AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PEREGRINE SYSTEMS, INC.
HOMER ACQUISITION CORPORATION
AND
INNOVATIVE TECH SYSTEMS, INC.
Dated as of May 7, 1998
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TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER...........................................................................................................2
1.1 The Merger.................................................................................................2
1.2 Effective Time; Closing....................................................................................2
1.3 Effect of the Merger.......................................................................................2
1.4 Certificate of Incorporation; Bylaws.......................................................................2
1.5 Directors and Officers.....................................................................................3
1.6 Effect on Capital Stock....................................................................................3
1.7 Appraisal Rights...........................................................................................4
1.8 Surrender of Certificates..................................................................................5
1.9 No Further Ownership Rights in Company Common Stock........................................................6
1.10 Lost, Stolen, or Destroyed Certificates....................................................................6
1.11 Tax Consequences...........................................................................................7
1.12 Taking of Necessary Action; Further Action.................................................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................................7
2.1 Organization of the Company................................................................................7
2.2 Company Capital Structure..................................................................................8
2.3 Obligations With Respect to Capital Stock.................................................................10
2.4 Authority.................................................................................................11
2.5 SEC Filings; Company Financial Statements.................................................................12
2.6 Absence of Certain Changes or Events......................................................................13
2.7 Taxes.....................................................................................................15
2.8 Restrictions on Business Activities.......................................................................17
2.9 Title to Properties; Absence of Liens and Encumbrances....................................................18
2.10 Intellectual Property.....................................................................................18
2.11 Compliance; Permits; Restrictions.........................................................................22
2.12 Litigation................................................................................................23
2.13 Interested Party Transactions.............................................................................23
2.14 Brokers' and Finders' Fees................................................................................24
2.15 Employee Benefit Plans....................................................................................24
2.16 Environmental Matters.....................................................................................28
2.17 Agreements, Contracts, and Commitments....................................................................28
2.18 Change of Control Payments................................................................................29
2.19 Statements; Proxy Statement/Prospectus....................................................................30
2.20 Board Approval............................................................................................30
2.21 Fairness Opinion..........................................................................................30
2.22 Section 11.75 of the Illinois General Corporation Law Not Applicable......................................30
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB............................................................................................31
3.1 Organization of Parent and Merger Sub.....................................................................31
3.2 Authority.................................................................................................31
3.3 Parent Common Stock.......................................................................................32
3.4 SEC Filings; Parent Financial Statements..................................................................32
3.5 No Material Adverse Change................................................................................32
3.6 Statements; Proxy Statement/Prospectus....................................................................33
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................................................................................33
4.1 Conduct of Business by the Company........................................................................33
4.2 Termination of 401(k) Plans...............................................................................36
ARTICLE V ADDITIONAL AGREEMENTS...............................................................................................36
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
Board Recommendations.....................................................................................36
5.2 Meeting of Company Shareholders...........................................................................37
5.3 Confidentiality; Access to Information....................................................................39
5.4 No Solicitation...........................................................................................39
5.5 Public Disclosure.........................................................................................41
5.6 Reasonable Efforts; Notification..........................................................................41
5.7 Third Party Consents......................................................................................42
5.8 Stock Options and Employee Benefits.......................................................................42
5.9 Form S-8..................................................................................................43
5.10 Indemnification...........................................................................................43
5.11 Nasdaq Listing............................................................................................43
5.12 Company Affiliate Agreement...............................................................................43
5.13 Tax-Free Reorganization...................................................................................44
5.14 Comfort Letter............................................................................................44
5.15 Shareholder Rights Plan...................................................................................44
5.16 Amendment of Redeemable Warrants..........................................................................44
5.17 Warrant Assumption........................................................................................45
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ARTICLE VI CONDITIONS TO THE MERGER...........................................................................................45
6.1 Conditions to Obligations of Each Party to Effect the Merger..............................................45
6.2 Additional Conditions to Obligations of the Company.......................................................46
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.........................................46
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................................................................48
7.1 Termination...............................................................................................48
7.2 Notice of Termination; Effect of Termination..............................................................49
7.3 Fees and Expenses.........................................................................................49
7.4 Amendment.................................................................................................51
7.5 Extension; Waiver.........................................................................................51
ARTICLE VIII GENERAL PROVISIONS...............................................................................................52
8.1 Non-Survival of Representations and Warranties............................................................52
8.2 Notices...................................................................................................52
8.3 Interpretation............................................................................................53
8.4 Counterparts..............................................................................................54
8.5 Entire Agreement; Third Party Beneficiaries...............................................................54
8.6 Severability..............................................................................................54
8.7 Other Remedies; Specific Performance......................................................................54
8.8 Governing Law.............................................................................................54
8.9 Rules of Construction.....................................................................................55
8.10 Assignment................................................................................................55
8.11 Waiver of Jury Trial......................................................................................55
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as
of May 7, 1998, among Peregrine Systems, Inc., a Delaware corporation (the
"PARENT"), Homer Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Parent (the "MERGER SUB"), and Innovative Tech
Systems, Inc., an Illinois corporation (the "COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement
(as defined in Section 1.2 below) and in accordance with the Delaware General
Corporation Law ("DELAWARE LAW") and the Illinois Business Corporation Act
("ILLINOIS LAW"), Parent and the Company intend to enter into a business
combination transaction.
B. The Board of Directors of the Company (i) has determined that
the Merger (as defined in Section 1.1) is consistent with and in furtherance of
the long-term business strategy of the Company and is fair to, and in the best
interests of, the Company and its shareholders, (ii) has unanimously approved
this Agreement, the Merger and the other transactions contemplated by this
Agreement, and (iii) has determined to recommend that the shareholders of the
Company adopt and approve this Agreement and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain affiliates of the Company are entering into Voting Agreements in
substantially the form attached hereto as Exhibit A.
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "CODE").
E. Concurrently with the execution of this Agreement, and as a
condition and inducement to Parent's willingness to enter into this Agreement,
certain officers of the Company are entering into Noncompetition Agreements in
substantially the form attached hereto as Exhibit B in favor of the Company
following the Merger.
F. Concurrently with the execution of this Agreement, Parent and
certain officers of the Company are entering into employment agreements,
effective upon the Effective Time (as defined in Section 1.2), in substantially
the form attached hereto as Exhibit C.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
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ARTICLE I
THE MERGER
I.1 The Merger. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law and Illinois Law, Merger Sub shall be
merged with and into the Company (the "MERGER"), the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION."
I.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing concurrently (i) a Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the relevant provisions of Delaware
Law (the "CERTIFICATE OF MERGER") (the time of such filing (or such later time
as may be agreed in writing by the Company and Parent and specified in the
Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable on or
after the Closing Date (as herein defined) and (ii) Articles of Merger with the
Secretary of State of the State of Illinois in accordance with the relevant
provisions of Illinois Law (the "ARTICLES OF MERGER"). The Certificate of
Merger and the Articles of Merger are referred to collectively herein as the
"MERGER FILINGS." Unless the context otherwise requires, the term "AGREEMENT"
as used herein refers collectively to this Agreement and Plan of Reorganization
and the Merger Filings. The closing of the Merger (the "CLOSING") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, 650 Page Mill Road, Palo Alto, California 94304-1050, at a time
and date to be specified by the parties, which shall be no later than the
second business day after the satisfaction or waiver of the conditions set
forth in Article VI, or at such other time, date and location as the parties
hereto agree in writing (the "CLOSING DATE").
I.3 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement and the applicable provisions
of Delaware Law and Illinois Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
I.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended as provided by law and such Certificate of
Incorporation; provided, however, that Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Peregrine Systems Facilities Management, Inc."
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(b) The Bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended.
I.5 Directors and Officers. The director(s) of Merger Sub
immediately prior to the Effective Time shall be the initial director(s) of the
Surviving Corporation, each to hold office in accordance with the Certificate
of Incorporation and Bylaws of the Surviving Corporation, until their
respective successors are duly elected or appointed and qualified. The
officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in
accordance with the Bylaws of the Surviving Corporation until their respective
successors are duly appointed.
I.6 Effect on Capital Stock. Subject to the terms and conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or the holders of any shares
of the Company's capital stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of
Common Stock, $0.0185 par value per share, of the Company (the "COMPANY COMMON
STOCK") issued and outstanding immediately prior to the Effective Time, other
than any shares of Company Common Stock to be cancelled pursuant to Section
1.6(b) and any Dissenting Shares (as defined and to the extent provided in
Section 1.7(a)), will be cancelled and extinguished and automatically converted
into the right to receive .2341 shares of the Common Stock of Parent (the
"PARENT COMMON STOCK") (such ratio, as adjusted pursuant to Section 1.6(f)
below, being defined herein as the "EXCHANGE RATIO") upon surrender of the
certificate representing such share of Company Common Stock in the manner
provided in Section 1.8 (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required) in the
manner provided in Section 1.10).
(b) Cancellation of Parent-Owned and Company-Owned Stock.
Each share of Company Common Stock held by the Company or owned by Merger Sub,
Parent or any direct or indirect wholly-owned subsidiary of the Company or
Parent immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Stock Options. At the Effective Time, all options to
purchase Company Common Stock then outstanding under the Company's 1994 Stock
Option Plan (the "1994 OPTION PLAN") shall be assumed by Parent in accordance
with Section 5.8 hereof (each a "COMPANY OPTION" and, collectively, the
"COMPANY OPTIONS").
(d) Warrants. Subject to Section 5.17 of this Agreement,
all outstanding Redeemable Warrants (as defined in Section 2.2(b)) below, shall
have been amended and exercised in accordance with Section 5.16 of this
Agreement, and the Goldmen Warrants (as defined in Section 2.2(b) below) shall
have been either redeemed or exercised not later than the Effective Time, or
amended to require their exchange for Parent Common Stock at the Effective
Time, as contemplated by Section 2.2(d) below.
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(e) Capital Stock of Merger Sub. Each share of Common
Stock, $0.001 par value per share, of Merger Sub (the "MERGER SUB COMMON
STOCK") issued and outstanding immediately prior to the Effective Time, shall
be converted into one validly issued, fully paid and nonassessable share of
Common Stock, $0.001 par value per share, of the Surviving Corporation. Each
certificate evidencing ownership of shares of Merger Sub Common Stock shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio
shall be adjusted to reflect appropriately the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Parent Common Stock or Company Common Stock occurring on or after
the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Parent
Common Stock will be issued by virtue of the Merger, but in lieu thereof, each
holder of shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all fractional
shares of Parent Common Stock that otherwise would be received by such holder)
shall be entitled to receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction and (ii) the
average of the last reported sale prices of Parent Common Stock for the five
(5) most recent days that Parent Common Stock has traded ending on the trading
day immediately prior to the Effective Time, as reported on the Nasdaq National
Market ("NASDAQ").
I.7 Appraisal Rights.
(a) Notwithstanding any provision of this Agreement to
the contrary, any shares of Company Common Stock held by a holder who has
demanded and perfected appraisal rights for such shares in accordance with
Illinois Law and who, as of the Effective Time, has not effectively withdrawn
or lost such appraisal rights ("DISSENTING SHARES"), shall not be converted
into or represent a right to receive Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to such rights as are
granted by Illinois Law.
(b) Notwithstanding the provisions of subsection (a), if
any holder of shares of Company Common Stock who demands appraisal of such
shares under Illinois Law shall effectively withdraw or lose (through failure
to perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time or the occurrence of such event, such holder's shares of Company
Common Stock shall automatically be converted into and represent only the right
to receive, upon surrender of the certificate representing such shares of
Company Common Stock, shares of Parent Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of Company Common Stock, cash in
an amount sufficient for payment in lieu of fractional shares pursuant to
Section 1.6(g), and any dividends or other distributions pursuant to Section
1.8(d).
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(c) The Company shall give Parent (i) prompt notice of
any written demands for appraisal of any shares of Company Common Stock,
withdrawals of such demands, and any other instruments served pursuant to
Illinois Law and received by the Company and (ii) the opportunity to
participate in all negotiations and proceedings with respect to demands for
appraisal under Illinois Law. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisal of Company Common Stock or offer to settle or settle any
such demands.
I.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent
shall select a bank or trust company to act as the exchange agent in the Merger
(the "EXCHANGE AGENT").
(b) Parent to Provide Common Stock. Promptly after the
Effective Time, Parent shall make available to the Exchange Agent, for exchange
in accordance with this Article I, (i) the shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Common Stock and (ii) cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.6(g) and any dividends or distributions
to which holders of shares of Company Common Stock may be entitled pursuant to
Section 1.8(d).
(c) Exchange Procedures. Promptly after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record
(as of the Effective Time) of a certificate or certificates (the
"CERTIFICATES"), which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock whose shares were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.6, cash in
lieu of any fractional shares pursuant to Section 1.6(g), and any dividends or
other distributions pursuant to Section 1.8(d),(i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall contain such other provisions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock, cash in lieu of any fractional shares pursuant to Section 1.6(g), and any
dividends or other distributions pursuant to Section 1.8(d). Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing the number of whole shares of Parent Common Stock
into which their shares of Company Common Stock were converted at the Effective
Time, payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.6(g) and any dividends or distributions payable
pursuant to Section 1.8(d), and the Certificate so surrendered shall forthwith
be cancelled. Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented shares of Company Common Stock will be deemed,
from and after the Effective Time, for all corporate purposes, subject to
Section 1.8(d) as to the payment of dividends, to evidence only the ownership of
the number of full shares of Parent Common Stock into which such shares of
Company
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Common Stock shall have been so converted and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance with
Section 1.6(g), and any dividends or distributions payable pursuant to Section
1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holders of any unsurrendered Certificate
with respect to the shares of Parent Common Stock represented thereby until the
holders of record of such Certificate shall surrender such Certificate.
Subject to applicable law, following surrender of any such Certificate, the
Exchange Agent shall deliver to the record holder thereof, without interest, a
certificate representing whole shares of Parent Common Stock issued in exchange
therefor along with payment in lieu of fractional shares pursuant to Section
1.6(g) hereof and the amount of any such dividends or other distributions with
a record date after the Effective Time payable with respect to such whole
shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate
representing shares of Parent Common Stock is to be issued in a name other than
that in which the Certificate surrendered in exchange therefor is registered,
it will be a condition of the issuance thereof that the Certificate so
surrendered will be properly endorsed and otherwise in proper form for transfer
and that the persons requesting such exchange will have paid to Parent or any
agent designated by it any transfer or other taxes required by reason of the
issuance of certificates representing shares of Parent Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the
contrary in this Section 1.8, none of the Exchange Agent, Parent, the Surviving
Corporation, or any party hereto shall be liable to a holder of shares of
Parent Common Stock or Company Common Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat, or
similar law.
I.9 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof pursuant to Section 1.6(g) and 1.8(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article I.
I.10 Lost, Stolen, or Destroyed Certificates. In the event that
any Certificate shall have been lost, stolen, or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen, or destroyed Certificate, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such
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Certificates were converted pursuant to Section 1.6, cash for fractional
shares, if any, as may be required pursuant to Section 1.6(g), and any
dividends or distributions payable pursuant to Section 1.8(d); provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance of such certificates representing shares of Parent Common Stock, cash,
and other distributions, require the owner of such lost, stolen, or destroyed
Certificate to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation, or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen, or destroyed.
I.11 Tax Consequences. It is intended by the parties hereto that
the Merger shall (i) constitute a reorganization within the meaning of Section
368 of the Code and (ii) qualify for accounting treatment as a purchase. The
parties hereto 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 Income Tax
Regulations.
I.12 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub, are fully authorized in the names of their
respective corporations or otherwise to take, and will take, all such lawful
and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to the specific exceptions specifically disclosed in writing in the
disclosure letter and schedules thereto (each referencing the appropriate
section numbers of this Article II for which an exception exists), dated as of
the date hereof, certified by a duly authorized officer of the Company, and
delivered by the Company to Parent (the "COMPANY SCHEDULES"), as follows:
II.1 Organization of the Company.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Illinois, and
each Subsidiary (as defined herein) is a corporation duly organized, validly
existing, and in good standing under the laws of its respective jurisdiction of
incorporation. The Company and each Subsidiary has the corporate power and
authority to own, lease, and operate its assets and property and to carry on
its business as now being conducted and as proposed to be conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction where the character of the properties owned, leased, or operated
by it or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so qualified would not have a
Material Adverse Effect (as defined in Section 8.3(c) below) on the Company.
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(b) Schedule 2.1(b) sets forth a complete list of each
corporation, partnership, limited liability company, joint venture, business
trust or association, or other entity in which the Company, directly or
indirectly, holds an equity, partnership, or other ownership interest (each, a
"SUBSIDIARY" and collectively, the "SUBSIDIARIES"). Schedule 2.1(b)
identifies, for each Subsidiary, the issued and outstanding capital stock (or
partnership or other ownership interests), the identity and address of each
holder of the issued and outstanding capital stock of such Subsidiary (or
partnership or other ownership interests), and the number of shares of capital
stock (or similar partnership or ownership interests) of such Subsidiary held
by such holder. All of the outstanding shares of the capital stock of each
Subsidiary have been duly authorized and validly issued, are fully paid and
nonassessable, and all such shares (or partnership or other ownership interests)
are wholly owned by the Company, directly or indirectly through a Subsidiary,
free and clear of any lien, adverse claim, security interest, equity or other
encumbrance. There are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which any Subsidiary is a party
or by which any Subsidiary is bound, obligating such Subsidiary to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of such Subsidiary's capital stock or any
partnership or other ownership interest in such Subsidiary.
(c) The Company has made available to Parent a true and
correct copy of its Articles of Incorporation and Bylaws and the similar
constituent documents of each Subsidiary, each as amended to date, and each
such instrument is in full force and effect. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent governing instruments.
II.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists
of 100,000,000 shares of Common Stock, $0.0185 par value per share, of which
there were 11,344,845 shares issued and outstanding as of May 7, 1998
(excluding shares held in treasury of which there were none), and 200,000,000
shares of Senior Preferred Stock, $0.001 par value per share, of which no
shares were issued or outstanding as of May 7, 1998. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are not subject to preemptive rights created by statute, the
Articles of Incorporation or Bylaws of the Company, or any agreement or
document to which the Company is a party or by which it is bound. As of May 7,
1998, the Company had reserved an aggregate of 2,089,334 shares of Company
Common Stock, net of exercises, for issuance pursuant to the 1994 Option Plan.
In addition, there was an option outstanding outside the 1994 Option Plan to
acquire 100,000 shares of Company Common Stock held by a consultant to the
Company. As of May 7, 1998, there were options outstanding to purchase an
aggregate of 2,089,334 shares of Company Common Stock pursuant to the 1994
Option Plan, of which options to purchase 1,160,145 shares were fully vested
and exercisable as of May 7, 1998. As of May 7, 1998, there were outstanding
warrants to purchase an aggregate of 1,336,937 shares of Company Common Stock
(including warrants issuable upon exercise of outstanding warrants).
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(b) The Warrant Agreement (the "WARRANT AGREEMENT")
dated as of July 26, 1994 between the Company and Continental Stock Transfer & Trust Company (the "WARRANT AGENT") governs outstanding warrants for the
purchase of a total of 940,187 shares of Company Common Stock as of the date of
this Agreement (the "REDEEMABLE WARRANTS"); provided, however, that warrants
(the "GOLDMEN WARRANTS") for the purchase of (x) a total of 390,000 shares of
Company Common Stock and (y) additional warrants for the purchase of 6,750
shares of Company Common Stock, all of which are held by transferees of A.S.
Goldmen & Co., Inc. ("GOLDMEN"), are subject to the provisions of the
Underwriter's Warrant Agreement dated as of July 26, 1994 between the Company
and Goldmen. The Redeemable Warrants and the Goldmen Warrants (including the
warrants issuable upon exercise of the Goldmen Warrants) are referred to
collectively herein as the "WARRANTS." The Warrant Agreement, together with
the certificates for the Redeemable Warrants, constitutes the entire agreement
among the Company, the Warrant Agent and the holders of the Redeemable Warrants
with respect to the Redeemable Warrants, and except as the terms of the
Redeemable Warrants have been amended in connection with the solicitation of
the holders of the Redeemable Warrants effected September 30, 1997, there has
been no change in or modification or alteration of such terms, nor has there
been any amendment or modification of the Warrant Agreement or any other
agreement which would affect the terms of the Redeemable Warrants or the
related rights and obligations of the holders of the Redeemable Warrants or the
parties to the Warrant Agreement. Among other terms, the Redeemable Warrants
(i) are currently exercisable at a price of $0.08 per share of Company Common
Stock, (ii) expire July 25, 1999 (subject to adjustment in accordance with the
Warrant Agreement), and (iii) are currently redeemable at a redemption price of
$0.67 per share, subject to the requirements set forth in Section 9 of the
Warrant Agreement, which condition the redemption of the Redeemable Warrants
based on an average closing sale price of the Company Common Stock (as required
in such Section 9) of $2.33 per share, after adjustment for the three-for-one
forward split of the Company Common Stock effected on September 18, 1995. The
amendment to the Redeemable Warrants made in connection with the solicitation
of the holders of the Redeemable Warrants in September 1997 was in compliance
with applicable federal and state securities laws. The Company has complied
and continues to comply with the terms of the Redeemable Warrants and the
Warrant Agreement; has not issued or agreed to issue at any time any
securities, including any options, warrants or similar rights for the purchase
of securities of the Company, which would result in any adjustment to the
number of shares underlying the Redeemable Warrants or the exercise price
thereof; and has maintained the currency of the registration statement
permitting the exercise of the Redeemable Warrants in accordance with Section
5(b) of the Warrant Agreement. Warrants for the purchase of 940,187 shares are
listed for trading on the Nasdaq SmallCap Market, and the grant of Redeemable
Warrants and/or the issue and sale of shares of Company Common Stock upon
exercise thereof comply or will comply with applicable federal and state
securities laws.
(c) All shares of Company Common Stock subject to
issuance upon exercise of outstanding options or warrants, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. All outstanding shares of Company Common Stock, all outstanding
securities exchangeable or convertible into or exercisable for Company Common
Stock, and any other outstanding securities of the Company were issued in
compliance with applicable federal and state securities laws.
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Schedule 2.2 lists for each person who held options to acquire shares of Company
Common Stock as of May 7, 1998, the name of the holder of such option, the
exercise price of such option, the number of shares as to which such option had
vested at such date, the vesting schedule for such option, and the extent to
which such option will be accelerated in any way by the transactions
contemplated by this Agreement. Schedule 2.2 also lists all outstanding Warrants
and other securities exercisable for or convertible into shares of Company
Common Stock, the record holder thereof, the applicable exercise or conversion
price therefor, and the expiration or termination date thereof. All Company
Options have been granted under and in accordance with the requirements of the
1994 Option Plan, have been properly authorized by appropriate action of the
Company's Board of Directors, have been granted with an exercise price of not
less than fair market value as of the date of grant, and, except with respect to
the grant of Company Options to consultants or directors of the Company, have
not required or resulted in compensation charges under generally accepted
accounting principles.
(d) Prior to the execution of this Agreement, the Company
has obtained in writing from Goldmen and each of the holders of the Goldmen
Warrants such waivers and consents, in a form satisfactory to Parent and signed
copies of which have been attached to the Company Schedules, to ensure that (i)
the Goldmen Warrants will be either redeemed or exercised not later than the
Effective Time, or amended prior to the execution of this Agreement to provide
that the Goldmen Warrants shall be exchanged for Parent Common Stock at the
Effective Time, with appropriate adjustments based on the Exchange Ratio, and
(ii) neither Goldmen nor any holder of the Goldmen Warrants has (or at the
Effective Time will have) any contractual rights or claims against the Company
or Parent of any nature (including but not limited to Board representation
rights, registration rights, rights to payment of commissions or fees, or
information rights).
II.3 Obligations With Respect to Capital Stock. Except as set
forth in Section 2.2, there are no equity securities, partnership interests or
similar ownership interests of any class of equity securities of the Company,
or any securities exchangeable or convertible into or exercisable for such
equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in Section
2.2, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company or any Subsidiary is a party or by which it is bound obligating the
Company or any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of the Company or any
Subsidiary or obligating the Company or any Subsidiary to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement. As of the date of this
Agreement, and except as set forth on Schedule 2.3 and as contemplated by this
Agreement, no person or entity holds the right to require the registration or
qualification under applicable securities laws of any securities of the Company
or any Subsidiary, and there is no voting trust, proxy, rights plan,
antitakeover plan or other agreement or understanding to which the Company is a
party or by which it is bound with respect to any class of equity security of
the
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Company or with respect to any equity security, partnership interest or
similar ownership interest of any class of equity security of any Subsidiary.
II.4 Authority.
(a) The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval and adoption of this Agreement and the approval of
the Merger by the Company's shareholders in accordance with Illinois Law and the
filing of the Merger Filings pursuant to Delaware Law and Illinois Law. The vote
required of the Company's shareholders to approve and adopt this Agreement and
approve the Merger is a majority of the outstanding shares of Company Common
Stock. The Company's Board of Directors has unanimously approved the Merger and
this Agreement. This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution and
delivery of this Agreement by the Company does not, and the performance of this
Agreement by the Company will not, and as of the Effective Time, the
consummation of the transactions contemplated hereby will not, (i) conflict with
or violate the Articles of Incorporation or Bylaws of the Company or the
constituent documents of any Subsidiary; (ii) subject to obtaining the approval
and adoption of this Agreement and the approval of the Merger by the Company's
shareholders as contemplated in Section 5.2 and compliance with the requirements
set forth in Section 2.4(b) below, conflict with, or result in any violation of,
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which the Company or any Subsidiary or any of their
respective properties is bound or affected; or (iii) except for the consents,
waivers, and approvals described in Schedule 2.4(a), result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair the Company's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of the
Company or any Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or its or any of their respective assets are
bound or affected. Schedule 2.4(a) lists all consents, waivers and approvals
under any agreements, contracts, licenses or leases of the Company or any
Subsidiary required to be obtained in connection with the Merger and the
consummation of the transactions contemplated hereby, which, if individually or
in the aggregate not obtained, would result in a material loss of benefits to
the Company, Parent, or the Surviving Corporation.
(b) No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with any court, administrative
agency or commission or other federal, state, county, local, or foreign
governmental authority or instrumentality ("GOVERNMENTAL ENTITY") or any third
party, is required to be obtained or made by the Company or any Subsidiary in
connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the Merger Filings with
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the Secretaries of State of the States of Delaware and Illinois; (ii) the filing
of the Proxy Statement/Prospectus (as defined in Section 2.19) with the
Securities and Exchange Commission (the "SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"); (iii) such consents,
approvals, orders, authorizations, registrations, declarations, and filings as
may be required under applicable federal, foreign, and state securities (or
related) laws, and the securities or antitrust laws of any foreign country; and
(iv) such other consents, authorizations, filings, approvals, and registrations
which if not obtained or made would not be material to the Company or Parent or
adversely effect the ability of the parties hereto to consummate the Merger.
II.5 SEC Filings; Company Financial Statements.
(a) Except as set forth on Schedule 2.5, the Company has
filed all forms, reports, and documents required to be filed by the Company
with the SEC since July 26, 1994. All such required forms, reports and
documents (including those that the Company may file subsequent to the date
hereof, are referred to herein as the "COMPANY SEC REPORTS." As of their
respective filing dates: the Company SEC Reports (i) complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Reports and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. No Subsidiary is required to file any forms, reports, or other
documents with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any related notes thereto) contained in the Company
SEC Reports (the "COMPANY FINANCIAL STATEMENTS"), including each Company SEC
Report filed after the date hereof until the Closing (i) complied as to form in
all material respects with the published rules and regulations of the SEC with
respect thereto; (ii) was prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act); and (iii) fairly presented the
consolidated financial position of the Company and the Subsidiaries as at the
respective dates thereof and the consolidated results of the Company's
operations and cash flows for the periods indicated (subject, in the case of
unaudited financial statements, to normal audit adjustments). The balance
sheet of the Company contained in the Company's Annual Report on Form 10-K for
the year ended January 31, 1998 (as filed with the SEC on May 1, 1998) is
hereinafter referred to as the "COMPANY BALANCE SHEET." Except as disclosed in
the Company Financial Statements, since the date of the Company Balance Sheet,
neither the Company nor any Subsidiary has incurred any liability required
under GAAP to be set forth on a balance sheet (absolute, accrued, contingent or
otherwise) which is, individually or in the aggregate, material to the
business, results of operations or financial condition of the Company and the
Subsidiaries, taken as a whole, except for liabilities incurred
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since the date of the Company Balance Sheet in the ordinary and usual course of
business consistent with past practices.
(c) The Company has heretofore furnished to Parent a
complete and correct copy of any amendments or modifications, which have not
yet been filed with the SEC but which are required to be filed, to agreements,
documents, or other instruments which previously had been filed by the Company
with the SEC pursuant to the Securities Act or the Exchange Act.
II.6 Absence of Certain Changes or Events. Since the date of the
Company Balance Sheet (or such other date specifically set forth herein),
except as otherwise contemplated by this Agreement, disclosed in the Company
SEC Reports, or described in Schedule 2.6, the Company and each Subsidiary have
conducted their businesses only in the ordinary and usual course and, without
limiting the generality of the foregoing:
(a) Neither the Company nor any Subsidiary has sustained
any damage, destruction, or loss by reason of fire, explosion, earthquake,
casualty, labor trouble (including but not limited to any claim of wrongful
discharge or other unlawful labor practice), requisition or taking of property
by any government or agent thereof, windstorm, embargo, riot, act of God or
public enemy, flood, accident, revocation of license or right to do business,
total or partial termination, suspension, default or modification of contracts,
governmental restriction or regulation, other calamity, or other similar or
dissimilar event (whether or not covered by insurance) that has resulted or
would result in a Material Adverse Effect on the Company.
(b) There have been no changes in the condition
(financial or otherwise), business, net worth, assets, properties, operations,
obligations, liabilities (fixed or contingent), or prospects of the Company
which, individually or in the aggregate, have resulted or will result (whether
before or after the Effective Time) in a Material Adverse Effect on the
Company.
(c) Neither the Company nor any Subsidiary has issued, or
authorized for issuance, any equity security, bond, note, or other security,
except for shares of Company Common Stock issued upon exercise of outstanding
Company Options and the Warrants, except for shares of Company Common Stock and
options to acquire Company Common Stock granted under the 1994 Option Plan,
which options are listed in Schedule 2.2, or accelerated the vesting of any
employee stock benefits (including vesting under stock purchase agreements or
the exercisability of Company Options). Neither the Company nor any Subsidiary
has granted or entered into any commitment or obligation to issue or sell any
such equity security, bond, note or other security of the Company or such
Subsidiary, whether pursuant to offers, stock option agreements, stock bonus
agreements, stock purchase plans, incentive compensation plans, warrants,
calls, conversion rights or otherwise, except for shares of Company Common
Stock issued upon the exercise of the Company Options and the Warrants.
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(d) Neither the Company nor any Subsidiary has incurred
any additional debt for borrowed money, nor incurred any obligation or
liability (fixed, contingent, or otherwise) except in the ordinary and usual
course of business.
(e) Neither the Company nor any Subsidiary has paid any
obligation or liability (fixed, contingent, or otherwise), or discharged or
satisfied any lien or encumbrance, or settled any liability, claim, dispute,
proceeding, suit, or appeal, pending or threatened against it or any of its
assets or properties, except for current liabilities included in the Company
Balance Sheet and current liabilities incurred since the date of the Company
Balance Sheet in the ordinary and usual course of business.
(f) Neither the Company nor any Subsidiary has declared,
set aside for payment, or paid any dividend, payment, or other distribution on
or with respect to any share of its capital stock.
(g) Neither the Company nor any Subsidiary has purchased,
redeemed, or otherwise acquired or committed itself to acquire, directly or
indirectly, any shares of its capital stock.
(h) Neither the Company nor any Subsidiary has mortgaged,
pledged, otherwise encumbered, or subjected to lien any of its material assets
or properties, tangible or intangible, nor has it committed itself to do any of
the foregoing, except for liens for current Taxes (as defined in Section 2.7)
which are not yet due and payable and purchase money liens arising out of the
purchase and sale of products or services made in the ordinary and usual course
of business.
(i) Neither the Company nor any Subsidiary has disposed
of, or agreed to dispose of, any material asset or property, tangible or
intangible, except in the ordinary and usual course of business, nor has the
Company or any Subsidiary leased or licensed to others (including officers and
directors of the Company), or agreed so to lease or license, any asset or
property, except for the licensing of the Company's software to customers,
distributors, and resellers in the ordinary and usual course of business.
(j) Neither the Company nor any Subsidiary has purchased
or agreed to purchase or otherwise acquire any debt or equity securities of any
corporation, partnership, joint venture, firm, or other entity.
(k) Neither the Company nor any Subsidiary has entered
into any material transaction or contract, or made any commitment to do the
same, except in the ordinary and usual course of business. Neither the Company
nor any Subsidiary has made any expenditure or commitment for the purchase,
acquisition, construction, or improvement of a capital asset except in the
ordinary and usual course of business. Neither the Company nor any Subsidiary
has waived any right of substantial value or cancelled any material debts or
claims or voluntarily suffered any extraordinary losses.
(l) Neither the Company nor any Subsidiary has sold,
assigned, transferred, or conveyed, or committed itself to sell, assign,
transfer or convey, any Company Intellectual Property Rights (as defined in
Section 2.10), except for the licensing of software to customers, distributors,
and
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resellers in the ordinary and usual course of business, and neither the
Company nor any Subsidiary has entered into any product development, technology
or product sharing, or similar strategic arrangement with any other party.
(m) Neither the Company nor any Subsidiary has effected
or agreed to effect any amendment or supplement to any employee profit sharing,
stock option, stock purchase, pension, bonus, incentive, retirement, medical
reimbursement, life insurance, deferred compensation or any other employee
benefit plan or arrangement. Neither the Company nor any Subsidiary has paid or
committed itself to pay to or for the benefit of any of its directors, officers,
employees, consultants or shareholders any compensation of any kind other than
wages, salaries, and benefits at times and rates in effect prior to the date of
the Company Balance Sheet (other than regularly scheduled increases for
non-officer employees in the ordinary and usual course of business). Neither the
Company nor any Subsidiary has effected or agreed to effect any change,
including by way of hiring or involuntary termination, in the employment or
engagement terms of any of its directors, executive officers, or key employees.
(n) Since July 22, 1994, the Company has not effected or
committed itself to effect any amendment or modification to its Articles of
Incorporation or Bylaws.
(o) The Company has not changed in any way its accounting
methods or practices (including any change in depreciation or amortization
policies or rates, any changes in policies in making or reversing accruals, or
any change in capitalization of software development costs).
(p) Neither the Company nor any Subsidiary has made any
loan to any person or entity, and neither the Company nor any Subsidiary has
guaranteed the payment of any loan or debt of any person or entity, except for
(i) travel or similar advances made to employees in connection with their
employment duties in the ordinary and usual course of business, consistent with
past practices and (ii) accounts receivable incurred in the ordinary and usual
course of business consistent with past practices.
(q) Neither the Company nor any Subsidiary has changed in
any material respect the prices or royalties set or charged by the Company or
such Subsidiary.
(r) Neither the Company nor any Subsidiary has negotiated
or agreed to do any of the things described in the preceding clauses (a)
through (q) (other than negotiations with Parent and its representatives
regarding the transactions contemplated by this Agreement).
II.7 Taxes.
(a) Definition of Taxes. For the purposes of this
Agreement, "TAX" or collectively, "TAXES," means any and all
federal, state, local and foreign taxes, assessments, and other governmental
charges, duties, impositions and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding,
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payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits.
(i) The Company and each Subsidiary has
accurately prepared and timely filed all required federal, state, local and
foreign returns, estimates, information statements, and reports ("RETURNS")
relating to Taxes of the Company, any Subsidiary, or their operations and have
paid all Taxes shown to be due on such Returns. Such Returns are true and
correct in all material respects and have been completed in accordance with
applicable law.
(ii) The Company and each Subsidiary as of the
Effective Time (A) will have paid or accrued all Taxes it is required to pay or
accrue and (B) will have withheld with respect to its employees all federal and
state income taxes, Taxes pursuant to the Federal Insurance Contribution Act
("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA"), and
other Taxes required to be withheld.
(iii) Neither the Company nor any Subsidiary has
been delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed, or assessed against the Company or any Subsidiary, nor
has the Company or any Subsidiary executed any unexpired waiver of any statute
of limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return
of the Company or any Subsidiary by any Tax authority is presently in progress,
nor has the Company or any Subsidiary been notified of any request for such an
audit or other examination.
(v) No adjustment relating to any Returns filed
by the Company or any Subsidiary has been proposed formally or informally by
any Tax authority to the Company or any of its subsidiaries or any
representative thereof.
(vi) Neither the Company nor any Subsidiary has any
liability for unpaid Taxes which has not been accrued or reserved against in
accordance with GAAP on the Company Balance Sheet, whether asserted or
unasserted, contingent or otherwise other than any liability for unpaid Taxes
that may have accrued since the date of the Company Balance Sheet in connection
with the operation in the ordinary course of the business of the Company and the
Subsidiaries. The accrual for Taxes of the Company and the Subsidiaries shown on
the Company Balance Sheet is sufficient to discharge the Taxes for all periods
(or the portion of any period) ending on or prior to the date of the Company
Balance Sheet, and no Taxes will be incurred by the Company or any Subsidiary
between that date and the Closing Date, except in the ordinary course of
business.
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(vii) The Company has provided Parent copies of all
federal, state, and foreign income and all state sales and use Tax Returns of
the Company or any Subsidiary for each of the Company's last five fiscal years.
(viii) There are (and, as of immediately following
the Closing, there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any kind ("LIENS") on the assets of the
Company or any Subsidiary relating to or attributable to Taxes, other than
Liens for Taxes not yet due and payable or Liens that would not materially
impair the use of the encumbered assets.
(ix) There is no contract, agreement, plan or
arrangement to which the Company is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company or any Subsidiary that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(x) Neither the Company nor any Subsidiary has
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company.
(xi) Neither the Company nor any Subsidiary is
party to or has any obligation under any tax-sharing, tax indemnity or tax
allocation agreement or arrangement.
(xii) Except as may be required as a result of the
Merger, the Company and the Subsidiary have not been and will not be required to
include any adjustment in taxable income for any tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable provision
under state or foreign tax laws as a result of transactions, events or
accounting methods employed prior to the Closing.
(xiii) None of the assets of the Company or any
Subsidiary is tax exempt use property within the meaning of Section 168(h) of
the Code.
(xiv) The Company Schedules list (A) any foreign
tax holidays, (B) any intercompany transfer pricing agreements, or other
arrangements that have been established by the Company or any Subsidiary with
any Tax authority, and (C) any expatriate programs or policies affecting the
Company or any Subsidiary.
II.8 Restrictions on Business Activities. There is no agreement
(noncompetition, field of use, or otherwise), judgment, injunction, order, or
decree binding upon the Company or any Subsidiary which has or reasonably could
be expected to have the effect of prohibiting or impairing any business
practice of the Company or any Subsidiary, any acquisition of property
(tangible or intangible) by the Company or any Subsidiary, or the conduct of
any line of business by the Company or any Subsidiary. Without limiting the
foregoing, neither the Company nor any Subsidiary has entered into any
agreement under
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which the Company or any Subsidiary is restricted from selling, licensing, or
otherwise distributing any products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
II.9 Title to Properties; Absence of Liens and Encumbrances.
(a) Neither the Company nor any Subsidiary owns any real
property, nor has the Company or any Subsidiary ever owned any real property.
Schedule 2.9(a) sets forth a list of all real property currently leased by the
Company and the Subsidiaries, the name of the lessor, and the date and term of
the lease and each amendment thereto. All such current leases are in full
force and effect, are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute an event of default) that would give rise to a claim in an amount
greater than $15,000. To the knowledge of the Company, neither its operations
nor the operation of the Subsidiaries on any such real property, nor such real
property, including improvements thereon, violate in any material respect any
applicable building code, zoning requirement, or classification, or pollution
control ordinance or statute relating to the particular property to such
operations, and such non-violation is not dependent, in any instance, on
so-called non-conforming use exceptions.
(b) The Company and the Subsidiaries have good and valid
title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of their tangible properties and assets, real, personal and
mixed, used or held for use in their business, free and clear of any Liens,
except as reflected in the Company Financial Statements, except for liens
created by the lessors of such properties or assets, and except for Liens for
Taxes not yet due and payable and such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do not
materially detract from the value, or materially interfere with the present
use, of the property subject thereto or affected thereby.
II.10 Intellectual Property. For the purposes of this Agreement,
the following terms have the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United
States, international and foreign patents and applications therefor
and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions
(whether or not patentable), invention disclosures, improvements,
trade secrets, proprietary information, know how, computer software
programs (in both source code and object code form), technology,
technical data and customer lists, tangible or intangible proprietary
information, and all documentation relating to any of the foregoing;
(iii) all copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto throughout the
world; (iv) all industrial designs and any registrations and
applications therefor throughout the world; (v) all trade names,
logos, common law trademarks and service marks, trademark and service
mark registrations and applications
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therefor throughout the world; (vi) all databases and data collections
and all rights therein throughout the world; (vii) all moral and
economic rights of authors and inventors, however denominated,
throughout the world; and (viii) any similar or equivalent rights to
any of the foregoing anywhere in the world.
"COMMERCIAL SOFTWARE RIGHTS" shall mean packaged commercially
available software programs generally available to the public through
retail dealers in computer software which have been licensed to the
Company or a Subsidiary pursuant to end-user licenses and which are
used in the business of the Company and the Subsidiaries but are in no
way a component of or incorporated in any products of the Company or
any Subsidiary or any related Company Intellectual Property.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property
that is used in the business of the Company and the Subsidiaries as
currently conducted and as proposed to be conducted.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks,
applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks; (iii)
registered copyrights and applications for copyright registration; and
(iv) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other
public legal authority.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company.
(a) Schedule 2.10(a) sets forth a complete list of all
Registered Intellectual Property and all material Intellectual Property
included in the Company Intellectual Property and specifies the jurisdictions
in which such Company Intellectual Property has been issued or registered or in
which an application for such issuance and registration has been filed,
including the respective registration or application numbers and the names of
all registered owners, together with a list of all software products currently
marketed by the Company and the Subsidiaries and an indication as to which, if
any, of such software products have been registered for copyright protection
with the United States Copyright Office and any foreign offices and by whom
such items have been registered.
(b) Schedule 2.10(b) sets forth a complete list of (i)
any requests the Company or any Subsidiary has received to make any such
registration, including the identity of the requestor and the item requested to
be so registered and the jurisdiction for which such request has been made;
(ii) all licenses, sublicenses, and other agreements to which the Company or
any Subsidiary is a party and pursuant to which the Company, any Subsidiary, or
any other person is authorized to use any Company Intellectual Property or
trade secret material to the Company or any Subsidiary, and includes the
identity of all parties
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thereto, a description of the nature and subject matter thereof, the applicable
royalty, and the term thereof (other than standard customer, distributor, and
reseller software license agreements entered into by the Company or any
Subsidiary in the ordinary course of business); and (iii) any agreement pursuant
to which a third party has licensed or transferred any Intellectual Property to
the Company (other than licenses of Commercial Software Rights). The execution
and delivery of this Agreement by the Company, and the consummation of the
transactions contemplated hereby, will cause neither the Company nor any
Subsidiary to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement.
(c) Neither the Company nor any Subsidiary has been sued
or charged as a defendant in any claim, suit, action, or proceeding which
involves a claim of infringement of any Intellectual Property of any third
party and which has not been finally terminated prior to the date hereof nor
does the Company have any knowledge of any such charge or claim, and there is
not any infringement liability with respect to, or infringement or violation
by, the Company or any Subsidiary of any Intellectual Property of another. No
Company Intellectual Property or product of the Company or any of Subsidiary is
subject to any outstanding decree, order, judgment, or stipulation restricting
in any manner the licensing of products by the Company and the Subsidiaries.
(d) Each item of Company Registered Intellectual Property
is valid and subsisting, all necessary registration, maintenance and renewal
fees currently due in connection with such Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Registered Intellectual Property have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property.
(e) The Company or a Subsidiary is the sole and exclusive
owner or licensee of, with all right, title, and interest in and to each item
of Company Intellectual Property, free and clear of any Lien, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which the
Company Intellectual Property is being used. Neither the Company nor any
Subsidiary uses or is licensed to use, and none of their products include or
incorporate, any (i) software distributed free of charge on a trial basis for
which a paid license would be required for commercial distribution, (ii)
software whose ownership has been retained by a third party who controls its
distribution, or (iii) any other code obtained from the public domain.
(f) To the extent that any material Intellectual Property
has been developed or created by a third party for the Company or any
Subsidiary, the Company or a Subsidiary has a written agreement with such third
party with respect thereto, and the Company or a Subsidiary thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained
a license (sufficient for the conduct of its business as currently conducted
and as proposed to be conducted) to all such third party's
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Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so.
(g) The Company has not transferred ownership of, or
granted any exclusive license with respect to, any Intellectual Property that
is or was material Company Intellectual Property, to any third party.
(h) All contracts, licenses and agreements relating to
the Company Intellectual Property are in full force and effect. The execution
and delivery of this Agreement by the Company and the consummation of the
transactions contemplated hereby will neither violate nor result in the breach,
modification, cancellation, termination, or suspension of such contracts,
licenses and agreements. The Company is in compliance with, and has not
breached any term of such contracts, licenses and agreements and, to the
knowledge of the Company, all other parties to such contracts, licenses and
agreements are in compliance with, and have not breached any term of, such
contracts, licenses and agreements. Following the Closing Date, the Surviving
Corporation will be permitted to exercise all of the Company's rights under
such contracts, licenses and agreements to the same extent the Company would
have been able to had the transactions contemplated by this Agreement not
occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties, or payments which the Company would
otherwise be required to pay.
(i) No claims with respect to Company Intellectual
Property have been asserted or, to the Company's knowledge, are threatened by
any person, nor to the Company's knowledge are there any valid grounds for any
bona fide claims (i) to the effect that the manufacture, sale, licensing or use
of any of the products of the Company and the Subsidiaries infringes on or
misappropriates any Intellectual Property or constitutes unfair competition or
trade practices under the laws of any jurisdiction; (ii) against the use by the
Company or any Subsidiary of any Intellectual Property used in the business of
the Company and the Subsidiaries as currently conducted or as proposed to be
conducted; or (iii) challenging the ownership by the Company or any Subsidiary,
validity or effectiveness of any Company Intellectual Property. The business
of the Subsidiaries as currently conducted or as proposed to be conducted has
not and does not infringe on any proprietary right of any third party. To the
Company's knowledge, there is no unauthorized use, infringement or
misappropriation of any Company Intellectual Property by any third party,
including any employee or former employee of the Company or any Subsidiary.
(j) To the Company's knowledge, neither the Company nor
any Subsidiary has breached or violated the terms of its license, sublicense,
or other agreement relating to any Commercial Software Rights, and the Company
and the Subsidiaries have a valid right to use such Commercial Software Rights
under such licenses and agreements. Neither the Company nor any Subsidiary is
or will be as a result of the execution and delivery of this Agreement or the
performance of the Company's obligations hereunder, in violation of any
license, sublicense, or agreement relating to Commercial Software Rights. No
claims with respect to the Commercial Software Rights have been asserted or, to
the knowledge of the Company, are threatened by any person against the Company
or any Subsidiary, nor to the knowledge of the Company is there any valid
grounds for any bona fide claims (i) to the effect
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that the use of any product as now used or proposed for use by the Company and
the Subsidiaries infringes on any Intellectual Property, (ii) against the use by
the Company or any Subsidiary of any Company Intellectual Property, or (iii)
challenging the validity or effectiveness of any of the rights of the Company
and the Subsidiaries to use Commercial Software Rights. To the knowledge of the
Company, there is no material unauthorized use, infringement, or
misappropriation of any of the Commercial Software Rights by the Company or any
Subsidiary or any employee or former employee of the Company or any Subsidiary.
To the knowledge of the Company, no Commercial Software Right is subject to any
outstanding order, judgment, decree, stipulation, or agreement restricting in
any manner the use thereof by the Company or any Subsidiary.
(k) The Company has taken reasonable steps to protect the
Company's rights in the Company's confidential information and trade secrets
that it wishes to protect or any trade secrets or confidential information of
third parties provided to the Company, and, without limiting the foregoing, the
Company has and enforces a policy requiring each employee and contractor to
execute a proprietary information/confidentiality agreement substantially in
the form provided to Parent and all current and former employees and
contractors of the Company have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to the Company.
II.11 Compliance; Permits; Restrictions.
(a) Neither the Company nor any Subsidiary is in conflict
with, or in default or in violation of (i) any law, rule, regulation, order,
judgment or decree applicable to the Company or any Subsidiary or by which the
Company or any Subsidiary or any of their respective properties is bound or
affected or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties are bound or affected, except
for conflicts, violations and defaults that (individually or in the aggregate)
would not cause the Company to lose any material benefit or incur any material
liability. No investigation or review by any Governmental Entity is pending
or, to the Company's knowledge, has been threatened against the Company or any
Subsidiary, nor, to the Company's knowledge, has any Governmental Entity
indicated an intention to conduct an investigation of the Company or any
Subsidiary.
(b) The Company and the Subsidiaries hold, to the extent
legally required, all permits, licenses, variances, exemptions, orders and
approvals from governmental authorities that are material to and required for
the operation of the business of the Company or such Subsidiary as currently
conducted (collectively, the "COMPANY PERMITS"). The Company and the
Subsidiaries are in compliance in all material respects with the terms of the
Company Permits, except where the failure to be in compliance with the terms of
the Company Permits would not have a Material Adverse Effect on the Company.
II.12 Litigation. Except as disclosed in the Company Schedules,
there is no action, suit, proceeding, claim, arbitration, or investigation
pending before any court or administrative agency against the Company or any
Subsidiary (or any officer, director, or key employee of the Company or any
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Subsidiary in their capacity as such). To the Company's knowledge, no such
action, proceeding, claim, arbitration, or investigation has been threatened,
and the Company is not aware of any basis for any such action, suit,
proceeding, claim, arbitration, or investigation. No Governmental Entity has
at any time challenged or questioned the legal right of the Company to design,
manufacture, offer or sell any of its products in the present manner or style
thereof.
Except as disclosed in Schedule 2.12, the Company has never been
subject to an audit, compliance review, investigation, or like contract review
by the GSA office of the Inspector General or other Governmental Entity or
agent thereof in connection with any government contract (a "GOVERNMENT
AUDIT"). To the Company's knowledge, no Government Audit is threatened or
reasonably anticipated, and in the event of such Government Audit, to the
knowledge of the Company, no basis would exist for a finding of noncompliance
with any material provision of any government contract or a refund of any
amounts paid or owed by any Governmental Entity pursuant to such government
contract. For each item disclosed in Schedule 2.12, a true and complete copy
of all correspondence and documentation with respect thereto has been provided
to Parent.
II.13 Interested Party Transactions. Except as set forth in
Schedule 2.13, no officer, director, or key employee of the Company or any
Subsidiary or any holder of 5% or more of the Company's outstanding capital
stock (nor any ancestor, sibling, descendant, or spouse of any of such persons,
or any trust, partnership or corporation in which any of such persons has an
economic interest) has, directly or indirectly, (i) an economic interest in any
entity which furnishes or sells services or products that the Company or any
Subsidiary furnishes or sells, or proposes to furnish or sell, (ii) an economic
interest in any entity that purchases from or sells or furnishes to the Company
or any Subsidiary any goods or services, or (iii) a beneficial interest in any
contract or agreement of the Company or any Subsidiary; provided, however, that
no officer, director, key employee, or shareholder of the Company or any
Subsidiary shall be deemed to have such an economic interest solely by virtue
of holding less than one percent (1%) of the outstanding voting stock of a
corporation whose equity securities are traded on a recognized stock exchange in
the United States or quoted on The Nasdaq Stock Market. There are no receivables
of the Company or any Subsidiary owing by any director, officer, employee, or
consultant to the Company or any Subsidiary (or any ancestor, sibling,
descendant, or spouse of any such persons, or any trust, partnership, or
corporation in which any of such persons has an economic interest), other than
advances in the ordinary and usual course of business for reimbursable business
expenses (as determined in accordance with the Company's established employee
reimbursement policies and consistent with past practice).
II.14 Brokers' and Finders' Fees. Except for fees payable to
NationsBanc Montgomery Securities ("MONTGOMERY") pursuant to an engagement
letter dated April 20, 1998, a copy of which has been provided to Parent, the
Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
II.15 Employee Benefit Plans.
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(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.15(a)(i) below (which definition shall apply
only to this Section 2.15), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or
entity under common control with the Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations issued thereunder;
(ii) "COMPANY EMPLOYEE PLAN" shall mean any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise, funded or
unfunded, including without limitation, each "employee benefit plan," within
the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee
(iii) "COBRA" shall mean the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended
(iv) "DOL" shall mean the Department of Labor;
(v) "EMPLOYEE" shall mean any current, former, or
retired employee, officer, or director of the Company or any Affiliate;
(vi) "EMPLOYEE AGREEMENT" shall mean each
management, employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract between the
Company or any Affiliate and any Employee or consultant;
(vii) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave
Act of 1993, as amended;
(ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each
Company Employee Plan that has been adopted or maintained by the Company,
whether informally or formally, for the benefit of Employees outside the United
States;
(x) "IRS" shall mean the Internal Revenue Service;
(xi) "MULTIEMPLOYER PLAN" shall mean any "Pension
Plan" (as defined below) which is a "multiemployer plan," as defined in Section
3(37) of ERISA;
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(xii) "PBGC" shall mean the Pension Benefit Guaranty
Corporation; and
(xiii) "PENSION PLAN" shall mean each Company
Employee Plan which is an "employee pension benefit plan," within the meaning
of Section 3(2) of ERISA.
(b) Schedule. Schedule 2.15 contains an accurate and
complete list of each Company Employee Plan and each material Employee
Agreement. The Company does not have any plan or commitment to establish any
new Company Employee Plan, to modify any Company Employee Plan or Employee
Agreement (except to the extent required by law or to conform any such Company
Employee Plan or Employee Agreement to the requirements of any applicable law,
in each case as previously disclosed to Parent in writing, or as required by
this Agreement), or to enter into any Company Employee Plan or material
Employee Agreement, nor does it have any intention or commitment to do any of
the foregoing.
(c) Documents. The Company has provided to Parent
(i) correct and complete copies of all documents embodying each Company
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the three
(3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the
Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the summary of material modifications thereto, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination, opinion, notification and advisory letters, and rulings
relating to Company Employee Plans and copies of all applications and
correspondence to or from the IRS or the DOL with respect to any Company
Employee Plan; (vii) all material written agreements and contracts relating to
each Company Employee Plan, including, but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts;
(viii) all communications material to any Employee or Employees relating to any
Company Employee Plan and any proposed Company Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any material liability to the Company; (ix) all
COBRA forms and related notices; and (x) all registration statements and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has
performed in all material respects all obligations required to be performed by
it under, is not in default or violation of, and has no knowledge of any
default or violation by any other party to each Company Employee Plan, and each
Company Employee Plan has been established and maintained in all material
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination letter from
the IRS with respect to each such Plan as to its qualified
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status under the Code, including all amendments to the Code effected by the Tax
Reform Act of 1986 and subsequent legislation, or has remaining a period of time
under applicable Treasury regulations or IRS pronouncements in which to apply
for such a determination letter and make any amendments necessary to obtain a
favorable determination; (iii) no "prohibited transaction," within the meaning
of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise
exempt under Section 408 of ERISA, has occurred with respect to any Company
Employee Plan; (iv) there are no actions, suits or claims pending, or, to the
knowledge of the Company, threatened or reasonably anticipated (other than
routine claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, the Company or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through
4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it
ever, maintained, established, sponsored, participated in, or contributed to,
any Pension Plan which is subject to Title IV of ERISA or Section 412 of the
Code.
(f) Multiemployer Plans. At no time has the Company
contributed to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. No Company Employee
Plan provides, or has any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statutes, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided
with retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(h) Neither the Company nor any Affiliate has, prior to
the Effective Time, and in any material respect, violated any of the health
care continuation requirements of COBRA, the requirements of FMLA or any
similar provisions of state law applicable to its Employees.
(i) Effect of Transaction
(i) The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
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(ii) No payment or benefit which will or may be
made by the Company or its Affiliates with respect to any Employee as a result
of the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
(j) Employment Matters. The Company (i) is in compliance
in all material respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment practices, terms
and conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any material
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social security
or other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past practice).
There are no pending, threatened or reasonably anticipated claims or actions
against the Company under any worker's compensation policy or long-term
disability policy. To the Company's knowledge, no employee of the Company has
violated any employment contract, nondisclosure agreement or noncompetition
agreement by which such employee is bound due to such employee being employed
by the Company and disclosing to the Company or using trade secrets or
proprietary information of any other person or entity.
(k) Labor. No work stoppage or labor strike against the
Company is pending, threatened or reasonably anticipated. The Company does not
know of any activities or proceedings of any labor union to organize any
Employees. There are no actions, suits, claims, labor disputes or grievances
pending, or, to the knowledge of the Company, threatened or reasonably
anticipated relating to any labor, safety or discrimination matters involving
any Employee, including, without limitation, charges of unfair labor practices
or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Employees, and no collective bargaining agreement is being negotiated by the
Company.
(l) International Employee Plan. Each International
Employee Plan has been established, maintained and administered in material
compliance with its terms and conditions and with the requirements prescribed
by any and all statutory or regulatory laws that are applicable to such
International Employee Plan. Furthermore, no International Employee Plan has
unfunded liabilities, that as of the Effective Time, will not be offset by
insurance or fully accrued. Except as required by law, no condition exists
that would prevent the Company or Parent from terminating or amending any
International Employee Plan at any time for any reason.
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II.16 Environmental Matters. The Company and each of the
Subsidiaries (i) have obtained all approvals which are required to be obtained
under all applicable federal, state, foreign or local laws or any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved hereunder relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes by the Company or the
Subsidiaries ("ENVIRONMENTAL LAWS"); (ii) are in compliance with all terms and
conditions of such required approvals, and prohibitions, requirements,
obligations, schedules and timetables contained in applicable Environmental
Laws or any event, condition, circumstance, activity, practice, incident,
action or plan which is reasonably likely to interfere with or prevent
continued compliance with or which would give rise to any common law or
statutory liability, or otherwise form the basis of any claim, action, suit or
proceeding, against the Company or any of the Subsidiaries based on or
resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste; and (iv) have taken all actions necessary under applicable
Environmental Laws to register any products or materials required to be
registered by the Company or the Subsidiaries (or any of their respective
agents) thereunder.
II.17 Agreements, Contracts, and Commitments. Except as set forth
in Schedule 2.17, neither the Company nor any Subsidiary is a party to or is
bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer, director, higher level employee, or member of the
Company's Board of Directors, other than those that are terminable by the
Company or any Subsidiary on no more than thirty days' notice without liability
or financial obligation, except to the extent general principles of wrongful
termination law may limit the ability of the Company or any Subsidiary to
terminate employees at will;
(b) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation right plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement;
(c) any collective bargaining agreements;
(d) any bonus, deferred compensation, pension, profit
sharing or retirement plans;
(e) any agreement of indemnification or any guaranty
(other than as set forth in standard customer, distributor, and reseller
software license agreements entered into in connection with the sale or license
of software products in the ordinary course of business);
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(f) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business since July 26, 1996;
(g) any distribution, joint marketing, or development
agreement under which the Company or any Subsidiary has continuing obligations
to jointly market any product, technology or service, or any agreement pursuant
to which the Company or any Subsidiary has continuing obligations to jointly
develop any intellectual property that will not be owned, in whole or in part,
by the Company or such Subsidiary;
(h) any agreement, contract, or commitment to provide
source code to any third party for any product or technology;
(i) any agreement containing any covenant limiting the
freedom of the Company or any Subsidiary to engage in any line of business or
to compete with any person or entity; or
(j) any agreement, contract or commitment currently to
license any third party to manufacture or reproduce any product, service or
technology (other than as set forth in standard distributor and reseller
software license agreements entered into in the normal course of business).
Neither the Company nor any Subsidiary, is in breach, violation or
default under, and neither the Company nor any Subsidiary has received notice
that it has breached, violated or defaulted under, any of the terms or
conditions of any of the agreements, contracts, or commitments to which the
Company or any Subsidiary is a party or by which it is bound that are required
to be disclosed in the Company Schedules pursuant to clauses (a) through (j)
above or pursuant to Section 2.10 hereof (any such agreement, contract or
commitment, a "COMPANY CONTRACT"). Each Company Contract is in full force and
effect and, except as otherwise disclosed in Schedule 2.17, is not subject to
any default thereunder of which the Company has knowledge by any party
obligated to the Company or any Subsidiary pursuant thereto.
II.18 Change of Control Payments. Schedule 2.18 sets forth each
plan or agreement pursuant to which any amounts may become payable (whether
currently or in the future) to current or former officers and directors of the
Company or any Subsidiary as a result of or in connection with the Merger.
II.19 Statements; Proxy Statement/Prospectus. The information
supplied by the Company for inclusion in the Registration Statement (as defined
in Section 3.2(b)) shall not at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities
Act contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not false or misleading. The information supplied by the Company for inclusion
in the proxy statement/prospectus to be sent to the shareholders of the Company
in connection with the meeting of the Company's shareholders to consider the
approval and adoption of this Agreement and the approval
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of the Merger (the "COMPANY SHAREHOLDERS' MEETING") (such proxy
statement/prospectus as amended or supplemented being referred to herein as the
"PROXY STATEMENT/PROSPECTUS") shall not, on the date the Proxy
Statement/Prospectus is first mailed to the Company's shareholders or at the
time of the Company Shareholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders' Meeting which has become false or misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act, the Exchange Act, and the rules and
regulations thereunder. If, at any time prior to the Effective Time, any event
relating to the Company or any of its affiliates, officers, or directors should
be discovered by the Company which is required to be set forth in an amendment
to the Registration Statement or a supplement to the Proxy Statement/Prospectus,
the Company shall promptly inform Parent. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
supplied by Parent or Merger Sub which is contained in any of the foregoing
documents.
II.20 Board Approval. The Board of Directors of the Company has, as
of the date of this Agreement, unanimously determined (i) that the Merger is
fair to and in the best interests of the Company and its shareholders and (ii)
to recommend that the shareholders of the Company approve and adopt this
Agreement and approve the Merger.
II.21 Fairness Opinion. The Company's Board of Directors has
received a written opinion from Montgomery, dated as of the date hereof, to the
effect that as of the date hereof, the Exchange Ratio is fair to the Company's
shareholders from a financial point of view. The Company has delivered a copy
of such opinion to Parent.
II.22 Section 11.75 of the Illinois General Corporation Law Not
Applicable. The Board of Directors of the Company has taken all actions so
that the restrictions contained in Section 11.75 of the Illinois Business
Corporation Act applicable to a "business combination" (as defined in such
Section 11.75) will not apply to the execution, delivery, or performance of
this Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
III.1 Organization of Parent and Merger Sub. Parent is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. Merger Sub is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Delaware.
Each of Parent
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and Merger Sub has the corporate power to own its properties and
to carry on its business as now being conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on the ability of Parent
and Merger Sub to consummate the transactions contemplated hereby.
III.2 Authority.
(a Parent and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Merger
Sub. This Agreement has been duly executed and delivered by Parent and Merger
Sub and constitutes the valid and binding obligation of Parent and Merger Sub,
enforceable in accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a benefit under any provision of (i) the Certificate of Incorporation or
Bylaws of Parent or Merger Sub or (ii) any mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or representation
applicable to Parent or on which Parent's business, financial condition,
operations or prospects is substantially dependent, the breach, violation,
default, termination or forfeiture of which would result in a material adverse
effect upon the ability of Parent or Merger Sub to consummate the Merger, or a
Material Adverse Effect on Parent or Merger Sub.
(b No consent, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity is required to
be obtained or made by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except for
(i) the filing of a Registration Statement (the "REGISTRATION STATEMENT") on
Form S-4 (or any similar successor form thereto) with the SEC in accordance
with the Securities Act; (ii) the Merger Filings with the Secretaries of State
of the States of Delaware and Illinois; (iii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal, foreign and state securities (or related)
laws and the securities or antitrust laws of any foreign country; and (iv) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not be material to Parent or the Company or have a
material adverse effect on the ability of the parties hereto to consummate the
Merger.
III.3 Parent Common Stock. The Parent Common Stock to be issued
pursuant to the Merger has been duly authorized and will, when issued and
delivered in accordance with this Agreement be validly issued, fully paid and
nonassessable will not be subject to any restrictions on resale under the
Securities Act, other than restrictions imposed by Rule 145 promulgated under
the Securities Act.
III.4 SEC Filings; Parent Financial Statements.
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(a Parent has filed all forms, reports, and documents
required to be filed by Parent with the SEC and has made available to the
Company such forms, reports, and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that Parent may
file subsequent to the date hereof) are referred to herein as the "PARENT SEC
REPORTS." As of their respective filing dates, the Parent SEC Reports (i)
complied in all material respects with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Parent SEC Reports and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b Each of the consolidated financial statements of
Parent (including, in each case, the notes thereto), included in the Parent SEC
Reports (the "PARENT FINANCIAL STATEMENTS"), including each Parent SEC Report
filed after the date hereof until the Closing, (i) complied as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto; (ii) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act); and (iii) fairly
presented the consolidated financial position of Parent and its subsidiaries as
at the respective dates thereof and the consolidated results of Parent's
operations and cash flows for the periods indicated (subject, in the case of
unaudited financial statements, to normal audit adjustments). There has been
no change in Parent's accounting policies except as described in the notes to
the Parent Financial Statements.
III.5 No Material Adverse Change. Since December 31, 1997, Parent
has conducted its business in the ordinary course and there has not occurred
(a) any material adverse change in the financial condition, results of
operations, liabilities, assets (including intangible assets), business, or
prospects of Parent and its subsidiaries, taken as a whole; (b) any amendment or
change in the Certificate of Incorporation or Bylaws of Parent; or (c) any
damage to, destruction or loss of any assets of the Parent (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Parent and its subsidiaries, taken as a whole.
III.6 Statements; Proxy Statement/Prospectus. The information
supplied by Parent for inclusion in the Registration Statement shall not at the
time the Registration Statement is filed with the SEC, and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading. The
information supplied by Parent for inclusion in the Proxy Statement/Prospectus
shall not, on the date the Proxy Statement/Prospectus is first mailed to the
Company's shareholders or at the time of the Company Shareholders' Meeting
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light
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of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time, any event relating to Parent or any of its affiliates,
officers or directors should be discovered by Parent which is required to be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Parent shall promptly inform the Company. Notwithstanding
the foregoing, Parent makes no representation or warranty with respect to any
information supplied by the Company which is contained in any of the foregoing
documents.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
IV.1 Conduct of Business by the Company. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement pursuant to its terms or the Effective Time, the Company
agrees (except to the extent that Parent shall otherwise consent in writing) to
carry on its business and to cause the Subsidiaries to carry on their business
in the ordinary course in substantially the same manner as heretofore conducted
and in compliance in all material respects with all applicable laws and
regulations, to pay their debts and Taxes when due (subject to good faith
disputes over such debts or Taxes), to pay or perform other material
obligations when due, and to use all reasonable efforts consistent with past
practice and policies to preserve intact their present business organizations,
keep available the services of their present officers and key employees, and
preserve their relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with them, all with
the goal of preserving unimpaired the goodwill and ongoing businesses of the
Company and the Subsidiaries at the Effective Time. The Company shall promptly
notify Parent of any event which materially adversely affects the Company, any
Subsidiary, or their businesses. Except as expressly contemplated by this
Agreement or disclosed in Schedule 4.1, the Company shall not, and shall not
permit any Subsidiary to, without the prior written consent of Parent:
(a Waive any stock repurchase rights, accelerate, amend
or change the period of exercisability of any Company Options or Company Common
Stock subject to vesting, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in
exchange for any options granted under any of such plans;
(b Grant any severance or termination pay to any
director, officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as disclosed in the
Company Schedules, or adopt any new severance plan;
(c Transfer or license to any person or entity or
otherwise extend, amend, or modify in any respect any rights to the Company
Intellectual Property (other than end-user licenses granted to
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customers of the Company and the Subsidiaries in the ordinary course of
business), or enter into grants to future patent rights;
(d Enter into or amend any agreements pursuant to which
any other party is granted marketing, distribution, or similar rights of any
type or scope with respect to any products or products licensed by the Company
and the Subsidiaries;
(e Amend or otherwise modify (or agree to do so), except
in the ordinary course of business, or violate the terms of, any of the
agreements set forth or described in the Company Schedules;
(f Commence any litigation except to enforce its rights
under or to interpret this Agreement or any other agreement, obligation, or
arrangement contemplated hereby or entered into or established in connection
therewith.
(g Declare, set aside, or pay any dividends on or make
any other distributions (whether in cash, stock, equity securities, or
property) in respect of any capital stock or split, combine, or reclassify any
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of, or in substitution for any capital stock;
(h Purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of the Company or any Subsidiary,
except repurchases of unvested shares at cost in connection with the
termination of the employment relationship with any employee pursuant to stock
option or purchase agreements in effect on the date hereof;
(i Issue, grant, deliver or sell or authorize or propose
the issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of the Company's capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares or other
convertible securities (other than Company Common Stock issued upon exercise of
Company Options outstanding as of the date hereof and the Warrants);
(j Cause, permit or propose any amendments to its
Articles of Incorporation, Bylaws or similar governing instruments;
(k Acquire or agree to acquire by merging or
consolidating with, or by purchasing any equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of the Company or enter into
any joint ventures, strategic partnerships, or alliances;
(l Sell, lease, license, encumber or otherwise dispose
of any properties or assets which are material, individually or in the
aggregate, to the business of the Company;
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(m Incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of the Company or any Subsidiary, enter into any "keep well" or
other agreement to maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing;
(n Effect or agree to effect, including by way of hiring
or involuntary termination, any change in its directors, officers, or key
employees;
(o Adopt or amend any employee benefit plan or employee
stock purchase or employee stock option plan, or enter into any employment
contract or collective bargaining agreement (other than offer letters and
letter agreements entered into in the ordinary course of business consistent
with past practice with employees who are terminable "at will"), pay or agree
to pay any special bonus or special remuneration to any director, employee, or
consultant or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees
or consultants other than in the ordinary course of business, consistent with
past practice, or change in any material respect any management policies or
procedures;
(p Make any payments outside of the ordinary course of
business in excess of $75,000;
(q Except in the ordinary course of business, modify,
amend or terminate any material contract or agreement to which the Company or
any Subsidiary is a party or waive, release, or assign any material rights or
claims thereunder;
(r Revalue any of its assets, including, without
limitation, writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(s Except as required by GAAP, effect any changes in its
accounting methods, principles, or practices;
(t Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes, provided that Parent shall not
unreasonably withhold its consent to any of the foregoing;
(u Engage in any action with the intent to directly or
indirectly adversely impact any of the transactions contemplated by this
Agreement; or
(v Agree in writing or otherwise to take any of the
actions described in Article 4 (a) through (u) above.
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IV.2 Termination of 401(k) Plans. The Company agrees to terminate
the 401(k) plans of the Company and of Facility Management Systems, Inc.
immediately prior to the Effective Time, unless Parent, in its sole and
absolute discretion, agrees to sponsor and maintain such plans by providing the
Company with written notice of such election at least three (3) days before the
Effective Time.
ARTICLE V
ADDITIONAL AGREEMENTS
V.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations. As promptly as practicable after the execution
of this Agreement, the Company and Parent will prepare, and file with the SEC,
the Proxy Statement/Prospectus, and Parent will prepare and file with the SEC
the Registration Statement in which the Proxy Statement/Prospectus will be
included as a prospectus. Each of the Company and Parent will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing, and, subject to Section 5.2(c), the
Company will cause the Proxy Statement/Prospectus to be mailed to its
shareholders at the earliest practicable time after the Registration Statement
is declared effective by the SEC. As promptly as practicable after the date of
this Agreement, each of the Company and Parent will prepare and file any other
filings required to be filed by it under the Exchange Act, the Securities Act or
any other federal, foreign or Blue Sky or related laws relating to the Merger
and the transactions contemplated by this Agreement (the "OTHER FILINGS"). Each
of the Company and Parent will notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for amendments
or supplements to the Registration Statement, the Proxy Statement/Prospectus, or
any Other Filing or for additional information and will supply the other with
copies of all correspondence between such party or any of its representatives,
on the one hand, and the SEC, or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of the Company and
Parent will cause all documents that it is responsible for filing with the SEC
or other regulatory authorities under this Section 5.1(a) to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement/Prospectus,
the Registration Statement or any Other Filing, the Company or Parent, as the
case may be, will promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to shareholders of the Company, such amendment or supplement.
V.2 Meeting of Company Shareholders.
(a) Promptly after the date hereof, the Company will take
all action necessary in accordance with the Illinois Law and its Articles of
Incorporation and Bylaws to convene the Company
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Shareholders' Meeting to be held as promptly as practicable, and in any event
(to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon this Agreement and the Merger or the issuance of shares of Parent
Common Stock pursuant to the Merger, respectively, subject to Section 5.2(c).
The Company will use its commercially reasonable efforts to solicit from its
shareholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger and will take all other action necessary or advisable
to secure the vote or consent of its shareholders required by the rules of
Nasdaq or Illinois Law to obtain such approvals. Notwithstanding anything to the
contrary contained in this Agreement, the Company may adjourn or postpone the
Company Shareholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Prospectus/Proxy Statement is provided
to the Company's shareholders in advance of a vote on the Merger and this
Agreement or, if as of the time for which the Company Shareholders' Meeting is
originally scheduled (as set forth in the Prospectus/Proxy Statement), there are
insufficient shares of Company Common Stock represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Company's
Shareholders' Meeting. Subject to Section 5.2(c), the Company shall ensure that
the Company Shareholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection with the
Company Shareholders' Meeting are solicited, in compliance with Illinois Law,
its Articles of Incorporation and Bylaws, the rules of Nasdaq, and all other
applicable legal requirements. The Company's obligation to call, give notice of,
convene and hold the Company Shareholders' Meeting in accordance with this
Section 5.2(a) shall not be limited to or otherwise affected by the
commencement, disclosure, announcement, or submission to the Company of any
Acquisition Proposal (as defined in Section 5.4), or by any withdrawal,
amendment, or modification of the recommendation of the Board of Directors of
the Company with respect to the Merger, except as permitted by Section 5.2(c).
(b) Subject to Section 5.2(c), (i) the Board of Directors
of the Company shall unanimously recommend that the Company's shareholders vote
in favor of and adopt and approve this Agreement and the Merger at the Company
Shareholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's shareholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company Shareholders'
Meeting; and (iii) neither the Board of Directors of the Company nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to Parent, the unanimous
recommendation of the Board of Directors of the Company that the Company's
shareholders vote in favor of and adopt and approve this Agreement and the
Merger. For purposes of this Agreement, the recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent
if such recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of
Directors of the Company from withholding, withdrawing, amending or modifying
its unanimous recommendation in favor of the Merger if (i) a Superior Offer (as
defined below) is made to the Company and is not withdrawn, (ii) neither the
Company nor any of its representatives shall have violated any of the
restrictions set forth in Section 5.4, and (iii) the Board of Directors of the
Company or any committee thereof concludes in
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good faith, after consultation with its outside legal counsel, that, in light of
such Superior Offer, the withholding, withdrawal, amendment, or modification of
such recommendation is required in order for the Board of Directors of the
Company or any committee thereof to comply with its fiduciary obligations to the
Company's shareholders under applicable law. Subject to applicable laws, nothing
contained in this Section 5.2 shall limit the Company's obligation to hold and
convene the Company Shareholders' Meeting (regardless of whether the unanimous
recommendation of the Board of Directors of the Company shall have been
withdrawn, amended, or modified); provided, however, that in the event the Board
of Directors of the Company shall recommend a Superior Offer to the shareholders
of the Company in accordance with the provisions of Section 5.2(c) and such
recommendation occurs prior to the date of mailing of the Prospectus/Proxy
Statement to the shareholders of the Company (the "SHAREHOLDER MAILING DATE")
and the Company is not otherwise in material breach of this Agreement, the
Company's obligation to hold and convene the Company Shareholders' Meeting shall
cease. For purposes of this Agreement, "SUPERIOR OFFER" shall mean an
unsolicited, bona fide written offer made by a third party to consummate any of
the following transactions: (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company pursuant to which the shareholders of the Company immediately preceding
such transaction hold less than 50% of the equity interest in the surviving or
resulting entity of such transaction; (ii) a sale or other disposition by the
Company of assets representing in excess of 50% of the fair market value of the
Company's business immediately prior to such sale; or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of 50% of
the voting power of the then outstanding shares of capital stock of the Company,
on terms that the Board of Directors of the Company determines, in its
reasonable judgment, after consultation with its financial advisor, to be more
favorable to the Company's shareholders from a financial point of view than the
terms of the Merger; provided, however, that any such offer shall not be deemed
to be a "Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the judgment of
the Company's Board of Directors to be obtained by such third party on a timely
basis.
V.3 Confidentiality; Access to Information.
(a Confidentiality Agreement. The parties acknowledge
that the Company and Parent have previously executed a Mutual Confidentiality
Agreement, dated as of November 12, 1997 (the "CONFIDENTIALITY AGREEMENT"),
which Confidentiality Agreement will continue in full force and effect in
accordance with its terms.
(b Access to Information. Each of the Company and
Parent will afford the other party and its accountants, counsel and other
representatives reasonable access during normal business hours to the
properties, books, records and personnel of the Company during the period prior
to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of such party. No information or knowledge obtained
in any investigation pursuant to this Section 5.3 will affect or be deemed to
modify
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any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
V.4 No Solicitation.
(a From and after the date of this Agreement until the
Effective Time or termination of this Agreement pursuant to Article VII, the
Company and the Subsidiaries will not, nor will they authorize or permit any of
their respective officers, directors, affiliates or employees or any investment
banker, attorney, or other advisor or representative retained by any of them
to, directly or indirectly, (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Acquisition Proposal; (ii)
participate in any discussions or negotiations regarding, or furnish to any
person any non-public information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or may
reasonably be expected to lead to, any Acquisition Proposal; (iii) engage in
discussions with any person with respect to any Acquisition Proposal, except as
to the existence of these provisions; (iv) subject to Section 5.2(c), approve,
endorse or recommend any Acquisition Proposal; or (v) enter into any letter of
intent or similar document or any contract agreement or commitment
contemplating or otherwise relating to any Acquisition Transaction (as
hereinafter defined); provided, however, that prior to the approval of this
Agreement by the required vote of the Company's shareholders, this Section
5.4(a) shall not prohibit the Company from furnishing nonpublic information
regarding the Company and the Subsidiaries to, entering into a confidentiality
agreement with or entering into discussions with, any person or group in
response to an Acquisition Proposal submitted by such person or group (and not
withdrawn) if (A) neither the Company nor any representative of the Company or
any of the Subsidiaries shall have violated any of the restrictions set forth
in this Section 5.4; (B) the Board of Directors of the Company concludes in
good faith, after consultation with its outside legal counsel, that such action
is required in order for the Board of Directors of the Company to comply with
its fiduciary obligations to the Company's shareholders under applicable law;
(C) prior to furnishing any such nonpublic information to, or entering into
discussions with, such person or group, the Company gives Parent written notice
of the identity of such person or group and of the Company's intention to
furnish nonpublic information to, or enter into discussions with, such person
or group and the Company receives from such person or group an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
person or group by or on behalf of the Company and such limitations are at
least as restrictive as the limitations set forth in the Confidentiality
Agreement; and (D) contemporaneously with furnishing any such nonpublic
information to such person or group, the Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
previously furnished by the Company to Parent). The Company and the
Subsidiaries will immediately cease any and all existing activities,
discussions, or negotiations with any parties conducted heretofore with respect
to any Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding two sentences
by any officer, director, or employee of the Company or any Subsidiary or any
investment banker, attorney or other advisor or representative of the Company
or any Subsidiary shall be deemed to be a breach of this Section 5.4 by the
Company. In addition to the foregoing, the Company shall (i) provide Parent
with at least 24 hours prior notice of any meeting of the Company's
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Board of Directors at which the Company's Board of Directors is reasonably
expected to consider a Superior Offer and (ii) not accept or recommend to its
shareholders a Superior Offer for a period of at least five (5) business days
after Parent's receipt of a copy of such Superior Offer (or a written
description of the significant terms and conditions of such Superior Offer, if
not in writing).
For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer or
proposal (other than an offer or proposal by Parent) relating to any Acquisition
Transaction. For the purposes of this Agreement, "ACQUISITION TRANSACTION" shall
mean any transaction or series of related transactions other than the
transactions contemplated by this Agreement involving (A) any acquisition or
purchase from the Company by any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) of more than
a 10% interest in the total outstanding voting securities of the Company or any
of Subsidiary or any tender offer or exchange offer that if consummated would
result in any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 10% or more of
the total outstanding voting securities of the Company or any Subsidiary or any
merger, consolidation, business combination or similar transaction involving the
Company pursuant to which the shareholders of the Company immediately preceding
such transaction hold less than 90% of the equity interests in the surviving or
resulting entity of such transaction; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition, or disposition of more than 50% of
the assets of the Company; or (C) any liquidation or dissolution of the Company.
(b In addition to the obligations of the Company set
forth in paragraph (a) of this Section 5.4, the Company, as promptly as
practicable, shall advise Parent orally and in writing of any request for
non-public information which the Company reasonably believes could lead to an
Acquisition Proposal or of any Acquisition Proposal, or any inquiry with
respect to or which the Company reasonably should believe would lead to any
Acquisition Proposal; the material terms and conditions of such request,
Acquisition Proposal or inquiry; and the identity of the person or group making
any such request, Acquisition Proposal or inquiry. The Company will keep
Parent informed in all material respects of the status and details (including
material amendments or proposed amendments) of any such request, Acquisition
Proposal or inquiry.
V.5 Public Disclosure. Parent and the Company will consult with
each other, and to the extent practicable, agree, before issuing any press
release or otherwise making any public statement with respect to the Merger,
this Agreement, or an Acquisition Proposal and will not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with a national securities
exchange. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
V.6 Reasonable Efforts; Notification.
(a Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or
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cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied; (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers from third parties; (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed; and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection with and without
limiting the foregoing, the Company and its Board of Directors shall, upon the
terms and subject to the conditions set forth in this Agreement, if any state
takeover statute or similar statute or regulation is or becomes applicable to
the Merger, this Agreement or any of the transactions contemplated by this
Agreement, use all reasonable efforts to ensure that the Merger and the other
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the Merger, this Agreement
and the transactions contemplated hereby. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require the Parent or
Company or any Subsidiary or affiliate thereof to agree to any divestiture by
itself or any of its affiliates of shares of capital stock or of any business,
assets or property, or the imposition of any material limitation on the ability
of any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
(b The Company shall give prompt notice to Parent in the
event any representation or warranty made by it in this Agreement becomes
untrue or inaccurate, or the Company fails to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3(a) or 6.3(b) would not be satisfied; provided,
however, that no such notification shall affect the representations,
warranties, covenants, or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c Parent shall give prompt notice to the Company in the
event any representation or warranty made by it or Merger Sub in this Agreement
becomes untrue or inaccurate, or either Parent or Merger Sub fails to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2(a) or 6.2(b) would not be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
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V.7 Third Party Consents. As soon as practicable following the
date hereof, each of Parent and the Company will use its commercially
reasonable efforts to obtain any consents, waivers and approvals under any of
its or its subsidiaries' respective agreements, contracts, licenses or leases
required to be obtained in connection with the consummation of the transactions
contemplated hereby.
V.8 Stock Options and Employee Benefits.
(a At the Effective Time, each Company Option, whether
or not exercisable, will be assumed by Parent. Each Company Option so assumed
by Parent under this Agreement will continue to have, and be subject to, the
same terms and conditions set forth in the 1994 Option Plan immediately prior
to the Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each Company Option will be exercisable
(or will become exercisable in accordance with its terms) for that number of
whole shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock that were issuable upon exercise of such Company
Option immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common
Stock and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed Company Option will be equal to
the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable immediately prior to
the Effective Time by the Exchange Ratio, rounded up to the nearest whole cent.
(b It is intended that Company Options assumed by Parent
shall qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent Company Options qualified as
incentive stock options immediately prior to the Effective Time, and the
provisions of this Section 5.8 shall be applied consistent with such intent.
(c Notwithstanding anything to the contrary in this
Section 5.8, in lieu of assuming outstanding options under the 1994 Option
Plan, Parent may, at its election, cause such outstanding options to be
replaced by issuing substantially equivalent replacement stock options
therefor.
V.9 Form S-8. Parent agrees to file a registration statement on
Form S-8 for the shares of Parent Common Stock issuable with respect to assumed
Company Options as soon as is reasonably practicable after the Effective Time
but in any event within five (5) days of the Closing Date.
V.10 Indemnification.
(a From and after the Effective Time, Parent will cause
the Surviving Corporation to fulfill and honor in all respects the obligations
of the Company pursuant to any indemnification agreements between the Company
and its directors and officers as of the Effective Time (the "INDEMNIFIED
PARTIES") and any indemnification provisions under the Company's Certificate of
Incorporation or Bylaws as in effect on the date hereof. The Certificate of
Incorporation and Bylaws of
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the Surviving Corporation will contain provisions with respect to exculpation
and indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Certificate of Incorporation and Bylaws of the Company as
in effect on the date hereof, which provisions will not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who,
immediately prior to the Effective Time, were directors, officers, employees or
agents of the Company, unless such modification is required by law.
(b For a period of six years after the Effective Time,
Parent will cause the Surviving Corporation to use its commercially reasonable
efforts to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy on terms comparable to
those applicable to the current directors and officers of the Company;
provided, however, that in no event will Parent or the Surviving Corporation be
required to expend in excess of 125% of the annual premium currently paid by
the Company for such coverage (or such coverage as is available for 125% of
such annual premium).
V.11 Nasdaq Listing. Parent agrees to authorize for listing on the
Nasdaq National Market the shares of Parent Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
V.12 Company Affiliate Agreement. Schedule 5.12 lists those
persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act (each a "COMPANY AFFILIATE"). The Company will provide Parent
with such information and documents as Parent reasonably requests for purposes
of reviewing such list. The Company will use its commercially reasonable
efforts to deliver or cause to be delivered to Parent, as promptly as
practicable on or following the date hereof, from each Company Affiliate an
executed affiliate agreement in substantially the form attached hereto as
Exhibit D (the "COMPANY AFFILIATE AGREEMENT"), each of which will be in full
force and effect as of the Effective Time. Parent will be entitled to place
appropriate legends on the certificates evidencing any Parent Common Stock to
be received by a Company Affiliate pursuant to the terms of this Agreement, and
to issue appropriate stop transfer instructions to the transfer agent for the
Parent Common Stock, consistent with the terms of the Company Affiliate
Agreement.
V.13 Tax-Free Reorganization. No party shall take any action
either prior to or after the Effective Time that could reasonably be expected
to cause the Merger to qualify as a "reorganization" under Section 368(a) of
the Code.
V.14 Comfort Letter. Company shall use its reasonable best efforts
to cause Price Waterhouse, certified public accountants to Company, to provide
a letter reasonably acceptable to Parent, relating to their review of the
financial statements and other financial data and schedules relating to Company
contained in or incorporated by reference in the Registration Statement.
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V.15 Shareholder Rights Plan. Prior to the Effective Time, without
Parent's prior written consent, Company will not adopt a shareholder rights
plan.
V.16 Amendment of Redeemable Warrants. As promptly as practicable
after the execution of this Agreement:
(a The Company shall prepare and include within the
Registration Statement as part of the Proxy Statement/Prospectus an information
statement meeting the requirements of Schedule 14C of the Exchange Act for the
purpose of soliciting the holders of the Redeemable Warrants. The purpose of
such solicitation shall be to seek the requisite approval of the holders of the
Redeemable Warrants to amend all of the outstanding Redeemable Warrants, such
amendment to be conditioned upon and effective concurrent with the Effective
Time, to provide that as of the Effective Time, the Redeemable Warrants shall
be deemed automatically exchanged for and converted into the right to receive
that number of shares of Parent Common Stock, based on the Exchange Ratio, (or
cash in lieu thereof for any fractional share, in accordance with Section
1.6(g) above) as would be the case if the Redeemable Warrants had been
exercised for Company Common Stock immediately prior to the Effective Time on a
net issuance basis, based on the average of the last reported sale prices of
Parent Common Stock as reported by Nasdaq on the five (5) most recent trading
days ending on the trading day immediately preceding the Effective Time,
subject to the surrender of the certificates representing the Redeemable
Warrants.
(b The Company shall cooperate with Parent in providing
all necessary information required for the solicitation of the holders of the
Redeemable Warrants as contemplated in subparagraph (a) above in the
preparation of the Registration Statement, and shall solicit the holders of the
Redeemable Warrants in accordance with the requirements of Section 14(c) of the
Exchange Act and the related rules and regulations. The Company shall ensure
that the amendment of the Redeemable Warrants is completed in accordance with
the requirements of the Warrant Agreement, and shall take such actions as may
be reasonably requested by the Warrant Agent (as defined in the Warrant
Agreement) to effect such amendment. In addition, the Company shall ensure
that the amendment of the Redeemable Warrants is in compliance with all
applicable state securities laws.
V.17 Warrant Assumption. In the event that the amendment of the
Redeemable Warrants is not completed as provided in Section 5.16 above, Parent
shall take such actions as shall be necessary to assume the Redeemable Warrants
in accordance with the provisions of the Warrant Agreement, except that (i)
each Redeemable Warrant will be exercisable for that number of whole shares of
Parent Common Stock equal to the product of the number of shares of Company
Common Stock that were issuable upon exercise of such Redeemable Warrant
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock, (ii)
the per share exercise price and redemption price for the shares of Parent
Common Stock subject to the Redeemable Warrants so assumed will be equal to the
quotient determined by dividing the exercise price and redemption price per
share of Company Common Stock subject to the Redeemable Warrant by the
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Exchange Ratio, rounded up to the nearest whole cent, (iii) and such other
adjustments may be made as are consistent with the provisions of the Warrant
Agreement.
ARTICLE VI
CONDITIONS TO THE MERGER
VI.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Shareholder Approval. This Agreement and the
Merger and other transactions contemplated hereby shall have been approved and
adopted by the Company's shareholders by the requisite vote under applicable
law and the Company's Articles of Incorporation.
(b) Registration Statement Effective; Proxy Statement.
The SEC shall have declared the Registration Statement effective. No stop
order suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement/Prospectus, shall have
been initiated or threatened in writing by the SEC.
(c) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
material foreign antitrust approvals required to be obtained prior to the
Merger in connection with the transactions contemplated hereby shall have been
obtained.
(d) Tax Opinions. The Company shall have received from
Archer & Greiner, P.C., and Parent shall have received from Wilson Sonsini
Goodrich & Rosati, P.C., written opinions to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code. In
rendering such opinions, counsel may rely on (and to the extent reasonably
required, the parties shall make) reasonable representations related thereto.
VI.2 Additional Conditions to Obligations of the Company. The
obligation of the Company to consummate and effect the Merger shall be subject
to the satisfaction on or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation
and warranty of Parent and Merger Sub contained in this Agreement (i) shall
have been true and correct as of the date of this Agreement and (ii) shall be
true and correct on and as of the Closing Date with the same force and effect
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as if made on the Closing Date except for changes contemplated by this
Agreement and for those representations and warranties which address matters
only as of a particular date (which representations shall have been true and
correct as of such particular date), and except, with regard to the foregoing
clauses (i) and (ii), in such cases where the failure to be so true and correct
would not have a Material Adverse Effect on Parent (it being understood that,
for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in
such representations and warranties shall be disregarded and (ii) any update of
or modification to the Parent Schedules made or purported to have been made
after the date of this Agreement shall be disregarded). The Company shall have
received a certificate with respect to the foregoing signed on behalf of Parent
by an authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub
shall have performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized officer
of Parent.
(c) Material Adverse Effect. No Material Adverse Effect
with respect to Parent shall have occurred since the date of this Agreement.
VI.3 Additional Conditions to the Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. Each representation and warranty of
the Company contained in this Agreement (i) shall have been true and correct as
of the date of this Agreement and (ii) shall be true and correct on and as of
the Closing Date with the same force and effect as if made on and as of the
Closing Date, except for changes contemplated by this Agreement and for those
representations and warranties which address matters only as of a particular
date (which representations shall have been true and correct and except, with
regard to the foregoing clauses (i) and (ii), in such cases (other than with
respect to the representations and warranties set forth in Sections 2.2, 2.3,
and 2.21) where the failure to be so true and correct would not have a Material
Adverse Effect on the Company as of such particular date (it being understood
that, for purposes of determining the accuracy of such representations and
warranties, (i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases contained in such
representations and warranties shall be disregarded and (ii) any update of or
modification to the Company Schedules made or purported to have been made after
the date of this Agreement shall be disregarded)). Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer.
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or
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complied with by it at or prior to the Closing Date, and Parent shall have
received a certificate to such effect signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect
with respect to the Company and the Subsidiaries shall have occurred since the
date of this Agreement.
(d) Affiliate Agreements. Each of the Company Affiliates
shall have entered into the Company Affiliate Agreement and each of such
agreements will be in full force and effect as of the Effective Time.
(e) Consents. The Company shall have obtained all
consents, waivers and approvals required in connection with the consummation of
the transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth on Schedule 6.3(e).
(f) Lease Amendment. Parent, the Company, and Thompson
Enterprises, L.P. shall have entered an amendment to the Business Lease dated
June 1, 1995, providing for (i) the potential adjustment of the applicable rent
owing thereunder based on a market appraisal to be completed by an independent
appraiser, (ii) the amendment of the tenant's renewal option thereunder from
one additional five year term to five additional one year terms, (iii) the
amendment of the environmental indemnification provisions to reflect more
standard terms for commercial leases, and (iv) such additional amendments
relating to such lease as the parties shall agree.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
VII.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the requisite approval of
the shareholders of the Company:
(a) by mutual written consent duly authorized by the
Boards of Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall
not have been consummated by October 31, 1998 for any reason; provided,
however, that the right to terminate this Agreement under this Section 7.1(b)
shall not be available to any party whose action or failure to act has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of this
Agreement;
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(c) by either the Company or Parent if a Governmental
Entity shall have issued an order, decree or ruling or taken any other action
in any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either the Company or Parent if the required
approvals of the shareholders of the Company contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain the required
vote at a meeting of the Company's shareholders duly convened therefor or at
any adjournment thereof (provided that the right to terminate this Agreement
under this Section 7.1(d) shall not be available to the Company where the
failure to obtain approval of the Company's shareholder shall have been caused
by the action or failure to act of the Company in breach of this Agreement);
(e) by Parent, if (i) the Board of Directors of the
Company shall have withheld, withdrawn or modified in a manner adverse to
Parent its recommendation in favor of adoption and approval of this Agreement
or the Merger; (ii) the Company shall have failed to include in the Proxy
Statement/Prospectus the unanimous recommendation of the Board of Directors of
Company in favor of the Merger and this Agreement; (iii) the Board of Directors
of Company shall have failed to reconfirm such recommendation within ten (10)
business days after a written request to do so at any time following the
announcement or disclosure of an Acquisition Proposal; (iv) the Board of
Directors of the Company shall have accepted any Acquisition Proposal or
recommended any Acquisition Proposal to the shareholders of the Company; (v)
the Company shall have entered into any letter of intent or similar document or
any agreement, contract or commitment accepting any Acquisition Proposal; or
(vi) the Board of Directors of the Company shall have resolved to do any of the
foregoing;
(f) by the Company, upon a breach of any representation,
warranty, covenant, or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
untrue, in either case such that the conditions set forth in Section 6.2(a) or
Section 6.2(b) would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in Parent's representations and warranties or breach by
Parent is curable by Parent through the exercise of its commercially reasonable
efforts, then the Company may not terminate this Agreement under this Section
7.1(f) for ten (10) days after notice from the Company of such breach, provided
that Parent continues to exercise such commercially reasonable efforts to cure
such breach;
(g) by Parent, upon a breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of Company shall have become
untrue, in either case such that the conditions set forth in Section 6.3(a) or
Section 6.3(b) would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue, provided,
that if such inaccuracy in the Company's representations and warranties or
breach by the Company is curable by the Company through the exercise of its
commercially reasonable efforts, then Parent may not terminate this Agreement
under this Section 7.1(g) for ten (10) days after notice from Parent of such
breach, provided that the Company continues to exercise such commercially
reasonable efforts to cure such breach;
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(h) by the Company at any time prior to the approval of
the Merger by the shareholders of the Company, if the Board of Directors
recommends a Superior Offer to the shareholders of the Company in accordance
with the provisions of Section 5.4(c); provided that in the event such
recommendation occurs after the Shareholder Mailing Date, the right of the
Company under this Section 7.1(h) shall not be exercisable until the sooner to
occur of (A) the date that is one hundred twenty (120) days after the date of
this Agreement, or (B) the date of a Company Negative Vote.
VII.2 Notice of Termination; Effect of Termination. Any termination
of this Agreement under Section 7.1 above will be effective immediately upon
the delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 7.1, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 7.2, Section 7.3 and Article VIII (General
Provisions), each of which shall survive the termination of this Agreement and
(ii) nothing herein shall relieve any party from liability for any willful or
intentional breach of this Agreement. No termination of this Agreement shall
affect the obligations of the parties contained in the Confidentiality
Agreement or the Company Option Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
VII.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated; provided, however, that
Parent and the Company shall share equally all fees and expenses, other than
attorneys' and accountants fees and expenses, incurred in relation to the
printing and filing of the Proxy Statement/Prospectus (including any
preliminary materials related thereto) and the Registration Statement
(including financial statements and exhibits) and any amendments or supplements
thereto.
(b) Company Payments.
(i) If prior to or concurrent with the
termination of this Agreement, (A) the Board of Directors of the Company shall
have withheld, withdrawn, or modified in a manner adverse to Parent its
unanimous recommendation in favor of the adoption and approval of this
Agreement and the approval of the Merger or (B) Company shall have failed to
include in the Proxy Statement/Prospectus the unanimous recommendation of the
Board of Directors of Company in favor of this Agreement and the Merger, or (C)
the Board of Directors of the Company shall have failed to reconfirm such
unanimous recommendation within ten (10) business days after a written request
from Parent to do so at any time following the announcement or disclosure of an
Acquisition Proposal, or (D) the Board of Directors of the Company shall have
accepted any Acquisition Proposal or recommended any Acquisition Proposal to
the shareholders of Company, or (E) the Company shall have entered into any
letter of intent or similar agreement or any contract, agreement, or commitment
accepting any Acquisition Proposal, or (F) the Board of Directors shall have
resolved to take any of the actions described in the foregoing clauses (A)
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through (E), then the Company shall pay to Parent an amount equal to $1,700,000
in immediately available funds within one business day following the earlier to
occur of (x) the termination of this Agreement pursuant to Section 7.1(e), (y)
the termination of this Agreement pursuant to Section 7.1(h), or (z) a Company
Negative Vote (as defined below); provided, however, that in the event a
payment is required pursuant to this subparagraph 7.3(b)(i) and within 12
months following the date the Company is required to make such payment the
Company consummates a Company Acquisition, the Company shall pay to Parent an
amount (which shall be in addition to the amount previously required to be
paid) equal to $2,500,000 in immediately payable funds within one business day
following such consummation.
(ii) If no payment shall be required pursuant to
clause 7.3(b)(i) above, and if (x) the vote of the shareholders of Company as
contemplated by this Agreement approving and adopting this Agreement and
approving the Merger shall not have been obtained by reason of the failure to
obtain the required vote at a meeting duly convened therefor or at any
adjournment thereof (a "COMPANY NEGATIVE VOTE") and (y) prior to such Company
Negative Vote there shall have occurred an Acquisition Proposal which shall
have been publicly disclosed, and (z) within 12 months following such Company
Negative Vote, the Company shall enter into a definitive agreement with respect
to a Company Acquisition, then Company shall pay to Parent an amount equal to
$1,700,000 in immediately available funds within one business day following the
execution by the Company of such definitive agreement; provided, however, that
in the event a payment is required pursuant to this subparagraph 7.3(b)(ii) and
within four months following the date the Company is required to make such
payment the Company consummates a Company Acquisition, the Company shall pay to
Parent an amount (which shall be in addition to the amount previously required
to be paid) equal to $2,500,000 in immediately payable funds within one business
day following such consummation. "COMPANY ACQUISITION" shall mean any of the
following transactions or series of related transactions: (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company pursuant to which the shareholders
of the Company immediately preceding such transaction or series of related
transactions hold less than 60% of the equity interests in the surviving or
resulting entity of such transaction or transactions; (ii) a sale and issuance
by the Company of shares of capital stock of the Company which would, upon
issuance, represent more than 40% of the outstanding shares of capital stock of
the Company; (iii) a sale or other disposition by the Company of assets
(excluding inventory and used equipment sold in the ordinary course of business)
representing in excess of 40% of the fair market value of the Company's business
immediately prior to such sale; or (iv) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of 40% or more of the then outstanding shares of capital
stock of the Company.
(c) The Company acknowledges that the agreements
contained in Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent
would not enter into this Agreement; accordingly, if the Company fails promptly
to pay the amounts due pursuant to Section 7.3(b), and, in order to obtain such
payment, Parent commences a suit which results in a judgment against the
Company for the amounts set forth in Section 7.3(b) and such judgment is not
set aside or reversed, Company shall pay to Parent its reasonable costs and
expenses
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(including attorneys' fees and expenses) in connection with such suit,
together with interest on the amounts set forth in Section 7.3(b) at the prime
rate announced by Bank of America in effect on the date such payment was
required to be made.
(d) Payment of the fees described in Section 7.3(b) above
shall not be in lieu of damages incurred in the event of breach of this
Agreement.
VII.4 Amendment. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Parent and the Company.
VII.5 Extension; Waiver. At any time prior to the Effective Time,
any party hereto may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
VIII.1 Non-Survival of Representations and Warranties. The
representations and warranties of the Company, Parent and Merger Sub contained
in this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective
Time.
VIII.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or sent via telecopy (receipt confirmed) to the
parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Peregrine Systems, Inc.
12670 High Bluff Drive
San Diego, California 92130
Attn: Richard T. Nelson, General Counsel
Telephone No.: (619) 481-5000
Facsimile No.: (619) 794-6033
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with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Douglas H. Collom, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Company, to:
Innovative Tech Systems, Inc.
445 Jacksonville Road, Suite 200
Warminster, Pennsylvania 18974
Attn: John M. Thompson, President
Telephone No.: (215) 441-5600
Facsimile No.: (215) 441-5733
with a copy (which shall not constitute notice) to:
Archer & Greiner
A Professional Corporation
One Centennial Square
Haddonfield, New Jersey 08033
Attn: Gary L. Green, Esq.
Telephone No.: (609) 795-2121
Facsimile No.: (609) 795-0574
VIII.3 Interpretation.
(a) When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. When a reference is made in this Agreement to Sections,
such reference shall be to a Section of this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES," and "INCLUDING," when used herein,
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "THE
BUSINESS OF" an entity, such reference shall be deemed to include the business
of all direct and indirect subsidiaries of such entity. Reference to the
subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
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(b) For purposes of this Agreement, the term "PERSON"
shall mean any individual, 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,
entity or Governmental Entity.
(c) For purposes of this Agreement, the term "MATERIAL
ADVERSE EFFECT" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect that is materially adverse to the
business, assets (including intangible assets), capitalization, financial
condition, results of operations or prospects of such entity and its
subsidiaries taken as a whole, except for those changes, events, violations,
inaccuracies, circumstances and effects that (i) are caused by conditions
affecting the United States economy as a whole or affecting the industry in
which such entity competes as a whole, which conditions do not affect such
entity in a disproportionate manner, or (ii) are related to or result from
announcement or pendency of the Merger.
(d) For purposes of this Agreement,"TO THE KNOWLEDGE OF
THE COMPANY" shall mean the knowledge of any of William M. Thompson, John M.
Thompson, Karen A. Thompson, John R. Smart, Mark R. Hernick, Julie Moore, Jerry
Cox, Hugo J. Affanato, Richard M. Salva, or Jonathan Manin. "KNOWLEDGE," when
used in this context shall mean, as to the facts or circumstances represented,
(i) actual knowledge of such person, and (ii) knowledge that an officer or
director should be expected to have after examination of such books and records
which such officer or director would be expected to examine, and otherwise,
through the exercise of reasonable care in the conduct of the business of the
Company.
VIII.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
VIII.5 Entire Agreement; Third Party Beneficiaries. This Agreement
and the documents and instruments and other agreements among the parties hereto
as contemplated by or referred to herein, including the Company Schedules and
the Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.10.
VIII.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
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a valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
VIII.7 Other Remedies; Specific Performance. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by law or equity upon such party, and the exercise by a party of any
one remedy will not preclude the exercise of any other remedy. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
VIII.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law thereof; provided that issues involving the corporate governance of any
of the parties hereto shall be governed by their respective jurisdictions of
incorporation. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any state or federal court within the Southern
District of California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, other than issues
involving the corporate governance of any of the parties hereto, agrees that
process may be served upon them in any manner authorized by the laws of the
State of California for such persons, and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
VIII.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
VIII.10 Assignment. No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
VIII.11 Waiver of Jury Trial. EACH OF PARENT, THE COMPANY AND MERGER
SUB HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE
COMPANY OR MERGER SUB IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
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IN WITNESS WHEREOF, Parent, Merger Sub, and the Company have caused
this Agreement to be signed as of the date first written above.
PEREGRINE SYSTEMS, INC. INNOVATIVE TECH SYSTEMS, INC.
a Delaware Corporation an Illinois Corporation
/s/ Stephen P. Gardner /s/ William M. Thompson
By _______________________________ By _______________________________
Stephen P. Gardner William M. Thompson
President and Chief Executive Officer Chairman and Chief Executive
Officer
HOMER ACQUISITION CORPORATION
a Delaware Corporation
/s/ Stephen P. Gardner
By ________________________________
Stephen P. Gardner
President and Chief Executive
Officer
[Signature Page to Agreement and Plan of Reorganization]
Agreement and Plan of Reorganization - Peregrine Systems Inc. and Innovative Tech Systems Inc.
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