<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 1997
--------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to _________________
Commission file number 0-26794
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Enterprise Systems, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3130103
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1400 South Wolf Road, Wheeling, Illinois 60090-6524
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(Address of Principal Executive Offices, Including Zip Code)
(847) 537-4800
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
N/A
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ----------
At May 1, 1997, there were 8,270,922 shares of Common Stock of the
registrant outstanding.
<PAGE>
ENTERPRISE SYSTEMS, INC.
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Independent Auditors' Review Report 3
Consolidated Balance Sheets as of March 31,
1997 (unaudited) and December 31, 1996 4
Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996
(unaudited) 5
Consolidated Statements of Cash Flows for
the three months ended March 31, 1997 and
1996 (unaudited) 6
Notes to Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Enterprise Systems, Inc.:
We have reviewed the consolidated balance sheet of Enterprise Systems, Inc. and
subsidiary as of March 31, 1997, and the related consolidated statements of
income and cash flows for the three-month periods ended March 31, 1997 and 1996.
These consolidated financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Enterprise Systems, Inc. and
subsidiary as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 10, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1996, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG PEAT MARWICK LLP
Chicago, Illinois
April 22, 1997
3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
------ ------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents.............. $15,640 $15,510
Receivables............................ 24,844 25,318
Deferred income taxes.................. 4,598 4,598
Other current assets................... 4,309 3,479
------- -------
Total current assets................. 49,391 48,905
------- -------
Investment securities.................. 4,166 4,486
Property and equipment................. 4,549 4,108
Purchased and developed software....... 4,531 4,216
Other assets........................... 4,705 4,516
------- -------
$67,342 $66,231
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable....................... $ 1,241 $ 543
Accrued liabilities.................... 4,048 3,930
Unearned revenue....................... 4,405 4,947
------- -------
Total current liabilities............ 9,694 9,420
------- -------
Deferred income taxes................... 1,985 1,985
Stockholders' equity
Preferred stock, $.01 par value;
authorized 1,000,000 shares;
none outstanding..................... - -
Common stock, $.01 par value;
authorized 30,000,000 shares;
issued and outstanding 8,262,589 and
8,131,248 shares...................... 83 81
Additional paid-in capital............. 54,169 53,830
Retained earnings 1,458 971
Deferred compensation.................. (47) (56)
------- -------
Total stockholders' equity........... 55,663 54,826
------- -------
$67,342 $66,231
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1997 1996
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<S> <C> <C>
Revenues
Software................................ $ 6,221 $4,284
Services................................ 7,238 4,922
Hardware................................ 442 391
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Total revenues........................ 13,901 9,597
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Operating costs and expenses
Software development.................... 2,648 1,933
Services and support.................... 4,678 2,782
Hardware................................ 371 369
Sales and marketing..................... 3,735 2,594
Administration.......................... 1,857 1,579
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Total operating costs and expenses.... 13,289 9,257
------- ------
Income from operations................... 612 340
Interest income, net..................... 246 276
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Income before income taxes............... 858 616
Income tax expense....................... 356 260
------- ------
Net income............................... $ 502 $ 356
------- ------
Net income per share..................... $ 0.06 $ 0.04
======= ======
Shares used in computing net income per
share .................................. 8,621 8,030
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ENTERPRISE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities
Net income..................................... $ 502 $ 356
Adjustments to reconcile net income to net cash
provided by (used in) operating activities,
net of acquisition...........................
Depreciation................................. 600 430
Amortization................................. 541 123
Changes in assets and liabilities
Receivables................................ 474 623
Refundable and prepaid income taxes........ - 272
Other current assets....................... (810) (108)
Accounts payable........................... 685 (432)
Accrued liabilities........................ 81 (763)
Unearned revenue........................... (542) (404)
Other, net................................. (394) (121)
------- -------
Net cash provided by (used in) operating
activities............................. 1,137 (24)
------- -------
Cash flows from investing activities
Maturities of investment securities............ 320 (5,080)
Purchase of property and equipment............. (1,027) (868)
Capitalized software development............... (641) (300)
------- -------
Net cash used in investing activities.... (1,348) (6,248)
------- -------
Cash flows from financing activities
Proceeds from exercise of stock options........ 341 638
------- -------
Net cash provided by financing activities 341 638
------- -------
Increase (decrease) in cash and cash equivalents. 130 (5,634)
Cash and cash equivalents at beginning of period. 15,510 11,403
------- -------
Cash and cash equivalents at end of the period... $15,640 $ 5,769
======= =======
Supplemental disclosures of cash flow information
Interest paid.................................. $ 8 $ 7
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
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ENTERPRISE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Enterprise Systems, Inc. (the Company) reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the results of
the interim periods presented. All such adjustments are of a normal recurring
nature.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto for
the year ended December 31, 1996, included in the Form 10-K filed by the Company
with the Securities and Exchange Commission.
The results of operations for the three months ended March 31, 1997, are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 1997.
NOTE 2 - COMPUTATION OF NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares
outstanding and includes the dilutive effect of unexercised stock options using
the treasury stock method.
NOTE 3 - MERGER WITH HBO & COMPANY
On March 13, 1997, the Company signed a definitive agreement to be acquired
by HBO & Company (HBOC). HBOC delivers enterprise-wide patient care, clinical,
financial and strategic management software solutions, as well as networking
technologies, electronic data interchange, outsourcing and other services to
healthcare organizations throughout the world. The acquisition, which is subject
to regulatory and stockholder approval, will be accounted for as a pooling of
interests and is scheduled to close during the second quarter of 1997. Terms of
the acquisition will provide for Company stockholders to receive shares of HBOC
common stock. The purchase price will be determined by averaging the closing
HBOC stock price for a period of twenty trading days ending shortly before the
close of the transaction.
NOTE 4 - ACQUISITION OF DBE, INC.
On March 31, 1997, the Company acquired DBE, Inc. of Minneapolis, Minnesota
in a stock transaction valued at approximately $2 million. DBE, Inc. provides
software and a unique cross referencing database designed to assist large
hospitals, medical suppliers, and other healthcare organizations in better
managing their costs by increasing product purchase compliance and providing
more accurate information. The transaction was accounted for under the pooling
of interests method.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations. The following table sets forth revenue and expense
items as a percentage of total revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
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<S> <C> <C>
Revenues
Software................................ 45% 45%
Services................................ 52 51
Hardware................................ 3 4
---- ----
Total revenues........................ 100 100
---- ----
Operating costs and expenses
Software development.................... 19 20
Service and support..................... 34 29
Hardware................................ 3 4
Sales and marketing..................... 27 27
Administration.......................... 13 16
---- ----
Total operating costs and expenses.... 96 96
---- ----
Income from operations.................... 4 4
Interest income, net...................... 2 3
---- ----
Income before income taxes................ 6 7
Income tax expense........................ 3 3
---- ----
Net income................................ 3% 4%
==== ====
</TABLE>
REVENUES
The Company derives its revenues from software licenses, installation
services, ongoing support, maintenance and enhancement services, product
education, consulting and the sale of computer hardware. Total revenues for the
first quarter of 1997 were $13,901,000, an increase of $4,304,000, or 45%, as
compared to $9,597,000 for the same period in 1996.
Software. Software revenues for the first quarter of 1997 increased
$1,937,000, or 45%, as compared to the first quarter of 1996. The increases are
primarily attributable to expansion of the Company's sales force, product
offerings and marketing efforts.
Services. Services revenues for the first quarter of 1997 increased
$2,316,000, or 47%, as compared to the first quarter of 1996. The increases in
services revenues are related to the increase in software revenues coupled with
an increase in consulting services revenues and growth in recurring support
fees.
Hardware. Hardware revenues for the first quarter of 1997 increased $51,000
as compared to the first quarter of 1996. The increases in hardware revenues are
principally attributable to TS2000 sales.
8
<PAGE>
COSTS AND EXPENSES
Software Development. Software development expenses for the first quarter
of 1997 increased $715,000, or 37%, as compared to the first quarter of 1996.
The increases in these expenses are primarily related to development work on new
releases of each of the Company's product lines and the ongoing conversion of
its DOS-based products to a Windows-based platform.
For the first quarter of 1997, the Company capitalized $463,000 of software
development costs net of related amortization expense, in accordance with
Statement of Financial Accounting Standards No. 86. Capitalized software
development costs are amortized over the estimated life of the related products
(up to four years). For the first quarter of 1996, the Company capitalized
$183,000 of software development costs, net of related amortization expense.
Amounts capitalized, net of amounts amortized, represent 14% and 9% of total
software development expenditures for the three months ended March 31, 1997 and
1996, respectively.
Service and Support. Service and support expenses for the first quarter of
1997 increased $1,896,000, or 68%, as compared to the first quarter of 1996.
The increases in these expenses are primarily attributable to the hiring of
additional support personnel.
Hardware. Hardware costs for the first quarter of 1997 increased $2,000 as
compared to the first quarter of 1996. The increase in hardware costs is
attributable to the proportionate increase in hardware revenues.
Sales and Marketing. Sales and marketing expenses for the first quarter of
1997 increased $1,141,000, or 44%, as compared to the first quarter of 1996.
The increases in these expenses are primarily attributable to the expansion of
the Company's sales force and related commissions earned, which increased due to
the revenue growth over the prior year.
Administration. Administration expenses for the first quarter of 1997
increased $278,000, or 18%, as compared to the first quarter of 1996. The
increases in administration expenses are primarily a result of an increase in
public company related expenses and amortization of intangible assets (acquired
in the purchase of the materials management division of Continental Healthcare
Systems, Inc.).
Interest. Net interest income for the first quarter of 1997 was $246,000
as compared to net interest income of $276,000 in the first quarter of 1996.
The decrease in net interest income in 1997 is attributable to a lower cash and
cash equivalents and investment balances in the first quarter of 1997 compared
with the same period last year.
Income Taxes. For the first quarter of 1997, income tax expense was
$356,000, compared to income tax expense of $260,000 in the first quarter of
1996.
Liquidity and Capital Resources
The seasonality of the Company's business has historically necessitated the
use of short-term borrowings at various times during the year. The Company
currently has an $18 million unsecured revolving credit line bearing interest at
the prime rate less 0.5% or LIBOR plus 1.25% to 1.75%, which is available to
fund short-term liquidity needs and other general corporate purposes. As of
March 31, 1997, there were no outstanding amounts under the line of credit.
On October 18, 1996, the Company completed a private placement of its
common stock in which 600,000 shares were sold by the Company, resulting in net
proceeds to the Company of approximately $13 million. Management believes that
the net proceeds from the offering, together with existing cash and cash
equivalents, cash flow from operations and borrowings under its line of credit,
will be sufficient to meet the Company's currently anticipated working capital
and capital expenditure requirements for at least the next twelve months.
9
<PAGE>
The Company has no outstanding material purchase commitments. The Company
is obligated to make minimum royalty payments in the aggregate amount of
approximately $4.5 million under certain license agreements, of which
approximately $1.5 million has been paid through March 31, 1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
("EPS"). Implementation of SFAS No. 128 is required for the periods ending after
December 15, 1997. The standard establishes new methods for computing and
presenting EPS and replaces the presentation of primary and fully-diluted EPS
with basic and diluted EPS. The new methods under this standard are not expected
to have a significant impact on the Company's EPS amounts.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
2.1 Agreement of merger by and among HBO & Company, HBO & Company
of Georgia, and Enterprise Systems, Inc., dated March 13, 1997.
15.1 Letter regarding unaudited interim financial information
27. Financial data schedule
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Enterprise Systems, Inc.
Date: May 14, 1997 BY: /s/ Glen E. Tullman
------------------------------------------
Glen E. Tullman, Chief Executive Officer
Date: May 14, 1997 BY: /s/ David B. Mullen
------------------------------------------
David B. Mullen, Chief Financial Officer
12
<PAGE>
ENTERPRISE SYSTEMS, INC.
QUARTER ENDED MARCH 31, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit 2.1 Agreement of merger by and among HBO & Company,
HBO & Company of Georgia, and Enterprise
System, Inc., dated March 13, 1997.
Exhibit 15.1 Letter regarding unaudited interim financial
information
Exhibit 27 Financial data schedule
</TABLE>
<PAGE>
AGREEMENT OF MERGER EXHIBIT 2.1
THIS AGREEMENT OF MERGER, made this 13th day of March, 1997, by and among
HBO & Company, a Delaware corporation ("Parent"); HBO & Company of Georgia, a
Delaware corporation (hereinafter referred to as "Purchaser"); and Enterprise
Systems, Inc., a Delaware corporation (hereinafter referred to as the "Acquired
Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of the Acquired Company, Parent and
Purchaser deem it advisable and in the best interests of their respective
stockholders that Purchaser acquire the Acquired Company, and, on or prior to
the date hereof, such Boards of Directors have approved the acquisition of the
Acquired Company upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
receipt, sufficiency and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
<PAGE>
I. DEFINITIONS.
------------
As used herein, the following terms shall have the following meanings
unless the context otherwise requires:
I.1 "Acquired Company" shall mean Enterprise Systems, Inc., a
Delaware corporation.
I.2 "Acquired Company Information" shall have the meaning set forth
in Section 2.3.1.
I.3 "Acquired Company Reports" shall have the meaning set forth in
Section 3.21.
I.4 "Acquired Company Software" shall have the meaning set forth in
Section 3.14.2(iii).
I.5 "Acquired Company Stock" shall mean the common stock, $.01 par
value per share, of the Acquired Company.
I.6 "Agreement" shall mean this Agreement of Merger.
I.7 "Assumed Option" shall have the meaning set forth in Section
2.1.7.
I.8 "Benefit Plans" shall have the meaning set forth in Section 3.16.
I.9 "Certificate of Merger" shall have the meaning set forth in
Section 2.1.2.
I.10 "Certificates" shall have the meaning set forth in Section 2.2.2
hereof.
I.11 "Closing" shall have the meaning set forth in Section 2.1.9
hereof.
I.12 "Closing Date" shall mean the date on which the Closing occurs
pursuant to Section 8.1 hereof.
I.13 "Covenants Not to Compete" shall mean the Covenants Not to
Compete referred to in Section 6.11.
I.14 "Customer Contracts" shall mean all contracts, agreements,
commitments or other instruments in effect with any customer of
the Acquired Company or any Subsidiary other than the Specified
Customer Contracts.
I.15 "Delaware Code" shall mean the Delaware General Corporation Law.
I.16 "DOL" shall mean the United States Department of Labor.
<PAGE>
I.17 "Effective Time" shall mean the time the Merger becomes
effective, as set forth in Section 2.1.2.
I.18 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
I.19 "ERISA Affiliate" shall mean, with respect to the Acquired
Company, any Person that is required to be aggregated with the
Acquired Company under Tax Code (S) 414(b), (c), (m) and/or (o)
at any time prior to the Closing Date.
I.20 "ERISA Plan" shall have the meaning set forth in Section 3.16.
I.21 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
I.22 "Exchange Agent" shall mean the person designated by Purchaser as
the Exchange Agent pursuant to Section 2.2.1 hereof.
I.23 "Exchange Ratio" shall mean the ratio of exchange pursuant to the
Merger in respect of each share of Acquired Company Stock
constituting a fraction of a share of Parent Stock as determined
pursuant to the provisions of Section 2.1.6.
I.24 "Existing Option" shall have the meaning set forth in Section
2.1.7.
I.25 "401(k) Plan" shall mean the Enterprise Systems, Inc. 401(k)
Retirement Plan.
I.26 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust and
Improvements Act of 1976, as amended.
I.27 "Hazardous Substance" shall have the meaning set forth in Section
3.18.
I.28 "1996 Financial Statements shall have the meaning set forth in
Section 3.5.1.
I.29 "IRS" shall mean the United States Internal Revenue Service.
I.30 "Licensed Software" shall have the meaning set forth in Section
3.14.2(ii).
I.31 "Material Adverse Effect" shall mean a material adverse effect on
the businesses, properties, rights, financial condition or
results of operations of the corporation in question and its
subsidiaries, taken as a whole.
I.32 "Material Contract" shall have the meaning set forth in Section
3.12.
I.33 "Merger" shall mean the merger of the Acquired Company with and
into Purchaser, as set forth in Section 2.1.1.
I.34 "Merger Consideration" shall have the meaning set forth in
Section 2.1.6(a).
<PAGE>
I.35 "Nasdaq" shall mean the Nasdaq National Market of the Nasdaq
Stock Market, Inc.
I.36 "1994, 1995 and 1996 Financial Statements" shall have the meaning
set forth in Section 3.5.1.
I.37 "1933 Act" shall mean the Securities Act of 1933, as amended.
I.38 "Owned Software" shall have the meaning set forth in the first
paragraph of Section 3.13.
I.39 "Parent" shall mean HBO & Company, a Delaware corporation, which
is the sole stockholder of Purchaser.
I.40 "Parent Reports" shall have the meaning set forth in Section 4.5.
I.41 "Parent Stock" shall mean the common stock, $0.05 par value per
share, of Parent.
I.42 "Parent Subsidiaries" shall mean the current subsidiaries of
Parent, as the same are identified in the Parent Reports.
I.43 "PBGC" shall mean the Pension Benefit Guaranty Corporation
established under Title IV of ERISA.
I.44 "Person" shall include, but is not limited to, an individual, a
trust, an estate, a partnership, an association, a company, a
corporation, a sole proprietorship, a professional corporation or
a professional association.
I.45 "Pooling Letter" shall have the meaning set forth in Section
2.4(b).
I.46 "Purchaser" shall mean HBO & Company of Georgia, a Delaware
corporation.
I.47 "Real Property" shall have the meaning set forth in Section 3.18.
I.48 "Registration Statement" shall have the meaning set forth in
Section 2.3.1.
I.49 "Rule 145 Letters" shall have the meaning set forth in Section
2.4(a).
I.50 "SEC" shall mean the Securities and Exchange Commission.
I.51 "Specified Customer Contracts" shall mean all contracts,
agreements, commitments and other instruments (whether oral or
written) in effect with any customer of the Acquired Company or
any Subsidiary that involve (i) software or other products not
fully installed and with remaining payments thereunder in excess
of $100,000
<PAGE>
as of the date hereof, or (ii) maintenance, support or
other services, which require payments or provide for receipts in
excess of $4,000 per month.
I.52 "Stock Plan" shall mean the Enterprise Systems, Inc. Long-Term
Incentive Plan which amended and restated the Enterprise Systems,
Inc. 1993 Stock Option Plan, as supplemented.
I.53 "Subsidiaries" shall mean the subsidiaries of the Acquired
Company which are listed on Exhibit 3.1 hereto.
I.54 "Surviving Corporation" shall have the meaning set forth in
Section 2.1.1 hereof.
I.55 "Takeover Proposal" shall have the meaning set forth in Section
2.11 hereof.
I.56 "Tax Code" shall mean the Internal Revenue Code of 1986, as
amended.
II. COVENANTS AND UNDERTAKINGS.
---------------------------
II.1 Terms and Approval of Merger.
-----------------------------
II.1.1. Terms of the Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware
Code, the Acquired Company shall be merged with and into
Purchaser (the "Merger"), as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V,
VI and VII hereof. Following the Merger, Purchaser shall continue
as the surviving corporation (the "Surviving Corporation") and
the separate corporate existence of the Acquired Company shall
cease.
II.1.2. Effective Time; Effects of the Merger. The Merger shall become
effective when both (i) this Agreement shall be adopted and
approved by the stockholders of the Acquired Company in
accordance with the applicable provisions of the Delaware Code
and (ii) a Certificate of Merger (the "Certificate of Merger"),
executed in accordance with the relevant provisions of the
Delaware Code is filed with the Secretary of State of Delaware
(the time the Merger becomes effective being referred to as the
"Effective Time"). The Merger shall have the effects set forth in
the Delaware Code.
II.1.3. Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Purchaser as in effect immediately preceding the
Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation. The Bylaws of Purchaser as in effect
immediately preceding the Effective Time shall be the Bylaws of
the Surviving Corporation.
II.1.4. Directors. The directors of Purchaser immediately prior to the
Effective Time shall be the directors of the Surviving
Corporation and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and
<PAGE>
qualified in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation, or as
otherwise provided by law.
II.1.5. Officers. The officers of Purchaser immediately prior to the
Effective Time shall be the officers of the Surviving Corporation
and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified
in the manner provided in the Certificate of Incorporation and
Bylaws of the Surviving Corporation, or as otherwise provided by
law.
II.1.6. Conversion of Shares.
-----------------------
(a) Subject to Section 2.1.6(g) below, each outstanding share of
Acquired Company Stock issued and outstanding immediately prior
to the Effective Time shall, at the Effective Time, by virtue of
the Merger and without any action on the part of the holder
thereof, be converted into the right to receive five tenths (.50)
of a share of Parent Stock, deliverable to the holder thereof
without interest on the value thereof, upon the surrender of the
certificate(s) formerly representing such outstanding share,
provided, however, that:
(i) If the average closing price per share as reported by Nasdaq
(or if there is no sale on such date then the average between the
closing bid and ask prices on any such day) for shares of Parent
Stock during the twenty (20) consecutive trading days ending on
the third trading day prior to the date of the Special Meeting of
stockholders of the Acquired Company held to approve the Merger
(the "Market Value"), is equal to or greater than $60 per share
but not greater than $68 per share, then each share of Acquired
Company Stock shall be converted into that fraction of a share of
Parent Stock which, when multiplied by the Market Value, will
equal to $30;
(ii) If the Market Value is less than $60 per share, then each
share of Acquired Company Stock shall be converted, as stated
above, into five tenths (.50) of a share of Parent Stock;
provided, however, that in the event that the Market Value is less
than $50 per share, then the Acquired Company shall have the right
to terminate the Merger prior to Closing pursuant to Section
10.1.6;
(iii) If the Market Value is greater than $68 per share, but is
$72 per share or less, then each share of Acquired Company Stock
shall be converted into four thousand four hundred twelve ten
thousandths(.4412) of a share of Parent Stock; and
(iv) If the Market Value is greater than $72 per share, then each
share of Acquired Company Stock shall be converted into a fraction
of a share of Parent Stock which, when multiplied by the Market
Value, will equal $31.77.
(b) Each share of Acquired Company Stock held in the treasury of
the Acquired Company shall, at the Effective Time, by virtue of
the Merger and without any action on the part of the holder
thereof, be canceled and retired and cease to exist.
<PAGE>
(c) Subject to any applicable escheat laws, until surrendered and
exchanged pursuant hereto, each certificate that immediately prior
to the Effective Time represented outstanding shares of Acquired
Company Stock shall be deemed for all corporate purposes of
Parent, subject, however, to the other provisions of this Section
2.1.6, to evidence the ownership of the number of whole shares of
Parent Stock into which the shares of Acquired Company Stock
represented thereby shall have been converted, together with the
right to receive the amount of cash in lieu of fractional shares,
if any, pursuant to subsections (a) and (d) of this Section 2.1.6.
(The shares of Parent Stock, and any cash in lieu of fractions
thereof, receivable by each Acquired Company stockholder as
described in Section 2.1.6(a) above and 2.1.6(d) below, are
referred to hereinafter as the "Merger Consideration.") No cash or
stock dividend payable, no certificate representing split shares
deliverable, and no other distribution payable or deliverable to
holders of record of Parent Stock at any time subsequent to the
Effective Time shall be paid or delivered to the holder of any
certificate that at the Effective Time represented Acquired
Company Stock unless and until such certificate is surrendered to
the Exchange Agent. However, subject to any applicable escheat
laws, upon such surrender, there shall be paid or delivered to the
holder of record of the certificate or certificates for Parent
Stock issued and exchanged therefor, the certificates for shares
and/or other property resulting from any such dividends, splits,
or other distributions, as the case may be, that shall have
therefore become payable or deliverable with respect to Parent
Stock subsequent to the Effective Time. No interest shall be
payable with respect to such payment or delivery of any dividends
or other distributions upon the surrender of certificates that
represented Acquired Company Stock at the Effective Time.
(d) No certificates or scrip representing fractional shares of
Parent Stock shall be issued upon surrender of certificates
representing Acquired Company Stock converted pursuant hereto, and
no dividend, stock split, or other distribution of Parent shall
relate to any such fractional share interest, and no such
fractional share interest shall entitle the owner thereof to vote
or to any other rights of a stockholder of Parent. In lieu of any
such fractional share, any holder of Acquired Company Stock shall
be entitled, upon surrender in accordance herewith of such
holder's certificate or certificates representing Acquired Company
Stock, to receive a cash payment therefor, without interest, at a
pro rata amount based on the Market Value. No interest shall
accrue with respect to any cash held for the benefit of holders of
unsurrendered certificates therefore representing shares of
Acquired Company Stock at the Effective Time.
(e) All shares of Parent Stock into which shares of the Acquired
Company Stock have been converted pursuant to this Section 2.1.6
shall be deemed to have been issued in full satisfaction of all
rights pertaining to such converted shares and shall, when issued
pursuant to the provisions hereof, be fully paid and
nonassessable.
<PAGE>
(f) The stock transfer books of Acquired Company Stock shall be
closed at the Effective Time, and thereafter no transfer of any
such shares of Acquired Company Stock shall be recorded thereon.
In the event a transfer of ownership of shares of Acquired Company
Stock is not recorded on the stock transfer books of the Acquired
Company, a certificate or certificates representing the number of
whole shares of Parent Stock into which such shares of Acquired
Company Stock shall have been converted in connection with the
Merger may be issued to the transferee of such shares of Acquired
Company Stock if the certificate or certificates representing such
shares of Acquired Company Stock is or are surrendered to the
Exchange Agent accompanied by all documents deemed necessary by
the Exchange Agent to evidence and effect such transfer of
ownership of shares of Acquired Company Stock and by the payment
of any applicable stock transfer tax with respect to such
transfer, subject to compliance with any restrictions or
conditions contained herein with respect to the transfer of shares
of Acquired Company Stock.
(g) In the event that Parent at any time or from time to time
after the date of this Agreement but prior to the Effective Time
effects a subdivision or combination of the outstanding Parent
Stock into a greater or lesser number of shares, then and in each
such event the Exchange Ratio and the Market Value shall be
increased or decreased proportionately and the other provisions of
this Section 2.1.6 shall be construed to give effect thereto. In
the event that Parent at any time or from time to time shall fix a
record date, which record date is after the date of this Agreement
but prior to the Effective Time, for the determination of holders
of Parent Stock entitled to receive a dividend or other
distribution payable in additional shares of Parent Stock, cash
(except Parent's regular quarterly dividend), or any other
property, then and in each such event, regardless of whether such
dividend is to be paid prior to or after the Effective Time, the
Merger Consideration payable hereunder per share of Acquired
Company Stock shall be increased to reflect such dividend or
distribution as though each stockholder of the Acquired Company
were, as of such issuance or record date, a holder of record of
that number of shares of Parent Stock comprising the Merger
Consideration otherwise payable to such stockholder pursuant to
Section 2.1.6(a).
<PAGE>
II.1.7. Stock Plan. At the Effective Time, Parent shall assume the
Acquired Company's rights and obligations under each of the
outstanding options previously granted under the Stock Plan (each
such option existing immediately prior to the Effective Time being
called an "Existing Option," and each such option so assumed by
Parent being called an "Assumed Option"), by which assumption the
optionee shall have the right to purchase that number of shares of
Parent Stock (rounded down to the nearest whole) into which the
number of shares of Acquired Company Stock the optionee was
entitled to purchase under the Existing Option would have been
converted pursuant to the terms of the Merger as described in
Section 2.1.6 hereof. Each Assumed Option shall constitute a
continuation of the Existing Option, substituting Parent for
Acquired Company as issuer and employment by Parent, Purchaser or
one of their respective subsidiaries for employment by the
Acquired Company. The aggregate price for the total number of
shares of Parent Stock at which the Assumed Option may be
exercised shall be the aggregate price at which the Existing
Option was exercisable for the total number of shares of Acquired
Company Stock, reduced (as necessary for purposes of rounding
down) to the price that will buy the number of whole shares for
which the Assumed Option will be exercisable in accordance with
this Section 2.1.7, and the purchase price per share of Parent
Stock thereunder shall be such aggregate price divided by the
total number of shares of Parent Stock covered thereby. The
assumption of the Assumed Options by Parent as provided in this
Section 2.1.7 shall not, except as provided herein, provide the
holders thereof additional benefits which they did not have
immediately prior to the Effective Time or relieve the holders
thereof of any obligations or restrictions applicable to the
Assumed Options or the shares of Parent Stock obtainable upon
exercise of the Assumed Options. Parent shall take all corporate
action necessary to reserve and make available for issuance a
sufficient number of shares of Parent Stock for delivery under the
Assumed Options.
II.1.8. Stockholders' Meeting. The Acquired Company, acting through its
Board of Directors, shall:
(a) promptly furnish a copy of the proxy statement/prospectus
included in the Registration Statement to each of its stockholders
after the Registration Statement has become effective with the
SEC;
(b) duly call, give notice of, convene and hold a special meeting
of its stockholders and submit this Agreement and the Merger and
any related matters, as appropriate, to a vote of the Acquired
Company's stockholders as soon as practicable for the purpose of
considering and taking action upon this Agreement and any such
related matters; and
(c) use its reasonable best efforts, subject to the provisions of
Section 2.11, to obtain the necessary approval of the Merger by
its stockholders.
<PAGE>
II.1.9. Closing; Filing of Certificate of Merger. Upon the terms and subject
to the conditions hereof, as soon as practicable following the
satisfaction or waiver of the conditions set forth in Articles V, VI
and VII hereof, the Acquired Company and Purchaser shall execute and
file the Certificate of Merger referred to in Section 2.1.2 in the
manner required by the Delaware Code, and the parties hereto shall
take all such other and further actions as may be required by law to
make the Merger effective. Prior to the filing referred to in this
Section 2.1.9, a closing (the "Closing") will be held as set forth in
Section 8.1 hereof, for the purpose of confirming all of the
foregoing.
II.1.10. Termination of 401(k) Plan. Prior to the Closing Date, the Acquired
Company shall adopt appropriate resolutions and take any and all
further actions necessary to terminate the 401(k) Plan effective
immediately preceding the Closing Date. In addition, participants in
the 401(k) Plan shall make no further deferrals with respect to
compensation for services performed after such termination date and
the Acquired Company shall make no further employer contributions to
the 401(k) Plan after such date, other than (i) employee compensation
deferrals and (ii) matching contributions with respect to employee
deferrals of compensation for services through the termination date.
Parent and Purchaser shall take such action that will permit current
participants in the 401(k) Plan who are employed by Purchaser to (x)
participate in the HBO & Company Profit Sharing and Savings Plan
within ten (10) business days after the Closing Date and (y) credit
each such participant's years of service under the 401(k) Plan toward
vesting in contributions under the HBO & Company Profit Sharing and
Savings Plan, up to a maximum of five (5) years.
II.2 Delivery of Merger Consideration.
II.2.1. Exchange Agent. Prior to the Effective Time, Purchaser shall designate
a bank or trust company to act as exchange agent in connection with
the Merger (the "Exchange Agent"). At the Effective Time, Purchaser or
Parent shall take all steps necessary to enable and cause Parent or
the Surviving Corporation to provide the Exchange Agent with the
shares of Parent Stock and cash in respect of fractional shares
necessary to deliver the Merger Consideration to each holder of
Acquired Company Stock as contemplated by Section 2.1.6 hereof prior
to the time that such deliveries are required to be made by the
Exchange Agent as provided in this Section 2.2
II.2.2. Surrender of Certificates and Delivery of Merger Consideration.
Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder (as of the Effective Time) of an outstanding
certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of Acquired Company Stock (the
"Certificates"), a letter of transmittal in customary form (which
specifies that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and
<PAGE>
instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration payable in
respect of the shares of Acquired Company Stock formerly
represented by such Certificate. Upon surrender to the Exchange
Agent of a Certificate, together with such letter of transmittal
properly completed and duly executed, together with any other
required documents, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration
payable in respect of the shares of Acquired Company Stock
formerly represented by such Certificate, and such Certificate
shall forthwith be canceled. If payment is to be made to a Person
other than the Person in whose name the Certificate surrendered
is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person
requesting such payment shall pay any transfer or other taxes
required by reason of the payment to a Person other than the
registered holder of the Certificate surrendered or establish to
the satisfaction of Parent or the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.2.2, each
Certificate shall represent for all purposes only the right to
receive the Merger Consideration, without any interest on the
value thereof.
II.2.3. Escheat Laws. Notwithstanding any provision of this Article II to
the contrary, neither Parent nor the Surviving Corporation shall
be liable to any holder of Certificates formerly representing
shares of Acquired Company Stock for any property properly
delivered or amount paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
<PAGE>
II.3 SEC Registration.
----------------
II.3.1. The Acquired Company shall furnish to Parent such information,
including information about the Acquired Company and the
Subsidiaries (including the respective affiliates of any of
them), as may be necessary to enable Parent to prepare and file
with the SEC a Registration Statement on Form S-4 under the 1933
Act, and the rules and regulations promulgated thereunder, in
respect of the Parent Stock to be issued by reason of the Merger
(such registration statement, including the prospectus and
included therein the proxy statement to be furnished to the
holders of the Acquired Company Stock, in each case together with
any amendments or supplements thereto, being referred to in this
Agreement as the "Registration Statement"). The Acquired Company
covenants that the Acquired Company Information (as defined
below) included in the Registration Statement shall not, at the
time the Registration Statement is declared effective, at the
time the proxy statement/prospectus contained therein is first
mailed to the Acquired Company's stockholders, or at the time of
the meeting of the Acquired Company's stockholders held to
approve the Merger Agreement, 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 not misleading. If at any time prior to the Effective
Time any event or circumstance should come to the attention of
the Acquired Company with respect to the Acquired Company
Information that is required to be set forth in an amendment or
supplement to the Registration Statement, the Acquired Company
shall immediately notify Parent and shall assist Parent in
appropriately amending or supplementing the Registration
Statement in the manner contemplated in Section 2.3.4 below. An
amendment or supplement may be accomplished, to the extent
permitted by law, rule or regulation, by including such
information in a filing under the Exchange Act that is
incorporated by reference into the Registration Statement. The
Registration Statement insofar as it relates to information
concerning the Acquired Company, the Subsidiaries or any of their
respective businesses, assets, directors, officers, or
stockholders or any other affiliates or other matters pertaining
to the Acquired Company or any of the Subsidiaries that is
supplied by the Acquired Company for inclusion in the
Registration Statement, including by incorporation by reference
to SEC filings (the "Acquired Company Information") shall comply
as to form and substance in all material respects with the
applicable requirements of the 1933 Act and the rules and
regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that the Acquired Company shall
have no liability or obligation for any information other than
the Acquired Company Information.
II.3.2. The Acquired Company shall instruct its accountants, KPMG Peat
Marwick LLP, to deliver and shall use its reasonable best efforts
to cause such accountants to deliver to Parent letters dated at
the time the Registration Statement becomes effective and as of
the Closing Date, addressed to Parent, each containing both (i)
its opinion to the effect that the Acquired Company satisfies the
tests applicable to it such that the Merger can be accounted for
as a "pooling of interests", which opinion letters shall be
substantially in the form of the opinion letter attached as
<PAGE>
Exhibit 2.3.2(A) hereto; and (ii) such matters as are customarily
contained in auditors' letters regarding information about the
Acquired Company included in the Registration Statement, which
auditors' letters shall be in form and substance reasonably
satisfactory to Parent. Parent shall use its reasonable best
efforts to cause its accountants, Arthur Andersen LLP, to deliver
to the Acquired Company letters at such times to the effect that
the Parent satisfies the tests applicable to it such that the
Merger can be accounted for as a "pooling of interests", which
letters shall be substantially in the form of the letter attached
as Exhibit 2.3.2(B) hereto.
II.3.3. Parent shall file the Registration Statement and use its
reasonable best efforts to have it declared effective by the SEC
as promptly as practicable, and shall use its reasonable best
efforts to take any action required to be taken to comply in all
material respects with any applicable federal or state securities
laws in connection with the issuance of Parent Stock in the
Merger; except that such covenant of Parent is made, as to those
portions of the Registration Statement containing or required to
contain Acquired Company Information, assuming and relying solely
on timely and full compliance with Sections 2.3.1 and 2.3.2.
II.3.4. Parent covenants that the Registration Statement, including
Parent Reports and other Parent SEC filings incorporated by
reference therein, shall not, at the time the Registration
Statement is declared effective, at the time the proxy
statement/prospectus contained therein is first mailed to the
Acquired Company's stockholders, or at the time of the meeting of
the Acquired Company's stockholders held to approve the Merger,
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 not misleading; except such
covenant of Parent is made as to those portions of the
Registration Statement containing or required to contain Acquired
Company Information, assuming and relying solely on timely and
full compliance with Sections 2.3.1 and 2.3.2. If at any time
prior to the Effective Time any event or circumstance should come
to the attention of Parent that is required to be set forth in an
amendment or supplement to the Registration Statement, Parent
shall immediately notify the Acquired Company and use its
reasonable efforts to amend or supplement appropriately the
Registration Statement. An amendment or supplement may be
accomplished, to the extent permitted by law, rule or regulation,
by including such information in a filing under the Exchange Act
that is incorporated by reference into the Registration
Statement.
II.3.5. Parent covenants that the Registration Statement and all other
documents required to be filed by Parent with the SEC in
connection with the transactions contemplated herein shall comply
as to form and substance in all material respects with the
applicable requirements of the 1933 Act and the rules and
regulations thereunder and the Exchange Act and the rules and
regulations thereunder; except that Parent shall have no
liability or obligation for any failure to comply with such
requirements arising out of the Acquired Company Information.
<PAGE>
II.3.6. Parent and the Acquired Company shall use all their reasonable
best efforts to file all reports to be filed by each of them on a
timely basis under the 1933 Act or the Exchange Act and the rules
and regulations adopted by the SEC thereunder. Parent and the
Acquired Company shall use their reasonable best efforts to take
such further action as may be necessary to ensure that the
requirements of Rule 144(c) under the 1933 Act are satisfied so
as to enable any "affiliates" of the Acquired Company (as that
term is used in Rule 145 under the 1933 Act) to offer or sell the
Parent Stock received by them in the Merger pursuant to paragraph
(d) of Rule 145 (subject to compliance with the provisions of
paragraphs (e), (f) and (g) of Rule 144).
II.3.7. Parent shall use its reasonable best efforts to obtain prior to
the effective date of the Registration Statement all necessary
"Blue Sky" permits and approvals, if any, required to consummate
the Merger.
II.3.8. Within five (5) days following the Closing Date, Parent shall
file a registration statement covering shares of Parent Stock
issuable pursuant to the Stock Plan; although such obligation is
subject to and conditional on the Acquired Company timely
providing Parent with all information requested by Parent in
connection therewith.
II.4 Affiliates.
----------
(a) The Acquired Company shall use its reasonable best efforts to
cause each person that is an "affiliate" of the Acquired Company
under the 1933 Act on the date of the Acquired Company's
stockholder meeting held to approve the Merger to deliver to
Parent at the Closing a written agreement substantially in the
form attached hereto as Exhibit 2.4(a) ("Rule 145 Letters").
(b) The Acquired Company shall use its reasonable best efforts to
cause each person that is an "affiliate" of the Acquired Company
under the 1933 Act 31 days prior to the date of the Acquired
Company's stockholder meeting to deliver to the Parent on such
date a written agreement substantially in the form attached
hereto as Exhibit 2.4(b) ("Pooling Letters").
II.5 Trading Prohibitions. Each of Parent, Purchaser and the Acquired
Company hereby acknowledges that as a result of disclosures by
Parent, Purchaser and the Acquired Company contemplated under
this Agreement, Parent, Purchaser, the Acquired Company, the
Subsidiaries and their respective affiliates may, from time to
time, have material, non-public information concerning each
other. Each of Parent, Purchaser, and the Acquired Company
confirms that it and its respective directors, officers,
employees and affiliates are aware, and that it has advised such
persons that, (i) the United States securities laws may prohibit
a person who has material, non-public information from purchasing
or selling securities of any company to which such information
relates, and (ii) material non-public
<PAGE>
information shall not be communicated to any other person except
as permitted herein.
II.6 Conduct of the Business of the Acquired Company and its
-------------------------------------------------------
Subsidiaries Prior to Closing.
-----------------------------
II.6.1. Except (i) with the prior consent in writing of Purchaser, (ii)
as may be required to effect the transactions contemplated by
this Agreement, or (iii) as provided otherwise in this Agreement,
the Acquired Company covenants that, between the date of this
Agreement and the Effective Time, the Acquired Company and the
Subsidiaries will conduct their respective business in the
ordinary course, and that they will:
(a) preserve the organization of the Acquired Company and the
Subsidiaries intact and use its reasonable best efforts to
preserve the goodwill of customers and others having business
relations with the Acquired Company or the Subsidiaries;
(b) use its reasonable best efforts to maintain the properties of
the Acquired Company and the Subsidiaries in substantially the
same working order and condition as such properties are in as of
the date of this Agreement, reasonable wear and tear excepted;
(c) not effect any sale, assignment or transfer of any of their
respective assets except in the ordinary course of business;
(d) use its reasonable best efforts to keep in force at no less
than their present limits all existing policies of insurance or
comparable replacements thereof insuring the Acquired Company,
the Subsidiaries and their respective properties;
(e) not enter into any Material Contract or Specified Customer
Contract, or suffer, permit or incur any of the transactions or
events described in Section 3.9 hereof to the extent such events
or transactions are within the control of the Acquired Company or
any of the Subsidiaries (except that the Acquired Company and the
Subsidiaries may enter into new license agreements and support
and maintenance agreements and other agreements with customers in
the ordinary course of business on terms and prices generally
consistent with historical practices giving due consideration to
the scope of any such agreement);
(f) not make or permit any change in the Acquired Company's or
any of the Subsidiaries' Articles or Certificates of
Incorporation or Bylaws, or in their authorized, issued or
outstanding securities (except for the issuance of Acquired
Company Stock pursuant to exercise of stock options pursuant to
the Stock Plan);
(g) except as otherwise set forth in Exhibit 2.6.1(g), not grant
any stock option or right to purchase any security of the
Acquired Company or any of the Subsidiaries, issue any security
convertible into such securities, purchase, redeem, retire or
<PAGE>
otherwise acquire any of such securities, or agree to do any of
the foregoing or declare, set aside or pay any dividend, make any
other distribution or declare any split in respect of such
securities;
(h) except as otherwise set forth in Exhibit 2.6.1(h), not adopt
any new Benefit Plan or amend, supplement, or accelerate the
timing of payments or vesting under any existing Benefit Plan,
and not make any contribution to or distribution from any
employee benefit plan, pension plan, stock bonus plan, 401(k)
plan or profit sharing plan (except for the payment of any
health, disability and life insurance premiums that may become
due and except for contributions, vesting or distributions
required (and not discretionary) pursuant to the terms of any
Benefit Plans);
(i) not change the amortization or capitalization policies for
Owned Software or otherwise make any changes in the accounting
policies of the Acquired Company and the Subsidiaries;
(j) not issue any notes, bonds or other debt security, or create,
incur, assume or guarantee any indebtedness for borrowed money
other than in the ordinary course of business under the Acquired
Company's revolving credit facility;
(k) not issue any shares of Acquired Company Stock or of any
Subsidiary other than shares of Acquired Company Stock issuable
upon exercise of presently exercisable options;
(l) not alter in any manner the terms, conditions or dates of
vesting or exercise of any of the options to purchase Acquired
Company Stock except as may occur automatically as a result of
the operation of the Stock Plan without amendment in connection
with the Merger;
(m) except as otherwise set forth in Exhibit 2.6.1(m), not effect
any acquisition, by purchase of stock, assets or otherwise, of
any business or portion thereof or of any Person; and
(n) promptly advise Purchaser in writing of any matters arising
or of which the Acquired Company becomes aware after the date of
this Agreement that, if existing or known at the date hereof,
would be required to be set forth or described in this Agreement
or the Exhibits hereto.
II.6.2. Except after prior notification to, and with the prior written
consent of, Purchaser, which consent shall not be unreasonably
withheld, the Acquired Company shall not make or permit any
Subsidiary to make, between the date of this Agreement and the
Effective Time, any change in its banking or safe deposit
arrangements or grant any powers of attorney.
<PAGE>
II.7 Filing of Tax Returns. The Acquired Company shall cause all of
the Acquired Company's and the Subsidiaries' federal, state and
local tax returns required to be timely filed before the
Effective Time to be timely and accurately filed with the
appropriate taxing authorities. For purposes of this Section 2.7,
such returns shall be deemed timely filed if the Acquired Company
or the applicable Subsidiary has obtained an extension from the
appropriate taxing authority as to the time in which it may file
such tax returns. The Acquired Company shall submit all such tax
returns to Purchaser at least fifteen (15) days prior to the date
they must be filed, and Purchaser shall have the opportunity to
comment on and approve such returns, which approval shall not
unreasonably be withheld.
II.8 Examination of Property and Records; Confidentiality of
-------------------------------------------------------
Information.
-----------
II.8.1. Between the date of this Agreement and the Effective Time, the
Acquired Company shall allow Purchaser, its counsel and other
representatives full access to all the books, records, files,
documents, assets, properties, contracts and agreements of the
Acquired Company and the Subsidiaries that may be reasonably
requested, and the Acquired Company shall furnish Purchaser, its
officers and representatives during such period with all
information concerning the affairs of the Acquired Company and
the Subsidiaries that may be reasonably requested. Between the
date of this Agreement and the Effective Time Parent shall allow
any executive officer of the Acquired Company access to the Chief
Financial Officer of Parent to make inquiries and request and
receive information in respect of Parent or Purchaser deemed by
such Chief Financial Officer in the exercise of his judgment as
reasonably requested by the Acquired Company in the context of
the transactions provided for herein. Each party shall conduct
any investigation in a manner that will not unreasonably
interfere with the businesses of the other party.
II.8.2. All non-public information acquired by any party hereto pursuant
to this Section 2.8 or otherwise under this Agreement, whether or
not in writing, concerning the business, operations and affairs
of any other party to this Agreement, will be kept confidential
and will not be disclosed to any Person other than the parties
hereto or their authorized representatives (who shall be subject
to the same obligations) and will not be used for any purpose
other than the consummation of the Merger and the related
transactions described herein, subject to any legal disclosure
obligation of any party upon advice from counsel and prior notice
to the other party. Promptly upon termination of this Agreement,
and at the request of any party hereto, all written materials
thus obtained by any other party or any of its representatives
and all copies and extracts of such materials will be delivered
to the disclosing party. In addition, the Parent and the Acquired
Company are parties to that certain Confidentiality Agreement
dated January 2, 1997, which the parties hereto acknowledge and
affirm shall remain in full force and effect until the Closing
Date.
II.9 Consents and Approvals. The Acquired Company shall use its, and
shall cause the Subsidiaries to use their, reasonable best
efforts (without requiring the payment of
<PAGE>
money) to obtain the waiver, consent and approval of all persons
(other than parties to Customer Contracts or Specified Customer
Contracts except to the extent identified on Exhibit 3.13(D))
whose waiver, consent or approval (i) is required in order to
consummate the transactions contemplated by this Agreement,
including without limitation, the Merger and the merger or
dissolution of the Subsidiaries pursuant to Section 2.15, or (ii)
is required by any agreement, lease, instrument, arrangement,
judgment, decree, order or license to which the Acquired Company
or any Subsidiary is a party or subject on the Effective Time and
(a) that would prohibit or require the waiver, consent or
approval of any person to such transactions or (b) under which,
without such waiver, consent or approval, such transactions would
constitute an occurrence of default under, or otherwise conflict
with or be in contravention of, the provisions thereof, result in
the acceleration of any obligation thereunder or give rise to a
right of any party thereto to terminate its obligations
thereunder. The failure of the Acquired Company to obtain such
waiver, consent or approval (after using its reasonable best
efforts to do so) shall not constitute a breach of, or a default
under this Agreement.
II.10 Supplying of Financial Statements. The Acquired Company shall
deliver to Purchaser all regularly prepared audited and unaudited
consolidated and consolidating financial statements of the
Acquired Company and the Subsidiaries prepared after the date of
this Agreement, in format historically published or utilized
internally (as applicable), and any financial statements prepared
for filing with the SEC, as soon as each is available.
II.11 No Solicitation. The Acquired Company shall not, and shall not
permit any of the Subsidiaries to, and the Acquired Company and
the Subsidiaries shall not authorize or permit any officer,
director or employee of, or any financial advisor, attorney,
accountant or other advisor or representative retained by, the
Acquired Company or any of the Subsidiaries to, solicit,
initiate, encourage (including by way of furnishing information),
endorse or enter into any agreement 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 Takeover Proposal (as hereafter defined). The Acquired
Company shall immediately advise Purchaser orally and in writing
of any Takeover Proposal or any inquiries or discussions with
respect thereto. Neither the Board of Directors of the Acquired
Company nor any committee thereof shall (a) withdraw or modify,
or propose to withdraw or modify, in a manner adverse to
Purchaser the approval or recommendation by the Board of
Directors of the Acquired Company of the Merger or this Agreement
or (b) approve or recommend, or propose to approve or recommend,
any Takeover Proposal or any other acquisition of outstanding
shares of Acquired Company Stock other than pursuant to the
Merger or this Agreement. Notwithstanding the foregoing, nothing
contained in this Agreement shall prevent the Board of Directors
of the Acquired Company from furnishing information to or
entering into discussions or negotiations with any unsolicited
person or entity if and only to the extent that the Board of
Directors of the Acquired Company shall have determined in good
faith, after receiving written advice of its outside counsel,
that such action
<PAGE>
would be required under applicable law in the exercise of its
fiduciary duties. The Acquired Company will immediately notify
the Purchaser if any such inquiries or proposals are received by,
any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with the
Acquired Company. As used in this Agreement, "Takeover Proposal"
shall mean any tender or exchange offer, or proposal, other than
a proposal by Purchaser or any of its affiliates, for a merger,
share exchange or other business combination involving the
Acquired Company or any of the Subsidiaries or any proposal or
offer to acquire in any manner a substantial equity interest in
the Acquired Company or any of the Subsidiaries or a substantial
portion of the assets of the Acquired Company or any of the
Subsidiaries.
II.12 HSR Act Filings. Parent and the Acquired Company shall each, in
cooperation with the other, make the required filings in
connection with the transactions contemplated by this Agreement
under the HSR Act with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice,
and shall request early termination of the waiting period with
respect to such filings. As promptly as practicable from time to
time after the date of this Agreement, each party shall make all
such further filings and submissions, and take such further
action, as may be required in connection therewith, and shall
furnish the other all information in its possession necessary
therefor. Parent and the Acquired Company shall each notify the
other immediately upon receiving any request for additional
information with respect to such filings from either the
Antitrust Division of the Department of Justice or the Federal
Trade Commission, and the party receiving the request shall use
its reasonable best efforts to comply with such request as soon
as possible. Neither such party shall withdraw any such filing or
submission without the written consent of the other.
II.13 Tax Reporting. For federal and state tax purposes, Purchaser and
Parent shall report the transactions contemplated by this
Agreement as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Tax Code and similar state
laws. Prior to the Effective Time, the Acquired Company will
deliver to Purchaser and Parent letters to the reasonable
satisfaction of Purchaser and Parent from the Acquired Company
and/or certain of its stockholders that provide assurance that
there is no plan or intention on the part of the stockholders of
the Acquired Company (or knowledge of such plan or intent to the
extent the Acquired Company provides a representation with
respect to holders of less than five percent (5%) of the Acquired
Company Stock) to sell, exchange or otherwise dispose of a number
of shares of Parent Stock received in the Merger that would
reduce the Acquired Company's stockholders' ownership of Parent
Stock received in the Merger to a number of shares having a
value, as of the Effective Time, of less than fifty percent (50%)
of the value of all of the outstanding stock of Acquired Company
immediately prior to the Effective Time.
II.14 Indemnification of Acquired Company Officers and Directors. The
Purchaser agrees that subsequent to the Closing it will provide
to the directors and officers of
<PAGE>
the Acquired Company indemnification in accordance with the
current provisions of the Certificate of Incorporation and By-
Laws of the Acquired Company with respect to matters occurring
prior to the Effective Time, for a period of six years from the
Effective Time (or, in the case of matters occurring prior to the
Effective Time which have not been resolved prior to the sixth
anniversary of the Effective Time, until such matters are finally
resolved). To the fullest extent permitted by applicable law, the
Purchaser shall advance expenses in connection with the foregoing
indemnification. The Parent shall cause to be maintained in
effect for twelve (12) months following the Closing Date the
current policies of directors' and officers' liability insurance
currently maintained by the Acquired Company, which policies are
described on Exhibit 3.19, at no greater than one hundred percent
(100%) of the annual premiums for such coverage as of the date
hereof (as reflected on such Exhibit 3.19), provided that the
Parent may substitute therefor policies of at least the same
coverage containing terms and conditions that are no less
advantageous (including, without limitation, coverage under
Parent's existing policies of directors' and officers' liability
insurance). In the event that the premiums for the continued
coverage exceed 100% of the premiums for the coverage as of the
date hereof (the "100% Amount"), Purchaser shall either
substitute coverage meeting the requirements of the proviso in
the preceding sentence or continue the existing insurance but
reduce the maximum amount of coverage to that available for
premiums equal to the 100% Amount.
II.15 Subsidiaries. The parties hereto agree that on the Closing Date,
Purchaser and Acquired Company will cause the Subsidiaries to be
liquidated, which may be effected, at the option of Purchaser, by
corporate merger of the Subsidiaries with and into Purchaser or
any subsidiary or subsidiaries of Purchaser or by corporate
dissolution of the Subsidiaries.
II.16 Certain Reports. In the event the Merger is effective in the
month of May, 1997, Parent will use its reasonable best efforts
to include the combined results of operations of Parent,
Purchaser and Acquired Company for the first full month following
the effective date of the Merger in Parent's 10-Q Quarterly
Report for the quarter ending June 30, 1997. In the event the
Merger is effective after May, 1997, Parent agrees to use its
reasonable best efforts to make publicly available through a
filing with the SEC the combined results of operations of Parent,
Purchaser and Acquired Company for the first full calendar month
subsequent to the Effective Date of the Merger, within thirty
(30) days of the close of such first full calendar month.
II.17 Reasonable Best Efforts. Parent, Purchaser and the Acquired
Company shall use their respective reasonable best efforts to (a)
promptly make all filings and seek to obtain all authorizations
required under all applicable law with respect to the Merger and
the other transactions contemplated hereby and will cooperate
with each other with respect thereto; (b) promptly take all other
actions and do, or cause to be done, all other things necessary,
proper or appropriate to satisfy the conditions set forth in
Articles V, VI, and VII and to consummate and make
<PAGE>
effective the transactions contemplated by this Agreement on the
terms and conditions set forth herein as soon as practicable; and
(c) subject to the exercise in good faith by the directors or any
officer of such party of their fiduciary duties to such party or
its stockholders, not take any action which might reasonably be
expected to impair the ability of the parties to consummate the
Merger prior to July 31, 1997 (regardless of whether such action
would otherwise be permitted or not prohibited hereunder).
III. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED COMPANY.
-------------------------------------------------------
The Acquired Company represents and warrants to Purchaser and Parent as
follows:
III.1 Organization, Standing and Foreign Qualification.
------------------------------------------------
III.1.1. Each of the Acquired Company and the Subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws of the respective jurisdiction of its
incorporation as set forth in Exhibit 3.1 and has the requisite
corporate power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the
properties and assets that it now owns or leases.
III.1.2. Each of the Acquired Company and the Subsidiaries is duly
qualified and/or licensed to transact business and in good
standing as a foreign corporation in the jurisdictions listed in
Exhibit 3.1 hereto, and the character of the property owned or
leased by the Acquired Company and the Subsidiaries and the
nature of the business conducted by them do not require such
qualification and/or licensing in any other jurisdiction where
the failure to so qualify would have a Material Adverse Effect
upon the Acquired Company.
III.2 Authority and Status.
--------------------
III.2.1. The Board of Directors of the Acquired Company, by unanimous vote
of all directors present and voting at a meeting duly called and
held, has (i) determined that the Merger is fair to and in the
best interests of the stockholders of the Acquired Company and
(ii) resolved to submit the Merger to and recommend approval of
the Merger by the stockholders of the Acquired Company.
III.2.2. The Acquired Company has the capacity and authority to execute
and deliver this Agreement, to perform hereunder and, upon
approval of the transactions provided for herein by the
stockholders of the Acquired Company, to consummate the
transactions contemplated hereby without any other corporate or
stockholder approval. The execution, delivery and performance by
the Acquired Company of this Agreement and each and every other
agreement, document and instrument provided for herein have been
duly authorized and approved by the Board of Directors of the
Acquired Company. Assuming this Agreement and each and every
agreement, document or instrument to be executed, delivered and
performed
<PAGE>
by the Acquired Company in connection herewith are valid and
legally binding obligations of Purchaser and Parent, this
Agreement and each and every agreement, document and instrument
to be executed, delivered and performed by the Acquired Company
in connection herewith constitute or will, when executed and
delivered, constitute the valid and legally binding obligation of
the Acquired Company enforceable against it in accordance with
their respective terms, except as enforceability may be limited
by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
Attached hereto as Exhibit 3.2 are true, correct and complete
copies of the current Articles or Certificates of Incorporation
and Bylaws of the Acquired Company and the Subsidiaries.
III.2.3. The Board of Directors of the Acquired Company received an
opinion from Broadview Associates LLC, its financial advisor,
concurrently with the approval described in Section 3.2.1 above
to the effect that the consideration to be received by the
Acquired Company's stockholders in the Merger is fair to such
stockholders from a financial point of view.
III.3 Capitalization. The entire authorized capital stock of the
Acquired Company consists of thirty-one million (31,000,000)
shares of stock, of which thirty million (30,000,000) shares are
designated Common Stock, par value $.01 per share, and one
million (1,000,000) shares are designated Preferred Stock, par
value $.01 per share. Of the total authorized Common Stock, as of
March 7, 1997, eight million one hundred seventy-two thousand
eighty-six (8,172,086) shares were issued and outstanding and no
shares were held in the Acquired Company's treasury. Of the total
authorized Preferred Stock, no shares have been issued. As of
March 8, 1997, there were options outstanding under the Stock
Plan entitling the optionees thereunder upon valid exercise to
acquire in the aggregate 1,179,685 shares of Common Stock. All
the issued and outstanding shares of each of the Subsidiaries are
owned by the Acquired Company and are held free and clear of all
liens, claims, charges and encumbrances of any nature whatsoever.
All of the outstanding shares of Acquired Company Stock (and any
shares issued pursuant to presently outstanding options, if
exercised and purchased at the applicable exercise price) were
duly authorized (or will be when issued and the option price
paid), validly issued, fully paid and nonassessable. None of the
capital stock of the Acquired Company is entitled to or subject
to preemptive rights. Other than the requisite stockholder vote
to consummate the Merger, the authorization or consent of no
other person or entity is required in order to consummate the
transactions contemplated herein by virtue of any such person or
entity having an equitable or beneficial interest in the Acquired
Company or any Subsidiary or the capital stock of the Acquired
Company or any Subsidiary. Exhibit 3.3 sets forth all outstanding
stock options, stock appreciation rights, phantom stock awards,
performance share unit awards, equity participation rights, or
similar awards outstanding under the Stock Plan or any other
Benefit Plan as of the date hereof (and lists in respect of each
option, award or right the holder, the date of grant and any
vesting or other
<PAGE>
terms governing exercise or receipt), and any warrants, calls,
commitments or plans by the Acquired Company or any Subsidiary to
issue any additional shares of their capital stock, to pay any
dividends on such shares or to purchase, redeem, or retire any
outstanding shares of their capital stock. There are no
outstanding securities or obligations that are convertible into
or exchangeable for any shares of capital stock of the Acquired
Company. Other than as disclosed on Exhibit 3.3, there are not
now, and at the Effective Time there will not be, any voting
trusts or other agreements or understandings to which the
Acquired Company or any of the Subsidiaries is a party or is
bound with respect to the voting of the capital stock of the
Acquired Company or any of the Subsidiaries.
III.4 Absence of Equity Investments. Except for the Subsidiaries and as
described in Exhibit 3.4 hereto, the Acquired Company does not,
either directly or indirectly, own of record or beneficially any
shares or other equity interests in any corporation, partnership,
limited partnership, joint venture, trust or other business
entity.
III.5 Liabilities and Obligations of the Acquired Company and the
-----------------------------------------------------------
Subsidiaries.
------------
III.5.1. Attached hereto as Exhibit 3.5.1 are true, correct and complete
copies of the Acquired Company's audited consolidated balance
sheets as of December 31, 1994, December 31, 1995 and December
31, 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended,
together with the reports of KPMG Peat Marwick LLP thereon
(respectively, the "1994, 1995 and 1996 Financial Statements").
The 1994, 1995, and 1996 Financial Statements, have been prepared
in accordance with generally accepted accounting principles,
consistently applied, and fairly present in all material respects
the financial condition of the Acquired Company and the
Subsidiaries as of the respective dates thereof, and disclose all
liabilities of the Acquired Company and the Subsidiaries, whether
absolute, contingent, accrued or otherwise, existing as of the
date thereof that are of a nature required to be reflected in
financial statements prepared in accordance with generally
accepted accounting principles.
III.5.2. Neither the Acquired Company nor any Subsidiary has any liability
or obligation (whether accrued, absolute, contingent or
otherwise) including, without limitation, any liability that
might result from an audit of their tax returns by any
appropriate authority, except for (a) the liabilities and
obligations of the Acquired Company and the Subsidiaries that are
disclosed or reserved against in the 1996 Financial Statements or
Exhibit 3.5.2 hereto, to the extent and in the amounts so
disclosed or reserved against, (b) liabilities incurred or
accrued in the ordinary course of business since December 31,
1996 and liabilities incurred in connection with the transactions
referred to herein, (c) any liabilities to the extent disclosed
in the Acquired Company Reports, and (d) any other liabilities
which would not have a Material Adverse Effect.
<PAGE>
III.5.3. Except as disclosed in the 1996 Financial Statements or Exhibit
3.5.2, neither the Acquired Company nor any Subsidiary is in
default with respect to any liabilities or obligations, and all
such liabilities or obligations shown or reflected in the 1996
Financial Statements or Exhibit 3.5.2 and such liabilities
incurred or accrued subsequent to December 31, 1996 have been, or
are being, paid and discharged as they become due, and all such
liabilities and obligations were incurred in the ordinary course
of business except as indicated in Exhibit 3.5.2.
III.6 Tax Returns.
-----------
III.6.1. The Acquired Company and the Subsidiaries have, as of the date
hereof, and will prior to the Effective Time have, timely and
accurately filed all federal, state, foreign and local income,
franchise, sales, real and personal property and other tax
returns and reports required to be filed by them prior to such
dates and have timely paid, or will prior to the Effective Time
timely pay, all taxes shown on such returns as owed for the
periods of such returns, including all withholding or other
payroll related taxes shown on such returns, except where the
failure to so file any such return or report would not
individually or in the aggregate have a Material Adverse Effect
upon the Acquired Company. The tax basis of all assets of the
Acquired Company and the Subsidiaries as reflected on their books
and records is correct and accurate in all material aspects.
Except as described on Exhibit 3.6, neither the Acquired Company
nor any Subsidiary is, nor will any of them become, subject to
any additional taxes, interest, penalties or other similar
charges with respect to the tax returns and reports referred to
in the first sentence of this Section 3.6 that would individually
or in the aggregate have a Material Adverse Effect on the
Acquired Company. No assessments or notices of deficiency or
other communications have been received by the Acquired Company,
nor have any been threatened, with respect to any such tax return
that has not been paid, discharged or fully reserved in the 1996
Financial Statements or Exhibit 3.6 hereto, and no amendments or
applications for refund have been filed or are planned with
respect to any such return. Except as set forth on Exhibit 3.6,
there are no agreements between the Acquired Company or any
Subsidiary and any taxing authority, including, without
limitation, the IRS, waiving or extending any statute of
limitations with respect to any tax return, and neither the
Acquired Company nor any Subsidiary has filed any consent or
election under the Tax Code, including, without limitation, any
election under Section 341(f) of the Tax Code.
III.6.2. Neither the Acquired Company nor any Subsidiary has made any
parachute payments as such term is defined in Section 280G of the
Tax Code, neither is obligated to make any parachute payments,
and neither is a party to any agreement that under certain
circumstances could obligate it, or any successor in interest, to
make any parachute payments that will not be deductible under
Section 280G of the Tax Code.
III.6.3. The Acquired Company and the Subsidiaries (a) have withheld
proper and accurate amounts in compliance with the tax
withholding provisions of all applicable laws
<PAGE>
for all compensation paid to the officers and employees of the
Acquired Company and the Subsidiaries, (b) have correctly and
properly prepared and duly and timely filed all returns and
reports relating to those amounts withheld from their officers
and employees and to their employer liability for employment
taxes under the Tax Code and applicable state and local laws and
(c) have duly and timely paid and remitted to the appropriate
taxing authorities the amounts withheld from their officers and
employees and any additional amounts that represent their
employer liability under applicable law for employment taxes.
III.6.4. The income tax returns of the Acquired Company have been audited
by the IRS for all tax years through the year ended December 31,
1993, and all taxes, deficiencies, penalties and interest
relating to such tax years have been fully paid and satisfied by
the Acquired Company.
III.6.5. To the knowledge of the Acquired Company, no issue has been
raised by the IRS, any state or local taxing authority, or any
other investigation or audit, that will have, or can be expected
to have, a Material Adverse Effect on the Acquired Company.
III.6.6. The 1994, 1995 and 1996 Financial Statements include, and the
accounts of the Acquired Company and the Subsidiaries will
include, for all periods up to and including the Closing Date,
adequate provision for all unpaid applicable taxes, assessments,
fees and charges relating to the Acquired Company and the
Subsidiaries.
III.6.7. Neither the Acquired Company nor any Subsidiary is a "United
States real property holding corporation" as defined in Section
897(c)(2) of the Tax Code.
III.7 Ownership of Assets. The Acquired Company and the Subsidiaries
have title to all of their respective properties and assets used
or useful in their respective businesses, other than leased
property, licensed property and immaterial items of personal
property, in each case free and clear of any liens, security
interests, claims, charges, options, rights of tenants or other
encumbrances, except as disclosed or reserved against in Exhibit
3.7 or reserved against in the 1996 Financial Statements (to the
extent and in the amounts so disclosed or reserved against) and
except for liens arising from current taxes not yet due and
payable and other immaterial liens. Except as disclosed on
Exhibit 3.7, neither the Acquired Company, nor any Subsidiary,
has received any payment from a lessor or licensor in connection
with or as inducement for entering into a lease or license in
which the Acquired Company or a Subsidiary is a lessee or
licensee, except licenses, fees and similar payment in historical
amounts and in the ordinary course of business. Except as
disclosed on Exhibit 3.7, all buildings and material items of
machinery and equipment owned or leased by the Acquired Company
or any Subsidiary are in good operating condition and reasonable
state of repair, subject only to ordinary wear and tear. Except
as reserved against in the 1996 Financial Statements, the
inventories of the Acquired Company and the Subsidiaries consist
only of items of
<PAGE>
supplies and equipment of a quality and quantity usable in the
normal course of their businesses. Neither the Acquired Company
nor any Subsidiary has received any notice of violation of any
applicable zoning regulation, ordinance or other law, regulation
or requirement relating to their operations and properties,
whether owned or leased. All of the accounts receivable of the
Acquired Company and the Subsidiaries as of the Effective Time
will reflect actual transactions and will have arisen in the
ordinary course of business.
III.8 Agreement Does Not Violate Other Instruments. Except as set forth
on Exhibit 3.8 hereto (or, in respect of the Specified Customer
Contracts, as set forth on Exhibit 3.13(D) hereto), and except
for Customer Contracts, the execution and delivery of this
Agreement by the Acquired Company does not, and the consummation
of all of the transactions contemplated hereby will not, violate
any provision of the Articles of Incorporation or Certificate of
Incorporation, as amended, or Bylaws, as amended, of the Acquired
Company or any Subsidiary or violate or constitute an occurrence
of default under any provision of, or conflict with, or result in
acceleration of any obligation under, or give rise to a right by
any party to terminate its obligations under, any Material
Contract, or any order, judgment or decree to which the Acquired
Company or any Subsidiary is a party or is bound or by which the
Acquired Company's or any Subsidiaries' assets are affected.
Except for the applicable requirements of the HSR Act, the 1933
Act, the Exchange Act and applicable Blue Sky laws, no consent,
approval, order or authorization of, or registration, declaration
or filing with, any governmental entity is required to be
obtained or made by or with respect to the Acquired Company, any
Subsidiary or any assets, properties or operations of the
Acquired Company or any Subsidiary in connection with the
execution and delivery by the Acquired Company of this Agreement
or the consummation of the transactions contemplated hereby.
III.9 Absence of Certain Changes or Events. Except as disclosed on
Exhibit 3.9, since December 31, 1996, the Acquired Company and
each of the Subsidiaries has operated in the ordinary course of
business and there has not been (i) any material damage,
destruction or other casualty loss with respect to property owned
or leased by the Acquired Company or any of the Subsidiaries,
whether or not covered by insurance, or any strike, work stoppage
or slowdown or other labor trouble involving the Acquired Company
or any of the Subsidiaries; (ii) any increase in dividends or
employee compensation or benefits payable by the Acquired
Company, except for normal increases in compensation consistent,
in amounts and timing, with historical practices; (iii) any
change in accounting methods; or (iv) any transaction,
commitment, dispute or other event or condition that has
individually or in the aggregate resulted in any Material Adverse
Effect in respect of the Acquired Company.
III.10 Litigation. Except as otherwise set forth in Exhibit 3.10 hereto,
there is no suit, action, arbitration, proceeding, claim or
investigation pending or, to the knowledge of the Acquired
Company, threatened against or affecting the Acquired Company or
any Subsidiary that would individually or in the aggregate have a
Material
<PAGE>
Adverse Effect on the Acquired Company, and, to the knowledge of
the Acquired Company, there exists no reasonable basis or grounds
for any such suit, action, arbitration, proceeding, claim or
investigation.
III.11 Licenses and Permits; Compliance With Law. The Acquired Company
and the Subsidiaries hold all licenses, certificates, permits,
franchises and rights from all appropriate federal, state or
other public authorities necessary for the conduct of their
respective businesses and the use of their respective assets,
except for such licenses, certificates, permits, franchises and
rights the absence of which would not individually or in the
aggregate have a Material Adverse Effect on the Acquired Company.
Except as noted in Exhibit 3.11, and except for any matters which
will not have a Material Adverse Effect in respect of the
Acquired Company, the Acquired Company and the Subsidiaries
presently are conducting their respective businesses so as to
comply with all applicable statutes, ordinances, rules,
regulations and orders of any governmental authority. Further,
the Acquired Company and the Subsidiaries are not presently
charged with, or under governmental investigation with respect
to, any actual or alleged violation of any statute, ordinance,
rule or regulation, or presently the subject of any pending or,
to the knowledge of the Acquired Company, threatened adverse
proceeding by any regulatory authority having jurisdiction over
their respective businesses, properties or operations. Neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in the
termination of any license, certificate, permit, franchise or
right held by the Acquired Company or any Subsidiary that
individually or in the aggregate would have a Material Adverse
Effect on the Acquired Company, and all such licenses,
certificates, permits, franchises and rights will inure to the
benefit of the Surviving Corporation after the consummation of
the transactions contemplated by this Agreement except where the
failure to so inure individually or in the aggregate would not
have a Material Adverse Effect on the Acquired Company.
III.12 Contracts, Agreements and Instruments Generally. Exhibit 3.12
hereto consists of a true and complete list of all contracts,
agreements, commitments and other instruments (identified by
title, date and parties)(whether oral or written) to which the
Acquired Company or any Subsidiary is a party (except for
Customer Contracts and Specified Customer Contracts that: involve
a receipt or an expenditure by the Acquired Company or any
Subsidiary or require the performance of services or delivery of
goods to, by, through, on behalf of or for the benefit of the
Acquired Company or any Subsidiary, which in each case relates to
a contract, agreement, commitment or instrument that requires
payments or provides for receipts in excess of $60,000 per year.
Exhibit 3.12 also identifies (identified by title, date and
parties)(whether oral or written) all:
III.12.1. leases, rental agreements or other contracts or commitments
affecting the ownership or leasing of, title to or use of any
interest in real or personal property with payments equal to or
greater than $5,000 per month and all maintenance or
<PAGE>
service agreements relating to any real or personal property with
payments equal to or greater than $5,000 per month;
III.12.2. contracts or committments providing for payments by the Acquired
Company or any Subsidiary based in any manner upon the sales,
purchases, receipts, income or profits of the Acquired Company or
any Subsidiary;
III.12.3. franchise agreements, marketing agreements or royalty agreements
(and with respect to each such agreement, Exhibit 3.12 sets forth
the aggregate royalties or similar payment paid or payable
thereunder by the Acquired Company or any Subsidiary as of the
date hereof);
III.12.4. employment contracts or commitments regarding employees or
independent contractors (except to the extent listed in Exhibit
3.14.2(iii)) (including without limitation any standard form
contracts such as employee nondisclosure agreements, provided
that to the extent substantially all employees have executed any
such standard form, a copy of such form is attached in lieu of
each individual contract and the Acquired Company represents and
warrants that substantially all employees have executed such
form), and any other contracts, plans or commitments providing
for any continuing payment of any type or nature, including,
without limitation, any severance, termination, parachute, or
other payments (whether due to a change in control, termination
or otherwise) and bonuses and vested commissions. Exhibit 3.12
also includes a listing of all such agreements, if any, for which
the standard form was materially or substantially modified or
materially or substantially altered, and any contracts that are
not in the standard form. Other than the standard form agreements
listed on Exhibit 3.12, those listed variations from the standard
form agreements and those listed agreements that are not in the
standard form, there are no other agreements of the type referred
to in this Section 3.12.4;
III.12.5. contracts, agreements, understandings or arrangements restricting
the Acquired Company or any Subsidiary from carrying on its
business anywhere in the world;
III.12.6. instruments or arrangements evidencing or related to indebtedness
for money borrowed or to be borrowed, whether directly or
indirectly, by way of purchase-money obligation, guaranty,
subordination, conditional sale, lease-purchase or otherwise
providing for payments in excess of $5,000 per month;
III.12.7. joint product development agreement with any party other than the
Purchaser, other than Customer Contracts and Specified Customer
Contracts; and
III.12.8. contracts or agreements with vendors of material equipment
purchased by the Acquired Company or appointing the Acquired
Company as a reseller of equipment, other than purchase orders in
the ordinary course of business; or
<PAGE>
III.12.9. contracts, agreements, commitments or understandings for the
issuance, transfer or sale of any shares of capital stock or
assets of any of the Subsidiaries.
The contracts, agreements, commitments and other instruments
listed or required to be listed on Exhibit 3.12 or listed on an
Exhibit referred to in Section 3.14 hereof are herein referred to
as the "Material Contracts."
All the Material Contracts and Specified Customer Contracts are
valid and binding upon the Acquired Company or the applicable
Subsidiary and the other parties thereto and are in full force
and effect and enforceable in accordance with their terms, except
as enforceability may be affected by bankruptcy, insolvency,
moratorium or similar laws affecting creditors rights generally
and general principles of equity relating to the availability of
equitable remedies. Except as set forth on Exhibit 3.12, none of
the Acquired Company, the applicable Subsidiary and, to the
knowledge of the Acquired Company, any other party to any such
contract, commitment or arrangement has breached any provision
of, or is in default under, the terms thereof; and except as set
forth on Exhibit 3.12, there are no existing facts or
circumstances that would prevent the work in process of the
Acquired Company or any Subsidiary or their contracts and
agreements from maturing upon performance by the Acquired Company
or the applicable Subsidiary into accounts receivable collectible
in the aggregate in amounts consistent in all material respects
with historical experience. Except as set forth on Exhibit 3.12,
there are no contracts or commitments that require the
performance of services or provision of goods by the Acquired
Company at a direct cost or with a value for each such contract
or commitment in excess of the revenue to be derived pursuant to
the terms of such contract or commitment. Except for terms
specifically described in Exhibit 3.12, neither the Acquired
Company nor any Subsidiary has received any payment from any
contracting party in connection with or as an inducement for
entering into any contract, agreement, policy or instrument
except for payment for actual services rendered or to be rendered
by such Acquired Company or Subsidiary consistent with amounts
historically charged for such services.
III.13 Specified Customer Contracts. Exhibit 3.13(A) hereto consists of
a true and correct list of all Specified Customer Contracts
(identified by title, date and parties). Exhibit 3.13(B) hereto
is the Acquired Company's standard form of Customer Contract (the
"Customer Contract Form"). Except as set forth on Exhibit 3.13(C)
or Exhibit 3.13(D), each Specified Customer Contract entered into
during the eighteen (18) month period ending on the date hereof
conforms substantially to the Customer Contract Form, except for
deviations which do not individually or in the aggregate
materially adversely affect the rights or benefits of the
Acquired Company thereunder. Except as set forth on Exhibit
3.13(C), with respect to each Specified Customer Contract, (i)
each customer to which computer software represented as owned by
or proprietary to the Acquired Company or a Subsidiary (the
"Owned Software") has been licensed pursuant to such Specified
Customer Contract and tendered or certified as operational by the
Acquired
<PAGE>
Company or any Subsidiary (whichever is the case being referred
to in this Section 3.13 as the "Vendor") has accepted in all
material respects such software to the extent and on the terms
and conditions provided for in such Specified Customer Contract;
(ii) in each case in which the Specified Customer Contract
pursuant to which Owned Software is licensed incorporates
response(s) by Vendor to a Request for Proposal by the customer,
such software has met all material requirements set forth in such
response(s); and (iii) all performance warranties with respect to
Owned Software made by the Vendor in any Specified Customer
Contract, including warranties with respect to capacity,
availability, downtime and response time, have been satisfied in
all material respects upon the terms and conditions and to the
extent provided for in such Specified Customer Contract. Except
as set forth on Exhibit 3.13(D), none of the Specified Customer
Contracts contains any of the following deviations from the
Customer Contract Form:
III.13.1. any term for acceptance of any Owned Software that fails to
specify a period of time or date for acceptance or standards
applicable thereto;
III.13.2. any provision granting the customer a right to a whole or partial
refund of fees previously paid upon the non-acceptance or failure
of any Owned Software to perform as warranted;
III.13.3. any provision obligating the Vendor to indemnify a customer
against consequential damages;
III.13.4. any commitment by the Vendor to provide a hardware upgrade in
response to or as a remedy for a breach of any software-related
response-time warranty unless the customer party to the Customer
Contract in which the commitment is made is required to pay the
cost of such upgrade and such costs are specified or described in
such contract;
III.13.5. any material deviation from the provisions regarding
confidentiality of the Owned Software;
III.13.6. any provision granting an ownership interest (other than a
license) in any Owned Software to a customer;
III.13.7. any license for use by more than a single entity of any Owned
Software unless the customer that is a party to such Customer
Contract has agreed to pay a fee or fees with respect to each
entity's use thereof;
III.13.8. any provision naming a customer as an insured on any policy of
insurance owned by the Vendor;
III.13.9. any joint product development agreement with any other party;
<PAGE>
III.13.10. any commitment or warranty made or given by the Vendor to design or
modify any Owned Software so as to comply with any governmental
regulations;
III.13.11. any restrictions in any Customer Contract on the ability of the
Vendor to increase the fees by less than the lesser of 5% or the
annual increase in the Consumer Price Index, for maintenance of any
Owned Software applicable to any period beyond the period specified
in such contract during which the customer that is a party to such
contract is obligated to pay maintenance fees;
III.13.12. any commitment by the Vendor to sell or maintain computer hardware;
III.13.13. any commitment by the Vendor to provide emergency back-up for either
software or hardware; or
III.13.14. any commitment by the Vendor to provide existing customers products
developed in the future as a credit to existing payment obligations
or for less than normal prices.
III.14 Intellectual Property; Computer Software.
III.14.1. Exhibit 3.14.1 hereto sets forth (i) a complete and correct list of
all registered and material unregistered trademarks, trade names,
service marks, service names, and brand names, and all patent and
registered copyrights; and all applications for the foregoing, if
any, (setting forth the registration, issue or serial number of the
same and a description of the same) applicable to or used in the
businesses of the Acquired Company or any Subsidiary; (ii) the owner
of such intellectual property and any registration thereof or
application therefor; and (iii) a complete list of all licenses
granted by or to the Acquired Company or any Subsidiary with respect
to any of the above except pursuant to contracts with customers
(identified by title, date and parties). Except as set forth on
Exhibit 3.14.1, all such trademarks, trade names, service marks,
service names, brand names, copyrights and patents are owned by the
Acquired Company or a Subsidiary free and clear of all liens,
claims, security interests and encumbrances. Except as set forth on
Exhibit 3.14.1, neither the Acquired Company nor any Subsidiary is
currently in receipt of any notice of any violation of, and neither
the Acquired Company nor any Subsidiary is violating, the rights of
others in any trademark, trade name, service mark, copyright,
patent, trade secret, know-how or other intangible asset, except
where such violations individually or in the aggregate would not
have a Material Adverse Effect on the Acquired Company.
III.14.2.(i) Exhibit 3.14.2(i) contains a complete and accurate list of all
Owned Software, other than immaterial Owned Software which list
specifies which of the Acquired Company and the Subsidiaries is the
owner thereof. Except as set forth on Exhibit 3.14.2(i), the
Acquired Company or one of the Subsidiaries has title to the Owned
Software, free and clear of all claims, including claims or rights
of employees, agents, consultants, inventors, customers, licensees
or other parties involved in the
<PAGE>
development, creation, marketing, maintenance, enhancement or
licensing of such computer software, except claims that
individually or in the aggregate would not have a Material Adverse
Effect on the Acquired Company. Except as set forth on Exhibit
3.14.2(i) and except for commercially available, over-the-counter
"shrink-wrap" software, the Owned Software is not dependent on any
Licensed Software (as defined in subsection (ii) below) in order
to operate fully in the manner in which it is intended. No Owned
Software has been published or disclosed to any other parties,
except as set forth on Exhibit 3.14.2(i), and except pursuant to
contracts requiring such other parties to keep the Owned Software
confidential and except where such disclosures were both
incidental and immaterial. To the knowledge of the Acquired
Company, no such other party has breached any such obligation of
confidentiality.
3.14.2(ii) All software (other than commercially available over-
the-counter "shrink-wrap" software) necessary for the Acquired
Company or any Subsidiary to license and deliver the Owned
Software to customers is set forth on Exhibit 3.14.2(ii) ("Support
Software"). The Acquired Company has the right and license to use,
sublicense, modify and copy all Support Software and all other
material software used in its business under which the Acquired
Company or any Subsidiary is a licensee, lessee or otherwise has
obtained the right to use (the "Licensed Software") as set forth
in the respective license, lease or similar agreement pursuant to
which the Licensed Software is licensed to the Acquired Company or
any Subsidiary, free of any other limitations or encumbrances. All
Support Software agreements to which the Acquired Company or any
Subsidiary is a party will be provided to Purchaser within ten
days of the date of this Agreement. The Acquired Company covenants
to remedy any default or item of noncompliance with respect to
Support Software prior to Closing, and shall use its reasonable
best efforts to remedy any such default or item of noncompliance
with respect to Licensed Software prior to Closing. Except as
disclosed on Exhibit 3.14.2(ii), none of the Support Software has
been incorporated into or made a part of any Owned Software or any
other Licensed Software by the Company or any Subsidiary. Neither
the Acquired Company nor any Subsidiary has published or disclosed
any Support Software that the Acquired Company or a Subsidiary
leases or markets to others, in accordance with and as permitted
by any license, lease or similar agreement relating to the Support
Software and except pursuant to contracts requiring such other
parties to keep the Support Software confidential. No party to
whom the Acquired Company or a Subsidiary has disclosed Support
Software has, to the knowledge of the Acquired Company, breached
any obligation of confidentiality imposed on them by the Acquired
Company or any Subsidiary.
3.14.2(iii) The Owned Software, Support Software and Licensed
Software and commercially available over-the-counter "shrink-wrap"
software constitute all software used in the businesses of the
Acquired Company and the Subsidiaries (collectively, the "Acquired
Company Software") other than immaterial Owned Software and
immaterial Licensed Software. Exhibit 3.14.2(iii) sets forth a
list of all contract programmers, independent contractors,
nonemployee agents and
<PAGE>
persons or other entities (other than employees of the Acquired
Company or any Subsidiary) who have performed, within the last
three (3) years, computer programming services for the Acquired
Company or any Subsidiary and identifies the project on which such
services were performed. The Acquired Company shall use its
reasonable best efforts to obtain from each of the persons and
entities identified on Exhibit 3.14.2(iii) as having provided such
services, an assignment of all intellectual property rights
related to such services in form and substance satisfactory to
Purchaser prior to Closing. Except as disclosed on Exhibit 3.8,
the transactions contemplated herein will not cause a breach or
default under any licenses, leases or similar agreements relating
to the Acquired Company Software or impair Purchaser's, the
Acquired Company's or any Subsidiary's ability to use the Acquired
Company Software in the same manner as such computer software is
currently used by the Acquired Company or the Subsidiaries.
Neither the Acquired Company nor any Subsidiary is infringing in
any material respect any intellectual property rights of any other
person or entity with respect to the Acquired Company Software,
and, to the knowledge of the Acquired Company, no other person or
entity is infringing any intellectual property rights of the
Acquired Company or any Subsidiary with respect to the Acquired
Company Software.
3.14.2(iv) Exhibit 3.14.2(iv)(a) lists and separately identifies
all agreements pursuant to which the Acquired Company or any
Subsidiary has been granted rights to market software owned by
third parties, and Exhibit 3.14.2(iv)(b) lists and separately
identifies all agreements pursuant to which the Acquired Company
or any Subsidiary has granted marketing rights in the Acquired
Company Software to third parties.
3.14.2(v) None of the Acquired Company and the Subsidiaries has
taken or failed to take any actions under the law of any
applicable foreign jurisdictions where the Acquired Company or a
Subsidiary has marketed or licensed Acquired Company Software that
would restrict or limit the ability of the Acquired Company or any
Subsidiary to protect, or prevent it from protecting, in any
material respect, its ownership interests in, confidentiality
rights of, and rights to market, license, modify or enhance, the
Acquired Company Software.
III.15 Labor Matters. Except as set forth on Exhibit 3.15, within the
last three (3) years neither the Acquired Company nor any
Subsidiary has been the subject of any union activity or labor
dispute, nor has there been any strike of any kind called or, to
the knowledge of the Acquired Company, threatened to be called
against any of them. Neither the Acquired Company nor any
Subsidiary has violated any applicable federal or state law or
regulation relating to labor or labor practices including, without
limitation, any requirements of the Immigration and Nationality
Act of 1952, as amended by the Immigration Reform and Control Act
of 1986 and the regulations promulgated thereunder (hereinafter
collectively referred to as the "Immigration Laws"), where such
violation would have a Material Adverse Effect on the Acquired
Company. Exhibit 3.15 sets forth a true, correct and complete list
<PAGE>
of employer loans or advances from the Acquired Company and each
Subsidiary to their respective employees.
III.16 Benefit Plans.
-------------
III.16.1. Exhibit 3.16 lists every pension, retirement, profit-sharing,
deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus or other incentive plan; any
medical, vision, dental or other health plan; any life insurance
plan or any other employee benefit plan or fringe benefit plan;
any payroll practice; any other written or unwritten employee
program, arrangement, agreement or understanding; commitments or
methods of contribution or compensation (whether arrived at
through collective bargaining or otherwise), whether formal or
informal, whether funded or unfunded, and whether legally binding
or not; including, without limitation, any "employee benefit
plan," as that term is defined in Section 3(3) of ERISA; that is
currently or previously adopted, maintained, sponsored in whole or
in part, or contributed to by the Acquired Company or any ERISA
Affiliate of the Acquired Company, for the benefit of, providing
any remuneration or benefits to, or covering any current or former
employee, retiree, dependent, spouse or other family member or
beneficiary of such employee or retiree, director, independent
contractor, stockholder, officer or consultant of the Acquired
Company or any ERISA Affiliate of the Acquired Company or under
(or in connection with) which the Acquired Company or an ERISA
Affiliate of the Acquired Company has any contingent or
noncontingent liability of any kind, whether or not probable of
assertion (collectively, the "Benefit Plans"). Any of the Benefit
Plans that is an "employee pension benefit plan," or an "employee
welfare benefit plan" as that term is defined in Section 3(1) of
ERISA, is referred to herein as an "ERISA Plan." No Benefit Plan
is or has been a multiemployer plan within the meaning of Section
3(37) of ERISA.
III.16.2. Exhibit 3.16 also lists, with respect to all Benefit Plans listed
in Exhibit 3.16: (a) all trust agreements or other funding
arrangements, including insurance contracts, all annuity
contracts, actuarial statements or valuations, fidelity bonds,
fiduciary liability policies, investment manager or advisory
contracts, and all amendments (if any) thereto, (b) where
applicable, with respect to any such plans or plan amendments, the
most recent determination letters issued by the IRS, and (c) the
most recent summary plan descriptions, any material modifications
thereto, and all material employee communications with respect to
such Benefit Plans. Contemporaneous with the delivery of the
Exhibits to this Agreement, the Acquired Company has delivered a
true and complete copy of each such Benefit Plan, agreement, most
recent IRS letter or ruling, opinion, return, financial statement
and summary plan description described in Sections 3.16.1 or
3.16.2 hereof, certified as such by the Chief Financial Officer of
the Acquired Company, together with the annual report (Form 5500
Series) for the two most recent plan years for any Benefit Plan
subject to such reporting requirements.
<PAGE>
III.16.3. All the Benefit Plans and any related trusts subject to ERISA
comply with and have been administered in substantial compliance
with the provisions of ERISA, all applicable provisions of the Tax
Code relating to qualification and tax exemption under Tax Code
Sections 401(a) and 501(a) or otherwise necessary to secure
intended tax consequences, all applicable state or federal
securities laws and all other applicable laws, rules and
regulations, and the Acquired Company has not received any notice
from any governmental agency or instrumentality questioning or
challenging such compliance. Any noncompliance or failure properly
to maintain, operate or administer a Benefit Plan or related trust
has not rendered nor will render (i) such Benefit Plan or related
trust or the Parent, Purchaser or Acquired Company subject to or
liable for any material taxes, penalties, or liabilities to any
Person; (ii) the Benefit Plan subject to disqualification; or
(iii) the trust subject to loss of tax-exempt status.
III.16.4. None of the Acquired Company, any of the Subsidiaries, and, to the
knowledge of the Acquired Company, any administrator or fiduciary
of any such Benefit Plan (or agent or delegate of any of the
foregoing) has engaged in any transaction or acted or failed to
act in any manner that could subject the Acquired Company to any
direct or indirect liability (by indemnity or otherwise) for a
breach of any fiduciary, co-fiduciary or other duty under ERISA
which individually or in the aggregate would have a Material
Adverse Effect on the Acquired Company. No material oral or
written representation or communication with respect to any aspect
of the Benefit Plans has been or will be made to employees of the
Acquired Company prior to the Closing Date that is not in
accordance with the written or otherwise preexisting terms and
provisions of such Benefit Plans in effect immediately prior to
the Closing Date, except for any amendments or terminations
required by the terms of this Agreement and except where such
representation or communication would not have a Material Adverse
Effect on the Acquired Company. There are no pending unresolved
claims or disputes under the terms of, or in connection with, the
Benefit Plans (other than routine undisputed claims for benefits),
and no action, legal or otherwise, has been commenced with respect
to any claim.
III.16.5. All annual reports or returns, audited or unaudited financial
statements, actuarial valuations, summary annual reports and
summary plan descriptions issued with respect to the Benefit Plans
are correct and accurate in all material respects as of the dates
thereof; and there have been no amendments filed to any of such
reports, returns, statements, valuations or descriptions or
required to make the information therein true and accurate. Except
as disclosed on Exhibit 3.16.5, all annual reports (Form 5500
series) required to be filed with respect to any Benefit Plan have
been or will be timely filed prior to Closing.
III.16.6. No non-exempt "prohibited transaction" (within the meaning of
Section 4975(c) of the Tax Code) involving any Benefit Plan has
occurred. None of the assets of any ERISA Plan is "employer real
property" (within the meaning of Section 407(d)(2) of ERISA).
<PAGE>
III.16.7. Each Benefit Plan that is or has been an "employee pension
benefit plan" as defined in Section 3(2) of ERISA is a defined
contribution plan qualified under Section 401(a) of the Tax Code
and its related trust is exempt from tax under Section 501(a) of
the Tax Code (a "Qualified Plan") and no circumstances exist that
are likely to result in disqualification of any Qualified Plan or
loss of tax-exempt status for its related trust (or monetary
sanctions in lieu of disqualification or loss of tax exempt
status), except where the payment of such monetary sanctions
would not have a Material Adverse Effect on the Acquired Company.
No Qualified Plan (nor any predecessor to a Qualified Plan) has
ever been subject to the provisions of Title IV of ERISA or to
the minimum funding standards of Section 412 of the Tax Code.
III.16.8. As of December 31, 1996, the Acquired Company had no current or
future liability with respect to any events or matters occurring,
arising or accruing on or prior to such date under any Benefit
Plan that was not reflected in the 1996 Financial Statements,
which liability would have a Material Adverse Effect on the
Acquired Company.
III.16.9. The Acquired Company does not maintain any Benefit Plan providing
deferred or stock based compensation that is not reflected in the
1996 Financial Statements.
III.16.10. Neither the Acquired Company nor any ERISA Affiliate of the
Acquired Company has maintained, and neither now maintains, a
Benefit Plan providing welfare benefits (as defined in ERISA
Section 3(1)) to employees after retirement or other separation
of service except to the extent required under Part 6 of Title I
of ERISA and Tax Code Section 4980B.
III.16.11. Except as disclosed in Exhibit 3.16.11, the consummation of the
transactions contemplated by this Agreement will not (i) entitle
any current or former employee (or any spouse, dependent or other
family member of such employee) of the Acquired Company or any of
the Subsidiaries to severance pay, unemployment compensation or
any payment contingent upon a change in control or ownership of
the Acquired Company, or (ii) accelerate the time of payment or
vesting, or increase the amount, of any compensation due to any
such employee or former employee (or any spouse, dependent or
other family member of such employee).
III.16.12. The Acquired Company has provided to each of those persons listed
on Exhibit 6.11A the form of Covenant Not to Compete attached as
Exhibit 6.11B and obtained their agreement to enter into same in
favor of Purchaser as of the Closing Date.
III.17 Customers. Except as disclosed on Exhibit 3.17, none of the
Acquired Company and the Subsidiaries has received any notice
from, or has any knowledge (which, for the purposes of this
Section 3.17 only shall mean the knowledge of the Acquired
Company or any Subsidiary after having made reasonable inquiry of
managerial and customer account employees) that, any current
customer of the Acquired Company or any Subsidiary as of December
31, 1996 or any date
<PAGE>
subsequent thereto has taken or will take any
steps that could disrupt the business relationship of the Acquired
Company or the Subsidiaries with such customer in any material
respect, including without limitation any cancellation of
contract, diminution of business or failure to renew, or any
intention to do any of the foregoing.
III.18 Environmental Matters. Except as set forth in Exhibit 3.18, no
real property now or previously owned, leased or used by the
Acquired Company or any Subsidiary (the "Real Property") has been
used by the Acquired Company or any Subsidiary or, to the
knowledge of the Acquired Company, any other party for the
handling, treatment, storage or disposal of any Hazardous
Substance. Except as set forth in Exhibit 3.18, no release,
discharge, spillage or disposal into the environment of any
Hazardous Substance and no soil, water or air contamination by any
Hazardous Substance has occurred or is occurring in, from or on
the Real Property (a) by virtue of the actions or failure to act
of any of the Acquired Company or any Subsidiary or (b) to the
knowledge of the Acquired Company, by virtue of the actions or
failure to act of any other party. Except as set forth in Exhibit
3.18, the Acquired Company and all Subsidiaries have complied in
all material respects with all reporting requirements under any
applicable federal, state or local environmental laws and any
permits with respect to the Real Property, and there are no
existing violations by the Acquired Company or any Subsidiary of
any such environmental laws or permits with respect to the Real
Property. Except as set forth in Exhibit 3.18, there are no
claims, actions, suits, proceedings or investigations related to
the presence, release, production, handling, discharge, spillage,
transportation or disposal of any Hazardous Substance or ambient
air conditions or contamination of soil, water or air by any
Hazardous Substance pending or threatened (1) with respect to the
Real Property (a) by virtue of the actions or failure to act of
the Acquired Company or any Subsidiary or (b) to the knowledge of
the Acquired Company, by virtue of the actions or failure to act
of any other party, or (2) otherwise against the Acquired Company
or any Subsidiary, in any court or before any state, federal or
other governmental agency or private arbitration tribunal and, to
the knowledge of the Acquired Company, there is no basis for any
such claim, action, suit, proceeding or investigation (i) with
respect to the Real Property (a) by virtue of the actions or
failure to act of the Acquired Company or any Subsidiary or (b) to
the knowledge of the Acquired Company, by virtue of the actions or
failure to act of any other party, or (ii) otherwise against the
Acquired Company or any Subsidiary. Except as disclosed on Exhibit
3.18, to the knowledge of the Acquired Company or any Subsidiary,
there are no underground storage tanks on the Real Property. To
the knowledge of the Acquired Company, no building or other
improvement included in the Real Property contains any exposed or
friable asbestos currently required to be removed or otherwise
treated under applicable law. For the purposes of this Agreement,
"Hazardous Substance" shall mean any hazardous or toxic substance
or waste as those terms are defined by any applicable federal,
state or local law, ordinance, regulation, policy, judgment,
decision, order or decree, including, without limitation, the
Comprehensive Environmental Recovery Compensation and Liability
Act, 42 U.S.C. 9601 et seq.,
<PAGE>
the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et.
seq. and the Resource Conservation and Recovery Act, 42 U.S.C.
6901 et seq., and petroleum, petroleum products and oil.
III.19 Insurance. Set forth in Exhibit 3.19 is a complete list of all
material insurance policies that the Acquired Company and the
Subsidiaries maintain with respect to its businesses, properties
or employees. Except as set forth in Exhibit 3.19, such policies
are commensurate with all material insurance policies in effect
during the preceding thirty-six (36) months, are in full force and
effect and to the knowledge of the Acquired Company, no event has
occurred that would give any insurance carrier a right to
terminate any such policy. To the knowledge of the Acquired
Company, such policies are adequate to insure against risks to
which the Acquired Company, and any Subsidiaries and their
respective properties and assets are exposed in the operation of
their respective businesses in such amounts and types of coverage
as are commercially reasonable and are consistent with practices
in the industry in which the Acquired Company and the Subsidiaries
operate. Except as set forth in Exhibit 3.19, since December 31,
1996, there has not been any change in the Acquired Company's or
any Subsidiary's relationship with their respective insurers or in
the premiums payable pursuant to such policies.
III.20 Related Parties.
---------------
(a) Except as set forth in Exhibit 3.20, to the knowledge of the
Acquired Company, no stockholder owning greater than a five-
percent (5%) interest in the Acquired Company, no affiliate or
member of the immediate family of any such stockholder, and no
officer or director or member of the immediate family of such
officer or director of the Acquired Company or any Subsidiary
possesses, directly or indirectly, any beneficial interest in, or
is a director, officer or employee of, or member of the immediate
family of a director, officer or employee of, any corporation,
partnership, firm, association or business organization that is a
client, supplier, customer, lessor, lessee, lender, creditor,
borrower, debtor or contracting party with or of the Acquired
Company or any Subsidiary (except as a stockholder holding less
than a one-percent 1% interest in a corporation whose shares are
traded on a national or regional securities exchange or in the
over-the-counter market).
(b) The Acquired Company has provided to each of its "affiliates"
as identified in Section 2.4 copies of the Rule 145 Letters and
Pooling Letters and obtained their agreement to enter into same as
of the Closing Date. The Acquired Company has provided to the
stockholders described in Section 2.13 the form of letter
referenced therein provided by the Purchaser and obtained their
agreement to enter into same as of the Closing Date.
<PAGE>
III.21 Information. The Acquired Company has made accessible to Purchaser
or Parent each registration statement, schedule, report, proxy
statement or information statement it has filed with the SEC since
January 1, 1995, including, without limitation, (a) the Acquired
Company's Annual Reports on Form 10-K for the year ended December
31, 1995, including all documents incorporated therein, (b) the
Acquired Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, June 30 and September 30, 1996, and (c) all
Reports of Acquired Company on Form 8-K since September 30, 1996
(collectively, the "Acquired Company Reports"). As of the date of
this Agreement, the Acquired Company Reports, did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which
they were made, not misleading. As used in this Section 3.21,
"material" means material to the financial condition, business,
properties, rights or operations of the Acquired Company together
with the Subsidiaries, taken as a whole. Since December 31, 1996,
the Acquired Company has made all filings with the SEC in a timely
manner as required by law and no event has occurred that requires
an additional filing or any amendment to a prior filing.
III.22 Pooling of Interests. The Acquired Company is not aware of any
facts or circumstances in respect of it or its accounting
procedures which would have the effect of precluding accounting
for the transactions contemplated hereby as a "pooling of
interests."
III.23 Disclosure and Absence of Undisclosed Liabilities. No statement
contained herein or in any certificate, schedule, list, exhibit or
other instrument furnished or required to be furnished to
Purchaser pursuant to the provisions hereof contains, or will at
the time it is furnished contain, any untrue statement of any
material fact or omits or omit to state any fact necessary to make
the Statements herein or therein not false or misleading. As used
in this Section, "material" means material to the financial
condition, business, properties, rights or operations of the
Acquired Company and its Subsidiaries, taken as a whole.
III.24 No Special Stockholder Rights. Except as disclosed on Exhibit
3.24, the Acquired Company has no agreement with any individual or
entity that grants such person any rights as a stockholder of
Acquired Company Stock that are in addition to such holder's
rights under the Acquired Company's Certificate of Incorporation
or Bylaws (including, without limitation, registration rights,
preemptive rights, put rights, rights of co-sale or rights to
Board representation).
IV. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.
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Purchaser and Parent, jointly and severally, represent and warrant to the
Acquired Company as follows:
IV.1 Organization and Standing
-------------------------
<PAGE>
IV.1.1. Each of Purchaser and Parent is a corporation duly organized,
validly existing and is in good standing under the laws of the
respective jurisdiction of its incorporation and has the requisite
corporate power and authority to carry on its business in the
places and as it is now being conducted and to own and lease the
properties and assets that it now owns or leases.
IV.1.2. Each of Purchaser and Parent is duly qualified and/or licensed to
transact business and is in good standing as a foreign corporation
in jurisdictions where the character of the property owned or
leased by Purchaser and Parent and the nature of the business
conducted by them requires such qualification and/or licensing,
except where the failure to do so qualify would not individually
or in the aggregate have a Material Adverse Effect upon Parent.
IV.2 Corporate Power and Authority. Each of Purchaser and Parent has
the capacity and authority to execute and deliver this Agreement,
to perform hereunder and to consummate the transactions
contemplated hereby without the necessity of any act or consent of
any other Person whomsoever. The execution, delivery and
performance by Purchaser and Parent of this Agreement and each and
every agreement, document and instrument provided for herein have
been duly authorized and approved by their respective Boards of
Directors (or Executive Committees thereof). Assuming this
Agreement, and each and every other agreement, document and
instrument to be executed, delivered and performed by Purchaser
and Parent in connection herewith are valid and legally binding on
the Acquired Company, this Agreement, and each and every other
agreement, document and instrument to be executed, delivered and
performed by Purchaser and Parent in connection herewith,
constitute or will, when executed and delivered, constitute the
valid and legally binding obligations of Purchaser and Parent as
applicable, enforceable against each of them in accordance with
their respective terms, except as enforceability may be limited by
applicable equitable principles, or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws from time to time in
effect affecting the enforcement of creditors' rights generally.
The Parent has provided to counsel for the Acquired Company a true
and correct copy of the Certificate of Incorporation and Bylaws,
each as amended, of the Parent and Purchaser.
IV.3 Agreement Does Not Violate Other Instruments. The execution and
delivery of this Agreement by Purchaser and Parent do not, and the
consummation of the transactions contemplated hereby will not,
violate any provisions of the Certificate of Incorporation, as
amended, or Bylaws, as amended, of Purchaser or of Parent, and,
except as set forth on Exhibit 4.3, violate or constitute an
occurrence of default under any provision of, or conflict with,
result in acceleration of any obligation under, or give rise to a
right by any party to terminate its obligations under, any
mortgage, deed of trust, conveyance to secure debt, note, loan,
lien, lease, agreement, instrument, or any order, judgment, decree
or other arrangement to which Purchaser or Parent is a party or is
bound or by which any of their
<PAGE>
respective assets are affected. Except for the applicable
requirements of the HSR Act, the 1933 Act, the Exchange Act,
applicable Blue Sky laws, and as set forth on Exhibit 4.3, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental entity is required to
be obtained or made by or with respect to Purchaser or Parent or
any assets, properties or operations of Purchaser or Parent in
connection with the execution and delivery by Purchaser and Parent
of this Agreement or the consummation of the transactions
contemplated hereby.
IV.4 Reservation of Shares. Purchaser will, prior to the Merger, in
accordance with the terms thereof, have available shares of Parent
Stock sufficient to complete the Merger. The shares of Parent
Stock issued pursuant to Article II will, when issued, be duly
authorized, validly issued, fully paid and nonassessable and no
stockholder of the Parent will have any preemptive rights of
subscription or purchase in respect thereof.
<PAGE>
IV.5 Information. Parent has made available to the Acquired Company
each registration statement, schedule, report, proxy statement or
information statement it has filed with the Securities and
Exchange Commission since January 1, 1995, including, without
limitation, (a) Parent's Annual Report on Form 10-K for the years
ended December 31, 1995, and December 31, 1996, respectively,
including all documents incorporated therein, and (b) Reports of
Parent on Form 8-K since December 31, 1996 (collectively, the
"Parent Reports"). As of the date of this Agreement, the Parent
Reports, taken together with information previously furnished by
Parent to the Acquired Company, did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were
made, not misleading. As used in this Section, "material" means
material to the financial condition, results of operations,
business, assets or properties of Parent together with the Parent
Subsidiaries (including Purchaser), taken as a whole. Since
December 31, 1996, the Parent has made all filings with the SEC in
a timely manner as required by law and no event has occurred that
requires an additional filing or any amendment to a prior filing.
IV.6 Capitalization. The entire authorized capital stock of the Parent
consists of 251,000,000 shares of stock, of which 250,000,000
shares are designated Common Stock, par value $.05 per share, and
1,000,000 shares are designated Preferred Stock, without par
value. Of the total authorized Common Stock, as of December 31,
1996, approximately ninety million six hundred one thousand four
hundred ninety-three (90,601,493) shares were issued and
outstanding and approximately thirty-one million five hundred
thirty-four thousand nine hundred fourteen (31,534,914) shares
were held in the Parent's treasury. Of the total authorized
Preferred Stock, no shares have been issued. As of December 31,
1996, there were options outstanding entitling the optionees
thereunder, to acquire in the aggregate approximately six million
seven hundred fourteen thousand one hundred ninety-six (6,714,196)
shares of the Parent Stock. All the issued and outstanding shares
of each of the Parent Subsidiaries are owned directly or
indirectly by the Parent free and clear of all liens, claims,
charges and encumbrances of any nature whatsoever. All of the
outstanding shares of Parent Stock (and any shares issued pursuant
to presently outstanding options, if exercised and purchased at
the applicable exercise price) were duly authorized (or will be
when issued and the option price paid), validly issued, fully paid
and nonassessable. None of the capital stock of the Parent is
entitled to or subject to preemptive rights. The authorization or
consent of no other person or entity is required in order to
consummate the transaction contemplated herein by virtue of any
such person or entity having an equitable or beneficial interest
in the Parent or any Subsidiary.
V. CONDITIONS PRECEDENT TO RESPECTIVE OBLIGATIONS OF THE PARTIES.
-------------------------------------------------------------
The obligations of Purchaser and Parent, on the one hand, and of the
Acquired Company, on the other hand, to consummate, or cause to be
consummated, the Merger shall be contingent
<PAGE>
upon and subject to the satisfaction, on or before the Closing, of each and
every one of the following conditions, any one or more of which may be waived
in writing by such parties.
V.1 Actions of Governmental Authorities. There shall not have been
instituted or be pending any action, proceeding, application,
claim or counterclaim by any government or governmental authority
or agency, domestic or foreign, and Purchaser, Parent or the
Acquired Company shall not have been notified by any such
government, governmental authority or agency (or a representative
thereof) of its present intention to commence, or recommend the
commencement of, such an action or proceeding, that (i) challenges
the acquisition by Purchaser or Parent of the Acquired Company
Stock, restrains or prohibits or seeks to restrain or prohibit the
making or consummation of the Merger or restrains or prohibits or
seeks to restrain or prohibit the performance of this Agreement;
(ii) prohibits or limits or seeks to prohibit or limit the
ownership or operation by Purchaser or Parent of all or any
substantial portion of the business or assets of the Acquired
Company or any of the Subsidiaries or of Purchaser, Parent or any
of their respective subsidiaries or compels or seeks to compel
Purchaser or Parent to dispose of or to hold separate all or any
substantial portion of the business or assets of the Acquired
Company or any of the Subsidiaries or of Purchaser, Parent or any
of their respective subsidiaries, or imposes or seeks to impose
any material limitation on the ability of Purchaser or Parent to
conduct such business or to own such assets; or (iii) imposes or
seeks to impose limitations on the ability of Purchaser or Parent
(or any other affiliate of Purchaser) to acquire or hold or to
exercise full rights of ownership of the Surviving Corporation,
including, but not limited to, the right to vote such shares on
all matters properly presented to the stockholders of the
Surviving Corporation.
V.2 Other Legal Actions. There shall not have been any statute, rule,
regulation, order or injunction enacted, promulgated, entered,
enforced, deemed applicable to the Merger or this Agreement or
proposed by any government, governmental authority or agency or
court, domestic or foreign, and no claim or action shall have been
instituted by any Person before a court, government or
governmental authority or agency, that could be reasonably
expected to result in any of the consequences referred to in
clauses (i) through (iii) of Section 5.1 above.
V.3 Legal Approvals. The execution and the delivery of this Agreement
and the consummation of the transactions contemplated hereby shall
have been approved by all regulatory authorities whose approvals
are required by law and the waiting period under the HSR Act shall
have expired or have been terminated.
V.4 Stockholder Approval. This Agreement and the Merger and any
related matters shall have been adopted and approved by the
affirmative vote or written consent of the holders of the
outstanding shares of Acquired Company Stock by the vote or
written consent required by, and in accordance with, the Delaware
Code.
<PAGE>
V.5 Effectiveness of Registration Statement. The Registration
Statement shall have been declared effective by the SEC, and no
stop order suspending effectiveness shall have been issued, and no
action, suit, proceeding or investigation by the SEC to suspend
the effectiveness thereof shall have been initiated and be
continuing. The shares of Parent Stock to be issued or sold
pursuant to the Registration Statement shall have been registered
for issuance under all applicable Blue Sky laws or shall be exempt
from such registration, and no stop order shall have been issued
with respect to the issuance or sale of such securities by any
Blue Sky authority.
V.6 Nasdaq Approval. The Parent Stock issuable in the Merger shall
have been listed or approved for listing upon notice of issuance
by the Nasdaq Stock Market, Inc.
V.7 Fairness Opinion. The Acquired Company shall have received an
opinion dated as of a date not more than three (3) business days
prior to the mailing of the proxy statement/prospectus included
within the Registration Statement to the stockholders of the
Acquired Company from Broadview Associates LLC, its financial
advisor, confirming the opinion referred to in Section 3.2.3
hereof.
VI. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER AND PARENT.
-------------------------------------------------------------------
In addition to the conditions set forth in Article V above, all the
obligations of Purchaser and Parent to consummate, or cause to be
consummated, the Merger shall be contingent upon and subject to the
satisfaction, on or before the Closing, of each and every one of the
following conditions. The following conditions are for the sole benefit of
Purchaser and Parent and may be asserted by Purchaser or Parent regardless
of the circumstances giving rise to any such condition and may be waived by
Purchaser or Parent (which action shall be deemed a waiver by both
Purchaser and Parent), in whole or in part, at any time and from time to
time, in the sole discretion of Purchaser or Parent. The failure by either
Purchaser or Parent at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any other right, and each right shall be
deemed an ongoing right that may be asserted at any time and from time to
time.
VI.1 Representations of Acquired Company. All representations and
warranties of the Acquired Company contained in this Agreement (except
as affected by the transactions contemplated by this Agreement), in
the statements contained in the Exhibits hereto or in any certificate
delivered by the Acquired Company pursuant to this Agreement shall be
true and correct when made, and shall be true and correct at and as of
the Closing Date as though such representations and warranties were
made or given on and as of the Closing Date, in each case as if none
of such representations and warranties contained any qualifications as
to materiality or the absence of Material Adverse Effect, provided
however, that notwithstanding the foregoing, this condition shall be
deemed to be satisfied if all breaches of such representations and
warranties, after giving effect to the foregoing, do not individually
or in the aggregate constitute a Material Adverse Effect on the
Acquired Company.
<PAGE>
VI.2 Covenants of Acquired Company. The Acquired Company shall have, or
caused to be, performed and observed all covenants, agreements and
conditions hereto to be performed or observed at or before the
Closing Date.
VI.3 No Material Adverse Change. Since the date of this Agreement there
shall not have been any change or changes in the business,
properties, rights or operations of the Acquired Company or its
Subsidiaries, which individually or in the aggregate constitute a
Material Adverse Effect on the Acquired Company.
VI.4 Certificate. Purchaser shall have received a certificate of the
Chief Executive Officer of the Acquired Company, dated as of the
Closing Date, certifying as to the matters set forth in Sections
6.1 through 6.3 above. In addition, Parent shall have received
both a certificate dated as of the effective date of the
Registration Statement and a certificate dated as of the Closing
Date certifying that the covenants set forth in Section 2.3.1
hereof have been performed and that the representations set forth
in Sections 3.21 and 3.24 hereof are true and correct as of such
dates.
VI.5 Opinion of Acquired Company's Counsel. Purchaser and Parent shall
have received an opinion of counsel for the Acquired Company
substantially in the form of Exhibit 6.5.
VI.6 Tax Opinion. Purchaser and Parent shall have received an opinion
from their counsel, dated as of the date the Registration
Statement is declared effective and as of the Closing Date, to the
effect that the Merger will qualify as a reorganization pursuant
to Section 368(a) of the Tax Code, which opinion shall be
substantially in the form of Exhibit 6.6 hereto.
VI.7 Affiliates and Principal Stockholders. Purchaser and Parent shall
have received the Rule 145 Letters and the Pooling Letters from
the persons and at the times specified in Section 2.4, and the
letters referenced in Section 2.13.
VI.8 Additional Instruments. The Acquired Company shall have delivered
to Purchaser or Parent certified copies of resolutions duly
adopted by the Acquired Company's Board of Directors and
stockholders, approving the Merger and authorizing the
transactions contemplated hereby, and such other or additional
instruments, consents, waivers, approvals, endorsements and
documents as Parent and Purchaser reasonably deem to be necessary
to enable the Merger to be consummated as provided in this
Agreement. All other proceedings in connection with the Merger and
the other transactions contemplated hereby, and all instruments,
consents, waivers, approvals, endorsements and documents referred
to hereunder or otherwise incident to such transactions, shall
have been obtained and are reasonably satisfactory in form and
substance to Parent and Purchaser and their counsel, including,
without limitation, those consents, waivers and approvals referred
to in Section 2.9 hereof.
<PAGE>
VI.9 Accountants' Pooling Letters. Parent shall have received letters
from KPMG Peat Marwick LLP and Arthur Andersen LLP, dated as of
the effective date of the Registration Statement and as of the
Closing Date, in each case addressed to Parent advising it, as set
forth in Section 2.3.2 hereof, that the Merger may be accounted
for as a pooling of interests, which letters shall be
substantially in the form of Exhibits 2.3.2(A) and 2.3.2(B),
respectively.
VI.10 Accountant's Comfort Letters. Purchaser and Parent shall have
received letters from KPMG Peat Marwick LLP dated as of the
effective date of the Registration Statement and as of the Closing
Date, in each case addressed to Purchaser and Parent, containing
such matters as are customarily contained in auditors' letters
regarding the Acquired Company Information provided expressly for
inclusion in such Registration Statement, and in form and
substance reasonably satisfactory to Parent.
VI.11 Covenants Not to Compete. Purchaser shall have received executed
non-competition agreements from each of those persons listed on
Exhibit 6.11(A), with each such agreement in the form of Exhibit
6.11(B) hereto (a "Covenant Not to Compete").
VI.12 Fee Limitation. The only fees and expenses to any investment
banking firm or similar entity that will be incurred by Acquired
Company in connection with the transaction with Parent and
Purchaser will be the fees and expenses of Broadview Associates
LLC and shall not exceed $1,900,000 in the aggregate.
VI.13 Termination of Certain Agreements. Each of the Agreements
described on Exhibit 3.24 shall have been terminated.
VI.14 Certain Other Matters. The Acquired Company shall have remedied
any default or item of noncompliance with respect to Support
Software as described in Section 3.14.2(ii), and shall have
obtained the assignments of intellectual property rights described
in Section 3.14.2(iii) from all persons and entities identified on
Exhibit 3.14.2(iii) which the Acquired Company is able to locate
after utilizing its reasonable best efforts.
VII. FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED COMPANY.
-----------------------------------------------------------------------
All the obligations of the Acquired Company to consummate the Merger shall
be contingent upon and subject to the satisfaction, on or before the
Closing, of each and every one of the following conditions. The following
conditions are for the sole benefit of the Acquired Company and may be
asserted by the Acquired Company regardless of the circumstances giving
rise to any such condition and may be waived by the Acquired Company, in
whole or in part, at any time and from time to time, in the sole discretion
of the Acquired Company for purposes of consummating the transactions
contemplated herein. The failure by the Acquired
<PAGE>
Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any other right, and each right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
VII.1 Representations of Purchaser and Parent. All representations and
warranties made by Purchaser and Parent in this Agreement
(except as affected by the transactions contemplated by this
Agreement) shall be true and correct in all material respects at
the Closing Date, with the same force and effect as if such
representations and warranties had been made at and as of the
Closing Date.
VII.2 Covenants of Purchaser and Parent. Purchaser and Parent shall
have, or caused to be, performed and observed in all respects
all covenants, agreements and conditions hereof to be performed
or observed by them at or before the Closing Date.
VII.3 Certificate. The Acquired Company shall have received a
certificate of the President of each of Parent and Purchaser,
dated as of the Closing Date, certifying as to the matters set
forth in Sections 7.1 and 7.2 above.
VII.4 Opinion of Parent's and Purchaser's Counsel. The Acquired
Company shall have received an opinion of Jones, Day, Reavis &
Pogue, counsel to Parent and Purchaser, dated as of the Closing
Date, substantially in the form of Exhibit 7.4.
VII.5 Tax Opinion. The Acquired Company shall have received for the
benefit of its stockholders an opinion from its tax counsel,
dated as of the date the Registration Statement is declared
effective and as of the Closing Date, to the effect that the
Merger will qualify as a reorganization pursuant to Section
368(a) of the Tax Code, which opinion shall be substantially in
the form of Exhibit 7.5 hereto.
VIII. CLOSING.
--------
VIII.1 Time and Place of Closing. Unless another place or date is
agreed to in writing by the Acquired Company and Purchaser, the
Closing shall be held at the offices of Jones, Day, Reavis &
Pogue, 3500 One Peachtree Center, 303 Peachtree Street N.E.,
Atlanta, Georgia 30308-3242, commencing at 10:00 a.m. Eastern
Time, within two (2) business days of the last to occur of (i)
the expiration or termination of the waiting period under the
HSR Act, (ii) the Merger having been approved by the
stockholders of the Acquired Company pursuant to the Delaware
Code and (iii) the satisfaction or waiver of the other
conditions set forth in Articles V, VI and VII. (The actual date
of the Closing is referred in this Agreement as the "Closing
Date.")
VIII.2 Transactions at Closing. At the Closing, each of the following
---------------------------------------------------------------
transactions shall occur:
------------------------
<PAGE>
VIII.2.1. The Acquired Company's Performance. At the Closing, the Acquired
Company shall deliver to Purchaser and Parent, the following:
(a) copies of the consents and waivers described in Section 2.9;
(b) satisfactory evidences of the approvals described in Section
5.4;
(c) the certificates described in Section 6.4 to be delivered on the
Closing Date;
(d) certificates of compliance or certificates of good standing of
the Acquired Company and of the Subsidiaries, as of the most recent
practicable date, from the appropriate governmental authority of the
jurisdiction of their respective incorporation and any other
jurisdiction that is set forth in Exhibit 3.1 hereto;
(e) certified copies of resolutions of the Board of Directors and
stockholders of the Acquired Company approving the transactions set
forth in this Agreement;
(f) certificates of incumbency for the officers of the Acquired
Company;
(g) resignations of each trustee of each Benefit Plan;
(h) Certificate of Merger and a Plan of Merger, each in form and
content that complies with the Delaware Code, executed by the
Acquired Company;
(i) the opinion of counsel for the Acquired Company, referenced in
Section 6.5;
(j) the tax opinion described in Section 6.6;
(k) the Rule 145 Letters and Pooling Letters described in Section
2.4;
(l) the letters described in Section 2.13 hereof;
(m) the letters described in Section 2.3.2 hereof;
(n) the letters from KPMG Peat Marwick LLP to be delivered by the
Closing Date as described in Section 6.9;
(o) each of the Covenants Not to Compete fully executed and
delivered;
(p) the executed Employee Agreements described in Section 6.12; and
(q) such other evidence of the performance of all covenants and
satisfaction of all conditions required of the Acquired Company by
this Agreement, at or prior to the Closing, as Purchaser, Parent or
their counsel may reasonably require.
<PAGE>
VIII.2.2. Performance by Purchaser and Parent. At the Closing,
Purchaser or Parent, as appropriate, shall deliver to the
Acquired Company the following:
(a) the certificate described in Section 7.3;
(b) certificates of incumbency of the officers of
Purchaser and of Parent who are executing this Agreement
and the other documents contemplated hereunder;
(c) certified copies of resolutions of the Boards of
Directors of each of Purchaser and Parent (or Executive
Committees thereof) approving the transactions set forth in
this Agreement;
(d) Certificate of Merger and a Plan of Merger, each in
form and content that complies with the Delaware Code,
executed by Purchaser;
(e) the opinion of counsel for Purchaser and Parent
referenced in Section 7.4; and
(f) such other evidence of the performance of all the
covenants and satisfaction of all of the conditions
required of Purchaser and of Parent by this Agreement at or
before the Closing as the Acquired Company or its counsel
may reasonably require.
IX. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
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IX.1 Except for the covenants contained in Sections 2.1.7,
2.1.10, 2.2.2, 2.3.6, 2.13, 2.14, 2.16 and 11.5, all
representations, warranties and agreements of the parties
in this Agreement or in any instrument delivered pursuant
to this Agreement (other than the Covenants Not To Compete)
shall not survive the Closing, and thereafter no party
hereto and no officer, director or employee of any such
party shall have any liability whatsoever with respect to
any such representation, warranty or agreement except for
liabilities arising from fraud, willful misconduct or
criminal acts.
X. TERMINATION.
------------
X.1 Method of Termination. This Agreement constitutes the
binding and irrevocable agreement of the parties to
consummate the transactions contemplated hereby, the
consideration for which is (a) the covenants set forth in
Article II hereof, and (b) expenditures and obligations
incurred and to be incurred by Purchaser and Parent, on the
one hand, and by the Acquired Company, on the other hand,
in respect of this Agreement, and this Agreement may be
terminated or abandoned only as follows:
X.1.1. By the mutual consent of the Boards of Directors of the
Acquired Company and Parent, notwithstanding prior approval
by the stockholders of any or all of such corporations;
<PAGE>
X.1.2. By the Board of Directors of the Parent in accordance with
its rights under Section 10.3;
X.1.3. By the Board of Directors of the Acquired Company after
July 31, 1997, if any of the conditions set forth in
Articles V and VII hereof, to which the Acquired Company's
obligations are subject, have not been fulfilled or waived,
unless such fulfillment has been frustrated or made
impossible by any act or failure to act of it or the
Subsidiaries;
X.1.4. By Purchaser after July 31, 1997, if any of the conditions
set forth in Articles V and VI hereof, to which the
obligations of Purchaser and Parent are subject, have not
been fulfilled or waived, unless such fulfillment has been
frustrated or made impossible by any act or failure to act
of Purchaser or Parent.
X.1.5. By the Board of Directors of the Acquired Company if in the
exercise of its good faith determination, as set forth in
Section 2.11, as to its fiduciary duties to the Acquired
Company's stockholders imposed by law, the Board of
Directors of the Acquired Company decides that such
termination is required.
X.1.6. By the Board of Directors of the Acquired Company, if the
Market Value of the Parent Stock is less than $50.00 per
share.
X.2 Effect of Termination.
----------------------
X.2.1. Except as provided in Section 10.2.2, and except as
provided in the immediately succeeding sentence, in the
event of a termination of this Agreement pursuant to
Section 10.1 hereof, each party shall pay the costs and
expenses incurred by it in connection with this Agreement,
and no party (or any of its officers, directors, employees,
agents, representatives or stockholders) shall be liable to
any other party for any costs, expenses, damage or loss of
anticipated profits hereunder. In the event of any
termination of this Agreement, the parties shall retain any
and all rights attendant to a breach of any covenant,
representation or warranty made hereunder.
X.2.2. In the event this Agreement is terminated by the Acquired
Company in accordance with Section 10.1.5, or by the
Parent, Purchaser or Acquired Company in accordance with
Section 10.1.3 or 10.1.4 by reason of the failure of the
condition set forth in Section 5.4 hereof, then the
Acquired Company shall promptly pay to Purchaser (i) all
reasonable costs and expenses of Purchaser and Parent
incurred in connection with the negotiation and performance
of this Agreement including without limitation fees and
expenses of counsel, fees and expenses of independent
public accountants, printing expenses and registration fees
in an aggregate amount not to exceed seven hundred fifty
thousand dollars ($750,000) and (ii) to Purchaser a fee in
the amount of $8,800,000, provided, however, such fee shall
not be
<PAGE>
payable in the event of a termination pursuant to Section
10.1.3 or 10.1.4 by reason of a failure of the condition in
Section 5.4 hereof if within twenty (20) days of the date
hereof the stockholders of the Acquired Company identified
on Exhibit 10.2.2 hereto have executed Voting Agreements
with Purchaser in forms substantially similar to the form
heretofore provided by Purchaser to counsel for the
Acquired Company.
X.3 Risk of Loss. The Acquired Company retains all risk of
condemnation, destruction, loss or damage due to fire or
other casualty from the date of this Agreement up to the
Effective Time. If the condemnation, destruction, loss, or
damage is such that the business of the Acquired Company
and the Subsidiaries, taken as a whole, is materially
interrupted or curtailed or the assets of the Acquired
Company and the Subsidiaries, taken as a whole, are
materially affected, then Purchaser shall have the right to
terminate this Agreement.
XI. GENERAL PROVISIONS.
-------------------
XI.1 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be
delivered by hand or mailed by certified mail, return
receipt requested, first class postage prepaid, or sent by
Federal Express or similar overnight delivery service with
receipt acknowledged addressed as follows:
XI.1.1. If to the Acquired Company:
Enterprise Systems, Inc.
1400 South Wolf Road
Wheeling, Illinois 60090-6524
Attn: Glen E. Tullman
and to:
Sachnoff & Weaver, Ltd.
30 South Wacker Drive, 29th Floor
Chicago, Illinois 60606-7404
Attn: William N. Weaver, Esq.
XI.1.2. If to Purchaser or Parent:
HBO & Company
301 Perimeter Center North
Atlanta, Georgia 30346
Attn: Mr. Jay P. Gilbertson
<PAGE>
and to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
Attention: John E. Zamer, Esq.
XI.1.3. If delivered personally, the date on which a notice,
request, instruction or document is delivered shall be the
date on which such delivery is made and, if delivered by
mail or by overnight delivery service, the date on which
such notice, request, instruction or document is received
shall be the date of delivery. In the event any such
notice, request, instruction or document is mailed or
shipped by overnight delivery service to a party in
accordance with this Section 11.1 and is returned to the
sender as nondeliverable, then such notice, request,
instruction or document shall be deemed to have been
delivered or received on the fifth day following the
deposit of such notice, request, instruction or document in
the United States mails or the delivery to the overnight
delivery service.
XI.1.4. Any party hereto may change its address specified for
notices herein by designating a new address by notice in
accordance with this Section 11.1.
XI.2 Brokers. Purchaser and Parent, jointly and severally,
represent and warrant to the Acquired Company that no
broker or finder has acted for them or any entity
controlling, controlled by or under common control with
them in connection with this Agreement. The Acquired
Company represents and warrants to Purchaser and Parent
that, except for Broadview Associates LLC, no broker or
finder has acted for it or any entity controlling,
controlled by or under common control with it in connection
with this Agreement. The Acquired Company agrees to
indemnify and hold harmless Purchaser and Parent against
any fee, loss, or expense arising out of any claim by
Broadview Associates LLC, or any other broker or finder
employed or alleged to have been employed by it or any of
the Subsidiaries or any of the Acquired Company's
stockholders. The fees and expenses of Broadview Associates
LLC and any other broker or finder shall be paid by the
Acquired Company, subject to the limitations set forth in
Section 6.12 in conjunction with such other fees set forth
in Section 11.5.
XI.3 Further Assurances. Each party covenants that at any time,
and from time to time, after the Effective Time, it will
execute such additional instruments and take such actions
as may be reasonably requested by the other parties to
confirm or perfect or otherwise to carry out the intent and
purposes of this Agreement.
XI.4 Waiver. Any failure on the part of any party hereto to
comply with any of its obligations, agreements or
conditions hereunder may be waived by any other party to
whom such compliance is owed. No waiver of any provision of
this Agreement
<PAGE>
shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver
constitute a continuing waiver.
XI.5 Expenses. Except as provided in 10.2.2, all expenses
incurred by the parties hereto in connection with or
related to the authorization, preparation and execution of
this Agreement and the closing of the transactions
contemplated hereby, including, without limitation of the
generality of the foregoing, all fees and expenses of
agents, representatives, counsel and accountants employed
by any such party, shall be borne solely and entirely by
the party that has incurred the same.
XI.6 Press Releases and Disclosure. In the event that either
party proposes to issue, make or distribute any press
release, public announcement or other written publicity or
disclosure prior to the Closing Date that refers to the
transactions contemplated herein, the party proposing to
make such disclosure shall provide a copy of such
disclosure to the other parties and shall afford the other
parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such
disclosure or the portion thereof which refers to the
transactions contemplated herein prior to making such
disclosure.
XI.7 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their
respective heirs, legal representatives, executors,
administrators, successors and assigns.
XI.8 Headings. The section and other headings in this Agreement
are inserted solely as a matter of convenience and for
reference, and are not a part of this Agreement.
XI.9 Entire Agreement. This Agreement and all agreements
referenced specifically in this Agreement and executed as
required by this Agreement constitute the entire agreement
among the parties hereto and supersede and cancel any prior
agreements, representations, warranties, or communications,
whether oral or written, among the parties hereto relating
to the transactions contemplated hereby or the subject
matter herein. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated
orally, but only by an agreement in writing signed by the
party against whom or which the enforcement of such change,
waiver, discharge or termination is sought.
XI.10 Governing Law. Except to the extent the transactions
contemplated hereby are governed by the Delaware Code, this
Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia.
XI.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
XI.12 No Agreement Until Executed. This Agreement shall not
constitute or be deemed to evidence a contract or agreement
among the parties hereto unless and until
<PAGE>
executed by all parties hereto, irrespective, of
negotiations among the parties or the exchanging of drafts
of this Agreement.
XI.13 Pronouns. All pronouns used herein shall be deemed to refer
to the masculine, feminine or neuter gender as the context
requires.
XI.14 Exhibits Incorporated. All Exhibits attached hereto are an
integral part of this Agreement.
XI.15 Time of Essence. Time is of the essence in this Agreement.
<PAGE>
IN WITNESS WHEREOF, each party hereto has executed or caused this Agreement to
be executed on its behalf, all on the day and year first above written.
"PURCHASER":
HBO & COMPANY OF GEORGIA
By: /s/ Jay P. Gilbertson
---------------------
Title: Executive Vice President and Chief Financial Officer
----------------------------------------------------
"PARENT":
HBO & COMPANY
By: /s/ Jay P. Gilbertson
---------------------
Title: Executive Vice President and Chief Financial Officer
----------------------------------------------------
"ACQUIRED COMPANY":
ENTERPRISE SYSTEMS, INC.
By: /s/ Glen E. Tullman
-------------------
Title: Chief Executive Officer
-----------------------
<PAGE>
EXHIBIT 15.1
Acknowledgment Of Independent
Certified Public Accountants
Regarding Independent Auditors' Review Report
The Board of Directors
Enterprise Systems, Inc.:
With respect to the Registration Statements on Form S-8 of Enterprise Systems,
Inc. and on Form S-4 of HBO & Company, we acknowledge our awareness of the use
therein of our report dated April 22, 1997 related to our review of interim
financial information as of March 31, 1997.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
Chicago, Illinois
May 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,640
<SECURITIES> 4,166
<RECEIVABLES> 25,704
<ALLOWANCES> 860
<INVENTORY> 0
<CURRENT-ASSETS> 49,931
<PP&E> 10,150
<DEPRECIATION> 5,601
<TOTAL-ASSETS> 67,342
<CURRENT-LIABILITIES> 9,694
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 55,580
<TOTAL-LIABILITY-AND-EQUITY> 67,342
<SALES> 6,663<F1>
<TOTAL-REVENUES> 13,901
<CGS> 0
<TOTAL-COSTS> 13,289
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 246
<INCOME-PRETAX> 858
<INCOME-TAX> 356
<INCOME-CONTINUING> 502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
<FN>
<F1> Includes software and hardware
</FN>
</TABLE>
