Closing;

(f)    Since the date of the Latest Balance Sheet, there shall have been no Material Adverse Effect;

(g)   The Company shall have delivered to Parent each of the following:

(i)    a certificate of the Company, dated the Closing Date, stating that the conditions specified in subsections (a), (b), (c), (e) and (f) hereof, as they relate to the Company have been satisfied;

(ii)   copies of the third party and governmental consents required by subsections (c) and (d) above;

(iii)  all minute books, stock books, ledgers and registers, corporate seals and other corporate records relating to the organization, ownership and maintenance of the Company; provided, that such delivery will be deemed to have occurred if such records are located at the office of the Company;

(iv)  a certified copy of the Company Articles of Incorporation, dated within three (3) days of the Closing, and a certificate of the Secretary of the Company, dated as of the Closing Date, certifying that the Articles of Incorporation have not been further amended or modified in any respect;

(v)    an opinion of Taylor, Porter, Brooks & Phillips, LLP, legal counsel to the Company, dated as of the Closing Date, in the form attached as Exhibit 3.1(g)(v) ;

(vi)  an opinion of separate legal counsel to the APPRO Systems, Inc. Employee Stock Ownership Plan (the “ ESOP ”) that the procedures followed by the trustee of the ESOP in determining how to vote the shares of Common Stock held in the ESOP, and the voting of such shares, were in compliance with all applicable laws;

(vii) a copy of an opinion, addressed to the trustee of the ESOP, opining that the consideration to be received by the ESOP and its beneficiaries in the Merger is fair to them from a financial point of view;

(viii)     a Certificate of Good Standing of the Company issued by the Louisiana Secretary of State, dated within three (3) days of the Closing;

(ix)  certified resolutions of the Board of Directors of the Company which:

(A)   provide, contingent upon the occurrence of the Closing, pursuant to Section 5.6(c) of the APPRO Systems, Inc. Stock Option Plan, that all Company Options outstanding as of the Closing shall be converted and therefore be deemed automatically canceled and determine that

14

 

the Company Option Consideration is the “ Change in Control Value ” (as such term is defined in the APPRO Systems, Inc. Stock Option Plan and in accordance with Section 1.2(d)  above);

(B)   provide for the termination of the APPRO Systems, Inc. 401(k) Plan as of a date prior to the Closing Date; and

(C)   provide for the amendment of the ESOP so that, effective immediately after the Effective Time, the ESOP is a profit-sharing plan and is no longer an employee stock ownership plan and terminate the ESOP as of the Closing Date;

(x)    certified resolutions of the Board of Directors and shareholders of the Company authorizing the execution, delivery and performance of this Agreement;

(xi)  evidence reasonably satisfactory to Parent that a separate 401(k) plan has been established to cover employees of LCCS and that the accounts of such employees in the APPRO Systems, Inc. 401(k) Plan have been transferred to such separate plan effective as of a date prior to the Closing Date; and

(xii) such other documents or instruments as Parent may reasonably request to effect the transactions contemplated hereby and to evidence satisfaction of the conditions contained in this Section 3.1 .

(h)   The Company, the Representative and the Escrow Agent shall have executed and delivered the Escrow Agreement;

(i)    All outstanding Company Options shall have been exercised or, if not exercised or if exercised and not yet paid, canceled as contemplated by this Agreement; and

(j)    This Agreement and the Merger shall have been approved by at least eighty percent (80%) of the total voting power of the shareholders of the Company entitled to vote upon the Merger and this Agreement.

3.2   Conditions to the Company’s Obligations .   The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction of the following conditions as of the Closing Date:

(a)   The representations and warranties set forth in Article 5 hereof shall be true and correct in all respects at and as of the Closing, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all respects on and as of such earlier date);

(b)   Parent and the Merger Sub shall have performed in all material respects all the covenants and agreements required to be performed by them under this Agreement at or prior to the Closing, including, but not limited to delivery at the Closing of the Merger Consideration as required herein;

(c)   All third-party consents which are set forth on Schedule 3.2(c)  shall have been obtained;

(d)   The applicable waiting periods, if any, under the HSR Act shall have expired or been terminated, and all other material governmental filings, consents, authorizations and approvals that are required for the consummation of the transactions contemplated hereby shall have been made and obtained;

(e)   No action or proceeding before any court or government body shall be pending wherein an unfavorable judgment, decree or order would prevent the performance of this Agreement or the consummation of any of the transactions contemplated hereby, declare unlawful the transactions contemplated by this Agreement or cause such transactions to be rescinded following Closing;

15

 

(f)    Parent shall have delivered to the Company certified copies of the resolutions duly adopted by Parent’s and the Merger Sub’s boards of directors authorizing the execution, delivery and performance of this Agreement;

(g)   Parent shall have delivered to the Company a certificate, dated the Closing Date, stating that the preconditions specified in subsections (a), (b), (c), (e) and (f) hereof, as they relate to Parent and/or the Merger Sub, have been satisfied;

(h)   Parent and the Escrow Agent shall have executed and delivered the Escrow Agreement to the Company;

(i)    The Company shall have received an opinion from Kilpatrick Stockton LLP, counsel to Parent and the Merger Sub, in form and substance as set forth on Exhibit 3.2(i)  attached hereto, addressed to the Company and the Securityholders, and dated as of the Closing Date; and

(j)    This Agreement and the Merger shall have been approved by at least eighty percent (80%) of the total voting power of the shareholders of the Company entitled to vote upon the Merger and this Agreement.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Subject to the exceptions set forth and identified in the disclosure schedule attached hereto, as amended or supplemented from time to time by the Company prior to the Closing Date by the Company’s delivery of amendments or supplements to Parent (the “ Disclosure Schedule ”), the Company represents and warrants to Parent and the Merger Sub as follows:

4.1   Organization and Corporate Power .   The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Louisiana. The Company has all requisite corporate power and authority to own and operate its properties and to carry on its businesses as now conducted. The Company is qualified to do business in every jurisdiction in which its ownership of property or the conduct of business as now conducted requires it to qualify, except where the failure to be so qualified would not have a Material Adverse Effect.

4.2   Subsidiaries .   The Company has no Subsidiaries.

4.3   Corporate Power; Authority .   The Company has the requisite corporate power and authority to execute and deliver this Agreement, and subject to the approval of this Agreement and the approval and adoption of the plan of merger contemplated by this Agreement by the requisite vote of the holders of the Common Stock and Preferred Stock, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions so contemplated hereby have been duly approved by the Board of Directors of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than, with respect to the Merger, the filing and recordation of the appropriate merger documents as required by the LBCL). This Agreement has been duly executed and delivered by and, assuming the due authorization, execution and delivery thereof by Parent and the Merger Sub, constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as enforceability may be limited or affected by applicable bankruptcy, insolvency, reorganization and other laws of general application relating to or affecting the rights of creditors and except as enforceability may be limited by rules of law governing specific performance, injunctive relief or other equitable remedies.

16

 

4.4   Consents and Approvals; No Breaches .   Except for filings, permits, authorizations, consents and approvals as may be required under the HSR Act, the filing of a Certificate of Merger and any required related certificates under the LBCL, and the other matters referred to in Item 4.4 of the Disclosure Schedule, assuming the accuracy of the representations and warranties set forth in Article V , the execution, delivery and performance of this Agreement by the Company and the consummation of the transactions contemplated hereby will not (a) conflict with or result in the breach of any provision of the Company Articles of Incorporation or the Company Bylaws; (b) require any material authorization, consent, filing, approval, exemption or other material action by or material notice to any court or other administrative or governmental body; (c) constitute a breach or default under or result in a violation of or give any third party the right to modify, terminate or accelerate any obligation under any material indenture, mortgage, lease, loan agreement or other material agreement or instrument to which the Company is a party or by which it is bound; or (d) result in a material violation of any law, statute, rule or regulation or order, judgment or decree to which the Company or its respective properties are subject.

4.5   Capital Stock .   The authorized number of shares of capital stock of the Company consists of 10,000,000 shares of Common Stock, no par value per share, and 1,895,266 shares of Series A Convertible Redeemable Preferred Stock, $0.01 par value per share. As of the date of this Agreement, (i) 1,367,050.15 shares of Common Stock are issued and outstanding and are owned of record by the Shareholders in the amounts as set forth on Item 4.5 of the Disclosure Schedule; (ii) 8,099.85 shares of Common Stock are held as treasury stock of the Company; (iii) 167,700 shares of Common Stock are reserved for issuance upon the exercise of Company Options in the amounts and to the holders set forth on Item 4.5 of the Disclosure Schedule; and (iv) 1,053,560 shares of Preferred Stock are issued and outstanding and are owned of record by the Shareholders in the amounts as set forth on Item 4.5 of the Disclosure Schedule. Except as set forth on Item 4.5 of the Disclosure Schedule, all of the outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and nonassessable and are not subject to preemptive rights. Each share of Preferred Stock is convertible into 1.63206 shares of Common Stock. Except as set forth on Item 4.5 of the Disclosure Schedule, the Company has no other capital stock, equity securities or securities containing any equity features authorized, issued or outstanding, and there are no agreements, options, warrants or other rights or arrangements existing or outstanding which provide for the sale or issuance of any of the foregoing by the Company. Except as set forth on Item 4.5 of the Disclosure Schedule, there are no agreements or other obligations which require the Company to repurchase or otherwise acquire any shares of the Company’s capital stock or other equity securities . All of the issued and outstanding Shares and all other capital or other securities previously issued and outstanding of the Company, any Subsidiary thereof or any of their respective predecessors, were offered, issued and sold in accordance with all applicable securities laws. To the Company’s Knowledge, there are no agreements among other Persons, to which the Company is not a party and by which it is not bound, with respect to the voting (including without limitation voting trusts or proxies) or sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or (“drag-along” rights) of any securities of the Company other than the Principal Shareholders Agreement or as otherwise set forth on Item 4.5 of the Disclosure Schedule.

4.6   Financial Statements .   Item 4.6 of the Disclosure Schedule contain the following attachments: (a) the Company’s unaudited balance sheet as of September 30, 2004, the (“ Latest Balance Sheet ”) and the related statements of operations and cash flows for the nine (9) months then ended (together with the Latest Balance Sheet, the “ Most Recent Financial Statements ”) and (b) the Company’s audited balance sheets and related statements of operations, shareholders’ deficit and cash flows for the years ended December 31, 2003 and 2002 (the “ Audited Financial Statements ”), and together with the Most Recent Financial Statements, the “ Financial Statements ”). The Financial Statements have been prepared in accordance with GAAP consistently applied during the periods presented and present fairly in all material respects the financial condition of the Company and results of its operations as of the dates and for the

17

 

periods referred to therein; provided, however , that the Most Recent Financial Statements are subject to normal, recurring year-end adjustments, as set forth on Item 4.6 of the Disclosure Schedule, and any other adjustments reflected therein, and do not contain footnotes and other presentation items. The Company has never been required to file any forms, notifications or reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, which it has not so filed.

4.7   Absence of Certain Developments .   Since the date of the Latest Balance Sheet, there has not been any Material Adverse Effect. Except (i) for the transactions and other actions contemplated by this Agreement; (ii) for liabilities incurred in connection with or as a result of this Agreement; or (iii) as set forth on Item 4.7 of the Disclosure Schedule, since the date of the Latest Balance Sheet, the Company has not:

(a)   borrowed any amount or incurred or become subject to any material liabilities, except liabilities incurred in the ordinary course of business, liabilities under contracts entered into in the ordinary course of business and borrowings from banks (or similar financial institutions) necessary to meet ordinary course working capital requirements;

(b)   mortgaged, pledged or subjected to any Lien (other than a Permitted Lien) any material portion of its assets;

(c)   sold, assigned or transferred any material portion of its tangible assets, except in the ordinary course of business, or cancelled without fair consideration any material debts or claims owing to or held by it;

(d)   sold, assigned or transferred any material trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property, except in the ordinary course of business;

(e)   suffered any theft, damage, destruction or casualty loss in excess of $100,000 to its assets (whether or not covered by insurance) or suffered any other extraordinary losses or waived any rights of material value or suffered any substantial destruction of books and records;

(f)    issued, sold or transferred any of its capital stock or other equity securities, securities convertible into its capital stock or other equity securities or warrants, options or other rights to acquire its capital stock or other equity securities, or any bonds or debt securities (except for shares of Common Stock that may be issued upon exercise of the Company Options listed on Item 4.5 of the Disclosure Schedule on or before the Closing Date);

(g)   made, or agreed to make, any material capital expenditures outside of the ordinary course of business;

(h)   except in the ordinary course of business, made any increase in or established any bonus, severance, deferred compensation, pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan (including, without limitation, the granting of stock options, stock appreciation rights, performance awards, or restricted stock awards) or any other increase in the compensation payable or to become payable to any of its shareholders, directors, officers or key employees;

(i)    made any loan to, or engaged in any other transaction with, any of its directors, officers and employees, other than for the advance or reimbursement of business expenses in accordance with Company policy and historical practice;

(j)    made any material change in its accounting methods;

(k)   suffered any change in its assets, liabilities, licenses, permits or franchises, or in any agreement to which it is a party or is bound, which has had or would have a Material Adverse Effect;

18

 

(l)    made or had authorized any change to the Company Articles of Incorporation or the Company Bylaws;

(m)  declared, set aside or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital stock;

(n)   entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

(o)   made any loans or advances to, guarantees for the benefit of or any investments in, any Person (other than advances to directors, officers and employees of the Company in the ordinary course of business consistent with past practice); or

(p)   committed to do any of the foregoing.

4.8   Title to Properties; Assets .

(a)   Except as set forth on Item 4.8(a)  of the Disclosure Schedule, the Company has good and marketable title to all of the personal property shown on the Latest Balance Sheet free and clear of all Liens except for Permitted Liens. The Company does not own any real property.

(b)   The real property subject to the leases listed on Item 4.8(b)  of the Disclosure Schedule constitutes all of the real property leased by the Company. The leases listed on Item 4.8(b)  of the Disclosure Schedule are in full force and effect and the Company holds a valid and existing leasehold interest under each of the leases for the term set forth on Item 4.8(b)  of the Disclosure Schedule. The Company has delivered to Parent complete and accurate copies of each of the leases listed on Item 4.8(b)  of the Disclosure Schedule, and none of such leases have been modified in any material respect, except to the extent that such modifications are set forth in the copies of such leases delivered to Parent. The Company is not in default in any material respect under any of such leases. The Company has not received written notice that the lessor of any of such leases intends to cancel, suspend or terminate such lease or to exercise or not exercise any option thereunder.

(c)   The equipment and personal properties set forth on the Latest Balance Sheet are in good condition and repair, ordinary wear and tear excepted, and are usable in the ordinary course of business. The Company owns or leases under valid leases all buildings, machinery, equipment and other tangible assets necessary for the reasonable conduct of its business as currently conducted.

4.9   Tax Matters .   Except as provided on Item 4.9 of the Disclosure Schedule:

(a)   The Company has filed all Federal Income Tax Returns and all other material Tax Returns required to be filed by it, and all such Tax Returns were, as of such filing, complete and correct in all material respects. The Company has paid all Taxes shown to be due on such Tax Returns and all material Taxes for which no return was required to be filed.

(b)   No written claim has ever been made by any Tax Authority in a jurisdiction where the Company did not file Tax Returns that it is or may be subject to taxation by that jurisdiction.

(c)   There is no action, suit, proceeding, investigation, audit or claim now pending or, to the Company’s Knowledge, proposed or threatened against the Company in respect of any Tax.

19

 

(d)   There are no liens for Taxes upon the Company or any of its properties or assets except statutory liens for current Taxes not yet due and payable or due but not delinquent or being contested in good faith by appropriate proceedings. All Taxes that are required to be withheld or collected by the Company from their respective employees have been duly withheld and collected and, to the extent required, have been properly paid or deposited as required by applicable laws.

(e)   The Company has not waived any statute of limitations in respect of Taxes of the Company for any taxable period that is still open or agreed to any extension of time with respect to a Tax assessment or deficiency of the Company that is still pending other than by filing Tax Returns pursuant to valid automatic extensions of the required filing date.

(f)    The Company (i) has not filed a consent under former Code Section 341(f) concerning collapsible corporations, (ii) is not a party to any Tax allocation or sharing agreement between the Company, on the one hand, and another Person with which it files a consolidated Tax Return for Federal Income Taxes, on the other hand, (iii) is not or has not been a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and (iv) to the Company’s Knowledge, has not participated in a “reportable transaction” as defined under Treasury Regulation section 1.6011-4(b), as modified by Rev. Proc. 2004-65, Rev. Proc. 2004-66, Rev. Proc. 2004-67 and Rev. Proc. 2004-68.

4.10 Contracts and Commitments .

(a)   Except as set forth on Item 4.10 of the Disclosure Schedule, stated as of the date of this Agreement and again as of the Closing Date, the Company is not a party to any: (i) collective bargaining agreement or contract with any labor union; (ii) bonus, pension, profit sharing, retirement, severance or other form of deferred compensation plan or agreement, other than as described in Section 4.14 of this Agreement or the items of the Disclosure Schedule relating thereto; (iii) stock purchase, stock option or similar plan; (iv) contract for the employment or retention of or for providing severance or non-compete related payments to any officer, individual employee or other person on a full-time or consulting basis or for providing any compensation in connection with the sale of the Company; (v) agreement or indenture relating to the borrowing of money or to mortgaging, pledging or otherwise placing a Lien (other than a Permitted Lien) on the assets of the Company or letter of credit or surety bond arrangements; (vi) guaranty of any obligation for borrowed money or otherwise or other material guaranty; (vii) lease or agreement under which it is lessee of, or holds or operates any property, real or personal, owned by any other party, for which the annual rental exceeds $50,000; (viii) lease or agreement under which it is lessor of or permits any third party to hold or operate any property, real or personal, for which the annual rental exceeds $50,000; (ix) contract or group of related contracts with the same party or, to the Company’s Knowledge, group of related parties for the purchase of products or services, under which the undelivered balance of such products or services is in excess of $50,000 annually; (x) contract or group of related contracts with the same party or, to the Company’s Knowledge, group of related parties for the sale of products or services under which the undelivered balance of such products or services is in excess of $50,000 annually; (xi) contracts prohibiting the Company from freely engaging in business anywhere in the United States; (xii) sales, distributor or franchise agreements under which annual payments made or received by the Company in fiscal 2004 are expected to exceed $50,000; (xiii) material contracts relating to the marketing, sale, advertising or promotion of its products or services; (xiv) agreements with any supplier or customer under which the Company is obligated to indemnify such supplier or customer against liability claims; (xv) agreements relating to ownership of or investments in any business or enterprise, including investments in joint ventures and minority equity investments; (xvi) settlement, conciliation or similar agreements; (xvii) agreements with respect to the lending or investin